Banca Turco Romana SA v Cortuk & Ors

On 22 and 23 March 2018 I heard applications to continue freezing orders which I granted against the third to fifth defendants on an ex parte application on 16 November 2017. At the conclusion of the hearing I announced my decision that the orders would be set aside and not continued, for reasons which were expressed very briefly due to the lateness of the hour. These are my fuller reasons.

The claimant (“BTR”) was incorporated in Bucharest, Romania in 1993 and until 2002, when it was put into liquidation, it carried on business as a large retail and commercial bank with operations chiefly in Romania but including a wide network of corresponding banks in Turkey and elsewhere. It was closely affiliated with, and majority owned by, the Bayindir Group. The first defendant (“Mr Çörtük”) is the owner and controller of the Bayindir Group.

The second to fifth defendants are joined to the proceedings as non cause of action defendants for the purposes of seeking interlocutory relief from them. The second defendant (“Serkan”) is Mr Çörtük’s son. The third defendant (“Ms Sakarya”) is Mr Çörtük’s daughter. She worked in Human Resources for one of her father’s companies within the Bayindir Group. She is a Turkish citizen and lives in Turkey. The fourth defendant (“Mr Özerman”) worked closely with Mr Çörtük for the Bayindir Group from 1998. BTR describes him as Mr Çörtük’s right hand man. He is a Turkish citizen and resident in Turkey. The fifth defendant (“Ms Gönen”) worked in the Human Resources department within the Bayindir Group from around 1997. She is a close family friend of Mr Çörtük. She too is a Turkish citizen and lives in Turkey.

On 16 November 2017 I granted freezing orders against each of the five defendants together with ancillary disclosure orders. The return date was 1 December 2017. The first and second defendants have played no part in these proceedings. They did not appear at the return date, when the orders were continued against them. They have failed to comply with the disclosure provisions. Ms Sakarya, Mr Özerman and Ms Gönen sought, and were granted, an adjournment of the return date in order to prepare evidence to resist the continuation of the orders.

The relief sought against Ms Sakarya, Mr Özerman and Ms Gönen is ancillary to the substantive claim against Mr Çörtük and to various proceedings seeking to enforce that claim. The claim is based on what has been described as “the Deposit Account Fraud”, namely that between 1998 and April 2000 Mr Çörtük caused BTR fraudulently to pledge large deposits held by BTR with foreign banks as security for loans made to the Bayindir Group, to a total value of about US$108 million and €14.8 million; the Bayindir Group company then defaulted on the loans, causing the lenders to exercise their security over BTR’s deposits. A criminal investigation was opened against Mr Çörtük and a number of the other directors in Romania in February 2001. BTR joined its civil claim to the criminal proceedings seeking damages against Mr Çörtük and the other directors. On 19 April 2007 a first instance judgment awarded BTR the full amount sought. There were appeals, ultimately to the Second Criminal Chamber of the Court of Appeal of Bucharest, which in material respects dismissed the appeal on 25 May 2012. In that decision (“the Romanian Judgment”) the court held that Mr Çörtük had been instrumental in perpetrating the Deposit Account Fraud which had directly led to the insolvency and liquidation of the bank on 3 July 2002. The Court sentenced Mr Çörtük to 13 years imprisonment (a period subsequently reduced to 10½ years), and held Mr Çörtük liable to pay to BTR approximately US$59.4 million and €11.3 million plus interest. That judgment debt remains unsatisfied, save for a sum of CHF2.8 million which was recovered as a result of criminal proceedings in Switzerland against Mr Çörtük. Following the judgment and a request by Romania, Interpol issued a red notice for Mr Çörtük’s arrest and extradition. He has served no part of his sentence and has evaded extradition and arrest. Mr Çörtük and his son, Serkan, now reside in Monroe Township, New Jersey, USA. He maintains his innocence of the Deposit Account Fraud and has alleged that the Romanian proceedings, in which he took no part, were without jurisdiction and a breach of his human rights.

BTR filed an application for recognition and registration for enforcement of the Romanian Judgment in this court on 20 November 2017, shortly after the ex parte application for the freezing orders and as foreshadowed at the hearing of that application. On 28 November 2017 Master Kay QC made such an order (“the Enforcement Order”). It has been served on Mr Çörtük and the period of two months within which Mr Çörtük was entitled to apply to set it aside have passed without any such application. It is accordingly now final.

The basis on which BTR says that the freezing order relief is appropriate and necessary against Ms Sakarya, Mr Özerman and Ms Gönen can be summarised as follows. The freezing order against Mr Çörtük alone is unlikely to be fully effective because he has hidden his significant assets in a complex web of entities across multiple jurisdictions. As a convicted criminal and a fugitive from justice he has demonstrated a propensity for dishonesty. His concealment of his assets relies to a significant extent on the assistance of Ms Sakarya, Mr Özerman and Ms Gönen who hold or control or manage a significant proportion of those assets at his direction or for his benefit. They must therefore also be restrained lest Mr Çörtük simply use them as his agents to help him to continue to evade justice. It is said that the freezing orders lend real and valuable support to four sets of proceedings, namely (1) the proceedings in England pursuant to the Enforcement Order; (2) the Romanian liquidation proceedings; (3) proceedings in New Jersey in the bankruptcy of Mr Çörtük; and (4) enforcement proceedings in Switzerland. Only (1) and (2) were relied on at the ex parte application.

The application focussed on three groups of assets said to be beneficially owned by Mr Çörtük, namely (1) the Rowena structure, (2) the Tempus structure, and (3) in Ms Gönen’s case, a life insurance policy.

Assets within the Rowena structure are held as follows. At the head of the structure is Rowena Ventures Limited, a BVI company. Its shares are held by Lemania International SA, a Panamanian registered entity owned by a corporate service provider as nominee. Those shares are held as nominee ostensibly for Ms Sakarya. Ms Sakarya’s case is that she is the ultimate beneficial owner of the shares in Rowena and accordingly of the assets below Rowena in the structure. It is BTR’s case that in truth Mr Çörtük is the beneficial owner of the shares in Rowena and the assets in the structure below it. Rowena was placed into voluntary liquidation on 3 April 2013 and was struck off the BVI register, but there are grounds to believe that it has made the necessary payments for its restoration and that it has been or will be restored.

Rowena owns all the shares in Hollydale Investments Ltd, an English company. Hollydale Investments Ltd owns all the shares in Westpoint Industries (UK) Ltd, another English company (“Westpoint UK”). The directors of Westpoint UK are Senton Properties Ltd which is part of Dominion, a wealth services provider assisting Mr Çörtük; and Ms Roue of Vicena, a corporate service provider. Serkan holds a power of attorney for Westpoint UK. Other than a Swiss bank account which is not relied on for the purposes of this application, Westpoint’s only known assets are its 100% shareholding in Westpoint USA Inc (“Westpoint USA”), a company incorporated under the laws of New Jersey USA. Westpoint USA owns three companies incorporated under the laws of New Jersey, USA, each with Iron Bridge in its name (“the Iron Bridge Companies”), which in turn operate a business in engineering and construction with significant valuable assets. The location of that business and those underlying assets was not revealed by the evidence before me, but it is reasonable to infer that they are in whole or in part in New Jersey.

The Tempus Foundation is a Liechtenstein foundation, which, so far as the evidence on this application is concerned, it is common ground is ultimately beneficially owned by Mr Çörtük. The Tempus Foundation owns (indirectly) all the shares in Teneo Holdings Ltd (“Teneo”) a company incorporated in Malta. Mr Özerman has been, and is believed by BTR still to be, the sole signatory of Teneo. Teneo holds all the shares in Piedmont Investments Ltd (“Piedmont UK”) an English company. Piedmont’s directors are Ms Roue and a corporate director registered at the same address. Piedmont UK own 99% of the shares in S.C. Piedmont Investments SRL (“Piedmont Romania”) a Romanian company. The other 1% shareholding in Piedmont Romania is held by Mr Özerman. Mr Özerman is a director of Piedmont Romania. Piedmont Romania holds valuable assets in the form of land in Bucharest, Romania. It is BTR’s case that some of that land, the Stefanesti land, was purchased with the proceeds of another fraud which Mr Çörtük perpetrated on BTR by procuring in August 1997 that BTR purchased a Bucharest office block, known as the Negoiu Building from a Bayindir company for US$8.8 million which was at an overvalue of almost US$5.5 million. In support of this allegation BTR rely upon valuation by a Mr Nistor produced subsequently and concluding that the true value of the building at the time was a little over US$3.3 million. This was characterised by BTR as “the Romanian Real Estate Fraud”. On 30 September 2017 Piedmont Romania was put into suspension for three years by a resolution of its shareholders which was signed by Mr Özerman on his own behalf as 1% shareholder and on behalf of Piedmont UK as 99% shareholder. BTR contends that it is susceptible to being brought out of suspension at any time by its shareholders.

Ms Gönen purchased a life insurance policy with Credit Suisse Life (Bermuda) Ltd in April 2011 with an initial premium of US$3.6m, paid from her Credit Suisse account in Switzerland. The policy named Mr Çörtük as the alternate beneficiary, and thereafter his grandchildren. Mr Çörtük took out a policy for the same amount and at the same time in identical terms, naming Ms Gönen as alternate beneficiary and thereafter his grandchildren. It is BTR’s case that the policy in Ms Gönen’s name was purchased with funds that were in truth those of Mr Çörtük and on his behalf. There was a partial redemption of US$160,000 from the policy on 12 November 2012 and a total redemption in late 2013, resulting in all the proceeds being received by Ms Gönen into her personal account on 8 January 2014. The US$160,000 redeemed in November 2012 was paid to Teneo. BTR’s case is that that was paid for Mr Çörtük’s benefit, consistently with the policy having been for his benefit and with his ownership of the Tempus structure. Ms Gönen’s case is that it was paid to Teneo for onward payment to Piedmont Romania for the purchase of two apartments as an investment, but not ultimately used for that purpose because the funds were frozen in Teneo’s account as a result of which the property transaction did not proceed.

Insofar as the relief against the NCAD defendants is sought in support of the English Enforcement Order, BTR invokes Section 37 of the Senior Courts Act 1981. Insofar as the relief sought is ancillary to foreign proceedings, BTR invokes the jurisdiction under Section 25 of the Civil Jurisdiction and Judgments Act 1982. So far as s. 37 is concerned, BTR must establish that the relief sought falls within the principles governing ancillary relief against non-parties, and that it is just and convenient to make the orders. Section 25 requires BTR to establish that it would be appropriate to grant the relief sought if the foreign proceedings were before the English court; and that the fact that the foreign proceedings are not before the court does not render inexpedient to grant the relief sought.

BTR must also establish in personam jurisdiction over each of the relevant respondents. So far as s. 37 relief is concerned, BTR relies upon CPR 6B PD paragraph 3.1(3), namely that there is a serious issue to be tried in the claim pursuant to the Enforcement Order and the respondents are necessary or proper parties to that claim; alternatively that the gateway in paragraph 3.1(10) can be invoked insofar as the freezing orders prevent or seek to prevent the dissipation of Mr Çörtük’s assets which would otherwise be amenable to enforcement. So far as s. 25 relief is concerned, BTR relies upon paragraph 3.1(5). In either case, BTR must establish that it is just and proper to make an order for service out of the jurisdiction, which engages questions as to whether England is the appropriate forum.

The relief which was granted in the freezing orders of 16 November 2017, and which BTR seeks to be continued on this application, identified two categories of assets:

“Received Assets”, which were defined as “any which the relevant respondent received from, or in which [he/she] has acquired a direct or indirect interest from, Mr Çörtük, and which [he/she] holds for Mr Çörtük directly or indirectly whether as agent, nominee, trustee or otherwise, which is within England and Wales [up to a stated value].” Assets are Received Assets “whether or not they are in the respondent’s own name and whether they are solely or jointly owned and whether the respondent is interested in them legally, beneficially or otherwise. For the purpose of the order the Received Assets include any assets [he/she] has received or acquired from Mr Çörtük which jointly with or for the benefit of Mr Çörtük [he/she] has the power, directly or indirectly, to dispose of or deal with as if it were [her/his] own. The respondent is to be regarded as having such power if a third party holds or controls the asset in accordance with [his/her] direct or indirect instructions.” The orders restrained any dealing with Received Assets.

“KC Assets”, which were defined as “assets which the respondent knows or believes to be assets of Mr Çörtük whether or not in his own name and whether or not solely or jointly owned and whether or not Mr Çörtük is interested in them legally, beneficially or otherwise.” The KC Assets were further defined as including assets which to the best of the respondents’ knowledge or belief Mr Çörtük has the power, directly or indirectly, to dispose or deal with as if it were his own. Mr Çörtük is to be regarded as having such power if a third party holds or controls the asset in accordance with his direct or indirect instructions.” The orders restrained the respondents from procuring or assisting in dealing with assets known or believed to be KC Assets.

As well as these general definitions, in each case the orders identified particular assets as constituting Received Assets and KC Assets, the detail for the former differing for different respondents, and with some overlap. In the case of Ms Sakarya and Mr Özerman, the identified Received Assets included assets in the Rowena and Tempus structures, including the shares in Westpoint UK and Piedmont UK respectively. It was these shareholdings which Mr Riches for BTR placed in the forefront of his submissions as providing the necessary jurisdictional link with England justifying the English Court granting the ancillary relief. In the case of Ms Gönen the identification was limited to the proceeds of the life insurance policy.

In relation to the Received Assets, BTR invokes the well know Chabra jurisdiction to support the orders. Those principles have been considered in a number of authorities, most recently Algosaibi v Saad Investments Co Ltd (CICA 1 of 2010), Linsen International Ltd v Humpuss Sea Transport PTE Ltd [2011] 2 Lloyd’s Report 663, Parbulk II AS v PT Humpuss Intermoda Transportasi TBK (The Mahakan) [2012] 2 All ER Comm 513. I endeavoured to summarise the principles in paragraph 7 of my judgment in PJSC v A Bank of Maksimov [2013] EWHC 422 (Comm) which was cited with approval by Tomlinson LJ in Lakatamia v Nobu Su [2014] EWCA Civ 636 at [32]. The principles permit relief where a non cause of action defendant (“NCAD”) holds assets which would arguably be amenable to execution of a judgment against the cause of action defendant (“CAD”). A NCAD “holds” such assets by having legal control over such assets, or at least de facto independent control, including a discretionary power of disposition.

It is to be noted that this principle is not sufficient to support the relief in respect of the KC Assets, insofar as they are unidentified, or do not overlap with the identified Received Assets, or where they overlap but no good arguable case is made out of the element of control. The justification advanced for wider relief in relation to the KC Assets is that these respondents have been closely “mixed up in” assisting Mr Çörtük in dealing with the assets in the past, and that unless restrained there is a real risk that they will continue to do so and thereby to assist him to breach the freezing order against him and to hide and dissipate his assets to defeat enforcement of the Romanian Judgment. At the ex parte hearing there was no identification of this distinction, the focus being on the control exercised by the NCAD defendants over various assets. In BTR’s skeleton argument for the inter partes hearing, it was asserted that this was part of the Chabra jurisdiction which was well established wherever the NCAD has been “involved in” the CAD’s efforts to move his assets around the world or is himself “caught up in” the CAD’s efforts to frustrate enforcement. In oral argument, Mr Riches submitted that such jurisdiction existed, albeit at “the outer limits”, and was supported by a dictum of Gloster J, as she then was, in The Mahakan at paragraph [56], but was better characterised as a separate aspect of the jurisdiction under s. 37 than as part of the recognised Chabra jurisdiction.

I am inclined to think that section 37, which is in very wide terms, would permit ancillary relief against a person mixed up in the affairs of a CAD to restrain that person from doing acts which would assist the CAD to deal with assets in a way which would defeat the freezing order against the CAD, in an appropriate case where such relief was necessary to render the primary relief against the CAD effective. It might arise, for example where a secretary was habitually used to carry out the CAD’s disposition instructions. The basis on which the court has regularly made ancillary orders, including those which fall squarely within the Chabra jurisdiction, is so as to render an order against a CAD effective. However, the fact that Mr Riches was not able to point to any reported decision in which relief was granted on this basis suggests that it will be a rare case in which it is justified by the particular circumstances of an individual case. This may be, as Mr Leabeater submitted, because in the case of a domestic respondent, sufficient protection is given by serving notice on the NCAD of the freezing order against the CAD; and in a case where the NCAD is abroad and merely “mixed up in” the affairs of the CAD without exercising control over disposition, the restrictions on the extraterritorial reach of orders will usually preclude the exercise of any such jurisdiction (e.g. in relation to foreign bank branches). Moreover, if a party is threatening to assist a CAD to breach a freezing order, the appropriate course may be to allege a threatened tort (e.g. conspiracy to injure by unlawful means) and to seek quia timet relief against that party as a CAD.

Where relief is sought involving respondents and/or assets which are not within the jurisdiction, whether under s. 37 SCA 1981 or s. 25 CJJA 1982, careful consideration needs to be given to the proper scope of any involvement of the English court. The relevant principles have been considered in a number of cases, notably Credit Suisse Fides Trust SA v Cuoghi [1998] QB 818, Motorola Credit Corporation v Uzan and others (No. 2) [2004] 1 WLR 113; Banque Nationale de Comercio Exterior SNC v Empresa de Telecommunicacions de Cuba SA (British Telecommunications PLC intervening) [2008] 1 WLR 1836, which in turn refer to the decision of the European Court of Justice in Van Uden Maritime BV v Kommanditgesellschaft in Firma Deco Line (case C/391/95) [1999] QB 1225. In ICICI Bank UK plc v Diminco NV [2014] EWHC 3124 (Comm), [2014] 2 CLC 647 I endeavoured to express the principles which were to be derived from those authorities in the following terms:

It is necessary to describe in a little detail the course of proceedings in relation to BTR’s claims here and abroad.

Master Kay QC made the Enforcement Order on 28 November 2017. At the ex parte hearing before me on 16 November 2017, BTR stated that enforcement was to be applied for pursuant to Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition of enforcement of judgments in civil and commercial matters (“the Brussels I Regulation”). That was the basis on which the enforcement order was subsequently applied for and granted. The applicability of the Brussels I Regulation was supported on both occasions by the following analysis. The Brussels I Regulation applied by virtue of Article 66(2) of Regulation (EU) 1215/2012 (“Brussels Recast”) which provides that the Brussels I Regulation continues to apply to judgments given in proceedings instituted before 10 January 2015 which fall within its scope. Article 66 of the Brussels I Regulation applies its provisions to enforcement of proceedings commenced before it came into force in the circumstances identified in sub paragraphs (a) and (b). Article 66(2)(a) was inapplicable because Romania had not acceded to the Brussels Convention. Accordingly, Article 66(2)(b) applied, which required jurisdiction in Romania to have been founded upon rules which accorded with those provided for in Chapter II. Jurisdiction was founded in Romania in accordance with Article 5(4) of Chapter II of the Brussels I Regulation because Mr Çörtük was domiciled in a Member State, namely Romania.

BTR subsequently notified Master Kay QC and the Commercial Court, that that basis might not be correct, because it was based on an assumption, rather than any firm evidence, that Mr Çörtük was domiciled in Romania at the time. The evidence of Ms Saita, the representative of the corporate liquidator of BTR, is that BTR simply does not know one way or the other whether that is the case given Mr Çörtük’s movements. However, if he was not domiciled in Romania at the time, nevertheless the enforcement proceeding came within Article 66(2)(b) because jurisdiction was assumed under Article 4 of Chapter II, namely a jurisdiction determined by the law of the Member State, Romanian domestic law establishing a right to exercise jurisdiction over Mr Çörtük by virtue of a combination of Article 30 of the former Romanian Criminal Procedural Code and Article 14 of the current Romanian Criminal Procedural Code. On the application before me it was not contested that this formed an adequate jurisdictional basis for the Enforcement Order, which still arose under Article 66(2)(b) of the Brussels I Regulation. However, this was said to involve a breach of the duty of full and frank disclosure on the ex parte application.

Criminal proceedings were commenced in Switzerland on 13 February 2013 following an anti money laundering investigation in respect of Mr Çörtük. In support of those criminal proceedings the Attorney General of Geneva froze assets of Mr Çörtük and Teneo. BTR obtained recognition in Switzerland of its insolvency and filed for enforcement of the Romanian Judgment in Switzerland. It was joined to the criminal proceedings and itself filed for attachment of the frozen assets. The criminal and civil proceedings were based upon the allegation by BTR of Mr Çörtük’s involvement in the Romanian Real Estate Fraud, i.e. that relating to the sale at an alleged overvalue of the Negoiu Building in 1997. The criminal money laundering proceedings, and BTR’s civil claim which was joined to it in relation to the Romanian Real Estate Fraud, were settled by the way of a confidential settlement agreement by all the relevant parties, being Mr Çörtük, Rowena, Tempus, Teneo and the Attorney General of Geneva. The confidential settlement agreement dated 4^th November 2016 (“the CSA”) provided that the CHF2.8 million which was frozen should be forfeited to BTR. The CSA provided in terms that Mr Çörtük’s consent to the settlement and forfeiture of the assets was given without accepting or assuming any criminal or civil responsibility in relation to the allegations against him or the validity of the Romanian Judgment. Clause 5 of the CSA was a confidentiality clause which provided in relevant parts:

Although the CSA brought to an end the criminal proceedings, and the civil claim within it in relation to the Romanian Real Estate Fraud, BTR’s claim to enforce the Romanian Judgment in Switzerland remains ongoing. On 2 March 2017 BTR obtained an attachment of the shares of Teneo, Rowena and Tempus on the basis that they were assets beneficially owned by Mr Çörtük.

BTR commenced proceedings against Mr Çörtük, Ms Sakarya and Westpoint UK in the US District Court of the District of New Jersey by a Complaint dated 11 September 2017 (“the New Jersey Civil Claim”). BTR sought two heads of relief. The first was a declaration that Westpoint UK was Mr Çörtük’s alter ego, a sham and a façade, and that its independent legal personality should be disregarded. The declaratory judgment sought, categorised as “Reverse Piercing Westpoint UK”, was that Westpoint UK’s separate existence should be disregarded, Mr Çörtük and Westpoint UK should be treated as one and the same, and, that as a consequence, Westpoint UK’s property should be subject to execution by BTR through the liquidator Ms Saita. The prayer for relief was as follows:

The second head of relief related to a specific property, namely 5 Spy Glass Court in Monroe Township, New Jersey (“Spy Glass Court”), which was in Ms Sakarya’s name. Spy Glass Court was transferred on 15 June 2015 to Ms Sakarya by Westpoint UK for US$1. This was characterised as a fraudulent transfer which BTR sought to “unwind”. The prayer for relief sought the avoidance of the transfer, an injunction against further disposition of the property or proceeds of any sale thereof by Ms Sakarya and/or Westpoint UK and a money judgment against Mr Çörtük and Ms Sakarya in an amount equal to sale price of the property if the sale had taken place. By a Notice of Lis Pendens filed on 12 September 2017, BTR sought to prevent any sale of the property pending resolution of the New Jersey Civil Claim. Shortly prior to the ex parte hearing before me, the parties agreed that the property could be sold and the proceeds held in escrow, and an order to that effect was made on 15 November 2017.

On 29 November 2017, Mr Çörtük filed for voluntary Chapter 7 bankruptcy in the US Bankruptcy Court in New Jersey, apparently in response to the service of my freezing order on him. Upon the bankruptcy, an automatic stay was imposed on all proceedings against Mr Çörtük. This included the New Jersey Civil Complaint, which was transferred into the bankruptcy proceedings. BTR sought relief from the stay so as to be permitted to continue the English enforcement proceedings and the current proceedings for freezing order relief against Mr Çörtük and the non cause of action defendants, together with the Swiss enforcement proceedings. Mr Çörtük’s trustee in bankruptcy supported the lifting of the stay for those purposes, which was granted by Judge Grenville, the Bankruptcy Judge, in a judgment of 13 February 2018. In its motion seeking the lifting of the stay, BTR told the bankruptcy court that the freezing order proceedings in England extended to Spy Glass Court. That was not accurate. My ex parte orders specifically carved out Spy Glass Court from the scope of relief, on the basis that BTR’s position was adequately protected by the order of the New Jersey Court in the New Jersey Civil Claim, or at least that there was no evidence before me that such order did not provide adequate protection.

Ms Sakarya, Mr Özerman and Ms Gönen submit that there were material misrepresentations and non-disclosure in applying ex parte for the orders against them, such that my order should be discharged and no further relief should be granted against them. The alleged misrepresentations/non-disclosures comprise the following:

the characterisation of the New Jersey Civil Claim and the failure to identify and make clear that it was concerned with a declaration that all Westpoint UK’s assets were in truth those of Mr Çörtük and amenable to enforcement in New Jersey, including the assets of Westpoint US and the Iron Bridge companies; and that such proceedings involved an allegation that Westpoint UK’s separate corporate personality should be ignored;

the continued existence of enforcement proceedings in Switzerland;

the nature and terms of the settlement in the Swiss proceedings;

the weaknesses in the Romanian Real Estate Fraud allegation;

evidence casting doubt on whether Ms Gönen’s life insurance policy was purchased with Mr Çörtük’s beneficially owned assets;

the erroneous basis advanced for jurisdiction to make the Enforcement Order under the Brussels I Regulation.

Mr Özerman and Ms Sakarya further argue that there is no evidence that they hold or control assets in a manner which brings them within the Chabra jurisdiction. Each of the respondents further argues that it is not just and convenient, and is inexpedient, to grant relief for a number of reasons, including that it would serve no useful purpose; none of the assets, nor the defendants, are within the jurisdiction; the only connection with this jurisdiction is Westpoint UK and Piedmont UK in the two relevant assets structures as intermediate holding companies; the underlying assets in the structures are abroad; and in any event the question whether the shares in Westpoint UK and the underlying assets within that structure comprise the assets of Mr Çörtük and should be available to enforcement of the Romanian judgment are already in issue in the New Jersey claim and there is no evidence that the New Jersey courts (now the Bankruptcy Court) would not have the equivalent or at least sufficient powers to protect BTR’s position.

The way in the which the New Jersey Civil Claim was presented to the court was misleading and unsatisfactory in the following respects:

In Ms Saita’s first affidavit in support of the application she described the proceedings in the following terms:

At paragraph 188(e) Ms Saita was addressing why England was the appropriate place in which to obtain the relief which was being sought. She said “there will be no conflict with any freezing or other orders elsewhere. The applicant has spent the last year obtaining disclosure from corporate service providers which have shown a nexus of interests of Mr Çörtük in England. It is now therefore in England that the present steps are being taken. There are no similar steps being taken elsewhere. The Swiss Criminal Proceedings have concluded. The New Jersey proceedings concern the transfer of Spy Glass Court and provide some limited protection as regarding the proceeds of sale of that property, if it is sold at a true market value;”

Mr Saita did not exhibit the Complaint to her affidavit, notwithstanding that she exhibited hundreds of pages of other documentation.

In the skeleton argument for the ex parte hearing the misleading impression was maintained and not corrected. In paragraph 59 the proceedings were simply referred to as “proceedings in New Jersey in which BTR alleges that the transfer of the property by Westpoint UK to Ms Sakarya in 2015 was at an undervalue”. This true but incomplete description of the New Jersey proceedings again reinforced the impression that they were solely concerned with the Spy Glass Court property.

At the ex parte hearing Mr Riches said at one stage that because the proceedings sought to set aside the transfer, there was a good arguable case that the property was or ought to be property of Westpoint UK and that accordingly the New Jersey proceedings did not necessarily mean that Westpoint UK did not hold a cause of action in this country in relation to Spy Glass Court. In that context he said:

I was further misled later in the hearing when Mr Riches was dealing with the connecting links between the relief sought and England. He stated that that “this is the only place at the moment where the judgment is being enforced because you will have seen that there are certain limitations on the ability to enforce in Romania, in particular the fact the court can only enforce against assets in the name of the individual… There are no other substantive proceedings on foot. There are ancillary proceedings recognising the bankruptcy but they are not going to obtain the relief that is going to be sought. It is only England that is at present a place where the substantive enforcement of the judgment is going on.” This was not true. In the New Jersey Civil Claim BTR was seeking to enforce the Romanian Judgment against Mr Çörtük by seeking a declaration that the assets in New Jersey below Westpoint UK within the Rowena structure were in truth Mr Çörtük’s and amenable to execution of the judgment in that jurisdiction.

This misleading impression was not corrected in the course of a further submission shortly afterwards that:

BTR was in serious breach in its duties to the court in relation to these New Jersey proceedings. It made positive misrepresentations as to their nature and scope, as well as failing by its omissions to give a fair picture to the court. The nature of those proceedings, and in particular the first of the two aspects of the relief sought, were highly material to the issues which this court had to consider on the ex parte application. A central part of the claim in the New Jersey proceedings was that the Rowena structure, or at least Westpoint UK, was to be treated as part of the assets of Mr Çörtük so as to be available to execution of the Romanian Judgment. That was material to the relief which was being sought from the English court for two reasons. First, in considering whether it was just and convenient, or not inexpedient, to grant relief under Section 37 and Section 25 respectively, the court needed to consider the extent to which relief was being sought and/or was available in other jurisdictions. The fact that equivalent substantive relief to enforce against the assets of Westpoint UK, by treating the assets of Westpoint UK as the assets of Mr Çörtük, was being sought from the New Jersey court immediately gives rise to a question as to whether that court is the appropriate court for the purposes of granting ancillary relief of the type sought from the English court and whether it has the power to do so. There is no evidence before me now that it does not have that power, and at the ex parte stage that question was not addressed because the nature of those proceedings was misrepresented. This was all the more culpable given that it was apparent from my interventions during the course of the ex parte hearing in relation to Spy Glass Court that I regarded such questions as being material, and ultimately as the reason why Spy Glass Court was specifically excluded from the order granted. Secondly the English character of Westpoint UK was one of the lynchpins relied upon by BTR as justifying the English court assuming jurisdiction to grant relief, the relevant relief being that a receiver would be appointed over the shares in Westpoint UK Limited so as to take control of the assets within the Rowena structure held by Westpoint UK and its subsidiaries. The separate corporate personality of Westpoint UK was an essential ingredient of that lynchpin. The allegation in the New Jersey Civil Claim was that the separate corporate personality of Westpoint UK should be disregarded as a sham, so as to treat the underlying assets of the Iron Bridge companies of those of Mr Çörtük. The stance in the New Jersey Civil Claim was inconsistent with an important part of the justification for the relief being sought before the English court, where BTR was keen to emphasise (e.g. at paragraph 74 of its skeleton) that its arguments did not challenge the separate corporate personality of the entities in the Rowena structure.

The materiality of the non-disclosure lies not merely in the fact that inconsistent arguments were being advanced in the two different jurisdictions, but importantly that the New Jersey basis of claim seriously undermined the basis for seeking relief in England which was that Westpoint UK provided a critical jurisdictional link, and that the substantive enforcement which the orders would assist was appointment of a receiver over its shares so as to permit enforcement against the underlying assets in the structure, and England was the only jurisdiction where such substantive enforcement was being sought.

I am driven by a number of factors to conclude that BTR’s conduct in this respect was deliberate:

The allegations of non-disclosure were advanced by these respondents in correspondence, evidence and argument, giving BTR a full opportunity to explain how the conduct complained of had come about. BTR provided no explanation in any witness statement. Instead in its skeleton argument prior to the hearing, BTR was dismissive of there having been any non-disclosure at all, and at the hearing Mr Riches dealt with the matter by suggesting that only in one or two respects would they “put their hands up”. The absence of any explanation makes it impossible to identify where the fault lies. But it gives rise to a strong inference that there is no innocent explanation which can be put forward. The very least that can be said is that no innocent explanation has been put forward, and if an applicant who is guilty of non-disclosure wishes the court to treat it as innocent, it is incumbent upon it to explain how it came about.

There were repeated misrepresentations of the position, which it would be difficult to explain by a single slip or mistake in the use of language.

The critical omission formed the subject matter of much of the Complaint and the primary relief being sought. It cannot have been overlooked by accident. Moreover the language used to define the proceedings as “fraudulent transfer proceedings” must have been consciously chosen and was itself such as to perpetrate the misleading impression.

The failure by Ms Saita to exhibit or refer to the Complaint is unlikely to have been an oversight, given the diligence with which she referred to and exhibited a very large number of other documents, many of far less relevance, when swearing her affidavit. Mr Riches submitted in reply that the position was “complex” and “moving fast”. This is not accurate. Given the time which was available, and obviously used, to prepare the application, this was not a case in which any lapse is explicable by any urgency in coming to court.

The conclusion that BTR’s conduct was deliberate is reinforced by the misleading of the New Jersey Bankruptcy Court when seeking to lift the automatic stay so as to permit the English freezing order proceedings to continue, which involved wrongly suggesting that the English proceedings extended to 5 Spy Glass Court. That misrepresentation is also unexplained, and is of a piece with a general policy of failing to be frank with courts about the full extent of the scope of proceedings elsewhere.

Moreover the presentation of the evidence in relation to the New Jersey Civil Claim is not the only aspect of the ex parte application in which BTR misled the court: see below.

At the ex parte hearing the only foreign proceedings by reference to which relief was said to be justified under s. 25 were the Romanian insolvency proceedings. At the return date hearing relief was said to be justified by, amongst other things, the continued proceedings in Switzerland to enforce the Romanian Judgment. Yet at the ex parte hearing Mr Riches said that there were no other substantive proceedings abroad: “It is only England that is at present a place where the substantive enforcement of the judgment is going on”. That was untrue and constitutes another serious breach of the duty of full and frank disclosure. The absence of any substantive enforcement proceedings abroad was the foundation for asking the English Court to take “clear priority jurisdiction” so as to justify the relief being sought. This breach has not been explained and I am unable to say where the fault lies, but accordingly I have no basis for treating it as other than deliberate.

In her affidavit, Ms Saita misrepresented the position in relation to the Swiss settlement. At paragraph 87 she said:

This was not true: the Swiss prosecutor had not forfeited the funds as being proceeds of crime. The true position, as set out in the CSA, was that there was a consensual agreement between the Swiss prosecutor, Mr Çörtük, BTR, and the other companies and entities, which was expressly on the basis that it was without any finding or admission as to whether those funds were the proceeds of crime, with Mr Çörtük maintaining his innocence both in relation to the subject matter of the Romanian Judgment, and in relation to the alleged Romanian Real Estate Fraud which formed the subject matter of the criminal and civil proceedings which were being terminated. This misrepresentation was material because it gave the impression, as must have been intended, that the Swiss prosecutor had treated funds held by Teneo, Rowena and Tempus as proceeds of crime by Mr Çörtük, and moreover as being amenable to execution in BTR’s claim against Mr Çörtük notwithstanding that they had been held by those entities. The impression given was that this was a decision of the Swiss prosecutor on the merits of the position, whereas in fact it was a consensual arrangement involving no such judgment by the Swiss prosecutor and with Mr Çörtük making no admissions and reserving his position.

Mr Riches submitted that because of the confidentiality provision in the CSA it was not open to BTR to refer even to the existence of the settlement agreement, let alone its contents. This provides no answer for two reasons. First, if it was necessary to refer to the Swiss proceedings and to the manner in which the CHF2.8 million had come to be obtained and applied against the Romanian Judgment, as it clearly was, there arose a duty of full and frank disclosure in relation to that aspect of the history. BTR came under a legal obligation to make such disclosure, which involved disclosing the existence and the nature of the CSA. Accordingly, Clause 5.1 did not form any impediment because disclosure was required by law. Secondly, and in any event, the terms in which Ms Saita referred to the Swiss criminal and associated civil proceedings coming to an end was positively misleading and incorrect. No restraint on referring to the existence of the settlement agreement, had it existed, would have justified misleading the court in that way.

Although Mr Riches advanced this by way of submission as an excuse for failing to refer to the CSA, it was not put forward in BTR’s evidence as an explanation as to why it had in fact failed to do so. Nor was there any explanation as to why Ms Saita positively misrepresented the position. BTR had ample opportunity to do so having been alerted to this aspect of the non-disclosure complaint in correspondence, evidence and argument from the defendants. I am, again, unable to conclude that this breach of the duty of disclosure was other than deliberate. It was intended to give the impression, which it in fact gave, that the Swiss authorities also took the view that the assets within the Rowena and Tempus structure were in truth the assets of Mr Çörtük, that Mr Çörtük was thought by the Swiss prosecuting authorities to be guilty of the Romanian Real Estate Fraud by reference to the merits of the allegations, and that Mr Çörtük’s dishonesty and use of those structures to hide his funds gained further support from the way the Swiss prosecutor had dealt with the proceedings. That was a false and misleading impression. Mr Riches submitted that the Romanian Real Estate Fraud was not a necessary part of the basis for any of the relief being sought: the Enforcement Order was to enforce the Romanian Judgment, which was in turn based solely on the Deposit Account Fraud; the Romanian Real Estate Fraud formed the background to the claim that the Stefanesti land held by Piedmont Romania was in truth Mr Çörtük’s, but whether it was acquired with funds which were the result of a fraud or an honest transaction made no difference to that position. Those submissions missed the point. The misleading impression extended to the question whether assets held by the Rowena and Tempus structure were in truth the assets of Mr Çörtük. Moreover, the Romanian Real Estate Fraud was advanced by Ms Saita in her affidavit, and in the argument at the ex parte stage, as a fraudulent aspect of Mr Çörtük’s behaviour supporting the need to provide relief in respect of hiding and dissipating his assets. Even if it had only been a matter of “prejudice”, that would not excuse a breach of duty. As Dillon LJ stated in Lloyds Bowmaker Ltd v Britannia Arrow plc [1988] 1 WLR 1337 at page 1348F:

This complaint of failure to make full and frank disclosure rests on a failure to draw to the court’s attention two aspects of the weakness in the case that the office block was sold to BTR at an overvalue of US$5.5 million. The first is that it was based on the valuation report of a Mr Nistor, who used an extraordinary valuation method based on construction costs many years after the event, and did not purport to value the property by reference to contemporary market sales; and who, moreover, has subsequently been convicted of making fraudulent valuations. Mr Nistor’s report was exhibited to Ms Saita’s affidavit, which referred to it as supporting the allegation, but the basis of valuation was not identified in the affidavit and the contents of the report were not drawn to my attention. The second aspect of the complaint is that the overvalue question was at the heart of the Swiss criminal investigation, but the Geneva Criminal Appeals Chamber expressed doubts whether the sale was at an overvalue in a judgment of 27 May 2015. The judgment was exhibited to Ms Saita’s affidavit in support of the application, but this aspect was not referred to by her and I was not taken to the relevant part of the judgment in the exhibit.

I do not think that any legitimate criticism can be made in respect of Mr Nistor’s conviction. Ms Saita has explained that she was unaware of it, and it cannot fairly be said that she was at fault in having failed to discover it. However the failure to explain the valuation methodology and draw attention to the relevant part of the report is a breach of the duty of full and frank disclosure. The report was dated 1 September 2014, over 16 years after the sale. What Mr Nistor did was to use a “replacement value method” which took an initial construction cost from catalogues as those for various aspects per square metre for building construction, electrical systems, heating systems, plumbing systems etc, applying uplifts for the increases in such costs according to other published data, and then applying an apparently arbitrary 30% figure for depreciation. To this was then applied an uplift of 364% to determine market value by seemingly arbitrary figures to reflect amenity considerations, including, for example “location in the central area of the capital 200%”, “for the location on a quiet street 15%”, “for the use of the building as commercial space/offices 100%” and so on. Had this been drawn to the court’s attention, it would have raised serious doubts whether the report was sufficient to support the allegation that the transfer to BTR was at a fraudulent overvalue. Such a case would have been further undermined by the Geneva Judgment, drawing attention as it did to other evidence of relevance, such as that the minority shareholder in BTR had never complained of or questioned the transaction.

Mr Riches’ response was that there was other evidence supporting the allegation of overvaluation. But this is no answer when the duty is to draw attention to any contrary arguments which may reasonably be anticipated: the duty arises because the defendant is not present, and for that very reason requires the applicant to draw attention to such points as it can anticipate might be made by a defendant were he present or represented. The weaknesses in the Nistor valuation, and what the Swiss Court said about the overvaluation allegation evidence fall squarely within that category. It is true, as Mr Riches submitted, that the Romanian Real Estate Fraud was not a critical ingredient of the basis for relief being sought from the court; it was however relied on both in Ms Saita’s affidavit and the skeleton argument in support of the ex parte application, and even if no more than “prejudice”, required a fair presentation.

The main complaint under this head was a failure to draw the court’s attention to the fact that the Swiss prosecutor had said that it had no concerns about Ms Gönen redeeming the policy in December 2013 and that Credit Suisse had itself had applied its mind carefully to whether there was any cause for regulatory concern as to the source of the funds which Ms Gönen had used to purchase the life insurance policy and had concluded that it did not. That was apparent from an entry on the first page of a two-page document produced by Credit Suisse. That entry and its contents were not referred to in Ms Saita’s affidavit and the relevant page was not exhibited. That was a significant breach of the duty of full and frank disclosure. It was known that Ms Gönen asserted that the source of funds for the policy were her own, not Mr Çörtük’s and this was plainly material to that question and should have been disclosed. There has been no explanation for the failure to do so, and Mr Riches did not even address the point in argument. The inference that the suppression of the document was deliberate is reinforced by the fact that second page was exhibited to Ms Saita’s affidavit, suggesting a deliberate decision to withhold the first page containing the relevant entry.

This error has been explained, and was brought to the court’s attention by BTR’s legal advisers on 31 January 2018. It is at the lower end of the scale of culpability, and is in the event irrelevant because the basis for jurisdiction asserted was justified, albeit by reference to a different Article of Chapter II of the Brussels I Regulation. I do not regard it as significant to my conclusion on the duty of full and frank disclosure.

The importance of the duty of disclosure has often been emphasised. It is the necessary corollary of the court being prepared to depart from the principle that it will hear both sides before reaching a decision, which is a basic principle of fairness. Derogation from that basic principle is an exceptional course adopted in cases of extreme urgency or the need for secrecy. If the court is to adopt that procedure where justice so requires, it must be able to rely on the party who appears alone to present the evidence and argument in a way which is not merely designed to promote its own interests, but in a fair and even-handed manner, drawing attention to evidence and arguments which it can reasonably anticipate the absent party would wish to make. It is a duty owed to the court which exists in order to ensure the integrity of the court’s process. The sanction available to the court to preserve that integrity is not only to deprive the applicant of any advantage gained by the order, but also to refuse to renew it. In that respect it is penal, and applies notwithstanding that even had full and fair disclosure been made the court would have made the order. The sanction operates not only to punish the applicant for the abuse of process, but also, as Christopher Clarke J observed in Re OJSC ANK Yugraneft v Sibir Energy PLC [2010] BCCC 475 at [104], to ensure that others are deterred from such conduct in the future. Such is the importance of the duty that in the event of any substantial breach the court inclines strongly towards setting aside the order and not renewing it, even where the breach is innocent. Where the breach is deliberate, the conscious abuse of the court’s process will almost always make it appropriate to impose the sanction.

That is the appropriate sanction in this case. The breaches of full and frank disclosure must be considered cumulatively. They are substantial and serious. In the significant respects I have identified they must be treated as deliberate. They justify imposing the sanction irrespective of the merits of BTR’s claim for relief against these respondents. This is not one of those rare cases where the merits of the application are overwhelming and justice cries out for the continuation of the freezing relief. On the contrary, BTR’s case for relief faces very considerable hurdles, to put it at its lowest. The respondents are not within the jurisdiction and nor are the assets, save for the shares in Westpoint UK (and Hollydale) and Piedmont UK; those are merely intermediate holding companies in structures with foreign entities both above and beneath them; it is the New Jersey and Romanian companies respectively who are holding the underlying assets against which any enforcement is in practice to take place; the Rowena structure assets are the subject matter of the New Jersey Bankruptcy and Civil Claim proceedings, to which BTR and Ms Sakarya are parties; the relief sought from this court may be available in whole or part from the New Jersey court (BTR has adduced no evidence that it is not); in Ms Gönen’s case there is no connection to this country; and the legal basis for the relief in respect of KC Assets which are not Received Assets is novel. It is not necessary, however, to determine whether in the absence of non-disclosure, continuation of the orders or some part of them would have been justified. The non-disclosure requires the orders to be set aside and not to be continued.