UK (Aid) Ltd v Mitchell & Ors

These are applications by the claimant for the committal of the first and third defendants for contempt of court. It is alleged that they have acted in breach of worldwide freezing and disclosure orders made against them by Warren J on 24 July 2006. The orders were continued without opposition at subsequent hearings. Many of the alleged breaches are admitted by the first defendant.

The claimant, UK (Aid) Ltd (the company), is in insolvent liquidation. Its principal creditors are companies in the GlaxoSmithKline group which are judgment creditors for over £5.9 million for pharmaceutical products supplied between September 2001 and May 2002. The first and second defendants, Martin Mitchell and Leslie Silverman, were the sole directors and shareholders of the company. The third defendant, Steven Silverman, is the 39-year-old son of Mr Silverman. Mr Leslie Silverman is a patient, incapable of giving instructions. Although it is alleged that he too acted in breach of the freezing order, committal proceedings are not presently being pursued against him.

In the present action, the company claims in respect of misappropriations of not less than £5.5 million. I heard an application for summary judgment against Mr Mitchell and Leslie Silverman and in a judgment dated 8 May 2007 ([2007] EWHC 1052 (Ch)) I held that their defences were incredible and that summary judgment should be entered against them, with an order for an interim payment of £5.5 million. In the course of his oral evidence on the present applications Mr Mitchell has admitted that he knew, long before his defence was served, that it was false.

While the principal claims against Mr Mitchell and Steven Silverman were based on breach of duty as directors of the company, the principal claim against Steven Silverman is for dishonestly assisting the directors in their breach of duty. The company, acting by its liquidators, have applied for summary judgment against Steven Silverman, It was listed to be heard with the present applications, but the company, in my view rightly, applied for it to be adjourned rather than simultaneously be heard with the application to commit Steven Silverman.

The essence of the company’s case against Mr Mitchell and Leslie Silverman in the proceedings, which I have held to be established, is that while the company was running up a large debt to GSK and was selling the products supplied by GSK, Mr Mitchell and Leslie Silverman caused the company to pay the proceeds of sale into an account in Andorra in the name of a company incorporated in the British Virgin Islands and controlled by them. By a series of transfers through accounts in Gibraltar in the names of other offshore companies, some of the funds were invested in properties in England and Tenerife and other amounts were transferred to accounts in Switzerland. Substantial sums were also spent in the purchase of luxury cars and other goods and in other significant personal expenditure. At present the liquidators can identify assets, both property and cash, with a value of the order of £25 million as derived from these misappropriations.

For the purpose of the present applications, it is necessary to outline the routes of these payments. Between October 2001 and November 2002 (less than a month before the company ceased trading) over £5 million was paid directly from the company to an account in the name of Lake Charles Inc, a BVI-incorporated company, with Banc Agricol Commercial D’Andorra (Andbanc) in Andorra. Further payments totalling at least US$394,500 and £211,592 were diverted into this account from debtors of the company.

Payments were made out of the LCI accounts for the purchase of a Bentley car and other vehicles for Leslie Silverman, his daughter and Mr Mitchell and for the purchase of watches by Leslie Silverman. Payments totalling US$530,000 were made in equal amounts to personal accounts in the names of Mr Mitchell and Leslie Silverman with Credit Suisse in Geneva. Payments totalling $78,000, €75,000 and £50,000 were made to personal accounts for the three defendants at Andbanc and used to fund credit card expenditure by them. Payments totalling £780,000 and €70,000 were made for the purchase of land and villas in Tenerife for the benefit of Leslie Silverman. Sums totalling £2,150,000 were transferred to BDO Fidecs Management Limited (BDO Fidecs), a trust company in Gibraltar, for the accounts of two further companies incorporated in the British Virgin Islands, Heaton Moor Limited (Heaton Moor) and Deerfield Services Limited (Deerfield), both under the control of Mr Mitchell and Leslie Silverman. Those funds were then transferred to England for the purchase, re-development and sale of properties by Madison UK Limited (MUK) until April 2005 when it was replaced by Madison Properties UK Limited (MPUK). The Madison companies were English companies, owned and controlled by all three defendants. Steven Silverman worked full-time for these companies, finding properties for purchase, overseeing building works to them and dealing with their sale. Major decisions were made by Mr Mitchell and Leslie Silverman.

During 2003 transfers totalling £1,366,900 and $258,404 were made from LCI’s account to another account at Andbanc in the name of Bawdwin Investing Inc (Bawdwin), another BVI-incorporated company. Bawdwin then assumed LCI’s role in providing to MPUK funds, via BDO Fidecs, for property acquisitions and development in England.

All these various entities, except of course for Andbanc and BDO Fidecs, were at all times in the effective ownership and/or control of Mr Mitchell and Leslie Silverman with, in the case of the Madison companies, Steven Silverman. The ownership of Heaton Moor and Deerfield is not entirely clear but there is no reason to believe that it is beneficially owned by anyone other than one or more of Mr Mitchell, Leslie Silverman and their close families. The allegations made by Mr Mitchell that all except the Madison companies were owned and controlled by a Mr Jaroslav Farber and other alleged Ukrainian business associates of Leslie Silverman, and that the payments to LCI were either commissions due to Mr Farber and others or the purchase price of goods from them, are now acknowledged by Mr Mitchell to be untrue. He said in his oral evidence that from an early stage in the liquidation he had known the true position. He sought to disguise the true facts in his dealings with the liquidators and he put forward a deliberately false defence and written evidence in these proceedings.

Virtually none of the information summarised above has come from the defendants. A significant amount of information was gathered by the liquidators before the commencement of these proceedings, relating in particular to the payments into and out of LCI’s account with Andbanc. To do so, the liquidators had to apply to the court in the BVI to restore LCI to the register of companies and to wind it up and, by means of the authority of LCI’s liquidator, to obtain information from Andbanc. In this way, the liquidators discovered Heaton Moor, Deerfield, MUK (but not MPUK), the personal accounts with Credit Suisse, and part of the role of BDO Fidecs.

Little was known about Bawdwin and nothing was known about how the funds transferred to it from LCI had been used. That was the position when I heard the summary judgment application. The information was obtained only after Andbanc acted on letters of authority provided by the defendants. It is now known that funds were transferred from Bawdwin, via BDO Fidecs for the accounts of Heaton Moor and Deerfield, to MPUK for property acquisitions and development in England. Further information was obtained both from the files which the solicitors who acted on the purchase and sale of properties provided to the liquidators and from documents provided by BDO Fidecs pursuant to an order of the Gibraltar court.

It has been a striking feature of these proceedings that the defendants have not provided information unless and until they know that the liquidators have already obtained the substance of it.

With that necessary background, I will turn first to the terms of the freezing order. For present purposes, it may be analysed as having three main parts. First, paragraph 5 restrained each defendant from dealing with his worldwide assets up to a value of £6,750,000. Paragraph 14 of the order provided:

“A Respondent who is an individual who is ordered not to do something must not do it himself or in any other way. He must not do it through others on his behalf or on his instructions or with his encouragement.”

Paragraph 6 defines assets for these purposes as follows:

“Paragraph 5 applies to all the Respondent’s assets whether or not they are in his own name and whether they are solely or jointly owned. For the purpose of this order the Respondent’s assets include any asset which he has the power, directly or indirectly, to dispose of or deal with as if it were his own. The Respondent is to be regarded as having such power if a third party holds or controls the asset in accordance with his direct or indirect instructions.”

Paragraph 7 sets out, without prejudice to the generality of the injunction, assets which from their investigations the liquidators knew or suspected belonged to or were controlled by the defendants. They included the personal accounts of Mr Mitchell and Leslie Silverman with Credit Suisse, of which precise details were stated, and the bank accounts of LCI, Bawdwin, Deerfield and MUK.

Secondly, the order required the defendants to provide and verify information as to their assets. Paragraph 9(1) required each defendant within 24 hours of service of the order on him and to the best of his ability to inform the company’s solicitors of all his assets worldwide whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets. By paragraph 9(5) each defendant was required within 7 working days of service of the order to confirm this information in a sworn affidavit, exhibiting all relevant documentation that was within his possession, custody or power, and to serve such affidavit and exhibits on the company’s solicitors.

Thirdly, the order required the defendants to provide information to assist the liquidators in tracing the funds which had been paid or diverted to LCI’s account at Andbanc. Paragraph 9(2) – (4) required each defendant to the best of his ability:

“(2)

Within 3 working days of service of this order inform the Applicant’s solicitors of the current value, nature and location of any asset (whether in England or Wales or elsewhere) constituted by or derived from the whole or part of any monies or assets which have been transferred or diverted from the Company to Lake Charles Inc (British Virgin Islands International Business Company number 449814) or to any other entity or account under direct or indirect control of the Respondents or any of them, or any asset with which such an asset has been mixed (“the Traceable Assets).

(3)

To the extent that the information referred to in sub-paragraph (2) above is not within the Respondent’s knowledge, the Respondent must within 3 working days of service of this order instead inform the Applicant’s solicitors of the identities, addresses and any other contact details known to the Respondent of any person (including a Respondent) who is known or suspected or might reasonably be expected to be in possession of any of the information referred to in sub-paragraph (2) above, briefly stating what that relevant information is and the reasons why he or she is known, suspected or expected (as the case may be) to have such information.

(4)

Insofar as the Respondent has transferred any of the Traceable Assets to any other person or entity, each Respondent must within 3 working days of service of this order inform the Applicant’s solicitors to the best of his knowledge or belief, of:

(a)

the purpose of the transfer;

(b)

the identity of the transferee, stating in the case of a company, where it was incorporated, where its registered office is and which individuals constitute its executive management, and, in the case of an individual, stating where that individual currently resides or works or can otherwise be found.;

(c)

the use and/or application of the monies/assets transferred; and

(d)

the assets (if any) that were acquired in whole or in part by the money transferred.”

By its first application to commit Mr Mitchell, dated 29 August 2006, the company alleged the following breaches of the freezing order:

1.

On 26 July 2006, the First Defendant served the Claimant’s solicitors with a document purporting to be a statement of assets. This document fails on its face to comply with paragraph 9(1) of the Order in that: (a) it fails to list all of the assets solely or jointly owned by the First Defendant (including all assets over which the First Defendant has the power, directly or indirectly, to dispose of or deal with as if it were his own); (b) it fails to state the value, location and details of his assets.

2.

The First Defendant has failed to comply with paragraphs 9(2)-(4) of the Order, having provided no information in this regard.

3.

The First Defendant has failed to comply with paragraph 9(5), having failed to provide any Affidavit or supporting documentation.

No significant legal issues arise on this, or the other, committal applications. All findings adverse to the respondents are made by me to the criminal standard.

The freezing order, together with the evidence in support of the application to Warren J, was personally served on each of Mr Mitchell and Leslie Silverman between 9 and 10 pm on 24 July 2006. The process server spoke by telephone to Steven Silverman on the same evening and either then or in a call the next day they arranged to meet at 4 pm on 25 July 2006. Personal service was then effected on him.

By agreement, the time for providing information concerning the defendants’ assets was extended to 2 pm on 26 July. At 5.48 pm, in purported compliance with the order, Mr Mitchell provided a half-page asset statement covering all the defendants. As regards Mr Mitchell’s assets, the following disclosure was made:

“5 Halley Road is in trust of which he is not a beneficiary.

Credit Suisse – nil

Car – value £20,000. Jointly owned.”

As Mr Mitchell now admits, that disclosure was both wrong in what it did state and hopelessly inadequate in what it did not state. As later became apparent, Mr Mitchell is a beneficiary of the trust which holds 5 Halley Road, where he and his family live, and he is entitled to request the trustee to transfer the property back to him. He had substantial deposits with Credit Suisse. As to the car, he did not disclose the Chrysler Voyager brought in 2002 with funds from the LCI account and which he would subsequently contend was in fact held for Mr Yaroslav Farber. He failed to mention Bawdwin or his 40 per cent shareholding in MPUK and he failed to mention the bank accounts of MPUK and Bawdwin of which he was a signatory. He failed also to mention the existence of Black Vulture Limited, a company incorporated in the Bahamas in June 2006 with an account with Credit Suisse in Liechtenstein on which he and other defendants were signatories. The assets of Black Vulture were held on trust for the defendants.

The defendants had instructed Bates Wells & Braithwaite (BWB) on 25 July 2006 and had their first meeting with them on 28 July 2006. It is notable that at this meeting, as Mr Mitchell stated in his third affidavit, BWB specifically raised with him the apparent inadequacy of his statement of assets and advised that, if he was in any doubt as to whether an asset was an asset as defined in the order, he should bring it to their attention.

Neither Mr Mitchell nor Leslie Silverman provided any information as regards the funds transferred out of the company nor did they provide affidavits verifying their personal assets.

Leslie Silverman collapsed at the meeting with BWB and was taken to hospital. While it is not clear nor need it be determined on this application whether his failure to provide information, other than an affidavit in November 2006, was due to ill-health, it is accepted that from December 2006 at the latest he has been unable to comply with his disclosure obligations.

Mr Mitchell’s failure to provide any further information or any affidavits until much later was explained by him and his solicitors as due to his own ill-health. The committal application dated 29 August 2006 was adjourned to 1 November 2006, when Lawrence Collins J ordered Mr Mitchell to swear an affidavit in compliance with the freezing order and to provide further information as to his instructions. In his affidavit sworn on 8 November 2006 he stated that he had collapsed with chest pains on 29 July 2006 and had been treated since then for suspected angina. He stated that his doctor had advised him to avoid all stressful activity and he suggested that in making the affidavit he was acting against the advice of his doctor.

It is now apparent that this was a disingenuous explanation for his earlier failure to provide information and affidavits in compliance with the freezing order. In September 2006 two long letters were sent to GSK, containing considerable detail of the dealings between GSK and the company and putting forward alleged complaints of GSK’s conduct. Although apparently sent by Steven Silverman and signed by him, they were in fact drafted by Mr Mitchell, as he has admitted in his evidence. There can in my view be no doubt that if Mr Mitchell was able to draft those letters, he was able to comply with his obligations under the freezing order and I am satisfied that he arranged for Steven Silverman to sign them in order to disguise that fact.

In his first affidavit, and in a second affidavit sworn on 20 November 2006, Mr Mitchell purported to comply fully with the disclosure requirements of the freezing order. Had he done so, it would have purged his earlier contempts in that respect. As he subsequently accepted, but only following discovery by the liquidators of further material, these affidavits were far from a full compliance with the order and were false in important respects. First, he continued to deny that he was a beneficiary of the trust holding 5 Halley Road, accepting only that he and his wife were allowed to live in the house during their lifetime. The trust was established in Gibraltar and administered by BDO Fidecs. He gave an elaborate explanation for the trust, that the property was purchased with funds derived from his mother and it was her requirement that the house be held on trust for Mr Mitchell’s children. He accepted in oral evidence at this hearing that the true reason for the creation of the trust was to put the house beyond the reach of potential creditors, particularly any resulting from a collapse of the company. Leslie Silverman established a similar trust to hold his house and another property at the same time and, according to Mr Mitchell’s evidence, he did so for the same reason.

He repeated that there was a zero balance on his Credit Suisse account, which by then was almost true, but he failed to make any mention of Black Vulture’s account with Credit Suisse in Liechtenstein which by then had a credit balance of over £1 million. He claimed that his account with Credit Suisse was set up for receiving commission payments which he understood would be paid for the benefit of Mr Farber or his associates. He knew this to be untrue. He falsely claimed not to know what had become of the monies transferred to his Credit Suisse account.

Thirdly, he purported to comply with the order as regards information concerning the company’s traceable assets. He stated that:

“it was at all times and remains my understanding and belief that LCI was owned by Mr Yaroslav Farber.”

and that the transfers from the company to LCI:

“to the best of my knowledge and belief …were commission payments made in the ordinary course of business between the Company and LCI.”

These were deliberately false statements. As he admitted in his oral evidence, he had known since the early stages of the liquidation that neither LCI nor the transfers to it were anything to do with a Mr Farber, but were payments for the ultimate benefit of himself and the other defendants. He continues to maintain that while the company was in operation he understood from what he was told by Leslie Silverman that the payments were commission and that LCI was owned by Mr Farber. There is no evidence to corroborate this account and I do not believe it. I am entirely satisfied that it is untrue.

Fourthly, he stated that all transfers out of LCI were made, as he understood it, on the instructions of Mr Farber, that he had only limited information as to the destination or purpose of funds paid out by LCI and that he had no control over any of the entities to which transfers had been made. He was, he said, unable to provide any information as to the current value, nature and location of any of the assets derived from the transfers. As Mr Mitchell now accepts, all these statements were substantially and deliberately untrue. In particular, he falsely claimed that he did not know why payments totalling £995,000 had been made to BDO Fidecs for the account of Heaton Moor. He falsely claimed that he could provide no information in respect of transfers of £205,000 from LCI to MUK and that he could not comment on the properties developed by MUK or MPUK, other than the three properties which were then still held by MPUK. As regards Bawdwin, he stated:

“I believe that this company was set up by LCI to invest in property. I cannot recall why these transfers were made, and I am unable to provide any information as to the current value, nature and location of the funds transferred. I have no legal or beneficial interest in Bawdwin.”

This was entirely untrue.

He denied all knowledge of a payment of £100,000 on 13 January 2003 from LCI to BDO Fidecs or its subsequent destination. Only in his fifth affidavit did he disclose that it was used to reduce his mortgage on 5 Halley Road. His explanation that at the time Leslie Silverman told him that it was a payment from his Ukrainian partners, like all his other evidence as to Mr Farber and his associates, is untrue.

The company’s solicitors responded to this affidavit with a detailed letter dated 10 November 2006, pointing out in 16 numbered paragraphs its apparent shortcomings.

Mr Mitchell swore a second affidavit on 20 November 2006, in which he dealt separately with each of the points raised by the company’s solicitors. Again, far from purging his already grave contempts of court, Mr Mitchell maintained in some detail the position adopted in his first affidavit. As regards the transfer from LCI to BDO Fidecs, including those for Heaton Moor, he repeated that he did not know why any of them were made and added:

“For the avoidance of doubt, I do not know the present location, nature or value of the assets transferred pursuant to the ten transfers. I do not know why the Claimant’s solicitors assume that the assets may still be “in BDO trust(s)” or why they consider that I would have access to information in this regard. I have no knowledge of the entities to which these payments were made…”

He denied knowledge of the purpose of the payments made from his Credit Suisse account and stated that he was unable to say more as to what had become of the $265,000 transferred into it. He said that he had already stated everything that he was able to tell about the account.

Mr Mitchell purported to give some information about MUK and the transfers to it. He said that he understood from Leslie Silverstone that monies were transferred to it to provide start-up capital, which was used to develop the company and finance its day-to-day activity, which included property maintenance for housing associations. To the best of his knowledge, no properties were purchased from this capital. In fact, as Mr Mitchell demonstrates in his oral evidence, he was very familiar with all the activities of MUK and MPUK and he knew that transfers totalling over £1.8 million had been used to purchase nine properties.

As to Bawdwin, Mr Mitchell repeated that he was unable to provide information relating to any payments from Bawdwin’s accounts. Leslie Silverman had asked him to sign instructions for the transfer, but their purpose was never explained. He did not know the current nature, location or value of any amounts transferred to Bawdwin. In fact, as Mr Mitchell now accepts, he knew exactly what had been done with the transfers totalling over £1.3 million made from Bawdwin’s account.

As in his first affidavit, there were other untruths in this affidavit dealing with payments which were relatively smaller and which it is unnecessary to set out here.

Mr Mitchell concluded by stating:

“I have complied fully with my obligations under the orders of 24 July, 1 November and 14 November 2006 to the best of my ability. I have provided information to the best of my knowledge and belief, even in cases where I am advised that such information goes beyond the scope of the information I am obliged to disclose. I have signed six letters of authorities authorising third parties to provide documents and information to the Claimant’s solicitors in order to assist them in tracing assets allegedly misappropriated from UK (Aid) Limited.”

Apart from the last sentence, nothing could be further from the truth.

In response to the company’s application for summary judgment, Mr Mitchell signed a witness statement on 6 March 2007, which perpetuated the account already given in his affidavits.

The committal application dated 29 August 2006 was listed for an effective hearing before the Chancellor on 8 March 2007. On the evening before of 7 March, the liquidators received information from BDO Fidecs that on 26 July 2006, the day after service of the freezing order on Mr Mitchell, he had instructed BDO Fidecs to transfer £150,000 to each of the Credit Suisse accounts of himself and Leslie Silverman. In the light of this information, the committal application was adjourned and the Chancellor made orders for further disclosure by Mr Mitchell.

Pursuant to part of the Chancellor’s order, Mr Mitchell provided a letter dated 9 March 2007 to the company’s solicitors. In it he denied giving instructions to BDO Fidecs to make transfers but he said that, from enquiries he and his solicitors had made, he was able to provide further information. The transfers were made from an account with BDO Fidecs held to the order of Deerfield. They were made to his and Leslie Silverman’s accounts with Credit Suisse. The sum of £150,000 was subsequently transferred out of his account to an account in the name of Black Vulture Limited with Credit Suisse. This was the first time that Black Vulture had been mentioned. He did not know what had become of the £150,000 transferred to Leslie Silverman’s account with Credit Suisse.

On 12 March 2007 the company issued a second committal application against Mr Mitchell, directed to the apparent breaches of the freezing order involved in these transfers in July 2006.

The application notice alleged the following facts:

“11.

On 25 July 2006, the First Defendant had in fact (either himself or through others acting on his behalf or on his instructions or with his encouragement) given instructions to Fidecs Management Ltd (“Fidecs”) (a) to transfer £150,000 to the Second Defendant's Credit Suisse account (identified in paragraph 7(d) of the Order); and (b) to transfer £150,000 to the First Defendant's Credit Suisse account (identified in paragraph 7(e) of the Order).

12.

The First Defendant has told the Claimant’s solicitors that he is the signatory to the First Defendant’s Credit Suisse account and that the £150,000 paid to the First Defendant’s Credit Suisse account was subsequently paid out into another Credit Suisse account, number 0251-203383-2, in the name of Black Vulture Limited.

13.

Accordingly:

(1)

as at the time of service of the Order on the First Defendant, the First Defendant's assets for the purposes of the Order included the sum of £300,000 held at Fidecs (the First Defendant having had the power to dispose of or deal with such assets as if they were his own);

(2)

after the 25 July 2006 instructions had been effected by Fidecs, the Defendant’s assets included the sum of £150,000 standing to the credit of his Credit Suisse account, until such sum was subsequently paid out of his Credit Suisse account.”

The allegations of contempt of court are stated as follows:

“In the premises, the First Defendant is in contempt of Court in the following respects:

(1)

(i) The First Defendant gave the instructions to Fidecs on 25 July 2006 referred to paragraph 11 above, after having been personally served with the Order;

(ii)

alternatively, the instructions referred to in paragraph 11 above were given to Fidecs by some other person or entity acting on the First Defendant's behalf and/or with his instructions and/or with his encouragement, after the First Defendant had been personally served with the Order;

such that the First Defendant has:

(a)

dealt with his assets (namely the £300,000 held at Fidecs), contrary to paragraph 5(b) of the Order;

(b)

disposed of, and/or diminished the value of, his assets (namely the £300,000 held at Fidecs) in causing £150,000 of those assets to be transferred to the Second Defendant's Credit Suisse account, contrary to paragraph 5(b) of the Order.

(2)

In subsequently causing £150,000 to be transferred out of the First Defendant’s Credit Suisse account, the First Defendant has further disposed of, dealt with and/or diminished the value of his assets (any monies in the First Defendant’s Credit Suisse account having been specifically identified, by paragraph 7(e) of the Order, as being assets within its scope), contrary to paragraph 5(b) of the Order.

(3)

In failing to disclose (i) that his assets (at the time of the service of the Order upon the First Defendant) included the £300,000 at Fidecs; and/or (ii) that his assets (after the 25 July 2006 instructions were given effect) included the £150,000 transferred to the First Defendant's Credit Suisse account; and (iii) in failing to disclose the written payment instructions to Fidecs of 25 July 2006, the First Defendant has failed:

(a)

to inform the Claimant’s solicitors, to the best of his ability, of all his assets worldwide and to give the value, location and details of all such assets, contrary to paragraph 9(1) of the Order;

(b)

to confirm the information required by paragraph 9(1) of the Order in a sworn affidavit exhibiting all relevant documentation within his possession, custody or power contrary to paragraph 9(5) of the Order.

(4)

The First Defendant had made a false statement on an affidavit without an honest belief in its truth in stating in paragraph 22 of his Second Affidavit that he had already stated everything he was able to tell the Claimant’s solicitors about the First Defendant's Credit Suisse account.”

At the present hearing, the company decided not to pursue the fourth head of contempt, not because it was not well-founded but because there were a large number of false statements in Mr Mitchell’s affidavits, most of which were relevant to the first committal application.

On 20 March 2007 Mr Mitchell made his third affidavit, very different in tone from his earlier affidavits and witness statement. He began with “an abject apology” to the court and an acceptance that he had plainly committed a series of breaches of the freezing order and that his “numerous contempts of court”, in failing to comply with his obligations to disclose the existence of assets and with the prohibitions on dealing with assets, were “particularly grave”. He stated that he believed that Andbanc would act on his instructions for the transfer of funds from Bawdwin’s account to an account in England and that Credit Suisse would do likewise in respect of Black Vulture. He stated also that he was now seeking, by his third affidavit and by continuing enquiries of third parties, to make amends for his contempts of court to the best of his ability.

He confirmed the information given in his letter of 9 March 2007 regarding the transfers totalling £300,000 from BDO Fidecs to Credit Suisse and on to Black Vulture, adding that Black Vulture’s account was with Credit Suisse in Liechtenstein and that he had faxed instructions to Credit Suisse on 25 July 2006 for the transfer to Black Vulture. He stated that the sum of £300,000 originated with a transfer on 25 July 2007 from MPUK to BDO Fidecs. He had signed the instructions for that transfer on 24 July 2006, but he stated that he had done so before service of the order on that day. However, he accepted that on 25 July 2006 he telephoned BDO Fidecs to check whether they had received the transfer, knowing of the instructions for the onward transfer to Credit Suisse which he took no steps to prevent. He accepts therefore that he was actively involved in giving effect to the transfers to Credit Suisse and to Black Vulture after service of the order. He has not accepted that he gave the instructions to BDO Fidecs for the transfer to Credit Suisse. In his oral evidence, it became clear that this was because the faxed instruction produced by BDO Fidecs is not signed. He accepted that the transfer instruction was in his format and came from his computer and, importantly, that he faxed it to BDO Fidecs. He accepted also that he had spoken to BDO Fidecs about the transfer before the instruction was sent. I am satisfied that he gave the instruction to BDO Fidecs on 25 July 2006.

As regards the reason for these transfers, he stated:

“I believed that the £300,000 transferred to Fidecs was a sum payable to Deerfield under the profit sharing arrangement between MPUK and Deerfield. I accept that this was an irrational conclusion for me to have drawn in view of the timing of the transfer and the elaborate nature of the series of transfers of which it formed part. With hindsight I now accept that those transfers amounted to an attempt to put assets beyond the reach of the Claimant. I did not believe that I had any beneficial interest in the £300,000.”

He reiterated that he had no interest in or control over Deerfield. He stated that he did not believe that he had a beneficial interest in the £150,000 which passed through his Credit Suisse account.

He stated that he and the other defendants were signatories to the Black Vulture account but to the best of his knowledge and belief it contained no assets belonging to him. He stated that the sums transferred previously from LCI to the Credit Suisse accounts of Leslie Silverman and himself were likely also to have been transferred to Black Vulture’s account. He gave no information as to the circumstances in which Black Vulture was established or as to its ownership or control or as to the beneficial ownership of assets in its name. He accepted that as a signatory to the account he was able to exercise control over it and that it should therefore have been disclosed pursuant to the freezing order.

Mr Mitchell gave further information in his third affidavit and admitted to other breaches of the freezing order. As regards his Credit Suisse account, first, he accepted that he had not previously disclosed that he held a Swisscard credit card with Credit Suisse, which he continued to use after service of freezing orders resulting in further debits to his account. Secondly, he referred to some transfers into his account:

“apparently in respect of a Credit Suisse short maturity fund. I was not aware that I had an interest in any such fund but it is clear that a capital sum exists in which I have an interest. I accept that it is an account I was obliged to disclose and I am seeking further details of it.”

Thirdly, he stated that instead of a zero balance on his Credit Suisse account, as he had stated in July 2006, there was a balance of £626.49 on that date and £117.83 on 8 and 20 November 2006 and that between these times, the sum of £150,000 had passed through the account. Fourthly, he referred to an instruction faxed by him to Credit Suisse on 2 August 2006 that “all funds except for a balance of £10,000” should be transferred to Black Vulture. He went on to say that as the balance on his account was only £90.61 the instruction was “nonsensical” and that he could not explain why he gave it “because there is no logical explanation for it”. He suggested that the medication prescribed for his suspected heart attack might have affected the rationality of his actions at the time.

Mr Mitchell stated that he had not disclosed the balance on Bawdwin’s account with Andbanc because he had not given proper consideration to whether it was an asset covered by the freezing order, but he now accepted that, because he was a signatory, it should have been disclosed, although he did not believe that he had any beneficial interest in any of the sums in the account. He was making enquiries of Andbanc to establish what had become of the substantial sums which had in the past been credited to the account.

The two committal applications against Mr Mitchell were re-listed for an effective hearing before me on 27 March 2007. On that day, Mr Mitchell swore his fourth affidavit. In the light of the offers of co-operation made by him, the applications were again adjourned.

In his fourth affidavit, Mr Mitchell stated that there were “certain statements in my previous affidavits which I now realise to be false, incomplete or misleading”. He stated:

“8.1

At paragraph 10.5.12 of my first affidavit and paragraph 15 of my second affidavit, I stated that I did not know why the payments from Lake Charles Inc (“LCI”) to Fidecs Management Limited (“Fidecs”) listed at Annex B to the Particulars of Claim were made, and that I had no knowledge of the entity to which they were made (i.e. the entities on whose behalf Fidecs held the sums transferred). Those statements are false: as I explain below, I did have some knowledge as to why payments were being made to Fidecs, and of what sort of entity Fidecs was. I admit that I did not give proper consideration to these payments and therefore failed to disclose information that I should have provided in my earlier affidavits. I regret that failure and sincerely apologise to the court for it.

8.2

I accept that I myself notified Fidecs that it would be receiving some of the Annex B payments (and other payments) and that I gave instructions as to what Fidecs should do with the monies received. Prior to receiving the documents exhibited at pages 10-56 of AM1, I did not connect the “Annex B” payments made from LCI to Fidecs to the payments in respect of which I gave instructions to Fidecs. Given the large sums of money involved, I accept that I should have done so. I should also have remembered, and stated, that the payments in respect of which I gave instructions to Fidecs related to investments by the Second Defendant’s Ukrainian partners on specific property developments. I should have stated that I knew that Fidecs operated accounts on behalf of those partners in the names of Deerfield and Heaton Moor.

8.4

However, I maintain that whenever I gave instructions to Fidecs I was simply relaying the Second Defendant’s instructions to me. I have not yet been able to ascertain what became of the monies transferred by Fidecs on those instructions but I will make every effort to do so and to facilitate enquiries by my solicitors and the Claimant’s solicitors in this regard.”

As to the various BVI-incorporated companies, he stated:

“None of LCI, Heaton Moor, Deerfield or Bawdwin were set up on my instructions. I do not know how these companies were set up and I am not aware of any other BVI companies. I was a signatory in respect of the Bawdwin account but I did not give instructions in respect of the LCI, Heaton Moor and Deerfield accounts. I do not know why BVI companies were used or what became of the profits made from the sale of properties purchased through them. The Second Defendant dealt with the accounting to his Ukrainian partners for profits made on developments. I maintain that it was my genuine understanding that the monies paid to LCI were commission payments for Mr Farber and his associates.”

He repeated that he could not yet provide any information as to Bawdwin or its assets but was seeking information from Andbanc.

As regards Black Vulture, he stated that it was set up at the instigation of Leslie Silverman and that he understood from Mr Silverman that its purpose was to provide a fund against which MPUK could borrow for investment in further properties for development. MPUK was, as he has accepted, beneficially owned by the defendants.

As well as the transfers of £300,000 from MPUK to BDO Fidecs and onwards, Mr Mitchell accepted that other transfers from MPUK were made in breach of the freezing order. These included in particular the transfer of £20,000 to Steven Silverman who paid it to the defendants’ solicitors on account of costs in the present proceedings, to which I will later return in the context of the application against Steven Silverman.

Mr Mitchell concluded by saying that he believed that he had purged his contempts of court and that he was making every effort to co-operate fully with the enquires by the company’s solicitors.

Two subsequent affidavits sworn by Mr Mitchell and his oral evidence at this hearing have demonstrated that his third and fourth affidavits were, like earlier affidavits, false in a number of important respects.

In his fifth affidavit he said that his enquiries had revealed that monies had been invested in his name in units of a Credit Suisse short maturity fund. He further disclosed that on 2 August 2006, in breach of the freezing order he gave instructions to Credit Suisse to transfer 147.9 units, which had a substantial value, to Black Vulture’s account. He had drafted the instructions on 25 July 2006. It is clear that Mr Mitchell knew of this asset when served with the freezing order and not only failed to disclose it but also took steps to transfer it beyond the company’s reach. As he accepts, the instructions given in his fax of 2 August 2006, which he described in his third affidavit as nonsensical, made complete sense. I am satisfied that, when swearing his third affidavit, he knew that this description was untrue. The transfer of this asset in breach of paragraph 5 of the freezing order is not one of the grounds of the committal applications against Mr Mitchell, but the non-disclosure of the asset is an element of the first committal application.

Mr Mitchell accepted in the fifth affidavit that the statement in his third affidavit that the Black Vulture account contained no assets belonging to him was untrue on the grounds that it in fact contained the 147.9 units. It was also untrue because it contained the other funds transferred from his Credit Suisse account. Although he was described as one of the “first beneficiaries” of Black Vulture in a letter of instruction drafted for him by Credit Suisse, he said that he was previously unaware of any beneficial interest in the monies held by Black Vulture.

He continued in his fifth affidavit to assert that the establishment of the Gibraltar-based trust to hold 5 Halley Road was “the continuation of a trust arrangement in respect of my previous property” and did not accept the company’s contention that it was a means of placing assets beyond the reach of creditors. It was not until his sixth affidavit that he accepted that this was true. I should say that other than Mr Mitchell’s affidavits there is no evidence, documentary or otherwise, to support his assertion that there was any pre-existing arrangement to put the property into a trust for his children. I am satisfied that it is untrue.

In his sixth affidavit, he accepted that he knew that the funding for the property business operated by the Madison companies was ultimately derived from the company. He stated:

“I now accept that my involvement in the use of funds from LCI/Bawdwin to further the purchase and development of properties in the UK through Deerfield and Heaton Moor was more extensive than I had previously stated. MUK and MPUK were funded by those monies. Steven’s involvement was solely to run the Madison companies. I carried out the administration and financial arrangements. If a site was identified or money was required to fund development or refurbishment, I would ask the Second Defendant. He would authorise me to make the necessary arrangements through Deerfield or Heaton Moor and I would do so.”

He admitted that he knew that the funds were routed back to England through LCI and in some cases Bawdwin and through Heaton Moor or Deerfield. It was clear from his oral evidence that he was closely involved in these property transactions and had a detailed knowledge of each of them. He drafted all the instructions for transfers of the relevant funds from the accounts of LCI, Bawdwin, Heaton Moor and Deerfield and he signed all of them except those for LCI. He gave instructions to the English solicitors acting on the transactions, including instructions as to the disposition of the proceeds of sale of properties. It is absolutely clear that at all times Mr Mitchell would have been able to give a detailed account of the passage of funds out of the company and back into England and of the property transactions.

Mr Mitchell also accepted in his sixth affidavit that he had known that transfers from LCI’s account to entities in Spain were for the purchase of properties in Tenerife for the benefit of Leslie Silverman.

In his sixth affidavit Mr Mitchell accepted for the first time that the payments to LCI were not made for legitimate business reasons, while maintaining that at the time Leslie Silverman had told him that they were legitimate. In examination-in-chief, he said that he had come to realise this in the last few weeks, and likewise in the last few weeks he had realised that there was no profit-sharing agreement between the Madison companies and Heaton Moor and Deerfield. However, in cross-examination he accepted that he had known from an early stage in the liquidation that the payments to LCI were not legitimate and that at the time when the freezing order was made he knew that the money had been illegitimately taken from the company and that he had been operating the Madison companies with those monies. He also accepted that he did not believe in July 2006 that there had been a profit-sharing arrangement. These admissions make clear that from the service of the injunction on him he knew that the liquidators were seeking to recover monies wrongfully taken from the company and he knew where the monies had gone.

The liquidators are entirely justified in their submission that what followed was an immediate and sustained attempt to disobey and frustrate all parts of the freezing order. Mr Mitchell took immediate steps to transfer substantial sums in breach of paragraph 5 in an attempt to hide them in Black Vulture. His disclosure of personal assets was both inadequate and untrue. He failed to provide any affidavit as to his assets or any disclosure in relation to traceable assets under paragraph 9 (2)-(4) of the freezing order, falsely claiming to the liquidators and to the court that he was unable to do so because of ill-health. His first and second affidavits were, as Mr Phillips put it, a tissue of lies. He was ready to defend the first committal application on this basis at the hearing before the Chancellor on 8 March 2007. The discovery on 7 March 2007 of transfers of £300,000 in July 2006 rendered his existing position untenable. Under the guise of making full disclosure, and offering what must now be seen as insincere apologies, he continued to deceive the court and the liquidators in his third, fourth and fifth affidavits, making disclosure and offering apologies only when it was clear from what the liquidators now knew that it was necessary for him to do so. Even in his oral evidence, he was still prepared to give false evidence on the very important issue as to the date when he realised that the payments to LCI were illegitimate.

The company also submits that Mr Mitchell is in continuing breach of the freezing order in failing to provide full information as to the acquisition of properties in Tenerife and as to what happened to the monies paid to the Madison companies.

The company accepts that, on the evidence, it appears that the properties in Tenerife were acquired for Leslie Silverman and perhaps his wife and that Mr Mitchell has no interest in them. Mr Mitchell has confirmed that funds were transferred by LCI for the purchase of these properties and he has confirmed the addresses of the properties and located the undeveloped land on a map. I do not consider on the evidence that Mr Mitchell is able to give further disclosure in respect of these properties.

The figures available for the Madison companies show that some £2.15 million was paid to them out of funds derived from the company. A sum of £1.853 million was used to purchase nine properties over a 20-month period, of which only a relatively small part represented the reinvestment of sale proceeds. The total gross sale proceeds of the nine properties was £2,953,000. At the date of the freezing order MPUK’s assets were three properties purchased for a total of £755,000 out of earlier sales proceeds and a balance of about £450,000 on its bank account. The liquidators are concerned to identify what has became of the remaining funds. The liquidators have had the bank statements for the Madison companies for some time. It is said that there are no other records for MUK because they were destroyed in a fire at its accountant’s offices in April 2005. On Friday last, all the records for MPUK were handed to the liquidators’ solicitors. An analysis of the bank statements shows that, leaving aside transfers to identified transferees other than the defendants, there are payments of £2,194,424, comprising cheques made out to cash (£289,172), credit card payments (£220,093), payments described as being to the defendants (£171,279) and other cheque payments (£1,513,879).

A detailed analysis of these payments would be a time-consuming exercise. It clearly could not be done in three working days following service of the freezing order. For that reason, Mr Walker submitted that it was outside the ambit of paragraph 9(2)-(4) of the order. In my view, that is not correct, but I accept that a failure to produce the information within three working days would not be treated by the court as a breach of the order. These orders are made at a time and in circumstances when inevitably the claimant does not have full information. If compliance with the order requires more time, the court will grant it.

I am, however, satisfied, having seen Mr Mitchell give evidence, that he is prepared to cooperate in an exercise to identify the use to which the funds in the Madison companies were put.

In considering the appropriate penalty for contempt of court, there may be both punitive and coercive elements. Where the court is satisfied that a defendant is still refusing to comply with an order, the penalty may be fixed so as to persuade him to comply. If he does comply, he may be wholly or partly relieved of the penalty at the discretion of the court.

Provided that Mr Mitchell is willing to undertake to the court to cooperate fully with the liquidators in identifying the use to which all funds in the Madison companies were put, I do not consider that any penalty need contain a coercive element.

In considering the appropriate penalty, it must be recognised that the breaches of the freezing order were grave and sustained. There has been a pattern of dishonesty in Mr Mitchell’s affidavits, even when apparently making full disclosure and claiming to have purged his contempts.

Now, a year after the order was made, Mr Mitchell has been prepared to accept that, as he put it at one point in evidence, he has lied and lied and lied. He has accepted that he has been in wholesale breach of the order. His explanation for his past conduct in part depends on an assertion of Leslie Silverman’s influence on him both at the time of the misappropriations and since the freezing order was made. Leslie Silverman is not, of course, in a position to give any account for himself. While I accept that he was the senior partner, I do not consider that any influence of Leslie Silverman can properly explain Mr Mitchell’s conduct since the freezing order, particularly as Mr Silverman has been ill for much of that time. To be fair to Mr Mitchell, he accepts that he must bear full responsibility for his actions. I am satisfied that the true explanation is that Mr Mitchell thought that he could get away with it.

In my judgment the seriousness of this case requires a custodial sentence. In fixing the period, I bear particularly in mind that there need not be a coercive element and that Mr Mitchell has admitted his breaches. I will commit Mr Mitchell to prison for eight months.

I turn to the case against Steven Silverman. The application to commit him was issued on 30 March 2007 and alleges the following contempts:

“(1)

The Third Defendant deliberately failed to disclose as an asset the sums standing to the credit of the MPUK Account at the time of the service of the Order upon him, contrary to paragraph 9(1) of the Order;

(2)

The Third Defendant, having been notified of the Order, signed the written instruction to HSBC and caused or permitted that instruction to be sent to HSBC, thereby knowingly procuring a dissipation of £300,000 from the MPUK Account (being a payment not in the ordinary course of the business of MPUK) to the Black Vulture Account, in deliberate breach of paragraph 5(b) of the Order;

(3)

Further, the Third Defendant deliberately failed to disclose the existence of the Black Vulture Account, the transfer of the £300,000 to that account, and the sums standing to the credit of that account, in deliberate breach of paragraph 9(1) of the Order.

(4)

Further, the Third Defendant, having been personally served with the Order, knowingly dissipated £20,000 of the monies in the MPUK Account by causing or allowing such sum to be paid to himself (being a payment not in the ordinary course of the business of MPUK), in deliberate breach of paragraph 5(b) of the Order.”

The most serious of these alleged contempts is paragraph (2) relating to the transfer of £300,000 on 25 July 2006, and most of the evidence and submissions were directed to it. I deal with it first.

The uncontroversial facts are as follows. Between 9 and 10 pm on 24 July 2007 the freezing order was served on Mr Mitchell and Leslie Silverman. The process server was unable to serve Steven Silverman at the address given in the order, which was in fact a property occupied by an ex-partner Andrea Maxwell and their two children. He spoke by telephone to Steven Silverman that evening and either then or in a call the following day arranged to meet in a store car park near the M25 at 4 pm on 25 July. They did meet then and personal service was effected on Steven Silverman. At 9.33 am Steven Silverman faxed an instruction to HSBC, signed by himself and Mr Mitchell, for the transfer of £300,000 form MPUK to BDO Fidecs.

The company’s case is essentially that (i) the coincidence of timing of the service of the order on Mr Mitchell and Leslie Silverman and the faxed instruction to HSBC, (ii) the inevitable desire of Mr Mitchell and Leslie Silverman to speak to Steven Silverman following service of the order and equally his inevitable desire to speak to then once contacted by the process server, and (iii) the fact that the transfer from MPUK was the first in the series of transfers ultimately to Black Vulture used by Mr Mitchell and Leslie Silverman to hide assets from the liquidators in response to the freezing order, amount to an overwhelming case that Steven Silverman knew that the transfer was in breach of the order. They add that at that time he was living with his parents and that he had in June 2006 signed documents relating to the establishment of Black Vulture, of which he was named as one of the first beneficiaries.

Steven Silverman denies that he knew of the order or its terms when he faxed the instruction to HSBC. His account, in his written and oral evidence, is that during the morning of 24 July 2006 he was told by Mr Mitchell that there was a transfer instruction which required his signature. He was working on site at one of MPUK’s properties in the morning and spent the rest of the day and that night at the home in Enfield of another former partner, Natasha, and their young daughter. He did not go to the office that day to sign the transfer instruction. In the evening he received a call on his mobile from Andrea Maxwell. She told him that there was a process server at her home wanting to serve documents on him. Either Ms Maxwell passed the phone to the process server who then spoke to Steven Silverman (this was Steven Silverman’s oral evidence) or she gave the process server his number and he called Steven Silverman that evening or the following day. Either way he refused to tell Steven Silverman what the documents were. Steven Silverman says that he was not particularly concerned that there were documents to be served on him. He did not try to contact Mr Mitchell or his father and they did not contact him. He has produced the detailed logs for the mobile phones used by his father and Mr Mitchell, which were registered to MPUK, and they do not show any calls to his mobile, but he accepts that this is not conclusive because his father and Mr Mitchell have landlines at their homes. His evidence was that Natasha does not have a landline.

Although he would normally be on site by about 8 am, he was late because he stayed the night at Enfield and he went directly to the office to sign the transfer instruction. He did so and faxed it to HSBC, although it was not usual for him to send a fax. He believes that Mr Mitchell must have told him to fax it when they spoke the previous day or must have left him a note to do so. He first learnt of the proceedings and the freezing order when later that morning Mr Mitchell called him.

Mr Mitchell gave evidence consistent with Steven Silverman’s account. I attach little weight to Mr Mitchell’s evidence in view of his record of false evidence in this case and because he may well wish to protect Steven Silverman with whom he is on close terms.

The essential issue is whether I can be sure that Steven Silverman’s evidence is false. The circumstantial evidence, on which the company not unreasonably relies, is strong. Natasha was not called as a witness, although she would have been able to corroborate a vital part of Steven Silverman’s case and although, according to him, she had offered to give evidence. Steven Silverman has not been a truthful witness. In his first affidavit he stated that he and the other defendants held their shares in MPUK on behalf of Deerfield. He corrected this four months later in his second affidavit in which he said that this was an error which he had noticed. However, before swearing the first affidavit, his solicitors had disclosed the shareholdings as a further asset and then a few days later written to say they were held on behalf of Deerfield. This can only have come from instructions from Steven Silverman. In his oral evidence, Steven Silverman said, not that it was an unnoticed error, but that it was what he believed at the time and what he had understood for years.

In the end, notwithstanding these considerations, I am not satisfied so as to be sure that Steven Silverman’s account is untrue. It follows that the contempt alleged in paragraph 12(2) of the application is not established.

Paragraph 12(1) alleges that Steven Silverman deliberately failed to disclose as an asset the sums standing to the credit of the MPUK account. As a signatory to the account with Mr Mitchell, it was within the definition of assets in paragraph 6 of the freezing order. It was therefore a breach of the order not to disclose it but I am not satisfied that Steven Silverman understood it to be within the terms of the disclosure requirements.

Paragraph 12(3) alleges that Steven Silverman deliberately failed to disclose the existence of the Black Vulture account and the sums standing to its credit including the £300,000 transferred to it. There is no evidence to show that he knew that the sum of £300,000 transferred from MPUK to BDO Fidecs was, or was intended to be, transferred to Black Vulture. He knew of the existence of Black Vulture and of his interest in it, but the evidence does not establish that he knew that it had substantial assets. I do not find this alleged contempt to be established.

Paragraph 12(4) alleges that Steven Silverman knowingly dissipated £20,000 of the monies in the MPUK account by causing it to be paid to himself in deliberate breach of paragraph 5 of the order. It was done in order to make a payment on account of fees to BWB. Routing the payment through Steven Silverman’s account was Mr Mitchell’s idea and I have no real doubt that Mr Mitchell organised it in that way so as to disguise from their solicitors and from the company the source of the funds. As with paragraph 12(1) the transfer from MPUK’s account to Steven Silverman’s account was a breach of the order but I am not satisfied that he knew that paragraph 5 extended to the MPUK account and I am not therefore satisfied that it was a deliberate breach of the order.

In the circumstances, I do not consider it appropriate to impose any penalty on Steven Silverman.

Counsel and solicitors on both sides for this hearing have conducted the hearing and its preparation in an exemplary way. I wish in particular to pay tribute to Mr Walker and his instructing solicitor, who continued to appear when at the end of the third day the public funding allowed for this matter had been exhausted. Mr Walker’s submissions on behalf of his clients were highly effective and without the guidance of Mr Walker and his solicitor for which Mr Mitchell expressed himself deeply grateful in his evidence, Mr Mitchell would today be facing a very much more substantial period of committal to prison.