“to abide by any Order which the Court may make as to damages in case the Court shall be of the opinion that the Company shall have sustained any by reason of this Order which the Applicant ought to pay.”
“I am advised by Howes Percival LLP and believe that, before appointing a provisional liquidator, the Court will require an undertaking in damages. HMRC is, of course, a Government Department, well able to satisfy liability in respect of costs and damages should an Order appointing joint provisional liquidators be made, and subsequently transpire to be unjustified. Counsel will offer such an undertaking in damages to the Court as the Court may require. I confirm that HMRC both understand and accept that, the company has apparently been a trading company and that such an undertaking in damages is potentially without limit, albeit that HMRC contends that none of that trading was “legitimate”.”
“If a business is shut down wrongly, the cross-undertaking is unlikely to provide adequate compensation to the company concerned, let alone to the employees who will have lost their jobs and to whom no cross-undertaking will usually have been offered.”
“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.”
“Where an amount has been assessed as due from any person and notified in accordance with this section, it shall, subject to any appeal under section 16 below, be deemed to be an amount of the duty in question due from that person and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.”
“127. Outward Diversion Fraud (“ODF”) is the unlawful diversion of Duty suspended excise products onto the UK home market. In the Abbey case HMRC is currently aware of and has assessed for three hundred and one consignments supposedly transported via French Bonded Warehouses to French cash and carries which HMRC maintains were not received at their stated destination. 128. I believe that as part of this fraudulent activity Abbey has allowed its Movement Guarantee to facilitate the movement of excise products which, it is HMRC’s case, have in all likelihood been fraudulently diverted before leaving the UK en route to the French Bonded Warehouse. It should be noted that in all instances where movements have been assessed Abbey have produced the AAD’s required to accompany duty suspended movements from its warehouse and have named itself as guarantor and transporter on those AADs quoting their own Movement Guarantee under its unique number 986M. 129. As a consequence of this fraudulent use of the Movement Guarantee, Abbey has caused or been a party to the reckless creation of false AADs which, it is HMRC’s case, have, in all likelihood, been fraudulently and/or recklessly authenticated by the French Bonded Warehouses without any checks being made. As to the modus operandi of one of the French Bonded Warehouses used by UK Owners, namely MT Manutention (“MTManut”), it appears that MT Manut has stamped AADs sent to MT Manut from the UK owners (via Abbey) to show that goods have been received. However, in reality, the loads that it has verified as being received cannot have arrived with it, as the vehicles allegedly carrying the loads were empty when leaving the UK (see Section 7 below). 130. It is my belief that Abbey has facilitated the excise products to be released from Bond without payment of the Duty. It is HMRC’s position, for the reasons set out in this Affidavit, that those excise products have been released for home consumption in the United Kingdom; the fraudulently and/or recklessly authenticated AADs having been produced on each occasion when Abbey has facilitated the excise products to be released from Bond.”
“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 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 of21 June 2010 , which was served in reply to the defendant’s evidence; and then only as generalised hearsay.”
“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.”
“these facts show that the Appellant’s business was closed down and the former directors (and others) deprived of their livelihoods by the Respondents on the basis of allegations which could not be substantiated in the misfeasance proceedings and which the Respondents have chosen not to defend in appeal proceedings before the tribunal. This indicates prima facie a serious injustice to the Appellant and its former directors.”
“Abbey and HMRC had made no attempt whatsoever to recognise the consequences of their ill-judged litigation until two years after Lewison J’s judgment.”
“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.”
“46. It can be seen from the Judgment that HMRC’s contention that there had been large scale evasions of excise duty on duty suspended alcohol that had been stored in and subsequently removed from Abbey’s bonded warehouse did not withstand scrutiny. 47. The failure of the misfeasance proceedings, for the reasons given by Mr Justice Lewison, coupled with the subsequent withdrawal of all of the Assessments upon which the application for the appointment of a Provisional Liquidator was based, of themselves, show that there was no valid foundation for the making of the Order appointing a Provisional Liquidator on the basis of the material put forward to the Court by HMRC.”
“1. That the issues to be tried at the hearing directed by paragraph 3 below are: A. Should the Court make an order for an Inquiry as to damages, having regard to: a) The failure of the Liquidator’s misfeasance claim against the former directors of the Company; b) The withdrawal of the two Assessments by HMRC in 2011 upon which the winding-up petition was founded, in support of which petition the application for appointment of a provisional liquidator was made; c) The delay on the part of the Company in applying for the Order it seeks; d) Other relevant factors (other than any facts found by Lewison J. in his Judgment in the Misfeasance Proceedings dated30 July 2010 ), being: (i) The winding-up order made in relation to the Company on18 March 2009 , which discharged the appointment of the Provisional Liquidator, (ii) The absence of any application to set aside the appointment of the Provisional Liquidator and/or any opposition to the winding-up petition. B. If such an Inquiry is to be ordered, upon what factual basis is the loss recoverable in the Inquiry to be assessed? In particular is the loss to be assessed on the footing that (as in fact occurred) the Company would have been wound up on the return date of the petition?”
“Whereas the usual practice in respect of interlocutory injunctions is not to order an inquiry into damages on the cross-undertaking until the merits of the action have been finally decided at trial, in cases where a Mareva injunction is involved, a defendant or other party bound in respect of whom the injunction is discharged at any stage may seek, and be granted, an inquiry into damages on the basis that, regardless of the ultimate merits of the action, the injunction was “wrongly granted”.”
“(1) Save in special cases an undertaking as to damages is the price which the person asking for an interlocutory injunction has to pay for its grant. The court cannot compel an applicant to give an undertaking but it can refuse to grant an injunction unless he does. (2) The undertaking, though described as an undertaking as to damages, does not found any cause of action. It does, however, enable the party enjoined to apply to the court for compensation if it is subsequently established that the interlocutory injunction should not have been granted. (3) The undertaking is not given to the enjoined but to the court. (4) In a case where it is determined that the injunction should not have been granted the undertaking is likely to be enforced, though the court retains a discretion not to do so. (5) The time at which the court should determine whether or not the interlocutory injunction should have been granted will vary from case to case. It is important to underline the fact that the question whether the undertaking should be enforced is a separate question from the question whether the injunction should be discharged or continued. (6) In many cases injunctions will remain in being until the trial and in such cases the propriety of its original grant and the question of the enforcement of the undertaking will not be considered before the conclusion of the trial. Even then, as Lloyd L.J. pointed out in Financiera Avenida v Shiblaq, The Times,14 January 1991 ; Court of Appeal (Civil Division) Transcript No.973 of 1990 the court may occasionally wish to postpone the question of enforcement to a later date.”
“This appeal raised an important point affecting the practice of the court on the enforcement of undertakings as to damages given by the successful applicant for an interlocutory injunction when subsequently the injunction is shown to have been wrongly granted. The practice of requiring an undertaking in damages from the applicant for such an injunction as the price for its grant was originated by the Court of Chancery as an adjunct to the equitable remedy of an injunction. There is an obvious risk of unfairness to a respondent against whom an interlocutory injunction is ordered at a time when the issues have not been fully determined and when usually all the facts have not been ascertained. The order might subsequently prove to have been wrongly made but in the meantime the respondent by reason of compliance with the injunction may have suffered serious loss from which he will not be compensated by the relief sought in the proceedings. The risk of such injustice is the greater when the interlocutory injunction has been granted ex parte. The risk is particularly great with Mareva injunctions, granted as they are almost invariably ex parte, and frequently imposing severe restrictions on the respondents’ right to spend their money or otherwise dispose of their assets: such injunctions can have the effect of ruining a thriving business or of otherwise causing substantial loss to the respondent and were vividly described by Donaldson L.J. in Bank Mellat v Nikpour [1985] F.S.R.87, 92 as being, with the Anton Pillar order, one of the law’s “two ‘nuclear’ weapons.”
“The form of the undertaking indicates that the court has a discretion whether to enforce it at all and that discretion is not limited in any way.”
“Two questions arise whenever there is an application by a defendant to enforce a cross-undertaking in damages. The first question is whether the undertaking ought to be enforced at all. This depends on the circumstances in which the injunction was obtained, the success or otherwise of the plaintiff at the trial, the subsequent conduct of the defendant and all the other circumstances of the case. It is essentially a question of discretion.”
“Nevertheless it is also clear that [Lloyd LJ] considered that the court had a general discretion whether to enforce the undertaking, and that this required consideration of all the circumstances of the case.”
“There is another piece of judicial shorthand which also requires some explanation. Judges have said from time to time that a cross-undertaking is needed to guard against injustice that might result if at trial it is decided that the interim injunction was granted "wrongly" or "in error", or "improvidently". These and similar adverbs do not, in my judgment, imply that the court's decision to grant an interim injunction was wrong or unjust when it was made. If it was, then it could have been the subject of a successful appeal. Rather, what is meant is that with the benefit of hindsight and after investigation of all the facts, the court at trial may decide that the claimant (in whose favour the injunction was granted) is not entitled to the relief that he claimed. Had it known all the facts when it made the order for the interim injunction it would have refused the injunction; but equally it would not have exacted the cross-undertaking. The cross-undertaking is an integral part of the whole package. The package as a whole cannot fairly be described as erroneous or wrong. The Points of Claim describe the injunctions as the "Wrongful Injunctions" but that, in my judgment, is a misconception.”
“it is not an abuse of process for the Commissioners to resist the Appeals, notwithstanding the Misfeasance Claim. 23.1 The High Court, in which the Misfeasance Claim was heard, is not a competent court in which to challenge the Assessments. The Assessments must be challenged through the exclusive statutory appeals process in the First-Tier Tribunal, and not in the High Court. 23.2 The Commissioners were not a party to the Misfeasance Claim. The Commissioners provided an indemnity in respect of the Misfeasance Claim and various officers of HMRC provided evidence in the Misfeasance Claim, but the Misfeasance Claim was brought by the Appellant acting by its Liquidator. The Liquidator had separate legal representation in respect of the Misfeasance Claim and did not instruct the Commissioners’ solicitors, Howes Percival, prior to judgment in those proceedings. Furthermore the Commissioners had no right to appear in the Misfeasance Claim. 23.3 In the Misfeasance Claim, Lewison J took the burden of proof to be on the Claimant, the Appellant. In the Appeals the legal burden of proof is on the Appellant. So, whilst in the Misfeasance Claim Lewison J took the view that it was for the claimant to prove that irregularities occurred in the Assessed Movements, in the Appeals it is for the Appellant to prove that irregularities in the Assessed Movements did not occur. 24. In the light of the matters identified in the paragraph immediately above permitting the re-litigation of issues would not bring the administration of justice into disrepute. On the contrary, it would be manifestly unfair to the Commissioners to prevent them from resisting an appeal by reason of a previous set of proceedings, to which they were not parties, in which the burden of proof was different, and which would not be a proper forum to decide whether the Assessments should stand. Further, it would be a miscarriage in the administration of justice to prevent the Commissioners from participating in the statutory procedure which is long established as the procedure under which assessments are challenged and justified, by reason of a decision in a forum which it is long established is not the appropriate forum in which to determine whether assessments should stand.”
“There were significant difficulties in obtaining information and resource from HMRC under 236 or generally, to counter evidence and arguments put by the directors’ new solicitors Bark & Co towards the end of the case. However any suggestions made by HMRC (as alleged by Banks Kelly) that HMRC would have run the litigation differently were also news to us given that HMRC were indemnifying, providing witness evidence and reviewing pleadings as a condition of continuing the indemnity.”
“In terms of disruption I think we will have had made an impact and assisted in stopping a large fraud.”
“Please ask your clients to think very carefully whether they intend to adhere to this line? We shall expect it to be covered in your clients’ evidence and doubtless you will remind them of the reason for the statement of truth.”
“For my part conducting the same review as the judge, I find it difficult to express with sufficient moderation my disapproval of the approach taken by the Liquidator’s solicitors to some of the day to day administration of this freezing order. Apart form other matters, they took wholly unjustifiable approaches to the questions of living expenses and legal costs. At one stage they suggested that the ceiling for legal costs provided for by the order was a mere£5,000 (when it did nothing of the sort) (letter6 July 2009 ) and at another they even indicated that they would unilaterally advise that the fund-holding banks be notified that a mere£500 per month living expenses should be permitted, notwithstanding the court’s order permitting very significantly larger expenditure for such purposes (letter1 September 2009 ).”
“I would wish also to make clear that I regard this as a bad case. The liquidator’s conduct was, at times, inexcusable, and the adverse effects of the injunction were far reaching and life-changing for each of the appellants.”
“Then it also follows, I think, from what I have said, that, as the undertaking was given to the court, it is within the judicial discretion of the court whether, and to what extent, and when it shall be enforced. Each case must depend in a great measure on its own circumstances; and it may be that the delay – which is certainly a circumstance to be considered – might be so great … as to preclude the success of the application at all. But that is for the court to determine.”
“Since there is no cause of action there is no period of limitation either; but the cross-undertaking cannot be enforced without the leave of the court, which may be withheld if not applied for promptly: see Smith v Day (1882) 21 Ch.D. 421 and Ex parte Hall; In re Wood (1883) 23 Ch.D. 644. As those cases show, the court does not inquire whether the other party has been prejudiced by the delay. The only question is whether the applicant has behaved with reasonable despatch.”
“The enforcement of the cross-undertaking should be regarded as being conditional on the inquiry being applied for promptly and prosecuted with reasonable diligence. This would allow for a desirable degree of flexibility. Just as the court may decline to enforce the cross-undertaking if the plaintiff does not apply to enforce it with reasonable promptitude, so it ought to be willing to discharge it where the plaintiff does not conduct the enforcement proceedings with reasonable diligence.”
“30. … In private litigation, a claimant acts in its own interests and has a choice whether to commit its assets and energies to doing so. If it seeks interim relief which may, if unjustified, cause loss or expense to the defendant, it is usually fair to require the claimant to be ready to accept responsibility for the loss or expense. Particularly in the commercial context in which freezing orders commonly originate, a claimant should be prepared to back its own interests with its own assets against the event that it obtains unjustifiably an injunction which harms another's interests. 31. Different considerations arise in relation to law enforcement action, where a public authority is seeking to enforce the law in the interests of the public generally, often in pursuance of a public duty to do so, and enjoys only the resources which have been assigned to it for its functions. Other than in cases of misfeasance in public office, which require malice, and cases of breach of the Convention rights withinsection 6(1) of the Human Rights Act 1998 , it remains the case that English law does not confer a general remedy for loss suffered by administrative law action. That is so, even though it involves breach of a public law duty. In the present context, the fact that an injunction is discharged, or that the court concludes after hearing extended argument that it ought not in the first place to have been granted, by no means signifies that there was any breach of duty on the public authority's part in seeking it.”
“The FSA was acting under its express power to seek injunctive relief conferred by section 380(3). It was acting in fulfilment of its public duties in sections 3 to 6 of FSMA to protect the interests of the UK's financial system, to protect consumers and to reduce the extent to which it was possible for a business being carried on in contravention of the general prohibition being used for a purpose connected with financial crime.”
“The last matter I need consider is the question of a cross undertaking. In the case of a private litigant invariably, quid pro quo for any order made, an undertaking to the effect that if the court thinks it should not have intervened, any loss or damage the court thinks appropriate is to be paid. In this case, HMRC act in protection of the public purse as they see it and in accordance with their statutory remit. The Supreme Court last year said in Sinaloa Gold that the presumption is that no cross undertaking is required of a public body acting in that way. It is only a presumption. The discretion to impose an undertaking is kept. The Judge indicated that the previous exchanges demonstrated his concern within this regard as the draconian nature of a PL is made the more so as pre indicated if the Court does not have the fall back of the cross undertaking. Rochdale Drinks confirms that it is not the ordinary practise to require a cross undertaking. I do not think the circumstances of this matter are so exceptional such as to require a cross undertaking in this case. Subject to one point, the strength of the case militates in favour of adopting the presumptive course. However, and I am grateful for HMRC’s assistance, I consider that a limited undertaking should be provided and understand will be offered to the effect that should the Court on a subsequent occasion consider that a cross undertaking should be offered, that cross undertaking should relate back to capture this and subsequent events prior to that event. This is to ensure if the court considers that such an exceptional order should be made, its effect will not be lessened by the decision today.”
“109. The appointment of a provisional liquidator is, as the phrase suggests, an interim remedy. It takes place before the facts have been found. Not only is it an interim remedy, it is one of the most intrusive interim remedies in the court's armoury. In many, if not most, cases its effect will be to stop the company trading; and to cause the company's employees to lose their jobs. In deciding whether to grant or refuse an interim remedy the overriding principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other. Among the matters which the court may take into account are the prejudice which the claimant may suffer if the remedy is not granted or the defendant may suffer if it is; the likelihood of such prejudice actually occurring; the extent to which it may be compensated by an award of damages or enforcement of the cross-undertaking; the likelihood of either party being able to satisfy such an award; and the likelihood that the remedy will turn out to have been wrongly granted or withheld, that is to say, the court's opinion of the relative strength of the parties' cases: see National Commercial Bank of Jamaica Ltd v Olint Corp Ltd[2009] UKPC 16 ;[2009] 1 WLR 1405 [17], [18]. 110. If a business is shut down wrongly, the cross-undertaking is unlikely to provide adequate compensation to the company concerned, let alone to the employees who will have lost their jobs and to whom no cross-undertaking will usually have been offered. In addition once a provisional liquidator has been appointed the company's books and records will pass into his control; and will no longer be accessible, as of right, to the company's directors. This latter consequence may hamper the company and its directors in defending allegations made in the petition. I agree, therefore, with Lord Justice Rimer ([76]) that the appointment of a provisional liquidator requires the most anxious consideration.”
“114. Lastly, it is important to recall that the petition in this case is a creditor's petition. There is power undersection 124A of the Insolvency Act 1986 to present a winding up petition on the ground that it is expedient in the public interest that a company should be wound up. But the power to present such a petition is reserved to the Secretary of State alone. At times it seemed to me that HMRC’s appeal to the public interest trespassed into forbidden territory. Given the fact that, as Rimer LJ points out (§ 75), section 135 does not prescribe criteria which must be satisfied before a provisional liquidator is appointed, the approach in the case of a public interest petition may differ from the approach in the case of a creditor's petition. That question will have to be decided in a case in which it matters.”
“The court is naturally cautious about appointing a provisional liquidator to a trading company where the consequence is almost inevitably to bring the company's trading to an end. In some cases (for example, where the trading is believed to be in fraud of the public) this may be the object of the appointment, but the importance of treading warily is just the same. The need for caution was a matter to which in Rochdale Rimer LJ (at [76]) and Lewison LJ (at [109]) both referred. In cases where such an appointment is to be made, the court's inclination will be to want to provide the company with some kind of protection in the event that it turns out that the appointment should not have been made. Extracting from the petitioner an undertaking in damages to the company as a term of the appointment is the obvious step to take and, in my experience, the course usually followed. In other cases, especially where there is nothing to suggest dishonesty on the part of those who control the company, the court will explore whether some lesser remedy, for example a freezing injunction or an order for the production of documents, may suffice.”
“should apply to HMRC acting as collectors of the public revenue, and even if it otherwise should whether it should apply where the interim relief claimed is likely to have (and has had) such a terminal effect on the company’s trading.”
“When appointing a provisional liquidator on 18 March Hildyard J did not consider the circumstances to justify departure from the usual practice and therefore declined to require an undertaking. As I have indicated, he qualified that in case a contrary view should be reached on a challenge to his order and there should be a wish that the undertaking capture events that had occurred since the appointment had been made. Despite having now heard from Mr Lilly and been taken to rather more evidence than was before Hildyard J, I have reached the same conclusion as he did. In any event, the main thrust of the argument which Mr Lilly advanced was that HMRC should be treated like any private litigant petitioning for the winding-up of a company for non-payment of a debt and that other, lesser, interim remedies should have been considered. I do not accept that when petitioning to recover unpaid tax HMRC should be treated like any private litigant. When suing to enforce a claim for unpaid tax HMRC are exercising a public function; they are a public authority bringing a claim in the public interest. Any recovery is for the public benefit since it goes to increase the general revenue without which the modern state cannot function. Nor, for the reasons explained earlier, is it the case that lesser remedies would have sufficed.”
“Had it been known either that the allegations of fraud which were the justification for seeking the PL Order would fail (as they ultimately did, as did the allegations of negligence against the former directors), or that the Assessments upon which the winding-up petition was founded were not valid (which is the inevitable conclusion given their withdrawal by HMRC and decision not to seek to justify them), it is inconceivable that the Order would have been made. Taken together, there would have been no basis whatsoever for the Order.”
“Any Inquiry on any cross-undertaking must, inevitably and as a matter of the obvious meaning of the words, proceed on a single hypothesis: that the specific order supported by the cross-undertaking was never made. It is HMRC’s contention that this must be the only hypothesis upon which the court proceeds. All other acts must be considered as they actually were and are in the real world. If it were otherwise, the chain of hypotheses and the arguments that would result about what would or might have happened given particular events will rapidly become completely unmanageable and increasingly absurd.”
“Plainly, therefore, the Court must proceed upon the hypothesis that the winding-up petition was presented on the date it was presented but no PL was appointed: that is the premise of the cross-undertaking itself. The question is then whether it is permissible for Abbey to go further, piling hypothesis upon hypothesis, and assert that, if there had been no PL, there would or might have been no winding-up order and that Abbey would have successfully appealed the Duty Assessments (and indeed the rest of the Original Assessments, and the Extant Assessments) and continued in business.”
“Abbey cannot have its cake and eat it: if in the hypothetical world the winding-up order is taken away so must the resulting proceedings including the directors’ victory in the Misfeasance Proceedings. Abbey will have to show that in 2009 it would have succeeded in the First-tier Tribunal without the benefit of the decision by Lewison J and in light of all the evidence that would or might have been filed by the parties on the hypothesis that those proceedings were fully contested (although they were not).”