Bilta (UK) Ltd ((in Liquidation)) and Others v SVS Securities Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Marcus Smith |
| Judgment Date | 31 March 2022 |
| Neutral Citation | [2022] EWHC 723 (Ch) |
| Docket Number | Claim No: FL-2016-000008 |
| Court | Chancery Division |
[2022] EWHC 723 (Ch)
THE HONOURABLE Mr Justice Marcus Smith
Claim No: FL-2016-000008
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)
Heard at:
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Mr Christopher Parker, QC and Andrew Westwood, QC (instructed by Enyo Law LLP) for the Claimants
Mr David Scorey, QC and Mr Laurence Emmett, QC (instructed by Greenberg Traurig LLP) for the Fifth Defendant
The First Defendant did not appear and was not represented
Hearing dates: 7 to 10 and 16 March 2022
Approved Judgment
I direct that no official note or transcription shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
| CONTENTS | ||
| A. | INTRODUCTION | Paragraph 1 |
| (1) | The proceedings against SVS, Mr Virk, Mr Fox and Deutsche Bank | Paragraph 1 |
| (2) | The proceedings against TFS and the nature of MTIC Fraud | Paragraph 6 |
| (3) | The prior and subsequent history of the proceedings | Paragraph 14 |
| (4) | Narrowing of the issues | Paragraph 21 |
| (5) | Structure of this Judgment | Paragraph 23 |
| B. | THE LIMITATION DEFENCE | Paragraph 24 |
| (1) | The defence as pleaded | Paragraph 24 |
| (2) | The relevant limitation rules | Paragraph 29 |
| (a) | Section 32 of the Limitation Act 1980 | Paragraph 29 |
| (b) | The law regarding section 32 | Paragraph 31 |
| (3) | The evidence | Paragraph 32 |
| (4) | The pleaded case on limitation and TFS's position | Paragraph 39 |
| (5) | Conclusions and analysis | Paragraph 42 |
| (a) | Conclusions | Paragraph 42 |
| (b) | Analysis regarding the “trigger” | Paragraph 44 |
| (i) | The applications on 29 September 2009 | Paragraph 44 |
| (ii) | Smallbone 1 | Paragraph 50 |
| (iii) | Sawyer 1 | Paragraph 53 |
| (iv) | Synthesis | Paragraph 55 |
| (c) | Analysis regarding the “final, necessary piece of the pleading jigsaw” | Paragraph 57 |
| (6) | Nathanael and Inline | Paragraph 66 |
| C. | SECTION 213 OF THE INSOLVENCY ACT 1986 | Paragraph 71 |
| D. | DISPOSITION | Paragraph 80 |
A. INTRODUCTION
(1) The proceedings against SVS, Mr Virk, Mr Fox and Deutsche Bank
. By a Claim Form issued on 6 July 2015, five claimants (by their liquidators) issued proceedings against various defendants. The claimants included:
(1) Bilta (UK) Limited ( Bilta).
(2) Weston Trading UK Limited ( Weston).
(3) Nathanael Eurl Limited ( Nathanael).
(4) Inline Trading Limited ( Inline).
(5) Vehement Solutions Limited ( Vehement).
The liquidators of these companies – Mr Kevin Hellard and Mr David Ingram – were also named as claimants. I shall refer to the five companies described above as the Claimants and (where necessary to refer to them) to their liquidators as the Liquidators.
. The defendants, at this stage, comprised (i) SVS Securities plc ( SVS), (ii) a former director of SVS (a Mr Kulvir Virk); (iii) a former employee of SVS (a Mr Simon Fox); and (iv) Deutsche Bank AG ( Deutsche Bank).
. The claims against SVS, Mr Virk, Mr Fox and Deutsche Bank all concerned missing trader intra-community fraud ( MTIC Fraud) which took place in the summer of 2009. The nature of MTIC Fraud is further considered below.
. The Claimants had been left with enormous VAT liabilities owing to what I shall refer to as Her Majesty's Customs and Revenue ( HMRC), although that is a name that has changed over time. In the case of all of the Claimants, HMRC was and is the primary creditor.
. The ordinary limitation period in respect of these claims will have ended by the summer of 2015. It is clear, therefore, that the claims against SVS, Mr Virk, Mr Fox and Deutsche Bank were all – just about – issued within this ordinary limitation period.
(2) The proceedings against TFS and the nature of MTIC Fraud
. On 25 August 2017, the Claimants wrote a letter before action to Tradition Financial Services Limited ( TFS) in respect of the claims that are the subject of these proceedings. Those claims, like those against SVS, Mr Virk, Mr Fox and Deutsche Bank, involved MTIC Fraud.
. MTIC Fraud exploits the fact that imports from one EU country into another are VAT-free. The most basic form of MTIC Fraud involves traders importing goods VAT-free from elsewhere in the EU, selling them within an EU country with VAT added to the sale price and so running up large liabilities to account for the VAT to national revenue authorities (here: HMRC). These importers then default on their liabilities to account for VAT, instead paying their VAT receipts away to third parties and going into insolvent liquidation.
. MTIC Fraud thus concerns a failure, on the part of the responsible company, to account for its Output VAT, which is the VAT that company must calculate and collect when it sells goods or services. Output VAT is calculated both on sales to other businesses and sales to ordinary consumers. By contrast, Input VAT is the VAT added to the price when goods or services that are liable to VAT are purchased. If the person or business that is buying the goods or services in question is registered for VAT, then the Input VAT may be claimed back from HMRC. Generally speaking, businesses registered for VAT will incur both Input and Output VAT, and the net amount will be paid to HMRC (in the case of the United Kingdom).
. Those involved in MTIC Fraud will usually seek to transact in high-value, easily transportable, products. Mobile phones, SIM cards and computer chips were popular product vehicles for MTIC Fraud in the early- to mid-2000s. The fraudsters involved tend to transact in high volume and at high speed and frequency, using back-to-back transactions between linked companies set up or acquired for the purpose. The transaction chains may also include companies that are not controlled by the fraudsters. The use of a chain of companies obscures the fraud and complicates the task of investigation.
. In these proceedings, the MTIC Fraud involved spot trading in carbon credits under the EU Emissions Trading Scheme ( EUAs). One EUA represents the right to emit one metric tonne of carbon dioxide or other specified gas. EUAs are required by so-called “installations” in energy intensive industries that emit carbon dioxide and are subject to obligations to comply with EU emissions rules. EUAs exist only in electronic form, are fungible, and can be traded almost instantly. Spot trading in EUAs within EU Member States attracted VAT in 2009. Those rules changed when the authorities realised that EUAs were being used as the products in MTIC Fraud.
. In August 2017, the Claimants proposed that TFS be joined as a party to the existing proceedings against SVS, Mr Virk, Mr Fox and Deutsche Bank, since the claims against all of the parties were – to some extent at least – related. Given the timing, TFS contended that it had a limitation defence that would be prejudiced if it was joined in this way. Although the Claimants confirmed that they would undertake not to rely on relation back beyond the date of the TFS claim form, when issued, TFS's position was that it was not open to the parties to agree not to apply certain provisions of the Limitation Act 1980. It is unnecessary to go into the correctness or otherwise of these points. It is sufficient to note that in light of TFS's position, a separate Claim Form, against TFS alone, was issued on 8 November 2017.
. The claim against TFS is based on: (i) dishonest assistance in breach of fiduciary duty by the directors of the Claimants; and (ii) participation in the fraudulent trading of the businesses of the Claimants pursuant to section 213 of the Insolvency Act 1986. The section 213 claims give rise to rather different issues than the issues which arise in relation to the dishonest assistance claims, and (as I will describe) these claims are considered separately in this Judgment.
. The dishonest assistance claims allege that through spot EUA trading carried out between May and July 2009, TFS participated in chains of transactions by which a large MTIC Fraud was perpetrated. That participation amounted to dishonest assistance by TFS in the breaches of fiduciary duty of the directors of the Claimants, which those directors owed to those companies. It will be necessary to consider the nature of the case against TFS in greater detail below.
(3) The prior and subsequent history of the proceedings
. It is unnecessary to describe in great detail the procedural history. There were a number of claims brought by the Claimants (and others) in respect of MTIC Fraud where EUAs were the relevant product in addition to those already described. These claims included claims against Citigroup Global Markets Limited ( Citi), commenced by a Claim Form dated 23 November 2015. The claims against Citi were ordered to be jointly case managed and tried together with the present proceedings by order of Newey J dated 10 April 2017.
. Following a consensual resolution, the claim against Deutsche Bank was dismissed by consent by order of Rose J dated 31 October 2017.
. As I have described, the Claim Form against TFS was issued on 8 November 2017, and by his order dated 2 May 2018, Snowden J ordered that the TFS proceedings be consolidated with the original proceedings.
. On 5 August 2019, special administrators in respect of SVS were appointed by order of the Court dated 5 August 2019. The proceedings against SVS were, accordingly, stayed, and SVS has (since that date) taken no further part in the proceedings.
. Following consensual...
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