KAR Oil Refining Ltd & Anor v Frion Ltd & Ors

On 27^th May 2011 I made an order authorising service on the Seventh Defendant, Martin Brian Tobias Gibbins of a Claim Form and Particulars of Claim in this action by an alternative method and at an alternative place. I am satisfied on the evidence that my order and the documents which I specified should be served with it were so served (a) by email on 1^st June 2011 at 12.25pm, and (b) by leaving hard copies at the offices of the Seventh Defendant on 1^st June 2011 at 10.55am. Under my order deemed service took effect on 3^rd June. It is now 30^th June. I am satisfied that the Seventh Defendant has not acknowledged service and has not served any Defence in response to the proceedings having been served on him. He is accordingly in default.

The claimants apply for default judgment to be given under CPR 12.3 and CPR 12.4(2).

On such an application the claimants are entitled to such judgment as may be sustained on the statement of case filed by them. In the instant case the Claim Form seeks relief against the Seventh Defendant by way of damages or equitable compensation, or alternatively an account, arising from causes of action identified as the tort of deceit, fraudulent misrepresentation and conspiracy, with a subsidiary claim to identified sums of money on the basis of “knowing receipt”.

The Particulars of Claim plead that those causes of action arise out of the signature of a document entitled "A Facility Agreement" on 1^st July 2010. Under this Facility Agreement the First Defendant (“Frion”) agreed to lend $104.5 million to the first claimant (“KAR”) for a specified period; but the terms of the Agreement said that, prior to draw down of the facility (a) KAR had to make a payment of $10 million to Frion and (b) that in return for such payment Frion would transfer a Medium Term Note drawn (as the remainder of the statement of case makes out) on a third party (“UAC”) in the sum of $10 million. This $10 million advance fee was supposed to be the “seed money” which would produce the $104.5 million to be lent by Frion. The nature of the case advanced by KAR is that the Facility Agreement was neither more nor less than an advance fee fraud. In support of that the Particulars of Claim plead (a) that it was represented to KAR that the Facility Agreement was a bona fide project financing arrangement (b) that Frion had access to the $104.5 million (c) that Frion had a track record of providing substantial project finance (d) that Frion was a substantial entity with $1.3 billion in assets on its balance sheet (e) that the medium term note was a bona fide instrument with a value of approximately $10 million and (f) that within 90 days of the payment of the “seed money” money Frion would begin to the $104.5 million and would immediately repay the $10 million “seed money” money (in default of which payment KAR could realise the value of the medium term note, allegedly $10 million).

It is pleaded that to the knowledge of, inter alia, the Seventh Defendant those representations were false, and that the entire structure amounted to a fraudulent scheme to unlawfully extract substantial moneys from KAR or the Second Claimants; and that to achieve that end the Defendants, including the Seventh Defendant, entered into a combination, agreement or understanding with one another, with the intention to cause loss to the claimants. In short, it is asserted that the medium term note provided by the defendants was nothing more than a sham, and a part of that overall scheme of fraudulent lending. So much for the general case in deceit, fraud and conspiracy.

As well as his knowing participation in the general scheme the particular case against him is that he personally made certain specific representations in the course of the promotion of the scheme. First, it is said that he held himself out as being a representative of UAC and he held out that UAC was a company of substance and was financially secure. Secondly, it is said that he asserted that the medium term note provided by UAC would constitute a very good security because it was backed by Treasury Notes, a representation that was wholly false. Thirdly, it is said that on a separate occasion he represented that the interposition of an associated company of UAC would further secure the intended transaction. Fourthly, it is said that when KAR and the second claimant expressed disquiet at the value of the medium term note and indicated that they would seek the advice of bond traders, the Seventh Defendant suggested that that was unnecessary and that he would provide the necessary letter of comfort from a bond trader: which he duly did but in terms, which the Particulars of Claim assert, he knew were false and misleading. Lastly, it is said that he asserted that the medium term note was of value and was tradable, whereas he knew that that statement was false. So much for the representations alleged to have been made by the Seventh Defendant, and which found the particular case in deceit and in fraudulent misrepresentation.

It is then further alleged that the Seventh Defendant is a “knowing receiver” of substantial sums of money procured by that fraud. The Particulars of Claim at some length set out the relationship between the Seventh Defendant and the other defendants who participated in the transaction; and they finally identify three particular payments made out of a solicitor's client account on 13^th August 2010, which are said to be the fruits or proceeds of the advance fee fraud, and which it is said were knowingly received by the Seventh Defendant as such.

The Particulars of Claim then seek damages, or equitable compensation, and a declaration that the sums received are held on constructive trust by the Seventh Defendant. So far as the damages claim is concerned, the nature of the case is that the whole $10 million “seed money” which the claimants put up, has been lost by reason of the deceit or fraud of the Seventh Defendant amongst others; and that in addition, by reason of the representations the claimants have been induced to incur costs (quantified as €117,500, and £35,250) in connection with the transaction.

I am satisfied that if each of the matters pleaded in the Particulars of Claim was proved at trial then the causes of action which underpin the damages claim and other relief sought would be made out. The Particulars of Claim correctly plead a case in deceit, a case in fraudulent representation, a case in conspiracy and a case of knowing receipt. In these circumstances the Claimants are entitled to judgment as set out in the draft order. Firstly, a declaration that the Seventh Defendant must account as constructive trustee for those sums which he actually received. Should it be that he received sums other than those specifically identified in the particulars of claim it would follow that he would also be bound to account for those sums as constructive trustee. Secondly, I am satisfied that the sums claimed, namely $10 million, and the Sterling equivalent of $136,206 by way of costs incurred, are both recoverable. Each of those sums should bear interest and I am satisfied that 8 per cent is an appropriate rate to charge.

It is also clear to me that the claimants are entitled to their costs of succeeding in obtaining this relief against the defendant and, having regard (a) to the nature of the case which is set out in the pleadings and (b) the refusal of the Seventh Defendant in any way to engage in the litigation process, an order for costs on the indemnity basis is justified.

I am also satisfied that it is appropriate to make an interim award of costs in the sum of £50,000. This is against a preliminary costs schedule in the sum of £97,000 which identifies (a) the part of the costs generally incurred which are attributable to the defendant (namely 20 per cent) and (b) and those specifically incurred in relation to the prosecution of the case against him.

I will accordingly give judgment in the form sought.