Customs & Excise v Sawyer & Ors

Variation of a freezing order may permit payment of a bona fide obligation arising in the ordinary course of business. The obligation need not be an immediately enforceable running trade debt. Once bona fides is found, the court cannot treat the transaction as outside the ordinary course merely because the defendant is alleged to have participated in a VAT carousel fraud, or because the claimant’s obligation may be restitutionary or damages-based rather than a debt. Payment should be refused where collusion, beneficial ownership by the defendant, an intention to defeat the claimant, or an attempt to create priority or security is established. The jurisdiction must not be used to accelerate an unestablished claim ahead of an established creditor.

The Commissioners of Customs and Excise obtained freezing orders against two businesses alleged to have participated in a VAT carousel fraud. Valley Supplies Ltd and Tradelink Distribution Ltd had paid for computer chips which were not delivered after the orders were made. They sought variation of the orders so that the defendants could repay the sums due.

The applications were heard by His Honour Judge Playford QC. The judge assumed the interveners’ bona fides but refused variation, treating the claims as damages or repayment claims rather than ordinary business debts. The interveners appealed. The central issue was whether the claims fell within the established principles governing payment of bona fide obligations in the ordinary course of business.

1. Appeal allowed. The freezing orders were varied to permit payment of the sums sought. The order was made with costs of £10,000 in the Court of Appeal and half the costs below.
2. The purpose of a freezing order is to prevent dissipation of assets designed to defeat a judgment. The jurisdiction nevertheless permits payment of bona fide obligations incurred in the ordinary course of business, including obligations which are not yet enforceable. The applicant bears the burden of establishing the entitlement.
3. Payment should not be permitted where the alleged obligation is not established, where collusion may exist, where the money beneficially belongs to or is intended for the defendant, or where payment is sought to defeat the claimant’s claim. A freezing order must not create security or confer priority over an established creditor.
4. Judge Playford had assumed and therefore found in favour of the interveners on bona fides. That finding removed any basis for treating the transactions as suspicious, dubious or questionable. The judge could not then rely on those matters to conclude that the obligations were outside the ordinary course of business.
5. The failure to deliver the chips and the uncertainty whether the resulting liability was technically a debt, money had and received, or liquidated damages did not justify refusing payment. The Angel Bell jurisdiction is not confined to immediately enforceable debts.
6. An allegation that the defendants acquired goods through a carousel fraud does not, by itself, prevent a transaction with a bona fide purchaser from being in the ordinary course of business. Nor would payment give the interveners priority; refusal would instead accelerate the Commissioners’ presently unestablished claim ahead of an established obligation.

• Court of Appeal (Civil Division): allowed the appeal from the order of His Honour Judge Playford QC, varying the freezing orders to permit payment.