Bank of Ireland & Anor v Jaffery & Anor

The first Claimant, the Governor and Company of the Bank of Ireland (“GCBOI”) is an Irish corporation, established by Royal Charter in 1783, which has carried on business as a bank in Ireland and the UK. The second Claimant, Bank of Ireland (UK) PLC (“BOI PLC”) is the English public limited company to which the GCBOI transferred its UK business under a banking business transfer scheme (the “Scheme”) promoted under Part VII of the Financial Services and Markets Act 2000 in November 2010. The first and/or second Claimants are referred to in this judgment, where there is no importance in the distinction between them, as the “Bank” or the “BOI”.

This is primarily a claim for breach of fiduciary duty brought by the Bank against one of its erstwhile senior executives, Mr Syed Asalat Shabbir Jaffery (“Mr Jaffery”), who was summarily dismissed from his employment on 6^th May 2011. After the proceedings were first issued, the Bank obtained a Norwich Pharmacal order against Mr Pritpal (otherwise known as “Raj”) Gill (“Mr Gill”), who was known to the Bank as the agent for several of its customers, and was close to Mr Jaffery. Mr Gill was, thereafter, swiftly joined in as second Defendant to answer claims of dishonestly assisting Mr Jaffery in breaches of fiduciary duty and of bribery.

The Bank’s key allegations against Mr Jaffery are that he put himself in a position where his personal interest conflicted with his duty to the Bank, that he had secret interests in projects financed by the Bank’s lending, that he took bribes, and concealed his alleged wrongdoing from the Bank.

The background to the proceedings is formed by a series of loans made by the Bank to customers connected with Mr Gill after May 2007 (the “Loans”). These customers have been called the “Raj Gill Connection Customers” (“RGC Customers”). They were BVI registered companies, ultimately owned by Panamanian trusts. All of these entities were introduced to the Bank by Mr Gill. Perhaps the central issue in the case is whether Mr Jaffery had any beneficial ownership interest in any of RGC Customers. The Bank’s case is that Mr Gill and Mr Jaffery had interests in the RGC Customers. The Defendants’ case is that the RGC Customers are all ultimately owned by one or other of Mr Gill’s sisters, Mrs Mandip Kaur Sumby (“Mrs Sumby”), and Ms Jastender Kaur Gill (“Ms Jastender Gill”).

Alongside this main issue, there are suggestions in some of the papers and statements that interests in RGC Customers were in fact held or to be held by one or more of the following additional people or entities connected with them: (i) Mr Haji Kanji (“Mr Kanji”), the head of the Harry Mason group of companies; (ii) Mr Anoup Treon (“Mr Treon”), the head of the European Care group of companies; (iii) Mr Jaffery’s brother, Mr Syed Altaf Jaffery (“Altaf” or “Mr Altaf Jaffery”); (iv) Mr Jaffery’s sister, Ms Saeeda Akhtar Jaffery (“Ms Saeeda Jaffery”); and (v) Mr Jaffery’s nephew, Mr Syed Adnan Jaffery, who sadly died in January 2011 (“Adnan” or “Mr Adnan Jaffery”).

The case concerns a number of loans that came to fruition and a number of prospective loans that were never made. The ones that came to fruition were loans made as follows:

The prospective loans that were never in fact made were as follows:-

As will appear from the chronological background that I shall set out in due course, Mr Jaffery applied for an adjournment on the first day of the trial, on the grounds of his ill health. I declined to grant a further adjournment (two having already been granted) for the reasons expressed in my judgment of the 21^st March 2012, which I shall not repeat here. Suffice it to say, however, that although Mr Jaffery was not represented and did not ultimately attend the trial until 3^rd April 2012, he did enter into a protracted email communication with the court (copied to the other parties), so that court was always kept informed as to Mr Jaffery’s submissions and views on developments in the trial from day to day. From 3^rd April 2012, Mr Jaffery attended court and took a full part in the trial as a self-represented litigant.

Mr Gill also represented himself at the trial. He cross-examined the Bank’s witnesses that were called in Mr Jaffery’s absence, but once Mr Jaffery began to attend, Mr Gill deferred to Mr Jaffery allowing him to take the lead in cross-examining the two important witnesses that were then called, Mr Mark Cunningham (“Mr Cunningham”), and Mr David McGowan (“Mr McGowan”). The absence of Mr Jaffery at the start of the trial meant that some elements of Mr Jaffery’s case were, necessarily, not put to the Bank’s other witnesses. Whilst this was unfortunate, it was in the circumstances unavoidable.

I should record that, despite the strong feelings running in this case on all sides, both self-represented Defendants conducted themselves in a moderate, courteous and proportionate manner.

The burden of Mr Jaffery’s defence was that he had never had any interest in the RGC Customers, even though there had been discussions about the possibility that he might take such an interest at various times towards the end of his career at the Bank. By that time, Mr Jaffery’s case was that the Bank had decided that he was no longer wanted, and he had been told by Mr Cunningham, in essence, to find another job, and that he could further his own business opportunities in the meantime. Mr Jaffery said that various people at the Bank were fully aware that he was close to Mr Gill and the RGC Customers, and that he never took any bribe or improper benefit from them. Mr Jaffery alleged that this case was initiated by the Bank against him as an act of vengeance for his whistle-blowing activities at the end of 2010, which resulted in a letter of concern being written by Lord Ahmed of Rotherham (“Lord Ahmed”) to the Chancellor of the Exchequer.

Insofar as he was able, Mr Gill supported Mr Jaffery’s case. He also denied that he had any interest in the RGC Customers, and claimed that he acted only as an agent for them. He vehemently denied paying any bribes or providing any benefits to Mr Jaffery for any assistance Mr Jaffery had given in relation to the Loans made to the RGC Customers. Both Mr Jaffery and Mr Gill suggested that the Bank’s expenditure on this action in terms of time and costs was wholly disproportionate to the losses claimed. They believe that the litigation is being used as an instrument of oppression against them. I shall deal in due course with the specific allegations made, but suffice it to say at this stage that the Bank has not sought to establish that it has suffered any loss thus far as a result of the loans made to the RJC Customers, though it does say that it has made a provision of £2.9 million in case such losses should occur in the future.

A peripheral issue of some importance developed during the interlocutory hearing preceding the trial and at the trial itself, concerning the provenance of certain documents found on an iMac desktop computer (the “iMac”), which was at one stage located at Mr Jaffery’s home, but was ultimately handed to the Bank after the commencement of these proceedings by solicitors acting for Mr Kanji. Mr Jaffery denied responsibility for any of the documents found on the iMac, which he said was used by his nephew, Adnan, and by his wife, Mrs Ruqaiyah Jaffery (“Mrs Jaffery”).

It is necessary to set out the chronological background to the issues that I have to decide at some length, since the relevant events cover more than 6 years. I have tried to limit the coverage of events and documents to those that turned out to be strictly relevant. The documentation was, as Messrs Jaffery and Gill repeatedly complained, very extensive. I can say, however, by way of comment, that I thought both Defendants coped extremely well with the volume of documentation and the complexities raised by that documentation.

On 21^st February 2005, Mr Jaffery was employed by the Bank. His contract of employment was signed by a Mr Lynch on behalf of GCBOI on 9^th June 2005, and by Mr Jaffery on 10^th October 2005 (“Mr Jaffery’s Employment Contract”). I shall deal later with the terms of that contract.

On 25^th September 2005, Mr Jaffery married his wife, Mrs Jaffery.

On 5^th July 2006, Mr Nigel Carter (“Mr Carter”) of Landmark Fiduciare SA (“Landmark”), a fiduciary agent in Geneva, and a Mr John Gogol executed a Declaration of Trust on behalf of the General Trust Company SA as the original trustee of the Berkeley Trust, a discretionary trust, with Ms Jastender Gill as the only named beneficiary.

On 1^st September 2006 two signatories executed a Declaration of Trust on behalf of the General Trust Company SA as the original trustee of the Gift Trust, a discretionary trust, with Mrs Sumby as the settlor and only named beneficiary.

On 20^th December 2006, Mr Jaffery was promoted by the Bank to the executive position of Head of Business Banking and Mid-Corporate Banking for London and the South-East of England.

In or about December 2006, Mr Jaffery introduced Mr Gill to the Bank as a prospective customer.

On 1^st March 2007, Mr Jaffery wrote a credit reference for Mr Gill on the Bank’s notepaper addressed to a Mr Tony Krull saying that he (Mr Gill) was considered respectable and trustworthy for transactions up to £10 million, and “with respect to the specific Car Dealership purchase, we further confirm our agreement to provide full financial assistance to conclude the purchase”. The Bank alleges that what he said was fabricated, and that it evidences an improper relationship between Mr Jaffery and Mr Gill.

On 27^th March 2007, Mr Jaffery emailed the Bank saying that he had read the Bank’s Code of Conduct and that he intended to remain in compliance with it.

On 23^rd May 2007, the Bank’s credit application for the Backford Loan was signed by Mr Paul Theaker (“Mr Theaker”), who allocated zero value to the “[u]nsupported personal guarantee from [Mr Gill] limited to £370,000”, and said that the shareholder in the owning company was Eaux Vives Holdings Ltd (Swiss) and that the beneficial owner was “[Mr Gill] and family”.

On 24^th May 2007, Mr Ian Hawthorn (“Mr Hawthorn”) approved a £2 million loan to Backford to facilitate an equity release against the property in Worcester Park, Surrey.

On 29^th May 2007, the Bank’s credit application for the Backford and Hendon loans signed by Mr Theaker and Mr Irfan Qadir (“Mr Qadir”) allocated zero value to the “[u]nsupported personal guarantee from [Mr Gill] limited to £290,000”, and said that the beneficial owner was “[Mr Gill] and family”. Under “interest cover” it is recorded that although the loan is clearly outside policy, “this is mitigated in part by the personal guarantee of £290K … and the status of the borrower”. The borrower is said to be known to Mr Jaffery for 5 years (and highly regarded by him), and to estimate his net worth at £60/70 million but to be reluctant to expand further. Under the heading “[probability of default] Assessment”, the application says that the investment quality is high as the “borrower/Raj is considered an extremely shrewd investor who has proven his ability to buy and sell commercial and residential property where there are angles to make good returns. He has undoubted integrity and is vouched for by [Mr Jaffery]. Overall he is considered a good second tier player in this market”.

Also on 29^th May 2007, Mr Theaker emailed Mr Martin Williams (“Mr Williams”) attaching the Hendon application and saying “Would you be able to look at this today in Bryan’s [Mr Bryan Baldrey] absence … as [Mr Jaffery] is insisting it goes to [Credit London] today”, and commenting: “It is a bit stretchy but has both Bryan’s and [Mr Jaffery’s] support”.

On 30^th May 2007, Mr Roberto Francioni (“Mr Francioni”) approved a £4.5 million loan to Telkin to purchase 7 residential units in Hendon, London.

On 7^th June 2007, Mr Gill provided the Bank with a net asset statement showing that he had net assets of £21.8 million, an income of £1.5 million per annum, and expenditure of £700,000 per annum.

On 18^th June 2007, £1.997 million was drawn down on the Backford facility.

On 6^th August 2007, the Bank granted the Telkin loan facility to Telkin in the sum of £3.9 million.

A document found on the iMac which was created on 12^th August 2007 and last saved on 21^st October 2007 is entitled “Raj/ Syed To Do List” (the “To Do List”). It has details of the “Hendon Deal”, the “C+ Deal”, the “Land Bank Deal”, and the “Palace Street Deal”. It refers to shares of each of Mr Gill, Mr Treon and Mr Kanji in these projects, and also to “Syed”, “Altaf”, “Adnan” and “SJ” in the context of some of these interests. There is a dispute as to whom the references to “Syed” and “SJ” refer. The document refers to the “Hendon Deal” as being 40% Mr Gill, with 10% of that for “Syed”, and the note: “No option agreement etc for this deal between Syed and Raj – personal understanding only”. Under the heading “Key issues to be highlighted/ agreed”, the To Do List says: “1. Land Bank stage 1 & 2 - NO formal agreement/ option between SJ and Raj. Profits disbursed as they occur. Stage 3 – to go through trust officially … SJ/Raj to formally agree that above is their start point and understanding”.

A document found on the iMac last saved on 19^th August 2007 shows a structure chart with Mrs Sumby at the top as the settlor and beneficiary of the Gift Trust, holding Excalibur Realty Limited (said to be “Raj 100%”), holding Berkeley Group Investments Ltd (said to be “Raj 100%”) (“BGI”), holding Berkeley Enterprise (said to be “Raj/SJ 50/50), and BV 2 Cap (said to be “Raj/ Anoop 50/50”), holding the Hendon Project, the “Land Bank Deal”, and “Peakmill International Limited 1010 Great West Rd C+ Deal”.

Between the 24^th August 2007 and 29^th October 2007, £3.417 million was drawn down on the Telkin facility.

On 15^th October 2007, Mr Jaffery emailed Mr Bryan Baldrey (“Mr Baldrey”) concerning a new proposal in relation to the LandBank project (£10.88 million) from Mr Gill, describing him as an existing customer of the Bank and saying that he estimated Mr Gill’s net worth at £45 million of which £25 million was in liquid funds.

On 16^th October 2007, the Bank amended the Telkin loan facility to £3.4125 million.

An undated 3-page document headed “Stoke Deal” (the “Stoke Deal document”) found in Mr Jaffery’s office, and said to originate from late 2007, considers the profit to be made from the Stoke site and mentions a share split of 33% to each of “me”, “Raj” and “Anoop”. The note referred to the “Deal On Offer To You [Mr Kanji, according to the Bank]”, and continued: “Total cash required day 1 = £1.65M. This will go in as directors loans, and be repaid first from profits. ∙ Raj will put in £1.2M cash (73% of cash) ∙ Anoop – nil cash but will provide pre lease, and assistance to get planning. ∙ Me to inject £450k of cash (27% of cash). I have £50k cash, but need £400k to get the deal off the ground. I will offer you: You will hold all of my 33% shares. They will be held by Fullwood Investments [accepted to be Mr Kanji’s company]. We will split 20% for you, and 13% me.

On 6^th November 2007, Mr Jaffery emailed Mr Ritchie Boucher (“Mr Boucher”, the Chief Executive Officer of GCBOI) in relation to a property in which Mr Gill was interested close to Buckingham Palace saying that he had had a very close look at the deal, and he thought it was one that they should get off the ground at the Bank. Mr Jaffery said that Mr Gill and his family were “worth north of £100m”, they owned their own project management and architect firms, and their HQ was in Berkeley Square: “[i]n short he is a good guy, and one I will be adding my support to through GCC …”.

Also on 6^th November 2007, Mr Boucher responded to Mr Jaffery: “I will advise that our view of Mr Gill is that he is a very capable man, whom we are keen to support”.

In November 2007, the Bank appointed administrators over the non-performing borrower, MDL (Stoke) Limited, which had owned the Stoke site.

Shortly before 10^th January 2008, a document entitled “1^st Board Meeting” was created. It was found in Mr Jaffery’s office, but he denied creating it. It dealt with the shares in the C+ project and the Hendon project, indicating that 33% of the shares in C+ (concerning a property at 1010 Great West Road) were to be formally allocated to each of Mr Treon and Highbury (said by the Bank to be Mr Jaffery’s family’s offshore trust), and that 30% of the shares in the Hendon project were to be transferred to Mr Treon.

A document found on the iMac computer created on 14^th January 2008, according to the metadata by Mr Jaffery, refers to a “good meeting” the previous night. In relation to the Land Bank project, the writer says that £1m will be released to each, and “out of my £1m I wish formally to pay back funds to you that I owe …”. There follow blank sums to reflect “my third cash input to the C+ deal” and “ALL costs incurred in relation to the Highbury Trust set up etc” and “50% of ALL your personal ACTUAL (if any) costs on the Hendon deal”. It continues “What ever the true total here is I pay you formally from the above release. So that money is not a quazi loan its yours not to be paid back. The balance I retain, and provide you with a loan as required … … In essence it will put us back to square one. You £1.5.. me £0.5m but done on a proper basis”. Under the heading “Altaf”, the document says that “[h]e is meeting Nigel [Mr Carter] on Tuesday” and “Pls let Nigel know that subject to the release coming from Land Bank etc and payment of his share of the cash on C+ they he should confirm/execute share issue (33% C+) with Bank T/f form to him. Can he tell Altaf this is what is happening?? … Raj this is important to me, and pls do not let it slip during the days stuff”. Mr Jaffery denied, despite the document’s contents, that this was a document that he had written to Mr Gill. Mr Gill did not deny that it was a document that someone had written to him.

On 13^th March 2008, Mr Jaffery emailed the Bank saying that he had read the Bank’s Code of Conduct and that he intended to remain in compliance with it.

On 22^nd August 2008, Mr Jaffery allegedly created a document on the iMac computer entitled “New House Project”, referring to “Adnan style covings”, and recording the total cost of the project at £2.8M, value at £3.3m, and under the heading “FUNDS IN”: “Me now £300k Dividy Rd £1.5m Mortgage £500k Other?”

On 3^rd September 2008, Mr Stephen Shakespeare (“Mr Shakespeare”) submitted the credit application for the approval of what became the purchase part of the SIG I loan and the SIG II loan, and for approval in principle of the development part of the SIG I loan.

On 18^th September 2008, the Bank’s credit opinion in relation to the SIG I proposal, signed by Mr David Stokes (“Mr Stokes”) and approved by Mr Harry McDaid, included the following: “Distressed site … currently in the name of MDL Stoke Ltd. with debt o/s of £4.885m and provision of £2m … ARU [Asset Recovery Unit] feel they would be pushed to achieve a sale at £1m+ given current market conditions and blighted nature of site, should the current proposal … fall away. SIG is a newco offshore SPV whose ultimate beneficiary is Mandip Sumby, with [Mr Gill] (brother) managing his [sic] UK interests”.

In September 2008, Mr Jaffery created a document entitled “Anger man” (the “Anger Man document”) saying that Mr Gill, Mr Treon and Mr Jaffery “have an agreement to split everything we do 1/3 each”. According to Mr Jaffery, the Anger Man document was (as it appears to be) directed at his wife at a time that they were having marital problems. Mr Jaffery says that he exaggerated his financial interests and prospects, as many people might do to their wives.

On 16^th February 2009, Mr Jaffery emailed Mr Baldrey in relation to “Dividy Road and Newquay” saying that he was happy to sign off the change in RAROC (Risk Adjusted Return on Capital) and that he should please “take this as my agreement to waive fees”.

On 18^th March 2009, Mr Jaffery emailed the Bank saying that he had read the Code of Conduct and that he intended to remain in compliance with it.

On 16^th April 2009, Mr Shakespeare submitted a second credit application for approval in principle of the development part of the SIG I loan.

On 17^th April 2009, Mr Jaffery emailed Mr Mark Cawood asking him to note that the Dividy Road, Stoke transaction carried his full support.

At or about the end of April 2009, a document entitled “Stoke Deal” seems to have been created (the “April 2009 Stoke Deal document”). The document was found in Mr Jaffery’s office after he was dismissed. Mr Jaffery’s case is that it was created by Adnan or Altaf. The document says that Mr Kanji has put £300,000 in cash into the Stoke Deal, and that SIG I is owned by Mr Gill. The proposal (seemingly to Mr Kanji) suggests that Mr Kanji would get 15% of the equity in the Stoke Deal by 30^th May 2009, and that “I will get another 15%”. The document concludes with some words on the Hendon deal saying “[w]e have now decided to move back into the council for planning on the Hendon site”.

On 27^th May 2009, Mr Jaffery entered into a written agreement with V2 Capital Limited (Mr Treon’s company) for a loan facility of up to £100,000 bearing interest at 3% per annum. Mr Jaffery said that this loan was drawn down, and was repaid.

In June 2009, Mr and Mrs Jaffery completed the purchase of a flat at 33 Gloucester Walk, London W8 (“33 Gloucester Walk”) with partial funding from the Bank.

On 26^th June 2009, £2.08 million was drawn down from the SIG I loan and £0.72 million was drawn down in respect of the SIG II loan.

On 5^th October 2009, Mr Shakespeare submitted the credit application for the Hornchurch Loan to BRVL. The shareholder is said to be “TBA” with ultimate beneficiary “Jastender Gill (sister to [Mr Gill])”. The application is based on Mr Gill paying rent for his occupation of the Hornchurch Property at £90,000 per annum, when the market rent is £54,000 pa, and Mr Gill being a key family member when it comes to management of the family assets/ businesses, and says that Mr Gill estimates his net worth at c £20 million.

On 9^th October 2009, Mr Duncan Rowland (“Mr Rowland”) signed off the credit opinion on the Hornchurch Loan on the same basis as the application.

In October 2009, Mr Jaffery was further promoted to Head of Business Banking Great Britain (i.e. covering the whole of the UK except Northern Ireland). This was an important promotion, which Mr McGowan accepted was a tap on the shoulder.

At around this time, Mr Jaffery contends that he had a discussion with Mr Cunningham, the Bank’s Head of Business Banking for the UK and Ireland, based in Dublin, at which Mr Cunningham allegedly first made it clear that his (Mr Jaffery’s) time at the Bank was limited and that he could pursue other business opportunities.

On 22^nd December 2009, Mr Jaffery wrote a credit reference for “BGI” to Goldkorn Mathias Gentle confirming that “facilities of £40,000,000 … are available for the purpose of Commercial Property Investment”.

On 11^th January 2010, Mr Shakespeare signed a credit application in relation to the proposed Nightingale loan, which refers extensively to Mr Gill and his position as agent for Mrs Sumby (C2/4/324E), and includes “[Mr Gill] estimates his net worth at c£20m per A&L statement dated April 09. From [Mr Jaffery’s] knowledge of [Mr Gill] this is considered accurate”. Mr Jaffery’s conclusion said that he had “known principle [Mr Gill] for 10 years+, and consider him to be competent to run a group of this size and complexity”.

On 12^th January 2010, the Bank’s credit opinion signed by Mr Ronan Cleary included the following: “[Mr Gill] purchased the distressed site … at Dividy Road, Stoke from the administrator for £2.8m, with BOI debt o/s of £4.885m and provision of c£2m, at above book MV (estimated at £1m at the time)”.

On 20^th January 2010, Mr Gill created a document on his computer headed “Dividy Road”, and under “Key Actions To Date”: “Part Initial Cash (£396k) s” and “Funding agreed, and signed off s/Raj”. The “Points for Discussion” include “[s]ignificant cash short fall needs to be plugged”.Mr Gill says that “s” is Mrs Sumby, not Mr Jaffery.

On 10^th February 2010, Mr Stokes’s decision memorandum in relation to the Stoke project development finance (SIG II) indicated that it was to be a condition of the funding that “[e]quity inputs to the development finance @ £400k day 1, and £250k per quarter thereafter”. The requirement for a £400,000 input was accepted by Mr Jaffery. Mr Jaffery said that he chased Mrs Sumby for this money, and denied that he was ever going to provide the £400,000 himself.

On 22^nd February 2010, Mr Jaffery emailed the Bank saying that:-

Mr Jaffery alleges that, in March 2010, he had a meeting with Mr Cunningham, at which he “made it abundantly clear that [Mr Jaffery’s] future at [the Bank] was limited and that [Mr Jaffery] would be permitted to continue with [his] pursuit of other business opportunities and gradually plan [his] exit from the [Bank]”, and that Mr Jaffery should in return support the Bank’s representations about the extent of potential loan losses in the likely event that he were interviewed by the FSA.

On 3^rd March 2010, £34,981.79 was paid by “Berkeley Group” into Mr Jaffery’s account with Ryletts Residential in connection with 33 Gloucester Walk. The Bank relies on this payment, which they say was never repaid, as a benefit received by Mr Jaffery from Mr Gill.

On 10^th March 2010, £10,000 was allegedly paid by “Berkeley Group” into Mr Jaffery’s account with Intelligent Interiors in connection with 33 Gloucester Walk. The Bank relies on this payment, which they say was never repaid, as a benefit received by Mr Jaffery from Mr Gill. Ultimately, the Bank’s case in respect of this payment does not seem to have been assiduously pursued. Mr Jaffery says that it was repaid.

By 15^th March 2010, emails between Mr Jaffery and Mr Jim Davidson at the Bank indicate that the £400,000 of equity due from SIG II was overdue, and the date for receipt from offshore funds was extended to 8^th April 2010.

On 17^th March 2010, a document entitled “Berkeley Care Group” was created and found amongst Mr Jaffery’s documents in his office. Mr Jaffery’s case in his evidence was that the document was created by his brother, Mr Altaf Jaffery, and not by him. Mr Jaffery said the document reflected a proposal. The document said that Hendon, Stoke, 1010 Great West Road (C+) and Nightingale were owned 33% each by Mr Gill, Mr Treon and “XX”.

In April 2010, Mr Adnan Jaffery wrote to Leigh Carr (a firm of Chartered Accountants acting for him) saying that he was due to receive approximately £700,000 from Mr Jaffery “on behalf of himself and the wider family to ensure I can settle my debts/affairs. As you know Dubai and East Africa did not go well, and I have lost money. Please hold the monies to my order”. The Bank alleges that this document is a fabrication or that Adnan was collaborating with Mr Jaffery.

On 19^th April 2010, Mr Gill sent an email to Mr Treon and the email address barkcare@googlemail.com (said by the Bank to be Mr Jaffery’s email). In relation to the Stoke project, he said “we all now agree that you will seek to effect a sale of the investment to a fund … subject to price”. In relation to his understanding of the proposal, he said: “[s]hareholding remains as previously agreed”. Mr Jaffery said he did not recall this document, and Mr Gill said that he used the barkcare email for Adnan and Altaf, but, at this time anyway, sent emails to Mr Jaffery at his BOI address.

On 20^th April 2010, Mr Jaffery emailed Mr Saleem Sheikh (“Mr Sheikh”) at GSC Solicitors asking if he had any bridging contacts who could get him a £700,000 mortgage loan on 33 Gloucester Walk for a maximum of 15 months secured by a second charge behind the BOI, and saying: “Funder cannot be linked to [BOI] in any way … i.e. customer etc. etc. I do not want any conflict of interest at all”. Mr Jaffery denied that he wrote this because he was intending to use the money to invest in the Stoke project.

On 27^th April 2010, Mr Jaffery emailed Mr Theaker saying that he was seeking the Bank’s agreement to allow a second charge over his flat at 33 Gloucester Walk: “I am going to raise some funds to purchase a retirement flat in Pakistan – No debt is available in Pakistan”. Paragraph 45.3A.5 of Mr Jaffery’s re-amended Defence admits that this was not the case, but says that Mr Jaffery did not wish to discuss his nephew’s personal circumstances with his superiors, and the reason for the loan could have had no impact on its approval. In his evidence, Mr Jaffery said that he knew that Mr Kidd would make trouble for him if he knew the truth.

On 28^th April 2010, Mr Jaffery emailed Mr Theaker to tell him that the lender on the second charge was “Pat Stead” who was lending £700,000, and that he wanted it drawn down “asap”. At about the same time, Mr Jaffery wrote to Mr Pat Stead confirming that he was taking the £700,000 loan from him, which was to be repaid within 12 months of drawdown at 1.5% interest per month, and that the “repayment source will be either through sale of 33 Gloucester Walk property or from refinance of Nursing Home at Dividy Road Stoke. A further letter of confirmation from Landmark the trustees for the Stoke deals is being sent under separate cover”. Mr Jaffery denied that this memorandum showed that he was using the money to put into the Stoke project. The loan of £700,000 was ultimately made to Mr Jaffery by City of London Group plc instead of by Mr Pat Stead.

Also on 28^th April 2010, Mr Theaker and Mr Baldrey recommended approval to Credit London of Mr Jaffery’s wish to register a second charge against 33 Gloucester Walk in respect of a £750,000 loan to purchase a “a home in Pakistan where funding is currently restricted”. The memorandum said that “[t]he property comprises 5 bedrooms, and some land around it. The property will be utilised by the borrower’s parents and eventually as a home for the borrower himself. The borrower’s family own property in Pakistan (in excess of £1m in value) that would cover the cost of this purchase but this is taking time and therefore a 12-month bridge has been sourced at short notice in order to complete on the purchase”. Mr Jaffery accepted in evidence that what he had told the Bank about the purpose of the loan was untrue.

On 29^th April 2010, Mr Sheikh of GSC Solicitors wrote to Mr Pat Stead saying that he was informed that the repayment source for the loan would be either through the sale of 33 Gloucester Walk or from the “sums arising in respect of a sale of a Nursing Home at Dividy Road Stoke”. Mr Jaffery could not explain in evidence why Mr Sheikh had said that his personal loan might be repaid from the Stoke property.

On 30^th April 2010, Mr Gill sent a draft shareholders’ agreement entitled “Investment Agreement” (which was ultimately found in Mr Jaffery’s office) to Mr Kanji and his daughter Sabrin (“Ms Sabrin Kanji”) and to the barkcare@googlemail.com address (which, as I have said, the Bank contends was Mr Jaffery’s address). Mr Gill had amended the draft from a previous version showing the shareholdings in the Hendon project as 60% Fulwood (Mr Kanji’s company) and 40% BGI, to “Fulwood 30%, BGI 40% 10% to be held for saj V2 capital [Mr Treon’s company] 30%”.

On 4^th May 2010, Mr Jaffery emailed Mr Williams at the Bank saying that the funds (the £400,000 due on Stoke) had not come in that day, and that Mr Gill would email. Mr Jaffery explained that Mr Gill was negotiating a reduced break cost for a rolled deposit, but that he (Mr Jaffery) had made clear that the Bank’s patience was wearing very thin. If, as the Bank contends, it was Mr Jaffery who was providing the £400,000, this email would be a particularly vivid example of the conflict that Mr Jaffery was facing.

On 4^th May 2010, Mr Gill emailed Mr Shakespeare providing an excuse as to why the £400,000 due had not reached the Bank on the due date, namely that the Trust’s deposits had been automatically rolled over on a 90-day cycle. He then said “I have privately collated the £400k however am reluctant to use this for a number of reasons, the most important being it has direct implications to the structure! And that leaves me personally with cashflow issues … My preferred route however is still directly from the trust … I am seeing a director at the Bank tomorrow in Zurich to see if they can break the deposit without incurring the current penalty fee they are seeking. The fee is substantial, c£250k, considering the amount due is £400k this is not easy to swallow…”. Mr Jaffery said in evidence that Mr Shakespeare had told Mr Gill that he should not be providing the money, but that his sister should be doing so.

On 7^th May 2010, Ms Sabrin Kanji sent a yet further amended version of the draft Investment Agreement to Mr Jaffery’s BOI email address. The draft accepted the changes that Mr Gill had made, so as still to record that the shareholders in Telkin including 40% to “BGI” “with 10% to be held on trust for SAJ”. Ms Sabrin Kanji seems to have added the word “with” and capitalised the initials “SAJ”.

On 10^th May 2010, Mr Jaffery sent a text to his wife in the context of the £700,000 second charge that he wanted to take on 33 Gloucester Walk saying: “50% of all shares I own [are] Adnan’s. He has injected almost £950k in the various ventures. The rest is mine and held in my [sister’s] name as I cannot hold, and in trust for me. In the event [of] my death a side letter already exists which transfers my stuff to [you]. This is held and will [be] automatically activated by Landmark. [You] need do nothing. Fyi. My [sister] is not aware of the arrangement, and nor were [you]”. Mr Jaffery’s evidence was that this text message was not true, but was written to stop his wife refusing to let him take out the second mortgage loan of £700,000, which he said he needed to pay off Adnan’s debts.

On 11^th May 2010, Mr Jaffery emailed GSC solicitors giving them his authority to pay £400,000 to the SIG I account at the Bank “when funds are received”. When it was suggested to Mr Jaffery that this document demonstrated that he knew his £400,000 was being used for the Stoke project, he responded as follows: “I said to Mrs Sumby, "These funds are required to be put in. Why are they not coming? How quickly can they come?" and she assured me they were going to come from the breakage of her deposit. I knew the funds were going to her. I said to her, "Look, do you want me to speak to the Bank and tell them that I've got GBP 400,000 going to my nephew, you can use those?" She said, "No, the funds will go from where I said they will go" and I said "Okay, fine." So in the end those funds did not go to the Bank directly”.

On 12^th May 2010, Leigh Carr wrote to Mr Shakespeare and Mr Jaffery saying they had advised Mr Gill to hold on to the £400,000 payment to SIG I, as they were reviewing his tax position. Mr Jaffery’s response to this document was to say that Mrs Sumby made the payment, and she told him that the funds came from UBS.

On 14^th May 2010, Mr Gill emailed Leigh Carr saying that they would receive £400,000 into their client account and that they should pay it to SIG III at the Bank.

On 20^th May 2010, Mr Adnan Jaffery wrote 2 letters to Leigh Carr addressed to “Ralph”. The first asked them to pay £400,000 to “Mandip” “to clear my outstanding liabilities once and for all. The venture did not go to plan, and I have agreed a sum of £400,000 to settle the matter”. Adnan reconfirmed that “the funds from my uncle [Mr Jaffery] are a gift not a loan …” and “Mandip will be contacting you shortly with the details of her account so please accept this as my authority to disburse the funds as she instructs”. The second was in similar terms, save that the balance of the £700,000 was to be paid to Mr Kanji, and to be disbursed on his instructions. The Bank alleges that these letters are either fabrications or that Adnan was collaborating with Mr Jaffery.

On 21^st May 2012, Mr Jaffery emailed Mr Peter Belcher at GSC Solicitors saying that it was very important for him that funds are paid out early in the morning, and “[a]lso I am keen for the funds to be paid directly to my accountants Lea Carr. …”. Mr Jaffery denied in evidence that this email showed that Leigh Carr were in fact his accountants. He referred to the witness statements made by partners and employees at Leigh Carr (to two of which I have already referred) as support for that proposition. Mr Neil Kitchener QC, counsel for the Bank, relied on this document as showing that Mr Jaffery mis-spelt the name of Leigh Carr in a characteristic way that gave a clue as to the authorship of other documents containing the same mis-spelling.

On 24^th May 2010, £400,000 was paid into the SIG III account at the BOI by the accountants, Leigh Carr. In effect, the competing positions are that Mr Jaffery says that this payment was to pay off Adnan’s £400,000 debt to Mrs Sumby, whilst the Bank say that it represented Mr Jaffery’s investment in the Stoke project.

On 24^th May 2010, Mr Jaffery emailed the Bank saying that he had read the Code of Conduct and that he intended to remain in compliance with it, in much the same form as he had done on 22^nd February 2010.

On 26^th May 2010, Mr Gill emailed Leigh Carr asking him to remit the balance of what came in less their fees to Mr Kanji. The copy of the email in the bundle has £296,633.37 noted on it. This sum is said by the Bank to be Mr Jaffery’s repayment of the bulk of the £300,000 owed to Mr Kanji in relation to a loan made by Mr Kanji to Mr Jaffery in respect of Mr Jaffery’s alleged earlier investment in the Stoke project.

Between 1^st and 14^th July 2010, Mr Jaffery paid £40,000 to Metis Equity. This payment and a later payment of £10,000 in January 2011 were originally relied upon as being further breaches of Mr Jaffery’s duty. Ultimately, however, the Bank did not pursue this peripheral claim.

On 21^st October 2010, Mr Jaffery sent Mr Gill a business plan concerning setting up a new bank focussing on the hotel and healthcare sector. Again, this email and Mr Jaffery’s and Mr Gill’s later involvement with KPMG and Ernst & Young in relation to starting a new bank was originally relied on by the Bank as a breach of Mr Jaffery’s duty. This contention too was not pursued.

On 1^st November 2010, GCBOI’s UK business was transferred to BOI PLC pursuant to Part VII of the Financial Services and Markets Act 2000.

On 5^th November 2010, £1.694 million was drawn down from the Bank on the Hornchurch loan.

A document entitled “Independent Review of the case of Raj Gill” dated November 2010 compiled by CSD Global Ltd was found on Mr Gill’s computer. It concerned a debt of £5 million allegedly owed to Excalibur Realty Limited by a Mr Baljinder Chohan. The document describes Excalibur Realty Limited as a BVI trust “set up by Mr Gill as his trading entity”, and trading in the UK as “Peakmill International”. Excalibur is said to own 4 UK nursing homes in South and the Midlands. Mr Gill is said to use GSC Solicitors LLP, because his parents knew the senior partner, Mr Sheikh (as he accepted in evidence). But Mr Gill said that the CSD Global document was wholly inaccurate and unreliable.

On 14^th January 2011, Lord Ahmed met Mr Jaffery and Mr Qadir (then also employed by the Bank) at the House of Lords, at which meeting they made allegations that the BOI PLC was a ‘sham bank’ and was being operated from Dublin in breach of the FSA’s requirements.

On 19^th January 2011, Lord Ahmed wrote to the Chancellor of the Exchequer, the Rt. Hon. George Osborne MP, beginning: “I write to you following an article last Sunday in the Irish paper, Sunday Business Post, in which [the CEO of BOI] admitted that the information supplied to the government re Bank Bonuses was both incorrect and misleading. It has been brought to my attention that there are more ‘hidden truths’ that specifically relate to the [BOI] Operation in the UK”. The letter continued by saying: “A key understanding from the FSA before granting [the UK Banking licence to BOI PLC] was that the UK Bank was not a ‘sham’, and was not in effect being run from Dublin. This entailed a new UK CEO and full management board separate from its parent in Ireland to be formed. Due to internal rivalries/ politics this original plan has been compromised. The key people running the business are now in the real world reporting into Mark Cunningham who is based in Dublin. … It is … common knowledge internally amongst staff that the UK CEO [Mr McGowan] has no power, is completely sidelined, and in effect a puppet”. At the end of a lengthy trial in this case, I found myself thinking that Mr Jaffery must have had a hand in drafting this lengthy letter. It appears that the Chancellor sent the letter to both the FSA and the Irish Banking regulator.

On 2^nd February 2011, Mr Jaffery sent a private memorandum to Mr Boucher by email to his private secretary, Ms Helen Scott (the “2^nd February 2011 memorandum”). The contents of the 2^nd February 2011 memorandum are important to the defence raised in this case, though it will be observed that they seem to relate to staffing issues and to the esteem in which the Bank holds Mr Jaffery rather than to any allegation that BOI PLC was a sham bank. Since so much reliance has been placed by the Defendants on this memorandum and the events at this time, I shall set the memorandum in its entirety as follows:-

“I completely understand, and did think long and hard before making the contact. This is not something I have done lightly, and I recognise there could be repercussions for my career in taking this step.

I have no desire to cause problems for Richie, BoI, or anyone ells, and rely on him to ensure the confidential nature of this note is respected. I do not want to resort to formal channels, whistle blowing etc and my heart felt desire is to deal with my issues in a discreet and constructive manner.

On 17^th March 2011, Fladgate, solicitors acting for Mr Kanji, wrote to Mr Gill alleging that Mr Kanji had reached an agreement with “your colleague Syed Jaffery” whereby he would sell his entire shareholding in TI (Holdings) Limited [Telkin] to Mr Gill for £1.35 million.

On 25^th March 2011, Fladgate wrote again to Mr Gill demanding financial data in respect of the Hendon project.

On 26^th March 2011, Mr Jaffery created a document on Mr Gill’s computer entitled “HENDON”, which became known in the course of the trial as the “disaster scenario document”. Mr Jaffery’s explanation for this document was that he prepared it because he feared being blackmailed by Mr Kanji and wanted to exaggerate the disastrous consequences of such a course of action. He originally denied, but ultimately accepted, in evidence that it was written in response to Fladgate’s letter of the previous day. The document started by setting out the “Absolute Facts”, including that “[Mr Kanji] has 30% shares”. It continues by setting out in 3 columns “possible actions after letter from lawyers” under the headings “action”, “re-action” and “result”. The actions were “[Mr Kanji] writes to Bank re [Mr Gill]”, “[Mr Kanji] writes to Bank re [Mr Gill]”, “[Mr Kanji] writes to Bank re [Mr Gill]”, “[Mr Kanji] writes to Bank re [Mr Gill] and [Mr Jaffery]”, “[Mr Kanji] takes [Mr Gill] to UK courts alleging fraud”, “[Mr Kanji] lawyers start any form of action against Company directly”, and “[Mr Kanji] reports transactions to [HMRC]”. Amongst the result of each of these actions is the suspension and dismissal of Mr Jaffery. In one case it is said that the result would be that Mr Jaffery would also be prosecuted due to his actions whilst a Bank employee. The results noted also include, in relation to a complaint against Mr Gill: “… as a result of … relationship with [S]yed asked to re-bank all deals. He [Mr Gill] can get family support to re-bank”, and in relation to a report to HMRC “[Mr Kanji] and [Mr Jaffery] personal relationship exposed. [Mr Jaffery] investigated, Bank advised of transaction between [Mr Jaffery] and [Mr Kanji]”. The conclusion to the note is: “[n]et result of any actions taken by [Mr Kanji] in manner described above will result in all parties being asked to re-Bank or face administrator being appointed and [Mr Jaffery] being dismissed”.

On 4^th April 2011, the Bank approved a loan of £2.994 million to BRVL in connection with the acquisition of Bombay Bicycle Club.

A structure document relating to the Gift Trust was found on Mr Gill’s computer attached to an email dated 12^th April 2011 from Landmark to Leigh Carr. Mr Gill then emailed Mr Ralph de Souza of Leigh Carr saying they needed to speak. Mr Gill accepted in evidence that he could have produced the chart. The structure chart shows the Gift Trust at the top with “Excalibur” below and “Berkeley Group Investments” below that, with V2 Capital (Mr Treon’s company) having a 33% shareholding in all investments, and Fulwood (Mr Kanji’s company) having a 30% shareholding in the Hendon project, and Berkeley Care Group Limited holding European Care’s Nightingale, Stoke and Hendon sites.

On 5^th May 2011, Lewison J made a without notice search order and freezing order against Mr Jaffery, and an order an order against Mr Gill that he preserve documents.

On 6^th May 2011, the Bank wrote to Mr Jaffery terminating his employment on the grounds of gross misconduct, saying that (i) he put himself in a position of conflict of interest “by virtue of your inappropriate relationship with [Mr Gill]”, (ii) he wrote letters of recommendation on Bank paper for Mr Gill and associated entities, and (iii) he had concealed from the Bank “financial and other benefits received which you gained from your relationship with Mr Gill”.

On 6^th May 2011, the Claim Form was issued in these proceedings.

Also, on 6^th May 2011, a letter was also written by the Bank to Mr Qadir complaining about his conduct as an employee of the Bank. At this point, Mr Qadir had apparently been on sick leave from the Bank for some 18 months.

Also, on 6^th May 2011, the Bank (they say inadvertently) deleted Mr Jaffery’s work emails from 15^th April to 6^th May 2011.

On the 12^th May 2011, a member of the Bank’s staff wrote an anonymous memorandum “distributed to key Bank executives/control departments” (the “12^th May 2011 memorandum”). Because the 12^th May 2012 memorandum has formed a central part of the defence advanced by both Defendants, it is necessary to set it out in its entirety as follows:-

“The announcement last Friday of [Mr Jaffery’s] dismissal came as no surprise to senior staff in [Business Banking UK] who were not only aware of highly irregular practices but brought these to the attention of Senior Management in the UK over the past 4 years. Whilst the precise allegations against Jaffery have not yet been publicised he has not acted alone

The opinions expressed in this document are not the views of a disaffected minority within BBUK but the widely held views of a broad number of senior staff who have worked in BBUK since 2005.

It is worth reciting the background against which irregular practices not only developed but flourished since a Team headed by Jaffery (the Team) was recruited in 2005 to develop the Bank’s presence in a very competitive Business Banking market in London. In essence the Jaffery team were recruited from HBOS/RBS and included Bryan Baldry, Irfan Qadir, Bob Francioni, Martin Williams & Paul Theaker who together with a number of RM’s treated the Bank and its existing staff with nothing but contempt since joining BoI. Their recruitment was hailed publicly as a major ‘coup’ by BoI and a clear statement of the Bank’s intent on growing its UK business which was targeting a 33% contribution of Group profits from the UK division within a 5 year period. It is evident normal rules of employment were not applied including routine due diligence prior to recruitment as the Team were well known for irregular & unethical practices not only within the Banking sector during their employment with HBOS/RBS but also by external professional firms including solicitors/accountants & receivers.

Specific staff were subject to disciplinary action including dismissal prior to joining BoI a key fact not disclosed by Jaffery who headed the team at HBOS.

Since 2005 Jaffery has controlled Business Banking with impunity and an arrogance rarely seen in the industry and not previously experienced in BoI. The Team were allowed develop & expand their presence without effective checks and balances to manage this expansion and in particular irregular practices included:

•

Collusion with customers & participation in various transactions/projects:

•

Participation in syndicates acquiring properties sold by BoI through LPA’s with subsequent ‘flipping’ of properties at higher (market) values for personal gain:

•

Clear conflict of interest through fee split & shareholding arrangements in transactions funded by BoI:

•

Refinancing of ‘low grade’ facilities from HBOS/RBS resulting in rapid credit downgrade/provisioning by BoI - (several company principals appear on high risk lists & are subject to world wide restrictions/bans):

•

‘Railroading’ of credit applications through the normal credit process ignoring normal standards & quality:

•

Utilisation of fee related revenue without consent to settle professional fees (solicitors/valuation) with frequent transfer of fees to introductory sources. In several instances full fees collected were remitted with no revenue accrual to the Bank although previously accounted for in RAROC calculations:

•

Marginal deals always carried the strong endorsement of Baldry/Qadir/Jaffery/Williams and routed direct to Francioni in Credit for unchallenged sanction through’08-’09 when the Bank had essentially ceased lending:

•

Continued involvement/advising of Relationships no longer within their control to the detriment of the Bank including direct approaches to LPA’s/Administrators to influence disposals/strategy:

•

Approval of high value property loans for Jaffery & Rafiq to acquire personal residences for development at a time when facilities were not available to long standing & credit worthy customers:

•

The Jaffery/Rafiq loans were ultimately outside of the RMC Act as BoI ceased mortgage lending through BBUK on personal residences in 2003:

•

Abuse of development expenditure through splitting of costs on various business cards to avoid detection & higher level consent/sign off:

•

Abuse of high value B/D Entertainment tickets (£1k+) including F1/6 Nations Rugby/Champions League/Wimbledon & Ascot intended for customers but utilised by Team, personal contacts & families:

A drinking culture has developed within the Team involving long absences from the office with Qadir not seen at work since 2008 although allegedly still on the payroll. The Team continue to attend every significant hospitality event (Bank cost) notwithstanding the Bank are no longer in the market to attract new business.

As stated at the outset the views expressed above reflect a broad spread of opinion formed by the experience of several individuals and should not be construed as unsubstantiated rumour/allegations:

It is essential for the Bank to act decisively now to preserve its reputation in the London marketplace and not leave itself exposed to any further reputational challenges through media/FSA disclosure”.

On 13^th May 2011, Mishcon de Reya wrote a series of letters (the “Annex A letters”) to persons including Mrs Sumby, Mr Kanji, Ms Jastender Gill, Mr Carter, Mr Treon and Berkeley Group, enclosing letters from Mr Jaffery asking the recipients to provide all documents relating to Mr Jaffery’s interests in and benefits obtained from the various entities concerned with the Loans made by the Bank. The responses received from these persons all confirmed that Mr Jaffery had no such interests and had received no such benefits, although there is a dispute that only became apparent at the end of the trial as to whether Mrs Sumby, Ms Jastender Gill and the Berkeley Group actually responded. This is not a dispute I can now resolve, since evidence was not addressed to it. For the purposes of my determinations, I have assumed in the Defendant’s favour that such responses were received, confirming the absence of Mr Jaffery’s interests.

On 14^th May 2011, Mr Gill’s organisation chart apparently recorded that he and Mr Jaffery were to own and be the executive team to run Bombay Bicycle Club together. An overview document apparently of the same time says that “I am proposing to run the company jointly with Raj” and that the equity was to be split 3 ways.

On 25^th May 2011, the Particulars of Claim were served in these proceedings.

On 27^th May 2011, Briggs J gave a judgment saying at paragraph 22 that Mr Jaffery’s conduct in response to the service of the Orders “strongly suggests he will fail to provide truthful information about the nature and present whereabouts of any benefits derived from his breaches of duty”, and also made a Norwich Pharmacal order for the disclosure of documents against Mr Gill.

On 10^th June 2011, Mr Gill made a statement saying that Mr Jaffery had not received or been promised any interests within the scope of the disclosure order.

On 22^nd June 2011, Mr Gill’s solicitors said that there were no documents to disclose in response to the Norwich Pharmacal order, except some Bank statements.

On 22^nd July 2011, Mr Jaffery served his defence.

On 27^th July 2011, Sales J ordered that the trial of this action should be expedited on the application of Mr Jaffery.

On 21^st September 2011, the Bank wrote to the directors of SIG I, SIG II, Backford and Telkin notifying them that the facilities had expired on 31^st July 2011, and that the fact of non-payment constituted an event of default.

On 23^rd September 2011, Arnold J made an order joining Mr Gill as the second Defendant to the action.

In November 2011, Mr Gill ceased to be represented.

On 11^th November 2011, the Bank called in the Backford, Telkin and SIG I and SIG II loans.

On 15^th November 2011, the BOI made a demand on the personal guarantees given by Mr Gill to the Bank in respect of the Backford and Telkin loans.

On 8^th December 2011, the Bank appointed administrative receivers over the Stoke, Hendon and Backford properties.

On 20^th December 2011, GCBOI entered into a deed of assignment (the “Assignment”) whereby it assigned all its claims and rights of action against Mr Jaffery and Mr Gill to BOI PLC. On the same day, written notice of the Assignment was given to each of Mr Jaffery and Mr Gill.

On 21^st December 2011, Briggs J ordered disclosure against Mr Gill, and ordered that the trial should be split into the following 2 stages:-

On 23^rd December 2011, the Bank served its re-amended Particulars of Claim.

On 5^th January 2012, Mann J refused Mr Gill relief from sanctions for non-compliance with Briggs J’s order and ordered that Mr Gill should produce (i) documents, and (ii) a computer image to the Bank’s forensic accountants for them to make searches.

On 20^th January 2012, the Bank was awarded judgment against Mr Gill in respect of the Backford and Telkin guarantees for £660,000, with execution stayed pending the further order of the court at this trial.

On 24^th January 2012, Mr Kanji’s solicitors handed the iMac computer to the Bank’s solicitors. Mr Jaffery claims that the Bank’s solicitors and the Bank had written a series of threatening letters to Mr Kanji in the lead up to this hand-over.

On 30^th January 2012, Mann J made an order permitting the Bank to search the iMac. Both Defendants applied to Mann J for an adjournment of the trial date, and Mann J postponed the trial by one month.

In February 2012, Mr Jaffery ceased to be represented.

On 7^th February 2012, Mr Gill applied for a further adjournment, and Mann J postponed the trial by a further period of one week.

On 19^th March 2011, I adjourned Mr Jaffery’ application for a further more lengthy adjournment of the trial until Wednesday 21^st March 2012 for medical evidence to be obtained.

21^st March 2012 was the first day of the trial. On that day, I declined to adjourn the trial, having received a medical report from Mr Jaffery’s cardiologist Dr Richard Carroll just after 10.30am that morning. I gave a full judgment dealing with the application, which I shall not repeat here. I directed at the start of the trial that Mr Jaffery should be provided each evening with the transcripts of the hearing for that day. It appears that he read those transcripts each day, because, as I have said, almost every morning during the first 8 days of the trial, I received submissions or comments from him by email.

On day 5 of the trial, 27^th March 2012, I gave Mr Gill permission to use Mr Qadir as his McKenzie Friend, but he did not in the event make much, if any, use of Mr Qadir during the trial. Mr Qadir ceased to attend court only a day or two later.

On day 8 of the trial, Monday 2^nd April 2012, Mr Jaffery started to attend the hearing and represent himself. With one or two minor exceptions, he has attended all hearings since then.

Mr Jaffery’s Employment Contract included the following terms:-

The Group Code of Conduct for the Bank dated March 2007 (which did not materially change in later years) provided in material part as follows:-

“Compliance Policy Statement

This policy applies to all employees and directors of the Bank of Ireland Group.

… In all markets in which we do business, we are committed to operating with integrity and accountability: that is, we are committed to:

•

complying with the legal, regulatory and other requirements of the jurisdiction concerned; and to observing best market practice, and

•

acting honestly, fairly and reasonably in all dealings with customers, suppliers, employees, Government and regulators.

By complying with the letter and the spirit of the law and regulations, we aim to:

•

preserve the reputation and integrity of the Group

•

meet the requirements of all regulatory bodies

•

avoid adverse publicity associated with non-compliance

•

avoid the cost of ‘having to put things right’

•

protect the business of the Group and its staff.

All staff have a role to play in achieving these objectives.

1.

As an employee of the Group, you are personally accountable for compliance with both the letter and the spirit of this policy.

2.

You must act with integrity in all dealings with customers and other parties with whom the Group is connected, and in all internal matters. No employee should act in a manner that could lead to any injury to our reputation.

3.

Where you have, at any time, doubts or concerns about any matter relating to our compliance with legal or regulatory obligations, you have a duty to:

•

discuss the matter fully with your Manager; or

•

discuss it directly with Senior Line Management; or

•

raise the matter with your business unit Compliance Officer; or

•

bring it to the Group’s attention independently of management, via the Group’s Speak Up policy.

4.

You will not be criticised by management, nor will you suffer as a consequence of bringing a breach, or suspected breach of our legal or regulatory obligations to the attention of the Group through appropriate channels, even if business is lost as a result.

….

2.

Your personal responsibilities under this Code

The Bank made the following payments of salary and bonus to Mr Jaffery:

The Bank claims in this action that Mr Jaffery should forfeit the entirety of these payments of salary and bonuses.

The Bank put forward a list of the issues that the court needed to decide. I have amended that list somewhat as follows:-

Existence of Fiduciary Duties:

Breach of Fiduciary Duties: Did Mr Jaffery breach his fiduciary duties to GCBOI and/or BOI PLC in any of the following respects:-

Causation and inducement occasion by breaches of fiduciary duty:

Breach of contract: Issue 11: Did Mr Jaffery act in breach of his Contract of Employment in any, and if so, which of the following respects:-

Deceit: Issue 12: Is Mr Jaffery liable to GCBOI and/or BOI PLC (and if so which) in deceit, and in particular:-

Forfeiture: Issue 13: Is GCBOI and/or BOI PLC entitled to forfeiture of Mr Jaffery’s salary and/or bonus, and, if so, for which periods and in which amounts, and is Mr Jaffery entitled to relief or an equitable allowance in respect of such forfeiture, and if so in what amounts?

Dishonest assistance: Is Mr Gill liable to (i) GCBOI and/or (ii) BOI PLC for dishonestly assisting or procuring any (and if so which) of Mr Jaffery’s breaches of fiduciary duty? In particular:-

Bribery: Issue 21: Did Gill bribe Mr Jaffery? In particular, if Mr Gill promised or gave or facilitated the giving of the interests or benefits referred to in issues 3, 4, 5 and 12:-

Transfer: Issue 22: Were GCBOI’s claims against Mr Jaffery (other than for breach of contract) transferred to BOI PLC by the Transfer and/or the Assignment?

Issue 23: Were GCBOI’s claims against Mr Gill transferred to BOI PLC by the Transfer and/or the Assignment?

Issue 24: If the GCBOI’s claims were not transferred to BOI PLC, is GCBOI entitled (in principle):-

Issue 25: If the GCBOI’s claims were not transferred to BOI PLC, is GCBOI entitled (in principle) to recover damages (for the benefit of BOI PLC) under the exception established in The Albazero?

Before turning to deal with these issues, I will summarise the most important parts of the witnesses’ evidence and deal briefly with the legal principles that need to be applied.

Mr Michael Kidd, the Bank’s Head of Business Banking for the UK, gave evidence first. He was Mr Jaffery’s line manager from 19^th March 2010 until Mr Jaffery was dismissed in May 2011. His witness statement makes clear that he did not know whether the key allegations against Mr Jaffery were true. Mr Kidd’s statement dealt with Mr Jaffery’s alleged erratic attendance and the loans made to Mr Jaffery. Mr Kidd said in his statement that, at no time, had Mr Jaffery sought his approval to any deviation from the prohibition on conflicts of interest in the Bank’s Code of Conduct.

In chief, Mr Kidd said that he did not think that the Bank would have taken forward the loans if it had known about Mr Gill’s convictions, and that the Bank would have wanted to investigate had it known about his disqualification as a director. In fact, Mr Gill has a spent conviction on 4 counts for fraudulent evasion of VAT on 13^th May 1998, for which he was sentenced to 2 years imprisonment and disqualified from being a director for 5 years.

Mr Kidd said that the Bank had made a current provision of £2.9m in relation to the Loans. And the Bank never allocated any security value to an unsupported personal guarantee. Mr Kidd also said that the first time he was aware of the whistle-blowing allegations to the effect that the Bank was a “sham bank” was when an article in the Daily Mail was published about them in the middle of May 2011. Mr Kidd said in chief that the Bank (my emphasis) only discovered in August 2011 that Mr Jaffery was the whistle-blower – later, in cross examination, he maintained that he had only said that he had discovered that in August 2011.

Since Mr Jaffery did not attend this part of the trial, Mr Kidd was not cross-examined on many of the issues. He was, however, cross-examined by Mr Gill on the 12^th May 2011 memorandum, with which he said he did not agree, although he did say that it served to let him know what staff were feeling. Mr Kidd did not think that Mr Cunningham was the author of the 12^th May 2011 memorandum. It appears that a number of staff were given time off after Mr Jaffery was dismissed, and that Mr Baldrey resigned without returning to work. Mr Kidd denied that the Bank had over-sold the Stoke site, when it was bought by SIG I for £2.8 million, but he accepted it was very unusual for the Bank to grant loans at zero interest (as they did to SIG I).

I gained the impression that Mr Kidd knew more about the 12^th May 2011 memorandum than he was saying, and that he was keen to justify the Bank’s position that it had not known that Mr Jaffery was the whistle-blower until after his dismissal. Otherwise, his evidence was reasonably satisfactory.

Mr Stephen Shakespeare gave evidence next. He was a relationship manager employed in the Bank’s Business Banking UK group. He prepared the credit applications for the SIG and Hornchurch loans. In his statement, he said that he knew that Mr Jaffery and Mr Gill were close friends, and that he did not have discussions with Mrs Sumby who was “presented as being the ultimate beneficiary of SIG I”. He described Mr Gill as “the real driver behind the loan”. He also said that he recorded in the Hornchurch application that the borrower was BRVL of whom the ultimate beneficiary was “[Ms] Jastender Gill (sister to [Mr Gill])”, because that is what he had been told by Mr Jaffery or Mr Baldry. When he queried this, Mr Jaffery disagreed that this lending increased the RGC Customers’ exposure. Mr Shakespeare’s witness statement says that, if he had known that any of the key allegations against Mr Jaffery were true, he would not have submitted the SIG application.

In chief, Mr Shakespeare said that the Bank would not have proceeded with the credit applications if it had known about Mr Gill’s convictions and disqualification. He said that Stoke site was valued, in two parts, at £1.9m and £860,000 respectively.

Again, Mr Shakespeare was only cross examined by Mr Gill. He accepted that it was his personal obligation to know the Bank’s customer, and that the ultimate beneficiary of the SIG accounts was Mrs Sumby. In that regard, he accepted that he would have had to make clear to his seniors if he thought that anyone else had a beneficial interest in the customer. He did not make that clear on these loans, and he said he had not lied to the Bank about this. His evidence was, therefore, that he did not believe that someone else (apart from Mrs Sumby) owned these assets. He said that the SIG loan was the only loan he had done at 0% interest.

Mr Shakespeare said that he had received the 12^th May 2011 memorandum from Mr Jaffery, but that he did not agree with its findings. He was, however, surprised at what had happened to Mr Jaffery, whom he had considered a reasonable boss. Mr Shakespeare also told me that it was not normal to ask if a customer has been convicted of a criminal offence or disqualified as he director. He had never asked those questions. To avoid the need to deal with these matters with later witnesses, Mr Kitchener QC accepted, after Mr Shakespeare’s evidence that the Bank had no form asking potential borrowers if they had convictions or disqualifications, and that it was not the Bank’s usual practice to ask these questions.

Again, I felt that Mr Shakespeare knew more than he was saying about the 12^th May 2012 memorandum, and that he was exceptionally nervous about his evidence. Equally, his evidence seemed to me otherwise reasonably reliable.

Mr Ian Hawthorn was a senior credit manager employed by the Bank, who had written the credit opinions on the Hendon and Backford loans. His statement said he did not know if the key allegations were true, but if he had known that any of the key allegations against Mr Jaffery were true, he would not have approved the Hendon and Backford loans. In cross-examination, he refused to accept that there was any absolute requirement that a credit opinion was produced in every loan transaction approved by the Bank. I found Mr Hawthorn’s evidence clear and reliable.

Mr Roberto Francioni (known as “Bob”) was the Head of Business Banking, London Credit, at the relevant time. He approved the Hendon loan and the extension of the Hendon and Backford loans, His statement dealt with both the key allegations and some allegations made by Mr Kanji to the effect that there was an on-sale in the Hendon transaction to increase the price, and that he (Mr Kanji) and Mr Gill and Mr Treon obtained a one third interest in it. He said he did not know if either the key allegations or Mr Kanji’s allegations were true, but if he had known that any of the key allegations or Mr Kanji’s allegations against Mr Jaffery were true, he would not have approved the Hendon loan or the extension to the Hendon and Backford loans. He was unable to understand why Mr Jaffery gave instructions to waive the Bank’s fee on the extension to the loan, days after its approval.

In cross-examination, Mr Francioni said that he was sent the 12th May 2011 memorandum by Mr Jaffery, but did not believe it was true, or that it came from his seniors. It is to be noted that the allegations of misconduct in that memorandum were not raised against Mr Francioni in evidence. He accepted that Mr Gill had not hidden his relationship with Mr Jaffery, and that everyone was fully aware that Mr Gill visited Mr Jaffery at the Bank and saw him on Sundays. Mr Francioni was surprised at what happened to Mr Jaffery, and considered him as a friend. I found Mr Francioni to be a reliable witness.

Mr Paul Theaker was the relationship manager in the Bank who dealt with Mr Gill, and was asked by Mr Jaffery to draft the loan applications for the Hendon, Backford and Bombay Bicycle Club loans. Mr Theaker gave similar evidence to Mr Francioni in relation to the key allegations and the Mr Kanji’s allegations.

In cross examination, Mr Theaker said that he was aware of his ‘know your client’ and money laundering obligations, but had no need to report anything about the ownership of the assets in the loans in question. He too was sent the 12^th May 2012 memorandum by Mr Jaffery, but did not believe its contents were true. It is to be noted that the allegations of misconduct in that memorandum were not raised against Mr Theaker in evidence. He was very surprised by what happened to Mr Jaffery; having worked with him since 2002. Though it was not put to him in cross-examination, the documentary evidence demonstrated the closeness of his relationship to Mr Gill. By way of an early example, an email of 1^st May 2007 shows Mr Theaker inviting Mr Gill away for the week-end (Mr Gill said) to Sharm El Sheikh.

Mr Duncan Rowland was the credit manager who approved the Hornchurch loan. His statement suggested that Mr Jaffery had put some pressure on Mr Shakespeare to promote the loan. He said he would not have approved the loan had it not been supported by Mr Jaffery or if he known that Mr Gill had lied about the ownership structure. There was no significant challenge to Mr Rowland’s evidence.

Mr Sangyop Steven Lee (“Mr Lee”), a computer specialist employed by Alvarez & Marshall, was the last witness for the Bank. He gave evidence of his investigation of the iMac computer, which had shown that it was used by both Mr Jafffery and his wife. He found no evidence of the iMac having been used either by Mr Adnan Jaffery or by any member of the Kanji family. The iMac had been regularly used from 2007 until 6^th May 2011. He did not, however find that the iMac had been connected to the router at 33 Gloucester Walk at any time after 29^th April 2011. It was, therefore, on his evidence, possible that the iMac was removed from 33 Gloucester Walk between 29^th April and 6^th May 2011. Mr Lee was not cross-examined.

Mr John Murphy, Head of Group Regulatory Compliance and Operational Risk, was in charge of the Bank’s investigation into Mr Jaffery’s activities. Mr Murphy explained in his witness statement how the Bank had inadvertently deleted Mr Jaffery’s emails for the period between 15^th April 2011 and 6^th May 2011 (when he was dismissed). Mr Murphy also explained how part of the GCBOI’s business was transferred to BOI PLC by the Scheme under Part VII of the Financial Services and Markets Act 2000, sanctioned by Henderson J on 29^th October 2010. The business transferred included all the loans made to the RGC Customers, but excluded Mr Jaffery’s Employment Contract.

Mr Murphy’s statement explained the Bank’s relationship with (a) Mr Treon, who was head of the European Care Group of companies, to some of which the Bank had loaned between £80 and £100 million over the last 5 years, and (b) Mr Kanji, who was head of the Harry Mason group of companies, to whom the Bank is currently lending some £4.4 million.

In chief, Mr Murphy said that the Bank became aware of sham bank allegations the day before the Daily Mail article on 12^th May 2011. He had become aware that Mr Jaffery was the whistle blower in August 2011. The FSA has not written formally to the Bank in connection with the allegations, and he did not believe that the FSA passed on to the Bank the letter that Lord Ahmed wrote to the Chancellor of the Exchequer. The FSA had neither launched an investigation into the sham bank allegations nor indicated that it might do so. Mr Murphy said that the 12^th May 2011 memorandum arrived in CEO’s office at the Bank by post on 16^th May 2011, having been sent anonymously.

In cross-examination, Mr Murphy was constrained to admit that he did not know whether Mr Boucher knew about the whistle-blowing allegations before the investigation into Mr Jaffery was initiated in March 2011. He had spoken to 4 senior executives who had claimed not to know: Messrs Morris, Cunningham, Crowley, and Lockrey; but not to Mr Boucher, who was the one who would most likely have been contacted by the Irish Banking regulator when it was sent Lord Ahmed’s letter by the office of the Chancellor of the Exchequer.

Mr Gill also cross-examined Mr Murphy on the basis that Mr Cunningham had given Mr Jaffery permission to seek other business opportunities in March 2010, and therefore the Bank assumed that he was the whistle-blower and started the investigation in order to discredit him. The exchange was as follows

“MR PRITPAL GILL: So I put it to you, Mr Murphy, that actually you have already confirmed that Mr Cunningham, you was reporting up to Mr Cunningham for this investigation, that actually as Mr Cunningham knew that Mr Jaffery was looking for some outside interest, that you assumed he must be the whistle-blower and you concentrated your efforts on him to discredit him because the deal had been struck between –

MR JUSTICE VOS: Pause there, because it is always good to ask questions that are short enough to get your mind round. That was quite compact. Mr Murphy, the question is that, as you have already confirmed that you were reporting up to Mr Cunningham, and he knew that Mr Jaffery was looking for an outside job or an outside interest, you assumed that he must be the whistle-blower and concentrated your efforts on him so as to discredit him.

Mr Murphy: That is completely untrue, completely untrue. The first I knew of a whistle-blowing allegation was 13 May”.

Mr Murphy was also asked about the money laundering rules. He accepted that nobody in the Bank had made any report under those rules complaining that the ownership of the assets on which the loans were made to the RGC Customers was inaccurately stated. Mr Gill sought to show that nobody in the Bank ever questioned that the stated owners of the assets were indeed the true beneficial owners of them.

On the final day of his cross-examination, Mr Gill was asking Mr Murphy questions directed at showing that certain members of the Bank’s staff never really thought that the ownership of the assets was anything other than had been declared to the Bank. In the course of that questioning, Mr Gill put a redacted document that he had obtained from Mr Jaffery to Mr Murphy. It was an email dated 23^rd February 2012 from Mishcon de Reya to Ms Saroop Treon of Harding Mitchell, the then solicitors to Mr Jaffery, suggesting that the Bank was unimpressed with a Mr Avtar Hare (Mrs Sumby’s ex business partner, who had, according to Mr Gill, obtained a freezing order against Mr Gill in October 2011, which he had then been forced to release). Mr Murphy said that he was not aware that Mr Hare had lied in his application for a freezing order. There followed the following perhaps rather more significant exchange:-

“MR PRITPAL GILL: Where I was trying to go to is that actually the Bank do not believe that I own these assets at all. That is where I was trying to go to.

MR JUSTICE VOS: What is your answer to that?

Mr MURPHY: The Bank's view is that Mr Gill is the beneficial owner of the assets.

MR JUSTICE VOS: The entirety of them.

MR MURPHY: Yes.

MR PRITPAL GILL: You base that belief –

MR JUSTICE VOS: Take a moment, please.

MR MURPHY: When I say the entirety of them, what I mean is that Mr Gill is the beneficial owner, and we believe that Mr Jaffery has an interest in some of them”.

Mr Murphy was cross-examined as to the investigation that he conducted into Mr Jaffery’s activities, and in particular about the errors made by the Bank in failing to join BOI PLC into the original action, and in deleting the three weeks of Mr Jaffery’s emails prior to 6^th May 2011. He explained that the reason why the Bank did not notice that the emails had been deleted until much later in the process was because searches were made by key words rather than by date. Whilst I accept that this may be the case, the Bank’s conduct is surprising on two counts. First, the Bank was obliged to make full disclosure to the court in applying for the freezing order on 6^th May 2011, and yet it had apparently not even looked at Mr Jaffery’s emails for the three week period leading up to the application. Secondly, it is very odd, as Mr Gill put to Mr Murphy, that the Bank did not notice that it had no more material from Mr Jaffery’s email database after 6^th May, than they had when they last looked at it on 15^th April. That oddity is unaffected by Mr Murphy’s explanation that only key word searches were undertaken, as such searches would have produced the same results after 6^th May, as they did on 15^th April. Overall, whilst I could not conclude that anything sinister had occurred, I am not satisfied that the Bank undertook its investigation with adequate care.

Mr Murphy’s 1^st statement dated the 4^th May 2011 said the following at paragraph 50:-

“I am told by the UK Head of Financial Crime, Steve Hyndman, that general concerns about Mr Jaffery’s conduct were first communicated to him in or around the middle of 2010 however nothing definitive was able to be concluded at that time. Toward the end of of 2010, Mr Hyndman consolidated the concerns he had been made aware of and communicated them to senior management. It was this that resulted in the Bank appointing me to more closely examine the allegations … My department commenced its investigations into the allegations on 14 March 2011 …”.

In cross-examination, Mr Murphy, said that his investigation started with Mr Peter Morris asking him “to investigate the business relation[s], if any, between Mr Gill and Mr Jaffery”. He said that “Mr Steve Hyndman brought to Mr Morris's attention that there were rumours in the UK that perhaps Mr Gill and Mr Jaffery were in business together”.

Mr Gill asked Mr Murphy about the transfer of the UK business to BOI PLC, but ultimately accepted that the real issue was about the legal effect of the transfer of the loans to BOI PLC in October 2010, when Mr Jaffery’s fiduciary duties remained owed to GCBOI between October 2010 and his dismissal.

Mr Gill asked Mr Murphy why Mr Qadir’s P45 showed him to have been employed by an entity called Bank of Ireland Limited at BOI’s Belfast office. Mr Murphy said that he had found out overnight that there was no such entity as Bank of Ireland Limited. Mr Gill ultimately applied for permission to amend to plead that Mr Jaffery was employed by Bank of Ireland Limited, rather than by GCBOI. I refused that application since it seemed to be unsupported by any evidence: Mr Jaffery’s P45 was not produced and the only contract of employment available showed it to be between Mr Jaffery and GCBOI .

I did not find Mr Murphy’s evidence entirely satisfactory, and I was left with a nagging doubt as to the true reason for such a massive investigation into Mr Jaffery’s conduct. This is an issue to which I shall return. I found his slip of the tongue in saying that the Bank’s view was that the assets were owned in their entirety by Mr Gill to have been rather revealing.

The next witness was Mr Mark Andrew Cunningham, the Head of Business Banking for the UK and Ireland. He was an employee of the GCBOI and the most senior executive of the Bank to give evidence at the trial. Mr Cunningham was called somewhat at the last minute to answer the point that Mr Jaffery had made to the effect that Mr Cunningham had consented to Mr Jaffery preparing to leave the Bank and pursuing other business interests in the meantime. His witness statement categorically denied that he had had any such conversation.

Mr Jaffery’s first personal participation in the trial came on day 8 when Mr Cunningham was called. And it was Mr Jaffery who cross-examined him. Mr Cunningham accepted that the Bank of Ireland was in turmoil in 2009 and 2010 and business banking particularly so.

Mr Jaffery persuaded Mr Cunningham to accept that the employees in business banking in London were mostly employed by GCBOI, some were on secondment, but only 20-30 were actually employed by BOI PLC (as Mr McGowan was). The point that was being put was that Mr Jaffery had complained about this structure and suggested at the time that the customers were being misled into thinking they were dealing with a UK regulated Bank when in fact the majority of the staff were employed by the Irish parent. Mr Cunningham rejected these points, saying that the delineation between GCBOI and BOI PLC was clear and transparent.

Mr Cunningham accepted that a letter had been sent to Mr Qadir complaining about his conduct on the same day as Mr Jaffery was dismissed, even though Mr Qadir had been away from work on sick leave for some 18 months up to that time. Mr Cunningham accepted that the Bank had not followed its normal procedures in these investigations.

Mr Jaffery cross-examined Mr Cunningham about the various complaints that he said he had made to him over the months leading up to his dismissal. Broadly, Mr Cunningham denied all these points. Mr Jaffery said that he had confronted Mr Cunningham about a number of his concerns about the Bank’s activities including (i) the disconnect between GCBOI and BOI PLC referred to above, (ii) the payment of secret bonuses (not disclosed to the Irish Ministry of Finance), and (iii) losses sustained in Bristol & West, one of the Bank’s subsidiaries (over which Mr Jaffery was briefly in control).

Mr Cunningham had sat on the ‘Project Metal’ committee that governed the investigation into Mr Jaffery’s activities (which he called the “Steering Group”), and to which Mr Murphy reported. On day 8, I suggested that the Bank should disclose the minutes of the Steering Group meetings, but the Bank claimed privilege for them. They did, however, disclose the 2^nd February 2011 memorandum in the middle of Mr Cunningham’s evidence.

Mr Cunningham’s evidence was that there had been three investigations. The first two were into issues, rather than people. They concerned an alleged fraud in relation a loan made to Pendle Rise Limited (the “Pendle Rise Investigation”), and an alleged diversion of brokerage fees away from the Bank in which a Ms Rafiq was allegedly involved (the “Fees Investigation”). It was only when the results of those investigations were inconclusive that the Steering Group was established and Mr Murphy was asked to move the investigation to the next level. That was some time in March 2011, and Mr Cunningham maintained that, even then, the investigation concerned (i) Mr Jaffery (ii) Mr Darren Bailey, then an employee of the Bank in the Business Banking Great Britain group, (iii) Ms Rafiq and (iv) Mr Qadir. It was at a meeting on 10^th April 2011 between Mr Murphy, Mr Cunningham and Mishcon de Reya that the focus turned to Mr Jaffery and a discussion took place about whether the Bank would commence proceedings against him before or after Easter. In the event, it was decided to proceed immediately after Easter, which was what happened. Mr Cunningham said that he was unaware that Mr Jaffery had initiated the original investigations into both the Pendle Rise matter and the fees issues.

Mr Cunningham rejected the contention that his evidence about the course of the investigation contradicted that of Mr Murphy, but it seemed to me that it did. Mr Murphy said clearly that the investigation he was asked to begin on the 12^th March 2011 was into Mr Jaffery’s relations with Mr Gill, whilst Mr Cunningham was clear that the investigation his Steering Group asked Mr Murphy to make was into the activities of Messrs Jaffery, Qadir, Bailey and Ms Rafiq, arising from the Pendle Rise and the Fees Investigations. The documents that were later disclosed broadly supported Mr Murphy’s timing at least, in that, by 7^th March 2011, there was a recommendation to widen the investigation to interview Mr Jaffery and other business banking staff.

Mr Cunningham said that the Steering Group comprised 4 senior executives from the GCBOI, Mr Des Crowley (chairman), Mr Peter Morris, Ms Julie Sharp (the HR director), and Mr Cunningham, and that the Steering Group reported to Mr Boucher. It seemed to me a matter of some surprise that there was no disclosure of any documents as to how and why the Steering Group was established. It is clear that Mishcon de Reya were engaged to participate in the investigation at an early stage, perhaps in about March 2011, so that much of the material thereafter might well be privileged. But I would certainly have expected to see some internal documentation explaining the rationale for the establishment of such a high level group, particularly when all the witnesses expressed the (somewhat surprising) opinion that they were investigating the most serious fraud the Bank had ever suffered. The motivation of the Steering Group was brought into stark relief, because it was Mr Jaffery’s contention that it had been established, in effect, to victimise him and Mr Gill, because he (Mr Jaffery) had blown the whistle on the Bank’s operation of a sham bank in the form of BOI PLC in November 2010.

Mr Cunningham was heavily cross-examined on the sham bank allegations. Mr Jaffery put to him that it was because of his (Mr Jaffery’s) complaints about the sham bank that he and Mr Cunningham did not see ‘eye to eye’. In effect, it seems that from Mr Cunningham’s appointment as Head of Business Banking for the UK and Ireland in mid-2009, he and Mr Jaffery had come into some kind of conflict. That much is confirmed by the 2^nd February 2011 memorandum. But Mr Cunningham strenuously denied that Mr Jaffery had had conversations with him in October 2009 or in March 2010 in which his (Mr Jaffery) leaving the Bank as a result of his dissatisfaction was discussed, or in which Mr Cunningham had said that he was content for Mr Jaffery to look for another job and meanwhile to engage in outside business interests “so long as Mr Jaffery did not rock the boat with the FSA”. Mr Cunningham also denied that he had found out about Mr Jaffery (and Mr Qadir) being the whistle-blowers between an investigation in late 2010 and the investigation that began in March 2011. He maintained that the first the Bank had heard about Mr Jaffery being a whistle-blower was in the days leading up to the Daily Mail article on the 15^th May 2011.

When Mr Gill cross-examined Mr Cunningham, he accepted that he had not reported the alleged ownership discrepancies in relation to the loans to the Money Laundering authorities, and that the independent review that the Bank had conducted into the Loans after 6^th May 2011 showed that there were no fraudulent valuations affecting the Loans, and that the only wrongdoing alleged was as to the ownership of the borrowing entities. Mr Cunningham said that he thought the Bank had made some 20 (out of 15,000) loans at 0% interest in his experience, which he accepted was a small percentage. He accepted also that the Bank thought, in its investigation, that Mr Gill, as a friend of Mr Jaffery’s, had been given sensitive information about the Bank. He clarified in re-examination that the information he was talking about concerned Mr Jaffery’s interests in the companies. He accepted that the Bank thought that Mrs Sumby was the beneficial owner of the borrowing entities when the loans were made.

I did not find Mr Cunningham’s evidence wholly satisfactory. He is plainly an astute Banker, who was keen to see the case against Mr Jaffery as a ring-fenced allegation of breach of fiduciary duty. But he did not strike me as a man who would have been so concerned about fiduciary duties, had there not been some other political or reputational angle to the events which occurred. He had, after all, himself been involved in politics. I formed the very distinct view that he was hiding something in giving his evidence. He and Mr Jaffery had plainly not got on (though something Mr Jaffery said in closing made me think it might have been more of a love hate relationship than a simple incompatibility), and I am quite certain that there is some truth in the allegation that he and Mr Jaffery regularly discussed the more contentious issues affecting the Bank. I will deal with the specific conversation on which Mr Jaffery relies as constituting the Bank’s consent to his following his own business interests when I deal with Mr Jaffery’s evidence in due course, and in addressing the issues that I have to decide.

Mr David McGowan was the Chief Executive Officer of BOI PLC. When he began his evidence, however, he told me that was now the Chief Risk Officer designate for BOI PLC. As CEO of BOI PLC, Mr McGowan reported to Mr Des Crowley of GCBOI, and to Mr Denis Holt, Chairman of the Board of BOI PLC.

He was Mr Jaffery’s line manager between February 2005 and November 2009. Mr McGowan said in his statement that, at no time, had Mr Jaffery sought his approval to any deviation from the prohibition on conflicts of interest in the Bank’s Code of Conduct. He also sets out a detailed exposition of the Bank’s hierarchy and reporting lines, and its independent credit function.

Also in his statement, Mr McGowan says that Mr Jaffery’s provision of some 6 credit references for Mr Gill and his associated companies, Berkeley Group and BGI (Berkeley Group Investments Ltd), was a breach of the Bank’s practice. He says, however, that he does not know whether the Bank’s allegations that Mr Jaffery provided managerial and administrative services to RGC Customers or the Berkeley Group is true. He does, however, say that even if Mr Jaffery were providing these services to his brother, Mr McGowan would have regarded that as inappropriate and put a stop to it. Moreover, if he had learned that Mr Jaffery had an inappropriately close relationship with Mr Gill, he would not have recommended approval of the SIG loans.

Mr McGowan’s statement also says that he does not know whether it is true that Mr Jaffery received or was promised benefits by Mr Gill or the RGC Customers. Mr McGowan dealt in detail in his statement with the SIG loans and the reason why they were made on apparently commercially unattractive terms (with no interest on some parts for some periods). Mr McGowan’s position is that, if he had known the key allegations were true, he would not have supported the Loans. Moreover, if he had known that, he would have summarily dismissed Mr Jaffery, and no bonuses would have been paid to him.

In chief, Mr McGowan said that he had only found out about the sham bank allegations on Friday 13^th May 2011 when he was contacted by the FSA.

In cross-examination, Mr McGowan first accepted that it was quite normal for an employee to have covert conversations with prospective employers and only to inform his current employers about those discussions when a new contract of employment is in place. He accepted, in effect, that the allegation against Mr Jaffery that he had been in breach of duty by discussing the establishment of a new bank was unjustified.

At the outset of his cross-examination, Mr McGowan also accepted that Mr Jaffery had played a full and important role in the strengthening of the Bank’s control procedures as regards valuers, solicitors and credit. It was put to him that this role was inconsistent with a desire to take advantage of the Bank, upon which Mr McGowan made no comment. He did, however, accept that, when Mr Jaffery joined the Bank, its business banking division was under-performing, and that Mr Jaffery had made a major contribution in modernising that business. Mr Jaffery had been brought in to inject life into the business, and to bring new customers. Alongside Mr Jaffery, three new directors, also from HBOS, Messrs Qadir, Baldry and Francioni had also been employed.

Mr McGowan freely accepted that Mr Jaffery had done well, and had been promoted above others to become one of the 100 or so executives in the Bank in 2006. At the end of 2006, Mr McGowan had no concerns about Mr Jaffery’s trustworthiness or competence, and had no grounds for suspicion. In relation to his business performance, Mr McGowan accepted that Mr Jaffery had passed all but 2 of his important Credit Quality Reviews (CQRs), which was an extremely good record. CQRs are undertaken to ensure that loans are being underwritten and managed efficiently against established processes and procedures. In addition, his credit scoring record was very good, with some 97% of Mr Jaffery’s department’s loan applications being scored at satisfactory or good. His team was recognised for providing very high quality analysis and reports to the Bank.

Mr McGowan accepted also that Mr Jaffery approached him about leaving the Bank in 2008 when he (Mr McGowan) was on holiday in Portugal. BOI BB was in a much better shape in 2008 than it had been in 2005, and Mr Jaffery had played such an important role in this that Mr McGowan asked him to defer his decision until his return and then persuaded Mr Jaffery to stay, with a raise in salary. Mr McGowan accepted that he had gone out of his way to promote and mentor Mr Jaffery.

Mr McGowan explained that there were 5 regional directors in business banking in late 2009. In October 2009, Mr McGowan appointed Mr Jaffery, by way of a tap on the shoulder, as interim Head of Business Banking GB (i.e. England, Wales and Scotland), with Mr Kidd as Head of Business Banking in Northern Ireland. At about the same time, Mr Cunningham was appointed as Head of Business Banking for the Group, so Mr Jaffery reported to Mr McGowan as CEO designate of UK PLC and to Mr Cunningham as Head of the group’s Business Banking. Mr McGowan accepted that he had appointed Mr Jaffery because he thought he had the skills needed to manage the repercussions of the ongoing financial crisis.

Ultimately, towards the end of 2009, Mr McGowan decided that Mr Jaffery should report to Mr Cunningham alone. In the jargon, BOI PLC’s business banking was “outsourced” to GCBOI. Mr McGowan thought he did not have the capacity to manage the business banking alongside all his other responsibilities. Mr Jaffery had also had, in effect 2 bosses which Mr McGowan regarded as less than satisfactory.

In March 2009, Mr Kidd was promoted to Head of Business Banking for the UK. Thereafter, Mr Jaffery as Head of Business Banking for Great Britain reported to Mr Kidd.

Mr McGowan said he would be astonished if Mr Cunningham had told Mr Jaffery in October 2009 that his services were no longer required.

Mr McGowan was cross-examined about his own desire to leave the Bank. He said he had had one or two discussions with Mr Jaffery about the possibility that he might leave the Bank. And he admitted that he had made one visit to a head hunter at the time when Mr Cunningham arrived, but he said that had nothing to do with any unhappiness about his new role as CEO of BOI PLC. His interest was occasioned by his new partner’s wish to move abroad. Mr McGowan denied that he had shared Mr Jaffery’s concern about the reality being that BOI PLC was a sham bank run wholly from Ireland. It is perhaps worth noting that, in his evidence on day 9 he said he had visited the head hunter in mid 2010, but on day 10, he said it was middle to late 2009.

Mr McGowan was aware that Mr Jaffery was in a state of unhappiness and was considering other opportunities outside the Bank. He knew that Mr Jaffery did not enjoy his working relationship with Mr Cunningham and he knew that his wish to leave the Bank was related to that problem. Mr McGowan denied that he had become increasingly concerned about the way in which Mr Cunningham had been “throwing his weight around”, but I formed the view that, in reality, he and Mr Jaffery had indeed discussed the problems that Mr Cunningham was creating for them both in October 2009 and thereafter. Mr McGowan accepted that he had discussed Mr Cunningham’s management style, but I think the conversations went further than that. At the least, as Mr McGowan himself said: “he has an unfortunate style which grates with people who work for him”.

In my judgment, these discussions never extended to any overt discussion about a sham bank, since I am far from sure that even Mr Jaffery had developed his discontent into such an allegation at that stage. But I do think that Mr McGowan felt that he was being undermined by Mr Cunningham, and was concerned that he did not have a real role as CEO of BOI PLC, because all the power remained in Dublin. That was the nub of Mr Jaffery’s concern. Mr McGowan undoubtedly complained to Mr Crowley, as he admitted. But I think he made light in his evidence of what he thought at the time was a very serious matter. That said, I accepted Mr McGowan’s suggestion that Mr Jaffery normally “went into writing”, when he had a problem, and that he never received a memorandum or email about a sham bank.

In relation to the SIG I loan, Mr McGowan explained that the loan documentation recorded that there was a formal valuation of the Stoke site at £2.8 million, but that the ARU, which always veered towards the worst worst valuation, thought they might only get £1m. The Bank would, however, have relied only on formal valuations from accredited experts.

Mr McGowan accepted that he thought that the SIG deal was a good deal for the Bank in the round, and that it was in the Bank’s best interest. He did not think the Bank was selling the Stoke site for more than it was worth. He was aware of number of interest free loans on his lending book. According to Mr McGowan, the chronology was (i) that the SIG I loan was approved in September 2008 on the basis of the a £1.5 to £3.5 million valuation (which was actually from Edward Symmons dated 7^th December 2007) with planning permission in prospect (ii) the valuation of £2.8 million was formally received in March 2009, and (iii) the loan was drawn down in April 2009, and (iv) planning permission was actually granted in November 2009.

Mr McGowan was asked why Mr Cunningham, as the Head of Business Banking in BOI PLC’s area did not report to him. Ultimately, he explained that he did so, because he was a member of BOI PLC’s business committee, which met monthly; the minutes were provided to the FSA. He had a legal contractual responsibility to BOI PLC under the service schedule agreements between GCBOI and BOI PLC, which had outsourced its Business Banking to GCBOI. Mr McGowan said that there was no confusion, and everyone, including the FSA knew how it operated, and approved the modus operandi. FSA on 1^st October 2010.

Mr McGowan could not add much on the subject of the investigation into Mr Jaffery and Mr Gill, about which he was only informed some time between March and April 2011. He said that the investigation by Mr Murphy was into GCBOI employees. His concern was that loans were in BOI PLC, and the investigation was important to him on a systemic basis and because of the potential reputational repercussions. He said that Mr Murphy kept him informed at all times.

Importantly, Mr McGowan admitted that he had not complained to Mr Murphy or anyone else before mid-March 2011 (when the investigation began) about Mr Jaffery, and he was not aware of any prior investigation into Mr Jaffery’s conduct prior to the March 2011.

When Mr McGowan was cross-examined by Mr Gill, he accepted that the change to FSA regulation of BOI PLC was that control and management had to remain within the UK, whilst before the change GCBOI was “passported” to operate a branch in the UK, and control and management could legitimately remain in Ireland. Mr McGowan reiterated that the first time anyone at the Bank had become aware of the whistle–blowing allegation was when the FSA telephoned him on 13^th May 2011 and told him that they had initiated contact with head of group communications at GCBOI. The FSA had not mentioned that the Central Bank of Ireland (the Irish banking regulator) had at that stage become involved. In re-examination, Mr McGowan said that, had the Irish regulator been involved, he would have heard from the FSA “in a matter of days”, as the Irish regulator and the FSA are in very close communication with each other.

Ultimately, my impression of Mr McGowan was that he was a careful witness, who had prepared very carefully to give his evidence. He tried to answer questions truthfully, but was able, rather cleverly I think, to make light of the parts of his evidence that he thought might make things difficult for his employers. I have no doubt that two planks of Mr Jaffery’s cross examination hit home. First, Mr Cunningham was not an easy man to work with and both Mr Jaffery and Mr McGowan were unhappy when he was appointed and thereafter. Neither of them liked the fact that GCBOI was in ultimate charge, in fact if not in name. They felt side-lined. A good example of the way that Mr McGowan was side-lined was his lack of involvement in the investigation that GCBOI was undertaking into Mr Jaffery, determined as they (GCBOI) were, I think, to find a reason to get rid of him. Mr McGowan definitely did not feel the same way at the time. Of course, once he was told of Mr Jaffery’s breach of fiduciary duty, he fell into line.

Before I deal with the evidence of the Defendants, I should mention that, in considering it, I have borne in mind the well-known dictum of Lord Goff in the Ocean Frost [1985] 1 Lloyd’s Rep. 1 at page 57 column 1 as follows:-

“Speaking from my own experience I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and the overall probabilities”.

Mr Jaffery gave evidence first. He relied on a total of 8 documents by way of his evidence in chief. Many of them were produced during the initial stages of the litigation. Those documents were two affidavits of means, four witness statements made at early stages, the most significant of which was entitled his third witness statement and was dated 8^th June 2011, his fourth witness statement made for the trial dated 27^th February 2012, and three further documents dated respectively 22^nd March 2012, 23^rd March 2012, and 26^th March 2012, each of which was produced in reaction to hearings that took place whilst Mr Jaffery was in hospital.

Mr Jaffery told me in the course of the trial that he had little formal education, having obtained only 4 “O” levels, without even passing Maths or English. Considering this less-privileged background, Mr Jaffery had an extremely successful career in banking. He was undoubtedly highly regarded by those that took him on at the Bank in 2005, and by many of those that he worked with in the years until May 2011 when he was dismissed. His career should not, in my view, be seen as one that is dominated by the events that are in issue in this action. Mr Jaffery headed up a major part of BOI’s business banking, and was placed in charge of loans that ran into the billions. It seems from the evidence that I have already summarised from the Bank’s witnesses that he was very good at his job. Moreover, it was never seriously suggested that the Loans that are the subject of complaint in this action were improperly granted in banking terms. It is only the alleged breaches of fiduciary duty that are the subject of complaint. I do not say this to minimise the importance of the allegations, but rather to put them in their true perspective. In the years with which this case was concerned, Mr Jaffery was working all hours to further the Bank’s business, and no complaint has been made of any nature about his success in having done so; that success is all the more remarkable given the extremely difficult economic circumstances in the years concerned, and the even more challenging situation faced by the Bank itself. Given that context, it might seem churlish at first sight that the Bank has seen fit to re-claim the entirety of the salary and bonuses paid to Mr Jaffery without regard to the admittedly excellent work he did for the Bank in many areas.

I can say also at the outset that Mr Jaffery has considerable charm. It is easy to see how he did so well. Despite the immense pressure that he was under arising from the case itself, the effect on his psychological health, and from the burden of being cross-examined over 4 days, he remained courteous and respectful. I have taken all these matters into account in assessing his evidence.

Mr Jaffery’s opening statement made the following main points:-

In an important passage in Mr Jaffery’s third statement dated 8^th June 2011, he said this about his discussions with Mr Cunningham:-

“44.

Once Mark Cunningham and Michael Kidd had been installed in their respective roles, a position quickly developed whereby (contrary to the terms of its UK Banking licence) the UK arm of BOI was effectively controlled from Dublin. Formal management charts were created which suggested that this was not so. However, this, I believe, was merely a sham designed to mislead the FSA. The internal ruse created for the FSA of a “matrix management system” appeared to have satisfied the FSA.

45.

In March 2010 shortly after I was demoted, I had a meeting with Mark Cunningham at which he made it abundantly clear that my future at BOI was limited and that I would be permitted to continue with my pursuit of other business opportunities and gradually plan my exit from the Bank. He made it clear that in return I should continue to support the Bank’s representations about the extent of potential loan losses in the likely event that the FSA were to interview me.

46.

By the middle of 2010, I was becoming increasingly sidelined within BOI. At around this time, the FSA visited BOI and interviewed a number of senior personnel, including myself. Prior to these meetings, I had to attend a number of pre-meeting briefings, the purpose of which was to ensure that I stuck to the official BOI story. To ensure that I did so, a person from BOI’s head office sat in on my meeting with the FSA, with the result that I did not feel that I could speak openly about what BOI was doing”.

When cross-examined by Mr Gill, Mr Jaffery said that Mr Gill had never promised him any shares in any companies, that he knew Mrs Sumby to be the owner of the companies, and that Mr Gill had never given him (Mr Jaffery) the impression that he controlled or had power to bind the companies.

Mr Jaffery was cross-examined for nearly four days by Mr Kitchener. On the first day, Mr Kitchener cross-examined Mr Jaffery extensively on the execution of the search order, the fact that he had spoken to each of his wife and Messrs Gill, Kanji and Treon between service of the order and the search taking place, and his conduct in relation to the iMac computer. I am not engaged in a trial of Mr Jaffery’s alleged breaches of the search order, but the question of whether Mr Jaffery used the iMac is relevant to the authorship of some important documents that were found on it. In closing, Mr Jaffery explained in some detail why it was most likely that his wife had removed the iMac from 33 Gloucester Place between 29^th April and 5^th May 2011 to the house of her friend, Ms Sabrin Kanji. I will not dwell upon the details that concerned the intricacies of Mr Jaffery’s marital relationship, but I have to say I found the explanation reasonably convincing. I do not think that Mr Jaffery directed his wife to remove the iMac when he was served with the search order – I think it more likely that Mrs Jaffery had already taken it away.

The documents found on the i-Mac are more relevant to issues that I have to decide and were as follows:-

Mr Jaffery denied that any of the documents on the iMac were his documents, and attributed them to his wife or nephew. He also said repeatedly in his evidence that he could not stop Adnan and Altaf discussing various prospective deals with Mr Gill and others, but that he had always made clear to them that they could not actually do a deal involving the Bank without telling him.

I have considered very carefully the authorship of the To Do List, in the light of both Mr Jaffery’s evidence and his helpful closing submissions explaining why he thought it was written by Adnan, rather than Altaf. He pointed to the different font that was used and references to options (something that Adnan would be conscious of) and to Ralph (referring to Mr Ralph de Souza of Leigh Carr, Adnan’s accountant, but not someone very well known to Mr Jaffery). Mr Jaffery said that, even now, he could find no reference to a “Kim” on his Blackberry and did not know who that person was. He also submitted that Adnan must have been writing it as a proposal to get involved in a business with Mr Gill.

Despite all this, I have concluded that Mr Jaffery did indeed write the To Do List. It is simply only consistent with his having done so. The contents refer to all the ongoing deals which Mr Gill and Mr Jaffery were discussing, and I cannot see how anyone apart from Mr Gill and Mr Jaffery could have had all the necessary information to write it. There is no reason why Mr Jaffery could not have used the iMac to create such a document at that time. Moreover, the document makes repeated references to the lack of any formal agreements for Mr Jaffery’s shares – that seems to me to be something that Mr Jaffery himself was the only one likely to be seriously concerned about.

I have also concluded that I cannot accept Mr Jaffery’s evidence that it was Adnan that wrote the New House Project document. It seems to me that its contents point inescapably to it having been Mr Jaffery’s document. It refers to his plan to buy a new house, it refers to “Adnan style covings”, which Adnan would hardly be likely himself to refer to, and to monies from Stoke in which Adnan was simply not involved. Mr Jaffery also accepted that he had been involved in the creation of the curriculum vitae.

Mr Jaffery was extensively questioned about the disaster scenario document of 26^th March 2011. He denied absolutely that the words in the document “[t]he following are Absolute Facts: … [Mr Kanji] has 30% shares” meant that Mr Kanji was entitled to 30% of the Hendon project, but said they meant rather that he wanted or it had been “more or less agreed” that he would have 30%. He said that Messrs Kanji, Treon and Gill were in dispute, and he was arbitrating, and was worried that Mr Kanji would make wild allegations triggering serious repercussions for him for no reason whatsoever.

Mr Jaffery explained this point in more detail in his closing submissions. He referred to an exchange of emails between Mr Kanji and Mr Gill in June 2010 which made it abundantly clear that they had indeed fallen out. It was also clear from these emails that Mr Kanji had made a number of “finger pointing” allegations against Mr Gill. I accept that Mr Jaffery was treated by Messrs Gill, Treon and Kanji as a kind of mediator, and that Mr Jaffery became disproportionately concerned when he saw Fladgate’s letter of 25^th March 2011. I also accept that Mr Jaffery, as a banker, tended to see the most disastrous side of a situation first. I even accept that Mr Jaffery wrote the document to try to head Mr Kanji off – and to try to show him that making allegations against all and sundry was not a sensible way to proceed.

Despite all this, Mr Jaffery did not offer any plausible explanation for why, even on his own version of events, and even if Mr Kanji did make wild allegations against him to the Bank, that would be so likely to result in such dire consequences for Mr Jaffery. It seems to me that the disaster scenario document shows that Mr Jaffery was concerned about the exposure of his “relationship” with Mr Gill, Mr Kanji and Mr Treon. I don’t think he can have been referring to friendship or that kind of relationship, but I think he must have been referring to a business relationship with these three people. It is this aspect of the document for which Mr Jaffery did not really provide any explanation either in his evidence or in closing. True, he may have been exaggerating the point by referring to certain dismissal and prosecution, but his concerns are what are important. And they, as reflected in this document, seem to me to be that his business relationship with Messrs Gill, Kanji and Treon would be exposed to the Bank.

A series of documents found in his own office were put to Mr Jaffery as follows:-

In the context of the cross-examination about Mr Jaffery renting an office from Regus in early 2010, Mr Jaffery, significantly in my view, admitted lying to them in a letter dated 1^st May 2010, when he tried to get out of paying for the office for the remainder of the year to which he was committed. He said he had decided to run the “group” from home, when that was simply a fabrication.

In relation to the payment of £35,000 that Mr Gill allegedly made for Mr Jaffery in respect of the renovations to Mr Jaffery’s property at 33 Gloucester Walk, Mr Jaffery said this:-

“ … the truth of the matter is that I made -- my Lord, the property I purchased was not a simple matter of a couple of windows being changed and a bit of plasterboard. It was a major renovation also with two apartments becoming one and a 500 square foot basement being dug out into the garden. It was spiralling out of control in terms of complexity. If you link that with what I was doing in the Bank at the time I was working all the hours God sent. For someone like me as Banker to say I wasn't actually 100 per cent aware of if I paid 10,000, 5,000, 9,000 was a little bit of a running joke within the department, that "You are a Banker and yet your own development is going all over the place" and Mr Francioni and Mr Theaker held my hand in a major way on that development and also, when the costs started spiralling out of control, they assisted me in getting additional loans, et cetera, et cetera. So Mr Gill's assistance was ad hoc, but became more and more comprehensive as the build progressed so 35,000 on a GBP 4 million property is hugely regrettable. How he paid it, where it came from, I have no idea”.

Mr Jaffery denied that Mr Gill had gone 50/50 with him on the expenses of renovating 33 Gloucester Walk, and that the £35,000 had been paid for the assistance that Mr Jaffery had given in relation to the transactions with the Bank.

There was much cross-examination about Mr Jaffery’s personal email accounts. In essence Mr Jaffery denied having used a personal email on the grounds that he was a disorganised person who could not remember the passwords. After some prevarication, he explained the various documents that were put to him showing that he had used the address at barkcare@gmail.com by saying that it was a “drop-box” which he might have asked people to send things to, so that others (his wife, brother, nephew etc) could print them out for him. Whilst there may be an element of truth in Mr Jaffery’s statement that he forgot passwords, I do not accept his evidence about personal emails generally. He used a number of these emails when he needed them, and his evidence that he had not done so was disingenuous and contradicted by the documentary evidence.

Mr Jaffery was asked about the draft Investment Agreement sent by Mr Kanji to him under cover of an email dated 7^th May 2010 relating to the Hendon project which provided that the “three existing shareholders have agreed the shareholding of the company as follows: FULWOOD 30% BGI 40% with 10% to be held on trust for SAJ V2Capital 30%”. He denied drafting or being involved in the drafting of that document, and said he did not notice that he was shown as having 10% shareholding in the draft shareholders agreement. He said that “SAJ” could have been Mr Adnan Jaffery, though it was drawn to his attention that in his defence he had claimed it was a reference to Mr Altaf Jaffery.

Mr Jaffery was cross-examined also about the email he sent to Mr Boucher on 2^nd February 2011. It was put to him, in effect, that what he wrote was disingenuous, since it contained a slew of allegations about the treatment of himself and his team, but made no mention of having already met Lord Ahmed to blow the whistle on the Bank. Mr Jaffery’s gave two somewhat inconsistent responses: first, he said that you needed to follow the BOI’s “fireside chat” policy to be listened to; secondly, he said that the decision had already been made to get rid of him. Either way, it seems to me that the email to Mr Boucher does support some of what Mr Jaffery put to the Bank’s witnesses about the treatment meted out to him by the Bank. I have little doubt that, by February 2011, Mr Cunningham and Mr Kidd, at least, were keen to be rid of Mr Jaffery. Since they were his two bosses, I also have no doubt that Mr Jaffery was made to feel extremely uncomfortable for some of the reasons set out in his email.

Mr Jaffery was asked about the conversations that he allegedly had with Mr Cunningham in October 2009 and March 2010, in which Mr Cunningham said that he should leave the Bank and that, in the meantime, he could pursue his own business interests. Mr Jaffery did not give any specific account of the alleged conversation in October 2009 (as opposed to the description he gave in his third statement of what was allegedly said in March 2010). I formed the view that Mr Jaffery’s recollection of these conversations was somewhat impressionistic. Undoubtedly, Mr Jaffery had frequent runs-in with Mr Cunningham. They were poles apart, and they saw eye-to-eye on very little. Whether or not Mr Cunningham told Mr Jaffery so in so many words, I have little doubt that shortly after he arrived in his new job in the Autumn of 2009, he gave Mr Jaffery to believe that his future at BOI was limited. Strangely, I rather think he (Mr Cunningham) may not have intended to do so, but Mr Jaffery is such an emotional man that Mr Cunningham did not need to say much to give Mr Jaffery that very clear impression. That was, however, as Mr Jaffery explained, a very hard time to find another job. I found the following exchange quite revealing:-

“Mr Kitchener: Coming back then to what you said about the March conversation in paragraph 45 of the witness statement.

A. Yes, I beg your pardon.

Q. You say that you would are permitted to continue with your pursuit of other business opportunities.

A. Yes.

Q. What other business opportunities did he know that you were pursuing?

A. Mark Cunningham at this point was getting very irritated for the point you have just yourself made, when you said "It took you 19 months and this is ridiculous". He said "How come you have not left, it has been months, why have you not left?" What I tried to explain to Mark, "It is virtually impossible, Mark, to leave because nobody will touch this Bank with a bargepole, I can't leave". So then Mark moved on and said "You don't have to -- literally, what other opportunities -- can you just go and do something -- you are a clever lad". I mean, you have said to me several times "You are a very clever man, Mr Jaffery", maybe he was being sarcastic. But he said to me "Do what you need to do but, please, my friend, you have to do it", but as fate would have it, I couldn't find a job, you are absolutely right, after desperately trying and all my emails show how many headhunters, how many people I desperately tried to leave the Bank with. I couldn't find a business opportunity because, as at 6 May, I didn't have any shares, I didn't have any interest in any company, so I failed on both fronts, which is the most ironic thing I could [ever] tell you. That is the whole irony of this whole case. I wish I had found a job and I wish I'd found a business opportunity, I didn't find either.

Q. I suggest that Mr Cunningham told you nothing that would indicate to you that the Bank consented to you planning any involvement in the business of any customer of the Bank.

A. I suggest to you, Mr Cunningham, is that precisely the kind of man he is and precisely down his alley. Nobody would be surprised in Bank of Ireland when I said any of this. They would say "That is exactly what Mark would do". Only you are surprised, maybe, in a court of law, but that is exactly the kind of personality we are dealing with”.

Surprising as it may seem, I find that there was a significant element of truth in what Mr Jaffery was saying in that passage. I am sure that conversations took place with him in which this kind of impression was given to Mr Jaffery. Whether or not that impression can amount to the kind of consent necessary to allow Mr Jaffery to commit what would otherwise represent a breach of fiduciary duty is something I will consider in due course.

Mr Jaffery accepted that he had not fully complied with his agreement with Mr Cunningham to support the Bank’s representations to the FSA, but it does not seem to me from the evidence I heard that Mr Jaffery said anything in his interview with the FSA that did the Bank any actual harm.

As regards the whistle-blowing to Lord Ahmed, Mr Jaffery accused the Bank of taking emails and notes that he had made, when they searched his office after he was dismissed. That, he said, was why there were no disclosed documents identifying his concerns. I cannot say if this is right, but I do have considerable reservations about the heavy-handed and disproportionate way in which this litigation has been conducted by the Bank. On the evidence I heard, I can certainly not take the view that I have been shown all the relevant documents about the whistle-blowing episode.

Mr Jaffery was cross-examined extensively on the last day of his evidence about the £700,000 that he raised on a second mortgage of 33 Gloucester Walk in May 2010. Mr Jaffery’s evidence was that he had paid the entire £700,000 to Adnan’s accountants, Leigh Carr, so that he (Adnan) could pay his debts. Adnan had used £300,000 of that money to pay off what Adnan owed to Mr Kanji, and the balance of £400,000 to pay off what Adnan owed to Mrs Sumby. He made the payment to Adnan, he said, out of natural love and affection as he knew that Adnan was very ill. He denied that, in the circumstances of these payments, there was anything strange about the fact that, when Adnan died in January 2011, his sister inherited his house and some £1 million and he inherited nothing.

The documents were put in detail to Mr Jaffery as contained in the above chronology. In relation to the £400,000 paid to SIG III on 24^th May 2010, the following exchange took place:-

“Q. What I suggest is that you knew very well that the receipt of the monies was absolutely nothing to do with any confirmation of Mr Gill's personal tax position; it was due to the fact that you had secured after some delay the proceeds of your second mortgage?

A. Well, again you try and conflate three separate things and pretend they are all one thing because it suits you. Mr Gill was trying to say that he would potentially raise the 400,000, and I think all of us at the Bank had raised eyebrows. One, we didn't think he had the ability to do it, two it wouldn't have made any sense, and he didn't in the end do that. The second thing is that Mrs Sumby separately said, who is the owner, that those funds will come from UBS, she said she will be breaking her deposit and, thirdly, yes, I was trying to pay my nephew's loan. As it happens Mrs Sumby is in control of which amount she used. She told me that she would break her deposit and I took that at face value. I didn't conflate the two issues. Fine, it suits you to do that. Fine. That doesn't make it true”.

I am unable to accept Mr Jaffery’s explanation. The documents make it abundantly clear that Mr Jaffery was desperate to obtain the £400,000 to contribute to the Stoke project. There is not a single document showing Mrs Sumby’s involvement in procuring that payment. It seems to me an inevitable consequence of the documentation that Mr Jaffery knew very well that the money he was raising on 33 Gloucester Walk was urgently required for the SIG investment required by the Bank. Whether that investment was in fact his own investment giving him an interest in the Stoke project is a core issue in the case to which I shall turn in due course.

Mr Jaffery was cross-examined extensively about the other potential deals in which he and Mr Gill were involved. It was clear that towards the end of 2010 and in early 2011, Mr Jaffery was keen to leave the Bank and to find an investment that he could become involved in. One of the ones that he looked at was the Bombay Bicycle Club. The details do not really matter, since no investment was made whilst he was an employee of the Bank. It was suggested, however, that the opportunity came to him whilst he was employed, and he therefore later took advantage of the opportunity in breach of duty. I shall return to that contention.

Mr Jaffery was asked about all the references and recommendations he had given for Mr Gill. It was suggested that he knew them to be untrue, and that, since he knew that Mr Gill had previously been disqualified as a director, he should not have given them at all. Mr Jaffery said this:-

“… it is within my right as an executive of the Bank to write a Bank reference and I've written a Bank reference and I thought it was common ground between us, there was no issues with the Bank. If you are saying there is an issue -- I'm very happy with every single reference I've given. The language is standard and I've put the protections in, I've said that the Bank is not a credit reference agency and the information is provided without prejudice. So there is no one to refer to for these. They are my judgment call and I've made it and it is quite a standard practice to provide … Nobody lends money on a Bank reference, my Lord, a Bank reference is there to provide some comfort, "This individual can", or "This company, et cetera, et cetera, can execute on what they say they can execute on". Now, we are out for at least GBP 20 million to this family as a Bank, so to write a reference for someone -- the analogy I would give is if I walked in to try and buy Tesco and Tesco asked for a reference from my Bank and my Bank said "Mr Jaffery is good for GBP 10,000", they would know he is not even in that league to execute that deal. If my Bank said "He is good for business up to 200 million", that doesn't mean to say that Tesco is going to lend 200 million on my letter that means they are going to know I'm a credible individual to now engage with, that is what these references are there for”.

Mr Jaffery denied that he was expecting an interest or had an interest in a number of other deals including the Land Bank deal, the Nightingale deal and the C+ deal. He also denied that he had an interest in the METIS project, to which he said he had contributed £60,000 on behalf of his impecunious brother, Altaf.

I can conclude my treatment of Mr Jaffery’s evidence by saying that I found him an impressive witness, not impressive as regards his veracity, but as regards his stamina and fortitude. I have little doubt that he has somehow managed to persuade himself that the majority of what he told me was true. Unfortunately, he has admitted lying on several important occasions in important documents, some of which I have catalogued above. His evidence cannot, therefore, be considered reliable. Indeed, there were occasions when I found myself clearly detecting the difference between his demeanour when he was telling the truth and when he was lying. I am sure he too knew (emotionally at least) when he was lying to me. I will deal with those parts of his evidence that I am wholly unable to accept, most of which are signalled above, again in due course.

Before dealing with Mr Gill’s evidence, I should say something about Mr Jaffery’s side of the story as regards the investigations the Bank undertook and his whistle-blowing activities. It is clear that Mr Jaffery did indeed make the sham bank allegation to Lord Ahmed in January 2011, and that Lord Ahmed faithfully reflected those allegations in the letter to the Chancellor, whose contents undoubtedly reflect Mr Jaffery’s perspective. These events certainly support the likelihood that Mr Jaffery had said something about these matters to Messrs Cunningham and McGowan, as he put to them. I am not sure, however, that he would have put the points quite as crisply to them as he did to Lord Ahmed. Taking all the evidence together, I need to determine whether the Bank knew that Mr Jaffery had blown the whistle before it started its investigations into his activities. This is not strictly relevant if Mr Jaffery was indeed in breach of his fiduciary duties, but it would cast a shadow over the motives of the Bank in investigating Mr Jaffery and then mounting this exceptional litigation campaign against him.

I have not heard enough evidence to reach a clear conclusion about whether the Bank knew that Mr Jaffery was a whistle-blower before the 13^th May 2012. I am sure Mr McGowan did not know, but I strongly suspect that someone in the Bank at a senior level either knew or suspected that to be the case. I see the force in Mr Jaffery’s contention that the disparity between Mr Murphy’s evidence and Mr Cunningham’s evidence is significant, and that the documents that were disclosed during Mr Cunningham’s evidence show that there was a sea change in the style of the investigation between the early reports of Mr Steve Hyndman in February 2011 into the Nightingale project and the initiation of the Project Metal group in March 2011. I am sure that the latter investigation was into Mr Jaffery as Mr Murphy said, and not into a wider group of people as Mr Cunningham suggested. Moreover, I cannot help thinking also that Mr Jaffery is right to have said that the reasons for the switch from employing the Bank’s normal procedures (Mr Hyndman and his boss, Mr John Crabtree, Head of Group Internal Audit) to a dedicated high level Steering Group based in Ireland, was occasioned by the fact that someone had got wind of the fact that Mr Jaffery was a whistle-blower. As Mr Jaffery also said, it would not take much for the Bank to put two and two together, if it had heard that Lord Ahmed had written the letter to the Chancellor, to point the finger at him as probably the Bank’s most senior Asian employee.

These matters do, I think, explain the peculiarly hard-nosed and disproportionate way in which the Bank pursued its investigation and indeed this litigation. They do not, however, justify in any way any breaches of fiduciary duty that I may find to have been committed. The whistle-blowing succeeded any breaches of duty, and the Bank, whatever its motives, is entitled to seek to vindicate its legal rights. I shall return to this issue in due course.

Mr Pritpal (Raj) Gill gave evidence next. He relied in chief on a total of 12 statements and affidavits, mostly prepared in relation to various interlocutory applications. They were dated 17^th May 2011, 10^th June 2011, 16^th December 2011, 4^th January 2012, 11^th January 2012, 16^th January 2012, 29^th January 2012, 6^th February 2012, 9^th February 2012, 7^th March 2012, and 13^th March 2012. His trial witness statement was dated 27^th February 2012

Mr Gill’s trial witness statement advanced the case that the Bank’s claims are a witch hunt (my expression) inspired because Mr Jaffery blew the whistle on its activities to Lord Ahmed. Mr Gill cross-examined the Bank’s witnesses on the basis that GCBOI had obtained a UK Banking licence for the BOI PLC on the false basis that it would be run as a totally separate UK Bank, when in fact it was still to be governed from Ireland by the GCBOI.

Mr Gill’s evidence was that he has never been a customer of the Bank, and that he was “advised very early on by Mr Qadir and [Mr Jaffery] [that] as I was made Bankrupt in the past and had been dis-qualified as being a director of a company I would not be suitable customer of the Bank”.

Mr Gill said in his trial witness statement that the Bank’s primary case is that he is the owner of the Berkeley Care Group (“BCG”) companies and that he promised Mr Jaffery a share in these companies. He says about this: “I am not the owner and never have been, my sister is the sole beneficiary of the GIFT trust. This has been confirmed by not only the Banks own legal documentation but the trustees, Landmark Fiduciary, Leigh Carr accountants and my sister Mandip Sumby …”, and “[o]ver the years both Mr Syed Adnan, Mr Syed Altaf Jaffery, Mr Treon and Mr Kanji discussed with me a number of opportunities which, among many topics involved buying various assets from my sister’s trust and Mr Treon’s companies to form a care group, an investment vehicle centred around the development and running of a care group. … None of these plans were or have been executed”.

Mr Gill’s witness statement denies bribing Mr Jaffery, and repeats that he has no shares or interests in any of the companies. In relation to the allegation of knowing assistance, Mr Gill said in his statement that he was not aware of Mr Jaffery’s fiduciary duty or the “extent of what relationship he had with the Bank”. He continues: “as far as I was aware my sisters’ accounts were managed by Mr Qadir, Mr Baldrey and Mr Williams and the in line boss was a Mr Kidd. I was never aware of [Mr Jaffery] being the manager at any time. I was under the impression he was an executive and had no material involvement in the running of accounts and or granting loans”. He says that at no time was his relationship with Mr Jaffery kept secret from the Bank or its employees.

In relation to the opening of a new Bank, Mr Gill says that it was his suggestion that Mr Jaffery should manage the new ethical Bank that he was proposing forming with a number of wealthy investors.

In relation to SIG II, Mr Gill accepts that, at a late stage, Mr Jaffery offered to purchase the 24 flats at market price.

In relation to the £400,000 payment, Mr Gill said this in his statement: “Mr Syed Adnan Jaffery owed my sister monies relating to losses incurred in a business deal. I am aware that [Mr Jaffery] gifted these funds to Mr Syed Adnan Jaffery as he was dying at the time and subsequently passed away. It is not out of the normal within the Asian community for family to repay these kinds of debts when families have close ties. It is not a legal requirement only a moral one …”.

In relation to the £35,000 that Mr Gill accepts he paid on behalf of Mr Jaffery in developing 33 Gloucester Walk, he says that the Bank was fully aware that he was assisting Mr Jaffery at the time “and in fact they had and were reimbursing numerous payments I had made personally or effected on [Mr Jaffery’s] behalf. This was a payment that was overlooked and [Mr Jaffery] advised the [Bank] of and was intending to repay on the sale of the property”.

In answer to questions formulated by Mr Jaffery (but put to Mr Gill by me in Mr Jaffery’s temporary absence), Mr Gill said that:-

At the beginning of his cross-examination by Mr Kitchener, Mr Gill said that Mr Jaffery’s relationship with Adnan was a fatherly one, because Adnan’s parents had had an acrimonious split when Adnan was quite young. Adnan was somewhat scared of Mr Jaffery. He also explained that Adnan and Mr Jaffery did not know he (Mr Gill) had been to prison because Mr Gill’s family did not want anyone to know, as they were educated and distinguished, his great grandfather having been a judge in Lahore. The conviction brought shame to his family, and only his parents and sister knew about it. Other people thought he was travelling or pursuing his interest in Theology at an ashram, whilst he was in prison.

Mr Gill was asked about the net asset statement that he signed on 1^st May 2009 showing that he had net assets of £20 million. The statement gave his sister’s address in Luxembourg, and he said that everyone in the Bank was fully aware that it was Mrs Sumby’s assets that he was speaking about. They knew that he did not live in Luxembourg. Mr Gill’s perspective was that the Bank was not relying on his net worth or his personal guarantees, nor upon his relationship with or support from Mr Jaffery.

Mr Gill was cross-examined about his failure to disclose more documents. It did not seem to me that I needed to decide the rights and wrongs of the interlocutory battles over disclosure that seemed still to be raging. But I did accept Mr Gill’s evidence that he made or received something like 20 phone calls to one email. He struck me as the kind of businessman, who operated by personal contacts in meetings or on the telephone, rather than in writing. There are limited examples of documents actually created by Mr Gill, not, I think, because they have been concealed, but mainly because he did not do that much writing. Some particular examples of documents he did create make that point good. At the height of the crisis over the need for the £400,000 in May 2010, to which I have referred extensively above, Mr Gill did go into writing with his email of the 4^th May 2010.

Mr Gill was asked about the closeness of his relationship with Mr Jaffery. Whilst it is true that they developed an increasingly close business relationship exploring numerous projects over the years between 2006 and 2011, I don’t think that they were quite living in each other’s pockets in the way that the Bank sought to suggest. Mr Gill is a very different kind of person from Mr Jaffery, as is demonstrated by the evidence recorded above. Their contacts were at a business and personal level, but I saw nothing to make me believe that there would have been anything “improper” in the relationship as suggested by the Bank, save insofar as impropriety is constituted by the breaches alleged in the case being proved. Even the assistance that Mr Gill gave Mr Jaffery with the refurbishment of 33 Gloucester Walk was plausibly explained by Mr Gill in a telling passage of his evidence as follows:-

“Q. … we have heard that you provided a great deal of assistance … to Mr Jaffery in relation to the renovation of his house and you didn't charge for that …?

A. I did assist Mr Jaffery in parts of his development, yes, I did. Whether they were large or not, that is really a subjective question and a subjective point of view. Mr Jaffery at the time was being swamped, he had no idea what he was doing. He needed some guidance on co-ordinating things in a slightly different way. However, everyone at the Bank, including Mr Francioni, Mr Theaker, Mr Baldrey, Mr Williams, all knew this.

Q. They didn't know [the] extent of what you [were] doing or that it was at no charge, did they?

A. I think they did know to the extent that I was doing it, because why would Mr Theaker have sent me money many times himself. Mr Francioni, I met a number of times going to the office and Mr Francioni used to even joke, saying "Without you, Raj, he wouldn't even be able to get this development finished off". So I think it was common knowledge that I was helping. No, I didn't charge. I wasn't spending 24 hours a day or eight hours a day or a working day doing it, I was helping a friend out. I wouldn't consider it appropriate to charge”.

Mr Gill explained the £35,000 that he had paid in respect of the refurbishment as follows when he was opening his case:-

“At the time he was refurbishing his flat, the Bank knew because Mr Paul Theaker -- he was only allowed to draw down once a month and the contractors needed paying sometimes in between and he asked me as a friend 'Do you mind assisting?' Which I didn't mind. So I would pay him in the interim and he would pay me at the end of the month. I was sending those to Paul Theaker and he was sending the money to me. So that was not without the knowledge of the Bank, that was in full view of the Bank … But there are numerous numbers of transactions that demonstrated that. Now one of those transactions did get missed and when he picked it up he said, 'Look, I haven't got the money because I done all my draw down. When I sell the flat I will reimburse you that 35,000'”.

The upshot was that, according to Mr Gill, Mr Jaffery still owes him the sum of £35,000. I accept this part of his evidence with one caveat, despite the Bank’s reliance on an email dated 18^th December 2009 from Mr Jaffery to Mr Belcher at GSC Solicitors saying that Berkeley Group owed him £35,000. The caveat is that it appears that the money that Mr Gill was using to pay Mr Jaffery’s bills was from his sister or the “Berkeley Group”. Undoubtedly, Mr Gill did not make a very clear distinction between his own money and that of his sister.

Mr Kitchener put a number of the important documents created or allegedly created by Mr Jaffery to Mr Gill and asked him detailed questions about them, after he denied absolutely having seen them at the time. I did not find this exercise very illuminating, although questioning on one or two of the documents was revealing.

Taking the most relevant documents in chronological order:-

Mr Gill was cross-examined at some length about the injection of £400,000 into the Stoke deal in May 2010. His evidence did not add much to what Mr Jaffery had said, although he did say that his sister was never confident that Adnan would actually repay the £400,000, since he had been saying he would do so for a long time. She may, he said, have used the delay and the urgency as a tool to get the money from Adnan. The doubt about the payment from Adnan, said Mr Gill, was the explanation for the other possible sources of the money being considered (breaking the deposit, which Mrs Sumby would not do, he said, and Mr Gill himself subject to his tax position). Mr Gill was questioned about his 4^th May 2010 email to the Bank relating to the “collation” of the £400,000, and he explained that his sister could not lend money to her trust for tax reasons.

Quite a lot of time was spent in asking Mr Gill about Mr Jaffery’s possible purchase of the 24 flats at the front of the Stoke site in early 2011. Mr Gill accepted he had recorded that £1 million had been agreed by BGI as the sale price on 29^th March 2011. It was put to him that this was a deal agreed at an undervalue to benefit Mr Jaffery, because Knight Frank had valued the flats at £1.73 million in November 2010. Mr Gill rejected that suggestion on the basis that the Bank had valued them at £980,000, had a 10% over-ride on the property, and could have vetoed any sale, and that Knight Frank’s value was some months earlier. In any event, the sale never took place.

There was also lengthy cross-examination of Mr Gill about the Bombay Bicycle Club transaction, which again did not take place before Mr Jaffery was dismissed. Mr Gill accepted that Mr Jaffery was intending to take part in the deal, but he insisted that before he was dismissed, he was intending to buy a separate part of the V8 Gourmet Group himself, not take a share with BCG. Only after he was dismissed did Mr Gill change the deal so that Mr Jaffery could participate in a single deal. Ultimately, the V8 Gourmet group went into administration shortly after Mr Jaffery was dismissed, and Ms Saeeda Jaffery took a debenture using her inheritance from Adnan, and Ms Jastender Gill took over the surviving parts of the business. Mr Gill accepted that at the stage that this deal was being negotiated, Mr Jaffery was indeed using the barkcare@googlemail.com email. The BOI had offered finance for the Bombay Bicycle Club transaction on 15^th April 2011, but the offer lapsed after Mr Jaffery was dismissed. Mr Gill refused to accept that he had said that Mr Jaffery should not present the deal to Mr Theaker because he knew of the conflict. And he denied both that he and Mr Jaffery had always intended to buy and operate the Bombay Bicycle Club together, and that he had obtained the opportunity because of Mr Jaffery’s position at BOI.

Mr Gill was asked many questions about the Hendon project. His evidence was that Mr Jaffery had no interest in it, but that he was involved in the detail from an early stage, because he (Mr Gill) had fallen out with Mr Kanji, and Mr Kanji had become very petty accusing him of all manner of misdeeds, so that Mr Jaffery had had to mediate and deal with minor matters, because Messrs Gill and Kanji would not otherwise communicate. I accept, as I have already said, that there was some truth in this story, though it did not account for the entirety of Mr Jaffery’s involvement. I will return to deal with Mr Jaffery’s interest in the Hendon project in due course.

At this stage, it is worth mentioning a point that was raised in closing concerning Mr Gill’s irate email to Mr Kanji dated 15^th June 2010, which concluded in relation to the Hendon project by saying that “I am not prepared to carry out a dialogue with you any longer … Once a year BGI will issue a statement and as a minority shareholder I am sure this will be circulated to you”. I mention this, not because it reflects what happened, but because it seems to be an acknowledgment that it was not right for Mr Gill to have said that Mrs Sumby had a 100% interest in the Hendon project. Mr Gill did not provide an explanation for what he had said.

It was suggested to both Mr Gill and to Mr Jaffery that they were responsible for the forgery of a copy of the Hendon facility letter dated 16^th October 2007. This version, which had been provided to Mr Kanji, showed that Mr Gill had guaranteed the deal up to £1.1 million instead of up to £290,000 (as was the truth). I do not think it necessary to reach a conclusion on this allegation, since Mr Kanji, who disclosed the allegedly forged document was not called, and I cannot see that it is anyway of much assistance in deciding the core issues in the case.

Mr Gill was also cross-examined on whether Mr Jaffery and Mr Qadir knew of his conviction. He broadly repeated the version of events that he had put forward in answer to Mr Jaffery’s questions. Ultimately, I am not sure that it matters whether Mr Jaffery knew of Mr Gill’s conviction as well as his disqualification and his bankruptcy. As Mr Gill said, banks do, in fact, lend to people who have been bankrupt and who have been disqualified and with past convictions (certainly spent ones), so the point is rather academic. Moreover, BOI do not actually ask potential borrowers if they have any convictions. The more important point put to Mr Gill was that he had effectively used Mr Jaffery’s position at the Bank to further his business, knowing that he would not have been so favourably treated without Mr Jaffery’s support. Mr Gill denied all these suggestions, but his denial of the latter point was less convincing. It was very clear from a whole raft of documents (some put to Mr Gill and many not) that Mr Gill used his relationship with Mr Jaffery to advance his (or his sisters’) position, and that he knew that Mr Jaffery was supporting his loan applications and obtaining favourable terms for him. He was also taking Mr Jaffery’s advice as to how to present matters to the Bank. I shall return to the significance of these points, the relevance of the conviction, and the question of whether the Bank would have entered into the same transactions anyway.

Mr Gill was asked directly about his view of Mr Jaffery’s duties to the Bank. I found his answers more than usually evasive. The following passage provides an example:-

“Q. You understand that Mr Jaffery's [obligation] was always to act in the best interests of the Bank.

A. I think anyone who is employed by any firm has to act in the best interests of who they work for, that is –

Q. You obviously understood that he wasn't entitled to have -- he wasn't allowed to get himself into a situation where his personal interests conflicted with the interests of the Bank.

A. That would really be a matter for him, wouldn't it?

Q. No, I suggest it's a matter for you and that that is a matter that you would have known about, because it is obvious.

A. No.

Q. You knew that he couldn't have an interest in a Bank customer like SIG or Telkin, whilst he was employed by the Bank.

A. He didn't have an interest in SIG or Telkin.

Q. You knew that he couldn't.

A. He didn't have an interest in Telkin.

Q. You knew that he couldn't be promised an interest in a Bank customer like SIG or Telkin while he was employed by the Bank –

A. And he wasn't promised.

Q. -- or have any expectation of such interest –

A. And he had no expectation.

Q. -- or receive any undisclosed benefits from customers –

A. I can't talk about other customers but from myself he received nothing -- or my sisters, he received nothing”.

After some considerable deliberation, I have concluded that these answers, like much of Mr Gill’s evidence, were not born of ignorance of the law, but of a close understanding of the legal issues in this case. Moreover, I am certain that Mr Gill understood the limits of what was permissible at the time. His conduct, taken as a whole, demonstrates to me that he understood the tightrope upon which he and Mr Jaffery were walking. The question that remains is whether, at any time, they toppled over.

Mr Gill was asked about his personal assets, and he denied having any, except for what he was paid by way of consultancy fees and commission. He said that he had never claimed to the Bank that he was worth £20 million, or £60-£70 million. All assets estimates related to his sisters and family.

Eventually, the day before Mr Gill was due to give evidence, Mr Gill confirmed that he would not be calling his two sisters, Mrs Sumby and Ms Jastender Gill. Mr Gill told me, however, that Ms Jastender Gill moved back to the UK from Los Angeles some 2 years ago, and had moved to Colchester because her daughter obtained a place at the Grammar School in Colchester. Mrs Sumby’s statement dated 27^th February 2012 said that she was the sole beneficiary of the GIFT Trust and the various companies underlying the trust, and that Mr Gill had never directly or indirectly been a beneficiary. Mrs Sumby also said that her trustees had contracted Mr Gill to assist in the sourcing and management of deals. Ms Jastender Gill’s statement said that she was the beneficiary of the BEREKELY (sic) Trust and the various companies underlying the trust, and that Mr Gill had never directly or indirectly been a beneficiary. Ms Jastender Gill says in her statement that in August 2006 she bought the Hornchurch Property for £1.25 million in her own name, with a mortgage of £1 million from HSBC. She recently gifted the Hornchurch Property into a trust on tax advice at which time the Bank “took over the loan”. Ms Jastender Gill says that she will not transfer the Hornchurch Property to Mr Gill as it is not his property and never has been.

No other witnesses were, therefore, called by either Defendant, though repeated reference was made to the affidavits of 3 representatives of Leigh Carr (Mr Noorali Jin, Mr Roy Whitcomb, Mr Ralph de Souza) that had been filed in interlocutory proceedings. It was accepted by Mr Kitchener QC that I could take into account, subject to the usual questions as to weight, the statements of Mr Gill’s sisters and of Leigh Carr’s representatives.

Before turning to deal with the issues that I have to decide, it is useful to set out some of the non-controversial principles affecting those issues under the following 7 headings:-

Breach of fiduciary duty

The rules applicable to conflicts between duty and interest of fiduciaries and the ‘no profit’ are well summarised in 2 short passages from Snell’s Equity 32^nd edition 2010 at paragraphs 7-018 and 7-041 as follows:-

“7-018. “It is an inflexible rule of a Court of Equity that a person in a fiduciary position … is not allowed to put himself in a position where his interest and his duty conflict”

The rule applies even where the fiduciary’s personal interest “possibly may conflict” with his duty, but only if a reasonable person “looking at the relevant circumstances would think that there was a real sensible possibility of conflict.” Thus, if there is no non-fiduciary duty in the circumstances, there can be no conflict between duty and interest.

The fiduciary conflict rule has sometimes been attributed to considerations of morality, but the better view is that it is based on “the fallibility of human nature” rather than on morality. It is:

“based on consideration that, human nature being what it is, there is a danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty.”

By having a personal interest in a transaction which conflicts with his non-fiduciary duty, the fiduciary “puts himself in such a position that he has a temptation not faithfully to perform his duty to his employer.” It is the temptation to breach non-fiduciary duties that is the evil against which the rule is directed. Thus, in Aberdeen Railway Co v Blaikie Bros, Lord Cranworth L.C. identified that a director owed a duty to his company to obtain property for the company’s use at the lowest price possible and observed that the director’s personal interest in a transaction with the company “would lead him in an entirely opposite direction.”

It is not necessary to show that there has been a breach of non-fiduciary duty in order for there to have been a breach of fiduciary duty: “it is quite enough that the thing which he does … has a tendency to interfere with his duty.” Indeed, a fiduciary can be in breach of the fiduciary conflict rule even though his or her conduct has been to the benefit of the fiduciary’s principal. The rule is a general rule, based on generalised considerations of risk, rather than one which requires an assessment of whether the fiduciary has actually succumbed to temptation, as that is often too difficult to determine. In this sense, fiduciary doctrine is often described as “prophylactic”.

Similarly, the fairness or otherwise of the transaction is generally not a relevant consideration, and “no inquiry on that subject is permitted.” Nor is it relevant whether any gain by the fiduciary was one that the principal could or could not have obtained.

The honesty or otherwise of the fiduciary is also irrelevant: a breach of fiduciary duty “may be attended with perfect good faith.” The fiduciary conflict rule “might be departed from in many cases, without any breach of morality, without any wrong being inflicted and without and consciousness of wrong-doing.” This does not mean that the rule can be departed from where the fiduciary does not act immorally: it means that the rule applies irrespective of considerations of morality.

The rule is not avoided by the fiduciary arranging a transaction through a third party if there is an “understanding or agreement in honour, or in any other shape” with the effect that the third party is in fact acting on behalf of the fiduciary”.

…

“7-041. The second of the two major themes of fiduciary loyalty is the profit rule. The essence of the profit rule is that a fiduciary acts in breach of fiduciary duty where he or she makes a profit by reason or in virtue of the fiduciary office or otherwise within the scope of that fiduciary office. A fiduciary is required “to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it.”

The fiduciary’s honesty is no defence.

“The rule is not dependent on fraud or bad faith or whether the actions of the fiduciary were clandestine. The rule is dependent on the mere fact of the profit being made.”

It is also irrelevant whether the principal could have obtained the profit for itself. The reason for this is that if a fiduciary could justify his or her conduct on such a basis:

“there will be a temptation to refrain from exerting their strongest efforts on behalf of the [principal] since, if it does not meet the obligations, an opportunity of profit will be open to them personally.”

It is also irrelevant whether the fiduciary’s conduct has caused any loss to the principal. Indeed, the fiduciary can still be required to account even though he acted in good faith and avowedly in the interests of his principal”.

Consent to a conflict of duty and interest

The rules applicable to the circumstances in which a conflict between duty and interest can be authorised are also well summarised in Snell’s Equity supra at paragraph 7-019 as follows:-

“The fiduciary conflict rule has few exceptions. However, “a person occupying a fiduciary position will be absolved from liability for what would otherwise be a breach of duty by obtaining a fully informed consent.” Such consent may have been obtained at the outset from the person who created the fiduciary relationship, or it can be obtained from the fiduciary’s principal, or from the court. Company directors can seek authorisation to act with a conflict between duty and interest from the other directors.

Fiduciaries are not generally obliged to make full disclosure and seek consent. Rather, the fundamental obligation is to desist from acting in a way that involves a conflict between duty and interest; disclosure and consent provide a mechanism by which the fiduciary can avoid liability if he wishes to act in such a situation.

However, it is a breach of statutory duty for a company director to fail to disclose any interest he has in a contract or proposed contract with the company, although this is not necessary where the other directors are already aware of the conflicting interest.

It has been said that a fiduciary is liable under the fiduciary conflict rule even if he was not aware of the conflicting interest, but this seems unnecessarily harsh and there is contrary authority. However, a fiduciary cannot avoid the effect of the rule where he has deliberately refrained from acquiring information about a conflicting interest, or where he ought, consistently with his professional duty, to have recognised the conflicting interest”.

Dishonest assistance in a breach of fiduciary duty

The test of dishonesty is now clearly established by the Privy Council in Barlow Clowes v. Eurotrust [2006] 1 WLR 1476. In Starglade Properties Limited v. Roland Nash [2010] EWCA Civ 1314 the Court of Appeal (Morritt C, Hughes and Leveson LJJ) reviewed the applicable principles and said this:-

“26.

In Twinsectra Ltd v Yardley[2002] 2 AC 164 … [t]he majority concluded that the test of dishonesty was a combination of an objective and subjective test. The combined test was described by Lord Hutton (p.172D) as one

“...which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest.”

27.

This was explained by Lord Hutton, with whom the majority agreed, in paragraph 36 in these terms:

“It would be open to your Lordships to depart from the principle stated by Lord Nicholls that dishonesty is a necessary ingredient of accessory liability and to hold that knowledge is a sufficient ingredient. But the statement of that principle by Lord Nicholls has been widely regarded as clarifying this area of the law and, as he observed, the tide of authority in England has flowed strongly in favour of the test of dishonesty. Therefore I consider that the courts should continue to apply that test and that your Lordships should state that dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct.”

28.

There is no suggestion in any of the speeches in Twinsectra Ltd v Yardley that the standard of dishonesty is flexible or determined by any one other than by the court on an objective basis having regard to the ingredients of the combined test explained by Lord Hutton.

29.

In the third of the relevant authorities I have listed in paragraph 23 above, Barlow Clowes Ltd v Eurotrust Ltd [2006] 1 WLR 1476, the Privy Council accepted that (para 10):

“Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards.

It added:

“15.

Their Lordships accept that there is an element of ambiguity in these remarks which may have encouraged a belief, expressed in some academic writing, that Twinsectra had departed from the law as previously understood and invited inquiry not merely into the defendant's mental state about the nature of the transaction in which he was participating but also into his views about generally acceptable standards of honesty. But they do not consider that this is what Lord Hutton meant. The reference to “what he knows would offend normally accepted standards of honest conduct” meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were.

16.

Similarly in the speech of Lord Hoffmann, the statement (in para 20) that a dishonest state of mind meant “consciousness that one is transgressing ordinary standards of honest behaviour” was in their Lordships' view intended to require consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour. It did not also to require him to have thought about what those standards were.

17.

On the facts of Twinsectra, neither the judge who acquitted Mr Leach of dishonesty nor the House undertook any inquiry into the views of the defendant solicitor Mr Leach about ordinary standards of honest behaviour. He had received on behalf of his client a payment from another solicitor whom he knew had given an undertaking to pay it to Mr Leach's client only for a particular use. But the other solicitor had paid the money to Mr Leach without requiring any undertaking. The judge found that he was not dishonest because he honestly believed that the undertaking did not, so to speak, run with the money and that, as between him and his client, he held it for his client unconditionally. He was therefore bound to pay it upon his client's instructions without restriction on its use. The majority in the House of Lords considered that a solicitor who held this view of the law, even though he knew all the facts, was not by normal standards dishonest.”

There is no suggestion in this case either that the standard of dishonesty is flexible or determined by any one other than by the court on an objective basis having regard to the ingredients of the combined test as explained by Lord Hutton in Twinsectra and Lord Hoffmann in Barlow Clowes”.

Causation in relation to breaches of fiduciary duty and dishonest assistance

The rules applicable to causation in cases where equitable compensation is claimed for a breach of fiduciary duty are also set out in Snell’s Equity supra at paragraph 7-059 as follows:-

“(b)

Causation. However, compensation is only available in respect of loss which is shown to have been caused by the breach of fiduciary duty, which requires the court to determine what would have happened but for the breach of fiduciary duty. This can involve consideration of how the principal would have acted if the fiduciary had not acted in breach of fiduciary duty. Compensation cannot, therefore, be recovered where it is clear that the principal would have acted in the same way even if the fiduciary had disclosed all the material facts. In Swindle v Harrison, Evans L.J. suggested that a fiduciary may be unable to avail himself or herself of this rule where the breach of fiduciary duty involved dishonesty or fraud, but Tuckey L.J. has since pointed out that neither Hobhouse L.J. nor Mummery L.J. appeared to accept Evans L.J.’s distinction between fraudulent and non-fraudulent breaches of fiduciary duty. In Gwembe Valley Development Co Ltd v Koshy, the defendant director was found to have acted dishonestly in not disclosing his interest in a transaction and was nonetheless held not liable to pay equitable compensation on the basis that his breach had not been proven to have caused loss to his company.

The burden of proving that the breach of fiduciary duty caused the loss for which equitable compensation is claimed rests with the principal. The principal (or beneficiary) bears the primary onus of showing that “but for the breach, the beneficiary would not have acted in the way which has caused the loss.” If that onus is met, the court may draw inferences (but cannot merely speculate) as to what would have happened if the fiduciary had performed his duty properly, and in the absence of evidence to justify such inferences the beneficiary is entitled to be placed in the position he was in before the breach occurred, unless the fiduciary (on whom the onus will lie) is able to show what the principal (or beneficiary) would have done if there had been no breach of fiduciary duty.

In Canada and New Zealand, adapting Lord Thankerton’s comments in the Privy Council in Brickenden v London Loan & Savings Co, a slightly different approach to causation has been adopted, whereby the fiduciary bears the burden of proving that the principal would have acted in the same way if it wishes to avoid an award of compensation; and mere speculation will not suffice to convince the court of this, but inferences can be drawn from the evidence where they are clear. However, the difference in approach is unlikely to matter in terms of the practical outcome of cases. In English cases, where the onus of proof has fallen on the claimant, claims have generally failed not because the claimant failed to show that he would have acted differently, but because it was clear from the evidence that he would not have acted differently.

If causation is made out, so that a compensation award is available, the fiduciary does not avoid responsibility to compensate for the full amount of that loss by having diverted a profitable opportunity to a partnership (or other vehicle) which is only partly owned by the fiduciary …”.

Allowances and forfeiture of salary and bonuses

Snell’s Equity provides as follows at paragraph 7-041 in relation to allowances:-

“Similarly, a fiduciary who has acted in breach of fiduciary duty, and against whom an account of profits is ordered, may nevertheless be given an allowance for skill and effort employed in obtaining the profit which he has to disgorge, where:

“it would be inequitable now for the beneficiaries to step in and take the profit without paying for the skill and labour which has produced it.”

This power is exercised sparingly, out of concern not to encourage fiduciaries to act in breach of fiduciary duty. It will not likely be used where the fiduciary has been involved in surreptitious dealing or has acted dishonestly or in bad faith. However, allowances are not ruled out simply because the fiduciary can be criticised in the circumstances, and there are instances of them being made even where the fiduciary has acted surreptitiously and deceitfully”.

In relation to forfeiture of salary and bonuses, the Bank relies on Jacob LJ’s judgment in Imageview Management Limited v. Jack [2009] EWCA Civ 63, in which a football agent made a secret side deal with the Football Club that engaged Mr Jack. Imageview was due to be paid 10% of Mr Jack’s monthly salary. The Court of Appeal (Mummery, Dyson and Jacob LJJ), held that Imageview should forfeit its right to its commission as a result of its breach of fiduciary duty. Jacob LJ reviewed the authorities culminating in Keppel v. Wheeler[1927] 1 KB 577 in which Atkin LJ had said at page 592:-

“Now I am quite clear that if an agent in the course of his employment has been proved to be guilty of some breach of fiduciary duty, in practically every case he would forfeit any right to remuneration at all. That seems to me to be well established. On the other hand, there may well be breaches of duty which do not go to the whole contract, and which would not prevent the agent from recovering his remuneration; and as in this case it is found that the agents acted in good faith, and as the transaction was completed and the Appellant has had the benefit of it, he must pay the commission. Therefore, I think, the Defendants are entitled to recover on their counterclaim”.

Jacob LJ continued as follows:-

“[44] I accept Mr Lopian's submission that there can be cases of harmless collaterality. And that there can be cases where there is just an honest breach of contract such as Keppel. But this is simply not such a case. This is a case of a secret profit obtained because Mr Berry/Imageview was Mr Jack's agent. And there was a breach of a fiduciary duty because of a real conflict of interest. That in itself would be enough, but there is more: the profit was not only greater than the work done but was related to the very contract which was being negotiated for Mr Jack. Once a conflict of interest is shown, as Atkin LJ said in the last passage quoted, the right to remuneration goes.

[46] I would also observe this: that none of the cases relied upon by Mr Lopian involve a direct conflict of interest between that of the agent and of his principal: they do not involve any question of a breach of fiduciary duty arising from such a conflict. Nor do any of the cases involve a secret payment to the agent from the very party with whom the agent is dealing on his principal's behalf. It is in such cases that the Andrews v Ramseyprinciple applies with its full rigour.

[47] Finally in relation to this point and indeed the further points about the appropriate remedies I should mention what was something of a constant refrain from Mr Lopian. It was this: Mr Jack got the benefit of the contract negotiated for him. Why should he not have to pay for it? Why should he have the benefit of the agent's work for nothing at all?

[48] The answer is twofold. First it has already been given in the cases, and second there are sound policy reasons as to why.

[49] As far as the cases are concerned, I have already cited enough to show that the principle is established, see for instance Atkin LJ in Keppel (“forfeit any right to remuneration at all”), Lord Alverstone CJ in Andrews(“not entitled to recover any commission”), Wills J in Andrews(“the case ought to be the same whether the commission has already been paid or whether the agent has to sue for it”), Scrutton LJ in Rhodes(“The result may actually be that the employer makes money out of the fact that the agent has taken commission”).

[50] The policy reason runs as follows. We are here concerned not with merely damages such as those for a tort or breach of contract but with what the remedy should be when the agent has betrayed the trust reposed in him – notions of equity and conscience are brought into play. Necessarily such a betrayal may not come to light. If all the agent has to pay if and when he is found out are damages the temptation to betray the trust reposed in him is all the greater. So the strict rule is there as a real deterrent to betrayal. As Scrutton LJ said in Rhodes at p 28, “The more that principle is enforced, the better for the honesty of commercial transactions””.

Reflective loss

In Johnson v. Gore Wood & Co (a firm) [2002] 2 A.C. 1, the House of Lords considered the question of losses claimed by a company where those losses had, in truth, been sustained by the company’s subsidiary. Lord Bingham summarised the principles to be derived from a number of authorities as follows at pages 35-6:-

“These authorities support the following propositions. (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss …

(2)

Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding … (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other …”.

Bribery

In Fiona Trust & Holding Corporation v. Yuri Privalov [2010] EWHC 3199 (Comm), Andrew Smith J considered the principles upon which claims to recover bribes are made. He said the following at paragraphs 70-73:-

“70.

… English law take a broad view of what constitutes a bribe for the purposes of civil claims. It considers that a bribe (or “secret commission” or “surreptitious payment”) has been paid where “(i) … the person making the payment makes it to the agent of another person with whom he is dealing; (ii) … he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and (iii) … he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person’s agent”: Industries & General Mortgage Co Ltd. v Lewis, [1949] 2 AER 573 at p. 575G. Thus, a bribe is “a commission or other inducement which is given by a third party to an agent as such, and which is secret from his principal”: Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Company Limited, [1990] 1 Lloyd’s LR 166 at p. 169.

71.

“When an agent receives or arranges to receive by way of a bribe or secret commission in the course of his agency from a person who deals or seeks to deal with his principal, the agent is liable to his principal jointly and severally with that person (1) in restitution for the amount of the bribe or secret commission; or (2) in tort for any loss suffered by the principal from entering into the transaction in respect of which the bribe or secret commission was given or promised, and the bribe, if it was paid, is held on trust for the principal”, and the person who pays or promises the bribe is also liable in restitution and damages to the principal: Bowstead & Reynolds on Agency (2010) 19th Ed at 6-084. The principal may also require either the agent or the briber to give an account of profits.

72.

It is not necessary in order to establish a claim for a claimant to show that the bribe was either paid or received dishonestly: where a bribe is paid, it is irrelevant whether either the briber or the agent realised that they were doing wrong. In English law corruption and fraud are presumed, and so a claim can be brought on the basis of the payment of an “innocent” bribe: Re a debtor, [1927] 2 Ch 367 at p. 376 per Scrutton LJ. It is also presumed that the person paying a bribe intended that the agent would be influenced by it and that the agent was in fact induced to act in favour of the briber in relation to transactions between the briber and the recipient’s principal: Hovenden & Sons v Millhoff, (1900) 83 LT 41; Industries & General Mortgage Co Ltd. v Lewis, (cit sup). If a bribe is paid to an agent, it does not assist the briber or the agent to show that in fact the agent acted in his principal’s best interests.

73.

The reason that the law so protects a principal if his agent receives a bribe is that he is entitled to be confident that the agent will act wholly in his interests, and the test for whether a payment or other benefit or promise amounts to a bribe depends upon whether it puts the agent in a position in which his duties to his principal and his interest might conflict. Accordingly:

i)

It is not necessary that the bribe be given in connection with a particular transaction or series of transactions. The possibility of a conflict between duty and interest might be created by a bribe paid to an agent in order to influence him in favour of the person paying it generally and not directed to any particular matter or intended to influence him in relation to a particular transaction. In the Fiona action the claimants have sought to link payments made to Mr. Privalov and Mr. Borisenko and arranged by Mr. Nikitin to particular schemes about which they complain, but, as I shall explain, I conclude that they have not established connections of this kind. This does not mean that they are not entitled to rely upon the payments as bribes. If a secret payment is made to an agent, it taints future dealings between the principal and the person making it in which the agent acts for the principal or in which he is in a position to influence the principal’s decisions, so long as the potential conflict of interest remains a real possibility: see Daraydan Holdings v Solland, [2005] Ch 115 at para 132.

ii)

The law recognises that some gifts or benefits are too small to create even a real possibility of a conflict of interest and so too small to be treated as a bribe. … It is a question of fact depending on the circumstances of each case where the line is to be drawn between “a little present” and a bribe, and so unsurprisingly there is little guidance about this in the authorities, but the test, as I understand it, is whether it is sufficient to create a “real possibility” of a conflict between interest and duty: Imageview Management v Jack, [2009] 1 Lloyd’s Rep 436 para 6 per Jacob LJ. It is not whether such a conflict is actually created.

iii)

If a payment is made to an agent that creates a real possibility of this kind, it does not make “any difference whether the surreptitious profit was gained as a pure gift or for services rendered or for any other reason”: Keogh v Dalgety & Co Ltd., (1916) 22 CLR 402, 418. An agent might have a conflict between his interest and his duty as a result of being rewarded for “moonlighting” for a person engaged in transactions with his principal”.

The legal principles that I have set out above have not been much contested. But, bearing in mind that Mr Jaffery and Mr Gill were self-represented litigants, I tried to point out to them in the course of argument where there was room for argument or debate about the legal principles urged upon me by the Bank. In the result, both Mr Jaffery and Mr Gill sensibly concentrated on the facts, which seem to me to be the real arena in which this case will be decided.