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||Neutral Citation Number:  EWHC 2029 (Ch)
||Case No: HC09C00297
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
THE HON MR JUSTICE LEWISON
|| Abbey Forwarding Limited (In Liquidation)
||- and -
||(1) Richard John Hone
(2) Richard John Mills
(3) Patrick Daniel Owen
(4) William James Owen
Peter Shaw and Jonathan O'Mahoney (instructed by Moon Beever) for the Claimants
James Pickup QC and David Bedenham (instructed by Bark and Co) for the Defendants
Hearing dates: 6th – 20th July 2010
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Lewison:
| The legislation
| Outward diversion fraud
| Borrowed loads
| Inward diversion fraud
|Other regulatory considerations
| Operator's licence
| Legal framework
| The pleaded case
|Burden and standard of proof
| Burden of proof
| Standard of proof
| Cases of fraud or dishonesty
|The allegation of dishonesty
|The Company's systems
| Due diligence
| Abbey's movement guarantee
| Early warning system
| Loading and despatch
|The French bonded warehouses
| MT Manut
|The French cash and carries
| Calais SARL
| Boissons Extra
| Changes since 2007
|Movements in 2008
|The Glenpark assessment
|The Lauvie assessment
|Cash payments to Abbey
|The directors' lifestyles
|Did the goods arrive?
| The main assessments
| The Glenpark assessment
| The Lauvie assessment
|The allegations of dishonesty
| Fraudulent underlying transactions
| Use of MH Forwarding
| Failure to account for cash
| Failure to follow up irregularities
| Directors' lifestyles
|Breach of duty of skill and care
- Abbey Forwarding Ltd ("Abbey") was ordered to be wound up on 18 March 2009 on the petition of Her Majesty's Revenue & Customs ("HMRC"). The petition debt arose out of assessments that HMRC had made in respect of excise duty and VAT. The assessments were based on HMRC's belief that there had been large scale evasions of excise duty on duty suspended alcohol that had been stored in and subsequently removed from the Abbey's bonded warehouse in West Thamesmead, South East London. Abbey had been named in the paperwork as the consignor of the goods; and in almost all cases the relevant movements of goods had been carried out under Abbey's movement guarantee. It was Abbey's description as consignor and that guarantee that founded its liability.
- Ms Louise Brittain was appointed as Abbey's liquidator. Abbey brings this action against its four former directors. All four of them are said to have been negligent in allowing the Abbey to be exposed to the liability to HMRC. In addition, three of them, Mr Hone and Messrs Owen are alleged to have been dishonestly complicit in the alleged excise diversion frauds that underlay the assessments. The amounts in issue exceed £7 million.
- Abbey's case was presented by Mr Peter Shaw and Mr Jonathan O'Mahony. The case for the directors was presented by Mr James Pickup QC and Mr David Bedenham.
- The order to wind up the company had been preceded by Ms Brittain's appointment as provisional liquidator. Blackburne J heard that application, which was made by HMRC on 4 February 2009. HMRC put their case high. Leading counsel for HMRC told the judge that it was HMRC's case that Abbey was at the heart of the fraudulent activity; that its directors were living beyond their declared means; and that the directors were fraudsters who might move assets and cash and destroy evidence. Although the judge had some misgivings about the draconian effect of appointing a provisional liquidator, he was persuaded to do so.
- Abbey was founded by Messrs Owen's father in the early 1970s. It was primarily a freight forwarding and warehousing business. In the early years it dealt in dry goods, such as clothing. But in May 2002 it was granted an excise licence. From that time part of its business consisted in operating a bonded warehouse. It operated from a warehouse of 53,000 square feet and employed 23 staff. It leased the warehouse from a separate company owned by Messrs Owen. As well as the bonded warehouse Abbey also dealt in the import and export of freight; air freight, export packing and a small amount of domestic transport. In an average month there were three hundred movements into the warehouse and three hundred movements out. This equates to seven thousand trailers a year. Abbey did not undertake international haulage itself, but for many of its customers it arranged haulage by a haulier drawn from a pool of hauliers whom it regularly used. Some of its customers (including those with which this case is concerned) chose their own hauliers.
- Messrs Owen have worked for Abbey since they left school in the early 1970s. Mr Bill Owen is in the Accounts Division; and Mr Pat Owen oversaw the warehouse. Mr Rick Hone began to work for Abbey in about 2002, having run his own transport, shipping and freight forwarding business for many years. In 2005 the Company secured a movement guarantee which enabled it to arrange transport of goods under bond from one bonded warehouse to another.
- Alcoholic liquor produced in (or imported into) the United Kingdom becomes in principle liable to excise duty when it is produced (usually at the moment that it is put into any package or removed from the brewery) or imported. However, liability to pay the duty is delayed and arises only when the alcoholic liquor passes the "duty point". The "duty point" is usually the point at which the alcoholic liquor is released for consumption. However, the duty point may be postponed and the alcoholic liquor may remain duty suspended if it is removed to other registered premises or to an approved excise warehouse (often referred to as "bonded warehouses"). When any suspended duty movement takes place the persons concerned are required to complete an "accompanying administrative document" (known as an AAD). I will describe this later.
- The general arrangements for products sold subject to excise duty and on the holding, movement and monitoring of duty suspended products were laid down by the Council for the European Communities in Council Directive 92/12/EEC ("the Directive"). This remains the primary source of the legislation on excise duties throughout the Community. Article 1 indicates that the object of the Directive is to lay down arrangements for excise duties and other indirect taxes, except VAT, levied in respect of the consumption of products but recognises that specific directives are needed relating to structures and rates of duty on products subject to excise duty. Article 3 provides that the Directive applies at Community level to, amongst others, alcohol and alcoholic beverages. Article 4 contains definitions of "authorised warehousekeeper", "tax warehouse", "suspension arrangement", "registered trader" and "non-registered trader". The phrase "suspension arrangement" is defined as:
"a tax arrangement applied to the production, processing, holding and movement of products, excise duty being suspended".
- Article 6 provides that
"1. Excise duty shall become chargeable at the time of release for consumption or when shortages are recorded which must be subject to excise duty in accordance with Article 14(3). Release for consumption of products subject to excise duty shall mean:
(a) any departure, including any irregular departure, from a suspension arrangement;
(b) any manufacture, including irregular manufacture, of those products outside a suspension arrangement;
(c) any importation of those products, including irregular importation, where those products have not been placed under a suspension arrangement.
- Title II relates to the production, processing and holding of products subject to excise duty. Article 11 lays down the primary rule that production, processing and holding of products subject to excise duty "shall take place in a tax warehouse". By Article 13 an authorised warehousekeeper, as defined, is required to provide a guarantee
"if necessary, to cover production, processing and holding and a compulsory guarantee to cover movement, subject to Article 15(3), the conditions for which shall be set by the competent authorities of the Member State in which the tax warehouse is authorised;"
- Article 14 exempts authorised warehousekeepers, under suspension arrangements, from "losses inherent in the nature of the products during production, and processing, storage and transport". Such losses are to be established according to the rules of the Member State of destination.
- Title III deals with movement of goods. In general movement of products subject to excise duty must take place between tax warehouses. By Article 15(3) and (4)
"(3) The risks inherent in intra-Community movement shall be covered by the guarantee provided by the authorized warehousekeeper of dispatch, as provided for in Article 13, or if need be, by a guarantee jointly and severally binding both the consignor and the transporter. If appropriate, Member States may require the consignee to provide a guarantee. The detailed rules for the guarantee shall be laid down by the Member States. The guarantee must be valid throughout the Community.
(4) Without prejudice to the provision of Article 20, the liability of the authorized warehousekeeper of dispatch and, if the case arises, that of the transporter may only be discharged by proof that the consignee has taken delivery of the products, in particular by the accompanying document referred to in Article 18 under the conditions laid down in Article 19."
- Articles 18 and 19 provide for the documentation needed for movements under duty suspension arrangements, including the AAD.
- The directive was implemented in the UK by the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 ("DSMEG"), made under the Finance Act 1994.
- DSMEG Regulation 2 contains the following definitions:
"In these Regulations—
"accompanying administrative document" means
(a) the document specified in Annex 1 to Commission Regulation (EEC) No 2719/92 or any document that in accordance with Article 2 of that Regulation replaces that document; and
(b) in any case where, under an exemption granted in accordance with Article 29 of the Directive, a person is entitled to use, and uses, a document specified by Commission Regulation (EEC) No 2238/93 in substitution for an accompanying administrative document, that document as so specified;
"authorized warehousekeeper" has the same meaning as in Article 4(a) of the Directive;
"the Directive" means Council Directive 92/12/EEC of 25 February 1992;
"duty suspended movement" means
(a) a movement of excise goods which:
(1) starts at a tax warehouse in one member State and is intended to finish by the arrival of those goods with either:
(i) the authorized warehousekeeper at a tax warehouse or a registered or non-registered trader in another member State; or
(ii) the authorized warehousekeeper at a tax warehouse in the same member State having passed through at least one other member State during the course of the movement; and
(2) in respect of which the excise duty to which those goods are subject by virtue of Article 5 of the Directive is suspended pursuant to suspension arrangements as defined in Article 4(c) of the Directive; and
"guarantee" means the guarantee provided in accordance with the provisions of Article 15(3) of the Directive;
"irregularity" means an irregularity or offence within the meaning of Article 20 of the Directive;
"tax warehouse" has the same meaning as in Article 4(b) of the Directive."
- DSMEG Regulations 3 and 4 define excise duty points respectively by reference to an irregularity occurring or detected within the UK and the failure of goods to arrive at their destination:
"Irregularity occurring or detected in the United Kingdom
3 (1) This regulation applies where:
(a) excise goods are:
(i) subject to a duty suspended movement that started in the United Kingdom; or
(ii) imported into the United Kingdom during a duty suspended movement; and
(b) in relation to those goods and that movement, there is an irregularity which occurs or is detected in the United Kingdom.
(2) Where the Commissioners are satisfied that the irregularity occurred in the United Kingdom, the excise duty point shall be the time of the occurrence of the irregularity or, where it is not possible to establish when the irregularity occurred, the time when the irregularity first comes to the attention of the Commissioners.
(3) Where it is not possible to establish in which member State the irregularity occurred, the excise duty point shall be the time of the detection of the irregularity or, where it is not possible to establish when the irregularity was detected, the time when the irregularity first comes to the attention of the Commissioners.
(4) For the purposes of this regulation, detection has the same meaning as in Article 20(2) of the Directive.
Failure of excise goods to arrive at their destination
4 (1) This regulation applies where:
(a) there is a duty suspended movement that started in the United Kingdom; and
(b) within four months of the date of removal, the duty suspended movement is not discharged by the arrival of the excise goods at their destination; and
(c) there is no excise duty point as prescribed by regulation 3 above; and
(d) there has been an irregularity.
(2) Where this regulation applies and subject to paragraph (3) below, the excise duty point shall be the time when the goods were removed from the tax warehouse in the United Kingdom.
(3) The excise duty point as prescribed by paragraph (2) above shall not apply where, within four months of the date of removal, the authorized warehousekeeper accounts for the excise goods to the satisfaction of the Commissioners."
- Regulation 7 says:
7. - (1) Subject to paragraph (2) below, where there is an excise duty point as prescribed by regulation 3 or 4 above, the person liable to pay the excise duty on the occurrence of that excise duty point shall be the person shown as the consignor on the accompanying administrative document or, if someone other than the consignor is shown in Box 10 of that document as having arranged for the guarantee, that other person.
(2) Any other person who causes or has caused the occurrence of an excise duty point as prescribed by regulation 3 or 4 above, shall be jointly and severally liable to pay the duty with the person specified in paragraph (1) above."
- A duty-suspended movement of excise goods from an authorised warehouse in one member State to an authorised warehouse in another must be documented by an AAD. This is a prescribed form, set out in Annex 1 to Commission Regulation 2719/92/EEC. It contains a number of boxes, most of which are to be filled in by the consignor, which is the authorised warehousekeeper of dispatch. They identify the consignor, the consignee (that is, the warehouse of destination), the nature of the goods and the transporter, and provide other information. Each AAD has four copies: the first is to be retained by the consignor and the second by the consignee, the third is to be receipted by the consignee and, if required, by the fiscal authorities of the destination member State and then returned to the consignor, and the fourth is retained by those fiscal authorities. All but the first copy must accompany the goods while they are in transit. Article 15 (4) of the Directive envisages that the liability of the warehousekeeper will be discharged by receipt of the receipted third copy of the AAD. These copies are referred to as "copy 1", "copy 2" etc.
- The AAD is completed in the first instance by the dispatching bonded warehouse. Abbey used a computer program called "the Vintner", which had been developed in conjunction with HMRC, for this purpose. Duty suspended goods are transported by articulated lorries. An articulated lorry consists of a tractor unit hauling a trailer. In every case Abbey provided HMRC with both the registration number of the tractor and also the number of the trailer. Sometimes the tractor and trailer numbers were entered on the printed version of the AAD that the Company sent to HMRC. In other cases it was written in manuscript on the faxed version sent through to HMRC. Abbey also applied a plastic seal to each laden trailer. Each seal has a unique number, which Abbey pre-notified to HMRC in every case. The seal cannot be removed without cutting or breaking it. The object of the seal is not to protect the load, but to show whether it has been tampered with. When HMRC intercept vehicles they do not appear to pay any attention to the seal.
- As foreshadowed in both the Directive and the DSMEG Regulations, every movement takes place under a guarantee, called a "movement guarantee". The movement guarantee must be lodged with and approved by HMRC and takes the form of a financial instrument valid throughout the EU. Typically (and in this case) it takes the form of a guarantee from a clearing bank. Each movement guarantee is allocated a unique reference number; and this number is one of the details that must be entered onto the AAD. The guarantee for any particular movement may be provided by the dispatching warehousekeeper, the haulage company or the owner of the excise goods. Many of the larger haulage companies have their own movement guarantee; but smaller ones do not. The provision of the guarantee exposes the guarantor to the risk of having to pay the full amount of excise duty on a load that goes missing. In the case of a full load of beer the duty is of the order of £14,000; in the case of a full load of spirits it is of the order of £150,000. Liability is not limited to the amount of the guarantee. Not surprisingly, therefore, the provider of the movement guarantee charges for its use. In the case of a haulage company there is a differential charge for haulage, depending on whether the haulage company's movement guarantee is or is not used. In the case of a warehousekeeper the haulier is charged. In each case the charge is ultimately passed on to the customer.
- There is a history of widespread evasion of these controls by alcohol being unlawfully diverted onto the UK home market through the use of AADs being returned falsely evidencing receipt of the goods by the supposed warehouse of destination. The fraud is profitable because when an alcoholic product ceases to be in bond not only excise duty but also VAT becomes payable on the duty inclusive selling price of the product. In the UK particularly, the proportion of the retail price of an alcoholic product represented by the liability to pay excise duty and VAT far exceeds the proportion representing the cost of production. Hence the profit. The process of diversion and black market sale is usually known as a "slaughter". A slaughter may be the result of any one of many varieties of fraud. The frauds are broadly divisible into outward diversion frauds and inward diversion frauds.
Outward diversion fraud
- In a typical outward diversion fraud apparently legitimate and genuine, and legitimately documented, consignments of excise duty goods leave a bonded warehouse in the UK and are apparently sent to a bonded warehouse on mainland Europe. In fact the goods never leave the UK; they are diverted and sold on the black market without duty being paid and to the consequential profit of all participants. It seems to be impossible to carry out this kind of fraud without the co-operation of a corrupt haulier. The tractor unit with an empty trailer then travels onward to the Continent and the fraud is concluded at the declared destination warehouse either with or without the connivance of the receiving warehouse. In his evidence in support of HMRC's application for the appointment of the provisional liquidator Officer Smith canvassed two possibilities: the fraudulent application of stamps to the AADs (i.e. that the stamps have been forged); or the collusion of the receiving bonded warehouse. In the present case it is not alleged that the receiving warehouses were complicit in any fraud; or that any of the stamps have been forged or fraudulently applied. The case now is quite different from the one on which HMRC relied for the appointment of the provisional liquidator. Because of the way that the legislation works, if there is an irregularity HMRC are entitled to assess and recover the duty from the provider of the movement guarantee, even if he had nothing to do with the diversion. Thus Abbey's liability to HMRC does not depend on its participation in fraud. It depends upon use of its movement guarantee or, in one case, simply on its position as consignor of the goods.
- Mr Steele, who used to head the Revenue Fraud Detection Team at Dover, explained how one variety of the fraud worked following a slaughter in the UK. The vehicle identified in the AAD would leave the UK either with its original trailer (now empty) or with a different empty trailer bearing a false identity. Mr Steele said that the trailers had plates on them which could be swapped, although few of the interception records show that HMRC identified trailer numbers. The driver would then cross the Channel with his tractor and empty trailer. He would often carry the AAD with him usually hidden in the lorry, but sometimes the AAD would be taken separately by courier before being reunited with the vehicle. The vehicle would then make its way to a cash and carry in France where it would be loaded with a load (with French duty paid) that corresponded exactly with the load identified on the AAD. It would then go to the receiving warehouse, where the AAD would be signed off. French duty would be paid again. Having cleared customs, the vehicle would then return to the cash and carry where it would unload the load that it had "borrowed". The receiving warehouse would thus have been duped. The fraudsters' profit is the difference between the lower French duty and the higher UK duty plus VAT. Mr Steele had come across this perhaps 10 or 20 times in the course of a year. Because French duty paid wines and spirits have duty paid status marks (whereas beer does not), he said that the borrowed load only works for beer.
- It is right to say that this variety of fraud did not form part of HMRC's case on the application for the appointment of the provisional liquidator. Nor did it form part of the Abbey's pleaded case. Nor, indeed, did it feature in the first round of evidence served on behalf of Abbey. It first surfaced in Officer Duxbury's witness statement of 21 June 2010, which was served in reply to the Defendants' evidence; and then only as generalised hearsay. I will return to this point later.
Inward diversion fraud
- Officers Smith and Duxbury also explained another variety of fraud called "inward diversion". This takes place when duty suspended goods are moved from a bonded warehouse abroad to a bonded warehouse in the UK. A genuine AAD is issued for the load and it sets off for the UK. If it is stopped on entry to the UK HMRC will stamp the AAD to show that a movement has taken place. But if it is not stopped on entry, then the AAD can be used several times before it is finally presented to the receiving warehouse for stamping and discharge. Each time it is used (apart from the final time) the load will be slaughtered. Each load, apart from the first load which will have come from a legitimate bonded warehouse, will (as I understand it) have been acquired from a foreign cash and carry and presumably foreign duty will have been paid on it. It is accepted, as I understand it, that in many (if not most) cases of inward diversion fraud the goods in question (whether beer or spirits) will have originated in the UK (in the sense of having been brewed or distilled here). Since an AAD issued by a foreign bonded warehouse is the essential cloak for the inward diversion, it is necessary to get the goods into that foreign warehouse in the first place. This is done by a movement of goods from a UK bonded warehouse to the foreign bonded warehouse. The outward movement of the goods from the UK to the foreign bonded warehouse will be legitimate in the sense that it will be properly documented by an appropriate AAD; and the goods will actually arrive at their intended destination. As with the "borrowed load" the fraudsters' profit seems to come from the difference between French duty and UK duty plus VAT.
Other regulatory considerations
- The Warehousekeepers and Owners of Warehoused Goods Regulations 1999 ("WOWGR") enable HMRC to approve both warehousekeepers (under regulation 3) and owners of excise goods who wish to deposit them in an excise warehouse (under regulation 5). In either case a person is registered as a registered excise dealer and shipper. Dutiable goods cannot be deposited in an excise warehouse unless the occupier is an authorised warehousekeeper; and cannot be kept there unless the owner of the goods is the warehousekeeper itself; a registered owner in the UK; or a person who has a duty representative in the UK.
- The information about this on the HMRC website (now in public notice 196 2010 edition) says:
"To hold duty-suspended goods in an excise warehouse, to be authorised as an excise warehousekeeper or to be registered as an owner of excise goods in warehouse you need to contact HMRC. HMRC regularly reviews the compliance of existing authorised excise warehousekeepers and owners and robustly challenges all new applications."
- The same document sets out certain criteria that HMRC adopt:
"It is important that all applicants receive a pre-approval visit so that HMRC may obtain information to assist in the processing of the application.
During the visit HMRC will examine all the business' activities and may enquire about your suppliers, customers, business plans, accounting systems, premises, financial viability, and so on. Only when HMRC is satisfied the business is a genuine enterprise, commercially viable, with a genuine need for authorisation and all key persons are fit and proper to carry on such a business, will HMRC process the application.
Reasons for refusing an application may include:
- the legal entity (this includes the directors) or any of its key employees have been involved in revenue non-compliance or fraud
- the application is incomplete or inaccurate
- you (the directors in the case of a limited company) have unspent convictions
- there are proven links between the legal entity/key employees with other known non-compliant or fraudulent businesses
- the business is not commercially viable
- you have not been able to demonstrate the business is genuine
- you have outstanding HMRC debts
- you are unable to provide adequate financial security as required by HMRC
- you do not have an accounting system that satisfies HMRC.
The above list is not exhaustive. If we are not satisfied with the information provided to us, we may refuse to authorise you. In addition, if you fail to provide us with the information requested, we will place your application on hold until the information is received. We will notify you of the reasons for the refusal."
Anyone who carries goods in a vehicle of more than 3.5 tonnes needs an operator's licence (called an "O-licence"). The applicant for an O-licence must satisfy the Traffic Commissioner that:
i) He is a fit and proper person to hold a licence. In deciding whether an applicant is fit and proper the Commissioner will take into account any convictions; and will also consider whether the applicant is a person of good repute;
ii) That the applicant has the financial resources to keep his vehicles fit and serviceable and to run a road haulage business. Evidence of financial resources (such as bank statements or recent accounts) is usually required. An applicant may also be required to demonstrate that he has adequate working capital;
iii) That the person responsible for transport is professionally competent. This is usually required to be evidenced by producing a certificate of competence issued by an examination board or equivalent formal qualification.
If an O-licence is granted the Commissioner issues a disc which must be displayed on the windscreen of the vehicle.
The Defendants adduced two witness statements from Mr Daniel McGee and Mr John Osborn respectively. Both are hauliers; and their evidence was unchallenged. Their evidence was that tractor swaps are common among hauliers. There are many reasons why a tractor swap might take place. One reason arises because each tractor unit carries a tachograph which records drivers' hours. A driver who begins a journey may not have enough hours left before his compulsory break to enable him to complete the journey. In such circumstances it may become necessary for tractors to be swapped. Mr Shaw suggested that a tractor swap after which a tractor unit bound for France would actually travel to France would be implausible as a legitimate tractor swap. But if one tractor unit was initially bound for, say, Paris and another bound for, say, Calais, I see no reason why that should be so. The Paris-bound tractor (with fewer hours left) would undertake the Calais run, while the Calais-bound tractor (with more hours left) would undertake the Paris run. Another reason for a tractor swap might be personal reasons connected with the particular driver; and yet another might be the breakdown of a particular tractor unit.
Duty-suspended alcohol may be bought and sold while it remains physically within the bonded warehouse. In the present case Abbey had accounts for a number of customers. Among them were Glenn & Co Essex Ltd ("Glenn"), SAS Wines Ltd ("SAS") and Way 2 Wines Ltd ("W2W"). HMRC believe that alcohol (principally beer and lager) apparently sold by Glenn to SAS and W2W and apparently destined for export to bonded warehouses in France and Belgium was diverted and slaughtered within the UK. As a result of this HMRC caused the assessments to be raised upon which the petition debt was based. HMRC raised two assessments against Abbey in February 2009 in the aggregate sum of £5,965,704. These assessments related to 301 separate movements of duty suspended alcohol. Each of the movements comprised in this assessment was hauled by a haulier called MH Forwarding. Further assessments in January, April and October 2008 were raised for excise duty and VAT in the aggregate sum of £537,670. These assessments related to a further six separate movements of duty suspended alcohol, thus making 307 movements in all. In all of the 301 movements covered by the February 2009 assessment, the stock was owned by SAS or W2W. In all these instances, the stock was delivered to one of two approved EU warehouses, MT Manutention and Wybo, both of which are approved EU bonded warehouses in or around Calais. In each case the ultimate purchasers were said to be one of three cash and carry operations called Calais SARL, Boissons Extra or Davedas. There was a cut off period of twelve months, reckoned backwards from January 2008. In the remainder of the deals, which are covered in the January and October 2008 assessments, the stock was owned by companies called Glenpark and Kismat (or Kismet). These goods were to be delivered to other approved EU bonded warehouses called Cehed, Mevi and Lauvie F Distribution.
In the present case the question is not whether Abbey is liable to HMRC to pay the duty and VAT for which it has been assessed. The question is whether the directors (or some of them) are liable to Abbey for breaches of their obligations as directors.
The duties of directors are now to be found in the Companies Act 2006. Section 172 says:
"(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
Section 173 (1) requires a director to exercise independent judgment. Section 174 says:
(f) the need to act fairly as between members of the company."
"(1) A director of a company must exercise reasonable care, skill and diligence.
(2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with—
(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and
(b) the general knowledge, skill and experience that the director has."
The pleaded case
In Belmont Finance Corporation Ltd. v. Williams Furniture Ltd.  Ch. 250, 268 Buckley L.J. said:
"An allegation of dishonesty must be pleaded clearly and with particularity. That is laid down by the rules and it is a well-recognised rule of practice. This does not import that the word "fraud" or the word "dishonesty" must be necessarily used. The facts alleged may sufficiently demonstrate that dishonesty is allegedly involved, but where the facts are complicated this may not be so clear, and in such a case it is incumbent upon the pleader to make it clear when dishonesty is alleged. If he uses language which is equivocal, rendering it doubtful whether he is in fact relying on the alleged dishonesty of the transaction, this will be fatal; the allegation of its dishonest nature will not have been pleaded with sufficient clarity."
To similar effect in Paragon Finance plc v D B Thakerar & Co  1 All ER 400 Millett L.J. said:
"It is well established that fraud must be distinctly alleged and as distinctly proved, and that if the facts pleaded are consistent with innocence it is not open to the court to find fraud. An allegation that the defendant "knew or ought to have known" is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud even if the court is satisfied that there was actual knowledge. An allegation that the defendant had actual knowledge of the existence of a fraud perpetrated by others and failed to disclose the fact to the victim is consistent with an inadvertent failure to make disclosure and is not a charge of fraud. It will not support a finding of fraud even if the court is satisfied that the failure to disclose was deliberate and dishonest. Where it is expressly alleged that such failure was negligent and in breach of a contractual obligation of disclosure, but not that it was deliberate and dishonest, there is no room for treating it as an allegation of fraud."
In the present case the Re-Amended Particulars of Claim allege:
i) The 301 consignments covered by the February 2009 assessment did not arrive at their stated destinations but were delivered to unknown destinations in the UK (§ 8);
ii) Neither SAS nor W2W or the three cash and carries were genuine commercial entities; there were no commercial sales between any of them; and the sale documentation was prepared to create the fiction of legitimate exports to France (§§ 9 and 12B);
iii) Messrs Owen and Hone knew that the 301 consignments were not intended to be delivered to an approved EU bonded warehouse; but were instead intended to be (and were) diverted to an unknown destination in the UK (§§ 15.1and 15.2).
In the alternative it is alleged that they turned a blind eye to the risk that the consignments would not be delivered to an approved EU warehouse (§ 16).
The pleaded case is thus squarely founded on the assertion that there was outward diversion fraud. Inward diversion fraud is not alleged. It is also not alleged that the fraud in which Abbey is said to have participated was one in which Mr Hone alone was involved. The allegation is that all of the three directors (Mr Hone and Messrs Owen, although not Mr Mills) were, in effect, engaged in a joint enterprise.
Burden and standard of proof
Burden of proof
Mr Shaw said that since (a) HMRC had assessed Abbey to liability both for excise duty and for VAT; (b) those assessments created a statutory debt which would stand unless successfully appealed to the First Tier Tribunal and (c) in any such appeal the burden of proof would be on Abbey to show that the assessments were wrong even where fraud was alleged, it therefore followed that the burden of showing that no irregularities had occurred in the present case likewise fell on Abbey. There is authority to support the proposition that where the taxpayer challenges an assessment, the burden lies on the taxpayer even where fraud is alleged: Brady v Group Lotus Car Companies plc  STC 635. This is because of statutory provisions applicable to tax appeals. If, therefore, this were an issue between HMRC and the Defendants, there would be much to be said for Mr Shaw's submission. But it is not. The Defendants are not the taxpayer; and the issue is between them and Abbey. In my judgment in so far as Abbey's case depends upon the actual occurrence of irregularities, it is for Abbey to prove that they occurred.
Standard of proof
It is, of course, common ground that the standard of proof is that applied in all civil proceedings, viz. proof on the balance of probabilities. Mr Pickup reminded me of the well-known observations of Lord Hoffmann in Secretary of State v Rehman  AC 153, 194:
"The civil standard of proof always means more likely than not. The only higher degree of probability required by the law is the criminal standard. But, as Lord Nicholls of Birkenhead explained in In re H (Minors) (Sexual Abuse: Standard of Proof)  AC 563, 586, some things are inherently more likely than others. It would need more cogent evidence to satisfy one that the creature seen walking in Regent's Park was more likely than not to have been a lioness than to be satisfied to the same standard of probability that it was an Alsatian. On this basis, cogent evidence is generally required to satisfy a civil tribunal that a person has been fraudulent or behaved in some other reprehensible manner. But the question is always whether the tribunal thinks it more probable than not."
These observations must be qualified by those of Baroness Hale in Re B  AC 11, 36:
"As to the seriousness of the allegation, there is no logical or necessary connection between seriousness and probability. Some seriously harmful behaviour, such as murder, is sufficiently rare to be inherently improbable in most circumstances. Even then there are circumstances, such as a body with its throat cut and no weapon to hand, where it is not at all improbable. Other seriously harmful behaviour, such as alcohol or drug abuse, is regrettably all too common and not at all improbable. Nor are serious allegations made in a vacuum. Consider the famous example of the animal seen in Regent's Park. If it is seen outside the zoo on a stretch of greensward regularly used for walking dogs, then of course it is more likely to be a dog than a lion. If it is seen in the zoo next to the lions' enclosure when the door is open, then it may well be more likely to be a lion than a dog."
Lord Hoffmann himself agreed with Lady Hale. He said (§ 2):
"If a legal rule requires a fact to be proved (a "fact in issue"), a judge or jury must decide whether or not it happened. There is no room for a finding that it might have happened. The law operates a binary system in which the only values are 0 and 1. The fact either happened or it did not. If the tribunal is left in doubt, the doubt is resolved by a rule that one party or the other carries the burden of proof. If the party who bears the burden of proof fails to discharge it, a value of 0 is returned and the fact is treated as not having happened. If he does discharge it, a value of 1 is returned and the fact is treated as having happened."
He added (p. 21):
"There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities. If a child alleges sexual abuse by a parent, it is common sense to start with the assumption that most parents do not abuse their children. But this assumption may be swiftly dispelled by other compelling evidence of the relationship between parent and child or parent and other children. It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred. In many cases, the other evidence will show that it was all too likely. If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start one's reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so. The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator."
Cases of fraud or dishonesty
As May L.J. observed in Vogon International Ltd v The Serious Fraud Office  EWCA Civ 104:
"It is … elementary common fairness that neither parties to litigation, their counsel, nor judges should make serious imputations or findings in any litigation when the person against whom such imputations or findings are made have not been given a proper opportunity of dealing with the imputations and defending themselves."
Thus it is the case that before a finding of dishonesty can be made it must not only be pleaded, but also put in cross-examination. In Dempster v HMRC  STC 2079 HMRC alleged that certain alleged transactions were a dishonest sham. On appeal from the VAT Tribunal HMRC argued that because their statement of case before the tribunal had constituted a case of dishonesty, it was unnecessary for it to be put specifically in cross-examination to the taxpayer either that he was a knowing party to a VAT fraud, or that he knew, or turned a blind eye to the fact, that the software which he traded was fake or worthless. Briggs J said (§ 26):
"I emphatically disagree with that submission. First, the tribunal's summary of what was not put in cross-examination is stated with clarity on no less than three occasions in the decision and I was provided neither with a transcript, nor notes (whether by the tribunal itself or by the parties) of the cross-examination with which to be in any position to conclude that the tribunal's summary of the cross-examination was other than fair and accurate. Secondly, it is a cardinal principle of litigation that if serious allegations, in particular allegations of dishonesty are to be made against a party who is called as a witness they must be both fairly and squarely pleaded, and fairly and squarely put to that witness in cross-examination. In my judgment the tribunal's conclusion that it was constrained, notwithstanding suspicion, from making the necessary findings of knowledge against Mr Dempster (necessary that is to permit the consequences of the alleged sham to be visited upon him) was nothing more nor less than a correct and conventional application of that cardinal principle."
I respectfully agree. These principles have had an important effect in the present case; because a number of essential building blocks in the claimant's case depend on allegations that, in the case of witnesses, were never put to them; or, in the case of third parties, on conclusions based on allegations that were never made.
Mr Shaw made a sustained attack on Mr Hone's veracity. It is the case that Mr Hone has told lies in the past (as he himself accepts). It is also the case that, as will be seen, I found some of his evidence untruthful. However, I must remind myself that even where a witness lies about a matter of importance, that does not necessarily mean that he is guilty of whatever it is that he is accused of doing. People tell lies for a number of reasons, including attempting misguidedly to bolster a genuine case (cf. R v Lucas  QB 720).
The possibility of fraud is well known both to HMRC and to warehousekeepers. Warehousekeepers in the UK can check whether a warehouse elsewhere to which they have been asked to consign goods is authorised by making an enquiry of HMRC's SEED unit in Glasgow. An enquirer is required to provide such information as he has (which must meet a minimum level) about a warehouse and is then told whether it matches the SEED record. HMRC also operate an early warning system, described in paragraph 67 of Public Notice 197. This system allows a consignor to send HMRC details of a future movement of duty suspended goods. Its purpose is to "[enable] fiscal authorities to identify high-risk movements at an early stage and so combat fraud". Public Notice 197 says that the early warning system is not compulsory.
In the present case the Company received its certification of registration as an authorised excise warehousekeeper on 26 May 2002. It was a condition of the approval that the Company complied with all conditions, directions and requirements of Public Notice 197. Other conditions were also attached. On 1 December 2003 HMRC attached another condition to the approval as follows:
"All consignments of wines, beers and spirits leaving the warehouse in duty suspension must be notified to this office 24 hours in advance of the goods moving, by sending a faxed copy of the order to this office including details of the haulier and the movement guarantee being used. This is to be followed by the tractor registration and the trailer/container number prior to the goods leaving the warehouse. A copy of the movement document should also be sent to this office upon completion."
Although Mr Hone had said in his witness statement that Abbey's use of the early warning system had been voluntary, in the light of this condition this part of his evidence was plainly wrong.
Abbey was also a member of the United Kingdom Warehousing Association ("UKWA") and subscribed to a memorandum of understanding with HMRC. The purpose of the memorandum was to minimise the smuggling or diversion of alcoholic beverages. Paragraph 2.1 said that both UKWA and HMRC would "work together to further and promote good practice and mutual assistance including the formation of a Joint Warehouse Fraud Taskforce ("JWFTF")". Annex 4 to the memorandum said that both UKWA and HMRC were aware that fraud can be committed while goods are in transit under duty suspension arrangements. The members of UKWA agreed to consider all requests to allow their movement guarantees to be used. The document continued:
"The UKWA members will not allow their movement guarantees to be used unless there are overwhelming reasons why they should (e.g. they retain financial interest in the movement and/or arrange and instruct on transport of the goods)."
Annex 5 to the memorandum listed a number of risk indicators. This annex warned of the risk of sham companies; and listed a number of risk indictors. these included:
"Predominantly cash payments (or any other unusual means of payment)
Customer not registered for WOWGR
Transport arrangements not consistent with the type of movement involved"
The Memorandum of Understanding also envisaged that HMRC would assist the members of UKWA to combat fraud. Paragraph 4 said that HMRC would:
i) Notify UKWA and its signatory members of action taken against those shown to be engaged in the illicit supply of alcohol "so that the UKWA members trading relationships can be reviewed…"
ii) Use their best endeavours to protect the commercial interests of UKWA members by encouraging and facilitating action against overseas warehousekeepers and traders involved in the illicit supply of alcohol. They would notify the legitimate trade of the action taken as soon as reasonably practicable;
iii) Notify the UKWA and its members of any major seizures involving goods allegedly consigned to or dispatched from their warehouses and provide those members with as much information as possible about the circumstances and nature of the seized stock;
iv) Provide feedback to the UKWA and its members, in as timely a manner as possible, on the outcome of all investigations with which they have assisted;
v) Share information with the UKWA and its members on the scale and nature of, and trends in, alcohol seizures and fraud to facilitate the generation of new anti-fraud measures;
vi) Provide the UKWA and its members with as much information as possible to assist them to fulfil their commitments under clause 3.1;
vii) Undertake to continually review guarantees and approvals.
Ms Brittain compiled a table showing the rankings (in terms of sales volume) of the Company's customers in its alcohol business over the period from December 2006 to January 2009. The highest ranking customer was HT & Co (with sales exceeding £1 million). Glenn ranked at number 6 (sales of £198,848); and W2W and SAS at numbers 22 and 32 respectively. Another table that she compiled shows that SAS amounted to 0.57 per cent of the Company's business; and W2W to 1.26 per cent. In the case of W2W business increased substantially in 2008 over business in 2007. It is not suggested in these proceedings that any of the Company's other customers were involved in diversions.
The allegation of dishonesty
Mr Shaw says that three of the directors (Mr Hone and Messrs Owen) were part of a dishonest scheme to defraud the revenue. Although there is no direct evidence of this he says that their dishonest participation should be inferred from the following:
i) The three directors knew that fraud was widespread in the excise duty suspended marketplace.
ii) The underlying transactions (i.e. the sales by Glenn to SAS and W2W and the onward sales to the French cash and carries) were fraudulent. Mr Hone, although not Messrs Owen, knew that this was so.
iii) Abbey used hauliers recommended by SAS and W2W without any legitimate commercial reason.
iv) The use of MH Forwarding in particular was an exception to the use of a pool of hauliers known to Abbey. Abbey carried out no ordinary due diligence on MH Forwarding.
v) MH Forwarding paid in cash for the use of Abbey's movement guarantee; and was the only haulier to pay in this way.
vi) Abbey did not put all of the cash received from MH Forwarding through its books. Each of the three directors knew of this; and accepted in evidence that it was dishonest.
vii) Mr Hone had a casual attitude to the duty suspension regime; and did not follow up irregularities of which he was aware. In addition Mr Hone told admitted lies to HMRC in relation to one notified irregularity which he claimed (untruthfully) to have followed up. He also told lies in the witness box.
viii) Each of the three directors enjoyed a lifestyle that could not be explained by their legitimate earnings and assets.
It is also important to have in mind what is not alleged.
i) It is not alleged that any of the AADs is false or has been falsified. It is accepted that they are all genuine.
ii) It is not alleged that any of the receiving warehouses was complicit in the fraud. It is thus accepted that on each occasion that an AAD purports to confirm receipt of a load of duty suspended goods specified in an AAD, a load of goods matching that description did in fact arrive at the receiving warehouse.
iii) It is no part of the pleaded case that Abbey was involved in inward diversion.
iv) It is not alleged that any of Abbey's employees were complicit in the fraud.
In his evidence on the application for the appointment of the provisional liquidator Officer Smith also relied, as evidence of dishonesty, on regular cash payments (of about £500 at monthly intervals) into Abbey's books. The suggestion was that this was Abbey's payment for complicity in the slaughters. When Mr Shaw opened the case he relied on that, too and did not rely on any payments to the directors themselves. However, by the end of the case he abandoned any reliance on the cash payments to the company, which had been satisfactorily explained. Instead he relied on an inference, drawn from the directors' lifestyles, that cash payments had been made to them.
The Company's systems
The Company employed a bond team to deal with the consignment of duty suspended goods. It was headed by Mr Gary Harding, the Bond Manager. His team consisted of Ms Tracy Lovell, Ms Harminder Khosa and for part of the time Mr Anthony Gorvett and Ms Samantha Davey. They were responsible for the day to day administration of movements; including liaison with HMRC, and completion of AADs. In general they managed themselves and needed little supervision. Mr Harding gave evidence at the trial. It was not suggested to him that he was complicit in the fraud; or that any of his evidence was dishonest.
The evidence was that before Abbey accepted a new customer it asked for a copy of its WOWGR licence; its VAT registration and its letterhead. In addition Abbey required any new customer to pay a deposit of £1,000; and it tried to ensure that any customer had at least one load in the warehouse at any given time so that if anything went wrong Abbey could at least have recourse to those goods. Although Ms Brittain said that her staff could find no documents relating to due diligence in Abbey's files, Mr Shaw expressly accepted that this due diligence was done. Officer Hanrahan, who was part of an HMRC inspection team which visited Abbey's premises for several days in November 2008, said that he had seen "limited due diligence" on customers. The principal complaint was that it was not enough. Mr Shaw said that Abbey should have required bank references and trade references for new customers; and that Abbey's terms and conditions of business should have required contractual indemnities from customers against Abbey's potential exposure to HMRC. In addition he said that although the evidence was that customers had one load in hand in the warehouse, an examination of Abbey's records showed that this was not the case. So far as references were concerned, Ms Brittain's evidence in her witness statement was:
"We can not find a single instance in which the Company undertook a trade reference let alone a bank reference on any of its customers. There was no trace in Abbey's files of any company searches on its customers."
Officer Duxbury agreed in cross-examination that the request for a copy of the WOWGR certificate; the VAT registration and a letterhead were all reasonable steps to take by way of due diligence. He also agreed that the taking of a deposit of £1,000 was a reasonable step. When asked whether there was any further step that Abbey should have taken by way of due diligence, his answer was: "In opening up the account, no".
So far as the hauliers were concerned the evidence was that Abbey required sight of the haulier's O-licence, his VAT registration and evidence that he was insured for goods in transit. Mr John Murray provided a witness statement although he did not give oral evidence. He was formerly a vehicle inspector employed by the Department of Transport. In that role he evaluated companies applying for O-licences. He said that the O-licence was intended to act as a standard in the industry in order to allow the general public and companies to identify reputable hauliers who are suitable to be used. He said that the application process was substantial and included many rigorous checks which were intended to ensure that licensed hauliers were suitable people to undertake haulage. The licence confirms that the holder of the licence is a person of good repute, financially sound, able to maintain his vehicles in a safe and roadworthy manner, professionally competent; and a person who understands the various legal requirements about haulage. His evidence corresponds with what information is publicly available; and I accept it. In his opinion ensuring that a haulier had a valid O-licence would be sufficient due diligence. Officer Duxbury, on the other hand, said that due diligence should also include company searches and an examination of the haulier's accounts.
Ms Brittain's evidence on this topic was:
"Indeed among the books and records of the Company I have not found a single instance of any diligence or enquiries to determine the commercial standing of the haulage companies used to move goods for SAS and W2W. Needless to say there were no trade or other references sought nor any attempt to enquire about the haulier's legitimacy."
Much of the criticism of Abbey related to the fact that the haulier who carried the majority of loads for SAS and W2W, at their instigation, was a small scale Irish haulier called MH Forwarding. Mr Hone's evidence about MH Forwarding was unsatisfactory. In his first witness statement he said that he did not know what checks were carried out on MH Forwarding. Having seen Ms Brittain's complaint that there were no trade references, Mr Hone said in his second witness statement that he had had a telephone conversation with someone (whom he could not name) at Rangefield, another bonded warehouse who assured him that MH Forwarding were reputable. But in his oral evidence he said that he had not telephoned Rangefield; but rather had had a casual conversation with someone from Rangefield whom he had met at a cricket match. I reject this part of Mr Hone's evidence. In my judgment it was an untruthful attempt to bolster his case. However, Mr Hone's was not the only evidence about MH Forwarding. Mr Harding said that he had not come across MH Forwarding before SAS and W2W began to move alcohol. But he said that before Abbey started using MH Forwarding they had copies of their licences and insurance documentation. He had himself seen the O-licence and insurance documents. He also said that Mr Lawler had taken copies of them. It was not suggested to him that he was mistaken or untruthful about that. I find, therefore, that Abbey had copies of MH Forwarding's O-licence and insurance documents; but no more.
Mr Hone had told Ms Brittain in interview that Abbey would always make sure that a customer had enough stock in the warehouse to cover any potential debt it had to Abbey. Ms Brittain said in her witness statement that this was inadequate protection where (a) the customer was not a business of substance (b) the extent of Abbey's exposure was frequently greater than one outstanding load and (c) the hauliers were not businesses of repute. She also said that her team had examined Abbey's stock records from which she concluded that Mr Hone's comments "were simply untrue" and that Abbey had no system in place. Abbey's charging policy was to allow a customer a week's free storage before charging for it. Thus the stock records might not give a completely accurate picture. But in the case of SAS and W2W the documentation shows that they would buy from Glenn and sell on to a cash and carry on the same day. Mr Patrick Owen was thus constrained to accept that the "one load in hand" method of security would not have worked in those cases.
Abbey's movement guarantee
Abbey had a movement guarantee provided by Barclays Bank in the sum of £250,000. Messrs Owen had in turn given personal guarantees to support the bank guarantee coupled with charges over their personal assets. Clearly they had a lot to lose if the guarantee were ever called on. Abbey allowed its guarantee to be used by others. As Officer Smith noted in his affidavit "there is nothing illegal in this practice and it is not unusual". His analysis of Abbey's books showed that it charged between 1% and 1.5% of the duty potentially due on any load for the use of its movement guarantee. It seemed to be suggested that this was an undercharge (and that the undercharge in some way supported the case that Abbey was involved in fraud); but it turned out that the sum of £125 that Abbey charged for using its movement guarantee to cover a load of beer was the going rate. There was therefore nothing in this point.
Ms Brittain suggested in her evidence that:
"The concentrated use of the Company's movement guarantee in general, and by MH Forwarding in particular by W2W and SAS, is in marked contrast to the general pattern."
However, Abbey's movement guarantee was used in some 70 per cent of the outward movements from its warehouse in 2007, whereas movements on behalf of SAS and W2W were only a very small fraction of the total. The use of the movement guarantee was a source of revenue for Abbey, yielding £5,000 to £6,000 per week. I do not consider that Ms Britain's comment was justifiable.
Early warning system
Throughout the relevant period Abbey operated the early warning system. This involved sending a copy of the AAD to HMRC in Stratford. In the early part of the period HMRC would fax back an authorisation to proceed known as an "OK to go". Mr Hone said that it was his belief that the early warning system enabled HMRC to check the identity of the haulier nominated to carry the load (via the Police National Computer) and that any concerns would be notified to the Company. He regarded the "OK to go" as an important safeguard. However, even after they stopped he says that Officer Lawler told him that HMRC continued to carry out background checks on hauliers. On some occasions HMRC would instruct Abbey that a particular consignment should not leave the warehouse. The evidence from HMRC Officers about the early warning system was more equivocal. Officer Gray agreed that through the early warning system HMRC knew the haulier who would carry out the pre-notified movement; and that the local compliance team would have the opportunity to stop the movement if there were anything dubious about the haulier. Officer Deeprose was part of the Revenue Fraud Detection Team ("RFDT") at Dover. She agreed that the early warning system was intended for HMRC and the RFDT to identify suspect orders, and to stop vehicles to ensure that the loads they were carrying were correct. Mr Steele also agreed that the early warning system gave HMRC details of the haulier; and that this enabled HMRC to carry out any checks that it was minded to do and, if appropriate, to stop the movement. This would be a decision for the local holding and movement team. Details of the pre-notification would be passed to RFDT which would then carry out spot checks. Officer Duxbury agreed that the early warning system was designed as a tool to help HMRC combat fraud. But he said that it would never work, because HMRC did not have the resources to stop many movements, let alone all of them; and would be criticised for infringing movements between EU member states if they did.
In some instances HMRC instructed Abbey that trailers were not to be loaded except in the presence of a customs officer. In the case of high value loads of spirits this practice continued into 2008. Ms Brittain produced copies of e-mails recording supervised loading on 7 February 2008; and an abortive appointment on 11 February 2008.
Loading and despatch
Mr Harding described Abbey's "goods out" procedures. The owner of the goods would start the process by raising a release note which would be faxed to the bond desk. A member of the bond team would create a goods out file and contact the receiving warehouse (usually by telephone) to arrange an estimated date and time for delivery. Next a haulier would be booked. Sometimes the haulier would be chosen by Abbey and sometimes by the customer. Transport was booked through the transport office, which was run by Mr McDonald, the transport manager. Once the transport had been booked an AAD number was assigned to the consignment. Once the AAD number was known it would be faxed to the haulier with details of delivery and the account to which the goods were to be transported. Where the haulier was to use Abbey's movement guarantee the bond desk would confirm that he was entitled to. Before the goods were collected, the haulier would give Abbey the tractor unit registration number and also the trailer number of the vehicle which was to collect the consignment. The day before collection the bond team would create the AAD on the computer system. It would then be printed out and sent to HMRC as part of the early warning system. On the day of collection the tractor unit and trailer would arrive at the warehouse. Once the details of the collecting vehicle had been checked, these would be handwritten onto copy 1 of the AAD and that copy would be faxed to HMRC before the vehicle was loaded. Copies 2, 3 and 4 were put in an envelope which would be given to the driver. If the vehicle collecting the goods did not match the details that the haulier had provided, the bond team would contact the haulier to confirm that there had been a change of vehicle. This was not unusual. The key to identification was the tractor unit registration number and the trailer number. If, following the departure of the vehicle, there was another change of tractor unit, Abbey would notify HMRC. The staff would also sign off the CMR. Once the vehicle was loaded it would be sealed. This was done by attaching a physical seal with a unique identifying number to the trailer's TIR cord. The seal number was always specified on the AAD. None of this evidence was challenged. Officer Hanrahan was part of an inspection team that spent several days at Abbey's warehouse in November 2008. He was told at that time by Mr Harding that all loads were sealed; and, although he did not personally verify that, he thought it "entirely likely" that they were sealed. He did see a bag of seals in the office. Officer Duxbury accepted that each AAD identified a seal number. However, he said that there was no requirement to attach a seal; and that although the AAD specified a seal, that did not mean that it had actually been applied.
Box 11 of the prescribed form of AAD requires the warehouse of despatch to provide:
"Other transport details: any additional information, e.g. name of any subsequent transporter, means of transport, registration number of means of transport, and the number, type and identification of any commercial seals."
Although Officer Duxbury may be right that there is no requirement to attach a seal, Box 11 of the prescribed form of AAD clearly envisages that a seal will be applied. In addition Public Notice 197 says in paragraph 37.2 that when a warehouse receives duty suspended goods the warehousekeeper "must":
"inspect secured vehicles on arrival to confirm that they are still secure (including locks and seals) and that the identifying numbers of any seals agree with those advised."
Officer Duxbury's speculation that seals might not have been applied was contradicted by Mr Harding's evidence which, as I have said, was not challenged in this respect. This was one of a number of occasions on which I found that Officer Duxbury's evidence was unsatisfactory.
The evidence about the identification of trailers was also puzzling. The "Vintner" software generates a printed form which has separate entries for the vehicle number (i.e. the tractor unit), the trailer and the number of the seal. I was told that in some member states every trailer has its own registration number. This is not so in the UK where, so I was told, the identification numbers of trailers are chosen by their owners. Because the UK does not have a system of registering trailers, HMRC does not appear to have paid much attention to trailer numbers. In answer to a question from me Mr Harding said that the trailer number is clearly shown on the trailer by means of a fixed plate, like a vehicle number plate. Mr Steele said that trailers have plates on them like a short version of a number plate; but that these were clipped on and could be lifted off or swapped. However, he said that the number of intercepted empty trailers that could be positively identified was relatively small. Officer Duxbury said that a trailer number could be manifested in a number of ways: the number could be painted on the canvas; it could be attached as a plate or it could be stuck on with Velcro tape.
From about May 2007 the HMRC compliance officer with responsibility for the Company was Officer Tony Lawler. He is no longer employed by HMRC; so he did not give evidence at trial. Some of his colleagues who were also involved in the relevant events did give evidence. But in many instances Officer Lawler was the decision maker, and his evidence would have been helpful. Officer Gray was one of those who did work with Officer Lawler. She agreed that Officer Lawler was thorough and efficient; someone who paid attention to details, and was rigorous in his approach. Officer Duxbury, however, described him as a "very lazy assurance officer", who did not do a good job.
On 25 September 2006 Officer Lawler wrote to Mr Hone. He said:
"HMRC have recently undertaken an exercise where vehicles have been examined outbound at Dover and it was found that the transport details on the AAD were different from the actual vehicle hauling the load. Additionally a load had been seized in France because the transport details shown on the paperwork did not match the vehicle arriving in France.
As it is the warehousekeepers responsibility to ensure that the AAD paperwork is completed correctly, you must ensure that you put a system in place to check whether the tractor and trailer collecting the load is the vehicle that will be taking the load to its destination.
Failure to comply with either of the instructions above could result in the issue of Civil Penalties and ultimately, the withdrawal of your warehouse approval."
What was agreed is recorded in Officer Lawler's letter to Mr Hone of 10 December 2007:
"To assist with this instruction, you agreed that whenever you subcontracted haulage for goods leaving your warehouse, there would be a statement on the sub contract instructions stating that the vehicle collecting the load would be the vehicle that would be completing the movement. The subcontractor would then sign and return a copy to yourselves, agreeing to the condition."
From then on, with very few exceptions, all the paperwork authorising the haulier to use the Company's movement guarantee did contain that instruction. It is important to appreciate that Officer Lawler's letter of 25 September did not say that any of the intercepted vehicles were found to be empty; or that the loads were incorrect. What he said was that the vehicle details were incorrect. In other words (I infer) a different tractor unit was hauling the pre-notified load.
The moving spirit behind Glenn was a Mr Atwal. He did not give evidence. However, he was interviewed on behalf of the liquidator, and the interview was transcribed. Mr Atwal explained that Glenn's business was in three parts: selling to pubs and clubs; cash and carry and buying and selling in bond. As far as the bonded side of the business was concerned he explained that he would buy full loads of beer from a wholesaler, and then break it up into smaller lots, which he then mixed with other beers. He would pay his suppliers by bank transfer or cheque although sometimes in cash. Most of his purchases were in bond purchases: that is to say that the goods were already stored in Abbey's bonded warehouse. Likewise he preferred to sell goods in bond, so that he did not have to arrange transport. Among his customers were SAS and W2W. He was able to name people in both companies with whom he dealt. Mr Atwal said that SAS paid him in cash, because he did not trust them; but W2W paid by cheque. SAS would bring the cash to his office. He would fax a receipt once the cash had been counted; and he would pay it into the bank. Cash kept in his office would be collected by a security company twice a week and taken to the bank. HMRC's investigations confirmed that Mr Atwal did indeed pay the cash into the bank. Mr Atwal said that he did not know who the customers of SAS or W2W were; and did not want to know. Mr Atwal began by saying that Mr Hone came round every few weeks to pick up a cheque, but that otherwise his main contact was by telephone to Abbey's bond department. Later in the interview, however, he was asked about mobile phone calls between him and Mr Hone. He said that he had had a baby boy, and that Mr Hone's wife was a nurse and had visited his boy in hospital. He and Mr Hone would talk about the family; and would sometimes pass on advice from his wife. The calls were not regular; although they would be at least twice a week, but not as many as twenty. He also said that he would ring Mr Hone to make enquiries about his stock list. He described Mr Hone as his "best business friend".
Ms Brittain's team produced a schedule of Mr Hone's phone calls. That schedule revealed that he made a total of 620 calls from his mobile phone to Mr Atwal's mobile phone in the period between December 2004 and February 2009. This number of calls far exceeds the number of calls he made to any other customer. Ms Brittain said in her witness statement:
"My staff's examination of the profile of calls indicates that they were made during the weekdays and during working hours, which would suggest that the contact was indicative of a business relationship and not a private relationship. Whilst the making of a large number of business telephone calls to a customer is not of itself a matter untoward, in the present context, I am bound to infer that it is an indication of some far greater business involvement between Mr Atwal and Mr Hone [than] would be ordinarily consistent with a customer."
Ms Brittain did not explain what "far greater business involvement" she had inferred from the telephone calls, although in her oral evidence she said that she suspected that "something fraudulent" was going on. Nor was any specific allegation derived from these calls put to Mr Hone. It was not, for instance, suggested that the calls were made to arrange or confirm arrangements for loads being sent for slaughter. Mr Pickup produced a more detailed analysis of the calls, plotted by reference to the movements which formed the basis of the main assessment. The movements and the calls did not bear any direct relationship to each other; and many of the logged calls were of such short duration that it is doubtful whether they even resulted in the two men speaking to each other. I did not regard this evidence as having probative value.
HMRC officers interviewed Mr Bharj of SAS. He said he was the company secretary and in day to day control. He told the officers that Mr Atwal of Glenn was a family friend and that Glenn was SAS' supplier in the UK. SAS bought alcohol in bond in the UK and sold it under bond to companies in France. He said that he would pay his UK suppliers in cash and that the payments would be made either in pubs or in car parks. SAS in turn received payments from its French customers also in cash and, moreover, in sterling. The cash would be delivered by couriers who would hand it over in car parks in plastic bags. He was unable to name any of the couriers or the car parks. Mr Bharj's evidence about the making of payments in cash to his suppliers (i.e. Glenn) in car parks is contradicted by Mr Atwal's statement that although payment was made in cash, the payments were made in his office. Not having seen either of them, I cannot resolve this conflict of evidence. SAS had a WOWGR licence.
Business conducted on this scale entirely in cash is, of course, suspicious. But it was not suggested that SAS paid its storage charges to Abbey in cash; and the fact that it conducted other parts of its business in cash was not (or not necessarily) something that Abbey would have known. Instructions for the release of stock would come in to Abbey by fax. The bond team would not need to speak to anyone at SAS unless there was a problem. Mr Harding could not remember the name of anyone to whom he had spoken at SAS; but it was not suggested to him that he knew or suspected that SAS was fraudulent or bogus.
HMRC officers interviewed Mr Ahmed of W2W on two occasions. He said that his suppliers were Glenn and Hothi. Glenn was the main supplier. W2W always paid its suppliers by cheque. He bought alcohol in bond at Abbey and then had the goods delivered to MT Manutention, a bonded warehouse in France. He said that Abbey arranged the transport of the goods. He used Abbey because they were the only business that allowed him credit. His customers paid in sterling; mostly in cash which would be brought over in plastic bags or bank bags. He would always bank the cash he received. He showed the officers a cash book in which he recorded these payments. He was able to name or describe some of the couriers who brought over the cash; and produced some copy identification documents for them. W2W had a WOWGR licence.
It was not suggested that W2W made payments in cash to Abbey. Again instructions for the release of stock would come in to Abbey by fax. The bond team would not need to speak to anyone at W2W unless there was a problem. Mr Harding could not remember the name of anyone to whom he had spoken at W2W; but it was not suggested to him that he knew or suspected that W2W was fraudulent or bogus.
Ms Brittain carried out company searches on the hauliers who are said to be suspect. She also went to Ireland in June and August 2009 to track down MH Forwarding. MH Forwarding is the trading name of Mr Thomas Mone, whom Ms Brittain met and interviewed on 7 August 2009. On her first visit she found a young girl working in the office but Mr Mone was not in. The case papers include a number of faxes from MH Forwarding sent by "Fiona"; and I infer that this was the young woman whom Ms Brittain met. On her second visit Mr Mone told her that his main business was transporting chickens from Ireland to England. After delivering his load of chickens he would pick up a load of alcohol from Abbey to take to France. He would collect £350 (in sterling) from a Frenchman in Calais part of which he would use to pay Abbey's charge for the use of its movement guarantee. Mr Mone said that his charge was £350 per load and his profit per load was of the order of £45 to £55. Ms Brittain said in her witness statement that there was "every reason to distrust the account given by Mr Mone" although the only explicit reason that she gave was that he could not have made a profit if his charge was only £350. However, it was demonstrated that the charge made by acknowledged "blue chip" hauliers at the time was exactly the same. This reason for distrusting Mr Mone thus fell away. According to Ms Brittain's notes of the interview (although not repeated in her witness statement) Mr Mone also told her that diesel was cheaper in France. He also told her that the trailers were sealed with a plastic seal; and that there were plastic seals on each corner. This was not in Ms Brittain's witness statement either. It tallies with Mr Harding's evidence.
The French bonded warehouses
As I have said both the French bonded warehouses involved in this case, MT Manutention and Wybo, are approved EU bonded warehouses. Each has the ability to receive duty suspended goods, and to impress AADs with French customs stamps. Each is a substantial business which has been in operation for many years, and is still in operation today. I repeat that it is not now suggested that either was complicit in the fraud (although Officer Duxbury at one time hinted at that).
M. Dany Devos, the operations manager at Wybo, and a director of and shareholder in that company, gave evidence at the trial. The company had premises both in Belgium and France, but he was based at the bonded warehouse in France. He had an office in which he worked, but when the warehouse was busy he helped out in receiving drivers. Wybo's procedure was as follows. Drivers would arrive and park up in a parking area. They would then bring their paperwork (AAD and CMR) to a reception office staffed by employees. They would be dealt with in order of arrival. When the staff were ready to deal with a driver, he would be called and invited to park in one of three places where offloading could take place. Wybo's staff would check the seal, including its number, on the trailer to ensure that the load had not been tampered with. If the seal number did not match the seal stated on the AAD this would be notified to the consignor and French customs. They were interested in the trailer rather than the tractor unit, because of the possibility of tractor swaps. (Indeed this is consistent with the AADs that Wybo themselves compiled when dispatching duty suspended goods to the UK, where the only details of the transport provided were the number of the trailer ("remorque"), and the number of the tractor unit was not given). If they found everything in order, then the load would be unloaded and the driver would be given his CMR. The AAD would be stamped; perhaps later in the day depending on how busy the warehouse was. It might be stamped several hours after the driver had left. M. Devos would himself sign off the AADs which he did at the end of the week, usually on a Friday. M. Devos said that in each case in which he returned an AAD to Abbey the load described in the AAD had actually arrived. Mr Shaw did not suggest to M. Devos that he or Wybo was complicit in any fraud. Nor did Mr Shaw suggest to M. Devos that his description of the process of receiving goods was inaccurate or impossible. In the course of his final address he said that the procedure that M. Devos described would not have allowed the seals to be checked. But this allegation was not put to M. Devos. I reject Mr Shaw's suggestion. M. Devos produced a number of delivery notes showing the delivery of beer by Wybo in its own vehicles to Calais SARL at the address in Coquelles. These notes, as it seems to me, show that goods were actually received into Wybo's warehouse and did not remain on the trailer. If the goods were received into Wybo's warehouse and subsequently delivered, they cannot have been "borrowed loads".
The defendants also put in evidence two witness statements made by Mr Neill Austin. He is the technical director of MT Manutention (known as "MT Manut"), having previously been the retail director for Tesco in Hungary. MT Manut is in Coquelles, near the end of the Channel Tunnel. It has 15,000 square metres of bonded warehouse and a large lorry park. It employs 18 staff, who deal with between 5,000 and 6,000 movements into bond a year. MT Manut deal with a number of bonded warehouses both in the UK and elsewhere. Mr Austin says that there was nothing unusual about their dealings with Abbey. Mr Austin described MT Manut's procedure as follows. On arrival all vehicles report to an external security office where permission either will or will not be given for the vehicle to proceed to the warehouse. Drivers are required to leave their vehicles and produce the AAD and CMR documents before permission is given. Before July 2009 the security office would check the documents. Once the security staff were satisfied that a load was expected, they would allow the vehicle to proceed through the security barrier to the warehouse. Since that time more checks are carried out. Once inside the security barrier the driver would reverse his tractor and trailer into an open warehouse so that MT Manut's staff could check the load against the AAD. The driver would take the paperwork to the office and give it to the office staff who would log the goods onto the system. These details were manually inputted. In parallel the warehouse staff would check the goods held on the vehicle. If they were to be stored in the warehouse they would be moved by forklift truck. The nature of the goods would be recorded on a blank piece of paper. If they were to be immediately transported elsewhere the goods would remain on the vehicle and they would be checked there. Again details of the goods would be recorded on a blank piece of paper. The MT Manut staff would then take the written record of the goods to the office. If the details of the goods corresponded with the AAD, the office staff would complete the AAD. It would be stamped with a French customs stamp. Later in the day the office staff would inform the dispatching warehouse by fax of the arrival of the goods. Copy 3 of the AAD would then be returned to the dispatching warehouse. Mr Austin said that if the load did not correspond with the AAD MT Manut would not receive the load or sign off the AAD. He was firm in stating that he was unaware of any fraudulent activity and stated categorically that an empty trailer had never to his knowledge arrived at MT Manut. Mr Austin was unwilling to be cross-examined. Inevitably that affects the weight that I can place on his statements.
Mr Austin produced copies of MT Manut's internal records relating to the AADs underlying the assessments in this case. Officer Duxbury first said that all the information shown by MT Manut's internal records could have been taken from the AAD without inspecting the goods at all. It was then pointed out to him that those records showed that among the details entered onto MT Manut's system were the sell by dates of each of the beers in question. This information could not have been obtained from the AAD itself. It can only have been obtained from physical goods. Officer Duxbury then suggested that the sell by dates were marked on a sticker attached to the pallets; and that every pallet loaded onto a trailer could have been inspected without unloading the goods. This suggestion was not put to any of the other witnesses. This suggestion was no more than an off the cuff speculation in the witness box. If, as Officer Duxbury suggested, the sell by dates were taken off the pallets on the trailer, and the goods were not unloaded, it is difficult to see why MT Manut would have bothered to record the sell by dates. There is also at least one delivery note in the case papers recording delivery of beer by MT Manut to Davedas on 25 May 2007. I do not regard Officer Duxbury's suggestion as reliable. If the goods were unloaded into MT Manut's warehouse, they cannot have been "borrowed loads".
The French cash and carries
Each of the movements covered by the main assessment was, on the face of it, destined for one of the three cash and carries: Davedas, Calais SARL or Boissons Extra. Each of these cash and carries ostensibly traded in or near Calais. The case presented on the application for the appointment of the provisional liquidator asserted that each of these cash and carries was established as a façade for fraud.
The names "Mohammad Shafiq" and "Kapil Dogra" appeared on a number of documents associated with Davedas. HMRC traced Mohammad Shafiq through tax records. When interviewed in October 2008, he said that he knew nothing about Davedas or Calais SARL; that signatures on company documents were not his; and that he had never been to Calais. He also said that he had reported a fraud in connection with his passport to the Passport Office in 2005. He had never heard of Kapil Dogra or any of the names of companies that have featured in this action. Mr Shafiq provided a witness statement in which he repeated this. His evidence was not challenged.
Mr Dogra was traced to HMP Wellingborough where he had been serving a custodial sentence for possession of Class A drugs since November 2007. When interviewed in October 2008 he too said that his signatures on company documents were forged. Although he had heard of Davedas, and might have played some part in setting it up, he was unaware that he was named as one of its directors and played no part in running it. He did not know Mr Shafiq. He had not heard of SAS or W2W. Until his incarceration he had visited Calais and had bought alcohol at cash and carries.
Davedas is said to have operated from BAT A 105 Parc Courtimmo in Coquelles. This is the same industrial park as that from which MT Manut operates. Ms Brittain did not claim any previous familiarity with this address; but she visited in August 2009 and February 2010. She filmed her visit; and I was shown a DVD of the results. Bâtiment A was at the back of the industrial park. It consisted of a number of old units with wooden doors. Signage was poor. The warehouses were makeshift, poorly lit and contained piles of poorly displayed alcohol. However, on her second visit she did find a sign for Davedas at the front office; but there was no sign for Davedas on the unit that it was supposed to be occupying. When she asked around no one had heard of Davedas.
Mr Austin said in his witness statement that Davedas appeared to be a legitimate business. It had an account with MT Manut and moved beer and wine in and out of bond in the same way as other cash and carries. He would visit on a fortnightly basis, usually to chase up accounts. Mr Devos also said that it was a legitimate business. In addition he produced a number of delivery notes showing the delivery of beer by Wybo to Davedas at the address in Coquelles. He was not able to name anyone with whom he had dealt personally; but he said that the drivers would usually pay the duty in cash. One reason, for this, he said, was that French banks are unwilling to open accounts for cash and carries. However, he confirmed in his oral evidence that as far as he was concerned Davedas (and the other cash and carries) were legitimate businesses; and that the French authorities had confirmed that this was so. Wybo would also obtain a copy of the customer's licence to distribute alcohol, its VAT registration and its company documents. Most of the time Wybo would also obtain copy passports.
As noted, Mr Shafiq was shown on the company documents as one of the directors of Calais SARL but said that he had never heard of it. The other named director, Mr Cheema Boota Singh could not be traced.
Calais SARL operated from an address in Paris and subsequently from the same address as Davedas. Ms Brittain's visits covered this too.
Mr Austin said in his witness statement that Calais SARL appeared to be a legitimate business. It had an account with MT Manut and moved beer and wine in and out of bond in the same way as other cash and carries. He would visit on a fortnightly basis, usually to chase up accounts. M. Devos also said that it was a legitimate business. In addition he produced a number of delivery notes showing the delivery of beer by Wybo to Calais SARL at the address in Coquelles.
The documents relating to Boisssons Extra showed Ms Elouise Zappara as its director. When interviewed in February 2008 she denied any knowledge of Boissons Extra; and said that her signature on company documents had been forged. However, her signature on the company documents matched the signature on her passport. But the passport was almost ten years old. Ms Zappara said that her signature had changed in the meantime; and Officer Duxbury (who was one of the interviewers) satisfied himself that that was so.
Boissons Extra is said to have operated from 215G Route de Saint Omer in Calais. Ms Brittain was familiar with 215G route de Saint Omer from other cases in which she has been appointed as liquidator. Her evidence was that this address had been "home to a number of short-lived French cash and carries" of which she named four. She also visited this address in August 2009 and February 2010. It was located down a rough potholed track. The signage was in existence but poor. The outbuildings were arranged in an open-ended rectangle. It looked mainly derelict, but one small warehouse was accessible. That contained alcohol stacked up to waist to shoulder height with hand-written signage on top displaying prices. There were no fork lift trucks; no tills and no marked out car park. Ms Brittain's conclusion was that it was "small in terms of what was open and in operation, certainly of a low quality and not a commercial operation".
Mr Austin said in his witness statement that Boissons Extra appeared to be a legitimate business. It had an account with MT Manut and moved beer and wine in and out of bond in the same way as other cash and carries. He would visit on a fortnightly basis, usually to chase up accounts. Mr Devos also said that it was a legitimate business. Although he had not in fact produced any delivery notes in this instance, he said that he would be able to.
Changes since 2007
Ms Brittain's visits were in 2009 and 2010. The period with which I am concerned is 2007. Ms Brittain fairly produced a BBC article from August 2009 dealing with changes in trade. Under the headline "Recession hammers booze cruises" it said:
"A combination of weak sterling and the recession, keeping consumers at home and pushing shops to cut prices, has made a trip to the cash-and-carry across the English Channel seem uneconomical…. Customers have been kept away, shop floors are run down to basic stock. Many French alcohol retailers in the port have cut opening hours and some have closed down."
The evidence is strong that the companies behind the three cash and carries have "hijacked" identities for their directors. This in itself is some indication that the three companies are engaged in some sort of illicit activity. What it does not do, however, is establish that the illicit activity in question is outward excise duty diversion fraud. It is common ground that throughout 2008 the three cash and carries received large quantities of stock despatched from Abbey's warehouse and hauled by reputable hauliers; and this despite Ms Brittain's evidence about the unprepossessing nature of their respective premises. If this is common ground as regards 2008, why should it not also apply to 2007? In addition as both Mr Harding and Mr Hone pointed out, Abbey had no direct dealings with the cash and carries. Mr Shaw did not challenge this. As Mr Harding put it:
"You say "a customer in France" -- as far as the bond are concerned, we are transferring stock to a bonded warehouse in France; the customer has nothing to do with us. I do not mean to be rude or anything, but we are dealing with the bonds not the customer."
There is no reason to suppose that anyone at Abbey knew or suspected that the companies behind the cash and carries had been set up with "hijacked" identities, or that their respective premises were inadequate for selling alcohol directly to the public. Abbey's concern was that duty suspended goods arrived at the receiving warehouse. What happened to them after that was not their concern. Mr Shaw relied on the evidence about the cash and carries to establish what he called the context in which the movements took place. But that context is only relevant to the liability of the directors to the extent that it is shown that they knew (or, perhaps, suspected) that the cash and carries were fraudulent operations. That, in my judgment, has not been shown.
Mr Steele explained that when a spot check was carried out it was normal to request the driver to extract the information recorded on his tachograph. A search of the vehicle might or might not be made depending on the circumstances; but it was unusual to carry out a search of the person. Officer Duxbury, on the other hand, said that no searches of cabs hauling empty trailers were done, even though the driver might well be carrying the AAD hidden somewhere in the cab. He agreed that if a search of the cab was carried out and no AAD was found that would be good evidence to rebut the borrowed load theory as respects that vehicle. Mr Steele said that AADs were from time to time found inside cabs.
Officer Smith had sworn an affidavit in support of the application for the appointment of a provisional liquidator. He did not give evidence at the trial; but his evidence was adopted by Officer Duxbury, who did. Officer Smith gave evidence of many examples of interceptions of vehicles where the physical evidence of the vehicle and its load did not correspond with the paperwork in the AAD. However, most of these interceptions were not notified to Abbey at the time; and only three of them were covered by the assessments on which the petition debt was based. Three out of some 3,600 movements over the same period is about 0.08 per cent. Officer Duxbury explained how the remaining 298 consignments had been selected for inclusion in the assessment. The criteria were that (a) the owner of the goods was either SAS or W2W; (b) the receiving warehouse was either MT Manut or Wybo; (c) the haulier was MH Forwarding, and (d) the movement had taken place within the year preceding January 2008. In other words the movements covered by the assessments were extrapolated from the three interceptions.
The Re-Amended Particulars of Claim allege that that each of 301 consignments of duty suspended alcohol purportedly transported by the Company for purported supply to customers of SAS and W2W did not arrive at their destinations but were instead diverted within the United Kingdom. A Request for Further information of that allegation asked: "in relation to each and every of the 301 consignments referred to, please set out the basis for the … allegation that the given consignment was not received at its stated destination." The answer (verified by a statement of truth signed by Ms Brittain) said:
"First, each of the consignments transported on behalf of … SAS and … W2W was intercepted by HMRC empty."
Although in oral evidence Ms Brittain refused to accept this, the only reasonable reading of that plea is that it was alleged that each of the 301 consignments had been intercepted by HMRC and found to be empty. This was an exaggeration by a factor of a hundred. How the allegation came to be made was unexplained; and it did no credit to Ms Brittain that she refused to accept that this was the plain allegation.
In his affidavit Officer Smith set out the full list of the interceptions where trailers had been found to be empty. I deal with each of them now.
On 8 November 2006 tractor unit registration number R 983 DHU was intercepted by customs officers outward bound at Cheriton, the entrance to the Channel Tunnel. The trailer it was hauling was found to be empty. Abbey had notified this vehicle as moving a load under AAD NOV 053/6 from the account of Castle Drinks to MT Manut for the account of Les Boissons D'Opale. The notified load consisted of two types of Carlsberg lager; Fosters Export, Grolsch, Heineken, Holsten Pils and Kronenbourg. This interception was not reported to Abbey at the time. It was, however, one of the movements about which Officer Lawler inquired in January 2008. MT Manut confirmed receipt of delivery and returned the stamped copy 3 AAD on 9 November. However, on 16 February 2007 HMRC issued a direction to Abbey to the effect that no goods stored in the account of Castle Drinks were to be removed without HMRC's written permission. No reason was given for this direction. There is no evidence that Abbey failed to comply with it. This movement does not form part of the assessment.
On 19 December 2006 tractor unit registration number LK23717 was intercepted by customs officers outward bound at Cheriton. Abbey had notified this vehicle as moving a load of mixed beers under AAD DEC 159/6 from the account of SAS to the account of Euro Boissons at Wybo. The notified load consisted of Becks, Carlsberg lager, Grolsch, Guinness, Kronenbourg and Tennents Super. SAS had instructed Kilmore Commercial Logistics of Kilmore in Co Armagh to haul the load. However, when the vehicle was stopped, the trailer it was hauling was found to be empty. Nevertheless, on 1 February 2007 Wybo returned copy 3 of the AAD to Abbey duly stamped. HMRC did not challenge Abbey about this apparent irregularity or ask for an explanation. HMRC did not notify Abbey at the time. It was, however, one of the movements about which Officer Lawler inquired in January 2008. This movement does not form part of the assessment.
On 20 December 2006 tractor unit registration number RLZ 9152 was intercepted by customs officers at Cheriton, outward bound. Abbey had notified this vehicle as moving a load of mixed beers under AAD DEC 169/6 from the account of SAS to the account of Euro Boissons at Wybo. The notified load consisted of Lech Premier (both in bottle and in can), Tyskie (both in bottle and in can) and Zywiec. SAS had instructed Mullen European Logistics of Co Monaghan in the Republic of Ireland to haul the load. However, when the vehicle was stopped, the trailer it was hauling was found to be empty. HMRC did not identify the trailer number. The driver said that he was going to collect a load of cat and dog food in Calais. Nevertheless, on 1 February 2007 Wybo returned copy 3 of the AAD to the Company duly stamped. Again, HMRC did not challenge the Company about this apparent irregularity or ask for an explanation. HMRC did not notify the Company at the time.
On 22 December 2006 at 23.50 a private car, registration number SIW 5387, was intercepted just before midnight at Cheriton, outward bound. Two live AADs were found in the boot of the car together with two duplicate number plates for the car. The AADs covered goods said to have been dispatched from the account of SAS to the account of Euro Boissons at Wybo. According to the paperwork SAS had instructed Kilmore Commercial Logistics to haul the load. It appears that Kilmore Commercial Logistics had in turn subcontracted the haulage to Convery Haulage. The driver said that he had dropped off the load at Thurrock where it was to be transferred to a secure yard, because Wybo was closed over Christmas. Officer Deeprose sent a fax to the local HMRC office asking for contact to be made with Abbey to ensure that they did not issue duplicate AADs. HMRC contacted Abbey, but the duplicate AADs had already been issued. Mr Harding said that the trader had contacted Mr Hone on the evening of 22 December, to say that the AADs had been lost. Mr Hone asked Mr Harding to raise replacements which were collected on the following Wednesday, 27 December. Abbey also produced a handwritten letter from Kilmore Commercial Logistics, bearing the date 23 December 2006, notifying the Company of a change of tractor unit. Tractor units with the new registration numbers did in fact travel late on 23 December. However, since the AADs were found in the private car on 22 December, and the replacement AADs were not collected until 27 December, they must have done so without AADs. In a contemporaneous internal document Mr Steele commented that the haulage firm were known for their activities in the field of excise diversion and that he wished to block that haulier and its known vehicles from picking up further excise loads. History does not reveal whether this was done. This is one of the very few occasions on which Abbey (in the persons of Ms Lovell and Mr Harding) were informed that an interception had taken place. This movement does not form part of the assessment.
On 16 January 2007 tractor unit registration number 02MN2717 was stopped at Cheriton, outward bound. Abbey had notified this vehicle to HMRC as moving a load of mixed beers and cider under AAD JAN025/7 from the account of SAS to the account of Euro Boissons at Wybo. However, when the vehicle was stopped, the trailer it was hauling was found to be empty. The notified load consisted of Lech Premier (both in bottle and in can), Strongbow, Tyskie (both in bottle and in can) and Zywiec. The haulier was Mone Haulage, County Monaghan, Ireland. Nevertheless on 13 February 2007 Wybo returned a stamped copy of the AAD, although the number on the copy had been crudely changed from copy 2 (which should have been retained by the consignee) to copy 3 (which was the one that the receiving warehouse was supposed to return). Again, HMRC did not challenge Abbey about these apparent irregularities or ask for an explanation. HMRC did not notify Abbey at the time. This movement does not form part of the assessment.
On 13 February 2007 vehicle registration number RLZ 5333 was stopped at Cheriton, outward bound. The Company had notified this vehicle to HMRC as moving a load of mixed beers and cider under AAD FEB056/7 from the account of SAS to the account of Calais SARL at Wybo. The notified load consisted of Strongbow, Tyskie, K Cider, Kronenbourg 1664, Lech Premier, Strongbow and Tyskie. However, when the vehicle was stopped, the trailer it was hauling was found to be empty. Nevertheless on 14 February 2007 Wybo returned a stamped copy of the AAD. There is no evidence that Abbey were notified of the interception at the time. Nor are there any details of the explanation (if any) that the driver gave. This movement forms part of the assessment.
On 5 March 2007 Abbey notified HMRC of a proposed movement under AAD MAR016/7. The tractor unit registration number was given as OU56EZP, and the trailer as HIT 02. The consignment was stated to be a mixed load of beers from the account of SAS to the account of Calais SARL at MT Manut. The notified load consisted of Becks, Carlsberg, Lech Premier (both in bottle and in can), Tennents Super, and Tyskie (both in bottle and in can). The notified tractor unit was stopped at Cheriton outward bound on 6 March 2007 at 01.10. The trailer was empty. The interception record shows the trailer as unmarked; so HMRC did not identify it. Officer Duxbury suggested that the trailer identification had been removed. The driver said that he was going out empty to pick up a load. He did not know what the load was, but would be told when he got there. Officer Duxbury asserted that there had been no search of the cab; but the officers' notebook proved him wrong. The officers searched the cab; but do not record having found anything. In particular they did not find an AAD. Officer Duxbury said that there had been no search of the person and that the driver might have been carrying the AAD on his person. This was another instance where Officer Duxbury's evidence changed in the course of his examination in response to a difficulty in his theory. It was little more than speculation. The driver was allowed to proceed at 02.30. Some six hours later the haulage company, MH Forwarding, sent a fax to the Company in which it said that the tractor unit which hauled trailer HIT 02 had been a different one. However the registration number of the tractor unit given in that fax was wrong by one letter. Subsequently the haulage company provided the registration number PN52JWD. Examination of the records of travel by Eurotunnel showed that a vehicle with that registration number had travelled outward from Cheriton on 5 March 2007 at 18.35, manifested as full. The AAD received back from MT Manut for this movement showed that it arrived on 6 March at 11.12, some 15 hours after it had left Cheriton. The movement by tractor unit PN52JWD is consistent with the AAD. Although HMRC contacted Abbey at the time about the vehicle registration details, there is no evidence that Abbey was told that a trailer had been intercepted empty. This movement also forms part of the assessment.
On 25 May 2007 at 00.55 tractor unit registration number SG02OW was stopped at Cheriton outward bound. Its trailer was found to be empty. HMRC did not identify the trailer number. The Company had notified that tractor unit hauling trailer TL12 to HMRC under AAD MAY135/7 as carrying a load from the account of SAS to the account of Davedas at MT Manut. The load consisted of Lech Premier (in bottle and in can), Skol Super, Tennents Super, Tyskie (in bottle and in can), Carlsberg Special Brew, K Cider and Kestrel. The driver told HMRC that he had picked up a load from the Company and had driven it to Felixstowe to give to another driver who was driving a white Scania; and that he had passed the paperwork to that driver. Some nine hours after the interception Abbey sent a fax to HMRC containing an amended AAD which said that the vehicle that would haul the load would be vehicle registration number GKZ 2094. The trailer number remained unchanged. Abbey's information came from the haulier, MH Forwarding, which had sent a fax to Abbey on 25 May at 08.42 stating that:
"THE TRUCK THAT LOADED WITH YOU TODAY THURSDAY 24/05/07 SGO2 OVV ON BEHALF OF SAS DID A TRAILER CHANGE WITH GKZ 2094 WHICH THEN CONTINUED THE JOURNEY TO FRANCE AND DELIVERED THE LOAD."
Officer Smith commented in his affidavit that he believed that Abbey had been made aware of the interception and that the amended fax that Abbey sent was no more than a cover up. However, it is clear that the fax from Abbey was preceded by the fax to Abbey from MH Forwarding. It is possible that MH Forwarding had been told of the interception by their driver (who had been allowed to proceed following the interception); but there is no evidence that Abbey had been told of the interception. Officer Smith did not refer to the fax from MH Forwarding in his affidavit. Copy 3 of the AAD returned by MT Manut showed that the load had arrived on 25 May at 10.54. Confirmation of the delivery was faxed by MT Manut to the Company at 11.00 that day. MT Manut also produced a delivery note showing delivery of the goods to Davedas, also on 25 May. On 11 June Ms Lovell from Abbey faxed Mr Lawler "all documentation" relating to the AAD "as previously discussed". There is no evidence that Ms Lovell was told that there had been an interception.
On 4 June 2007 HMRC issued a "Commissioner's Direction" which was sent to Mr Hone at Abbey. The direction was that no goods stored in the account of SAS in duty suspense were to be removed without the written permission of HMRC. This direction remained in force for 22 days until HMRC lifted it on 26 June. Abbey is not alleged to have contravened the direction. The direction did not inform Abbey that there had been an interception of an empty trailer. Officer Smith suggested that Abbey should have known that from the mere fact of the direction. I do not see why that should be so. There might have been many reasons why HMRC issued such a direction. Ms Brittain also said that once the direction had been made Abbey should have made inquiries about the reasons behind it; and should have re-examined its trading relationship with SAS. Inquiries of HMRC would have revealed nothing; because HMRC would not have released information about the reasons behind the direction. If (as underpins Abbey's case) SAS was a fraudulent front, it is difficult to see that inquiries of SAS would have revealed much. But Mr Hone said that as far as he was concerned the important point was not that HMRC had imposed the direction; but that they had withdrawn it only 22 days later. He took that to mean that HMRC had carried out some sort if investigation into SAS and had been satisfied that it was a legitimate business. As he put it: once HMRC had lifted the direction SAS was "the safest ride at the fair". For him to have carried out his own investigations would have been like taking your car for an MOT and then checking it yourself. In my judgment there is a lot of sense in that.
On 26 June 2007 at 00.12 tractor unit registration number 96MN2280 was stopped at Cheriton outward bound. Its trailer was found to be empty. According to the interception log HMRC identified the trailer number as 01MN2645. Abbey had notified that tractor unit, hauling trailer number MH02, to HMRC under AAD JUN09/7 as carrying a load of mixed beers from the account of SAS to the account of Davedas at MT Manut. The notified load consisted of Skol Super, Tennents Super, Budweiser, Carlsberg Special Brew, Carlsberg Lager, Fosters, Heineken and Kestrel. When questioned, the driver said that he had loaded at Abbey's warehouse and had taken the loaded trailer to Thurrock, where he had left it with its AAD inside the trailer securely locked. He had then coupled his tractor to another trailer. He said that they swapped trailers "all the time". Copy 3 of the AAD was returned by MT Manut. It showed that the load had arrived on 26 June 2007 at 06.29. Again, HMRC did not challenge Abbey about these apparent irregularities or ask for an explanation. HMRC did not notify Abbey at the time. This movement does not form part of the assessment.
On 17 July 2007 at 00.32 tractor unit registration number UIW4831 was scanned outward bound at Cheriton. Its trailer was found to be empty. HMRC did not identify the trailer number. Abbey had notified that vehicle hauling trailer HIT04 to HMRC under AAD JULY053/17 as carrying a load of mixed beers from the account of SAS to the account of Davedas at MT Manut. The notified load consisted of Stella Artois, Guinness, Heineken, Holsten Pils, Kestrel, Becks and Carlsberg Special Brew. Copy 3 of the AAD returned by MT Manut showed that the load had arrived on 17 July at 07.18. HMRC did not ask Abbey for an explanation at the time; but this movement was one that Officer Lawler brought up six months later in a meeting with Abbey on 23 January 2008. This movement was assessed in April 2008.
On 17 July 2007 at 07.39 vehicle registration number FH 1457 was stopped and scanned at Cheriton outward bound. Its trailer was found to be empty. HMRC did not identify the trailer number. Abbey had notified that vehicle under AAD JULY052/7 as carrying a load of Stella Artois beer from the account of W2W to the account of Davedas at Wybo. Although the trailer number was given on the AAD it is obscured by a stamp. Copy 3 of the AAD returned by Wybo showed that the load had arrived on 17 July. Officer Lawler interviewed Mr Harding and Ms Lovell about this movement on 13 August. They produced the instruction to MH Forwarding stating that the load must be collected and delivered by the same vehicle. This movement was also brought up by Officer Lawler in January 2008. It does not form part of the assessment.
On 18 July 2007 at 08.17 vehicle registration number 96 MN 2280 was stopped and scanned at Cheriton outward bound. Its trailer was found to be empty. HMRC did not identify the trailer number. Abbey had notified that vehicle, hauling trailer MH01, under AAD JULY062/7 as carrying a load of mixed beers from the account of SAS to the account of Davedas at MT Manutention. The notified load consisted of Lech Premier, Red Stripe, Stella Artois in bottles, Tyske, Guinness, Heineken, Holsten Pils, Kestrel, Becks and Carlsberg Special Brew. Copy 3 of the AAD returned by MT Manut showed that the load had arrived on 18 July at 11.26. Officer Lawler also interviewed Mr Harding and Ms Lovell about this movement on 13 August. They produced the instruction to MH Forwarding stating that the load must be collected and delivered by the same vehicle. This movement was also brought up by Officer Lawler in January 2008. It does not form part of the assessment.
On 13 October 2007 at 10.30 vehicle registration number FHZ 1457 was stopped at Cheriton outward bound. Its trailer was found to be empty. HMRC identified the trailer number as MH02. Abbey had notified that vehicle, hauling trailer MH02, under AAD OCT084/7 as carrying a load of mixed beers from the account of SAS to the account of Davedas at MT Manut. This is, I think, the only case in which HMRC has identified an empty trailer with the same number as the trailer specified in the AAD. The notified load consisted of Skol Super, Tennents Super, Grolsch, Heineken, Holsten Pils, Kestrel, Budweiser, Carlsberg Special Brew, Carlsberg Export and Fosters Export. Copy 3 of the AAD returned by MT Manut was stamped on 12 October 2007 at 11.50; that is to say the day before the vehicle was stopped at Cheriton. HMRC established that vehicle registration FHZ 1457 had indeed travelled back from France on 12 October at 17.00. The driver was interviewed when the vehicle was stopped. He said that he had been on the shuttle at about 06.00 or 06.30 on 12 October; had cleared customs at MT Manut and delivered to Davedas and then gone to Charles de Gaulle airport to pick up airfreight which he had taken to Heathrow. Officer Duxbury said that there would not have been time for the driver to have travelled from MT Manut to Charles de Gaulle, pick up a load, and get back to Calais in time for the return journey at 17.00. If the time stamp at MT Manut is an accurate timing of either the driver's arrival or departure then the interval between 11.50 and 17.00 is too short for that round trip to have been made. A check on Eurotunnel's records showed that the vehicle did indeed travel at 6.00. Allowing for the time difference between the UK and France he would have arrived at Coquelles at about 07.45. Provided that he left MT Manut by about 10.00 then the interval between his departure and 17.00 is ample. This movement forms part of the assessment.
On 18 October 2007 at 20.01 vehicle registration number 04 MO 3618 was stopped at Cheriton outward bound. I infer from the interception log that HMRC identified the trailer that it was hauling as trailer 05. The trailer was full of Tupperware. Abbey had notified this vehicle, hauling trailer CR3, under AAD OCT 128/7 as hauling a load of vodka to a bonded warehouse in Belgium called Simkens. When questioned, the driver said that he had swapped trailers with vehicle registration number 01 CN 1504. However, the AAD was found hidden in the cab of his tractor. HMRC required vehicle registration number 01 CN 1504 to present itself for inspection at Dover, which it did. When it arrived, I infer from the interception log that it was hauling trailer CR3. Trailer CR3 contained the load that had been specified in the AAD. Although the AAD contained details of the seal number that had been applied to the load to prevent tampering, HMRC do not appear to have checked the seal on trailer CR3. Had they done so the seal ought to have shown whether the trailer was the same trailer that had been loaded at Abbey. However, the driver was carrying an AAD which was shown as a reprint or duplicate signed by Mr Harding. On 19 October Officer Lawler interviewed Tracy Lovell. She said that the original AAD had been run over by a forklift truck and ruined; and that that was the reason why a duplicate had been issued. This was plainly untrue. On 23 October Officer Lawler spoke to Mr Harding, who confirmed Ms Lovell's untrue story. On 2 November Officer Lawler, accompanied by Officer Gray, went back to the Company's premises. This time they met Mr Harding and Mr Hone, followed by Mr MacDonald (the transport manager) and Mr Hone. Mr Harding began by repeating the false explanation and he said that the ruined paperwork had been thrown in the bin. Officer Gray then revealed that HMRC had both copies of the AAD. Mr Harding's first reaction was that they must be forgeries. Mr MacDonald said that he had not been present at the time, but that he had "been made aware" that the AAD had been run over. Mr Chapman, a warehouseman also described finding the paperwork on the floor. On 9 November Officers Lawler and Gray met Ms Khosa, a bond clerk, and Mr Bill Owen. When confronted, Ms Khosa broke down in tears and said that she had lost the paperwork in the warehouse. She was upset because she was aware what importance Mr Hone put on the need for safekeeping of AADs and she was concerned about how he would react to her error. She said that she had explained the situation to Mr Harding and, after a fruitless search for the original paperwork, issued a re-printed set. Officer Lawler then re-interviewed Mr Harding in Mr Owen's presence. Mr Harding said that none of the senior management at the Company were aware of the situation about the AAD. Mr Khosa had come to him in a state of distress and told him that she had lost the paperwork. He searched the warehouse but could not find it. As the goods could not be dispatched without an AAD, he reprinted the paperwork. Mr Harding repeated in his oral evidence that he took full responsibility for this episode. Officer Lawler then discussed the findings with Mr Hone. He asked Mr Hone what procedures he intended to implement to guard against a repetition. Mr Hone said that he intended to make regular spot checks in the office to ensure that proper procedures were being followed. He said that he took issues like that extremely seriously; and would consult an employment lawyer to see whether he could implement a system of warning letters, leading ultimately to dismissal. Officer Lawler concluded that the final explanation was plausible; and concluded that the Company was "compliant". This movement does not form part of the assessment.
On 2 November 2007 a private car was stopped at Cheriton. The driver was accompanied by two passengers. A search of the car revealed the presence of three AADs all issued by Abbey: copies 2, 3 and 4 of OCT 114/7 for 1,444 cases of vodka transported by vehicle registration number JJZ 5456; copies 2 and 4 of OCT 134/7 for 1,564 cases of whisky for transportation by vehicle registration number AR51 XAY; and copies 3 and 4 of OCT 181/7 also for transportation by vehicle registration number AR51 XAY. These consignments were all for delivery at Simkens in Belgium. Checks showed that vehicle registration number AR51 XAY had travelled outward via the Channel Tunnel on 24 and 30 October. This tractor unit belonged to KJ Barrett Transport. There was no trace of vehicle registration number JJZ 5456 having travelled. It turned out to be not a tractor unit, but a private vehicle belonging to a resident in Ireland. One of the passengers, a Mr Hendrikx Lode, was interviewed. He claimed to have been given the AADs by someone at Simkens, the receiving warehouse in Belgium. Officer Lawler visited Abbey on 6 and 9 November. Abbey produced a receipted copy 3 for AAD OCT134/7 and a receipt for AAD OCT 181/7, but the latter was on copy 2 rather than on copy 3. There was no receipt for AAD OCT 114/7. As regards that AAD Officer Lawler was told that the goods belonged to Kismet, who arranged the transport through Lundy Haulage. The movement took place under Abbey's movement guarantee; and the paperwork stated that the vehicle collecting the load must also deliver it. As regards the remaining two AADs the goods also belonged to Kismet who had arranged transport through KJB Transport. These movements also took place under Abbey's movement guarantee; but in these instances the paperwork did not state that the vehicle collecting the load must also deliver it. As a result Officer Lawler imposed civil penalties on Abbey. In all cases, however, Officer Lawler was shown a fax from Abbey to Simkens informing them to expect the load in question. Officer Lawler marked up his internal report showing Abbey as "compliant". Belgian customs officers visited Simkens in December and showed them the copy 3 AADs that Abbey had received. They were told by employees of Simkens that none of the loads had been stocked in the warehouse; and that the receipts on the AADs were forgeries. This is the only instance in which it is alleged that the receipts had been forged. This was not, therefore, a case of a "borrowed load"; and bears out Mr Steele's view that the "borrowed load" only works for beer.
On 10 December 2007 Officer Lawler wrote to Mr Hone. He referred to his letter of 25 September 2006 and continued:
"To assist with this instruction, you agreed that whenever you subcontracted haulage for goods leaving your warehouse, there would be a statement on the sub contract instructions stating that the vehicle collecting the load would be the vehicle that would be completing the movement. The subcontractor would then sign and return a copy to yourselves, agreeing to the condition."
Officer Lawler then said that these procedures were not being followed and raised civil penalties. On the same day he also wrote to Abbey about incorrect details having been filled in on one AAD. He asked Mr Hone to "ensure that all AAD paperwork is completed correctly at all times". Nothing was said in either letter about interceptions or empty trailers.
On 23 January 2008 HMRC at last brought certain alleged irregularities to Abbey's attention. Mr Lawler had a meeting with Abbey on that day. Present at the meeting were Messrs Owen, Mr Harding and Ms Lovell. In his letter of that date to Mr Hone he said that assurance activities conducted on the use of the Abbey's movement guarantee had revealed irregularities:
"In particular, out of 19 vehicles that have been notified by yourself as transporting alcohol using your movement guarantee that were challenged leaving the country, 16 were found to be empty."
I infer that the remaining three interceptions showed that the vehicle was hauling what was described in the AAD. He then listed 16 interceptions, with their AAD references. Two of them turned out to have nothing to do with Abbey, leaving 14. The earliest interception date was 4 September 2006 (well over a year before the letter). The latest was on 13 October 2007 (three months before the date of the letter). Officer Lawler asked Mr Hone to provide him, by 8 February 2008, with information about:
"Any trailer swaps made. Giving the new vehicle or trailer reference applicable.
Proof of the goods being delivered with the appropriately amended details in box 11 of the AAD.
Proof that the vehicle travelled i.e. copy of the ferry/tunnel ticket, [receipts] of petrol/sundries [bought] on the journey.
Details of where and when the trailer swap took place.
Any additional proof available to show that the goods were [successfully] exported from the UK."
Officer Lawler expressed the view that this presented a serious threat to the Revenue. In consequence he imposed a restriction on the movement guarantee:
"… any movement where your movement guarantee is used will be subject to the requirement of an individual specific guarantee to cover the maximum amount of duty potentially due on any single transaction."
The consequence of this restriction was that Abbey would have to find a bank guarantee or cash in the amount of £14,000 in order to allow its movement guarantee to be used to transport a full load of beer; and £150,000 for a full load of spirits. In commercial terms, this meant that the movement guarantee could not be used at all. From then on Abbey arranged haulage for all its customers with haulage companies who had their own movement guarantees. Abbey had been enjoying an income stream of between £5,000 and £6,000 per week for the use of its movement guarantee. This income stream was removed at a stroke. The effective loss of the movement guarantee was plainly a serious matter for Abbey. It managed to make a profit on a mark-up on haulage costs, but that was not as much as the lost revenue stream.
On the following day Ms Lovell sent Mr Lawler an e-mail. She pointed out that two of the movements listed in Officer Lawler's letter did not take place on Abbey's movement guarantee. She also dealt with five other movements. In each case she said that Abbey had been advised by the haulier that the vehicle was changed; and in each case she gave the substitute tractor unit registration number. In each of those cases she added that proof of movement would follow. She said that she was awaiting details and paperwork for the remaining movements. She asked Officer Lawler to "do the relevant checks on the above and reply soonest" because the suspension of the movement guarantee was extremely detrimental to Abbey's business and the issues needed to be resolved as soon as possible. It is not entirely clear what she meant by "the relevant checks"; but it is probable that what she meant was that Officer Lawler should check the ferry and tunnel records.
Following the meeting with Officer Lawler on 23 January 2008 Mr Harding sent him another e-mail on 7 February with details of a number of movements and vehicles. He said he had proof of movement in Abbey's file. As far as the movement under AAD JULY053/17 was concerned (vehicle UIW 4831), Mr Harding said that the original details provided were correct. The vehicle left Abbey on 16 July; and they had the ferry ticket that showed that it did travel on that day. Mr Harding also urged Mr Lawler to "do the relevant checks as soon as possible".
On 19 February 2008 Mr Harding sent another e-mail to Officer Lawler. He thanked him for coming to the office "to discuss issues" about the movement guarantee. Mr Harding said that "as advised" Abbey had issues about two movements (both of which had been mentioned in Officer Lawler's letter of 23 January). Mr Harding said that the haulier "had gone into liquidation" and asked for an extension of time. He said that they were in the process of contacting Companies House "to try to obtain contact details of the receiver of Mullan Transport". In his affidavit Officer Smith said that he had undertaken a search of Mullan Transport and that it did not appear to be in liquidation at all. He commented:
"I can only conclude that Abbey have deliberately lied in order to avoid providing an explanation."
It is by no means clear what search Officer Smith had carried out. The haulier named on the AAD was not Mullan Transport; but Mullan European Logistics Ltd. That is a company registered in the Republic of Ireland. It may be that Officer Smith searched the wrong company name. Or he may have searched Companies House in the UK. Since he did not give evidence it is impossible to tell. It is also clear from Mr Harding's e-mail that he was hazy about precisely what insolvency process he had in mind (liquidation or receivership). In all those circumstances in my judgment it was an unjustified comment to say that the only conclusion was that Abbey had deliberately lied. He might simply have made a mistake. Mr Harding's evidence was that Mr Hone had told him that Mullan had "gone under"; and that was not challenged. Although Mr Hone accepted in his evidence that the information was inaccurate, it was not put to him that he deliberately lied in order to avoid providing an explanation.
On 12 March 2008 Mr Harding chased Officer Lawler by e-mail. He asked Officer Lawler to let him know how his ongoing investigations were going. He said that he had supplied details of vehicle swaps and ferry tickets but had had no acknowledgment or response from HMRC. He repeated that the suspension of the movement guarantee was detrimental to Abbey's business. He asked for some indication about how long the investigations would take.
On 17 April 2008 Officer Lawler wrote to Mr Hone again. His letter was headed "Vehicle UIW 4831 and Trailer MH03". He noted that Mr Hone had provided changes in details where, in the majority of cases, the tractor units had been swapped. He continued:
"However with regard vehicle UIW 4831 and trailer MH03, you informed me that this particular vehicle had travelled as per the AAD paperwork.
On the 17th July 2007, vehicle UIW 4831 and trailer MH03 were stopped by HMRC officials at Eurotunnel in Ashford Kent and although the vehicle was not searched, the vehicle was scanned and found to be empty.
The vehicle earlier in the day picked up a load of 1944 cases of mixed beer for delivery to France from [the Company]. These goods therefore have not left the UK."
What Officer Lawler had been told in Mr Harding's e-mail of 7 February 2008 about vehicle UIW 4831 was that "The original details provided are correct." The original details provided were for tractor unit UIW 4831 and trailer HIT 04; not trailer MH03. There is no trace of any statement by Abbey that UIW 4831 was hauling trailer MH03. Mr Hone denied that he had given Officer Lawler the trailer number. There is no reason to disbelieve this, especially since HMRC made no challenge to the movement until 6 months after the movement had taken place. It is also the case that HMRC's contemporaneous records of the interception do not record the trailer number that was scanned. But the fact that Officer Lawler was able to identify it gives some support to the conclusion that it was possible to identify trailers. Where Officer Lawler got the reference number from is a bit of a mystery. But it is more likely that he got it from HMRC than from Abbey. In my judgment the claimant has not proved that HMRC scanned the trailer that left Abbey's warehouse with the load of beer.
Movements in 2008
Following the effective loss of Abbey's movement guarantee in January 2008 it could no longer allow MH Forwarding to haul loads, because MH Forwarding did not have its own movement guarantee. Instead loads were hauled by Schenkers, Golding Hoptroff and others who (as every one agreed) were reputable and "blue chip" hauliers. Abbey continued to trade with both SAS and W2W, who continued to ship loads of duty suspended goods to MT Manut and Wybo. Indeed trade on these customers' accounts increased. MT Manut and Wybo continued to return the same paperwork to Abbey. It is not alleged that there are any irregularities in these outward movements. Officer Duxbury accepted that this was so. HMRC have suspicions that they might be the precursor to inward diversion fraud; but that forms no part of Abbey's pleaded case against the Defendants. Moreover inward diversion fraud does not involve "borrowed loads".
The Glenpark assessment
In May 2007 HMRC began an audit of Glenpark. This involved examining the company's records of movements. Glenpark used to instruct Abbey to arrange haulage of spirits to bonded warehouses in France and Holland. These movements took place under the Company's movement guarantee. On investigation it turned out that the hauler was K Elsey Transport Ltd. HMRC picked 20 movements between March and December 2006 for further investigation. They discovered that four movements could not be supported by production of a ferry ticket. HMRC could not find evidence in the records of the ferry companies or Eurotunnel that the vehicles identified on the relevant AADs had actually travelled. One of the movements was covered by AAD JUL 278/6 destined for Mevi. On 28 July 2006 HMRC Holding & Movement team had sent a fax to Abbey saying that the load covered by that AAD was "ok to be dispatched"; but that the vehicle was not to be loaded until there was a customs officer on site. Another of the movements was covered by AAD AUG 126/6, destined for Cehed, for which Abbey received a similar "OK to go" fax from HMRC on 11 August. There is no reason to suppose that Abbey failed to comply with these requirements.
On 18 January 2008 HMRC assessed Abbey in the sum of £416,933 on the basis that its movement guarantee had been used for these four movements. Abbey had apparently validly signed and stamped copy 3 AADs for each movement. In a letter to Mr William Owen dated 1 February 2008 Mr Elsey said that as regards one of the movements (he did not specify which) there had been a tractor swap. He said that HMRC had been given his evidence for movements of the other vehicles, and that he had asked to have it back, but had received nothing. Mr Elsey did not give evidence at trial. On 4 February 2008 Mr Hone wrote to HMRC asking various questions. The first was: what irregularity was believed to have occurred? The answer, given by HMRC on 15 February, was that the goods had failed to reach the EU member state. Mr Hone's fourth question was:
"Confirmation of whether the alleged irregularity relates to the actions of Abbey Forwarding Limited, Glen Park International Limited or K Elsey Transports Limited."
HMRC's answer was:
"No comment can be made to whom the alleged irregularities relate to, as for reasons of confidentiality we cannot discuss the affairs of any third parties. There are restrictions in releasing information that might relate to any third party or which might prejudice HMRC's ongoing investigations."
If HMRC suspected that Abbey was knowingly involved in this irregularity that was a thoroughly misleading answer.
In November 2007 HMRC asked their colleagues in the Dutch Customs to investigate. There is a procedure for co-operation between customs authorities in member states. HMRC referred to AAD JUL278/6 (which was one of the assessed loads) apparently destined for Mevi, a bonded warehouse in Holland. They said that the haulier had produced no evidence of movement and asked their Dutch colleagues to "establish and confirm an audit trail of the goods on receipt into Warehouse". On 26 February 2008 the Dutch Customs replied:
"Through the check performed by the Dutch Customs it was established that the goods mentioned on the AAD … were received by Mevi … and stored into the warehouse."
HMRC were not satisfied with this response; but despite the fact that the Dutch Customs had invited additional questions or requests for further information, HMRC apparently took this no further. Thus the evidence about this movement is that the Company had an apparently valid copy 3 AAD for this movement; and Dutch Customs had confirmed that the goods had arrived and been stored in the warehouse. HMRC made similar requests of French Customs, but they do not appear to have been answered or followed up. Since these were movements of spirits, they are unlikely to be cases of "borrowed loads".
This was one of the movements on which Officer Smith relied on the application for the appointment of a provisional liquidator. However he did not mention in his affidavit the response from Dutch Customs; and, although it was among the voluminous exhibits, the cross references in the section of his affidavit dealing with this assessment omitted any cross reference to this document. In addition Officer Smith drew attention to an interception (some time earlier) of a vehicle belonging to K Elsey Transport Ltd which was found to be empty. He pointed out that the driver had admitted having dropped off the load at Dartford. What he did not point out was that the load had been returned to Abbey (which was stated in HMRC's letter to Mr Elsey of 14 June 2007). That load, therefore, had not been slaughtered.
Once the Company had been assessed Mr Hone requested a departmental review. He engaged in correspondence with HMRC in which, as he now accepts, he told a number of lies. In his letter of 21 August 2008 he said that he had travelled both to Mevi in Holland and Cehed in France; that he had taken copy AADs with him and that their records tallied with his. This was untrue. Mr Hone had not travelled to either warehouse. He repeated this lie in his letter of 9 September in which he said that he had travelled to Mevi and Cehed in the latter part of 2007. He also said that he had seen customs representatives on both sites who told him that his documents were valid. This was also untrue. He said in several of his letters that he was planning to re-visit the warehouses. In my judgment this was also untrue.
Mr Hone accepted in his first witness statement that what he had told HMRC was untrue. He said that he had spoken to personnel at the bonded warehouses (whom he named) but had not been to see them. He said that he had made these statements in a misguided attempt to add weight to his assertion that the goods had been delivered. He said that he had done this because HMRC refused to accept what he had said; and would not accept the accuracy of the paperwork. He had had a previous experience when Abbey had been assessed for excise duty in which HMRC had refused to accept the statement by German customs officers that the goods in issue on that occasion had been delivered to the correct warehouse and that they themselves had the AAD. Mr Hone had had to go to Germany himself to retrieve the AADs. Ultimately that assessment was withdrawn.
In reaching my overall conclusions I must of course take into account the fact that Mr Hone told lies to HMRC about his attempts to find out what had happened. Mr Shaw suggested to him that he would say anything to advance his case. In this instance I think that there is some truth in that. But at the time that Mr Hone told his lies, there was no suggestion that Abbey itself was complicit in any outward diversion fraud relating to these loads. The reply Mr Hone received to his questions suggested the contrary. As provider of the movement guarantee Mr Hone no doubt knew that Abbey was exposed to a possible assessment; and in my judgment he told the lies to try to head off that potential liability. I do not regard these lies as providing support for the allegation that Abbey was involved in large scale outward diversion fraud.
The Lauvie assessment
This assessment was raised in October 2008. It related to a movement of spirits under AAD OCT 012/7 issued on 1 October 2007. Unlike the other assessments, this was not carried out under Abbey's movement guarantee. The goods in question belonged to Kismet Ltd and were ostensibly being shipped to a French bonded warehouse called Lauvie F Distribution. On 2 October 2007 at 20.40 Kent Police intercepted tractor unit registration number 01 CN 1504 at Cheriton, outward bound. There was no fleet identification number on the trailer. The trailer was empty; and the driver said that he was travelling to Dunkirk to collect machinery. He did not suggest that there had been any tractor swap. This vehicle had been previously notified by Abbey as hauling trailer TL 04 carrying vodka and whisky to Lauvie F Distribution. The transporter was named as Xtera International Logistics and the specified movement guarantee was theirs. Ms Lovell had inquired via SEED whether Xtera's movement guarantee was valid; and had been told on 23 July that it was. Xtera had authorised the haulier to use its movement guarantee for tractor unit 01 CN 1504 and trailer TRL 4. An apparently receipted copy 3 of the AAD, dated 4 October, was returned to Abbey by Lauvie F Distribution. HMRC asked French customs to investigate. There is no record of any reply. Investigations by HMRC revealed that the tractor unit had apparently travelled out on 2 October at 20.27 and back on 6 October. There is an unsolved puzzle here, because the time of the outward journey is 13 minutes earlier than the time that the vehicle was stopped. Initially HMRC assessed both Kismet and Xtera for excise duty and VAT. However, HMRC then received legal advice to the effect that Xtera could not be assessed because, although named on the AAD as the transporter, they were not in fact the transporter as they had not arranged the movement. The legal advice referred to conflicting opinions having been received from leading counsel in an earlier case in which the same point had been raised. Ironically, HMRC adopted the advice that had been given to the taxpayer in that case rather than the advice which their own leading counsel had given. In the light of this advice HMRC withdrew the assessment raised against Xtera. By default therefore, Abbey was assessed as the authorised warehousekeeper. On 7 October Mr Hone protested that Abbey had neither provided the movement guarantee nor arranged the transport; and he also complained that a whole year had elapsed between the movement and the assessment. All these assertions were true.
Cash payments to Abbey
It seems unlikely that anyone would participate in large scale excise diversion fraud unless he was making money out of it. In his affidavit Officer Smith produced part of the Abbey's petty cash account, as recorded in its Sage accounting software. He said that the account showed regular round figure sums being received, many in amounts of £500. He said that "at least one" was noted "Cash Re MH Forwarding". He said that the MH ledger did not show corresponding deductions; and this led him to suspect that Abbey was in receipt of £500 for each diverted load using its movement guarantee. Officer Duxbury adopted this evidence. It was on this basis that Mr Shaw opened the case. In the course of his opening address he disavowed the suggestion that the directors personally were being paid. In fact only one payment (rather than "at least" one) carried this notation. The others all had reference numbers on them. It turned out that these reference numbers were all cheque numbers. An examination of Abbey's bank statements demonstrated beyond doubt that these regular receipts of £500 in cash, at roughly monthly intervals, resulted from Abbey cashing cheques at its own bank drawn on its own bank account. In so far as Officers Smith and Duxbury had suspicions based on these cash receipts in my judgment they were entirely unfounded. This was another instance in which Officer Duxbury's evidence was less than satisfactory. Mr Shaw accepted that the allegation that cash sums represented Abbey's payment for participation in the alleged fraud was unsustainable and he abandoned reliance on it. Thus the motive for participation in the fraud that had initially been advanced crumbled to dust.
What the evidence did show, however, was that Abbey failed to account for all the cash payments made by MH Forwarding for the use of its movement guarantee. Uniquely among its customers and hauliers MH Forwarding paid in cash for the use of Abbey's movement guarantee. In his affidavit Officer Smith had noted that between mid-September 2007 and 25 January 2008 although MH Forwarding used Abbey's movement guarantee 83 times in movements for SAS and 52 times for W2W (making 135 in all), MH Forwarding had only paid for 64 uses. Ms Brittain's team later revised the number of payments upwards to 74. This leaves 61 uses unaccounted for. At £125 a time the amount comes to just over £9,000 including VAT. Mr Hone and Messrs Owen all accepted that they knew that this cash had not been put through Abbey's books; and knew that it was dishonest not to do so. The explanation that they gave was that the cash was held back to pay cash to a contractor who re-tarmacked the yard; and for some electrical works. They accepted that what Abbey had done amounted to both fraudulent evasion of VAT and corporation tax. However Mr Hone said that the cost of the tarmacking and the electrical work was not put through the books either, so that the extent of the loss to the revenue remains unknown. I did not understand Mr Shaw to challenge the evidence that at least some of the missing cash was spent on these works.
Once the focus had shifted from the allegation that Abbey received unexplained cash payments (which were recorded in its books) to the allegation that the directors themselves received the payment, I think that in the end Mr Shaw relied on this episode for no more than to demonstrate a propensity to dishonesty. This is potentially relevant in two ways: it tends to undermine the credibility of the Defendants as witnesses (although Mr Shaw focussed mainly on Mr Hone in this respect); and it may support the case that the Defendants engaged in excise diversion fraud. As far as the first of these points is concerned, Mr Hone accepted in his second witness statement that not all the cash had been properly accounted for. This was not something that had to be dragged out of him in cross-examination. As far as the second is concerned, the relatively small-scale fiddling of the books, and payments into the black economy in the building trade, are slender support for an allegation of dishonest participation in a multi-million pound sophisticated excise diversion fraud.
In the year since her appointment Ms Brittain and her team have not uncovered any other accounting irregularity at Abbey.
The directors' lifestyles
Allegations about the directors' lifestyles originally formed no part of the pleaded case. However, there had been discussion of the directors' assets in the evidence adduced on both sides. It was for that reason (and because Mr Pickup did not suggest that there was any other evidence that he wished to call on the subject) that I allowed Mr Shaw to amend during the course of the trial. Once the allegations about cash payments made to Abbey were abandoned, inferences from the directors' lifestyles are the only way in which a motive for participation in excise diversion fraud can be plausibly established.
In his affidavit Officer Smith said that Mr Hone's lifestyle gave him "great cause for concern" and was "at odds with his personal tax affairs". This was based on the values of certain property assets which Mr Hone and his wife owned. He said that it was unclear how Mr and Mrs Hone had obtained the funds with which to purchase their main residence and an interest in a pub in Cornwall. He made no similar allegation about Messrs Owen.
Following the appointment of the provisional liquidator Abbey obtained a freezing order against the Defendants. As is usual, each of them was ordered to give evidence of their means and assets. In her witness statement Ms Brittain said:
"I have concerns that the assets of Mr Hone and the Owen brothers are more substantial than would appear to be justified by their incomes from the Company, previous business interests or from inherited funds… The apparent excess asset base of Mr Hone and the Owen brothers gives rise to the inference that they were in receipt of unaccounted for cash sums."
She exhibited correspondence between solicitors and said:
"I do not propose in this witness statement to discuss the explanations given by [the Defendants' then solicitors]. I remain far from convinced by the account given and invite the court to infer that Mr Hone and the Owen brothers have been in receipt of significant additional sums."
That was the sum total of the positive case. What it amounts to is that there is a mystery about how Mr Hone and Messrs Owen managed to acquire the capital assets that they had. There was no allegation that their periodic outgoings exceeded their incomes. Nevertheless that was the focus of Mr Shaw's cross-examination on this topic. For this line of attack to succeed, there has to be a detailed examination and analysis of figures. This was not done.
Each of Messrs Hone and Owen explained in their respective witness statements how they came to acquire the capital assets that they owned. Mr Hone owned a business called SEC. He sold it for £550,000 in about 2002. In March 2004 he and his wife bought the pub in Cornwall. It cost £349,000 of which £175,000 was raised on mortgage. Thus £174,000 would have come from their own funds. The pub is run as a business of which Mr Hone owns 30 per cent. In addition he receives a rent from the pub of £2,200 per month. Some of the proceeds of sale from SEC were invested in a holiday let property, also in Cornwall. He paid £210,000 for it and it generates an annual income of about £12,000. Property acquired for holiday lets attracts roll-over relief, which is no doubt why his accountant advised him to invest some of the proceeds of sale of SEC in that way. The aggregate of £210,000 and £174,000 is less than the proceeds of sale of SEC by a significant margin. Mr Hone may have had to pay tax on that part of the proceeds of sale which were not invested in the holiday let; but I do not know how much. Nor do I know whether the purchase of the pub would have attracted roll-over relief. In addition to SEC he had another business called WV Davies & Co Ltd. He sold that to Abbey for £160,000 in 2003. Those monies were used to clear his father's mortgage and also to buy (with the aid of a mortgage of £140,000) a buy-to-let flat in Woolwich. The rent from that flat pays the mortgage; and there is a surplus of about £400 a month on top. He bought his main home for £1.12 million in April 2006 with the aid of mortgages over three separate properties. His home now stands charged with about £980,000. The mortgage is interest only and costs in the region of £600 a month. Since the events with which this case is concerned he has upgraded his motor cars on finance leases. He also owns a property called Yew Cottage on which there is also a mortgage for which he pays £120 a month. His income (leaving aside rental income) was of the order of £70,000 per annum. He accepts that he is living at the edge of his means, and runs an overdraft. Mr Shaw put to him that his outgoings were not covered by his income. Naturally enough Mr Hone denied that. Without any detailed analysis of the figures (which neither HMRC, nor the liquidator nor Mr Shaw attempted) including Mr Hone's tax liabilities, it is quite impossible to conclude that Mr Hone has been taking cash back-handers.
Mr William Owen has lived in his current home since 1998, long before Abbey entered the duty suspended goods trade. He bought his house for £415,000. He and his brother own the warehouse through a company which received an annual rent of £300,000. His combined income from that source and Abbey is of the order of £132,000 per annum. In addition in 2003 or 2004 he and his brother bought a property in Dubai which they subsequently sold for a large profit; a property in Spain acquired in 2004 or 2005 on which there is a mortgage and a share portfolio which must yield some dividends. Again without any detailed analysis of the figures Mr Shaw put to him that he was taking cash back-handers. Mr Owen denied that; and I accept his denial.
Mr Patrick Owen bought his current house in 1990 for £210,000, long before Abbey entered the duty suspended goods trade. With his brother he owns a half share in the company that owns the warehouse. His combined income from that source and Abbey is of the order of £132,000 per annum. As mentioned he and his brother bought a property in Dubai on mortgage which they subsequently sold for a large profit; a property in Spain on which there is a mortgage and he too has a share portfolio which must yield some dividends. Again without any detailed analysis of the figures Mr Shaw put to him that he was taking cash back-handers. Mr Owen denied that; and I accept his denial.
The upshot is that it has not been shown that any of the three directors is living beyond his means, although Mr Hone is close to the edge. There is, therefore, no trail of money which would provide a motive for participation in excise duty diversion fraud on a massive scale.
Did the goods arrive?
This is, I think, one of those rare cases where the burden of proof makes a difference. I have held that the burden of proof is on the claimant. It is for the claimant to establish that it is more probable than not that the goods did not arrive. A mere suspicion that that they might not have is not enough. If I am left in doubt, the doubt is resolved in the defendants' favour by the burden of proof. The position would be different in a tax appeal; because in a tax appeal the burden of proof would resolve the doubt in HMRC's favour. In so far as a finding that the goods did not arrive must be attributable to dishonesty on someone's part, my findings must be based on allegations that have (a) been made and (b) in the case of allegations against witnesses, put to them in cross-examination. Since Mr Shaw submitted that Mr Hone's evidence was untruthful, I propose to begin by looking at the evidence given by witnesses whose veracity he did not attack.
The main assessments
As far as the principal assessments are concerned, Mr Shaw's final position was that goods described in the relevant AAD did arrive at the relevant bonded warehouse, but they were not the same goods as had been loaded at Abbey. In other words they were all cases of "borrowed loads".
The principal witness whose evidence is relied on to support Abbey's case is that of Officer Duxbury (adopting Officer Smith's evidence). One telling question and answer was:
"Q. But in circumstances where trailers have left Abbey loaded, bound for MT Manut and Wybo, have you any evidence that those trailers did not arrive at those warehouses?
A. I have no evidence to suggest that they didn't and none to suggest that they did, sir."
Officer Duxbury agreed that:
i) There is no evidence that a trailer loaded at Abbey was ever intercepted empty. (In fact Officer Duxbury was mistaken. There was one trailer that had been loaded at Abbey that was found to be empty: this was the trailer stopped on 13 October 2007 which is said to have delivered to MT Manut on the previous day).
ii) There is no evidence to suggest that the wrong trailer arrived at either MT Manut or Wybo.
iii) Unlike earlier cases there was no surveillance evidence from French customs officers to support the "borrowed load" theory in this particular case.
Officer Duxbury also said that he was satisfied that the tractor unit that left Abbey had actually travelled across the Channel as recorded on the AAD. However, he thought that the movement was uncommercial and hence bogus. He needed no assistance from French customs to reach that conclusion and had no need of their help.
As against that:
i) There are genuine receipted copy 3 AADs for each of the movements;
ii) Neither of the receiving warehouses is alleged to have been complicit in any fraud;
iii) Each load that left Abbey was sealed with a unique seal. The seals were checked against the AAD in the case of goods received by Wybo. This is inconsistent with the "borrowed load" theory. Moreover if (as the liquidator alleges) the goods loaded at Abbey were to be slaughtered in the UK and never crossed the Channel, what would have been the point of sealing the loads and pre-notifying HMRC of the unique seal numbers, particularly in the light of Officer Duxbury's evidence that sealing the load is not one of HMRC's requirements?
iv) Wybo produced onward delivery notes for many of the receipted loads. MT Manut recorded details of the sell-by dates which were not ascertainable from the AADs. There is also one delivery note from MT Manut recording delivery to Davedas. All these pieces of evidence tend to show that goods not only arrived but were unloaded into the relevant warehouse. This too is inconsistent with the "borrowed load" theory.
v) The loads described in the AADs in relation to which vehicles were intercepted show a fairly wide variety of brands and quantities. It would have taken some sophistication to have precisely matched each load. This would have to have happened nearly 300 times.
vi) It is difficult to see how fraudulent trading on this scale could have happened without the connivance (or at least suspicion) of Mr Harding; but neither allegation was put to him.
In the end it seems to me that the "borrowed load" theory is just that: a theory. If one starts with the assumption that there has been an outward excise duty diversion fraud then the "borrowed load" theory is the only theory that fits the facts. But an assumption is not evidence of its truth. On the other hand, if there has been an inward excise duty diversion fraud, then there is no need for a "borrowed load" at all. The outward movement will have been entirely regular; and the copy 3 AADs correctly completed, stamped and returned. Abbey's liability will have been discharged on receipt of the copy 3 AADs. If an inward diversion fraud subsequently took place, that forms no part of the case against these directors; or the assessments raised by HMRC. And there is of course another possibility: namely that there has been no fraud at all.
I conclude that:
i) The "borrowed load" theory is a theory developed to overcome the difficulty created by the liquidator's acceptance that the AADs are genuine and that the receiving warehouses are not complicit in the fraud.
ii) Its underlying premise is that there has been outward diversion fraud but the premise is not self-proving. The premise must be established by evidence.
iii) There is no positive evidence to support the "borrowed load" theory.
iv) There is unchallenged evidence that is inconsistent with it.
v) Evidence about the dubious trading methods of SAS, W2W and the three cash and carries, coupled with the delivery notes produced by M. Devos and MT Manut, point towards the conclusion that, if there was a fraud at all, it was more likely to have been an inward diversion fraud than an outward diversion fraud. But even if that were the case, Abbey would not have been liable on its movement guarantee.
vi) The goods did arrive at MT Manut and Wybo respectively.
The Glenpark assessment
This assessment covers four loads. One of the loads was destined for Mevi. HMRC authorised its departure; it was loaded in the presence of a customs officer; Abbey had a receipted copy 3 AAD relating to it; and Dutch customs confirmed that it had arrived and been stored in the warehouse. If HMRC had concerns about that confirmation, they never followed them up. This may well have been the movement which was the subject of the tractor swap that Mr Elsey said had occurred. It is not alleged that the AAD was forged or falsified; nor is it alleged that Mevi were complicit in the fraud. In my judgment it has not been shown that these goods failed to arrive.
The remaining three movements were destined for Cehed. Again Abbey has the receipted AADs. HMRC made requests to French customs for assistance; but those requests have been neither answered nor chased up. On the other hand, Officer Smith's evidence is that Mr Elsey was unable to provide evidence that the relevant tractor units had moved, and Mr Elsey did not claim that there had been a succession of tractor swaps. Mr Elsey's claim that he provided evidence of movement to HMRC has not been tested by cross-examination. Thus the only fact that supports the allegation that the goods did not arrive is the absence of evidence of movement.
In this state of the evidence it seems to me that there are the following possibilities:
i) The AADs were forged or falsified. This is not alleged.
ii) Cehed were complicit in the fraud. This is not alleged.
iii) Cehed were duped by a "borrowed load". But these loads were loads of spirits; and Mr Steele's evidence was that the "borrowed load" theory did not work for spirits.
iv) The goods did arrive.
I find that the claimant has not established that the goods covered by these three movements did not arrive at Cehed.
The Lauvie assessment
This assessment is, in essence, founded on the interception of a vehicle specified in an AAD but found to be empty. The explanation given by the driver did not involve any allegation of a tractor swap. On the other hand, Abbey received a receipted copy 3 AAD. Once again in this state of the evidence it seems to me that there are the following possibilities:
i) The AADs were forged or falsified. This is not alleged.
ii) Lauvie were complicit in the fraud. This is not alleged.
iii) Lauvie were duped by a "borrowed load". But these loads were loads of spirits; and Mr Steele's evidence was that the "borrowed load" theory did not work for spirits.
iv) The goods did arrive.
I find that the claimant has not established that the goods covered by these three movements did not arrive at Lauvie.
It was common ground that if I reached this conclusion the claim must fail.
The allegations of dishonesty
Having reached the conclusion that Abbey has failed to discharge the burden of proof, I can take the remaining allegations relevant to dishonesty more shortly.
Fraudulent underlying transactions
It is no longer alleged that either of the Messrs Owen knew that the underlying transactions between Glenn, SAS and W2W and the French cash and carries were fraudulent. I did not understand Mr Shaw to allege that they suspected that the underlying transactions were fraudulent but deliberately refrained from asking.
Mr Hone said that he had never met anyone from SAS or W2W. This evidence was consistent with that of Mr Harding (whose veracity was not challenged). Abbey did ensure that both SAS and W2W had a WOWGR licence, a VAT registration and letterhead before opening an account. Officer Duxbury agreed that this was adequate due diligence. Mr Hone was asked about his phone calls to Mr Atwal of Glenn; but as I have said no specific allegation was put to him about them. It was not suggested to him that he knew anything about the payments of cash in car parks. There were only two passages in Mr Hone's cross-examination which touched on the question of the sham nature of the transactions. One involved a minute examination of the numbers on three invoices, one of which seemed anomalous. Mr Shaw suggested that it was possible that the stock release was something that was "put together" by Glenn. Mr Hone replied that he could not help, and the matter was left there. The other was the following:
"Q. I have to suggest to you that as indeed is set out in the evidence originally before the court on the provisional liquidation application that Glenn & Co is, essentially, the party that's behind the sales that are made by SAS and Way2Wine to the French cash and carries?
A. Sorry, I do not understand the term.
Q. I am saying to you that SAS and Way2Wine are, effectively, acting as intermediaries for, in reality, sales by Glenn & Co.
A. I have got no comment to make on that. I really do not know."
This line of cross-examination was, in my judgment, directed to the question whether Glenn & Co was in reality the party behind the sales. It was not directed to the question whether (assuming that to be the case) Mr Hone knew or suspected that at the time. In short, therefore, it was not put to Mr Hone that he knew or suspected that the underlying transactions were fraudulent; with the result that a finding to that effect is not open to me.
Use of MH Forwarding
Mr Shaw put it to Mr Hone that no due diligence was carried out in relation to MH Forwarding. Mr Hone's answer was that Abbey would have seen MH Forwarding's O-licence and insurance documents; although I do not think that he went as far as to say that he personally had seen it. As I have said, I reject Mr Hone's evidence that he took an informal trade reference at a cricket match. But Mr Harding said that he had seen both the O-licence and the insurance documents relating to MH Forwarding; and, as I have said more than once, his truthfulness was not challenged. I find, therefore that Abbey did due diligence to that extent. The due diligence that Abbey carried out in relation to MH Forwarding was the same as the due diligence that it carried out on all the other hauliers that it used. I therefore reject the suggestion that there was any special treatment of MH Forwarding.
MH Forwarding is not a company. It is the registered business name of Mr Mone. So a company search would not have revealed anything about the business. I do not think that Mr Shaw went so far as to say that the mere fact that MH Forwarding was not incorporated meant that it was necessarily untrustworthy. As far as the evidence goes it had an O-licence; and part of the procedure for obtaining an O-licence is to satisfy the authorities that the applicant is a person of repute.
The other aspect of MH Forwarding on which Mr Shaw relied was the fact that it paid for the use of the movement guarantee in cash. It seems that it was the only haulier to do so. Mr Mone told Ms Brittain that he was paid for the haulage in sterling. He himself lived in Ireland, which is part of the Eurozone; and his drivers also appear to have been Irish. In those circumstances it does not seem to me that much can be made of the fact that he paid cash (sterling) for the use of the movement guarantee; not least because it would have saved the cost of changing the money into euros and then back again into sterling.
In short I do not consider that the arrangements with MH Forwarding support the inference of fraudulent participation by Abbey in outward excise diversion fraud.
Failure to account for cash
As I have said the relatively small-scale fiddling of the books, and payments into the black economy in the building trade, are slender support for an allegation of dishonest participation in a multi-million pound sophisticated excise diversion fraud.
Failure to follow up irregularities
The first of the failures on which Mr Shaw relied was the discovery of AADs in a private car on 22 December 2006. This was the incident in which Mr Hone said that he had been contacted by a trader on 22 December to say that he had lost the AAD and Mr Hone had authorised the issue of a replacement. Mr Shaw pressed Mr Hone on what investigations he had carried out into the circumstances in which the AAD had come to be lost. Mr Hone was constrained to accept that he had carried out none. He had not even gone back to the haulier to ask what had happened. This was, I think, an error of judgment on Mr Hone's part. Although he appears to have satisfied HMRC with his explanation, it would have been preferable to have found out more about the circumstances in which the AADs had been lost.
The second incident related to the Commissioners' Direction preventing goods belonging to Castle Drinks form being moved without HMRC's prior consent. This direction, made on 16 February 2007, followed an interception on 8 November 2006. However, Abbey was not told about the interception or about the reasons for the imposition of the restriction. Had they asked HMRC they would not have been told. Following the direction there is no evidence that Abbey traded with Castle Drinks again. I do not regard the failure to make further inquiries about the reasons for the restriction as culpable.
The third incident on which Mr Shaw relied was the making of the direction relating to SAS which was in force for 22 days between 4 June and 22 June 2007. I found Mr Hone's explanation convincing. I do not regard the failure to make further inquiries about the reasons for the restriction as culpable.
The last is the incident in which a false explanation was given for the issuing of a duplicate AAD in October 2007. Mr Hone was not involved in the original false story that the AAD had been run over by a fork lift truck; but he was involved to some extent in the cover up. I agree with Mr Shaw's criticism that Mr Hone should have done more to find out what had really happened.
I have already concluded that the attack on the directors' lifestyles failed.
Breach of duty of skill and care
The case advanced on the breach of duty of skill and care is as follows:
i) The regime for liability under DSMEG is a strict liability regime. Abbey has a potential exposure to liability by allowing the use of its movement guarantee;
ii) Abbey had signed up to the HMRC/UKWA memorandum which said that members should not allow their movement guarantees to be used unless there are "overwhelming reasons" to do so;
iii) Even if hauliers had O-licences, that was not a sufficient reason to depart from Abbey's system of choosing hauliers from a pool of known and established hauliers;
iv) This is not merely an error of commercial judgment. It amounts to a breach of the directors' duties of skill and care.
The pleaded case also relied on an allegation that Abbey was "notified on numerous occasions of duty suspended loads of alcohol being intercepted empty by HMRC and/or the Police". The allegation of breach of duty rested partly on this allegation. However, I do not think that there is any instance before January 2008 in which Abbey was told that there had been an interception of an empty trailer hauled by a tractor travelling under its movement guarantee. There is certainly no instance of a load hauled by MH Forwarding. When Abbey was told of the interceptions in Officer Lawler's letter of 23 January 2008, it simultaneously lost its movement guarantee. This is not, therefore, a case in which Abbey continued to allow its movement guarantee to be used after having become aware that empty trailers had been intercepted.
In deciding whether directors have fallen short of their duty of skill and care, particularly where the breach of duty concerns the precise way in which the business is run, evidence of what is normal in the field of commerce in which the company operates is of considerable relevance. Although it is only an analogy, in Sansom and another v Metcalfe Hambleton & Co  2 EGLR 103 (which was a case of alleged professional negligence) Butler-Sloss LJ said:
"In my judgment, it is clear, from both lines of authority to which I have referred, that a court should be slow to find a professionally qualified man guilty of a breach of his duty of skill and care towards a client (or third party) without evidence from those within the same profession as to the standard expected on the facts of the case and the failure of the professionally qualified man to measure up to that standard. It is not an absolute rule, as Sachs LJ indicated by his example, but, unless it is an obvious case, in the absence of the relevant expert evidence the claim will not be proved."
The claimant called no expert evidence in this case. It is true that the HMRC/UKWA memorandum said that members should not allow their movement guarantees to be used unless there are "overwhelming reasons" to do so. However, Officer Smith's evidence was that:
"There is nothing illegal in this practice and it is not unusual, however, this practice clearly holds some risks and HMRC would normally expect anyone contemplating allowing the use of their movement guarantee to carry out, at a bare minimum, some basic due diligence checks on any potential user." (Emphasis added)
Ms Brittain's evidence about this was:
"in many of the cases I have investigated, this is the sort of due diligence you are presented with in relation to customers, hauliers, and I do not consider in my own mind that this is adequate due diligence." (Emphasis added)
In the present case it seems to me that the statement in the HMRC/UKWA memorandum is counter-balanced by Officer Smith's evidence that allowing another to make use of one's movement guarantee is not unusual, and Ms Brittain's evidence that this sort of due diligence is found in many cases. In addition, Officer Smith's evidence is that one would expect "some basic due diligence checks" to be made. His evidence was that HMRC had found no evidence of any due diligence in Abbey's files. In the present case, however, I have found that Abbey did require copies of a haulier's O-licence and insurance documents. Thus by Officer Smith's standards Abbey did what he would have expected. In addition the evidence of Mr Murray (albeit not tested by cross-examination) was that the O-licence was intended to act as a standard in the industry; and that ensuring that a haulier had a valid O-licence was good due diligence. Ms Brittain's evidence is that the extent of due diligence conducted by Abbey is the sort of due diligence that she found "in many … cases". Even though she herself did not think it was adequate, as Ms Brittain herself acknowledged she had no experience of ordinary bonded warehouses. The ones that she had investigated had all been involved in excise fraud. In answering further questions about what was usual in making inquiries for the purpose of due diligence, she said that she could not comment on what was usual. I do not therefore think that I can rely on her opinion as telling me about general standards in the industry.
There are five other factors that also seem to me to be relevant. First, an outward excise duty diversion fraud will not work unless both the haulier and the owner of the goods are corrupt. A corrupt haulier who diverted goods without the owner's consent would effectively be stealing from his employer and would soon be out of a job. So Abbey's due diligence on customers must also be factored into the equation. Officer Duxbury said that the steps that Abbey took to vet its customers were adequate. Second, the HMRC/UKWA memorandum was, as Mr Pickup put it, a "two way street". HMRC undertook to provide signatories to the memorandum with considerable quantities of information and to help them to combat fraud. HMRC did not do so, at least in this case. But in my judgment Abbey had a reasonable expectation that HMRC would keep them informed. Third, Abbey used the early warning system for all the movements in question. As Public Notice 197 states, this system "enables fiscal authorities to identify high-risk movements at an early stage and so combat fraud". Mr Hone and Messrs Owen believed that Abbey's use of this system gave Abbey extra protection. Their belief was that HMRC detected anything that had gone wrong with a movement, Abbey would be told. If Abbey had been told then it would cease to deal with the customer or haulier in question. As Mr Patrick Owen put it:
"The impression I was given was that if a load was found, let's say, at the docks empty, we would get a phone call from Customs saying they have held a vehicle up that's empty and we would be exposed for £15,000 or £18,000, depending what the value of the goods were at that time. And nine times out of ten we would have had stock for that customer in our warehouse, so we felt covered in other ways."
He added later in his evidence that as far as he was concerned Abbey's exposure was only to one load:
"No, it would only happen once, wouldn't it, because if the load was found slaughtered, Customs would have told us. It wouldn't go on for weeks and weeks and weeks, it would only happen once. It couldn't happen 301 times like you are saying, can it? It can't happen."
While Mr Own might have had more confidence in the efficacy of the early warning system than was warranted, he was in my judgment not unreasonable in the expectation that HMRC would notify Abbey promptly if an interception actually took place, rather than waiting over a year before doing so. Fourth, although it was not compulsory to do so, Abbey ensured that every load was sealed with a tamper-proof seal. This would have enabled the receiving warehouse to notify Abbey if a load arrived with the seals broken. Fifth, on every occasion on which Officer Lawler investigated Abbey he recorded his conclusion that Abbey was "compliant".
Taking all these things together, and in the absence of evidence about industry practice apart from Mr Murray's evidence, I am not prepared to find that the directors were in breach of their duty of skill and care to Abbey.
Finally, I should return to the Lauvie assessment. This was the sole assessment which did not relate to the use of Abbey's movement guarantee. What went wrong was that the AAD in this individual case was wrongly filled in. On the view of the law that HMRC took Xtera International Logistics should not have been named as transporter. It seems probable that it was Ms Lovell who completed the AAD. Ms Lovell was an experienced bond clerk. I do not see how her mistake in filling in the AAD can amount to a breach of duty by the directors.
In effect, Mr Mills left the running of the bond department to his fellow directors; and Mr Hone in particular. But in view of my conclusions about the other matters in issue, I do not need to say any more about him.
I dismiss the action.
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