Abbey Forwarding Ltd v Hone

The liquidator of Abbey Forwarding Ltd sued four former directors for negligence and, in the case of three directors, dishonest participation in alleged excise diversion frauds. The claim centred on liability arising from use of Abbey’s movement guarantee for duty-suspended alcohol movements documented by accompanying administrative documents (AADs) under the DSMEG regime implementing Council Directive 92/12/EEC. The court applied the civil standard of proof (balance of probabilities) and held that the claimant bore the burden of proving irregularities and dishonesty. The judge found that receipted copy 3 AADs, seals and evidence from the receiving bonded warehouses (MT Manut and Wybo) made the claimant’s "borrowed load" theory speculative. The court concluded that the claimant had not proved that the goods did not arrive or that the directors dishonestly participated in outward diversion fraud, and dismissed the claim for breach of directors’ duties (including ss 172, 173 and 174 Companies Act 2006). The judge also found that Abbey’s basic due diligence and use of the HMRC early warning system were not shown to amount to a breach of the duty of skill and care.

This was a first instance trial brought by the provisional liquidator of Abbey Forwarding Ltd (appointed after HMRC assessments for excise duty and VAT) against four former directors. The company had operated a bonded warehouse and provided a Barclays-backed movement guarantee that was used on many duty-suspended movements documented by AADs. HMRC had raised multi-million pound assessments after concluding that large-scale excise diversion ("slaughters") had occurred on movements for particular customers (principally SAS and W2W) hauled frequently by MH Forwarding.

The liquidator alleged (i) negligence by all four directors in exposing the company to assessments by allowing the movement guarantee to be used and failing to follow up irregularities; and (ii) dishonest participation by three directors (Hone and the Owens) in outward diversion frauds. The principal factual issues were whether the goods described in the AADs arrived at their stated EU bonded destinations and whether the directors knew of or participated in frauds. Key legal issues included (a) the nature and operation of the duty-suspension regime under Council Directive 92/12/EEC and the DSMEG Regulations (including the role of AADs and movement guarantees), (b) burden and standard of proof in civil claims involving allegations of dishonesty, and (c) the scope of directors’ duties under the Companies Act 2006 (ss 172, 173 and 174).

The court framed issues as: whether the claimant proved that irregularities occurred so as to make the excise duty point fall on Abbey; whether the directors were dishonest or turned a blind eye; and whether the directors breached their duty of care in how the business and movement guarantee were managed. The judge reviewed documentary, witness and interception evidence, including receipted copy 3 AADs, seal practice, HMRC early warning correspondence and the practices of the French bonded warehouses and cash-and-carry recipients. He concluded that (i) the principal evidence supported that the AADs were genuine and that receiving warehouses had received loads (or at least there was no reliable evidence they had not), (ii) the "borrowed load" outward diversion explanation was speculative and unsupported in the trial evidence, (iii) the claimant bore the burden of proof and had not discharged it on the central allegations, and (iv) on the available evidence Abbey’s due diligence and systems did not justify a finding of breach of the statutory director duties pleaded. The remedy sought therefore failed and the claim was dismissed.

The claim is dismissed. The court held that the claimant bore the burden of proving that irregularities had occurred and that dishonesty by the directors was established. On the evidence the claimant failed to show that the goods did not arrive at the named receiving warehouses, and failed to prove dishonest participation or a breach of the directors’ duties of skill and care under ss 172, 173 and 174 Companies Act 2006. The "borrowed load" theory was speculative, and receipted AADs, seals and evidence from the receiving warehouses undermined the claimant’s case.