Mahme Trust Reg & Ors v Lloyds TSB Bank Plc

On the 5^th July 2006 I handed down a written judgment in which I dismissed the four claims being pursued by the first Claimant Mahme Trust Reg against Lloyd TSB Bank Plc the Defendant. For the purposes of this judgment I will use the same names and abbreviations used in that judgment. The parties and the dramatis personae are described between paragraphs 1 and 9 and the background facts are described between paragraphs 10 and 26. Between paragraphs 27 and 34 I describe how the broad claim for an account of the Bank’s dealings with the estate of AB between February 1986 and the Settlement Agreement of the 22^nd June 2000, a period of rather more than 14 years, was dropped, at the conclusion of the Bank’s opening of the defence, as a result of an extensive amendment of the claim. Also as a result of the amendments, 9 of the 13 separate claims for damages were also dropped and the 4 surviving claims on which I have given judgment substantially reduced in scope, and Mrs AB and Mahmoud discontinued their separate claims. Despite the valiant efforts of Mr Onions, whose appearance appears to have triggered the substantial reduction in the claims being made against the Bank, of the 4 remaining claims, that in respect of the claim for an enquiry as to damages resulting from the refusal by the Bank to transfer 20% of the assets of the Shake Trust from the Bank to Messrs Goldman Sachs to be managed by that bank on behalf of the Trust, and the claim for an enquiry as to damages resulting from the Bank managing the Trust’s investments by using foreign exchange hedging transactions failed. They were unarguable. The claim in respect of the Landglaze payments, though arguable on the facts, failed on the issue of damages as a matter of law and that in respect of the fee payments failed on the facts and was, in any event, in the context of this case, de minimis.

In these circumstances it is not unexpected that the Bank seeks an order for the payment of its costs on the indemnity basis from the claimants. At paragraph 1 of the claimants’ written submission on costs, their contentions as to the proper order for costs are summarised under 5 sub-paragraphs as follows:-

“(a)

At least part of the costs of the account claim should be paid by the Bank to the Claimants.

(b)

Any costs order in favour of the Bank should be reduced to reflect the Claimants’ position which is that had the Bank continued dialogue between the parties and not cancelled the planned meeting with Mr Veal to review certain of the Klonis Box material and/or undertaken a special investigation into the Claimants’ affairs, then the litigation would not have happened.

(c)

In any event, the costs of certain specific parts of the litigation should be paid by the Bank to the Claimants because the way in which the Bank conducted itself in relation to those parts (i) unnecessarily increased the Bank’s costs and (ii) caused the Claimants to incur unnecessary costs.

(d)

There have been a number of reserved costs orders. In respect of the Bank’s applications dated 22 July and 9 August 2005, the Claimants seek their costs.

(e)

The Court is invited to express an opinion as to the Bank’s use of 3 counsel for the trial pursuant to para 8.7 of the costs practice direction.”

The most substantial part of the claims being brought by the Claimants against the Bank as pleaded up to the amendments which I have just described was the claim for an account by the Bank, under Swiss law, of the Bank’s dealings with the estate of AB over the period from February 1986 until June 2000. The grounds of claim for an account were set out in paragraph 317 of the particulars of claim, and the relief sought in paragraph 323 of the points of claim before its final amendment. At paragraph 317.1 those points of claim alleged a failure by the Bank to give access to the Claimants to documents relating to its dealings with the estate of AB contrary to Swiss law and, at paragraph 317.2, “to provide all such information from the persons having the relevant knowledge, and documents as would enable the Claimants to have a clear view of the said accounts and assets throughout the period of their management and administration or custody by the Bank.” At paragraph 317.3 it was alleged that the Bank had failed “to render a comprehensive and clear account of all its dealings with the said account and assets. In particular without prejudice to the generality of this complaint, the Bank has failed to provide all information and documents to explain the following.” There then followed a series of sub-paragraphs (a) to (x) in which sub-paragraphs are pleaded the circumstances in which, and the matters in respect of which, it was pleaded that such an account should be given. The final amendments removed the first paragraph of paragraph of 317 which alleged the Bank’s continuing failure to account and substituted the following:-

“At the commencement of these proceedings, in breach of the Banks account obligations under Swiss and/or Liechtenstein law (as particularised in the expert reports served on behalf of the Claimants in this claim) documents and information to which the Claimants were entitled have not been provided. In particular in relation to the following matters.”

Thereafter the final amendments struck out the first paragraph at sub-paragraph (a) of paragraph 317.1 leaving sub-paragraphs (b) and (c), struck out paragraph 317.2 completely and struck out 8 of the sub-paragraphs of paragraph 317.3 entirely. 4 further sub-paragraphs of paragraph 317.3 were substantially reduced in scope. The entirety of the claim for an account at paragraph 323 was struck out by the final amendments.

It follows that in consequence of the amendments the surviving allegations in paragraph 317 could only be treated as remaining on the pleading in support of an argument as to costs on the basis that the original claim for an account was justified and there remained matters justifying an order for an account at the commencement of proceeding which the Bank subsequently met by disclosure before the hearing actually started.

However in the course of the hearing no attempt was made by evidence or submission to justify the remaining allegations in paragraph 317. They remained denied by the Bank and the burden was plainly on the Claimants to establish them. Accordingly they must be treated as having been discarded. It follows that the Claimants must be treated as having failed to establish that they were justified in bringing a claim for an account of the Bank’s dealing with the estate of AB at any stage in the history of this case.

That there never has been any basis for the claim for an account is now apparent from the following matters: before February 1986 the Bank had no connection with the Al Abood family. When AB wished to make appropriate dispositions of his estate in anticipation of his death he was introduced to the Bank by Mr Tayeb. The Bank’s instructions form AB in February 1986 were to set up the Shake Trust and to act as a conduit pipe through which AB’s assets held on the estates’ behalf by the two banks, BIFS and BNP, should pass, via the Body account, to the Shake Trust and, later, after the death of AB on the instructions of Mrs AB, to the Kamoud Trust established by her.

On the 25^th October 2005, on the application of the Bank, Mr Justice Lewison made an order the second preamble of which reads as follows:-

“AND UPON The Court directing pursuant to its case management powers under CPR 3.1(m) that the Claimant shall not, without amendment of the amended particulars of claim, be entitled to seek to demonstrate the existence or value of the contents of the Envelope or any assets which they believe to have existed by reference to any assets which Mr Al Abood may have had other than those held at BNP and BIFS identified in the documents referred to paragraphs 36, 45, 53, 63 and 64 of the amended particulars of claim.”

That paragraph reflected an application by the Bank for disclosure in respect of any assets not emanating from BIFS or BNP which the Claimants were suggesting had passed through the hands of the Bank and not been accounted for. The Claimants were accordingly limited to claiming an account in respect of the assets coming from BIFS and BNP unless they were subsequently able to amend their pleading to allege the receipt by the Bank of such further assets. No such amendment was ever attempted by the Claimants.

By the time of the commencement of the proceedings the Bank had destroyed, pursuant to its standard practice, the documents which recorded its receipt of the assets from BIFS and BNP and their onward passage to the two Trusts. However the Bank had, over the period of its administration provided Mrs AB with the accumulated “keep-mail” of the Shake Trust, that is copies of all correspondence that the Bank received over the period of its administration in respect of the Trust. From 1997 the Bank had provided account statements recording all transactions in investments held for the Shake Trust and, from 1992, quarterly reports on the Shake Trust’s investment performance. The Bank produced to Mrs AB some 2,500 debit and credit statements in respect of Shake Trust transactions, the Bank’s record cards, known as the PM cards, in respect of the Body account and the Shake Trust, all Bank correspondence, in particular AB’s correspondence with BIFS and BNP, the draft and actual byelaws of the Shake Trust, its constitutional documents and resolutions of the trustees.

In 1998 KPMG, on the instructions of Mrs AB, conducted and audit of the Shake Trust transactions in the course of which the Bank procured Mr Klonis to be available to KPMG. In 1999 KPMG furnished a report about the Shake Trust a copy of which was passed to the Bank, and later a report on an audit of the Kamoud Trust which has been withheld. The only queries which the KPMG report produced related to the foreign exchange transactions the subject matter of one of the claims, an investment in certain Venezuelan bonds, originally the subject matter of the same claim but which turned out to have been a profitable investment, and the failure to account for a sum French francs passed by BNP to the Bank amounting in sterling terms to some £15,000.

However the most striking event in the development of the claim for an account was the disclosure in March 2005 by Mrs AB of all the documents relating to the Body account recording the receipt from BIFS and BNP of the assets of AB and their distribution to the Shake Trust and Kamoud Trust together with BIFS records of their transfer of the estate’s assets to the Bank. The documents had been provided to her in 1986 and retained by her ever since, without informing the Bank of their existence. From these documents alone it was possible to trace the movement of the assets of the estate of AB from the two banks, BIFS and BNP, to the Body account at the Bank and then on to the Shake and Kamoud Trusts, or, if not, certainly with the assistance of the documents delivered by the Bank before the proceedings were started. From these documents, produced by Mrs AB, it was even possible to show that the Bank had accounted for the French franc receipt referred to above.

In the course of the hearing the Bank’s expert on Swiss law, Mr Neyroud, gave evidence the effect of which was that the method of accounting given by the Bank, that is the provision of bank statements and associated documents, complied with the requirements of Swiss law. He was not challenged on that aspect of his evidence. One of the more surprising aspects of the case was that it appeared that Mrs AB had not provided copies of the documents in her possession to KPMG for the purposes of their audit. Indeed she may not have provided those documents to some of the many advisers, both English and foreign, which she has employed in the course of the litigation and before it.

It follows from all of this that I must conclude that, the Bank has never, at any stage in the 14 years that the Bank has administered the assets of AB’s estate, been in default of any Swiss law accounting requirement, indeed, since its routine destruction of documents Mrs AB has been in a better position than the Bank to construct such an account.

9 of the 13 separate claims for damages were discarded by the Claimants in the course of the amendments without explanation. As I have said, of the 4 remaining claims which remained to be tried 2 were unarguable, both the others failed, one of which was de minimis.

Part 44.3 of the CPR provides the framework for the assessment of costs in litigation. Part 44.4 provides for the 2 bases of assessment, the standard basis and the indemnity basis. In the leading case of Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) & anr [2002] EWCA Civ 879 both the Lord Chief Justice and Lord Justice Waller in their judgments guide courts in awarding indemnity costs to be satisfied that there is present in the case “something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs.” It seems to me that the circumstances which I have thus far described are, by themselves, sufficient to justify such an order in this case. I will, however, somewhat briefly go on to deal with the further matters which, it is said by the Bank to justify an order for indemnity costs and the matters which the Claimants say operate to reduce any such order.

Before these proceedings were commenced Messrs Herbert Smith prepared a memorandum, apparently on the instructions of the Claimants, for submission to the Bank which was accompanied by a “schedule of documents/information requests of the same date”. The first item on that schedule under the heading “Action now required of the Bank” reads as follows:-

“The Chief Executive (or Head Office official whom he appoints) should carry out a full search of all possible sources within the Bank or otherwise under its control for relevant documents or other records (whether in electronic form or otherwise) which may assist us in this enquiry, whether contained in files relating strictly to the affairs of the late Mr Shaker Al Abood, the Shake Trust or the Body account or in any other files or locations as relevant material is likely to be found in the Bank’s internal files, its files relating to Primeway ATU and/or Dr Meier, and/or its files and records relating to accounts (whether current accounts, investment accounts or other accounts, controlled by Mr Tayeb, Mrs Tayeb, Mrs El Shamari and/or any other members of their extended families, Landglaze Ltd and/or other Landglaze companies and/or other companies such as Karat/Carat and Carmasud.”

Similar action is sought from the Bank under a number of the other scheduled matters.

It was apparent that this search for ammunition to use against, in particular, Mr Tayeb, was one of the driving forces, if not the driving force, to the prosecution of this litigation.

I have already drawn attention to the serious allegation made against the Bank in relation to the making of the Settlement Agreement. In my judgment I held that it was an allegation which ought never to have been made. In the memorandum of the 13^th October 2003 to which I have already referred at paragraph 7 and 8 the following passages appear:-

“7.

However, the Bank has dealt with the Former Customers' requests in a wholly inadequate manner which has been characterised by reluctance and partial and/or evasive responses over the past six years or so. As set out in more detail in Section C(2) below, the Bank has been slow to produce documents, has denied the existence of documents only to produce them later, and in some cases has still not provided relevant documents. In many instances, the Bank has referred queries (even when directed to the Bank's head office in London) back to the Bank's employees implicated in the very matters which are the subject of those queries, such as Messrs Klonis and Mr Philippe Robadin, a senior manager of the Bank's legal department in Geneva (see Section C(3) below).

8.

The dilatory, not to say obstructive, way in which the Bank has handled these queries from the Former Customers is inconsistent with its obligations described in Section C(1) below, and with key commitments made under the Banking Code (to which the Bank is, of course, a signatory), ….”

Similar allegations were made in the pre-final amendment points of claim at paragraph 318 and dropped without explanation. At paragraph 312.5 of those particulars of claim it is alleged that the failure to transfer 20% of the Shake Trust assets to Goldman Sachs was “dictated or affected by the Bank’s wish to retain the business for its own benefit…” and at paragraph 313 the Bank was alleged thereby to have “secured for itself a pecuniary advantage”. At paragraph 317.3(S)(ii) of the particulars of claim the Bank is accused of knowing concealment of references to certain accounts in its PM cards. These are simply examples of allegations in the pleading none of which have been pursued.

At paragraph 36 of their written submissions for the purposes of the costs issue, counsel for the Bank have set out a summary of the allegations of wrongdoing made by Mrs AB in her witness statements and in the course of her cross-examination. I accept that this is an accurate summary of what she has said. It reads as follows:-

“36.

In her witness statement and in the course of her evidence Mrs AI Abood continued to make reckless and entirely unsubstantiated allegations of dishonesty against the Bank and its employees made by Mrs AI Abood including the following:

(1)

Mr Klonis was said to have committed “a deceit from day one” (S1/8/32.14-25). He was also said to have to have done something “wrong” in Boston in February 1986 (S1/8/95.14-98.21)

(2)

Mr Klonis and Mr Tayeb were said to have stolen US$30 million from Mr AI Abood’s accounts in Luxembourg (S2/10/24). Mrs AI Abood said: “1 certainly believe that the Tayeb/El Shamari stole from us - 30 million probably is too little. That Klonis helped them? Certainly he did, that / am sure of now.” (S2/10/25). When it was pointed out that she had accepted in the Landglaze proceedings that she had no evidence that Mr Klonis had cheated her out of any money (S2/10/2526), Mrs AI Abood still maintained that she now thought Mr Klonis had helped Mr Tayeb and Mrs El Shamari steal $30 million from her husband's estate: S2/10/27-28.

(3)

The Bank had committed or been involved in money-laundering (Sl/8/47.13, 89.15, 114.24).

(4)

Mr Klonis was said to have sought to procure a secret commission from Mrs Al Abood at the expense of her husband's estate, and to persuade her to break the Shake Trust and remove its assets from the Bank and employ him instead as a private banker.

(5)

It was a theme of Mrs AI Abood's evidence that the Bank misled her about the information that was available; that the Bank deliberately destroyed documents; and that the Bank wrongly favoured Mr Tayeb and assisted him at the expense of herself and her son.

37.

The unfairness of the allegations against Mr Klonis was compounded by the fact that none of them was put to him during the 4-day examination which took place in Geneva in May and June 2005.”

The correspondence contains several examples of Mrs AB alleging serious fraud against the Bank a typical example being a letter of the 19^th February 2004 addressed to Mr Daniels the Chief Executive of the Bank in which she says “it was obvious that during the month of February 1986 Mr Tayeb and Mrs El Shamari who defrauded us were helped by an employee or employees of your Bank to eliminate us from our estate.”

The process of making unsubstantiated allegations of misconduct against the Bank was one in which Messrs Herbert Smith were willing to join. In March 2006 shortly before the commencement of the hearing the Bank made one of its three offers to settle the proceedings on terms that they would be discontinued upon a payment by the Claimants of a contribution to the Bank’s costs. In a letter marked “without prejudice save as to costs” Herbert Smith were prepared to write this :-

“In essence our client’s position is that the Bank has allowed itself to be used as a cloak for the hiding of assets belonging to the late Shaker Al Abood and his successors. Mrs Al Abood believes that following her husband’s death income earned or to be earned by her husband from his business dealings during his lifetime were diverted by third parties and rendered untraceable. Further Mrs Al Abood believes that the companies established to receive such income, and the contracts themselves, were used by third parties for their illicit purposes involving money laundering and illegal arms trafficking. These are very serious concerns and the Bank behaves as if it is unaware of them.

The history of the Bank’s cooperation with Mr Al Abood’s heirs has been lamentable and has been characterised by the following:… ”

The letter then continues to allege that the Bank is guilty of deliberate obstructiveness, a refusal to make proper enquiries into matters raised, time wasting, narrow self interest, acting contrary to the interests of the beneficiaries of the Shake Trust and obstruction of Mrs AB’s efforts to discover the truth about her late husband’s affairs. Acting as a cloak for the hiding of assets of the estate of AB was never pleaded. The allegations of deliberate obstructiveness, time wasting and narrow self interest in relation to the removal of the Settlor Rights of the Shake Trust were pleaded but all dropped by amendment without explanation within a few days. The allegation of refusal to make proper enquiries related to the alleged failure to account for a sum of French francs to which I have already referred. By the time this letter was written it was known that Mrs AB was in possession of documents which showed that this sum had been received and properly accounted for by the Bank. The allegation of acting contrary to the interests of the beneficiaries related to the Bank’s refusal to join in the Landglaze action against Mr Tayeb. This allegation was largely dropped and in its reduced form ultimately failed. I have already referred to an extract from Messrs Herbert Smith’s memorandum of the 13^th October 2003.

In my judgment on the 4 surviving claims it was unnecessary to refer to the evidence of Mrs AB because her evidence played no part in the resolution of those claims. In the course of the proceedings, however, she was extensively cross-examined on her witness statements. I have to say that I found her evidence extremely unsatisfactory. She was also prepared to pursue simultaneously mutually inconsistent claims involving serious allegations. This is well illustrated by the example of the controversy surrounding the shares in a company Carmasud incorporated in Panama. Mrs AB was apparently convinced that this company had been used as a vehicle by which her husband had received commissions related to various dealings by him in his business. She was concerned to recover these shares in what she believed to be a very valuable company. By the time of the commencement of the proceedings her allegation was that Mr Klonis had asked about this company at a meeting in Rome and, at his request, Mrs AB had written a letter to BIFS asking them to transfer the Carmasud bearer shares to the Bank. It was this allegation which was the basis for a claim that the Bank had failed to account for its dealings with these shares; see paragraph 317.3(l) of the pre-final amendment of the points of claim where it formed one of the allegations supporting the claim for an account.

Maitre Hermant was a French lawyer instructed by Mrs AB to deal with the French estate of her husband and subsequently with Carmasud. In March 1987 he sent the Carmasud bearer shares to another company Fidinam who were responsible for the administration of Carmasud. In her witness statement in these proceedings Mrs AB alleged that either BIFS or Mr Klonis had transferred the Carmasud shares to Mr Hermant. By contrast in proceedings brought by Mrs AB in France against Mr Hermant she alleged that she had sent him the original shares of Carmasud an allegation which Mr Hermant admitted. When confronted with this contrast in positions she gave a series of confused and mutually inconsistent explanations.

Mrs AB was prepared to tell whichever story she considered suited he the most at any particular time. Thus her claim against the Bank for an account of its dealings with the Carmasud shares would have been false if it was the case that she had held those shares and disposed of them herself. She was therefore forced to deny the case she had previously advanced in the French court and come up with an entirely new case involving the Bank and Mr Klonis in order to implicate them in the affair and justify her claims.

Mrs AB has also seen fit to make serious allegations of dishonesty against Mr Klonis to the Swiss prosecuting authorities and to appeal those authorities refusal to take action. The matter has only recently been put to rest. Mr Klonis made himself available for questioning by counsel instructed by the Claimants over 4 days in Geneva. The matters in respect of which Mrs AB saw fit to report him to the Swiss prosecuting authorities were not put to him in the course of that examination.

I turn to consider the Claimants’ submissions on costs their summary of which I have set out above.

I have substantially dealt with (a) already. I would add only this: in any reasonably complicated litigation involving substantial documentary evidence, let alone a case concerning a bank’s relationship with a customer extending over 14 years which includes the bank’s administration of a substantial trust fund, it is likely that the initial disclosure of documents by the bank will not encompass all documents in its possession which have any relevance to the issues. In the present case there were a number of occasions on which the Bank produced such documents in the course of proceedings leading up to the commencement of the hearing and, as I recollect, some after the hearing had commenced. In my view there was no indication that when this happened, it happened as a result of any deliberate action by the Bank but simply as a result of coincidental discovery or further, and more thorough, searches. The issue sought to be made by the Claimants from such disclosure in this case was, in my view, unjustified. It is a striking fact, as pointed out by Mr Miles, that no new fact or event of significance to the pleaded issues in the case has emerged as a result of the proceedings and the various types of disclosure that those proceedings have involved.

I turn to heading (b). It is the Claimants’ submission that had the Bank not finally withdrawn from its policy of active cooperation with the Claimants enquiries, evidenced by the Bank’s letter of 2^nd April 2004, but had continued with, and expanded, the ambit of the Veal enquiry, as urged upon it by the Claimants, this litigation would never have started. In examining this contention I have again been taken through the correspondence between the Claimants and their solicitors on the one hand and the Bank and its solicitors on the other. I have already drawn attention to the propensity of Mrs AB, in correspondence, and in her evidence to make allegations of serious misconduct against the Bank, its officers, and employees unsupported by any evidence, in many cases not pleaded or if pleaded in respect of which the allegations have been dropped without explanation. The correspondence leading up to the 2^nd April 2004 letter is peppered with such allegations by Mrs AB or on her behalf. On the 1^st April Messrs Herbert Smith for the Claimants wrote a letter requiring the Bank to be “aware that litigation in this matter is now in reasonable contemplation”. In my view the pre-action correspondence shows a campaign by the Claimants to attempt to bully the Bank into acting as some sort of an enquiry agent on behalf of Mrs AB to produce material in support of her feud with Mr Tayeb and his sister. This involved requests for information and documents extending way beyond what the pleaded issues required or justified. So far from the Bank being in any way responsible for the commencement of the proceedings as a result of withdrawing from active cooperation in the Claimants’ enquiries, I was and remain surprised the at the Bank was prepared to offer that active cooperation for as long as it did, in the light of the unjustified harassment to which it and its officers and employees were subjected.

As to (c) Mr Parfitt’s submissions on costs for the Claimants drew my attention to a number of matters in which he said that the Bank’s conduct of the proceedings led to an unreasonable increase in the Claimants’ costs. Through him complaint was made about the manner in which documents were provided by the Bank to the Claimants in the course of disclosure e.g. they were not produced in chronological or any coherent order. He criticised the way the Bank withheld documents on the basis of Swiss Banking Secrecy Laws and the manner in which the Bank operated the enquiry to establish whether withholding those documents was justified. He criticised the manner in which transactional documentation was produced, redaction of the contents of the “PM” cards and the Bank’s search for missing such cards. I propose to say nothing on these issues but leave the Claimants’ to the costs judge. If the costs judge is satisfied that the Bank’s conduct of the litigation led in one or more cases to an unjustified increase in the Claimants’ costs it is open to him to take the appropriate action even though the overall order is for the payment of the Bank’s costs on an indemnity basis.

As to (d) it is accepted by the Claimants that all the reserved costs orders save for that initiated by the Bank’s application on the 22^nd July 2005 be costs in the case and that will be the order. As to the Bank’s application of the 22^nd July 2005 this came to be dealt with by Mr Justice Lewison on the 24^th and 25^th October 2005. An examination of the order made as a result of that hearing and a schedule of the orders sought and obtained demonstrates, in my view, that on balance the Bank was successful. The Bank seeks only an order for costs in the case and I will make that order.

In the result the order for costs will be that the Claimants pay the Bank’s costs of the proceedings on an indemnity basis.