Autogas (Europe) Ltd v Ochocki & Ors

This is a claim for compensation for dishonest assistance in a fraud.

The claimant (“Autogas”) is a limited company incorporated in England. On 11 August 2010 a winding-up order was made against Autogas upon the petition of HMRC. HMRC had already obtained the appointment of a provisional liquidator, Mr Stephen Hunt (who is now the liquidator), and he had commenced proceedings in the Chancery Division (“the Earlier Proceedings”) in Autogas’s name claiming damages against a number of defendants for various breaches of duty said to amount to fraud in connection with the matters leading to its insolvency.

The alleged fraud was quite simple. It was committed in the context of chains of sales of German electricity between March and June 2010. In each case the chain was the same. Total Global Steel Limited (“TGS”), acting by a German subsidiary, sold the electricity to HCX Rotterdam BV (“HCX”), a company incorporated in the Netherlands. HCX sold the electricity to Autogas. Autogas sold it to OCH Capital LLP (“OCH”), a limited liability partnership in England. OCH sold it to Gazprom Marketing and Trading Limited (“Gazprom”). Importantly, no VAT was payable on the sales by HCX to Autogas, because HCX was a VAT-registered trader in the EU, but VAT was payable on the sales by Autogas to OCH. The way the fraud operated was summarised as follows by the liquidator in one of his witness statements in the earlier proceedings, which is also how the matter has been explained in the present proceedings (here and in other citations I substitute my abbreviations for those used at various times by others):

“This case involves a relatively simple defaulting trade fraud. Autogas, an effectively dormant company, but holding an existing VAT number, suddenly commenced trading in electricity, buying German electricity from HCX Rotterdam … in Holland (on which transactions no VAT was payable) and then selling it on to OCH (on which transactions VAT was payable). The way the fraud operated was that instead of OCH making payment to Autogas and Autogas then paying HCX, other than for the first two payments which went to Autogas, all of the payments due from OCH to Autogas (including the VAT element of the invoices in Autogas’s profit element) were instead paid by OCH direct to HCX in Holland. No payments were ever returned by HCX to Autogas, although it is true that €1 million was sent on Autogas’s instructions to Hong Kong. The net result of this was that all of Autogas assets were paid offshore to HCX such that Autogas was unable to discharge its creditors (primarily HM Revenue and Customs).”

I observe that in respect of most of the trades OCH made payment in money, but sometimes it paid by offsetting transactions involving carbon credits. I say a little more about those transactions later, but at this stage it suffices to observe that they functioned mainly as a method of payment for the electricity.

There were several defendants to the claim in the Earlier Proceedings: Mr Marc Henri De Bondt, Dr Mehdi Amraie and Mr Marc De Keersmaeker as de iure or de facto directors of Autogas; HCX; Mr Marcus van Mierlo as the person in control of HCX; and Jade Capital Trading Limited (“Jade Capital”), a company registered in Hong Kong, which had been acquired by new owners in March 2010 and to which HCX transferred €1,000,000. The claim against Dr Amraie was compromised at an early stage; he was released from any liability in exchange for providing documents and information to the liquidator. Judgment in default was entered against Jade Capital and in due course £435,783 was recovered under the judgment. The case against Mr De Bondt, Mr De Keersmaeker, Mr van Mierlo and HCX proceeded to trial before His Honour Judge Mackie Q.C. on 22 February 2012. None of the defendants appeared or was represented at the trial. Judge Mackie received written and oral evidence and found the case against the defendants proved and gave judgment: against HCX, for €4,511,275.30, being the amount of the overpayment to it, plus interest; against Mr De Bondt and Mr De Keersmaeker, for €593,668.85 in respect of the moneys paid to Jade Capital, plus interest; and against Mr De Bondt, Mr De Keersmaeker, Mr van Mierlo and HCX for an amount to be assessed in respect of the remainder of the claim. So far as I know, Autogas has not pursued the assessment of further compensation. No moneys have been recovered, other than those obtained from Jade Capital.

Because the case advanced by Autogas regarding the nature of the primary fraud is materially identical in these proceedings to the case advanced in the Earlier Proceedings, it is convenient to refer to some passages from Judge Mackie’s judgment. At paragraph 21 he quoted, as a useful summary, the liquidator’s description of the fraud in the passage set out above. At paragraph 29 he referred to schedules produced by the liquidator to show the uncommercial nature of HCX’s and Autogas’s trading (those schedules or ones substantially the same have been put in evidence before me) and said:

“These summaries are revealing. The summary schedule of the calculated mark-ups and losses on the power trades show how HCX and Autogas were put in as buffers for electricity transactions between TGS and OCH in a way which leads to the irresistible conclusion that the only way that HCX could afford, and the only reason why Mr van Mierlo was content to allow things, to operate in this way was because HCX was receiving Autogas’s assets including Autogas’s trading profit.”

He continued at paragraph 33:

“The accumulation of all the evidence leads Autogas to submit that the business dealings between Autogas and HCX were fraudulent; that Mr De Bondt, Mr Keersmaeker, HCX and Mr van Mierlo conspired with each other to injure Autogas by causing or allowing Autogas’s assets to be transferred to HCX. It seems to me that this is abundantly clear. This is a typical and not particularly sophisticated fraud whereby the claimant’s assets are disposed of to the benefit and profit of others thereby defrauding the company and its creditors. It is said that such conduct was a breach of the duties of Mr De Bondt and Mr Keersmaeker. It obviously was because both directors and employees owe duties to their companies not to defraud them or make off or dispose unlawfully with their assets. It is claimed that HCX and Mr van Mierlo dishonestly assisted and were accessories to those breaches. It seems to me very clear that they were.”

Judge Mackie’s findings in respect of the primary fraud in the Earlier Proceedings, as set out above, do not bind the defendants in the present proceedings and their correctness has not formally been admitted. However, no attempt has been made to show or argue that they are wrong or that there is a real possibility that they are wrong. On the basis of the evidence before me I can say shortly that Judge Mackie’s findings are, in my view, amply supported by the evidence and are plainly correct. The trade between HCX and Autogas had no true commercial purpose but was simply designed to use Autogas as nothing more than a vehicle to create a VAT liability, with a view to the dishonest misappropriation of the VAT due on the sales to OCH.

In the present case, which was commenced in March 2015, Autogas seeks damages against three individuals who were involved in OCH at the time when it traded with Autogas, on the ground that they dishonestly assisted in the fraud. (The pleaded case is also put on the basis of conspiracy. However, Mr Pickering for the claimant accepted that this alternative basis could not succeed if the case in dishonest assistance did not, and he did not advance submissions specifically in respect of the alternative basis. Accordingly, I shall say no more about a case based on conspiracy as such. However, as I shall explain later, the case in dishonest assistance was ultimately put in a way that imputed collusion by the defendants with the primary fraudsters.)

OCH was established as a limited liability partnership in England on 3 March 2009. The designated members were the first defendant, Mr Thomas Ochocki, the second defendant, Mr Timothy Saunders, and OCH Capital and Partners LLP. Mr Ochocki was and is a stockbroker in the City. In that capacity he had for some years provided services to Mr Saunders, who was and is a successful businessman with a number of businesses, mainly focussing on engineering. When in 2008 the firm for which Mr Ochocki was working failed as a result of the financial crash, Mr Saunders put up the finance for a new stockbroking business, OCH. The profits of the business would be shared as to 80% for Mr Saunders and as to 20% for Mr Ochocki. Mr Saunders would have no direct involvement in the business but would exercise overall authority. Mr Ochocki would lead the broking team. The third defendant, Mrs Christina Craig, is Mr Saunders’ daughter. At the time with which these proceedings are concerned she was unmarried and was known as Tina Saunders; nevertheless, I shall simply refer to her as Mrs Craig. She was and remains a member of TPE (Evenlode) LLP, which was set up by Mr Saunders to provide management and administrative services to his other businesses. In that capacity, at the relevant time in 2010 she spent usually four days a week working at OCH’s offices in London. Her responsibilities included the making of payments in respect of the trades carried out by OCH.

Put very simply, Autogas’s case against Mr Ochocki, Mr Saunders and Mrs Craig is as follows. The fraud perpetrated against Autogas by those who controlled it and HCX required the presence of at least one “rotten apple” within OCH. The fraudsters needed to know that OCH would co-operate with irregular or suspicious trading patterns and payment requests and would not ask too many questions or alert the authorities to anything untoward. For this to be the case, whoever else may have been involved (Autogas has for the most part not committed itself to affirming or denying that others at OCH were involved, although its position in closing submissions was that one other named person was probably involved), each of the three defendants must have been a rotten apple: Mr Ochocki, because he was in charge of the trading team and, though he could not himself make payments for OCH, could give the necessary confirmation that payments were in order; Mr Saunders, because he was ultimately the owner of the firm and, though he did not engage in its trading, kept strict control of its operations; Mrs Craig, because she alone was able to make payments to third parties and was her father’s “eyes and ears” at the office. Autogas does not suggest that the defendants are practised or professional fraudsters and it acknowledges that there is no direct evidence of communications suggesting a conspiracy with the primary fraudsters. However, it contends that close analysis of the facts sufficiently demonstrates that they knew that the trading in which they were engaged was being used as a means of fraud by those involved with Autogas and HCX and that, on account of the good profits to be made from that trade, they were content to continue the trading and facilitate the fraud.

The rest of this judgment will be structured as follows. First, in the light of the summary set out above, I shall say something about the relevant law. Second, I shall provide a factual narrative. There is relatively little dispute as to the primary facts; the case against the defendants rests largely on inferences that are said to be properly drawn from the facts as a whole, and I shall highlight some of the inferences contended for as the narrative progresses. The narrative will be relatively lengthy, though I shall not include everything that has been put in evidence. (A considerable amount of additional detail is contained, in particular, in the witness statements of Mr Andrew Fatherly, a forensic investigator, and Mr Peter Sawyer, an officer of HMRC, who gave evidence for the claimant. I have had regard to all of their evidence.) Third, I shall summarise the way in which the case against the defendants is set out in the Amended Particulars of Claim and the way in which that case was presented at trial. Fourth, I shall discuss that case and state my conclusions.

A person will be liable as an accessory on the ground of dishonest assistance if he has “lent assistance to the commission of a primary breach of trust, or in some other breach of duty by a person in a fiduciary relationship with the claimant”: Snell’s Equity (33^rd edition) at 30-078. The relationship between a de iure or de facto director and his company is a sufficient fiduciary relationship. The primary breach of duty need not be breach of a fiduciary duty; what matters is that the fiduciary owed a duty and broke it. If a director misappropriates or assists in the misappropriation of his company’s assets, there is a sufficient primary breach.

It is a question of fact whether the defendant assisted the breach of the fiduciary’s duty. “The assistance must be more than of minimal importance, and must enable the breach by the trustee to be committed, but there is no requirement that what is done by the defendant inevitably has the consequence that a loss is suffered”: Lewin on Trusts (19^th edition) at 40-032.

The assistance must be given dishonestly. The test for dishonesty is objective, in the sense explained by Lord Hughes JSC in Ivey v Genting Casinos (UK) Limited [2017] UKSC 67, [2018] 3 WLR 1212, at [74]:

“When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”

If one keeps clearly in mind both that the test for accessory liability is dishonest assistance (not “knowing” assistance) and that the test for dishonesty is as set out by Lord Hughes, problems concerning defining requisite degrees of knowledge evaporate, or ought to do so. The exercise is simply to establish the defendant’s state of mind in respect of knowledge and belief and then to ask whether, on the basis of that state of mind, the defendant’s conduct was honest or dishonest. Questions of “turning a blind eye” or of “Nelsonian knowledge” are then put in their proper place. Thus, in Royal Brunei Airlines v Tan [1995] 2 AC 378, Lord Nicholls of Birkenhead said at 389:

“In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless.”

This really has nothing to do with what counts as sufficient knowledge. Rather it has to do with what is and what is not dishonest conduct.

An allegation of dishonesty, as with any allegation of fraud, must be clearly pleaded and proved. It is not necessary to plead dishonesty expressly; however, if it is not expressly pleaded, the court is not entitled to make a finding of fraud unless the primary facts pleaded are inconsistent with anything other than dishonesty. If dishonesty is pleaded expressly, it is for the trial judge to decide whether it has been proved on the evidence. Similarly, if the claimant has pleaded primary facts that are consistent only with dishonesty, it is for the trial judge to decide whether those facts have been proved. See Three Rivers District Council v Bank of England[2001] UKHL 16, [2003] 2 AC 1, per Lord Hope of Craighead at [55]-[56]. In JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm), at [20], Flaux J rejected a submission that it was necessary that the facts pleaded as particulars of fraud or dishonesty be inconsistent with any innocent explanation, and he continued, with reference to the Three Rivers case:

“The claimant does not have to plead primary facts which are only consistent with dishonesty. The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact ‘which tilts the balance and justifies an inference of dishonesty’. At the interlocutory stage, when the court is considering whether the plea of fraud is a proper one or whether to strike it out, the court is not concerned with whether the evidence at trial will or will not establish fraud but only with whether facts are pleaded which would justify the plea of fraud. If the plea is justified, then the case must go forward to trial and assessment of whether the evidence justifies the inference is a matter for the trial judge. This is made absolutely clear in the passage from Lord Hope’s speech at [55]-[56] which I quoted above.”

The reference to Lord Millett’s speech in Three Rivers is to [186], where he said:

“At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.”

The standard of proof in a claim based on dishonest assistance is the civil standard, namely proof on the balance of probabilities. However, where a serious allegation, such as fraud or dishonesty, is made, the court may require more cogent evidence than in the case of a minor allegation before finding the allegation proved. In Re H (Minors) [1996] A.C. 563, Lord Nicholls of Birkenhead said:

“The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind the factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. … Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.

Although the result is much the same, this does not mean that where a serious allegation is in issue, the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.”

Finally, it is convenient to say something here about the nature of the primary fraud, although the point is not really a legal one. There was much argument at trial as to whether the primary fraud is properly to be called an MTIC Fraud. I cannot pretend that I think the point regarding nomenclature matters for my purposes. The important thing is to understand how the fraud operated. It was a VAT Acquisition Fraud, in the sense explained by Jacob J in Commissioners of Customs & Excise v Federation of Technological Industries [2004] EWCA Civ 1020:

“17.

The simplest form of abuse is what the CCE [i.e. the Commissioners of Customs & Excise] call ‘acquisition fraud’. A business in the UK acquires goods from an EU supplier VAT free and sells them on into the United Kingdom market directly or indirectly. When it sells these goods to its UK customers it charges VAT but it fails to account to the CCE for the VAT it collects. Before the CCE catch up with it the trader simply disappears.

18.

This kind of abuse is somewhat limited in that the importer who intends to defraud is actually selling the goods into the United Kingdom market. He has to find real customers or his customers do.”

As this passage makes clear, it is typical of a VAT Acquisition Fraud that there are actual sales to real customers in the UK. However, as such a fraud depends on the creation of large VAT liabilities the sales are usually of high value, low volume commodities (in the present case, electricity), where the mark-ups are usually small; these can generate invoices for substantial sums and involve minimal overheads. In the typical VAT Acquisition Fraud, the fraudulent trader will go missing in the sense that, as Jacob J put it, it “simply disappears”. Literal disappearance is not, however, of the essence of a VAT Acquisition Fraud; there are variants. In some cases, the identity of a legitimate VAT-registered trader is “stolen” for the purposes of the trades. In other cases, such as the present case, the trader is a “defaulting” trader: a VAT-registered company that has no or minimal assets and either does not receive or disposes of (the effect is the same) the invoiced moneys and is unable to account to HMRC for the VAT for which it is liable.

Jacob J distinguished VAT Acquisition Fraud from Carousel Fraud:

“19.

Much more significant is the second type of abuse which the CCE call ‘carousel fraud’. Again, there is a UK importer buying from a supplier in another EU state. Again, he pays no VAT on his purchase. He then sells to a ‘customer’ in the UK, charging VAT. That ‘customer’ sells on to another ‘customer’, himself charging VAT (output tax) and setting that against the tax he paid to his supplier (input tax). This may go through several traders (whom CCE call ‘buffers’). The last buffer in the chain does not, however sell on to ultimate UK customers. He sells back into the EU, very often to the original seller. He will have paid input tax on his purchase. This he claims ‘back’ from CCE. None of this would matter if the original importer, who has charged output tax to the first of the buffers, were around to account to the CCE for that tax. But by now he has disappeared.

20.

So on each circuit of the ‘carousel’ 17.5% of the value of the goods is extracted from the CCE. The scheme requires high value low physical size goods – a containerful of mobile phones or computer chips is just right for this. A pallet-load arrives at Heathrow, the transactions all take place quickly (perhaps in the same day) and the pallet moves out again.”

The primary fraud in the present case clearly differed from a Carousel Fraud, in that there were genuine UK supplies of commodities and no sale back into the EU.

Evidence from HMRC, adduced by Autogas in these proceedings, is that a “common feature” of VAT Acquisition Fraud, and indeed “one of the ‘footprints’ of this form of fraud”, is “third party payment requests”:

“When the initial importer of the goods contracts to sell them to another UK entity, a request will be made that payment of all or substantially all of the purchase price is paid directly to a third party, usually out of the jurisdiction. Only a very small amount of the price—representing the ‘commission’ taken by those operating the importing entity as their reward for participating in the fraud—is paid to the importing entity. As a result, when HMRC become aware of the default of the importing entity in accounting for the VAT which it has charged, there are generally no assets available to meet the liability.”

This is precisely what happened in the present case; the fraud was effected by getting OCH to make the payments due to Autogas to overseas accounts held by or for HCX. It might be noted, however, that the procuring of payments to third parties out of the jurisdiction is not of the essence of a VAT Acquisition Fraud; rather it is a typical method of making off with the assets and placing them beyond the reach of HMRC.

Autogas was incorporated on 1 May 2002 and carried on the business of a petrol station in Neasden, London. It was registered for VAT on 24 April 2003, when it stated that its activities were “petrol filling station and shop”. It last annual return to the Registrar of Companies, made up to 1 May 2009, showed that Ms Bahareh Saber was the sole shareholder, with two ordinary shares of £1 each. Ms Saber was a director of the company from 2004 onwards and was from January 2008 until March 2010 the sole director. The company’s last set of accounts was made up to 31 May 2009 and was filed on 22 March 2010. It showed net liabilities of £97,165 and fixed assets with a net book value of £670,680. However, on 1 July 2009 Autogas had filed amended abbreviated accounts for the year ending 31 May 2008; these showed a balance sheet deficit of £156,515 and included a statement that the directors “have identified factors which cast doubt on the ability of the company to continue trading for the foreseeable future, but consider it sound to use going concern basis.” In about June 2008 Autogas sold the petrol station to another company, and it did not thereafter carry on its original business. Autogas filed Nil VAT returns for the periods to September 2009, December 2009 and March 2010. It did not file a VAT return for any later period.

In August 2009 Autogas was advertised for sale in Loot:

“Excellent trading potential. Currently obtaining several large fuel distribution contracts. Trading for the past 7 years. The company has a loyal customer base and boasts a well established name within the industry. We are selling Autogas Limited without assets.”

The main points of what happened next, if not all the details, are clear enough. In early 2010 Autogas was bought by Mr De Bondt and Mr De Keersmaeker. It was really no more than a name, but it did have a VAT registration and two Euros currency bank accounts, one with Habib Bank and one with HSBC. On 10 March 2010 Dr Amraie was appointed as a director. It appears that he had been asked by Ms Saber to assist in the sale and that his appointment was probably a matter of convenience. From early March 2010 at the latest the company was under the control of Mr De Bondt and Mr De Keersmaeker. Mr De Bondt was formally appointed as a director on 27 April 2010 and the two issued shares were transferred to him on 30 April 2010. Ms Saber resigned as a director on 30 April 2010 and Dr Amraie on 12 May 2010. Mr De Keersmaeker was never formally appointed as a director, though he later told HMRC officers that it had been intended that he be appointed, and the two other employees of Autogas (an office manager and a trader) told officers of HMRC that they thought he was a director.

Meanwhile, in October 2009 OCH had begun trading in US and UK equities and Contracts for Difference (CFDs) on global equities, commodities, interest rates and the currency market. In November 2009 it applied for VAT registration, which the following month was given with retrospective effect from May 2009. OCH’s business was regulated business activity; for that reason, OCH carried on the business as an appointed representative of Union Investment Management Limited, which was authorised by the Financial Services Authority in the conduct of regulated activities. (Mr Saunders acquired Union Investment Management in January 2010.) Until March 2010 OCH carried on no business other than the regulated trading of equities and CFDs. The trading was carried on in a specific part of OCH’s premises, to which only the broking team had access. There were up to a dozen brokers working for OCH at any one time. Mr Ochocki oversaw the broking team. Mr Saunders rarely attended at OCH’s premises and, when he did so, he did not have access to the trading area because he was not authorised by the FSA.

Among the other persons who worked at OCH a few may be mentioned. Mr Simone Pozzi was one of the brokers under Mr Ochocki’s supervision. In due course, he was involved in the trading with Autogas. From mid-November 2009, Ms Jenny Jones assisted Mrs Craig in administration and backroom support, having been recruited through an employment agency. Ms Kathryn Davenport, a solicitor, acted as part-time compliance officer for Union Investment Management and OCH from February 2010. Mr Julian Langridge was an accountant who was instructed generally by Mr Saunders in respect of his business affairs. He regularly attended OCH’s offices and, though holding no formal position, was (as the liquidator fairly says) “regarded as a delegate and the eyes and ears of” Mr Saunders. In particular, while Mrs Craig kept a general eye on how things were running and had responsibility for office administration, bookkeeping and the making of payments, Mr Langridge monitored the cash flow of the business.

The earliest documentary evidence of OCH’s interest in becoming involved in the energy market is an email of 4 November 2009 from Mr Pozzi to Mr Martin Lonergan, a director of TGS:

“Thank you for your time. As requested you can find attached our brochure. Please let me know if you think we are suitable to trade energy for your company.”

There had clearly been a telephone conversation between Mr Pozzi and Mr Lonergan. There is no evidence as to how that specific contact had come about. There is some evidence, which I shall mention later, that there was an existing business relationship between TGS and OCH; however, the communications in November seem hardly consistent with such a relationship. Mr Lonergan replied to Mr Pozzi’s email:

“Thank you for the information contained in your email and your telephone inquiry. We are very interested in the energy markets and have joined a number of exchanges with a view to entering this market. With the continuing deregulation in the markets we see lots of exciting opportunities to develop.

I would invite you to our website, which gives an overview of our company …

I have also copied this to our compliance department and they will send you out our standard KYC [Know Your Client] pack. Hopefully we can develop our relationship.”

Mr Pozzi replied, asking for more information about TGS so that he would know which was the right KYC pack to send. He asked: “Do you have some indication about the specific products you want us to trade for you?” A little later that day a different person at TGS sent an email to Mr Pozzi, attaching TGS’s “standard KYC” and a copy of TGS’s most recent accounts and giving some information concerning TGS’s activities regarding energy products. Mr Pozzi promptly forwarded that email to Mr Ochocki, without comment. Later that day Mr Ochocki forwarded the email to Mr Langridge, copying in Mr Saunders, again without comment. This indicates the probability that Mr Ochocki and Mr Langridge knew that Mr Pozzi was in contact with TGS regarding involvement in energy trading, and at least the possibility that Mr Saunders also knew. Mr Saunders’ evidence in cross-examination was that he had known that Mr Ochocki wanted OCH to trade in energy but that he himself knew then and knows now nothing at all about such trading; he clearly received the email, along with many others, but had no recollection of reading it.

Further emails on 4 November 2009 between Mr Pozzi and TGS show that it was envisaged that OCH would act as agents or brokers for TGS rather than trade on their own behalf. Mr Pozzi sent to Mr Lonergan a list of the KYC that OCH would require to open an account for TGS. An email of 6 November 2009 from Mr Ochocki to Mr Pozzi shows that OCH was in discussions with Deutsche Bank and TGS with a view to trading pursuant to an EFET (European Federation of Energy Traders) Agreement with Deutsche Bank that it, OCH, would sign as an agent of TGS. On 9 November Mr Pozzi asked Deutsche Bank if the process could be speeded up, as “TGS really wants to begin to trade asap.” However, Deutsche Bank replied that trading could not commence until an EFET was in place. On 11 November TGS sent to Mr Pozzi a copy of what was presumably the form of brokerage agreement it proposed to enter with OCH.

Matters proceeded slowly in late 2009. On 7 December 2009 Mr Ochocki sent a draft agency agreement between TGS and OCH for consideration by a compliance officer at Union Investment Management. On 17 December 2009 Mr Lonergan sent Mr Ochocki a letter, headed “Ref: German Power/Amprion”, as follows:

“I write to confirm that on occasions, when notified in good time by electronic mail, in accordance with your agency agreement, that Total Global Steel will deliver, accept receipt of and schedule German Electricity trades in accordance with the terms and conditions of physical power trading on the German power grid.

I confirm that we have in place a balancing and settlement agreement with Amprion, the German grid operators; that we are capable and competent in this process.”

Eventually, on 21 December 2009, an Agency Agreement was executed between TGS and OCH. Mr Ochocki signed it for OCH; his signature was witnessed by Mrs Craig. Clause 2 stated that TGS engaged OCH “to perform agency services … in relation to physically delivered energy commodities in the European over-the-counter energy commodity markets …” Interestingly, clause 1 stated that the Agency Agreement was “supplemental to the existing client agreement (incorporating the Agent’s terms of business) entered into between the parties on 21 October 2009, which client agreement and terms of business shall remain in full force and effect.” This seems rather at odds with the terms of the communications in November 2009 and the focus then on KYC; the matter was not satisfactorily explored in evidence. At all events, no business was ever transacted under the Agency Agreement between TGS and OCH. Mr Ochocki’s evidence in cross-examination was to the effect that, by the time the Agency Agreement was finalised, TGS had reached its credit limit with Amprion and that for that reason, and because he had not had much of a rapport with Mr Lonergan, he had preferred to explore the possibility of OCH trading in energy on its own account rather than acting as TGS’s agent.

Accordingly, on 21 December 2009 Mr Pozzi sent an email to Amprion GmbH, which as one of the transmission system operators for electricity in Germany managed the grid that would supply the electricity to be traded, and asked for documentation to enable OCH to obtain a Balancing Agreement with Amprion, which, as Mr Ochocki subsequently explained to Mr Saunders and Mr Langridge (email of 11 January 2010), would enable OCH to trade in electricity in its own right, not merely as an agent of TGS. As I shall explain in more detail later, the claimant’s case at trial involved the suggestion that the decision to apply for an Amprion Balancing Agreement resulted from an approach by some third party, probably at TGS, to someone at OCH, probably Mr Ochocki, to the effect that a supplier of electricity at uncommercially low prices would shortly make itself known to OCH.

On 30 December 2009 Mr Saunders asked Mr Ochocki by email, “What about Carbon Offsets?” Mr Ochocki responded by sending a link to a web page on the topic; the page is no longer available and it is not known what it said. These are the first documented references within OCH to the use of carbon credits (European Union Allowances: “EUAs”). Mr Saunders’ evidence was that he could not recall why he had asked Mr Ochocki about carbon credits, as he knew nothing about them; perhaps he had seen or heard something about them and wanted Mr Ochocki’s view as to whether they were worth considering. Whatever the reason for his email, he said, it had nothing to do with the trade in carbon credits that began more than three months later in April 2010. Mr Ochocki’s evidence was that the decision taken then to trade in carbon credits resulted from an approach by Autogas to Mr Pozzi, who asked if they could be paid in carbon credits in the interests of quicker settlement of trades; Mr Ochocki in turn contacted Gazprom, who confirmed that they were happy to trade in carbon credits.

On the morning of 15 January 2010 Mr Chet Shah, a commodity trader at Gazprom, sent an email to Mr Ochocki, whom he had met at a drinks reception a day or so previously: “Please call when you have some time today to discuss Power project in Germany.” They spoke that day, and that evening Mr Ochocki sent Mr Shah an email containing information about OCH and Union Investment Management. The email said, “We are currently organising our own balancing agreement with Amprion, but have an option of using the balancing agreement or Total Global Steel, who we are an agent of.”

At this stage, although it was in discussions with Amprion, OCH did not have its own supplier of electricity. In cross-examination Mr Ochocki said that he had understood that Mr Pozzi was in discussion with a number of companies and was confident that a supply could be put in place.

On 19 January 2010 Mr Ochocki met with Mr Andre Basson of Gazprom, and it was agreed that the necessary arrangements would be made for OCH to become a Gazprom “counterpart” and to put in place an EFET Agreement. On 21 January Mr Pozzi sent to Mr Basson financial information concerning OCH and Union Investment Management, which was required in order to satisfy Gazprom’s KYC requirements. On 26 January Mr Basson responded to Mr Ochocki and Mr Pozzi, asking for further information. Mr Ochocki forwarded the request to Mr Langridge and asked him to provide such of the required information as he could. That same day Mr Ochocki spoke with Mr Shah, and on 27 January he sent him an email: “We are scheduling our flow over the coming weeks. I’m pleased you are confident of being able to take some business. Any idea of how soon you will know on the volumes?” As at that date, OCH was not trading in electricity on its own account and had also not done business in energy trading as broker for TGS. Mr Ochocki’s email shows that at this date, also, although Gazprom was indicating that it hoped to buy electricity it was not ready to place any orders.

On 1 February 2010 Gazprom sent to Mr Ochocki and Mr Pozzi a draft EFET Power Election Sheet for their review and comment. Mr Ochocki forwarded it to Mr Langridge and Mr Saunders “FYI”, but without explanation. Mr Pozzi drafted a response to Gazprom, which he sent to Mr Ochocki, apparently seeking his comments. The response sought further information and said that advice was awaited from OCH’s compliance team as to whether Gazprom would be required to complete a KYC questionnaire. Mr Ochocki simply sent a response without comment; presumably this amounted to an indication of approval.

Meanwhile, shortly after receiving the EFET document from Mr Ochocki, Mr Langridge sent an email to Mr Saunders:

“I’m not at all sure what we are looking at here. At what point will you (when we understand who the players are and the full nature of the contracts) be getting one of our lawyers to make sure that we are not dropping ourselves into something nasty? I think that whoever we use needs to satisfy us that they fully understand these markets (if anyone truly does understand them).

Also, I know it is stating what we already know, but we need, over the next couple of days, [to] be as sure in our minds as we can be, about which company or partnership we use, where it will be based and how it will be staffed.

Clearly Tom [Ochocki] and Simone [Pozzi] are ‘having conversations with the relevant players’ and we all know they have been for some time. It looks as if we are getting close to you needing to enter into contracts or agreements of some sort. We don’t want to get too far down any particular route and then have too many changes of direction on our account if we can avoid that by thinking it through better.

At what level is Tom authorised to bind you into this sort of thing?”

On 9–11 February 2010 the E-world Energy & Water Fair 2010 was held at Essen, Germany. Mr Pozzi attended on behalf of OCH. Mr Ochocki’s evidence was that, as he understood, it was there that Mr Pozzi first met a representative of Autogas, who told him that Autogas could supply OCH with electricity. There is no documentation in respect of such a meeting, but that does not mean it did not occur.

On 11 February 2010 Mr Ochocki sent to Mr Shah “further information on OCH that may help you with your KYC process”.

On 17 February 2010 Mr Ochocki sent an email to Amprion, asking that it consider accepting a bond for €120,000 instead of the bank guarantee that Amprion had requested: “We would prefer this option as it would be much quicker for us and we could do this immediately.” Mr Saunders, Mr Pozzi and Mr Langridge were copied into the email. It appears that Mr Langridge had already communicated directly with Amprion on the question of giving a bond instead of a bank guarantee. However, Amprion rejected that alternative, and on 18 February Mr Saunders signed an application form for a bank guarantee for €120,000 in favour of Amprion.

On 23 February 2010, after further exchanges concerning the precise wording, Mr Ochocki signed the EFET Agreement and returned it to Gazprom.

On 9 March 2010 the Royal Bank of Scotland provided the requisite guarantee to Amprion. It appears that the EFET Agreement between OCH and Gazprom was formally completed on 10 March 2010. From this time, therefore, OCH was able to buy and sell German electricity. However, it had not yet made any arrangements with a supplier. Mr Ochocki’s evidence was that Mr Pozzi already had two potential suppliers in mind, namely Sky Formations and Autogas. OCH was not, he said, concerned at the need to put an EFET Agreement in place with its chosen supplier, because it had done a lot of work in respect of the EFET Agreement with Gazprom and intended to use that as the basis of any future agreement.

The first documented contact between Autogas and OCH is an email dated 10 March 2010 from Dr Amraie (who signed himself “Mehdi”) to Mr Pozzi (who was addressed as “Dear Madam/Sir”). This significant email was in the following terms:

“AutoGas Europe Ltd (AGE) has been active in the procurement and supply of Electricity, Gas, Oil and Energy. We have built and maintained relationships with the major players in the Energy Market. Recently Autogas Europe Limited has decided to dedicate some of its resources towards the De-regularized Power Market entered into several contracts supplying Intraday, Day ahead Power and are looking to expand our business by entering into bilateral agreement companies such as yours.

AutoGas Europe Ltd (AGE) is a major participant in the European and Middle East gas markets with a network of assets. It is active in transportation, storage, and wholesale trading and has the ability to transact across all markets and offer customised products and complete solutions. AutoGas Europe Ltd (AGE) is a leader in the wholesale natural gas markets. It offers a full service, natural gas marketing operation with expertise in all segments of the natural gas industry. AutoGas Europe Ltd (AGE) is a leader in the international wholesale energy markets. It has the ability to source, supply, transport, store, blend and convert physical commodities across the wholesale energy markets.

AutoGas Europe Ltd (AGE)’s headquarters are based in London and with offices across the continents. It is active across generation, supply, trading, transmission and distribution of electricity with a growing gas and other commodities portfolio.

AutoGas Europe Ltd (AGE)’s Contributions:

•

Access to the wholesale markets.

•

Optimising the value of a wide range of assets including long-term export contracts and power generation plants.

•

Supply, storage and transportation services.

•

Trading expertise and competencies.

•

Emissions trading and management.

•

Developing a presence in new markets.

•

Hedging and risk management.

If this is of interest to you please do not hesitate to contact AutoGas Europe Ltd (AGE).”

For the liquidator, it is submitted that it would be a remarkable coincidence if, on the very day that the EFET Agreement with Gazprom was concluded, the necessary supplier of electricity to OCH suddenly appeared from nowhere. It is also said that Dr Amraie’s email gives no indication that he already knew Mr Pozzi, who was addressed in terms suggesting uncertainty as to whether Simone was the name of a man or a woman, makes no mention of the recent Fair at Essen, and gives rise to the question how he knew Mr Pozzi’s email address. Further, it is submitted that the lies in the email concerning Autogas’s trading were so egregious and so easily discoverable to be lies that Dr Amraie must either have been taking a huge risk or have been confident that OCH would not bother to check the truth of the claims or be indifferent as to their truth. In short, it is said, the email was a paper trail for use in case of an investigation by the authorities.

Mr Pozzi replied to Dr Amraie on the following day. It suffices to refer to a few passages of the email.

“We are quickly establishing ourselves in the Commodities and Energy sector with blue-chip clients and banks. This has stemmed from our ability to provide aggressively priced power from several sources.

We are now looking to expand our network and are interested in opening a Continental Power credit line and sign a EFET with yourselves. We currently have relationships with Deutsche Bank, Eon, Gazprom and RBS (Sempra).

…

We are confident of our offer to provide an additional or alternative cost effective source to your current energy requirements.

Attached [are] our preferred draft of the [EFET] election sheet … and OCH certificate of incorporation.

Please provide as much of the following information as possible:

•

Latest audited financial accounts.

•

Copy of passports of any individuals with company ownership over 10%.

•

VAT registration certificate.

•

Bank reference / credit letter.

•

Certified copy of Certificate of Incorporation.

•

Certified copy of Memorandum and Articles of Association.

•

List of relevant directors and Traders with authority to deal.”

For the liquidator, Mr Pickering observed that Mr Pozzi’s email shows no sign that he and Dr Amraie or Autogas and OCH had any prior acquaintance, and he submitted that the request for information about Autogas was no more than a formal pretence at observance of KYC process. It may also be noted that Mr Pozzi’s email can hardly be said to have given an accurate picture of OCH’s position in the energy market, and that the liquidator has neither interviewed nor pursued Mr Pozzi in connection with Autogas’s losses.

On that same day, 11 March 2010, an EFET Agreement was executed between Autogas and OCH. The EFET Agreement provided that payments from OCH to Autogas were to be made into a specified account at the Park Royal branch of HSBC Bank Plc.

The liquidator points to two matters in this regard: first, the speed with which the EFET Agreement was executed, particularly as compared to the time it took to negotiate the EFET Agreement with Gazprom; second, the fact that the EFET Agreement was executed before any of the requested information had been obtained from Autogas. These matters are said to be indicative of guilty knowledge on the part of OCH: a “no questions asked” approach to the trading relationship. The response to this contention given by Mr Ochocki was in brief as follows: first, the terms of the EFET Agreement acceptable to OCH had been worked out over time in negotiations with Gazprom, and OCH was in a position to use its Agreement with Gazprom as a model for any subsequent agreement; second, although standard KYC information was requested, trade in commodities was unregulated trading with OCH’s own money, not regulated trading with third parties’ money, and it was in OCH’s discretion to trade before receiving the information, the main factor of relevance being the level of OCH’s exposure to risk; third, that before the EFET Agreement was signed he discussed the matter with both Mr Pozzi and Mr Langridge, and that Mr Langridge told him that he had checked on Autogas, it had a valid VAT registration, and trading could commence. Mr Ochocki said that OCH had no knowledge or belief other than that Autogas was carrying out a normal trade in commodities.

The first trade of electricity between Autogas and OCH took place on 12 March 2010, when OCH had not received any of the information requested by Mr Pozzi. By the standards of subsequent transactions, it was a relatively small trade, though otherwise it was of a typical pattern. TGS sold 1800 MWh to HCX for €61,380. HCX sold that electricity to Autogas for €57,780. Autogas sold it on to OCH for €57,960 plus €10,143 for VAT. OCH sold it on to Gazprom for €59,310 plus €10,379.25 for VAT. For the liquidator, Mr Pickering pointed to what he called ironically “the staggering coincidence” that, of all the suppliers of electricity in the world, the ultimate supplier in the chain should have been TGS, with which OCH had spent many weeks negotiating an agency agreement that it never used. He submitted that OCH wanted to begin its involvement in the fraud by “dipping its toe in the water”. Mr Ochocki’s evidence was that, as it was embarking on a new kind of trade, with which it was not familiar, OCH simply wanted to see how a small transaction fared before moving on to anything larger. It is relevant to note that the payment by OCH to Autogas was made to Autogas’s bank account; it cannot, therefore, itself be a payment to assist a fraud.

On 15 March 2010 Mr Pozzi repeated his request that Autogas provide KYC information. In cross-examination Mr Ochocki denied that this and subsequent requests were simply designed to create a paper-trail in case of an enquiry by HMRC. He said that the requests were standard procedure but that compliance was not a precondition of trading.

On 17 March 2010 Mr Ochocki and Dr Amraie signed a memorandum of an agreed variation of the EFET Agreement, to the effect that OCH would pay Autogas’s invoices immediately upon receipt of payment from its own buyer. (The provision as to the bank account to which payments were to be made was not varied.) For the liquidator, Mr Pickering submitted that this should be viewed as OCH’s prudent distrust of a company it knew to be engaging in dishonest trade. Mr Ochocki and Mr Saunders insisted that it was simply a necessary measure to ensure that OCH did not become liable to pay very large amounts of money to Autogas without first having been put in funds to do so by Gazprom. I find this latter, innocent explanation to be far more likely to be correct.

On the same day, Mr Pozzi sent an email to Autogas, requesting an invoice for the trade on 12 March and setting out the due diligence information that OCH required. Autogas duly provided an invoice, which, like all its invoices until 11 May 2010, requested payment to a UK bank account with HSBC, though not the account mentioned in the EFET Agreement. The liquidator suggests that the number of the invoice, AGE0001, might be thought to indicate that Autogas did not have an established business.

Mrs Craig effected the money payment to the account stated on the invoice on 19 March. The payment was confirmed to Mr Saunders in an email from the bank. No problem appears to have arisen in connection with the payment. I note that, when Mr Langridge was still uncertain whether the payment had not only left OCH’s account but been received by Autogas, he enquired of Mrs Craig, “Have you got a contact at Autogas to speak to?” This tends to suggest that Mr Langridge had no direct contact with Autogas.

On 23 March 2010 Mr Ochocki and Mr Pozzi, on behalf of OCH, applied to open an account for OCH at the EU Emissions Trading (EUETS) Registry in the UK. The application was approved and the account opened on 30 March 2010. The EUETS Registry account enabled OCH to receive transfers of carbon credits and to make transfers of carbon credits both within the UK Registry and to the Registries of participating European countries. This meant that OCH could receive supplies of carbon credits from Gazprom and in turn supply them to Autogas by way of transactions undertaken to off-set against the trading between Autogas and OCH in electricity.

On the same day, Dr Amraie sent to Mr Ochocki by email a request that future payments by OCH to Autogas be paid to a bank account in the name of Autogas at the Southall branch of Habib Bank Zurich. The liquidator observes that no question seems to have been raised about this at OCH, even though it amounted to a deviation from the terms of the EFET Agreement. On the other hand, the new account was in Autogas’s name and was within the jurisdiction.

Also on 23 March 2018, the second electricity trade took place. Payment from Gazprom was received immediately, and Mr Pozzi asked Mrs Craig to send the necessary payment to Autogas. Accordingly, on 24 March Mrs Craig caused OCH to transfer €853,349.12 to Autogas’s account at Habib Bank.

Also on 24 March, Dr Amraie wrote to Mr Ochocki with a request that OCH ignore the invoices previously issued; the letter said Autogas’s accountants had recommended the use of a new software package, with the result that replacement invoices would be issued. The liquidator says that this is hardly consistent with Autogas’s claimed status as a “major player” in the energy market, and that the letter would have been expected to be, although it appears not to have been, a cause for concern to OCH.

On Friday 26 March the payment that had been made to Habib Bank was returned. On Monday 29 March Dr Amraie sent to Mr Ochocki a letter by email:

“As discussed, we are facing some issues with our bank being able to accept large amounts in transfer until our account has been upgraded to corporate account.

In light of this, could you please make the payment for the outstanding amount to the following bank account on our behalf:

Account Name: HCX Rotterdam B.V.

Account No.: 86.37.11.172

BIC: INGBNL2A

IBAN: NL 40 INGB 0683 7111 72”.

For the liquidator, Mr Pickering submits that, if those at OCH had truly believed that Autogas had a significant business in energy trading, its inability to receive “large amounts” into its bank account would have set alarm bells ringing; that it did not do so indicates that Mr Ochocki either knew that it had no such business or did not care about the matter. At all events, this email was the point at which Autogas asked OCH to make payments of its invoices to an overseas bank account in the name of an entity other than Autogas. In cross-examination, Mr Ochocki said that he would not have paid any particular attention to the terms of the request, because he was a trader, engaging in unregulated trade, and had no involvement with the payment process; he would simply have passed the request on to the finance department. Mr Pickering observes that the opening words of the email, “As discussed”, appear to indicate that Mr Ochocki and Dr Amraie had spoken by telephone concerning the matter. Mrs Craig acknowledged that she understood that some of the payments were being made overseas; this was evident from the IBAN number.

The moneys that had been returned by Habib Bank were then paid again by OCH: €155,681.06 was paid to an account in the name of Autogas, and €697,685.16 was paid to HCX. It remains unexplained why the payment was made in two parts and to two distinct accounts. Clearly there must have been a request that payment be made in that manner. Mrs Craig said that she would have made the payment in the manner instructed; she thought that the instruction would have come from Mr Ochocki. Mr Ochocki’s evidence was that he did not receive such a request and did not know that payment was being made to two separate accounts. The liquidator’s case, as advanced by Mr Pickering, is that those involved at OCH, namely the defendants, had been told that, if they were to participate in this lucrative trade, they must make the payments to whichever account Autogas requested, with no questions asked.

On 30 March 2010 OCH applied for an account in the Dutch EUETS Registry. Confirmation of receipt of the application was sent to Mr Ochocki, with Mr Pozzi being copied in. In cross-examination, Mr Ochocki said that he believed the application had been made by Mr Pozzi, using his (Mr Ochocki’s) computer; he had not himself had a conversation with Dr Amraie concerning opening an account in the Dutch Registry, and did not know why the Dutch Registry had been chosen. For the liquidator, Mr Pickering submitted that the Dutch Registry had obviously been chosen at the request of the primary fraudsters, as being where they were based, and that Mr Ochocki both knew the location of the account into which cash payments were henceforth to be paid and personally put in place the arrangements for the payments by carbon credits to HCX.

On the same day, Mr Ochocki sent an email to Mr Langridge, asking him to obtain “that” company information on both Autogas and Gazprom; the terms of the email seem to indicate that the information had been requested previously. The liquidator observes that this email was sent after substantial transactions had already been carried out with both Autogas and Gazprom. On the other hand, Mr Ochocki was at least seeking the information, albeit belatedly. Mr Ochocki says that he asked Mr Langridge for the information because he was au fait with company documentation, accounts and credit reports, and that Mr Langridge told him that everything was okay. When he was interviewed in the course of Autogas’s liquidation, Mr Langridge conceded that the company’s financial details were “not desperately attractive”. In his closing written submissions, Mr Pickering forthrightly said that Mr Langridge’s failure to report anything suspicious about Autogas was “presumably because he, like his boss [Mr Saunders], was ‘onside’ and accordingly did not in fact bother carrying out any checks or, if he did, was not bothered by what he saw.”

On 31 March 2010 OCH obtained a Creditsafe report on Autogas. On the same day, Dr Amraie sent to Mr Ochocki by email (copying in Mr Pozzi) a copy of Autogas’s certificate of incorporation, articles of association and memorandum of association. The following day he sent a copy of his own passport. On 16 April Mr Pozzi copied these documents to Jennifer Jones.

Meanwhile, the third and fourth electricity trades had taken place between Autogas and OCH, on 1 April and 12 April respectively. Payment for the third trade was made on 6 April, and Jenny Jones sent confirmation of the payment by way of an email attachment to Mr Ochocki. Payment for the fourth trade was made on 14 April: Mr Ochocki sent an email that afternoon to Mrs Craig, asking her to make the payment by 4 p.m., and on the following day she confirmed that she had done so. The payments were made by OCH in cash from its Euros account to HCX’s ING account, although the invoices asked, as did subsequent ones, for payment to Autogas’s HSBC account in the UK—Mr Pickering suggests that this was a necessary precaution for the primary fraudsters to take, since the issuing of invoices showing an overseas bank account would be recognised by HMRC as an indication of fraud—and there is no documentation regarding any contrary instruction. Mrs Craig said in cross-examination that she could not remember why she made the payments to HCX’s account; she thought it possible that she had asked Mr Ochocki whether the payments should be to the same account as before and he had said that they should. She said that she had not told her father that she was being asked to make the payments to an account other than that shown on the invoices, although it was also her evidence that she always spoke to him before making a payment. Mr Ochocki’s evidence was that he had not given any instruction to make payment to an account other than that shown on the invoices.

Also on 14 April 2010, Mr Chet Shah of Gazprom sent to Mr Ochocki by email, “FYI” but with no further comment, a news story suggesting that TGS might have traded recycled CO₂ credits in Hungary.

It was in the second week of April 2010 that communications commenced between Gazprom and OCH (Mr Ochocki) and between OCH (Mr Pozzi) and Autogas concerning the modification of the EFET Agreements to permit the parties to enter into individual carbon allowances transactions under the existing EFET Agreements.

The fifth and sixth electricity trades between Autogas and OCH took place on 19 April and 20 April 2010 respectively. The payments for these trades, as with nearly all subsequent cash payments, were made to HCX’s ING account.

Two other things happened on 20 April. First, OCH carried out a VAT Validation on Autogas. Second, Mr James Smallbone, an officer in HMRC’s MTIC National Co-ordination Team, made a telephone call to OCH and asked to speak to Mr Saunders with a view to meeting him to discuss mis-trading and fraud. Mr Saunders was not at OCH’s premises at the time, and Mrs Craig sent an email to Mr Langridge, asking him to arrange to speak to Mr Smallbone: “He originally asked for Dad, but as it is HMRC, I thought it was more likely they’d need to speak to you?!” The evidence adduced by the liquidator contains the comment that Mr Smallbone’s message does not appear to have raised any concerns within OCH; in context, this appears to carry the implication that the lack of concern is suggestive of a guilty state of mind at OCH, although it seems to me to be at least as suggestive of innocence.

The seventh electricity trade took place on 21 April 2010 Mrs Craig sent an email to Mr Ochocki and Jenny Jones, informing them that payment had been received from Gazprom and asking, “Please can you confirm that you are happy for me to pay Autogas (to their Netherlands Account) 621,810 Euros … today[?]”. Mr Ochocki replied, “Yes, pls initiate transfer same day urgent”. The enquiry referred clearly to an overseas account. On the other hand, it treated the account as being Autogas’s; there was no mention of a third party.

The eighth electricity trade took place on 22 April 2010.

On 23 April 2010 Gazprom and OCH modified and amended their EFET Agreement, by revising some of the invoicing and payment provisions and adopting the EFET Allowances Appendix relating to carbon allowances transactions.

On 27 April 2010 the ninth electricity trade took place. Also on that day, Mr Pozzi sent an email to Dr Amraie, asking him for the latest audited financial statements and bank statements of Autogas. In response, Dr Amraie provided a photocopy of Mr De Bondt’s ID card. Mr Pozzi copied that to Mr Ochocki on the following day.

The tenth electricity trade took place on 28 April 2010. This was the first transaction involving a counter-trade in carbon credits. Part of the price for electricity sold by Autogas to OCH was paid in money. Part was discharged by way of sale by OCH to Autogas of 66,000 EUAs (which at the time were zero-rated for VAT) at a price of €1,023,000, which was offset against the price of the electricity. Neither in this nor in any of the subsequent trades in EUAs, however, were the EUAs transferred to Autogas, which never held or had direct control of a EUETS Registry account; rather they were transferred to EUETS Registry accounts held by third parties abroad. Initially the transfers were made to a EUETS Registry account in the name of HCX’s customer, TGS. At a later stage, HCX entered into a brokerage agreement with Carbon Warehouse Int, and thereafter most of the transfers were made to Carbon Warehouse for the benefit of HCX, though some continued to be made to TGS’s EUETS Registry account. As a matter of analysis, what happened was that OCH sold the EUAs to Autogas, which immediately sold them to HCX, the chain of deliveries being abridged so that they went straight from OCH to HCX. An account ought then to have been struck between HCX and Autogas, but HCX never paid over moneys due to Autogas. Mrs Craig was not involved in the trades in carbon credits; the transfers were made by Mr Ochocki and occasionally by Mr Pozzi.

The eleventh electricity trade took place on 29 – 30 April 2010.

On 29 April 2010 Dr Amraie sent an email to Mr Pozzi (again addressed as “Dear Madam/Sir”), referring to a transaction that had been undertaken partly by way of carbon credits and asking for a balancing payment to be made to “our HSBC account”. On 30 April OCH made a cash payment of €159,990 to HCX’s ING account and a cash payment of €128,730 to Autogas’s HSBC account.

On 30 April 2010 Mr Ochocki asked Autogas for information to update “our KYC”. He followed that email up on 5 May and received a partial response, which he sent to Jennifer Jones with a request that it be placed on the file. Mr Ochocki asked for further due diligence information and received a response from Dr Amraie, confirming the ownership and officers of Autogas. Mr Ochocki forwarded the response to Mr Langridge and Jennifer Jones.

The twelfth electricity trade took place on 4 – 5 May 2010; the thirteenth on 6 May; the fourteenth on 7 May; the fifteenth on 10 May; the sixteenth on 11 May; the seventeenth on 12 May; the eighteenth on 14 May. These trades were settled by OCH in cash by payment to HCX’s ING account, although the invoices prior to 11 May all asked for payment to Autogas’s UK account with HSBC and the invoices in respect of the sixteenth, seventeenth and eighteenth trades asked for payment into Autogas’s UK account with Lloyds Bank. Mrs Craig accepted that she would probably have noticed the change of the bank account on the invoices. Her explanation for continuing to make the payments to HCX was that she would have been doing what Mr Ochocki asked her to do. His evidence was that he had not asked her to make payments to any account other than was shown on the invoices.

All subsequent transactions were settled by set-off of trades in carbon credits. Mrs Craig therefore had no further involvement in payments; indeed, from that time on she had no further involvement in OCH’s business. She denied, when it was put to her during cross-examination, that the cessation of her involvement was because it had become unnecessary for her to supervise the fraud.

On 14 May 2010 HMRC wrote to OCH to inform it of the problems regarding MTIC fraud. The letter informed OCH that oil, gas and electricity could be used as commodities with which to perpetrate such frauds and requested that OCH verify the VAT status of its customers and suppliers. The letter was sent to OCH’s registered office and would probably have been seen by Mr Langridge.

The nineteenth electricity trade took place on 17 May 2010; the twentieth on 18 May; the twenty-first on 19 May; the twenty-second on 20 May; the twenty-third on 21 May.

On 21 May 2010 OCH undertook a further VAT Validation on Autogas, perhaps because of the request in the letter of 14 May. Also on 21 May, Mr Langridge and Mr Smallbone belatedly arranged to meet. Mr Langridge emailed Mr Saunders and Mr Ochocki:

“Just to confirm that two HMRC officers from the Missing Trader Intra-Community (MTIC) Team are meeting me at 19 Berkeley Street this Tuesday 25^th May. This is a routine visit triggered by the entry of OCH Capital LLP into commodity trading. The visit is likely to involve a brief review of some of our trading documents relating to Autogas Europe Limited and Gazprom Marketing and Trading Limited.”

In evidence Mr Saunders remarked that he saw no cause for concern when he read that email: the visit was described as “routine” and all of his businesses had received such visits from time to time. He described himself as “utterly baffled” at the inference, sought to be drawn by the liquidator, that the absence of any explanation from Mr Langridge as to HMRC’s interest in only Gazprom and Autogas indicated some form of guilty knowledge. (Those two companies were, of course, OCH’s only trading partners in commodities.)

Later on 21 May 2010, Autogas sent a letter by fax to Mr Ochocki, purporting to give information “[a]s previously requested by the recently resigned director, Mehdi Amraie”. It recorded that payments had previously been made to an account held at ING Bank (i.e. the account held in the name of HCX in the Netherlands) and stated that Autogas was in the process of moving its account from HSBC Bank to Lloyds TSB Bank; the new account, details of which were set out, “will be activated later next week for future payments”. The liquidator suggests that, as the last cash payment had been made on 17 May, there was no apparent need for the letter, and that it might have been sent because Autogas was aware that Mr Langridge had arranged to meet officers from HMRC’s MTIC Team. Mr Ochocki said in cross-examination that he did not recall receiving the letter, and he acknowledged that, if he had read it properly, it would have been clear to him that payments had been made to an overseas account.

Mr Langridge’s meeting with HMRC officers took place on 25 May 2010. HMRC’s note of the meeting records that Mr Langridge confirmed that he was aware of the nature of MTIC frauds. Mr Ochocki’s evidence in cross-examination was that he could not remember whether Mr Langridge reported back on his meeting. He did recall, he said, that Mr Langridge simply assured him that OCH’s procedures were fine and that it could carry on trading with Autogas; there was no discussion concerning payments to third parties or to foreign bank accounts.

The twenty-fourth electricity trade took place on 25 May 2010. On 26 May 2010 Autogas sent to Jenny Jones, by email, a statement of what was due to it from OCH for the trades executed on 25 May. The email said: “We do request to please hold payment for this until otherwise advised due to our current account change over.”

The twenty-fifth electricity trade took place on 26 May 2010.

On 27 May 2010 Mr De Bondt sent an email to Mr Pozzi: “Dear Simone, Can you send 10 lots euas to the Netherlands registration please”. It is a reasonable inference that Mr Pozzi passed that request to Mr Ochocki and that Mr Ochocki then contacted Mr De Bondt to ask for the registration number at the Netherlands registry, because shortly after the first email Mr De Bondt sent an email to Mr Ochocki providing the Netherlands registration number. Mr Ochocki replied, acknowledging receipt of the registration number and asking:

“Can you confirm this is for the carbon we sold you yesterday as we can match it up with our invoices. For the same reason are the names on the French and Netherlands registrations in Autogas Europe or a linked company? Are you planning a UK registration also that we will send them to in the future? Does it make a difference?”

No response to this enquiry has been identified.

By 28 May 2010 Autogas still had not sent to OCH details of its new bank account. On that date, Mrs Craig sent an email to Mr Saunders and Mr Langridge. She noted: “We also still owe Autogas—they haven’t given us their bank details yet hence the delay—we owe them 9239.00 Euros”.

The twenty-seventh electricity trade took place between 28 May and 1 June 2010.

On 1 June 2010 HMRC sent to OCH another letter substantially similar to its letter of 14 May 2010.

On 2 June 2010 the twenty-eighth electricity trade took place.

On 3 June 2010 the twenty-ninth electricity trade took place. Mr De Bondt sent an email to Mr Ochocki:

“Hi Tom

Can you send the 37k EUAs of this morning to the following account CZ-121-316-0.

Pls confirm when it’s done.

thx

Marc”

Mr Ochocki gave the requested confirmation, “Done”, one minute later. The specified account number was held in the Czech Registry by Carbon Warehouse on behalf of HCX. In cross-examination Mr Ochocki said that the use of an overseas registry did not set alarm bells ringing and did not seem to him to be remarkable or unusual. He said that Gazprom, for example, had told him that it held accounts in registries all over Europe.

The thirtieth electricity trade took place on 4 June 2010, and the thirty-first on 10 June 2010.

On 10 June 2010 Mr Peter Davies of HMRC’s MTIC Fraud Team called at OCH’s offices. Mr Saunders and Mr Langridge were not present, but the officers met Mr Ochocki. He explained the nature of OCH’s commodities trading. HMRC’s note of the meeting records that Mr Ochocki informed the officers: that the counterparties were all based in the UK; that all payments were made through business bank accounts held in the UK with Lloyds TSB Bank; that so far as he was aware no payments had been made to third parties and no requests had been received to pay third parties, though this would be subject to confirmation by the accounts manager; that the accounts manager was not present and the bank statements and SAGE printouts were not available for inspection; and that he and Mr Langridge were aware of the problems concerning MTIC frauds and had tried to carry out checks on OCH’s counterparties. Mr Ochocki’s evidence was that Mr Davies asked him to contact HMRC on the next occasion that OCH was trading with Autogas and Gazprom, but that he asked OCH to continue trading normally. He said that his answers in respect of third-party payments were given honestly: he did not know what “HCX” was and, if he had seen references to it, he had not adverted to them or appreciated that they referred to an overseas entity. He acknowledged that it would have been possible to print off parts of OCH’s bank statements by looking at emails he had received that had statements attached to them, but he said that as the finance department had proper records it did not occur to him to do so.

That afternoon, Mr Davies sent an email to Mr Ochocki, thanking him for his assistance and asking for some further information, including details of OCH’s most recent transaction with Autogas and “details of the bank account(s) to which you paid Autogas”. Mr Ochocki replied that he had forwarded the request to Mr Langridge.

It is probable that Mr Ochocki asked Jenny Jones for details of the payments made to Autogas, because later that afternoon she sent to him a three-page schedule of those payments, which she said Mrs Craig had given her previously. The schedule set out the dates and amounts of payments but not the accounts to which the payments had been made. Mr Ochocki’s evidence was that he realised that the payments had been made to overseas bank accounts and panicked. If that is right, he must have had reference to other information showing where the payments had gone. An hour after receiving the schedule he sent an email to Mr De Bondt, which he copied to Mr Langridge, Mrs Craig and Jenny Jones:

“Dear Marc

I have just noticed that we still have not paid any money into your UK bank Account. When do you expect this account to be up and running?

Best

Tom”.

On 11 June 2010 (which was also the date of the thirty-second and final electricity trade between OCH and Autogas) Mr Langridge sent a letter to Mr Davies in response to the latter’s enquiry of Mr Ochocki. The letter provided information concerning the most recent trades between Autogas and OCH and concerning the use of carbon offsets. It concluded by identifying the banks to which payments had been made for Autogas, namely HSBC Bank in Canada Square, London, and ING Bank in Amsterdam. The letter did not state who held those accounts and therefore did not state that the account with ING Bank was held by HCX and not by Autogas. Mr Pickering submits that this was a careful and deliberate omission and that Mr Langridge must have discussed the letter with Mr Saunders before sending it. Mr Saunders, however, denied that he had any knowledge of the letter at the time. Mr Ochocki, too, said in cross-examination that he did not see the letter.

Mr Ochocki’s evidence was that by now his “antennae were up” and he was not comfortable about further dealing with Autogas. On 11 June 2010 he had two telephone conversations with Mr Davies. Mr Ochocki told him that deals to the value of €2 million had been done with Autogas on 10 June and to the value of €4 million on 11 June but that payments had not yet been made because OCH was awaiting payment from Gazprom. He asked whether payment should be made to Autogas. Mr Davies replied that that was a commercial decision for OCH and that Autogas had a valid VAT registration. Mr Ochocki’s evidence was that, as well as saying that it was a commercial decision for OCH, Mr Davies told him to continue trading as normal. I think it unlikely that Mr Davies went that far.

On 11 June 2010 Mr De Bondt sent an email to Mr Ochocki, with the subject “Payment VAT for Autogas Europe Ltd”, asking OCH to pay £1,600,749.35 to HMRC’s VAT Account at Citibank and (as was explained in a subsequent corrective email) provide Autogas’s VAT registration number as a reference. However, shortly afterwards Mr De Bondt sent further emails, which told Mr Ochocki to ignore the request to pay the VAT because Autogas would make the payment itself.

On 14 June 2010 Mr van Mierlo of HCX sent an email to Mr De Bondt of Autogas, complaining that Autogas had failed to pay HCX for the latest trades between them and that this had caused HCX losses, for which it would seek recompense from Autogas. Mr De Bondt then sent an email to Mr Ochocki:

“I am writing to you in order to inform you that due to your non-payment of product on Friday, we were not able to fulfil our commitment with our supplier [HCX] who in turn cancelled delivery for product for Sunday and Monday.

The cancellation of the product has cost a huge loss for Autogas Europe Ltd.

Our supplier has also informed us that penalty’s (sic) will also be added.

Please give us a clear explanation in writing why OCH refused to pay Autogas Europe Ltd.

Finally please note that OCH will be responsible for all losses and penalty’s (sic) incurred.

Kindly inform us when you will make payment for product delivered on Saturday.”

Mr Ochocki forwarded that email to Mr Pozzi. He then replied to Mr De Bondt, copying in Mr Langridge, expressing shock and surprise at Mr De Bondt’s email, denying that OCH was in breach of the EFET with Autogas, and stating:

“As per our conversations with Autogas last Friday, I was under the understanding that we had agreed to address the situation with HMRC and payments due early this week. As has already been explained, OCH have been advised by the HMRC to pay Autogas in cash into a corresponding Autogas UK Bank Account. It is therefore sensible that we follow this advice.”

A draft of that email had previously been sent to Mr Langridge, but he had not been able to review it before it was sent. Mr Saunders gave evidence that he had not seen the email before it was sent, and in the circumstances there is no reason to dispute that evidence.

The position being advanced by Autogas in mid-June 2010 appears most clearly from an email dated 15 June to Mr Ochocki, copied to Mr Pozzi, though it had clearly been articulated orally before then:

“As you are aware we recently took over the company which previously had two bank accounts. The previous directors had already initiated the process of closing these accounts due to complications when receiving large amounts of funds. Since we have taken over the company, we have applied for a bank account at the Lloyds Bank[;] however there has been a delay because Company (sic) House has mishandled some documents. Company House has seen apologize (sic) and we are attaching this letter for your comfort. We now anticipate the account to be opened towards the end of the week. Please note that we are also applying for an account at the NatWest Bank which should also be open shortly.

In our last conversation you expressed your concern about our VAT bill. As mentioned to you previously we are not due to pay the VAT until the end of July[;] however we have received visit of HMRC and have agreed to pay some of the bill sooner. We are forwarding the email in which HMRC confirm this agreement. Please note that we have never refused to pay and have no intention not to pay.”

The copy of this email in evidence has no attachments, and Mr Ochocki said in evidence that he did not receive the letter from Companies House or the email from HMRC. I accept that evidence. There is no reason to believe that Autogas’s explanations were true or that any such letter or such email existed.

On 15 June 2010 Mr Langridge sent an email to Mr Ochocki, with Mrs Craig copied in. He said that he had just spoken to Mr Saunders, and he set out the conditions that must be satisfied before any further payments could be made to HCX’s bank account with ING Bank in the Netherlands:

“[OCH] must be in receipt of the following:

1.

a satisfactory copy of the letter which we understand Autogas Europe Limited have already received from HM Revenue and Customs indicating that HMRC are satisfied with their review of Autogas Europe Limited books and records.

2.

a satisfactory copy of the letter which we understand Autogas Europe Limited have already received from Companies House accepting that Companies House was at fault in notifying wrong information to Autogas Europe Limited new bankers.

3.

a letter signed by the Company Secretary of Autogas Europe Limited and by the director who is Chief Executive Officer stating that (a) although Autogas Europe Limited has attempted to organise UK banking facilities they have been unable to do so because of the errors made by Companies House. (b) This letter must then request that OCH Capital makes a specific, one-off, payment to another bank, giving the amount, the date and the full bank details. (c) an indication of when the new UK bank facilities will be ready for use.”

Mr Ochocki notified those conditions to Autogas and stated: “With regards to any future business OCH would also like to hold off trading with / payments to Autogas until Autogas have an active UK bank account.” Mr De Bondt replied:

“Hereby we request to pay the outstanding amounts to the Netherlands account, to which you made already transfers in the past.

We confirm that this would be a one-off payment contrary to our previous arrangements to withhold the monies until an Autogas UK account would be active.

We thank you for your quick response to this request.”

That reply did not, of course, comply with any of the conditions stipulated by Mr Langridge, except condition 3(c). There is no evidence at all, and no reason to believe, that it could have done so. Mr Ochocki forwarded the reply to Mrs Craig.

That same afternoon, 15 June, Mr Ochocki sent another email to Mr De Bondt, explaining his position. The email referred to the visit by HMRC officers on 10 June and said: “We were warned again (like in their previous visit a few weeks ago) about paying monies into foreign bank accounts in different names from the company we are dealing with.” The email recorded that Autogas had not provided the documents requested from Companies House or from HMRC and stated that OCH was awaiting a response from Mr Davies of HMRC to the proposal “to pay Autogas into the Netherlands account”. The email concluded: “I would suggest that Autogas get the companies house (sic) letter as per our agreement and any other documents showing that HMRC have given Autogas a clean bill of health.”

Mr De Bondt replied to the effect that Autogas had no obligation to provide any documents and considered OCH’s reliance on advice from HMRC to be a mere excuse for non-payment. He threatened legal action against OCH, Mr Ochocki and Mr Saunders. Mr Ochocki forwarded the reply to Mr Langridge for information.

On 15 June Mr Langridge sent to Mr Saunders, by way of an attachment to an email, a document described as “Background and timeline for the commodity trades”. The email said:

“Have a look at the attached. In particular, the trading history sheet indicates how ordinary and normal the route into trading was. This is important to counter any suggestion that fraud was in anyone’s mind at OCH or that the sole purpose was to assist third parties in perpetrating an alleged fraud.”

Mr Langridge also sent a letter by email to Mr Davies at HMRC:

“We understand that you and your colleagues have carried out a detailed review of the trading and tax affairs of Autogas Europe Limited with whom you know that our clients OCH Capital LLP have been dealing.

On behalf of our clients, can you report to us that your review has given you no reason to believe that Autogas Europe Limited are anything other than a properly constituted and properly run business?

We understand that you have advised our clients in general terms that they should not pay third parties in overseas countries re debts arising in the UK. Given the circumstances that you found at Autogas Europe Limited and that you know that they say that they have been unable to open a satisfactory UK bank account, do you consider that it is improper for our clients to pay, on Autogas Europe Limited’s instruction, to a third party company in Holland? See the attached copy of that instruction addressed to OCH Capital LLP.

An urgent reply would be appreciated because our clients are under pressure to discharge the debt owed to Autogas Europe Limited.”

That evening, Mr De Bondt sent to Mr Ochocki a further email, increasing the pressure on OCH to pay outstanding moneys. The email complained that OCH’s insistence on paying into a UK bank account, when it knew that Autogas did not have such an account, amounted to a refusal to pay, and it said that, if payment were not made by 9.15 o’clock the following morning, Autogas would suffer substantial losses for which it would hold OCH responsible.

On the morning of 16 June 2010, Mr Langridge spoke by telephone to Mr Davies of HMRC. Mr Davies insisted that HMRC could not give advice and that the question whether to make a payment was a commercial one for OCH. However, according to Mr Langridge’s note of the conversation, Mr Davies proceeded to say that a request for payment to be made to an overseas third party might be an indication of fraud and that it would be sensible to “tread carefully” and withhold payment pending the result of HMRC’s further enquiries.

In the early afternoon of 16 June 2010, Mr Ochocki and Mr van Mierlo spoke by telephone. Mr van Mierlo followed the call with an email, in which he confirmed to Mr Ochocki that HCX would accept payment into its bank account on behalf of Autogas. A second email later that afternoon, sent at Mr Ochocki’s request, gave more details of what had been discussed, with regard in particular to the good relationship between Autogas and HCX.

OCH had by then taken advice from a solicitor, Mr Shameer Sacranie of the Leicester office of SFS Solicitors. In the mid-afternoon of 16 June, he confirmed by emails to Mr Ochocki, Mr Langridge and Mr Saunders his advice that, although there was no need to jeopardise OCH’s relationship with Autogas, any payment should be made to Autogas’s solicitors and not to any other third party representing Autogas, and that an agreement should be obtained from those solicitors to indemnify OCH against any liability it incurred by releasing the moneys. He also advised that it would be prudent to tell HMRC what was intended and to see what its reaction was.

However, Autogas’s solicitors presented Mr Sacranie with two options: either OCH pay the outstanding sums to Autogas’s accountants, or it withhold them pending confirmation that HMRC was happy for the payment to be made. The latter course, they said, would place OCH in breach of contract.

At Mr Ochocki’s instigation, OCH took further advice from Mr Sean Jeffrey, a solicitor with Stephenson Harwood who had been recommended to Mr Ochocki. He met with Mr Ochocki on 17 June and spoke with Autogas’s solicitor and with a manager from HMRC and advised that “there [was] no reason for [OCH] not to make the payment” (viz. the payment to HCX for Autogas), though he advised that OCH should continue to ensure that it complied with its own internal procedures. That advice was shown to Mr Sacranie, who repeated his own advice that OCH err on the side of caution and make payments only directly to Autogas or to its solicitors or accountants; in the latter cases, undertakings and indemnities should be obtained. He wrote to Mr Saunders and Mr Ochocki by email: “In relation to payments made in the past, OCH can to some extent plead ignorance as to why the payments were made. We now have a situation where HMRC have whispered in OCH’s ear and we have knowledge of FSA best practice [viz. “that payments should not be made to overseas accounts”].”

That evening, 17 June, having provided it first to Mr Ochocki for his comments, Mr Langridge sent to Autogas’s solicitors a draft agreement, providing for payment of the outstanding sum of €3,580,459 to HCX in Rotterdam but stipulating that any further payments could only be made into a UK bank account in the name of Autogas. Mr Pickering submitted that this document, which was contrary to the advice received from Mr Sacranie, must have been approved by Mr Saunders. Mr Saunders’ evidence was that he could not remember whether the terms of the draft agreement had been run past him before being sent to Autogas’s solicitors.

There is some evidence that, shortly after 10 June, Mr Lonergan of TGS called without prior appointment at OCH’s premises. Mr Ochocki did not claim to remember the matter of the conversation that passed between them then, but he denied Mr Pickering’s suggestion that Mr Lonergan had visited in order to encourage those at OCH to keep their nerve and not divulge the fraud.

Discussions between OCH and Autogas were now overtaken by events. On 17 June solicitors acting for HMRC presented a petition for Autogas to be wound up for unpaid VAT in an assessed figure of £6,878,370.49 in respect of the period 1 April to 28 May 2010, and on the same day by order of Lewison J Autogas was placed into provisional liquidation and Mr Hunt was appointed as provisional liquidator. On 18 June Mr Hunt confirmed to Mr Langridge that he was happy for the payment of the outstanding moneys owed to Autogas to be paid into the client account of the solicitors acting for him. OCH took further advice from Mr Jeffrey and, having done so, duly made the payment to the provisional liquidator’s solicitors. On 29 June Autogas, acting by the provisional liquidator, commenced the Earlier Proceedings, having obtained a worldwide freezing injunction against the defendants to those proceedings on the previous day. On 11 August 2010 Autogas was placed into compulsory liquidation and Mr Hunt was appointed liquidator.

That concluded the course of events central to this litigation. But some later developments are of some relevance.

In May 2011 Mr Ochocki and the trading team resigned from OCH. On 16 October 2012 OCH was dissolved. (It had changed its name on 32 June 2011 to Alpheaus LLP, but for simplicity’s sake I shall continue to refer to it as OCH.)

TGS went into creditors voluntary liquidation on 31 July 2012 and Mr Hunt was appointed as one of the joint liquidators.

In 2014 HMRC carried out a reassessment of OCH’s VAT returns and liabilities. I do not need to record the details. On 17 November 2014 HMRC presented a winding up petition against OCH on the basis of an alleged debt of £7,102,031.40. Far the greater part of this debt arose from an HMRC assessment for VAT for the period to 31 May 2010 in the amount of £6,912,351; and this assessment resulted from a reduction of the input VAT reclaimed by OCH for that period from £7,116,386.76 to £0.

On 26 January 2015, the High Court ordered that OCH be restored to the register and be wound up and that the Official Receiver be appointed as liquidator.

On 24 March 2015, Mr Saunders applied for rescission of the winding up order on the grounds that it had been made in error. (By then, the present proceedings had been commenced on 6 March 2015.)

Mr Saunders’ application and the underlying dispute between OCH and HMRC were disposed of by an agreement to which effect was given by two deeds executed in October 2015, after the present proceedings had been served on the defendants.

By a Deed dated 16 October 2015 and made between (1) HMRC and (2) Mr Saunders, HMRC agreed to seek the Official Receiver’s consent to an order that the winding up order be set aside and HMRC’s petition be dismissed, to pay Mr Saunders’ costs and the costs of the Official Receiver, and to enter into a Deed of Settlement in agreed terms. The consent order was in fact made on the same day.

The Deed of Settlement was dated 22 October 2015 and made between (1) OCH, (2) Mr Saunders and (3) HMRC. For present purposes, the important provisions are clauses 1 and 2:

“1.

The Parties hereby agree

(i)

that the amounts of input and output VAT set out in the VAT returns that were filed by or on behalf of [OCH] for the periods 02/10, 05/10, 08/10, 11/10, and 01/11 constitute the correct amounts of input and output VAT liabilities for each of those periods; and

(ii)

that no monies are due or will be paid by HMRC or [OCH] to, or on behalf of, the other by reference to the VAT returns of [OCH] for the periods 02/10, 05/10, 08/10, 11/10, and 01/11.

2.

No proceedings or claim (including any demand, complaint, tribunal appeal, court claim or counterclaim, administrative or regulatory claim, application, petition or proceedings of any kind or nature in whatever capacity or jurisdiction) shall be brought or asserted by or on behalf of any Party as against any other as regards the VAT returns of [OCH] for the periods 02/10, 05/10, 08/10, 11/10, and 01/11. Each of the Parties agrees that if it brings any such proceedings or asserts any such claim in breach of this term, damages are not an adequate remedy and, accordingly, that injunctive or other similar relief is appropriate to restrain that breach.”

The ways in which the case has been put at various times were subjected to a minute analysis by Mr Bridge and Mr Foster. For my purposes, however, the starting point is the case definitively put in the Amended Particulars of Claim dated 24 May 2017.

The primary fraud is said (Amended Particulars of Claim, paragraphs 17 and 18) to have been committed by Mr De Bondt and Mr De Keersmaeker as being at the material times de iure or de facto directors of Autogas and as having acted in breach of duty by carrying on the company’s trade in such a manner as to divert its funds to a third party, HCX, and to disable it from paying its VAT liabilities to HMRC.

Paragraph 19 of the Amended Particulars of Claim alleges that each of the defendants “knowingly and/or dishonestly” assisted Mr De Bondt and Mr De Keersmaeker to breach their duties, in that they engaged in business with Autogas in a manner that they knew was inconsistent with the performance by Mr De Bondt and Mr De Keersmaeker of their duties to Autogas.

The Particulars of Assistance contain a general particular, which sets out Autogas’s case about OCH’s role in the fraud, and specific particulars in respect of each defendant in turn. The general particular is as follows:

“In order for the MTIC fraud to succeed, monies which were due to the claimant (including in particular monies representing VAT) had to be paid to a third party (i.e. a party other than the claimant) out of the jurisdiction. As set out above, it was OCH which paid the monies (which were properly due to the claimant) to HCX in Netherlands. Accordingly, the payment by OCH of the monies which were due to the claimant to HCX was an instrumental, necessary and integral part of the MTIC fraud (in that without OCH making the above payments, such MTIC fraud would not have succeeded). This placed the claimant in the position of being unable to pay its liabilities to HMRC.”

The Particulars of Assistance against the respective defendants may be summarised as follows:

For the second and third defendants, Mr Bridge and Mr Foster observe that the Particulars of Assistance refer only to the payment of “monies”. They say that therefore no case is pleaded in respect of the “payments” by counter-trades in carbon credits. I reject that submission. The Amended Particulars of Claim make clear that the transactions involving carbon credits are included in the case against the defendants, and no one was in the least doubt about that at trial. The carbon credits have been treated in these proceedings as an equivalent of monetary payments. Some pleading points have genuine substance, but this one does not.

The Particulars of Knowledge and/or Dishonesty are lengthy; I shall only summarise their eight paragraphs briefly.

It is not pleaded that the terms of the trades between OCH and Autogas, in particular as regards price, were such as either (a) to give rise to the inference that the defendants knew or believed that a fraud was being committed or turned a blind eye and suppressed their suspicions or (b) to have alerted the defendants to the probable or possible existence of a fraud. This is important, because the case was put that way at trial, as I shall mention further below.

As regards causation and loss, the main paragraphs of the Amended Particulars of Claim are paragraphs 8, 9, 10 and 21. Paragraph 9 avers that, because OCH made only three payments to Autogas and made the remaining payments to HCX, Autogas received no funds to enable it to meet its obligations in respect of VAT. Two particular points are made. First, OCH made payments to HCX. Second: “As for the payments to which the claimant was entitled from HCX in respect of the carbon credits, these were purportedly off-set against the payments due from it in respect of the electricity (despite the fact that HCX was also receiving cash in respect of such electricity directly from OCH) as set out in paragraph 8(2) above.” The text of paragraph 8(2), as amended, reads:

“In respect of the above carbon credits ‘sold’ by OCH to the claimant, immediately following such acquisition, the claimant then sold such carbon credits on to HCX on a back-to-back basis, typically charging a small mark-up of no more than €0.01 per unit. For the avoidance of doubt, however, in respect of the above carbon credits sold by the claimant to HCX, at no time did HCX ever pay cash for such carbon credits; instead, the sums due from HCX to the claimant in respect of the carbon credits were purportedly off-set against the sums due from the claimant to HCX in respect of the electricity (despite the fact that HCX was up to 17 May 2010 also receiving cash in respect of such electricity directly from OCH as set out above).”

Paragraph 10 avers that, in consequence, HCX was overpaid at Autogas’s expense to the extent of €4,511,275.30. Paragraph 21 avers that, by reason of the matters complained of, Autogas has suffered loss in alternative primary measures: first, the deficiency to creditors in the sum of £8,219,850 (of which £8,163,808.63 relates to the liability to HMRC in respect of VAT), subject to credit for £2,902,200.06 recovered in the provisional liquidation; alternatively, second, the amount of the overpayment to HCX, €4,511,275.30, subject to credit for £435,783.92 recovered from Jade Capital. There is also a claim for the costs of the liquidation.

The case put at trial was, as it seems to me, substantially in accordance with the pleaded case, subject to two matters. First, Mr Pickering proposed that a number of facts in evidence were best to be explained by an inference that the defendants had received an approach by way of an invitation to participate in shady dealing; see below. Second, and more importantly, Mr Pickering put it to the defendants and submitted in closing that the price at which OCH was able to buy electricity from Autogas was such as to make it clear that Autogas was not trading legitimately. That is a primary fact, from which an inference of dishonesty is sought to be drawn, and is not pleaded. Although these two matters are to be distinguished, in that one of them is an explanatory inference and the other an alleged primary fact, they are not entirely separable; the inferred approach is said to have been to the effect that a supply of very cheap electricity would become available. I return to this point below.

The main points made by Mr Pickering on behalf of Autogas seem to me to have been as follows.

First, the trade carried on by HCX and Autogas was not for any legitimate commercial purpose but was set up to be a vehicle of fraud. It is convenient to say now that I consider this point to be well made. It is unnecessary to analyse the details in this judgment, though I refer to some of them below. HCX sold electricity to Autogas at prices lower than those it had bought at from TGS, not once or twice but consistently (one example is given below), and its role in the chain of trading was clearly no more than to receive Autogas’s assets. For its part, Autogas did make some modest profits on its trading (notionally, that is: it did not actually profit, because it did not receive the payments), but if its trading is seen, as it should be, as part of a single enterprise with HCX, its role in the chain of trading was to create a VAT liability and thus engineer a fraud.

Second, it was a necessary part of the primary fraud that there be a complicit party down the chain from Autogas, which would be willing to make payments overseas. The primary fraudsters could not just have “crossed their fingers” and hoped that Autogas’s customer would be willing to make overseas payments; they had to be sure that the customer was “onside”.

Third, if there was at least one “rotten apple” within OCH (a happy phrase coined by Chief Master Marsh at an interim hearing), there must have been at least three rotten apples, namely Mr Ochocki, Mr Saunders and Mrs Craig: Mr Ochocki, because he had control of the trading and would be the person to give confirmation that payment was due for a particular trade; Mr Saunders, because he had overall control of OCH, provided its money and maintained oversight of its financial operations; Mrs Craig, because it was she who made the payments and would have to do so in the face of manifest irregularities.

Fourth, numerous pieces of evidence showed that an innocent explanation for the making of third-party payments to HCX in the Netherlands could not be accepted. Apart from the general necessity for at least one rotten apple, and leaving aside questions of pricing (considered below), the main points relied on were the following:

The case against Mr Ochocki was put in particular on the basis of his position in charge of OCH’s trading operations, which (it was said) meant that, whoever else might be implicated, he must be; his receipt of the one written instruction to pay HCX’s ING account; his subsequent instructions to Mrs Craig, according to her evidence, to make further payments to HCX; his false denial to HMRC of knowledge of third-party payments and his failure to provide bank statements that he did have access to; his choice of the Dutch EUETS Registry; his principal role in the transfer of EUAs to accounts held by or for the benefit of HCX; and the curious and unexplained facts of Mr Shah sending him an article relating to an alleged fraud perpetrated by TGS, and of Mr Lonergan making an impromptu visit to OCH’s premises shortly after HMRC had done so.

The case against Mr Saunders and Mrs Craig rested on their control of the money: the ultimate authority to approve trade and payments rested with Mr Saunders; the practical ability to make money payments was, in effect, with Mrs Craig alone, and her evidence was that she spoke to her father before making any payment; Mr Ochocki had no ability to make money payments, though he could transfer EUAs. Mrs Craig knew that she was making payments to an overseas account in the name of a third party, and she also knew that this was contrary to the instruction on the invoices. As a competent bookkeeper who had formerly worked for a bank, she cannot have been unaware how irregular this was and how much risk it potentially presented to OCH. Despite this and her practice of speaking to Mr Saunders before making any payment, she claims not to have told him that she was being asked to and was making payments to a third-party overseas account. Mr Saunders must have known and approved what was taking place: Mr Ochocki could not have attempted to facilitate the fraud without knowing that Mr Saunders was onside; and both Mrs Craig and Mr Langridge, his “eyes and ears”, would have told him of any irregularity of which he was not yet aware. Mr Langridge’s carefully misleading letter to HMRC must have been run past him before it was sent. Mr Pickering also points to what he says were Mr Saunders’ unprompted reference in December 2009 to carbon credits, and to his efforts to persist in a third-party payment right up to the moment when the provisional liquidator intervened.

Fifth, as already mentioned, Mr Pickering sought to explain the primary facts relied on, and in particular the circumstances of the initial contact and trade between Autogas and OCH, by proposing a likely scenario that rested on no direct evidence but was said to be an inevitable inference from the totality of the known facts. Initially (it is said) OCH had simply intended to become involved in the energy trade as an agent for TGS. However, in about December 2009 someone at OCH (probably Mr Ochocki) was told by an unknown source (the implication is that it was someone connected with TGS) that OCH would be receiving an approach by a third party that could supply it with electricity at a very low price, which it could in turn sell to Gazprom. The electricity would come originally from TGS, but OCH would be buying and selling on its own account, not as an agent for TGS. There was easy profit to be made, provided only that OCH got an EFET Agreement in place with Gazprom and did not ask too many questions about its supplier; payments would initially be in cash but would later be by offsetting carbon credits. The cheap electricity supplied to OCH was, in fact, the equivalent of something that had “fallen off the back of a lorry” (Mr Pickering’s expression), but in the interests of a quick and easy profit OCH turned a blind eye to that. This scenario necessarily involves a sequence of communications, whatever the precise form they might have taken. First, someone (say, from TGS) approaches Mr Ochocki. (It is possible, but less likely, that the first approach was to someone else, who in turn approached Mr Ochocki.) Second, Mr Ochocki relays the message to Mr Saunders, who is agreeable to the proposal to receive the cheap electricity and make payments as requested, no questions asked. Third, Mr Saunders makes it clear to Mrs Craig that she is not to be concerned with apparent irregularities regarding payments: she is just to pay as instructed by Mr Ochocki.

Although the case advanced by the claimant is not without force, I have come to the conclusion that it is to be rejected, on the ground that the claimant has not discharged the burden of proving that the defendants or any of them were dishonest. For reasons that I shall explain later, however, I would not have acceded to submissions made on behalf of the defendants that the claim ought to fail because of a lack of sufficient causal nexus, or because of estoppel, or because it is an abuse of process.

Ultimately, the reason that the claim fails is simply that, having considered all the evidence and the points made in respect of it, I am not satisfied that any defendant was dishonest in the sense explained above. Perhaps there is nothing more to be said: in a case of this sort, the reasons for forming a particular view of the issue of dishonesty on the totality of the evidence are not necessarily capable of being set out fully (cf. the remarks of Lord Hoffmann in Biogen Inc v Medeva plc [1996] UKHL 18 at [54]). However, in the paragraphs that follow I shall set out some important matters in my consideration of the evidence. (No special significance attaches to the order in which the points are mentioned.)

First, I should say something about the Deed of Settlement.

Second, there is no adverse evidence concerning the prior character of any of the defendants. This does not prove that they did not act dishonestly, but it is relevant when considering the cogency of the evidence that may reasonably be required before finding the burden of proof to have been discharged in respect of any of them in respect of the serious allegation made against them. Particularly worthy of note, I think, is that Mr Saunders has had a long and successful business career that has not, so far as the evidence shows, involved anything disreputable or dishonest. Mr Ochocki’s career as a broker has not extended as long, but he too is not suggested to have been involved previously in dishonest or disreputable conduct.

Third, my general impression of the defendants as they gave evidence at trial, in the case of Mr Ochocki at some length, did not incline me to view any of them as dishonest. Of course, matters of the subjective impression created by a witness’s demeanour and manner cannot bear very great weight; they are of limited reliability as gauges of truthfulness. Nevertheless, it is impossible to disregard them entirely when weighing up other, more objective, evidence and deciding what inferences are to be drawn. One difficulty, which must be considered also with respect to particular pieces of evidence, is that the defendants were giving evidence about matters that happened some eight years previously. The degree of accuracy of recall to be expected of a witness in those circumstances is naturally limited; this must be borne in mind when considering difficulties in responding to questions or inconsistencies among defendants. As for the individual defendants, Mrs Craig came across at trial as a perfectly straightforward woman, not in the least evasive or apparently deceitful. Much the same can be said about her father, Mr Saunders, though he was more forceful in attacking the case being put to him, which he described in uncomplimentary terms. He appeared as a robust and no-nonsense sort of man, which is what his business experience would lead one to expect. Unless driven to do so by compelling evidence of a more objective nature, I should not think it at all likely that Mr Saunders would allow his business to become involved in anything fraudulent. An assessment of Mr Ochocki is more difficult, for the unfortunate reason that he was, I am sorry to say, a most annoying witness, whose hesitant and self-involved manner of speaking, particularly when giving evidence but to a lesser degree also when asking questions, made him at times very difficult to listen to. However, it was clear that he was very anxious during the trial; I bear in mind also that he conducted the trial himself. Taken in the round, I should be inclined to see his demeanour and manner as the result of anxiety rather than dishonesty or evasiveness.

Fourth, no convincing motive for dishonesty has been shown. I accept that motive is not a necessary element for liability. But a claimant who cannot show motive may for that reason have greater difficulty in discharging the burden of proving dishonesty. It could perhaps be said that Mrs Craig required no greater motive for her conduct than obedience to her father’s orders. The case is harder with Mr Saunders and Mr Ochocki. They are not said to have participated or expected to participate in the proceeds of the fraud. Their motive is said to be profit: the large amounts of money made by OCH from the trades and shared between its members in the shares 80% to Mr Saunders and 20% to Mr Ochocki. The difficulty with that contention is that profit from legitimate trade is not itself a motive for dishonesty; the profit motive would explain dishonesty if either the trade, though itself legitimate, were only available to those who engaged in some form of ancillary dishonesty or the trade were illegitimate. Neither alternative has been demonstrated by the claimant. This point is closely connected with the next.

Fifth, the claimant’s case as advanced at trial seems to me to labour under serious difficulties, as I shall try to explain.

Sixth, the case against Mrs Craig is weak and I have no hesitation in dismissing it.

Seventh, the absence of direct evidence of collusion in fraud counts significantly against the liquidator’s case against Mr Ochocki and Mr Saunders. Many emails have been put in evidence and the liquidator has at least had the opportunity to investigate TGS, of which also he is liquidator. As I see it, the closest the emails come to showing anything that might perhaps be argued to result from collusion between the defendants is Mr Saunders’ email of 30 December 2009 (paragraph 30 above), and the closest to indicating collusion with a third party is Mr Shah’s email of 14 April 2010 (paragraph 60 above). Neither of these seems, on its terms, to me suggestive of participation in fraud. It must be borne in mind that, as the claimant rightly contends, the cases against Mr Ochocki and Mr Saunders are closely connected, because it is not plausible that either by himself could have done what was necessary to ensure assistance in the fraud. And as for Mr Shah and Gazprom, the furthest that the liquidator’s case goes is that it is possible that they were implicated in the fraud; he has not firmly asserted that they were.

Eighth, I have not found the matters relied on as being suggestive of fraud or dishonesty to be very compelling. I do not propose to comment on every piece of evidence; the following will suffice.

I find that the visit of Mr Davies of HMRC on 10 June 2010 caused Mr Ochocki considerable consternation, because he then understood for the first time the real possibility that OCH had been drawn into assisting in a VAT fraud. I do not consider that his failure to produce bank statements was deliberately obstructive: it was quite natural for him to await the return of those with full and proper records, rather than printing off such statements as he held as attachments to emails. I consider that his response concerning third-party payments was deliberately guarded: he did not know that payments to the ING account were to a third party, but he now knew that it was possible that they were. I am satisfied that he did know that payments had been made to an overseas account; perhaps he did not know how many had been so paid, but he did know that not all were to a UK bank account. To this extent, he misled Mr Davies. Having seen Mr Ochocki give evidence, I think that he did so because he was now in a panic, not because he had been dishonestly assisting in a fraud. I also find that, having received the schedule of payments from Jenny Jones, he quickly established the extent of the overseas payments and sent the email to Mr De Bondt (paragraph 90 above) for the purpose, in part, of trying to make the point that OCH was acting above-board. As for Mr Langridge, I consider it probable that he took a view as to what information it was, and what it was not, necessary and prudent to provide in response to an enquiry by HMRC and that his carefully worded letter of 11 June 2010 was not the subject of consultation with either Mr Saunders or Mr Ochocki.

I do not regard the saga concerning the payment or non-payment of Autogas’s final invoices in mid-June 2010 to be very material. The case as put by Mr Pickering was to the effect that the defendants, and Mr Saunders in particular, were so intent on discharging their nefarious role in the fraud that they sought desperately to help the primary fraudsters to make off with a further €3.5 million. That does not seem to me to be a realistic appraisal of what happened. OCH found itself, so to speak, between a rock and a hard place. On the one hand, its supplier was demanding payment for electricity that had indeed been supplied. On the other, HMRC, while not forbidding or even advising strongly against payment, was saying that OCH would make payments at its own risk. It had not been established that a fraud had taken place, and Mr Saunders quite understandably was concerned that he should not without good justification fail to pay a debt lawfully due. Legal advice was obtained from two sources. I note that, when he went to another solicitor for a second opinion, Mr Ochocki went to a reputable solicitor in a significant firm, rather than to anyone whose convenient advice might be obtained as a fig leaf for fraud. The money had not been paid to Autogas when it was placed into provisional liquidation, and OCH duly paid it to the provisional liquidator.

Although it is not strictly necessary to mention the point, I would not have acceded to the submission by Mr Bridge and Mr Foster that the claim should fail on grounds of a lack of causative assistance. I make the following brief observations.

In view of my finding as to dishonesty, it is unnecessary for me to deal with issues of quantum.

I am handing this judgment down at a hearing in the absence of the parties. As the parties been unable to agree all of the terms of the order consequent upon this judgment, I shall adjourn this hearing to give the parties an opportunity to be heard by telephone.