Tradition Financial Services Ltd v Bilta (UK) Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Stuart-Smith,Lady Justice Falk |
| Judgment Date | 10 February 2023 |
| Neutral Citation | [2023] EWCA Civ 112 |
| Docket Number | Case No: CA-2022-001272 / 001280 |
| Court | Court of Appeal (Civil Division) |
[2023] EWCA Civ 112
Lord Justice Lewison
Lord Justice Stuart-Smith
and
Lady Justice Falk
Case No: CA-2022-001272 / 001280
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES CHANCERY
DIVISION, FINANCIAL LIST
The Hon Mr Justice Marcus Smith
[2022] EWHC 723 (Ch); [2022] EWHC 1431 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
David Scorey KC and Laurence Emmett KC (instructed by Greenberg Traurig LLP) for the Appellant
Christopher Parker KC and Andrew Westwood KC (instructed by Enyo Law LLP) for the Respondent
Hearing dates: 26 & 27/01/2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 10.02.2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
There are three issues raised on this appeal from Marcus Smith J:
i) The class of persons liable where the business of a company in liquidation has been carried on for fraudulent purposes.
ii) The scope of the deeming provisions that apply when a dissolved company is restored to the register.
iii) Whether the judge was entitled to make the costs order that he did.
The judge's judgment on the substantive issues is at [2022] EWHC 723 (Ch); [2022] BCC 833. His judgment on costs is at [2022] EWHC 1431 (Ch).
The facts: an overview
I can take the main underlying facts from the judge's substantive judgment.
By a claim form issued on 6 July 2015, the following five claimants (by their liquidators) issued proceedings against various defendants:
i) Bilta (UK) Ltd (“Bilta”).
ii) Weston Trading UK Ltd (“Weston”).
iii) Nathanael Eurl Ltd (“Nathanael”).
iv) Vehement Solutions Ltd (“Vehement”).
v) Inline Trading Ltd (“Inline”).
The liquidators of these companies (Mr Kevin Hellard and Mr David Ingram in respect of Bilta, Weston, Nathanael and Inline, and Mr Kevin Hellard and Mr Ian Richardson in respect of Vehement) were also named as claimants.
The defendants, at that stage, comprised (i) SVS Securities plc (“SVS”), (ii) a former director of SVS (Mr Virk); (iii) a former employee of SVS (Mr 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.
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. 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 a company must calculate and collect when it supplies goods or services. Output VAT is calculated both on supplies to other businesses and supplies 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.
As a result of the MTIC Fraud, the claimants were left with enormous VAT liabilities owing to HMRC. In the case of all of the claimants, HMRC were and are the primary creditor.
The ordinary limitation period in respect of these claims ended by the summer of 2015. The claims against SVS, Mr Virk, Mr Fox and Deutsche Bank were all issued just within the ordinary limitation period. We are no longer concerned with those claims.
On 8 November 2017 the claimants issued a separate claim form against Tradition Financial Services Ltd (“TFS”). The claims against TFS were: (i) claims by the companies themselves alleging TFS's dishonest assistance in the breach of fiduciary duty by the directors of the claimants; and (ii) claims by the liquidators alleging participation by TFS in the fraudulent trading of the businesses of the claimant companies pursuant to section 213 of the Insolvency Act 1986.
The dishonest assistance claims alleged 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.
As a consequence of a partial settlement agreement between the claimants and TFS, there were two issues for the judge to decide:
i) Whether, as TFS alleged, the claims in dishonest assistance were statute barred;
ii) Whether TFS were within the scope of section 213 of the Insolvency Act 1986.
On this first of those questions, the judge held that the claims against TFS were indeed statute barred. Although the claimants had relied on section 32 of the Limitation Act 1980 (which postpones the running of time where, in the case of an action based on the defendant's fraud, the claimant could not have discovered the fraud with reasonable diligence), the judge found against all of the claimants on the facts. On the second of those questions, the judge held that TFS were within the scope of section 213. The claims brought by the liquidators of Nathanael and Inline therefore succeeded under that section; but the claims by the liquidators of the other claimants did not because they were statute barred. Accordingly, the claims brought by Bilta, Weston and Vehement (and their liquidators) failed completely; and there is no appeal in relation to their claims. The claimants appeal against the first of the judge's conclusions in relation to Nathanael and Inline; and TFS cross-appeals against the second. We heard argument on these two issues in reverse order.
The costs appeal is, to a large extent, contingent on the outcome of the two substantive issues.
The claim under section 213
Claims under section 213 of the Insolvency Act 1986 were brought by the liquidators of all five companies.
The judge did not make (and was not asked to make) any findings of fact about TFS's precise role. The question that was placed before him under the terms of a consent order of 21 February 2022 was whether “on the facts pleaded” the claimants were entitled to the declarations claimed under section 213. The “facts pleaded” referred to the facts pleaded by the claimants, even though many of those alleged facts were disputed by TFS. Since the agreed issue referred to “the facts pleaded” (by the claimants), before embarking on a consideration of the law, I should set out the assumed facts.
The role of TFS on the assumed facts
In brief the assumed facts were as follows. The five claimant companies all became insolvent owing sums to HMRC in respect of VAT. They were involved in the MTIC Fraud described by the judge, either as defaulters (Nathanael and Inline) or because they took part in deal chains that led to defaulters (i.e. chains that led to Bilta, Weston or Vehement). SVS bought EUAs on a back-to-back basis for those companies.
TFS brokered deals on behalf of companies (i.e. its clients) that dealt with SVS on a back-to-back basis. TFS's role in brokering a deal was to find a counterparty and negotiate the terms on which that counterparty was prepared to sell EUAs to or buy EUAs from the client company via SVS. TFS was paid brokerage by volume traded.
TFS participated in sales by SVS in the following ways. First, in the case of some of the deals to which the claim related, TFS introduced SVS to its overseas suppliers and liaised between SVS and the overseas supplier for the purpose of informing buyer and seller of the price and amount in which each was willing to trade. Second, it introduced Nathanael and Inline to SVS. That was a fact relevant to only some of the EUA trades to which the claim related. Third, for those clients introduced to SVS, TFS liaised between those companies and SVS for the purpose of informing SVS of the price at which they were willing to sell...
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...powerful reason for not doing so.” 111 More recently, in Bilta (UK) Ltd (in liquidation) and others v Tradition Financial Services Ltd [2023] EWCA Civ 112, Lewison LJ (giving the judgment of the Court of Appeal) said (at [106]) that the first instance judge “correctly said that there was n......