Dubai Islamic Bank PJSC v PSI Energy Holding Company BSC & Anor

The claimant (to which I will refer as “the Bank”) provides banking and financial services in accordance with Islamic law, including short term trade finance or receivables financing. The Bank’s claim against the second to fourth defendants is a claim in debt for some US$432 million (after giving credit for recoveries) arising under a Restructuring Agreement (“the RSA”) dated 19 August 2007, which was entered into after the Bank discovered it had been a victim of a long standing fraud.

In broad terms the Bank’s case is that events of default occurred under the RSA which led to the acceleration by the Bank of repayment of sums due, with the result that the second to fourth defendants, who were all Guarantors under the RSA, are jointly and severally liable to the Bank for the outstanding amount due under the RSA. The fifth defendant is one of the companies through which the fraud was perpetrated and the principal counterparty to the RSA and judgment in default was obtained against it on 12 January 2011. The first defendant (“PSI”) is a Bahraini company beneficially owned by the second defendant. The Bank claims that it is entitled to trace monies applied in breach of fiduciary duty into shares in Afren plc (“the Afren shares”), owned by PSI and asserts a proprietary interest in those shares.

The only active defendants to the proceedings and at trial have been the first to third defendants. The fourth defendant gave evidence by videolink from Turkey but has taken no part in the proceedings, he said because he had no funds to defend the claim. The second and third defendants are currently in prison in Dubai, having been arrested in May 2008 and subsequently convicted by the criminal courts there of defrauding the Bank and paying bribes to employees of the Bank. The first and second defendants were represented in the proceedings and at trial by solicitors and counsel, Mr Max Mallin. The third defendant did not have legal representation as such, but his Defence was drafted and signed by Miss Lindsay Boswell QC. By permission of Popplewell J, he was represented at trial on a pro bono basis by Mr David Mills. Mr Mills is a former member of the Bar and solicitor and, although he has not practised advocacy for some years, he presented the third defendant’s case with considerable skill and charm.

Because the second and third defendants remain in jail in Dubai (and it did not prove possible to obtain the permission of the Dubai authorities for them to give their evidence by video link from prison) they did not give live evidence at trial but their statements were admitted under the Civil Evidence Act. However, much of the content of their statements is comment or supposition or argument or bare assertion, so that those statements have not been of great assistance in determining the issues at the trial. So far as the witnesses who did give evidence at trial both for the Bank and the defendants are concerned, I will set out below at appropriate points in the chronology my assessment of those witnesses.

However, it is necessary at the outset of this judgment to say something about the status of the witness statement of Mr Fitzwilliam dated 31 July 2011 provided to Mr Mills in support of the third defendant’s opposition to a summary judgment application made by the Bank against the second and third defendants which was dismissed by Hamblen J in his judgment of 24 October 2011. Mr Fitzwilliam is a business associate of the second and third defendants and, as set out in more detail hereafter, they were all shareholders in Plantation Holdings (FZ) LLC (“Plantation”) a special purpose vehicle which was developing a polo and equestrian centre, hotel and villas in Dubai. Monies misappropriated from the Bank pursuant to the fraud were paid to Plantation and the lease of the land held by Plantation was the principal security provided to the Bank under the RSA. Mr Fitzwilliam was arrested and imprisoned by the authorities in Dubai on 6 June 2008 and charged with the fraud on the Bank. However, in 2011 he was acquitted and released from prison. As I have said, he provided a witness statement on behalf of the third defendant and, at least until shortly before the trial, it appeared he would be attending to give evidence.

On 13 September 2013, less than a month before the trial was due to begin, I heard an application by Plantation and Mr Fitzwilliam for proceedings commenced by them against the Bank claiming damages for wrongful enforcement by the Bank against the Plantation security to be joined to the present proceedings and the two actions tried together at the present trial. That application was resisted by the Bank and by the second and third defendants. I dismissed it, principally on the grounds of its lateness and because it would be impossible to try the cases together without an adjournment of the present trial, which has already been adjourned once. An urgent appeal to the Court of Appeal was dismissed on 29 September 2013 with judgment being handed down during the trial on 15 October 2013.

At a pre-trial hearing on 1 October 2013 I was informed that it was unclear whether Mr Fitzwilliam would be giving evidence and in view of the tightness of the trial timetable, I asked for his solicitors to be notified to attend that afternoon to inform the Court and the parties whether or not he would be giving evidence. That afternoon, his counsel attended and informed the Court, that in all probability he would not be giving evidence. Mr Fitzwilliam also stated through his counsel in the Court of Appeal, that he resiles from the lengthy statement he had provided, saying that much of it does not reflect his actual evidence, although he has not condescended to detail as to which passages he wishes to resile from. In those circumstances, Mr Mills very properly indicated that he could no longer rely upon the statement. Mr Mallin reserved his position as to whether there were aspects of Mr Fitzwilliam’s evidence which could still be relied upon.

In his closing submissions, Mr Mallin relied upon passages in the witness statement which were consistent with the draft Particulars of Claim exhibited to the witness statement Mr Fitzwilliam produced in support of the joinder application. However, the difficulty with that approach is that that pleading is in draft, is not signed with a statement of truth and has not been served on the Bank, so that it would be inappropriate to rely upon it as representing Mr Fitzwilliam’s evidence. In my judgment, the safer course is to disregard the witness statement provided by Mr Fitzwilliam in its entirety, and that is the course I have adopted. I should add that, even if I had had regard to his evidence I would not have accepted it to the extent that it conflicted with the evidence before the Court at the trial.

By the conclusion of the trial, the matters in dispute had narrowed somewhat. Various defences raised had been abandoned along the way, including an argument that the RSA was void or unenforceable as having been entered by the Bank ultra vires. Furthermore, by a judgment given during the trial on 23 October 2013, I ruled that the defence that the debt had been extinguished as a matter of UAE/Dubai law because of steps taken by the Bank to enforce against the principal security under the RSA had no real prospect of success, as all questions of recoverability of the debt were governed by English law, the governing law of the RSA. Accordingly I held that expert evidence of UAE/Dubai law was inadmissible.

The defences live at the end of the trial and thus the issues in dispute in relation to which the court needs to make findings and reach conclusions can be summarised as follows:

From November 2002 onwards the Structured Finance Department of the Bank entered into a series of Agency Agreements with the fifth defendant and its associated company, CCH plc (referred to collectively as “CCH”) as the means by which short-term trade finance would be provided to exporters. It is not in accordance with Islamic principles for the Bank to provide trade finance by way of short-term interest bearing loans. Accordingly the model used was so-called murabaha agreements whereby the Bank itself (through CCH as its agent) would buy the goods from the exporter, then, again through CCH as its agent, would sell the goods to the purchaser. The difference between the purchase price and the sale price represented the Bank’s profit on the transaction. The agency arrangements with CCH succeeded similar arrangements dating back to the 1980s under which the third defendant (who had long-standing business interests in the Gulf) and his then business partner, Guvan Nil, the fourth defendant’s father, did murabaha deals with the Bank. After Mr Nil senior died in 2000, the fourth defendant became the third defendant’s business partner and they did murabaha deals with the Bank through CCH, which they incorporated at around that time.

Under the Agency Agreements, once CCH had put the contractual arrangements in place, the Bank was to remit the funds required into an account in the name of CCH. The fact that funds flowed through CCH, rather than directly between the Bank and the exporter and purchaser respectively, enabled the fraud to be perpetrated. The third defendant admitted the fraud and his part in it at meetings with Mr Hugh Lyons and Mr Neil Dooley of the Bank’s solicitors, Lovells (to whom I will refer as Hogan Lovells, the name by which they are now known), on 26 and 28 November 2007. He admitted that the fraud on the Bank had started in about 2003. It was very simple: the third defendant had arranged with the second defendant for one of the second defendant’s companies to generate fictitious requests for trade finance for ostensible but in fact non-existent supply contracts which were submitted to CCH’s office in Germany. False documentation in respect of the transaction would be drawn up by CCH in Germany and submitted to the Bank for financing. The third defendant said he and the fourth defendant had agreed to divide the proceeds of the fraud between themselves equally.

The second defendant also had long standing business interests in the Gulf. He owned and/or controlled a number of companies including PSI, PSI Middle East, Gulf Lotus Trading and Seymour. At a meeting with Mr Lyons and Mr Dooley on 27 November 2007, he admitted his part in the fraud. The third defendant had offered to finance a refinery project in Pakistan the second defendant was involved with (referred to in more detail below) and the second defendant subsequently learnt the funding was provided by the Bank as a result of invoicing for fictitious trade finance transactions. The third defendant told him that false invoices needed to be generated to maintain funding and he obliged. One or other of the second defendant’s companies was instructed to issue false financing requests which were sent for processing to CCH in Germany and submitted to the Bank for financing.

Following those meetings with the second and third defendants, Mr Dooley prepared detailed meeting notes. Both Mr Lyons and Mr Dooley gave evidence at trial. In their respective witness statements they summarised the admissions made and confirmed the accuracy of the meeting notes. Both were impressive and honest witnesses. It is striking that, although both were cross-examined by Mr Mallin and Mr Mills on behalf of the second and third defendants respectively, neither was challenged in any way about their evidence as to the admissions of fraud made by those defendants at the meetings or as to the accuracy of the meeting notes. In the circumstances, although both defendants formally deny participation in the fraud, that position is untenable and it is clear that they were both fully implicated.

The position of the fourth defendant is equally untenable. He was a shareholder in and the managing director of CCH Europe and he signed numerous draw down requests to the Bank for the transfer to CCH of funds, in respect of transactions which he clearly knew were fictitious. In cross-examination by Mr Robert Anderson QC on behalf of the Bank, he sought to maintain the somewhat farcical stance that, at the time, he did not know whether the transactions in respect of which he signed documentation were genuine or not, although he accepted that he knew there were no acceptances from any buyer. He claimed to have been under the impression that the Bank was aware that there were no buyer acceptances, but in my judgment that can only have been because he knew that certain employees of the Bank were receiving bribes. There is no question of his having genuinely thought that the transactions were authorised by the Bank.

I found the fourth defendant a most unsatisfactory witness, mendacious and evasive and I reject his evidence that he was not party to and was unaware of the fraud. Mr Lyons and Mr Dooley were not challenged in cross-examination that, as recorded in the meeting note, at their meeting the third defendant had told them in terms that the fourth defendant was fully aware of the fraud. Furthermore, the fourth defendant clearly received a substantial part of the Bank’s money pursuant to the fraud. The third defendant’s disclosure pursuant to the RSA (which the fourth defendant adopted) was that the fourth defendant received US$857,000.

Irrespective of the admissions made, even a cursory examination of the documentation created by the second defendant’s companies and CCH demonstrates that it cannot relate to genuine transactions. The range of goods ostensibly sold by PSI Middle East is staggering: jetting pumps, bunker fuel, packing machines, chiller plants together with vast quantities of aluminium sheet and steel beams. There are discrepancies in price both between different transactions and in comparison with market prices. For example PSI sold aluminium sheet at some US$500 per metric ton and Seymour also sold aluminium sheet for settlement the same day at over US$2,700 per metric ton, both “sales” at a time when the LME spot price was about US$2,400 per metric ton.

Furthermore, as Mr Anderson QC rightly submitted, the fact that these were not genuine transactions is demonstrated by the complete absence of the sort of shipping documentation which could and would be readily produced for genuine international trade: bills of lading, letters of credit, evidence of payment by the buyers and so forth. That there was a fraud and that the second, third and fourth defendants actively participated in it, is irrefutable.

It is no answer to the Bank’s case that it was a victim of a fraud perpetrated by the second, third and fourth defendants that certain employees of the Bank may have received bribes and been implicated in the fraud. The knowledge of those employees cannot be attributed to the Bank as a matter of law. As Mr Anderson QC submitted, this is a straightforward application of the principle in Re Hampshire Land Company [1896] 2 Ch 743.

As for what became of the monies diverted pursuant to the fraud, when the Bank discovered it had been the victim of fraud in the summer of 2007, it became plain that, of US$501 million outstanding ostensibly advanced for short-term receivables financing, some US$342 million had not been applied in respect of such transactions but instead in unauthorised long term projects. Two such projects are of particular relevance. The Refinery Project was a project by which the second defendant, through a Pakistan incorporated company of which he was 80% shareholder and a director, as was the fourth defendant, proposed to dismantle an oil refinery from the West and rebuild it in Pakistan. Some US$180 million of the monies needed to finance the Refinery Project came from funds advanced by the Bank for receivables financing, but which the third defendant via CCH advanced to the second defendant for the Refinery Project.

According to the account provided by the third defendant at the meetings in November 2007, the costs of the Refinery Project escalated and CCH attempted to trade out of its difficulties by investing more of the Bank’s monies in other unauthorised but shorter term projects. These included the Plantation Project under which, in January 2004, Mr Arthur Fitzwilliam had obtained a lease (hereafter referred to as “the Lease”) of 1.86 square kilometres of desert land on the outskirts of Dubai (forming part of Dubailand) from the Dubai Development and Investment Authority, which subsequently assigned its rights and interest in the Lease to the Dubai Tourism and Development Company (DTDC). A special purpose vehicle, Plantation, was incorporated (in which Mr Fitzwilliam held a 70% shareholding and the second defendant held a 30% shareholding on behalf of himself and the third defendant, in equal shares) to carry out the Plantation Project, which was to be a world class polo and equestrian centre, with a hotel and luxury residential villas and apartments. It is clear that in the region of US$18 million of the Bank’s monies were absorbed into the Plantation Project in an unauthorised fashion, notwithstanding which, at the time the RSA was entered in August 2007 (and indeed a year later when the Bank enforced its security) the Plantation Project was still in its early stages and construction had barely started, with only some limited road infrastructure completed and a few polo fields laid out.

The fraud was discovered after senior management of the Bank decided to bring the Structured Finance Department under direct management of the Bank rather than under the Bank’s subsidiary Millennium Capital Limited with effect from July 2007. Mr Naveed Ali took over responsibility at the Bank for the CCH relationship and began to investigate the transactions. Because the monies provided by the Bank to CCH were supposed to be expended in short-term trade finance transactions, it was necessary, as I have already noted, for false documentation to be created and CCH had to “churn” the Bank’s money, that is invent new transactions for which the Bank provided funds, which were then used to pay off the existing fictional transactions. Mr Naveed Ali’s evidence was that almost immediately he began to have concerns, so he stopped any further drawings under the facility, the almost immediate result of which was a default on an invoice on the CCH account which should not have occurred if these were independent, genuine, transactions.

He attended various meetings internally in the Bank and with the third defendant but did not receive any satisfactory explanations. He then made a presentation to the credit committee of the Bank on 22 July 2007. In his oral evidence, he was reluctant to admit that he told them that he suspected that there had been a fraud as opposed to what he described as “structural deficiencies”. There was a similar reluctance on the part of other Bank employees who gave evidence at the trial to admit that what had been uncovered was a fraud or that the RSA was in effect a settlement agreement with the parties who had defrauded the Bank. In my judgment, that reluctance was not attributable to anything more sinister than that the witnesses were acutely aware that the Financial Audit Department (“FAD”) of the Ruler’s Court in Dubai, the Diwan, and some current senior management of the Bank were critical of the RSA and that Mr Mooraj, who signed the RSA on behalf of the Bank, was one of the employees subsequently convicted of being complicit in the fraud and taking bribes. In the circumstances, the reluctance to admit that there was a fraud is perhaps understandable. Nevertheless, I am quite satisfied that Mr Naveed Ali did tell the credit committee of his suspicions that there had been a fraud.

Thereafter, negotiations took place with the defendants and Mr Fitzwilliam with a view to a global settlement under which terms would be agreed for the repayment of the US$501 million outstanding and owing to the Bank (“the Rescheduling Amount”). All parties were represented by English solicitors in those negotiations, Hogan Lovells (Mr Lyons) for the Bank, SJ Berwin (Mr Tim Taylor now QC who also gave evidence at the trial) for the second and third defendants, Clifford Chance (Mr Paul Davies) for Mr Fitzwilliam and Plantation) Howes Percival for the fourth defendant and Field Fisher Waterhouse for CCH plc. The negotiations, which entailed detailed discussions in the week of 13 August 2007 between the solicitors as to the drafting of the RSA, culminated in its signature on 19 August 2007. The parties to the RSA were the Bank, CCH Europe (“the Company”), CCH International Plc (“the Parent”, the two CCH companies together being referred to as “the Corporate Guarantors”), the second, third and fourth defendants (“the CCH Individual Guarantors”), Plantation and Mr Fitzwilliam. The RSA was signed on behalf of the Bank by Mr Omair Mooraj,

Although signed on 19 August 2007, the RSA was subject to a number of conditions subsequent which were satisfied finally by a Supplemental Agreement dated 2 October 2007. For present purposes it is not necessary to set out the terms of that agreement save to record that it provided that the Effective Date when the RSA was to come into full force and effect was 2 October 2007.

The terms of the RSA which are relevant are as follows:

INTRODUCTION

(D)

In settlement of any potential claims against them in respect of the application of the Advances, the CCH Individual Guarantors have agreed to each provide a guarantee and indemnity to the Bank (“the CCH Individual Guarantees”) in respect of the Company and the Parent’s obligations under the Agency Agreements and this Restructuring Agreement and on the terms described herein.

(E)

In settlement of any potential claims against it (or its directors and officers) in respect of the application of the Advances, Plantation has agreed to provide a guarantee and indemnity to the Bank (“the Third Party Guarantee”) in respect of the Company and the Parent’s obligations under the Agency Agreements and this Restructuring Agreement and on the terms described herein.

IT IS AGREED as follows:

1

Definitions

Earmarked Plantation Proceeds

those amounts of Plantation Villa Proceeds that are: (a) Escrow Proceeds; or (b) required by law to be applied for building or other specified purposes

Escrow Proceeds

those amounts of Plantation Villa Proceeds required by Law to be retained on escrow, but only for so long as they must remain in escrow or approved in accordance with Law

Event of Default

any one of the events mentioned in clause 18.1 (Events)

Law

any federal, state, local or foreign law (including common law and equity), statute, code, ordinance, rule or regulation

Lease

the lease agreement in respect of land at Dubailand in the United Arab Emirates dated 25 January 2004 between Arthur Fitzwilliam and Dubai Development and Investment Authority (or as subsequently amended or assigned)

Plantation Enforcement Event

breach of the provisions of the following sub-paragraphs of clause 18.1(Events): sub-paragraph (a) and, where such breach is caused by the default of Plantation, sub-paragraphs (c) - (k), in the case of sub-paragraphs (a), (c) - (e) or (h) - (k) subject to the provisos at clause 18.1(a) (Events)

Plantation Villa Proceeds

the proceeds, when collected, of sale of plots in the residential villa element of the Plantation but excluding: (a) Earmarked Plantation Proceeds and (b) those Plantation Villa Proceeds received in respect of sales of plots made prior to the Effective Date.

Proceeds Asset

any asset with a realisable market value of US$10,000 (or equivalent in any other currency), whether held by the CCH Corporate Guarantors, the CCH Individual Guarantors or otherwise, materially funded by the Advances, whether directly or indirectly and whether or not in accordance with the terms of the Agency Agreements

Standby Loan Facility

a standby loan facility of up to US$50 million at any time to be used principally for the building of infrastructure for the Plantation Project in accordance with the master development plan in place for the Plantation Project as at the Effective Date.

Standstill Period

the period commencing on the Effective Date and ending upon the later of notification of:

(a)

a Standstill Termination Event to the Company and the Parent; and

(b)

in accordance with clause 3.5,

provided that the Standstill Period shall automatically end upon the occurrence of any of the events referred to in clauses 18.1(f), (g), (h) or (j) in respect of the Company or the Parent regardless of whether any notification is given.

3

Standstill

3.1

Subject to the terms of this Restructuring Agreement, the Bank agrees with the Company and the Parent that, during the Standstill Period, it will not:

(a)

exercise as against the Company and the Parent any rights which it may have under the Agency Agreements as a consequence of or in relation to any Agency Defaults;

(b)

petition for or initiate any insolvency or reorganisation procedure in relation to the Company or the Parent: or

(c)

make any claim or demand on the Company or the Parent in an amount such that such claim or demand would cause the Company or the Parent to become insolvent on a cash flow or balance sheet basis.

3.2

Upon the expiry of the Standstill Period the Bank will be entitled forthwith and without further notice to any party to this Restructuring Agreement to exercise any and all rights which it may have against the Company or the Parent, subject in either case to such releases arising under clause 12 as have at the time in question become unconditional.

4 The Rescheduling Amount

Amount

4.1

The Rescheduling Amount as at the date of this Restructuring Agreement is US$501,284,616.56 representing all the Advances made by the Bank under the Agency Agreements and profit thereon and whether or not such Advances were applied in accordance with the terms of the Agency Agreements. Additionally, the Bank’s costs (recoverable under clause 22.1 from parties other than the Parent) shall form part of the Rescheduling Amount.

Amounts fully drawn

4.2

The Rescheduling Amount does not represent a loan facility and subject to any arrangements made pursuant to clause 11 (Additional Funding), the Bank shall not be obliged to commit or make available for drawing any further amounts under this Restructuring Agreement or the Agency Agreements.

No redrawing

4.3

Any amounts repaid pursuant to this Restructuring Agreement (except in relation to repayments made under the Standby Loan Facility) shall be applied by the Bank towards satisfaction of the Rescheduling Amount and shall not, for the avoidance of doubt, be available for redrawing, save with the consent of the Bank (such consent not to be unreasonably withheld) in circumstances where the Company or the Parent as the case may be justifies to the Bank that such redrawing is necessary to achieve collection of CCH Agency Receivables identified in the schedule to be produced in accordance with clause 17.7. Such redrawn sums shall not count towards repayment.

Advances due and payable

4.4

All of the Advances shall, notwithstanding any provision of the Agency Agreements but subject to clause 3 (Standstill) be immediately due and payable and, to the extent necessary, the Agency Agreements shall be deemed to have been so varied.

5

Acknowledgement of debt

The Guarantors acknowledge the Rescheduling Amount as being due and payable to the Bank by the Company and the Parent as follows:

(a)

the Company in full, including for the avoidance of doubt both the Company Advances and the Parent Advances; and

(b)

the Parent, as to an amount of US$50m in respect of Parent Advances only,

and in each case without set-off or deduction in any regard and in accordance with the terms of this Restructuring Agreement.

6

Guarantee and Indemnity

6.1

In consideration of the various releases set out in clause 12 (Release from liability) the Guarantors:

(a)

jointly and severally and as continuing security guarantee the repayment of the Rescheduling Amount on the terms set out herein; and, as an additional and independent obligation; and

(b)

jointly and severally indemnify the Bank as principal debtors in respect of any failure or inability to recover the Rescheduling Amount as provided for herein,

provided that the liability of the Parent under this clause 6.1 shall not exceed US$100m and shall reduce by the amount paid by the Parent and/or the Company from proceeds of the CCH Agency Receivables or, in the case of sums paid by the Parent only, from any other source available to the Parent.

6.2

The terms set out in Schedule 5 shall apply.

7

Repayment

Repayment in instalments

7.1

Subject to the provisions of clauses 7.2 and 7.3 the Company and the Parent will repay the Rescheduling Amount to the Bank in instalments on each Repayment Date. The amount that shall be repaid to the Bank on or before each Repayment Date is the amount set out in Schedule 2 (Repayment Schedule) corresponding to such Repayment Date and in the case of the Parent limited to the Parent Advances.

Application of certain asset proceeds

7.2

The Guarantors shall take reasonable steps to procure that all of the following proceeds and any proceeds derived from the following sources (in each case net of any associated transaction costs including without limitation necessary and incidental amounts to third parties) shall be applied forthwith upon receipt and in mandatory prepayment of the Rescheduling Amount:

….

(d)

the Plantation Villa Proceeds so far as they exceed US$150,000 per month provided that such sum has been disbursed or committed to the purposes of the development of Plantation Project;

8

Security

8.1

As security for their respective obligations under this Restructuring Agreement, the Guarantors shall grant security as set out below.

8.2

Plantation shall (and Arthur Fitzwilliam shall procure that Plantation shall) grant to the Bank:

(a)

a first ranking charge, by way of conditional assignment, of the Lease. For the avoidance of doubt such security shall not encompass assets of Plantation not forming part of the development contemplated in the Lease; and

(b)

a first ranking charge by way of assignment of the benefit of:

(i)

the Plantation Villa Receivables;

(ii)

the Plantation Villa Proceeds; and

(iii)

the Earmarked Plantation Receivables,

provided that:

(iv)

prior to the enforcement of the charge:

(A)

Plantation Villa Receivables may be collected in by Plantation in the ordinary course and dealt with in accordance with the terms of this Restructuring Agreement; and

(B)

the Earmarked Plantation Proceeds shall be available to be applied for those Earmarked Plantation Proceeds purposes; and

(v)

the charge shall not be enforceable against Escrow Proceeds for so long as they are held by Plantation in escrow.

11

Additional Funding

11.1

Subject to such consideration, based on due diligence in respect of the Plantation Project, as a commercially reasonable lender would be expected to have (acting consistently with Sharia law), the Bank agrees to make available to Plantation the Standby Loan Facility.

11.2

Any such Standby Loan Facility shall be on commercially reasonable terms (having regard to the requirement that any terms are consistent with Sharia law) to be agreed between the Bank and Plantation and shall include a drawdown ratio such that:

(a)

in the first 120 days and up to a maximum of US$l5million after the facility is made available US$1 shall be available for drawdown against each US$1 actually repaid against the Rescheduling Amount; and

(b)

thereafter US$1 shall be so available for each US$3 so repaid subject to air overall maximum facility limit of US$50million.

11.3

The purpose of any such Standby Loan Facility shall be principally to finance the building of infrastructure for the Plantation Project so as to facilitate timely and full repayment of the Rescheduling Amount, and accordingly it shall be an event of default under the Standby Loan Facility (requiring immediate repayment of the Standby Loan Facility) if a Plantation Enforcement Event occurs.

12

Releases from liability

Company, Parent and CCH Individual Guarantors

12.4

In consideration of the CCH Corporate Guarantees, the CCH Individual Guarantees and the covenants to enter into the Security Documents the Bank hereby agrees, to irrevocably waive and compromise any and all claims, whether existing or future, known or unknown, it has or may have against each of the Guarantors arising from or in connection with the Agency Agreements and the transactions contemplated by the Agency Agreements whether or not funds were appropriated in accordance with the terms of the Agency Agreements, provided that any claims in respect of Proceeds Assets shall not be waived or compromised unless expressly done so in writing by the Bank.

13

Proceeds Assets

13.1

The parties agree that insofar as any Proceeds Asset is within their ownership or control they will:

(a)

disclose it to the Bank;

(b)

at the Bank’s request, grant the Bank security over that Proceeds Asset ranking behind any security existing at the Effective Date except in favour of the Guarantors; and

(c)

at the Bank’s request, sell or permit the Bank to sell the Proceeds Asset and apply the net proceeds of sale against the Rescheduling Amount.

13.2

The parties agree that nothing in this Restructuring Agreement shall prevent the Bank from advancing and enforcing any proprietary claim against any Proceeds Asset which has not been disclosed to the Bank pursuant to this Restructuring Agreement.

18

Events of Default and Enforcement Events

Events

18.1

Each of the following will be an Event of Default:

(a)

if any amount payable in respect of a Repayment Date is not paid in the manner and at the time provided in this Restructuring Agreement save that:

(i)

there shall not be an Event of Default under this clause 18.1(a) if the amount paid to the Bank in respect of a Repayment Date represents 90% or more of the amount due on such Repayment Date and any such shortfall is paid to the Bank within 3 months after the Repayment Date to which it relates; and

(ii)

no Plantation Enforcement Event shall arise consequent upon an Event of Default under this clause 18.1(a) if, during the 240 day period immediately following the Effective Date the amount paid to the Bank in respect of a Repayment Date falling within that period represents 50% or more of the amount due on such Repayment Date and any such shortfall is paid to the Bank within 3 months of the Repayment Date to which it relates; and

(iii)

in relation to the Repayment Date occurring at the end of the third year after the date of this Restructuring Agreement and as to repayment of amounts in excess of the first $180 million required to be paid by such date:

(A)

Plantation Villa Receivables shall, for the purposes only of providing accommodation in circumstances which would otherwise amount to payment default be regarded as notional, but not actual, repayments;

and;

(B)

Escrow Proceeds (in each case net of all transaction costs) for the purpose only of providing accommodation in circumstances which would otherwise amount to payment default shall be regarded as notional, but not actual, repayments.

…

(d)

if any Guarantor fails to perform any of its obligations other than those described in paragraph (c) under this Restructuring Agreement or any of its Security Documents or any other Security Provider fails to perform any of its obligations under any of its Security Documents and, in either case such failure (if capable of remedy in the opinion of the Bank) remains unremedied to the satisfaction of the Bank for 15 Business Days after notice requiring its remedy has been given by the Bank to the relevant Guarantor or the relevant Security Provider;

…

Plantation Enforcement Event

18.2

Without prejudice to any other remedy of the Bank, the Bank may not exercise its rights under the Plantation Security until the occurrence of a Plantation Enforcement Event.

Remedies

18.4

(a)

if an Event of Default occurs pursuant to a breach of clause 18.1(a) or (h)-(k) for any reason or pursuant to a breach of clause 18.1(b)-(g) in relation to a failure by Plantation to perform its obligations the Bank may:

(i)

by notice to all or any of the Guarantors (‘Notified Guarantors”), demand and declare the Rescheduling Amount and all other sums owed by the Notified Guarantors under this Restructuring Agreement to be immediately due and payable by the Notified Guarantors, and the same will become so immediately due and payable by the Notified Guarantors; and/or

(ii)

subject to clause 18.2 (Plantation Enforcement Events) take steps to enforce all or any of the Security Documents to which Notified Guarantors are party (without prejudice to such rights as it may already have had to take such steps prior to the occurrence of an Event of Default).

21

Termination

21.1

Unless otherwise required by Law, this Restructuring Agreement shall terminate only upon the occurrence of the later of:

(a)

the repayment in full to the Bank of the Rescheduling Amount;

(b)

payment to the Bank of the Profit.

21.2

Upon termination pursuant to clause 21.1 the Bank shall be required to surrender and or return guarantees, indemnities, options, property or security granted to it, pursuant to this Restructuring Agreement, by any of the parties or any third party prior to the date of termination.

21.3

Upon the termination of the entire Restructuring Agreement, otherwise than by clause 21.1, (including any termination of the Restructuring Agreement being required by operation of Law, notwithstanding clause 25.2 (Severability), due to invalidity, illegality or unenforceability) the parties shall cease to have any further obligations to each other hereunder, provided always that:

(a)

the provisions of the following clauses shall remain in full force and effect: 1 (Definitions), 2 (Interpretation), 4 (Rescheduling Amount), 5 (Acknowledgement of Debt), 6 (Guarantee and Indemnity), 8 (Security), 13 (Proceeds Assets), 22 (Costs), 23 (Payments), 25.1 (Delays), 25.2 (Severability), 25.3 (Confidentiality), 25.4 (Reservation of Rights), 25.5 (Specific Performance), 27 (Governing Law, Jurisdiction and Arbitration);

(b)

the Bank shall not be required to surrender, refund or return any:

(i)

payments made to it; or

(ii)

guarantees, indemnities, options, property or security granted to it,

pursuant to this Restructuring Agreement or otherwise, by any of the parties or any third party prior to the date of termination; and

(c)

such termination will be without prejudice to any accrued rights of any party against any other party arising under or reserved notwithstanding this Restructuring Agreement.

25

Miscellaneous

Entire Agreement

25.6

This Restructuring Agreement (including the schedules and appendices hereto), the Fitzwilliam Comelius Agreement and the Rescheduling Documents whether in existence at the execution hereof or executed subsequently represents the entire understanding and agreement between the parties with respect to the subject matter hereof and, except as otherwise expressly provided in this Restructuring Agreement, can be amended, supplemented or changed and any provision hereof can be waived only by written instrument making specific reference to this Restructuring Agreement and signed by each party.

27

Governing Law, Jurisdiction and Arbitration

Governing law

27.1

This Restructuring Agreement is governed by and shall be construed in accordance with English Law, save in so far as inconsistent with the principles of Sharia Law.

Jurisdiction

27.2

The parties submit to the exclusive jurisdiction of the English Courts with respect to all disputes arising out of or in connection with the terms of this Restructuring Agreement. The parties agree that the courts of England are the most appropriate and convenient courts to settle disputes and accordingly no party to this Restructuring Agreement will argue to the contrary.

Repayment Schedule

Guarantee and Indemnity Terms

1.

Preservation of Guarantor’s Liability

Action or inaction by Bank:

1.1

Without notice to any Guarantor and without releasing any Guarantor’s liability the Bank may:

(a)

allow to the Company and/or the Parent or to any other person any time, indulgence or other concession:

(b)

enter into, vary, release or refrain from taking, perfecting or enforcing any right or security which the Bank holds or is to hold from the Company and/or the Parent or any other person: or

(c)

do or neglect to do anything which (but for this Clause) might operate to release or reduce a Guarantor’s liability under this Restructuring Agreement.

Other defences

1.3

No Guarantor’s liability under paragraph 1.1 shall be affected by anything which would not have released or reduced such liability had the liability been as a principal debtor instead of as a guarantor.

Estoppel/Rectification

It is appropriate to deal at this stage of the judgment with the assertion made by the first and second defendants in Mr Mallin’s Opening Submissions that, before the RSA was entered there was “an understanding” that: “the value of the Plantation lease was to be assessed as at the time of transfer of the same to the [Bank] if not sold within a reasonable period of time after the assignment thereof became effective” thereby giving rise to either an estoppel by convention or a claim to rectification of the RSA. The assertion relies upon passages in the second defendant’s witness statement which adopt by reference passages in the witness statement of Mr Fitzwilliam, as to which there is the obvious problem that he now resiles from that statement. As Mr Anderson QC submitted, inferentially Mr Fitzwilliam must resile from this passage in his statement, given that his case as now set out in the draft pleading put before the Court on 13 September 2013 is that the Bank acted wholly wrongfully in taking possession of the Plantation and did not obtain title.

What is asserted in these witness statements is that assurances were given during the course of meetings in London that, if the Bank enforced against Plantation, the defendants would be credited with its value at the date of enforcement. Mr Fitzwilliam says in the passage endorsed by the second defendant:

“I repeatedly asked all the lawyers – Clifford Chance for me, Mr Timothy Taylor (now QC) of SJ Berwin for Mr Cornelius and Mr Ridley and Mr Lyons at Lovells for DIB whether the RSA would work in the way I understood, including that the value would be assessed at the time of security. They all, including DIB, said that this was the case.”

Mr Lyons’ clear evidence in his witness statement and in cross-examination, when what the second defendant asserts was simply formally put to him, was that no such assurances had been given, nor would they have been. As Mr Lyons said in evidence, everyone was talking about mortgaging or charging the Plantation land and the Bank would simply not have been prepared to take the risk. In other words he had in mind the risk of the property falling in value after the Bank had taken possession but before sale, a risk which as a matter of English law would remain on the debtor. As he said in his witness statement, it would have been wholly uncommercial for the Bank to take the risk of a fall in value between enforcement and sale, which was particularly pertinent given that the Plantation Project was almost totally undeveloped.

As Mr Lyons says, the meetings in London being referred to in their witness statements must be ones which took place on the weekend of 10-12 August 2007 at the offices of SJ Berwin, being the only time the second defendant and Mr Fitzwilliam were together during the negotiations. No-one from the Bank was present during those negotiations. Also, at that time there was no draft of the RSA in circulation and negotiations as to the form of the security to be provided by Plantation were at an early stage. It is striking that no evidence was adduced from any of the other lawyers alleged by Mr Fitzwilliam to have given these assurances, including Mr Taylor, notwithstanding that he gave evidence for the second defendant. Furthermore, if there had been such an understanding as alleged, it is inconceivable, in a case where there is voluminous documentation evidencing the negotiations, that it would not be recorded in a document somewhere, yet it is not. I am quite satisfied that Mr Lyons is correct that no such assurances were given and that, regrettably, the second defendant and Mr Fitzwilliam have simply invented this evidence about receiving assurances or there being some understanding.

Given that the case fails on the facts, it is not necessary to consider the law in any detail. So far as estoppel by convention is concerned, even if there had been a communication crossing the line between the parties, which would be a pre-requisite for such an estoppel, the entire agreement clause at clause 25.6 of the RSA presents an insuperable difficulty. It gives rise to a contractual estoppel, precluding the defendants from asserting that something outside the four corners of the RSA had contractual effect: see Matchbet Ltd v Openbet Retail Ltd [2013] EWHC 3067 (Ch) at [112] and [132] per Henderson J.

So far as rectification is concerned, the applicable test is that set out by Peter Gibson LJ and endorsed by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 at [48]:

“The party seeking rectification must show that:

(1)

the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;

(2)

there was an outward expression of accord;

(3)

the intention continued at the time of the execution of the instrument sought to be rectified;

(4)

by mistake, the instrument did not reflect that common intention.”

As Mr Anderson QC correctly points out, in the present case, none of those requirements, each of which must be satisfied before rectification will be ordered, even begins to be satisfied by the defendants in the present case.

As provided by clause 8.2(a) of the RSA Plantation was obliged to provide the Bank as security a first ranking charge by way of conditional assignment of the Lease. The Conditional Assignment which was also dated 19 August 2007 was made between Plantation, the Bank and DTDC. Under clause 2.1, the Lease was to be assigned to the Bank if, in the reasonable opinion of the Bank, a Plantation Enforcement Event had occurred and a written notice to that effect was served upon DTDC by the Bank. That Conditional Assignment was governed by UAE and Dubai law and subject to the exclusive jurisdiction of the Dubai courts. This led to the contention by the defendants that the effect of the Bank giving such notice and perfecting the assignment was to extinguish the debt as a matter of UAE/Dubai law. I held that contention was unsustainable in the judgment I handed down on 23 October 2013, essentially on the ground that UAE/Dubai law was irrelevant because the debt and its recoverability are governed by English law under the RSA and, as a matter of English law, the Conditional Assignment was a charge or mortgage as the opening words of clause 8.2(a) make clear. Accordingly, the giving of notice and the subsequent taking of possession of the land by the Bank has not extinguished or reduced the debt because the Bank has not realised the value of the security by a sale or otherwise.

It is clear that after the RSA came into effect, there were parallel investigations into the CCH business by the Bank itself and by the FAD, which, although it is an arm of the Diwan, the Ruler’s Court, has an office within the Bank, next to the finance department. Mr Al Sharif (who was at the relevant time the chief financial officer of the Bank) gave evidence that there was an open dialogue between the Bank and the FAD and if the FAD asked for information, the Bank was obliged to provide it.

The internal investigation within the Bank came about as follows. Although the board of directors of the Bank approved the RSA, in October 2007 they passed a resolution instructing the Group Internal Audit (“GIA”) of the Bank to conduct an investigation into the CCH business, highlighting control weaknesses and where responsibility and accountability lay within the Bank for what had occurred. According to the evidence of Mr Mahmoud Mostafa now the Head of GIA but at the time Assistant Vice-President under Mr Kanan who was the Head of GIA, their investigation began in November 2007. They produced an investigation report in February 2008. That highlighted how the fact that all funds flowed through CCH as agent had given ample opportunity for the misuse of the Bank’s funds. The report concluded that there had been a lack of proper monitoring or understanding of the product and ineffective operational and credit risk management, for which the Structured Finance Department was primarily responsible, with Credit Risk Management having secondary responsibility.

The report also noted that Mr Mooraj, who took over the management of the Structured Finance Department in 2005 had admitted a lack of understanding and monitoring of the product in questioning by the FAD. The report identified possible collusion in the fraud on the part of Mr Rafatul Usmani, who worked in the Structured Finance Department throughout the relevant period from 2002 to 2007 and whose brother apparently worked for CCH. GIA did not identify collusion by other staff but said it could not be precluded in the case of a number of other staff including Mr Mooraj. After the fraud was discovered both Mr Mooraj and Mr Usmani resigned.

According to the evidence of Lieutenant Colonel Belhaul of the Dubai police to the Public Prosecutor in Dubai, the police became aware of the fraud on the Bank and misappropriation of some US$501 million in August or September 2007 from one of their secret sources in the Bank, which may be a reference to a member of the FAD staff working inside the Bank. At all events, he said that the police formed a team with FAD to investigate the means by which the fraud had taken place and the people involved.

At this juncture it is necessary to outline the role and responsibility of the FAD. It was established by statute, Law no 3 of 2007, replacing an earlier body. As Mr Anderson QC submitted, a key aspect of its remit was the investigation of financial irregularities. Thus, Article 19 of the Law provided:

“The following cases and incidents are considered financial violations that require investigation therein, whether detected by the [FAD] or by the Party subject to audit:

[…]

4.

Any action, negligence or default that results in the payment of amounts unrightfully from funds subject to audit….

5.

Embezzlement of money under audit, or breach of trust, or fraud for the purpose of embezzlement, stealing or waste.”

Under Article 22, the staff of FAD had extensive rights of access to the documents and staff of an entity the subject of a FAD audit, confirming Mr Al Sharif’s evidence that if the FAD asked the Bank for information, the Bank had to provide it:

“The Director General or any employee authorised by him may audit any document, record or papers which he deems necessary for performing the audit duties completely, and he will have the right at any time to contact directly with the employees who work for the Party subject to audit, whether for the purposes of audit or investigation in the financial violations, and he may also get acquaintance with any document, record or papers that might be necessary for the investigation, and keep copies thereof, and interrogate any of the employees who may have relation to the detected financial violation.”

Furthermore, where an investigation by the FAD reveals the commission of a criminal offence, under Article 20(3) the Director-General of the FAD is under a positive duty to report to the Public Prosecutor:

“In case investigation in the financial violation has revealed the existence of a penal offence, the Director General should refer the papers to the Public Prosecution for taking whatever action it deems appropriate in this respect.”

It is apparent from the evidence of Lt Col Belhaul to the Public Prosecutor that during their investigation, the police and the FAD uncovered not only participation in the fraud by the second to fourth defendants (and, they thought, Mr Fitzwilliam) but that Mr Mooraj and Mr Usmani had colluded in the fraud and received bribes. He does not state when they first suspected that bribes had been paid, but from other evidence it appears that this was in January 2008. Mr Lyons of Hogan Lovells explains in his witness statement that when he was in Dubai on 8 January 2008, Mr Al Kamda, then managing director of the Bank, told him that he was required to meet with the FAD that afternoon. He met representatives of the FAD, including director-general Mr Amiri at the FAD’s offices. He says that it was clear from the questions he was asked that the FAD was deeply suspicious of the RSA and did not understand why the Bank had reached a compromise rather than reporting the fraud to the criminal authorities. Despite Mr Lyons’ explanation of the commercial rationale for the RSA, he was left with the firm impression that the FAD thought the Bank had been wrong to enter it and that the fraud was a matter for the criminal authorities.

Mr Dooley of Hogan Lovells explains in his witness statement that, following further meetings with the second and third defendants in Bahrain on 15 and 16 January 2008, when they were accompanied by Mr Taylor of SJ Berwin, it was apparent that there was a US$20 million “hole” in the asset disclosure by the third defendant. Mr Dooley says that Mr Taylor indicated that bribes had been paid to individuals at the Bank and there were statements recording those payments, although the second and third defendants refused to show Hogan Lovells the documents or to identify which employees had received bribes. In his evidence Mr Taylor referred to there being a document evidencing payment to an employee of the Bank revealed in the process of disclosure by the second and third defendants. That was evidently a reference to a bank statement of Watamu Trading Company, one of the second defendant’s companies, showing payment of some US$100,000 to Mr Mooraj’s account at Habib Bank.

That, by the second half of January 2008 the FAD and the police were concerned to establish whether bribes had been paid to one or more of the Bank’s employees during the fraud, is borne out by the fact that collusion in the fraud was one of the concerns raised by GIA in its report produced in February 2008. I agree with Mr Anderson QC that internal Bank documents like this referring to the existence of a fraud and suggesting the involvement of Bank employees are exactly the sort of material likely to interest the FAD. Given that the Bank was obliged to provide information to the FAD, it seems likely that the concerns raised by GIA would have had to be shared with the FAD before the report was finalised.

At all events, it is clear from an email of 22 January 2008 from Mr Lyons to Mr Taylor that the FAD was becoming impatient for a response to a request for a meeting with Mr Taylor to discuss his clients’ position. On 29 January 2008, during a review of disclosure files at SJ Berwin’s offices, Mr Dooley identified the Watamu bank statement referred to in the previous paragraph. Mr Lyons says that around the same time, he learnt from the Bank that the FAD was keen to know what, if any, corrupt payments were paid to employees of the Bank and discussed with Mr Taylor the need for the third defendant to come clean on the subject. Mr Taylor was reluctant to allow his clients to reveal to the FAD that bribes had been paid by them and wanted to know what assurances the FAD would give his clients if this was revealed.

Mr Lyons discussed this with the Bank’s then head of the legal department, Mr Al Shamsi, who said that whilst the FAD might be prepared to give assurances, it was highly unlikely they would be in writing. It was arranged for Mr Taylor to meet FAD on 8 February 2008. Prior to the meeting, the FAD made clear that they wanted access to the second and third defendants’ documents immediately after the meeting. As Mr Taylor recorded in an email to Mr Lyons after the meeting and confirmed in his oral evidence, the FAD were suspicious of the RSA, which one of them described as a money laundering document. Mr Taylor could not get even a verbal assurance about immunity and there were unsubtle hints about dire consequences if his clients did not provide information to the FAD. He feared they were pursuing an ill-conceived witch hunt against the then chairman of the Bank, Mr Kharbash, who had had a close relationship with Mr Nil senior and about whom there were rumours in Dubai that he was about to be dismissed.

In the light of the fact that Mr Taylor did not receive any assurances from the FAD, the third defendant continued to refuse to provide any disclosure concerning bribes paid to the Bank’s employees. However, as Mr Lyons explains in his witness statement, he and Mr Taylor were conscious that the demand for information by the FAD, if not met, could lead to the arrest of the second and third defendants. Accordingly, during the spring of 2008, there were discussions between them and Howes Percival about a basis upon which the fourth defendant could provide the necessary disclosure, in return for the Bank releasing CCH International Plc from its guarantee under the RSA. This came to nothing, although I have no doubt the fourth defendant was well aware that bribes had been paid and to whom, despite his unimpressive denial of this in his oral evidence.

In the event, no disclosure had been made by the second to fourth defendants of the bribes paid and to whom they had been paid, by the time that, according to Lt Col Belhaul’s evidence to the Public Prosecutor, the case was transferred by the police and the FAD to the Public Prosecutor in May 2008. The arrests ensued. Whether the Bank procured or was responsible for those arrests is a matter I will consider in the next section of the judgment.

Much was sought to be made by the defendants of the fact that in the first half of 2008, there was a change in the senior management of the Bank and, so it is alleged, appointees of the Government took over, leading to a change of attitude towards the RSA and a desire to extricate the Bank from it. The particular focus was on two individuals. First, Mr Al Shaibani, who is well known for his hard line stance on fraud and who returned to Dubai from London in January 2008 to take up post as Director General of the Diwan, as well as becoming non-executive chairman of the Bank in place of Mr Kharbash on 9 March 2008. The suggestion that he was also head of State Security is unsupported by any evidence and appears to be pure assertion on the part of Mr Fitzwilliam. Although the defendants seek to categorise his appointment as demonstrating that the Bank now wished to extricate itself from the RSA because the new senior management did not approve of the RSA, I was not shown any documentary or other evidence which suggested Mr Al Shaibani concerned himself with the day to day running of the Bank, including the administration of the RSA, which is not surprising for a non-executive chairman. Furthermore, there is simply no evidence that, as Chairman of the Bank he influenced the course of an investigation by the FAD into the CCH fraud and the payment of bribes to Bank employees, which had clearly begun before he returned from London and became Chairman.

The other individual was Mr Al Hamli. Although he did not become chief executive officer of the Bank until September 2008, he was clearly a senior and influential official within the Bank in the first half of 2008, even if, as Mr Al Sharif said in evidence, his official position was head of IT. Mr Mallin invited the Court to draw an adverse inference from the fact that Mr Al Hamsi had not been called as a witness for the Bank. Certainly in relation to what he said to the fourth defendant at their meeting in Istanbul on 10 June 2008, the day after Mr Fitzwilliam was arrested, Mr Mallin has a point and, as set out in more detail below, I consider that Mr Al Hamli did indicate to the fourth defendant that he did not personally think much of the RSA, which he clearly did not.

However, in my judgment that is one man’s view, however influential, and does not elevate him to some sort of eminence grise who was able to dictate the Bank’s policy. What it does demonstrate is that there were two schools of thought within the Bank about the RSA and Mr Al Hamli was very much in the school which did not like the RSA. It simply does not follow that what Mr Al Hamli said represented a change of policy within the Bank, which now did not intend to honour the RSA. Irrespective of what he said, as the Bank’s lawyers Al Tamini made clear in their letter to Howes Percival of 15 June 2008, the Bank intended to continue to honour and comply with the RSA. Although the defendants’ case is that such statements were false and that the Bank was intending to disregard the RSA, in my judgment there is no evidence to support that contention.

Rather, it seems to me that, whilst there was a souring of relations between the Bank and the defendants in the first half of 2008, the reason for that was not so much the change of personnel at the top of the Bank, but more the reasons Mr Lyons gives in his witness statement (in a section headed “The souring of relations”) on which he was not challenged. Essentially he makes the point that, whilst it is correct that US$60.4 million had been recovered, that had been in the first few months after the RSA was signed and nothing had been recovered since. By the beginning of October 2008 when 365 days after the Effective Date would be reached, a further US$70 million would be due to be repaid and the Bank had little confidence in that happening. In particular, although the second and fourth defendants had warranted at clause 15.12 of the RSA that to the best of their knowledge and honestly held belief the value of the CCH Agency Receivables that could be recovered was US$150 million, by early 2008, none of the Turkish receivables (which represented about US$90 million of that figure) had been recovered. I regarded the fourth defendant’s attempt in cross-examination to suggest that he was only warranting the face value of the receivables as patently untrue. Clearly he was warranting what could be recovered.

The extent to which that warranty would not be complied with emerged at a meeting in Bahrain on 18 March 2008 between the second, third and fourth defendants, Mr Taylor and Mr Flannery of Howes Percival on the one hand and Mr Al Shamsi, Mr Lyons and Mr Dooley on the other. It became apparent that the Turkish receivables were highly unlikely to be recoverable because most of the debtors were distressed. It was agreed that the performance of the RSA might still be possible with a concerted effort by the second, third and fourth defendants, but that there was now very little room for error. At that meeting, the third defendant also gave assurances that further receivables could be collected from Bills Express in Australia. However, in a conference call on 29 April 2008, he disclosed that US$14 million of receivables could not be collected from Bills Express after all, despite the previous assurance. As Mr Lyons says this increased the Bank’s concerns about the ability of the second, third and fourth defendants to continue to perform under the RSA.

Mr Lyons’ recollection (which was not challenged in cross-examination) is that matters were sufficiently serious that he and Mr Taylor had discussed what he describes as the “near miss” provisions in clause 18.1(a), under which three months was given to cure payment defaults, and the situation was sufficiently serious that Mr Taylor had already suggested to him that the RSA itself might need to be rescheduled to avoid a default. All of this paints a very different picture from the one which Mr Mallin sought to portray, of there being no question of default because US$60.4 million had been repaid at that stage, a position which is fundamentally misconceived in the context of non-payment of the Plantation Villa Proceeds for the reasons given later in the judgment in the section on Event of Default.

As Mr Lyons also says, the spring of 2008 was taken up with trying to finalise security arrangements that the second defendant and Plantation were obliged to provide to the Bank under the RSA, specifically the second defendant’s shareholding in Kifalu, a Bahraini company and Kifalu’s shareholding in Interstate, the Bahrain holding company, in relation to which progress was slow. The concerns of the Bank about this slow progress were conveyed by Hogan Lovells to SJ Berwin in a letter of 11 April 2008. However, by 15 May 2008 the Bahrain security documents had been agreed and were simply awaiting signature, the Bank being in the process of granting its Bahraini lawyers a power of attorney to sign on its behalf. In that context I agree with Mr Anderson QC that the arrest of the second defendant on 21 May 2008 was extremely inconvenient for the Bank, since it meant that those security documents were never perfected. This militates strongly against the Bank having procured the arrest, a matter to which I return in more detail in the next section of the judgment.

It is in the context of the legitimate concerns of the Bank that the second, third and fourth defendants would not perform or would not be able to perform their obligations to make repayment under the RSA, of which Mr Lyons speaks in his witness statement, that Al Tamini were instructed by the Bank, as Mr Al Hamrani of that firm described in his evidence, to look for loopholes in the RSA, in the sense of areas where there was default by the other parties. Mr Al Hamrani thought those instructions were in November 2007 but I consider he must be wrong about that and prefer the evidence of his partner Mr Jody Waugh that the firm were instructed in May 2008. Mr Mallin sought to portray this as somehow sinister, supporting a case that the Bank was seeking to get out of the RSA and not honour it. I do not see the instruction of Al Tamini to look for loopholes in the RSA as in any sense sinister. It is perfectly normal for commercial parties to seek legal advice on ways of extricating themselves from contracts that, for whatever reason, have become disadvantageous, not by breaching the contract but by seeking advice on whether there has been a breach by the other party.

Accordingly, in my judgment, there is nothing untoward in the Bank having sought legal advice as to whether there had been an Event of Default and, if there had, in serving notice to cure the default and then, if the default was not cured, seeking to enforce against security available under the RSA to the extent permissible. Far from that being a breach of the RSA, that is the Bank relying upon the provisions of the RSA intended to give it protection, if there was a default under the RSA by the other parties to it.

The position might well be different if the Bank procured the arrest of the second and third defendants and Mr Fitzwilliam and thereby deliberately put it out of the power of the individuals to perform their obligations under the RSA. As Lewison on Interpretation of Contracts (5^th edition) puts it at [6.14]: “In general a term is implied in the contract that neither party shall prevent the other from performing it”. However, for the reasons set out in the next section of the judgment, I do not consider that the Bank procured the arrests and, even if it did, I do not consider that the arrest of Mr Fitzwilliam was causative of Plantation’s failure to cure the default in relation to the Plantation Villa Proceeds.

Furthermore, contrary to the second defendant’s case, there is no question of the Bank failing to perform its obligations under the RSA prior to the time when it served notices of default. I agree with Mr Anderson QC that the Bank was prepared to and did offer Plantation and Mr Fitzwilliam the Standby Loan Facility and the allegation that there was a repudiatory breach of the RSA by the Bank in failing to lend to Plantation is unsustainable. To begin with, since under clause 11.1 of the RSA, provision of the Standby Loan Facility was always subject to such consideration, based on due diligence of the Plantation Project, as a commercially reasonable lender would be expected to have, there was no obligation on the Bank to lend to Plantation. In fact, pending formal financing being put in place, in February 2008 the Bank agreed to purchase one of the Plantation Villa plots for AED12 million in order to tide Plantation over and make funds available to pay contractors and staff. The Bank was under no contractual obligation to make that purchase.

So far as concerns the steps in fact taken by the bank to provide the Standby Loan Facility, during the spring of 2008, the Bank and Plantation negotiated the terms of a facility agreement. Mr Fitzwilliam originally objected to the pricing so the Bank reduced the cost of the facility, initially from 12% to 10% then ultimately to 8%. On 13 April 2008, the Bank sent Plantation a letter offering a facility of AED169 million (equivalent to US$50 million), subject to certain terms and conditions, including a number of conditions precedent. Mr Fitzwilliam signed this in agreement to its contents, terms and conditions on 7 May 2008 before any arrests took place, so that there is no question of Plantation or the defendants being able to contend that the terms being offered were unacceptable. The evidence of Mr Waugh (which was not challenged by Mr Mallin in cross-examination) was that a number of conditions precedent were not satisfied, specifically Plantation did not provide an Approved Master Plan (condition (a)), there was no evidence that the Firmed Built-Up areas were approved by Dubai Land (condition (c)) and an escrow account for Phase 1 had not been opened (condition (h)). Because those conditions precedent had not been satisfied, the money was not advanced.

The second defendant was arrested at Dubai airport on 21 May 2008. Mr Mallin relied upon a Minute of an Investigation dated 23 May 2008 started by Mr Al Zarouni, Assistant Public Prosecutor in the Public Prosecutor’s office. This refers to the second defendant’s arrest and states that that day they had received a file from the General Directorate of State Security at Police Headquarters relating to three individuals accused of fraud, the second, third and fourth defendants. The Minute says that, upon reviewing the documents they contained a case report issued by the General Directorate of State Security “concerning a complaint by [the Bank] for being defrauded by submitting forged papers”. Mr Mallin submitted that this supported the case that it was the Bank which had orchestrated the arrest of the second defendant. In my judgment it does nothing of the kind. The file which the Public Prosecutor received is clearly the case file which Lt Col Belhaul said the joint investigation team of the FAD and the police handed to the Public Prosecutor in May 2008 and reading the Minute in full makes that clear. Nothing in the Minute suggests that it was the Bank, as opposed to the FAD and the police, which conducted the investigation or decided to arrest the second defendant. The reference to the case file “concerning a complaint by the Bank” is consistent with the Bank being the victim of the fraud and therefore, in one sense, the complainant, but it does not begin to demonstrate that the Bank was actively seeking the arrests.

The third defendant was arrested in Dubai on 27 May 2008. A letter was sent the following day, 28 May 2008, by the General Directorate of State Security to Mr Al Zarouni, Assistant Public Prosecutor, in relation to the receipt of bribes by Mr Marooj. This states:

“We were supplied information from the Financial Audit Department that [Mr Marooj] received monetary transfers from CCH … In addition, the information [from FAD] provides that he was aware of the fraudulent transactions and false invoices that were provided to Dubai Islamic Bank.

Based on your request, we refer [Mr Marooj] to you and attach the previous incident report, the permission of the prosecution and the investigation report conducted with [Mr Marooj] by the Financial Audit Department of the Ruler’s Court so you may complete your necessary legal procedures”

Mr Marooj was then arrested either the same day or the following day. It is clear from the letter that he was arrested as a result of the investigation by the FAD and the police, who reported their findings about the case to the Public Prosecutor, as Lt Col Belhaul said they did in his evidence in the criminal prosecution. I accept Mr Anderson QC’s submission that there is no reason to think that the arrests of the second and third defendants and Mr Fitzwilliam resulted from any different course or procedure.

The Bank placed particular reliance in this regard on a lengthy letter dated 15 June 2008 from Mr Amiri (the Director General of the FAD whom Mr Taylor had met at his meeting with the FAD in February 2008) to Mr Al Zarouni in the Public Prosecutor’s office. That letter was headed: “The use of funds embezzled from the Dubai Islamic Bank to Finance Plantation Holding Project, Dubai Land”. It then went on to describe in detail how pursuant to Law No 3 of 2007 and the FAD audit of the accounts of the Bank it had discovered that the Plantation Project had been funded by the sums embezzled from the Bank in the CCH fraud. In the third numbered paragraph, Mr Amiri says:

“It was found out that CCH-GMBH Company, the Bank’s agent, had carried out fictitious operations through fictitious Murabaha through investing the Bank funds in some projects for the agent and by parties related to it … and the matter was referred to the Public Prosecution in case no. 12842 of 2008.”

At the end of the letter, Mr Amiri says this:

“Whereas the incident in this respect constitutes a financial violation that falls under the provision of Article 19 of Law No. 3 of 2007 on Establishing the [FAD] and whereas this violation involves a criminal offence, and in accordance with Article 20 of this Law, it was decided to refer the matter to the Esteemed Public Prosecution to take the necessary procedures in accordance with the provision of the law.”

That is an express reference to the obligations imposed on the FAD (and not the Bank) by Law No. 3 of 2007 to investigate financial irregularities, including embezzlement and to report any criminal offence uncovered in such an investigation to the Public Prosecutor. I agree with Mr Anderson QC that that letter, coming as it does from the head of the FAD, makes it clear that it was the FAD and not the Bank which investigated the fraud on the Bank and which reported the part of the alleged perpetrators of the fraud, including Mr Fitzwilliam, to the Public Prosecutor.

To like effect is the evidence given by Mr Kamel, the Auditing Director of the FAD, in the criminal trial. He described how the FAD found out about the RSA during its audit of the Bank’s accounts and operations in October 2007, how they had gone on to examine all transactions related to CCH and how they had discovered that Mr Mooraj and Mr Usmani had received “commissions” from the third defendant. He testified that the FAD had submitted a report outlining their findings that the Bank had been defrauded of US$501 million.

The second and third defendants rely upon a number of documents in addition to the Minute of an Investigation to which I have already referred. First, they rely upon a Standing Notice produced by the Directorate General of Criminal Investigation at Dubai Police Headquarters dated 3 June 2008. That states: “On 02/06/2008, we received a file referred to by the Directorate General of State Security regarding a report of Fraud under a complaint filed by [the Bank]. Attached to the file was a report of investigations conducted by the Public Prosecution Service, the defendants being [the second to fourth defendants, Mr Mooraj, Mr Usmani and his brother]”. It goes on to set out a summary of how the fraud was perpetrated and concludes; “Accordingly, the facts have been recorded in a Criminal Notice. [The second and third defendants and Mr Mooraj] have been held in custody pending trial, and the search is under way for the others.”

Once again, the second and third defendants rely upon that reference to a complaint filed by the Bank as demonstrating that it was the Bank which was behind the arrests and the prosecutions. As with the Minute of Investigation, it seems to me this is reading far too much into the document. It is clear that the case was referred to the Directorate General of Criminal Investigation not by the Bank but by the Directorate General of State Security who also passed on a report from the Public Prosecutor, no doubt following the matter being referred to the Public Prosecutor by the police and the FAD in May 2008. I suspect that reference to the complaint filed by the Bank is reflecting the fact that it was the Bank which was the victim of the fraud, but even if there was a formal complaint by the Bank, there is simply nothing in this document to suggest that it was that complaint which caused the FAD and the Directorate General of State Security to pass the file to the Public Prosecutor. On the contrary, I suspect whatever the Bank said or did, the FAD was always going to report the fraud to the prosecuting authorities and press for arrests and prosecutions.

The second and third defendants also rely upon the judgment of the Court of Cassation dated 26 February 2011, allowing in part the defendants’ appeal against the decision of the Court of Appeal upholding the convictions and remitting the matter to the Court of Appeal. In a somewhat impenetrable translation, the Court of Cassation is reported as saying: “the defendants did not fulfil their obligations under the RSA and this led the Bank to submit its complaint.” However, given that the Bank was the partie civile in the criminal prosecution because under the Dubai criminal procedure the victim of the crime can pursue a civil claim or complaint in the criminal prosecution, it seems to me that it is far more likely that the complaint being referred is the Bank’s civil complaint rather than a criminal complaint. In any event, this somewhat oblique reference goes nowhere near establishing that it was the Bank which procured the arrests.

Finally the second and third defendants rely upon an exchange between their lawyer in Dubai Mr Al Ali and the Public Prosecution in May 2013. Mr Al Ali made a written application dated 28 May 2013 requesting that a certificate be issued providing that on 1 June 2008 [the second defendant] “became wanted based on a complaint made by the [Bank] stating that he had committed a fraud and appropriated monies of third persons and therefore he was arrested on 21 May 2008 and that he was referred to the Court”. A certificate was issued by Mr Shareef in the “Transactors Care Department” which states; “The Dubai Public Prosecution states that on 01/06/2008 the [Bank] filed a criminal complaint No. 9588/2008 (Bur Dubai) against [the second defendant] and others. The complaint was registered with the Public Prosecution under number 12842/2008 (Criminal) and it was referred to the Dubai Criminal Court.”

There are a number of problems with placing much, if any, reliance on this document as evidence that it was the Bank which procured the arrest of the second and third defendants. To begin with, as Mr Al Hamrani pointed out in evidence, the Transactors Care Department is the counter section, so that Mr Shareef is in effect a senior clerk and not a member of the prosecution team who would have detailed knowledge of the case. In any event, even taking the certificate at face value, if the Bank filed this criminal complaint on 1 June 2008, that can hardly have led to the arrests which occurred prior to that, on 21 and 27 May 2008. Next, the complaint number 12042/2008 is not a complaint filed by the Bank but the criminal complaint referred by the FAD to the Public Prosecutor, as stated in Mr Amiri’s letter. Finally, after receipt of the certificate, the Bank filed a request at the Transactors Care Department for a copy of the criminal complaint said to have been filed by the Bank, only to receive the puzzling response that there was no such complaint on the Public Prosecutor’s file.

Mr Mallin complained about the fact that the documents which demonstrate clearly that it was the FAD and the police and not the Bank who reported the case to the Public Prosecutor and who could therefore be said to have procured the arrest and prosecution of the second and third defendants and Mr Fitzwilliam (namely the letter from the Directorate General of State Security of 28 May 2008, the letter of 15 June 2008 from Mr Amiri and the transcripts of evidence from the criminal trial), emerged very late in the day as attachments to the third witness statement of Mr Al Hamrani, dated 3 October 2013, just before the trial began. According to Mr Al Hamrani, these documents were available to all the lawyers in the criminal case, but were apparently confidential, so that it would be a criminal offence, punishable by five years imprisonment, to disclose them publicly. I found Mr Al Hamrani’s explanation in his evidence as to why he had risked prosecution now whereas he had not done so previously, namely that he wanted this Court to have the truth in answer to Mr Al Ali’s statement, somewhat unconvincing, but at all events, no-one suggested on behalf of the second and third defendants that these documents were not genuine.

Mr Mallin also complained that the Bank had failed to call to give evidence any of the senior management who might, on the second and third defendants’ cases, have been involved in procuring the arrests. I did not consider that the Bank could be seriously criticised for not producing witnesses to prove a negative when, even on the documents relied upon by the second and third defendants, there is no contemporaneous documentary proof that it was the Bank which procured the arrests.

Mr Mallin also relied upon the so-called “cash for freedom” negotiations which ensued after the arrests. Mr Taylor of SJ Berwin went to Dubai and met both the FAD and senior representatives of the Bank at separate meetings. Mr Taylor was understandably vague in his evidence, seeking to recall events more than five years ago, as to in what order events took place and agreed that the contemporaneous emails and letters were the best guide to what was happening at the time. Following a meeting with the FAD on 25 May 2008, Mr Taylor requested a meeting with the Bank which took place the following day. This was attended by Mr Al Kamda, the chief executive officer and Mr Nidal Shomali, head of collections, together with Mr Waugh and Mr Al Hamrani of Al Tamini. Mr Taylor’s evidence was that he referred to the arrest of the second defendant as state kidnapping which did not please Mr Al Kamda, who said that the Bank was honouring the RSA. The evidence of both Mr Al Hamrani and Mr Waugh was that Mr Taylor accused the Bank of having engineered the arrest and threatened to bring a claim against the Bank and that the representatives of the Bank made it clear to Mr Taylor that it had not been behind the arrest.

Mr Waugh’s evidence was that Mr Al Kamda said to Mr Taylor that all that the Bank wanted was repayment of the Rescheduling Amount and Mr Al Hamrani’s recollection was that Mr Al Kamda said that, in that event, the Bank would inform the authorities that it had suffered no loss. However the Bank said that it could not influence any criminal proceedings by the authorities in Dubai, a point repeated by Al Tamini in their letter of 4 June 2008. Mr Mallin sought to pour scorn on this in his cross-examination of Mr Al Hamrani, suggesting that the Bank and the Government could be equated. However, in my judgment, this attempt to equate the Bank with the Government of Dubai, as some sort of monolithic entity, is misplaced. The Government is only a minority shareholder in the Bank, owning a 30% shareholding. It is striking in that regard that Mr Taylor fairly accepted in evidence that it was an “assumption” on his part that the Bank was behind the arrests and that the Bank and the Government were “hand in glove”.

It appears from the contemporaneous emails that either at the meeting on 26 May 2008 or immediately afterwards, Mr Taylor said he would prepare an offer in writing in relation to repayment which he would submit to Al Tamini. Mr Waugh responded on the morning of 28 May 2008 saying they were happy to receive his note but had no instructions or mandate to act. Mr Waugh said it was probably best to discuss the matter with the senior partner of the firm, Essam Al Tamini. He was in Qatar at the time and so Mr Waugh gave Mr Taylor his mobile number. Mr Taylor’s evidence was that he then spoke to Mr Al Tamini on the telephone for no more than five minutes and discussed the possibility of an offer of repayment in return for the release of the second and third defendants. Mr Al Tamini advised him to put some terms on paper and send them to Mr Al Tamini who would see what he could do.

Mr Taylor then sent an email later on 28 May 2008 headed “Term sheet” which set out a proposal for, inter alia, the second and third defendants to be released on bail, with statements and documents to be produced within seven days verifying payments made to the Bank’s employees, then within fourteen days heads of terms to be reached to amend the RSA, to include an option for Mr Fitzwilliam to pay US$200 million to release Plantation as security and a charge in favour of the Bank for US$50 million over Marina West, a development in Bahrain owned by the second defendant, but to rank behind KFH. He proposed that on execution of the amendment agreement and perfection of the security, the criminal charges be withdrawn.

Mr Al Tamini then discussed the proposals with the Bank, following which Mr Al Hamrani told Mr Taylor that the Bank was not prepared to talk unless Mr Taylor could come up with the money and the disclosure. Mr Taylor sent Mr Waugh an email on Sunday 1 June 2008 following that conversation with Mr Al Tamini, pointing out he could not come up with anything absent his clients, but he was working relentlessly to ascertain the best practical outcome. He said he had set a target of full repayment of the Bank within 12 months and the only way that could be realistically achieved was US$250 million from an equity sale of a stake in Plantation, US$60 million from an equity disposal of Bahrain properties and US$150 million from an equity sale of the refinery. He asked Mr Waugh to get him a meeting with the chairman and CEO of the Bank before his return to London so he could demonstrate in the first place why the proposal was not fanciful. Mr Taylor said in evidence that the US$250 million represented the second and third defendants’ 30% share in Plantation and he had discussed this with Mr Fitzwilliam. However, his email does say that none of this could be achieved without the cooperation of the Bank and the Bank exerting pressure on Mr Fitzwilliam in particular, which suggests that Mr Fitzwilliam may not have been entirely receptive to Mr Taylor’s proposal.

Mr Taylor followed that email with a letter on 2 June 2008 to Mr Lyons and Mr Dooley at Hogan Lovells, copied to all three partners at Al Tamini and to Mr Al Kamda, Mr Shomali, Mr Al Shaibani as well as Mr Amiri of FAD and Mr Al Zarouni the Public Prosecutor (in an effort to facilitate access to his clients). The letter referred to the Bank’s obligations of cooperation under the RSA. It asked again for an urgent meeting with the most senior officers in the Bank. It also referred to the possibility of an application to the English High Court for injunctive relief against the Bank and stated that any entitlement the Bank had to enforce security under the RSA was predicated upon the Bank not having materially contributed to any alleged Event of Default by breaching its own obligations under the RSA.

Mr Taylor followed up that letter with a letter of 3 June 2008 to Mr Al Tamini, copied to Mr Lyons and Mr Dooley and the same individuals at the Bank, the FAD and the Public Prosecutor’s office as before. In this second letter he called on Mr Al Tamini to contact him with a substantive response and reserved the second and third defendants’ right to elect to treat the Bank’s conduct as a repudiatory breach of the RSA.

The response of the Bank to those two letters was set out in a letter from Al Tamini of 4 June 2008 which confirmed that the firm only acted for the Bank, that the Bank had no involvement in the detention of the second and third defendants, was unable to interfere in the criminal proceedings and was unable to influence any decision of the Public Prosecutor. The letter stated that the Bank had complied and would continue to comply with the terms of the RSA and was not in breach of the terms of the RSA. It then went on to state that the Bank had been understanding and to a certain extent lenient with regard to the third defendant’s continuing failure to give disclosure, in breach of his disclosure obligations under the RSA, specifically his repeated failure to give an explanation for the hole of US$20 million between the sums remitted to him by companies controlled by the second defendant and the sums he had expended, an issue which Mr Lyons had repeatedly raised. As the letter stated, the third defendant apparently had no intention of providing that information (in other words details of what bribes had been paid and to whom within the Bank) and as a result was manifestly in breach of his obligations under the RSA. Other extant breaches were specified. The letter gave him formal notice that he was in breach and stated that if the breach was not remedied within 15 business days, the Bank would demand that the third defendant repay the balance outstanding under the RSA and take enforcement action against him.

That letter is thus the first of the two “cure” notices served by the Bank (the other being the one served on Plantation on 9 June 2008 referred to below). That letter provoked the response from Mr Taylor, in a letter of 6 June 2008, that the third defendant was in custody and that his obligations of disclosure were suspended during his incarceration. Mr Mallin was highly critical of the Bank for serving this notice, which he submitted demonstrated its bad faith. There would be more force in that point had the Bank actually relied upon those breaches of the RSA as an Event or Events of Default entitling the Bank to accelerate repayment of the Rescheduling Amount under clause 18.4. However, the Bank did not. It was the breach by Plantation in failing to pay over the Plantation Villa Proceeds upon which the Bank relied as justifying acceleration. Furthermore, whilst it is true that the third defendant was not in a position to remedy his breach since he was in prison, the fact remains that he was undoubtedly in breach of his disclosure obligations under the RSA from at least the time of the meetings with Hogan Lovells in November 2007 onwards, long before he was arrested, in failing and refusing to disclose precisely what bribes had been paid and to whom.

I have concluded that the so-called cash for freedom negotiations do not support the second and third defendants’ case that the Bank procured their arrest and prosecution. It is striking that Mr Taylor, who had contemporaneous dealings on their behalf with the Bank and its lawyers, was not able to give evidence that the Bank was behind the arrests. He also fairly accepted that he could not give evidence as to whether people within the Bank supported the FAD, because all he could speak to was hearsay and rumour.

Mr Fitzwilliam was arrested on 6 June 2008 at Dubai airport. Mr Mallin sought to rely upon the assertion in Mr Fitzwilliam’s witness statement that he had informed Mr Adel of the Bank of his plan to fly to London to secure the sale of a 30% shareholding in Plantation for US$600 million, in support of his submission that the Bank were behind this arrest as well. I have already referred to the difficulty in any reliance being placed on Mr Fitzwilliam’s statement when he has resiled from it, but in my judgment even if one accepts at face value what Mr Fitzwilliam says, it provides very slender support indeed for the serious allegation that the Bank was responsible for his arrest. As I have said already the contemporaneous documentary evidence, particularly the letter of 15 June 2008 from Mr Amiri to the Public Prosecutor, points very strongly to it being the FAD which investigated the case against Mr Fitzwilliam and reported its findings to the Public Prosecutor, so that to the extent that anyone other than the Public Prosecutor procured his arrest, it was the FAD and not the Bank.

There are other matters which also point away from the Bank having procured the arrest of Mr Fitzwilliam. To begin with, if the Bank had really known that he was on the way to London to sell a shareholding in Plantation for US$600 million, the inference that the defendants invite the Court to draw that the Bank then decided to thwart that sale by having Mr Fitzwilliam arrested, apparently so that the Bank could enforce against Plantation, makes absolutely no commercial sense. That is all the more so given that, at the end of May 2008, only days before the arrest, as is clear from the correspondence between Mr Taylor and Al Tamini confirmed by Mr Taylor’s own evidence, the Bank was indicating an unwillingness to talk to the second and third defendants, unless there was a proposal for repayment of the outstanding Rescheduling Amount. If Mr Fitzwilliam’s evidence about the US$600 million were true, it is inconceivable that the Bank would not have seized on that whole heartedly, as a means of obtaining complete repayment of the outstanding amount quickly. The Bank would hardly have preferred having Mr Fitzwilliam arrested in order to enforce against Plantation, the sale of which might take some time in circumstances where, since the RSA is governed by English law, any sale proceeds in excess of the outstanding Rescheduling Amount would be payable to Plantation anyway.

Furthermore, as Mr Anderson QC pointed out, internally the Bank was still considering the documentation required to progress the Standby Loan Facility to Plantation as late as 4 June 2008, which is hardly consistent with a desire on the part of the Bank to get out of its obligations under the RSA by having Mr Fitzwilliam arrested. As Mr Anderson QC said and I have already noted, if these arrests were all part of some overall plan on the part of the Bank to get its hands on the ultimate prize of the Plantation land, as the defendants suggest, and the arrest of Mr Fitzwilliam was part of that plan in order to ensure that there was default by Plantation, the Bank would surely have procured his arrest first before the second and third defendants or, at least, before serving the first cure notice, lest he try to leave Dubai without passing through the airport.

Mr Mallin sought to address that point by referring to the fact that there seems to have been a Preventative Detention Order directed to the police to detain Mr Fitzwilliam for the period 9 to 15 April 2008, on charges of fraud and appropriation of others’ money, although he was not detained in that period (this apparently tying in with Mr Fitzwilliam’s own assertion that he was eventually arrested on an expired warrant). Mr Mallin submitted that this demonstrated that the Bank had sought to have Mr Fitzwilliam arrested in April 2008, in other words before the second and third defendants. In my judgment it demonstrates nothing of the sort. The Preventative Detention Order is issued by the Public Prosecutor’s office which ties in with the other evidence that it was the Dubai public authorities and, specifically, the FAD and the Public Prosecutor who were looking to arrest and prosecute Mr Fitzwilliam. Furthermore, the suggestion that the Bank was looking to arrest Mr Fitzwilliam on 9 April 2008 makes no sense at all, given that the letter offering the Standby Loan Facility for the equivalent of US$50 million was issued to Plantation on 13 April 2008.

Although Mr Mallin sought to rely upon the timing of the second “cure” notice dated 9 June 2008 calling on Plantation to cure its default in failing to pay over Plantation Villa Proceeds to the Bank, coming as it did on the Monday after Mr Fitzwilliam’s arrest on the Friday, as confirmation that this was all part of the overall plan to which I referred above, I do not consider that either the sending of the notice or its timing support the case that it was the Bank which procured the arrest. It is clear (as I set out when I deal with this cure notice in more detail later in the judgment) that the Bank had asked Plantation for financial information about the sales of villa plots and received legal advice about breach by Plantation of clause 7.2(d), before the arrest took place so this was an ongoing process.

Furthermore, the internal email exchange between Mr Nidal Shomali head of the Collection Department and Mr Al Sharif and others including Mr Al Kamda, the Chief Executive Officer on 13 July 2008, evidently in readiness for the resumed hearing before Tomlinson J on 14 July 2008 concerning the continuation of the injunction obtained by the second and third defendants (to which I refer in more detail below) also supports the Bank’s case that it was not involved in the arrest. Mr Shomali wrote:

“Please find below statements that DIB needs to make today with regards to the below 2 points:

•

With regards to point 1, I don’t have in my records that DIB has filed any complaint against any of the CCH parties or Arthur, also I have double checked that with Mr Abdulla Al Hamli through Mr Al Sharif and the answer was negative. I am checking with Tamini if they have lodged any case. Please let me know if there is any information that you would like to let me know about on this..

•

With regards to point 2, it is a tricky one as we have been dealing with the Diwan on the case and I don’t know if we have been in touch with the prosecutor or any authorities with regard to the CCH. I need information on this.”

For whatever reason, the email or other document setting out the two points is not available but the context suggests that point 1 was a question about whether the Bank had filed a complaint and point 2 was a question about whether the Bank had been in touch with the Dubai authorities about the matter. Mr Shomali’s email confirms, as I read it, that the Bank had been dealing with the FAD, as indeed it had, as it was obliged to do, but had neither filed a complaint nor been in direct contact with the Dubai Public Prosecutor.

The response of Mr Al Sharif confirms that reading:

“As confirmed to you verbally and to the best of our knowledge DIB or its officials had no contact with the prosecutor or any authorities with regard to CCH. I understand that now there is a case with the Public Prosecutor; however, we are unaware of the party who has filed it.”

It would have required a level of deviousness of which, in my judgment, the officials of the Bank would have been incapable, to have sent that exchange if the truth were that the Bank had filed a criminal complaint and was acting “hand in glove” with the Public Prosecutor.

My overall conclusion in relation to the arrests and prosecutions is as follows. The overwhelming weight of the documentary evidence, confirmed by the evidence of Lt. Col. Belhaul to the Public Prosecutor, is that it was the FAD and Dubai State Security (not the Bank) which provided the report and file to the public prosecutor setting out the results of the investigation which the FAD had been conducting since the autumn of 2007. In other words, to the extent that anyone other than the Public Prosecutor’s office itself procured the arrests, it was the FAD, not the Bank. In due course, based on the investigation the FAD had conducted, prosecutions of those individuals ensued.

I consider that the most likely explanation for the reference in the documents relied upon by the second and third defendants to a complaint by the Bank is either that the Bank did make a “complaint” to the FAD about employees accepting bribes (about which it was obliged to inform the FAD under Law No 3 of 2007) or that the reference to a complaint by the Bank is to be explained as the Bank being the victim of the fraud and subsequently the partie civile in the criminal proceedings. However, whatever the explanation for these references to the Bank making a complaint and even if the Bank did make some form of complaint to the police or the public prosecutor, in my judgment that would not have amounted to the Bank acting in bad faith vis-à-vis the other parties to the RSA. Given that the Bank was under a positive duty under Law No. 3 of 2007 to report any wrongdoing it discovered to the FAD, it cannot be criticised even if, in doing so, it was motivated in part by its own commercial interests. This conclusion essentially flows from or is akin to the principle which Mr Anderson QC relied upon, that no term can be implied into the RSA that the Bank would not report any wrongdoing to the FAD if it was required to do so, since such an implied term would be illegal and contrary to public policy: see by analogy William Cory & Son Ltd v London Corporation [1951] 2 KB 476 at 484 per Asquith LJ.

What is more, even if the bona fides of the Bank in that regard could be impugned, any complaint by the Bank was not causative of the arrest and prosecution of the second and third defendants and Mr Fitzwilliam, which were clearly procured and instigated by the FAD and State Security police. In other words, whatever the Bank said or did, the FAD and the police were going to press for the arrests and prosecution in any event.

Mr Al Sharif arranged for Mr Al Hamli (who was visiting Turkey at the time on other non-related business) to meet the fourth defendant on 10 June 2008. Mr Al Sharif’s evidence (which was not challenged) was that the purpose of the meeting was to emphasise the importance of the Bank making a full recovery against the assets in Turkey. The fourth defendant’s evidence was that at the meeting which took place at the Ciragan Palace Hotel in Istanbul, Mr Al Hamli said: “I am the Bank and the Government. I have not read the RSA and will not play by its terms. We will take all the assets of everyone irrespective of any agreements. Cornelius and Ridley are melted and will not walk away from prison”.

As noted above, Mr Al Hamli was not called to give evidence by the Bank, although he could have been and the closest the Bank gets to refuting this evidence of the fourth defendant is Mr Al Sharif’s evidence that Mr Al Hamli told him that he had not made any statements that would suggest the Bank was not intending to honour the RSA. It is not possible to place much weight on that evidence when Mr Al Hamli could have been called, but I suspect that the fourth defendant, whose evidence generally was unsatisfactory and evasive, was “gilding the lily” here and has exaggerated to a considerable extent what Mr Al Hamli may have said. That there has been exaggeration on his part is supported by the fact that when his solicitors Howes Percival wrote to the Bank’s Dubai lawyers Al Tamini the following day, 11 June 2008, they did not set out this detail but merely said the message the fourth defendant had received from Mr Al Hamli: “was radically different from any of Mr Nil’s previous meetings with any DIB executives”. I suspect that Mr Al Hamli said no more than that he did not personally think much of the RSA, which he clearly did not, but whatever he said, as I have already stated earlier, that cannot be elevated into being the policy of the Bank as opposed to his personal opinion and, in any event, in their response on 15 June 2008, Al Tamini stated that the Bank would continue to honour and comply with the terms of the RSA.

Furthermore, the inherent unlikelihood of Mr Al Hamli having deliberately disregarded the RSA and become personally involved in the arrest and prosecution of the defendants and Mr Fitzwilliam is demonstrated by two other pieces of evidence. First is the fact, recorded in the internal email exchange of 13 July 2008 to which I have referred above, that Mr Al Sharif had asked him in terms whether the Bank had made a complaint to the Public Prosecutor to which he received a negative response. If Mr Al Hamli had been responsible for procuring the arrests and prosecution, I can see no sensible reason why he would lie about it to his colleagues.

Second, there is his own evidence in the criminal trial. From that evidence, it appears that, whilst the board of the Bank of which he was not a member in August 2007 were aware of the fraud, they regarded the RSA as a “satisfactory solution”. He on the other hand did not, saying that he was not convinced by the RSA because it involved the Bank pumping money into the Plantation Project, which he regarded as paying the defendants again. However, he then says this:

“After that, the incident was discovered by the Financial Audit Department. The matter was scrutinized and referred to the authorities which investigated the issue and it was revealed that the bank was defrauded by CCH.”

Clearly, what he is describing is a reference to the prosecuting authorities by the FAD, not by the Bank or by him. Surely if he had been responsible personally for reporting the fraud to the prosecuting authorities and procuring the arrest of the defendants and Mr Fitzwilliam he would have wanted to take credit for that in his evidence at the criminal trial. In conclusion in relation to the meeting in Istanbul, I do not accept that Mr Al Hamli said what the fourth defendant now ascribes to him, nor do I consider that anything said at that meeting demonstrates that it was the Bank which was behind the arrests and prosecutions.

The defendants’ case is that the two cure notices served on 4 June 2008 and 9 June 2008 calling on the third defendant and Plantation respectively to cure Events of Default within fifteen working days were deliberately designed to ensure that the second and third defendants and Plantation could not perform their obligations under the RSA and that the Bank was thus enabled to enforce against the Plantation security. This point evaporates once it is concluded (as I have found above) that it was the FAD and not the Bank which procured the arrests. Thereafter, both as a matter of the law of contract and in commercial terms, it seems to me that the Bank cannot be precluded from serving contractual notices in respect of Events of Default under clause 18.1 of the RSA by the fact that its counterparties may not be able to cure the default and perform their obligations under the RSA, provided that the Bank has not itself prevented such performance by procuring the arrests.

I have already dealt with the first cure notice dated 4 June 2008 in the section of the judgment above on whether the bank procured the arrests. As noted, it relied on breaches of his disclosure obligations by the third defendant dating back to at least November 2007. Nonetheless, the Bank has not in fact relied upon that Event of Default as entitling it to accelerate repayment of the debt.

So far as the second notice dated 9 June 2008 is concerned, that was addressed to Plantation, care of Mr Paul Davies of Clifford Chance in Dubai. The first thing to note is that the information as to which villa plots had been sold by Plantation is information which had been provided by Plantation itself (“based on the financial information provided by Plantation to DIB”). This is a reference to a spreadsheet setting out the sales made and prices obtained sent by Suzanne Sutherland, the Project Development Manager of Plantation to Mr Nidal Shomali, head of the Collection Department of the Bank as an attachment to an email of 26 March 2008. Mr Shomali passed this on to Mr Waugh and Mr Al Hamrani of Al Tamini first thing on 9 June 2008, telling them it was the source of the Bank’s calculation.

The letter then sets out that the total sales of ten villa plots sold by Plantation in the period October 2007 to April 2008 were AED18,595,465.30 and that deducting US$150,000 per month for seven months, equivalent to AED3,856,650, the net amount of Plantation Villa Proceeds which should have been deposited with the Bank under clause 7.2(d) was AED14,738,815.30. The letter states that the failure to pay this amount over to the Bank was a breach of clause 7.2(d). The letter identified other breaches of the RSA by Plantation, specifically failure to register as a developer with the Real Estate Regulatory Authority (RERA) of Dubai pursuant to Law No. 8 of 2007, in breach of clause 16.1(f). The letter gave Plantation formal notice that it was in breach of the RSA and said that in the event that the breaches were unremedied to the satisfaction of the Bank within fifteen business days, pursuant to clause 18.4(a) the Bank would immediately make demand of Plantation for the outstanding restructuring amount under the RSA and then take enforcement action.

Before the letter was sent, the financial information contained in it and the amount outstanding had been checked by GIA of the Bank, as appears from internal email exchanges within the Bank on the morning of 9 June 2008, no doubt, amongst other things, to ensure that appropriate credit was given for the first US$150,000 of Plantation Villa Proceeds each month pursuant to clause 7.2(d). It is also clear from an email from Mr Shomali to Mr Kanan, head of GIA, timed at 06.33 on 9 June 2008 and the extensive redacted sections in that email (and the subsequent internal exchanges) that legal advice had been received by the Bank, presumably from Al Tamini and/or Hogan Lovells, about declaring an Event of Default in respect of the Plantation Villa Proceeds which Plantation had received and had not paid over to the Bank, in breach of clause 7.2(d). The second notice was sent by Al Tamini and obviously drafted by them, so that the Bank was clearly acting on that legal advice.

Mr Mostafa was taxed in cross-examination by Mr Mallin about one internal email of 9 June 2008 in this chain and, in particular, as to why he could not remember this email given that it was ostensibly sent out in his name. Mr Mallin sought to suggest his evidence was evasive. However, his evidence that this was not his email, but drafted by a team, is borne out by consideration of the full chain of emails. In any event, despite Mr Mallin’s suggestions to the contrary, the email is essentially innocuous and I suspect would have received no attention at all from the defendants, given that it is not suggested that GIA got their calculation of the Plantation Villa Proceeds collected wrong, had it not been for the request in one version of the email from Mr Kanan the head of GIA, to take care in drafting the conclusion. It is unclear what that meant and it would be unwise to read too much into it. I consider Mr Mostafa’s inability to recall the email after more than five years scarcely surprising and the email itself is not evidence of the Bank acting in bad faith.

Even if the Bank had procured the arrest of Mr Fitzwilliam so that it could be said that, to that extent, the Bank had acted in bad faith, if in fact there was an Event of Default under clause 7.2(d) at the time the letter was sent (and for reasons set out in a later section of the judgment I consider there clearly was), the Bank could only be precluded from relying upon that Event of Default to accelerate the debt subsequently, if it was in breach of an implied term not to prevent performance of the RSA by the defendants or Plantation. It would only be in breach of such an implied term if the defendants could prove, on a balance of probabilities that, with Mr Fitzwilliam and the second and third defendants in prison, it was not possible for Plantation to cure the Event of Default, so that it could be said that the Bank had engineered a default by the defendants and Plantation.

In my judgment, the defendants simply cannot demonstrate this and their defence on this part of the case founders on the rock of causation. There is simply no evidence that Plantation could not comply with clause 7.2(d) because Mr Fitzwilliam was in prison (let alone because the second and third defendants were). To begin with, the relevant proceeds were all received by Plantation in the period up to April 2008, before he was arrested and should have been paid over upon receipt, so that there were breaches of clause 7.2(d) before any of the arrests. Furthermore, although the defendants sought to portray Plantation as synonymous with Mr Fitzwilliam, incapable of operating in his absence, there is no evidence to support that picture. On the contrary, as Mr Anderson QC pointed out, there were five members of staff receiving salaries in excess of US$110,000 per annum, suggesting they were in responsible managerial positions. They included Suzanne Sutherland, who had been in correspondence with the Bank on financial matters throughout and who in due course provided SJ Berwin with instructions at the time of the hearing before Tomlinson J on 10 July 2008 referred to below. It is striking that, although the cure notice was sent to Mr Davies of Clifford Chance, who presumably drew it to the attention of Ms Sutherland and other senior managers in Mr Fitzwilliam’s absence, neither Mr Davies nor Ms Sutherland (nor any other senior manager) responded to Al Tamini or the Bank suggesting that it was impossible to remedy the breach of clause 7.2(d) because of Mr Fitzwilliam’s arrest.

Mr Fitzwilliam asserts in his witness statement that when he was arrested on 6 June 2008 he was (to the Bank’s knowledge) on the way to London to complete the sale of a 30% share in Plantation for US$600 million (more than the outstanding Rescheduling Amount). That assertion was repeated at the time of the joinder application on 13 September 2013 when it was said, for the first time, that the prospective buyer was a Mr Bacon. In view of the size and lucrative nature of this transaction, and even allowing for the fact that Mr Fitzwilliam is not a party to these proceedings and has now stopped cooperating, it is remarkable that not a single document has been produced by the defendants to support this assertion by Mr Fitzwilliam. If it had been true, surely Ms Sutherland or other senior management in Plantation would have known (and therefore, in all probability, Clifford Chance, their solicitors) so that, when the cure notice was served after his arrest, either senior management in Plantation or Clifford Chance or both would have responded to the effect that the Bank could not rely upon non-payment of the Plantation Villa Proceeds as an Event of Default because it had procured his arrest and prevented him going to London to clinch this lucrative deal which would have enabled the full Rescheduling Amount to be repaid. Yet there is no such response.

As Tomlinson J found at [34] of his judgment of 14 July 2008 refusing a continuation of the injunction obtained by the second and third defendants ex parte from Simon J (all dealt with in more detail below), a meeting took place at Al Tamini’s offices on 3 July 2008 with Mr Davies of Clifford Chance and representatives of Plantation, including Ms Sutherland. Mr Davies sought to explore possible solutions to the breaches of the RSA but Mr Al Tamini advised that the only solution was for the breaches to be rectified. There does not appear to have been any suggestion by Mr Davies that Plantation was inhibited from performance by the arrest of Mr Fitzwilliam.

The closest there is to a contemporaneous explanation or excuse for the failure to remedy the breach is in the witness statement of Ms Philippa Caldicott of SJ Berwin produced for the hearing before Tomlinson J. This asserted that the reason for non-payment of the Plantation Villa Proceeds was the failure of the Bank to provide a loan pursuant to the Standby Loan Facility. The learned judge rightly rejected that argument at [22] of his judgment and, in any event, as I have held above, the Bank had made the Facility available subject to compliance with certain conditions precedent and the only reason why it had not been taken up by Plantation was that because it failed to comply with those conditions precedent, hardly a matter which can be laid at the door of the Bank.

However, what is striking is that there was no suggestion before Tomlinson J that Plantation could not cure the default because Mr Fitzwilliam had been prevented by his arrest from completing a US$600 million sale of a shareholding, an inexplicable omission if any of this were true. In my judgment there is no evidence to support the alleged sale to Mr Bacon.

Equally unsustainable is the suggestion made by the second defendant that, on the day of his arrest, he was returning from Pakistan to seek Mr Fitzwilliam’s agreement to the sale of the Indus Refinery Project to a Pakistani buyer for US$200 million. As with the US$600 million sale to Mr Bacon, there is not a shred of documentary evidence to support this sale, which there surely would be if there had been any serious prospect of raising money in this way. Furthermore, the Pakistani buyer has never been identified. The reality is that, at best, there were rumours about sales to possible investors, as the fourth defendant said in evidence: “just coffee talk”.

The real reason for Plantation not curing the breach of clause 7.2(d) had nothing to do with Mr Fitzwilliam being in prison. Rather Plantation did not have the Plantation Villa Proceeds because it had spent them elsewhere, probably on wages and other running costs. Mr Mills relied upon the provision in clause 7.3 to submit that these were “reasonable working capital requirements”, so that Plantation was excused from paying them over to the Bank by the terms of that provision. In my judgment, that submission ignores the fact that clause 7.3 is concerned with surplus cash generated by the Plantation Project, not with Plantation Villa Proceeds which are dealt with and ring fenced by clause 7.2(d). That provision makes it clear that all Plantation Villa Proceeds after the first US$150,000 each month must be paid over to the Bank on receipt, or, putting it another way, only the first US$150,000 per month can be expended on working capital requirements for the development of the Project.

The Bank gave credit for that monthly sum in the letter of 9 June 2008, even though, strictly speaking, Plantation had not demonstrated that that sum had been disbursed or committed each month for the purposes of the development of the Project. As Mr Anderson QC points out, the truth is that by this stage in June 2008, irrespective of the incarceration of the second and third defendants and Mr Fitzwilliam, both the Plantation and the Refinery Projects were desperately short of cash and there were no investors waiting in the wings. Plantation did not have the money to cure the breach of clause 7.2(d), nor could it have raised the money at short notice.

The other principal breach identified in the 9 June 2008 letter is the failure of Plantation to register as a developer with the RERA. This had been the subject of concern on the part of the Bank since March 2008 which culminated in an email of 28 April 2008 from the Bank to Ms Sutherland stating: “Despite our tries, the Land Department has refused to issue an approval for the Plantations project in the name of Plantations FZ LLC. This is because the Sales Purchase Agreement/ Land Lease agreement with Dubai Land is in Arthur Fitzwilliam’s name.” Ms Sutherland, who was travelling at the time, said that “Ms Leila”, presumably one of her staff, would deal with “these forms” but nothing was done. The Plantation Project remained in Mr Fitzwilliam’s name at the end of July 2008. As Mr Anderson QC pointed out, this demonstrates both that the presence of Mr Fitzwilliam was not necessary for Plantation to comply with its obligations under the RSA and that the fifteen business days would in all probability have passed without the breach being cured even if he had not been in prison.

It is unnecessary in this judgment to set out details of the subsequent discussions and negotiations between Hogan Lovells, Al Tamini and SJ Berwin, save to record that no agreement was reached as to a way forward. In circumstances where the second and third defendants were obviously concerned that the fifteen business days were about to expire and the Bank would declare an Event of Default under clause 18.1 of the RSA, on the evening of Sunday 6 July 2008, Mr Khawar Qureshi QC and Mr Mallin, acting on behalf of the second and third defendants and instructed by Mr Taylor, obtained an ex parte injunction from Simon J restraining the Bank from exercising any rights under the notice dated 9 June 2008 until the return date of Wednesday 9 July 2008.

In the event, the return date was 10 July 2008, when the matter came before Tomlinson J. The second and third defendants (as claimants in those proceedings 2008 Folio 682) had issued a Claim Form seeking declarations (i) that the notice dated 9 June 2008 had not been properly served (a point on which they lost before Tomlinson J and which has not been pursued before me) and (ii) that there had been no breach of the RSA by them or Plantation entitling the Bank to declare an Event of Default. The Bank resisted the continuation of the injunction, filing witness statements from Mr Lyons and Mr Waugh. In his witness statement, Mr Waugh dealt with the suggestion in the evidence of Ms Caldicott that Plantation had not paid over the Plantation Villa Proceeds because the Bank was in breach of an obligation to lend money pursuant to a letter of intent sent to Mr Fitzwilliam on 19 August 2007. Mr Waugh pointed out that the Bank had in fact made the offer of the Standby Loan Facility in its letter of 19 April 2008 and that the reason no lending was made under that facility was because Plantation failed to comply with the conditions precedent, so that there was no foundation for any suggestion that the Bank was in breach of that agreement. He also pointed out that, even if the Bank were in breach of any lending obligation, that would not afford Plantation with a defence to its obligations under the RSA, including its payment obligations.

Tomlinson J accepted that the second and third defendants’ case that the failure of the Bank to advance monies under the Standby Loan Facility prevented performance of Plantation’s obligations was unarguable and refused to continue the injunction. In his judgment at [22] he held as follows:

“…it seems to me that the short passage in Ms Caldicott’s witness statement, to which I have referred is really a wholly inadequate basis upon which the court could be satisfied that there is an arguable case that the bank has itself broken a contractual obligation to Plantation which has in turn prevented performance by Plantation of its obligations to pay over the sales proceeds as and when they were received…it seems to me that there is no serious issue to be tried on the merits on the question of whether or not Plantation is in breach of the underlying agreement in, at any rate, the principal respect alleged;”

He also rejected an application made by Denton Wilde Sapte (recently instructed for Plantation and Mr Fitzwilliam in place of Clifford Chance) for a 14 day adjournment to enable them to take proper instructions given that Mr Fitzwilliam was in prison and it was difficult to contact him. Having heard submissions from counsel then acting for the Bank, he said at [3] of his judgment: “I am entirely persuaded that there is no basis upon which I can properly do so, whatever misgivings I may feel about the underlying situation.”

Following that decision lifting the injunction, by letter dated 14 July 2008, Al Tamini on behalf of the Bank informed Dubailand pursuant to clause 2.3 of the Conditional Assignment that a Plantation Enforcement Event had occurred and asked them to acknowledge assignment to the Bank of all Plantation’s rights, interests, obligations and title under the Lease. This was acknowledged by Dubailand on 20 July 2008. On the same day Al Tamini sent a letter to Plantation informing it that the breaches set out in the notice dated 9 June 2008 remained unremedied and that, pursuant to the Bank’s rights under the RSA and the Conditional Assignment, all Plantation’s rights, interests, obligations and title under the Lease had been assigned to the Bank. The letter directed Plantation to provide originals of all documents, plans, financials, contracts and other information relating to the Plantation Project and to cease all sales and marketing. Mr Waugh’s unchallenged evidence in his witness statement was that Plantation withheld all the information, including the sale agreements for the plots already sold, so that the Bank could not properly deal with the purchasers or ensure that sale proceeds were paid into an escrow account as required by local law.

On 21 July 2008, Al Tamini on behalf of the Bank wrote to the second to fifth defendants and Plantation referring to the fact that the breaches set out in the notice dated 9 June 2008 remained unremedied and accelerating repayment of the debt pursuant to clause 18.4(a)(i) of the RSA, demanding repayment of the outstanding Rescheduling Amount of US$440,818,275.65, which was now due and payable.

In September 2008, the Bank issued a press release stating that it had foreclosed on the Plantation security and confirming that there was no potential risk of financial loss due to exposure as the Bank had sufficient security. In fact, again according to the unchallenged evidence of Mr Waugh, Plantation did not vacate the premises. The staff, horses and a contractor’s camp remained and the Bank paid to keep the horses fed and stabled, paid the wages of the grooms and trainers and irrigated the polo fields, maintaining the property in a saleable condition.

There was internal discussion within the Bank as to whether the Project should be sold or developed. In September 2008 the Bank had an approach from a US based investment group which expressed interest in investing in the Project, although in the event this came to nothing. In the context of that approach, on 16 September 2008, Mr Adel Kamal wrote an internal email to Mr Al Kamda, Mr Al Hamli, Mr Al Sharif and Mr Shomali in which he stated:

“Meanwhile, I think we need to have a decision on whether this project shall be sold or developed. It is important to know whether a gain in addition to the outstanding amount can be realised by us or we are only entitled to the debt amount. In the [latter] case, we need to be clear on whether the gain that may potentially be realised will be the entitlement of the Government or Arthur. I am sure we all agree that we do not want to work hard to make Arthur rich”.

Mr Mallin sought to rely upon this email as demonstrating an animus towards Mr Fitzwilliam and Plantation on the part of the Bank, which translated itself into a deliberate decision to impair or neglect the Plantation security. In my judgment, it shows nothing of the sort. Whilst by this stage there may have been no love lost between the Bank and Mr Fitzwilliam and Plantation (perhaps understandably if the Public Prosecutor was alleging that he was implicated in the fraud, whereas the Bank had thought he was not and if Plantation were now being uncooperative as Mr Waugh says), this comment was a perfectly understandable commercial one. What would be the point of the Bank expending time, money and resources continuing with the development of the Plantation Project if at the end of the day it only recovered the Rescheduling Amount plus its expenses and any profit otherwise went to Plantation and Mr Fitzwilliam? In commercial terms, the Bank would be better off trying to sell Plantation, which was essentially the point Mr Adel Kamal was making.

Furthermore, far from running down Plantation or deliberately neglecting it, as Mr Waugh’s unchallenged evidence (referred to in more detail below) demonstrates, the Bank maintained the property in its current state, sought valuations and potential buyers and did not suspend the Project until mid- 2010, when it had become too much of a financial drain.

The reference in that email to the entitlement of the Government is evidently a reference to the fact that when the Bank sought to enforce the security in July 2008, it discovered that the Plantation land and assets had been attached by the Public Prosecutor in connection with the criminal proceedings. Mr Waugh’s unchallenged evidence is that, as a consequence, the Bank has been and remains unable to derive any value from Plantation, as any sale proceeds or other monies generated from Plantation would have to be paid over to the Public Prosecutor pursuant to the attachment.

The Bank did not take physical possession of the Plantation Project until 4 November 2008. Upon takeover, most of the staff were removed except for those essential for ongoing maintenance of the Project. By the stage of the takeover, the Bank had been informed by Dubailand that Plantation was in default under the Lease and in the period October to December 2008, the Bank was sent numerous invoices totalling some AED 300 million for the cost of works relating to the provision of utilities for the plots which had not been paid by Plantation. The Bank also received invoices for work done by various contractors who had not been paid by Plantation.

In the autumn of 2008, the Bank received various expressions of interest in buying Plantation, but ultimately none of them came to anything. In particular, in September 2008, there was an expression of interest from Tricap Investments, but no offer to purchase came of it. On 9 October 2008, the Bank entered an agreement with Novati Group International SPC to which Plantation and Mr Fitzwilliam were parties which gave Novati a 30 day right of first refusal to acquire or act as broker in respect of Mr Fitzwilliam’s equity rights in Plantation. Novati purported to have identified a prospective investor but the investment failed to materialise. At around the same time, on 12 October 2008, Galadari, the UAE lawyers for Plantation made an offer to the Bank that Mr Fitzwilliam and a consortium from Bahrain and Saudi Arabia should purchase the Lease from the Bank for an amount equivalent to the outstanding Rescheduling Amount and the costs payable under the RSA. On 30 October 2008 the Bank responded seeking further information in relation to timing, funding and terms, but the Bank received no response to that request.

In November 2008, Novati proposed a consultancy agreement to advise and facilitate the sale of the Lease. The Bank declined the proposed terms but granted Novati an exclusive 90 day period to identify a buyer, which Novati did not manage to do. In 2009, the Bank received an offer from a film production company, Mirage Holdings, to purchase the Plantation site for use as a film studio, but there was no sale consideration offered to the Bank, just 20% ownership and a 20% in net profits from future business, all to be funded by the Bank. The Bank presented a counter-offer, but no commercially feasible agreement could be reached. As Mr Waugh says, there have been a number of vague indications of interest since, but no serious buyer has ever emerged.

The Bank took steps to obtain valuations of Plantation. On 11 November 2008, the Bank wrote to Colliers International instructing them to provide a valuation of Plantation to determine a target market price for the Bank to sell the property and to advise on the best methods of marketing. In that letter the Bank mentioned the proceedings in England in July 2008 in which the defendants had tried to prevent the Bank acquiring the Lease and the requests for payment from Dubailand and contractors. However, in an email of 26 November 2008 Colliers declined to conduct a valuation on the grounds that:

“given the unique circumstances surrounding the…development it would not be possible to establish a hypothetical buyer/market and the level of return/value they would be taking on if purchasing the subject site in comparison to other sites which are not affected by the same constraints. In other words, any evidence we may have from valuing other development sites cannot be applied to the subject site with any degree of reliability. As we believe we will not be able to defend our assumptions/inputs/rates and therefore our final valuation assessment, we therefore must decline this particular instruction.”

In December 2008, the Bank wrote in essentially identical terms to Cluttons LLC seeking a valuation from them. Cluttons also declined to conduct a valuation stating in an email of 17 December 2008:

“Given the complexity of the different legal interests and the fact that there are disputes on various issues across jurisdictions we are unable to proceed with this instruction, in terms of the time limits you require and also the impact there may be on our Professional Indemnity Insurance cover.”

Although neither Collyers nor Cluttons were prepared to provide a valuation, ultimately other valuers did provide a valuation. On 30 December 2008, the Bank instructed Asteco to provide an “as is” current market valuation of Plantation. Asteco inspected the property on that day and provided a valuation report dated 5 January 2009. Asteco noted in its report that the property was a vacant plot with minimal development completed. As at the date of inspection, one polo field had been developed, with a small temporary clubhouse, temporary accommodation and temporary stables, in addition to earthworks and minor infrastructure works including bitumen roadways. Asteco adopted an “as is” current market value of AED 75 per sq. ft., giving an overall value of AED 1.5 billion. However, their report included the following “Special Note”:

“This is a difficult financial time with diminished market activity that is expected to continue into 2009 as banks tighten their lending standards on property loans. A restriction on the availability of finance will impact on a buyer’s ability to purchase assets. Until greater stability returns to the financial markets it is difficult to predict property values, particularly with the limited availability transactional evidence.

In this report Asteco has provided a professional opinion of value using available transactional data and the Valuer’s knowledge of the market. It is difficult to predict how values will be affected in the longer term; however the current trend shows a down turn in values.

We would stress the importance of the valuation date as we are seeing a significant change in values over a relatively short period.”

As that valuation report anticipated, sale of the Plantation Project would prove difficult and that is exactly how matters turned out. As already indicated, there were no firm offers and only vague expressions of interest which came to nothing. Importantly, in the light of the contentions advanced on behalf of the defendants that the failure of the Bank to sell the property was in some way the fault of the Bank, it is quite clear from the contemporaneous evidence that any difficulty in selling Plantation was due to the inherent problems with the development and market conditions, not to anything for which the Bank could possibly be held to blame.

As the Asteco report confirms, when the Bank took over there had been extremely limited development by Plantation since 2004. That is confirmed by Mr Waugh’s evidence. He said that apart from the polo fields and temporary buildings and some limited roads, as of November 2008, the rest was desert. Mr Waugh also confirmed that the site is surrounded still by undeveloped desert.

All of this was also borne out by a valuation report in October 2008 commissioned by Plantation itself from Jones Lang Lasalle which described the property in these terms:

“The property comprises a development site extending to 20 million sq ft … and is currently an expanse of largely un-improved desert. There is one complete polo pitch and a second which is under harvest. There is a series of ancillary and temporary buildings on site. There is an intermittent road network running throughout the development. A number of residential plots have been levelled and retaining walls constructed, ready for development.”

Following the inability to sell Plantation, the Bank did maintain such limited aspects of the Project as had been developed, but Mr Lyons explained in graphic terms in cross-examination by Mr Mills how, notwithstanding that the Bank had kept up the polo fields for a while, it had found the venture was loss-making:

“As I understand it, Mr Mills, the bank did keep the polo fields alive for a while. They tried to run it as a polo school but effectively discovered they were losing money hand over fist. It was not as if having taken occupation in November 2008 they kicked everyone off the site and sprinkled weedkiller on the grass.”

Given the financial drain which maintenance of the Project was imposing, in about August 2010, the Bank decided to put Plantation on hold and wait for a change of circumstances. The dilemma the Bank faced is not dissimilar to that faced by many financial institutions during the recent economic crisis, as again explained by Mr Lyons in cross-examination by Mr Mills:

“But I mean I act for a number of banks who have invested in property in this country…Effectively the choice which is facing those banks is do you sell the property, do you try and develop it out or do you take the view that in fact actually the market is in such turmoil that one has to just sit there and see what happens a few years down the line. That is a three way choice. I think it is a choice which all financial institutions, whether they are in Dubai, whether they are in England or elsewhere, face when they have got security over property.”

It is quite clear that there is no question of the current undeveloped state of Plantation being in any sense the fault of the Bank or of the Bank having neglected or wasted it. All that has happened is that for valid economic reasons, its continued maintenance was not viable. That is not a matter of which Plantation, let alone any of the defendants, can complain.

Furthermore, there is simply no evidence that anything the Bank has done or failed to do has made Plantation worth less than would otherwise have been the case. As Mr Anderson QC pointed out, such evidence as there is, suggests that since the collapse of the property market in Dubai, the Plantation land has been essentially worthless and unsaleable. This was the effect of the evidence of Mr Taylor (albeit advanced for a slightly different purpose) in chief:

“The bank were able to take security over a very valuable asset which was, certainly in Mr Fitzwilliam's estimation, worth as much as $2 billion at that time. Then things changed and discounted cashflow off the cashflow that's never going to happen, even I can work out, is typically zero….[the Bank] were not to know that their $1billion or $2 billion asset was going to be suddenly worth nothing when there was blood on the streets in 2009.”

Finally in relation to the subsequent events, I should deal with a point raised by Mr Mills on behalf of the third defendant on which he cross-examined Mr Mostafa and Mr Al Sharif, that is how the Bank dealt with the outstanding debt due under the RSA and the security which Plantation provided, both in its annual accounts and in its reporting to the Dubai Central Bank as the banking regulator. In its accounts the Bank did not take Plantation on to its own balance sheet (further confirmation that taking possession of Plantation was not regarded as discharging the debt) but showed the debt outstanding under the RSA as an asset, albeit one against which a provision was required.

In its reports to the Dubai Central Bank the Bank showed the Rescheduling Amount in absolute terms, its size as a percentage of the Bank’s risk-weighted capital, the provision required and a figure for the security or collateral held, including Plantation. In the report for the fourth quarter of 2008 (in other words after the Bank had enforced the security) the value of Plantation was shown as AED 1 billion. From the report for June 2009 onwards, the value shown increased to AED 1.4 billion (possibly reflecting the Asteco valuation) and remained at that figure in the reports until the end of 2010.

Those reports are clearly in a standard form dictated by the Central Bank to give it the information it requires for its regulatory purposes. I agree with Mr Anderson QC that the value the Bank ascribed to Plantation in those reports is simply irrelevant to the issues to be determined in this action and, specifically, the issue as to whether the second and third defendants are liable in debt to the Bank. Furthermore, as Mr Al Sharif explained in cross-examination, in its published accounts and reports to the Central Bank, the Bank had not taken a loss: “because we have not taken a decision to consider the liability towards CCH is a loss to pocket. We have just created that provision on the assumption that in the future when this amount is either paid or determined not to be received then we will just write it off. Very simple, this is accounting principles”. Therefore, Mr Mills is right that, in accounting terms, the Bank is not showing a loss under the RSA, but that is irrelevant to the issues I have to decide and, of course, irrelevant to the question what, if anything, the Plantation land is really worth.

The Event of Default upon which the Bank relies in support of its case (a) that there was a Plantation Enforcement Event entitling it to exercise its rights under the Conditional Assignment and (b) that it was entitled to accelerate repayment of the balance of the debt outstanding pursuant to clause 18.4(a) of the RSA is the failure of Plantation to perform its obligation under clause 7.2(d) to make mandatory prepayment of the Plantation Villa Proceeds upon receipt, notwithstanding the notice requiring its remedy within 15 business days under clause 18.1(d) served on 9 June 2008.

The first question in relation to the Bank’s actions in declaring an Event of Default, seeking to exercise its rights under the Conditional Assignment and accelerating repayment of the debt is thus whether there was an event of default at all. In support of their case that there was not an event of default or, at least, not one upon which the Bank could rely, the second and third defendants put forward a number of arguments. They contend first that CCH and hence the Guarantors were “ahead of the game”, in terms of repayment of the Rescheduling Amount, at the time when the Bank served the notice on 9 June 2008. The basis for that contention is that under the Repayment Schedule in Schedule 2, $50 million was payable within 240 days of the Effective Date, that is by 2 June 2008 whereas in fact as at that date the total amount repaid was some $60.4 million.

I agree with Mr Anderson QC that that contention involves a fundamental misunderstanding of how the obligations in clause 7 were intended to operate. The amounts and dates in Schedule 2 were effectively a long stop requiring the repayment of US$50 million by 2 June 2008, but, to the extent that, at any time, proceeds were received derived from any of the sources identified in clause 7.2, including the CCH Agency Receivables and the Plantation Villa Proceeds, they had to be paid over forthwith upon receipt in mandatory prepayment of the Rescheduling Amount. Thus, although the US$60.4 million was more than US$50 million, it consisted of CCH Agency Receivables including a substantial amount from Bill Express in Australia collected by the third defendant. Those Receivables were payable to the Bank upon receipt under clause 7.2(b) even though the 240 day period from the Effective Date under Schedule 2 and clause 7.1 had not expired. That is borne out by the fact that the repayment obligations in clause 7.1 were made subject to the provisions of clause 7.2 which required mandatory prepayment.

It follows that to the extent that, as at 2 June 2008, Plantation had received the equivalent of US$4 million of Plantation Villa Proceeds in excess of US$150,000 per month, the second to fifth defendants and Plantation as Guarantors were obliged under clause 7.2(d) to take reasonable steps to procure the payment of those Plantation Villa Proceeds to the Bank upon their receipt and they were in breach of that provision in failing to do so. It is nothing to the point and no defence that US$60.4 million had already been repaid.

I have already dealt in the section of the judgment concerned with the cure notices with the argument advanced by Mr Mills that the breach could somehow be justified on the ground that the Plantation Villa Proceeds had been expended on working capital requirements of Plantation. Clearly that argument is unsustainable for the reasons there set out. No other excuse is put forward for the failure to remedy the breach other than the arrests which again I have held were not the responsibility of the Bank and, in any event, not causative of that failure to remedy the breach. It follows that there clearly was an Event of Default.

In the circumstances, it is unnecessary to consider the Bank’s alternative case that the defendants were precluded from contending that there was not a breach of clause 7.2(d) and an Event of Default, by virtue of an issue estoppel arising from the judgment of Tomlinson J. If I had had to decide that point I would have concluded that the judgment was an interlocutory judgment which did not give rise to an issue estoppel. In that context I found the analysis of HH Judge Waksman QC in Kinney v Chesterfield Falcon Limited (19 January 2012 unreported) at [47]-[74] helpful and illuminating. Like him, I would regard a judgment on an interim injunction application, such as that of Tomlinson J in this case, as provisional and therefore not giving rise to issue estoppel.

As to whether the occurrence of the Event of Default under clause 18.1(d) amounted to a Plantation Enforcement Event, the definition of “Plantation Enforcement Event” states quite clearly that where the breach is caused by the default of Plantation under clause 18.1(a), (c) to (e) and (h) to (k) (i.e. including the default under clause 18.1(d) currently relied upon), the existence of a Plantation Enforcement Event is subject to the provisos at clause 18.1(a). Those provisos include (i): “there shall not be an Event of Default under this clause 18.1(a) if the amount paid to the Bank in respect of a Repayment Date represents 90% or more of the amount due on such Repayment Date and any such shortfall is paid to the Bank within 3 months after the Repayment Date to which it relates”. Accordingly, the second and third defendants submit that, since, at that time in June 2008, they had paid more than 90% of what was due at the 2 June 2008 240 day Repayment Date under Schedule 2 (US$60.4 million having been paid when US$50 million was due), that proviso operated to exclude the occurrence of a Plantation Enforcement Event.

Mr Anderson QC submits that this literal construction is uncommercial as it would, in effect entitle Plantation to “cock a snook” at its obligations under the RSA and fail to pay over to the Bank many millions received as Plantation Villa Proceeds and yet, if the Repayment Schedule were up to date, the Bank could never rely upon a Plantation Enforcement Event. He submits that the words: “subject to the provisos at clause 18.1(a)” in the definition of Plantation Enforcement Event are intended to prevent the Bank from improperly characterising a payment default under clause 18.1(a) as a default under another sub-clause of clause 18.1 in order to bypass the protection afforded by the provisos to clause 18.1(a).

It seems to me there are a number of problems with Mr Anderson’s construction. To begin with, it seems to me Mr Mallin is right that the provisos in clause 18.1(a) and the reference to them in the definition of Plantation Enforcement Event are intended as something of a brake on enforcement against the Plantation security which was regarded by the parties as the most valuable security of all under the RSA. There is nothing inherently uncommercial in that. Furthermore, so far as Mr Anderson’s point about cocking a snook at the RSA is concerned, the risk of that is more apparent than real, given that the breach of clause 7.2(d) by Plantation is an Event of Default under clause 18.1(d) for the reasons given in the previous section of the judgment. If that default remained unremedied (as it did in the present case), then under clause 18.4(a) the Bank would be entitled to serve a further notice accelerating the debt, the effect of which would be, inter alia, that a Plantation Enforcement Event had then occurred, for the reasons given in the next section of the judgment.

Even if I thought that the natural construction of the definition of Plantation Enforcement Event for which Mr Mallin contends was uncommercial, I do not consider Mr Anderson QC’s alternative construction would be viable without rewriting the contract. If the intention had been to protect the counterparties from the Bank relying upon another sub-clause of clause 18.1 to bypass the provisos, one would have expected that to be spelt out in the wording of clause 18.1, not by a side wind in the definition of a Plantation Enforcement Event, when Plantation Enforcement Events are not mentioned in clause 18.1 at all. Whilst it is certainly true, as Mr Mallin accepted, that the meaning of a contractual provision will yield to commercial common sense, it will not do so to the extent of rewriting the contract, which as I say would be what would be required to achieve Mr Anderson’s construction.

It follows that, at the time when the period of 15 business days for curing the default under clause 18.1(d) expired on or about 3 July 2008, at the time of the hearing before Tomlinson J on 10 and 14 July 2008 and at the time when the Bank served the notice on 20 July 2008 declaring a Plantation Enforcement Event, on the proper construction of the RSA, there was not or at least not yet a Plantation Enforcement Event and the Bank was not entitled to declare one when it did.

Mr Anderson QC sought to contend that, even if that were right, the only consequence was that any declaration of a Plantation Enforcement Event was invalid and of no effect, not that there was a breach of the RSA by the Bank. In that context he relied by analogy upon what the position would have been if an Event of Default were declared which the Bank had not been entitled to declare, which would be that the declaration was invalid, not that there was a breach of the RSA: see per Lord Scott of Foscote at [36]-[37] in Concord Trust v Law Debenture Trust Corp plc [2005] UKHL 27, [2005] 1 WLR 1591 and per Moore-Bick LJ in Jafari-Fini v Skillglass Ltd [2007] EWCA Civ 261, at [113] and [118]. However, I agree with Mr Mallin that, in contrast to the notices of Events of Default in those cases, in the present case clause 18.2 imposed a positive obligation on the Bank to refrain from exercising rights over the Plantation security unless there had been a Plantation Enforcement Event, so that in purporting to rely upon and declare a Plantation Enforcement Event on 20 July 2008, the Bank was in breach of the RSA. However, that position changed rapidly when the Bank served the notice of acceleration under clause 18.4(a) the following day, 21 July 2008, when for the reasons set out in the next section of the judgment, the Bank became entitled to rely upon a Plantation Enforcement Event.

Following the judgment of Tomlinson J lifting the injunction, it is clear that there was an Event of Default under clause 18.1(d) because of the failure of Plantation to comply with its obligations under clause 7.2(d) or remedy that default within 15 business days, so that the Bank was entitled to serve a notice under clause 18.4(a) accelerating the debt and demanding immediate repayment of the full outstanding Rescheduling Amount, which it did on 21 July 2008. Mr Anderson QC submitted, that once it had served that notice and the full outstanding Rescheduling Amount fell due, any brake upon the occurrence of a Plantation Enforcement Event contained in the definition which might previously have been applicable fell away.

Both Mr Mallin and Mr Mills sought to resist that conclusion on the basis that in some way clause 18.1(a) and its provisos remained in force, so far as a Plantation Enforcement Event was concerned, notwithstanding the acceleration of the debt. It seemed to me they had some difficulty in formulating their case as to how the RSA could be construed in that way, which is scarcely surprising since in my judgment that case is untenable. Once there has been acceleration under clause 18.4, the Repayment Schedule in Schedule 2 and clause 18.1(a) necessarily fall away because the Bank is entitled to say the whole outstanding Rescheduling Amount is payable immediately. It follows that the provisos under clause 18.1(a) no longer operate. By definition clause 18.4 only comes into play when there is already an unremedied Event of Default under clause 18.1 and clause 18.4 simply overrides clause 18.1. Mr Mills really recognised this when he said that clauses 18.1 and 18.4 have to be dealt with in sequence.

In the alternative, on the true construction of the RSA, once a notice of acceleration has been served, the “Repayment Date” in the opening words of clause 18.1(a) is the date of that notice, and the amount due on that date is the whole outstanding Rescheduling Amount. In those circumstances, the defendants cannot rely upon the proviso, because what they had paid was only about 12% of what was due (US$60.4 million as a percentage of US$501 million), nothing like 90%. It follows that the Bank was entitled to rely upon or declare a Plantation Enforcement Event as at the date of that notice, 21 July 2008 and the notice they actually served was only a day early.

Mr Mallin in particular sought to rely upon the words “subject to clause 18.2 (Plantation Enforcement Events)” in clause 18.4(a)(ii) and clause 18.2 itself in support of the proposition that the brake on enforcement against the Plantation security to which I have referred earlier remained in force even after acceleration. In the present context, it seems to me that argument is misconceived. All the reference to clause 18.2 in clause 18.4(a)(ii) is doing is making it clear that there cannot be enforcement against Plantation unless there is a Plantation Enforcement Event. For example, if there had been a material change in the financial condition of one of the Guarantors other than Plantation which amounted to an Event of Default under clause 18.1(k), entitling the Bank to accelerate the debt under clause 18.4, the Bank could still not enforce against the Plantation security because that default under clause 18.1(k) would not have been caused by any default of Plantation, so there could not be a Plantation Enforcement Event. However, contrary to Mr Mallin’s submissions, what the reference to the provision being subject to clause 18.2 is not doing is preserving the provisos in clause 18.1(a) which have necessarily fallen away once the full outstanding Rescheduling Amount is immediately due and payable.

Equally, it follows that once the Bank had accelerated the debt on 21 July 2008, any previous breach by the Bank in declaring a Plantation Enforcement Event too soon was remedied, because at that stage all the Rescheduling Amount was immediately due and payable and the Bank could enforce against the security.

The defendants’ contention that somehow the proviso to clause 18.1(a) survives an acceleration of the debt under clause 18.4 founders for another reason as a defence to the Bank’s entitlement to enforce against the Plantation security. Even if that contention were right, by the time the Bank actually went into possession of Plantation in November 2008, the third repayment date under Schedule 2 of 2 October 2008 had passed, by which date US$120 million was due whereas only US$60.4 million had been repaid. It follows that the second and third defendants could not rely upon the provisos at that stage to prevent enforcement of the security. The Bank would have been entitled to declare a Plantation Enforcement Event on 2 October 2008.

On analysis, the earliest date the Bank took steps to enforce its security over Plantation was immediately after the judgment of Tomlinson J, when it wrote to Dubailand on 14 July 2008 seeking to perfect the assignment. However, although the Bank served Plantation with a notice of a Plantation Enforcement Event on 20 July 2008, it did not go into physical possession until 4 November 2008. Mr Mallin contended that, in declaring a Plantation Enforcement Event in July 2008 and in the steps it took to enforce the security thereafter, the Bank was in repudiatory breach of the RSA, which repudiation the second defendant accepted as terminating the RSA. I have considerable doubt whether the declaration of the Plantation Enforcement Event and the steps taken by the Bank prior to taking possession could ever be properly characterised as a breach going to the root of the contract so as to amount to repudiation, but in any event, the contention that there was a repudiatory breach which was accepted by the second defendant as bringing the RSA to an end and that that provides the defendants with a defence to the Bank’s claim to be paid the outstanding Rescheduling Amount is unsustainable for a number of reasons.

First, as set out in the previous section of the judgment, the very day after the notice of 20 July 2008, on 21 July 2008, the Bank sent a further notice accelerating the debt under clause 18.4(a), which entitled the Bank at that stage to rely upon a Plantation Enforcement Event. Thus, even if there was a breach, it lasted for no more than a week, was never accepted as terminating the contract and was remedied.

Second, nothing was actually said or done by the second defendant or Plantation at that stage by way of acceptance of a repudiatory breach. Mr Mallin relied upon the decision of the House of Lords in Vitol SA v Norelf Limited [1996] AC 800 and in particular a passage in the speech of Lord Steyn at 811-12:

“It is now possible to turn directly to the first issue posed, namely whether non-performance of an obligation is ever as a matter of law capable of constituting an act of acceptance. On this aspect I found the judgment of Phillips J. entirely convincing. One cannot generalise on the point. It all depends on the particular contractual relationship and the particular circumstances of the case. But, like Phillips J., I am satisfied that a failure to perform may sometimes signify to a repudiating party an election by the aggrieved party to treat the contract as at an end. Postulate the case where an employer at the end of a day tells a contractor that he, the employer, is repudiating the contract and that the contractor need not return the next day. The contractor does not return the next day or at all. It seems to me that the contractor's failure to return may, in the absence of any other explanation, convey a decision to treat the contract as at an end. Another example may be an overseas sale providing for shipment on a named ship in a given month. The seller is obliged to obtain an export licence. The buyer repudiates the contract before loading starts. To the knowledge of the buyer the seller does not apply for an export licence with the result that the transaction cannot proceed. In such circumstances it may well be that an ordinary businessman, circumstanced as the parties were, would conclude that the seller was treating the contract as at an end. Taking the present case as illustrative, it is important to bear in mind that the tender of a bill of lading is the pre-condition to payment of the price. Why should an arbitrator not be able to infer that when, in the days and weeks following loading and the sailing of the vessel, the seller failed to tender a bill of lading to the buyer he clearly conveyed to a trader that he was treating the contract as at an end?”

Mr Mallin relied on that passage in support of his submission that a continuing failure to perform may be sufficiently unequivocal to constitute acceptance of a repudiation, in other words that, in an appropriate case, an acceptance of a repudiatory breach may be spelt out from inactivity or acquiescence. I accept that is a possibility in an appropriate case but, as Mr Mallin himself accepts, generally inactivity or acquiescence will not amount to acceptance. It all depends on the circumstances. The essential difference between Vitol and the present case is that, in that case and the examples Lord Steyn gives, after the repudiatory breach, if the contract was still on foot, it was incumbent on the innocent party to perform a positive obligation under the contract, there the tender of the bill of lading by the seller.

In the present case, in so far as there were obligations imposed on the defendants and Plantation by the RSA, they were not fresh obligations arising after the alleged repudiatory breach, but obligations (for example to pay over the Plantation Villa Proceeds) of which the defendants were already in breach. A continuing failure to perform, such as in the present case, is necessarily equivocal, as is made clear in the passage in Lord Steyn’s speech (at 812) immediately following the passage on which Mr Mallin relied:

In my view therefore the passage from the judgment of Kerr L.J. in the Golodetz case [1989] 2 Lloyd's Rep. 277, 286, if it was intended to enunciate a general and absolute rule, goes too far. It will be recalled, however, that Kerr L.J. spoke of a continuing failure to perform. One can readily accept that a continuing failure to perform, i.e. a breach commencing before the repudiation and continuing thereafter, would necessarily be equivocal.”

Furthermore, no response was required from the second defendant under the RSA to the Bank relying upon a Plantation Enforcement Event, so that acceptance of a repudiatory breach cannot be spelt out from the second defendant’s inactivity and silence.

Third, even if the argument that the effect of acceleration on 21 July 2008 was that there was now a Plantation Enforcement Event were wrong, there clearly was a Plantation Enforcement Event on 2 October 2008, the next Repayment Date under Schedule 2, for the reasons already given above. If there had been a repudiatory breach prior to 2 October 2008, it had not been accepted and would have ceased to have any effect on 2 October 2008, because on any view the Bank was then entitled to rely upon a Plantation Enforcement Event.

Fourth, Mr Mallin’s reliance on the proceedings commenced in Bahrain in May 2009 is misplaced. He submitted that in those proceedings the second defendant had treated the RSA as at an end, but if that is being relied upon as an acceptance of a repudiatory breach (a) it came far too late and at a time when, for the reasons set out above, any repudiatory breach had either been remedied or had ceased to have any effect and (b) what was actually being contended in Bahrain was that taking possession of Plantation by the Bank discharged the debt (i.e. the argument based on UAE law which I rejected in my earlier judgment), not that there had been a repudiatory breach which the second defendant was accepting as bringing the RSA to an end.

In the circumstances, since the Bank itself could not have been in breach of the RSA by declaring a Plantation Enforcement Event until after the judgment of Tomlinson J on 14 July 2008, the argument of Mr Anderson QC that the second and third defendants affirmed the RSA by commencing the 2008 proceedings seeking an injunction to restrain enforcement, is irrelevant since any breach post-dates the alleged affirmation. In any event, if the issue of affirmation did arise, I can see much force in Mr Mallin’s submission that it cannot be affirmation to seek to prevent the other party to the contract from committing the very breach of contract which is now said to be repudiatory, but it is not necessary to decide this point.

Even if, contrary to my findings above, there was a repudiatory breach of the RSA by the Bank and that was accepted by the second defendant as bringing the RSA to an end, any suggestion that the defendants were thereby released from their obligations to repay the Rescheduling Amount and other sums due under the RSA is wholly defeated by clause 21. On the basis that the definition of “Law” includes common law, any such termination by accepted repudiation would be “by operation of Law” under clause 21.3. Clause 21.3(a) makes it clear that, in that event, the defendants’ obligations to repay both as guarantors and as primary obligors remain in full effect: hence clauses 4, 5 and 6 remain in full force and effect. On the other hand provisions which limit or circumscribe those obligations in any way such as clause 3, the standstill provision, do not survive.

Mr Mallin sought to argue in his closing submissions that somehow there was no obligation on the defendants to repay because one of the provisions which did not survive on termination was clause 7, the Repayment provision. However, in my judgment, that provision is about repayment in instalments and payment over of asset proceeds such as Plantation Villa Proceeds, whilst the RSA is up and running. Once that provision and the standstill provision in clause 3 have fallen away as they do upon termination, what is left is an unqualified obligation under clause 4.4 that all of the Advances (i.e. the Rescheduling Amount as the opening words of clause 4.1 make clear) are immediately due and payable. It follows that, even if the RSA had terminated, the defendants remain fully liable to repay the outstanding Rescheduling Amount.

In his closing submissions, Mr Mallin placed considerable emphasis on the contention that, from early 2008 onwards, the Bank engaged in a course of conduct the purpose and consequence of which was to engineer an Event of Default and enable the Bank to enforce against the Plantation security. His submission was that, as a result, the second defendant’s liability whether as a guarantor or as an indemnifier under the RSA was discharged because (a) the Bank acted in bad faith and deliberately caused the default and (b) the Bank impaired the value of the Plantation security by wrongfully misappropriating it. Mr Mills essentially adopted those submissions on behalf of the third defendant.

I have set out in earlier sections of the judgment my findings of fact that (a) the Bank did not procure the arrests of the second and third defendants and Mr Fitzwilliam; (b) the Bank did not prevent the performance of the RSA or engineer or otherwise cause the Event of Default, from which it follows that the Bank did not act in bad faith. I have also concluded on the true construction of the RSA that, although there may not have been a Plantation Enforcement Event on 20 July 2008 when the Bank sent the notice declaring one, there was a Plantation Enforcement Event the following day, 21 July 2008 when the Bank served the acceleration notice under clause 18.4(a) or at the very latest on 2 October 2008, from which it follows that when the Bank actually took possession of Plantation on 4 November 2008 it was entitled to do so and the appropriation was not wrongful. In the circumstances, given those findings of fact and conclusions as to the construction of the RSA, this area of the defendants’ defence necessarily fails.

Furthermore, to the extent that the defendants rely upon a series of defences which might be available to a guarantor, there is a complete answer to that, which is that under clause 6.1 the defendants not only assumed obligations as guarantors under sub-clause (a) but a joint and several obligation to “indemnify the Bank as principal debtors in respect of any failure or inability to recover the Rescheduling Amount”. Mr Mallin sought to contend that because of the reference to a “failure” to recover the Rescheduling Amount this somehow remained a secondary obligation as guarantor. In my judgment this argument is unsustainable. The reference to the defendants being liable to indemnify as principal debtors is only consistent with this being a primary, not a secondary, obligation.

Mr Mallin then submitted that, even if he was wrong, and clause 6.1(b) was, as I have held, properly to be characterised as giving rise to an indemnity, not simply a guarantee, the second defendant as indemnifier was still entitled to be subrogated to the rights of the Bank as creditor and, as a matter of principle, the creditor owes the same duty to an indemnifier as is owed to a surety in respect of the securities he holds. He accepted that there is no authority directly on this point but relied upon the statement of this principle at [8-104] of O’Donovan & Phillips: The Modern Contract of Guarantee (English 2010 edition).

Even accepting for the purposes of the argument that this statement of principle is correct, as I see it, there are a number of answers to the suggestion either that there has been an impairment of the Plantation security or that, even if there has, that gives rise to a defence. First, for the reasons I have given, the Bank was entitled to rely upon a Plantation Enforcement Event from 21 July 2008 or, at the latest, from 2 October 2008, before it took physical possession, so that its appropriation of the property was not wrongful. It follows that, even if there were any evidence (which there is not for reasons set out below) to support Mr Mallin’s assertion in his closing submissions that the Bank’s foreclosure “necessarily impaired the value of the Plantation security”, that is irrelevant and affords the defendants with no defence, since the Bank was entitled to take possession of Plantation or to foreclose.

Second, in my judgment, the refusal of Collyers and Cluttons to provide valuations of Plantation in November and December 2008 does not demonstrate, as Mr Mallin contended, that the Bank’s taking of possession had impaired the security. The reality is that the Plantation Project suffered from a lack of funding and had a number of potential liabilities and other outstanding issues. As Mr Waugh put it in evidence which was unchallenged: “The legal and financial uncertainty surrounding the Plantation Project rendered its value uncertain to the degree that Collyers considered themselves unable to defensibly assess it”.

Furthermore, it is likely that market conditions were part of the reason for the reluctance to value Plantation. Whilst it may well be the case, as Mr Mallin suggested (although there is no clear evidence one way or the other) that the property market in Dubai suffered a major downturn later (and specifically longer after the collapse of Lehman Brothers in September 2008) than elsewhere in the world, it is tolerably clear from the actual valuation the Bank obtained from Asteco that, by December 2008, the property market in Dubai was so volatile that the position was changing on an almost daily basis and that overall that market was in decline. The fact that the market was in decline and that there was a rapidly changing picture seem to me to be part of the reason for the reluctance of other valuers to provide valuations and the apparent concern of their professional indemnity insurers. It simply does not follow that the reluctance had anything to do with the security being impaired by the Bank having taken possession.

In the circumstances, there is no evidence whatsoever to support the assertion in paragraph 15 of Mr Mallin’s written closing submissions that: “[the Bank] acted so as to worsen the position of [the second defendant] as guarantor because a foreclosure (and even more so a wrongful foreclosure) necessarily impaired the value of the Plantation security”. On one view, had it not been for the downturn in the market, it could be said that the fact that the Bank had now taken possession of Plantation would enhance its value, since the Bank was more likely to be able to raise funds to develop the Project than Plantation and Mr Fitzwilliam had been. As the Asteco report reveals, precious little had been developed since 2004. In any event, the valuation put by Asteco on Plantation of AED 1.5 billion at 30 December 2008 gives the lie to Mr Mallin’s suggestion that the enforcement by the Bank of its security necessarily impaired the value of that security.

Third, Mr Mallin’s submissions overlook the fact that, even if the second and third defendants’ obligations were only as sureties or guarantors, not as principal debtors under an obligation to indemnify the Bank, the security in question was provided not by them but by a co-surety, Plantation. It is far from clear whether, in such a case, a duty is owed by the creditor to the surety in respect of the protection or maintenance of security provided by a co-surety and, as principal debtors, the defendants can be in no better position than they would be as sureties or guarantors. The only authority bearing on the point is the decision of the Court of Exchequer in Margrets v Gregory (1862) 10 WR 630, where there is a tentative suggestion by Bramwell B that a creditor would owe a surety a duty not to “waste” the security provided by a co-surety, that is a duty not to deliberately destroy or damage the security. In the present context, that would mean for example deliberately pouring weedkiller over the polo fields, as Mr Lyons said. Mere neglect of Plantation would not amount to a breach of duty, but in any event for the reasons set out earlier in the section of the judgment on “Subsequent events”, there is no evidence that the Bank neglected Plantation: quite the contrary, from which it necessarily follows that there is no question of the Bank having been responsible for wasting the security.

Furthermore, since such evidence as there is suggests that by mid-2010 the Plantation land was essentially worthless because of the collapse of the property market in Dubai, nothing the Bank has done or failed to do can have made any difference to its value. As Mr Anderson QC rightly submitted, if it transpires that Plantation does have a real value, that will be as a consequence of its development potential, and will not be dependent upon whether the Bank maintained the limited development of a few polo fields which it inherited.

Fourth, the Bank was under no duty to the defendants (or to Plantation and Mr Fitzwilliam) to sell the security once it went into possession. The law in this context is clearly stated by Lord Templeman giving the Opinion of the Privy Council in The China and South Sea Bank Limited v Tan Soon Gin [1990] 1 AC 536 at 545:

“If the creditor chose to exercise his power of sale over the mortgaged security he must sell for the current market value but the creditor must decide in his own interest if and when he should sell. The creditor does not become a trustee of the mortgaged securities and the power of sale for the surety unless and until the creditor is paid in full and the surety, having paid the whole of the debt is entitled to a transfer of the mortgaged securities to procure recovery of the whole or part of the sum he has paid to the creditor.

The creditor is not obliged to do anything. If the creditor does nothing and the debtor declines into bankruptcy the mortgaged securities become valueless and the surety decamps abroad, the creditor loses his money. If disaster strikes the debtor and the mortgaged securities but the surety remains capable of repaying the debt then the creditor loses nothing. The surety contracts to pay if the debtor does not pay and the surety is bound by his contract. If the surety, perhaps less indolent or less well protected than the creditor, is worried that the mortgaged securities may decline in value then the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them.”

Furthermore, even if the law were not as set out by Lord Templeman, under paragraph 2.3(f) of Schedule 5 of the RSA, any right of the defendants to be subrogated to the Bank’s rights is expressly postponed until the Rescheduling Amount has been repaid in full.

Mr Mallin sought to make much of the internal email about not wanting to make Arthur rich as demonstrating that the Bank was driven not by commercial considerations but by malice towards Mr Fitzwilliam. However, as I found earlier in the judgment, I consider the rationale of that email was not malice but a perfectly sensible commercial approach that the Bank should not expend resources and time on developing Plantation (rather than trying to sell it) if any profit over and above the Rescheduling Amount did not enure to the benefit of the Bank, but to Mr Fitzwilliam. It does not matter in that context whether in making that sensible commercial decision, the Bank was motivated in part by dislike of Mr Fitzwilliam, unless the Bank was acting in bad faith, which I have held earlier in the judgment it was not.

Fifth, even if, contrary to my findings of fact, the Bank did neglect or waste Plantation, that would not provide the defendants with a defence to the claim for repayment of the outstanding Rescheduling Amount (a) because they are liable under clause 6.1(b) as principal debtors not merely guarantors and any entitlement to be subrogated was postponed until full repayment and (b) because, even if they had only been guarantors, the defences which might otherwise be available to a guarantor are clearly excluded by the terms of Schedule 5 of the RSA. In particular, paragraph 1.3 makes it clear no defence is available which would not have been available if the liability were that of a principal debtor, which clearly excludes what might be described as “guarantor’s defences” and paragraph 1.1(c) provides that if the Bank does or neglects to do anything which, but for that provision, might release or reduce the guarantor’s liability, then the guarantor’s liability is not in fact reduced.

Mr Mallin placed reliance in this context on the decision of Stanley Burnton J in Barclays Bank v Kingston [2006] EWHC 533 QB) to submit that clearer words than contained in Schedule 5 would be required to exclude liability of the Bank for breach of duty owed to the second defendant. For the reasons already given, I am quite satisfied on the facts that the Bank was not in breach of any duty owed to the defendants, whether they were merely guarantors as they contend or also principal debtors, as I have held the RSA clearly provides, but in my judgment that case is distinguishable, since it concerned the effects of a sale at an undervalue, not a situation where the Bank has not sold, not through any fault of its own, but because of the state of the market.

Furthermore, essentially by way of another aspect of the same point, although the learned judge in that case held (at [36] of the judgment) that clause 6 of the guarantee there, which like clause 6.1(b) here rendered the guarantor liable as a principal debtor, did not assist the creditor bank, that was because he considered that the bank owed the same equitable duty to the guarantor as indemnifier as it did to him as guarantor, namely a duty to act prudently with reasonable care to obtain a proper price for the security. However, as he recognised at [16] of the judgment, the creditor is under no duty to sell or realise securities at all. In the present case there has been no sale of Plantation so no question of that equitable duty, let alone a breach of it, arises.

A similar fate befalls the counterclaims by the second and third defendant relying upon allegations that the Bank was in breach of its duty as a mortgagee in possession as befell the defences based upon impairment of security and the like dealt with in the previous section of the judgment. As Mr Anderson QC correctly submitted in his written closing submissions, this argument is wrong at every level, both factual and legal.

So far as the duties owed by a mortgagee in possession are concerned, there is no duty on the mortgagee to sell the property: see the passage from the judgment of the Privy Council in The China and South Sea Bank Limited case cited above and Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409, [2004] 4 All ER 484, at [14], per Lightman J (giving the judgment of the Court of Appeal):

“A mortgagee "is not a trustee of the power of sale for the mortgagor". This time-honoured expression can be traced back at least as far as Sir George Jessel MR in Nash v. Eads (1880) 25 Sol. J. 95. In default of provision to the contrary in the mortgage, the power is conferred upon the mortgagee by way of bargain by the mortgagor for his own benefit and he has an unfettered discretion to sell when he likes to achieve repayment of the debt which he is owed: see Cuckmere Brick Co v. Mutual Finance Limited[1971] Ch 949 at 969G. A mortgagee is at all times free to consult his own interests alone whether and when to exercise his power of sale. The most recent authoritative restatement of this principle is to be found in Raja v. Austin Gray[2002] EWCA Civ 1965 paragraph 95 per Peter Gibson LJ. The mortgagee's decision is not constrained by reason of the fact that the exercise or non-exercise of the power will occasion loss or damage to the mortgagor: see China and South Sea Bank Limited v. Tan Soon Gin[1990] 1 AC 536. It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained: he is not bound to postpone in the hope of obtaining a better price: see Tse Kwong Lam v. Wong Chit Sen[1983] 1 WLR 1349 at 1355B.

It is suggested by the defendants that clause 18.3 of the RSA is a “provision to the contrary” and imposes a duty on the Bank to sell Plantation within a reasonable time. This argument is unsustainable. The opening words of the clause: “In the event that the Bank … seeks to sell the Lease” are simply indicating what is to happen if the Bank decides to sell, not imposing any obligation upon it to do so. Furthermore, even if the RSA did impose some obligation on the Bank to sell within a reasonable time, the Bank was not in breach of that obligation. As I have found in the section of the judgment headed “Subsequent Events” the Bank sought valuations of the property at the end of 2008 with a view to selling it at the best possible price, but the peculiar circumstances of the property and market conditions meant no serious expressions of interest were received. None of that was the fault of the Bank or a breach of any duty owed as a mortgagee in possession.

To the extent that the second and third defendants are contending that the Bank was under a duty to complete the Plantation Project, that is also quite wrong as a matter of law. Whilst a mortgagee may be under a duty to repair, he is under no duty to lay out his own money in improvements. So far as any duty to repair is concerned, a mortgagee in possession is bound to carry out reasonable repairs, provided their cost does not exceed the diminution in value by reason of the property being out of repair: see per Chadwick LJ in Barclays Bank plc v Alcorn [2002] EWCA Civ 817 at [12]:

“I accept, of course, that a mortgagee who goes into possession must effect reasonable repairs - in particular, where he is proposing to sell the property in circumstances in which (i) the price to be realised will be affected by the property being out of repair and the cost of effecting repairs would not exceed the diminution in the value of the property by reason of it being out of repair. I do not accept that there is any obligation on a mortgagee to repair in circumstances in which the cost of effecting repair would exceed the increase in the value of the property which would result from repairs being effected. Indeed, it seems to me that a mortgagee who effected repairs in circumstances in which the cost will not be recovered by an increase in the price obtainable on a sale of the property would be acting irresponsibly.

For all the reasons given in the previous section of the judgment, on the basis of my findings of fact in the section headed “Subsequent Events”, there is no question of the Bank having neglected or wasted the Plantation land or Project, so that there was no breach of any duty as mortgagee in possession. Furthermore, there is simply no evidence that, as a result of what the Bank has done or failed to do, Plantation is worth less than would otherwise have been the case. However, in any event, any duty the Bank was under as mortgagee in possession was owed to Plantation as mortgagor and not to the second or third defendants.

Even if, contrary to all the findings above, the Bank as mortgagee in possession did owe the second and third defendants, as opposed to Plantation, a duty and were in breach of that duty, the remedy for breach of duty given to a mortgagor (and the second and third defendants could be in no better position) is not a claim for damages at common law, such as advanced in the counterclaim, but an account: see Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409, [2004] 4 All ER 484, at [19]:

“The remedy for breach of this equitable duty is not common law damages, but an order that the mortgagee account to the mortgagor and all others interested in the equity of redemption, not just for what he actually received, but for what he should have received….”

In the present case, on the facts I have found Plantation would have no legitimate basis for seeking an account from the Bank, since, as I have held, there was no breach of duty. The second and third defendants can be in no better position, so their counterclaims fail.

The Bank’s case is that monies advanced by the Bank were misappropriated by the second defendant, through his company the first defendant, to make an investment of US$750,000 in a British Virgin Islands company called Black Merlin Energy Limited, leading to a holding of 3.75 million shares in that company and to make a loan of US$4 million to that company. By an agreement dated 20 September 2007 (so after the date of the RSA) an agreement was entered into between the first defendant and Black Merlin for the debt (which with interest was just over US$4 million) to be extinguished and the first defendant issued with 13,333,333 shares in Black Merlin. In a corporate restructuring, all 17,083,333 of the first defendant’s shares in Black Merlin were converted into a holding of 6,230,291 in Afren, an English registered company. As Mr Anderson QC pointed out, none of those facts were challenged at trial by the first or second defendants.

The Bank advances its claim to those shares in Afren as the traceable proceeds of the fraud in two ways. First on the basis that since they represent monies originally subject to a fiduciary duty in favour of the Bank, which were misapplied in breach of that fiduciary duty, they are in equity the Bank’s property. Second, by receiving and/or assisting in the dissipation of the Bank’s money which is trust property, the first defendant is liable both in dishonest assistance and knowing receipt and is under an obligation to pay equitable compensation to the Bank equivalent to the value of those shares.

The only defence put forward to the Bank’s claim is the suggestion advanced by Mr Mallin that, by the terms of the RSA the Bank has released any such claim. I agree with Mr Anderson QC that this defence faces insurmountable legal obstacles and is unsustainable for two reasons. First, since the first defendant is not a party to the RSA, no release was ever conferred on the first defendant. Clause 25.7 expressly excludes the conferment of any “third party beneficiary rights” on any person not a party to the RSA.

Second, the proviso to clause 12.4 of the RSA makes it clear that the waiver of any claims against the Guarantors does not apply to claims in respect of Proceeds Assets: “provided that any claims in respect of Proceeds Assets shall not be waived or compromised unless expressly done so in writing by the Bank”. Clearly the shares in Afren are “Proceeds Assets” since they are an asset: “materially funded by the Advances, whether directly or indirectly”.

Mr Mallin advanced two supposed answers to that point. First that, because any claims against the second defendant are waived by clause 12.4, the Bank cannot go against the first defendant to pursue a claim which is essentially founded on a claim against the second defendant. In my judgment, that argument is hopeless both because the first defendant is not a party to the RSA and because the Afren shares are “Proceeds Assets” as defined. The second supposed answer is that clause 13 provides a regime for the treatment of Proceeds Assets so that on its true construction the proviso to clause 12.4 is limited to undisclosed Proceeds Assets.

Mr Mallin submitted that in the case of disclosed Proceeds Assets (of which the Afren shares are an example) they fall to be treated exclusively in accordance with clause 13.1(b) and (c) which he submits is borne out by clause 13.2 which provides: “The parties agree that nothing in this Restructuring Agreement shall prevent the Bank from advancing and enforcing any proprietary claim against any Proceeds Asset which has not been disclosed to the Bank pursuant to this Restructuring Agreement.”

However, in my judgment, nothing in clause 13 precludes the Bank from advancing a proprietary claim against a disclosed Proceeds Asset and the proviso to clause 12.4 is in general unlimited terms applicable to all Proceeds Assets, whether disclosed or undisclosed. Furthermore, the argument is a self-defeating one, since under clause 13.1(b) the second defendant would be obliged at the Bank’s request to grant the Bank security over the Afren shares, which would give the Bank the proprietary right in the shares which it claims, as Mr Mallin was constrained to accept at the end of his oral closing submissions.

Mr Anderson QC for the Bank does put the Bank’s claim to the shares on that alternative basis. On 20 February 2008, the Bank demanded that the second defendant grant it a security interest over the Black Merlin shares pursuant to clause 13.1(b) of the RSA. The second defendant failed to comply with that request and since there is a complete identity between the second defendant and the first defendant, that failure gave the Bank an equitable charge over the Black Merlin shares and their proceeds the Afren shares. The first and second defendants have no answer to that point. It follows that, by one route or another, the Bank has a proprietary interest in the Afren shares and is entitled to the Order it seeks in respect of the shares.

In conclusion: