King v Tune & Ors

This is an application by the 8^th and 9^th Defendants to set aside an order of Tomlinson J dated 31 October 2003 giving permission to the Claimants to serve proceedings on the 8^th and 9^th Defendants outside the jurisdiction and, in the alternative, to stay the proceedings against the 8^th and 9^th Defendants pursuant to section 9 of the Arbitration Act 1996.

The background facts are very unusual. For the purposes of the present applications they can largely be taken from the Amended Particulars of Claim served by the Claimant.

The Claimant (“Ms King”) went to work for the Royal Family in Brunei at the age of 20, where she managed the household of Prince Jefri for 7 years. She was very well paid. When she left Prince Jefri’s employment at the age of 27, Ms King had accumulated a very large sum of money: something in the region of £4 ½ million. Until that time, Ms King had simply put the money in a bank. After she finished work, however, she took the view that she needed to find somewhere to invest it.

Ms King was introduced to 1^st Defendant, Mr Tune, who purported to be a financial adviser. In due course, she came to rely on Mr Tune’s advice for the investment of most of her money. She told him what her requirements were: it was her case that she nominated safe, long term investments for her future and that of any family she might one day have.

Mr Tune first suggested to Ms.King an arrangement to defer tax on her savings that had been accumulated abroad. He told her that if she paid the money into an annuity, she would be able to control the investments while at the same time deferring tax. To do this, she would have to establish a Liechtenstein foundation which could be done through the “Jeeves Group”. Mr Tune told Ms. King that many of his clients used the Jeeves Group and that Bryan Jeeves (the 8^th Defendant) could be trusted to keep an eye on her affairs and give her advice.

Pursuant to Mr Tune’s advice, the Caterham Family Foundation (“the Foundation”) was formed on 4 April 1997 in Liechtenstein. It was managed by the Foundation Council whose members were Bryan Jeeves, later joined by his son, the 9^th Defendant (together “the Jeeves”) and Lexadmin Trust Company Limited, part of the Jeeves Group. The purpose of the Foundation was the undertaking of distributions or donations to the designated beneficiaries. Under the By-laws Ms King was the principal beneficiary, solely entitled to the Foundation’s net assets and income during her lifetime.

On 3 April 1997, Ms King paid a premium of £2.5 million for the first of a number of annuities taken out with a company called Centurion Insurance Limited (“Centurion”). Ms King was led by Mr. Tune to believe that Centurion was a major established insurance company which specialised in annuities. In fact, it is one of a number of St. Vincent and the Grenadines companies owned or controlled by Mr Tune and managed by Jeeves. At the time when the annuity was taken out, Ms King was 27 years old. Under the remarkable terms of the annuity, £650,000 was payable to her per month from the age of 79, with no rights of surrender or on death before then.

Centurion reinsured the annuity for a premium of £2,418,750 with another St. Vincent and Grenadines company, Phoenix, owned by the Foundation, and out of that sum Phoenix transferred £2,405,000 to the Foundation to be administered and invested. Further annuities were subsequently taken out with Centurion and reinsured with Phoenix. The total amount paid into the annuities was £4,478,746.91 and $400,000. The money paid into the annuities (minus sizeable fees for Centurion and others) was then available to the Foundation for investment on Ms. King’s behalf on the advice of Mr Tune.

As Mr. Tune explained it to Ms King, she was the beneficiary of the Foundation. Bryan and Alexander Jeeves were in theory in complete charge of it and she could not tell them what to do: in practice they would generally accede to her requests. Accordingly, Mr Tune advised Ms King how the funds should be invested and she, in turn, wrote to Bryan Jeeves in the manner directed by Mr. Tune, suggesting or recommending to Bryan Jeeves investments to make, which Jeeves would then act upon.

In June 1997, Mr. Tune arranged for Ms. King to meet Bryan Jeeves. What was said at that meeting is greatly in issue. But Ms. King’s statement evidence is that at that meeting she told Mr. Jeeves what she had already told Mr. Tune, namely that she was looking for low risk investments for the long-term.

Initially, most of the money was invested relatively cautiously, consistently with Ms. King’s stated requirements. However, in late 1998 and early 1999, on Mr Tune’s advice, Ms. King “recommended” or, according to Jeeves, “instructed” them to invest about half the funds (just over £2 million) by way of two share subscriptions in a company called Isosafe Limited: £980,000 on 19^th November 1998 and £1,050,000 on 12^th March 1999. These investments were made in the name of Lemur, another St Vincent and Grenadines company owned by the Foundation and managed by the Jeeves group. Most of the remaining money (just under £2 million) also ended up in Isosafe in early 2000 by a series of four unsecured loans made on Mr. Tune’s advice to a Dutch company, BV Post, which in turn on-lent the money to Isosafe. The first two loans were made by Lemur and the second two by the Foundation.

Isosafe was a private limited company. It had been set up in September 1997 by Mr. Tune and he controlled it. Since incorporation, it had made virtually no sales, let alone any profits. Indeed, it was making ever-increasing losses (£240,000 in 1998, £2.4 million in 1999 and £4.2 million in 2000). Its accounts were purportedly prepared on a going concern basis but, as noted in the auditor’s report, that depended upon the outcome of negotiations to secure additional funding. Its business was said to be the development, manufacture and exploitation of temperature control systems for the transport of medical units (“Coolbox”), the technology for which had apparently been invented by the 5^th Defendant, Mr Wheeler.

The only assets of any significance on the balance sheet were patents or licences to use patents for the Coolbox technology purported to be granted to it by a company also called Coolbox for sums totalling over £6.4 million, although in fact, there were no patents, merely application for patents, and the technology was unproven in the market place. Coolbox was, in practice, also controlled by Mr. Tune. Its Directors were the 3^rd Defendant, Mr. Wright, a close associate of Mr. Tune, who acted on his instructions, and his wife.

Unbeknown to Ms.King, her money (and money raised from other investors) was passed out of Isosafe to Coolbox under the guise of the so-called licence fees, and from there on to various other entities owned or controlled by Mr. Tune and/or Mr. Wheeler. Many of those entities were themselves managed by the Jeeves Group including, in particular, the Mendip Foundation and Rose.

Around the time of the share subscriptions in Isosafe, the Jeeves Group formed and managed the Mendip Foundation on behalf of Mr. Wheeler, with Mr. Tune acting as intermediary. According to an e-mail of Bryan Jeeves, Jeeves were told that Mendip was “to own/hold certain rights (Coolbox) and that the licence fees or sale of rights would be donated to Mendip”. Subsequently, Jeeves arranged for Mendip to form a subsidiary, Rose (also managed by Jeeves). Mendip and Rose received several million pounds of the so-called “licence fees” paid by Isosafe to Coolbox.

As regards the loans to BV Post, Mr Tune told Ms. King that they were like a deposit with a bank and there was no risk. The first loan, as described in Ms. King’s letter of recommendation or instruction to Mr. Jeeves (which like all her letters of recommendation had been dictated to her by Mr. Tune) was explicitly for on-lending to Isosafe. The others were not, described merely as for “onward lending at the discretion of BV Post”. Ms. King did not know that the other loans would be on-lent to Isosafe but they were. They were unsecured loans. Accordingly to BV Post, security was never even asked for.

The Jeeves Group were involved in the drafting of the loans. Most of them were signed by Alexander Jeeves. Although Ms. King’s letters of recommendation to Mr. Jeeves referred to BV Post as a company known to Mr Jeeves, his evidence is that it was unknown to him, and he “had no idea what BV Post would do with it.” It appears BV Post is not a company of any substance.

Not surprisingly, within little more than a year, Isosafe was in liquidation as being insolvent and BV Post had defaulted on 3 of the 4 loans. The money appears to have gone from Isosafe through a tangled web of overseas entities. Significant amounts seem to have gone to Mr. Tune and entities controlled by him, some of it appears to have gone to Mr. Wheeler, and some of it seems to have been recycled via share subscriptions back into Isosafe. Much of it seems to have disappeared.

As the Claim Form asserts the claim against the 1^st Defendant Mr Tune is for damages for fraud. More accurately, as explained in the Particulars of Claim, the claim is framed by way of the tort of deceit. In summary it is complained that Mr Tune as the Claimant’s financial advisor advised her to make investments by way of share subscriptions and loans on the basis that they were, in his opinion, good, safe and sensible investments and appropriate for her to make when they were nothing of the sort as he well knew (or where he could not honestly have believed they were). In fact, the design was for the money to be siphoned off out of Isosafe to Coolbox and elsewhere. In advising her to make these investments Mr Tune was acting dishonestly with the intention of defrauding her.

Again as appears from the Claim Form the claim against the 8^th and 9^th Defendants was by way of a claim for damages as joint tortfeasors in the 1^st Defendant’s fraud or deceit. The basis of this cause of action was that the Jeeves had made the arrangements to implement the investments which Mr Tune had fraudulently advised Ms King to make knowing full well that the advice had been dishonest. In short the Jeeves knew the only reason that Ms King was “recommending” or “suggesting” these investments to them was because Mr Tune as her advisor had advised her to make those investments and that they must have had sufficient knowledge that Mr Tune could not have honestly advised Ms. King to make them. By continuing to act upon and execute her recommendations or instructions they became parties to or participated in the fraud and are thus liable as joint tortfeasors

As already recorded on 31 October 2003, Tomlinson J granted permission to the Claimants to serve the claim form on the Jeeves out of the jurisdiction. On 29 January 2004, after a substantial extension of time, the Jeeves’s applied to set aside that permission on the grounds that there was no serious issue to be tried. In that regard it was said that the pleading of the claim against the Jeeves as joint tortfeasors was “fundamentally flawed”.

In the face of this contention, voluntary further and better particulars of the claim against the Jeeves’s was served for clarification purposes. These voluntary particulars were thereafter incorporated into a draft-amended particulars of claim shortly before the Defendants’ application was due to be heard on 27 February 2004. These particulars formed paragraph 77a into 77c of the amended Particulars of Claim. They read as follows: -

“ 77A For the avoidance of doubt, in relation to the claim against Bryan and Alexander Jeeves as joint tortfeasors with Mr. Tune in fraud:

(1)

The fraud includes not just Mr. Tune’s deceiving Ms. King and other investors into making the investments but the making of the investments (in the case of Ms. King) by procuring her to issue recommendations (or, according to the 8^th and 9^th Defendants, instructions) to Bryan Jeeves to make those investments and the execution of those recommendations or instructions by Bryan and Alexander Jeeves, without which there would be no fraud.

(2)

If, as is Ms. King’s case, Bryan and Alexander Jeeves had sufficient knowledge that Mr Tune was deceiving Ms. King and thereafter continued to act upon and execute Ms. King’s recommendations or instructions to make the investments procured by his fraud, they became parties or privy to the fraud and/or actively participated in it by acting upon and executing the recommendations or instructions.

(3)

Further or in the alternative, if, as is Ms. King’s case, Bryan and Alexander Jeeves had sufficient knowledge that Mr. Tune was deceiving Ms. King and thereafter continued to act upon and execute Ms. King’s recommendations or instructions to make the investments procured by his fraud, Bryan and Alexander Jeeves became parties or privy to Mr. Tune’s fraudulent design and/or it became a concerted action or common design and/or a design in which they joined and participated to defraud Ms. King and/or they combined with Mr. Tune to do the acts which constitute the fraud.

(4)

Further or in the alternative, if, as is Ms. King’s case Bryan and Alexander Jeeves were sufficiently aware of the fraudulent plan and continued to act upon and execute Ms. King’s recommendations or instructions to make the investments procured by Mr. Tune’s fraud and/or did nothing to stop it, they at least tacitly agreed to it and/or joined in its execution, and/or there was an unlawful combination between them and Mr. Tune to defraud Ms. King such that they have conspired with Mr. Tune to defraud Ms. King and are liable as joint tortfeasors with Mr. Tune in fraud.

(5)

Bryan and Alexander Jeeves benefited from the fraud through the fees and commissions in relation to Ms. King’s affairs and in relation to the affairs of other investor clients of Mr. Tune for whom they also acted. It is not presently known whether they received any other benefit from the fraud.

77B Further or in the alternative, by reason of the matters pleaded in sub-paragraph (4) above, Bryan and Alexander Jeeves are liable with Mr. Tune for the separate tort of conspiracy to defraud Ms. King, an unlawful means of conspiracy. An intention to injure Ms. King is inherent in the nature of conspiracy to defraud and/or is sufficiently established by the fact that knowing Ms. King’s recommendations or instructions to make the investments to have been procured by fraud Bryan and Alexander Jeeves nonetheless deliberately continued to act upon and execute them knowing the probable consequences for Ms. King.

77C Further or in the alternative, Mr. Tune was in breach of his fiduciary duty to Ms. King, and Bryan and Alexander Jeeves are liable as constructive trustees for having dishonestly predicated in or assisted Mr. Tune’s fraudulent or dishonest design and breach of fiduciary duty.”

Subject to certain terms as to costs the Jeeves’ consented to the amendments at the hearing which was thereupon adjourned so that the legal advisors could have more time to consider and advise their clients on the implications of the amendments from the perspective of the jurisdictional challenge. Notably the entire legal team for the Jeeves was then changed before the challenge was reinstituted.

The threshold issue raised by the Jeeves Defendants is to the effect that the Claimant can sustain no arguable case that she has title to sue in respect of the losses occasioned by the deceit of Mr Tune. The argument runs as follows: -

Whether or not absence of title to sue proves to be well founded in due course, I have no doubt that the Claimant has a good arguable case on this issue: -

It was next contended on behalf of the Jeeves Defendants that the Claimant’s statement of case is defective in that it discloses no cause of action. In the alternative, it is contended that a cause of action was only properly pleaded by reason of the amendments made in February.

The claim against the First Defendant is described in the Claim Form as a claim for fraud. As framed in the Particulars of Claim, there would be no doubt that it is a claim which would be labelled as a claim in deceit: Mr Tune is alleged to have given dishonest advice to the Claimant in reliance upon which she sustained loss. Indeed such an analysis of the claim is contained in paragraph 5 of Brian Jeeves’ own statement.

As regards the Jeeves’s themselves, the Claim Form makes it plain that it is alleged that they are also liable in damages “as joint tortfeasors”. As Paragraph 55 and 77 of the Particulars of Claim assert, the claim against the Jeeves Defendant is based on the proposition: -

The Defendants in this context place great weight on the analysis of secondary liability in Credit Lyonnais v ECGD [1998] 1 Lloyd’s Rep 19. to the effect that acts which knowingly facilitate the commission of a crime do not make the aider liable as a joint tortfeasor. Such liability can only accrue if the aider has procured or induced the tort or joined in a common design whereby the tort was committed.

The Defendants accordingly contend: -

The short answer to the first point is that even in its unamended form, the pleading expressly asserts participation in a context where (as set out in Paragraphs 56 – 76 of the Particulars of Claim): -

The point is further amplified in Paragraph 77A as incorporated in the amended pleading. It may be that in due course that the Defendant will be able to argue successfully that their involvement went no further than knowing assistance. But the pleading is not open to a strike out as originally formulated, let alone as amended.

In this latter connection it has to be recorded that having challenged jurisdiction on the basis that “the cause of action was fundamentally flawed”, the Defendants in consenting to the amendments in reality sold the pass. If it were seriously to be contended that, even as amended, the claim had no reasonable prospect of success and was vulnerable to strike out, the Defendant could not in the same breath consent to the amendment.

I also reject the contention that the material presently available establishes that there is no arguable case that the Defendants had the requisite knowledge. This aspect is by definition highly fact sensitive. The lengthy statements in this case from the Claimant are of course controversial. But taken at face value they contain more than adequate material to establish a strongly arguable inference of knowledge. There is no basis for foreclosing that issue.

The agreement between the Claimant and the Jeeves’ Defendants is contained in a Contract of Mandate dated 24 March 1997. This imposed an obligation on the Jeeves as “Mandatories” to comply with the instructions of the Claimant. Article 2 provides: -

“They are at the outset exonerated for all dispositions that they shall undertake in good faith pursuant to the principal’s explicit instruction…”

Article VI provides: -

“Excluding recourse to the courts of law a Court of Arbitration shall be competent for disputes that may arise from this Contract….”

The Defendants contend that the claim in deceit is coterminous with any claim for breach of the Contract of Mandate – namely want of good faith in the dispositions that they were instructed to effect - and, accordingly, these proceedings must be stayed in the face of the arbitration cause. Reliance was predictably placed in this connection on The Angelic Grace [1995] 1 Lloyd’s Reps. 7.

In my judgment the Defendants’ proposition is correct. There is a sufficiently close connection between the tortuous claim and the claim under the contract (which expressly envisages want of good faith in the compliance with the Claimant’s instructions) to justify the view that the present claim “arises from” the contract. Accordingly there must be a stay.