Various Claimants v Giambrone & Law (a firm) & Ors

Calabria is the Southern Italian region that forms the “toe” of Italy. It comprises the five provinces of Cosenza, Reggio Calabria, Catanzaro, Crotone and Vibo Valentia. The climate is Mediterranean as is its cuisine. The west-facing coastline borders the Tyrrhenian Sea and the east-facing coastline borders the Ionian Sea. Its overall extensive coastline makes it a popular tourist destination during the summer months and its mountainous interior also offers skiing opportunities during the winter. As with many parts of Italy, it has a rich cultural and architectural heritage.

Its increased popularity as an area where relatively inexpensive holiday homes might be acquired lies at the heart of this case. At least prior to the material events in this case, relatively cheap flights could be obtained from the UK mainland and from Ireland to Reggio di Calabria, Lamezia Terme and Crotone through the well-known budget airlines.

The case arises from the proposed purchase of apartments by a number of individuals in a prospective development near the coastal resort of Brancaleone, which is a ‘comune’ in the province of Reggio Calabria, where the coastline borders the Ionian Sea. The purchases were made “off plan” – in other words, the properties had not been built at the time the purchasers committed themselves to the transactions. Those commitments were made in 2007 and 2008, the anticipation at that time being that the development would be complete by the summer of 2009. In each of the cases with which these proceedings are concerned, the proposed purchase was never completed as a result of which it is said that each proposed purchaser has made a financial loss.

The overall development was called the “Jewel of the Sea” (‘Il gioiello del mare’ in Italian) development which has, for short, been referred to throughout as the “JoTS” development.

The promoter of the JoTS development was VFI Overseas Properties Limited (“VFI”), a company registered in the Republic of Ireland on 18 December 2006. There were two parts of the overall development which can be identified as the Main Development and the Beach Front development. I will describe the difference between the two below (see paragraphs 22 - 34). The vendor/builder of the Main Development was RDV Srl (“RDV”) and of the Beach Front development was Veco Costruzioni Srl (“Veco”).

Each purchaser engaged one or other manifestation of the legal practice of Avvocato Gabriele Giambrone to act in the proposed purchase. As I have said, none of the proposed purchases involved in this case proceeded to completion and the proposed purchasers, who comprise the claimants in the case, seek to recover their losses from Avvocato Giambrone’s firms and/or from him and his partners personally on the basis of alleged failures to act properly in their interests in the transactions. Each exemplar claimant has rescinded the contract into which he or she entered with the effect, amongst others, of sacrificing the deposits they paid.

Following directions given by Asplin J in May 2014 the trial has focused on a number of “exemplar” transactions (in the event, 12 out of the 100+ cases currently outstanding) with a view to the court reaching certain conclusions on various issues that will either assist the conclusion of this litigation in its entirety or at least reduce the issues that might arise in further proceedings (see paragraphs 10 - 12 below).

The claimants in the various actions before the court are either resident in England or the Republic of Ireland. It is accepted that the correct venue for resolving these cases is in this jurisdiction.

Various proceedings arising out of the JoTS development have been brought by claimants in England and Wales and in Northern Ireland. Until this case commenced no case had ever proceeded to trial, with many settling on confidential terms at or shortly before trial. Indeed in the present proceedings the El Caribe claims (see paragraph 22 below), which were due to be reflected in one of the exemplar cases, were settled shortly before the trial. It is to be noted that the issues raised by the claimants in those previous proceedings were similar to those raised in the present proceedings. In the present proceedings, almost every issue raised on behalf of the remaining claimants has been hotly contested.

As I have indicated, the focus of the trial has been on a number of specific issues deduced from the pleadings. Not all issues raised by the pleadings have been the subject of argument at the trial. For example, causation of loss in individual cases (on the assumption that a relevant breach of duty is established) has deliberately been excluded. How the issues were to be formulated was the subject of the first preliminary hearing before me in October 2014. I need say nothing more about the arguments then advanced save to note that I was essentially of the view that the way the claimants were seeking to have the issues identified was the best way forward. At all events, a List of Generic Issues was agreed and has represented the effective agenda for the trial.

Inevitably, some issues have assumed greater significance than others and during the course of the trial some issues were either resolved, in whole or part, or abandoned. Attached to this judgment as Appendix 1 is the List of Generic Issues amended to show those issues that remain alive and upon which I have, so far as possible on the evidence, endeavoured to reach a conclusion.

In preparing this judgment I have identified a number of issues in the List of Issues that seem to me either no longer to be relevant or for it to be premature to decide them. I shall indicate those areas in the course of the judgment. There are some matters not identified in the List of Issues where I sensed I was being invited (particularly on behalf of the defendants) to make findings. I have generally endeavoured to resist that invitation.

At the outset I will give a description of the developments in question and endeavour to reach a conclusion about the state of progress of those of relevance. After reference to some general issues I will trace the history of the involvement of Avvocato Giambrone in the transactions, either personally or through others who worked for him, in a broadly chronological fashion.

To the extent that it is possible to reach conclusions of fact as the chronological history unfolds, I will set out those findings.

I will indicate my approach to submissions made that certain matters advanced by or on behalf of the defendants were not challenged in cross-examination by Mr Robert Duddridge and Mr Shantanu Majumdar on behalf of the claimants they represent (see paragraphs 53 - 69 below) in paragraphs 17 - 21 below.

As indicated above, before setting out the background in greater detail, it will help if a brief description is given of the developments that either constitute the direct subject-matter of these proceedings or which have at least figured in some way in the background.

Whilst the evidence before me has, of course, focused on those aspects of the JoTS development of direct concern to the claimants, other more general evidence was given during the case suggesting that many residential complexes have been completed in the region successfully over recent years with few, if any, of the problems associated with the development in this case. That evidence was given by Avvocato Giambrone in his witness statement when he said that his firm was involved in transactions “in about 52 developments in Calabria” and that he believed that “over 90% of the Calabrian property transactions in which [the firm] was involved have completed successfully.” Mr William Flenley QC, Leading Counsel for the Defendants, and Mr Jamie Carpenter said in their written Closing Submissions that that evidence was unchallenged. If that was intended to suggest that I am bound to accept that evidence as a matter of fact, I should say unequivocally that I am simply in no position to judge whether that is the case or not. This case has not been about those other developments. I have no particular reason to suppose that other developments in Calabria have necessarily given rise to the problems that emerged in this case except to note that, at face value, Avvocato Giambrone’s claim in his witness statement seems at variance with what he was quoted as saying in the ‘Mail on Sunday’ article referred to later (see paragraph 224) (Footnote: ¹) – upon the basis of which article, incidentally, Mr Flenley seeks to obtain some support on another aspect of the case (see paragraph 384) - and, at least to some extent, with the fact of the seizure of certain Calabrian developments by the Italian financial police (see paragraph 33 below). However, the extent to which what Avvocato Giambrone said was or was not the case in this regard is not a matter upon which I can make any express finding, but I do not regard myself as bound to accept what he says. The same applies to some of the more expansive assertions he made about the levels of deposit made for off-plan purchases in Calabria and the levels of commission charged by international promoters working in Calabria at the time. This case has not been about other developments and there has been no investigation (or disclosure if Avvocato Giambrone was involved in them) of these other instances to see if what he says is correct. It follows that there has, in reality, been no way in which a meaningful dialogue in cross-examination could have been undertaken about matters such as these.

I should add generally, in relation to forensic points made by Mr Flenley in particular that some matters were not challenged and thus must be accepted, that had every potential issue of fact or opinion in dispute been the subject of sustained challenge in cross-examination, the trial would have taken even longer than it did with, as I shall indicate below (see paragraphs 71 - 76), the risk that the increased associated costs would not be recovered by the claimants even if they were to succeed on the merits of the case or that the individual defendants would find themselves with a personal costs liability arising from the way the case had been dealt with on their behalves. A measured and proportionate view must be taken of this kind of contention and, of course, the general credibility and reliability of the witness who says something, particularly, though not exclusively, of a general and expansive nature, which is “unchallenged” needs to be taken into account when making an assessment of the value of that evidence. I propose, where appropriate, to take that approach to contentions of this nature.

Furthermore, Avvocato Giambrone, although a lawyer, did not give evidence as an expert in Italian law and to the extent that his views of the law were given, it was not generally incumbent on those representing the claimants to challenge those views, nor was it necessary to pick up and dispute any collateral comment he might have made in an extended answer to a question.

Avvocato Giambrone was often keen to set the agenda for his questioning rather than focusing on and answering directly the questions posed to him. His answers were often lengthy and expressed quickly. Throughout I felt that he was a witness for whom some credible supporting evidence was required before I could safely accept what he said. It will thus be apparent that I have approached everything he has said with a significant degree of caution. With the exception of Avvocato Virga (see paragraph 28 below), I was of the same view about the other witnesses employed by him and particularly those such as Mr Buchan, Mr Dine and Mr Klingenbergs who have known and worked with him for many years. There was a sense that all wished to be saying the same thing even if, as was the case in a number of important areas, the contemporaneous documentation did not support the combined viewpoint they wished to support and advance.

I should also add that where what is in issue is the meaning of a document or series of documents, the process of elucidation is rarely, if ever, assisted by cross-examining either the drafter of the document(s) as to what was meant by the words used or by seeking the potentially self-serving opinion of someone closely associated with the importance of the meaning of the document. The answer to the issue is ordinarily resolved by reference simply to the words used in the context in which they are used. Equally, where inferences are open to be made on the basis of the totality of the evidence, the mere fact that a particular inferred conclusion was not put to Avvocato Giambrone does not mean that it has been accepted by the claimants or that I must accept it. I will highlight just one example of a number that could be advanced. Issue 20 is expressed in these terms: “Did [the defendants] allow themselves to be influenced by the interests of the vendors, developers or promoters in conflict with the interests of [the claimants]?” That is, in effect, an inference the claimants are inviting me to draw. Mr Flenley argues that because this suggestion was denied by Avvocato Giambrone in his witness statement and since that position was not challenged in cross-examination I must accept the position as Avvocato Giambrone states it. I do not accept that merely because the suggestion that what he said in his witness statement was untrue (or simply misguided) was not put specifically to him (a proposition that inevitably he would deny) means that I am bound to accept his position. It is, of course, important to be fair to a witness, particularly if serious imputations as to the witness’ honesty and integrity are being made, and there may be other areas of a witness’ evidence that need to be challenged head-on, but the days of the “I put it to you” cross-examination on other matters have long since gone. In any event, it needs to be borne in mind that what I am to determine is the collective position of “the firm” or “the practice” on an issue rather than assessing a particular individual’s attitude to or appreciation of that issue. Putting matters to an individual, even the senior person, will not necessarily assist a court in deciding on that issue.

Returning to a description of the two developments that have generated the claims in these proceedings, they were (1) the El Caribe development and (2) the JoTS development. Each has been the focus of a somewhat fraught disclosure exercise. The El Caribe development was intended to be an apartment complex constructed on a site to the south of Crotone between Capo Colonna and Capo Rizzuto. The JoTS development is the development near to Brancaleone to which reference was made in paragraph 3 above. The actual location of this development is in a village called Galati, a couple of miles or so to the south of Brancaleone itself. There are two broad geographical areas within this overall development that need to be identified in order to put some of the issues that have arisen into context.

There is a railway line running along the coast in this area, as well as a parallel coastal road known as the SS106, and both pass through Galati. To the seaward side of the railway line and coast road is where ‘the Beach Front development’ was to take place – and indeed now appears to have been completed substantially though probably not to the full extent contemplated (see paragraphs 25 - 26 below). To the other side of the railway line and road, and spreading up the hillside above, was to be ‘the Main Development’.

The Beach Front development consists of nine separate apartment blocks, four of which are immediately adjacent to the beach, the other five being to the rear of those four blocks, but to the seaward side of the railway line and road.

The witness statement of Tiziana Baiamonte (an architect instructed on behalf of the defendants), which speaks of the state of affairs in January 2013, says that at that stage the whole of the Beach Front development had been built, although the statement appears to suggest that not all necessary features were complete because, as she put it, “the necessary preparations have been made for the subsequent installation of independent piping for air-conditioning, with attachments for an external air-conditioning machine, as well as attachments for the washing machine.” The completion of those features may not have formed part of the commitment of the builders for the project although the absence of such facilities may well have had a bearing on whether the properties were considered habitable by their purchasers. On the evidence before me the position in terms of the essential habitability of the Beach Front development in January 2013 from that point of view is thus not entirely clear: whether all were then considered by the proposed purchasers to be habitable or not and whether, if not, they have since become habitable is unclear, but it is a fact, on the evidence called in the proceedings, that not all have been sold to completion (see paragraph 28 below). I am here using the expression “habitable” in the non-technical sense rather than as in the concept of a “certificate of habitability” (see paragraph 167 below).

It seems to be accepted that the access road to the Beach Front development has not been completed in the manner contemplated at the outset and the current means of access, whilst negotiable to all or most vehicles, is along a steep and narrow road under a bridge (demonstrated on a photograph I was shown). It is hardly the kind of access that would be expected of a prestigious development.

Since the Beach Front development was effectively on the beach, the properties there were generally more expensive than those in the Main Development and could be seen as occupying the more exclusive part of the JoTS development. Ms Baiamonte describes the residencies that had been constructed in the Beach Front development as of the “terrace type” with two floors above ground level with apartments on each level, the apartments on the ground floor having their own gardens in the front. The intention was that this relatively small development should be a gated complex.

The current assessment of the position, based upon recent records, given by Avvocato Riccardo Virga, who now works for Avvocato Giambrone and whose essential reliability as a witness I accept, is that 19 units of the Beach Front development have been sold to the point of completion. This is out of a total of about 30 – 40 residential units within that part of the development.

The remaining 560 – 570 units of the whole JoTS development were to be within the Main Development. This was divided into various sectors which, in English, would be known as Emerald, Ruby, Sapphire A and B, Turquoise, Topaz, Amethyst and Diamond. The plans also included a shopping centre, hotel, club house with sports facilities and, at a number of points within the complex, various swimming pools. A golf course was also planned nearby and the proposal was of importance to some purchasers. It never materialised, but the failure of the initiative has played no real part on the trial and it is not mentioned in the List of Issues.

Ms Baiamonte said that in January 2013 5 out of the 11 blocks comprising the Emerald sector had been fully completed, 3 out of the remaining 6 had been completed to the extent of 90% (with only some aspects of the external façade remaining to be completed) and the remaining 3 blocks completed to the extent of about 70%. She took some photographs of the Emerald sector which she exhibited to her witness statement. Avvocato Virga said that his recent investigations showed that there had been 13 completions in respect of units within the Emerald sector.

So far as the rest of the Main Development was concerned at that time, Ms Baiamonte effectively described it as half-built although she said that the foundations for each individual block and all the containment walls for the entire complex, including the connecting ramps between one terrace and the next, had been completed. The internal roads of the complex, plus the associated lighting, had been built.

Various photographs which appear on the Internet were placed before me. A number taken in February 2013 (and thus not long after Ms Baiamonte had visited the site) by Marie Hilliard (who appears to be someone who did complete on her purchase in the Emerald sector because the name “Hilliard” appears on Avvocato Virga’s list of completed purchases) appear on a website entitled “jots-calabria.info”. Those photographs undoubtedly convey the impression of a building site with a great deal more work to do.

Ms Baiamonte said in her witness statement that she understood (as indeed has been confirmed by other evidence in the case) that all further building work ceased on 5 March 2013 because the whole of the JoTS development site had been seized by the Guardia di Finanza (the Italian financial police) as part of what was known as “Operazione Metropolis”. This appears to be a large international investigation into alleged money-laundering activities engaged in or facilitated by the Calabrian mafia known as the Ndrangheta. The JoTS development was not the only development site in the region seized as part as this investigatory process – apparently it embraced 17 tourist developments along the Calabrian coastline. However, the net effect, as explained by Avvocato Virga, is that the site is now in the hands of court-appointed administrators, as indeed are the building companies (see paragraphs 79 - 81). No further work has been undertaken on site since 5 March 2013 and, whilst the administrators have, according to Avvocato Virga, expressed their intention to complete the JoTS development, the position appears to be that there is no cash-flow to enable this to occur at the moment. It is, of course, very unclear when any progress will be made.

The position “on the ground” appears, therefore, to be that only 32 residential units out of those actually completed have been acquired by purchasers. That total number is, of course, a very small fraction of the total number of units planned for the overall JoTS development originally due for completion in 2009. Those who have completed their purchases in the Main Development must be surrounded by a great deal of uncompleted building and other construction work.

The significance of this is that many of the purchasers who were contemplating acquiring a property in a completed development, with all the facilities I have indicated, wanted to withdraw from the purchases. It is their actual or perceived contractual inability to do so that lies at the heart of their complaints against the lawyers they instructed.

I have already referred to Operazione Metropolis (see paragraph 33 above) and the seizure of the JoTS development. I should, however, make one thing clear at this early stage in this judgment concerning the alleged mafia involvement in the development and indeed the alleged associations of Mr Harry Fitzsimons to whom I will refer later (see paragraph 39). For completeness, in order to set out the background as fully as possible for anyone reading this judgment, I have merely recited already (see paragraph 33 above) what I have been told about the Italian police investigations and their consequences and will merely recite in summary form below (see paragraphs 39 - 41) what has been reported in various media outlets about the backgrounds of some of the individuals principally involved and the allegations apparently made. It forms no part of my task to assess the validity or otherwise of those allegations.

I have been told by Mr Flenley that so far as he is aware nothing has yet been established definitively in Italy about the alleged mafia involvement in the JoTS development. However, irrespective of that it is important to understand that there is no allegation made in these proceedings that either Avvocato Giambrone or any of the other individual defendants in the proceedings have or have had any involvement in the alleged mafia activities. It is, however, the case that many documents that his firm possessed concerning this and other developments were seized by the Italian police in March 2013 in their investigation, but Avvocato Giambrone and the other defendants are not, I have been told, themselves under investigation. Furthermore, it is no part of the case advanced on behalf of the claimants that, if there was some kind of criminal “scam” or money-laundering involved in the developments in question, any of the defendants were involved in it.

The possibility of mafia involvement in the Calabrian construction industry is, however, an issue that has arisen in connection with the duties alleged to have been owed by Avvocato Giambrone and his firm to the proposed purchasers (and I will deal with this aspect of the case later: see paragraphs 421 - 439). Indeed the issue has been raised (albeit peripherally for the purposes of the present trial) by the defendants themselves by way of a partial response to the case advanced against them (see paragraphs 421 - 423).

There was a fair degree of media interest in England and Ireland at around the time of the property seizure by the Guardia di Finanza (see paragraph 33 above) and the twenty or so arrests made at the time. A number of media reports have been put before me. In summary it was said that the investigations leading to these matters began in 2008 and that Mr Fitzsimons was a “convicted IRA terrorist” who was said by the Italian police to have developed links with the Calabrian mafia in order to “funnel dirty money from the IRA’s criminal activities into holiday developments in the far south of Italy.” At the time of the other arrests Mr Fitzsimons was, it was said, no longer in Italy and had gone into hiding in Africa. Apparently, he was detained in Senegal and was then returned to Italy. The reports detailed the nature of what the Italian police were alleging, but they also contained very firm denials by his solicitor in Ireland of any wrongdoing in connection with these activities (which were said to be entirely legitimate transactions). His IRA past was not, according to the reports, denied. The reports name Mr Antonio Velardo as a “mafia member” whose “sudden wealth” was cited by the investigators as evidence of a close association with a source of huge funds derived from criminal activities. The reports also name Mr Antonio Cuppari as being from the “Morabito [Ndrangheta] family”. One of those reports suggested that the mafia was “able to get round planning regulations by buying off corrupt local politicians”.

Avvocato Charlotte Oliver, one of the claimants’ expert witnesses, drew attention in a supplemental report dated 15 January 2015 to an article in a local newspaper entitled ‘Corriere della Calabria’ dated 5 August 2014 which referred to the ongoing criminal proceedings connected with the JoTS development and the allegations concerning the planning permission. It is recorded that six individuals, including Mr Cuppari, were to appear before a preliminary investigation judge on 9 October 2014 concerning the JoTS development. The translation of the article available is not wholly clear, but the suggestion appears to be that the prosecution were of the view that town planning and environmental offences had been committed in furtherance of a major money laundering enterprise. The gist of the allegation appears to be that the land upon which the development was to take place was originally designated as “agricultural” for planning purposes and that, by unlawful means, the designation was converted to “tourism/residential”. One of those under investigation was reported to be Domenico Vitale, described in the article as “the ex officio technical manager of the Brancaleone comune”, the allegation appearing to be that he played an active part in enabling the transition between the planning designations to take place but without appropriate authorisation. Domenico Vitale’s name appears at the foot of the building permit dated 8 June 2007 (see paragraph 200 below) as, in effect, the responsible officer and indeed also at the foot of the new planning permission dated 21 July 2008 (see paragraph 206 below) when he appeared to have the title “technical director”.

That, therefore, is the nature of the information that would be gleaned from media reports about the alleged background and the current investigations. Obviously, the overall evidential value of this material for the purposes of this trial is low. Equally obviously, all those reports post-date many of the material events that are of relevance to this case, but it is not difficult to understand why many of the proposed purchasers who have read all or some of those reports have subsequently felt that they had been led unsuspectingly into something quite different from “Living the dream in the Southern Italian Riviera” that they had been anticipating from the VFI brochure (see paragraphs 90 - 95 below).

That, however, is not what this case is about. It is essentially about whether Avvocato Giambrone’s firms carried out the “due diligence” they promised and did sufficient to protect the position of the purchasers so that, when things went wrong, the purchasers could legitimately withdraw from the proposed purchases and recover the deposits paid.

I propose to say something about the procedural history that lies behind the trial over which I presided in March 2015, but before I do so I should identify the various manifestations of Avvocato Giambrone’s firms at various times. This will help to put one or two of the issues into context.

Avvocato Giambrone became an Italian “Avvocato” on 27 January 2005. Giambrone & Law, his first “firm”, began in April 2005. At that time he entered into a “cooperation agreement” with Cristina Poncibo, another Italian Avvocato, and they both registered as Registered European Lawyers (‘RELs’) with the Law Society of England and Wales.There were offices in London, Palermo and Turin, Cristina Poncibo essentially operating in Turin. (Cristina Poncibo was made a defendant to these proceedings by the Penningtons Manches cohort of claimants – see paragraphs 53 - 69 below – but shortly before the trial began, terms were agreed on the basis of which the claims against her were discontinued. She did, however, give evidence and her involvement in the events may not be without significance.)

Although many of the previously disputed issues concerning the status of this arrangement and the status of other personnel involved at various stages thereafter with the “partnership” were eventually resolved by concessions made during the trial (see paragraphs 444 - 451), Giambrone & Law was the first vehicle by which Avvocato Giambrone and those with whom he worked operated both in England and elsewhere. The status that he and Cristina Poncibo had as RELs enabled the firm to practise in England.

Discussions about the practice becoming an LLP had been ongoing since about 2006, but it was not until April 2008 that this became a reality and it is accepted that there was a transfer of the business of the previous partnership to the LLP on or about 6 April 2008. The way the matter was put to all clients of Giambrone & Law was in a letter dated 7 April 2008 the substance of which was in these terms:

“We are writing to inform you of an important development within Giambrone & Law: with effect from today, the Firm will begin trading as a Limited Liability Partnership (“LLP”) under the name “Giambrone Law LLP”.

This form of legal entity was introduced in 2000 and was designed to enable partnerships to expand without individual partners having to put their personal assets at risk. Such risks were considered unfair in a modern economy. Members of the LLP will be the existing Partners of Giambrone & Law, based in London and in Italy, with the appointment to Partner status of Ugo Tanda, Head of our Italian Division.

With regard to the way we work, and our staff, nothing changes. At this stage there is nothing for you to do, however we will be issuing new engagement letters in due course to reflect the new LLP status. We will try to make this exercise as straightforward as possible, but thank you in advance for your patience in dealing with this transition.

Giambrone & Law has grown remarkably since its inception and the conversion to LLP is an exciting time for the practice. The Firm will now comprise Giambrone Law LLP and its associate offices, with over 30 lawyers operating from offices in London, Manchester, Turin, Palermo and Calabria, all of whom share industry knowledge and sector expertise across borders to support our clients worldwide. Our recently opened office in Manchester is going from strength to strength and we plan further expansion in the UK and across Europe in the near future.

Today, Giambrone Law LLP is a progressive and expanding legal practice, advising corporate and private clients upon a broad range of contentious and non-contentious work, including cross-border disputes, civil and commercial litigation, international property law and corporate finance, family and private client work.

We would like to take this opportunity in thanking you for doing business with us and look forward to continuing our relationship in the future. Should you have any queries regarding our conversion to LLP please do not hesitate to bring them to the attention of your usual contact with the Firm.”

The underlying partnership agreement was not referred to in that letter, but the “Members Agreement” dated 6April 2008 records the initial capital of the LLP as totalling just over £4.955 million which was “to be provided by the Members in the ratios detailed [in the Agreement] within six months of the incorporation of the LLP together with such further sums as shall be determined by the Members as being required for the purposes of the LLP.” According to the Agreement, the capital was to be provided as to just under £4.6 million by Avvocato Giambrone (90%) and just under £248,000 (5%) by each of Alessandra Bellanca and Cinzia D’Arpa. The capital assets said to form the initial capital of the LLP consisted of tangible assets of £50,000 in Italy and £110,000 in England, goodwill of £187,575 in Italy and £4,312,242 in England and work in progress of £455,624. Set against those figures were outstanding debts of just over £160,000, yielding the figure of just over £4.955 million to which I have referred.

The major proportion of this figure (over 85%) appears to be attributable to “goodwill”. I do not know to what extent the LLP ever became fully capitalised, but it ceased to practise in April 2009 and at some stage subsequently went into liquidation. In fact Avvocato Giambrone has not practised in England since 2009 when restrictions were placed on his Practising Certificate. Because of the decision of the Solicitors Disciplinary Tribunal in April 2013 (affirmed by the Divisional Court in March 2014: Giambrone v Solicitors Regulation Authority [2014] EWHC 1421 (Admin)), he is no longer able to practise as an REL in England.

After the cessation from practice of the LLP Avvocato Giambrone commenced practice under the style of ‘Giambrone Studio Legale Internazionale’. That is how he continues his legal practice in various offices around the world (see paragraph 75 below). Whilst he cannot carry on practice in England, an office in the name of ‘Giambrone International Law Practice’ exists in London.

Whilst there is no dispute that there was a transfer of the business of the previous partnership to the LLP in April 2008 (see paragraph 46 above), issues arise about the extent to which, for example, any liabilities of Giambrone & Law were passed to the LLP and, if so, the legal and practical effect. To the extent that they arise, they will be dealt with later, but it will be appreciated that some claimants will see their claims as against Giambrone & Law and some against the LLP. For present purposes, it is simply necessary to understand the different entities involved.

For convenience, however, I will frequently refer in this judgment to “the firm” or “the practice” simply as a shorthand or generic expression for whatever manifestation of Avvocato Giambrone’s legal practice was involved at the time. To the extent that any changes in its identity are relevant to the disputes in this case, I will deal with those matters more specifically as appropriate.

As I have indicated (paragraph 45 above), many issues concerning the status of the individual defendants as “partners” in the above manifestations at various times were resolved by way of concessions made at various stages of the trial. Mr Flenley has invited me to conclude that these matters have now been resolved totally and that I should not be troubled to deal with resolving any apparently outstanding issue which is said to be academic. Mr Duddridge and Mr Majumdar, however, invite me to deal with one outstanding issue. They also say that the way this overall issue has been handled by the defendants is indicative of an obstructive approach to the litigation generated by the developments in question that throw light on the credibility of the case advanced by the defendants. I will return to these matters in due course (see paragraphs 444 - 451).

The procedural history of these proceedings has been complex and chequered, to say the least. I have case-managed the proceedings to trial since October 2014, but there was a substantial history prior thereto. I propose only to summarise that history in order to give a broad appreciation of the structure of the case as it has been presented to the court and to explain why, unusually, there are two groups of claimants represented by two separate firms of solicitors and two separate Counsel. The position of the various defendants (including the insurance cover) is also not without its complications and I will mention that briefly in the next section.

I have already indicated that most of the claimants in this case are either resident in England or the Republic of Ireland.

As will appear, the problems concerning the development of particular relevance to these proceedings started to emerge and were revealed to the proposed purchasers in early 2009 (see paragraph 209 below), but it was not until 2010 that a number of them initiated proceedings against Avvocato Giambrone’s firms. There had, however, been a considerable amount of activity involving the proposed purchasers’ concerns in the meantime with the emergence of various websites and Internet forums where experiences could be shared. Mr Cleere, one of the exemplar claimants, was actively involved in one of them. It was doubtless as a result of common themes emerging during that period concerning the work done by Avvocato Giambrone’s firms that a number of proposed purchasers combined to bring proceedings.

As I understand it from the helpful chronology that was prepared for me by the parties’ solicitors, in 2010 a large group of claimants instructed Russell & Co (a firm of solicitors in Northern Ireland) to take proceedings against Avvocato Giambrone and his colleagues in relation to JoTS and El Caribe. As will appear below, there had already been moves by certain individuals in England prior to that.

By a letter dated 4 November 2009 Mr and Mrs Jeff Edwards (who, with Mr and Mrs Michael Stretton, were proposing to purchase two apartments, one within the Beach Front development and one within the Main Development) had written to the three possible professional indemnity insurers of the LLP endeavouring to discover where any claim should be directed. This letter represented a follow-up letter to one dated 15 July 2009 that they had written to the Essex Street address of the LLP in London and various letters written to the Law Society. Eventually, on 9 March 2010, CMS Cameron McKenna, instructed by the LLP’s then current professional indemnity insurers, responded inviting them to particularise their allegations so that they could be investigated either by those professional indemnity insurers or one of the others that might have been involved at some stage. Mr and Mrs Edwards and Mr and Mrs Stretton instructed Edwin Coe who wrote a detailed letter before action dated 30 September 2011. That was sent to CMS Cameron McKenna for the attention of Mr Will Sefton, who was then with that firm. By about that time or shortly thereafter Mr and Mrs Noel had instructed Edwin Coe and a detailed letter before action was sent on their behalf on 9 December 2011, again addressed to Mr Sefton at CMS Cameron McKenna. By January 2012 RPC had replaced CMS Cameron McKenna as the solicitors acting for the LLP and on 23 January 2012 and 26 March 2012 responses to the respective letters before action were sent on behalf of the LLP. During this period, Edwin Coe had acquired as clients a number of other proposed purchasers and during the first half of 2012 they were seeking the files of the clients for whom they were acting and writing letters before action in respect of their cases.

Reverting to the proceedings in Northern Ireland, during 2010 separate “lead” claimants were identified in the proceedings in Northern Ireland relating to JoTS and El Caribe. The defendants to those proceedings were the 3^rd, 4^th and 5^th defendants in the present proceedings. Those lead claims were set for trial in April 2012 (El Caribe) and May 2012 (JoTS). I will say what happened to them below.

In the meantime other events had occurred in the Northern Ireland proceedings. I take the facts that follow from the judgment of Weatherup J in Craven and ors and Martin and ors v Bellanca, D’Arpa and Giambrone [2012] NIQB 58. It will be apparent from the title to those proceedings that there were two actions. The Craven action was a group action by 22 claimants in relation to the El Caribe development. By 2011 Russell & Co had instructions from a total of 26 proposed purchasers in the El Caribe development of whom 16 were domiciled in Northern Ireland, 7 in England, 2 in Scotland and 1 in the Republic of Ireland. In August 2011 proceedings were instituted on behalf of those claimants, but they were not progressed further pending resolution of the lead claims. The Martin action was a group action by 101 claimants in relation to JoTS of whom 61 were domiciled in Northern Ireland, 11 in England, 2 in Scotland, 26 in the Republic of Ireland and 1 in England who at the time lived and worked in Hong Kong. (According to the judgment of Weatherup J, earlier proceedings had been brought by another claimant (William Baxter) who was domiciled in Northern Ireland.) Likewise, these claims were not progressed pending resolution of the lead claims.

In passing it is interesting to note from Weatherup J’s judgment that the “defendants filed an affidavit by their solicitor” (Mr Sefton) “which indicates that at the time of the transactions with which all the [claimants] are concerned the defendants practised as a partnership known as Giambrone and Law”. It was conceded that “the correct defendants in any proceedings are the partnership and the LLP.” That affidavit was sworn on 11 June 2012 (see further at paragraphs 444 - 451 below).

At all events, each of the lead claims was settled on confidential terms shortly before trial. This left all the other claims in the Northern Ireland proceedings outstanding. In respect of those outstanding claims, the defendants invited the High Court of Northern Ireland to conclude that there was no jurisdiction to determine those claims brought by claimants not domiciled in Northern Ireland. By a judgment given on 22 June 2012 Weatherup J concluded that that was so and declined jurisdiction in respect of the non-Northern Ireland claimants. Those claims were discontinued, but the claims of the Northern Ireland-domiciled claimants continued. I will deal with what happened to the claims that continued in Northern Ireland below (see paragraphs 63 - 66), but in respect of those claimants whose claims were discontinued in Northern Ireland some instructed Penningtons Manches (and later became the claimants in the proceedings known for short as “Main and Others” (Footnote: ²)) and some formed a group of self-represented litigants who instructed a direct access member of the English and Northern Ireland Bars, Dr Austen Morgan. Those claimants became known as “Brennan and Others”. The proceedings (in England) were not in fact issued until 31 January 2013 and 3 April 2013 respectively (and in those cases where Dr Morgan assisted the claimants, not all the claims were commenced on this latter date).

In the meantime in September 2012 proceedings were issued (in England) in the Edwards/Stretton case and the claim in Noel was issued in January 2013.

The Craven action in Northern Ireland (involving the proposed El Caribe purchases) was listed for trial in February 2013. As I understand it, it settled on confidential terms at or shortly before trial. I am not entirely sure of the sequence of events but I have noted in the trial bundles a copy of the judgment of Weatherup J in a case of Mullan ([2013] NI QB 46) in which he decided the question of the currency in which judgment should be entered for the claimants. I assume that that decision related to the El Caribe cases.

Again, I am not entirely sure when the claimants in the Northern Ireland proceedings sought and obtained a Mareva injunction freezing Avvocato Giambrone’s assets and preventing their dissipation and whether what I am about to record was said before or after such an order was obtained, but Avvocato Giambrone put this on his Facebook site:

“They thought they knocked me down, now they will see the full scale of my reaction. F*** them, just f*** them. They will be left with nothing.”

He then sought an injunction seeking to prevent the claimants from disclosing what he had said on his Facebook site to the judge hearing the Mareva injunction application, Burgess J, or the trial judge (presumably in the JoTS cases that were still pending), Weatherup J. Horner J refused that application and his judgment is in one of the trial bundles and reported at [2013] NIQB 48. Avvocato Giambrone explained in his evidence to me that he was angry about the Mareva injunction.

In June 2013 the Northern Ireland proceedings concerning the JoTS claims were listed for trial. Again, those proceedings were settled on a confidential basis shortly before trial. With that, of course, all the proceedings in Northern Ireland were concluded and what remained were the various proceedings commenced in England.

At that stage, of course, there were effectively three cohorts of claimants: those represented by Penningtons Manches, those represented by Edwin Coe and those self-represented claimants who were being assisted by Dr Morgan. At some stage all the claimants assisted by Dr Morgan transferred their instructions to Penningtonss Manches and that is how the position remains. It explains the two sets of claimants, the two firms of solicitors and why Mr Duddridge and Mr Majumdar appeared at the trial for the Penningtonss Manches claimants and the Edwin Coe claimants respectively.

The pleadings became extremely complicated and there was a good deal of pre-trial activity. I will refer to it more fully if necessary at later stages in the judgment, but there are two matters of potential significance to record: first, during 2013 the Mandates (see paragraphs 137 - 149) were disclosed in various ways at various times. On 26 February 2013, in the Edwards/Stretton case, the RDV Mandates in Italian were disclosed to Edwin Coe. On 30 April 2013 the Mandate of 3 March 2007 (see paragraph 137) was disclosed in the Noel action. On 2/3 September 2013, Dr Morgan told Penningtons Manches of the existence of the two Mandate agreements involving RDV and VFI. Requests for specific disclosure of these documents were made shortly thereafter and the Mandates dated 3 March 2007 and 28 June 2008 were disclosed. Second, the Edwards/Stretton trial was settled on confidential terms on 13 November 2013.

The Edwin Coe claimants had brought their proceedings in the Queen’s Bench Division. The Penningtons Manches claimants had brought theirs in the Chancery Division. In due course, but after several months, all proceedings were transferred to the Queen’s Bench Division which is how the proceedings ultimately came before me. However, for present purposes, it is to be noted that very shortly after the settlement of the Edwards/Stretton case, Mr Flenley produced the Note referred to in paragraph 74 below and the proceedings thereafter have continued in the shadow of the suggested lack of insurance cover to enable the claimants to recoup any losses that they may establish as a result of establishing liability.

I will turn to that position briefly.

The insurance position of the various Defendants is, strictly speaking, irrelevant to the issues before the court. However, an unusual situation has emerged that I propose to record. Any matters arising from this will only become relevant if the claimants, or any of them, establish liability against the Defendants in one or other of their manifestations.

As will appear (see paragraph 154 below), one representation made by Avvocato Giambrone’s then firm (Giambrone & Law) at the outset of any engagement by a potential purchaser prior to the formation of the LLP was that it had “professional indemnity insurance of £5,000,000”, something plainly put forward to offer comfort to anyone considering instructing the firm.

However, in the first place, it seems that the cover was only for £3 million, but that discrepancy has not been explained. Nonetheless, if liability to each client was insured to the extent of £3 million, that would be more than sufficient to cover any liabilities arising in the context of the various claims made. However, the insurers (AIG) took the position in November 2013 that by reason of what they claim to be the right to aggregate the claims in relation to JoTS, only about £37,000 of the £3 million limit of indemnity for both damages and claimants’ costs remained at that time, £2.963 million presumably having been used in the various settlement payments up to that time. In the affidavit of means referred to in paragraph 75 below, Avvocato Giambrone confirmed that following an order for costs made against the Defendants by the Court of Appeal on 3 November 2014 (see [2014] EWCA Civ 1562), the limit of the indemnity provided by AIG had been reached and, accordingly, that any liabilities for costs or damages in these proceedings would fall to him personally (and such other “partners” as might, in law, be responsible). There have, however, been sufficient resources for those insurers to instruct RPC as the litigation solicitors, to brief Mr Flenley and Mr Carpenter for the purposes of a trial that lasted 18 days and to bring a number of witnesses (including Notary Cardarelli) to the UK to give evidence.

In a Note prepared for a Case Management Conference on 2 December 2013, Mr Flenley said this:

“The Insurance Position

13.

Another important consideration is the position taken by the defendants’ insurers, AIG. This is set out in the letter from AIG’s solicitors Kennedys dated 20 November 2013 …. AIG take the view that the VFI claims amount to one claim for the purposes of the defendants’ insurance policy; all Jewel of the Sea claims are VFI claims; cover for Jewel of the Sea claims is therefore limited to £3 million payable in respect of damages or costs to claimants; and that all but £37,837.28 of that sum has now been paid out.

14.

It should be noted that the solicitors acting for the defendants in the litigation are not Kennedys, they are RPC. RPC are neutral on whether AIG are right or wrong on their argument as to the effect of the insurance policy.

15.

If AIG are right then, at least in relation to the Jewel of the Sea claims, it would appear that further prosecution of the claims may not be economic.”

At a hearing on 27 November 2014 Mr Flenley told me that AIG continued to fund the defence of the partners in Giambrone & Law pursuant to a confidential agreement with them. However, as I understood it, this did not include any commitment to the payment by AIG of any costs or damages to the claimants if awarded against the Defendants. Indeed on 4 February 2015 I ordered certain costs against the Defendants (payable within 14 days) in respect of an interlocutory application only to be told that the individual defendants, including Avvocato Giambrone, could not afford to pay them and sought time to do so. The order was for £33,500 in total. Avvocato Giambrone swore an affidavit of means on 17 February 2015 setting out his financial position in support of an application for time to pay his share of the order. He was suggesting that the maximum he could pay would be €400 per month. He describes himself as the “founding partner” and “Principal/Owner” of Studio Legale Giambrone which, he says, now consists of 40 lawyers of various nationalities and about 28 support staff and has offices in London, Palermo, Rome, New York, Tunis, Milan, Berlin and Barcelona. According to his affidavit, he spends 15-20 days a month travelling between these offices at a cost of between €5,000 and €7,500 and he personally leases a Mercedes car for €800 per month in Palermo. Against that background the picture he paints of his personal finances is surprising and may, one supposes, give rise to questions at some stage. That aspect of the case was put over for consideration at a later date.

The position about the Defendants’ funding of this litigation is thus unclear and in a number of respects plainly unsatisfactory. It is a most unattractive position that every point can be taken by the defendants against the claims brought by the claimants, with the risk to the claimants of having to pay the insurer’s costs if the defendants succeed, but the insurers cannot be made to pay the claimants’ damages or costs if the claimants succeed, the claimants having to rely in that situation upon recourse to the person of Avvocato Giambrone and/or his fellow partners (all of whom claim to be in no position to meet any such liabilities). However, as I have said, any issues arising out of this will fall to be considered only if the claimants establish liability or, of course, if the defendants challenge successfully the position taken by their insurers.

There have been issues between the parties (principally between the Edwin Coe claimants and RPC, the solicitors acting on the instructions of AIG) as to the insurance cover for the LLP. At the Case Management Conference on 2 December 2013 I understand that it was indicated to the court that because the indemnity limit had all but been reached (see paragraph 74 above), the insurers were giving serious consideration to ceasing to defend the claims against the LLP (which by then was in liquidation). That did not occur immediately and at the hearing before me in November 2014 this position was repeated. I do not think that the insurers actually withdrew from defending the claims against the LLP until shortly before the trial (and after the El Caribe claims had been settled), but at the trial the LLP was not represented by RPC and the liquidator (the Official Receiver) took no part in the trial.

The net effect of this position is that, to the extent that submissions have been made on behalf of the claimants about the potential liability of the LLP for any of the matters raised in these proceedings, no arguments on behalf of the LLP have been made.

I identified the relevant companies in paragraph 5 above. VFI was a company registered in the Republic of Ireland on 18 December 2006. Whatever personal experience Mr Velardo and Mr Fitzimons, who were named as the administrators (which I believe equates to “director” in UK company law terms) of the company, had of building and developing holiday residences, the company was obviously formed with a view to promoting the JoTS development and, of itself, had no track record in the field. This is acknowledged by Mr Flenley (see paragraph 302).

RDV was an Italian company registered in the “Sezione Ordinaria” of the Chamber of Commerce on or around 11 October 2006. The sole administrator of the company at that time was Mr Cuppari. Again, it is acknowledged by Mr Flenley that it had no proven track record at that time. It also must have been formed as the vehicle for the building of the development.

At the outset of the JoTS development it appears that the sole administrator of Veco was Mr Velardo. The documentation before the court is not entirely clear, but it seems that the company was first formed in 2001. Equally, at various times Mr Fitzsimons and Mr Cuppari both became directors and in 2010 RDV took over Veco.

I will be dealing below with the documentation that was generated in the early stages of Giambrone & Law’s involvement with VFI, RDV and Veco, but it is appropriate to record what Avvocato Giambrone said in his witness statement about how the initial contact was made.

He said this:

“96.

I first met Mr Velardo and Mr Fitzsimons in or around November/December 2006 at a property exhibition in London called “OPP”. By then, G&L was already acting for several purchasers in connection with other similar property developments in Calabria, which were promoted by people such as Italian Connection (part of Medsea Group plc), IPL and Parador, and we had a stand at the exhibition.

97.

I was personally in attendance when Mr Velardo and Mr Fitzsimons, who were visitors to the exhibition, approached me. They explained to me how they were intending to create the “biggest five-star, luxury development in Southern Italy” and that they were looking for a number of reputable law firms to refer their clients to. They told me that Mr Velardo was a property salesman, based in Cape Verde, and had worked for one of their competitors (MRI), when he met Mr Fitzsimons, who was described to me as a property investor from Northern Ireland. They also informed me that MRI, which promoted the sale of developments worldwide, used to refer their clients to a Spanish Law Firm with offices internationally. I think that this firm was called “Martines Echeverria” which was about to open a new office in Calabria.

98.

I recall vividly that conversation because they both appeared to have a lot of information about G&L’s involvement in Calabria as they also told me that their main concern was that we were acting for clients who were purchasing properties from VFI’s biggest competitor in the region - Italian Connection. I replied in the same manner as I would have replied to any other promoter or estate agent that would have posed the same question, i.e. that we were completely impartial and independent from the vendors, that we would not pay any referral fees for clients introduced to G&L and that - in any event - such referrals should have been done purely on the basis of the good reputation and of the expertise of G&L in the Calabrian property market. I also explained that we were already acting for various clients introduced to us from various sources. In such cases, each group of clients was handled by a different group of caseworkers/lawyers.

99.

During such exhibitions, it was not uncommon to meet a lot of agents and developers coming up with (they said) new and exciting developments for Calabria. I took most of what they said with a pinch of salt, because I knew that they were salesmen. After I met Messrs Velardo and Fitzsimons, I agreed with them that we (G&L) would do some preliminary research on the due diligence as I wanted to investigate some more and see whether the project was feasible before becoming involved with it.”

He was not questioned about these paragraphs in his witness statement during the trial and taking them at face value it was, therefore, plainly Avvocato Giambrone’s personal contact with Mr Velardo and Mr Fitzsimons that led to the “preliminary research on the due diligence” in order to “see whether the project was feasible before becoming involved with it”.

He continued by saying that from January to March 2007 Giambrone & Law “undertook due diligence in relation to JoTS”, the work being done by Avvocato Giuseppe Margiotta who was then based in the Palermo office. Avvocato Giambrone described him as “the son of a leading Notary in Palermo and used his father’s expertise in relation to Real Estate matters”. He (Avvocato Giambrone) was in London, he said, for much of the time and was informed about the results of Avvocato Margiotta’s work. He referred to a fax dated 2 February 2007 sent by Avvocato Margiotta to his personal assistant, Nara Hallam, which, when giving evidence, he translated as follows:

“Hi Nara. I am sending you the documents related to the due diligence related to [JoTS] that I have received today. We have also sent to you by post the remaining documents.”

He said there were 15 pages of further documentation and cited this as evidence that Avvocato Margiotta “was definitely not fluent in English”. However, the fact that it was sent demonstrates the close interest he (Avvocato Giambrone) was taking in the project. I will return to this in the context of the document referred to in paragraph 97 and 99 below.

Avvocato Margiotta has not been called to give evidence. The reason, according to Avvocato Giambrone is that he left the firm in March 2008, does not want to get involved in this litigation and Avvocato Giambrone does not wish to call “an unwilling witness”. That is, of course, his choice but it is unfortunate that I have not heard directly from the person responsible for the “due diligence” given the central importance in this case of the scope and conduct of that due diligence.

Nonetheless, it is tolerably clear what was and was not done in this regard by reference to the documentation that has been produced. I will return to the specific findings about this in due course (see paragraphs 440 - 443).

I will turn now to what was being said in the early stages, either by VFI or by the firm or both, about their respective involvements.

VFI’s glossy, coloured promotional brochure was inevitably couched in inviting phraseology including the suggestion that by purchasing a property within the JoTS development it would be possible to “live the Italian dream” at the same time as buying a property on the coast at a price which “it is estimated … will triple over the next decade.” The “Welcome” page of the brochure was signed by “Antonio and Harry”, presumably Mr Velardo and Mr Fitzsimons.

It also contained the following passage on page 4:

“We will provide a full legal package with qualified lawyers and handle all aspects of moving in, including any legal documentation that is required.”

On the next page there was a list of the “personalised services to all our clients”, one of which was “legal services” and on the next page appeared the following passage:

“As is normal good practice, the properties are built in stages, with no property being built before the foundations and services for the rest are all in place. This ensures the coherence of the development, so that the whole community will be completed and functional by the time your keys are handed over. During the inspection visit, you will be able to view the property during the building process, and our advisers will be on hand to answer questions, help you choose your furniture and arrange a meeting with our local legal team.” (Emphasis added.)

The following passage appeared on page 8:

“Full advice and assistance is available at every stage. You can take advantage of Italy’s low interest rates, currently 4 to 5%, while having the assurance of our independent legal team, with offices in London and Calabria, who can assist you every step of the way.” (Emphasis added.)

Just below that there is a paragraph headed “Decision to buy” below which the following appears:

“If you fall in love with the place, which we have no doubt you will, a legal consultant will take you through each step, over dinner, to ensure the process to secure your dream holiday home is easy and stress-free.”

When questioned about this brochure by Mr Duddridge, Avvocato Giambrone said that he was unaware that VFI were circulating it at the time and that he was unable to recall when he saw it for the first time. He did, however, accept that the references to the lawyers in the brochure were to Giambrone & Law and that he was unaware that VFI were recommending any other lawyers to proposed purchasers at that time. In his witness statement he had said this on the topic:

“As far as I am aware, we were not the only law firm who were being asked to act for purchasers in JOTS. I have already said that VFI had indicated that they were considering various firms to represent buyers and I know that other firms did so, as is evidenced by a letter from Avv. Maurizio Romolo of Studio Legale Associato Romolo-Ruggiero dated 11 November 2010 …. Avv. Romolo was acting for RDV at the time. The letter referred to a meeting to discuss the problems with the development. It was addressed to “Dear Lawyers and Buyers” and it named a number of law firms who were representing buyers.

The letter of 11 November 2010 from Avvocato Maurizio Romolo did indeed refer to other firms who “represented the buyers in the preliminary contracts”, but this letter was written well over 3½ years after the initial marketing of the JoTS and El Caribe developments and does not, in my view, throw any light on what VFI was saying about which lawyers they would recommend at that time. (Incidentally, one of the firms mentioned in that letter was L’Abbate International Law Firm: see paragraph 218 below)

Another letter of potential relevance in these early stages and in this context was on Giambrone & Law’s headed notepaper and addressed “To whom it may concern”. It was dated 14 February 2007. It contained the following paragraphs:

“Due Diligence Report - “Jewel of the Sea” Development (Brancaleone)

We would like to confirm that Giambrone & Law, an independent firm of Italian lawyers in London, is in the process of carrying out the due diligence over the land and the development called “Jewel of the Sea”.

Upon inspection of the land registry searches, we have found that the Municipality of Brancaleone has granted two building licences on the 7th July 1994 … for the building of a residential complex located in Brancaleone, and hereby referred to as “Jewel of the Sea”….

We have carried out a number of land registry searches (visure catastali, visure ipotecarie, certificate di destinazione urbanistica) to verify that the Developers have a valid title to dispose of each property in the Development, and checked the legal title of the land to ensure that the property actually belongs to the Vendor and that no-one else has any claims on the land; we have also checked that the land is not being contested in an inheritance dispute in relation to an existing will (in accordance to the strict rules of Italian inheritance law, as regulated in the Civil Code).

We can confirm the absence of pre-emption rights in favour of third parties (such as the “prelazioni agrarie per coltivatori diretti” and/or the “prelazioni urbane”). We have carried out enquiries to ensure that there are no liens, encumbrances, and rights of way in favour of third parties and that the land is legally registered with the urban registry.

Finally, we also confirm that the Developer has provided us with a sample of a “Fidejussione Assicurativa” which is a bank loan guarantee valid under the current Italian legislation in accordance to decree 122 of 2005 and is a safeguard to any potential buyers for the event of default or bankruptcy of the building company.”

That letter has a potential importance in connection with the duties which are alleged to have been owed by Giambrone & Law to the proposed purchasers who instructed the firm (see paragraphs 120, 290 and 442 below), but it is the first paragraph of that letter, in particular, that is relevant for present purposes. Emphasis is laid on the “independence” of Giambrone & Law.

In his witness statement, Avvocato Giambrone said that he was “unable to recall who drafted the letter” but that he “may have had some input”. I have little doubt that he did. He said that the information in the letter “that RDV owned the land on which the development was to be built” was derived from the documents sent to him by fax two weeks previously. He said that the letter was produced “at the request of UK and Irish agents for their potential clients”, its purpose being “to give some comfort that Giambrone & Law were independent Italian lawyers, and to confirm what initial due diligence checks had been made in relation to JoTS”. This letter was, of course, drafted before the planning permission had been granted (see paragraph 200 below) and indeed before RDV had completed the purchase of the land.

I had read that passage in Avvocato Giambrone’s witness statement as meaning that the letter was intended to be shown to potential purchasers who had approached agents and who expressed a provisional interest in acquiring a property in the development. However, Avvocato Giambrone said, when questioned by Mr Majumdar, that the letter was not intended for the clients, but merely for the agents so that the agents could be satisfied that it was appropriate for them to send potential purchasers to Italy on an “inspection trip”. He accepted that he had no control over what would become of the letter once in the hands of the agents, but repeated that it was not his personal intention that the letter should be seen by the clients because there were no clients at that stage. I have, of course, only been directly concerned with the 12 “exemplar” cases. Of those the letter appears in the files of Mr Cleere, Mr Nambiath, Mrs Rawson and Mr and Mrs Noel. It follows that it must have been passed on in those cases. It would be most surprising if the same did not happen in other cases and I draw that inference on the balance of probabilities.

The whole emphasis of the letter, whether seen directly by a potential purchaser or by virtue of its substantive content being mentioned by an agent to such a person, was the independence of Giambrone & Law from the developers and the professionalism they were bringing to the due diligence process. On any view, this message was intended to (and plainly did) operate as an incentive to potential purchasers to instruct Giambrone & Law.

Mr Cleere’s account was that when he visited Brancaleone in June 2007 a representative of VFI (Darren Berry) introduced him to a representative of Giambrone & Law whose name he was unable to recall. Whilst speaking to that representative Avvocato Giambrone himself passed the table and Mr Cleere was introduced to him and Mr Brendan Dine (Mr Klingenberg’s brother). Avvocato Giambrone recalls meeting Mr Cleere. Mr Cleere says that he was told that Giambrone & Law were established in London, regulated by the UK legal authorities and for that particular reason the firm and the service it provided could be trusted. Avvocato Giambrone was, according to Mr Cleere, “very much presenting himself as a trustworthy English law firm that was regulated in England and was insured in the event of anything going wrong … [and that] … was why we should choose them in order to conduct this transaction.”

This was very much of a piece with what VFI had been putting forward about Giambrone & Law and plainly represented the reassuring message that both VFI and Avvocato Giambrone wished to convey.

Mr Cleere said that it gave him confidence. Others have said so too. Avvocato Giambrone accepted that there was a promotional aspect to the fact that Giambrone & Law had offices in Calabria and in London because this would be seen as an advantage to clients.

There can be absolutely no doubt that everything said on behalf of the firm during this period was designed to convey to potential purchasers that it (a) was experienced in transactions of the nature involved, (b) had the required level of expertise in the field to ensure that the purchasers’ interests were protected, (c) was independent of the promoters/developers and (d) was regulated in England and Wales as well as in Italy and that, accordingly, the purchasers could be entirely sure of their professionalism and adherence to correct professional standards.

That essential message was also conveyed in the “retainer letter” and associated documents to which I will be referring in due course (see paragraphs 151 - 154).

Before turning to further features of the chronology, it would be helpful briefly to review the processes involved in purchasing a property “off plan” in Italy.

An important feature of the legal picture concerning the purchase of an off-plan property in Italy is provided for by Legislative Decree No. 122 of June 20, 2005. Because of the importance of this I will deal with it separately (see paragraphs 120 - 136).

Before outlining the procedure adopted in Italy, I should record the position about lawyers acting in the transaction. In the English system it is normal for the purchaser and vendor to be represented by different solicitors in the conveyancing process. The position is different in Italy where the legal system is based on a civil code. The whole conveyancing transaction (called the “compravendita”) can be negotiated freely between the parties and all the rights and obligations of the parties are set out in the Civil Code which provides remedies for breach of the contract. Neither party is required by law or by established practice to be assisted or represented by a qualified lawyer.

However, for a property sale to be valid, the final contract or deed of sale (the “rogito”) must be in writing and ordinarily in the form of a public deed of sale witnessed by a Notary Public and recorded in the Notarial Archives. The Notary is acting as a neutral and impartial public official responsible for ensuring that all legal requirements in relation to both vendor and purchaser have been complied with. The Notary arranges for the payment of stamp duty by the purchaser and deals with the registration of the public deed at the Land Registry. Since the Notary is a highly respected public official who is expected to ensure that the transaction complies with the law it is not usual for parties to be assisted by their own lawyers.

The first step in any purchase is usually the payment of a relatively small initial reservation payment (“acconto”) to the vendor or his agent by the purchaser at the same time as the signing of an offer proposal by the purchaser (“proposta di acquisto”) or a Reservation form. Ordinarily, the acconto is refundable up to the time that the purchaser signs the offer proposal. In a number of the cases involved in the present proceedings the acconto was refundable in certain other circumstances, but that was as a result of specific negotiations.

In a normal conveyancing transaction, once the offer proposal setting out all the essential terms of the contract required by law, including the sale price and the date fixed for completion, is then signed by the vendor and that acceptance is communicated to the purchaser, the parties are contractually bound to complete the transaction. However, an off-plan purchase is subject to the provisions of Decree 122/2005 which requires the provision of a guarantee at the same time as a detailed preliminary contract (“Contratto Prelimanare di Compravendita Immobiliare”)is signed (see paragraphs 155 - 188 below). Such a guarantee has been called a “bank loan guarantee” in this case. There has been a suggestion, particularly by Avvocato Oliver, that the title is misleading (which indeed Avvocato Giambrone accepted). Indeed it does not describe accurately what must be provided (see paragraph 122 below) and it sounds more reassuring as expressed than the reality. However, nothing really turns on it for the purposes of the issues in the case and it has been used as a convenient shorthand by everyone.

The next stage is, therefore, the preliminary contract. This should contain all the terms and conditions required by law, together with the provision of the requisite documents including the guarantee. At the stage of the signing of the preliminary contract there would be a payment by the purchaser of a further advance payment to the vendor, which would normally, together with the acconto, constitute the confirmatory deposit (the “caparra”). This is regulated by Article 1351 of the Italian Civil Code.

With an off-plan purchase there may be further staged payments to be made at specified stages of the works or the final payment is made upon completion. At all events, when there is final, certified approval of the completed building projectpayment of the balance of the sale price takes place together with the legal transfer of all rights and obligations of ownership and possession to the purchaser, all witnessed by the Notary (see paragraph 110 above). The vendor is required to provide a 10-year guarantee against defects in the property.

As will be seen (see paragraph 118), the payment required at the preliminary contract stage in the transactions with which this case is concerned was 50% of the total purchase price and 50% on final completion.

The legal position if a guarantee is provided that is not compliant with Decree 122/2005 is potentially of importance in this case. I will return to it in due course (see paragraphs 397 - 420).

The opportunity to reserve a property existed by the payment of an initial deposit of Є3,000. This was the acconto (see paragraph 111 above).

The form that each completed (called Real Estate Purchase Proposal – “Proposta d’acquisto immobiliare”) was in substance as follows:

“Terms of payment

By signing this Real Estate Purchase Proposal, the client deposits the sum of:

With VFI (hereinafter known as the reservation deposit and non refundable) to be set against the full purchase price, with the balance to be paid as follows:

A: 50% on signing of Preliminary Contract Date (approx) …

… D: 50% on transfer of title. Date (approx) 01/07/09

Developers forecasted completion date: June 2009

…

It is understood that:

1.

With effect from the completion date the buyer will acquire full freehold ownership of the said property.

2.

As soon as this Real Estate Purchase Proposal is accepted by the vendor, the buyer agrees and authorises VFI to send this Purchase Proposal to the legal representatives to draft the corresponding Preliminary Contract.

3.

As soon as this Real Estate Purchase Proposal is accepted by the vendor, the reservation deposit will become non refundable except in the case of non fulfilment by the vendor. In this event, the deposit will become fully refundable and the buyer may obtain legal compensation in accordance to the Italian civil code.

4.

Should it not be agreed otherwise, the property will be delivered upon completion, free from debts, charges, liens and encumbrances.

…

8.

The purchase of the above Property and this Real Estate Purchase Proposal are regulated by Italian law.”

Some, but not all, Real Estate Purchase Proposal forms contained a “Special Condition” concerning the acconto in the following (or similar) terms:

“This reservation is refundable if you decide on your viewing trip you do not wish to proceed and the viewing trip is taken within 30 days of reservation.”

A number of the exemplar claimants said (hardly surprisingly) that they were greatly attracted by what VFI told them about the bank loan guarantees which led them to believe the payment of the deposit of 50% of the purchase price was safe. In VFI’s brochure, it was said that “[all] apartments have 100% bank guarantee, an insurance bond which gives full surety no client will risk any money.” That, of course, was a “sales pitch” by VFI but it will be recalled that the letter from Giambrone & Law dated 14 February 2007 (see paragraph 97 above) referred to the bank loan guarantee (a “Fidejussione Assicurativa”) valid under the Decree as “a safeguard to any potential buyers for the event of default or bankruptcy of the building company”. It was a matter emphasised in the subsequent “retainer letter” (see paragraphs 151 - 154 below). It was, therefore, a “sales pitch” to which the firm was prepared to lend authority by its own statements. The word “default” does suggest that something less than simply the financial destitution of the company leading to bankruptcy could be the trigger for the operation of the guarantee.

In his initial report Notary Francesco Valente gave a helpful background to the reasons for the introduction of Decree 122/2005 with which there was little, if any, disagreement by the other experts. He said that before its introduction there were serious problems for purchasers of buildings “off plan” where the builders became insolvent. Following a declaration of bankruptcy of the builder, the purchasers and the partners in the building venture lost all rights to the transfer of ownership of the relevant buildings even if the construction of the building was already completed and even if the building was already occupied. Article 72 of the bankruptcy law allowed the liquidator or administrator to dissolve the preliminary contract which led to repossession of the property and its resale at auction. The purchaser could only compete with other potential purchasers in order to try to win it back. Purchasers who had paid reservation payments or who had even paid the price in full prior to the execution of the notarial deed were treated merely as unsecured creditors in the bankruptcy.

It was this unsatisfactory background that the Decree was designed to rectify. The relevant provisions (as translated into English) are as follows:

“Article 2.

Surety

1.

Upon the conclusion of a contract which has the purpose of the non immediate transfer of ownership or other real right of enjoyment of a property to be built or an act having the same purposes, or at an earlier time the builder is obliged, on penalty of voiding the contract, which can only be enforced by the purchaser, to obtain a surety and consign it to the purchaser, also in accordance with Article 1938 of the Civil Code, for an amount corresponding to the sums and the value of any additional settlement that the builder has received and in accordance with the terms and conditions laid down in the contract, must still receive from the buyer before the transfer of ownership or other real right of enjoyment. The amounts which it is agreed should be provided by an individual lender, as well as government grants already secured by autonomous guarantee are excluded.

2.

For cooperatives, the act equivalent to that referred to in paragraph 1 shall consists of one with which sums have been paid or obligations assumed with the same cooperative for the assignment of ownership or purchase of a real right of enjoyment of a property to be built on the initiative of the same.

Article 3.

Issue, content and procedures for enforcement of the surety

1.

The surety is issued by a bank, insurance company operator or financial intermediaries registered in the special list described in Article 107 of the Consolidated Law on Banking and Credit, referred to in Legislative Decree 1 September 1993, No. 385, as amended and it shall ensure, in the event that the builder incurs a crisis situation referred to in paragraph 2, the return of the amounts and the value of any additional consideration actually received and legal interest accrued until the moment in which the aforementioned situation has occurred.

…

7.

The surety shall cease to be effective at the time of the transfer of ownership or other real right of enjoyment of the property or the definitive act of assignment.”

Whilst there is a debate about the extent to which it matters for the purposes of the issues in the case, it is clear that the “surety” should be issued by an institution “registered in the special list described in Article 107 of the Consolidated Law on Banking and Credit” for it to comply with the Decree. It is common ground that checking whether a financial institution is registered under Article 107 is very straightforward and simply requires going to the Banca d’Italia website, inserting the name of the institution and checking whether it is registered on the Article 107 list. There is also a list of other financial institutions registered under Article 106. Article 106 is not, of course, referred to in the Decree. It is, I understand, possible for an institution to have been registered on both lists.

Notary Valente and Avvocato Oliver said clearly that the requirements for registration under Article 107 were more stringent than under Article 106. In her Supplemental Report she said this:

“There were far more rigorous requirements for a bank or financial institution to be listed on the special roll under Art. 107, for example much higher paid up share capital was required. Less rigorous requirements were necessary for those seeking to be registered on the general roll under Art. 106.”

I did not understand Notary Cardarelli to dispute this. I accept it.

It is common ground that for any such guarantee to give effect to the intention behind the Decree, it must remain enforceable until completion of the purchase: it would offer no protection otherwise.

Avvocato Oliver characterised a guarantee provided by an Article 106 institution as a “second class” type of guarantee and that such a guarantee was much cheaper to obtain and required a far lower premium to be paid by the seller of the property. Notary Valente said in reply to a question from Mr Flenley that the risk sought to be covered by an Article 106 guarantee was the same as if given by an Article 107 institution, but the guarantee was “greater” if given by the latter type of institution. That accords with the increased stringency of the qualifying requirements for Article 107.

As will appear, in all the exemplar cases there was an initial guarantee, but in some a second guarantee was provided. Indeed in three cases, a third guarantee was provided. (A summary of the position appears in Appendix 2 to this judgment.) The reasons for this will become apparent later (see paragraph 409). In all cases the initial guarantees were issued by institutions registered under Article 106 (not Article 107) and the guarantee indicated that that was so in the small print on the face of the guarantee. Indeed all guarantees issued at any stage were issued by institutions on the Article 106 list, but it is said that some of those institutions might have been on the Article 107 list also. It is accepted on behalf of the defendants that the guarantees supplied should have been obtained from financial institutions which were registered on the Article 107 list. It is also accepted that the firm should have told the claimants that the guarantees did not comply with Article 3.1 and that it was negligent not to have done so.

Most of the initial guarantees issued to the exemplar claimants were issued by Industria e Finanza SpA or Gioia Fin SpA and all the second guarantees were issued by Fingeneral SpA. Each of these institutions, according to Avvocato Oliver, were known as “financial intermediaries” and were among 100 or so such institutions to be removed from the Article 106 list during 2009 for failure to comply with a number of requirements specified by Italian law.According to newspaper reports she found, Industria e Finanza SpA was being prosecuted in a substantial fraud involving fraudulent financial services in Italy and overseas and Fingeneral SpA, which went bankrupt in 2010, was the subject of a criminal investigation into the issue of fraudulent guarantees in very significant sums between March 2008 and September 2010.

I will return later to the significance in the context of this case of the guarantees having been issued by Article 106 institutions, but it is accepted by all the experts in Italian law that the preliminary contract is voidable at the option of the purchaser if the guarantee that is provided is not issued by an institution registered under Article 107.

Against the background that all proposed purchasers will have gained comfort from believing they had a watertight guarantee concerning their deposits, it will be appreciated that when things started to go wrong (see paragraphs 209 - 211 below), the guarantees became an immediate focus of interest.

Before leaving the terms of the Decree, it should be noted that the expression “crisis situation” is defined in Article 3(2) as follows:

“‘crisis situation’ means the situation that occurs in cases where the builder has undergone or been subjected to foreclosure, in relation to the property subject of the contract, or bankruptcy, extraordinary administration, agreement with creditors, compulsory administrative liquidation …”

As will be apparent later (see paragraphs 232, 240 and 254), the nature of the advice given by the defendants about the bank loan guarantees varied and the essential issue will be whether the nature of the advice is or was material to the decision to proceed with the purchases. It was accepted by Notary Valente that the circumstances necessary to trigger recourse to the guarantees (namely, a situation of crisis or insolvency as defined) have not in fact arisen in this case. It would seem that the appointment of court-appointed administrators does not fall within the definition of a “crisis situation” and indeed, according to Avvocato Virga, the existence of the judicial administration would prevent the company from being made insolvent. Mr Flenley submits that it follows that, even on the assumption that the guarantees were defective, the claimants would now be no better off even if they were in possession of fully enforceable guarantees because they could not call on the guarantees for payment. This is part of his SAAMCO argument.

I will return to the SAAMCO argument later (see paragraphs 331 - 356), but the way the claimants put the argument concerning the allegedly defective bank loan guarantees is, I apprehend, somewhat different and will need addressing in that different context. In short, what is said is that had the proposed purchasers been told that the guarantees did not conform to the decree, it might have had an impact on their willingness to proceed with the purchase, either as a sole reason or as part of a wider concern that insufficient safeguards were in place to protect their deposits.

There is also a separate issue concerning the circumstances in which the deposits were paid out by the firm which may turn on the validity or otherwise of the guarantees (see paragraphs 397 - 420 below).

There is another area of concern (not revealed to the purchasers until after they had committed themselves to the preliminary contracts) arising from a potential area of conflict of interest between the firm and their clients arising from what the firm knew about the arrangements between the builders and the developers. It is not disputed as a matter of principle that the defendants should not place themselves in a position of conflict of interest or duty, but it is denied that they did do so. This issue can be introduced by reference to the “Mandates”.

As indicated above, the vendor/builder of the Main Development was RDV. On 3 March 2007 RDV and VFI entered into a written agreement (which has been called the ‘2007 JoTS Mandate’) which set out the terms on which VFI was to be paid by RDV for the promotion of the JoTS development. As will be seen, Giambrone & Law also joined in this agreement to some extent and that involvement has given rise to criticism – or, more accurately, the failure to disclose the involvement has given rise to criticism – by the claimants. I will, however, set out the relevant terms of this Mandate (and the other Mandates) first.

The Mandate was apparently executed in Italian and English. What appears below is deduced from the English part of the Mandate. RDV and VFI are referred to as the “Principal” and “Agent” respectively (and are defined jointly as “The Parties”) and Article IV is in the following terms:

“The PRINCIPAL agrees to pay the AGENT, a commission for the amount of 31% of the sale price of the Building Complex’s units…. The parties expressly take note of the Commission due to the AGENT will be kept safe in a fiduciary deposit at law firm “Giambrone & Law” to whom the AGENT gives expressly Mandate according to the under mentioned article V and will be released in favour of the AGENT only following the written ratification of the preliminary contract by Mr Antonio Cuppari and released of a regular Invoice to the PRINCIPAL …. The Parties agree in the event that any client should cancel the purchase of any Building Complex’s unit, before signing the preliminary contract, that the 3,000 Euros reservation fee paid at the signature of the Reservation (“the deposit”), in case that for any reason no restitution shall be paid to the client, shall be kept by the AGENT to cover any cost relating to the sale promotion of the particular property relating to the client and the said property will be offered for resale to another client.

The eventual deposit will be kept safe in fiduciary deposit at the law firm “Giambrone & law” according to the following article V and will be released in favour of the AGENT only following the release to the PRINCIPAL of a regular invoice.”

Article V was in these terms:

“By the signing of the present agreement, V.F.I., Overseas Properties Real Estate Agent Limited gives – and RDV srl takes note – irrevocable Mandate to Giambrone & Law International Law Practice, main office in London, to collect in a fiduciary deposit on its own non interest bearing deposit account the deposit and the commission due to the AGENT.

The law firm “Giambrone & Law” – which undersigns this agreement through its own legal representative Avv. Gabriele Giambrone – takes note and undertakes to release the deposit and the commission due to the AGENT only following a written ratification of the preliminary contract by Mr Antonio Cuppari and the issuing of a regular Invoice from the AGENT to the PRINCIPAL.

All fees, rights and commission and expenses pertaining and relative to this Mandate agreement and due to the Law firm Giambrone & Law will be paid only by the AGENT. The company RDV srl should not pay anything at any [time] to the Law firm Giambrone & Law.”

Article IX (with the heading “Privacy and Confidentiality”) is as follows:

“The Parties undertake not to disclose any information relating to the Agreement to any third party or others without first obtaining written consent by the other Party.”

Article XI contains the following provision:

“This contract is also undersigned by Avv. Gabriele Giambrone, as legal representative of the law firm “Giambrone & Law” to accept the duties stated in Article V of this agreement.”

Just below the foregoing provision, and apparently part of Article XI, are the words –

“Attached:

1.

copy of reservation form.

2.

copy of preliminary contract form.”

In fact in the papers before the court there are no documents attached to the copy of the Mandate.

Avvocato Giambrone also confirmed in his evidence that the Mandate agreement would have been discussed with RDV’s lawyers by Avvocato Margiotta on behalf of Giambrone & Law because it was he who was dealing with the drafting of the preliminary contracts. I see no reason to doubt that. Since, according to Avvocato Giambrone, the mechanism of payment set out in the Mandate was reflected in the preliminary contracts it would have been necessary for these discussions to have taken place and agreement in principle to the terms of the Mandate secured. He signed the Mandate on behalf of Giambrone & Law and was content to do so.

On 25 June 2008, and thus after Giambrone & Law had become an LLP (see paragraph 46), an agreement (also called a Mandate) in similar terms was signed on behalf of the LLP by Avvocato Francesco L’Abbate instead of Avvocato Giambrone. Nothing really turns on the terms of this agreement save that the terms as to commission were as in the 2007 Mandate.

The owner/builder of the Beach Front development was Veco. A similar, though not identical, Mandate (the ‘Veco Mandate’) was entered into in relation to that part of the JoTS development which set out the terms on which VFI was to be paid by Veco for its promotion. Although the Veco Mandate was undated it was sent by fax to Giambrone & Law on the 19 June 2007 which suggests it had been completed shortly before then. It referred to Veco and VFI as “Principal” and “Agent” respectively (again defined as jointly “The Parties”). Article IV of the provided, inter alia, as follows:

“The PRINCIPAL agrees to pay the AGENT a commission for the amount of 31% of the sale price of the Building Complex’s units (hereinafter “the Commission”) to be paid from the AGENT’S clients at the signature of the preliminary contracts, excluded VAT.... The parties expressly take note of the Commission due the AGENT will be safe kept in a fiduciary deposit at law firm “Giambrone & Law” to whom the AGENT gives expressly Mandate according to the under mentioned article V and will be released in favour of the AGENT only following released of a regular invoice to the PRINCIPAL … The eventual deposit will be safe kept in fiduciary deposit at the law firm “Giambrone & Law” according to the following article V and will be released in favour of the AGENT only following the release to the PRINCIPAL of a regular invoice.”

Article V provided as follows:

“By the signing of the present agreement [VFI] gives - and the company [Veco] takes note - irrevocable Mandate to Giambrone & Law International Law Practice, main office in London, to collect in a fiduciary deposit on its own non interest bearing deposit bank account the deposit and the commission due to the AGENT.”

The Veco Mandate was not in fact countersigned by anyone acting on behalf of Giambrone & Law, but it seems plain that the firm acted in accordance with it when necessary. In his evidence Avvocato Giambrone said that the firm was treating Veco exactly as it was treating RDV and that the “transactions in respect of Beach Front were handled in the same way as the transactions for JoTS were handled.”

I will return to the relevance and effect of the Mandates in due course (see paragraphs 357 - 396), but it is quite plain that as at the date they were signed on behalf of the firm the firm was fixed with knowledge of the level of the commission payable to VFI and consequently the proportion of the 50% deposit paid by the purchaser to the builder, RDV.

The first substantive letter received by a proposed purchaser after paying the initial deposit was what has been called “the retainer letter” and I will turn to its contents.

Once a potential purchaser had paid the initial deposit of €3,000 VFI would notify Giambrone & Law and a letter would be sent to the potential purchaser. There were some minor variations between the letters actually sent to the various individuals, but in substance they were the same and one in the following terms (in fact sent to Mrs O’Connor on 22 May 2008 when the LLP was in existence) was typical:

“Re: Purchase of your property in Calabria

We have been passed your details from VFI following your reservation of a new property in Jewel of the Sea (Calabria).

Giambrone & Law LLP is one of the leading Italian Law firms in the United Kingdom and Ireland and we have a dedicated department specialising in Italian Real Estate law and off-plan property acquisitions.

We have been requested to complete the necessary due diligence over the development, issue the Preliminary Contracts and to advise you in relation to the legal aspects of the aforementioned purchase. We have experience in advising a growing number of foreign investors in the Calabrian market, which is now fast becoming one of the “hot spots” in the Italian real estate market, with prices increasing rapidly.

Our lawyers from the London office have visited the area of Calabria and met with the representatives of VFI and of the Builders in order to discuss the legal aspects of these new developments in more detail.

Moreover, we will soon be opening a new office in Reggio Calabria: we hope to build a long relationship with you and be able to advise you on all different aspects of Italian law after you complete your purchase in Italy.

A brief overview of the purchasing process

Although we may been recommended to you by the Promoters, we wish to emphasise that our Italian Lawyers are completely impartial from any other party associated with this purchase and therefore we will act solely in your best interests and advise you on all aspects of Italian law which will be relevant to your purchase.

The initial part of our remit is to carry out the customary due diligence over the Development and draft the Preliminary Contract in compliance with the provisions of the Italian Civil Code and local legislation. Our Italian Lawyers have already requested a number of documents to enable us to carry out the due diligence over the Limited Company which is building the Complex.

We have already carried out a number of land registry searches, called visure catastali, visure ipotecarie, and check the certificate di destinazione urbanistica, to verify that everything stated in the initial draft of the Preliminary Contact is correct.

We will also check the legal title of the land to ensure that it actually belongs to the Developers, that no-one else has any legal claims over it, and that this land is not being contested in an inheritance dispute. We will check for the absence of pre-emption rights in favour of third parties (such as the “prelazioni agrarie per coltivatori diretti” and/or the “prelazioni urbane”). If the Developers have obtained a mortgage to fund part of the project, we will need to inspect copies of any relevant bank documents to ensure that any legal charges in favour of the lenders will be removed prior to completion.

We would routinely carry out enquiries to ensure that there are no liens, encumbrances, and rights of way in favour of third parties and that the land is legally registered with the urban registry, and, furthermore, that valid planning permission is in place for the project to go ahead.

We will ensure that the Builders/developers or the Promoters will provide us with a copy of a “fidejussione banacaria”, which is now mandatory in certain circumstances: this is a bank loan guarantee that has to be provided by them so that, in the event of bankruptcy, we can claw back any funds anticipated at this stage directly from the guaranteeing Bank.

We will draft a Report on Title which will give you a clear idea of the legal status of the apartment that you wish to purchase and of the land upon which it is being built. At the same time, the final version of the Preliminary Contract will have been prepared by our lawyers and it will be sent to you for your consideration. Our documents are always drafted in Italian and English so that you will know the exact content of what you are required to sign: however, it is important to note that only the Italian version of the Contract will be legally binding.

Our professional fees

…

All our lawyers in the London office are regulated by strict rules of conduct imposed by the Law Society (England and Wales) and we have professional indemnity insurance of £5,000,000 for your extra peace of mind. You can rest assured that we will constantly strive to provide you with the highest level of service possible.

….” (All emphasis as in original.)

A letter sent to Mrs Manning on 1 June 2007 (prior to the formation of the LLP) was in more or less identical terms.

This letter is, not unnaturally, the focus of a fair amount of the argument in these exemplar cases about the extent of the retainer undertaken by Giambrone & Law and/or the LLP. I will return to these matters in due course, but it is to be noted that the firm describes itself as “one of the leading Italian Law firms in the United Kingdom and Ireland”. The essential formula for the letter was drafted in the first half of 2007. By that time Avvocato Giambrone was aged 30 and had been an Italian “Avvocato” since January 2005. Giambrone & Law was founded in April 2005, his “co-partner” at the time being another Italian Avvocato, Cristina Poncibo (see paragraph 44). The foundation for the suggestion that within two years the firm had acquired the reputation suggested in the letter is somewhat slender, but it demonstrates an ability to put a very positive “spin” for marketing purposes on what at that time must have been relatively insubstantial material.

The letter contains the reference to £5 million of professional indemnity insurance to which I made reference in paragraph 72 above. As I have said, I will return to a more detailed analysis of this letter later (see paragraphs 293 - 303).

The letter sent to clients in which the Preliminary Contract was sent said that it enclosed two copies of the preliminary contract in Italian (duly translated into English), a cover letter of advice, a Report on Title (with full legal explanation of the content of the contract) and an invoice for the professional fees. The request was that both copies of the contract should be returned duly signed (together with the deposit) within 14 days.

The retainer letter had said that the firm would have drafted the preliminary contract (see paragraph 151 above). There was an issue (no longer pursued) as to whether the contracts were drafted on the instructions of the vendors or promoters. Avvocato Giambrone said in his witness statement that the preliminary contracts were the product of negotiation between the firm and RDV’s lawyers. I see no reason to doubt that, not simply because it was not challenged, but because it is inherently plausible. There is some question about whether there has been full disclosure about this period of the history of this overall enterprise, but it seems to me to matter little in relation to the issue in question. Nothing, as it seems to me, arises directly from precisely how the preliminary contracts were drafted. The more important question is whether they protected the interests of the proposed purchasers adequately, but I will deal with that separately (see paragraphs 167 – 171, 186 and 322). So far as the contract itself is concerned, it might be observed that Notary Cardarelli said that it was a badly drafted contract.

The “cover letter of advice” contained the following paragraph of relevance relating to the funds required to pay the deposit:

“We will keep these funds in our Client account in London until the enclosed Preliminary Contracts have been signed and executed by both parties and the bank loan guarantees have been issued ...”

The other paragraphs of relevance in this letter were as follows:

“We have now completed the final stages of our Due Diligence in relation to the purchase of your new property in Calabria, within the “Jewel of the Sea” residential complex in Brancaleone.

…

As the exchange rate between Euro and Sterling seems particularly favourable during this period, it may be worth considering the possibility of stipulating a “Fixed Term forward Contract” with the Currency Broker for the forthcoming Payment of the Total Price.

…

For the avoidance of any doubts, it is not within our remit or competence to advise you as to whether you should enter into a Forward Contract now, because the currency market is very volatile and the exchange rate could even become more favourable in the future: you must discuss this option with a professional who deals with currency trading and decide independently as to whether this product is suitable to your own financial circumstances.

…

We will only be able to advise you in relation to legal aspects of the purchase and, if you have any enquiries about any other aspect of the transaction (for example: size of the rooms in your property, depth of the swimming pool, and so on), please liaise directly with the Promoters (VFI) as they will be delighted to answer your queries.” (Emphasis as in original.)

It contained a paragraph that stated that by transferring the required deposit to the firm’s Euro Account the purchaser was authorising the onward transmission of the commission to the Promoter.

There seem to have been several versions of the Report on Title on JoTS. In substance each probably amounts to the same thing, but I will mention the differences.

Each version starts with a paragraph entitled ‘Introduction’ with the following text:

“Giambrone & Law has independently carried out the due diligence in relation to [JoTS] promoted by VFI … and has also carried out a multiple object investigation aiming at determining the feasibility of the targeted purchase and at reviewing the clauses of the Preliminary Sale Agreement for Immovable Property) prior to the exchange between the client and the Vendor”

The meaning of the expression “multiple object investigation aiming at determining the feasibility of the targeted purchase” has been the subject of debate at the trial and I will return to it (see paragraphs 306 - 311).

The Report on Title describes the “Vendor” in the following way:

“Based on the information supplied to us by the developers, and our own legal and administrative verifications, as well as the attendance of two lawyers of our firm to Calabria to inspect the site where the Complex is due to be built, aiming at establishing the real existence of such a project and the current legal status of the land, we have verified the following information in relation to the Promoter and the Vendor.”

“The Promoter” is said to be VFI and “The Vendor” is said to be RDV and the following information is given:

“We have checked the legal status of Italian RDV s.r.l., where “s.r.l” stands for societa a responsabilita limitata: this is the Italian equivalent of a Limited company in the United Kingdom.

…

The Company has 2 administrators, the Managing Director being Mr. Antonio Cuppari, born in Brancaleone (RC) on 17^th March 1964. He therefore has the necessary authority to sign a Preliminary Contract on behalf of RDV s.r.l., hence the legal power to enter the company into a valid agreement under the rules of Italian company law. The Promoter acts as an attorney of the Company and he has the legal power to sign it on behalf of the Vendor.

…

In this instance, we have verified that R.D.V s.r.l. has, within its statutory powers, the faculty of buying and selling real estate and properties in Italy, as well as other ancillary faculties such as renting properties, management of residential complexes and similar activities related to property disposition and management.

…

We confirm that those parties mentioned in the Contract actually own the land and have conferred to the Promoter the task of promoting the residential complex to the overseas market and selling it off-plan. We have ascertained that the Promoters are acting in their capacity as “mandatari senza rappresentanza”.

The contract of “Mandato” is an Italian type of contract which is similar to the “agency agreement” under English law, and is regulated by articles 1703 – 1730 of the Italian civil code. In particular, VFI Overseas Properties Real Estate Agent Limited is acting as an agent of the Building Company (mandatario) and it has the legal faculty to do so, under art. 1704 of the civil code: they have the faculty to legally bind the developments in completing the construction of the complex within the agreed timescales under the terms of the current agency contract.”

The Report on Title goes on to describe the Preliminary Contract and says that it does not confer ownership, merely an obligation on the part of the Vendor to “build the complex and transfer the ownership of the agreed property to the buyer and upon the buyer to pay the agreed price at the agreed timescale”. It said this:

“Once the contract has come into being neither side is free to withdraw without penalty. The Buyer pays a Deposit (defined in Italian as ‘Caparra confirmatoria’) to the Seller. If the Buyer changes his mind before completion, he/she will lose this money. If the Vendor does so, he/she must pay the Buyer an amount equal to double the value of the ‘Caparra’.

The Italian off-plan legislation has been updated recently with the introduction of Legislative Decree n.122/05 that has imposed a number of compliance issues and burdens upon the Developers of an off-plan Residential Complex to protect the Buyers. Under the terms of Decree n. 122 for a Preliminary Contract to be valid at the time of exchange, the Developers must present a request for planning permission to the local authority (“Richiesta di Permesso di Costruire”) and must provide a bank loan guarantee for all funds received in deposit by the potential Buyers: we have supervised that the Developers are fully complaint with the requirements of Decree 122. Furthermore, the decree also states that a 10-year guarantee against any building defects must be provided when the Notarial deed is signed.”

The reference to “double the value of the ‘Caparra’” is a reference to the position under Italian law (agreed by the experts and based upon section 1385 of the Italian Civil Code) that the buyers would have the right to claim double the deposit from the vendor for any failure to complete the contract. Recovery of such a sum, of course, would depend upon the vendor having the resources with which to meet the liability (cf. paragraph 262 below).

An issue relates to the provision in the preliminary contract concerning the “certificate of habitability” referred to in the Report on Title (see paragraph 171 below). It is convenient to deal with it here. Avvocato Oliver described such a certificate in these terms and I did not understand there to be any dispute about the description:

“The Certificate of Habitability is a document which was introduced in new building laws which entered into force in 1994. This would be issued to newly built properties, by the Comune as well as to properties which undergo major renovations, such as the addition of new kitchens and bathrooms. Many factors are pertinent to the issuing of this certificate, including the height of ceilings, no. of bathrooms per square meter of the habitation, gas and water supplies etc.”

Clause 5.5(d) of the preliminary contract provided that the purchaser was bound to complete the purchase even if there was no certificate of habitability in place. It was expressed in these terms (which do not translate very well, but the import is clear):

“… the certification of habitability that the VENDOR will undertake to request at its own care and expense, as soon as possible has not been granted within the date established by this article at the signature of the final Notarial deed. The BUYER therefore undertakes to receive the handing over of the building and proceed to stipulate the final contract of sale, regardless of the issuing of the certification of habitability, of the finishing of the works indicated in the above points of this article and/or of any eventual imperfections in the final touches of the building, remaining commitment of the vendors to finish them.”

Avvocato Oliver expressed the view, mirroring the view of Notary Valente, that it would not be usual or correct to include such a clause in a contract for a new construction since it implies that the buyer is agreeing to purchase a property that had not yet been finalised in accordance with the building regulations and planning laws and thus not declared legally habitable. She said that a property without such a certificate would be more difficult, or even at worst impossible to sell, and it could have an impact on its market value. I do not think that, in principle, Notary Cardarelli disagreed with this analysis.

Notary Valente agreed that by law, the builder is obliged to apply for the certificate of habitability within 15 days of completing the building works and that if there is no objection to the application within 60 days it is deemed to have been granted unless the council requires further information. Upon the basis of this Mr Flenley submits that it is very doubtful whether the contract needed to include a different provision, but even if it did, it would have made no difference to the exemplar claimants because they all terminated their contracts before completion of the transfer. He suggested that problems with the building not being habitable would have affected them only if they had actually purchased their properties.

I do not consider that that argument addresses the real issue here. I accept that it is possible that there would not have been a problem in a particular case (or indeed in all cases), but the issue is whether it was right to include such a potentially risky condition in the preliminary contract and the effect which knowledge of its existence within the contract prior to signing the preliminary contract might have had upon the purchaser. The positive scenario identified by Mr Flenley would be dependent on the builder applying for the certificate and the council not objecting to its grant after the contract had been completed. Furthermore, the Report on Title did not state the position accurately: it suggested that completion was “subject to a certificate of habitability being presented to us by the Vendors prior to the signing of the final deed” (my emphasis).

The Report on Title contained the following paragraphs prefaced by the following words of introduction: “In particular, we would draw your attention on the following aspects of the Preliminary Contract, which will all become binding as soon as you sign the Preliminary Contract and the Developers countersign it” -

8.

Payment Schedule: the proposed payment schedule seems acceptable, as there is no request by the Builders for further interim payments during the phases of construction: this somehow seems to imply that they have their own resources to bring the construction to a positive completion.

9.

Bank Loan Guarantee: as soon as we receive the deposit in our Clients account, we will retain it until the other party has signed the Contract too. In this period, the funds will be held in our account which is non-interest bearing. The Vendor will provide us with a bank loan guarantee (within 30 days of signing the Preliminary Contract) for the funds anticipated to them at this stage, so that in the unlikely event of the Building Company going bankrupt or becoming insolvent, you will be able to claw the deposit back from the Bank which has issued the bank loan guarantee.

…

11.

We have made arrangements for funds to be transferred directly from our Client Account in the UK directly to the Vendor’s Bank account, after having deducted the Promoter’s commission. This will ensure that all payments are properly documented and will reconcile with the figures stated in the contract.

…

13.

The long stop date for completion of the project is scheduled for June 2009. We have negotiated with the Vendor’s lawyers a period of 6 months which is defined as “ex gratia” period whereby the Vendor can delay completion for up to 6 months without incurring any financial penalty. At the end of the aforementioned ex gratia period, the Vendor will be liable to pay a penalty of €300 per month for each month of delay in the completion of your property.”

In some Reports on Title paragraph 11 reads as follows:

“We have made arrangements for funds to be transferred directly from our Client Account in the UK directly to the Vendor’s Bank account and therefore this will ensure that all payments will be properly documented and will reconcile with the figures stated in the contract.”

In that version there is no reference to deduction of the promoter’s commission.

In some Reports on Title paragraph 13 (albeit numbered paragraph 8) reads as follows:

“As standard in Italy, the long stop date for completion of the project has been included to be within 24 months of exchange of the preliminary contracts and/or the date of issuing of the planning permission, whichever is the latest. You will acquire ownership when the final deed of sale will be signed before the Notary and this is subject to a certificate of habitability being presented to us by the Vendors prior to the signing of the final deed, at the Vendor’s expense.”

The passage underlined in paragraph 175 above is sometimes to be found in a separate paragraph in the contract.

The Report on Title also included the following paragraph about the proposed golf course:

“18.

In relation to the proposed golf course, it does not form part of the due diligence that we have carried out, as the proposed golf course will be adjacent to the “Jewel of the Sea” Complex but will not be included inside the Complex; however, the Directors of R.D.V. and the Promoters have informed us that RDV has recently signed a Preliminary Contract to purchase the land where the Golf Course should be made. We have requested a copy of this preliminary Contract that will be kept in our files for information purposes only.”

The Report on Title says nothing further about the planning dimension other than the references that appear in the following two paragraphs:

“7.

Due to Italian bureaucracy, it is quite common for a substantial period of time to elapse from the moment when the request for planning permission is submitted to the authorities and the date when this is issued by the Comune.

8.

As standard in Italy, the long stop date for completion of the project has been included to be within twenty-four months of exchange of the preliminary contracts and/or the date of issuing of the planning permission, whichever is the latest. You will acquire ownership when the final deed of sale will be signed before the Notary and this is subject to a certificate of habitability being presented to us by the Vendors prior to the signing of the final deed, at the Vendor’s expense.”

There are issues about the validity of the planning permission (see paragraphs 189 - 208), but on the face of the planning permission for the Main Development the development was designated by the comune as“turistico residentiale” (“tourist residential”). Notary Valente confirmed that this means that the owners are not allowed to use a property within the zone as their main residence in Italy nor are they allowed to live in such properties as if these were their main homes. If they do so, although they cannot be evicted, they are acting unlawfully. There are fiscal issues too. The designation prevents the purchasers from being entitled to the tax advantages available on the purchase of a first home where VAT is charged at 4% compared to a second home for tourism at10%. It also has the effect that the owner would not be able to have their NHS General Practitioner in the area.

It is acknowledged that none of this was made clear to the purchasers before the preliminary contracts were signed.

The preliminary contract contained the following terms that are suggested to be relevant to the question of when the deposits should be handed over (see paragraphs 397 - 420 below):

“3.4

The deposit is to be paid at the signing of this preliminary contract and shall constitute a confirmation deposit according to art. 1385 of the Italian Civil Code. The VENDOR’S, as above represented, signature of the present Contract constitutes formal receipt of this deposit.

3.5

The aforementioned deposit will be paid by the BUYER into the Client Account of the law firm “Giambrone & Law”, with registered office in London, which is a non-interest bearing account. Furthermore, the BUYER authorises the law firm “Giambrone & Law” to transfer this deposit to the company RDV bank account by bank transfer, or by non negotiable bank draft, after having retained costs and fees due to the V.F.I. Overseas Properties Real Estate Agent Limited as agent of the above mentioned agency agreement. This money transfer shall be carried out at the same time as the ratification of this contract by Mr Antonio Cuppari and the granting – at RDV srl own care and expense – of a suitable bank or insurance guarantee which would comply with the legal requirements set out by the art 2 and 3 of the decree legislative 122/2005.

The BUYER promises to give back the insurance guarantee received in original by RDV srl at the signature of the final contract of sale.

3.6

The balance will be paid at the signature of the final contract of sale.”

As will appear later (see paragraphs 405 - 407), Clause 3.5 is an important clause.

Clause 5.4 of the Preliminary Contracts provided that execution of the final notarial deed (in other words, completion) was to take place by 30 June 2009. There was no express provision that time was of the essence (the view expressed clearly by Avvocato Oliver and Notary Valente in their reports), but Clauses 5.6 and 5.7 were as follows:

“5.6

Any delay in stipulating the final Notarial deed could not be, as agreed between the parties, a valid reason for the BUYER to cancel this contract or request damages.

5.6

(a) Any delay in the stipulation of the notarial deed of sale exceeding by 6 months the timescale set out for the completion of work under the aforementioned art. 5.4 and for which the VENDOR is exclusively liable, will oblige the VENDOR to pay a compensation of Euro 300 for each month of delay, starting from January 2010.

5.6

(b) In the same way, in case that the final Notarial deed should be delayed for reasons of force majeure beyond the control of the VENDOR, as agreed between the parties, nothing could be asked and or charged to the VENDOR as penalty and/or damages and it could not be a good reason for the BUYER to cancel this contract.

5.7

The stipulation of the final Notarial deed of purchase will have to take place in front of a Notary appointed by the VENDOR.”

On the basis of Notary Cardarelli’s view, it was admitted on behalf of the defendants that the effect of Clause 5.6, if taken at face value, was to prevent purchasers from terminating the preliminary contract on the ground of delay to completion, however serious that delay may be. It was accepted that the firm should have explained this to the purchasers before the preliminary contract was signed, but did not do so, and that this represented a breach of duty. This position was reinforced by an admission made on 9 March, the 6^th day of the trial.

It was common ground between Notary Cardarelli and Avvocato Oliver that Clause 5.6 would be held by an Italian court to be unenforceable. This led Avvocato Giambrone to say this when he was questioned about what the claimants should have been told in the Report on Title:

“So what we should have said is, “The contract only allows you to get a penalty, it does not allow you to terminate the contract if the builder is in breach. However, the law supersedes the contract and you can terminate the contract”, which is in fact what the clients did anyway. They were able to terminate the contract. So my acceptance was that we should have been clearer [in paragraph 13 of the Report on Title: see paragraph 172 above] of and it should have been worded more carefully.”

I am bound to observe that if the Clause was unenforceable, it is not clear why it was included in the preliminary contract in the first place. Furthermore, the kind of advice that Avvocato Giambrone said should have been given would have been confusing to most people. And indeed the reality, as I understood the view of Avvocato Oliver, was that the purchaser would have to go to court to obtain an order terminating the contract and damages from the builder. As I understood him, Notary Cardarelli accepted this but thought that it would not be in the builder’s interest to go to court and would agree a settlement.

As I understand the position in respect of all the exemplar claimants, each has terminated their contract but has not recovered the deposit. That loss, amongst other things, is what they seek by these proceedings.

I will turn now to the planning dimension although, as will appear, its chronological position is, properly speaking, earlier in time than when the Report on Title was sent. What needs to be observed is that there was nothing in the Report on Title to undermine the reassurance that was given by the firm to potential purchasers in communications prior thereto that all was in order.

In order to introduce the debate concerning the planning issues it is, perhaps, appropriate to record how the generic issues concerning the planning dimension were identified prior to the commencement of the hearing. It is to be noted that the list of issues was expressly said “not [to be] intended to replace the pleadings herein and should not be taken to alter the pleaded claims and defences.” As will be observed, the issues concerning the planning permission (Issues 70-72) were expressed in very broad terms and did not descend to the particularity of the inadequacy or defect of the planning permission:

70.

What was the position regarding the planning permission for JoTS?

71.

What did [the defendants] know about the planning permission and what ought they reasonably to have known?

72.

[Were the defendants] duty bound to give [the claimants] any information or advice about the position regarding planning permission and if so what?

The Penningtons Manches claimants had alleged as one of the Particulars of Negligence that the defendants “failed to advise … prior to the execution of the Preliminary Contract and release of the Deposit, that adequate planning permission was not in place for the development”. The allegation in the Edwin Coe claimants’ pleadings was, inter alia, that the defendants “failed to identify defects in the planning permission and that such planning permission as was in place was incomplete”, reference having been made earlier in the pleading to the contents of the retainer letter concerning the planning permission (see paragraph 313 below). My attention has not been drawn to any further particulars of those allegations that were sought or given at any stage. The pleaded response to each was respectively as follows:

To the Penningtons Manches claimants

“(2)

At the date the Preliminary Contracts were executed and the deposits transferred, planning permission had been granted in respect of each Claimant’s Apartment. The Second Defendant was entitled to rely on the validity of planning permission which had been granted by local government bodies, which is what the Second Defendant did here. Italian conveyancers are not required to advise on the risk that such planning permission may later be overturned.

(3)

The suspension of planning permission on 26 June 2008 (in respect of the Emerald, Emerald I and Emerald II and Ruby blocks) was due to matters which were

a.

outside the influence of the First and/or Second Defendants, and

b.

not reasonably foreseeable to the First and/or Second Defendants as at the date on which any of the Claimants executed their Preliminary Contracts and/or transferred their deposits.”

[The underlined passage reflected an amendment made in July 2014]

To the Edwin Coe claimants

“… it is denied that GLILP had any obligation, as a matter of Italian conveyancing practice, to give the advice alleged. Italian property lawyers, including Notaries, are entitled to rely on the validity of planning permission which has been granted by local government bodies, and are not obliged to second guess such permission. In the alternative, it is denied that any breach of duty in relation to planning permission caused the Claimants’ loss.”

[That Defence was pleaded in February 2014]

As with the claimants’ pleadings, no further particulars have been sought of those averments, most notably for present purposes the averment that the suspension of the planning permission in June 2008 was “due to matters which were … outside the influence of the First and/or Second Defendants, and … not reasonably foreseeable” as at the dates referred to. As it stands, this averment suggests that the defendants could, if asked, say what the reason for the suspension was and why it was not reasonably foreseeable by them at an earlier stage (although that latter part of the averment may have been addressing a different issue).

This analysis of the pleaded position may be of relevance to the ultimate disposal of the issues concerning the planning dimension to this case. I will return to this below (see paragraphs 193 - 207).

That there were problems arising from the planning permission for at least part of the Main Development is not in issue. The essential case advanced on behalf of the claimants in the pleadings to which I have referred is that these problems should have been identified by the firm as part of the due diligence it said it would carry out. Equally, the essential response on behalf of the defendants was that they were “entitled to rely on the validity of planning permission which had been granted by local government bodies”, an assertion undoubtedly based on Notary Cardarelli’s view of the responsibilities of an Italian lawyer acting for a client in such a situation. As I have indicated, there is an averment that the suspension of the planning permission in June 2008 was “not reasonably foreseeable” at the time the preliminary contracts were signed and, as an alternative allegation, that there was no causal link between any breach of duty, if established, and the loss claimed.

Mr Majumdar is right when he says that the thrust of this response to the claimants’ case is that the firm had no duty to go beyond what appeared on its face to be a valid planning permission. It is not alleged that, had such a duty existed, it would have been unreasonable to expect the problem that led to the suspension of the planning permission to be identified. Mr Majumdar was, of course, addressing the pleadings in the Edwin Coe cases, but the same point can be made in relation to the response to the Penningtons Manches’ claimants: there was an assertion that it was not necessary to go beyond the terms of the planning permission and whilst it is said that the suspension in June 2008 was not “reasonably foreseeable” that may (and indeed appears to) be addressing a different issue from the issue of whether, had the validity of the planning permission been examined further, the defect would have been identified. At all events, there is nothing in the defendants’ pleadings that (a) identifies what was the defect in the planning permission that led to its suspension and (b) asserts that such a defect could not reasonably have been expected to be identified if there was, contrary to the defendants’ primary case, a duty to go beyond the terms of the planning permission itself. Equally, of course, there is nothing in the claimants’ pleadings to indicate what was the defect in the planning permission.

To that extent, the factual issue concerning the true reason for the invalidity of the planning permission was not an expressly live issue on the pleadings. As far as I can determine, Notary Valente was the only expert to address in his report the question of whether the firm ought to have identified the danger of the future suspension of the planning permission if it had carried out “its usual enquiries into the planning permission for JoTS”. He addressed that issue because it was a question he was asked to consider. He answered it in the affirmative, but gave no detailed reasoning other than to say that an examination of “the regulatory and specialist plans” would have demonstrated the “mistake on the part of the municipality of Brancaleone”. When Notary Cardarelli came to comment on that view, he merely took the position that going beyond the terms of the planning permission was unnecessary which, of course, was the starting-point for the question in the first place.

It emerged during Mr Flenley’s cross-examination of Notary Valente that he (Mr Flenley) did not have expert evidence on what the defect in the planning permission was (which indeed reflected the terms of Notary Cardarelli’s report in response to Notary Valente’s report), but in his written Opening Submissions, Mr Flenley had asserted that the problem was that the original permission, which on its face was regularly granted, was in fact susceptible to being overturned later “because the local authority had failed to apply the planning rules correctly.” He said that the defendants’ contention would be that that type of problem “was not one which a reasonably competent Italian conveyancer, instructed simply to act on the purchase of the property, would have investigated.”

By the time of his Closing Submissions Mr Flenley contended that the nature of the problems that did emerge needed to be identified before it was possible for the court to say whether they ought to have been identified or, as he put it, “if one is going to advance a case that any reasonably competent Italian conveyancer should have spotted the problem with the planning permission, one needs to know what was [the] problem and secondly to say by what means should the reasonably competent lawyer have spotted it?” He asserted that the claimants’ case in relation to whether Avvocato Giambrone’s firm should have identified the planning permission issue at the outset was “fatally undermined” because their experts did not know what the defect in the planning permission was. As I have already observed, however, Notary Cardarelli, who was called for the defendants, at least in part because he had “specialist knowledge” of inter alia the law and practice of town planning and building requirements, did not himself identify the problem in his various reports or in his evidence and had not attempted to do so.

It is possible that Mr Flenley’s eventual position was encouraged by some interventions of mine during the trial because, as the cross-examination of Notary Valente proceeded, it seemed to me that without knowing what the defect in the planning permission was it was difficult to say whether it ought reasonably to have been identified within whatever level of due diligence was required of or promised by the defendants. I adhere to that provisional view, but for reasons I will give, I do not consider that the failure to identify the defect at this stage leads to the conclusion that the claimants’ case in this regard is “fatally undermined” – nor, incidentally, do I accept Mr Flenley’s argument that the pleadings do not permit the claimants to suggest that an enhanced level of inquiry was required in relation to the validity of the planning permission. As it seems to me, notwithstanding the continued re-visitation of the pleadings in the various sets of proceedings over many months prior to the trial, the analysis of the pleadings above (paragraphs 193 - 195) demonstrates that the precise issue of the defect in the June 2007 planning permission was not sufficiently crystallised either in those pleadings or in the agreed issues for it to be capable of satisfactory resolution at the trial. Notary Valente made it clear when giving evidence that he had not seen all the relevant documents and the same must apply to the other experts also. No comparison exercise was carried out between the initial planning permission and the new one granted in July 2010 (see paragraphs 202 - 206 below). No copy of the judgment of the court setting aside the suspension of the planning permission was available (see paragraph 204 below). There may have been other documents too, some of a public nature, some perhaps in the control of the Guardia di Finanza, that might inform this issue. What is clear, however, is that no inquiry into the intrinsic validity and integrity of the planning permission was undertaken by the firm. That is, I apprehend, accepted on the defendants’ behalf. (That this was so is evidenced in a fairly graphic way in that, for example, in Mr Wootton’s case - who was purchasing a property in Sapphire in the Main development - the letter containing the Report on Title was dated 4 June 2007, some two days before the planning permission was granted.) What is presently unclear is how an enhanced level of inquiry, if such was demanded, should have been implemented and what would have been revealed. I will return to this in due course (see paragraphs 313 - 326).

I will venture a provisional view about what the problem with the planning permission was, but it is not possible to be wholly specific because the story has to be pieced together from an assortment of documents, one of which (the June 2007 planning permission) is in un-translated Italian and the other (the July 2010 planning permission) is a rather dense document translated from Italian where the translation leaves a few question marks. I am largely leaving out of account at this stage Avvocato Giambrone’s account in his Legal Opinion (see paragraphs 253 - 256) which is said on behalf of the claimants to be self-serving although there are one or two points of some potential interest in that document.

In summary it appears that the first relevant permission (called a “building permit”) was granted on or around 8 June 2007 which then became “integrated” with another permission granted on 31 July 2007 which was known as No. 13/2007. Another building permit that relates to this part of the development appears to have been granted on 27 May 2008 and was known as No. 6/2008. Both were issued by the Comune of Brancaleone. It would seem that the building works commenced at some stage after the first permission. RDV suggested in a letter dated 25 September 2007 that site works began in July 2007 although a number of the exemplar claimants who gave evidence went out to see the area in July/August 2007 and said that no work had been commenced at that stage. It is, therefore, not entirely clear when the building works commenced. However, it is clear that work did commence at some stage and continued until it was suspended in June 2008 in the circumstances set out in the next paragraph.

It appears from the planning permission granted by the Comune of Brancaleone in July 2010 that in June 2008 RDV “requested” what is called in the document a “clarification meeting” concerning the validity of the building permits issued previously, apparently acknowledging “the absence of the regional opinion with regard to the planning variations”. Mr Duddridge has assumed from this that it was RDV that “spotted” the problem and raised the issue. That may, of course, have been so, but it raises the question of why it should have taken over a year for any problem with the permission granted on 8 June 2007 to emerge unless it was something that arose with the permission granted on 27 May 2008 that caused the problem to be spotted. One would have thought, though this is to a degree speculative, that it was more likely that some officials of the Comune of Brancaleone or of the Regional Government had identified the problem at about that time, drew it to the attention of RDV as a result of which RDV then sought the “clarification meeting”. Indeed, in his Legal Opinion, which dealt at some length with the suspension of the planning permission and generally put a favourable complexion on matters from the firm’s perspective, Avvocato Giambrone said this:

“In respect of the Jewel of the Sea planning permissions listed above, the validity of [the 2007 and 2008 building permits] was … unilaterally suspended by … RDV … on 13 June 2008, and thus the construction work stopped. This occurred due to the view taken by the technicians of the Financial Institute of the project, who claimed that it was a requirement to obtain the opinion of the Regional Government of Calabria, Town Planning Department, in order to ratify an effective building license at the site.” (My emphasis.)

Insofar as one can deduce from the July 2010 planning permission the reasons for the defect in the June 2007 permission, they appear to be that there was no input from the Regional Government on the effect of the development on the whole region. However, as I have said, without further expert assistance it is difficult to reach a clear conclusion about what was truly defective in the first planning permission.

The article to which Avvocato Oliver has drawn attention (see paragraph 40 above) suggests that a local official may have been involved in some illegality that led to the initial grant of the permission. Indeed, the local official who signed both the June 2007 and the July 2010 permissions is, according to that report, under criminal investigation. If corruption was involved, the circumstances are rather far removed from “a mistake as to the grant of planning permission” to which Mr Flenley suggested that the claimants were subject and indeed which Notary Valente assumed.

At all events, according to Avvocato Giambrone’s Legal Opinion (see paragraphs 253 - 256), work was suspended by RDV on 13 June 2008. On 17 June and 26 June 2008 respectively, the planning department of the Comune gave notice suspending the building permits. It seems that, following the obtaining of legal advice, the Comune cancelled the permits in October 2008. It seems that RDV took court proceedings which did result in January 2009 in the cancellations being suspended, but it was not until July 2010 that a fresh building permit was granted thus enabling the works on the Main Development to recommence.

I should say that the cessation of the work on the Main Development at this time is consistent with what Mrs Noel and her companion saw when they visited the site in late July 2008 with a representative of VFI where they met an architect although nothing was said about the planning issues.

It is tolerably plain from the very detailed building permit issued on 21 July 2010 that close attention had been paid on this occasion by the various authorities to the proposed development. Detailed provisions concerning, for example, the space for a cemetery and the provision of a local school were incorporated. In its original Italian version it ran to 5 closely-typed pages. The June 2007 permission ran to 2 pages. As I have said, no comparison between the two has been undertaken and indeed there was no English translation of the June 2007 permission available.

I will return to the significance of this analysis later (see paragraphs 313 – 326 below). However, the short point is that if there was no duty on the firm to go beyond what appears on the face of the June 2007 planning permission, then the reason for the defect in that permission has no relevance. If, however, there was a duty to go beyond it, the question will be how much further it was necessary to go and whether, if further steps were required, those steps would probably have revealed the defect. Given the prominence the defendants seek to give to the delays caused by the planning issues, this is an important area both from their point of view and also from the claimants’ point of view.

Whilst recording the terms of the July 2010 planning permission, one of its requirements, as translated, was as follows:

“The works are carried out as provided for and for the intended purposes set out in the approved plan with the specification that the tourist/hospitality units may only be transferred on the foreign market to citizens not resident in Italy, pursuant to article 3 of the planning agreement ….”

As indicated above (paragraph 204), the issues surrounding the planning permission for the “Main development” part of the JoTS development led to a cessation of work in June 2008. This news was not conveyed by the firm to any of the proposed purchasers until January 2009.

Each client was sent a letter from the Vibo office dated 19 January 2009 running to some 8 single-spaced pages, the substantive parts of which were as follows:

“We write with reference to your current purchase of a new property in Calabria to provide you a general update on the current state of the real estate market in southern Italy; we would also like to take this opportunity to offer some useful guidance on the completion procedure, the role of the Notary in Italy, the costs associated to the Notarial deeds, the applicable legislation regarding capital gains tax and Italian inheritance laws, some additional information about completion costs and useful suggestions to obtain an Italian mortgage.

We have been informed by the developer that the current adverse weather conditions that have affected the Calabrian region over the last few months may delay the completion of the development by a few months but we are not in a position to provide you with a further update on the construction work at this date: we are seeking written confirmation by the developer of this potential delay and, as we understand it, the likely new completion of the complex is likely to be by early 2010. However, if you would like to have more updates in respect of this matter, we suggest that you contact VFI After-Sales team in Vibo as they act as Mandate holder on behalf of the developer and are therefore more likely to have up-to-date information in this respect.

Every newspaper, website and news bulletin threatens, at best, a “slow-down” and, at worst, a “crash” of the property market. In our experience, the Italian real estate market is holding up well and properties have not been decreasing dramatically in value as it might have happened in other European countries. This is partially due to the fact that the Italian banking system is notoriously more robust than other European counterparts (Italian banks have traditionally had a very conservative approach to lending) but also to the fact that the Italian market usually suffers the effects of a European down-turn with a significant delay of up to 12 months, at best: whilst therefore the current market conditions in Italy do not show any significant warning signs of recession, it is highly probable that the economy will enter into recession by early 2009, which may also affect the value of your new purchase.

The economic climate remains precarious and, although raw value in southern Italy has held up well compared to the rest of the country, the values of sales to foreigners (and to northern Italians looking to purchase a holiday home by the sea) has dropped considerably in the past 12 months. However, the predicted 10%-15% drop in the southern Italian property market estimated for next year should be taken in a context of a double-digit rise in the property market in the last decade.

Another important issue that may affect our British clients is linked to the fact that, with the sterling pound at an all-time low against the euro, the sterling has lost approximately 40% since the peak of mid-2006 (some bureau discharge at airports are exchanging at pound/euro 1.03): this is negatively affecting the British buyers unless they already hold the completion funds in euros: if you would like to discuss the effects of the currency devaluation and how this may affect your completion costs, we recommend that you contact as soon as possible a currency trader ….

Cancellation of your purchase

If you are concerned about a sudden change in your financial circumstances or if for any reason you are no longer interested in buying your property in Calabria, we can assist you in managing such process in two ways.

1.

The Assignment Contract

Firstly, you should consider the “assignment of your preliminary contract” whereby you can re-sell your property to a new buyer and assign to the new buyer your preliminary contract, for a fee of €1800 (€1500 plus Italian VAT at 20%). We can draft a new agreement between you and the new buyer(s) which, under the terms of the Italian civil code, may need to be countersigned by the developer in certain circumstances to be legally enforceable. The new buyers will transfer the deposit to our Client account on exchange of the new contract and we will then notify the developer of such assignment, obtain the consent (where necessary) and then transfer the balance to you, having deducted our costs. The new buyer will be charged a fee of €500 plus completion costs as per usual. Upon the execution of the assignment, you will no longer be legally bound to purchase your property.

2.

The Rescission Contract

If you cannot find a new buyer prior to completion, the other alternative is to cancel your purchase altogether with the consequential loss of your deposit already paid to the developer: however, you will need to bear in mind that you cannot simply “walk away” from the purchase because the developer can legally bind you to complete under the terms of the preliminary contract; if you do not pay the completion funds when the property is finished, you will be in breach of contract, lose your deposit and the developer may issue proceedings in an Italian Court to obtain the balance of the purchase. In order to avoid this unpleasant scenario, we would recommend that you make contact with Katy (Footnote: ³) or Kierran (Footnote: ⁴) in our office as soon as possible so that we can discuss with you your personal requirements and attempt to negotiate with the developer a “rescission” of your purchase.

By entering into a rescission agreement, you are likely to lose the deposit already paid but you will no longer be legally bound to complete your purchase and the developer will put the property back on the market, perhaps at a lower price. However, you should also be aware that there is no certainty that the developer will agree to enter into a “rescission contract” although we have successfully negotiated on behalf of other buyers in other developments.

We will apply a fee of €1800 (€1500 plus Italian VAT at 20%) to carry out the following activities: to negotiate a settlement, including a meeting between our lawyers and the representatives of the builder, with a possible view of rescinding your contract, drafting and executing the rescission (or “severance”) agreement to ensure that you will no longer be liable for the purchase of the aforementioned department.

We may also be able to negotiate a partial refund of your deposit (although this is extremely unlikely as the developer is under no legal obligation to do so) by inserting a clause in the rescission agreement whereby “should the property be sold again within three months from the execution of the “rescission agreement”, the developer would undertake to reap fund a percentage of the deposit to you”.

….”

The rest of the letter went on to discuss the completion procedure in Italy, the matrimonial property regime, how transfer of funds may be effected, mortgages and mortgage costs and the role of a Notary in Italy. It concluded with the announcement that Giambrone & Law were proposing to host a number of seminars in various locations throughout the UK and Ireland on certain aspects of Italian law including the legal aspects of completion, together with advice on cancellation and assignment rules, and an update on the construction work completed on each of the developments where the firm represented purchasers. There were to be two seminars on 3 March 2009 in Dublin, one in Belfast on 4 March 2009, one in Manchester on 13 March 2009 and two in London on 16 and 19 March 2009 respectively (see paragraphs 234 - 236 below). Entrance was said to be free of charge for “clients of Studio Legale Giambrone”, but a small charge of “£15/Є15” for “all other delegates”. It was said that places for the seminars would be limited and “allocated on a first come first served basis.” Plainly, the arrangements for these seminars must have been put in hand some time in advance of this letter.

Although it was six months since the building works ceased on the Main Development because of the issues surrounding the planning permission, it is noteworthy that there is no reference in that letter to those problems. The thrust of the letter in relation to delay was that it was all down to adverse weather conditions. A great deal was said about the actual and impending economic downturn. This was, of course, the period when, following the collapse of Lehman Bros in September 2008, a period of very considerable uncertainty existed in the international financial markets.

Avvocato Giambrone did not mention this letter in his witness statement. Neither did Kierran Klingenbergs in his witness statement. I did not hear from Katy Beatty. When questioned about it by Mr Majumdar, Avvocato Giambrone said that “we did not know … at the time” that “construction work on the main development had been suspended because of problems with planning permission”. He asserted that it was in October 2008 that the work was suspended. In fact it was in June (see paragraph 204).

The natural assumption, given the close working relationship between the firm and VFI and RDV, would be that the firm would become aware very quickly of something as fundamental as the suspension of building works because of some problems with the planning permission. Doubtless with that sort of consideration in mind Mr Majumdar raised this question in cross-examination:

“You had an office locally with lots of lawyers and caseworkers, who were working on Jewel of the Sea amongst other developments. Are you saying that none of them knew, so far as you know, that work had been suspended on site; there had been no work done for months and months?”

In answer Avvocato Giambrone raised the issue of when it was that the Brancaleone Office was closed and moved to Vibo Valentia which, he said, was 200 km away from Brancaleone, the implicit suggestion being that there was little contact thereafter with what was occurring there. It seems to be accepted that it was in early 2008 that the move to Vibo occurred. It is some distance from Brancaleone though whether it is as much as 200 km is unclear. Nonetheless, whatever the distance, it would be unlikely for all communications between the firm and those with ready access to the site to cease completely. Indeed Mr Klingenbergs’ witness statement said this:

“In January 2008 I transferred to the Vibo office permanently. Both Roccella and Brancaleone were then to be transferred to Vibo because VFI Overseas Properties transferred their operations to this area. They had a number of sites in the area that they were developing and the units in JOTS were now limited because the development had almost sold out. By transferring the office to Vibo it was easier for prospective clients to meet with our lawyers without having to travel to Brancaleone for a meeting.”

This seems to suggest that there was continuing contact between the firm and VFI during this period and in my view it is inconceivable that at some stage between June 2008 and January 2009 knowledge of the difficulties with the planning permission was not conveyed to someone within the firm. That, of course, from the English law perspective would be enough to fix the firm with knowledge of the relevant fact, whether or not it was passed on to Avvocato Giambrone personally. One person from whom I have not heard in this case, Avvocato Francesco L’Abbate, was still working with Avvocato Giambrone until at least the end of July 2008 although the precise date of his departure is unclear on the evidence (see paragraph 217 below).

Avvocato L’Abbate had played a central role in much of the work that had gone on in relation to the JoTS development prior to him leaving the firm and, most particularly for present purposes (and as indicated in paragraph 145 above) he signed the “RDV Mandate” on behalf of the LLP together with Mr Cuppari and Mr Fitzsimons on 25 June 2008. Furthermore, in the letters sent to all JoTS purchasers from the Vibo office dated variously between 21 and 24 July 2008 (this being the spread of dates revealed by the documents available in the exemplar transactions), informing them of the transfer of their files to that office from the London office, all recipients were told that henceforth their files would be the responsibility of “Avv. Francesco L’Abbate and Avv. Luigi Tilotta … assisted by a team of 7 Italian lawyers and 6 real estate consultants.” That demonstrates that he was still working with the firm at least until the latter part of July 2008 and was apparently intending to be there in the longer term. The first documentary indication of his absence from the office in the material before me is an e-mail from Katy Beatty to Mr and Mrs Nambiath dated 6 October 2008 indicating that he was no longer with the firm. That e-mail indicated that Karla Macedo had taken over all his work. It follows that he must have left the firm in all probability during August or September 2008.

I cannot believe that Avvocato L’Abbate was unaware of the difficulties with the planning permission, but his presence as a witness at the trial could have resolved this aspect once and for all (indeed along with one or two other issues). However, Avvocato Giambrone said in his witness statement of 28 January 2015 that he was “not being called as a witness, because, after leaving the LLP in or around late June 2008, he set up his own legal practice in Vibo and is a commercial competitor with my practice.” From the correspondence to which I have referred, it is clear that he was still with the firm in late July 2008 (not June) and, as I have said, may have been with the firm for another month or so thereafter. Surprisingly, very few e-mails between any of the exemplar claimants and the Vibo office are available for this period. At all events, I am not wholly persuaded that what Avvocato Giambrone says is a compelling reason for not calling him as a witness: these events were over 6½ years ago and any rivalries concerning work ought by now to have subsided. In fact Avvocato Giambrone also said that he was not sure whether Avvocato L’Abbate was still practising (saying that his website could be checked) and that it “may well be that he is not still working” and that he was “aware that he [Avvocato L’Abbate] had some problems”. This was not pursued any further, but I merely comment that again I have not heard from someone closely involved with material events during this important period.

It is to be noted, however, that Avvocato Giambrone personally was likely to have been somewhat distracted during this period because it was on 4 August 2008 that the Solicitors’ Regulation Authority began an investigation into the books of account of the recently formed LLP. This was the first of three investigations by the SRA, as I understand it. I have not been told what it was that led to the investigation (which did indeed in due course reveal irregularities), but it began shortly after letters were despatched to all JoTS clients informing them that their files had been transferred from London to the new office in Vibo (see paragraph 215). The failure of the firm to secure the informed consent of the clients to that transfer was one of the allegations made (and sustained) by the SRA in the proceedings before the SDT. I have read Avvocato Giambrone’s witness statement in the subsequent SDT proceedings and he appears to have become actively involved, certainly in the early stages of the investigation. There is a letter from the LLP’s accountants (Simpson Wreford & Co) to the SRA dated 23 October 2008 asking for “a further extension to 31^st December 2008” to “respond fully” to the investigation. The Forensic Investigation Report (‘FIR’) itself was dated 20 February 2009. The LLP ceased to practise on 5 April 2009, in effect precisely one year after its inception (see paragraph 46).

I am sure that this was a difficult time for Avvocato Giambrone personally and professionally, but nonetheless, as I have said, I think it sufficiently unlikely that news of the planning issues did not permeate through to the firm prior to January 2009 for me to draw the inference that, on the balance of probabilities, it did so permeate – and indeed at some stage permeated through to him personally before that time. It follows that the status report of January 2009 did not tell the whole story.

I should, perhaps, observe that there is, so far as I am aware, no documentary evidence concerning the way in which VFI responded to the request for “written confirmation … of this potential delay” as mentioned in the second paragraph of the letter.

This letter met with a variety of reactions. Its essential message was that people who had entered into the preliminary contract were not in a position to extricate themselves from the transaction other than at some cost. Of the exemplar clients, Mr Marsden said initially that he wished to continue with the purchase and raised certain matters concerning the formalities. He did indicate in his witness statement that he and his partner were very worried about the position, but felt that they had no other option than to proceed. Ms Kavanagh said that she was not too worried at this stage by a slightly delayed completion date, though she had concerns about her bank loan guarantee which is an issue raised by others. Mrs Manning raised some issues about her bank loan guarantee in some emails in February, but otherwise did not react to the letter of 19 January. Mr Wootton said he felt he had no option but to proceed. Mrs O’Connor felt much the same as did Mrs Rawson and Mr Corry. Mr Cleere was not concerned by the letter, simply noting that there would be some delay. Mr and Mrs Ballard had been concerned about the expiry of their bank loan guarantee, but the letter suggested that the project was continuing and it remained attractive to them. Again, in summary, that frame of mind described the frame of mind of Mr and Mrs Ormay. Mr Nambiath does not believe he received the letter of 19 January although there is a letter of that date in the same terms as the others in the disclosure of the defendants. In fact he and his wife had been out to Reggio between 13 and 20 January 2009 and had been to the site in Brancaleone. They had been expressing concerns about their bank loan guarantee prior thereto. He was in touch with VFI during his visit and was told of a delayed completion date until December 2009/January 2010. He had some conversations with Karla Macedo thereafter and, as he said in witness statement, it would be likely that their conversations would have been different if he had known of the letter of 19 January. At all events, he continued to express his concerns about the bank loan guarantee which is an issue that surfaced more significantly for many of the individuals with the events of March/April 2009. Mr and Mrs Noel did receive the letter of 19 January, but took no action in relation to it. Their concerns were brought to the surface by later events.

Some of the exemplar claimants saw, or heard of, the article that appeared in the ‘Mail on Sunday’ on 8 March to which I will now turn.

On 8 March 2009 the ‘Mail on Sunday’ carried an article under the headline “DISASTRO! The Calabrian dream we were promised”, the relevant parts of which were as follows:

“A year ago the British mania for buying holiday homes off plan was in full swing in Calabria, the toe of southern Italy, but already it has turned sour. Then, sharp-suited salesmen hovered at Lamezia airport, waiting for the next ‘viewing trip’ to arrive, and all the usual outfits from the Spanish Costas – MacAnthony, Medsea, mortgage brokers J.P. Lynch – descended on the sleepy, provincial district.

Most are now long gone. The promise of ‘undiscovered’ Calabria, miraculously revealed to the world when Ryanair began regular flights has turned to dust as much thanks to local skulduggery and incompetence as the world economic crisis.

Left behind are an increasingly disgruntled group of British and Irish buyers, who bitterly regret their purchases in developments that are either long delayed, did not have proper planning consent or have been finished to such a bad standard that their owners say they are unsaleable.

Their laments litter forums on websites such as www.incalabria.com and www.eyeonworldwide.com.

Ask Italians about the brief Anglo-Irish mania for Calabria and they shake their heads knowingly. In a part of the world renowned for its lawlessness – and nasty local mafia – the arrival of well-monied, naïve, monoglot holiday homebuyers, eager to snap up an off-plan bargain for the price of a garage in Tuscany, was bound to result in disappointment.

Now the largest scheme in the province, the Jewel of the Sea, with 600 units, which improbably was to have had a golf course on its parched hillsides, has been blocked for environmental reasons, while the El Caribe scheme, where 90 would-be buyers have paid €4.5 million (£4 million) in deposits and which was scheduled to open in May, has yet to start any work at all.

Last month, 120 apartments and villas, valued at €30 million, at the Santa Venere and Marinate resorts at Vibo Marina, were sequestered by police, having been illegally built.

At Vista Montagna resort in Caulonia the workmanship is so bad buyers want to pull out, and completion deadlines of August and December last year have been broken. The developer, local hotelier Antonio Ventiglione, won’t discuss the matter, or confirm whether it will be finished in April, as promised.

Much of the opprobrium for the disaster that is Calabria is heaped on the head of Gabriele Giambrone, 33, an English-speaking lawyer from Sicily, whose firm has carried out the bulk of the conveyancing from offices in London and Calabria.

Until 2006, Giambrone Law made a modest living dealing with simple purchases of existing properties in Tuscany and Umbria but then came the boom in Calabria and the arrival of mass off-plan buying.

Over the past two years he has organised 1,800 property purchases, making his the busiest legal practice in Calabria, processing €30 million to €50 million (£26.7 million to £44.5 million) of clients’ money.

‘Unfortunately, Calabria is total chaos and there are problems with every single development,’ he says. ‘They are either late, or they have not started, or the developer has gone bust. No sooner do I fix one problem than another comes along.’

Last week, Giambrone and Antonio Cupari, the developer behind the Jewel of the Sea scheme, were in Dublin, Belfast and Manchester reassuring most buyers that their apartments would be finished.

But he could offer little comfort to his 45 clients who bought at El Caribe, sited on the hitherto unspoilt Capo Rizzuto on the Ionian coast. ‘The builder Domenico Vallone owns the land, he has a valid permission to build there so we processed the contracts. But nothing has happened,’ says Giambrone.

Similarly, there is little comfort for buyers at San Rocco 2 at Isca Marina, after work stalled when the British company Medsea, owned by veteran Costa estate agent Tony Gatehouse, pulled out of the scheme. In the fallout of the Calabria property boom, where estate agents typically charge local developers 20 to 30 per cent commissions on every sale, there is now mutual recrimination and demands for lost fees. Medsea is taking legal action over unpaid commissions.

The estate agency VFI, owned by Antonio Velardo and Ulsterman Harry Fitzsimons, claims Giambrone Law owes €800,000 (£713,200) on sales to the Jewel of the Sea. This is denied by Giambrone, who adds for good measure his opinion that VFI is not a properly regulated estate agency in Italy.

‘Mine is the only practice that is regulated, by both the Law Society and the Italian Order of Advocates, and that is why I get all these complaints’, he says.

He claims the client accounts in both the UK and Italy are regulated by his professional bodies, and there has been no impropriety at his practice at all. ‘I am not operating any Madoff-style scheme,’ he adds.

…

The Law Society confirmed that complaints about Giambrone Law have been received and that the Solicitors Regulation Authority will be taking appropriate regulatory action.”

Some purchasers read the article and some had its general message drawn to their attention. Inevitably, it caused concern.

The article appeared after the two seminars in Ireland, but before the three seminars in England (see paragraph 211 above).

The article mentioned suggestions having been made by VFI that the firm owed sums to them in respect of the sales. It is not entirely clear to me precisely how the chronology of this period developed, but I have seen from the file of Mr Cleere (and indeed elsewhere in the documentation) an undated document emanating from VFI which contained the following paragraphs, one of which suggests it was composed shortly after the series of seminars was completed:

“Deposit Guarantees

Due to this confusion, certain buyers, either directly or through their lawyers, have asked V.F.I. to provide funds for expired “bank loan guarantees”. V.F.I. does not hold any bank guarantee on this project. As promoters we would not even have the capacity to undersign a guarantee as legally under Italian Law it is something that must be issued by the builder or the owner. In the case of JOTS there is a guarantee, on the deposit – not on any bank loan, that is held by the owner. As far as we know this guarantee is current through June 2009, the initial completion date. Should any buyer need to make a claim against the guarantee, the claim needs to be put forth directly to the responsible party, in this case the owner.

Recently there were conferences regarding Italian property held in Belfast, Dublin, Manchester and London. It has been reported that during these conferences the issue of the JOTS guarantee was mentioned and clarification was given as to the responsible parties. The conference panel which included lawyers from Giambrone Law LLP (the firm representing the majority of JOTS buyers) as well as the owner of the largest portion of JOTS, confirmed that the owner, R.D.V. S.r.l., is responsible for the guarantee and it would be extended to cover the construction delay. Appropriately, there was no mention of V.F.I. having any connection whatsoever to the deposit guarantee – which is legally correct.

…

Non-Payment of Deposit

We understand that Giambrone Law LLP (GL), also Giambrone & Law or Studio Legale Giambrone, was instructed by the majority of the buyers in JOTS project to carry out checks prior to the signing of the preliminary purchase contract and the transfer of sums to the owner. Certain buyers who were represented by GL transferred the sums to be paid into the firm’s client account, as fiduciary deposit, while awaiting the outcome of the legal checks. A large amount of these funds being held in GL’s fiduciary account have, at the time of this letter, not been transferred to owners despite numerous requests by both the client/buyers, the builders, and ourselves. Official complaints against GL have been filed with the Law Society of England and Wales by certain of their clients purchasing Italian property as well as Italian builders. GL is currently under investigation for several violations including misconduct in regards to its management of client funds. The pending outcome of this investigation will be critical to their role in the JOTS project.

While under investigation by the Law Society, GL has applied a strategy of diverting blame by accusing other involved parties of misconduct. One of these parties is V.F.I. We are currently working through the appropriate legal channels in Italy, the U.K. and Ireland to defend ourselves from these accusations, so we will not go into detail in this letter. We are however making you aware this situation exists as it has come to our attention that GL has been contacting their JOTS clients with false accusations regarding V.F.I. One such aspect was the attempt to shift the responsibility of the non-payment of sums from themselves to us. Please note that the reality is that we are working diligently to resolve the situation of the funds that remain with GL. However VFI are working very hard to avoid buyers being in breach of contract for deposit non-payment.”

This prompted e-mails to various of the concerned claimants from Mr Buchan in the following terms:

“Re: Your purchase in Jewel of the Sea, Calabria

We have been informed that VFI has recently been spreading malicious rumours against RDV, the builder of JOTS and our firm. Our lawyers are preparing a full response which will be forwarded to you by post within the next seven days.

In the mean time, I can confirm that RDV have revoked the Mandate to VFI and put them on notice that they are no longer authorised to market or more generally deal with Jewel of the Sea.

I therefore advise you not to deal with VFI any longer until this situation is resolved.

I would also bring to your attention that most of the allegations set out by VFI are not true because most of our lawyers are dually qualified both under the Italian and English legal system and regulated by both the Italian Law Society and the Law Society in England and Wales.

Our accounts are audited annually by independent Chartered Accountants and our firm has built over many years a reputation as one of the leading Italian law firms in the UK. On the contrary, VFI is an Irish company which is not regulated as an Estate Agent in Italy and we have reason to believe that they have been trading illegally; this matter has also been reported to the police accordingly.

We also understand that RDV lawyers are about to issue civil and criminal proceedings against VFI to protect the reputation of their company, likewise, our firm has already sent a pre-action letter to VFI in compliance with the defamation protocol in England and Wales and we anticipate that a claim will be issued against VFI for defamation in the next 14 days.

As you can see, it seems evident that VFI have fallen out both with our firm and with RDV and they are therefore continuing to divulge slanderous and untrue remarks against both companies in retaliation.

We will no longer tolerate such childish behaviour and please rest assured that we will take all reasonable steps to ensure that both your purchase is fully protected and our reputation is not affected by VFI.

As previously stated, I anticipate that our lawyers will prepare a full update within the next seven days so I kindly ask you to wait until then and thank you for your patience in the mean time.”

The reference to the revocation of the Mandates is to a formal document to that effect by RDV to VFI dated 18 March 2009.

As I have indicated, tracing the precise chronology in this period is difficult. The letter from the firm to VFI about the bank loan guarantees was dated 9 March 2009.

This was a period of some relatively intensive activity. An important letter concerning the bank loan guarantees was sent by the firm to VFI to which I will now turn.

The day after the ‘Mail on Sunday’ article (though doubtless drafted before the article was published) a letter with a reference incorporating the words “Final demand” from Giambrone Law was sent to VFI as follows:

“Re: Bank Loan Guarantees – Nullity of preliminary contracts

We refer to the above matter and to the previous correspondence with your company and your lawyers, in which we highlighted our serious concerns about the expired bank loan guarantees for the majority of the developments sold by your company in Calabria.

We have already put you on notice that, unless VFI produced a valid bank loan guarantee issued in compliance with art 107 of legislative decree no 85/1993, we would have had no option but to advise our clients of their entitlement to rescind the preliminary contract on the ground of nullity in line with the legislative framework set out at art 3 of decree 122/2005. Our clients are therefore entitled to cancel the purchase and seek a refund of their deposits plus interest and damages.

…

Your failure to deal with our previous correspondence has left us with no other option but to contact our clients and inform them of your breach of contract, and we hereby formally demand the refund of all commission received by VFI in respect of those contracts which are now formally null and void.”

The “previous correspondence with [the] company and [its] lawyers” has not emerged during the disclosure process. However, on its face this is a demand to VFI (not RDV) to provide replacement bank loan guarantees, coupled with a threat to advise the firm’s clients of “their entitlement to rescind the preliminary contract on the ground of nullity”. This needs to be contrasted with the position subsequently taken (see paragraph 240) and as it is acknowledged in fact to have been (see paragraph 130).

I have mentioned the seminars to be held in March and April 2009 above (see paragraph 211). The invitation from ‘Giambrone Law Firm’ and ‘Giambrone Private Finance’ went out in the following form:

“Series of Seminars on Italian Law By Invitation Only

Topics will include:

•

Legal aspects of completion, including advice on cancellation and assignment rules. There will also be an up-date on the construction work completed on each development where this firm represents purchasers.

•

Italian Wills and Estate Planning rules: how to protect your investment in Italy.

•

Italian mortgages and alternative financial options to fund the purchase.

•

Italian Tax and fiscal rules post-completion together with capital gains tax rules.

•

Legal aspects of condominium rules (i.e. managements of apartments in development).

•

Legal procedures and solutions to cancel a purchase in Italy when the developer is in breach of contract and the completion of the construction work is delayed: negotiation of a reduction of the asking price, the assignment contact or issuing proceedings at court (including advice on costs and timescales)

There will be a 30 minute Q & A session at the end of each seminar to enable delegates to raise issues that have particular relevant to their individual development. However, please note that such questions must be of general nature and individual questions can not be answered as our lawyers will not have direct access to your file during the seminars.”

It is, perhaps, inevitable that there is little reliable evidence about what was said precisely at these seminars since there is no written record. One matter I should mention relates to the question of when the level of commission to VFI was revealed to the purchasers. Mr Flenley’s written closing submission suggested that there was evidence that Avvocato Giambrone “chose to make it public at the March 2009 seminars” that the level of commission was as it was. However, Avvocato Giambrone did not say anything about this in his witness statement nor did he say it in his evidence. I should say that I have been unable to locate a passage in Mr Flenley’s cross-examination of any of the claimant witnesses who attended such a seminar (of the exemplars Mr Nambiath and Mr Ballard attended one or other of the seminars) where it was suggested to them that this was made clear at the seminars they attended. I would have expected this to be suggested to them given that it is clear that the case advanced on behalf of the claimants is that it was not until the letter of 29 April 2009 (see paragraphs 238 and 241 - 252 below) that they learned of this. Mr Nambiath said this specifically in his witness statement. Neither he nor Mr Ballard mentioned in their witness statements that they had learnt about the level of commission at the seminars they attended.

Simply looking at this material as it stands, my conclusion would be that the level of commission was not referred to at any of the seminars. I will review the evidence about the letter of 29 April below, but, as will appear, that review reinforces my view to that effect.

A personal letter from Avvocato Giambrone dated 29 April 2009 was sent to all proposed purchasers of properties within the JoTS development.

The claimants point to a number of passages in this letter as being of significance, one in particular containing, it is said, a highly material disclosure concerning VFI’s commission not previously made. I will quote the relevant passage:

“The relationship between VFI (The Promoter) and RDV Development (The Builder)

I am aware that you may have received certain confusing emails from both companies and I feel it is important to clearly define the roles of the parties named in the Preliminary Contract.

When the project was initially marketed, VFI was granted a Mandate agreement by RDV Development (an Italian limited company which owns the land and is constructing the development). This Mandate agreement allowed VFI to market Jewel of the Sea Resort on behalf of RDV Development to the foreign market. In consideration of this marketing and after sales activities, I understand that VFI has been paid a commission of approximately 31% of the purchase price of your property. This means that for a property sold by VFI for €100,000, the average buyer was asked to pay a 50% deposit (€50,000) of which €31,000 was paid to VFI and the difference (€19,000) was utilised by RDV to finance the build.

This information is crucial to understand the reasons why the commercial relationship between RDV and VFI has irretrievably broken down.

We were copied in to a letter sent from RDV to VFI by registered post on 18 March 2009 in which RDV cancelled the Mandate agreement for VFI. As a result, VFI are no longer authorised to act on behalf of RDV or to make any representations in relation to Jewel of the Sea because the power to act on behalf of the builders has been revoked. In plain English this means that VFI are not authorised to contact you in relation to your purchase in Jewel of the Sea nor to promote an After Sales Service of any sort.

Whilst we understand that VFI is named in your preliminary sale agreement, please rest assured that this revoked Mandate agreement does not affect your purchase.

You will appreciate that as your representatives, we are not privy to the specific reasons as to why this Mandate was revoked: however, I understand that the disagreement started by virtue of the level of commissions earned by VFI and because of the difference of opinion as to which party was responsible to provide an extension of the expired Bank Loan Guarantees.

There are conflicting opinions as to VFI’s official role in these transactions and it is apparent that the boundary between the definition of their role as “Real Estate Agent” and “Promoter/Marketing consultant” has become blurred. In Italy the role of an (sic) “Real Estate Agent” is a heavily regulated profession and the commissions that agents can charge are limited by law.

It is possible that the commissions received by VFI are contrary to the provisions of the Italian Civil Code which states that (a) any company acting as an estate agent or an intermediary in real estate transactions must be registered with the Chamber of Commerce in the register of “estate agents” and (b) commissions chargeable to a developer cannot exceed a reasonable value of say 6%.

31% is, in my opinion, an unreasonable figure and, for this reason, I understand that RDV has or intends to put VFI on notice that civil proceedings will be issued to recover the excess commission: this is a matter entirely between VFI and RDV, and a Judge will decide if the dispute proceeds to trial. This will not affect your purchase.

To prove our independence and impartiality from both RDV and VFI, I can confirm that VFI is represented by Studio Legale Metta in Bari whereas RDV is represented by Avv. Romolo in Reggio Calabria.

….

The relationship between VFI and Giambrone Law

…

In my opinion, VFI has had disagreements with different building companies in Calabria with regards to the non-payment of commissions for some property purchases. Due to the sheer amount of transactions over a limited period of time, there are still reconciliation issues as some funds have been allocated to wrong purchasers in error, thus bringing more confusion into this equation.”

I would like to reassure you that the Client accounts of our law firm have been audited by independent Chartered Accountants and all transactions related to our clients’ funds are supplied to our auditors.

….”

[All emphasis as in original].

The letter went on to deal with “the completion procedure”, the relevant part of which was as follows:

“I am due to meet with Mr Cuppari (the owner of RDV) and the Notary who has been appointed to execute the Public Deeds of Sale … by the end of May/early June in order to:

(a)

discuss the progress of construction works;

(b)

create a realistic timetable for completions, considering that Sapphire will be due to complete from late June 2009;

(c)

formally appoint our firm to coordinate all completions within Jewel of the Sea (whether our clients or not) in order to avoid confusion between buyers of several nationalities.

Clearly the task ahead is very challenging for all of us, because it will be very difficult to arrange more than 600 completions in such a short time-frame (July-December 2009 for Phase 1) considering that buyers in Jewel of the Sea are of various nationalities.

For this reason, Mr Cuppari and the Notary have indicated that they would prefer to delegate the task of coordinating completions to one law firm only: I also plan to open a temporary satellite office in Brancaleone during the completion period so that our attorneys will be at hand to act on your behalf to execute the Final Deed of Purchase before [the Notary].”

Finally, for this purpose, what was said about the bank loan guarantees is of importance:

“As many of our clients are aware, the majority of the bank guarantees initially issued by RDV Developments have expired towards the end of last year.

Giambrone Law contacted the vendors (RDV and VFI) one month prior to the expiration date, in order to remind them of their obligation to provide the guarantee for the entire duration of the Preliminary Contract.

I would also urge you to consider that estate agents have a vested interest in your purchase because they get paid hefty commissions only if you buy the property: as usual, it is important to exercise caution when following the advice of an estate agent bearing in mind their evident conflict-of-interest.

…”

As indicated above, there are a number of aspects of this to which the claimants draw attention, but I will focus for present purposes on those passages concerning VFI’s commission. It is argued that the passage “I understand that VFI has been paid a commission of approximately 31% of the purchase price of your property” (with the underlining in the original) was a deliberate attempt to suggest that Giambrone Law had only recently learned that VFI had been paid commission at this rate, the words “I understand” seeking to convey that meaning. As will be apparent from paragraph 138 above (and as Avvocato Giambrone accepted when giving evidence), he and his colleagues knew the level of the commission payable to VFI from no later than March 2007.

Avvocato Giambrone’s explanation for the meaning of the words “I understand” appears in the following extract from the evidence. Mr Majumdar was suggesting to him that these words carried the suggestion (deliberately made) that the 31% was a recent discovery:

A. The paragraph is important. So I am dealing with the relationship between VFI and RDV. The background is that these two companies were bombarding clients with conflicting information. RDV said, “Do not deal with VFI anymore”. VFI said “It is nothing to do with us, we are still acting in Jewel of Obviously, that was a concern and I explained during the seminars what the relationship was between the two companies. So, again these issues were not new, they had already been discussed during the various seminars that had been attended to. This sentence is nothing else, it is a big story being made about it. What it says effectively is that VFI was entitled to be paid 31% for the purchase price in return for a number of activities, marketing and after sales activities and then I continue and explain how in simple terms, so for every property worth €100,000, 19,000 went to RDV and 31,000 went to VFI.

MR. JUSTICE FOSKETT: You must deal with this obviously but the point being put to you is that this gives the impression that you have only recently discovered the 31%.

A. No, what I am saying here is that VFI has been paid 31% in consideration for marketing and after sales activities. That is how - again, English is not my first language, but that is what it means to me, clearly. VFI has been paid a percentage of your purchase price in return for doing certain work. Certain works were these marketing and after sales activities, because the context was RDV are saying that VFI is not entitled to that money, or part of it, because the letter that we looked at before from RDV -- unfortunately, we did not look at the relevant bit. The final bit says that RDV put VFI on notice for the refund of all the deposits - the commissions. So that was the background.

This answer broadly reflected what had previously been pleaded in response to the suggestion that these words were intended to convey recent acquisition of knowledge concerning the level of commission:

“The words quoted beginning “I understand…” have been quoted out of context and were not intended to imply anything about Gabriele Giambrone, or the defendants’ knowledge of the level of VFI’s commission. Further, Avv Giambrone is not a native speaker of English, and it is not appropriate to subject his written English to detailed textual criticism of nuance as one might do to a native English speaker. Hence the alleged dishonesty is denied.”

I will return to this, but there are two other documents that arguably inform the position in this regard as it was at the relevant time. The first is a letter to Mr and Mrs Lissenburg dated 19 May 2009 – in other words, less than 3 weeks after this lengthy letter was sent. Their e-mail of 11 May and letter of 19 May, to which the letter of 19 May is a response, have not been before the court (and indeed they are not exemplar claimants) but it is plain that they raised the issue of the commissions in their e-mail and the nature of their question appears from the answer which was as follows:

“We note your comments with regards to the content of or letter of 29^th April 2009

With regards to the commissions earned by VFI, this information has only just come to light and it did not form part of our due diligence to check levels of commissions which are a private agreement between VFI and the builder. Therefore we are unable to comment on your question with regards to who “approved” the commissions. We simply advised you of the level of commissions earned because we felt that it was pertinent for your purchase.

….”

I should, perhaps, record that their letter of 19 May (though not specifically available in these proceedings) was, according to Mr Ian Buchan, in broadly the form of an e-mail that many concerned purchasers wrote to Avvocato Giambrone at about this time which was apparently available to download from an Internet forum called ‘In Calabria’. Mr Buchan, a long-time friend and associate of Avvocato Giambrone whom he met in February 1999 whilst studying at the University of Aberdeen, was General Manager of the Palermo office at that time.

That letter was drafted not long after the letter of 29 April (which Mr Buchan thinks he typed) and responsibility for drafting it has been accepted by him in the circumstances to which I will refer below. The focus of the questioning on behalf of the claimants was upon the expression “this information has only just come to light” in relation to the commissions payable to VFI. I will turn to what he has said about it shortly, but he had also drafted a response to an e-mail from Mr Cleere on 1 April (so a few weeks before the letter of 29 April) which contained the following passage:

“We, as your lawyers, have become aware of the level of commission earned by [VFI] and we feel that they are now acting illegally in Italy, this is probably the reason they are retaliating by spreading unfounded rumours regarding our client accounts. Which I repeat again, are heavily regulated and audited externally. It is important to note that VFI are not regulated!

We reiterate that we are your lawyers, we are independent and we do not and have never acted for the other side in these transactions.”

There had been a number of e-mail exchanges involving Mr Cleere and Mr Buchan that day, but those paragraphs appear to be in response to an e-mail from Mr Cleere in which he said that it was clear to him that Giambrone were not representing him, but were representing the developer. The e-mail contained this sentence:

“You seem to have a very close relationship with them but I am your client and in my dealings with your firm has not inspired any confidence and nor have I got the impression you are working on my behalf.”

The suggestion was made to Mr Buchan that both these communications suggested that the message being conveyed to the recipients was that Giambrone & Law had only recently discovered the level of the commission payable to VFI. In relation to the e-mail to Mr Cleere he accepted that, on the face of the paragraph quoted above, it appeared that the e-mail referred to the amount of the commission, but suggested that it needed to be seen in the context of the e-mail exchange as a whole. It was put to him that it sounded as though he was saying that this was a recent discovery but he said that he did not see it that way. When pressed further about this his response was as follows:

“The fact it was 31% came into my knowledge probably as a result of my knowledge, not the firm’s knowledge -- as a result of the April 2009 update. I knew payments were going to VFI, obviously, as a result of my reconstruction exercise. But I was not concerned with whether it was 31%, 62%, 100% because, like I said in relation to Italian Connection, 100% went to Italian Connection. I was just concerned with making sure A added to B equalled C.”

In relation to the letter to Mr and Mrs Lissenburg, Mr Buchan raised the question of whether it was actually sent given (as indeed is the case) that there appears to be an uncompleted paragraph at the end of the letter. However, the fact is that, even if it was a draft (which, frankly, I doubt), the question of how the particular words came to be included arises. He said that he could not say what the sentence in the letter (or the whole paragraph) meant unless he could see the e-mail of 11 May, but he believed that the level of commissions to VFI became relevant at that stage since RDV were then seeking to recover those commissions from VFI.

When Avvocato Giambrone was questioned about this letter, he was anxious to say that it was not drafted by him, that he was not involved in day-to-day client queries and that it needed to be looked at in the context of the e-mail of 11 May (which, as I have said, for some reason is not available or in evidence in these proceedings). After a fair amount of questioning about the letter and its meaning (to which Mr Buchan was listening as he was present in court), Mr Flenley indicated that Mr Buchan did indeed write the letter. Plainly, the context in which it came to be drafted was potentially significant. At the time it was drafted Mr Buchan was in the Palermo office, as was Avvocato Giambrone and the other lawyers who were engaged in the JoTS work at the time. Avvocato Francesco L’Abbate was no longer there. Mr Buchan accepted that the letter was in his style, but said that he would have checked with the lawyers about any aspect that needed legal input and they would have checked it before it was sent out. He maintained that he could not answer the specific issue of why he used the phraseology he did concerning the commissions without seeing the email of 11 May, but he accepted that he would have discussed the question of due diligence referred to in the letter with the lawyers.

I have to say that Mr Buchan’s explanation of the phraseology used in the two documents he drafted was no more convincing than the explanation of Avvocato Giambrone when dealing with the terminology used in the letter of 29 April. Mr Buchan’s native language is English. He was plainly answering a question about the level of commissions raised by Mr and Mrs Lissenburg because they, equally plainly, had picked that issue up from the letter of 29 April. I do not think that the absence of the e-mail of 11 May makes any difference to the ability to answer the question raised and it has simply been advanced as an attempt to avoid addressing an awkward issue. Avvocato Giambrone’s native language is, of course, Italian, but he speaks English fluently – he had no difficulties in facing cross-examination over the best part of three days. He did, of course, study in the United Kingdom between 1998 and 2000 and he worked in London before qualifying as an Avvocato. I am quite certain he would have chosen his words carefully and, given his close interest in the whole JoTS business (particularly in this very intense period in 2009 when the firm was coming under increasing pressure), I cannot believe that he would have let anything go out from the firm that did not have his express approval. I am quite sure that the intention at this time in 2009 was to suggest to the clients of the firm that the firm had only recently discovered the level of commissions paid to VFI. All attempts to suggest that the letters meant something else are, in my view, attempts to re-write an inconvenient part of the history.

That conclusion, of course, invites consideration to the question of why that should have been so. I will return to that in due course (see paragraph 375).

Although not mentioned at all in his witness statement, Avvocato Giambrone prepared personally a lengthy document entitled “Legal Opinion on Italian Law” dated 22 June 2009 and signed personally by him. Its purpose, he said in his evidence, was to try “to explain to my clients what the [Italian] law states.”

The relevant parts were in these terms:

“I have been asked to provide a Legal Opinion to the current buyers of Jewel of the Sea (Brancaleone, Calabria) in respect of the interpretation of Italian law regarding the validity of the existing bank loan guarantees issued by the developer and/or their compliance with Legislative Decree 122/2005 and an update on the administrative issues regarding the planning permission issued by the municipality of Brancaleone for the construction of the aforementioned development.

Bank Loan Guarantees

With this opinion, I will explain the difference between bank loan guarantees (“fidejussioni”) issued by a company registered under Art. 106 and those registered under Art. 107 of the Legislative Decree n. 385/1993 which is also referred to as “Testo Unico Bancario”. Further I will explain why Art. 107 is not relevant with regards to the initial guarantees issued against the deposits paid for purchases in Jewel of the Sea; and explain the method that the buyer must use in the event that the guarantee becomes enforceable.

…

On the basis of these preliminary considerations, I conclude that the obligations of issuing and releasing a guarantee under decree 122/2005 are placed upon both V.F.I. Overseas Property Ltd, an Irish company registered in Dublin, and R.D.V. s.r.l./VECO Costruzioni/F & C S.R.L. which are Italian companies registered at the Chamber of Commerce of Reggio di Calabria and which are constructing various phases of Jewel of the Sea (Phase I and II) and Beach Front (Phase I and II). Such obligations are classified under Italian law as “obbligazioni solidali” which means that both companies are jointly and severally liable for the issuance and the production of the guarantee in favour of the buyer.

Art 106 v Art 107 – Companies Issuing Bank Guarantees

…

For the avoidance of any doubt the initial guarantees were issued by an insurance company, not a “financial intermediary” and therefore I find that any specific references to Art. 107 are not relevant.

In conclusion, the bank guarantees received at the outset on exchange of Preliminary Contracts, in respect of Jewel of the Sea, were fully compliant and effective.

It is apparent, at this stage, that for some purchasers, there is not a current effective bank guarantee in place and this has occurred due to the differing opinions between R.D.V. and V.F.I. as to which company was responsible to renew them. The onus to provide them is on both companies.

Claiming your deposit against the Bank Guarantee

In order to be absolutely clear I feel it would be sensible to advise you of the exact method which must be used, and the conditions that must be met, in order to claim your deposit back using the “fidejussione” (whether this unlikely situation may occur or not).

…

Since the bank loan guarantees are an insurance policy, it is common practice for them to be valid for only one year, as with many insurance policies. The vendor has a legal obligation to ensure that a bank loan guarantee is in place for the entire duration of the contract, until the construction work is completed and that it is valid in accordance with the criteria set out in the decree.

As your legal representatives, whilst we can put pressure onto the vendor to comply with the requirements of the Italian law, we cannot, physically force them to issue a new Bank Loan Guarantee: we can simply request it, formally, in writing. It is important to note that the bank loan guarantee only covers the event of the builder going into administration, and does not secure the funds in any other situation.

In any event, the Italian legislative framework is very protective of the buyers’ position and a buyer may seek recourse in court to issue proceedings against the developer for breach of contract.

If the vendor fails to produce an extended Bank Loan Guarantee against a deposit, the contact will be come null and void and the buyer is entitled to rescind it, and seek a refund of the deposit paid (in this case without consideration) plus interest and damages.

Planning Permission

With this section of the opinion I will assess the issues related to the planning permission documents for “Jewel of the Sea” and “Beach Front”, I will explain the extent of the due diligence carried out during 2007 and finally I will clarify the events that occurred after the due diligence was carried out. I will confirm that, at the outset, the planning certificates were in place and that the revocation of the building permissions by the Regional Government in Calabria, was contrary to law. In any event, I will demonstrate that the current status of the planning permission is due to the actions of the Municipality of Brancaleone. I will make clear that we (your representatives) were not informed of the developments after having completed our due diligence. It is for this reason that our clients were not specifically informed, until now. Given the planning permission was in place initially, there was absolutely no reason why deposits should have been legally withheld from the builder.

I would like to emphasize that whilst I do consider the internet to be a valuable tool for sharing information, I would advise buyers to be cautious and to check information carefully since there is very little control over the content posted on forums and much of the recent speculation about Jewel of the Sea and Giambrone Law is factually incorrect; this has created uncertainty and concern amongst the buyers in this development.

I apologise that certain parts of this analysis may seem very technical, this is unavoidable due to the very complex nature of Italian Real Estate and Administrative Law, which is based upon different sets of statutory provisions as well as national and regional laws, decrees and legislative measures. It is important that I try to explain all procedures and make reference to the relevant legislation in order to allay any fears that buyers may have with regards to the planning permission at Jewel of the Sea and Beach Front. For the record, Studio Legale Giambrone (Giambrone Law) cannot guarantee that these developments will be completed on time (or that they will be completed at all) since it is not within our remit to do so, nor do we represent the building companies involved. I can however, assure buyers that we will monitor the situation constantly and will inform each buyer of the relevant updates only if theseupdates are necessary.

…

Suspension of planning permission

In respect of the Jewel of the Sea planning permissions listed above, the validity of building permits No. 13/2007 and No. 06/2008 was, for the first time, unilaterally suspended by the R.D.V. s.r.l. on 13^th June 2008, and thus the construction work stopped. This occurred due to the view taken by the technicians of the Financial Institute of the project, who claimed that it was a requirement to obtain the opinion of the Regional Government of Calabria, Town Planning Department, in order to ratify an effective building license at the site.

Following on from this, a written communication from the Municipality of Brancaleone (17^th June 2008 Protocol No. 2843 and 28^th June 2008 Protocol No. 4183) ordered, as an interim measure, the suspension of building permits previously issued and granted to R.D.V. s.r.l. [No. 13/2007 and No. 06/2008] and ordered the initiation of legal proceedings with the aim of reviewing these building permits.

On 31^st July 2008 R.D.V.’s lawyers made an urgent application to initiate proceedings under Art. 5 D.P.R. 447/1998 and art. 38, D.P.R. 380/2001, claiming that in the interpretation of the recent Jurisprudence of the Italian Courts, the Public Administration ad competent Authority required a preliminary review of the existence of all conditions of law aimed at the regularisation of permits and elimination of procedural defect, given the existence of part of the development constructed in compliance with the building permit previously granted and subsequently suspended.

The same Regional Office of Calabria, with specific opinion dated 26^th August 2008 had already positively expressed the need to adopt measures under Article. 38, D.P.R. 380/2001 paragraphs 1 and 2 and subsequently the re-proposition of the intervention in variant with the simplified procedure under Article. 5 of D.P.R. 447/1998. The administrative procedures that first led to the cancellation of these permits (which was implemented by separate administrative orders under Protocol 7355 (permit No. 13) and 7354 (permit No. 06), was notified to R.D.V. on 15^th October 2008, without any motivated assessment prior to the removal of the breach of procedure, according to art. 38 paragraph 1.

R.D.V’s lawyers did not inform us of these administrative decisions which had cancelled the planning permission documents referred to above, nor did we have any other means to ascertain these suspensions as the administrative decision was internal between the Public Administration and R.D.V.

I must therefore highlight how the construction works started only after receiving all the necessary health permits, building permits, planning permissions civil permits and engineering approvals among others which had emerged in 2007 during our due diligence.” (All emphasis as in original.)

It is not clear who “asked” him to prepare the opinion and it was sent, unsolicited, to all purchasers with a request that each paid Є850 plus VAT for it. Not all were prepared to pay.

Aspects of this Opinion are criticised by the claimants, largely on the basis that it is self-serving and exculpatory so far as the firm was concerned. By then, of course, all the claimants were bound by the preliminary contracts. I will return to its implications where appropriate below.

A major feature of the case advanced by the claimants is that the firm should have disclosed to them the basis upon which their 50% deposits were to be utilised, with only 19% going to the building company. Leaving to one side, for the moment, the expert evidence on this issue, I will revert to the issue I mentioned in paragraph 252, namely, why it was that the firm pretended that it only learned about the level of commission in about April 2009.

Mr Majumdar submits that if the firm gave the impression that it had only just discovered this information then no-one would or could ask why it had not told its clients before. He observes that it seems to have been an effective tactic because, until the revelation of the Mandates during 2013 (see paragraph 68 above), no-one outside the firm knew that the firm knew the position from the outset in 2007.

Why should the firm be sensitive about this? Again, leaving aside any expert opinion about it, there are two revealing pieces of evidence from within the firm (albeit given by those who were not involved in the early stages) that offer an insight into this. The first is an e-mail from Louise Connell to a Mr McShane on 11 August 2011 in the following terms:

“In relation to your question about VFI, they only acted as the Estate Agent in this case and the Mandate between RDV and VFI was between them, we do agree that the split of 19% for RDV and 31% for VFI was wrong and that RDV should have received more however, that was their agreement.”

Louise Connell was employed to assist Avvocato Virga (who joined the firm towards the end of 2010) in dealing with client inquiries. She was not a lawyer and was thus doubtless reflecting a view expressed to her by Avvocato Virga or another lawyer in the firm. Although Avvocato Giambrone suggested that this was a “personal view”, it would be very surprising if a non-lawyer (or indeed anyone in a purely administrative position such as a “relationship manager” which is what she was) would express such a view to a client. However, it reflects a clear recognition that the builder ought to have received more.

Avvocato Virga confirmed when he gave evidence that he had approved the statement made in the e-mail and that it reflected his view at the time. He did not seek to depart from that view and he was one witness who gave evidence on the defendants’ side upon whom I felt I could safely rely.

Shortly before that e-mail, on 11 May 2011, Louise Connell answered a query from a client, Mr Martin, in these terms:

“In relation to your funds these have been paid to VFI … in accordance with your Preliminary Contract, the funds are not held in any bank account as they would have been used by RDV at least to start the building works on the development, of the 50% deposit 31% went to VFI Overseas property for their commission in selling the property to you and 19% went to RDV to start the works. This why it is not just as simple as asking RDV to refund the 50% deposit back to you as one, they would only be able to refund 19% as two, the money is no longer in any bank account as far as I know.”

It is obvious that the practical implications of the way the deposit was divided between VFI and RDV were apparent within the firm.

As I have indicated, this is an issue upon which there was expert evidence and I will be turning to the opinions expressed in due course (see paragraphs 374 - 396). However, this is a convenient point at which to say a little about the various experts who gave evidence. I have referred to some, if not all, of the experts already, but I should introduce them in a little more detail at this stage, indicate my approach to their evidence and my assessment of them.

The expert evidence I have received relates to Italian law and practice. As in any case, I have not seen it as my duty either to accept the whole of the expert opinion of each expert or not to accept it at all. As I shall be observing at one part of the judgment (see paragraph 414), an expert can be right about most things but wrong about others.

I should say that I regard each expert as having been properly qualified to assist me. I heard from Avvocato Carlo Scarpa, a partner in the Padua office of Tonnuci & Partners. He was essentially a commercial lawyer who was asked on behalf of the Penningtons Manches claimants to advise on the implications of the Mandates. Avvocato Charlotte Oliver had also been instructed by the Penningtons Manches claimants to advise on the property and professional aspects of the claim. She is English by birth and qualified as a solicitor in England and Wales in 1994 and as an Avvocato Integrato (an integrated European lawyer) in 2001. She practised in Rome in various firms until she formed her own firm in 2013. Finally, instructed on behalf of the Edwin Coe claimants was Notary Francesco Valente. He has been a notary in Martina Franca in Puglia for the last four years and had held a number of academic appointments prior to that

The defendants sought the opinion of Notary Sergio Cardarelli. He graduated from Pisa University in 1959 and was a Notary in Padua for nearly 40 years between November 1972 in June 2012. I think the position is that he has now retired as a Notary, but still practises to some extent as an Avvocato. His first report in this case ran to nearly 80 pages. According to his report, he is the author of, inter alia, what is described as an article in 2009 entitled “The purchase of buildings to be constructed or in the course of construction”.

Mr Flenley has subjected each of the claimants’ experts to criticism. Of Avvocato Oliver he says that she has never taken any examinations in Italian law, but has learned on the job in three firms. He criticised her for setting the standard of care required for a solicitor at too high a level. He points to a passage in his cross-examination of her where she uses the expression “very diligent” about the duties required of a solicitor in this situation and based upon it he says that is the standard by which she approaches everything. He submits that she is effectively applying the standard of a “meticulous and conscientious practitioner”.

I do not consider that that is what she was saying, nor do I think that the passage upon which Mr Flenley relies bears the construction he contends for. Since he attaches importance to this I will set out the passage:

Q. There is no difference between your own personal standards and those of any reasonably competent lawyer. You are no more diligent than a reasonably competent lawyer. Is that your evidence?

A. I do not know.

Q. Is not the case that really you know that you are, if I may respectfully say so having read your report, very diligent?

A. Yes, I think I am very diligent and I think you have to be in this job. That is why clients would look to a lawyer to help them in a property transaction in a foreign country.

Q. Is your approach really that any lawyer doing this sort of work has to be very diligent?

A. Yes, because the buyer does not have the opportunity to be very diligent. They do not know the language, they do not know the law.

Q. The standard that you are applying throughout your reports is: Did the defendant act in a very diligent way?

A. Did the defendant act in a diligent enough way, in the circumstances of this particular case, with red flags that were popping up?

Q. Yes, but in light of your last but one answer, in your view, in order to act in the circumstances of this case in a diligent way, the lawyer had to be very diligent, because that is the test that you say you have applied in your report?

A. Yes.

What she was saying, in my view, is that in the circumstances of this particular case (i.e. foreign purchasers buying off-plan properties in Italy) what was required was the diligence to be expected of a lawyer when, as she put it, “red flags … were popping up.” I do not see what is wrong with that view or that it inflates the standard of care beyond what is reasonably to be expected in that situation.

Mr Flenley then relies upon an answer she gave to him when he asked her whether she would expect the solicitor effectively to guarantee that nothing could go wrong with the purchase when she gave this answer: “He is guaranteeing that he has done everything possible to ensure that the buyers are not going to be taking any risk in buying” the property. It is to be noted that this answer was given in the context of some further cross-examination by Mr Flenley after I had asked Avvocato Oliver for her assistance on what she would have understood by the “multi-object investigation” expression (see paragraph 306 below).

Again I do not consider that this demonstrates any misplaced thinking on her part or that it demonstrates that she is setting the standard of care too high. Doing “everything possible” can only mean doing what is reasonably practicable. Having had the advantage of seeing and hearing her give evidence, I thought that she was a measured and careful person who, of course, had the benefit of looking at matters from the point of view both of an English solicitor and an Italian Avvocato, although her evidence related to the latter.

Mr Flenley says that Notary Valente is not an experienced Notary. True, but within the limits of my ability to make an assessment when questions and answers are translated, I thought that he was also a careful and measured witness who was a very competent lawyer. He cannot match Notary Cardarelli for experience – few could – but that is not the test. Mr Flenley suggests that the effect of a piece of cross-examination of Notary Valente had demonstrated a glaring error in his report such that it “cast considerable doubt on the weight of his evidence.”

I have reviewed the transcript of the cross-examination which, of course, I recall in any event. With no disrespect to Mr Flenley (or for that matter to Notary Valente), it was a very difficult passage of the evidence to follow. In fact it is not central to the issues in this case and I am not really persuaded that it constitutes the volte face that Mr Flenley suggests occurred. However, I will assume in Mr Flenley’s favour that he pointed to something in Notary Valente’s report that, after prolonged testing, was shown not to be wholly accurate. That does not mean that the rest of his evidence is to be regarded as doubtful. As will become apparent (see paragraph 414), I have not applied that test to Notary Cardarelli’s evidence: if I had done so, I would have had to approach all his evidence with considerable doubt. As I have said, Notary Valente gave the impression of being a talented and conscientious lawyer who was endeavouring to assist me (not the party who instructed him) to the best of his ability.

Notary Cardarelli is very experienced, though essentially as a Notary and not as an Avvocato. To that extent he brings a perspective which is different from that of a solicitor or Avvocato to a potential purchaser of an off-plan property. It does not negate the value of his testimony, but it is a fact that has to be borne in mind, indeed as it does in relation to Notary Valente’s evidence.

Mr Flenley accepts that Avvocato Scarpa was well qualified to give evidence on the areas he did, but subjects his evidence to criticism in a number of areas. His evidence was generally directed to the issue of conflict of interest. He expressed the view that the Mandates put the defendants in an area of potential conflict of interest. Although I conclude elsewhere in this judgment (see paragraph 396) that a finding of conflict of interest is unnecessary, I do not doubt that such a conflict could have arisen through the Mandates and I cannot see upon what basis Avvocato Scarpa can be criticised for expressing the provisional view he did in his report. Where I think Mr Flenley’s criticism has some justification is in relation to Avvocato Scarpa’s view that the defendants were bound to confidentiality by virtue of Article IX of the Mandate. As will appear (see paragraph 396), I do not accept that view (although I can understand the argument), but I consider it to be irrelevant. However, it does not undermine Avvocato Scarpa’s evidence completely.

It is, I apprehend, common ground between the parties that the starting point for determining the nature and extent of the duties owed to the claimants by whatever manifestation of Avvocato Giambrone’s practice they instructed is what is to be expected in English law of an English firm of solicitors. I say “the starting point” because what the practice set out to do was to advise, guide and represent proposed purchasers in the acquisition of off-plan properties in Italy, something which ordinarily an English firm would be unlikely to undertake. It follows that the constituent elements of the duty owed are not truly determined by what, without more, an English firm would have done. The issue has to be looked at in the context of what a firm based in the English jurisdiction, but with actual or professed expertise in the Italian off-plan market, would have done. That goes further than Mr Flenley’s contention that the firm “had a duty to act as would the reasonably competent English [conveyancing firm of solicitors], holding [itself] out as able to conduct conveyancing in Italy” which, for the reasons set out below, is too restrictive an approach. However, for present purposes the fact that the firm was based in and subject to the English jurisdiction means, in the first instance, that it owed the claimants as actual or potential clients the duties established in English law, namely, a contractual duty and a tortious duty to exercise the requisite degree of skill and care in acting for and advising them: see generally Jackson and Powell on Professional Liability, 7^th Edition, paras 11-004 – 11-015. Also owed were the accepted fiduciary duties that a solicitor owes to a client and the duties as a trustee in relation to client monies received: Jackson and Powell, paras 11-016 – 11-042. A solicitor in England is also bound by certain regulatory obligations under the Solicitors Accounts Rules (‘SAR’) and the Code of Conduct applicable at the time. The firm was plainly subject to those obligations.

There has been no argument addressed in the case concerning the Code of Conduct and I do not need to deal with it further. (I should emphasise that I reach that conclusion not because Avvocato Giambrone was not asked about it in cross-examination, but because no further issue was raised in the trial about it.) There is, however, an issue about the extent, if any, to which the SAR constituted or reflected the terms of the trust on which the claimants’ money was held. Relying on what Chadwick J, as he then was, decided in Bristol & West v May May & Merrimans [1996] PNLR 138 at 159A-B, Mr Duddridge has submitted that the defendants’ obligations under the trust upon which the claimants’ money was received and retained included the obligation that they would comply with the requirements of the SAR 1998. Chadwick J held that, absent any express trust imposed by the client at the time the monies are paid to a solicitor, an implied trust arises to give effect to the SAR by which the solicitor is bound.

Mr Flenley argues that in the subsequent case of Bristol & West BS v Mothew [1998] Ch 1, a decision of the Court of Appeal, Millett LJ referred to May, but “did not approve Chadwick J’s statement that the Solicitors Accounts Rules formed part of the trust on which the claimant’s money was held” and that it was, accordingly, doubtful whether May survives Mothew on this point.

I am not sure how important this point is for the purposes of the present case, but my respectful view is that the Court of Appeal in Mothewdid not disapprove of Chadwick J’s approach in May (the issue not, so far as I can see, arising in that case) which, though not strictly binding upon me, is persuasive and which, in any event, I respectfully regard as correct.

That being so, and on the assumption that the SAR have the effect contended for, the relevant rule is rule 15(3):

“Client money may only be withdrawn from a client account when it is: (a) properly required for a payment to or on behalf of a client ... (e) withdrawn on the client’s instructions, provided the instructions are for the client’s convenience and are given in writing, or are given by other means and confirmed by the solicitor to the client in writing ...”

Mr Duddridge’s argument is that since the individual claimants did not know of the amount of VFI’s commission they were unable to give informed consent to the payment of that commission to VFI and, accordingly, when payment to VFI was made the payment did not comply with rule 15(3) and was in breach of trust. Mr Flenley submits that this involves writing into rule 15(3) the requirement that payment out be made not only with the client’s instructions, but also with the clients’ instructions after the client has given informed consent to payment in the event that the solicitor is aware of any matter which might cause the client to decide not to pay out. Those words, he says, do not appear in rule 15(3) and there is no basis for implying them and that to do so would give rise to all sorts of practical problems.

I do not see that this would give rise to insuperable practical problems and there is something very unattractive about the proposition that a client’s money can be withdrawn by a solicitor on the basis of instructions that are not given with a full appreciation of the situation. Doubtless whether there is such a full appreciation may vary from situation to situation, but I cannot see that this should prevent the obligation in principle from arising.

To the extent that it is material in this case, I prefer Mr Duddridge’s submission.

Returning to the issue of the duty of skill and care, the extent of the duty of skill and care in contract is, of course, determined by the terms of the retainer, those terms being deduced from such written instruments as there may be and/or by inference from conduct. The extent of the duty of care in negligence is to be determined by reference to all the recognised principles including whether there has been an assumption of responsibility by the solicitor going beyond what would ordinarily be expected of a reasonably competent solicitor.

Because it is English law that governs all these issues, it is by reference to the approach of English law that any documentary material of relevance is to be judged. That some documents were or may have been drafted by non-native English speakers is not relevant to that approach. Having stated that as a proposition of principle, given the role that Avvocato Giambrone played personally in this case (and the role that others who were either native English speakers or who had a good command of written and spoken English played), the proposition has little practical relevance to this case. But nonetheless it is the contention of the claimants that what has been said by or on behalf of Avvocato Giambrone’s firms must be judged (a) objectively and (b) by reference to what the kind of person to whom it was addressed would reasonably have understood it to mean. Although Mr Flenley has made one or two pleas that what was said in various documents should be assessed by reference to the fact that it was or may have been drafted by a non-native English speaker, I did not understand him seriously to dispute the general approach contended for on behalf of the claimants. At all events, I am quite satisfied that it is the correct approach and I will adopt it. I might add in this connection that Avvocato Giambrone said in his evidence that he and his colleagues, when setting up the English practice, were endeavouring to “be as English as possible” from a number of points of view including the sending of a client care letter. Against that background (and indeed the background to which I will refer in a little more detail shortly), he can, in my judgment, have no complaint that his words and those spoken on behalf of the firm must be assessed by reference to the way in which his English-speaking clients would reasonably understand them in the context in which they instructed him. If that approach should result in the conclusion that a wider area of responsibility than normal has been undertaken then that would simply be a result of the working through of the English law approach to the interpretation of the relevant documents.

I have thus alluded to the possibility that the terms of the retainer and/or the assumption of responsibility under the law of negligence might result in the conclusion that wider responsibilities than those expected of an ordinary, reasonably competent, solicitor were undertaken in this case. Mr Flenley has been anxious to submit that there is, as he put it, “no middle way between on the one hand a duty of reasonable skill and care and on the other hand a promise or guarantee” that all will be well and that no problems will emerge. I accept the submission as far as it goes, but what constitutes reasonable skill and care in any particular context is determined, at least in part, by what the professional person claims to be his area of skill and expertise and what he claims he can provide by way of information, advice or guidance to the client. This is simply a manifestation of the common sense proposition that a client who goes to a High Street solicitor cannot reasonably expect the service of an elite City commercial practitioner, just as a patient cannot expect his General Practitioner to exhibit the kind of skill and care and area of expertise of a Consultant in a particular area of speciality. However, if the professional person professes to have skills and expertise in a particular area, the client (or, in a medical context, the patient) is entitled to assume that he or she does indeed possess those skills and that expertise. Putting it in layman’s language, if a professional person sets out his stall in a particular sphere as involving the ability to go an extra mile, his work is to be judged by reference to someone who can in fact go that extra mile.

the duty undertaken – just legal matters or further?

So what did Avvocate Giambrone’s firm claim as its sphere of expertise in this case and what documents are relevant for determining the answer to that question?

In the first place, there is no doubt, whether looked at subjectively or objectively, that the intention behind everything that Avvocato Giambrone and his associates said and did in 2007 and 2008 (the material period for this purpose) was to invite instructions from proposed purchasers who were resident outside Italy by giving them enhanced comfort that the firm was a reliable and dependable firm to instruct with experience and a proven track record in the Italian off-plan market. I will consider some individual features of this, but those features need to be looked at together and seen as a whole.

The emphasis laid upon the firm’s independence was plainly designed to offer reassurance to anyone who might have thought that the firm would simply be dancing to the tune of the promoters and developers. This is a message to be received from VFI’s brochure (which, even if Avvocato Giambrone and his senior associates had not seen it, contained material that would have come as no surprise to them and would have occasioned no concern) and, of course, the message derived from the letter of 14 February 2007 (which described the firm as “an independent firm of Italian lawyers in London”: see paragraph 97 above) and the “retainer letter”. Indeed it was the message conveyed orally by the firm’s representatives when the opportunity presented itself (see paragraph 102).

The expression “due diligence” itself would have conveyed to the ordinary well-informed person that a detailed and careful appraisal was to be undertaken. I will consider the extent of that appraisal shortly (see paragraphs 294 - 327).

The emphasis laid upon the regulation of the firm by The Law Society of England and Wales and the extent of the professional indemnity insurance cover were also designed to give reassurance and, of course, made the clients feel that if anything went wrong it would be resolved within the domestic jurisdiction – and, incidentally, without difficulty.

In the “retainer letter” there could hardly have been a more encouraging invitation to instruct the firm henceforth given the description of “one of the leading Italian Law firms in the United Kingdom and Ireland and we have a dedicated department specialising in Italian Real Estate law and off-plan property acquisitions.” Even allowing for an element of puffery with the expression “one of the leading Italian Law firms in the United Kingdom and Ireland” (see paragraph 153 above), the suggestion of the existence of “a dedicated department specialising in Italian Real Estate law and off-plan property acquisitions” would have operated as an inducement to everyone to think that everything that needed to be considered in “off-plan property acquisitions” would be considered.

The letter goes on to say that the firm “[has] been requested to complete the necessary due diligence over the development, issue the Preliminary Contracts and to advise you in relation to the legal aspects of the aforementioned purchase.” Whilst it is important not to construe the terms of this paragraph (or indeed any aspect of the letter) as if it were a statute, any reader would have seen this paragraph as involving the firm doing three different things –

(i)

the necessary due diligence over the development,

(ii)

issuing the preliminary contracts, and

(iii)

advising on the legal aspects of the purchase (my emphasis).

Equally, reading on further would demonstrate that the firm was proposing to undertake “due diligence over the Limited Company which is building the Complex”.

It is, of course, important to look at the letter as a whole and I will come to some of the points made about it by Mr Flenley shortly. However, stopping at that point, what would the expression “necessary due diligence over the development” convey to a proposed non-Italian purchaser who was considering instructing a firm of lawyers that was offering the kind of experience and expertise that the firm was offering in that letter? That experience, accordingly to the next sentence, involved “advising a growing number of foreign investors in the Calabrian market” which, it is said, “is now becoming one of the “hotspots” in the Italian real estate market, with prices increasing rapidly”. That suggests in the first instance that the contemporary enthusiasm for investing in a property in Calabria is recognised (and not seen by the firm as something to be discouraged), but it also conveys the suggestion that the firm’s approach is professional and cautious. That message is also confirmed by the further reference in the letter to the “customary due diligence over the development” and the additional reference to “due diligence over the limited company which is building the complex” which I have emphasised above.

In my view, those features of the letter do convey in their own right the suggestion that what the firm was offering was something more than just ensuring that the legal formalities of the purchase would be complied with so that the purchaser would be secure in the binding nature of the acquisition. They conveyed a clear message that some degree of “due diligence” would be conducted in relation to “the development” as a whole and in relation to the building company undertaking the development. Indeed this message is reinforced by what Avvocato Giambrone said of his motivation in relation to the preliminary research namely, that he “wanted to investigate some more and see whether the project was feasible before becoming involved with it” (see paragraph 83 above). This, in my judgment, is what, according to English law, those aspects of the letter would reasonably have conveyed to the kind of person to whom the letter was addressed. (I should say that, in my view, that interpretation is reinforced by the terms of the Report on Title to which I will turn later, but I reach that conclusion at this stage of the analysis on the basis of the retainer letter as it stands.)

The letter certainly does refer, as Mr Flenley has been anxious to emphasise, to the giving of advice on the “legal aspects of the purchase” and to “all aspects of Italian law which will be relevant to your purchase.” There is plainly material within the letter (e.g. those parts referring to land registry searches, legal title, absence of rights of way over the land and so on) which would convey to someone from the United Kingdom that the usual features of a conveyancing solicitor’s duty within the domestic jurisdiction would be carried out in Italy. However, it is to my mind an unrealistic and unduly narrow reading of the letter to suggest that it is confined solely to those aspects.

The issue is how much further than what might be termed the basic duties of a conveyancing solicitor has the firm undertaken by virtue of what it said in the retainer letter. In addition to the question of what due diligence “over the development” and in relation to the building company meant, there is the question of what was undertaken by carrying out “enquiries to ensure … that valid planning permission is in place for the project to go ahead.”

There has been a sustained debate between the experts who gave evidence as to what might be expected of a reasonably competent Italian lawyer instructed on behalf of a purchaser of an off-plan property in Italian. Whilst I acknowledge the relevance of this to some extent in this case, the real issue is what it was that, as reasonably understood by the non-Italian purchaser of a property in the JoTS development, Avvocato Giambrone’s legal practice undertook to do. Whether what it undertook to do was itself feasible is a factor to be borne in mind, but essentially the issue for the purpose of defining the scope of the duty of care owed, whether in contract or in tort, is what the firm said it would do. Although the emphasis is upon what it was that the firm undertook to do, assessed by reference to the way the English law would interpret the words it used, there seems to be little difference between the English and Italian legal approaches. Notary Cardarelli (to whose evidence I will refer more fully in due course) said that if the firm had assumed the responsibility of going further than “normal” due diligence, then it would have to comply with the task it undertook. The relevant interchange in Mr Duddridge’s cross-examination was as follows:

Q. It would be possible for a lawyer to agree to carry out investigations going beyond legal due diligence, would it not?

A. It is possible but very rare and I have never seen such a thing happen.

Q. Yes, I appreciate it may be rare for a lawyer to do things that are not legal tasks, but it would be possible for a lawyer to agree to do that?

A. Everything is possible, yes, it is.

Q. A lawyer could agree to carry out detailed investigations to help decide whether a project is feasible or not?

…

A. That is also possible, yes.

Q. If a lawyer agreed to do those things, then he has to do what he has agreed to do?

A. Yes, of course. If the avvocato undertakes to ascertain the feasibility of a project, that is very strange, it seldom happens and if it does so, fine, all the worse for him.

In other words, in Italy (as in the domestic jurisdiction) if a lawyer undertakes to go the extra mile (see paragraph 287), he must do so in fact in order to fulfil the duty he has assumed.

Mr Flenley has submitted that there is nothing in the retainer letter that constitutes a promise to undertake some kind of wide-ranging financial search in respect of the building company or to engage in lengthy accountant-style enquiries in relation to it or the overall project. I agree that is not what would reasonably be expected of the firm purely from the words in the letter, but although Mr Duddridge’s question in the passage quoted above used the expression “detailed investigations”, it seems to me that the issue is really whether the promised due diligence “over the development” and in respect of the building company demanded some basic financial inquiries upon the basis of the answers to which, if so advised, further questions might be raised. Mr Flenley concedes that RDV and Veco “were new companies and therefore had no track record in property construction” and that there “is no evidence of the total capital available to either RDV or Veco”.  He goes on to submit that there is “no evidence from which the Court could make a finely calibrated feasibility assessment as at 2007-8 [which] would require sight of all financial information relating to RDV and Veco and expert accountancy (and other) evidence.” This, with respect, misses the point. It is not for me to assess whether the project was feasible. The issue is whether the firm should have drawn to the attention of the purchasers the fact (which was easy for it to discover and was almost certainly known in any event) that the two companies had no track record in property construction and that their funding stream to ensure completion of the project was uncertain.  Even if one leaves to one side the issue of the use to which the deposits were to be put (see paragraph 374), I think Mr Duddridge is right when he submits that the inquiries would not at this stage have been very onerous: the builders could have been invited to provide evidence of their ability to fund the development to completion or indeed simply to answer a question to that effect in the first place. Although Notary Cardarelli suggested that the developer would “laugh in [the] face” of someone asking the question, I find that very difficult to accept. As will be apparent from the introduction of Decree 122 of 2005 (see paragraphs 120 - 122 above), there had been concerns about the protection of off-plan purchasers arising from failed developments in the recent past. It would be surprising against that background if a developer or builder sought to brush off a reasonably expressed inquiry about the funding of a development, particularly if addressed on behalf of a number of potential purchasers. But even if he is right, that does not prevent the relevant question(s) being asked. If there was a refusal to answer or an unsatisfactory answer given, the clients could be told and it would then be up to each individual to decide whether to proceed. Whether there would be a positive duty on the firm to advise against proceeding where no satisfactory answer was given is a matter to which I will return (see paragraph 352 below), but I am quite unable to see why some inquiry along these lines could not have been made.

In my view, the way in which the “retainer letter” was drafted resulted in a reasonable expectation on the part of the purchasers that attention would be drawn to matters of this nature before they committed themselves to the preliminary contract and the payment of the 50% deposit. The letter conveyed the impression that there would be some element of financial inquiry into the feasibility of the project and the funding of the limited company. As it was, there was nothing in any subsequent communication about it and, if anything, the Report on Title gave added comfort about the feasibility of the whole project. In my judgment, Mr Duddridge is right to submit that the firm should have explained clearly to its clients precisely what the nature of the due diligence and investigations it was carrying out constituted and, given the apparently all-embracing nature of the due diligence work undertaken, to indicate clearly what was and was not being done in case any individual client wanted some further inquiries carried out.

In this context Mr Flenley drew attention to the recent decision of HHJ David Cooke, sitting as a Judge of the Chancery Division, in Kandola v Mirza Solicitors LLP [2015] EWHC 460 (Ch), where at [51] he said this:

“It is not, in general, a solicitor’s duty to check on the credit status of his client’s counterparty in a transaction unless instructed to do so. There may be circumstances in which a solicitor should check specifically for the commencement of bankruptcy proceedings, since that may affect a party’s ability to complete a transaction or give a good title. But that is not the same as a general duty to make checks about risk of future insolvency. Nor can such a duty arise merely because the client is incurring a risk of loss if the counterparty becomes insolvent, for that will be true in most if not all transactions. Nor in my view does such a duty arise merely because the transaction takes an unusual form which does involve a solvency risk (eg on release of a deposit) where the more normal form would not (deposit held as stakeholder). In such cases the duty of the solicitor is to advise of the unusual risk, but not to seek to evaluate it unless specifically instructed to do so.”

I do not doubt the correctness of the decision in that case and the accuracy of the general statement thus quoted. However, it does not, in my judgment, assist in a case where, as here, the retainer letter holds out the prospect of a wider enquiry than normal because of the particular nature of the transaction.

the Report on Title and associated documents

I will deal with the planning aspect separately (see paragraphs 313 - 326). Returning to the issue of the feasibility of the project and what the purchasers ought to have been told, it is to be noted that when the Report on Title was drafted it began with the introductory paragraph set out in paragraph 161 above containing the assertion that the firm had “also carried out a multiple object investigation aiming at determining the feasibility of the targeted purchase”. The word “also” came after the first part of the paragraph which recorded that the firm had “independently carried out the due diligence in relation to [JoTS] promoted by VFI” – in other words, the “multiple object investigation” was described as something different from the due diligence. However, irrespective of that, this is an expansive expression which, taken as it stands, would, in my judgment, have conveyed to a purchaser that the firm had undertaken a number of investigations designed to check the feasibility of the project and that nothing untoward or concerning had been revealed. According to Avvocato Oliver, whose evidence on this issue I accept, this expression sets out precisely what would have been expected of the due diligence exercise.

Plainly, the document has to be read as a whole and in the context of the earlier documentation, particularly the retainer letter. Mr Flenley says that the Report on Title, when looked at as a whole and in the context of the letter of advice (see paragraphs 157 - 158 above), is directed solely to legal, not financial, issues. He draws attention to the fact that it contains no report on the result of any financial inquiries and the expression “somehow seems to imply” in numbered paragraph 8 (see paragraph 172 above) could, he says, hardly be weaker and that no reasonable reader of those words could take them as “offering anything more than the faintest indication that the builder might conceivably have the means to build the development”.

That seems to me to be a very two-edged argument. Having indicated, on the one hand, the extensive nature of the investigation into the feasibility of the project (with no indications of any perceived problems), on the other there is, on Mr Flenley’s analysis, a very insubstantial assertion that the builder “might” have sufficient means to complete the development. In my judgment, it is totally unsatisfactory that a client of a lawyer who has solicited their custom should have to try to choose between potentially mixed messages: such a client is (as indeed all clients are) entitled to a straightforward appraisal of the situation. Nor is it an answer to say that each client could have raised the ambiguity with the firm despite the invitation in the covering letter to contact “any members of our Italian Real Estate Department if we can assist you with any further queries which you may have in relation to your purchase.” The detailed Report on Title and accompanying documents included the request to send the 50% deposit and the signed Preliminary Contracts (two copies of which were provided) within 28 days, according to the covering letter, or 14 days, according to the letter of advice. At that stage people would be anticipating that everything was in order.

There is a further dimension to the suggestion that the expression “this somehow seems to imply that they have their own resources to bring the construction to a positive completion” was something upon which no reasonable reader would place much reliance. If, as many of the claimants suggest, they thought that all (or at the least, a very significant proportion) of their 50% deposit went to fund the building work itself, this kind of statement would not, as it seems to me, raise any particular concern in the mind of the reader and would be taken as a reasonable assessment of the situation. If, however, the Report on Title had said that only 19% of the deposit had gone to the builder and 31% to the agent, but had then gone on to use the same expression, it would, in my view, have been most likely that some, if not all, purchasers would have asked the question of how the whole building project was to be completed, particularly if told that it was a recently formed company with no accounts to examine and with no identifiable track record in building developments of this nature.

I should say that Mr Flenley makes what he acknowledges to be the forensic point that Mr Duddridge, on behalf of the Penningtons Manches claimants, did not refer to the “multiple object investigation” expression in his pleadings, even though the Report on Title is quoted extensively, Mr Flenley’s argument being that even at the stage of re-amending the Particulars of Claim, Mr Duddridge saw no importance in the expression. He enlarged on that in his oral submissions by saying that Mr Duddridge in his written closing submissions at the end of the trial was “now asserting that there was a general holistic duty more or less to give any kind of advice of any sort” in relation to whether what was proposed was “a good deal or not” and the purpose of this was to try to “force this case into the Portman type of case or to say this is a “duty to advise what to do case”. This, he submits, is an argument fashioned to avoid what he describes as “the SAAMCO cap” upon which, on behalf of the defendants, he places considerable reliance (see paragraphs 331 - 356). Mr Flenley accepts that that the Edwin Coe claimants did plead the quotation but did not aver thereby that the defendants “were agreeing to undertake a major accounting exercise examining every financial aspect of the development.” He suggested that there had been indications during the trial that the claimants wished to widen their case to embrace such an allegation which, he says, is not open to them.

In the first place, I do not recognise any of the submissions attributed to the claimants as being that “a major accounting exercise examining every financial aspect of the development” was required. It was Mr Flenley who raised the question of the involvement of accountants in his cross-examination of some of the exemplar claimants. The whole point here is that it was Avvocato Giambrone’s firm that used the “multiple object investigation” expression at the beginning of the Report on Title which was a vital document for each purchaser to consider before committing themselves finally to the purchase and to handing over the deposit. The way Mr Duddridge has put the matter is reflected in paragraph 302 above and I did not understand Mr Majumdar to take a materially different approach. Nonetheless, however the matter has been raised does not preclude me from forming my own view on the basis of the evidence and argument as to what the duty in this regard was. I have already expressed my view about that (see also paragraph 302). The relationship between that view and “the SAAMCO cap” is a matter to which I will return (see paragraphs 331 - 356).

It is convenient now to turn to the question of what obligation the firm undertook in relation to the planning permission and whether it was in breach of that obligation. I have already examined in some detail how there is, in my view, a potential deficiency in the evidential position on both sides in this case if there was an obligation on the firm’s part to go beyond the “face value” of the June 2007 planning permission (see paragraphs 189 - 207 above).

the duty undertaken in relation to the planning permission

The retainer letter (see paragraphs 151 – 154 above) said that the firm would “carry out enquiries to ensure … that valid planning permission is in place for the project to go ahead.” The first observation about the wording of this part of the letter is that it does not obviously and clearly confine the obligation merely to checking that the proposed development was in accordance with a planning permission that had been granted. It does not say “we will check that what is proposed is in accordance with the relevant planning permission” or some expression to like effect. It is common ground between the experts that a basic duty to that effect would be owed in such a situation: such a duty would arise in Italy, just as it would in England and Wales. However, at face value, the commitment is to carry out enquiries to ensure that a valid planning permission is in place to enable the development to proceed.

Immediately following the passage of the cross-examination of Notary Cardarelli quoted in paragraph 300 above was the following interchange:

Q. If a lawyer undertakes to ensure that there is valid planning permission in place, then in the same way, he must do that?

A. Of course, if that is his undertaking, of course he has to. That is a very difficult investigation to carry out but if he does take that burden upon himself so much the worse for him.

Mr Majumdar, on behalf of the claimants generally, realistically in my view, accepted that, notwithstanding what would seem on a literal reading of the retainer letter to be an absolute commitment to ensure that valid planning permission for the development was in place, it could not be suggested that such a strict or absolute obligation existed. He did, however, contend that a “degree of enquiry … higher than normal” was required. I think that submission is well founded and I accept it. I reject Mr Flenley’s submission that what the firm offered to do was simply “work of a routine nature for Italian conveyancers.” The commitment given in relation to checking the validity of the planning permission is of a similar, enhanced level of due diligence to that offered in relation to the financial viability of the whole development to which I have referred above (see paragraphs 302 - 303). It is another part of a package aimed at proposed purchasers which, in effect, says “we are experts in this field – we will check everything for you.” I should say that I have reached this conclusion, both in relation to the financial viability aspect of the due diligence and the planning permission aspect, without reference to any concerns there might be about a development being undertaken in an area where, it is said, organised crime may play a part in the construction industry. I will return to that dimension later (see paragraphs 421 - 439).

As with all other parts of the promised due diligence, the commitment is given by, in effect, an English firm of solicitors with expertise and experience in the Italian off-plan market. The difficulty I face at the moment, in the light of where the evidence presently stands, is that I do not know what specific material would ordinarily be available in Italy to carry out the due diligence that the firm undertook to provide, whether at the ordinary or enhanced level. Notary Valente spoke of regulatory and specialist plans (see paragraph 195 above), but gave no greater detail than that and was not cross-examined about it. My assessment must, to a degree, be informed by what the position would be within the domestic jurisdiction because I doubt that it is materially different from the procedures in Italy. However, that ultimately may be no substitute for some further evidence about the practice and procedure adopted in Italy.

Mr Flenley has suggested that what the claimants’ case amounts to is to require a level of enquiry that would “involve immensely difficult work … to second-guess the town council’s decision to grant planning permission.” That overstates significantly what, in my view, the claimants are suggesting and, in any event, what, in my judgment, would be required of an English solicitor undertaking an enquiry into the validity of an English planning permission. What would probably have been required can be assessed by reference to the requirements of domestic planning law and procedure. I will confine myself to what seem to me to be relevant areas for the purposes of this case, but I do emphasise that I consider that more evidence is required of the reasons for the actual or perceived defect in the June 2007 planning permission, whether they were true or imagined defects (given the suggestion that the whole affair arose out of the mistakes of the Comune) and how they came to be rectified. Equally, I will confine myself to a very broad outline.

If the position in relation to the June 2007 planning permission is that the opinion of the Regional Government of Calabria was not obtained, it can be likened within the domestic jurisdiction to a failure on the part of a local planning authority to consult a statutory consultee. The Town and Country Planning (Development Management Procedure) (England) Order 2010 sets out in Schedule 5 those bodies that must (by virtue of Articles 16 and 17) be consulted before the grant of any planning permission in a situation where the proposed development is mentioned in Schedule 5. A failure to do so renders the planning permission granted vulnerable to challenge by a third party and/or to revocation by the planning authority under section 97 of the Town and County Planning Act 1990:see, e.g., R. (on the application of Health and Safety Executive) v Wolverhampton City Council [2012] 1 W.L.R. 2264.

Another comparable situation would be where, by virtue of the European Council Directive 85/337/EC, there is an obligation on the part of the local planning authority to prepare an Environmental Impact Assessment (‘EIA’). If the JoTS development was proposed anywhere in England or Wales, an EIA would almost certainly be required given that what would be proposed is a “holiday village” where the development exceeds 0.5 hectares (see Town and Country Planning (Environmental Impact Assessment) Regulations 2011, Schedule 2, para 12.) Given that the project would be on the coastline, it is almost certain that the Habitats Directive would also come into play. (In her report, Avvocato Oliver said she assumed that the planning permissions had been applied for before the purchase of the land by the developer and “would have involved a very elaborate technical project being drawn up with specifications that were in line with all building regulations and planning laws, including the “piano regolatore” ie the General Regulatory Plan for the local area, in respect of local laws in relation to, for example, prohibited building, protection on landscape, use of coastal areas.” This tends to confirm that the kind of considerations to which I have referred would be relevant in Italy, as indeed one would expect.)

The examples I have given are simply examples. There may be others. It seems to me clear that a solicitor within the domestic jurisdiction who is acting on behalf of potential purchasers of off-plan properties within any area, but particularly one which was being built in a sensitive area from a planning perspective such as a coastline, would need, at the very least, to request written confirmation from the local planning authority that all appropriate consultations had been carried out and that no grounds for a potential revocation of the permission could be foreseen. This, as it seems to me, would be the bare minimum, particularly if the period within which an application for permission to apply for judicial review of the local planning authority’s decision had not expired. For my part, I would have considered that to be a minimum requirement in such a situation where a solicitor was simply undertaking what might be termed ordinary due diligence. If the view of the experts in Italian practice is that no such inquiry needed to be made under the ordinary due diligence requirement in Italy, I would say that the position is different under English law and that an English solicitor would be obliged to make (or cause to be made) inquiries in Italy to the effect I have suggested. As I have said, for my part, I would see those steps as being necessary within the ordinary standard of exercising reasonable skill and care in relation to an off-plan purchase within the domestic jurisdiction with its consequent impact upon a solicitor’s duty when acting on an off-plan purchase outside the UK. However, if I was wrong about that, the steps I have indicated would, in my judgment, certainly be required where some enhanced due diligence was promised by the solicitor.

If the response of the local planning authority to the request for written confirmation that all appropriate consultations had been carried out was largely positive, but not entirely unequivocal, the solicitor could go on to invite the provision of evidence that the relevant consultations had been carried out. If the response was that the solicitor’s clients must rely upon their own inquiries, (a) I would expect the solicitor to indicate to his clients that the position adopted by the local planning authority was not satisfactory, but (b) if requested to go further by the clients would involve considering:

I would also expect the solicitor to advise the client to wait at least until the period for a judicial review challenge can be undertaken had expired before entering into any binding commitment to purchase and/or only to enter into a contract conditional upon no successful challenge to the planning permission taking place.

I would add that if the solicitor engaged was not sufficiently well-versed in planning matters to make inquiries such as these, then it would be incumbent on the solicitor to seek specialist assistance in order to be able to fulfil the obligation undertaken. This seems to me to be obvious common sense, but nonetheless is confirmed by the thrust of what Avvocato Oliver said to Mr Flenley when he cross-examined her as follows:

Q. So a lawyer instructed to act on a property purchase without some special requirement to look into the validity of planning permission, in your view, does not have to be a specialist in public administrative law?

A. No.

Q. If the lawyer were told, “By the way, please make absolutelycertain that this planning permission has been validly issued”, it would be different?

A. In that case I would need an expert.

The context for the questioning was what Notary Valente had said in what appears in the response below to the following question:

“Please summarise any planning and/or building permission problems with JOTS, both the main development and, if any, the Beachfront. Please briefly explain how and why any such problems arose, with reference if relevant to any recent developments and/or arrests.”

Response

“… On the other hand, in the case of a professional appointment of a lawyer to check the correctness of the planning permissions, then it is assumed that the lawyer must know the correct administrative procedure that leads to the issue of the measure, that is he should be a specialist in public administrative law, and as such the diligence of a prudent man is not required of the lawyer but rather the professional diligence necessary for the correct carrying out of the professional Mandate received.”

Avvocato Oliver had said this in her report:

“… I do not agree with Notary Valente where he states … that a lawyer should be a specialist in public administrative law, but I do agree that it would be expected for the carrying out of the professional Mandate that the lawyer appointed to represent the Buyer should be adequately informed and make at least a basic analysis of the paperwork and if areas of concern such as that above come to light, further investigation by an independent surveyor or Architect would be prudent.”

In other words, if some duty is undertaken to check the validity of a planning permission and what might be termed “in house” expertise is not available, it would be necessary to engage that expertise from elsewhere. I am not really sure that Avvocato Oliver and Notary Valente do disagree in substance on this issue: the expertise would have to be found somewhere. However, be that as it may, what is plain in this case is that no checks additional to looking at the face of the planning permission were undertaken. As I have indicated, what remains uncertain on the evidence is how a more detailed inquiry could be carried out in Italy and what, if carried out at the relevant time, it would probably have revealed in relation to the JoTS development.

I must move on to deal with Mr Flenley’s SAAMCO argument, but before doing so I will simply highlight a passage in a Status Report prepared by Avvocato Giambrone in December 2010. It obviously post-dates most of the material events for present purposes in this case, but it demonstrates his awareness of the risks of buying off-plan and the continued position he adopted of a positive approach to the JoTS development despite the delays.

In Status Report X (December 2010), the following answer was given in response to what was said to be a Frequently Asked Question, namely, “Although we are concerned about the latest developments in respect of the planning permission, do you advise me to keep my property if its value will increase in future and considering the Є3,600 per year penalty payment?” -

“This is one of the most common questions that we have received from a significant number of our clients.

From a strictly legal point of view, we should simply respond that it is not within the remit of lawyers to advise in respect of the value of an investment. However, we understand that our clients are concerned in the current climate that they do not wish to continue to invest in a project that is has (sic) been beset with problems but, since the outset, Giambrone Law has been consistently advising our clients that we genuinely believe that this is a good investment, although it should be noted that in our opinion all off-plan investments are, by their nature, risky.

Due to our extensive knowledge of the Calabrian market … it appears entirely plausible that the value of each property will increase at the end of the economic recession provided that JOTS will be completed to the same high standards and with the same facilities that it was promised for sale in 2007.

With caution, we share the above view and we are highly optimistic about a successful outcome of the project, albeit delayed, which will give much needed investment and development to the entire area.

Buying off-plan is notoriously a risky investment in view of the fact that the buyers need to rely on the ability and technical skills of the developer in order to obtain the same property/facilities/amenities that are usually included in the glossy brochures at the outset.

….”

The question (said to be asked frequently) is expressed in somewhat leading terms – “… do you advise me to keep my property if its value will increase in future and considering the Є3,600 per year penalty payment?” The response, which says that from a “strictly legal point of view” no such advice can be given, is thereafter expressed in very positive terms.

I will now turn to the SAAMCO issue.

Mr Flenley has placed much reliance on what, for shorthand purposes, has been called “the SAAMCO issue”. It can be termed a causation issue (or a scope of duty issue) based on what he contends is the effect in this case of the principle established in South Australia Asset Management Corp v York Montague [1997] AC 191. He argues that it meets any case as to breach of duty that the claimants might establish in contract and negligence (unless it relates to the validity of the 2007 planning permission for the Main Development) because the claimants cannot demonstrate loss if the principle is applied. In other words, if breaches of duty are established arising from the allegedly defective bank loan guarantees, the required financial due diligence said to have been necessary, any failure to warn of the influence of the mafia or of organised crime, the failure to disclose the level of commission and/or level of deposit, the inadequacy of the terms of the preliminary contract and the failure to advise the claimants concerning the “Turistico Residenziale” planning designation, it is suggested that no loss can be established.

Thus expressed, the argument is unattractive and, as Mr Duddridge rightly observed, counter-intuitive. However, if the principle applies to the circumstances of this case then plainly it must be observed.

How is the argument constructed? In SAAMCO valuers were instructed by lending institutions to value properties on the security of which they were considering advancing money on mortgage. In each case, the properties were considerably overvalued. As a result loans were made which would not have been made if the true values of the properties had been known. The borrowers subsequently defaulted and in the meantime the property market had fallen substantially, greatly increasing the losses eventually suffered by the lending institutions. The issue was the measure of the loss recoverable by those institutions from the valuers. Lord Hoffmann set out the framework for the debate in this way (at p. 210):

“The Court of Appeal … decided that in a case in which the lender would not otherwise have lent (which they called a “no-transaction” case), he is entitled to recover the difference between the sum which he lent, together with a reasonable rate of interest, and the net sum which he actually got back. The valuer bears the whole risk of a transaction which, but for his negligence, would not have happened. He is therefore liable for all the loss attributable to a fall in the market. They distinguished what they called a “successful transaction” case, in which the evidence shows that if the lender had been correctly advised, he would still have lent a lesser sum on the same security. In such a case, the lender can recover only the difference between what he has actually lost and what he would have lost if he had lent the lesser amount. Since the fall in the property market is a common element in both the actual and the hypothetical calculations, it does not increase the valuer’s liability.

The valuers appeal. They say that a valuer provides an estimate of the value of the property at the date of the valuation. He does not undertake the role of a prophet. It is unfair that merely because for one reason or other the lender would not otherwise have lent, the valuer should be saddled with the whole risk of the transaction, including a subsequent fall in the value of the property.”

Lord Hoffmann (with whom all their Lordships agreed) said that the duty of care on the valuers was to exercise reasonable care and skill in the valuations, but the lending institutions had, in addition to showing a breach of that duty, to demonstrate that the duty was owed “in respect of the kind of loss which he has suffered” (page 211). He added this subsequently: “The real question in this case is the kind of loss in respect of which the duty was owed.” (page 212).

When formulating the applicable principle, Lord Hoffmann said this at page 213:

“Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate.

I can illustrate the difference between the ordinary principle and that adopted by the Court of Appeal by an example. A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee.

On the Court of Appeal’s principle, the doctor is responsible for the injury suffered by the mountaineer because it is damage which would not have occurred if he had been given correct information about his knee. He would not have gone on the expedition and would have suffered no injury. On what I have suggested is the more usual principle, the doctor is not liable. The injury has not been caused by the doctor’s bad advice because it would have occurred even if the advice had been correct.”

The principle can be deduced from the following paragraphs at page 214:

“I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.

The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong.” (Emphasis as in original.)

The net result of the case was that the damages available to the lending institutions were limited to the difference between the negligent valuation and the true value of the property concerned at the date of valuation.

As will become apparent (see paragraph 344 below), the distinction between a duty to provide information for the purpose of enabling someone else to decide upon a course of action, on the one hand, and a duty to give advice on a course of action, on the other, was subsequently characterised as either being a “category 1 case” or a “category 2 case”.

Mr Flenley says that the circumstances of the present case are such that what the defendants were retained to do was to provide information to the claimants (and thus category 1) and not to give advice. On that basis the SAAMCO principle would result, he submits, in liability only for “the consequences of the information being wrong”. He says that if breach of duty is found at common law, then the court will have to compare (i) the position which the claimants are, or were when they rescinded the preliminary contracts, in fact in, and (ii) the position which they would have been in if the information which the defendants provided had been correct.

He suggests that the claimants’ case has been characterised on the basis that the defendants should have advised the claimants not to proceed (which, he submits, is wrong) because it would only be in that situation that damages of the nature sought to be claimed in this case could be obtained.

Mr Duddridge and Mr Majumdar reject the submission that the SAAMCO principle applies to the circumstances of this case either at all or to its full extent. In the first place, they contend that the rigid demarcation between the giving of information and the giving of advice does not necessarily apply in this case. As a broad proposition they contend that the distinction is easy to apply to cases involving valuation advice given to lenders because typically the valuation is only one of a number of pieces of information relied on by the lender in deciding how much to lend and it is, they suggest, usually tolerably straightforward to decide which losses are or are not attributable to the negligent valuation by working out the extent to which the lender obtained a less valuable security than it believed it was obtaining. Support for their argument against too rigid a demarcation comes, they contend, from Haugesund Kommune and another v Depfa ACS Bank (No 2) [2011] 3 All ER 655.

This was a case in which a bank entered into a number of interest rate swap agreements with certain Norwegian municipalities (known as ‘Kommunes’). The capacity of the Kommunes to raise loans was limited by certain Norwegian legislation. The bank had been advised by Norwegian lawyers that the swap transactions were not loans for the purposes of the legislation and that the Kommunes had capacity to enter into them. This advice was incorrect and negligent and the bank would not have advanced the monies had it been advised correctly. However, the lawyers correctly advised the bank that a claim against a Norwegian municipality could not be enforced, that no distress or seizure could be obtained of any of its assets and no bankruptcy or debt settlement proceedings could be initiated against it. It was common ground that the bank knew, and was willing to take the risk, that it was not possible to obtain execution against the Kommunes should there be any need to do so. The monies advanced were invested disastrously by the Kommunes and, whilst some sums were repaid to the bank, the liability to repay was held to be to the extent merely of the amount left over from the unsuccessful investments. In proceedings against the lawyers the bank sought to recover the whole amount of the advances made as losses caused by the lawyers’ negligence subject only to the deduction of such sums, if any, as might be actually recouped from the Kommunes. The lawyers, relying upon SAAMCO, argued that it was not responsible for any loss which, on the facts, arose from the risk taken by the bank of the creditworthiness of the Kommunes.

Rix LJ identified the issue in the case as follows:

“A solicitor wrongly and negligently advises a bank that its prospective counterparty to a banking transaction has capacity to enter into the proposed transaction, which is in fact ultra vires and void. The counterparty is nevertheless liable to repay the bank in restitution. Is the solicitor liable to the bank for the whole of the sum transferred to the counterparty irrespective of every other consideration, save only to the extent that the bank succeeds in making an actual recovery from its counterparty? That is the essential question asked on this appeal.”

However, the broader comments in the Haugesund Kommune case are relied upon by Mr Duddridge and Mr Majumdar. In that case the demarcation between the two types of case referred to by Lord Hoffmann in SAAMCO was reflected in the labels “category 1” and “category 2” cases. Rix LJ referred to Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (Interest on Damages) [1998] 1 All E.R. 305 which revisited SAAMCO and to Aneco Reinsurance Underwriting Ltd v Johnson & Higgs Ltd [2001] UKHL 51. In relation to the latter case he said that whether it was a “category 1” case or a “category 2” case “was not an easy characterisation about which to come to a conclusion.”

In relation to the debate in the Haugesund Kommune case Rix LJ said this:

“I therefore do not consider [the solicitors’] retainer to have been of a general kind. It was not like the examples of general retainers which have been considered in the authorities discussed above. [The solicitors] had no general responsibility to advise [the bank] on whether to proceed with the transactions or not. It did not share the same markets, in the way that insurers and insurance brokers do. It was not acting as lawyers sometimes do, as hommes des affaires. It was giving a specific piece of legal advice. The judge, citing Bristol and West Building Society v Fancy & Jackson …, Portman Building Society v Bevan Ashford …, and the Aneco reinsurance Underwriting case, appears to have considered otherwise … but essentially on the ground that the principle in [SAAMCO] applies only to cases where a transaction (albeit on different terms) would still have occurred if the claimant had known of the true position, and does not apply where, but for the negligence, no transaction would have occurred at all. In my judgment, however, that involves a misreading of the principle, which takes as its starting-point that, but for the negligence, the transaction would not have occurred, and then asks whether, even so, all the loss caused by entering into the transaction is within the scope of the defendant’s duty.”

Rix LJ repeated that the lawyers’ retainer was not a “general retainer to report or notify problems about the proposed transactions” [74] and concluded that the lawyers were “not responsible for any loss with respect to its advances which [the bank] may ultimately suffer by reason of the Kommunes’impecuniosity” [94] and emphasised, inter alia, that “because [the lawyers] never took responsibility for the Kommunes’ creditworthiness, freedom from execution, or good faith” it would be “unfair to leave [the lawyers] with theconsequences of this situation”.

Mr Duddridge and Mr Majumdar submit that the task undertaken by the firm in the instant case is much closer to that kind of general retainer. They also suggest that the rigid demarcation of a case as being either within category 1 or category 2 is not always helpful and that the focus should be less on the demarcation and more on the nature of the information/advice negligently tendered and the nature of the loss said to have flowed from it. They draw attention to what Gross LJ said in the Haugesund Kommune case:

“For my part, I am unable to accept that [the lawyers] could be liable for loss relating to enforcement and credit risks, which, as already emphasised, were never assumed by [them] …. I do not think it can be right - without more – to suppose that the loss suffered by [the bank] was within the scope of [the lawyers’] duty. Even if the contract was valid, [the bank] had been advised that it could not enforce a claim against the Kommunes. So far as concerns the credit risk, that was for the bank … not its legal advisers. Further, merely because in one sense it can be said that the transaction would not have taken place but for [the lawyers’] negligence (i.e., sothat this was a “no transaction” case), it does not follow that [they are] liable for the whole of [the bank’s] loss. For these purposes, I do not think that it matters whether this is a “category 1” or “category 2” case, in terms of the distinction canvassed by Lord Hoffmann in [SAAMCO] – a distinction which, with respect, may perhaps be easier to state than to apply in practice. (Cf., Aneco….) In short, whether this was a “category 1” case or a “category 2” case, losses attributable to enforcement and credit risks were outside the scope of [the lawyers’] duty.”

The submission they make is that the application of the SAAMCO principle must necessarily be fact-specific and that is not enough simply to ask whether what was imposed was an information duty or an advice duty. It is necessary, it is argued, to look very carefully at what duties are in fact assumed in any situation and to ask what the purpose of the advice or information was in any particular case. To the extent that specific authority is necessary to sustain that proposition, they draw attention to Portman Building Society v Bevan Ashford [2000] PNLR 344. I need not recite the circumstances in detail, but it was treated as an “information case” where the information led the lender to believe that there was no second charge on the relevant property and that the purchasers were providing the balance of the purchase price from their own resources. Otton LJ (with whom Dame Elizabeth Butler-Sloss P and Schiemann LJ agreed) said this:

“Where a negligent solicitor fails to provide information which shows that the transaction is not viable or which tends to reveal an actual or potential fraud on the part of the borrowers, the lender is entitled to recover the whole of its loss.”

Mr Duddridge and Mr Majumdar focus on the word “or” to demonstrate that, contrary to Mr Flenley’s submission, an exception to the Saamco principle is not restricted by Portman to a situation where the breach of duty involved a failure to report to the client that the whole transaction about to be entered into was fraudulent. Mr Flenley had relied upon the way in which Portman is “principally discussed” in Jackson & Powell at paragraph 11-317 which is headed “An exception: dishonest borrowers” and upon the basis upon which Portman is referred to by Rix LJ in the Haugesund Kommune case at [61] (as accepted by Mr Anthony Elleray QC sitting as a Deputy High Court Judge in Credit & Mercantile v Nabarro [2014] EWHC 2819 (Ch)).

I have not, with respect, found these particular submissions on either side very illuminating. Every statement in every case depends upon its context. In the first place, it should not be overlooked that, despite the demarcation made in Saamco between the provision of information, on the one hand, and the tendering of advice, on the other, Lord Hoffman made it clear that in “information cases” the negligent provider of the information will “not generally be regarded as responsible for all the consequences of that course of action” (my emphasis). That there may be exceptions to the general position is thus recognised and it was not limited in that case to cases of fraud. Second, the purpose of the principle, as Mr Duddridge correctly submits, is to operate as a means by which the natural consequences of the “but for” principle of causation are modified to accord with the justice of the situation. In Saamco the decision was designed to confine the liability of the negligent valuer to the direct losses consequent upon the over-valuation and not to the losses attributable to a fall in the market value of the property. It is possible to see, when the case is analysed fully, how this same approach was made to apply in the Hausgesund Kommune case.

Whilst the principle is established and must be applied where appropriate, I agree with the thrust of the submissions that Mr Duddridge and Mr Majumdar make that the first port of call in any analysis must be the nature of the information/advice tendered by the solicitor to the client in the context in which it is tendered. When that has been identified the next step is to examine the extent to which the losses associated with entering into a transaction that otherwise would not have been entered into are fairly attributable to the negligently proffered advice/information. Thus expressed, the question is divided into two parts, but the reality is that it is one overall issue – what responsibility is being undertaken by the solicitor? Is it responsibility for the loss alleged?

The distinction between simply giving information and the giving of advice is not one that is easy to apply in this case, certainly against the background of what the firm said it would do. In most cases (of which Cottinghamv Attey Bower and Jones (a firm) (2000) PNLR 557 is an example – see paragraphs 47 – 48), a solicitor would not advise a client specifically on the wisdom or otherwise of a proposed purchase. I say “specifically” because, in most cases where any kind of risk may be involved arising from some legal factor, it would be for the client to assess and evaluate the extent of the risk and his or her response to it. What the client will want will be accurate and reliable information or advice upon which any such risk can be evaluated. If the client asked the solicitor “Well, what would you do?”, the solicitor would, of course, be obliged to answer even if it was to the effect that he really could not say. Most solicitors in that situation, however, would be likely to advise caution if there was a risk of substantial money being lost. In my view, all reasonably competent solicitors would do so.

The whole of the SAAMCO argument on behalf of the defendants is predicated on the basis that in respect of the heads of loss to which it is said to apply (see paragraph 331 above) no purchaser is worse off because of any inadequacies in the advice and/or information given to them by the firm. For my part, this seems to miss the point.

Plainly, everything that went wrong with the development cannot be blamed on the firm: there were undoubtedly factors well outside its control that affected the process of the development, the planning dimension doubtless being one such factor. However, it is equally plain that buying off-plan has its inherent risks (as Avvocato Giambrone has expressly acknowledged: see paragraph 328) and apparently Italy had seen plenty of evidence of that such that Decree 122 of 2005 was promulgated. The essential nature of the claimants’ case is that because of the terms of the preliminary contract (or at least on the basis of the terms as explained to them by the firm), all the purchasers were (or believed that they were) locked into proceeding to completion of the contract, no matter when the properties were completed, otherwise they would lose their deposits. What I apprehend is being said on their behalf is that they should never have been put in that position and that either the preliminary contract should have been drafted in a way that gave them the opportunity to withdraw (and recover their deposits) if there was delay in implementation or they should have been advised fully of all the aspects of the preliminary contract that gave rise to risks so that each individual could decide, on a properly informed basis, whether or not to proceed.

Mr Duddridge put the matter accurately, in my judgment, when he said in his written closing submissions that a “duty to identify relevant information and advice cannot properly be characterised as a collection of multiple duties to provide specific information”. In this case the firm “had a single, holistic duty to take reasonable care to provide appropriate advice and information about the transactions.” In his oral submissions, comparing the circumstances with the kind of case to which the SAAMCO principle applies, he contended that this is not a case where the firm was retained to give one discrete piece of information or one discrete piece of advice. It assumed an extensive duty to identify what steps should be taken to protect the claimants, what advice and information the claimants needed and to ensure that they gave that advice correctly. If it failed to do this, it was assuming the responsibility for the consequences. I agree with that analysis and would add that the emphasis laid in its approach to all the claimants upon the insurance cover that the firm had (see paragraphs 72, 152 and 154) was itself indicative that it saw itself as responsible for the consequences if it fell short in the discharge of the duties it undertook.

In my judgment, the SAAMCO cap, as it has been called in this case, does not apply to the circumstances of this case.

I have given this section of the judgment the heading I have because the various issues raised are inter-related.

The question is the extent, if any, to which the firm ought to have alerted the claimants to the level of commission being paid to VFI and whether, by not doing so, they were acting in accordance with the Mandates which gave rise to a conflict of interest because of some obligation of confidentiality. Leaving aside the issue of conflict of interest, the question of whether the firm ought to have given the claimants information and guidance about the implications of the level of commission also arises.

I will deal with the latter issue first because if there was no reasonable basis upon which the firm was obliged to tell the Claimants about the level of commission and the implications for the development, the issue of conflict of interest would be somewhat academic.

I need not repeat what I have concluded previously. The short question is whether, on an objective analysis, the level of commission and its implications for the funding of the development was of sufficient significance, all other things being equal, for it to be revealed to the purchasers given that the firm knew about it from the outset.

There have been discussions amongst the experts about this and I will refer to the views expressed shortly. However, I have already alluded (at paragraph 257) (a) to my conclusion that the firm pretended in April 2009 only just to have learned of the level of the commission (b) to the view of Avvocato Virga (which I take to represent the view of the firm at the time he expressed it) that the split between VFI and RDV “was wrong”. Putting those two matters together, it is but a small step to conclude that the level of commission and its implications were matters to which the purchasers should have been alerted before they committed themselves to a non-returnable deposit of 50% of the price of their property. However, before finally deciding whether to reach a conclusion to that effect based upon those items of evidence, I need to look at what the experts say to see if the conclusion is reinforced or undermined.

The starting point is whether the overall deposit of 50% is of itself sufficiently high to merit comment. Mr Flenley concedes on the evidence that a deposit of 50% is generally considered unusual in this type of transaction and that the defendants should have told the claimants that this was so. He suggests a possible modification to that to which I will refer below (see paragraphs 369 - 373).

He says that the evidence supports the proposition that normally there is a deposit of 15 – 20% followed by staged payments up to a total of 85 – 90% before completion. In fact what he put to Notary Valente, which Notary Valente accepted, was that where a purchaser offers a small initial payment followed by further payments, the first payment is usually 10% or 20% and the further payments “can often reach 85% before completion.” Notary Valente did thereafter say that it is possible to get to 80% or 90% “right at the end”.

Against the background of what would be the usual payment structure for purchasing a property off-plan, with payments being made as the building works progress, it was, I am bound to say, surprising that Notary Cardarelli ventured the view that the arrangement in this case (of a 50% deposit) was more advantageous to the purchaser than the more conventional arrangement. He suggests that the purchaser is “more protected” if the builder encounters a “crisis situation” because the purchaser could “execute the surety and recover the advance payment”, but if the builder does not complete the building even if he has the resources to do so, then the purchaser having paid the higher deposit would be entitled to twice the amount of the advance payment as compensation (see paragraph 166 above). For my part, I cannot see how the purchaser is “more protected” in a “crisis situation” (see paragraph 132 above): the protection is the same whatever the initial deposit may be. Furthermore, I cannot see what advantage there is to be derived from the potentially higher compensation. Purchasers are looking to the completion of their purchase, not some bonus derived from a failure on the part of the builder to complete. Mr Duddridge put the matter more elegantly when he said that “stage payments mitigate against … the loss of money with nothing to show for it.” If the pace of the building work more or less matches the stage payments before the builder stops work, the purchaser will have something to show for it and a greater financial ability to employ someone else to finish off the work than might otherwise be the case if a high initial deposit was paid.

Avvocato Oliver, when pressed with Notary Cardarelli’s argument in cross-examination was unable to see the logic of it. I share that position. She also said that she saw no evidence that the large deposit (with the lack of staged payments) was negotiated specifically to protect the buyers, but was required by the builders because they needed the funds to distribute between themselves and the promoters. It was not put in place for the protection of the buyers. There was, she added, an absence of any plan or timings or dates by which certain aspects of the development were going to be completed which she regarded as a significant omission in this transaction. I agree.

I mention all this primarily because it emphasises that the more usual approach of a smaller initial deposit followed by stage payments is unarguably, in my view, better from the purchaser’s point of view and also gives the developer an incentive to complete the project in order to make the anticipated profit from the venture. On the basis that a significant proportion of the money paid goes to the developer/builder, that incentive exists. I mention it also because, when it comes to appraising the value of an expert opinion, a court needs to see that the opinion withstands logical scrutiny and analysis. I do not consider that, in this respect, Notary Cardarelli’s position does withstand such scrutiny.

As I have indicated, Mr Flenley concedes that the claimants should have been told that the 50% deposit was unusual. It had been in issue prior to the trial and I quote Mr Flenley’s opening skeleton argument where he was referring to Notary Cardarelli’s position at that time:

“He does not accept that the level of deposit should have been reported to the buyers as being unusually high. In those circumstances, unless it is decided that Avv Cardarelli is dishonest, it is hard to see how the Court may conclude that any reasonably competent Italian conveyancer would have concluded that the level of deposit had to be reported to the buyers.”

Indeed it was also Avvocato Giambrone’s view that it was not necessary to tell the claimants that a 50% deposit was unusual because he did not regard it as unusual (see paragraph 370 below). At all events, in my view, Mr Flenley’s acceptance of the position was correctly made. However, for my part, I would not regard simply saying that a 50% deposit was “unusual” would be a sufficient discharge of the duty of care. There would need to be some explanation of why it was unusual, what the “usual” arrangement would be and some appraisal given of the advantages/disadvantages of each. Whilst it might be said that the advantages/disadvantages of a 50% deposit are obvious, that would not preclude the need for a reasonably competent and conscientious lawyer to spell them out to the client.

Mr Flenley contends that, whilst it was necessary to tell the claimants that a 50% deposit was unusual, it would also have been reasonable to tell them that a 50% deposit was common in Calabria. He suggests that this is how the case was put to Avvocato Giambrone. The argument is constructed by reference to a number of propositions. First, he says that Notary Cardarelli’s unchallenged evidence is that, when there are no staged payments, a deposit within the range of 40 – 50% was usual. Notary Cardarelli speaks with experience of many transactions and I have no reason to doubt that aspect of his evidence. It was not, of course, confined solely to Calabria. Secondly, Mr Flenley says that Avvocato Giambrone gave unchallenged evidence that “the vast majority of Calabrian off-plan developments were structured with a 50% deposit on exchange of contract and the balance on completion.” He repeated that when giving his evidence. I have already mentioned the difficulty of assessing this kind of evidence (see paragraph 17) and because of my reservations about the reliability of a fair amount of what Avvocato Giambrone says I approach it with considerable caution. Nonetheless, even assuming it is correct, it does not seem to me to be something that should have been put forward in a way that neutralised the caution that should have been advised concerning the risks to the purchaser of a 50% deposit with no stage payments.

The final suggestion that this is the way the matter was put on behalf of the claimants is, with respect, pushing the boundaries of the way in which Mr Majumdar’s cross-examination of Avvocato Giambrone can be interpreted. I do not propose to extend this already very lengthy judgment by referring to the full context, but I will refer to one passage in a much larger passage on this overall issue. Mr Majumdar was asking Avvocato Giambrone whether he agreed with the experts that a 50% deposit was unusual. The answer and questioning continued as follows:

A. No, I do not. I say in my statement actually the opposite - inCalabria 50% was the norm.

Q. Fine. So are you disagreeing with the general proposition that off-plan purchases usually involve a lower initial deposit and stage payments?

A. I believe that the experts may be referring to the situation where Italians buy off plan in Italy. Obviously, we already understand the scenario here is different. We have foreign buyers in Italy. So I am not sure if the experts specifically addressed the issue of non-Italians buying off plan in Italy.

Q. Why would that make a difference?

A. Because there is a number of -- I already said to you at the beginning that Italians do not use lawyers, for a start, so the whole purchase is different. Italians do not use Report on Titles, Italians do not use letter of care and Italians would not even raise half the allegations in these proceedings. It is totally different the way Italians do things.

Q. Yes, but in terms of the amount of the deposit and the presence or absence of stage payments is about the mechanism, the funding of the development. So why would that be different? Suppose, for example, that an Italian was buying a property at Jewel of the Sea -- maybe there were some examples of that -- why would that buyer expect to pay a smaller deposit at the outset?

A. No, I did not say that. I said that in an Italian context it would be different. If an Italian was to buy in Jewel of the Sea, he would have been asked to pay 50% deposit like everybody else. I never suggested to say that foreign buyers were discriminated or anything. I am just saying the way that Jewel of the Sea was structured like every other development in Calabria -- or sorry like the majority because there were exceptions -- the majority of off-plan developments in Calabria was in such a way that a 50% deposit was requested on exchange of Preliminary Contract.

Q. I put to it you that it was unusual and buyers should have been advised of that even if you explained it as being common in Calabria.

A. Well there are two answers to this. First of all that the clients had agreed the purchase structure before coming to us. They had already committed to 50% deposit when they signed the reservation form. So they would have had already in mind what they had to pay, and they would have accepted willingly to commit 50% of the purchase price towards the purchase but ----

Q. Just pausing there. Sorry, I am not going to stop you giving the rest of that answer, but I think it might be helpful ….

There were further questions and answers about the stage at which the claimants were committed to the purchase and the relevance of the Є3000 acconto. I intervened in the following manner:

MR. JUSTICE FOSKETT: What is being suggested to you, I think, is that all right they put their €3,000 down, but if your firm had given advice that 50% deposit was unusual, that might havedissuaded some people from going to the next stage and committing themselves finally to paying 50% of 100,000, 120,000, 150,000. That is the point that is being put to you.

A. And in response to this my response would be that because we do not accept that the 50% was unusual ----

Q. You are saying that you had no obligation to advise them.

The foundation for the suggestion that it was “the claimants’ case” that the claimants could have been told that 50% was common in Calabria is the penultimate intervention of Mr Majumdar in the quotation from the transcript set out in paragraph 370 above where he used the words “even if you explained it as being common in Calabria”. It is impossible to say that that was “the claimants’ case” simply because of the use of that expression.

At all events, this seems to me to be a side issue. As I have said, if there was any justification for referring to the fact that a 50% deposit was not unusual in Calabria (and this all depends on whether what Avvocato Giambrone says is correct about which there is no independent confirmation and no documentation to support it), it should have been said in a way that did not water down the impact of explaining to the clients the concerns that arise from such a situation compared with the small initial deposit/staged payments structure which was the usual position in Italy.

However, arguably, the more important issue is whether, given the accepted unusual nature of a 50% deposit in such a situation, the actual breakdown of the way the deposit was to be utilised should also have been spelled out to the claimants. The consequences of the division have been dealt with previously (see paragraphs 257 - 264). As it seems to me, the issue here is not that some commission might have come from the deposit, but the fact that nearly two-thirds (62%) of the amount paid over went to the promoter and only a little over one-third (38%) went to the builder.

As has already been indicated (see paragraphs 257 - 263), I am satisfied that the firm realised by no later than April 2009 (if, which I doubt, it had not realised before) that it should have told the claimants at the outset about this division. This could be the only explanation for the pretence maintained in about April/May 2009 (because pretence is what it was) that it had only recently discovered that the level of commission received by VFI was as it was then acknowledged to be. Mr Flenley makes the point that some of the exemplar claimants did not seem troubled about the payment of commission to VFI and to the amount. However, it does have to be observed by reference to the transcript that the way they were asked about it did not involve putting to them the situation that 62% of their deposit went as commission to VFI. I do not attach much significance to the answers to which Mr Flenley refers. Most of the exemplar claimants said that they were surprised when they learnt the true position. However, all this is irrelevant to the question of whether the fact of the amount of the commission payable to VFI (a) was potentially relevant information for the claimants to receive and (b) whether the firm was in breach of duty to the claimants in not revealing it.

The starting point, of course, is that the overall level of the deposit from which the commission was to be paid was unusually high on the basis of the expert evidence. Given that the firm was (and individuals within it were) plainly saying in April/May 2009 that the level of commission was too high, it is again somewhat surprising that Notary Cardarelli should take a different view as Mr Flenley submits he did. The evidence on the issue was given in various places, but one passage in the evidence to which Mr Flenley draws attention does not, in my judgement, wholly support the position for which he contends. Mr Majumdar was asking about the 31% that went to VFI. The question was put and the answer was given through an interpreter:

Q. Just returning to … the main point, what I am putting to the notary is this, that 31% commission sounds as though it was unusual even by Italian standards because, as he said, it is not usual to employ a promoter as opposed to an estate agent.

A. It is unusual in the sense that almost never is an agent employed, an agent in the technical sense of the word, not an estate agent. However, an agent acting to promote with a complex entrepreneurial business activity such a development, that they should be granted this level of commission, I do not see as in any way disproportionate. It might perhaps have been in the interests of the buyers to know about it because if you take into account the builder’s profit and the agent’s commission, the price was certainly higher than if VFI had not been involved.

As I understood Notary Cardarelli’s position on confidentiality, it was to the effect that the firm was precluded from conveying information about the level of commission by reason of the commercial obligation of confidentiality. I will return to that (see paragraph 396). However, the above answer seems to acknowledge that it would or might have been in the interests of the purchasers in this case to be told about the level of commission the developers were receiving. It does seem to me that if that is so, it would require very strong grounds for a solicitor subject to the usual obligations placed upon him by English law not to inform his client.

However, Notary Cardarelli gave another answer later, in the context of his view that the firm’s responsibility was pursuant to a “contract was a contract for consulting services” such that it was “advising the buyers on the legal aspects of [the] transactions”, that “if we are talking only of the level of commission, I personally would not have disclosed it.” Mr Flenley submits that a reasonably competent Italian conveyancer could therefore have taken the view that the level of commission need not have been disclosed and that justifies no disclosure in this case.

I do not accept that contention. In the first place, the test has to be what an English solicitor with expertise in Italian off plan transactions would have been obliged to tell his client. Second, Notary Cardarelli’s viewpoint is very narrowly confined in the sense that his focus is upon the firm’s duty as an adviser on the legal aspects. He plainly does not see the level of commission as a legal aspect of the transaction.

It is to be noted that Avvocato Giambrone expressed the opinion that the level of commission was an irrelevant consideration. That emerges from the following passage in his cross-examination by Mr Duddridge:

A. … the level of commission … was not, in my opinion at the time, something that was material for the client to know, for one simple reason. In a joint venture agreement VFI was bringing the know how. The planning permissions existed for JoTS since 1994, so it is about 13 years prior to the sale of this. There was no way RDV could have sold to an international clientele without the know how of VFI, so VFI was not just paying for flights and for costs. They arranged seminars, exhibitions. They did the drawings, they did the rendering. They valued their know how one third of every sale. How was the buyer’s solicitor to question the arrangements in a joint venture agreement what each party values the contribution. Effectively, to put it very simply, the deal was that VFI would assist with finding the buyers, RDV would assist with building the development on the land that it owned and in their agreement, the value of VFI was a third of the total price, the value of RDV was the other 66%.

…

Q. You do not have to ask any questions of VFI or RDV. All you have to do is say to the purchasers, “You should know that before the first load of concrete has been poured on thissite, before the first brick has been laid, nearly a third of the purchase price is going to VFI. Are you happy with that?” That is all you have to do and you did not, did you?

A. This is where you are saying with hindsight.

In my judgment, the underlying assumption of the position adopted by Avvocato Giambrone, namely, that it is not for the lawyer to draw attention to the commercial arrangements between the developer and the builder, is not one which the reasonably competent and conscientious solicitor whose duties are governed by English law would adopt. Notary Cardarelli recognises the potential relevance of the information within the Italian system (see paragraph 376 above) and either, in my judgment, is sufficient to fix the firm with an obligation to disclose it.

Avvocato Oliver, who has the benefit of an English and an Italian legal qualification, supported the proposition that the information about the commission should be disclosed. In her initial report she described the commission as “exorbitant” and “even higher than the amount that a normal deposit would be expected to be as a percentage of the purchase price”. She was not asked to comment on whether it was necessary for the firm to disclose this to the purchasers. When she was cross-examined by Mr Flenley she said this:

Q. The view of Avv. Cardarelli, as you may have seen, as I understand it, was that there was no obligation on Giambrone & Law to report the level of commission to clients. Do you disagree with that?

A. This is a very unusual situation, an unusual amount of commission, in very unusual circumstances. I think alarm bells should have been ringing much earlier than this. The clients should have been informed about not only this defect, but also other problems that may lead to this investment not being the soundest they could make.

Q. I think your answer then is you do not agree with Avv. Cardarelli. You say that, because of the unusual circumstances of the development and other factors, this is all part of a duty to advise the client that this was not the soundest investment they could make?

A. I would like to be, and I have been all the way through this, very objective. It is difficult to put myself in the situation of a reasonably competent lawyer acting in a transaction such as this for six hundred purchasers. If I was told by the seller that this is the way it had to be and that once I had the clients’ money on trust, I had to then siphon off part of it to Northern Ireland to a promoter, it is one of the many things I would have questioned. Even if I did notput it in a Report on Title, I think it would be my duty to alert the client to all aspects of the transaction that they were investing their money in.

It follows that she regarded disclosure as important.

Mr Flenley placed reliance on Avvocato Giambrone’s evidence that other international promoters working in Calabria at the time charged between 20 and 30% of the purchase price by way of commission. This evidence, Mr Flenley, asserted, was unchallenged and consistent what was said in the Mail on Sunday article (see paragraph 224 above). He submits that I should conclude on that evidence that 31% commission was not unreasonably high for an international promoter operating in Calabria at the time.

I repeat what I have said on a number of occasions about the weight I can give to the suggestion that Avvocato Giambrone’s evidence was “unchallenged”. This was another very broad piece of evidence that was entirely self-serving. Without some independent support, preferably reliable documentary support, I would attach little, if any, reliance upon it. With no disrespect to the newspaper and the author of the article, I cannot attach any evidential weight to the assertion to which Mr Flenley refers, the source of the information for which is, in any event, not identified.

Finally, Mr Flenley places reliance on what he suggests was a concession by Notary Valente in cross-examination. In order to put this submission into context, I should refer to what Notary Valente said in his report on this issue. He was asked to confirm the following:

“It may be relevant to know, as a matter of Italian law, whether a competent Italian lawyer acting on a purchase of this nature would/should have explained to the Claimants before

(a)

They signed the preliminary contracts or

(b)

The Defendants transferred their deposits to VFI and RDV and/or Veco

that it was intended to make a payment of commission to VFI and to explain the size of that commission namely that it amounted to 31% of the total purchase price and some 62% of the deposit and that it had signed an agreement with RDV and VFI which apparently required it to do so.”

He expressly confirmed this with the result that he expressed the view that “a competent Italian lawyer acting on a purchase of this nature would/should have explained to the Claimants” that a commission payment of 31% of the total purchase price was to be paid to VFI pursuant to an agreement with RDV.

Mr Flenley invited him to read the above question and his answer and the following interchange occurred:

Q. You have read that?

A. (In English): I read just my answer.

Q. So this question relates to the commission payable by RDV to VFI.

A. Si.

Q. I suggest to you that it was no part of the lawyer’s duty acting for the buyer to report to the buyer the level of commission which RDV was paying VFI.

A. Yes, it is not the duty of the solicitor. It is up to the parties.

This seemed at variance with what he had said in the report and it occurred to me that he had not fully understood the question, translated as it was by an interpreter or perhaps the interpreter, whose English was not completely fluent, had not interpreted correctly. As I have observed previously (see paragraph 273), I thought that Notary Valente was generally a very careful and meticulous witness and it seemed surprising to me that he should give this answer. Mr Flenley asked no further questions doubtless having secured an answer that he considered helpful to his case.

At all events, when Notary Valente was re-examined by Mr Majumdar (in non-leading fashion) he reaffirmed his earlier position in this way:

Q. … if an Italian avvocato who is advising a buyer at an off plan development knows that a 50% deposit is payable at the time of the Preliminary Contract and that there are no staged payments after that, and he also knows that 62% of that 50% deposit is going to someone who is not building the development?

…

A. In such a case they should have advised the buyer … that that money would not go and fund the construction, that would have a different destination. So there is the potential risk for the purchaser. So the solicitor needs to warn the buyer.

It seems clear therefore that, whatever may have been meant by his answer to the question posed by Mr Flenley, he supports the need for disclosure of the level of commission in this case.

That, in my judgment, is indeed what was required in this case and it was not sufficient for the firm simply to mention the payment of commission in the Report on Title and await a request from a proposed purchaser for details which Avvocato Giambrone had argued was sufficient.

That attitude of Avvocato Giambrone suggests that had the firm been asked about the level of commission it would have felt itself free to disclose the information. However, the case has been made during these proceedings that the firm was precluded from disclosing the level of commission by reason of obligations of confidentiality.

This issue has been somewhat confused, but in the end the position seems to me to be relatively straightforward. It was the case advanced by both sets of claimants that the firm was bound by virtue of Article IX of the Mandate agreement (paragraph 140 above) not to disclose any of the terms of the Mandate agreement to any other party. Avvocato Scarpa and Notary Valente both took that view. It was admitted in the pleadings on behalf of the defendants that that was so. However, Notary Cardarelli took the view that Article XI (see paragraph 141) was the only article that bound the firm and that it became thereby bound to perform the duties set out in Article V (paragraph 139) and nothing more. His view was that Article IX bound only VFI and RDV (the “Parties” to the Mandate). He did, however, take the view that the firm was bound by reasons of commercial confidentiality not to disclose the terms of the Mandate including, of course, the terms relating to commission.

Notarty Valente accepted, when cross-examined, that Notary Cardarelli’s view of the Mandate was correct. Avvocato Scarpa did not accept this and adhered to the view that ArticleIX related to the Mandate agreement as a whole and that the firm was bound by all its provisions.

If I had to resolve this issue, although I understand Avvocato Scarpa’s view, I would prefer the view that the firm was not bound by Article IX, its only obligation (pursuant to Article XI) being to comply with Article V. However, all this is, in my view, irrelevant. On the evidence the real reason why the level of the commission was not revealed to the claimants was either because the firm did not consider the issue at all at the outset or it took the view (as articulated by Avvocato Giambrone) that revealing the commission was irrelevant (see paragraph 380 above). For reasons I have already given (paragraphs 377-392), I have no doubt that the level of commission should have been disclosed to the claimants. It does not matter why it was not disclosed: not to have done so represented a breach of duty. Given that conclusion I do not, for my part, see that a finding of conflict of interest is material or adds anything to the picture. If there was a conflict of interest, it probably arose from the general obligation of confidentiality referred to by Notary Cardarelli from which the firm ought to have secured an exemption from VFI once it realised that it owed a duty to disclose the level of the commission to the claimants.

It is not in issue that the funds supplied by the individual claimants to the firm with which to pay the deposits at the time of the preliminary contracts were held upon trust by the firm. The circumstances in which the monies should have been paid out have been the subject of debate in the case, but essentially it is argued on behalf of the claimants that monies should not have been paid over (a) if there was no guarantee in place at all and/or (b) if the guarantee was defective in the sense that it was issued by an Article 106 institution, not an Article 107 institution (see paragraph 123). The claimants assert that when money was released in such circumstances it constituted a breach of trust.

It will be recalled that the “cover letter of advice” (see paragraphs 155 - 157 above) contained the commitment that the client’s funds would be kept in the client account in London until the preliminary contracts had been signed and executed by both parties “and the bank loan guarantees [had] been issued”.

The firm also sent out a standard letter to all purchasers from whom the deposit money was sought in the following terms:

“We confirm your instructions to release the exact funds received in our client account to the Vendor upon receipt of their signed copy of the preliminary contract and the issue of a bank loan guarantee in compliance with Italian Decree 122/05.”

Mr Flenley acknowledges that it would be a breach of trust to release the money in exchange for no guarantee at all, but submits that it would not be a breach of trust to release money in return for a guarantee which is merely defective in some way and, in particular, it would not be a breach of trust to release it against a guarantee which is enforceable as a guarantee, albeit one not issued by an Article 107 institution. He says that the terms of the trust are not to be deduced from the terms of the standard letter referred to above, but “in some other way” including an assessment of “the client’s commercial objective”part of which “was to get a guarantee” – by which I apprehend he means an enforceable guarantee, relying, as I understood the argument, on Target Holdings Ltd v Redferns [1996] 1 AC 421, per Lord Browne-Wilkinson at 436A-C. He also argues that if, notwithstanding the foregoing argument, I should conclude that there was a breach of trust, no loss arose from any such breach if a compliant guarantee was put in place subsequently, again relying on Target Holdings Ltd v Redferns.

So far as the exemplar claimants are concerned, there was a guarantee in place before the monies were paid over in all transactions (other than Marsden/Campbell and Barton/Kavanagh where no guarantee was in place) though the case advanced on their behalves (as it is on behalf of all claimants similarly affected) is that the guarantees were invalid because they did not comply with the Decree and, accordingly, the monies should not have been paid over. In the larger picture of all the claimants it is agreed that there are other transactions where the monies were paid over with no guarantee in place or where there was no signed contract from the vendor (and in some cases where both were absent).

I should say immediately that there is no suggestion that any dishonesty was involved in this, but it is symptomatic of the somewhat disorganised way in which aspects of this whole venture were handled by the firm (in which there was a fairly regular turnover of employees). However, the motivation is irrelevant. If the money should not have been paid, it should not have been paid and, prima facie at any rate, would constitute a breach of trust. The same applies to whether it constitutes a breach of contract or breach of the duty of care (both of which are admitted where a deposit was paid either before the guarantee was issued or the preliminary contract was signed or both).

One of the arguments advanced by the claimants is that the firm was obliged by the terms of the Mandate to pay over the deposit to VFI before the guarantee was in place and, accordingly, its obligations to VFI were inconsistent with their obligations to the purchasers. Article IV of the Mandates (paragraph 146 above) provided that VFI had a right to its commission “only after the written ratification of the preliminary contract by Mr Antonio Cuppari” and Article V (by which the firm was bound) provided that it would release the deposit and the commission due to the VFI “only following a written ratification of the preliminary contract by Mr … Cuppari and the issuing of a regular Invoice from the [VFI] to the [RDV].” There was no reference to the provision of a guarantee in Article V and, accordingly, the firm’s obligation to pay VFI was not dependent on the provision of a guarantee. This, it is said, put them in a position of conflict with the “cover letter of advice” and the standard letter referred to above.

If there was compelling evidence that the firm was acting on the basis of the Mandate rather than the terms of the letters (and I do not consider that the “standard letter” can be ignored as Mr Flenley submits it should), then this might be a material consideration (subject to the argument advanced against the suggestion that the Mandate should be read in the way referred to above: see paragraph 405 below). However, in my view, what occurred was much more likely to be the result of sloppy practice than upon a rigid adherence to some perceived contractual obligation. If that view is correct, the meaning and effect of the Mandate is irrelevant even if, on a correct reading, it placed the firm in conflict with its obligations to its clients. I accept that there is evidence that those in the office responsible for this process simply made the relevant payment because VFI asked the firm to do so and that can be said to be consistent with what Article V requires. However, on the evidence I am not satisfied that this procedure was adopted as a direct result of the terms of the Mandate agreement: it was, in effect, the operation of a default position within the office that if VFI asked for payment, it got it.

The argument advanced against the interpretation referred to above emanated from the opinion of Notary Cardarelli. He suggested that these apparently inconsistent obligations could be harmonised if Article V of the Mandate was interpreted in the light of Clause 3.5 of the preliminary contract (see paragraph 181 above) which, according to the text of the Mandate, was attached to the Mandate. Leaving aside the substance of the argument for a moment, as previously indicated (see paragraph 143), on the papers before the court no documents are attached to the Mandate. This prompted the not unreasonable observation by Mr Majumdar that since no copy of the version allegedly attached to the Mandate has been produced, it is impossible to know whether Clause 3.5 was, at that stage, in the same terms as it appears in the papers before the court.

At all events, assuming it to have been in identical terms to the version before the court, there do seem to me to be some formidable objections to the interpretation suggested by Notary Cardarelli. Simply reading the provisions without the benefit of expert assistance suggests, in the first instance, that there is nothing said expressly in the Mandate agreement to the effect that its provisions are subject to the provisions of the attached preliminary contract. Furthermore, as Mr Majumdar observes, they are separate contracts between different parties and it is difficult to see why one should necessarily influence the interpretation of the other. He submits that Article V cannot be read in isolation from Article IV since it defines when commission is due to VFI, namely, after ratification of the preliminary contract by Mr Cuppari. It follows that in both Articles IV and V VFI is said to be due its commission without any condition that a guarantee has been provided. Clause 3.5 of the preliminary contract does not define when commission is due. Mr Duddridge puts it in much the same way, namely, that Article V of the Mandate is an instruction from VFI to the firm to release VFI’s commission. Clause 3.5 of the preliminary contract is an instruction from the purchaser to the firm to release the deposit to RDV (after having retained costs and fees due to VFI). They are, he submits, different instructions given by different parties and concerned with different subject matter. As he put it, one does not shed interpretive light on the other.

As I have said, these arguments seem to me to be compelling. I am not satisfied that any provision of the Italian Civil Code demands a different conclusion.

This conclusion means that I must return to Mr Flenley’s argument that it was not a breach of trust to release money in return for a defective guarantee particularly one which is enforceable as a guarantee, albeit one not issued by an Article 107 institution (see paragraph 400 above).

Before turning directly to it, I should mention one dimension additional to the fact that each guarantee was issued by an Article 106 institution. It is the claimants’ case that the guarantees were also defective because their validity expired before the completion date. It is clear on the face of each guarantee that a period of validity was specified and, as a matter of fact, all the initial guarantees certainly “expired” for this reason before the relevant contracts had been completed. (As previously indicated, the schedule in Appendix 2 to this judgment contains a summary of the various guarantees supplied in the exemplar cases and the dates of expiry of each.)

Notary Carderelli, who considers that the duration of the guarantee (the “durata” in Italian) should not have been on the face of the guarantee and was unlawful, has suggested that all the guarantees did meet the legal requirement of extending to the date for completion of the contract by virtue of the operation of Article 3.7 of Decree 122/2005 (see paragraph 122 above). He suggests that any provision that seeks to limit the duration of the guarantee is unlawful and ineffective. This interpretation was rejected by Avvocato Oliver and Notary Valente when it was put to them in cross-examination.

Notwithstanding Notary Carderelli’s extensive experience as a Notary (but not, I have to say, demonstrated on the evidence to be “an acknowledged expert on the issue of off-plan conveyancing” whose book on the subject is “a source of law” as claimed by Mr Flenley), I am quite unable to accept that Article 3.7 has the effect he suggests or was ever intended to have this effect. The purpose of the provision was plainly and simply to provide that once a completed transfer of ownership had taken place, the guarantee would cease to be effective even if completion occurred within any period specified for the duration of the guarantee. Given that the whole purpose of the decree was to protect the purchaser up until completion of the purchase, this is an obvious provision to include within the decree.

As it happened, when the question of the validity of the guarantees became an issue during 2009 the firm pursued VFI and RDV for the provision of new guarantees. This would have been wholly unnecessary if Notary Carderelli’s view was correct.

Leaving aside the interpretation of the decree itse lf, the obvious commercial reality is that the premium for any guarantee provided pursuant to the decree would be different for say, a guarantee lasting one year rather than one lasting three years.

I cannot, therefore, accept Notary Carderelli’s view on this issue. Mr Flenley has been anxious to submit that if I should reject any aspect of the expert evidence of Avvocato Oliver, Notary Valente or Avvocato Scarpa, it should make me cautious about accepting any aspect of their expert evidence. As I have already indicated (see paragraph 265), I would not ordinarily consider that a legitimate approach to the evaluation of a reputable expert’s evidence – as with any witness, an expert can be right on many issues, but wrong on others. I do, however, have to say that this particular viewpoint advanced by him has, I regret to say, shaken my confidence in Notary Carderelli’s expertise in interpreting some aspects of Italian law accurately for my benefit.

In my judgment, it is plain (leaving aside the question of the institution that provided the relevant guarantees) that the firm should not have permitted any claimant to part with a deposit when there was not in place a guarantee that extended until the completion date and, as a consequence, should not itself have paid out any deposit without such a guarantee in place.

My concern about Notary Carderelli’s evidence does lead to one other matter. He was of the view that an article 107 institution is no more secure than an article 106 institution. That view is not consistent with what Avvocato Oliver and Notary Valente said (see paragraphs 124 - 125) and I had thought that Notary Cardarelli had agreed that the requirements for article 107 status were more stringent than for article 106. At all events, on my overall evaluation of the weight to be given to the various experts on this issue, I prefer the combined view of Avvocato Oliver and Notary Valente to that of Notary Cardarelli.

As indicated above (paragraph 128), no guarantee was ever issued that, on its face, indicated that it was issued by an Article 107 institution. Notary Cardarelli suggested that it was not necessary for the status of the institution to be set out on the face of the instrument. Whether that be so or not, the fact is that every guarantee in this case (whether initial or subsequent) was said to have been issued by an Article 106 institution and the evidence that any of these institutions was on the Article 107 list at the same time does not exist. There was a suggestion that the two lists merged in 2010, but Notary Valente’s evidence was that the relevant decree (Decree 141 of 2010), though passed, was never implemented. This was not pursued further and I think I must approach this case on the basis that that is so. Nonetheless, notwithstanding Mr Flenley’s efforts to circumvent the awkward position in which his clients find themselves in this regard, I do not think I can approach this part of the case other than on the basis that there was never a compliant guarantee in place and that that non-compliance (a) should have been drawn to the attention of the purchasers and (b) should have led to no deposits being paid out. I equate a non-compliant guarantee with a defective guarantee for this purpose. I can see no justification for treating a guarantee that did not comply with the Decree as if it did. It follows that any payment out of a deposit when all that had been provided was a guarantee either issued by an institution other than one listed in Article 107 or which was not expressed to extend until the completion of the purchase was a payment made in breach of trust.

This section of the judgment is, of course, focusing on the position concerning breach of trust and not with what I perceive to be arguably the more important question of whether, had the claimants been told of the defects in the guarantees (possibly along with the other matters about which they should have been told), they would have entered into the preliminary contract at all. I have identified at the beginning of this section what Mr Flenley seeks to say about all this and, logically, I should move to his argument that, even if there was a breach of trust, no loss was occasioned thereby.

I have to say, however, when reviewing the material for the purposes of writing this judgment, I was unable to identify any one of the items on the list of issues as raising this point at all. It was, of course, foreshadowed in Mr Flenley’s opening and the substance of the argument has been addressed by Mr Majumdar. However, I am reluctant to deal with it for two reasons: in the first place, although no objection has been taken to the ventilation of Mr Flenley’s argument, all issues of causation of loss in the individual cases have been deliberately left out of the current proceedings. This issue does seem to me to be one, if it is to arise at all, that would be best dealt with at that stage. The question is whether, if a breach of trust is established, it made any difference to the outcome financially such that there is a compensatable loss. This was the issue addressed in the Target Holdings case on the assumed facts. The practical difficulty in the present case is making any valid assumption of fact for the purposes of the argument. As I see it, if the firm had complied with its duty of alerting each claimant to the non-compliant guarantees (an obligation that is admitted), either the claimant would have said that he/she was not prepared to go ahead until a compliant guarantee was in place or would have decided (possibly given the existence of other concerns about the overall transaction) not to go ahead at all or, finally, would have decided to go ahead and take the risk of not having a compliant guarantee in place. It would only be in that last situation that any loss might arise but it would be difficult to see how there could have been a breach of trust (because the firm would have alerted the claimant to the issue) and, in any event, any loss would be attributable to the individual claimant’s own decision to proceed.

To my mind, the issue based upon the Target Holdings case is truly academic, certainly at this stage, and interesting though the arguments are, as presently advised, I see no good basis for trying to arrive at a final conclusion about them. The position thus advanced in paragraph 419 and the first sentence in this paragraph appeared in the draft judgment sent to the parties on 24 June and it remains my view. I undertook in the draft judgment to re-consider that position if invited by the parties to do so and, if so persuaded, would provide a short supplemental judgment. Mr Flenley and Mr Majumdar have asked me to do so. As I have said in paragraph 418, I see this case as turning on a wider issue than whether the deposits were paid out in breach of trust. However, if I were wrong about that and it is of importance to the parties to know my conclusions on the arguments advanced, those conclusions are set out briefly in the Supplemental Judgment which, for convenience, is attached as Appendix 3 to this substantive judgment.

Following the late disclosure of an e-mail from Cristina Poncibo to Avvocato Giambrone sent on 11 December 2006 (to which I will refer below at paragraph 424) I permitted an amendment to the pleadings to enable the claimants to allege, if so advised, that they should have been alerted to the potential involvement of organised crime in Calabrian off-plan developments. Prior to that disclosure, the only pleaded reference to mafia or criminal activity was made in the Noel action. The following averments was made in the Defence in that action to support an allegation of alternative causation and/or contributory negligence:

“What caused the claimants’ loss was their unwise entry into the transaction, relating to the off-plan purchase of property in a notoriously crime-ridden part of Italy without, it appears, taking any financial advice. That was due to their own negligence, not that of their Italian property lawyers.”

“In the alternative, the claimants’ alleged loss was caused or contributed to by their own negligence in investing in an off-plan property in a crime-ridden part of Italy without obtaining any financial advice as to the wisdom of the transaction.”

Made as they were, these averments suggested that it was the knowledge of those instructing the pleader (presumably Avvocato Giambrone and possibly other individual defendants) that Calabria was “a notoriously crime-ridden part of Italy”.

Although this might be thought to be a somewhat unusual averment, in reality it went to a causation issue. Since there was no allegation (and still is no allegation) that any of the defendants were in any way involved in mafia or other criminal activity I ruled at an interlocutory stage that there was no issue concerning criminal involvement to be considered at what was essentially a trial of issues related to allegations of professional negligence and other breaches of professional duty. However, the disclosure of Avvocato Poncibo’s e-mail did change the picture somewhat and, accordingly, I permitted the proposed amendments.

What was revealed in a sequence of e-mails that Avvocato Poncibo was sending to Avvocato Giambrone during the Autumn of 2006 concerning her status as a partner was the following (translated) passage in an e-mail sent on 11 December 2006:

“I have become aware of very serious issues.

I refer to agreements for off pan (sic) sales in Calabria and other transactions.

Such transactions are very dangerous, both financially and criminally and they may involve persons onsite that could also have links with organised criminality.

I am distressed by the thought that you used (and still use to date) my name and surname, without having said a word to me in relation to such transactions.

Does this seem to be the right way to conduct yourself toward me?

I am distressed to learn that I have asset and personal liability for very dangerous activities that I KNOW NOTHING ABOUT ….”

This has led to a pleading by Mr Duddridge alleging that she knew of a real risk that off-plan transactions might be implicated in or connected with organised crime and that there was a real risk that purchasers might lose money. Her knowledge of these matters was, it was alleged, communicated to Avvocato Giambrone on the assumption (which was not admitted) that he did not know of such matters already.

This allegation has led to the issues that appear at 30A-C in the List of Issues.

Avvocato Giambrone accepted that the e-mail was sent to an e-mail address he was using at the time, but said that he only became aware of the e-mail when the defence for the present case was being prepared and that he “did not read this at the time … because probably I receive so many e-mails on a daily basis in my inbox that just did not read this e-mail at the time.” He did accept that he received other communications from her in this period.

In cross-examination he said that he regarded Calabria as being “a notoriously crime-ridden location” and that it infiltrated “all sectors”, by which I understood him to include the building sector.

Notary Cardarelli said that “Calabria has a reputation for organised crime” and that it had infiltrated “all sectors” and created risks for “everything and everyone.” He agreed that a lawyer acting for an English client should not assume that the client would have the same knowledge of the situation relating to organised crime as an Italian person would.

Notary Valente had been asked to answer this question in his report:

“Ought the Defendants to have given the (non-resident and non-Italian) Claimants some indication of the prevalence of Mafia activity in Calabria and its possible effects on the building of a major off-plan development and on the local sale and rental market for such properties?”

His answer was as follows:

“Yes because Calabria is among the Italian regions with a high rate of organised crime, (a “Mafia” organisation known as “NDRAGHETA”) which, as is well known, has infiltrated commercial activity in the building sector.”

Avvocato Poncibo was asked by Mr Duddridge whether she agreed with this and she replied as follows:

A. This is the sort of information that is in the public domain, everybody knows?

Q. So everybody knows that there is a risk that building operations in Calabria may be implicated in organised crime?

A. No, I would not say specifically in the building sector, but it’s notorious that there are in the south of Italy some criminal organisations that have then branched out.

Q. But large developments of this kind, large off plan developments, might be implicated in, for example, money laundering?

A. Not necessarily. That is not different from what happens elsewhere in Italy and I also would like to say in other countries.

Mr Duddridge asked her about the paragraph in her e-mail which said that off-plan transactions were “very dangerous, both financially and criminally” and could involve people “onsite that could also have links with organised criminality”:

Q. … I am asking why transactions of this kind may be risky both financially and criminally. What are the financial risks and what are the criminal risks?

A.

These are huge conflicts and can require really large amounts of money and also I think at the moment, when the building begins, there might be some attempts on the part of crime to gain access to the operations. That is what I meant.

I thought Avvocato Poncibo was trying to retreat somewhat from the true effect of the words in her e-mail, but the clear inference to be drawn from all this evidence is that “the firm” (including Avvocato Giambrone) plainly knew that organised crime could be involved in projects, including building projects, in Calabria and that could give rise to risks for those who became interested in those projects. That does not mean, however, that there is any evidence that the firm knew or even suspected that the JoTS development was affected by this – on, I should emphasise, the assumption (as yet unproved) that it was.

What implications does this have for this case? Most, if not all, of the exemplar claimants said that they had not thought of criminal involvement when they first became interested in acquiring a JoTS property. Whether that was so will be a matter that will be considered if the situation arises when the issues pleaded in the Defence in the Noel action fall for determination. However, looking at the position more generally, it seems to me that Avvocato Giambrone and his colleagues, when making a pitch for the instructions of foreign clients buying off-plan in an area where there was a risk of organised criminal activity, particularly in the building sector, will have wanted to ensure that those clients believed that they were not exposed to the additional risks to which such activities might give rise. It may partly explain the emphasis given to the “independence” of the firm in the approaches made to potential clients (see paragraph 99 above).

Does it make a difference to the breadth of the duty of care to be expected or its standard? In my judgment, whilst it is not the reason for requiring it, it reinforces the need for what I have described previously as “enhanced due diligence” which is precisely what the firm promised (see paragraph 289).

Does it mean that the claimants should have been alerted to the risks and that the failure to do so was negligent or in breach of duty? Looking at this as an English lawyer would have done (but with knowledge of the risks involved), in my judgment, it was necessary to say something to the effect that a proposed purchaser “may have heard” that the area is generally one where organised crime in the construction industry has been known to be involved on occasions, that it is something that the purchasers should bear in mind, but that the enquiries to be undertaken by the firm will be designed to see if there is any basis for concern in relation to the JoTS development. In my view, that would have been a sufficient discharge of any duty to alert the purchasers in this regard. Obviously, having said that appropriate enquiries would be undertaken would mean that they would have to be undertaken and reported on to the purchaser. Notary Valente gave evidence about the kind of enquiry that might be made. It may well be that nothing would have been revealed, but that again is not the point.

When cross-examined, Avvocato Giambrone said that, in his view, it was not necessary for the firm as lawyers to advise clients positively that “Southern Italy was a crime ridden area.” This, however, was an example of his suggesting an exaggerated requirement and saying that it was not a necessary requirement. What Mr Majumdar was endeavouring to put to him during the relevant passage of his cross-examination was that the firm had a positive duty to say to clients that there is a crime problem in Southern Italy, but that the firm had no information that JoTS was in any way connected to it. (Incidentally, I did not interpret the cross-examination in the way Mr Flenley’s written closing submissions suggested it was intended, namely, to put that there was in fact no reason or information to suppose that JoTS was in any way connected with organised crime, but to put that this could have been said to clients at the time if it was what the firm believed.) Avvocato Giambrone answered the proposition in the way I have indicated. As I have said, in my judgment, the general issue should not have been ignored and should have been dealt with in the way I have indicated.

One of the issues raised (part of issue 30C) is whether the failure to mention this aspect represented a deliberate choice on the part of the firm, designed to prefer its interests and those of RDV, VFI and/or Veco above those of the clients. If this is an allegation that is maintained, it is the sort of allegation that would need to be addressed head-on with someone such as Avvocato Giambrone. It was not so addressed and, in my view, for the good reason that there is no evidence that it represented the motivation for not raising the issue with the clients. I am inclined to accept that Avvocato Giambrone did not himself consider that it was something that needed to be mentioned to the clients from his perspective as an Italian lawyer and someone who lived and practised in an area where, on his own account, there is a fair degree of organised criminal activity. What he overlooked was that his message was being received by the clients on the basis that he was acting as an English lawyer with an English lawyer’s perspective. At all events, whether that is a correct evaluation or not, I do not consider, on the evidence I have heard, that not referring to the crime aspect represented the result of some improper influence or the combined interests of the firm and the developer and builder. There is no doubt that the firm was “swept along” with the marketing impetus provided by VFI and RDV, but that, in my view, was the result of an opportunistic desire on the firm’s part to secure business for itself when its inner resources were not adequately geared to provide the necessary services. On the evidence available to me, that is the most likely cause of the deficiencies in the advice it gave to the claimants and in the general service it provided.

What due diligence was actually carried out? I have observed elsewhere that I have not had the advantage of hearing from Avvocato Margiota who was responsible for the judicial diligence exercise. Again, Mr Flenley makes an argument that because Avvocato Giambrone was not cross-examined about it “there is apparently no dispute as to what due diligence [the firm] in fact carried out.” My attitude to that kind of submission is set out above (paragraph 17), but if it is the case (as it appears to be) that Avvocato Margiota was left to deal with this, I cannot see what purpose there would have been in cross-examining Avvocato Giambrone about it.

At all events, it is contended on behalf of the Defendants that the following matters were carried out as part of the due diligence:

(i)

carried out Land Registry searches in respect of the land on which the development was to be built;

(ii)

checked the legal title, including that RDV and Veco owned the land in question and how the land was acquired;

(iii)

checked that there were no charges or other encumbrances on the title;

(iv)

checked that the land was correctly registered with the urban registry;

(v)

identified and checked the formal validity of all relevant planning permissions;

(vi)

undertook company searches in relation to RDV and Veco with the Chamber of Commerce in order to ascertain their status, their administrators, whether they could lawfully undertake the proposed activities;

(vii)

checked that VFI had legal authority to act on behalf of RDV and Veco;

(viii)

checked that the developers were in principle willing to provide a bank loan guarantee in accordance with Decree 122/2005.

The contemporaneous sources of that information are said to be the “to whom it may concern” letter of 14 February 2007 (paragraph 97), the retainer letters (paragraphs 151 - 154), the Reports on Title (paragraph 155 and following) and the preambles to the preliminary contracts.

The claimants suggest that the evidence supports the proposition that some land searches have been carried out, but otherwise no further enquiries were conducted. There has been little revealed in the disclosure exercise that supports the precise claims made by the defendants and, as I said, the one witness who might given a fuller picture was not called. However, it seems to me that answering the question posed in issue 28 is not that helpful in the circumstances. What is in issue is whether certain matters that the claimants allege should have been looked into were in fact looked into: the battleground is what should have been done rather than what was done because there is no dispute that the areas where it is said that there should have been more extensive enquiries (e.g. concerning the financial status of RDV and Veco and matters relating to the planning permissions) were not pursued. It seems to me that the highest I can put it on the evidence is that it is likely that each of the items listed in paragraph 441 above was addressed in the due diligence exercise to a sufficient extent that the actual information conveyed was accurate, but overall the information given was not adequate in the circumstances.

I set out a brief history of the partnership in paragraphs 44 - 52 above without dealing with issues that have been raised concerning the legal relationship of the individual defendants.

Admissions were made during the trial that disposed of much of the argument about those issues. The remaining partnership issue is a relatively narrow one and I can deal with it shortly. However, there is a substantial background to the concessions eventually made on behalf of the individual defendants that Mr Duddridge, in particular, submits throws light on the approach of the defendants to this litigation and to their individual and collective credibility. Mr Flenley has been anxious to submit that the remaining issue is academic, that the court should not be troubled with it and that his clients “should not be put to the cost of dealing with an academic issue.” Given the way that this litigation has been conducted on the defendants’ side, it is, frankly, very difficult to determine what is and what is not an academic issue. Mr Duddridge understandably draws attention to the position that the defendants’ insurers have taken (see paragraphs 71 - 78 above) and is concerned that there may be some underlying coverage argument that has not yet surfaced which may relate to this issue. He says that I should deal with the remaining partnership issue to avoid the possibility of having to re-litigate it. It is recognised, however, that the insurers are not parties to these proceedings and, strictly speaking, could not be bound by any finding I made, but the suggestion is that it would be unlikely that insurers would want to re-litigate precisely the same issues on precisely the same evidence as has been before me. I accept that that is a legitimate justification for dealing with it and I also consider that the background to the whole partnership issue is potentially revealing in terms of credibility. I might add also that the costs associated with my dealing with it must be very small by comparison with the costs incurred by the claimants in pursuing the partnership issue (including disclosure issues) and the defendants in resisting it before the concessions were made.

The first intimation of an admission concerning the partnership issue was made after lunch on the first day of the trial and the position was clarified on the second day. The net effect of the admission at that stage was that the third, fourth and fifth defendants admitted that there was a partnership in English law between them from October 2007 until 6 April 2008, although they say that they did not intend to create a partnership in English law. This admission was then extended on the sixth day of the trial to accepting that they were an English law partnership (without having intended to be in one) from 16 April 2007 until 6 April 2008. Apparently, 16 April 2007 was the date when the Solicitors Regulation Authority has confirmed that the third and fourth defendants were registered in the UK as partners and that is why the partnership from then was admitted.

In the first place, Mr Duddridge says that there is no obvious need for the three individual defendants to qualify the admission by reference to what they did or did not intend: if they were partners in English law, it is irrelevant whether or not they intended to create such a partnership. To the extent that it matters, I agree.

He invites me to find that at all material times before 7 April 2008, Giambrone & Law traded as an English law partnership, that Avvocato Giambrone was always a partner in that partnership and that the third and fourth defendants were partners in that partnership from 16 April 2007 to 6 April 2008. Mr Flenley accepts that Avvocato Giambrone was always a partner in the partnership from its inception. Mr Duddridge suggested that November 2005 was the beginning of the partnership although Avvocato Giambrone said in his witness statement that Giambrone & Law began in April 2005. On that basis I find that there was a partnership from April 2005. At that stage the two partners were Avvocato Giambrone and Avvocato Poncibo. Avvocato Giambrone’s evidence was that from the outset he had to comply with the English regulatory regime and, accordingly, had to practise with somebody who had 3 years’ post-qualification experience which he did not have at the time. He was not qualified to practise on his own before November 2007 at the earliest. The person who did have that experience was Avvocato Poncibo and Avvocato Giambrone gave evidence that she underwent training courses to ensure that she understood her professional obligations, including compliance with the Solicitors Accounts Rules. Although she put forward a different account of the need to undergo this training, she confirmed that she intended to comply with the English Law Society’s requirements from the outset. There is, therefore, ample justification for the conclusion that there was a partnership from the beginning.

Mr Duddridge does not seek to extend the date range in relation to the third and fourth defendants from 16 April 2007 to 6 April 2008 because the date range itself is irrelevant since the deposits were all paid away after 16 April 2007 although they each entered into an employment contract as “salaried partner” with Giambrone & Law in June 2006. By early June 2007 they were being described on Giambrone & Law’s headed paper as partners. On that basis one would have thought it beyond question that they were, properly speaking, “partners” and thus legitimate defendants in any proceedings brought concerning allegations against the firm arising from about that time. Mr Sefton’s affidavit in the Northern Ireland proceedings (see paragraph 60 above) confirmed that. However, affidavits sworn a few months later on 12 December 2012 in those proceedings by the third, fourth and fifth defendants in the present proceedings asserted that they had not been in partnership and that the third and fourth defendants were not proper defendants to those proceedings. Notwithstanding that position, on 15 January 2013 the third and fourth defendants made statements in the SDT proceedings (defending the allegation that they had held themselves out as a partnership when they were not) that they were sure that they had been trading as partners. Avvocato Giambrone made a statement that did not dissent from that position. Mr Simon Monty QC, acting on behalf of all three before the SDT, submitted that it was quite clear from the evidence that they were genuine partners. Until the position was reversed by the admissions to which I have referred were made, it has been the defendants’ position in these proceedings that there was no partnership. Witness statements to that effect have been made.

Avvocato Poncibo’s position is now truly academic because a settlement by which the claims against her were discontinued was concluded shortly before the trial began. However, she gave evidence via video-link from Italy and was asked about aspects of the communications she sent to Avvocato Giambrone in the latter part of 2006 (see paragraphs 424-434 above), particularly the use of the Italian word “responsabilita” which was translated to mean “liability”. The context of the communications, particularly the e-mail of 11 December 2006, suggests that this is indeed what was meant. The expression “responsabilita patrimoniale” was translated as “financial liability”. In her witness statement and during her oral evidence she suggested that these expressions meant “moral responsibility”, not any kind of liability associated with a legal partnership. In the context of this questioning she said that she recognised “that [her] command of English is patchy at best”. That appeared to be evidenced by having an interpreter when she gave evidence and the evidence she gave that she could not prepare her witness statement in English and that she had prepared it in Italian with a view to being translated. Very properly, RPC drew Mr Flenley’s attention to the fact that her witness statement had always been in English and that she had prepared it. He, of course, drew that to the court’s attention. That information was a matter of concern.

Although she has subsequently put forward a statement indicating that she made a mistake, this evidence (and particularly the context concerning the difference between “liability” and “moral responsibility”) has made me very cautious about accepting her evidence. It adds also to my general impression (also reinforced by the “moving target” of the partnership issue) that all the individuals who have worked within the firm who have given evidence (with the exception of Avvocato Virga) will say what seems to be convenient at the time.

Issues 3-6 raise the relevant questions. As previously indicated, I have not been assisted by any submissions by or on behalf of the LLP although until shortly before the commencement of the trial Mr Flenley and Mr Carpenter, instructed by RPC, were representing the LLP. That did not impede Mr Flenley (perhaps because I did not notice at the time until I was reminded about it after the event) from cross-examining Mrs. O’Connor, who was a client of the LLP and only a client of the LLP, at some length.

At all events, the answer to issue 3 is plainly ‘yes’.

Equally, I do not think there can be any dispute that the transfer of the business to the LLP gave rise to an implied novation (or a novation by conduct) that the LLP would provide the remaining services that Giambrone & Law had been retained to provide to each of the claimants who chose to continue with the LLP. All of the exemplar claimants did. The transfer did not transfer any existing liability to the claimants for breach of duty to the LLP or release Giambrone & Law from those liabilities as, it seems, Avvocato Giambrone had at one stage argued in correspondence.

The claimants’ pleaded case is, in short, that the LLP was under an obligation to perform any unperformed obligations of Giambrone & Law, which included correcting prior breaches of duty, and “to act faithfully and in the best interests of the [relevant claimant] in doing so, and to advise and act with reasonable skill and care”. It is further alleged that any liability of Giambrone & Law to a claimant in contract arising out of any breach of duty or want of care that had occurred before the transfer would be transferred to and borne by the LLP and that the LLP would indemnify the claimant in respect of any loss caused by any breach of duty or want of care (of any kind) by Giambrone & Law committed before the transfer.

I can see nothing in principle that is wrong with that case and I accept it. It follows that Issues 3-6 can be answered accordingly.

An issue as to limitation arises in relation to some, though not all, of the Penningtons Manches claimants. The action seeking damages for loss of their deposits was commenced in some cases a few months after the 6-year period from the date on which those deposits were (on the claimants’ cases) wrongly paid over to RDV and VFI in breach of trust and/or in breach of duty. The basis of the claim is, as previously indicated (see paragraph 358), that the Mandates required those payments to be made in breach of the firm’s duty to its clients, but perhaps more importantly for present purposes, that the defendants should have told the purchasers about the division of the commission.

As I have recorded elsewhere (see paragraph 68), the existence of the Mandates was not disclosed by the defendants until 2013 for most of the claimants. Apparently, the first occasion on which either of the JoTS Mandates came to the attention of any of the claimants was on 22 July 2011 when copies were provided to Mr Richard Brennan (the First Claimant in Claim HC13A01254) by the Legal Services Ombudsman. Given that a claim based upon the terms of the Mandates could not be maintained until their existence and contents were known by a claimant or ought reasonably to have been known, it is difficult to see how any legitimate limitation defence could be advanced provided that the claim was brought within 6 years of the date when the existence of the Mandate was known or ought reasonably to have been known.

However, as I perceive it, the substantive claim made by the claimants arising on the basis of the Mandates is the knowledge they demonstrate that the firm had at the outset about the levels of commission. The claim advanced is that, in breach of duty, the firm failed to reveal it to the individual claimants prior to signing the preliminary contract. That claim could only be advanced when a claimant knew or ought reasonably to have known the fact that the firm knew about this at that stage. The short point is that it is clear that the firm knew about this at the outset, but did not reveal it to the claimants, and the letter of 29 April 2009, which revealed the level of the commission, contained the pretence that the firm had only recently discovered it. It was only when the Mandates themselves were revealed that any claimant would have had grounds for alleging that the firm had knowledge of this from the outset. Whilst it would be right to say that the Mandates provided the evidence for this, they also afforded the fact relevant to the right of action that the claimant would wish to advance. Section 32(1)(b) of the Limitation Act 1980 provides, of course, that where “any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant” the period of limitation shall not begin to run until the plaintiff “has discovered the … concealment … or could with reasonable diligence have discovered it.”

I have re-read the transcript of Mr Flenley’s submissions on this issue and the helpful note prepared by Mr Carpenter, but I am quite unable to see the complications arising in this context that they say exist. Mr Duddridge has drawn my attention to TheKriti Palm case [2006] EWCA Civ 1601 and has submitted that before the claimants could plead a case of breach of duty based either upon the fact of the Mandates and/or upon the contents of the Mandates they needed to be aware of the fact of the Mandates and of their contents. In my judgment, a fundamental fact underlying the cause of action based upon the failure to reveal the commissions was suppressed deliberately on 29 April 2009 and the full truth was not revealed until the Mandates were revealed later. Mr Flenley accepted that if this was my conclusion, it was capable of showing that there was concealment of the fact that the defendants had known earlier what the level of commission was. For my part, I would hold that the limitation period for this cause of action would not commence until a relevant Mandate was revealed to an individual claimant or the individual claimant “could with reasonable diligence have discovered it”. If I was wrong about that, the earliest moment at which this cause of action could arise would have been 29 April 2009 (which, one supposes, might have led some individuals to start asking questions about what the firm truly knew and when). In that event, Mr Flenley accepts that all claims have been brought within time.

I have focused only upon section 32. Mr Duddridge has said that, if necessary, he reserves the right to invoke section 14A of the 1980 Act in individual cases. This was not on the List of Issues.

Issue 90 relates to remedies.

I can deal with these quite shortly because some, in my view, cannot properly be determined until the individual cases are considered if that scenario becomes necessary.

However, I am in no doubt that the deposits can be recovered if it is established in an individual case that but for the breaches of duty the deposit would not have been paid out. The deposit for this purpose would only include the acconto if either the acconto was paid after material advice from the firm had been given or the acconto was refundable and the individual claimant would have been able to recover it but for reliance on the firm’s advice.

Expenditure incurred on trips to Italy reasonably undertaken to check on progress and/or to consult either the firm or others about what was happening after the firm had been consulted would prima facie be recoverable, particularly if it related to seeking advice about what to do and/or how to extricate a claimant from a contract. Reasonably incuured legal costs for this purpose would also prima facie be recoverable.

I agree with Mr Flenley that I cannot really make any generic finding on claims for additional costs and interest incurred through borrowing to raise funds to pay the deposits.

There is no dispute that the claimants would be entitled to equitable compensation for any breach of trust or breach of fiduciary established.

I am unable to see the claim for specific performance of the LLP’s obligations under rule 7(1) of the SAR as other than academic and thus express no view upon it. Equally, an order for an account relating to the deposits is, in effect, covered by any damages claim for breach of duty and/or any claim for equitable compensation for the breach of trust and breach of fiduciary duty established by paying out the deposits when they should not have been paid out.

Interest on any award is covered by section 35A of the Senior Courts Act 1981. I do not consider that I can make any generic finding other than to observe that it is usually awarded.

It is agreed, as I understand it, that any compensation should be paid in the currency in which the loss was incurred. I do not consider that I should say anything about the date when any relevant exchange rate applies to a compensation award.

I believe I have now dealt with all the issues that are still material issues at this stage.

The details of my conclusions on the individual issues are to be found in the main body of the judgment. I draw together the following observations for convenience and a general summation. There are not intended to replace or modify any of those previously expressed conclusions.

On the evidence I have heard, it is quite clear that Avvocato Giambrone saw a lucrative business opportunity in Calabria when there was a “boom” in off-plan transactions in the holiday residence market. There is nothing wrong with that, of course. It is possible that he (as a relatively inexperienced practitioner himself) found his very new firm being inundated with requests to act (which, of course, he had solicited with the active encouragement of the developers and promoters) when the firm’s resources were not sufficient (or not sufficiently experienced) to cope with the demand. As a result, either corners were cut or, because he had insufficient experience of what the English solicitor (whose standards he said he set out to adopt) would be required to do in such a situation, the standard of work was inadequate. However it came about, the preliminary contract was wholly inadequate to protect the interests of the purchasers and there is no doubt that the purchasers were not given certain relevant information (for example, relating to the payment structure for the project and the level of commission going to the promoter) that they ought to have been given in order to make an informed decision about whether to proceed.

It would be an entirely fair point that neither Avvocato Giambrone nor his colleagues could have foreseen some of the problems that occurred in this case, for example, the worldwide economic downturn from September 2008 onwards that must have had a significant impact on developments such as those involved in this case. It must have affected the ability of builders to raise money to complete them and also for purchasers to make contributions to the building costs by way of stage payments. However, the risks against which the firm should have protected the purchasers were recognisable risks in all off-plan schemes and the contract did not do enough to protect against them.

When difficulties started to emerge with the planning aspects of the development in June 2008, at about the same time as the decision was made to transfer all the purchasers’ files from London to the Vibo office, and then shortly afterwards the SRA inquiries commenced, a prolonged and committed damage limitation exercise began, evidenced outwardly to the claimants by the letter of 19 January 2009 and, more particularly, by the letter of 29 April and Avvocato Giambrone’s Legal Opinion of 22 June 2009. It continued thereafter but with the onset in due course of the litigation in its various forms it transformed itself into a damages limitation exercise. It was suggested to me on behalf of the claimants at the first case management hearing in October 2014 that “attritional” tactics were being adopted. I was not prepared to take that view at that stage and indeed there can be no criticism of taking legitimate points against any claim that is mounted. I have, however, previously observed that, despite many settlements achieved in the past, almost every aspect of the claimants’ cases in these proceedings has been contested. On my findings and conclusions, many of those points have been laid to rest. Whether this judgment heralds a new dawn in these unhappy proceedings remains to be seen, but Avvocato Giambrone, his insurers and his advisers may see it as an opportunity to review the position.

If the proceedings do continue, and since the question of causation in individual cases has been left to one side, it is impossible to say what the result in any such case would be. However, the conclusions that I have reached establish clearly that relevant breaches of duty have occurred.

I am grateful to all Counsel and their Instructing Solicitors on all sides in this case for their assistance and to Hannah Noyce, Diarmuid Laffan and Michael Deacon, each of whom acted as my marshal at various times in the proceedings and who assisted in court with the substantial documentation.

(as remaining at the end of the trial, the deleted matters having been resolved or not pursued)

Was G&L a partnership under English law? If so, which of the individual Ds (being Allessandra Bellanca, Anna Cinzia D’Arpa, Gabriele Giambrone, Cristina Poncibo) were its partners during the material time?

Alternatively, are any of the individual Ds liable (or potentially liable) as partners on the basis:

Was there a transfer of G&L’s business to GL LLP on or about 6.4.08?

What was the effect, if any, of D having sent to C its circular letter regarding the LLP on or about 6 April 2008, and C having thereafter proceeded to instruct the LLP? Did that result in any assignments or novations of G&L’s retainers with C to GL LLP?

What were the terms of any such assignments or novations?

(a) Was or should D2 have been aware of what D1 had done or not done by reason, inter alia, of comprising the same lawyers. (b) If so, was D2 under any obligation to rectify mistakes and omissions by D1.

What were the express and implied terms of the retainers between C and D and what was the nature and scope of the duties of care which D assumed to C from time to time (Footnote: ⁵)?

What was the standard of care which D owed to C:

What fiduciary duties did D owe to C under English law? Did these include the following:

What regulatory duties did D or any of them owe to C under the Solicitors Account Rules 1998 and /or the Code of Conduct of Solicitors? Did such duties give rise to enforceable obligations owed by D (or any of them) to C, either under the retainers or at common law?

At any material time, what was the nature of the relationship between D and VFI, RDV and/or Veco in relation to JoTS?

Did the relationship between D and VFI, RDV and/or Veco give rise to a conflict of interest or duty? If so, what steps should D have taken in relation to that conflict of interest or duty? Did D take those steps?

Were G&L/ GL LLP seeking to advance the commercial interests of the promoters, vendors and/or developers as well as their own commercial interests?

Did G&L/ GL LLP act for the vendors or promoters of JoTS during the material times and in connection with matters related to Cs’ retainers?

Did G&L or GL LLP draft the preliminary contracts in respect of the JoTS purchases:

Were the terms of the general form of preliminary contracts sent to C negotiated by D and, if so, how and to what effect?

What was the effect of each of the Mandates and without prejudice to the generality of that issue:

Were D duty bound to disclose the terms of the Mandates to C?

Were D unable to act for C by reason of any conflict of interest and/ or duty?

Did D receive any undisclosed profit as a result of their role as fiduciaries for C?

Did D allow themselves to be influenced by the interests of the vendors, developers or promoters in conflict with the interests of C?

Did D consciously prefer the interests of one client over another in breach of the “no inhibition” principle?

With reference to each developer:

Did VFI act as an estate agent or intermediary under Italian law such as to require it to be registered as such with the Italian Chamber of Commerce? If so, in the light of the fact that it was not registered with the Chamber of Commerce at the material times, what effect did that have on its entitlement to be paid commission or any other payment?

How has the development progressed during the material period and continuing to the date of trial? What parts (including common parts and facilities) of the development at JoTS have beencompleted?

What was the normal conveyancing process for purchasing off plan in Italy as applied to these transactions?

In general terms what was the Italian legal framework that applied to these transactions?

What was the purpose for which Italian legislative Decree 122/2005 was introduced?

What due diligence, if any, did D carry out in relation to the vendors, the developers and the developments?

What investigations should D have conducted into the vendor and/or builder of JOTS and/or promoter or agent of such a vendor or builder and what investigations did they conduct, including:

When were the Reports on Title on the Beachfront and Main developments drafted (Footnote: ⁷)?

Under Clause 5.5 of the general form of Preliminary Contracts in JoTS C were bound to complete the purchase even though no certificate of habitability had yet been obtained in relation to the property in question. In respect of this clause

Clause 5.6 purports to prevent C from terminating the contracts on the grounds of delay to completion, however serious:

Did the Preliminary Contracts in respect of JoTS fail to make time of the essence? Did they otherwise entitle C to terminate the contract if the property had not been constructed by the contractual completion date of 30.6.09? Alternatively did C have a right to terminate in that event under Italian law?

What obligations did the Preliminary Contracts impose on the vendors with regard to completion and what remedies were available to C in the event of delay or failure to complete?

What advice should D have given concerning the completion obligations and remedies?

What was the true legal effect of Clause 6.2 (as to the repayment of the deposit):

In relation to each of clauses 8.4(a), 8.4(b), 8.4(c) and 8.4(d)

As to clause 8.4(e) (the Regolamento di Condominio), the developer retained control of the common parts and the development as a whole. What advice should have been given by D to C about the actual/potential effect of this term?

What was the normal level or range of Deposit at the material times which was payable for purchase of a property that had yet to be developed? Were the Deposits of 50% of the purchase price unusually high?

Was it unusual for there to be an initial deposit of 50% of the purchase price rather than smaller stage payments as the work progressed?

What did D know/what should they have known about these Deposits?

What did D advise C in relation to the deposit and what should they have advised?

What was the normal level of commission payable to promoters of developments such as JoTS? Was the commission of 31% paid to the promoters of JoTS unusually high or excessive?

What did D know about the commission and what ought they reasonably to have known? In particular, did they know that the commission was unusually high or excessive?

On this issue what is the meaning and effect of the letter dated 29 April 2009 from Mr Giambrone and was he:

Were D obliged to give C any information and advice about the commission? In particular without prejudice to the generality of the issue should D have informed C:

Is it common practice to register a Preliminary Contract against the land where the completion date is some time after execution of the Preliminary Contract and/ or the Preliminary Contract is for the purchase of a property yet to be developed?

What is the practical effect of such registration in terms of the security it gives the purchaser?

Were D duty bound to give C any information or advice about the possibility of registration and, if so, what?

Did the terms of the trust on which G&L/ GL LLP held the Deposit in each case include:

Did G&L/ GL LLP’s obligations under the Mandates conflict with the terms of that trust?

If G&L/ GL LLP paid C’s funds out to the vendor and/or developer and/or as commission to the promoter in any of the following circumstances, was that payment in breach of trust or in breach of their duties of care or fiduciary duties:

If claimant monies were paid out before 7 April 2008 in breach of trust was the LLP thereafter duty bound by rule 7(1) SAR 1998 to restore those funds?

As a matter of course, to what accounts were payments of deposits and commission remitted by D?

What were the requirements (in Italian law) for a compliant guarantee as envisaged by the Preliminary Contract?

Were the Guarantees (representative specimens attached) compliant with Italian law and, if not, were they defective as a result of non-compliance?

What information or advice should D have given C about the Guarantees?

What did the relevant Italian legislation, including Italian legislative Decree 122/2005, require to be done by the vendor?

Did the relevant Italian legislation, including Italian legislative Decree 122/2005, impose any obligation on VFI as agent/promoter?

In what circumstances could a guarantee compliant with Italian Legislative Decree 122/2005 be called upon?

Was the phrase “Bank Loan Guarantee” an accurate description of the instruments provided by the vendors in these cases?

If not, was the phrase “Bank Loan Guarantee” apt to give a misleading impression as to the security provided by the same?

Were D aware of the claims which were made in VFI’s promotional brochure about the protection offered by the Guarantees? If so, what if any advice should they have given about what that brochure said?

In relation to

How would/could a guarantee compliant with Italian Legislative Decree 122/2005 be enforced?

In order to comply with Article 2 and 3 of Decree 122/2005 the issuer of a guarantee had to be registered in a register maintained in accordance with Art 107 of the Single Banking Code:

Duration and Timing:

Did D owe continuing duties to C after the execution of Preliminary Contracts and transfer of deposits to advise them about any:

If so, did they provide such advice whether at all or accurately and competently and timeously?

What was the position regarding the planning permission for JoTS?

What did D know about the planning permission and what ought they reasonably to have known?

Was D duty bound to give C any information or advice about the position regarding planning permission and if so what?

What legal restrictions, if any, apply to C’s abilities to live in, sell or rent out the properties?

What did D know about those restrictions and what ought they reasonably to have known?

Were D duty-bound to give C any information or advice about the above restrictions and if so what?

Is it the case that (as to the Main Development at JOTS):

As to the designation “turistico residenziale”, should D have informed C (who were non-resident and non-Italian) of this designation prior to their signature of the preliminary contract.

As to the restriction of sales to “non-Italian residents” which was subsequently imposed, was it a possible or probable occurrence even if/though it had not yet occurred at the time of the signing of the preliminary contracts?

Should D have informed C (who were non-resident and non-Italian) of the risk that such a restriction might be imposed on JOTS, before they signed the preliminary contracts or transferred the deposits to D?

Should C have been advised by D not to proceed with the purchases? If so, at what stage should that advice have been given?

What if any duties in tort, contract, trust and/or fiduciary duties did the above matters give rise to?

Did G&L/ GL LLP owe the following duties of care to C:

Did G&L/GL LLP owe the following further duties of care to C:

Did G&L/ GL LLP owe the following fiduciary duties to C:

Did G&L/GL LLP owe C the following further duties in trust, contract tort and/or as fiduciary duties:

Were G&L/ GL LLP duty bound to remedy their breaches of the SAR 1998 by replacing C’s deposits into their client account?

Assuming the correctness of C’s case as to how they would have behaved but for the matters complained of, are any of the alleged breaches of duty and trust capable of having caused C’s losses?

Did any of C’s losses fall within the scope of D’s duty to C?

Did D deliberately conceal matters so as to give rise to any extended limitation periods pursuant to s.32 Limitation Act 1980?

Assuming C prove liability and causation:

THE GUARANTEES

I have introduced the issue to which this Supplemental Judgment relates in paragraphs 419 and 420 of the substantive judgment. For the reasons I endeavoured to set out in those paragraphs, I do not consider that the issue of what, if any, compensation would be payable if a breach of trust in the manner set out in that section of the judgment has occurred is likely to arise in this case. In my judgment, it would arise only if the sole basis of a claim against the firm was breach of trust. For reasons given elsewhere in the substantive judgment, I am satisfied that other breaches of duty occurred (antecedent to any breach of trust arising from the payment out of the deposits) that are likely to have greater potency in terms of compensation than a claim based upon pure breach of trust in the manner alleged.

At all events, both Mr Flenley and Mr Majumdar have asked me to express my conclusion on the issue which, with some reluctance, I will do briefly.

As I understand it, the issue of law that Mr Flenley raises in a general sense would arise in any case only if it could be demonstrated as a matter of fact that, despite the occurrence of

The first response to these issues is to repeat that, on the basis of my conclusions in the substantive judgment, the first of these two scenarios has not been demonstrated. As Mr Majumdar rightly observed in his closing submissions, there has never been a compliant guarantee in place in any of the exemplar cases. Although “replacement” guarantees were issued (see paragraphs 128 and 409 of the substantive judgment), they have not been demonstrated to my satisfaction to have complied with Decree 122 of 2005 which is the governing Italian statutory provision. That, to my mind, is another reason for treating this issue as academic, although I recognise that there might be a different factual scenario in other (non-exemplar) cases though it would have been helpful to have had such a case as one of the exemplar cases if that was to be asserted.

However, notwithstanding that view, I will address the issues to which I have referred on the basis that, in a given case, a fully compliant guarantee was put in place after the deposit was paid out in breach of trust. I emphasise that I do this on the basis (contrary to my general conclusions) that this is the sole ground upon which the firm’s conduct of these transactions can be criticised. Equally, I will address the secondary argument of Mr Flenley that even if there was a breach of trust by paying out the deposit monies when there was no effective guarantee in place, no loss has arisen since, even had an effective guarantee been in place, no event triggering the right to recourse under any such guarantee has occurred.

I do not propose to extend this Supplemental Judgment by making extensive citations from the principal cases of TargetHoldings Limited v Redferns [1996] AC 421 and AIB Group (UK) PLC v Mark Redler & Co. [2014] 3 WLR 1367. It cannot be doubted that the approach adopted in the former case proved to be controversial and the decision attracted criticism. However, the Supreme Court in the latter case affirmed the principle established in Target Holdings and there can be no doubt that when the principle falls to be applied it must be applied. That is, of course, accepted by Mr Majumdar.

I hesitate to formulate in my own words the combined effect of these two cases, the speeches and judgments in which are extensive and, in some respects, complex. However, in the broadest summary, the issue of the redress for any beneficiary for breach of trust in any situation similar to that presented in this case is dependent upon the circumstances and, most significantly for the purposes of Mr Flenley’s argument, is not necessarily restricted to focusing upon the moment immediately after the breach of trust has occurred with an expectation of a restoration of the trust fund. It is to be looked at when the issue is determined at trial with the full benefit of hindsight. That approach does not preclude the possibility of restoration of the fund, but its purpose is to ensure that, in a case such as the present, the firm is not responsible for a loss that would have been occasioned even if the trust obligation had been performed.

Mr Flenley contends that, looking at the issue with the benefit of hindsight, the subsequent provision of a compliant guarantee that would have been effective to enable recovery of the deposits in accordance with Decree 122 of 2005 results in the conclusion that no compensation for breach of trust would be payable. In that situation the purchasers would, he argues, have obtained, albeit late, that which they were entitled to expect the firm to have secured for them and no loss arising from the failure to implement the trust could consequently be established. As I have said, however, at the trial the subsequent provision of compliant and valid guarantees was not established so that the issue, in my judgment, does not arise. If a valid and compliant guarantee was put in place after the deposits had been paid out, the issue is whether, notwithstanding the breach of trust, compensation would be payable.

Mr Majumdar’s argument is that the terms of the trust that bound the firm in this case were simply that the deposits should not be paid out unless and until a compliant guarantee was in place and that since that situation never arose the proper performance of the trust obligations would never have led to the monies being paid out. Accordingly, he submits that the firm is accountable for the monies thus paid out. As I understand his argument, it is that, trust monies having been misapplied, the trustee (here the firm) must restore the trust fund to the position it would have been in if the firm had performed its obligation: see [90-94] and [134] in AIB v Mark Redler. In the situation where, as I have found, there never has been a valid and effective guarantee, that seems to me to be correct. The practical effect may be no different from simply saying that the beneficiary (here the relevant purchaser) should be compensated directly for the consequences of the breach of trust, but I am prepared to hold that the analysis for which Mr Majumdar contends is correct and that, accordingly, the purchaser was entitled to be put in the position that he/she would have been in if the terms of the trust had been implemented.

The final issue is whether, on the basis that there never was a compliant guarantee in place at any stage, the claimants are any worse off given that no event triggering recourse to the guarantees has in fact taken place (see paragraph 133 of the substantive judgement). Mr Flenley’s argument seems to me to be to the effect that a claim for compensation (however formulated) in such a situation is akin to claiming for a lost opportunity when the opportunity has not been lost. I am not entirely sure that he would need to rely upon Target Holdings to establish that no loss is occasioned in such a situation, but it seems to me to be clear that if a claim is asserted for the lost prospect of reclaiming a deposit because there was no valid guarantee, but no triggering event had occurred, the claim would fail.

However, at the risk of repetition, I do not see this as the way in which this claim is advanced, whether formulated as a breach of trust or as a breach of a contractual or tortious duty. The claimants say that they were not told, prior to committing themselves to the preliminary contracts, that the guarantees were non-compliant and thus not effective. The issue, therefore, in individual causation terms is whether that fact (possibly in addition to other matters about which, according to my conclusions in the substantive judgment, they ought to have been told, but were not) would have resulted in a decision not to proceed at all or in a re-negotiation of the terms of the preliminary contract to make them more acceptable to the purchaser. If he/she had not proceeded at all, he/she would not have been exposed to the risk of losing the deposit or the re-negotiated terms would have been such as to protect the purchaser more effectively.