Jetivia SA & Anor v Bilta (UK) Ltd & Ors

Factual and Procedural Background

Company A, an English-registered entity, was compulsorily wound up in November 2009 on a petition by The Tax Authority. Its liquidators issued proceedings against:

• Director 1 (also the sole shareholder) and Director 2;
• Company B, a Swiss corporation; and
• Defendant, Company B’s chief executive resident in France

The claim alleges that between April and July 2009 Director 1 and Director 2 used Company A to trade in EU Emissions Trading Scheme allowances as part of a carousel (missing-trader) VAT fraud. The scheme created a liability exceeding £38 million in output VAT to The Tax Authority while ensuring Company A would be insolvent and unable to pay. Funds that could have satisfied that liability were allegedly diverted offshore, largely to Company B.

Company B and Defendant applied to strike out the claim on two grounds: (i) that the principle ex turpi causa non oritur actio barred Company A’s causes of action (because Company A’s own illegal conduct would have to be relied on) and (ii) that, insofar as the liquidators invoked section 213 of the Insolvency Act 1986 (fraudulent trading), that provision had no extra-territorial reach. The High Court dismissed the application; the Court of Appeal affirmed; and the appellants obtained permission to appeal to the Supreme Court.

Legal Issues Presented

1. Whether the defence of illegality (ex turpi causa) is available to Company B and Defendant so as to defeat Company A’s claims for breach of fiduciary duty, conspiracy, dishonest assistance and knowing receipt.
2. Whether the fraudulent-trading remedy in section 213 of the Insolvency Act 1986 applies to individuals and corporations resident outside the United Kingdom.

Arguments of the Parties

Appellants’ Arguments

• Company A’s claims necessarily rely on its own unlawful VAT fraud; under ex turpi causa no action can arise.
• Because Director 1 and Director 2 were the sole directing minds of Company A, their wrongdoing is attributable to the company, rendering it a perpetrator rather than a victim.
• Section 213 has no extra-territorial effect; therefore the court cannot impose liability on foreign-resident defendants.
• Any recovery would produce impermissible circuity of action because Company B could in turn sue Company A for conspiracy.

Respondent’s Arguments

• The directors’ fraud cannot be attributed to Company A when the company (via its liquidators) sues those directors or their accomplices; to hold otherwise would eviscerate the fiduciary duties owed to an insolvent company.
• The relevant public policy favours protecting creditors of insolvent companies; allowing the illegality defence would undermine that policy.
• Section 213 is intended to reach all persons “knowingly party” to fraudulent trading, wherever resident, as insolvency jurisdiction operates worldwide over the debtor’s estate.

Table of Precedents Cited

Court's Reasoning and Analysis

1. Illegality Defence

• The court accepted that directors of an insolvent company owe fiduciary duties which include protecting creditors’ interests (Companies Act 2006, s. 172(3)).
• To attribute Director 1’s and Director 2’s fraud to Company A for the purpose of defeating the very duty designed to protect creditors would be “injustice and absurdity”; public policy demands enforceability, not immunity.
• Attribution is context-specific. When a company sues its own wrongdoing directors and their accomplices, the “fraud exception” prevents imputing their knowledge to the company.
• The court rejected the contention that being a “one-man company” automatically bars the claim; that label was only decisive in Stone & Rolls because no duty was owed to innocent stakeholders. Here, creditors are innocent stakeholders.
• Safeway v Twigger was distinguished; its result depended on the particular statutory scheme of competition penalties.
• Circuity of action argument was premature and unpleaded; on the assumed facts it lacked merit.

2. Section 213 Insolvency Act 1986

• Statutory wording (“any persons”) contains no territorial restriction.
• Winding-up jurisdiction over a British company is worldwide; effectiveness of fraudulent-trading relief would be undermined if foreign participants were immune.
• Previous authority on analogous provisions (e.g., In re Paramount Airways) supports extra-territorial reach.
• Although the European Insolvency Regulation could also ground jurisdiction, domestic interpretation sufficed; no reference to the Court of Justice was necessary.

Holding and Implications

APPEAL DISMISSED.

Company B and Defendant cannot rely on the illegality defence; Director 1’s and Director 2’s wrongdoing is not attributable to Company A for these purposes. Section 213 of the Insolvency Act 1986 applies to foreign-resident participants in fraudulent trading. The case proceeds to trial on the merits.

The decision reinforces that fiduciary duties owed during insolvency are enforceable notwithstanding the company’s own illegal trading, and confirms the worldwide reach of section 213. It sets no new general rule on illegality but emphasises context-specific public-policy analysis and may restrict the application of Safeway v Twigger.