Abbey Forwarding Ltd v Hone & Ors

In civil proceedings alleging fraud or dishonesty, the claimant bears the burden of proving the relevant facts on the balance of probabilities. Serious allegations require cogent evidence only because inherent probabilities must be considered; there is no separate heightened standard of proof. Dishonesty must be clearly pleaded and fairly put to the relevant witness in cross-examination before it can support a finding. A theory of fraud is not evidence of fraud. Where liability depends on proving that goods did not arrive, genuine documentation and receipt evidence may leave the court unable to infer non-arrival merely from suspicion or irregularities. Directors’ duties of care and skill are assessed in the commercial context, including evidence of ordinary industry practice and the reliance reasonably placed on regulatory safeguards.

Abbey Forwarding Limited, a company operating a bonded warehouse, was wound up after HMRC assessed it for excise duty and VAT relating to duty-suspended alcohol movements. The company’s liquidator sued its four former directors for breach of directors’ duties and alleged that three had dishonestly participated in outward diversion fraud.

The principal claim concerned consignments apparently sent to bonded warehouses in France. The claimant alleged that the goods had instead been diverted in the United Kingdom, sometimes by means of borrowed loads. Alternative claims concerned further movements to France and the Netherlands, and alleged failures in the company’s systems and due diligence.

The central issues were whether the goods had failed to arrive, whether the directors had dishonestly participated in fraud, and whether they had breached their duties of care, skill and diligence.

1. Claim dismissed. The claimant had to prove, on the balance of probabilities, that the alleged irregularities occurred. The burden applicable in a tax appeal did not transfer to this dispute between the company and its directors. If the evidence left the court in doubt, the claimant failed.
2. There was no separate civil standard for fraud. The court had to consider inherent probabilities and the seriousness of the allegation, but the ultimate question remained whether the fact was more probable than not. Dishonesty had to be clearly pleaded and fairly put in cross-examination. The court applied the principles in Belmont Finance Corporation Ltd v Williams Furniture Ltd, [1979] Ch 250, Paragon Finance plc v D B Thakerar & Co, [1999] 1 All ER 400, Vogon International Ltd v The Serious Fraud Office, [2004] EWCA Civ 104, and Dempster v HMRC, [2008] STC 2079.
3. The borrowed-load theory was only a possible explanation of the evidence. It was not self-proving. Genuine receipted AADs, evidence that seals were applied and checked, delivery notes, warehouse records and the absence of any allegation against the receiving warehouses pointed against the theory. The claimant failed to establish that the principal consignments had not arrived at MT Manutention and Wybo.
4. The same conclusion applied to the Glenpark and Lauvie assessments. The evidence did not establish non-arrival at Mevi, Cehed or Lauvie F Distribution. The claimant’s reliance on missing movement evidence, intercepted empty vehicles and unexplained matters did not overcome the genuine receipt documentation or the unpleaded alternatives of forged documents, complicity by the receiving warehouse or borrowed loads.
5. The dishonesty allegations failed. Lies told by Mr Hone to HMRC about investigating some movements did not establish participation in large-scale outward diversion fraud. The unaccounted cash received from MH Forwarding showed small-scale accounting dishonesty, but was slender support for the alleged sophisticated fraud. The directors’ lifestyles did not demonstrate unexplained wealth.
6. The directors were not in breach of their duties of care, skill and diligence. The court considered the commercial context, the absence of expert evidence on industry practice, the due diligence undertaken on customers and hauliers, the use of HMRC’s early warning system, tamper-proof seals, HMRC’s undertakings under the UKWA memorandum and HMRC’s repeated recording that Abbey was compliant. The Lauvie AAD error was an individual clerical mistake and did not establish a breach by the directors.