Merlo v Duffy

In this action I propose to give judgment in favour of the Claimant, Dr Pier Antonio Merlo, against the Defendant, Michael Joseph Duffy. I am satisfied that as between Dr Merlo and Mr Duffy the former is entitled beneficially to half of the issued share capital of Brightstar Corporation NV (which I shall call “NV”), a Netherlands Antilles company.

There is, however, a preliminary observation. Mr Duffy told me that, as he believed, Dr Merlo first made his claim to be beneficially entitled to half of NV’s share capital knowing that he was not entitled to that half, and that his claim was a try-on. I reject that. On the contrary, in my judgment Mr Duffy has long believed that Dr Merlo was entitled to the half and knew that Dr Merlo genuinely believed he was entitled to the half. I am driven to the conclusion that Mr Duffy has lied to this Court. On his own showing he has lied to Dr Merlo.

I shall explain later in this judgment my reasons for these conclusions. First I should say something about the property which is the subject of this action.

The issued share capital of NV consists of 6,000 shares of US$1 each. These are all held in bearer form and are represented by four bearer share certificates comprising 1,500 shares each. Although the shares purport to be numbered, it has not been suggested to me that there is any material distinction. As I understand the law, in principle it is perfectly possible for the legal owner of the 6,000 shares, who will be the person who holds the four bearer share certificates lawfully, to hold half the shares on trust for a third party and for that half to be sufficiently represented by two of the four certificates. The contrary was not suggested in argument.

However, given that the subject of this action is, in effect, the NV bearer share certificates, the claim of Dr Merlo being to have two of these passed over to him by Mr Duffy as the legal owner of the shares holding them as nominee for the Claimant, I should say a little more about the certificates.

NV was formed in 1984, having a registration agent or similar in the Netherlands Antilles called “First Independent Trust (Curacao) NV”. Between then and January 1996 the certificates were held in Switzerland by company administrators carrying on business there. In about 1995 the then administrators, an entity called Attendus Treuhandgesellshaft and owned by a Mr Stuart Clements, gave up the administration of NV. As Mr Duffy says, “All the relevant company files, records together my four Bearer Shares were sent to me in London in January 1996.” In evidence is a letter from Attendus dated 22 January 1996 to Mr Duffy at his home address enclosing the four certificates, but apparently no company files or records.

NV was at that time, as it had been for several years, a company through which Mr Duffy and Dr Merlo had been carrying on a refrigeration business. This business involved supplying cooling and air handling equipment in countries in different parts of the world, most materially to countries in the Middle East. Later I shall have to say more about the way in which this business came to be started, and the arrangements between Mr Duffy and Dr Merlo. For immediate purposes I am concerned only with what happened to the bearer share certificates after their transmission to Mr Duffy in 1996.

In the trial bundles is a document dated 25 June 2002, apparently signed by Mr Duffy for the benefit of First Independent, to certify that at that date he had in his possession “all four bearer stock certificates, representing 6.000 shares” in the capital of NV. Also bearing the same date is a copy of a letter which Mr Duffy had written in manuscript and which, after typing, was sent by him to First Independent to confirm that “the actual holder of the four (4) bearer share certificates is Michael J Duffy. Photocopies fro (sic) the originals in my possession accompany this fax message”.

Later, in 2005, Dr Merlo was demanding that Mr Duffy should hand over to him, Dr Merlo, two of the four bearer share certificates. In due course I shall say more about the dealings between Dr Merlo and Mr Duffy during 2005. For present purposes it is sufficient to record that Mr Duffy has for very many years held an account at a bank, UBS, in Geneva where he has a personal security box. On 29 November 2005 Mr Duffy wrote a letter, as he confirmed in his oral evidence, to an official at that bank. He gave her instructions to open the security box. He told her that there were three envelopes in the box. He described these, asking her to extract from the one marked “Business Documents and Registration Records” two out of the four NV bearer share certificates which she would find there. These she was to have couriered to Mr Duffy in London. Later Mr Duffy sent to Dr Merlo a faxed copy of the letter with the annotation in manuscript “UBS bank informed me by letter earlier this week they are unable to process my request. I must attend in Geneva in person … I plan to visit in early January 2006”. Both UBS and Dr Merlo were by this correspondence told by Mr Duffy that the NV certificates were held in the security box at the bank in Geneva.

In oral evidence Mr Duffy stated his case about the share certificates. This is, and I quote from what he said “I have always been the sole beneficial owner of the four shares, bearer shares, and they were given to me legally and, as holder legally of the shares, I believe I am entitled to claim they are mine”. Then, in answer to the question “It’s because you are the holder you believe you are entitled to claim they are yours?”, Mr Duffy said, “Not only that, but when I took possession of them I took possession of them as the sole beneficial owner and, as you probably know, if you obtain bearer shares … whoever has physical possession … [and] has not obtained them illegally is the sole owner”. He then said, and I quote “I have always known that the bearer shares, if legally held and can be proven to be legally held, then you are the rightful owner, and that’s why I understand that we are told to look after bearer shares like you would cash, even put them in a bank”. He reinforced this by saying, and I quote, “they [the certificates] have never been out of my possession or out of my control since they were first issued in 1984.”

This evidence of Mr Duffy’s clearly was calculated to give the impression that Mr Duffy had the four certificates safe in his possession or under his immediate control. He was asked about this and he confirmed it in the following exchange:

“Q. Mr Duffy, do you hold four shares in Brightstar Corporation NV?

A. Yes.

Q. Are they in your possession?

A. Physically in my possession at the moment?

Q. Not at the moment as you sit in the witness box.

A. Yes.

Q. But you have them at home somewhere safe or your solicitors hold them for you?

A.

Yes.”

At this juncture Mr Duffy’s evidence changed remarkably. He said that the certificates were neither at home somewhere safe nor with his solicitor. What had happened, he said, was that in the late 1990’s he had given them to his twin sister for safekeeping. In 2001 she had died. Her estate had been administered by her husband, who lives abroad. He believed that the certificates were with his sister’s documentation. However, he had taken no steps whatsoever to recover the certificates. In answer to the question “so do you know where they are?”, Mr Duffy said, “… we don’t know”, and then “I don’t know, to be honest”; and he added, “I don’t know at the moment. They are allegedly with my late sister’s estate, with her documents and that.”

When asked to explain what he had done with the certificates between their receipt in 1996 and his handing them over to his twin sister, he told two different stories. In answer to the question, “When you received them, didn’t you put them in your safe deposit box in Switzerland?”, he said “Yes, for a while”. Later, he said, and I quote, “Between the time I got them from Mr Clements to the time I gave them to my sister I think I kept them in a strong box in the attic probably, yes”.

Mr Duffy was asked about the letter which he had written to UBS in Geneva. His evidence was that the letter was a charade. He knew the certificates were not in the security box. He had written a letter to UBS to ask them to look for and send to him documents which he knew they could not find. And he had told a lie to Dr Merlo in representing that the documents were at that bank. As he said “I wanted to show to Mr Merlo that I had access to these shares, and it was really to pacify him, if you like”.

Mr Duffy’s evidence concerning the whereabouts of the certificates is remarkable. On any basis he gave false evidence to the Court. Either the certificates were in his possession or under his control, or they were not. If his evidence is believed concerning his letter of 29 November 2005, he lied to UBS and to Dr Merlo.

I am driven to the conclusion that Mr Duffy’s story about the certificates having been provided to his sister before her death in 2001 and simply neglected by him since then is incredible. Having heard him explain the importance in his eyes of possession of the certificates, I am unable to believe that he would have taken no steps to recover them following her death, if indeed he had ever given them to her. The most likely explanation for Mr Duffy’s evidence, in my judgment, is that he had no intention of delivering up any certificates to Dr Merlo, whatever the outcome of this action, and hoped that by making up a story he would be able to avoid having to do so should judgment be given in Dr Merlo’s favour.

Dr Merlo’s claim depends, for its success, on the conclusions which are to be drawn concerning arrangements made between him and Mr Duffy in the 1980’s. What were those arrangements and what was their legal effect? As I explain, there is plenty of evidence that in later years Mr Duffy represented to Dr Merlo and others that Dr Merlo was his partner or was a beneficial owner of NV. But, apart from the evidential value these representations might have as to the nature and consequences of previous arrangements, they did not themselves give Dr Merlo any rights which he would not otherwise have had already.

The two men had known each other for a number of years, both having worked for a division of Chrysler Corporation, Chrysler Airtemp. Chrysler Airtemp had widely based manufacturing and sales operations for cooling equipment in many countries, including in Europe and the Middle East. In 1976 this division was sold to a New Jersey company called Fedders Corporation.

Following this sale, Dr Merlo started in business on his own, acquiring certain Italian assets from Fedders. He formed two companies in Italy, namely OMR srl and EES srl. Of these two companies OMR was principally a manufacturer and manufacturer representative. EES was principally a sales operation, selling products from the USA and Far East into Europe and the Middle East. Dr Merlo lived, I should add, in Milan.

On the sale of the Chrysler Airtemp division to Fedders Mr Duffy remained with Fedders. He only left Fedders in August 1983.

In the early 1980’s Dr Merlo and Mr Duffy decided to go into business together. Although I shall say much more about the business they did, which became what I call “the Brightstar business”, I should say at once that I am satisfied that this business was at all material times one in which the two men were the central protagonists. In particular the business was never one in which Dr Merlo was in any sense taking orders from Mr Duffy. Rather they worked together and, in particular, Mr Duffy consulted Dr Merlo on important decisions.

I therefore reject Mr Duffy’s evidence that this business was to be, and was, his business with Dr Merlo being merely engaged on specific projects as an agent. Specifically, I do not believe Mr Duffy when he says, as he did in his written evidence, that Dr Merlo’s “involvement in my business was to be that of an agent and no more”, and that that is what Dr Merlo was.

The background to the decision to go into business together appears to have been an appreciation by Mr Duffy that there were opportunities in the cooling business which Fedders were unable or unwilling to take up, and a wish on his part to be able to exploit these opportunities to his advantage. Dr Merlo on the other hand felt that it would be to his advantage if he could develop and conduct business outside Italy.

Dr Merlo believes that the discussion with Mr Duffy which led to the decision to go into business together was at a trade conference in Athens in 1979. Mr Duffy accepts that he met Dr Merlo at the conference, but denies that there was any arrangement then made.

At this distance in time it is impossible to say what was discussed, or what might have been agreed, in conversation in Athens. Probably, however, then or not long after the two men must have agreed that, when opportunity arose, they would go into business together.

Undoubtedly opportunity did eventually arise. A company called Al-Shirawi, based in Dubai, needed equipment which could be supplied by or through OMR. The managing director of Al-Shirawi was a Mr Sukan Jain. Each of Mr Duffy and Dr Merlo claimed to have had the contact with Al-Shirawi which led to Al-Shirawi placing an order. Each of them claimed to have had a good relationship with Mr Jain. Each claims to have been the one who secured the Al-Shirawi business. In my judgment nothing turns on this. I do not need to resolve the conflict between the two: at this distance in time each is likely to have only a poor recollection of the precise details of their then business connections or their appreciation of the other’s connections. It is sufficient to say that doubtless each of Mr Duffy and Dr Merlo saw at the time an advantage in the other one’s involvement in the exploitation of the opportunity.

The structure adopted for the business to be carried on was an English registered company called Brightstar Corporation Ltd (“Limited”). This company was incorporated on 24 December 1981. At about that time it was acquired by Mr Noel Faulkner from the formation agents. Mr Faulkner gave evidence. He said that he believed the agents would have provided him with a typical formation package which would have included two stock transfer forms for the two subscribers’ shares executed in blank. He was appointed to be a director; but he did not know whether the transfers of the subscribers’ shares were ever completed. Then, in May 1982, Limited issued 5,000 ordinary shares of £1 each which were purportedly fully paid and which were held in unregistered form on share warrants to bearer. Mr Faulkner became a director of Limited, his wife also being a director until October 1984.

Mr Faulkner, who is an English chartered accountant, was carrying on business in Switzerland, in Luzern, providing company administration services. He was assisted in this by a woman named Jutta Suess, who died in November 1988. Limited was intended not to carry on business in the UK, where Mr Duffy lived, or in Italy where Dr Merlo lived. For Limited Mr Faulkner opened a bank account at UBS Luzern. This account was operated on instructions provided to Mr Faulkner or Ms Suess, both of whom were signatories on the account. Neither Mr Duffy nor Dr Merlo was an authorised signatory. Mr Faulkner’s office maintained books of account which recorded and analysed movements through the UBS Luzern account. According to Mr Faulkner the day to day administration of Limited was by Ms Suess, and it was she who wrote up the books.

The first transaction undertaken in the course of the business which Mr Duffy embarked on with Dr Merlo was the Al-Shirawi one. This transaction was organised before Limited had been acquired by Mr Faulkner but was completed after. The contract was placed with OMR. OMR, once paid, then made payments to the credit of the UBS Luzern account; and various payments were debited to the account. These receipts and payments were recorded in the ledger maintained by Ms Suess in Mr Faulkner’s office. Dr Merlo says, and Mr Duffy agrees, that the payments debited to the bank account included sums needed to pay the costs of performing the Al-Shirawi contract. The payments also included sums charged by Mr Faulkner for his administration services.

Most importantly the payments covered the costs connected with the formation of Limited and the issue of the bearer shares. There is no evidence of any other sums having been paid for the formation, acquisition or capitalisation of Limited. Mr Duffy’s written evidence on the point was directed at the initial formation costs and was contradicted by the documentary evidence and found no support in the evidence given by Mr Faulkner.

Finally as to the first transaction, surplus arising within the account from the OMR receipts was applied, at least in part, in making payments to a numbered Swiss bank account of Dr Merlo, out of which Dr Merlo made a transfer of $100,000 to a numbered Swiss bank account, number “22483 Buttons”. This was Mr Duffy’s account. Dr Merlo says, and Mr Duffy accepts, that he retained part of what had been paid to his numbered account.

Once Limited had been formed business continued as before, but with the difference that customers’ orders were addressed to Limited, and their payments were made by letters of credit in favour of Limited which were recorded in Mr Faulkner’s ledger under the column “L/C received”. I have no doubt that from the inception both Mr Duffy and Dr Merlo had input into the negotiation of orders for the Brightstar business. Certainly that was the case later; and as Mr Duffy was at the outset still working for Fedders, I cannot believe that at the start orders were negotiated and made only by him to the exclusion of Dr Merlo.

The ledger for Limited maintained by Ms Suess shows a succession of payments being made to Dr Merlo from Limited’s account. But, to take one example, on 17 December 1984 $100,000 was paid to Mr Duffy (as he accepts) to his numbered Swiss bank account at the same time as a corresponding sum was paid to Dr Merlo. I return later to the question whether there was a sharing of profit between Mr Duffy and Dr Merlo; and I also say a little more about the manner of carrying on of the Brightstar business.

It was Mr Faulkner who acquired NV, having it formed by agents in the Netherlands Antilles. These agents were First Independent Trust NV. The cost of the formation of NV was met from the UBS account, this being reflected by an entry in Mr Faulkner’s ledger under the caption “FIT” showing payment of $2,888 on 1 April 1985. Mr Faulkner became a director; and it may be Ms Suess did too. In short NV was acquired by Mr Faulkner and paid for out of money which would have otherwise been divisible between Mr Duffy and Dr Merlo.

Mr Faulkner ceased to be the administrator of Limited and NV when he retired in 1989. During 1989 he passed the administration (as well as the bearer share certificates for both Limited and NV) over to Attendus, and he stepped down as a director. According to a letter written by Attendus on 3 May 1991 and sent to Dr Merlo, “when we took over the papers from [Mr Faulkner] he decided to get most papers burned which were dated 1984 or before”.

By the time of the transfer Limited held a Sterling account, as well as a US Dollar account, with UBS Luzern. It seems that by the time of the transfer there was a US Dollar account with that Bank in the name of NV. Limited’s US Dollar Account was supported by a guarantee arranged by Dr Merlo. Also from about that time is a ledger recording on a single page under the caption “Brightstar Corp Ltd” movements on the three accounts. The opening balances show the Limited US Dollar account overdrawn to tune of $50,000, while the NV account had a small credit balance, that is of some $5,600.

Mr Clements gave evidence at the trial. His evidence was that on the transfer of the companies to Attendus the Limited books were placed on a shelf where they languished, and that he and Attendus had thereafter nothing to do with Limited. His action in ignoring Limited, in effect, may have been prompted by concerns, held at the time, that Limited could come to be subject to UK tax. So far as Mr Clements was concerned, at all events, after about 1990 the practical administration provided by Attendus was concerned only with NV.

At the time Mr Clements had a very competent employee, Carmen Pfoster, who later became a partner with him. Although he would oversee her work, routine administration could be left to her. She, and her assistant, appear in the event to have been the individuals carrying out the bulk of the administration of NV undertaken by Attendus.

Even while Limited was becoming dormant in this way, a fresh bank account was needed for the Brightstar business. Such an account was opened for it, apparently without any input or assistance from Attendus. This was an account at Swiss Volksbank at a branch in Lugano opened in about the middle of 1990 in the name of Limited. Lugano was convenient for Dr Merlo to visit, being only one hour from his office and in an Italian speaking area of Switzerland. Perhaps as important, Dr Merlo was already a customer and known there. Signatories on the account were Dr Merlo and Mr Duffy, each with separate signing authority. At the branch a Mr Marco Gerosa, a senior member of staff who knew Dr Merlo, was the account handler. In effect NV was now to use Dr Merlo’s own bank for its account.

I should add that just before the SVB account was opened consideration had been given to involving Attendus in finding a bank. On 7 May 1990 Carmen Pfoster sent Dr Merlo a fax in which she said “Mike Duffy asked me to send you the attached. He said that you would arrange for the necessary. I discussed with him the setting up of a new bank account which will probably be with the Luzerner Kantonalbank, Luzern. He will talk to you about this”. The attached appears to have been a message from a supplier seeking letter of credit details. It would seem that a new account was in the event opened at this bank for each of the two companies, Limited and NV; but there is almost no evidence as to the use which was made of the accounts.

The account at SVB was operated until about 2002, even after Limited had been struck off the register and dissolved in October 1998. During much of this time Dr Merlo provided a guarantee of SVB’s facilities on the account: Mr Duffy did not. In fact Mr Duffy never gave any guarantee of any bank accounts or facilities used at any time for the Brightstar business.

It is Dr Merlo’s case, and I accept, that there was no material distinction between the business of Limited and the business of NV. It was all part and parcel of what might be termed “the Brightstar business” carried on by him and Mr Duffy. This point can be illustrated by the fact that in the documents in evidence before the Court and dating from 4 April 1990 until after 2002 there is stationery being used for the business which is, without any obvious distinction, Limited or NV letterhead or letterhead which is simply “Brightstar Corporation”. In the case of the Limited letterhead the directors are shown as Mr and Mrs Faulkner or not shown (as in a letter dated 4 April 1990, in invoices dated 29 December 1996 and 3 February 1997 when Limited was supposed to be dormant, and in a letter dated 25 February 2002 sent to Credit Suisse in Lugano when Limited was dissolved). In the case of the NV letterhead they are shown either as Mr Faulkner and Ms Suess (as for example in letters dated 7 May and 13 May 2002) or (like the Brightstar Corporation letterhead) not shown at all.

By the end of 1994 Attendus was having difficulty recovering its administration charges. What must have happened is that the SVB account at Lugano had superseded the UBS and Luzerner Kantonalbank accounts. Attendus by Mr Clements wrote in December 1994 and then again on 5 January 1995 to Mr Duffy to say that in view of the non-payment they proposed to tell First Independent Trust “to contact [Mr Duffy] and [Dr Merlo] direct in future”, and also to resign their directorships. This letter Mr Duffy forwarded to Dr Merlo asking him whether he had any comments.

Not long afterwards, on 17 January 1995, First Independent Trust wrote to Mr Clements a letter which conveyed that Mr Duffy was to be the new principal of NV, giving the necessary form so that Mr Duffy could say that as holder of the bearer share certificates he was authorising various business in NV. And from about the middle of 1995 at the latest Mr Clements had ceased to be a director of Limited and had been replaced by Mr Duffy.

The operation of the Brightstar business continued in an uninterrupted flow, seemingly undisturbed by the changes in administration, until at the earliest 2005.

The next event requiring mention was in February 2002. Mr Duffy forwarded to Dr Merlo two messages he had received from First Independent. One pointed out that there were now “know your client” requirements in force and explained that this would result in increased administration charges. The second asked for information about the holders and beneficial owners of the company’s shares. On a copy of this Mr Duffy wrote “Peter, please review & before I reply in writing please give me your views & what you feel is necessary to include in my letter”. It appears that Mr Duffy did not respond to First Independent until he had received a chasing message. He then sent the letter dated 25 June 2002 to which I have already referred. This stated that the ultimate beneficial shareholders of NV were himself and Dr Merlo.

Also as a result of the worldwide crackdown on money laundering, the arrangements with SVB ceased to be satisfactory. During 2002 there was correspondence between SVB, which had by now become Credit Suisse, Mr Duffy and Dr Merlo about the documents needed for opening an account there for NV with Mr Duffy and Dr Merlo as authorised signatories.

On 15 November 2002 Mr Duffy sent a fax to Credit Suisse containing what he said were drafts of the material for opening an account, for the bank’s consideration. There was in the materials a section requiring the establishment of the identity of the beneficial owner. One box, if ticked, indicated that “the contracting partner” (ie NV) was “the beneficial owner of the assets concerned”. The other indicated that someone else was, and the identity of that person or those persons was to be given. In the materials sent on 15 November 2002 Mr Duffy had ticked the box to show that someone other than NV was the beneficial owner, but had gone on to set out NV’s name and address as the actual beneficial owner.

On 22 November 2002 Mr Duffy sent to Credit Suisse what he said were the completed originals of the documents. These included the certificate which he had given dated 25 June 2002 as possessor of the NV bearer share certificates. Materially, however, the beneficial owners were now identified as Mr Duffy and Dr Merlo. Mr Duffy’s letter explained to Credit Suisse that Dr Merlo would be attending the bank to give his signature for the purposes of his being an authorised signatory.

In the first half of 2004 Dr Merlo had financial difficulties. He borrowed money from Mr Duffy. To give Mr Duffy comfort that the loan would be repaid, Dr Merlo gave Mr Duffy an undated but signed cheque payable to Mr Duffy’s wife. Dr Merlo and his wife, Mrs Gloria Nardi Merlo, also signed and gave to Mr Duffy a note, written in Dr Merlo’s hand, in which they promised repayment of the loan and undertook that the debt would be honoured by Dr Merlo’s children in the event of the death of Dr Merlo and Mrs Merlo. The evidence of Dr and Mrs Merlo was that they also signed and gave to Mr Duffy a second note. In this Dr Merlo pledged his half share of NV to Mr Duffy as security for payment of the loan.

In his oral evidence Mr Duffy agreed that he had been provided by Dr Merlo with a pledge of shares in NV as security for the loan. He pointed out that at the time the cheque was given to him as security he thought it was useless. He went on to say that he had not asked for any security for the loan, and “with regard to the pledging of the shares I did not want to disabuse him. I just left matters at that point.” His reason, he explained, was that he did not want to upset Dr Merlo when he was having financial difficulty by pointing out that in fact Dr Merlo had no interest in NV and no interest in any shares to pledge. To quote Mr Duffy’s oral evidence, “He was having financial problems and I was not going to say, No, they’re not yours”.

The rupture between Mr Duffy and Dr Merlo developed during 2005. In about March 2005 Dr Merlo repaid to Mr Duffy the loan to which I have already made reference. Dr Merlo thought he had been particularly generous in the amount he repaid and that Mr Duffy had not recognised this; Mr Duffy thought he had been generous in his lending, the lending having cost him more than he was repaid and that Dr Merlo was being ungracious. Their dissatisfaction with each other was brought to a head when, by letter dated 3 June 2005, Mr Duffy instructed Credit Suisse not to give anyone else access to the Credit Suisse accounts: only Mr Duffy was to be given information about the accounts and only Mr Duffy could draw on the accounts. What had provoked this, Mr Duffy said, was that he found on investigation that the account balances were unduly depleted and, that as soon as any payments were credited to the accounts Dr Merlo had made corresponding withdrawals.

On 7 July 2005, Dr Merlo, having discovered from Credit Suisse what had happened with the NV accounts with that bank, sent a message to Mr Duffy. In this he said “I have never been so shocked and ashamed before today, when I learned from Miss Hanoian [a bank official] the instruction she has received for the operation of BS [that is Brightstar] that I created”. He finished his message by saying “please send by registered letter or DHL to Lugano, attention Mr M Gerosa, an envelope returning the cheque and 50% of BS shares given to you as guarantee of your loan paid back with interest last March.”

Mr Duffy did not reply to this request of Dr Merlo’s. The latter wrote again on 1 August 2008 asking, among other things, for the return of the cheque and the shares. He also provided a good deal of information to Mr Duffy, pointed out that there were suppliers due payment, and made a suggestion that they have auditors to ascertain the state of account between them. He asked Mr Duffy to confirm “that the present agreement to have 1/3 of gross margin to EES and balance to be 50/50 because I am guaranteeing personally all suppliers payments”. He suggested that Mr Duffy come to Milan “to establish the procedures and the way of handling”.

Mr Duffy did not go to Milan to meet Dr Merlo. He did not reply to Dr Merlo’s requests. This Dr Merlo pointed out in a fax dated 17 August 2005.

By a very lengthy fax dated 19 August 2005 Mr Duffy pointed out to Dr Merlo that the NV accounts with Credit Suisse were overdrawn. He made complaints about what Dr Merlo had been doing, including treating the Brightstar bank account as if it was his own personal private account with complete disregard for Brightstar and himself. He concluded by saying, and I quote “Finally, as partners any important decisions, financial or otherwise must be undertaken with joint agreement in the best interests of the company and thereby avoid any repetition of the recent past one-sided indulgences that have created the current crisis.” He did not return Dr Merlo’s cheque and made no comment about Dr Merlo’s request for half of the NV shares.

Dr Merlo replied at length on 26 August 2005. In his letter he conveyed that he was still wanting “the 50% of my shares that despite my request of July and August first you have not sent now anf (sic) for which I expect you to act without any further delay…”

At the end of September 2005 Mr Duffy returned to Dr Merlo his cheque, saying in a letter that he apologised for the delay. He also returned the note signed by Dr Merlo and his wife relating to the repayment of the loan. He did not provide any share certificates or the note containing Dr Merlo’s pledge of shares.

Dr Merlo replied to this message in October 2005. He pointed out his surprise that “you had not included the 50% of my Brightstar NV shares”. He asked why these had not been sent as he had now asked four times. He again suggested that Mr Duffy should visit Milan to discuss matters.

On 9 November 2005 Dr Merlo wrote again to Mr Duffy, pointing out that his October letter had gone unanswered. He explained problems being caused to the business and how he was trying to deal with them. He repeated his request for the dispatch of “my Brightstar share without any further delay”.

Mr Duffy did not reply to this letter. By a long letter dated 10 November 2005 he detailed a variety of further complaints. He told Dr Merlo that he was proposing to charge NV some $7,668 to reimburse himself for past expenses. He went on to say “we once again need to take steps to clarify matters to enable placing the Brightstar company accounts on a firm transparent basis and even at this late stage try and determine a reasonable realistic picture of the final profit and loss outcome of the total project”. He did not respond in any way to Dr Merlo’s requests for NV shares.

On 17 November 2005 Dr Merlo and his wife were attending a trade fair in Dubai. As it happened Dr Merlo and Mr Duffy met at the offices of Messrs GMAMCO, the Brightstar representatives in UAE. They were left alone together in an office room, where they discussed Dr Merlo’s demand for half of the NV shares. At the conclusion of this meeting Mr Duffy agreed that he would provide them. I shall say later what else Mr Duffy says about this meeting.

That or the following night there was a dinner during the course of which Mr Duffy told Mrs Merlo words to the effect that his dispute with her husband was over and that he was to prepare some documents to confirm her husband’s requests for the return of the NV shares. On 20 November 2005 before leaving Dubai Mr Duffy wrote out in his own hand and signed a note which he gave to Dr Merlo. This reads as follows: “Following our meeting in Dubai during past days & discussion on 17/18 I will take steps to despatch 2 share certificates to Marco Gerosa office. I will also answer your October & November letters within the next week to 10 days & send you finalised version of P&L accounts. Mike”

It was after this encounter in Dubai that Mr Duffy wrote his letter of 29 November 2005 to his bank in Geneva.

On 16 January 2006 Dr Merlo wrote to Mr Duffy pointing out that the NV share certificates had not been received. There was no reply concerning the shares. On 8 February 2006 he wrote again. There was again no answer concerning the shares.

Dr Merlo instructed solicitors to act for him and to require Mr Duffy to hand over half of the share capital of NV. On 5 December 2006 Mr Duffy sent a long letter to Dr Merlo. In this his position was that he had been advised by a solicitor that, in relation to the NV shares, “English judges are extremely reluctant to make rulings since possession alone is sufficient proof of ownership and hence any order by a judge has no ordinance.” What is striking is that Mr Duffy did not deny that as between him and Dr Merlo the latter was entitled to half of the NV share capital. Rather the thrust of the letter was that Dr Merlo could not prove his entitlement and that if he tried he could “inadvertently open a Pandora’s box of trouble”. The suggested trouble was made clear by the letter: this was the possibility of investigation by the Italian authorities.

The first time that Mr Duffy denied Dr Merlo’s claim to half of NV and in terms asserted that as between the two of them Dr Merlo had no entitlement was in the Defence in this action.

I should now explain my reasons for my conclusions about Mr Duffy which I have summarised earlier in this judgment, and also say something about Dr Merlo’s evidence.

On any essential issue of fact I prefer the evidence of Dr Merlo to that of Mr Duffy. Making allowances for the passage of time, I thought Dr Merlo’s evidence to be reliable on the key points he professed to remember. He impressed me as a convincing witness giving truthful evidence.

In saying this I have given careful consideration to the undoubted fact that Dr Merlo’s first formulation of his case in this action was inadequate, and was not remedied by his first attempt at giving further information. The very first sentence of his Particulars of Claim, a document on which Dr Merlo had given a statement of truth, was “The Claimant and the Defendant were formerly equal shareholders in a company called Brightstar UK Limited …”. Apart from the fact the company’s name was incorrectly given, it was palpably wrong to assert that Dr Merlo had ever been a shareholder in Limited. And no basis was set out for Dr Merlo’s claim to be beneficially entitled to any interest in NV’s capital: in effect the pleading comprised a bare assertion of a claim that the bearer shares were held by Mr Duffy on behalf of Dr Merlo and Mr Duffy equally. This pleading deficiency had to be remedied at the start of the trial, when I gave permission to Mr Richard Morgan, Dr Merlo’s Counsel (and not, I should say, the person by whom the original Particulars of Claim had been settled) to serve an amended Particulars of Claim which was in substance a complete re-write of the material parts of the original statement of case.

My conclusion about this is that, in all likelihood, from Dr Merlo’s perspective his claim was so obvious, and on the face of it had been admitted by Mr Duffy by his note of 20 November 2005 and not subsequently denied, that little was required of him by way of exposition of his claim, and as a consequence he gave insufficient attention to the detail of his pleading. This, I think, is the explanation for his having verified what was in his Particulars of Claim.

As regards Mr Duffy’s evidence, I have set out at some length what Mr Duffy said concerning his possession of the NV bearer share certificates and their whereabouts. In giving that evidence he plainly lied on a matter central to this action.

There is, however a second clear example of his having lied on an important matter. I have just summarised the position concerning the Dubai trade fair of November 2005 and the note dated 20 November 2005. This position is one which was put forward by both Dr and Mrs Merlo in their evidence. In outline it had been put forward by Dr Merlo in his statements of case, the note of 20 November 2005 having been attached to the original Particulars of Claim.

Mr Duffy’s Defence admitted that the document, that is the 20 November 2005 document, had been prepared by him at the Dubai trade fair. But it asserted that it was prepared in circumstances where Dr Merlo was behaving “in a way that was inimical to the commercial interests of” NV, and was made to assuage Dr Merlo and to prevent him sabotaging possible deals into which NV was intending to enter.

In his written evidence Mr Duffy elaborated on this to explain how, after arriving at the offices of Messrs GMAMCO he was “ushered into a prepared room by Dr Merlo who then commenced to berate me in a very hostile manner accompanied with emotional gestures. His evidence continued, “I was very embarrassed by this unnecessary display which could be heard by my distributors staff members in close proximity. I considered this a very demeaning episode and was not in the best interest of [NV] to be seen and heard arguing when we were supposed visitors. … Clearly this was a prearranged set up since during the discussions Dr Merlo produced a hand written piece of paper stating that I would send two Share Certificates to a Marco Gerosa, a senior manager with Credit Suisse, I gave an indication that I would comply, but this was purely a device to placate his unreasonable behaviour …”.

Dr Merlo was cross-examined on the basis that the note of 20 November 2005 was written by Dr Merlo, not by Mr Duffy (as described in Mr Duffy’s statement), and that in effect Mr Duffy was forced to sign the pre-prepared document at the offices of Messrs GMAMCO. Mr Duffy was present in court for this cross-examination.

When Mr Duffy came to give his evidence he accepted, in cross-examination, that the 20 November 2005 note was in fact in his hand, that (as Dr Merlo and his wife had said) it was written out by him after the trade fair was over and just before he left Dubai, and that when it was written out by him Dr Merlo needed no assuaging or calming down. What he explained, for the first time, was that there were in fact two notes. One, he said, had indeed been presented to him at the offices of Messrs GMAMCO: this, written by Dr Merlo, he had been forced to sign and had handed over to Dr Merlo. Later, before leaving Dubai, he had written the second which said almost the same things (so far as he remembered) as had been contained in Dr Merlo’s version.

This I find simply unbelievable. Not only had the two note version of events never previously been mentioned. Had it been, Mr Duffy’s Counsel could not have cross-examined Dr Merlo on the basis that the document dated 20 November 2005 had been written out by Dr Merlo and presented to Mr Duffy as part of a trap. And if there had been the first note in Dr Merlo’s hand, signed by Mr Duffy and handed over to and kept by Dr Merlo, Mr Duffy could have had no possible reason for writing out a second note on 20 November 2005.

I am satisfied that Mr Duffy allowed his Counsel to cross-examine Dr Merlo on the basis of what he, Mr Duffy, had said in his statement, when that statement was simply false, as Mr Duffy knew. Once it was quite obvious that the document was in Mr Duffy’s own writing and that the story told in Mr Duffy’s witness statement was false, Mr Duffy came up with his explanation concerning the supposed document which had been written by Dr Merlo.

There is a further example of a similar kind. I have referred to the security given to Mr Duffy in 2004 for his loan to Dr Merlo. Mr Duffy’s Defence appeared to deny that there had been any pledge given by Dr Merlo in relation to the NV share capital. His written evidence was, in effect, that the first time Dr Merlo made any profession of any ownership interest in NV was the following year, when Mr Duffy had changed the mandate on NV’s account with Credit Suisse and a dispute arose between the parties and Dr Merlo for the first time put forward a claim he knew to be unjustified.

However, Mr Duffy admitted in his oral evidence that he had in fact received from Dr Merlo a letter giving a pledge of half the NV shares. He also accepted that the evidence on the point given by Mrs Merlo was true, although he differed as to the means (that is to say by post rather than by being given in person) by which the pledge letter had been provided to him. Yet in his presence Mrs Merlo was cross-examined on the basis that she had not signed any letter dealing with a pledge of shares and that there was no pledge of shares given by her husband. Similarly, in Mr Duffy’s presence Dr Merlo was cross-examined on the basis that his evidence concerning the giving by him of a letter pledging NV shares was untrue and that he had not given any such letter.

It will be appreciated that as Mr Duffy’s pleaded case was that Dr Merlo had no beneficial interest in any NV shares, it would be difficult to understand how, consistently with that position, Dr Merlo could have given and Mr Duffy received without comment a letter from Dr Merlo in which the latter pledged to Mr Duffy his interest in the NV shares as security for repayment of Mr Duffy’s loan.

This brings me to a final example. Mr Duffy said that Dr Merlo’s claim to half of NV’s capital is a try-on, Dr Merlo having put forward a claim he knows to be false. In my judgment that is simply untrue. At the least Mr Duffy has known for several years that Dr Merlo has genuinely believed himself to be entitled to half the capital of NV, this being because that company is the vehicle through which he and Mr Duffy were carrying on the Brightstar business as equals. That Dr Merlo believed this, and that Mr Duffy knew of Dr Merlo’s belief, is demonstrated by (a) the matter of the security proffered by Dr Merlo and accepted by Mr Duffy in 2004 and (b) Dr Merlo’s demands in 2005 and Mr Duffy’s behaviour in response to the demands.

The true position, as it seems to me, is that which is revealed by Mr Duffy’s letter of 19 August 2005, the last paragraph of which I have already quoted. Mr Duffy knows that as between the two of them Dr Merlo is beneficially entitled to half of the NV share capital; but he also is prepared to refuse to recognise that entitlement, and to keep NV for himself, in the hope that Dr Merlo will be afraid to pursue his claim through the courts.

That Mr Duffy himself believed Dr Merlo to have a beneficial entitlement to part of the NV share capital is demonstrated by Mr Duffy’s message of 25 June 2002 sent to First Independent. Mr Duffy was unable to give any explanation for his sending of that message, except that he set out Dr Merlo as having a beneficial interest “without thinking matters through”, and that he made a mistake. When, in cross-examination, he was asked how he could have made the mistake, he prevaricated and tried to avoid giving any answer; but ultimately his final response was to say, baldly, that the question was a good one and he did not know how he made the mistake. It was, of course, a similar “mistake” to the one he made in November 2002 when providing information to Credit Suisse in connection with NV’s bank account. That too he could not explain, despite having ample time to think.

I am also sure that Mr Duffy believed Dr Merlo’s beneficial interest to extend to half. I say this for the following reason. When being cross-examined about the operation of the Brightstar business in the later years, and in particular about the sharing of profit, Mr Duffy said that he was happy splitting Dr Merlo’s costs and profit with him, but objected to Dr Merlo taking up front 30% of gross margin as a fee.

This now brings me back to the starting point. Does Dr Merlo’s claim have the foundation in fact, going back to the start of the business relationship with Mr Duffy, which is alleged by Dr Merlo? That the two men believed, after 20 years of doing business together, that Dr Merlo was beneficially entitled to half of the NV shares makes it likely that his claim does have a foundation. I now explain why I am satisfied that it does indeed have a foundation and is made out.

Dr Merlo visited Mr Faulkner before Limited was formed, and on or before 7 January 1981 when (as is now clear) Mr Faulkner provided Dr Merlo with a letter. There is a central issue. What was the purpose of Dr Merlo’s visit then? Did Dr Merlo then or thereafter have any involvement in the formation of Limited, giving any instructions in that regard? For whom did Mr Faulkner hold the share capital of Limited once he had acquired it? And, critically, for whom did Mr Faulkner hold the share capital of NV once he had acquired that?

The first contact with Mr Faulkner in connection with the setting up of an offshore company as a vehicle for a business was, I accept, made through Mr Duffy’s accountant, Frank Hirth of Frank Hirth & Partners, who provided the introduction.

Mr Duffy says that in this regard he met Mr Faulkner in London in the early 1980s; and Mr Faulkner agrees with this. He says that it was he who first met Mr Faulkner, not Dr Merlo. Dr Merlo’s belief is that it was he, Dr Merlo, who first met Mr Faulkner, this being in Switzerland and when it not being convenient for Mr Duffy to meet Mr Faulkner.

Whether the first of Mr Duffy and Dr Merlo to meet with Mr Faulkner was Mr Duffy rather than Dr Merlo is, I think, impossible to decide. I attach little weight to Mr Duffy’s unsupported evidence; and I don’t believe that Mr Faulkner can now remember accurately which of the two he first met or when. But even if the first to meet was Mr Duffy rather than Dr Merlo in my judgment the point goes nowhere. I say this because by about 7 January 1981 Dr Merlo had been to visit Mr Faulkner at his offices in Luzern. It is accepted by Mr Faulkner that a purpose of Dr Merlo’s visit was (among other matters) to decide whether Mr Faulkner was to be trusted with administrative services, including the provision of an offshore company. If, as Dr Merlo says, the offshore company was intended to be for handling the Brightstar business (that is the business which Dr Merlo and Mr Duffy were to embark upon) it would be entirely understandable that Dr Merlo should himself want to meet Mr Faulkner, even if Mr Duffy had already done so.

The letter of 7 January 1981, to which I have just referred, is on the letterhead of an entity called MAP Engineering Services Inc (“MAP”) having a “London Representative” at an address in London. The letter referred to “our recent discussions”. It said that “we expect to be in a position later this year to set up a separate company to look after” certain anticipated operations in the Middle East. It continued, “in the meantime we can confirm that it would be our intention to appoint you as our agent for this new company and for any orders placed in the meantime we would pay you a commission at the rate of 5%”. The letter invited Dr Merlo to go to Quatar to make preliminary contact in relation to “the Hamad Hospital enquiry”, shortly after Easter, and to build into his itinerary certain expected enquiries in the UAE, Bahrain and Kuwait.

MAP was a Faulkner vehicle, a Panamanian company which he used for various activities. It is obvious that neither Mr Faulkner nor MAP had any intentions whatsoever regarding the Middle East; rather, Mr Faulkner had at the time an intention of setting up a new company for a client, a company which he could administer and which would carry on some business in the Middle East. Further, any intentions which Mr Faulkner might have had concerning the appointment of Dr Merlo as an agent for such a company would only be an intention to act on instructions given by his client and, if instructed, to make such an appointment.

Dr Merlo’s evidence, which I accept, is that this letter was written by Mr Faulkner at Dr Merlo’s request, Dr Merlo’s aim being to have some document which could be shown to the Italian tax authorities to explain his position when making payments. I also accept that the information in the letter concerning the hospital project (which, incidentally, was the first intended project with Al-Shirawi) was told to Mr Faulkner by Dr Merlo. He said that the actual setting up of the new company awaited the actual obtaining of the order for the hospital project, when he again went to see Mr Faulkner to request the setting up of the company.

Mr Duffy’s written evidence is that the letter was written by Mr Faulkner on his, Mr Duffy’s, instruction. The purpose of the letter, so he said, was to set out “our position regarding the formation of the company and assuring him that we intended to appoint him as our agent”. In this connection by “we” and “our” Mr Duffy means, I understood, “me” and “my”: in the context of the written evidence he was not referring to himself and Dr Merlo jointly. He also said in his written evidence that he did not believe Dr Merlo made a visit to Mr Faulkner’s office, as “if such a trip had been made Mr Faulkner would have discussed it with me”, the plain inference being that Mr Faulkner never did discuss such a meeting with Mr Duffy and that therefore in all probability there never was one.

Mr Faulkner gave written and oral evidence about the 7 January 1981 letter. His written evidence gave it as his belief that when he wrote the letter he had not met Dr Merlo and that the letter was written on Mr Duffy’s instructions following an instruction given to him, Mr Faulkner, to set up a new company for Mr Duffy. The absurdity of Mr Faulkner’s and Mr Duffy’s written version of events is obvious. On this version Dr Merlo was not willing to trust Mr Duffy’s oral promise to engage him, once the new company was set up and had obtained business, but was prepared to accept a mere expression of intent provided by Mr Faulkner on behalf of a Panamanian company.

Mr Faulkner’s written evidence on the point was mistaken, as became clear in cross-examination. In his oral evidence he described what Dr Merlo had told to him as being the purpose for which the letter was required, this being during a visit made to him by Dr Merlo when Dr Merlo asked for the letter. However he stated that he had “no doubt that I spoke to Duffy about it because I wouldn’t put something like that without checking”.

I am inclined to think that Mr Duffy is correct in saying that Mr Faulkner did not check with Mr Duffy following Dr Merlo’s visit and that Mr Faulkner is mistaken; but other than that I cannot accept Mr Duffy’s evidence. In my judgment Dr Merlo’s evidence on the point is correct, not only so far as the making of the 7 January 1991 letter was concerned but also concerning his having gone to meet and, in effect, vet Mr Faulkner for the proposed new company and business venture with Mr Duffy. Indeed Mr Faulkner essentially agreed with Dr Merlo’s evidence that he, Dr Merlo, had come to see him to see whether he was trustworthy. As he put it “…very often if you are handling money which may be due people you like to eyeball the person who is doing it and see if he has at least got an honest face and whether he looks as if he is a competent person”.

Dr Merlo’s evidence is that Mr Faulkner formed Limited on instructions given by him, these being given in person by Dr Merlo to Mr Faulkner in Luzern. These instructions, he accepts, were for himself and Mr Duffy. So far as he was concerned Mr Faulkner was acting for the two of them, and held Limited for them. On this I prefer Dr Merlo’s evidence to that of Mr Duffy. While it may be that Mr Duffy also asked Mr Faulkner to form Limited, if he did his request, like that of Dr Merlo, would have been for Limited to be formed for the two of them.

It follows that I reject Mr Duffy’s case that Mr Faulkner formed Limited on instructions from him, Mr Duffy, alone, and that it was he alone who was Mr Faulkner’s client and for whom Mr Faulkner held Limited.

What followed confirms, in my judgment, that the two men, namely Mr Duffy and Dr Merlo, were Mr Faulkner’s clients in connection with Limited and its administration.

Once Limited was formed and under the administration of Mr Faulkner, Dr Merlo made visits to Mr Faulkner’s offices in connection with the activities of the Brightstar business.

One purpose of Dr Merlo’s visits, following the formation, was unquestionably to collect and take away copies of Ms Suess’ ledgers. As the administration activities involved simply the tracking of receipts and payments of money and the giving of instructions to bankers (that is UBS in Luzern) in connection with the opening and operating of accounts, another purpose in visiting the offices would be to consider banking records (and, I interject, some of those were provided to Dr Merlo along with the copies of the ledgers). I also conclude that these visits will have involved discussing banking transactions and giving instructions, not necessarily discussions with or instructions to Mr Faulkner as opposed to Ms Suess. The discussions must also have concerned the provision by Dr Merlo of guarantees of Limited’s account with UBS or of documentary credits issued by UBS.

In particular, I cannot believe that each and every disposition made from Limited’s or, for that matter NV’s, bank account was instructed to Mr Falkner or, for that matter, was instructed only by Mr Duffy. Having regard both to later developments, when an account was opened for the Brightstar business on which each of Mr Duffy and Dr Merlo was a sole authorised signatory, and to the fact that Dr Merlo (but not Mr Duffy) must have provided one or more guarantees of Limited’s UBS bank facilities before 1989, I think the probability is that in the period of Mr Faulkner’s administration banking transactions, in particular the opening of letters of credit and the making of payments by transfer or cheque, were instructed to his office by either one of Mr Duffy and Dr Merlo without distinction and without the office referring back to or checking with the other.

As Mr Duffy agreed in cross-examination, from the very first project, the project with Al-Shirawi, Dr Merlo received much more than the mere 5% commission indicated in the 7 January 1981 letter. Indeed, on that project it is clear that if the division of profit within the Brightstar business was not strictly 50/50 between Dr Merlo and Mr Duffy, it was Dr Merlo and not Mr Duffy who received the greater part. Yet Mr Duffy could not explain when or how the agency with a 5% commission was changed into an agency, nothing more, with a greater than 5% commission.

What Mr Duffy did accept was that, as the surviving documents demonstrate beyond any doubt, Dr Merlo at periods of the life of the Brightstar business was intimately involved in the management of the Brightstar business, examining the records of the Brightstar transactions and discussing business decisions with Mr Duffy which went beyond the operational matters (customers, suppliers, terms of business etc) a mere agent on commission might be concerned with and extended to internal organisational matters (such as, for example, the protection of trademarks). It was Dr Merlo not Mr Duffy who provided security for the banking facilities needed for the Brightstar business. And Mr Duffy accepted that routinely he and Dr Merlo agreed and shared Brightstar profit on particular projects. And, as it seems to me, it is improbable that in essentials this picture varied to any significant extent from one period to the next.

In the end Mr Duffy was reduced in cross-examination to saying that merely because Dr Merlo may have been entitled to a share of profits of the Brightstar business, and may indeed have been entitled to be “equally compensated” as Mr Duffy put it, he was not necessarily an owner of the Brightstar vehicles. He explained that the profit split from projects, perhaps being a 50/50 one (he would not speculate) was enough for Dr Merlo. As he had all the advantages and privileges and was able to do everything, ownership was a small technicality, according to Mr Duffy, and therefore Dr Merlo had no need to query Mr Duffy’s ownership of the Brightstar vehicles.

For completeness I should set out my views concerning Mr Faulkner’s evidence. I believe that Mr Faulkner, when giving his oral evidence, was trying his best to give accurate evidence. There was however a discrepancy between his oral evidence and his written evidence. I have already referred to one important one, namely the difference between his written and oral evidence concerning the making of the 7 January 1981 letter. The written evidence was not in his own words; and I do not believe he was sufficiently careful in satisfying himself about the precise accuracy of what was written before he confirmed it.

Another contrast between his written and his oral evidence concerns the actual administration of the Brightstar companies. It is clear from the documents and his oral evidence that this was routinely dealt with by Jutta Suess, not by Mr Faulkner at all; but she is not mentioned in his written evidence.

As to his oral evidence, the events about which he was speaking took place over 20 years ago. He had long ago disposed of his records from that period. He did not profess to be giving evidence based on diaries or other contemporaneous records. The Brightstar companies were not the only companies he formed and administered. He could very well be mistaken about matters which, at the time, may not have been of great importance to him personally but may have been of great importance to, and remembered by, individuals who dealt with him and Ms Suess.

Mr Faulkner’s written evidence contains various material assertions. The most important are as follows. First, he says that Mr Duffy was “the client”. Second he says that Dr Merlo “was not the client”. And third, he says that although he met with Mr Duffy and Dr Merlo both together and separately, and I quote “On no occasion did Mr Merlo assert to me that he owned shares in either [Limited] or [NV] and at all times the shares were held by me or my company on behalf of Mr Duffy”.

As to these matters Mr Faulkner’s oral evidence was as follows. He had not had any retainer letter or other document from either Mr Duffy or Dr Merlo. When asked why he thought Mr Duffy was his client, his answer was to the effect that “he was the chap who came to give instructions and, you know, I held the shares for him and, you know…”; that “I always perceived him as the client”; that “I suppose I was holding his shares for him which is what I suppose makes him the client”; and that he supposed he was holding the shares for Mr Duffy because “that was the way that it was. He was the client and that was it. You know, there was never a suggestion that the shares were held by us other than for Duffy, Mike Duffy, neither a suggestion by him nor by Mr Merlo”.

As it seems to me, Mr Faulkner’s reasoning was that Mr Duffy was the client because the shares were held for him and the shares were held for Mr Duffy because he was the client. Yet it is clear that neither Dr Merlo nor Mr Duffy ever told Mr Faulkner that the shares were held for Mr Duffy.

The point of entry to this circle concerns the identity of the person from whom Mr Faulkner took instructions. As to this, his own oral evidence was that he probably saw Mr Duffy once a year, but certainly less frequently than he saw Dr Merlo; and he commented “I would think that telephone conversations were much more frequent”. He also said “I would – if somebody instructed a payment to be made I would check it with the client normally and I do not think this was an abnormal kind of company. It was a fairly normal company”.

I think Mr Faulkner’s answers on this point destructive of any idea that every request or instruction given by Dr Merlo to Mr Faulkner or his office relating to the Brightstar business was cleared with Mr Duffy. Had that been so, Mr Faulkner and his staff would necessarily have had to be on the telephone to Mr Duffy several times each month, year in and year out. There would have been occasions, no doubt, when Mr Duffy was travelling and when telephone confirmation of apparently urgent requests or instructions was difficult to obtain. Under those circumstances I cannot see how Mr Faulkner could have been anything but sure remembering of having had numerous telephone conversations with Mr Duffy as a matter of routine.

Rather, as it seems to me, Mr Faulkner’s evidence moves from the assumption, made by him, that Mr Duffy was the client; and from this he concludes that Mr Duffy would normally have given instructions, to the further conclusion that Mr Duffy must have spoken on the telephone more frequently than once a year. An example of this is to be found in Mr Faulkner’s evidence concerning his supposed confirmation of Mr Duffy’s instructions in connection with the letter dealing with Dr Merlo’s intended agency.

Although I accept, as I have said, that Mr Faulkner’s initial contact was with Mr Duffy, I do not think that this made Mr Duffy his client to the exclusion of Dr Merlo, or indeed that at the time Mr Faulkner thought that Dr Merlo was not a client. I cannot imagine how Dr Merlo can have been provided with copies of the Brightstar ledgers maintained by Mr Faulkner and of the bank statements unless in relation to the Brightstar business, and hence the Brightstar companies, Dr Merlo was a principal and hence a client. Further, Mr Faulkner accepts that before the formation of Limited Dr Merlo had come to see him and had discussed with Mr Faulkner the services which the latter could provide; that is services as the administrator of an offshore company. I think that with the passage of time Mr Faulkner has persuaded himself that it was Mr Duffy alone who was his client. It is this mistake which has led him to his conclusion, which I believe to be mistaken, that he held the shares in the Brightstar companies for Mr Duffy alone to the exclusion of Dr Merlo.

It is right that I should explain specifically my views concerning NV. It is plain that fees for First Independent were paid from Limited’s UBS bank account. Mr Faulkner says that it was formed at the request of Mr Duffy after Mr Faulkner had pointed out to Mr Duffy that the tax advantages of having an English registered company conducting business offshore were likely to be lost. Dr Merlo has no particular recollection of the formation of NV. So far as he was concerned there was simply Brightstar Corporation.

My conclusion about this is that with the passage of time Dr Merlo has forgotten what was at the time simply a small detail in the undisturbed course of the Brightstar business conducted by him and Mr Duffy under the umbrella of a company administered by Mr Faulkner. It may have been Mr Duffy who gave the immediate instruction to Mr Faulkner; but that instruction would have been one given for himself and Dr Merlo as the proprietors of Limited and principals through Limited in the Brightstar business. As mentioned earlier, the formation cost for NV was shown in Limited’s ledger for 1985, a copy of which was at about that time provided to Dr Merlo by Mr Faulkner or Ms Suess. And, significantly, in cross-examination Mr Duffy agreed that in 1984, when NV was set up, it was on the basis that he and Dr Merlo were in business together, and that then there was a seamless transition from Limited to NV.

Attendus took over the administration of the Brightstar companies from Mr Faulkner in 1989, as I have mentioned earlier. Their administration continued until 1996, when they passed over the companies’ bearer shares to Mr Duffy.

I am willing to accept that when Attendus by Mr Clements took over the shares in Limited and NV, and the formal administration of those companies, he may have assumed that Mr Duffy was their client and that the shares were held by them for him. I am willing to accept that Mr Duffy did not then in terms disabuse them, and neither did Dr Merlo. Quite probably neither saw any need to discuss the matter with Mr Clements. What I do not believe is that Dr Merlo ever said to Mr Clements that he was not a beneficial owner of the companies; and I do not believe that Mr Clements was told by Mr Duffy that the latter was the sole beneficial owner of the companies.

Mr Clements gave written evidence, in his first witness statement, that in his belief Dr Merlo was irrelevant to “Mr Duffy’s business”. He qualified this answer when he was under cross-examination and at a time when, no doubt, he had seen more of the contemporaneous documents than he had when he made his witness statement. Some allowance may perhaps be made for what he had said in his statement in that much of Attendus’ dealings in relation to the day to day operation of the Brightstar business were carried on by Carmen Pfoster. Nevertheless I think the written evidence is telling. It is transparently obvious that Dr Merlo was a key protagonist in the business, and sufficiently well known to Mr Clements to be referred to him in correspondence to Mr Duffy as “Peter”. And Dr Merlo was not very long after described by Mr Duffy himself in a letter to Dr Merlo as being his “partner”.

In fact I believe that Mr Clements suspected, if he did not actually know, that the Brightstar business was a joint operation involving the two men together. I cannot otherwise understand why Mr Clements should, in his letters of 17 November 1994 and 5 January 1995, when chasing fees, have threatened in his letters to Mr Duffy to put First Independent in touch direct with Mr Duffy and Dr Merlo: that was in my judgment a clear indication that in his opinion it was the two men who were the proprietors of NV and who would properly be left with the responsibility for NV on Attendus’ stepping away.

True, the force of this point is diminished by the fact that Mr Clements appears not to have copied his letters to Dr Merlo; but nevertheless Mr Clement uses Dr Merlo’s first name to refer to him, and as a general matter seems to have corresponded with Mr Duffy rather than Dr Merlo, it being Carmen Pfoster who had direct dealings with Dr Merlo. Still, however, it is in my judgment telling that Mr Clements wrote the two letters in the terms he did. In his oral evidence he could not give an explanation for his having written what he had. To quote him, he had no idea.

It is, of course, also telling that Mr Duffy consulted Dr Merlo about the 5 January 1995 letter. It was Dr Merlo’s evidence that he objected to the unnecessary and excessive expense to the Brightstar business of using Attendus, which led to Attendus ceasing to be administrator. Here was an example of Mr Duffy raising for discussion with him the consequences of the Brightstar business failing to meet that expense. Here was Mr Duffy seeking “joint agreement” for an “important decision, financial or otherwise”, to borrow from his letter of 19 August 2005 to which I have already referred. It was not long after that Attendus ceased to administer NV and handed over to Mr Duffy.

Mr Clements said in his oral evidence that where Attendus took on the administration of a company and held the shares in the company, Attendus would have had in its possession an engagement letter with and identifying Attendus’ client, and also some document recording the identity of the beneficial owner of the company. Mr Clements did not know whether or not such documents had been made in the case of NV. He thought it likely that they would have been. But, it follows, he cannot give any direct evidence as to what such documents showed, if indeed they had been made. He said that no request had been made to Attendus to see whether Mr Clements could obtain this document.

In October 1991 Carmen Pfoster wrote to Dr Merlo to confirm that he and Mr Duffy were expected to visit Attendus in Lucerne on 12 October 1991. Shortly before that, Attendus (Mr Clements signing on behalf of Carmen Pfoster) had written to Mr Duffy complaining that “the contracts for Brightstar Corporation are still not signed”. As Ms Pfoster did not give evidence, and Mr Clements could not remember it, I conclude that at any rate by that time Attendus had not obtained the documents described by Mr Clements. Mr Duffy was asked about the visit, and his comment (apart from denying that it indicated that the two men were regarded as joint owners) was simply that the purpose was because “there was possibly some transactions in the account et cetera that needed both our attention”. The upshot of this is that I do not accept Mr Clements’ evidence concerning the existence and contents of the records which he described.

I should say a little more about Mr Clements’ evidence. It is apparent from what I have said that I do not believe his evidence to be reliable. I accept that he may have been genuinely trying to give truthful evidence and to assist the Court. However, his evidence was certainly not accurate. I have pointed out his remark about the irrelevance of Dr. Merlo. As another example, he had obviously forgotten that for a number of years he was a director of, and signed annual accounts as, a director of Limited. And I have drawn attention to his inability to explain his letters of December 1994 and January 1995.

As it seems to me, having an imperfect memory Mr Clements has failed to take care to speak of only what he can be sure of remembering accurately. Having leapt to a mistaken conclusion himself that Mr Duffy was Attendus’ client and the beneficial owner of the NV shares, because this information was suggested to him by the two documents which he attached to his first witness statement, he has persisted in that view. The two documents included the letter of 6 January 1996. Both showed Attendus to be making the handover of NV to Mr Duffy. As I say, I think that starting from these documents, and unaided by any other documents or any accurate memory, Mr Clements has persuaded himself to say what he has concerning the identity of the Attendus client and the beneficial owner of NV.

My clear view is that very shortly after taking over the administration of the companies, after about the middle of 1990 with the opening of the SVB Lugano account, Attendus really dropped out of the picture as having any practical function besides holding the companies’ shares and on occasion providing formal documents. Limited was shelved, so far as Attendus was concerned: the documents returned for this company to the Registrar of Companies show a more or less formal existence with which, in the light of Mr Clements’ oral evidence, he can have had little to do. The UBS Luzern accounts were closed; I doubt whether any accounts at Luzerner Kantonalbank were used much, as that would have involved having to deal through Attendus. Once the SVB account in Lugano was opened, it was more convenient for the Brightstar business: as Dr Merlo and Mr Duffy were on the mandate, each being authorised as a sole signatory, there was no longer any need to go through the company administrator in relation to any of the Brightstar banking transactions.

The point which I have just made is demonstrated by a letter dated 4 April 1990 sent by Mr Duffy to a supplier in South Korea. This is on Limited letterhead, with Mr and Mrs Faulkner shown as directors, and expressed to be from Mr M J Duffy of Luzern. The letter explained that letters of credit were to be opened by “our bank Swiss Volksbank in Lugano”. The opening of these was to be effected when “our finance director with this responsibility” is in Lugano at the end of the week. I have no doubt that the reference to the finance director was intended to be to Dr Merlo, who would be the person dealing with SVB Lugano. None of this involved Attendus.

Having ceased to administer the Brightstar companies in 1995, Attendus in January 1996 handed over the bearer share certificates to Mr Duffy, as I have explained. This, I believe, was because that is what they were asked to do. Although neither Mr Duffy nor Dr Merlo gave evidence about the instruction it is possible that the instruction was given by Mr Duffy. Quite possibly it was not discussed by him with Dr Merlo. But if it had been, it would not have been particularly surprising if at that time Dr Merlo had agreed, not because he thought the shares belonged to Mr Duffy or because he was giving up his interest in NV to Mr Duffy, but because at the time it would not have suited him to have any of the bearer share certificates in Italy.

What I cannot accept is that when the shares were passed to Mr Duffy he thought that he now held them beneficially and that no part was held by him for Dr Merlo. As it seems to me, Mr Duffy took over from Attendus as the person holding the shares, in particular the NV shares, on trust for him and Dr Merlo equally.

That, as it seems to me, is the end of the case. Although I was provided with several authorities, there is no particular point of law which needs to be expounded. NV’s share capital has at all times been held by a legal owner. At all times the legal owner held the share capital as nominee on a trust established at the outset by agreement between the first owner, who acquired the shares for and at the cost of his principals, the beneficial owners equally entitled. Whether the trust is considered as an express trust or as a resulting trust following the way NV was set up and paid for is of no significance. Either way the beneficiaries were Mr Duffy and Dr Merlo. That first holder was Mr Faulkner. The next was Attendus. Finally the share capital came to rest with Mr Duffy. During this process Dr Merlo never disposed of his beneficial interest to Mr Duffy.

That, as it seems to me, is the end of the case. I was told at the outset that in effect what was in issue was simply a factual dispute. I agree. This I have resolved in the Dr Merlo’s favour. I therefore propose to make the declarations and orders claimed by Dr Merlo, subject to hearing argument as to the precise form the relief should take.

This postscript is to supplement the written Judgment which I handed down at the hearing earlier today, 6 February 2009. At the hearing Mr Noel Dilworth, Counsel for the Defendant, asked for permission for his client to appeal my Judgment. In doing so he drew attention to the fact that my judgment contained no reference to the case of Re Emery’s Investment Trusts [1959] Ch 410, a case mentioned in both his Opening Skeleton and his Closing Skeleton in support of an argument there set out.

In my judgment at paragraph 134 I intended to allude to that case, among others. I did not, however, describe Mr Dilworth’s arguments or explain why I had thought them to have no application. It had seemed to me that in the course of the closing submissions the point had been sufficiently explored and had fallen away: this is reflected in the daily transcript at Day 5, Page 132, Lines 14 to 17. I therefore omitted from my Judgement further reference to the point. Nevertheless recognising in the light of Mr Dilworth’s application that his client wishes to appeal my Judgment, I am adding a brief postscript to record my reasons for thinking the arguments to have no weight.

The argument put forward by Mr Dilworth in his Opening Skeleton was that “Where the purchase (or acquisition) of property was taken in the name of someone other than the true purchaser so as to effect a purpose which was illegal, such as the evasion of British or foreign taxes, then if the purpose has been carried out, a party to it cannot adduce evidence of it if he needs to rely on the improper purpose to establish his beneficial title.” Based on this it was said “Even if the Claimant were somehow able to sustain an argument that he was entitled, in ordinary circumstances, to the shares, the circumstances on which he relies effectively disentitle him to the same, namely the evasion of liability to tax under Italian law…”.

In closing Mr Dilworth did not address me on the point until I raised it with him. It had not been pleaded or put to the Claimant in cross-examination. Mr Dilworth then accepted that as commonly understood the relevant principle is that a person may not rely on his own illegal act to rebut the presumptions of advancement or resulting trust. In the present case, as he accepted, the Claimant does not need to rebut any presumption, if there is a resulting trust in his favour. Therefore the principle is of no application.

A gloss was put on the point by Mr Dilworth, in that he submitted (as I understood it) that where a claimant’s claim requires as a necessary element some detriment suffered by the claimant, the claimant cannot establish that detriment by asserting that the detriment had been suffered because the claimant had been doing something illegal. Whether or not that is a correct statement of law, it can have no application – as Mr Dilworth accepted in the course of argument – in the context of a claim to establish a resulting trust, where detrimental reliance is not a necessary element of the claim. And detrimental reliance is irrelevant as an ingredient in a claim for an express or resulting trust.