Sharon's Bakery (Europe) Ltd v Axa Insurance UK Plc & Anor

The claimant company, Sharon’s Bakery (Europe) Ltd, seeks an indemnity from the defendant insurers in respect of loss and damage caused by a fire at their wholesale bakery in North London on 8 June 2008. Cover under the policy commenced on 15 February 2008. It is not in dispute that the fire was accidental. The disputes as to quantum are relatively minor. The insurers avoided the policy on 27 February 2009, and defend the claim on two grounds: (1) that there was a non-disclosure of material facts relating not to the insurance itself but to a financial leasing transaction entered into by the claimant with Lombard North Central Plc in March 2008; such conduct, the defendants say, constitutes a “moral hazard” which was material for insurers to know; and (2) that following the fire, the claimant submitted a document in support of the claim which amounted to “fraudulent means or devices” in aid of its claim, the submission of which, the defendants say, discharged them from liability. In respect of both defences, the case turns largely on certain documents which the defendants say were false. On their part, the claimant says that they and their directors acted honestly throughout, that they have been the subject of unsubstantiated and false allegations against them, and that there is no defence to the claim which the insurers are liable to pay.

The parties produced a helpful agreed chronology at the beginning of the trial indicating where they are in dispute, and many of the facts are in dispute. The claimant called five factual witnesses. The first were the main actors on the part of the claimant, who at the material time were directors of, or who ran the business, namely Mr Bension Nassim and Mr Eli Caplin. The other witnesses of fact were Mr David Smart of JD Smart Ltd which supplies equipment to the baking industry and who arranged the transfer of bakery equipment, Mr Alan Harris of Harris Balcombe LLP the loss assessor who dealt with the insurance claim which was made following the fire on behalf of the claimant, and Mr Freddie Takom a book-keeper employed by a firm called Chin & Co who kept the claimant’s books at the material time.

The defendants served witness statements from seven witnesses, namely Mr Moshe Levy, Mr Martyn Freeman who was employed by Lombard at the time, Mr Mark Maskell the loss adjuster for the insurers, Ms Anna Broadhurst a forensic investigator employed by Hawkins, two underwriters from Primary General Insurance Ltd (cover holders for the defendants who underwrote the insurance) namely Ms Tina Atkins and Mr Tom Keefe, and Mr Upinder Singh (known as Michael) Rana. During the trial, the defendants said that five of these witnesses were not going to be called. In respect of Mr Maskell, Ms Broadhurst and Ms Atkins, this was to be expected, since their evidence was either duplicative or unnecessary in the light of the way the issues had developed. However Mr Levy and Mr Rana (particularly the former) were on the face of their statements potentially important witnesses, and the claimant (by way of further witness statements of Mr Nassim and Mr Caplin in particular) had been obliged to deal at length with the matters set out in the witness statements of Mr Levy and Mr Rana.

The parties called expert evidence as follows. The experts on the question of materiality for underwriting purposes were, for the claimant, Mr John Mott, and for the defendants, Mr Stephen Coates. The experts on the question of valuation of bakery machinery and equipment were, for the claimant, Mr David Dunne, and for the defendants, Mr Philip Davies. At the trial, the parties cooperated to ensure that the ambit of the expert evidence in dispute was as focused as possible, for which I am grateful. The quantum of the claimant’s business interruption claim did not arise for determination at the trial, it having previously been ordered that this issue should be split to be determined, if appropriate, at a later assessment hearing.

It is necessary to keep in mind that, as the claimant submits, allegations of fraud by the defendants must be clearly substantiated, the burden of proof in this respect and generally (because of the nature of the defence) being on the defendants (see the principle stated in Re H [1996] AC 563 at 586D-H, Lord Nicholls).

The facts as I find them are as follows. In 1992, Mr Bension Nassim established a Kosher bakery business, with both wholesale and retail customers. His company, Sharon’s Bakery (Wholesale & Retail) Ltd was incorporated in 1999, and I shall refer to is as “it”. It was based in premises in Tottenham at 3 Fountayne Road, London N15. Wholesale had insured the plant and machinery which it used at those premises for a total of £662,248 on a reinstatement basis, most of it having been purchased through or via Mr Smart’s company. Mr Eli Caplin had a non-Kosher bakery business called Hollyland Bakery Ltd which operated from premises at 1 Bernard Road, Rangemoor Road Industrial Estate, London N15. There was no connection between the two businesses. Mr Caplin sold his business in early 2007, but the purchaser was permitted to continue to use the premises until November 2007. Later in the same year, Mr Nassim sold the 3 Fountayne Road premises. The result was that Mr Nassim had Kosher bakery equipment available, whilst Mr Caplin had a location available from which a bakery business could be carried on. The two men agreed to set up a new wholesale kosher bakery business, which would in due course be incorporated as the claimant company, Sharon’s Bakery (Europe) Ltd.

The plan was that the new company would use Mr Nassim’s equipment from 3 Fountayne Road which would be relocated at Mr Caplin’s premises at 1 Bernard Road. What they agreed between them was that some of the equipment would be transferred to the new company in return for Mr Nassim having 50% of the shareholding, while the remainder of the equipment would be purchased from him by new company. The business was to be run by Mr Caplin, and as the claimant has put it, was not an entirely new business. Both men are very experienced in the bakery business, and there was nothing in any way unusual about their agreement.

I do not think that there is any relevant dispute as to that summary, but from now on in the narrative, there is little common ground. It is not easy (and not generally necessary) to give a precise chronological account of events. According to Mr Nassim and Mr Caplin, the latter wanted an independent valuation of the equipment to be obtained in respect of the equipment to be purchased by the claimant from Wholesale. Their evidence was supported in this respect by Mr Smart. He was knowledgeable about bakery equipment and its value, and as the defendants say, there appears little reason why Mr Smart could not have given a valuation himself. Mr Smart however explains that he recommended Mr Moshe Levy as a suitable candidate, and it was agreed that he should carry out the valuation. Mr Nassim had known Mr Levy for some time, though his evidence is that he knew little about him. He paid Mr Levy £2,000.

According to the evidence of Mr Nassim and Mr Caplin at trial, Mr Levy initially provided (as Mr Caplin put it) an informal handwritten or typed valuation around Christmas time in 2007. However, in that regard the defendants point out that in the claimant’s Reply dated 3 October 2010 (bearing Statements of Truth of both Mr Caplin and Mr Nassim) an apparently different case is set out. It is pleaded that Mr Levy provided the valuation by providing the invoice addressed to Wholesale identified as document [1] in the defence. This is a reference to a document dated 15 November 2007 in the form of an invoice purportedly issued by Bakequip (UK) Ltd, described as bakery equipment suppliers, to Sharon’s Bakery Wholesale and Retail Ltd, purporting to be an invoice for £156,000 plus VAT in respect of the supply of various named bakery items with serial numbers, description and amount stated for each. It has on it the words in manuscript, “Paid in full with thanks” and Mr Levy’s signature (the signature was confirmed by Mr Nassim in evidence). It is common ground that there was no such transaction, and this is one of two documents on which the defendants base their defence. The claimant’s case at trial was that the document was provided by Mr Levy in February 2008 (though there was no handwriting on it). For now, it is sufficient to note that the defendant points out that there is no reference in the pleading to any informal valuation prior to the document dated 15 November 2007. The claimant’s response is that despite such absence, the pleading is not in any way inconsistent with the case advanced at trial. I shall come to my findings in due course.

The claimant’s case is that following the agreement they had reached between them, Mr Nassim and Mr Caplin entered into a written agreement, the parties being Wholesale and the new company, Sharon’s Bakery (Europe) Ltd. The document was prepared by Mr Nassim, with some informal assistance from a solicitor friend. It shows that Mr Nassim’s contribution was to be equipment from Wholesale valued at £200,000, and that payment for the other equipment in the approximate sum of £150,000 was to be comprised of a loan from Lombard. The agreement is stated to be made on 15 January, and the company number of Sharon’s Bakery (Europe) Ltd (i.e. the claimant) is stated.

It is however common ground that this company was not incorporated until 24 January 2008, and it would have been impossible to know the company number before then. Mr Nassim’s evidence was that the agreement was made on 15 January 2008, and that in February he substituted page two of the agreement bearing the company number and re-stapled the document together. There are no computer records that support this explanation. There is reference in the claimants’ Reply dated 3 October 2010 to an oral agreement between the parties, but no reference to a written agreement (though as the claimant points out, the written agreement was in the claimant’s disclosure given on 6 July 2010). The defendants say that the evidence of Mr Nassim and Mr Caplin as to the agreement is inherently implausible. This is one of a number of matters on which reliance is placed in support of the submission that Mr Caplin and Mr Nassim were not credible witnesses and that their evidence should be rejected save insofar as it is corroborated by other reliable sources. I will explain in due course my conclusions in that regard, but I need make no findings as regards the provenance of the written agreement, because it has not affected my conclusions on any material issues in the litigation. I should state here however that Mr Caplin and Mr Nassim were appointed directors of the newly incorporated company on 25 January 2008.

The question arose as to finance for the new company, and at the end of 2007 or the beginning of 2008 Mr Caplin was introduced by his bank manager to Mr Martyn Freeman who was at that time a relationship manager employed by Lombard Finance which provides secured finance in the form of financial leasing. Mr Caplin said that he was looking for finance both for the purposes of working capital for the company (which Mr Freeman accepted as a possibility though I do not think anything turns on this), and to fund the acquisition of the equipment from Wholesale, and some further equipment from another company called High Four Company based in Lebanon. As to the latter, there is an invoice from High Four to the claimant company dated 21 January 2008 in the sum of £48,000.

So far as the equipment from Wholesale is concerned, this was moved by Mr Smart from Fountayne Road to Bernard Road over a number of days from the end of January to 1 February 2008. Removal was a considerable task, the equipment including a large industrial oven. Mr Smart charged £6,000 for his work. So far as Mr Nassim and Mr Caplin were concerned, various matters remained for attention at this time, one of which was to progress the finance lease transaction with Lombard which (among other things) was to fund the acquisition of the equipment from Wholesale.

As I have said, the document dated 15 November 2007 is in the form of an invoice issued by a company called Bakequip (UK) Ltd evidencing a supply of bakery equipment that it is common ground never happened. The claimant’s case is that Mr Levy concocted a scheme to pretend that he operated a business called “Bakequip”, and that Mr Nassim and Mr Caplin knew nothing of any of these matters until they emerged in the course of these proceedings. Mr Levy was not called by the defendants to answer that charge. For the moment, I am concerned only with the established facts as to Bakequip (UK) Ltd, the claimant submitting that the following matters may be inferred from documents made in January 2008 and later.

On 15 January 2008, Mr Levy completed a Companies House Form 288a, purporting to appoint himself as a director of a company called SPC (GB) Ltd with effect from 20 October 2007 (the form was submitted to Companies House on 8 April 2008). On 24 January 2008 SPC (GB) Ltd purported to pass a special resolution to change its name to Bakequip (UK) Ltd. The identity of the person signing this document is also unclear, but the claimant says the inference is that it was Mr Levy again. The document was lodged with Companies House on 18 March 2008. On 29 January 2008 Mr Levy appears to have completed Companies House Form 287, in order to register a change of address for SPC (GB) Ltd to an address in Frinton-on-Sea, Essex. Companies House issued a Certificate of Change of Name on 19 March 2008 certifying that SPC (GB) Ltd having by special resolution changed its name was now incorporated under the name of Bakequip (UK) Ltd. It appears that the name was changed back again on 11 April 2008, though the certificate is not in evidence.

At this point in time, in other words the end of January 2008, there is an important dispute on the evidence. According to Mr Smart’s third witness statement of 29 November 2010, he provided a list of items, with model numbers and serial numbers. His recollection was that the document was hand written and otherwise blank. He says that he passed the list to Mr Nassim, who passed it to Mr Levy. He says that on 1 February 2008, he was asked to go round to the Bernard Road premises with “Mr Levy’s informal valuation document”, list the items moved from Fountayne Road, and either to include values in confirmation of Mr Levy’s November 2007 valuation or to propose a breakdown of the aggregate valuation. He says that Mr Nassim asked him to arrange for this list to be faxed to Mr Levy once it was done.

Shortly before trial, a document which is apparently a fax dated 1 February 2008 was disclosed by the defendants’ solicitors which (the defendants say) went from the claimant to Mr Levy. It contains a list of equipment, with values against the items concerned. These match the description and amount in the invoice dated 15 November 2007 provided by Mr Levy which I have referred to already. Underneath, there appears the following: “Make invoice to Sharon’s Bakery Europe Ltd, Unit 1, Bernard Road, Rangemoor Ind. Estate, London, N15”. There was a further document disclosed at the same time, which was an undated invoice purportedly issued by Bakequip (UK) Ltd with handwritten serial numbers against the listed items. There is nothing on its face to indicate the date of this second document.

Particularly in a case involving allegations as to false documents, it is plainly most unsatisfactory that this document should have emerged in this way. As Mr Adam Tolley, counsel for the claimant, put it, rightly in my view, the explanation given for late disclosure was also unsatisfactory, at least to the extent of the reference to a fax of 7 July 2009 sending the fax to the defendants’ solicitors which turned out not to be correct. However, he does not suggest any deliberate omission on the part of the defendants’ solicitors, and I do not accept his further point that the late disclosure has irremediably prejudiced the claimant, in that it became impossible as a result to obtain evidence to show that no such fax had been sent by the claimant at the alleged time on 1 February 2008. No request was made for further time by way of an adjournment or otherwise, and had it been, I would have considered it.

Authenticity is nevertheless in dispute and the claimant makes a number of points as to “numerous unexplained, and inexplicable oddities about the document”. It submits that there is no evidence as to the genuineness of either of these documents, and only Mr Levy (who as I have said was not called) could have purported to provide such evidence. For their part, doubtless in view of the circumstances of disclosure, the defendants say that the documents are not fundamental to their case, which rests upon the submission of the document dated 15 November 2007, “but they explain the context of that document”.

It is important in dealing with this issue to consider the other evidence in this regard. The claimant’s case, as I have said, is that Mr Levy was asked to produce a valuation of the equipment to be transferred from Wholesale to the new company, Europe. As to how that valuation would be given, according to Mr Smart’s second witness statement of 31 October 2010, “Messrs Nassim, Caplin and Levy agreed that the way that we would proceed in preparing the valuation would be that I would prepare a list of the equipment, providing the description, type or serial number and the number of items involved. I would also provide my view as to the value of the equipment to Mr Levy on an informal basis by way of contribution to his own valuation.” This was accepted by Mr Nassim and Mr Caplin in their evidence. On that basis, the defendants submit that I should find that Messrs Nassim, Caplin and Levy agreed that Mr Smart would prepare a list of equipment to be purchased by Europe from Wholesale with descriptions and serial numbers and his views as to the value of the items of equipment and that the list would be provided to Mr Levy. To that extent the evidence is effectively not in dispute, and I make that finding.

The parties are also in agreement that Mr Smart did fax Mr Levy with a list of equipment descriptions, serial numbers and suggested values on 1 February 2008. Mr Smart says it was in the late afternoon, not at 9.18 which is the notation on the disclosed fax, and that it was handwritten, whereas the disclosed fax is typed. He also says he sent it from the claimant’s offices, and the claimant says that the fax notation shows that it came from a machine in Wholesale’s offices. The defendants on the other hand say that the number was the same as that used by Europe. As to this, there is material supporting both assertions, and in my view either could be correct. Mr Smart no longer has the fax which he agrees he sent, which remained with the claimant.

In his oral evidence, Mr Nassim said that he had never seen the disclosed fax, but accepted that it contained a list of equipment and values which was consistent with his expectation that Mr Smart would send such a list to Mr Levy. In his oral evidence, Mr Smart said that it accurately reflected what he had drawn up on his list. As regards the values he said, “Well, to the best of my memory they look exactly the same. Yes, they look exactly the same.” So far as the content of the document consists of numbers against items therefore, it is common ground that those numbers were sent by fax that day to Mr Levy. As regards the other document disclosed (an undated invoice purportedly issued by Bakequip (UK) Ltd), he said that the handwritten serial numbers against the listed items were a “pretty good copy” of his handwriting, but were not his handwriting.

Clearly, the more important document is the fax, and in support of their authenticity submissions, the claimants suggest that a fax header from a fax sent on one occasion might be used on another document. In the circumstances of this case, I do not think that this suggestion can be entirely ruled out, but this and the claimant’s other points do not appear to me to outweigh the fact that as is common ground, a document containing this information was faxed to Mr Levy on this day. On balance, I find (as the defendants submit I should find) that on 1 February 2008 this document was faxed by or on behalf of Europe and/or Wholesale to Mr Levy. If it was not Mr Smart’s list, it was a list based on the list which Mr Smart prepared.

I now come to a crucial part of the case. Over the course of February, the finance arrangements in relation to the High Four equipment proceeded with Lombard, and the first Lease Purchase Agreement between Lombard and the claimant was entered into on 13 February 2008. This transaction is not controversial, and I need say no more about it. The position remained however as to the larger proposed financing, which was to be secured on the equipment transferred from Mr Nassim’s company Wholesale to the claimant. It is not in dispute that in that regard, on 3 March 2008, Mr Caplin faxed two documents to Lombard. Page one consisted of an invoice with a tax date of 3 February 2008 from Wholesale to the claimant showing the same equipment, serial number and amount as in the Bakequip invoice dated 15 November 2007. The document dated 15 November 2007 was the second page of the fax that Mr Caplin sent Lombard (there is however a dispute as to whether handwriting on the document was present at the time—I will come to this later).

The claimant’s case in this respect (based on the summary in its opening submissions) is as follows. The claimant made it clear to Mr Martyn Freeman of Lombard that it was acquiring its equipment from another company, Sharon’s Bakery (Wholesale & Retail) Ltd, which had previously operated a Kosher wholesale bakery business elsewhere, and provided Lombard with the invoice from Wholesale to the claimant. (That is the first page of the fax of 3 March 2008.) The claimant also provided Lombard with another document, which was in fact a valuation of certain of the equipment supplied by Wholesale, and which it told Lombard was a valuation of the equipment, and which had been prepared by Mr Levy. (That is the second page of the fax of 3 March 2008.) The claimant’s case is that Lombard subsequently asked that the valuation should be addressed to the claimant, rather than to Wholesale, and a revised version was duly supplied by Mr Levy giving the customer’s name as Sharon’s Bakery Europe Ltd and provided to Lombard. This third document is not found on Lombard’s file, which however the claimant says (with some force) was far from complete. Notwithstanding, the defendants say that the document was never given to Lombard. Mr Caplin’s evidence, as I shall explain, is that he gave it to Mr Freeman.

In his third witness statement of 30 November 2010, Mr Caplin says that Mr Freeman visited the premises on 12 or 13 February 2008, and asked about the newly installed machinery and equipment. He told him that it had come from Mr Nassim’s company Wholesale, and the new company (that is, the claimant) proposed to provide some of it as security for a further loan from Lombard. He gave Mr Freeman, he says, the invoice which was subsequently the first page of the fax of 3 March 2008. He says that Mr Freeman noted that the sale was from one Sharon’s bakery company to another Sharon’s bakery company, and asked if Mr Caplin had an independent valuation. He said that he had asked for an independent valuation, and that he would provide this to him. Following the meeting with Mr Freeman, he asked Mr Nassim to provide him with a copy of Mr Levy’s valuation that he could pass onto Lombard. Mr Nassim did so in late February or early March, and this was the second page of the fax sent on 3 March 2008. The purpose of this fax, he says, was to pass on the independent valuation to Mr Freeman as promised. He does not believe that the words “paid in full with thanks” appeared on the document that he faxed. He says that on 5 March 2008 when Mr Freeman came to the premises again, he thanked Mr Caplin for providing the independent valuation, but said that it was addressed to Wholesale, whereas Lombard required a valuation to be addressed to their own borrower, i.e. the claimant company, Europe. On his return from the Ukraine on 11 March 2008, Mr Caplin says that Mr Nassim gave him the further version of Mr Levy’s valuation, this time addressed to Europe as Mr Freeman had requested.

Mr Freeman denied in cross examination that he had asked Mr Caplin whether Mr Caplin could provide an independent valuation of the equipment. He said that because the two companies (that is, Wholesale and Europe) were related, Lombard would have had to prove “good title roots”, and therefore he would have requested a copy of an invoice from whoever supplied the equipment to Wholesale. On his part, Mr Nassim denied in his evidence that it would have been necessary to show the sale to Wholesale, but as he said, he was not the one who did the faxes.

Mr Tolley for the claimant criticises Mr Freeman’s evidence saying that his testimony was merely an act of attempted reconstruction from the documents. As regards the “back up invoice”, in other words the document dated 15 November 2007, as Mr Tolley said, various explanations were given by Mr Freeman in the course of his evidence as to why such an invoice would be needed. In cross examination, he suggested that Lombard could not accept Wholesale as the supplier because Wholesale was not on Lombard’s list of recognised suppliers—as Mr Tolley says, it is difficult to see how a transaction which would have been unacceptable to Lombard if it had proceeded as between an unrecognised supplier and the claimant became acceptable because another unrecognised supplier was interposed into the contractual chain. Mr Freeman indicated in his evidence that such were the rules, but no documentary evidence of any such rules was produced. I do consider that Mr Freeman’s evidence was unsatisfactory in certain respects, in particular because he appeared at times to have little recollection of the transaction for which he was responsible. I have nevertheless to reach conclusions on whether or not I accept it on particular questions.

In deciding whether Mr Freeman requested the claimant to provide a valuation, it is necessary to consider further the document with which Lombard was actually supplied, the claimant says, by way of valuation at Mr Freeman’s request. As I have said, on 3 March 2008 Mr Caplin faxed Lombard the Bakequip invoice dated 15 November 2007. This again as I have said is an invoice purportedly issued by a company called Bakequip (UK) Ltd, described as bakery equipment suppliers, to Sharon’s Bakery Wholesale and Retail Ltd, purporting to be an invoice for £156,000 plus VAT in respect of the supply of various named bakery items with serial numbers, description and amount stated for each. It has on it the words in manuscript, “Paid in full with thanks,” and Mr Levy’s signature. It plainly does not purport to be a valuation of the bakery equipment, but purports to be an invoice in respect of their supply. The fact that it was provided to Lombard supports Mr Freeman’s evidence that he did not request a valuation. Mr Nassim and Mr Caplin are experienced business people, and I am satisfied that they are aware of the difference between an invoice and a valuation. Mr Nassim accepted in cross examination that if having got the document, what he really wanted was a valuation, it would have been very straightforward for him to say, “No, that’s not what I want; I want a valuation”.

As the defendants say, the invoice was not sent to Lombard by the claimant with any kind of covering note explaining that it was merely a valuation and there is an absence of any documentary evidence suggesting that Lombard received any indication that it was merely a valuation. On the contrary, it was sent to Lombard together with an invoice with a tax date of 3 February 2008 from Wholesale to the claimant covering the same equipment, serial number and amount as in the Bakequip invoice dated 15 November. Taken together the documents purported to show a chain of supply or ‘title roots’ as Mr Freeman put it. The documents on their face purported to show that Bakequip had supplied the equipment to Wholesale on 15 November 2007, and then Wholesale had supplied the same equipment to the claimant on 3 February 2008.

Though I have said that Mr Freeman’s evidence was unsatisfactory in certain respects, he was clear in his evidence that he was not told by Mr Caplin that the document dated 15 November 2007 was a valuation rather than an invoice. I accept his evidence that he did not request a valuation, nor was he told that it was a valuation, which appears to me to be consistent with the overall evidence. This includes the presence on Lombard’s file of a letter sent by Mr Levy as a director of Bakequip dated 10 March 2008 addressed to Ms Angela Ellis of Lombard. The claimant says that it had nothing to do with the preparation or production of this document, and knew nothing of it at the time. Whether or not that is the case, the letter nonetheless appears on Lombard’s file—as the claimant says, Lombard appears to have contacted Mr Levy directly, and this presumably is the explanation. The letter says, “As requested, I confirm that the equipment supplied to the above company [Wholesale] has been paid for in full. I further confirm that title to the machinery and goods so supplied has now passed to Sharon’s Bakery Wholesale and Retail Ltd”. The claimant submits that the letter does not identify what “equipment” supplied to Wholesale is being referred to, nor the person by whom such “equipment” is said to have been supplied. But it appears to me that the inference is that the equipment is that supposedly supplied by the company in the letterhead, namely Bakequip (UK) Ltd, described as “Bakery Equipment Suppliers”. At the least, the presence of that letter on Lombard’s file is inconsistent with the claimant’s case that Lombard understood that the document dated 15 November 2007 was merely a valuation and not evidence of a genuine sale transaction.

In fact, the invoice dated 15 November 2007 was false, because (as is common ground) no such supply had taken place. Mr Nassim accepted in cross examination that the document was false, but the matter is not in doubt. As I have said, the invoice faxed to Lombard on 3 March 2008 also has on it the words in manuscript, “Paid in full with thanks,” and Mr Levy’s signature. This was also false. Mr Caplin said that when the document was sent to Lombard the words “Paid in full with thanks” and the signature at the bottom were not on it. Mr Nassim said that he didn’t remember seeing them. Mr Caplin suggested that after the document entered Mr Freeman’s possession the handwriting was placed on it and that somebody procured Mr Levy’s signature on the document. Mr Freeman thought that the writing was on it when he received it. Leaving aside whether his recollection is reliable in that regard, he also said that the writing is not his nor, to his knowledge, that of anyone at Lombard, and that document was not sent outside Lombard. In my view, it is implausible to suppose that the writing was added to the document after it was faxed to Lombard. I reject the evidence of Mr Caplin and Mr Nassim in that regard. I am satisfied that the manuscript was on the purported invoice when it was sent to Lombard, and that they were aware of the fact.

I find that the claimant, through Mr Nassim and Mr Caplin knew that the document was false in that it was not a true invoice, receipt or valuation. Further, it is common ground that on 1 February 2008 (whether in the disputed fax or otherwise) Mr Smart gave his view as to the value of the equipment, and he is experienced in the bakery trade. He could have provided a valuation had one been required. It was he who was to provide values for Mr Levy to include in Mr Levy’s document. There is no evidence of Mr Levy having gone to the premises to carry out a valuation or acting like a valuer. I accept the defendants’ submission that there was no reason why Mr Levy was required to provide a valuation, and that his involvement by the claimant could only have been to create a false invoice, which is what he did create. On 3 March 2008 the invoice was submitted by the claimant to Lombard as evidence of a true sale and purchase transaction between Bakequip and Wholesale and not as a valuation. This appears to me to be the only plausible inference to be drawn from the facts.

These findings inevitably cast doubt on the credibility of the evidence of Mr Nassim and Mr Caplin generally, and the weight that the court can place on it, to the extent that it is not supported by other evidence, or the overall probabilities. (In that regard, I have also taken account of the defendants’ submission that there were significant inconsistencies in their evidence as to when they got the document, as between late 2007 in their early witness statements and February 2008 at trial—that is plainly an important question. I have not however given any weight to the defendants’ complaint about evidence relating to an alleged debt owed by the Cake Company Ltd to the claimant which was the subject of cross examination—this seems to me to be peripheral.)

I turn to the remaining matter to be resolved on this part of the evidence. As I have said, Mr Caplin’s evidence is that on his return from Ukraine on 11 March 2008 at Mr Freeman’s request he gave Mr Freeman a revised version of the Bakequip invoice (Mr Caplin would say valuation) dated 3 February 2008 showing the customer as Sharon’s Bakery Europe Ltd and not Sharon’s Bakery Wholesale and Retail Ltd. According to his witness statement, Mr Freeman did “not recall seeing the invoice dated 3 February 2008 from Bakequip (UK) Ltd to the Claimant. Had I seen that it would have rung alarm bells because it would have suggested that Bakequip (UK) Ltd had sold the equipment directly to the Claimant whereas my understanding was that the Claimant had purchased the equipment from Sharon’s Bakery Wholesale & Retail Ltd”. He gave a similar answer when asked about this in examination in chief.

I accept Mr Tolley’s submission that the absence of this document on Lombard’s file is of limited weight because of doubts as to the completeness of the file. Mr Freeman’s evidence in cross examination on the subject was in my view confused, but he did say that he would not have “…accepted an invoice from Bakequip to Sharon’s Bakery Europe Limited because the deal would just never have got paid out”. This was a reference to his unsatisfactory evidence about Lombard’s internal rules which I have referred to above. In his closing for the defendants, Mr Graham Eklund QC put it this way. He submitted that the fundamental reason Mr Freeman gave was that he needed to establish that Lombard was going to get good title, because that was the nature of the transaction that Lombard was involved in. There were different types of transactions. One was a transaction with a supplier that was already on its books. Another was where Lombard (or any financier) would not take the word of its customer that it had good title. It would look for something more. A valuation, he submitted, was not going to tell Mr Freeman what he needed to know in order to be satisfied about Lombard’s security. In my view, this submission gets to the heart of the matter. This equipment was to be acquired by Lombard, and title mattered. Ultimately however, the choice is between accepting the evidence of Mr Caplin or Mr Freeman in this regard, and on balance I prefer that of Mr Freeman, which seems to me to be more consistent with the overall evidence. I find therefore that this further document was not given to Mr Freeman.

I do not believe that the remaining matters in this part of the chronological account are controversial, and I am grateful for Mr Tolley’s written submissions in this regard. On 11 March 2008, the claimant issued an invoice to Lombard in relation to the transfer of the bakery equipment in Lombard’s standard form (it was amended on 26 March 2008), title to the goods to pass to Lombard on receipt of funds by the claimant. The Lease Purchase Agreement (what was produced at trial was the schedule to the agreement signed by Mr Caplin) was completed on 19 March 2008, and following a further inspection, £76,450 was advanced by Lombard on 9 April 2008 (a further £27,811 in respect of VAT was advanced on 12 December 2008).

As regards insurance for the claimant’s business, including the equipment, this had been put in train by its brokers on 5 February 2008. The insurance quotation was issued on 15 February 2008 and the insurers agreed to hold the claimant covered with effect from that date which became the inception date of the Policy, and the relevant date so far as the commencement of the insurance is concerned. The proposal form was completed by the broker, and signed by Mr Caplin some weeks later, on 13 March 2008. Nothing in this case turns on the terms of the Policy.

The fire at the claimant’s premises at 1 Bernard Road happened on Sunday 8 June 2008. The claimant instructed Harris Balcombe (then known as Harris Claims Group Ltd) to act on its behalf in relation to the claim, Mr Alan Harris dealing with the matter. The claimant informed Lombard of the position, and that no further payments would be made under the Lease Purchase Agreement. The defendants instructed Cunningham Lindsey to act as loss adjusters in respect of the claim, Mr Mark Maskell dealing with the material damage part of the claim. I think it is fair to say (as the claimant does) that the claims file indicates that the defendants were looking, from an early stage, for a reason not to pay in respect of the claim, not least because it came soon after the inception of the insurance.

There was much correspondence between the various actors, including a letter of 7 August 2008 to Mr Maskell from Mr Dymant of Harris Balcombe setting out among other things the claimant’s trading history (the claimant says it also shows that it had acquired the equipment from Wholesale not Bakequip). It is not necessary to refer to most of the other correspondence (and I have not been referred to it) because of the limited nature of the issues between the parties. As I have said, the second part of the defence is that following the fire, the claimant submitted a document in support of the claim which amounted to “fraudulent means or devices” in aid of its claim, the submission of which, the defendants say, discharged them from liability. The document in question—and it is a single document—is the version of the Bakequip invoice dated 3 February 2008 purporting to show the supply of equipment from Bakequip to Sharon’s Bakery Europe Ltd. This is the document which I have dealt with above in the context of the information that was given (or in the case of this document as I have found not given) to Lombard. The factual basis of the defence is that the document was provided by the claimant to Mr Harris as evidence of a true sale and purchase transaction between Bakequip and Europe and in support of the claim, that it was not explained by the claimant to Mr Harris as a valuation or valuations or as evidence of valuations, and that it was then submitted by Mr Harris to Cunningham Lindsey (on behalf of the defendants) in support of the claim.

The background to this allegation is that on 25 June 2008, Mr Harris wrote to Mr Caplin asking for among other things “copies of purchase invoices relating to all plant and machinery purchased, either new and/or second hand”. The reason for Mr Harris’ request was, obviously, so that he could submit documents to the defendants’ loss adjusters in support of the claimant’s insurance claim. It is common ground that the version of the Bakequip invoice dated 3 February 2008, that is to say the version that purported to show the supply of equipment to the claimant (not Wholesale), was provided to Mr Harris at a meeting in late June or early July 2008. Mr Caplin says it was provided together with the first of the two documents that was faxed to Lombard on 3 March 2008, namely the invoice from Wholesale to the claimant with a tax date of 3 February 2008. It is clear that this document was given to Mr Harris as well, if not then, at around this time, and it is on his file.

Mr Harris was called as a witness by the claimant. In his witness statement, he said that at approximately the same time as Mr Caplin dropped off the papers, he had a meeting with Mr Nassim and Mr Caplin the purpose being to agree values for the damaged items which were the subject of the Lombard financing. For this purpose, they used the Bakequip document described as an invoice to put values into his inventory for the items leased from Lombard. He says he understood from the title and form of this document that it was an invoice.

On 17 September 2008, Mr Maskell sent an email to Mr Harris asking for various items of information, saying that it was important for insurers to understand fully the method by which the business was sold in February 2007. Mr Harris was asked to “provide a schedule of assets purchased and work undertaken during this refit along with supporting invoices, and an audit trail confirming the transfer of ownership to the Insured”. He was therefore, as the defendants point out, asking for invoices, and was not asking for a valuation, and was asking about the transfer of ownership.

Mr Harris forwarded Mr Maskell’s request to Messrs Caplin and Nassim, referring to a heated discussion he had had with Mr Maskell and saying that “Eli [Caplin] needs to get his head around this and provide answers to me ASAP”. Mr Harris then had a brief discussion with Mr Caplin following which he wrote to Mr Maskell on 22 September 2008 (copying in Mr Caplin and Mr Nassim). In seeking to explain the basis on which the claimant had acquired the equipment installed at the premises, Mr Harris wrote that “all we can state is that we enclose a copy of a purchase invoice of assets between Bakequik (UK) Ltd [sic] and Sharon Bakery Europe for £156,000”. This was the document that Mr Caplin had given him in June. Mr Harris explains in his witness statement that he simply assumed that the “Bakequip document” was, as it appeared to be, an invoice, and he did not have in mind the invoice from Wholesale to the claimant, which Mr Caplin had given him and which he had on file. He said that he had not received any instructions from the claimant to represent that it had acquired the goods from Bakequip.

He said, and confirmed in cross examination, that, “I assumed the Bakequip Document was a purchase invoice because that is what, on its face, it appears to be. This ‘invoice’ was not given to me on the understanding that it was a document to be used for valuation purposes, but, as I believed, given to me in proof of purchase of said goods. Whether it was in the name of Wholesale and/or Europe was, so far as I was concerned, irrelevant. I did not discuss it with Mr Nassim or Mr Caplin but then it is not my normal practice to cross check documents – if a document is handed to me by a client, I accept in good faith that it is what it is.” I found Mr Harris to be an entirely reliable witness, and I am satisfied from that evidence, as well as that of Mr Caplin himself in cross examination, that Mr Harris was not told that the Bakequip invoice was a valuation, nor did he pass it on as such. Mr Harris goes on in his statement to deal with the other invoice he had been given from Wholesale to the claimant with a tax date of 3 February 2008.

On those facts, I consider that there is force in the defendants’ submission that the fact that Mr Caplin did not tell Mr Harris that this Bakequip invoice was a valuation is corroborative evidence of Mr Freeman’s testimony that Mr Caplin did not tell Lombard that the Bakequip invoice dated 15 November 2007 made out to Wholesale was a valuation either.

In any case, it is not in dispute that Mr Harris submitted the Bakequip invoice he was given to Mr Maskell, the defendants’ loss adjustor, under cover of his letter dated 22 September 2008, describing it as a purchase invoice. There was, of course, no such purchase. Nor I think is it in dispute that it was sent in support of the claimant’s insurance claim in response to Mr Maskell’s specific request for a schedule of assets purchased by the claimant along with supporting invoices and an audit trail confirming the transfer of ownership of goods to the claimant. I will come later to the claimant’s contentions that this does not amount to fraud in the presentation of the claim, but those are the facts as I find them.

By now, it had been established that the fire was accidental. A report prepared by Dr Broadhurst of Hawkins sent by Cunningham Lindsey to the insurers on 21 August 2008 had indicated that there was no evidence that the fire was started deliberately. The underwriters decided to accept the claim, and attention shifted to making an interim payment. On 7 October 2008, Mr Maskell sent an e-mail to Mr Harris to confirm that liability had been accepted, and matters would doubtless have moved fairly quickly to settlement of the claim.

At this point in time however, Mr Levy intervened. On 15 October 2008 he faxed to Mr Harris two different versions of the Bakequip invoice, one dated 15 November 2007 made out to Sharon’s Bakery Wholesale and Retail Ltd, and the other dated 5 February 2008 made out to Sharon’s Bakery Europe Ltd. Both purported to show the same equipment as in the other versions of the invoices, and a total price of £183,300 including VAT. He telephoned Mr Harris, who described him as calm but not coherent, alleging that the claim was fraudulent. A letter on Mr Levy’s behalf was sent by Morris & Co solicitors on 17 October. By email on that day, Mr Harris passed these on to Mr Caplin and Mr Nassim, saying that before he responded, he required a written explanation along with their clear and precise instructions.

Mr Harris was clearly placed in an invidious position, but as his professional duty required, after getting an explanation from his client, on 28 October 2008 he wrote to Cunningham Lindsey, the insurers’ loss adjusters, enclosing among other things the two invoices he had been sent by Mr Levy. He said:

“What I have been told by my client company is that the first invoice [dated 15 November 2007 made out to Wholesale] was incorrectly addressed and was only brought to their attention when the VAT quarter was due.

The correct invoice [dated 5 February 2008 made out to Europe] was then reissued and VAT was recovered once only.”

He goes on to refer to a letter to him from Morris & Co of 27 October 2008, which says that Mr Levy is contacting the police, and says that his own client has also been to the police to lodge a complaint against Mr Levy. He ends by saying that, “I would respectfully ask that you conduct your own investigation into this matter and should the £100,000 interim payment under the business interruption claim be received here into our client account I hereby give my written confirmation that said funds will be either held in the client account or immediately returned to your principal.”

The references in this letter to invoices are entirely inconsistent with the claimant’s case. According to the claimant, the explanation is that this letter addresses the question of an alleged VAT fraud, and it is suggested that it was Mr Harris’s attempt to rationalise the nature of Mr Levy’s allegation, by making it clear that VAT has been recovered only once. The claimant says that the terms of Mr Harris’s letter are unclear in this respect, and he refers to the “Bakequip documents” as though they were in fact invoices. The position is, it is said, simply that there was a misunderstanding between Mr Harris and Mr Caplin. Mr Harris did not have a face-to-face meeting at this stage with Mr Caplin, with the documents in front of them. The misunderstanding about the status of the Bakequip documents was promptly made clear to Mr Harris at a meeting in early November 2008.

This explanation is based on the evidence of Mr Caplin and Mr Nassim. It was not supported by Mr Harris either in his witness statement or in cross examination:

As regards the suggestion that this was his attempt to rationalise the nature of Mr Levy’s allegation, he made it clear that he had got an explanation from his clients:

I accept the evidence of Mr Harris. I am sure that given the circumstances his letter of 28 October 2008 was drafted with care, and was not the result of a misunderstanding. I find that the two invoices were not explained to him by the claimant as a valuation or valuations or as evidence of valuations, but as evidence of a sale and purchase transaction between Bakequip and the claimant. Such a transaction never happened. The fact of there being two documents was explained by reference to a mistake having been made in the documentation for VAT purposes. Again, my findings in this respect inevitably affect the credibility to be attached to the evidence of Mr Nassim and Mr Caplin, and the weight that I can give to it.

By way of ending the factual account, it is noted that the insurers avoided the policy on 27 February 2009, and in due course these proceedings were brought by the claimant.

At the outset of this judgment, I explained that the defendants had filed a witness statement on behalf of Mr Levy (and Mr Rana who gave certain further explanations of Mr Levy’s evidence). At a relatively late stage in the defendants’ case, Mr Eklund QC indicated that Mr Levy (and Mr Rana) would not be called. As Mr Tolley for the claimant pointed out, there was no suggestion that Mr Levy was not ready and willing to give his evidence. Mr Eklund explained that the decision not to call Mr Levy was made because his evidence was largely extraneous to the matters which the court would have to decide as regards to the defence. As presented, it is correct to say that Mr Levy does not feature in the defendants’ case, save to the extent that he appears in the factual narrative. I do not think that Mr Tolley is correct to say that without his evidence, the defendants’ case lacks the thread that would otherwise hold it together. I would however state that a consequence of the course that has been taken is that the court received, and read in advance, Mr Levy’s witness statement (and that of Mr Rana). Furthermore, Mr Nassim and Mr Caplin, as well as other witnesses for the claimant, were obliged to, and did, deal in detail with the allegations which he made, which considerably lengthened their witness statements. It is right to state that these witness statements show that Mr Levy on the one hand, and Mr Nassim and Mr Caplin on the other hand, make serious allegations against each other. Mr Nassim says that Mr Levy sought on numerous occasions to extort payment from him, and to blackmail him, on the basis that if he were paid substantial sums of money, he could “cancel” his allegations. Because of the conclusions I have reached in this case, I need not determine that issue. As regards the allegations which he has made, had Mr Levy been called to give evidence, or had his allegations formed any part of the defendants’ case, which they do not, I would have had to rule upon them. In the circumstances, they do not arise for decision, and I make it clear that they form no part of the reasoning by which I have reached my decision.