Customs and Excise v Arena Corporation Ltd

The documents in this case show that on May 14, 2001 Customs confirmed to Kevin at LBV that SERIO was a warehouse authorised to receive duty suspended goods. On October 22, 2001 he asked Customs to confirm this again. By a fax dated October 23, 2001 (the date on which the SERIO consignment was sent) Customs informed Kevin at LBV that SERIO was not an authorised warehouse, because although it was on the SEED database, it had a different trader number and address. On the following day (October 24, 2001), however, Customs confirmed to Kevin that SERIO was authorised to receive excise duty suspended goods. But on October 29, 2001 Customs informed him that, notwithstanding its previous communication, goods should no longer be sent to SERIO.

Customs have produced statements by officials of the Bergamo office of Italian Customs. The effect of the evidence is that SERIO had a store available for a few months in the Telamonte district of Cologgno al Serio. It was licensed to operate as a bonded warehouse between September 2000 and June 2001, during which period two consignments arrived at or were despatched from SERIO, one from Ireland and the other from Greece. Italian Customs inspected the warehouse on June 22, 2001 and found that it was no longer available to SERIO, and that it was closed. The licence was therefore revoked on June 29, 2001. All AADs purportedly issued and stamped after June 29, 2001 are therefore false, and the Mr Ricci who purported to sign the Italian Customs’ stamp on the AAD is not a person known to Italian Customs.

The evidence for Customs with regard to TIN consists of statements concerning discussions with Belgian Customs’ officers (and their statements), particularly Mr Roothaert, who manages a team which controls bonded warehouses, and Mr Bartel, a senior customs investigator and Mr Roothaert’s supervisor.

The evidence is that TIN started trading as a bonded warehouse on November 18, 2001 and had its licence removed on May 8, 2002. Customs claim (on the basis of evidence from Belgian customs) that during the time of its operation only 28 genuine consignments came in and only 25 left. It was a small warehouse, holding about 12 lorry loads, all of which had to be unloaded in the street and it was not possible to transfer a load from one lorry to another without being seen. The warehouse did not have any full-time personnel on the premises, and it was only opened up when it received a fax saying that a lorry was arriving or that a load needed to be sent out. The Belgian authorities kept the warehouse under continuous surveillance, and went there several times a week. Monthly stock checks were taken, and Belgian Customs required notification of arrivals at and departures from TIN.

There is no physical or documentary evidence of the arrival of the relevant consignments at TIN, and Belgian Customs are satisfied that they did not arrive at TIN. None of the relevant consignments were ever found in stock at TIN, and there is no record of any of them leaving TIN. Belgian Customs received no notification in relation to any of the consignments, and the TIN records which the provisional liquidator has obtained do not contain any reference to the relevant AADs. None of the relevant AADs were found at TIN, and none were found at Belgian Customs, and Mr Roothaert considers that the AADs are false. The relevant AADs, where stamped, bear one of two types of stamp. Nine bear a black stamp which resembles the true TIN stamp, and seven bear a blue stamp which is different in colour and typeface (and in the course of the hearing it became apparent that in addition the blue stamp contains an error in the bank account number). There is no trace of the blue stamp in the TIN warehouse, and the TIN employees say that there was no such stamp. Mr Bartel telephoned the shop which made the TIN stamp, and it confirmed that it had only ever made one stamp. The effect of the evidence is that a genuine TIN stamp may have been put on some of the AADs, and a forged stamp on the others.

There was an employee of TIN called Jon van Houdt, and several communications between Mr Schroeder and TIN are addressed to "Jon" or "John." The evidence of the provisional liquidator is that he was under investigation by Belgian police and that his whereabouts were unknown.

Some of the drivers have been interviewed by Customs and said that they delivered consignments to TIN, including some of the assessed consignments, and I shall elaborate on this below.

The only document emanating from Celers is a fax from "Joe Grima" under Celers letterhead, showing the following address: Maroushka flt No. 9, Triq Il Ghabex, St Pauls Bay, Malta.

Mr Schroeder says that he had some contact with Mr Grima in January 2002, and the telephone records confirm that there were two telephone calls on January 23 and January 24, 2002 from Arena’s number to the telephone number shown on Celers’ letterhead, and that Arena’s invoices were sent to the fax number shown on Celers, letterhead. There are some TIN documents showing references to Celers, and TIN’s telephone records show two telephone calls from TIN to the Celers number in January and April 2002.

But no trace of Mr Grima has emerged. The evidence is that until late 2001 the flat was occupied by an Englishman, a Mr David Rind, who now lives in sheltered accommodation in England. When he left, its occupancy appears to have changed to a man calling himself Peter Mario White, who was the tenant of the flat. The passport he showed to the leasing agency which let the property to him was not genuine, and was originally issued to a Stephen John Wilson. The landlord for Flat 9 is Jesmond Schiberras, who (according to Customs) denies all knowledge of Celers.

According to Arena and Mr Schroeder, the purchaser in the consignment sent to SERIO was Euronet srl. The papers contain what purports to be a fax order from Euronet srl to Arena dated October 18, 2001. The letterhead gives (in English) a head office address as Bussolengo(Verona) Italy, and the fax is shown as having been transmitted from a fax machine in a French speaking country (perhaps Belgium). The person sending the fax is said to be one Antonio Pallante.

Mr Schroeder’s evidence with regard to Euronet is that in the course of these proceedings he called its telephone number and was put through to a business centre which provides office space, which confirmed that it was registered at the business centre between April and October 2001.

Mr Paul Judd is a business associate of Mr Schroeder. Arena had a business relationship with Mr Judd’s companies, Ampleaward and Award Drinks.

According to Mr Schroeder, payment for the consignments was made "in cash (Pounds Sterling) in the UK by a smart-looking Indian gentleman wearing a turban." As he was in Denmark and Arena did not have any place of establishment or office in the United Kingdom, payment was received on Arena’s behalf by Mr Judd who Mr Schroeder telephoned when a payment was expected. Mr Judd would check the amount and confirm receipt to Mr Schroeder of the correct amount. Mr Judd would then pay the sums into his company account in the United Kingdom and then remit the sums to Arena’s account in Belgium, or for payment of amounts outstanding from Arena to suppliers in the United Kingdom, or the money would be used to discharge amounts owed to Mr Judd’s companies.

Mr Judd has produced ledger entries showing payments received by him on behalf of Arena for the relevant period, and the provisional liquidator has done some exercises on the figures, to which I shall refer. Mr Judd has confirmed both to Customs and to Mr Schroeder’s solicitor that normally cash received was banked the same day, unless it was received after about 3 pm, when it would be banked the following day.

The SERIO consignment of 3,300 cases of Bacardi rum was the first in time. As I have said, the fax order from Euronet srl is dated October 18, 2001. By a fax of October 22, 2001 Arena gave instructions to Kevin at LBV to arrange transport of 3,300 cases of Bacardi to SERIO for the account of Euronet srl. The AAD is dated October 23, 2001. It shows the consignor as LBV and the consignee as SERIO account Euronet srl, and the transporter as LBV via Shelley Transport, with the date of despatch of October 23. The AAD contains a receipt and has an Italian Customs’ stamp purporting to be that of Ing Ricci.

I have already said that the Italian Customs have confirmed that the Italian Customs stamp is a forgery, and there is no such person as Mr Ricci with the Bergamo Customs. It is accordingly plain that the AAD is false since SERIO was unauthorised at that time, and the evidence is that there is no such person as Mr Ricci. According to Customs (and there is no evidence to the contrary), there is no evidence of any contemporaneous telephone or fax contact between Arena and Euronet or SERIO.

All of the other consignments were purportedly to TIN. The next consignment in time is what is described in the papers as Consignment 1. This was a consignment of 1,664 cases of Grants Vodka. The dates in relation to this consignment are important:

On January 14, 2002 Mr Schroeder, on behalf of Arena, instructed Danny Barry, of Loendersloot, to arrange transport of the vodka to LBV.

On January 22, 2002 Mr Schroeder instructed Kevin at LBV to arrange transport of the vodka to TIN.

On January 23, 2002 a fax purporting to be from Joe Grima of Celers asked Arena to supply best under-bond prices for its beers, spirits and wines, UK labels, full loads only.

The AAD and the CMR are both dated January 24, 2002, and both indicate the date of despatch as January 24, 2002.

On Thursday, January 24, 2002 Arena invoiced Celers for the Grants Vodka in the amount of £15,392. The invoice indicates the bank account for payment as Artesia Bank NV in Antwerp. Fax records indicate that the invoice was sent to Celers at 16:24.

Also on January 24, 2002 Arena sent a fax to Jon at TIN asking him to release the vodka to "CELERS – MALTA." Fax records indicate that the release authorisation was sent to TIN at 16:59.

The next in time were what are described as Consignments 2 to 4, consisting of cases of Bacardi, Smirnoff Vodka, and Teachers Whisky:

On January 14, 2002 in the same fax as that dealing with Consignment 1 (Grants Vodka), Mr Schroeder asked Mr Barry of Loendersloot "as second container please load" the Bacardi, Smirnoff and Teachers for LBV.

On January 23, 2002 Mr Schroeder instructed Kevin at LBV "upon safe arrival" of the Grants Vodka at TIN to "please proceed with delivery of next load of" the Bacardi, Smirnoff and Teachers to TIN.

On January 24, 2002 Arena invoiced Celers for £55,791 (again indicating payment at Artesia Bank in Antwerp).

By fax on January 24, 2002 Arena authorised Jon at TIN to release the Bacardi, Smirnoff and Teachers to Celers.

The AAD indicates the date of despatch as January 25, 2002 as does the CMR. The CMR indicates the intended date of delivery as January 25, 2002.

The total amount of the invoices for consignments 1 to 4 was £71,183. Among the documents in this case are letters from Mr Schroeder to his solicitors on September 27, 2002 confirming that the goods in consignments 1 to 4 (and 5) were released only after receipt of payment. The records produced by Mr Judd show that he did not receive cash by Thursday, January 24, 2002 (the date when the instruction to release the goods in consignments 1 to 4 is dated). His bank statements show that on Monday, January 28, 2002 £69,140 was credited to his account in cash amounts of £600; £4,540; £14,000; £25,000; and £25,000. Mr Judd said that he banked large amounts in sums of £25,000, and so the three larger sums may represent a cash payment of £64,000. I deal below with the evidence of the paying-in slips.

Consignment 5 was a consignment of Whyte & Mackay whisky. On January 29, 2002 Mr Schroeder instructed Kevin at LBV to arrange transport for 1,728 cases of Whyte & MacKay for his account at TIN. An invoice was issued to Celers on the same day for £48,384 (again showing Artesia Bank as the vehicle for payment). The AAD and the CMR are dated January 31. There is no written instruction to TIN to release the products, but according to Mr Schroeder’s note to his solicitors of September 27, 2002 the goods were released by telephone instruction after payment. According to the telephone records produced by Customs, there is no record of any telephone call from Arena to TIN, and there is no record of any fax or telephone call from TIN to Arena after January 22, 2002 (when there was one telephone call and one fax transmission) until April 2002 (when there was a telephone call from TIN to Arena).

In relation to the other consignments, there is no evidence concerning the alleged date of release of the goods to Celers. Consignments 16 to 19 came from Rangefield Import Export Ltd, although Kevin at LBV was asked by Mr Schroeder to arrange the transport. In each of these cases, and in the case of the other remaining consignments there is no written release instruction, and for the reasons given above Customs’ case is that according to the telephone and fax records, there was no telephone or fax contact at all between Arena and TIN in the relevant period.

An analysis of the payments received by Mr Judd for Arena shows (a) in the period from January 24, 2002 to February 25, 2002, Arena invoiced Celers for £803,253 of goods; (b) between January 24 (on Mr Schroeder’s case) or January 28, 2002 (on Customs’ case) and March 22, 2002 Mr Judd received £802,380 in cash for Arena; (c) there is no correspondence between the receipts and the amounts of the invoices; (d) on any view Arena was extending considerable credit to Celers – Customs say that by February 5, 2002 it reached about £280,000. On Mr Schroeder’s own figures by that date it was in excess of £40,000.

For reasons I shall develop later it is important to take the evidence chronologically as it developed in these proceedings.

The initial evidence from Customs on the complicity of Arena was contained in the witness statement of Ms Marston, an officer in the Civil Asset Recovery Team, of December 4, 2002 in support of the application for the appointment of a provisional liquidator and (if a provisional liquidator were appointed) for a freezing injunction on the application of Arena. She concentrated on (a) the non-arrival of the goods at TIN; (b) Arena’s instructions to LBV and Rangefield; and (c) Mr Schroeder’s alleged bad character (use of aliases, involvement in money laundering and cigarette smuggling). Mr Schroeder answered the allegations on his alleged bad character (and it was these allegations which played an important part in Mr Alan Boyle QC’s judgment that Customs had been guilty of material non-disclosure) in his witness statement of January 16, 2003. On the substance of the matter the thrust of his witness statement was that the goods had arrived at TIN and that if there had been any diversion it occurred thereafter.

In that witness statement his account of his method of trading was that a typical transaction for Arena involving the movement of a consignment of goods from a bonded warehouse in the UK to a bonded warehouse in Europe would be arranged as follows:

A customer would contact him with details of the bonded goods he wished to purchase and the warehouse to which the goods were to be consigned. Generally speaking such customers would already be known to Mr Schroeder, although on occasion he would get orders from new customers. These new customers had usually been given the name of Arena through existing customers or other brokers. If a new customer had been recommended by someone he knew and trusted he would not carry out any particular checks. The business exists substantially on trust and existing relationships and he believed that his contacts would only introduce genuine customers to him.

The contact would usually be made by telephone, but sometimes by fax.

Generally, Arena would have to purchase the goods to satisfy the particular request. Arena would receive lists of bonded goods on offer from other traders so he would know what goods were available in the market.

Once Arena had sourced the goods required he would contact the warehouse where the goods were kept and instruct the warehouse keeper to despatch the goods to the required destination. Transport for the consignment normally would be arranged by the warehouse. In relation to the UK warehouses relevant to this matter, namely LBV and Rangefield, he knew that these warehouses mostly used Seabrooks as the transport company. On occasion he would instruct Seabrooks directly to transport the goods. He was not aware that the transport might be sub-contracted by Seabrooks or the warehouse and he did not have contact with the transport companies or the hauliers used.

In relation to the consignee warehouse, if Arena did not already have a relationship with them then, prior to instructing the warehouse of despatch, he would arrange for an account to be opened if he wanted to hold the goods for Arena’s account prior to release.

If Arena already had an account open with the consignee warehouse then he would generally not have any contact with this warehouse prior to despatch but would expect that the consignment would be booked in by the warehouse of despatch (who were responsible for organising transport).

Once the goods arrived at the consignee warehouse they would be held for the account of Arena until payment was received for the goods. Once he had received confirmation that payment had been made, he would contact the consignee warehouse to authorise release of the goods. Payment in this trade would often be made in cash, but sometimes by TT transfer. The growth of the cash-and-carry business in Calais (where many of the businesses took cash payments in pounds sterling) in which Arena was involved meant that cash was often the method of payment.

Mr Schroeder’s account in that witness statement of his dealings with SERIO and TIN was as follows:

In about April/May 2001 AJ Gill, from one of Arena’s existing customers, A & J Imports & Exports Ltd, told Mr Schroeder that he had a client with him who could provide some business for Arena. He then passed Mr Schroeder to this contact a man called Tony, who told him that he had clients who wanted to buy spirits under bond and that these clients were good for payment.

Some time later Tony telephoned Mr Schroeder again and told him that his clients were a company called Euronet Srl. Euronet made their first order shortly after this time and the goods purchased were released from Arena’s account at Schenker in Dunkirk to Euronet.

Later transactions between Euronet and Arena took place ex-bond EDW, Wemille, a warehouse where Arena opened an account in June 2001. For these consignments the goods were simply released by Arena under bond and Euronet then arranged their own collection and delivery.

Around August 2001 Tony suggested that Arena should open an account at LBV. Mr Schroeder did this as it was from LBV that some consignments of goods were delivered to SERIO, one of which is an assessed consignment.

Later, Tony told Mr Schroeder that he had a new client, a Maltese company called Celers, which was interested in purchasing alcoholic goods in bond from the TIN warehouse in Belgium where they bonded, and that Mr Schroeder should open an account at this warehouse to deliver there. He was given the name of Jon as a contact at TIN by Tony.

On January 11, 2002 Mr Schroeder sent a fax to TIN (which was addressed to "Jon"):

A reply fax was sent by TIN (from "John"), and TIN invoiced Arena as advance charges.

On January 23, 2002 Mr Schroeder received a fax from Celers requesting that Arena supply them with its best under bond prices for beers, spirits and wines. He recalls speaking to Joe Grima from Celers around this time and confirmed prices to him on the telephone. But he believes however, that the first order for Celers had come through just before this when Tony had called him and ordered some Grants Vodka for his client, Celers.

All the subsequent dealings between Arena and Celers were arranged with Tony calling Arena in Denmark and requesting the purchase of bonded alcoholic goods on behalf of Celers. About 23 orders (some of which may have been moved in more than one consignment) were arranged for Celers by Arena in this way.

The sequence of events for these deals after the initial order from Tony was generally as follows:

Mr Schroeder would instruct the warehouse to despatch the relevant goods to TIN. This would be by telephone or, more often, by fax;

The warehouse, LBV or Rangefield, would confirm the date of despatch to him by telephone;

He would then let Tony know by telephone that the goods would arrive at TIN that day or the following day (depending on the time);

He would confirm with John that the goods had arrived by telephone around the time that he expected them to arrive;

Following this, he would confirm to Tony that the goods had arrived and that he should arrange payment;

Payment for these consignments was made in cash (pounds sterling) in the UK by a smart-looking Indian gentleman wearing a turban; as Mr Schroeder was in Denmark and Arena did not have place of establishment or office in the UK, the payment was received on Arena’s behalf by Mr Judd who he had telephoned to let him know that a payment was expected;

Mr Judd would check the amount and confirm receipt to Mr Schroeder of the correct amount;

Mr Schroeder would then send a fax to John at TIN instructing him to release the goods. After a number of these transactions, the release instruction would be made by telephone as Arena and TIN now had an ongoing relationship;

Mr Judd would pay the sums into his company account in the UK and then remit the sums to Arena’s account in Belgium, or for payment of amounts outstanding from Arena to suppliers in the UK;

If Arena owed money to Mr Judd’s companies, Mr Schroeder would authorise payment (in whole or in part) of these sums from the monies received from Mr Judd.

On February 7, 2003 the provisional liquidator made a witness statement in reply. She pointed out that Arena had no records of its substantial trading activity, that most of its activities were carried out in cash without any proper documentation of payments or receipts, and that it was not possible to reconcile the invoices with the cash receipts. In particular she made the following points:

Arena appeared to have prepared and maintained no account recording the various substantial trading activity which Mr Schroeder contended that it carried out, and much of its transactions appear to have been carried out in cash without the payment or receipt of that cash being properly documented.

There was no evidence of the usual dealings which would be expected that a company would have with customers if Mr Schroeder believed them to be genuine.

There was no evidence of any communication of the sort which one would expect to see in relation to payment.

The arrangement for payment by the Indian gentleman in Southend was on its face an extraordinary one, given that the customers were abroad, Mr Schroeder was in Denmark and the invoices appeared to contemplate payment by telegraphic transfer to Mr Schroeder’s bank in Antwerp; there was no communication recorded between the customers and Mr Schroeder in relation to the arrangements, and no evidence of any communication between Mr Judd and Mr Schroeder in relation to the payments having been received, and Mr Judd appeared to have issued no receipts.

On a number of the consignments, invoices requesting telegraphic payment, payment by cash in sterling, and release of the goods appear to have taken place all on exactly the same day, namely the day when the goods were allegedly delivered to Belgium.

It was impossible to reconcile payments recorded as having been received by Mr Judd with any particular consignment or with any of the dates upon which the consignments appeared to have been shipped or arrived.

She produced a table showing sums received into the Ampleaward account, which were higher than the aggregate of the invoices, and a schedule of payments produced by Mr Judd, which showed that (contrary to Mr Schroeder’s contention that the goods were only released on payment) payments were received several days after release of the goods.

In his witness statement of March 4, 2003 Mr Schroeder answered as follows:

He questioned the provisional liquidator’s knowledge of the usual dealings which would be expected with such customers, and says that they "do not reflect the reality of the business Arena was operating in."

He relied upon LBV and the other bonded warehouses to ensure that the AADs and CMRs were properly completed, and he did not know when the consignments would be moved nor the identity of the driver. In particular he had no knowledge of Shelley Transport, to whom LBV/Seabrooks subcontracted the movement of the consignments.

The amounts received in cash on behalf of Arena from Celers in respect of the consignments in the period amounted to £803,240 as against invoiced amounts of £803,298, and so the amounts were almost identical.

Arena and Celers had an ongoing relationship with a number of consignments delivered and paid for immediately, and so he was not concerned to allow the account to be conducted on a running basis with a limited balance of what he says was (by March 22, 2002) of £20,800 outstanding.

The hearing before Mr Alan Boyle QC took place in mid-March 2003. As I have said, he discharged the freezing order obtained by the provisional liquidator because there had been material non-disclosure by Ms Marston of Customs in her affidavit which she swore in support of the application for the appointment of a provisional liquidator and, if a provisional liquidator were appointed, for a freezing order.

The principal matters in respect of which Mr Boyle held that there had been material non-disclosure were these: (a) Ms Marston had not disclosed the multiple hearsay and tenuous character of the allegations of Mr Schroeder’s criminal behaviour; (b) her evidence with regard to the forgery of the TIN stamp on the AADs was misleading; (c) there was no evidence for the allegation that Arena was involved in the forgery of customs stamps; (d) her statement was seriously misleading when it referred to the danger of Arena’s records and books being destroyed or concealed, since she did not disclose that Customs had procured the Danish authorities to raid Mr Schroeder’s home in Denmark nor that the Danish authorities had uplifted 60 lever arch files of documents; (e) she did not disclose correspondence which illustrated Mr Schroeder’s willingness to be co-operative; (f) she did not disclose that bankruptcy proceedings against Mr Schroeder were pending in Denmark and that there was an intention to take proceedings in Gibraltar which duplicated the English proceedings.

Mr Boyle was concerned, on the merits, with the question whether there was a good arguable case. He considered that there was strong prima facie evidence that the consignments did not in fact arrive at their destinations. On the complicity of Arena and Mr Schroeder his conclusion was as follows:

In reaching that conclusion he relied upon the following points (among others):

Mr Schroeder had produced no evidence from Celers and Euronet, or the warehouses, to the effect that the goods arrived, which was in contrast to Consignment 20, in relation to which Mr Schroeder was able shortly after Customs served the assessments to produce evidence from Schenker that it had collected the goods from TIN.

There was little or no evidence indicating that Celers and Euronet were real entities.

Mr Schroeder provided no explanation as to why the large payments were made in cash, other than to rely on the growth of the cash and carry business in Calais, which had little relevance to the way in which one would reasonably expect payment to be made for transactions between a Maltese company dealing with a Canadian national resident in Denmark representing a Manx company selling goods in bond ex-United Kingdom destined for Belgium.

Mr Schroeder had not said who asked for the goods to be paid for in cash or what reason was given, or why initially he indicated that payment should made to the Artesia Bank NV in Antwerp, and then later switched to payment in cash without the provision of any receipt or other documentation.

Mr Schroeder’s account of receipt of the cash before release of the goods as an essential element was difficult to square with the documents in relation to Consignments 1 and 2.

The overall pattern which emerged was that of a company under Mr Schroeder’s direction moving large consignments of alcohol out of bond, followed by the delivery of large amounts of cash in round sums to Mr Judd which did not correspond to the invoice values of the goods being sold, with all of the activities taking place in England, Tony being in Birmingham, Mr Judd being in Southend, and with evidence that the consignments never arrived in Belgium.

At the outset of the hearing Mr Girolami QC for Customs relied, in relation to the first two consignments, on the following: (a) the total sum of the first two orders was £71,183; (b) the instructions to TIN to release the goods to Celers were dated January 24, 2002; (c) the bank records of Mr Judd showed that £70,000 was paid on January 28, 2002; (d) this was £1,183 short of the total due, and it was also apparently paid 4 days after the date upon which the cash would have had to have been paid in order to justify the issue of instructions to release the goods.

In argument Mr Bompas QC, for Mr Schroeder, suggested that the cash receipts listed in Mr Judd’s ledger might not show the actual date of payment. Consequently the provisional liquidator made a witness statement dated March 14, 2003 in which she stated that she had spoken to Mr Judd that day, who had told her that cash received was banked the same day into his normal trading account: he confirmed he received the cash and that the date entered in the ledger was the date of actual banking, which would have been the date of receipt unless the cash was received after about 3 pm, when cash would be banked the following day. It was never left longer than that.

On March 18, 2003 Mr Fulda, Mr Schroeder’s solicitor, made a witness statement reporting on his conversation with Mr Judd the previous day. Mr Judd had confirmed that broadly speaking the provisional liquidator’s statement was accurate, except that cash receipts listed in the ledger might not show the actual date of payment. Cash was normally, but not always, banked on the day of receipt. The date entered into the ledger was normally the date of actual banking, but there would be occasions when the courier arrived late in the day and after banking hours but still in time for cash to be lodged. It was unlikely that a payment received after bank opening hours on one evening would be left longer than the following day before lodgement, but he did not tell Mrs Brittain that that had never happened. He had no specific recollection of the payment of the £70,000 which took place at the end of January 2002.

Mr Judd was asked to locate bank statements and paying-in slips. After Mr Boyle QC had reserved judgment, Mr Judd produced some Barclays Bank paying-in slips, which recorded cash payments of £600, £4,540, £14,000, and two of £25,000 (totalling £69,140) all of which were date stamped January 24. But the slips themselves had been completed with the date of January 28, and that was the date upon which they were shown in the bank statements as having been credited to the account of Ampleaward Ltd. Mr Boyle QC said that it was not possible or appropriate to reach any conclusions as to fact, but he was left in considerable doubt as to whether it could be right that payment for the first and second orders was made in cash on January 24 and banked on that date. In particular, it was difficult to see why Barclays Bank would have credited those sums to the account on January 28 if they had in fact been deposited on January 24.

He also said that it was very difficult to reconcile the cash payments to the invoices. The cash sums received by Mr Judd should have corresponded to the amounts of the Celers invoices, but they did not. None of the amounts credited in Mr Judd’s ledgers corresponded to the amounts shown on the invoices, and the cumulative value of the invoices at no point corresponded to the cumulative value of the cash payments.

In a witness statement of June 5, 2003 of Ms Helen Marston, Customs put in evidence from telephone company records that during the time period of the relevant 17 consignments, there were only two sets of telephone calls and fax calls between Arena and TIN: a call to the TIN telephone and a call to the TIN fax on January 22, 2002 and two telephone calls and a fax call on January 24, 2002. Ms Marston said that the calls on January 22 could not, on Mr Schroeder’s account, be related to the consignments in question, and the calls on January 24, 2002 and the complete absence of any subsequent calls were inconsistent with his account of how he dealt with the consignments. Mr Schroeder’s solicitors had given contact numbers for Tony, and the telephone records exhibited by her showed no calls having been made to any of those four numbers during the consignment periods.

In answer on June 23, 2003 Mr Schroeder said:

The telephone records did not show occasions on which John at TIN telephoned Mr Schroeder which happened occasionally. In addition, his explanation in his earlier statement did not take into account that Tony, who had introduced him to LBC, Celers and to TIN, was also involved in monitoring the arrival of the goods at TIN, and sometimes it was Tony who told Mr Schroeder that they had arrived. He understood that TIN had a pre-existing relationship with Tony and Celers. This was illustrated by the fact that TIN did not send invoices to Arena for storage or other costs, such as loading of goods, as he had said from the start (after TIN asked for a deposit) that Arena should not bear these costs. He assumed that these costs were invoiced to Celers or to Tony as the middleman.

The numbers used by Tony which were provided by his solicitors to the provisional liquidator’s solicitors in March 2003 were only the most recent numbers which he had for Tony. There were other numbers evident from the papers already held by the provisional liquidator. It was not intended to be a complete list of all the numbers ever used by him to contact Tony.

There were no bank or trade references for Arena in TIN’s papers because none were sent by Arena — when TIN asked for these and a deposit payment to open an account he spoke to Tony about this as he was not prepared to have to open an account for a new customer and then be responsible for storage charges. The trading business was high turnover but low margin and storage charges at this new warehouse would reduce profits to nothing. He assumed therefore that Tony satisfied TIN, as an account was opened for Arena without references.

On September 16, 2003 the provisional liquidator made a report to the court, and made (inter alia) the following points:

Notwithstanding the fax from TIN sent on January 22, 2002 stipulating that an account could only be set up once bank references and trade references had been received, no bank or trade references had been found.

The fax from Arena to LBV of January 22, 2002 requesting delivery to TIN was presumably sent before the account at TIN had been opened.

It was doubtful that cash could have been transported from Malta to Awards Drinks within the course of one business day to effect the release of the stock.

a release note was faxed to TIN on January 24, a day before the arrival of the goods.

In a witness statement of October 10, 2003 Mr Schroeder made a statement in response to the provisional liquidator’s report. He said that the telephone records showed that TIN had contact with Celers, and that his own telephone records showed numerous calls to Tony in the relevant period. He did not answer any of the detailed points (except on the absence of Arena trade and bank references at TIN, to which I refer below), but said that if there was a fraud, it occurred in Belgium at TIN without his knowledge or that of Arena. His case was that TIN had been set up by Mr Barry Knight as a vehicle for his fraud, by arranging for the purchase of goods by Celers, through a middle man in the United Kingdom, in his case Tony.

Shelley Transport had been used by LKW Walter (Austria). It was possible to link a number of the transports back from Europe with the lorries which made deliveries from TIN.

Mr Schroeder also said, in response to the provisional liquidator’s point that no bank or trade references for Arena had been found in TIN’s records (notwithstanding TIN’s fax of January 22, 2002),

Customs’ case is essentially that Mr Schroeder’s case is simply incredible. Celers is said to be a Maltese company, about which Mr Schroeder knew nothing and with whom he was dealing for the first time, introduced by a man named Tony about whom one is told (and Mr Schroeder apparently knew) nothing and with whom Mr Schroeder dealt over the phone. Tony cannot be contacted on any of the phone numbers given for him, and no other contact details are available.

Celers, it is said, was looking to buy from Arena in Denmark goods in bond ex a Belgian warehouse, for which it paid in sterling by delivery of cash to Mr Judd in Southend. Why it should pay in cash sterling in England is not explained. The cash was delivered by a smart Indian gentleman (identified only by the fact that he wore a turban) who neither asked for nor was given a receipt.

The account is not merely incredible but in parts demonstrably false. It is an important part of Mr Schroeder’s account that that he was dealing with a counterparty in the way one would expect commercially. Accordingly, he says, he would open an account (if he did not already have one) with the destination bond, and would ship the goods to be held to Arena’s account at the destination bond until payment from the customer had been received. The process, he says, by which payment was made and the goods released was: (a) he would confirm delivery of the goods at the destination warehouse; then (b) telephone Tony to confirm delivery and request payment to be arranged; then (c) wait for confirmation from Mr Judd of payment in cash and that everything was in order; and (d) only then cause the goods to be released to the purchaser.

It now transpires (contrary to Mr Schroeder’s initial case) that TIN has no record of Mr Schroeder opening an account, and that is because Mr Schroeder was not willing to do so and gave TIN none of the details which it required for that purpose. Instead Mr Schroeder apparently relied upon Tony to make the necessary arrangements.

The account of Mr Schroeder does not fit with the documents relating to the transactions which Mr Schroeder was apparently producing contemporaneously. Not only that but an analysis of the cash payments received by Mr Judd, shows that (a) the sums received do not correspond with the price for which the goods were purportedly sold; (b) goods were released before any cash sums can be said to have been received in respect of those goods.

Under the pressure of that evidence, Mr Schroeder’s account then changed to a case that over the period of dealing with Celers the aggregate cash sums received from it are the same or almost the same as the price of the consignments claimed to have been sold to it. No attempt is made to explain the contradiction between that account and the previous one.

The problems with that evidence then caused him to revert, without explanation, to the irreconcilable assertion that he believed that cash was being paid to Mr Judd before release of the goods. And in his most recent evidence, the pressure of the evidence relating to his and TIN’s telephone records (which show virtually no calls or faxes during the relevant period) causes him to change his case again. It is now Tony, we are told, who confirmed arrival of the goods at their destination. Not only is this inconsistent with his earlier case but it is inadequate as an explanation.

The provisional liquidator has not found documents one would expect to see in Arena if genuine trading were taking place with Celers and Euronet via TIN and SERIO.

The evidence as a whole shows no bona fide substantial case that in relation to the relevant consignments Arena was, and believed itself to be, engaged in genuine duty-suspended trading. The only credible picture is Arena being involved in the diversion of the consignments and receiving the proceeds, or its share of the proceeds, of that diversion in cash in Southend, in a form and manner designed to be as untraceable as possible.

Arena opposes the winding-up petition on the basis that: (a) the debt is genuinely disputed on substantial grounds; (b) the proper tribunal for adjudication in relation to the debt is the VAT and Duties Appeal Tribunal in which there are extant appeals which stand a sufficient prospect of success; (c) there are a large number of triable issues raised in relation to the proper existence of the debt and these can only be resolved by a full hearing before the Tribunal following disclosure and the examination of witnesses. A winding-up would effectively prevent there ever being a determination of the merits of Customs’ on the basis of full disclosure and examination of witnesses.

As Arena was not the consignor (unlike the debtor in the Anglo-German Breweries case), Arena is not under a primary or strict liability in respect of any irregularity which has occurred in relation to the movement of the goods. Instead, in order for Arena to be assessed, it must be shown to have "caused" the occurrence of the excise duty point.

This must mean something more than being the owner of the goods and giving instructions to the warehouse of despatch to arrange for their transportation from one authorised warehouse to another. Further, given that, on the facts of the present case Arena was not responsible for the transportation of the goods or the completion of the AADs, then some other direct involvement must be demonstrated by Customs.

Support for Arena’s case in relation to the TIN consignments can be drawn from: (i) the manner in which Customs and the provisional liquidator have had to alter the way in which their case is put to meet evidence and other material produced by Mr Schroeder, (ii) the lack of material to support crucial areas of Customs’ case, (iii) the further material which has emerged to support the case put forward by Arena and Mr Schroeder since the proceedings commenced and (iv) the material inconsistencies or absence of material in relation to issues central to this case but which cannot now be resolved.

On this type of hearing the court cannot resolve serious evidential difficulties. In such circumstances it would be unfair and unjust to determine the case against Arena on the basis of any inconsistencies without Customs’ case being supported by credible positive evidence.

There is no evidence to link Arena directly to any diversion of goods. The only connection is that Arena directed their transfer to TIN. These transactions involved the transfer of goods from duly registered warehouses in the UK to a duly registered warehouse in Belgium by a carrier selected by the despatching warehouse. The evidence shows that Mr Schroeder instructed LBV/Seabrooks to arrange the transport but that they generally subcontracted the haulage to Shelley Transport who themselves used a number of different drivers.

The evidence demonstrates that: (a) Arena had contact with Celers, the customer in Malta – the telephone records for Arena’s number in Denmark show faxes and telephone calls to Celers; (b) documents from TIN also show that Celers had dealings directly between TIN and Rangefield in the UK; (c) at least six separate consignments sent to TIN for Celers between February 8, 2002 and April 11, 2002 did arrive, and there is no distinction between the arrangements for these consignments and those for the assessed consignments; (d) no explanation has been provided by Customs as to why Arena should have had any suspicions about the assessed consignments when other loads plainly arrived; (e) the relevant lorry drivers from Shelley Transport were in Europe at the relevant time because they were able to pick up loads in Europe and bring them back to the United Kingdom; (f) neither Customs (despite their very wide investigatory powers) nor the provisional liquidator have obtained any evidence from the lorry drivers that they were involved in any diversion fraud, by contrast with the Anglo-German Breweries case in which such evidence was produced; (g) the man who dealt with all of TIN’s paperwork was the Jon that Mr Schroeder spoke to initially – almost all of the records retrieved by Mrs Brittain from TIN are signed by John or refer to him, and thus there was plainly an individual at the TIN warehouse with whom Arena had dealings; (h) the amounts received by Arena corresponded almost exactly to the total sums invoiced to Celers (the difference is only £58 out of some £800,000); (i) cash dealings in the trade are normal.

There are substantial inconsistencies between the various individuals whose views are recorded in the statements/interviews/meeting notes, and between these individuals and the documents. Three examples of such inconsistencies in relation to material matters are:

The individuals at TIN all apparently deny knowledge of Arena or Mr Schroeder, but there are documents referring to Arena in such TIN records as there are (and TIN was shut down for poor record keeping). This clearly requires explaining – if the employees of TIN were themselves diverting goods which Arena had legitimately sent to TIN, this is exactly the response which would be expected to seek to place the blame on Arena.

Mr Jacobs stated to the provisional liquidator that TIN received 3 to 4 shipments per week, and at such a rate, the number of shipments would be at least between 60 and 80. If Mr Jacobs is correct, then at least 30 (and possibly over 50) loads arrived at TIN but were not properly recorded. This clearly points to something wrong at TIN and not to a slaughter in the UK.

Mr Roothaert, the Belgian customs officer at the centre of Customs’ case was able to identify 5 consignments which did arrive by reference to his records. However, he failed to identify "consignment 20", one of the assessed consignments which it is accepted by Customs did arrive. No explanation has been given of how Mr Roothaert can assert that goods did not arrive, when he could not himself find his records for a consignment which did arrive.

The legal basis of the provisional liquidator’s claim is that as a director of Arena, Mr Schroeder owed duties to Arena. Those duties included a duty to act bona fide in the interests of Arena: Re Smith & Fawcett Ltd [1942] Ch 304, 306; Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch 62, 74. The relevant test is "whether an intelligent and honest man in the position of the director of the company concerned, could, in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company": per Pennycuick J in Charterbridge, at p.74. That also includes, where Arena was insolvent, or nearly so, acting in the interests of Arena’s creditors West Mercia Safetyware v Dodd [1988] BCLC 250, 252; Facia Footwear Ltd v Hinchcliffe [1998] 1 BCLC 218, 227. In causing Arena to engage in the activities which made Arena liable to Customs in respect of the excise duty and VAT claimed by Customs, which excise duty and VAT Arena could not and cannot pay, Mr Schroeder did not act bona fide in the interests of Arena.

The essential elements of the claim are:

Mr Schroeder controlled Arena’s affairs, conducted its business, and was de facto a director of, and owed the duties of a director to, Arena.

He purported to sell the consignments at in-bond prices to Celers for collection from TIN in Belgium; and to Euronet srl for collection from SERIO in Italy, and purported to ship the consignments from bond in England to TIN and SERIO.

Arena removed the consignments from bond in England but did not ship them to another bonded warehouse in the United Kingdom pursuant to the relevant provisions permitting such movement without payment of excise duty and VAT, and thereby became liable for excise duty and VAT on each consignment as it was removed from bond, in the amount of £1,823,605.10.

Mr Schroeder knew that Arena was incurring liabilities in respect of excise duty and VAT which there was no reasonable prospect of Arena being able to pay.

Mr Schroeder, wrongfully and in breach of his duties owed to Arena, has caused Arena to become liable for excise duty and VAT, by reason of which Arena has incurred liabilities, including liability for excise duty and VAT of £1,823,605.10, which it cannot pay. Mr Schroeder is liable to Arena for damages or compensation for breach of duty accordingly.

In his defence Mr Schroeder says:

He admits he was responsible for the day to day conduct of Arena’s business but otherwise makes no admissions as to his involvement or his duties.

Save that the use of the word "purported" is denied it was Arena which sold the consignments rather than Mr Schroeder; and the transaction referred to was a sale to Euronet srl followed by a delivery to SERIO for the account of Euronet srl, this is admitted.

Mr Schroeder instructed LBV to arrange for the shipment of the consignments from England to the TIN and SERIO warehouses as appropriate under duty and VAT exempt customs provisions.

It is denied that Arena is properly responsible for the excise duty and/or VAT on each consignment as it was removed from bond. Arena made genuine sales to Celers and/or Euronet srl, which sales included the instruction of LBV to arrange the shipment of the goods from England to TIN and/or SERIO. The assessment in relation to the SERIO consignments is based on an assumption that SERIO was not an authorised bonded warehouse. Customs confirmed to LBV on or about October 24, 2001 that SERIO was an authorised warehouse. If Arena had suffered any loss (which is denied) the cause of this loss was the confirmation from Customs rather than any act of Arena and/or Mr Schroeder. Arena has not caused an excise duty point to arise.

The inference that Mr Schroeder knew that Arena was incurring the liabilities is unsustainable and is denied. In particular, Mr Schroeder believed that the sales to Celers and Euronet srl were genuine; the consignments were shipped to TIN and SERIO as instructed; and the cash sums delivered to Mr Judd on behalf of Arena represented the proceeds of the genuine sales. Had Mr Schroeder not believed those matters, he would not have concluded the sales on behalf of Arena. Arena had traded successfully for a number of years and continued to do so during the period October 2001 to April 2002. There was no reason for Arena to enter into transactions of the kind described in the particulars of claim.

It is denied that Mr Schroeder is liable to Arena for damages and/or compensation and/or has breached any duty to Arena.

The provisional liquidator submits that Arena should be granted summary judgment on its claim for damages and/or compensation. Mr Schroeder has no real prospect of successfully defending the action and there is no other compelling reason for a trial. If the court decides that Arena cannot raise a bona fide dispute on substantial grounds sufficient to defeat the petition, it is submitted that it follows that Mr Schroeder has no real prospect for the purposes of CPR Part 24 of demonstrating the fundamental underlying plank of his defence to the action, namely that Arena is not liable to Customs. There can be no doubt that Mr Schroeder owed a duty to Arena to act bona fide in the interests of Arena, and that in causing Arena to engage in the activities which gave rise to the debt due to Customs, which debt Arena could not pay, Mr Schroeder breached that duty. No intelligent and honest man in the position of Mr Schroeder could reasonably have believed that causing Arena to engage in such activities, with the consequential incurring of very substantial liabilities to Customs which Arena could not pay, could have been in Arena’s interests, whether Arena was solvent or insolvent at the time. Arena has obviously suffered loss as a result of what Mr Schroeder caused it to do. It has incurred substantial liabilities (including the costs of the petition, the provisional liquidation and the liquidation) which it would not otherwise be liable for.

Mr Schroeder’s position is that summary judgment should not be granted against him because: (a) the proceedings against Mr Schroeder are intimately linked to the existence or otherwise of the debt asserted by Customs and should await the outcome of a decision by the Tribunal and (b) in any event, Mr Schroeder has a real prospect of defending the claim against him and there are a large number of triable issues in relation to those proceedings which can only be resolved at a trial.

The inconsistencies and gaps in the evidence of Customs and of the provisional liquidator and the evidence weighing in favour of Arena’s case point to a real prospect of Mr Schroeder successfully defending any claim against him. In any event the proceedings against Mr Schroeder are intimately linked to the winding-up proceedings and the appeals in the Tribunal. The winding-up proceedings should be dismissed because Arena has a genuine dispute which requires a proper examination in the appropriate forum (the Tribunal), and it follows that summary judgment should not be granted against Mr Schroeder.

The provisional liquidator submits that there are two possible approaches to quantum, either to fix it now, or to order that there be an enquiry as to the amount of the damages or compensation to be paid. If the court prefers the former route, at a minimum the amount should be fixed as the amount of the liability to Customs which Mr Schroeder caused Arena to incur (plus interest), although from Arena’s perspective the loss caused by Mr Schroeder’s actions also includes the costs of the petition, the provisional liquidation and the liquidation. If the Court prefers the latter route, in such circumstances, it is submitted that an interim payment of, say £1.5 million (or such other sum as the Court thinks fit), should be awarded pursuant to Part 25: CPR Part 25.7(1)(b) and 25.7(4).

If the court grants summary judgment pursuant to Part 24, the provisional liquidator submits that a freezing injunction should be granted against Mr Schroeder in aid of execution.

The first hearing in these matters took place between October 14 and 16, 2003. As a result of the matters with which I deal below I asked for further argument, which took place on November 28, 2003. In the course of the hearing in October counsel for Arena and Mr Schroeder submitted that one of the grounds for the conclusion that Arena should not be wound up and that the summary judgment application should be dismissed was that the hearing before the VAT and Duties Tribunal would be one in which there would be disclosure of documents and oral evidence. Customs and the provisional liquidator submitted that there was no relevant material beyond that which was put before the court. Counsel for Arena and Mr Schroeder drew attention to inconsistencies in what the provisional liquidator had said about interviews with the drivers, and submitted that disclosure of such documents as invoices and other AADs (in relation to the goods that had arrived) was important.

I did not consider that Arena and Mr Schroeder had made out a case that there were any relevant documents likely to be in existence which would affect the matter, but in view of (a) Mr Boyle QC’s findings of material non-disclosure and (b) my recollection of criminal trials (or convictions) which had been affected by misbehaviour on the part of Customs’ officials, I asked for an assurance that this matter had been dealt with by Customs on a "cards on the table" basis, and that there were no other relevant documents which had not been disclosed. I was given such an assurance in court on behalf of Customs.

During the course of the hearing Customs then made available to Arena and Mr Schroeder, and then to me, a file of further documents, which included statements made to Customs by drivers who had driven lorries for Shelley Transport, Mr Jones and Mr Richards. Customs submitted that these did not assist Arena and Mr Schroeder. On behalf of Arena and Mr Schroeder it was submitted that the drivers’ statements did assist as they contained statements by the drivers confirming delivery of consignments to TIN, and that it was likely that there were other materials which had not been produced but which could assist them. I was further assured by counsel for Customs that no further relevant material existed in the possession of Customs.

Following the hearing, Mr Parsons, an officer of Customs’ Law Enforcement (Investigation) made a witness statement verifying the position with regard to documents. He is a member of a team of officers which has been conducting investigations into alleged excise diversion fraud by (among others) Arena, and his team is responsible for the storage of documents obtained in the course of investigations. He confirmed that Customs had no documents beyond those which Arena already had which tended to show the genuineness of the consignments or to undermine Customs’ case, but he mentioned four categories of documents which he said did not take the matter any further, but which he could not say with absolute certainty Arena had seen. The categories of documents were invoices sent by LBV to Arena; consignment notes; a mobile telephone statement for Mr Simon Shelley apparently showing two mis-dialled calls to TIN; and credit card statements indicating purchases of diesel made at Jabbeke in Belgium on February 21 and 22, 2002.

On November 11, 2003 Mr Fulda, the solicitor for Arena and Mr Schroeder, made a witness statement in which he said that on October 30, 2003 he made contact with Mr Greenwood, who was the solicitor who attended the interviews with Mr Richards and Mr Jones on their behalf. Mr Greenwood told Mr Fulda that he represented three drivers formerly employed by Shelley Transport, namely Mr Richards, Mr Jones and Mr Leadbetter. Mr Greenwood had told Mr Fulda that all three drivers had been interviewed by Customs in early 2003 and then again in June 2003.

In reply Mr Parsons explained the omission of the transcript of the interview with Mr Leadbetter from the file produced on October 16 on the basis that only the interview transcripts with Mr Jones and Mr Richards had been asked for at the hearing in October. There is no transcript yet available of the hearing before me, but my own notes do not give any reason to suppose that the request was related only to the interviews with Mr Jones and Mr Richards. Following this witness statement, Customs made available the transcript of the interview with Mr Leadbetter.

Arena and Mr Schroeder submit that at the hearing in October 2003 Customs and the provisional liquidator both provided misleading information concerning the position with regard to drivers. The transcript of Mr Leadbetter’s interview identified him as the driver of assessed consignments 1, 5, 8 and 12, and showed him to be saying that he had delivered the consignments.

The provisional liquidator’s report to the court of September 16, 2003 stated that she had attempted to interview the drivers, and that interviews with all the drivers had not yet taken place. At the hearing in October 2003 counsel for the provisional liquidator stated that this meant that no interviews had taken place. As a result of contacting Mr Greenwood, the solicitor for the drivers, Mr Fulda learned that the provisional liquidator had been told on April 11, 2003 by Mr Greenwood that Messrs Richards, Jones and Leadbetter had been interviewed by Customs and had given a full account of their involvement.

I am unimpressed by the way in which Customs have approached this aspect of the case. Indeed, whether or not specific reference was made only to the statements of Mr Jones and Mr Richards at the hearing in October, there is no conceivable reason in my judgment why Customs should not also have produced the statement of Mr Leadbetter, and no explanation has been provided.

The overall position is that Mr Richards, Mr Jones and Mr Leadbetter were interviewed by Customs in December 2002 and January 2003. Other drivers were interviewed in March and April 2003. The transcripts of the interviews with Mr Jones and Mr Richards were not provided to Arena until the hearing in October 2003, and Mr Leadbetter’s interview transcript was provided in November 2003. From October 2002 Mr Hanman (who is acting for Arena in the appeal to the Tribunal, and for Mr Schroeder on the criminal aspects) and Berg & Co (who act for Arena and Mr Schroeder in these proceedings) wrote several letters asking about the evidence that Customs had obtained from drivers. Thus on October 9, 2002 Mr Hanman asked Customs to make available evidence from drivers which showed that the goods left the United Kingdom and he repeated the request on November 5. From April 2, 2003 Mr Hanman, and also Berg & Co, wrote a number of letters to the provisional liquidator’s solicitor asking about driver interviews.

On February 28, 2003 the provisional liquidator’s solicitors informed Berg & Co that the provisional liquidator’s investigations included interviewing key personnel including the drivers. What in fact happened was that on January 22, 2003 the provisional liquidator’s solicitors had written to the drivers requesting interviews, and the provisional liquidator wrote a similar letter to the drivers on March 28, 2003. On April 11, 2003 Mr Greenwood wrote on behalf of some of the drivers to the provisional liquidator to say that the drivers had been interviewed by Customs and asked what further information she wanted from them. She replied on May 1, 2003 to say that she was not privy to the information the drivers had provided to Customs and was required to make her own enquiries. No reply having been received to that letter, she wrote again on July 18, 2003 asking for interviews, and her solicitors wrote direct to the drivers on August 4, 2003 asking them to indicate their availability. Subsequently Mr Greenwood told the provisional liquidator’s solicitors that it was difficult to get hold of his clients as they were long-distance lorry drivers. In September the provisional liquidator’s solicitors endeavoured to arrange interviews, but apparently without success, and it was in those circumstances that the provisional liquidator reported to the court on September 16, 2003 that interviews with all the drivers had not yet taken place.

It seems to me that the correspondence and the documents now produced indicate that the provisional liquidator and her solicitors were guilty of nothing more than infelicitous language in the solicitors’ letter of February 28, 2003 (which is quoted in Berg & Co’s letter of November 21, 2003) which suggested that drivers had been interviewed and in the provisional liquidator’s report to the court which also implied that some drivers had been interviewed. For the sake of completeness, I should add that Berg & Co sent to me after the hearing on November 28, 2003 further copy correspondence designed to show that the provisional liquidator had withheld material relating to interviews with personnel of LBV, but I am satisfied that this correspondence is of no assistance.

Arena and Mr Schroeder submit that the production of the material and the contents of Mr Parsons’ two statements reinforce their argument that Customs have a vast array of documents in their possession which are, or may be, relevant to the matter, and the court cannot proceed on the basis that it has had all the relevant documents before it.

I do not consider that there is a seriously arguable case that the consignments arrived at the bonded warehouses. The SERIO consignment was despatched on about October 23, 2001. SERIO was licensed to operate as a bonded warehouse between September 2000 and June 2001. Italian Customs inspected the warehouse on June 22, 2001 and found that it was no longer available to SERIO, and that it was closed. The licence was therefore revoked on June 29, 2001. There was therefore no bonded warehouse at which the goods could have arrived.

The evidence from Belgian Customs that the TIN consignments did not arrive is compelling. The evidence is that during the time of TIN’s operation only 28 genuine consignments came in and only 25 left. It was a small warehouse, holding about 12 lorry loads, all of which had to be unloaded in the street and it was not possible to transfer a load from one lorry to another without being seen. The warehouse did not have any full-time personnel on the premises, and it was only opened up when it received a fax saying that a lorry was arriving or that a load needed to be sent out. The Belgian authorities kept the warehouse under continuous surveillance, and went there several times a week. Monthly stock checks were taken, and Belgian Customs required notification of arrivals at and departures from TIN.

There is no physical or documentary evidence of the arrival of the relevant consignments at TIN, and Belgian Customs are satisfied that they did not arrive at TIN. None of the relevant consignments were ever found in stock at TIN, and there is no record of any of them leaving TIN. Belgian Customs received no notification in relation to any of the consignments, and the TIN records which the provisional liquidator has obtained do not contain any reference to the relevant AADs. None of the relevant AADs were found at TIN, and none were found at Belgian Customs, and Mr Roothaert considers that the AADs are false. Some are plainly forgeries. The effect of the evidence is that if the consignments had arrived Belgian Customs would have known from their surveillance, and there would have been genuine AADs in their records (and in those of TIN).

Mr Schroeder says that so far as he was concerned the goods were delivered and any improper activity took place after delivery. One of the drivers, Mr Richards, stated to his solicitor that he had driven one load of goods to Italy for Shelley Transport and that the name SERIO sounded familiar. He also recalled that on the occasion he went to Italy, another of Mr Shelley’s drivers, Mr Jones, also went. The CMR identifies the relevant lorry as registration number P705 VPC, and Mr Shelley has confirmed that this lorry was driven by Mr Jones. This is not, and cannot be, evidence that the goods arrived at SERIO, which did not exist as a bonded warehouse at the relevant time. Nor is the fact that Customs confirmed to LBV on October 24, 2001 that SERIO was an authorised warehouse.

Mr Schroeder puts forward no positive evidence that goods arrived at TIN. He says that as far as he is concerned the goods were delivered and any improper activity had taken place after delivery. He had no complaint from his customers or TIN about non-arrival of the goods.

In his latest witness statement Mr Schroeder says that Shelley lorries were in northern France or Belgium at the time of the consignments in question, and so could have delivered them, but this is simply speculation and not evidence. The only point which is made on his behalf of any significance is that Customs accept that some consignments were genuine consignments to TIN which did arrive, and that Customs wrongly assessed consignment 20, which (it is now accepted) did arrive. The argument is that if Belgian Customs could have failed to discover this consignment, their evidence in relation to consignments 1 to 19 must be tested under cross-examination.

The absence of the evidence in relation to the relevant consignments is in marked contrast to the evidence relating to consignment 20 (Carlsberg lager), which Customs included in the assessments but which it subsequently accepted did in fact arrive. Shortly after the assessments were served, Mr Schroeder was able to produce detailed documentary material showing that consignment 20 had arrived at TIN and what had happened to it subsequently. That documentation includes cross-channel booking confirmation, and a fax from the lorry driver indicating that on arrival at TIN he was not able to unload his cargo because someone at TIN wanted a fax confirming on whose behalf the load was to be held, and who was to be responsible for storage, handling and transport. Mr Schroeder was also able, following the assessment by Customs, to provide a letter from Schenkers confirming that they had received the goods from TIN.

It is true that in this case (by contrast with the Anglo-German Breweries case) there is no evidence from the lorry drivers which supports the case for diversion.

I have set out in section XIX an account of the emergence of new material relating to interviews with the drivers. The documents reveal that the reality of the matter is as follows. On October 1, 2002 Mr Hanman took a statement from Mr Vincent Shelley. On January 16, 2003 Mr Schroeder made his first witness statement, in which (as a result of what his solicitor was told by Mr Shelley) he identifies the relevant drivers and their lorries; namely Mr Joiner, Mr Richards, Mr Jones, Mr Leadbetter, and Mr Lewis. In their letter of January 21, 2003 to Moon Beever, Berg & Co emphasised the importance of the information from the drivers and said "Indeed, the drivers that we have spoken to confirm that they made proper deliveries to TIN". On January 23, 2003 Berg & Co wrote to Moon Beever to say that they were able to identify the drivers from the enquiries that they had made, but the content of those enquiries was subject to legal professional privilege. Moon Beever were not entitled to enquire further.

Therefore, despite all the letters asking for details of interviews with drivers, Arena and Mr Schroeder have known since January 2003 at the latest who the relevant drivers were, and despite their contact with the drivers’ solicitor, have not produced any evidence from them at all, or any evidence that they have not been prepared to assist them. Instead, their advisers have skilfully created a record of correspondence to suggest that Customs and the provisional liquidator have withheld material. In all of the circumstances, I view the contention that the assertions by the drivers in the interviews with Customs that they went to TIN as raising an arguable case that the consignments arrived as simply fanciful.

The starting point is that Mr Schroeder’s account of his dealings is wholly implausible. That in itself does not necessarily mean that it is incredible to the point where it is absolutely unarguable that Arena was not complicit in a diversion, but I am satisfied that the inconsistencies, contradictions, and shifts in Mr Schroeder’s evidence make that conclusion inevitable. In my judgment, these are not simply matters for cross-examination, but make his case so implausible that there is no real prospect of it emerging that Arena did not participate in the diversion fraud.

The first point is that he claims to know almost nothing about the companies to whom he allegedly sold more than £800,000 of goods. All he can say about Euronet srl is that he received one fax order from it, that it was a client of Tony, and that after the assessments were made he telephoned its number and found that it was a business centre providing office space which a company of that name had used in 2001. It is true that the telephone records show that there was some telephone contact between Arena and the number shown as Celers’ number on January 23 and 24, 2002, that the invoices were sent by Arena to the Celers fax number, and that there were some calls from TIN to the Celers number. There are also some faxes in what appear to be standard form relating to an anticipated opening of an account by Celers with TIN. But the evidence is that there was no genuine trading company called Celers, and no trace has emerged of the Joe Grima who is said to be behind it, and to whom Mr Schroeder says he spoke at the outset of the relationship.

Second, Mr Schroeder claims that almost all his dealings were with a man called Tony, of whom Mr Schroeder claims to know nothing more than his first name, and some mobile telephone numbers. No trace of Tony has been found, although there are records of telephone calls between Arena and those mobile telephone numbers.

Third, all of the invoices indicated that payment should be made to Artesia Bank in Antwerp, but, according to Mr Schroeder, payment for the consignments was made "in cash (Pounds Sterling) in the UK by a smart-looking Indian gentleman wearing a turban." But this person has not been identified by name, and he did not ask for, nor was given, receipts.

Fourth, cash was paid in Southend on behalf of a Maltese company for the account of a Danish-based company for goods in a Belgian warehouse, and there is no explanation why that should be.

Fifth, Mr Schroeder initially said that, after Tony suggested that Arena should open an account with TIN, he made arrangements to open an account at TIN, and referred to correspondence from TIN which required trade and bank references from Arena. When the provisional liquidator gave evidence that no trade or bank references for Arena had been found in TIN’s papers, Mr Schroeder changed his account and said that none were in fact sent by Arena. His account became this: when TIN asked for these and a deposit payment to open an account Mr Schroeder spoke to Tony and said that he was not prepared to have to open an account for a new customer and then be responsible for storage charges. The trading business was high turnover but low margin and storage charges would reduce profits to nothing. He assumed therefore that Tony satisfied TIN, as an account was opened for Arena without references.

Sixth, Mr Schroeder’s original account was that he would confirm with TIN that the goods had arrived, then ask Tony to arrange payment, and then instruct TIN to release the goods. But the telephone records showed that during the time period of the relevant 19 consignments, there were only two sets of telephone and fax calls between Arena and TIN, on January 22 and January 24, 2002. Mr Schroeder then changed his account to say that his earlier explanation did not take into account that Tony was also involved in monitoring the arrival of the goods at TIN, and sometimes it was Tony who told Mr Schroeder that they had arrived. His only explanation for the lack of telephone records evidencing his instructions to TIN to release the goods was that the records did not show occasions on which John at TIN telephoned Mr Schroeder.

Seventh,because (on Mr Schroeder’s case) the trading business was high turnover but low margin and storage charges would reduce profits to nothing, his method of trading was that a customer would contact him with details of the bonded goods he wished to purchase and the warehouse to which the goods were to be consigned, and then generally Arena would have to purchase the goods to satisfy the request. But at least with regard to consignments 1 to 4,Mr Schroeder purchased the goods a few days after he made enquiries with TIN to open an account, and about 9 days before Celers asked Arena to supply its best under bond prices for beers, spirits and wines.

Eighth, it was an essential part of Mr Schroeder’s original case that he would only authorise release of the goods by TIN upon confirmation that the price had been paid in cash. But evidence emerged from Mr Judd’s accounts that there was little or no correlation between the invoice amounts and the amounts received by Mr Judd in cash in Southend. Mr Schroeder had no answer to this, except that the aggregate amounts received by Mr Judd were almost identical to the aggregate amount of the invoices. Even in the case of consignments 1 to 4, the amount banked in cash by Mr Judd (£69,140) did not match the invoice amounts (£71,183) and was received in at least three separate amounts.

Ninth, notwithstanding Mr Schroeder’s case that goods were only released after payment, the evidence of Mr Judd and his bank statements showed that payments for consignments 1 to 4 were received (on Friday, January 25, or Monday, January 28, 2002) after the date of the instruction (January 24, 2002) to TIN to release the goods. It is fair to add that the bank paying in slips show a date of January 24, 2002, but the evidence of Mr Judd that he normally paid in cash on the date of receipt (or, if received late in the afternoon, on the next day), together with the bank statements, point strongly (if not conclusively) to payment having been made after January 24, 2002. If payment were made in cash on January 24, 2002, there would have been the extraordinary situation that invoices requesting telegraphic payment to a Belgian bank were issued, payment in cash in sterling in England by a Maltese company was made, and release of the goods was made, all on the same day when the goods were delivered.

Tenth, notwithstanding that Mr Schroeder knew nothing of Celers and only knew Tony by his first name, that on his own case the business was very low margin business, and that he required to be satisfied that payment was received before he released the goods, Mr Judd’s records showed that Arena was in fact advancing substantial credit to Celers. The amount of the credit is in dispute: on Customs’ figures it reached £280,000, and on Arena’s figures it reached £40,000. Mr Schroeder changed his account to accommodate this evidence by saying in his witness statement of March 3, 2003 that he allowed substantial credit because Arena and Celers had an ongoing relationship with a number of consignments delivered and paid for immediately, and so he was not concerned to allow the account to be conducted on a running basis with a limited balance outstanding.

Eleventh, there is a complete absence of the records and documents which might be expected for a company carrying on a genuine substantial business, and there is no evidence of the usual dealings which would be expected that a company would have with customers if Mr Schroeder believed them to be genuine.

Accordingly, I accept the submission that the evidence as a whole shows no bona fide substantial case that in relation to the relevant consignments Arena was, and believed itself to be, engaged in genuine duty-suspended trading. The only credible picture is Arena being involved in the diversion of the consignments and receiving the proceeds, or its share of the proceeds, of that diversion in cash in Southend, in a form and manner designed to be as untraceable as possible.

Customs accepted that in the exercise of the discretion to wind up what was an admitted debt I could consider whether there was a bona fide dispute in the sense of a real prospect of success on the appeal to the VAT and Duties Tribunal. As I have said, this is a test which is favourable to Arena, but it follows in my judgment that if the test is not satisfied by Arena then Mr Schroeder cannot resist summary judgment on the claim by the provisional liquidator.

For the reasons I have given I do not consider that there is any real prospect of a successful appeal to the Tribunal. This is not a case where the weaknesses in Mr Schroeder’s evidence are simply matters for cross-examination. Mr Schroder’s case is so incredible, and the shifts in his evidence to meet its contradictions, and his failures to respond adequately to the evidence against him, are such that I am satisfied that there is no conceivable explanation for the events other than that Mr Schroeder and Arena were concerned in a diversion fraud.

Accordingly, there must be an order for Arena to be wound up. If any significant part of the excise duty and VAT which Customs claims is due, Arena is plainly insolvent. I should add that if I had been wrong in concluding that an winding up order should be made, then I would not have dismissed the petition, but adjourned it to await the outcome of the appeal to the VAT and Duties Tribunal.

I am fully mindful that in the claim against Mr Schroeder I should not conduct a trial on the basis of witness statements, and that I should only proceed to summary judgment if he has no real (as opposed to fanciful) prospect of defending the claim. This does not mean (as those who deal with summary judgments applications on a regular basis well know) that every case in which a defendant makes assertions of fact in a witness statement must go to trial. It was not suggested on Mr Schroeder’s behalf that, if he had been complicit in a diversion fraud, he would not be liable to Arena. For the reasons I have given I do not consider that Mr Schroeder can show any real prospect of defending the claim. I will also make an order for an interim payment of damages in the amount of £500,000. I will also grant a post-judgment freezing order for the whole of the claim.