Bilta (UK) Ltd & Ors v Natwest Markets Plc & Anor

A person may provide dishonest assistance to a fiduciary breach through participation in a transaction chain, even where separated from the defaulting company by an intermediary. The necessary assistance is established by a sufficient factual connection between the defendant’s conduct, the flow of money and the breach. Liability under Insolvency Act 1986, section 213 may extend to outsiders who knowingly participate in fraudulent trading. Dishonesty requires subjective knowledge or belief, assessed against objective standards. Blind-eye knowledge requires a firmly grounded and targeted suspicion, together with a deliberate decision not to inquire. Dual vicarious liability may arise where employees are materially part of the business and organisation of two employers.

The claimant companies, all insolvent and involved in admitted VAT frauds, claimed against RBS and RBS SEEL for dishonest assistance and knowing participation in fraudulent trading. The alleged assistance arose from RBS’s purchase of EU carbon allowances from CarbonDesk during June and July 2009. The claim concerned whether the traders knew, or deliberately ignored, the risk that the transactions formed part of missing trader intra-community VAT fraud.

The defendants denied dishonesty, disputed assistance and section 213 liability, and contested attribution and vicarious liability. The court also considered whether the transaction chains and associated money flows were sufficiently established.

1. Liability. RBS and RBS SEEL were liable for dishonest assistance and for knowingly being parties to fraudulent trading in respect of RBS’s trading with CarbonDesk from 26 June to 6 July 2009. The remaining claims, including those concerning GW Deals and earlier CarbonDesk trading, were dismissed.
2. Assistance. The purchase contracts and payment of VAT supplied the means by which money could pass along the transaction chains and enable the claimant companies’ directors to misapply VAT receipts. Following Alpha Sim v CAZ Distribution Services [2014] EWHC 207 (Ch), assistance did not require direct dealings with the defaulting fiduciaries. A sufficient factual connection between the trades, money flows and breach was required.
3. Section 213. Liability under section 213 of the Insolvency Act 1986 was not confined to directors or managers. Outsiders who actively and dishonestly participated in, assisted or benefited from the fraudulent business could fall within the provision. The court adopted the principles in Bank of India v Morris [2005] BCC 739.
4. Dishonesty. Applying Ivey v Genting Casinos (UK) Ltd [2017] 3 WLR 1212, the court first determined the traders’ actual knowledge and beliefs and then assessed their conduct objectively. The traders knew of VAT risks, appreciated that CarbonDesk’s exceptional volumes lacked a satisfactory explanation, and deliberately decided not to ask questions or report their suspicions. That amounted to blind-eye dishonesty. The later instruction to continue business as usual did not legitimise conduct that was already dishonest.
5. Vicarious liability and attribution. The traders remained employees of RBS SEEL but acted with authority for RBS, within RBS’s business and subject to its policies and directions. Both companies were therefore capable of dual vicarious liability. The traders’ states of mind were also attributable to RBS for the relevant corporate trading.
6. Transaction chains and remedies. Exact identity of individually numbered EUAs was unnecessary because EUAs were fungible. The court adopted a commonsense approach to money flows and permitted liability where the trades and associated payments were sufficiently connected. Compensation and section 213 contributions were assessed by reference to unpaid VAT liabilities, subject to avoiding double recovery.