Alpha S Communications Ltd v Caz Distribution Services Ltd & Ors

Dishonest assistance requires participation in a breach of fiduciary duty and conduct falling below the objective standards of ordinary honesty, assessed in light of what the defendant actually knew. The defendant need not know the whole fraudulent design or recognise that the conduct is legally dishonest. Conscious awareness of the essential features of the dishonest scheme is sufficient, and deliberate failure to inquire may be treated as analogous to actual knowledge. In MTIC transactions, unusually structured third-party payments, pre-arranged margins and transactions carrying substantial risk for minimal profit may support findings of knowledge and dishonesty. A claim under section 213 of the Insolvency Act 1986 may remain available where dishonest-assistance claims are time-barred.

The liquidators and companies brought claims arising from MTIC fraud involving mobile-phone trading in 2004 and 2006. They alleged that the defendants dishonestly assisted breaches of fiduciary duty by the claimant companies’ directors, participated in fraudulent trading under section 213 of the Insolvency Act 1986, and conspired to cause loss.

The court considered whether the trading lines were genuine, whether the defendants had assisted the diversion of VAT-inclusive payments to overseas recipients, and whether that assistance was dishonest. It also considered limitation following the Supreme Court’s decision in Williams v Central Bank of Nigeria [2014] UKSC 10.

1. The court found that the relevant transactions formed part of MTIC schemes in which VAT-inclusive payments due to the importing companies were diverted abroad. The arrangements caused the companies to incur VAT liabilities without receiving the corresponding funds and therefore involved breaches of fiduciary duty by their management.

2. Applying Royal Brunei Airlines v Tan [1995] 2 A.C. 378, dishonesty is assessed objectively by reference to ordinary standards of honest behaviour, while taking account of the defendant’s actual knowledge. Under Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 W.L.R. 1476 and Baden v Société Générale [1993] 1 WLR 509, the defendant need not know the whole design or appreciate that the conduct would be characterised as dishonest. Knowledge of the general fraudulent nature of the scheme and awareness that the defendant’s conduct assisted it were sufficient.

3. The defendants’ pre-arranged margins, dictated prices, third-party payment instructions, lack of commercial capital and acceptance of disproportionate risks supported findings that they knew the general nature of the scheme. Deliberate failure to make inquiries could also support dishonesty.

4. Fern, Mr Sakhi, Mr Iqbal, GTC and Mr Allen were found to have dishonestly assisted breaches of fiduciary duty in the transactions in which they participated. The evidence did not establish Mr Iqbal’s involvement in the Schedule 1 transactions or that GTC was his company.

5. Following Williams v Central Bank of Nigeria [2014] UKSC 10, the dishonest-assistance claims concerning the 2004 transactions were dismissed as time-barred. The claims under section 213(2) remained available. The court found that Revapoint’s business had been carried on with intent to defraud HMCE or for another fraudulent purpose, and that the relevant defendants knowingly participated. Judgment was given for the First, Second and Sixth Claimants on the stated bases, with quantification to be agreed.