Hague Plant Ltd v Hague & Ors

Where parties have used reciprocal false or inflated invoices to shift value between related companies, the court must distinguish authorised cross-invoicing from transactions that leave one company with a net benefit. Participation in a balancing arrangement does not authorise every inaccurate invoice or relieve a director of fiduciary duties.

A prior judgment does not create issue estoppel on a peripheral matter that was not truly in issue. Abuse of process is a broad merits-based inquiry. A later claim may proceed where refusing it would cause real injustice.

The effect of illegality on a claim is fact-sensitive. The court must consider the purpose of the prohibition, other affected public policies and proportionality.

Hague Plant Limited brought claims against Martin Hague, Jean Angela Hague and MHH Contracting Limited arising from the operation of Plant and a related waste-processing business. It alleged that Martin had breached fiduciary duties by diverting value to the related company and that the other defendants were liable for dishonest assistance or knowing receipt.

The court ordered certain factual issues to be tried in advance. The principal issues were whether unjustified payments formed part of a cross-invoicing arrangement, whether payments broadly balanced, whether the arrangement was known about and participated in by Plant, David and Dianne, and whether Plant could later challenge invoice accuracy.

The proceedings followed earlier Hague litigation concerning ownership of shares in the related company. The central questions were the existence and operation of cross-invoicing and the legal consequences of Plant’s participation in it.

1. Findings on cross-invoicing. The contemporaneous accounting material was the most reliable evidence. The Early Years Note, Haulage Schedules, JAH Note, Blue File and Yellow File were authentic or unchallenged documents. Taken together, they established a cross-invoicing practice involving value-shifting, rather than merely year-end account adjustments.
2. The unjustified payments between Plant and Excavations were made pursuant to that arrangement. The payments were calculated to balance out and created no substantial net loss in the relevant middle years. Some calculations involved assessments of value, so arithmetic balance did not necessarily establish equality of benefit.
3. The arrangement was known about, permitted and participated in by Plant, David and Dianne. Plant therefore authorised Martin to raise and pay false invoices forming part of the balancing scheme. It did not authorise him to pay a false generating invoice that would not be cancelled by a corresponding return, or to use an inaccurately valued genuine service as the means of cancellation.
4. Earlier proceedings. Findings and evidence in the earlier Hague litigation did not make every related matter binding. The issue of cross-invoicing had been peripheral and was not truly an issue decided there. Applying the principles in The Sennar and Henderson v Henderson, there was no issue estoppel and no abuse of process in allowing Plant to contest the existence and extent of cross-invoicing.
5. Invoice accuracy and illegality. The effect of Plant’s participation could not be resolved as a general rule. Following Patel v Mirza, the court would need to consider the purpose of the prohibition, other public policies and proportionality in the context of the claim actually made. Plant could perhaps challenge invoices where a purported return included a genuine service whose value had been overstated.
6. The ordered issues were answered: unjustified payments were made pursuant to cross-invoicing; payments were calculated to balance; Plant, David and Dianne knew of and participated in the practice; and the middle-year payments broadly balanced. The court did not finally determine limitation, laches or the ultimate accounting claim.