Bilta (UK) Ltd ((in Liquidation)) & Others v Tradition Financial Services Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Nugee,Lord Justice Peter Jackson,Lord Justice David Richards |
| Judgment Date | 22 February 2021 |
| Neutral Citation | [2021] EWCA Civ 221 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2021/0077 |
| Date | 22 February 2021 |
[2021] EWCA Civ 221
Lord Justice David Richards
Lord Justice Peter Jackson
and
Lord Justice Nugee
Case No: A3/2021/0077
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)
Marcus Smith J
Royal Courts of Justice
Strand, London, WC2A 2LL
David Scorey QC and Laurence Emmett (instructed by Greenberg Traurig LLP) for the Appellant
Christopher Parker QC and Andrew Westwood (instructed by Enyo Law LLP) for the Respondents
Hearing date: 19 January 2021
Approved Judgment
Introduction
This is an appeal by the only active Defendant, Tradition Financial Services Ltd ( “TFS”), against an Order of Marcus Smith J ( “the Judge”) on 11 January 2021 dismissing TFS's application for an adjournment of the trial of the action, which was due to commence before him on 25 January, for the reasons given in his judgment handed down that day at [2021] EWHC 38 (Ch) ( “the Judgment” or “Jmt”). The Judge refused permission to appeal for reasons given in a ruling on the same day ( “the PTA Ruling” or “PTA”). Permission was granted by Lewison LJ on 14 January.
The appeal is essentially on the ground that it was unfair for the trial to go ahead in circumstances where an important witness for TFS who was accused of dishonesty was unable to attend trial to give live oral evidence for bona fide medical reasons, but there was every reason to think that she would be able to attend if the adjournment were granted.
We heard the appeal on an expedited basis on 19 January, and at the conclusion of the hearing indicated that we would allow the appeal for reasons to be given later. This judgment gives my reasons for agreeing to the appeal being allowed.
Background
The action is brought by 5 companies now in liquidation and their respective joint liquidators. TFS is the 5 th Defendant, but the claims against the other defendants have either been resolved by agreement, or, in the case of the 1 st Defendant SVS Securities plc ( “SVS”), have been stayed due to SVS entering administration, and the action is therefore now only proceeding against TFS.
The claims arise out of the spot trading of carbon credits known as European Union Emissions Trading Allowances ( “EUAs”) over a period between May and July 2009. The allegation is that this trading was part of a large-scale VAT fraud of the type known as “missing trader intra-community” ( “MTIC”) fraud. There have been numerous descriptions of MTIC fraud in reported cases: for a recent brief description see Bilta (UK) Ltd v Nat West Markets plc [2020] EWHC 546 (Ch) (a similar claim concerned with spot trading of EUAs in the same period) at [12] per Snowden J. It is not necessary for the purposes of this appeal to add yet another description; all that one needs to know is that an MTIC fraud will involve the fraudsters dishonestly arranging matters so that one or more traders are deliberately left with liabilities for VAT which they cannot discharge. In the present case the claimant companies are said to have effectively played the role of “importers”, to have failed to account to HMRC for VAT, and to have gone into insolvent liquidation owing large VAT liabilities.
TFS was not itself one of the traders; it was a broker. But it is admitted in its Defence that SVS was one of its clients and that it acted as a “name-passing broker” in respect of certain transactions for the purchase of EUAs by SVS from various sellers, including two of the claimant companies, and liaised between SVS and the sellers for the purpose of informing them of the price and amount at which each was willing to trade.
The case against TFS is pleaded in two ways. The first, brought by the companies in liquidation, is a claim in dishonest assistance. The basis of the claim is that the directors of the claimant companies were in breach of their fiduciary duties by causing their respective companies to incur VAT liabilities and arranging their affairs so that they could not discharge them; that by introducing the sellers to SVS and liaising between them, TFS assisted in these breaches of duty; that TFS acted dishonestly in doing so; and that it is therefore liable in equity to compensate the companies for the losses sustained by them, being the amount of their liability to HMRC for VAT on the relevant transactions. The amounts claimed are substantial, the total being over £22m.
The second way in which the claim is put is a claim by the liquidators of each company under s. 213 of the Insolvency Act 1986 for fraudulent trading. The factual basis of this claim is much the same, namely that the directors of each company carried on its business with intent to defraud creditors or for a fraudulent purpose, and that TFS was knowingly party to the fraudulent trading. The loss claimed is the same. For the purposes of this appeal it does not add anything material to the analysis and it is not necessary to refer to it, and I will refer to the claims as if they were simply claims for dishonest assistance.
Although TFS makes no admissions as to the fraud, and other points are taken in its Defence (such as whether what TFS did amounted to assistance in the fraud alleged, and a limitation point), a substantial part of its Defence is devoted to a denial that it acted dishonestly, and the question whether it did or did not is likely to be a central issue, or as the Judge put it to “loom large”, at trial (Jmt at [4]). Where dishonesty is alleged, the role of the fact-finder at trial is firstly to identify the actual subjective state of mind of a defendant and then to test that against an objective test of whether that is honest or not: Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67 at [74] per Lord Hughes JSC. TFS is of course a corporate body that can only act through individuals, and so it will be necessary for the Claimants to establish the requisite dishonesty on the part of one or more relevant individuals; the Court will therefore be required to make findings as to their subjective states of mind.
The pleaded claim makes allegations of dishonesty against the following individuals who were employees of TFS at the relevant time:
(i) Mr Luca Bertali, a senior broker.
(ii) Mr Darren Gurner, Mr Amit Oza and Mr Chris Kemper, who were brokers.
(iii) Ms Lucy Mortimer, who was a manager. She was head of the desk responsible for the EUA trading, and the individual brokers reported to her.
(iv) Mr Mike Anderson who was Head of Energy. Ms Mortimer reported to him.
(v) Mr Peter Weston, who was TFS's Compliance Officer.
These claims are pleaded in great detail, but the essential allegation is that, given what they knew, the individuals would have been aware that the nature and pattern of the EUA trading was suspicious and called for proper consideration and inquiry whether it was part of or connected with a VAT fraud, but that they failed to seek any explanation and wilfully shut their eyes to the obvious risk that it was. There are also allegations, including against Ms Mortimer and Mr Weston, in connection with the onboarding processes, such as Know Your Client checks, for clients. The allegations of dishonesty are all denied in TFS's Defence, often in considerable detail.
The Claimants' case is that the dishonesty of these individuals is to be attributed to TFS, or alternatively that TFS is vicariously liable for their wrongful acts. The principle that if any individual acted dishonestly with the ostensible authority of TFS, his or her dishonesty is to be attributed to TFS is not disputed; nor is it disputed that TFS would be vicariously liable for any wrongful acts committed by an individual which had a close connection with their employment.
There is a long history to the proceedings which can be summarised quite briefly. A claim form was initially issued in 2015, but at that stage TFS was not joined as defendant. A separate claim was issued against TFS in November 2017, and consolidated with the previous claim by order of Snowden J in May 2018. Pleadings as between the Claimants and TFS were closed by July 2018. Trial was originally listed for March 2020, which was subsequently pushed back to a 5-week window commencing on 21 April 2020. On 2 April 2020 however TFS applied for an adjournment of the trial; we were told that this was in the immediate aftermath of the first Covid lockdown and based on practical difficulties for all witnesses that could not be overcome at the time. The Claimants consented to the adjournment, and it was re-fixed, pursuant to an order of the Judge, to commence on 25 January 2021.
The expected evidence at trial
It is helpful to give a brief account of the evidence that was expected to be called at trial.
The Claimants' factual witnesses are two of the liquidators, one of whom covers the underlying fraud, and the other of whom addresses the liquidators' investigations in the context of the limitation issue. Neither therefore directly addresses the question of TFS's dishonesty. To establish this the Claimants rely heavily on recordings of telephone conversations at the time of the trading, and other matters that are documented. We have seen the Claimants' very detailed written opening for trial, the bulk of which consists of a day-by-day account of the transcripts of the relevant recordings, and the inferences that they say can be drawn from them.
TFS served factual witness statements for trial from Mr Bertali, Ms Mortimer, Mr Anderson and Mr Weston, all of whom it at that stage intended to call to give oral evidence.
There are also experts who are due to give evidence, one called by the Claimants on the carbon market at the...
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