Bilta (UK) Limited (in liquidation) & Ors v SVS Securities plc

Bilta (UK) Limited (Bilta).

Weston Trading UK Limited (Weston).

Nathanael Eurl Limited (Nathanael).

Inline Trading Limited (Inline).

Vehement Solutions Limited (Vehement).

The liquidators of these companies – Mr Kevin Hellard and Mr David Ingram – were also named as claimants. I shall refer to the five companies described above as the Claimants and (where necessary to refer to them) to their liquidators as the Liquidators.

A limitation defence pleaded by TFS in paragraphs 114 to 116 of its Amended Defence (the Limitation Defence).

A contention by TFS that the claims under section 213 of the Insolvency Act 1986 fail as a matter of law because they are outwith the terms of that section.

Costs. The costs of the whole proceedings are to be determined by me at the conclusion of these proceedings.

“As to the purported claims in dishonest assistance:

Any cause of action in dishonest assistance accrued at the time of the alleged dishonest assistance, i.e. on dates during the Relevant Period, which ended on 30 July 2009.

The claim form was not issued until 8 November 2017, i.e. over 6 years later.

In the premises, the Companies’ purported claims are time-barred.”

In so far as may be necessary, the Claimants rely on section 32 of the Limitation Act 1980 to postpone the running of any period of limitation which would otherwise be applicable to the claims against TFS.

The claims against TFS are based on the fraud of TFS as set out in paragraphs 34 to 54 above and the Claimants did not discover and could not with reasonable diligence have discovered them prior to receipt of the transcript of the telephone call between Eva Karra and Mr Bullen received on or around 10 June 2016 and they had had a reasonable opportunity to review and consider the same.”

I shall refer to this transcript as the Karra/Bullen Transcript. The important dates to note are that whilst the conversation took place on 6 July 2009, the liquidators did not receive the material until around 10 June 2016.

As a result of TFS being mentioned by former employees of [Deutsche Bank] in interviews with the liquidators, arrangements were made to speak to relevant personnel from TFS in mid-2015, namely Mr Bertali and Ms Mortimer. During the course of these interviews, Mr Bertali and Ms Mortimer were specifically asked about TFS’s role; however, they provided misleading information concerning their own suspicions and/or knowledge of the fraud and their role in it, as set out in detail in paragraphs 89-118 of Mr Hellard’s witness statement.

The Karra-Bullen call was the first time that the liquidators were aware of an appreciation within TFS of the true nature of its involvement in the trading.”

Subject to subsections (3) and (4) below, where in the case of any action for which a period of limitation is prescribed by this Act, either –

Section 32 constitutes a limited exception to the fundamental purpose of limitation, which is to set a time limit for the bringing of claims, not merely to prevent delay, dilatoriness and the belated resurrection of old claims, but to bring about a certain end to litigation: FII Group Test Claimants v. HMRC, [2020] UKSC 47 at [155]; OT Computers v. Infineon Technologies AG, [2021] EWCA Civ 501 at [23].

The purpose of section 32 is to create a postponement to when time begins to run which is later than when the cause of action accrues. The purpose of that postponement is to ensure that a claimant is not disadvantaged, so far as limitation is concerned, by reason of being unaware of the circumstances giving rise to his or her cause of action as a result of fraud, concealment or mistake: FII Group Test Claimants v. HMRC, [2020] UKSC 47 at [193]; OT Computers v. Infineon Technologies AG, [2021] EWCA Civ 501 at [24], [25].

The ordinary limitation period in regard to the dishonest assistance claims of the Claimants commenced when TFS’s alleged wrongdoing took place, which was prior to 30 July 2009. The limitation period is six years. Thus, the general policy of the Limitation Act 1980 is that six years from accrual is sufficient to enable a potential claimant to consider whether to claim, to put together such a claim and to issue proceedings.

Section 32 provides, exceptionally, that in cases of fraud, concealment or mistake, time does not begin to run until either:

It is worth noting that this regime is (rightly) claimant-friendly. Time begins to run on discovery or discoverability (as the case may be), and the claimant will then have six years in which to bring a claim.

Since section 32 constitutes an exception to the ordinary regime, the burden of proof is on the claimant wishing to avail him or herself of section 32: Paragon Finance v. Thakerar, [1999] 1 All ER 400 at 418.

As to the meaning of “reasonable diligence”:

A first statement, dated 29 November 2019, running to some 148 paragraphs (Hellard 1).

A second statement, dated 4 March 2022, the purpose of which was simply to “correct some drafting errors and clarify certain matters in my first witness statement which have come to light during the trial preparation process” (Footnote: ⁶) (Hellard 2).

A great deal of what Mr Hellard said was description at second hand. Large tracts of Hellard 1 recounted documents and events to which Mr Hellard had not been party, and could give no particularly helpful evidence. Mr Hellard was the leader of a fairly large team of practitioners within Grant Thornton, and he was in no position to speak to the work of others.

In many cases, Mr Hellard’s recollection – even in relation to events where he was a party – was poor. I make no criticism of this: many, if not most, of the events in question had occurred some time ago. Although he attempted to do so, Mr Hellard had, in my judgment, considerable difficulty in separating actual recollection from speculation as to what might have occurred. Again, I make no criticism of this: Mr Hellard was doing his best to assist the court.

Mr Hellard’s witness statements only told part of the story. All kinds of other considerations – the relevance of which I will have to come to evaluate – were “airbrushed” out of the story. I will come to these aspects in due course, but I should say at the outset that I am in no doubt that these were matters that I needed to hear about in order to determine the Limitation Defence. It is significant that Mr Parker, QC, for the Claimants, raised no objection to Mr Scorey, QC exploring these matters, at some length, with Mr Hellard. (Footnote: ⁷)

Acted as a “trigger”, so as to put the Claimants/Liquidators on notice of the need to investigate; or

Served as the “final, necessary piece of the pleading jigsaw”, arising out of a reasonably diligent investigation, which enabled a viable statement of case to be pleaded for the first time.

The claim cannot succeed unless the Claimants prove that they did not discover and could not with reasonable diligence have discovered TFS’s alleged dishonest assistance before 8 November 2011.

The short answer to the claim is that the Claimants have not discharged the burden of proof. Mr Hellard was the only witness called by the Claimants to prove their pleaded case. During the course of his evidence, it transpired that Mr Hellard had no day-to-day responsibility for any of the liquidations; and that, in the case of Vehement and Weston, the liquidation was “not a matter he was leading” (Transcript Day 3/p.120). As he frankly and repeatedly admitted, he was unable to say what the Claimants did or did not discover, nor what facts were learnt, nor when: see the observations of the Court at Transcript Day 4/pp.95 to 96. The Claimants should have adduced evidence describing their investigation, identifying what was discovered and when, and indicating why certain avenues were not explored. This cannot be rectified by reference to the documentary record: the Claimants have not disclosed in these proceedings their working papers or materials evidencing their underlying investigation. Thus, the Claimants have adduced the wrong witness and cannot now remedy that defect by reference to materials which have not been disclosed. In that regard, the Claimants have chosen not to disclose, let alone rely upon, the working papers and correspondence created and/or exchanged by the team working on the liquidations.

In fact, the evidence which is available points the other way. It is now clear that the Claimants could with reasonable diligence have discovered the fraud (i.e., discovered the objective facts they relied on as a basis for alleging dishonesty against TFS) and pursuing that cause of action by the summer of 2010 at the very latest, and well before 8 November 2011. In short:

I am satisfied that the “trigger” had been pulled at the latest by the Liquidators’ provisional appointment at the end of September 2009. At that point, the Liquidators had actual knowledge of the need to investigate brokers in the position of TFS, including TFS itself (if that specificity of knowledge was in fact necessary for the “trigger” to be pulled). I consider the contention that the “trigger” was not pulled until the receipt, by the Liquidators, of the Karra/Bullen Transcript to be unfounded in fact and, indeed, to be inconsistent with the facts as I find them to me.

I am further satisfied that the Liquidators have failed to show that the Karra/Bullen Transcript served as the “final, necessary piece of the pleading jigsaw”, arising out of a reasonably diligent investigation, which enabled a viable statement of case to be pleaded for the first time. Although this contention was disavowed (or, at least, not advanced) by Mr Parker, QC in closing, I consider it to be a point that is open to the Claimants on the pleadings, and that it is therefore a point that I need to consider. More specifically as to this:

MTIC fraud in its simplest form involves a VAT registered trader which imports goods into the UK from another Member State. The trader is liable to account for tax on the acquisition, but can immediately reclaim this as imput tax so the net effect of the importation is that it is VAT free.

An MTIC fraudster will sell the goods on in the UK and then deliberately disappear whilst dishonestly failing to account for the output tax on the onward sale. The acquirer who perpetrates this kind of fraud is generally referred to as a “missing trader” or “defaulter”. A fraud on the revenue is complete at that point. This simple form of MTIC fraud is known as acquisition fraud. There are, however, many complex and sophisticated permutations of this type of fraud, all based on that simple model.

The fraud may involve an acquisition and a dispatch. In this scenario, a trader acquires goods from another Member State. No VAT is payable on the acquisition. He then sells on those goods to a domestic buyer and charges VAT. He dishonestly fails to account for the VAT to HMRC and disappears. Typically, in the past, the goods have been high value low volume goods, such as computer chips or mobile phones.

The domestic buyer sellers the goods on to a broker at a price which includes VAT. The broker dispatches the goods to another Member State or to a State outside the EU. The broker is entitled to deduct the VAT that he has paid on purchasing the goods from any output tax he is due to pay on sales of goods made in that taxable period. An export is zero-rated so the broker is not liable to pay VAT on a sale made to another country. If the broker has made no domestic sales he has no output tax to pay and will simply reclaim all the VAT on his dispatch sales. Thus, HMRC directly parts with money. There may be many intermediaries between the original acquirer and the ultimate broker. These intermediaries are known as “buffers”.

Pausing there, it is worth noting that whilst “buffer” is terminologically clear (the Buffer), the term “broker” is in the circumstances of this case dangerously ambiguous. (Footnote: ¹⁶) Mr Smallbone was using the term to refer to an exporter selling the goods out of the UK to another EU Member State or another State outside the EU. He was not using the term in its conventional sense of an agent employed by a principal for the purpose of arranging a contract between the principal and third party. I propose to avoid using the term “broker” in its MTIC sense altogether (unless it appears in documents that I am quoting). When I use the term “broker” in this Judgment, I am referring to an agent arranging a contract. To continue with Smallbone 1:

Historically, MTIC fraud usually involves low-volume high-value goods such as mobile phones and computer parts. The high value of the goods maximises the profit from the fraud and their low volume means that they can – where in existence, which is not always the case – be moved easily when necessary, their presence in a shipping warehouse being easier to accommodate and their lack of movement not being as obvious as bulkier items might be.

In June 2007, to counteract MTIC fraud, new rules were imposed in respect of VAT accounting for business to business supplies of mobile phones and computer parts. Where the value of such goods exceeds a certain amount the purchaser of the goods, rather than the seller, has to account to HMRC for the output tax due on the transaction. This has caused fraudsters to look for other suitable commodities to facilitate MTIC fraud. One type of commodity that has recently become the subject of MTIC fraud is carbon credits.

Supplies of carbon credits are treated under the Value Added Tax Act as supplies of services. They are treated as supplied in the country where the recipient belongs and are subject to a reverse charge. The net result of this VAT treatment is the same as for goods acquired from another Member State, i.e. the recipient is liable to pay VAT on the supply and can then reclaim that VAT as input tax so that overall the supply is VAT neutral as far as the recipient is concerned. Thereafter, onward sales in the UK will be taxable. On 31 July 2009 supplies became zero-rated.”

I have appended to this affidavit marked “Appendix A”, by way of background to this matter, a detailed summary of the international framework within which the formal system of carbon credits operates. It explains the way in which credits are validated and what gives them their value.

The carbon credits with which this matter is concerned are European Emission Trading Scheme (“EU ETS”) allowances (“EUAs”). The EU, by Directive, has introduced a “cap and trade” scheme. Put simply, the heaviest polluting industries such as petrochemicals and power stations are subject to the scheme. Each Member State issues a number of EUAs for a given period. A certain number of EUAs are allocated to each installation that is subject to the cap. Member States also auction a number of EUAs on first issue. Each EUA is effectively a “permit to emit” on metric ton of CO₂.

EUAs are an intangible commodity. They are recorded on an electronic registry and each is given an individual registration number. Each Member State has its own Emissions Registry which is responsible for the EUAs issued by that State. In the UK, the Environment Agency is responsible for administering the UK ETS Registry (“UKER”).

At the end of the designated period, a capped installation must have enough EUAs in its possession to cover the tons of carbon it has emitted over that period. Those EUAs must be surrendered and will then be taken out of circulation. If the installation does not surrender sufficient allowances, it will be fined.

EUAs can be bought and sold. The idea underpinning the scheme is that those installations whose emissions exceed its holding of EUAs will need to buy in more. This provides an incentive to efficient operators to reduce their emissions and sell their spare EUAs as a way of generating capital. It is intended or at least anticipated that the number of issued EUAs for each successive period will be reduced, providing industries with an additional incentive to reduce emissions.

In addition to EUAs, the EU ETS scheme permits capped operators to surrender certain other forms of carbon credits which are validated under international protocols. These credits also have unique reference numbers and are recorded in official registries.

The capped industries must surrender EUAs (or other acceptable credits) at the end of the designated period and that is what gives the allowances their basic commercial value, but the EUAs themselves may be bought and sold by anyone, including companies or individuals based outside of the EU. Many companies are set up purely to broker (Footnote: ¹⁸) and trade in carbon credits as intermediary businesses and are not operators or users of the credits themselves.

Carbon credits, including EUAs, can be traded as futures or as spot trades. Futures involves a legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument in the future. Futures contracts are standardised according to the quality, quantity, and delivery time and location for each commodity. Payments for futures contracts are not due until the set delivery date. Spot trading refers to a cash market price for the commodity that is available for immediate delivery.

There are a number of Exchanges in the EU that deal in carbon credits, including ECX, Bluenext, EEX and Nordpool. Between them, Bluenext and ECX account for about 98% of all the trade through the exchanges. Bluenext, which is based in France, deals, almost exclusively, in the spot market, whereas ECX, which is based in London, deals almost exclusively in the Futures market.

Companies and individuals are not, however, restricted to trading through the exchanges and instead may conduct “Over the Counter” or OTC sales. OTC trade involves a carbon credit transaction arranged between two companies (or an individual and a company) although they can involve intermediary or broker companies. It is currently estimated that about 60-65% of all carbon credit trade is “over the counter”.

The exchange may provide the forum for trading but the EUAs themselves have to be recorded and held in an EU registry account. In order to hold, buy and sell EUAs a company or individual must be registered for an on line person holding account on one of the Member States’ registries. UKER, like other Member States registries, in addition to being responsible for operator accounts i.e. accounts of the capped installations that are subject to the EU ETS scheme, also operates person holding accounts.

All transactions of EUAs have to be carried out via these electronic accounts. A company which holds EUAs in an account will notify the registry of a sale and ask the registry to transfer the EUAs to the customer’s account. A Registry account also enables a seller to evidence his holdings to prospective buyers.”

That HMRC had “identified MTIC fraud chains in the UK involving the trade of carbon credits, specifically EUAs”. (Footnote: ²⁰) This had involved various investigations – including of the Danish Emissions Trading Registry – identifying a number of companies holding accounts with that registry where “[v]erification of the onward supplies of EUAs from these companies is still ongoing”. (Footnote: ²¹)

The manner in which the MTIC Fraud was conducted. HMRC’s inquiries had resulted in the belief that a “missing trader is likely to have acquired EUAs from a company based outside of the UK and therefore would have acquired the EUAs free of VAT”. (Footnote: ²²)

The EUAs so acquired would be traded down a chain – with increasing mark up at each stage – resulting in a sale to “a large multinational UK company”. (Footnote: ²³) More specifically:

That it was likely that only a single registry – here the Danish Registry – would be used by the fraudsters. (Footnote: ²⁵)

“As investigations by HMRC are on-going, I believe that, if anything, HMRC is likely to uncover further matters of concern as matters progress. In these circumstances, I believe it imperative that HMRC takes steps at this stage to preserve the position pending further investigations.”

The operation of MTIC Fraud in general terms would have been known to the Liquidators well before the appointment of Mr Hellard and Mr Ingram on 29 September 2009. I very much doubt whether HMRC would have appointed provisional liquidators who needed educating in this regard, and Mr Hellard did not seek to deny such general knowledge.

Mr Hellard did seek to make the point that the use of EUAs in MTIC Fraud was novel. I accept this, but find this point to be fundamentally irrelevant to the questions here at issue:

There are at least three types of claim in relation to these particular MTIC Frauds that HMRC – and, since their appointment, the provisional liquidators – would likely be looking into, with a view to making some form of legal recovery from third parties in respect of HMRC’s losses. Briefly, these types of claim may be described as follows:

I turn then to consider specifically the knowledge that the Liquidators had in relation to potential claims against brokers at around the end of September 2009:

First, it is said that TFS was a regulated entity (as indeed it was), and so could not warrant investigation. That does not seem to me to amount to any kind of justification for not looking more closely at brokers in the circumstances I have described.

Secondly, I received the very strong sense from Mr Hellard, throughout his oral evidence, that the Liquidators would only “investigate” if they could be confident of the outcome of that investigation. It may be that a concern over cost drove this approach or informed this attitude: but I should be clear that I regard such an approach as being altogether inconsistent with “investigation”, and more consistent with (what should be the subsequent stage of) “pleading a case”.

If the Claimants were seeking to take such a granular approach to this question, then Mr Hellard was undoubtedly the wrong witness. His oral evidence made absolutely clear that he was not in day-to-day charge of the liquidations. TFS – in a schedule to its closing submissions – listed those documents which were put to Mr Hellard during the course of cross-examination, but in relation to which he simply could not assist. This is not a criticism of Mr Hellard: he was, quite simply, for this purpose, the wrong witness.

As a result, it is impossible to understand the processes by which the claim against TFS came to be pleaded as late as it was. It may be that there is an explanation consistent with due diligence lurking in the detail, but it is not evident from the facts and matters before me.

Indeed, to the contrary, there is a great deal that – on this basis – calls for explanation:

In short, I am satisfied that – with no more than reasonable diligence – the Liquidators could have placed themselves in a position to plead a case of dishonest assistance against TFS some time in 2009 or 2010. I reject the suggestion that the Karra/Bullen Transcript was necessary to make such a case; and, even if it was, which I do not accept, I strongly suspect that had reasonable diligence been used, it would have been unearthed far sooner.

The team would promptly and appropriately have reported to Mr Hellard matters he needed to know as liquidator; and

At critical points in the litigation, Mr Hellard would specifically have consulted his team, and pooled what information there was so that an informed decision might be made.

The Liquidators could have adduced evidence – and this probably would have been from Mr Hellard – explaining “top down” how the investigation was conducted. This would have involved a clear statement of the direction and purpose of the investigation – and how that direction and purpose was to be, and was, achieved. The fact is, however, that Hellard 1 makes no effort to explain the Liquidators’ conduct in this way.

The effect of funding on the Liquidators’ investigations. The Claimants were in no position to fund any investigation into the conduct of third parties. It would be unreasonable to expect the Liquidators’ themselves to fund their investigation absent careful consideration of the merits and demerits of such a course. In the course of cross-examination, it emerged that the litigation initiated by the Liquidators – including the claim against TFS – was funded by a combination of third party litigation funding, funding by Grant Thornton and conditional fee arrangements with solicitors and counsel. The details appear nowhere in Hellard 1, and Mr Hellard was – understandably – vague in cross-examination. The funding of the liquidations is of peculiar importance in terms of how investigations can be funded and prioritised. I was given no insight into how funding might have affected the investigation process.

The relationship between the Liquidators’ investigations and HMRC. Quite clearly, there was an appropriately co-operative relationship between the Liquidators and HMRC. Each progressed their own inquiries, but HMRC did provide information to the Liquidators. Having listened very carefully to Mr Hellard’s evidence, I have derived no clear understanding of how the relationship between the Liquidators and HMRC was intended to work, and how it did in fact work. Mr Hellard, at times, suggested that HMRC would have provided the Liquidators with “everything”, but that was contradicted by his own oral and written evidence. Indeed, the proposition that HMRC would have provided the Liquidators with “everything” is a nonsensical proposition. There must have been some kind of relevance test applied by HMRC in terms of what information was provided by HMRC to the Liquidators, but I have no idea – because there was no evidence on the point – as to how HMRC assessed what information was to be provided or how the Liquidators expected HMRC to operate. What is clear is that:

As regards Nathanael:

As regards Inline:

As I have stated in paragraph 31(7)(d), whilst the words “could with reasonable diligence” in section 32 of the Limitation Act 1980 obviously import an objective standard, that standard is informed by the position of the actual claimant, not some hypothetical claimant. Prior to their restoration to the register, Nathanael and Inline did not exist. There was no claimant who could, with reasonable diligence, have discovered the fraud, concealment or mistake. On its own, and without consideration of the effect of an order for the restoration of a company to the register, section 32 does not assist TFS.

Section 1032 of the Companies Act 2006 provides (so far as is material) as follows:

No direction was made under section 1032(3), but I consider that that subsection casts valuable light on the general effect of an order as made under section 1032(1). The point of the “deeming” provision in section 1032(1) is to place the company and all other persons in the same position as if the company had not been dissolved or struck of the register. Section 1032(3) provides for the specific case where this cannot be achieved, or cannot clearly be achieved, without specific direction or provision.

Inevitably, deeming provisions sit ill with the real world. The company in deemed existence would – but for the contrary provision in section 1032(2) – automatically incur penalties for failing to file accounts. There will be cases – not provided for in the statute – where notwithstanding sections 1032(1) and (3) – it will not be possible to place the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register. Mr Adam Johnson, QC (sitting as a deputy High Court Judge) considered this question in Davies v. Ford, [2020] EWHC 686 (Ch) at [376]ff, which contains a careful and very helpful review of the case law:

The present case I consider to be very straightforward. It would be anomalous in the extreme, and entirely contrary to the schema of the Limitation Act, for the time a restored company spends in enforced non-existence not to count towards the calculation of time for the purposes of limitation, when there is a deeming provision that states in terms that the company is – in such circumstances – deemed to exist. That would be entirely prejudicial to the interests of third parties, and would incentivise the manipulation of the timing of applications to restore a company to the register. (Footnote: ³⁷)

The only difficulty lies in identifying the person or persons who would have been in control of the company during its enforced non-existence. But the difficulty is a minor one. Bennion on Statutory Interpretation (quoted at [388] of Davies v. Ford) suggests that “[t]he intention of a deeming provision, in laying down a hypothesis, is that the hypothesis should be carried as far as necessary to achieve the legislative purpose, but no further”. I agree. The “deeming” provision in section 1032 requires me to deem that Nathanael and Inline were properly constituted companies during the period of their non-existence, and that they had the minimum number of ordinarily competent directors in place.

“Fraudulent trading

If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect.

The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper.”

“Further or alternatively, the Defendants are liable to pay compensation pursuant to section 213 of the Insolvency Act 1986 for knowingly being a party to the carrying on of the Companies’ businesses with intent to defraud creditors or alternatively for a fraudulent purpose, namely the non-payment of their liabilies to HMRC for VAT. The…Claimants rely on paragraphs 12 to 58 above.”

The business of the company in liquidation had been carried on with intent to defraud creditors or for any other fraudulent purpose. Realistically, TFS conceded that whatever the interpretation of this requirement the whole purpose of the Claimants was “to perpetrate carousel fraud in relation to EUAs”. (Footnote: ³⁸) It seems to me that this must be right, and that there is little to be gained in further debating this requirement in the context of the facts of this case.

The defendant sought to be made liable participated in the carrying on of the business of the company in that manner. The question is whether section 213 is intended to apply only to persons exercising management or control of the company’s business (e.g. directors, shadow directors and the like) or whether the provision extends to those who assisted or contributed to breaches of duty by the company or those controlling it. As to this:

That the defendant did so knowingly. This is a point that would have been live, but for the settlement. I need consider it no further.

Accordingly, it is only necessary for me to consider further the second of the three points set out above.

First, he held that the language of section 213 – although a “little unusual” – was widely drawn: (Footnote: ⁴⁵)

Secondly, he held that the policy underlying the section favoured a wide reading: (Footnote: ⁴⁶)

Thirdly, Neuberger J referred to the wider context – in terms of the Insolvency Act 1986 – in which section 213 appears. (Footnote: ⁴⁷)

“In my judgment, these statements of principle from Bank of India v. Morris stand as clear Court of Appeal authority for the proposition that liability under section 213 is not limited to those who have been involved in the management of the company whose business has been carried on with intent to defraud, but potentially extends to outsiders who simply deal with the company.”

Whilst the statements set out by Snowden J do bear out what he says, what Snowden J did not say was that both at first instance and before the Court of Appeal the “wide” construction of section 213 was agreed between the parties, and not the subject of argument.

The imposition of liability under section 213 on an outsider who has not been directly involved in the management of the company or its business, and in particular the parallels that seem to exist between section 213 and accessory liability for dishonest assistance, have been criticised by David Foxton, QC, in an article, Accessory Liaibility and Section 213 of the Insolvency Act 1986, [2018] JBL 324. The author was critical of Neuberger J’s reasoning and conclusion in Banque Arab Internationale d’Investissement v. Morris. However, given that such reasoning was endorsed at the level of the Court of Appeal in Bank of India, I do not consider that I am entitled to hold that the scope of section 213 cannot extend to an outsider to the company which has been carrying on its business with a fraudulent intent.

I acknowledge that a clear note of caution was sounded by Neuberger J in Banque Arabe against extending section 213 too far, so as to “risk stultifying normal business transactions”. However, for the reasons which Neuberger J then gave, and which I have echoed in the context of dishonest assistance above, if the facts demonstrate that the Traders turned a blind eye whilst causing RBS to enter into trades which facilitated the fraudulent trading by the Claimant companies, then in my judgment that should also be sufficient to found liability under section 213”.

Of course, Snowden J’s decision did not survive in the Court of Appeal – but Snowden J was not in terms overruled on this point.

The Limitation Defence succeeds.

The Claimants’ claims under section 213 of the Insolvency Act 1986 do not fail as a matter of law. They are not outwith the terms of that section.