HM Revenue and Customs v Egleton
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE BRIGGS,Mr Justice Briggs |
| Judgment Date | 19 September 2006 |
| Neutral Citation | [2006] EWHC 2313 (Ch) |
| Docket Number | Case No: 5395 OF 2006 |
| Court | Chancery Division |
| Date | 19 September 2006 |
[2006] EWHC 2313 (Ch)
The Honourable Mr Justice Briggs
Case No: 5395 OF 2006
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Peter Shaw (instructed by Howes Percival) for the Applicant.
Miss Marion Smith (instructed by Dass) for the 2 nd, 3 rd and 4 th Respondents
Hearing dates: 14 th September 2006
Approved Judgment
Mr Justice Briggs:
On 28 th July 2006 Her Majesty's Revenue & Customs ("Customs") presented a creditors' petition for the winding up of C&E Enterprises UK Limited ("C&E") based upon unpaid VAT amounting in aggregate to £35,876,065.67. That petition is due for hearing before the Companies Registrar on 20 th September 2006.
In anticipation of the presentation of that petition, Customs sought and obtained on a without notice application before Pumfrey J. freezing orders against four named respondents. The first, Clayton Egleton, was the sole director and person in control of C&E at the material time. The second, Trade Eazy Limited ("Trade Eazy") is a company which had significant dealings with C&E at the material time. The third and fourth respondents a Mr Shaheed Vali and a Mr Frakhhameed Rahman were both directors of Trade Eazy, and Mr Rahman was also a shareholder of Trade Eazy.
In bare outline, Customs' case was and is that C&E's VAT liability arose in consequence of its participation in a large scale VAT missing trader and/or carousel fraud, and that each of the respondents were in various ways improperly implicated in that fraud, with the consequence that C&E has substantial claims against each of them which would be likely to be pursued by a liquidator of C&E if it is ordered to be wound up, and that such a liquidator would also have his own claims against them, in particular under section 213 of the Insolvency Act 1986. Customs did not allege that it had any direct claims of its own against any of the respondents and, although it gave a cross undertaking in damages, Customs did not propose, still less undertake, to commence any proceedings of its own against them.
On 7 th September 2006 (the return date) Etherton J. continued the freezing orders against the respondents pending an adjournment until the first available date on or after 11 th September, expressly without prejudice to a submission then made in outline by counsel on behalf of the second, third and fourth respondents that the freezing orders should not have been made and should not be continued against them on the basis that they were made without jurisdiction or alternatively that they ought not to have been made as a matter of discretion. The matter came before me on 14 th September, and the issues as to jurisdiction and discretion were fully argued by Mr Peter Shaw on behalf of Customs and by Miss Marion Smith on behalf of the second, third and fourth respondents. The first respondent was not present or represented, but the further continuation of the freezing order as against him raises similar issues to those which have been argued on behalf of the others.
At the conclusion of the hearing I indicated that I would deliver a reserved judgment, notwithstanding the urgency of the matter, because of the important points of principle and practice disclosed by the arguments presented.
This case is the first, so far as I or counsel are aware, in which the petitioner in a creditors' winding up petition has obtained, and sought to have continued in the face of reasoned opposition, freezing orders against persons whose only alleged liabilities are to the company the subject matter of the petition, or to the liquidator under statutory claims arising only in the event of liquidation. The case therefore necessarily tests in a particular context the precise boundaries of the jurisdiction to grant freezing orders against persons who are not defendants to the claim in the context of which the orders are sought, persons who may for convenience be classified as third parties. The particular context, namely that of pending creditors' winding up proceedings, is not merely one in which such freezing orders have not previously been obtained, but also one in which there exists specific statutory measures designed to protect or preserve the effectiveness of the process to be carried out pursuant to a winding up order including provisions for the invalidation of transactions entered into after the presentation and/or advertisement of the petition, and provision for the appointment of a provisional liquidator pending the making of a winding up order with duties to get in and to preserve (but not to distribute) the subject company's assets, including its legal claims, pending the making of a compulsory order and the appointment of a liquidator.
It is necessary to summarise Customs' allegations, but only in bare outline, because no part of Miss Smith's submissions invited the court to consider whether, upon a detailed examination of the affidavit evidence, a sufficiently arguable case of liability on the part of the respondents to C&E or the liquidator, or of a propensity to dissipate assets, was disclosed. Sensibly in my judgment, Miss Smith confined her submissions to jurisdiction and to other matters going to discretion, principally the existence of an established alternative means for the preservation of the effectiveness of a winding up order once made.
In outline therefore Customs' case is that during a very short period between 14 th March and 3 rd April 2006, C&E undertook an enormously large series of purchases of electrical goods from suppliers in other EU States pursuant to transactions effectively zero rated for VAT purposes and simultaneous re-sales in the UK on terms which obliged C&E to charge and collect VAT from its customers, and account for it to Customs. It is alleged that C&E and those visibly (and covertly) behind it and responsible for its affairs had no intention of either collecting or paying the relevant VAT to Customs, and in particular (and this is a hallmark of missing trader or carousel fraud) arranged for its customers to pay for the goods to third parties rather than to C&E, thereby ensuring that on the inevitable demise of C&E, there would be no assets available for payment of VAT to Customs.
Customs then alleged, on substantial grounds which have of course yet to be tested, that each of the respondents was aware of and participated in the intended fraud on Customs and, more importantly for present purposes, thereby all incurred liabilities to C&E and its liquidator. In the case of Mr Egelton it is said that he acted in breach of trust and/or fiduciary duty to C&E by arranging or permitting the purchase and sale transactions to be carried out in the manner adopted. As to the remaining respondents it is said that they each dishonestly assisted Mr Egleton in his breach of duty and were his co-conspirators. As against Trade Eazy it is also alleged that insofar as it failed to make direct payment to C&E for its purchases, those debts remain outstanding. Finally it is alleged that a liquidator would be entitled under section 213 of the Insolvency Act 1986 to pursue fraudulent trading claims against all of the respondents.
I turn to the legal principles regulating the extent of the court's jurisdiction to grant freezing orders. They are a sub-set of the principles governing the court's jurisdiction to grant interim relief generally, conferred by section 37(1) of the Supreme Court Act 1981, "in all cases in which it appears to the court to be just and convenient to do so".
The purpose of a freezing order which, by contrast with some injunctions, is essentially interim in its nature, is, in the words of Lord Diplock in Siskina(Owners) –v—Disdos S.A. [1979] 1 AC 210 at 253D:
"…to ensure that there will be a fund available within the jurisdiction to meet any judgment obtained by a Plaintiff in the High Court against a Defendant who does not reside within the jurisdiction and has no place of business here."
Subsequent cases have made it clear that the purpose extends also in relation to defendants resident or carrying on business within the jurisdiction. In the words of Aikens J. in C Inc. –v—L [2001] 2 Lloyds Law Reports 459 at 467, the purpose "remains the protection of assets so as to provide a fund to meet a judgment obtained by the claimant in the English Courts". More generally, its purpose is so that the court can "ensure the effective enforcement of its orders": per Sir Thomas Bingham MR in Mercantile Group (Europe) AG –v—Aiyela [1994] QB 366 at page 377E.
Although in the overwhelming majority of cases freezing orders are sought and obtained against the very defendants from whom the claimant seeks monetary compensation in his existing or anticipated proceedings, it is now well established that such orders may also be made against persons in relation to whom the claimant asserts no cause of action and seeks no money judgment, but in relation to whom there is an arguable case that assets held in their name or under their control are in truth beneficially owned by the defendant against whom the claim is made: see TSB Private Bank International S.A. –v—Chabra [1992] 1 WLR 231, and the other cases cited in paragraph 37 of the judgment of Aikens J. in C Inc. –v—L (supra).
The question acutely raised in C Inc. –v—L was whether the jurisdiction to make freezing orders against third parties goes further than that established in the Chabra line of cases, and if so, subject to...
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