Kazeminy & Ors v Siddiqi & Ors

On 9 December 2009 I gave judgment on an application by the Claimants for summary judgment. I determined that I should make a conditional order, namely, that judgment should be entered unless the Defendants paid into court a sum to be determined.

I said this:

“69.

The First Defendant has not given any details of his assets or of the resources available to him. He has not given full or frank disclosure. But what he has said enables the court to infer that he must have very considerable resources available to him. In the last two and half years he and his family have provided about £16m. to his companies and he expects to continue funding them at the rate of about £500,000 per month. In total he has provided some £82m. to his companies. The ability to provide such sums suggests that the Defendant has or has available to him very considerable assets. He has not volunteered what those assets are or what their value is.

70.

In these circumstances, although he has said that he is unable to pay $25m. into court, I am not able to accept that that is so. The history of his or his family’s loans to the companies and the fact that he is to continue funding the companies at about £500,000 per month suggests that a payment of $25m. may very well be within his abilities. I am therefore minded to make an order that the Defendants collectively pay into court the sum claimed of $25m. Since not each Defendant is alleged to owe that sum it will be necessary to structure the order so that no Defendant is ordered to pay more than the sum claimed against him or it. I shall ask counsel to prepare an order to that effect. ”

The Defendants have said that they do not have the means to pay any such sum and therefore the order which I was minded to make would stifle the defence and is wrong in principle. For the reasons given in paragraphs 71-73 of my earlier judgment I permitted them to adduce evidence to this effect. The First Defendant has provided evidence in writing. Many questions have been asked about that evidence and the First Defendant has sought to answer those questions. I have now heard argument on this matter in private.

Mr. Kamal Siddiqi, the First Defendant, has said that he was able to provide the very considerable sums to which I have referred by reason of:

Mr. Siddiqi’s entrepreneurial activities in the 1980s and 1990s were described as

“a variety of business ventures, including, designing and trading in telecoms and technology products and commodities when the opportunity arose. It was my usual business model to buy equipment or commodities and sell them on for a profit, adding value either through my technical expertise or through my knowledge or contacts. In addition I earned money through offering consultancy services.”

These activities enabled Mr. Siddiqi to invest several tens of millions of pounds into his companies. They were plainly extremely profitable. Notwithstanding their profitability he

“largely gave up these other activities and focused on Frazer-Nash and the development of its green technologies.”

He does not state whether he sold any business through which he conducted these activities or simply ceased to conduct them.

So from 2000/2001 he has received no further income from that source. The argument before me proceeded on the basis that the effect of his evidence was that he was able to make the most recent payments (which I referred to in my earlier judgment as £16m. over two and half years from April 2007) from the sale of assets.

However, the sale of his assets has realised, on the Claimants’ calculations, some £11m. No evidence has been given as to how the balance of £5m. was funded. Mr. Hill, on behalf of the Defendants, submitted that the figure of £16m. is an approximation, that the realised figure of £11m. depends very much on the exchange rate used and in any event a further £1m. was provided by another investor. The court should therefore, it is said, be slow to find that of the recent funding some £5m, alternatively £4m. has not been explained.

Mr. Siddiqi further said that he had no more assets to sell and that his bank accounts contain only £230,000. His family homes in Switzerland and the United Kingdom are heavily mortgaged and his shareholdings in the Defendant and other related companies have no substantial worth. He is now unable to pay into court a sum “in excess of tens of thousands of dollars”, that is, more than about $100,000.

This is a remarkable account of a once very wealthy man who has lavished huge sums on his companies but is now unable to pay more than a modest sum into court.

So far as the continued funding of the companies, in particular the Third Defendant, is concerned, in the sum of about £500,000 per month, that is said to be possible by means of a development contract with a third party entered into in September 2009, the OEM contract. Whilst this will generate substantial sums they are all required to keep the business of the companies going (and even then will not cover all of the anticipated expenditure) and such sums will only be payable provided that the Third Defendant meets its obligations under the contract. The existence of this contract was not mentioned in Mr. Siddiqi’s evidence served before the previous hearing. Instead, the impression was given that he was to meet the expenses of £500,000 from his own, as opposed to corporate, resources.

The Claimants have maintained their case that a payment into court of $25m. should be ordered. They have said that Mr. Siddiqi’s evidence is unsatisfactory for a great many reasons. The “big points” (so described by Kitchener QC on behalf of the Claimants) included the following:

I have already quoted what Mr. Siddiqi has said about these. It is very limited evidence. This is said to be unexceptional having regard to the fact that these activities were conducted between one and three decades ago. There is some force in the submission that proportionate disclosure on an application of this nature with regard to events so long ago does not require substantial documentary disclosure; see the approach of Hamblen J. on a disclosure application in this action on 21 January 2010. However, in my earlier judgment I identified the sum of £66m. provided to the companies before April 2007 as a reason for thinking Mr. Siddiqi to be a man of considerable means. In those circumstances I consider that one would expect him, if he disagreed with my provisional conclusion, to condescend to some detail as to the means by which he was able to invest such considerable sums in his companies. The gift from his father and the sum from his joint account would account for only a small part of that £66m. The greater part came from, apparently, his former entrepreneurial activities. But he does not state whether these were conducted in his own name or through a corporate vehicle. Nor does he give any indication of the capital sum which had accrued in 2000/2001 and which enabled him to finance his companies’ activities for some years thereafter. Nor does he say whether the accumulated sum was kept as cash, and if so where, or whether it was otherwise invested before being provided to his companies. Nor does he describe precisely how he “gave up” what was a very lucrative activity. On all these matters the Court is left in the dark. In such circumstances there remains a real doubt that the Court has been told all of the relevant information concerning Mr. Siddiqi’s former activities and the funds they enabled him to accumulate.

In my earlier judgment I also emphasised that £16m. had been provided to the companies in the previous 2 and half years. In the light of my remarks it was plainly incumbent on Mr. Siddiqi to explain how he had been able to provide such sums and yet be unable to make a substantial payment into court. This issue was addressed in paragraphs 13-16 of his Fifth Witness Statement. It is to be observed that he does not challenge the statement that approximately £16m. was provided after April 2007. That figure was the difference between the sum of about £82m. said to have been contributed and the sum of about £66m said to have been contributed before April 2007. However, he states that he contributed “directly” to the group some £74m. and that the difference between £82m. and £74m. was explained by “expenses I incurred on behalf of the group”. Thus £82m. is confirmed, albeit as an approximate figure. There was no attempt to challenge the statement that some £66m. had been provided before April 2007, thus leaving £16m. as having been provided since that date.

So far as the sale of assets was concerned Mr. Siddiqi made no attempt to convert the sale proceeds into pounds in order to show how much of the £16m. had been accounted for by the proceeds of sale. This was done by Mr. Kitchener QC in his skeleton argument. He said they amounted to some £11m. I accept there must be some uncertainty about this conversion. One does not know the precise conversion rates at the date of the respective sales or in what currency or form the proceeds have been kept until required to be paid to the companies. But Mr. Kitchener’s figures were not challenged by any different figures. His figures show an unexplained funding of £5m. (or £4m. if one allows for the extra funding of £1m. by another investor). This may be an approximate figure but the Court is nevertheless left with the distinct impression that there is a substantial unexplained funding and a real concern that the court has not been given a complete answer as to the sources which enabled Mr. Siddiqi to provide approximately £16m. to the companies since April 2007.

Mr. Siddiqi has “family” homes both in the United Kingdom and Switzerland. This itself suggests an affluent life style. The family home in this country was purchased over 15 years ago (that is before December 1994) for £690,000 with the assistance of a mortgage of £500,000. Even allowing for the most recent slump in property prices and the lesser slump after September 2001, one would expect the value to be considerably in excess of £690,000. Mr. Siddiqi has not provided evidence of its current value or of the amount outstanding on the mortgage. The family home in Switzerland is said to be worth some CHF 10m. (or £5.9m.) with a mortgage of about CHF 6m.

Mr. Siddiqi purchased two Ferraris in January and March 2008. He states that their current value (together with a Porsche and Mercedes) is about £200,000. Evidence collated by the Claimants suggests that this may well be an underestimate. That evidence suggests that the current value of the Ferraris may be about £300,000. I prefer the latter evidence. In any event the purchase of such valuable cars is clearly indicative of an affluent life style.

Moreover, the purchase of two Ferraris in 2008 does not sit comfortably with Mr. Siddiqi’s evidence that he had no income and could only meet the future running expenses of the companies by selling assets. It suggests that he was confident that he could meet such future expenses. The sale of assets would permit him to do so for a while but not for long. He needed about £6m. per year for that purpose. It is possible that he had in mind the resale profit he hoped to earn on the sale of his 50% interest in a Falcon 7X jet. However, he does not address in terms the reasons why he felt able to purchase two Ferraris. This failure adds to the suspicion that the Court has not been provided with a complete picture of his available resources.

Several payments have been identified under this head. The first is the payment of a judgment debt of $3.7m. in November and December 2009. Mr. Siddiqi has explained this payment as follows. The first tranche of about $2.5m. was paid by using his own cash resources derived from the selling of his assets. The second tranche of about $1.2m. was paid by raising a loan from a business associate.

The first tranche is significant because it must follow on his evidence that the $2.5m. was derived from the sale of assets and was therefore not used to enable Mr. Siddiqi to fund the £16m. of corporate expenses incurred in the last two and half years. Thus the amount of unexplained funding is increased. The second tranche suggests that even as late as December 2009 Mr. Siddiqi was able to secure further finance. However, he states that the business associate in question will not loan any more and that at least two of the banks approached for a loan have refused.

The second payment is a tax payment of £1m. in November 2009. Mr. Siddiqi’s solicitor has stated that this payment was made from Mr. Siddiqi’s “personal funds”. If so then such funds must come from the proceeds of sale of his assets which further increases the amount of the £16m. funding which is unexplained.

The third payment is the provision of approximately £1m. to Messrs. Pitmans (solicitors) to be used in order to obtain rescission of the orders putting the Second and Fourth Defendants into liquidation. Just over a quarter of this payment (£279,000) is said to have come from Mr. Siddiqi’s personal funds, thereby again increasing the amount of the £16m. funding which is unexplained. The balance (£700,000) is said to have come from revenues from the OEM contract. This explanation was said to be inconsistent with a cash flow schedule provided by Mr. Siddiqi’s Finance Director. The cash flow schedule indicated that over £4.2m has been received from this source. That sum is intended to be used to finance the expenses of the companies and that is the intended use of the £700,000. Although that sum is to be used to pay historic rather than current expenses (which appears to be the intended use of the OEM income) I am not satisfied that the explanation is inconsistent with the cash flow schedule, though it may be.

Thus the significance of these recent payments is not only that they show that in the very recent past Mr. Siddiqi has been able to provide about £4m. to discharge certain debts but also that of that £4m. some £2.5m. has been provided from his own personal funds. On his evidence this can only have come from the proceeds of selling assets which means that of the £16m. funding of his companies in the last two and half years only about £8.5m. can be explained from the sale of assets.

This was not disclosed by Mr. Siddiqi as an asset. He explains this by saying that this “supercar” is a working model which neither generates profit nor has any immediate realisable value, that it was not therefore an asset and so, on an application of this nature, it was not proportionate to require disclosure of it.

The information found on the internet and relied upon by the Claimants is inconsistent. One entry suggests that the supercar is at a very early stage of development (“likely to remain a concept”) whilst another entry suggests that the design is nearing completion (“due to go into limited production this year”). I do not consider that the internet is a firm basis for challenging Mr. Siddiqi’s statement that the Namir project is at such an early stage of development that it has no immediately realisable value.

I therefore do not consider that I should regard the failure to disclose the Namir project as a material non-disclosure.

It is submitted that Mr. Siddiqi must have considerable resources available to him because under the terms of an agreement for the construction of a monorail system in Dubai one of his companies undertook to finance 75% of a project worth £67.5m. In answer it was said by Mr. Siddiqi that that obligation was only undertaken because Mr. Kazeminy had said he would provide funding up to $75m. This answer was said to be fanciful in circumstances where relations between Mr. Siddiqi and Mr. Kazeminy had already broken down. I do not consider that there is sufficient material for me to reject Mr. Siddiqi’s explanation. I do not therefore consider that this matter materially assists Mr. Kazeminy’s case on this application.

I was referred to Mr. Siddiqi’s witness statements in support of applications seeking rescission of orders winding up the Second and Fourth Defendants. With regard to the Fourth Defendant he said in a witness statement dated 9 October 2009 that it is the intention of the company’s existing shareholders to provide working capital to fund its operation. This was, unsurprisingly, said to be at odds with what he has said to this court.

In defence of this criticism it is said that the explanation for his statement to the Companies Court is the income from the OEM contract to which he made specific reference. It is true that he did make reference to that contract but only in a subsequent statement dated 31 December 2009. However, the earlier statement gives the reader the impression that the shareholders are able to provide working capital themselves. The reader is not informed that the shareholders’ ability to do so is dependent upon on support from a third party. In these circumstances I consider that it is appropriate for this court to exercise considerable caution before accepting what Mr. Siddiqi says.

It is accepted that, according to the cash flow schedules provided for this application, there will be a deficit of almost £5m. by August 2010 (if the Metrocab venture is funded). How this deficit will be funded is not clear but it is suggested that it could be funded either by a successful claim for a tax rebate for £3.4m. (noted in a footnote to the cash flow schedules) or by reducing or eliminating funding on the Metrocab venture, in which case the cash flow schedules suggest that corporate expenditure will just about be met; the deficit will be just under £500,000 by August 2010.

Assuming that these are realistic possibilities it is disturbing that the anticipated deficit and the suggested means of financing it were not mentioned to the Companies Court. Mr. Siddiqi told the Companies Court that the OEM contract will “put the group back onto a sound financial basis” and “will generate sufficient group revenue in excess of several million Euros and sufficient to fund group cash flow requirements.”

It is said that Mr. Siddiqi has failed to disclose an account controlled by him in the name of “MR”. I am not satisfied that he has failed to disclose that account. It appears to be his disclosed Swiss bank account, though why it is (sometimes) in the name of “MR” is not explained. It certainly does not appear to have been hidden from view.

Having regard to the lack of a detailed explanation as to how Mr. Siddiqi was able to fund the greater part of £66m. provided to his companies before April 2007, the lack of an explanation as to how a substantial part (perhaps as much as £6.5m.) of the £16m. provided to his companies after April 2007 has been funded, the recent payments of substantial sums to other creditors, the very affluent life style which Mr. Siddiqi leads and the need to exercise caution before accepting what he says about his finances I have reached the conclusion that Mr. Siddiqi has not discharged the burden of proving that an order requiring payment of sum in excess of $100,000 is beyond his means and will stifle his defence.

Mr. Kitchener QC submits that in those circumstances the Defendants should be ordered to pay into court the approximate amount of the claim against them, namely, $25m. He accepts however that I have a discretion as to the sum which I may order to be paid into court.

$25m. is a very large sum to be ordered to be paid into court. The fact that two of the corporate defendants have been ordered to be wound up suggests that there are indeed funding difficulties. Similarly, the OEM contract (of which the court was unaware at the previous hearing) suggests that Mr. Siddiqi requires outside support to finance his companies. Although the magnitude of his funding difficulties is difficult to assess in circumstances where, for the reasons I have given, Mr. Siddiqi has not been as forthcoming as to his assets as he ought to have been, there must be a real risk that an order requiring payment in of $25m. will stifle his defence.

In the last two and half years Mr. Siddiqi has provided about £16m. to his companies. He has failed to explain how part of that, perhaps as much as £6.5m., has been funded. Moreover, very recently, he has made substantial payments to other creditors (one of whom was Mr. Kazeminy) of about £4m.

I have therefore reached the conclusion that an order that Mr. Siddiqi pay into court a sum of £5m. is, on the material before me, likely to be possible and not such as will stifle his defence.

Mr. Kitchener QC submitted that if I ordered payment into court of a lesser sum than $25m. I should also order that a charge be created in favour of the Claimants over certain assets of Mr. Siddiqi, namely, his real estate and his shares. This would be an unusual order to make assuming that the CPR permits the court to make it. I was not referred to any previous case in which it had been done. In any event I do not consider it appropriate to make such an order. The efficacy of the suggested orders is not obvious in circumstances where the real property is already subject to mortgages and the shares are of doubtful value. Moreover, I propose to make an order that a very substantial payment be made into court as a condition of defending this action.

Two of the corporate defendants are in liquidation and it would not therefore be appropriate to make any order against those defendants. The order will therefore be against the other defendants only. I will ask counsel to prepare an appropriate order. In case the claim against any particular defendant is for less than £5m. allowance will have to be made for that in the order.

Although the hearing of this matter was in private it seems to me appropriate and in accordance with principle (cf Department of Economic Policy and Development of the City of Moscow v Bankers Trust [2004] EWCA Civ 314 at paras.39-43) that the judgment should be in public. If there are any passages which the Defendants consider should be amended to preserve legitimate confidentiality, they will have to identify such passages and explain why they should be amended.

I have considered the Defendants’ application to redact passages in my draft judgment and to transfer them to a confidential annex and the Claimants’ response. I have decided that the Defendants have not made out a sufficient case for such redaction.

The grounds upon which such redaction is sought are, first, that there are passages in the draft judgment which contain personal information which is not publicly available and second, that there are passages which contain confidential or sensitive business information.

Judgments in the High Court (and other courts) often contain personal information that is not publicly available. That is not usually regarded as a reason for redacting such passages. In any event much of the information which is sought to be redacted in paragraphs 4,9 and 16 is historic. In so far as the passages in question reveal Mr. Siddiqi’s present (alleged) modest resources that is also apparent from passages not sought to be redacted eg paragraph 10.

I am not persuaded that a case has been made out for redacting parts of paragraphs 11,18,22,27 and 30. There has been assertion but nothing more. As to the OEM contract no details of the OEM contract have been revealed and in any event it is not sought to redact the existence of the OEM contract or its purpose; see paragraph 11. The figure of £6m. in paragraph 18 is simply the annual equivalent of £500,000 per month in paragraph 11 which is not sought to be redacted. I am not persuaded that the figure of £4.2m. in paragraph 22 received from the OEM contract should be redacted. It is plain from paragraph 11 that the OEM is intended to provide substantial income. The anticipated funding deficit notwithstanding the OEM contract (paragraph 30) cannot surely be a surprise to the reader in circumstances where two of the Defendant companies are subject to winding up orders. Finally, I am not persuaded that there a case has been made out for redacting information concerning the Monorail project in paragraph 27. This is not a trade secrets case or something similar where publication might frustrate the purpose of the litigation.