Schenk v Cook & Ors

The fraud

This trial concerns a claim that various Defendants engaged in a sophisticated fraud. This fraud had two stages to it.

In the first stage through a series of representations which were knowingly false the Defendants induced the Claimant to enter into an agreement whereby he was to invest in existing medium term notes (“MTNs”) with a very short invest-by date and a very high return. The Claimant in reliance upon these representations transferred a first tranche of CHF 3m into the control of the Defendants with a view to the MTNs being acquired. However no such bonds were ever acquired. Almost immediately the bulk of the money was either paid to the Defendants or dissipated through a series of corporate vehicles ultimately owned by various of the Defendants.

This led to the second stage. Following a series of demands for payment, clarification and explanation, the Defendants agreed to meet the Claimant. The meeting took place on 2nd June 2008. At the meeting a series of yet further false representations were made. The Claimant was told that his CHF 3m had been invested in the shares of a company, Fluid Leader plc (“Fluid Leader”), which was imminently (the next day) to be re-admitted to the PLUS stock exchange. Fluid Leader was marketed to the Claimant as an exciting prospect. It was the owner of a patent application which, so it was said, would prove very profitable in the oil and gas sector. It was in particular represented to the Claimant that forthwith upon listing shares in Fluid Leader would be sold and the Claimant would receive by way of return a sum representing a substantial profit on the investment.

The representations were reduced to writing and included (a) a representation that shares had already been purchased for and in the name of the Claimant and (b), an express promise that the shares, once traded, would be sold by the end of June 2008. In fact, when the representations and promises were made (i) no shares had been acquired for the Claimant and (ii) in any event the Fluid Leader shares were subject to a lock-in agreement which in effect precluded them from being sold for 12 months following trading, so that the representation that they could be sold forthwith after admission was false. Moreover, once Fluid Leader was in fact admitted to listing its performance plummeted and its shares were suspended in 2009. The Claimant received neither any shares in Fluid Leader nor any returns on their sale. Indeed the Claimant’s total investment disappeared into the hands of the Defendants.

The Claimant alleges that he was defrauded at every stage and seeks recovery of his CHF 3m together with interest.

(ii)

Conclusion on the liability of the Defendants

This scheme was in my judgment from the outset a scam and a fraud knowingly perpetrated by the Defendants collectively upon the Claimant. The Defendants each played different roles in the overall plan with some playing larger roles than others. In my judgment the ring leaders were Mr Cook, the First Defendant, and Mr Sun, the Fifth Defendant. The Claimant has framed his case in a variety of different ways but they boil down to a claim that the Defendants collectively engaged in a dishonest plan to steal his money and in my judgment this core allegation is made out to the requisite standard of proof required in civil fraud cases alleging dishonesty and in relation to the torts in issue. Each Defendant is therefore liable.

(iii)

The appeal of the Fourth and Sixth Defendant

The Fourth and the Sixth Defendants are in actual fact a single natural person, Mr Akbar Bawany (“Mr Bawany”). His Defence to the claim was struck out by the Master as a consequence of his failing to comply with an Unless Order. Mr Bawany has appealed against this order. For reasons explained elsewhere in this judgment I permitted Mr Bawany to participate fully in the trial of the merits of the claim against him. However this was without prejudice to the position upon his appeal. In the event I have found that Mr Bawany is liable to the Claimant on the merits of the claim so that the outcome of the appeal is academic. However, I have addressed Mr Bawany’s appeal and for reasons set out in Section E of the judgment below it does not succeed.

Parties: Observations

There is before the Court (i) the trial of various tortious claims against the Defendants; and (ii), an appeal by Mr Bawany (the Fourth and Sixth Defendants) against the declaration made by the Master that his Defence had been struck out for non-compliance with an Unless Order made on 8th November 2016 and entering judgment against him.

The position against each of the Defendants is as follows.

The First Defendant (Mr Cook), apparently resides in Thailand. He did file a Defence but no longer instructs solicitors. Although he was on notice of the trial he did not appear to defend the claim. On the 23^rd November 2016, the first day of the trial Mr Cook sent an email to the Court copied to the Claimant’s solicitors and Mr Bawany. It stated:

“I am a defendant in a matter you will commence hearing at 10:30am on Wednesday. Unfortunately I will not be able to attend due to a lack of funds. I live in the far north of Thailand and have driven 10 hours to Bangkok to catch a flight to London but the funds promised to me, to pay for this and the accommodation and living expenses were not delivered. I have limited means indeed I have only 15,000 baht which needs to support myself and my partner for another 2 to 3 weeks, yours, Philip Cook.”

On the 25^th November 2016 Mr Cook sent a further email to the Claimant’s solicitors and the Court, copied into Mr Bawany. In this Mr Cook makes clear that he was in receipt of amended pleadings served by the Claimant. In his email he says that the facts are “clearly wrong on a number of fronts”. In particular he objects to the allegations of control (by him). He observes that the trial should be stopped and time allowed for additional witness statements to be prepared. As to his (non) attendance he states this was due to a lack of the ability to finance the air fares and costs. In an exchange of emails between Mr Bawany and Mr Cook occurring during the trial and produced by Mr Bawany they both seek to attribute blame to the other.

The Second Defendant (Mr Stramandino) was properly served but throughout took no part in the proceedings and also did not appear to defend the claim. The only information available to the Court about Mr Stramandino was that provided in an email of February 2015 from a person describing himself as a “friend of Pietro Stramandino”. He states that Mr Stramandino was at that stage on vacation with his Chinese family in Shenzhen, but would be back by mid-March 2015. However Mr Stramandino was fully aware of the claim and he had told his friend that he had absolutely nothing to do with the case save to introduce the Claimant to Mr Bawany who worked for Mr Cook. Mr Stramandino denied receiving any commission for the transaction and had no idea as to what had happened. The “friend” however suggests that the Claimant contacts Mr Tristan Loughrey who, it was said, seemed to know “all [the] story and was at the time the boss of Pietro Stramandino”.

The Third Defendant (Mr Steeve Couture) was never served. He is not therefore a proper Defendant in these proceedings. This judgment does not apply to him.

In this judgment I refer generally to the Fourth and Sixth Defendant in the singular. The Fourth Defendant (Mr Bawany) accepts that the Sixth Defendant (ANA Holdings) is his trading face. He says (Skeleton paragraph [2]): “The Fourth Defendant was an introducer whilst ANA Holdings is his trading style”. In fact ANA Holdings is not a legal personality at all and references to “ANA Holdings” are in fact references to Mr Bawany. They are one and the same. Mr Bawany, having dispensed with his solicitors and counsel, represented himself at trial.

The Fifth Defendant (Mr Sun) claims to be in India but his actual whereabouts are unknown and he has also declined to take part in the proceedings. Mr Bawany drew my attention to a Public Statement issued by the Jersey Financial Services Commission (“JFSC”) of the 18^th January 2016 which records that following an investigation into the fitness and propriety of Mr Sun in his conduct whilst acting as the Managing Director of Centurion Management Services Limited (“CMSL”) – a company that plays a significant role in this litigation – it was considered necessary by the JFSC to issue Mr Sun with directions preventing him from engaging in any employment with any registered person or performing any function or service falling within the definition “financial services business” without having applied for and obtained the prior written approval of the Commission. Mr Bawany says that Mr Sun was aware of everything that went on in this case and he in fact blames Mr Sun for the fraud. In February 2015 Michael Sun sent an email to the Claimant’s solicitor concerning the address to which the solicitor should send relevant documents. Mr Sun did not in fact provide an address instead indicating that he would contact his legal representative to seek their permission for originals to be sent to their offices. He stated that he had not worked since 2009 when the Schenk case had a “catastrophic” effect upon his life. He says he was “hoodwinked by Cook and Bawany”.

As observed the claim against the Third Defendant, Mr Couture, was never pursued. When I refer generically to “the Defendants” I therefore refer only to those Defendants who were proceeded against.

(ii)

Procedure adopted

The procedure that I adopted was complicated by the fact that I needed to try the claim against the First, Second and Fifth Defendants (in their absence) but at the same time to determine the appeal of Mr Bawany. I therefore, of necessity, had to hear the merits of the claim. I took the view also that, at least to some degree (see the case law set out in Section E below), the merits of the claim against Mr Bawany might be relevant to his appeal and his application for relief against sanctions. I was conscious also that Mr Bawany was appearing as a litigant in person and that some adaptation to normal procedure was required to ensure that he was able, fairly, to advance his case. Mr Bawany submitted detailed written skeleton arguments and tendered a series of witness statements. In order to ensure both fairness and focus I adopted the following procedure: (i) the Claimant, through Mr Walford, opened the case by setting out, in considerable detail, the factual case against all the Defendants. This was done both in writing and orally. This enabled the Claimant to focus upon the critical documents in the case and for Mr Bawany to know, with precision, how the case was put against both him and the other Defendants; (ii) next I permitted Mr Bawany to advance oral submissions in response to the factual case on the merits advanced by the Claimant; (iii) next I permitted Mr Bawany to advance both his appeal against the order of the Master and to advance his submissions on relief from sanctions; (iv) thereafter Mr Schenk, the Claimant, gave oral evidence and was cross-examined by Mr Bawany; (v) Mr Bawany then gave evidence and was cross examined by Mr Walford, counsel for the Claimant; (vi) finally, Mr Bawany and the Claimant advanced their closing submissions orally and in writing. There are two other procedural matters I should mention. First, following the detailed exposition by Mr Walford of the Claimant’s case I gave Mr Bawany a free day out of court to gather his thoughts and prepare his response and submissions. Secondly, Mr Bawany confirmed in response to questions from me that whilst he did wish to question Mr Schenk, he did not wish to question Mr Cedric Aguet, a Swiss legal advisor acting for Mr Schenk who had participated in the critical meeting in June 2008 (that I have already mentioned in paragraph [3] above) and whom the Claimant was otherwise intending to call as a live witness. Mr Bawany was aware that, in such circumstances, the witness statement of Mr Aguet would be admitted into evidence upon the basis that it was, in effect, not challenged.

Introduction

The facts of this case in large measure present themselves through the voluminous documentary record contained in the disclosure. This arose from the Claimant, Mr Bawany, from proceedings in Jersey against CMSL in 2008 for disclosure of documents and information (“the Jersey Proceedings”) and from a Letter of Request via the Jersey Court, to which the Liquidator of CMSL responded in March 2016. Although not complete in every respect it has proven sufficient to enable the facts to be pieced together in a comprehensive manner. In this section of the judgment I set out my conclusions on the evidence and the facts.

(ii)

Fluid Leader Plc and the Lock-In Undertaking: Involvement of Messrs Sun, Cook and Bawany

I start by setting out certain facts relating to the interests of the Defendants in Fluid Leader prior to the proposed investment made by Mr Schenk in MTNs. The existence of the opportunity to invest in the shares of Fluid Leader Plc was brought to the attention of Mr Bawany in, according to his oral evidence, late 2007 and/or January 2008. Mr Bawany explained that when he came to learn of Fluid Leader he was interested in acquiring packets of shares which he considered he could then market to, inter alia, investors in the Middle East. He explained in his evidence that he was given a presentation about the merits of Fluid Leader by Mr Cook in early 2008. Mr Bawany said that Mr Sun was also fully aware of and involved in Fluid Leader.

The close relationship existing between Messrs Bawany, Cook and Sun was evident from an affidavit sworn by the Fifth Defendant, Mr Sun, on 29^th October 2008 in the Jersey Proceedings. This affidavit was intended by Mr Sun to be exculpatory and is patently self-serving and I do not accept its contents in their entirety. Nonetheless it does provide some information about the relationship between the Defendants and the various corporate vehicles used by the Defendants to defraud Mr Schenk. Mr Sun explains that he is a Director of CMSL. That company (CMSL) incorporated Global PIK Private Equity PCC (“Global PIK”). Mr Sun claimed that this was done “on behalf” of a company called GlobalBanc Financial Services Limited (“GlobalBanc”) which held an account with Collins Stewart which “possessed” 20.22m shares in Fluid Leader. The shares purportedly to be acquired for the Claimant by Mr Bawany were to come out of this 20.22m. In his affidavit Mr Sun explains that these 4.2m Fluid Leader shares were subject to a Lock-In Undertaking (see below).

Global PIK’s shareholder was the Global Charitable Settlement. This is also registered at the address of CMSL. Mr Cook, in response to a request for further information, explained that the beneficiaries of the Global Charitable Settlement were his first wife and his children. However, it appears from other evidence before the Court that Mr Sun was in de facto control of Global PIK. For example it was Mr Sun who signed a Deed of Gift of the shares in Global PIK into the Global Charitable Settlement. Further it was Mr Sun who signed the Resolution accepting the 20.22 million Fluid Leader shares into Global PIK. It was also Mr Sun who signed the Lock-In Undertaking on behalf of Global PIK in his capacity as a director of Global PIK, witnessed by Mr Cook’s proxy (Ms Jennilee Burns). Moreover an Investment Management and Agency Agreement concluded between Mr Cook and Mr Sun required Mr Cook to follow the instructions of Mr Sun.

Mr Walford for the Claimant described Global PIK as “the unholy alliance” of Messrs Sun and Cook. According to evidence before the Court given by Mr Bawany, Global PIK is a Jersey cell company. Jersey cell companies involve two different types of entity: a protected cell company (“PCC”) and an incorporated cell company (“ICC”). A cell company is a form of body corporate with separate legal personality which is able to segregate the assets and liabilities of the company into different “cells”. A PCC involves a single legal entity (the PCC) within which there may be established numerous protected cells. Each cell is treated for Jersey law purposes as if it were a company even though each cell lacks legal personality discrete from the PCC itself. Where a protected cell wishes to contract with another party it therefore does so through the PCC acting upon its behalf. Under Jersey law cells may have their own constitution, share structure and share holders. In theory a cell company could have cells with par value shares and others with no par value shares. Equally cell companies may have separate cells with limited as well as unlimited shares. The relevance of this to the present case is that the 4.2m shares in Fluid Leader were purportedly to be assigned to a cell operated by Mr Bawany on behalf of the Claimant. As I explain later in this judgment this never happened.

I have referred above to the Lock-In Undertaking. The Undertaking was dated 9^th January 2008 and was signed by Mr Sun in the presence of a Ms Burns (a proxy or agent for the First Defendant, Mr Cook) in which Mr Sun, on behalf of Global PIK agreed a twelve month “lock-in” of the shares post their intended listing:

“We hereby irrevocably undertake that, save in circumstances which the Corporate Advisors deem in the interest of [Fluid Leader], we will not dispose or agree to dispose, pledge or borrow against any of these 20,220,000 New Ordinary Shares in [Fluid Leader] registered in our name or beneficially owned by us [the ‘Shares’] or any shares of the Company into which the Shares are sub-divided or converted (or any interest in such shares), at any time prior to the first anniversary of the re-admission of the Company’s entire share capital to trading on Plus Markets Group Plc.”

It is worth saying a few words about Fluid Leader. According to the Re-admission document for the listing of the shares on PLUS, the company owned various other companies, one of which owned the rights to an invention which, according to the re-admission document, “offers a possible solution to improve maintenance of oil and gas pipelines by reducing costs and time”. The re-admission document describes the Lock-In Undertakings and records that each locked-in shareholder had undertaken not to dispose of any interest in the new shares until after 12 months following the date of re-admission. This obligation could be relaxed in the event that the “Corporate Advisor” deemed relaxation to be in the interests of the Company. There is no evidence before this Court to suggest that, in relation to the 4.2m shares which are in issue in the present case, the Corporate Advisor did so advise or ever contemplated so advising or was ever asked to advise on the suitability of allowing the shares to be sold during the lock-in period. The context to such provisions is well known. Measures such as these are designed to minimise the risk of volatility in the shares of the company immediately following admission to listing.

(iii)

The inducements to invest in the Medium Term Note

I turn now to the circumstances in which the Claimant was induced to invest. In February 2008 the Claimant instructed his financial adviser, Mr Dugast, to invest in MTNs. Mr Dugast had informed the Claimant that an opportunity had been proposed to him by Mr Stramandino which promised “a huge return”. Mr Dugast had some years earlier had a positive experience with an investment proposed by Mr Stramandino and so trusted him. Mr Schenk duly met with Mr Stramandino who represented to him that he worked for a non-governmental organisation and had responsibility for fund raising. The investment being proposed was an “undervalued Medium Term Note”. The expression “Medium Term Note” was understood by the Claimant to refer to an interest bearing instrument or bond issued by a bank or other lender with repayment over the medium term (e.g. 5 – 10 years).

The evidence of the circumstances giving rise to the investment were described by Mr Schenk and his account has not been challenged. I accept it. Mr Schenk explained that Mr Stramandino, the Second Defendant, made a series of representations to him and Mr Dugast which induced him to invest the CHF 3m. These representations included: (i) that the investment would make a return of 400 – 600%; (ii) that the investment was in an undervalued medium term note; (iii) that the investment would be made through a company called VCBC Holdings Limited for which Mr Stramandino held a power of attorney a copy of which he produced and showed to the Claimant; (iv) that the minimum amount that could be invested was CHF 10m but that the Claimant could combine his CHF 3m with another investment of CHF 7m which would be obtained from a third party to make up the minimum; (v) that the initial CHF 3m would be paid back in 4 equal instalments of CHF 750,000; (vi) that the total amount invested would be repaid by April 2008; and (vii) that the profits from the investment which could be as high as CHF 18m were to be split into six payments of CHF 3m each which were to be made at the end of each calendar month for six months.

The power of attorney produced by Mr Stramandino is relevant to the belief of the Claimant that the investment company that would invest in the MTN was a credible and respectable body. Mr Schenk’s evidence was that he was influenced by the fact that VCBC Holdings Limited had appointed Mr Stramandino as a representative agent and that he was an “Attorney at Law”. Mr Schenk was provided with a copy of the formal appointment of an agent representative. This document was signed by a Mr Karatosic, Attorney at Law, said to be the General Counsel of VCBC Holdings Limited. The appointment stated that the Board of Directors of VCBC on the 21^st February 2008 had appointed Pietro Stramandino, Attorney at Law, to solicit, direct potential qualified clients and request certain company information from potential clients for the purpose of conducting financial transactions with VCBC. An address in Switzerland was given for Mr Stramandino. No evidence has been unearthed which has been able to establish that Mr Stramandino is in fact a qualified lawyer of any description. Mr Stramandino has, as already observed, declined to participate in these proceedings or explain his position and he, like other Defendants, has proven elusive. Inquiries in this jurisdiction and elsewhere as to the professional status of Mr Stramandino have not produced any evidence that he is legally qualified.

(iv)

Relationship between the Defendants as of the date of the investment by Mr Schenk

In various statements made in the Jersey Proceedings, and in these proceedings, Messrs Bawany, Cook and Sun have sought to distance themselves from the other Defendants. The documentary evidence however shows that as of the date of the inducement and the investment the Defendants had a pre-existing relationship. Although the disclosed documents do not provide a complete picture of that relationship they do, nonetheless, in a multiplicity of ways, establish that a close business relationship existed. The documents on the court file thus describe the following illustrative links between the Defendants. On the 23^rd October 2007 Mr Bawany forwarded to Mr Loughrey at VCB Holdings an email from Mr Cook, the First Defendant, to Mr Bawany concerning Venezuelan bonds. Mr Bawany responded to Mr Cook asking for details of various potential investment bonds. In another email, dated 30^th October 2007, between Mr Cook, Mr Bawany and Mr Sun there is a discussion about a Protected Cell Corporation in Jersey. A document of the 14^th November 2007 identifies, inter alia, Mr Sun as an authorised signatory for CMSL on the bank account for Global PIK Private Ventures Limited. On the 9^th November 2007 CMSL confirmed that Mr Cook is the beneficial owner of two Global companies. On the 16^th November 2007 GlobalBanc (Mr Cook) informed Mr Bawany of the allocation of Cell number 10 in Global PIK for various transactions being conducted by Mr Bawany. Mr Cook provided him with the “bank account transfer details which will enable the client’s cash or documents to be deposited in the appropriate account”. Those bank account details identified to CMSL’s client accounts at RBS Jersey “For benefit of Global PIK Private Equity PCC. For the further benefit of Global PIK Private Equity 10 PC”. Mr Bawany forwarded the email to Mr Loughery. On the 19^th November 2007 Mr Cook sent to Mr Bawany a draft fee sharing agreement with “Phoenix” which makes clear that it was an introducer’s agreement. Mr Bawany responded that his arrangement was “60/40 and I will pay my people”. On the 20^th November 2007 Mr Cook sent an email in relation to “our various note trading programs”. He refers to MTNs and that Mr Bawany “has arranged for he and I to see Abid Masood… of the Structured Note Department at RBS”. On the 29^th November 2007 the Fifth Defendant, Mr Sun, signs a letter for Centurion Trust Company Limited to Golden Summit Investors Group in relation to MTNs. The next day, on the 30^th November 2007, Mr Bawany instructed a Mr Coddington to send instructions to Centurion, copied to Mr Cook and to give Mr Coddington’s client details of Collins Stewart to send to “CENTURION/GLOBAL ACCOUNT THERE”. Collins Stuart held shares in Fluid Leader for Global PIK. On the 6^th December 2007 Mr Sun, on behalf of Centurion, disclosed to the Jersey Financial Services Commission that Mr Cook was the ultimate beneficial owner of Global PIK Private Ventures Limited and was a director and shareholder in the wine retailer Unwins that was in administration. On the 6^th December 2007 Mr Bawany expressed a concern to Mr Cook that Mr Sun might deal direct with “dan from Golden Summit”. On the 11^th December 2007 Mr Bawany described Mr Cook as “our chairman” and he suggested that “Dan spoke to him”. Mr Bawany and Mr Loughrey stated that it was agreed that the percentage splits between Golden Summit and them would be 65/35 and that trade “outside Centurion or Michael Sun i.e. [Mr Loughrey/Mr Bawany]” would need a new agreement. On the 11^th December 2007 Global PIK Private PCC was incorporated. On the 24^th December 2007 a Deed of Gift of one share in Global PIK was made to Centurion Trust Company Limited to hold on trust for Global Charitable Settlement which was identified as being care of CMSL and of which Mr Cook’s first wife and children from his first marriage were the beneficiaries. On the 8^th January 2008 Mr Sun, in his capacity as a director of Global PIK, noted that the board of Fluid Leader had resolved to allocate 20.22m shares to it. On the 14^th January 2008 an Investment Management and Agency Agreement between GlobalBanc (signed by Mr Cook) and Global PIK (signed by Mr Sun) was entered into. Mr Cook wrote to Mr Sun allocating the 20.22m Fluid Leader shares to eight separate protected cells. On the 17^th January 2008 the annual return for Icthus Holdings Limited identified Mr Sun as a director and sole shareholder.

The purpose of this recitation of dates and associations is simply to establish that there was a pre-existing business relationship between, in particular, Messrs Bawany, Cook and Sun under which they sought investment opportunities together. The evidence rebuts the suggestion that they were strangers to each other or, otherwise, did not have close working relations.

The documentary evidence also shows that, as of the date of the inducement and the investment, Mr Bawany was working with Mr Stramandino’s colleague Mr Couture, and I infer therefore, with Mr Stramandino. In cross examination Mr Bawany objected to Mr Stramandino and Mr Couture being referred to as his “colleagues” or “team”. He insisted they were no more than independent brokers, with whom he had an arms length relationship. The evidence shows, however, that there was in actual fact a close working and business relationship between them: cf the reference to the documentary evidence of 19^th November 2007 (above) which shows that Mr Bawany was intending to “pay my people” for their part in securing Mr Schenk’s investment. This included, inter alia, Mr Stramandino.

Mr Bawany, in his evidence, explained that he learned of Mr Schenk’s intention to invest from a Mr Loughrey and Mr Couture. Mr Couture described Mr Stramandino in relevant documentation as his “partner”. There was, as is evidenced by a significant number of disclosed documents, a “chain of communication” passing between Messrs Bawany, Couture, Loughrey, Stramandino and a Mr Perez Blanco in relation to the Claimant’s investment. These documents show that key communications between these individuals about the investment were also passed from Mr Bawany to Mr Cook, the First Defendant, and to Mr Sun, the Fifth Defendant. From amongst the voluminous email exchanges which are before the Court it is quite clear that this line of communication operated on a frequent basis between all of the Defendants in the present case. The powerful inference which can be drawn is that all of the Defendants were aware from the outset of the plan to induce Mr Schenk to invest in MTNs. I give but one illustration. On the 12^th March 2008 when the payment instructions were given for the transfer by the Claimant of the CHF 3m email exchanges show that the details of the account into which the CHF 3m was to be transferred were given by Mr Bawany to Mr Couture and went onwards to the Claimant via Mr Stramandino. The details of the SWIFT payment instructions which reached Mr Bawany were then transferred by him to Mr Sun. Mr Bawany in his evidence, did not dispute that there was a frequently used email exchange in relation to the CHF 3m transaction between, inter alia, all of the Defendants.

(v)

The transfer of CHF 3m by the Claimant

On 13th March 2008 the Claimant made payment of CHF 3m to a bank account at Royal Bank of Scotland International, Jersey, in the name of "Centurion Management Services Ltd Client Account" (i.e. CMSL). The beneficiary details were "For the benefit of Global PIK Private Equity PCC" (i.e. Global PIK) and "For further credit to: ANA Holdings". The intended recipient of the money transfer was therefore Mr Bawany but via a company controlled by Messrs Cook and Sun. As already explained Mr Bawany accepts that ANA Holdings is his trading “style” and is a reference to him personally. Mr Schenk’s unchallenged evidence on this, which I accept, is that he took comfort from the fact that the recipient bank was a “well-known bank” and this reinforced his conclusion that the investment was “credible”.

It is argued by Mr Bawany that the monies used for the investment were in fact moneys belonging to the Claimant’s father and not the Claimant. I reject this argument. I can deal with this shortly. The Claimant has adduced evidence which satisfies me of his position:

a)

Mr Schenk Senior’s bank account opening documents are in evidence. These show a “Procuration” mandating the Claimant in respect of all transactions, such mandate not terminating upon Mr Schenk Senior’s death.

b)

Mr Schenk’s evidence is that he discussed the investment with his father who approved it. In his statement he says: “The investment was always mine and not my father’s”.

c)

In a hand written letter dated 10 March 2008 Mr Schenk Senior said that the Claimant would be managing the account from then on with full power.

d)

The Claimant certified his ownership of the CHF on 15 March 2008 and such certification was contemporaneously relied upon by the Defendants in their due diligence procedures.

e)

The CHF 3million amount was recognised as having been a gift to Mr Schenk in the “Acte de Partage” when Mr Schenk Senior (then aged 96 years) divided his bank account assets equally between his 2 children. Mr Bawany alleges this is a forgery. I reject this contention. There is no evidence at all that the document is forged.

f)

In any event it would make no difference if, in fact, the money was Mr Schenk Senior’s, since the Claimant as his agent was deceived/the victim of the conspiracy, and could as agent recover on behalf of his principal.

g)

It is observed that no Defendants ever questioned the Claimant’s ownership of the monies and right thereto contemporaneously until such time as they sought to avoid repaying him.

(vi)

The dissipation of the CHF 3m

The evidence shows that almost immediately upon the Claimant’s money being transferred it was dissipated into the hands, or under the control, of the Defendants. The Fifth Defendant, Mr Sun, swore an affidavit in the Jersey Proceedings brought by the Claimant against CMSL for disclosure on 29th October 2008. In that affidavit Mr Sun deposed that the CHF 3m was upon receipt then converted into approximately sterling £1.802 million, and was paid away as to about £1,500,000, to GlobalBanc and as to £300,000, to Icthus Holdings Limited. These payments were made in accordance with the instructions of Mr Cook, the First Defendant.

GlobalBanc is a company of which the ultimate beneficial owner of at least 90% was the First Defendant, Mr Cook.

Ichthus Holdings Limited is a company owned and controlled by the Fifth Defendant, Mr Sun.

There is a dispute on the evidence as to the sum of money that the CHF 3m was converted into. The documents refer variously to £1.5m and £1.8m. For present purposes the precise conversion sum is irrelevant because the Claimant’s claim is in relation to CHF 3m and not the sterling equivalent. The documents demonstrate that no time was lost in dissipating the full amount received. Instructions for payment of £473,500 were given on the 19^th March 2008, one day following the “for-value” date of the CHF 3m transfer from Mr Schenk as set out on the SWIFT instruction. Those instructions were apparently given by GlobalBanc (controlled by the Mr Cook) to CMSL (controlled by the Mr Sun). However the latter (Mr Sun) decided not to action the instruction as requested. Instead he remitted the full £473,500 to GlobalBanc’s account at the Clydesdale Bank in Cambridge. Directions were then given on the 20^th March 2008 for all of the funds except “£300,000 for Centurion” to be transferred to the Clydesdale account. The £300,000 was in fact for Icthus Holdings Limited, the company owned and controlled by Mr Sun. The documentary record is incomplete and does not reveal where the CHF 3m was dissipated to in its entirety. One email (dated the 25^th March 2008) suggests that approximately £500,000 was to be paid in respect of the “shares purchased”. In fact there remains considerable doubt as to the sum actually expended (if any at all) upon the acquisition of shares in Fluid Leader. Even if some money was used to acquire Fluid Leader shares the actual amount is very unclear. The price of the Fluid Leader shares was a rapidly moving feast. Various prices for the shares are recorded in the documentation ranging from 5p to in excess of 50p. It is clear that there was no true valuation of the shares and hence the consideration to be paid to acquire 4.2m shares was one that could be fixed more or less at will by Messrs Cook and Sun.

At all events the Claimant’s money was rapidly distributed to the Defendants for purposes unrelated to investment in MTNs. Although it is not critical to my judgment upon this claim, there is no evidence to suggest that Mr Stramandino, or any other Defendant, ever intimated to Mr Schenk that the preponderant part of his investment would be diverted to pay commissions and fees. Indeed, as I explain below (see paragraph [48ff]) representations made later to the Claimant at a meeting on the 2^nd June 2008 would have been understood by Mr Schenk to indicate that the entirety (or the preponderant part at least) of his investment had been devoted to the acquisition of shares in Fluid Leader.

As to the sums to be paid to Mr Bawany an email of the 19^th March 2008 indicates that Mr Bawany was to receive £100,000 and Mr Loughrey was to receive £50,000. There is some dispute as to the actual sum of money that Mr Bawany received. Various documents are before the Court which relate to the disputed transaction and some suggest that Mr Bawany might have received as much as £250,000. There is no doubt however that Mr Bawany was paid commission and in oral evidence he accepted as much.

(vii)

No MTN was ever acquired

When the representations were made by Mr Stramandino to Mr Schenk there was in fact no MTN in contemplation which had the advantageous characteristics which Mr Stramandino described. Further, no MTN of any description was ever acquired or transferred to or held for Mr Schenk’s benefit. I accept the Claimant’s evidence on this which is consistent with the documentary evidence.

(viii)

The Claimant seeks payment

When it became evident that something was or might be amiss Mr Schenk through Mr Dugast, his financial adviser, sought written confirmation of his initial investment in MTNs in accordance with the agreement with Mr Stramandino. Mr Dugast sent a series of increasingly strident demands for clarification. The evidence before the Court shows that at this time Mr Schenk still believed that he was to invest in MTNs and was unaware either that his funds had already been dissipated and diverted into the hands of the Defendants; or that the Defendants were intending, in due course, to explain to him that they had invested or would invest his funds in Fluid Leader shares instead of MTNs. An indication of the extent of this deception is found in an exchange of emails between certain of the Defendants concerning requests for information (relating to such matters as identity and proof of ownership of the CHF 3m) to be made to Mr Schenk. A revealing exchange focuses upon the wording of a letter that it was proposed should be sent to Mr Schenk. On the 8^th April 2008 Paulette Rodgers, of GlobalBanc (the company controlled by Mr Cook), wrote to Mr Bawany in the following terms:

“With reference to the original KYC documentation previously email [sic] in respect of the CHF3m received for the purchase of the shares in Fluid Leader , unfortunately the ID documentation has not been certified and these are urgently required. Furthermore, JP Schenk confirms that he has authority (POA) to deal with the finances of PA Schenk however we have not had sight nor received a certified copy of such POA. Could you please arrange for us to receive the requested documents above as a matter of urgency?”

(Emphasis added)

When Mr Bawany received this he forwarded the request to Steve Couture (Mr Stramandino’s partner). However he deliberately omitted the words “received for the purchase of the shares in Fluid Leader”. Mr Bawany was fully aware that Mr Couture or Mr Stramandino would simply forward the email exchange on to Mr Schenk and Mr Bawany was concerned to ensure that Mr Schenk remained unaware that his CHF 3m was (purportedly) intended to be used for the purchase of shares in Fluid Leader. Accordingly the request that was ultimately sent to Mr Schenk omitted any reference to Fluid Leader and left Mr Schenk believing that he was still to invest in MTNs. In the course of cross-examination Mr Bawany accepted that he had doctored the email. The cross-examination was along the following lines:

“Q. So you knew that by sending the email to Steeve Couture, it would be passed up the line of communication, eventually, to Mr Dugast and Mr Schenk and I suggest to you that you removed the words indicating that his money had been used in purchasing Fluid Leader shares, so that Mr Schenk wouldn't know that that's what you had done?

A. Can you give me the page again, please?

Q. 394 and 392.

A. Yes, it looks it that, correct. Right.

Q. You didn't want Mr Schenk to know that his money had been used for the purchase of Fluid Leader shares, did you?

A. No. I'm pretty sure I will find it in the chain somewhere, the correct message, but what you say on the face of it is correct.”

In May 2008 Mr Schenk consulted Mr Cedric Aguet, a lawyer and partner in the firm Cabinet Mayor, then of Bonnard Lawson of Lausanne, Switzerland in relation to the investment of CHF 3m. Mr Schenk explained to Mr Aguet that the investment had been made via the client account of CMSL for the credit of “ANA Holdings”. Mr Aguet at that stage (incorrectly) considered that ANA Holdings was a corporate vehicle which had received the money. Mr Schenk instructed Mr Aguet to participate with him in a meeting in London to be arranged with Mr Bawany and others in relation to the investment. Mr Schenk was unsure about the whereabouts of his funds but hoped that a meeting would bring clarification.

Although it is not relevant to my conclusions in this case at some point during April/May 2008 the Defendants began to work on a follow-up to their plan. The purpose of this was to deceive Mr Schenk into investing further and larger sums of money. They proposed to do this by returning some of the proceeds of the CHF 3m to Mr Schenk. There is evidence that at the beginning of April 2008 whilst Mr Schenk and Mr Dugast still believed that the investment in MTNs was sound Mr Dugast, on behalf of Mr Schenk, had intimated that once the first repayment had been made in accordance with the agreement between Mr Schenk and Mr Stramandino, Mr Schenk would “add very large amounts”. Mr Bawany communicated that hope and expectation (now quantified at CHF 9m) to Mr Cook by the beginning of April 2008. On the 8^th April 2008 Mr Couture wrote in an email to Mr Bawany: “For the rest of the 10M Swiss, I have to send back 1.5M Swiss Francs to Mr Schenk and he will release the 10M Swiss the same day or the day after…”. On the 15^th April 2008 in a further email from Mr Couture to Mr Bawany, Mr Couture stated: “I have to send back to Mr Schenk 1.5M to release the 7M Euro (10.7M +- USD), to start the second step and all of us need to start this step ASAP”. It is argued by Mr Walford for the Claimant that this was: “an old fraudsters’ technique of returning some money to ensnare the victim into investing a larger amount”. On the evidence I have seen I agree that this was the Defendants’ common purpose.

Towards the end of May 2008 Mr Couture started to draft a response for consideration by, inter alia, Mr Bawany which was intended to explain that the CHF 3m had been invested in pre-IPO shares, not MTNs. The explanation was to be along the following lines: that the company in question was to be listed imminently on the exchange; that upon listing the Defendants would sell the shares and the profit would be in the region of approximately £500,000 plus capital; that the Defendants could not trade (in MTNs) with only CHF 3m; that accordingly the best investment strategy was to invest in the Fluid Leader shares. The plan as it then existed was for Mr Stramandino to provide a letter, along these lines, to Mr Schenk. In fact no such letter was sent to Mr Schenk though Mr Schenk in his evidence explained that an explanation of this sort was provided to him towards the end of May 2008. This was therefore the first point in time when the Claimant became aware that his funds had not been invested in MTNs.

On the 27^th May 2008 Mr Cook, writing on behalf of GlobalBanc, wrote to Mr Bawany a letter which it was contemplated would be passed on to the Claimant. The letter was in the following terms:

“Dear Sirs,

We write with respect to your enquiry as to the status of your recent investment made in the impending listing.

Background

As you are aware you invested circa CHF3million into the listing as your client had not sent sufficient money to undertake the program you were contemplating.

The Listing

The listing will occur on Tuesday 3 June 2008 whereupon the shares representing the Swiss Francs will be sold. As each of the trades occur we have arranged for Global PIK Private PCC to remit the settlements to your account.

It is anticipated that the completed transactions would yield the returns as agreed with you.

For completeness we advise the shares are being sold on a T+10 basis and we expect that the total shares will be sold within a month which means the total cash proceeds will be received within 4-6 weeks allowing for settlement periods.

Yours faithfully,

Phillip G Cook”

The letter makes clear (if there was ever any doubt about the matter) that the CHF 3m was not money belonging to Mr Bawany and was funds transferred by the Claimant. Mr Cook knew that the letter was false, as did Mr Bawany. They were aware that there was no realistic prospect that the shares representing the Swiss Francs could be sold with total cash proceeds being received within 4-6 weeks. This is plain, not least because of the Lock-In Undertaking (see paragraph [22] above). Mr Cook, in his capacity as a manager of Global PIK, was undoubtedly aware that no transfers of shares for the period of 12 months post re-admission could occur. His PA, Ms Burns, had witnessed the Lock-In Undertaking signed by Mr Sun. In all probability the Lock-In Undertaking was in fact executed at Mr Cook’s offices in London. Global PIK was the second largest shareholder in Fluid Leader and Mr Cook was involved in the PLUS re-admission process. Mr Aguet, in his unchallenged evidence, records that Mr Cook stated at a meeting of the 2^nd June 2008 (see below) that “we are responsible for floating Fluid Leader”.

(ix)

The meeting of 2 ^nd June 2008

The actual meeting on the 2^nd June 2008 took place at 1 Great Cumberland Place, London, the offices of GlobalBanc. Mr Bawany was accompanied by Mr Cook, the First Defendant. The meeting lasted approximately one hour. Mr Cook did the majority of the talking. The evidence of Mr Aguet, which I accept and which has not been challenged by Mr Bawany, is that: “Mr Bawany backed up what Mr Cook was saying”. In oral evidence before the Court it was explained that during the meeting Mr Cook telephoned Mr Sun, the Fifth Defendant, to confirm and obtain approval of the details of the agreement being proposed to the Claimant.

At this meeting representations and statements were made by Mr Cook and by Mr Bawany with the knowledge of Mr Sun. These were: (i) that the CHF 3m had been invested in shares; (ii) that Mr Cook was the trader in charge of the investment; (iii) that the Claimant’s CHF 3m had been invested by ANA Holdings (Mr Bawany’s trading vehicle) in the purchase of 4.2m shares in Fluid Leader Group plc; (iv) that the shares would start to be sold the following day and all would be sold during June 2008; (v), that the Claimant would receive CHF 3.3m (the principal sum plus interest); and (vi) that Global PIK would be instructed by Mr Bawany to effect the sale and to remit the proceeds to an account nominated by the Claimant and Global PIK would accept and execute these instructions. These statements were intended by Mr Bawany, Mr Cook and Mr Sun to be relied upon by the Claimant. The Claimant’s evidence, which I accept, is that he did rely upon these representations.

Mr Aguet gave evidence about the meeting in the following terms which has not been challenged:

“Mr Bawany opened the meeting by saying that he was part of the Bawany Group. Mr Dugast appeared to be familiar with the Bawany Group, but I was not. Although I do not now remember the exact words they used I understood Mr Cook was working with Mr Bawany although they were not part of the same company. Mr Cook gave us a business card which was kept by Mr Dugast. Mr Bawany acknowledged that Mr Schenk had invested CHF 3million to purchase medium term notes (MTNs) but said that he needed to have CHF 10million to make such an investment. He said that the return on an MTN was not what Mr Schenk had been told and it would probably be about 10% per annum. Mr Bawany then gave Mr Cook the floor.

Mr Cook said that ‘we are responsible for floating Fluid Leader’ from which I understood him to mean Mr Bawany and him. I now believe the reference to Fluid Leader was to Fluid Leader Group Plc (Fluid Leader). Mr Cook and Mr Bawany said that with Mr Schenk’s money, but without any formal consent, they had made what they called a temporary investment on Mr Schenk’s behalf in the form of a purchase of 4.2 million shares in Fluid Leader. During the meeting, I made a note that the purchase of shares on a supposed to assist in listing could be considered as insider trading.

I was shocked as Mr Schenk had never given any instructions to invest his money into anything other than MTNs. Even if an investment had been decided pending the finalisation of the investment into MTNs, it should have been made into a very liquid asset and Mr Schenk’s authority should have been sought before it was so invested. I requested evidence of the investment that had been made – including the share certificates or any documents showing what had happened to Mr Schenk’s money. Mr Bawany and Mr Cook told me that these would be provided. As I explain below I never got these.

I demanded that Mr Schenk’s money be returned as soon as possible. Mr Dugast and I also said that Mr Schenk should also be paid interest, and Mr Bawany suggested 10% (i.e. a further sum of CHF 300,000), which Mr Schenk and I agreed. Mr Bawany and Mr Cook said that the shares would have to be sold to release the funds and that reimbursement would take place in full by the end of June 2008. I said we would need a written undertaking from them that they were going to do so.

Mr Cook therefore called for a secretary to whom he dictated a so-called agreement… and the secretary typed it up while we were in the meeting…

The so-called agreement… is between Mr Schenk and ANA Holdings. I did not know what ANA Holdings was, though it appears in the instruction Mr Schenk gave to his bank for his bank to send the CHF 3million to Centurion… Neither did Mr Cook nor Mr Bawany explain what ANA Holdings was at the meeting. I also did not know what Global PIK Private PCC… was. Again no explanation was given by Mr Cook or Mr Bawany of what Global PIK was or its role in the investment.”

In his unchallenged evidence Mr Aguet states, explicitly, that Mr Bawany and Mr Cook “… promised us that the shares would start to be sold the next day, i.e. 3 June, when they said Fluid Leader was supposed to be listed on the stock exchange”. Neither Mr Bawany nor Mr Cook identified the exchange but they made clear to Mr Schenk that the shares would all be sold by the end of the month and Mr Schenk would be repaid the principal sum by the end of June. Further, Mr Bawany and Mr Cook promised Mr Schenk that what they called “the trust” in Jersey would also sign an undertaking for the sale of the shares and that this would be done the same day to enable the shares to be sold.

(x)

The terms of the 2 ^nd June 2008 Agreement

The Agreement itself is in the following terms.

“Agreement dated this day 2^nd of June 2008

Between:

ANA Holdings of 40 Ranlagh House, London SW3 3AE

And

Jean-Pierre Schenk of Chemin de Roussillon, Bugnaux, CH-1180 Rolle

Whereas:

Mr Schenk has sent CHF3million to Global PIK Private PCC for ANA Holdings to invest.

It is hereby agreed that:

a)

the CHF3million invested was invested for the purchase of 4,200,000 Fluid Leader Group Plc shares;

b)

post the admission of Fluid Leader Group Plc to trading the 4,200,000 shares will be sold;

c)

the shares will be sold during the month of June 2008;

d)

it is acknowledged that the shares will be sold on a T+10 basis with various brokers;

e)

Global PIK Private PCC will be instructed to effect the sales as above;

f)

Global PIK Private PCC will be instructed to remit on settlement of the proceeds of each settlement to an account nominated by Mr Schenk;

g)

Global PIK Private PCC will acknowledge the confirmation of this agreement directly to Mr Schenk via email with a copy also sent to Cedric Aguet.”

Mr Bawany was a party to the agreement; Mr Cook was a witness to it. Mr Bawany gave oral evidence that he had no knowledge of the Lock-In Undertaking so that when he represented to Mr Schenk at the meeting on the 2^nd June 2008 that the Fluid Leader shares could be traded forthwith he was not acting dishonestly. I reject this contention. In my judgment Mr Bawany was, along with all the other Defendants, fully aware that, prima facie, the shares could not be traded until 12 months post admission. This is for a number of reasons which I summarise as follows. First, Mr Bawany was given a briefing by Mr Cook about Fluid Leader in January 2008 just days after the Lock-In Undertaking had been signed. It is inconceivable that in this briefing such an important restriction upon the tradeability of the shares would not have been explained or discussed. The Lock-In Undertaking is described in the PLUS Re-admission document as a “material contract”. Second, Mr Bawany spent 10 days in the UAE in 2008 with Mr Cook for the purpose of promoting Fluid Leader; it is equally inconceivable that, in such circumstances, the existence of the Lock-In restriction would have been concealed from him whilst he and Mr Cook were promoting the shares. Third, as a shareholder in Fluid Leader, Mr Bawany had the right to receive notice of and attend the EGM of Fluid Leader on the 7^th March 2008. Such a meeting would have been invalid if the shareholders had not been notified. Mr Bawany was aware of the EGM and he disclosed two different copies of the EGM announcement of the 6^th March 2008. This announcement refers explicitly to the re-admission document in which the Lock-In restrictions are referred to. Fourth, Mr Bawany was an experienced broker with knowledge of re-admission/flotation procedures. He would have understood that in the circumstances of the floatation of Fluid Leader there was, as a matter of course, a distinct possibility that some form of lock-in restriction would have been sought by PLUS. Fifth, Mr Sun, in a letter to the solicitors, Peters and Peters, of the 13^th October 2008, refers to Mr Bawany having express knowledge of the restrictions. Sixth, evidence before the Court shows that in early 2008 Mr Bawany was seeking to acquire Fluid Leader shares from a Mr David Mintz. However this transaction was not completed. The Claimant argues (and it is in my view reasonable to infer) that the reason for the non-completion of the transaction was because of the restrictions. The consent of Mr Cook had to be obtained for this transaction to complete and it can be inferred that Mr Cook explained to Mr Bawany why a transfer of Mr Mintz’s shares could not occur, i.e. because of the lock-in. In all these circumstances I am satisfied and find as a fact that Mr Bawany was aware of the restrictions. My conclusion is not affected by reason of the fact that there were certain transfers of shares in August 2008 which are said to be with the consent of the Corporate Advisor. Under the Lock-In arrangements transfers of shares could occur if the Corporate Advisor advised that this was in the best interests of the company. However there is no evidence that it was ever contemplated that consent would be forthcoming for the sale of the shares, ostensibly in the ownership of Mr Schenk, in order to fulfil the terms of the agreement of the 2^nd June 2008.

(xi)

Non-fulfilment of terms of 2 ^nd June 2008 Agreement

On or about the 11^th June 2008, Mr Schenk informed Mr Aguet that neither he nor Mr Dugast had received the share certificates or documents from “the trust” in accordance with the promise made by Mr Cook and Mr Bawany on the 2^nd June 2008. There is documentary confirmation of this in the form of an email of the 11^th June 2008 from Mr Aguet to Mr Bawany. This records that Mr Aguet was still awaiting confirmation from “the Trust company”.

Nothing further was heard from Mr Bawany. On the 20^th June 2008 Mr Aguet sent Mr Bawany a demand for the confirmation that he said would be forthcoming and reminded him that the investment had been made by Mr Bawany without Mr Schenk’s authority. Mr Dugast was suspicious and feared that there was, in actual fact, no investment in Fluid Leader at all. The email states as follows:

“Sir, My patience has some limits. I’ve been waiting for a confirmation from your colleagues in Jersey for 18 days now and it’s enough. I remind you that the intermediary named Steve requested that the CHF 3millions belonging to Mr Schenk be placed on a short term basis. It turned out that the investment you decided is definitely not liquid, if it was ever made. To accommodate you, Mr Schenk requested that you prove the investment had been made and that you send him his money back as soon as feasible. You accepted to do so. To date, the undertaking to give the amount above back signed by the trust in Jersey has not been received, nor have the documents giving all details as to the nature of the investment you decided on Mr Schenk’s behalf, without any direct mandate from his part, by the way. Now I urge you to make sure that I obtain today the confirmation and the documents I’m expecting. Should you not proceed, we will take a less accommodating [sic] approach.”

Mr Bawany replied on the 20^th June 2008 in cursory terms telling Mr Aguet to send an email direct to Centurion (i.e. CMSL) to the effect that they should follow Mr Bawany’s instructions.

On the 23^rd June 2008 Mr Dugast sent an email to Mr Bawany copied to Mr Sun, Mr Couture, and Mr Cook. This reiterated the demand for evidence and proof of funds. On the 24^th June 2008 Mr Cook replied saying: “… Centurion have advised that they have sent the letter re the Protected Cell and the assets therein”. Notwithstanding promises that this would be followed up by Mr Cook and others nothing happened. Various follow-up exchanges of emails occurred.

The derogatory advice given at this time by Mr Bawany to Mr Cook (as evidenced in an email between the two of them dated the 4^th July 2008) was: “… ignore him looks he is on his monthly”.

During this period the only confirmation that Mr Schenk was provided with was a letter signed by Mr Sun dated the 2^nd July 2008, on the headed note paper of “Global PIK Private PCC” which stated: “We confirm we hold in a protected cell 4,200,000 shares of Fluid Leader Group Plc to your benefit”. This was false.

On the 11^th July 2008 Mr Cook wrote to Mr Schenk informing him that henceforward neither he nor Mr Sun would talk to Mr Dugast. This was nothing more nor less than a stonewalling exercise.

In the middle of July 2008 Mr Aguet threatened legal proceedings. On the 15^th July 2008 Mr Bawany sent Mr Sun an email which stated: “Michael please call me urgent in your interest before matters are out of control”. It is evident that no shares had in fact been transferred to Mr Schenk because Mr Bawany also advised Mr Sun: “Please deliver the dam shares to them and close the book”. The representation made by Mr Sun referred to above that shares were already held in a protected cell for Mr Schenk’s benefit was thus false, as this email confirms.

On 28^th July 2008 Mr Dugast wrote to Mr Bawany, by email, demanding from him a written undertaking to pay CHF 3.3m. The payment was required to be made within two days. In the absence of payment Mr Dugast threatened the commencement of proceedings against Mr Bawany. Mr Bawany replied saying, falsely, that he had nothing to do with the transaction and he suggested that Mr Dugast chase CMSL and GlobalBanc. Mr Dugast asked who, if not Mr Bawany, was in charge? Was it Mr Cook or someone else? This exchange of emails was passed by Mr Bawany to Mr Sun on the 29^th July 2008. Mr Bawany said, tellingly and in a manner indicating knowledge of the dishonesty of the venture, as follows to Mr Sun: “Dear Michael please in your own interest get this matter sort it otherwise this will become police case I would be grate ful [sic] if you could phone me, I will wait till 30 ^th 12 clock after that it is in Gods hands, as I have enough paper work signed by Philip, I know Philip don’t care I am sure you don’t want Centurion to be tarnish with all this”.

(xii)

The sham nature of the purported allocation of the Fluid Leader shares to the Claimant

The 4.2 million shares referred to in the 2^nd June Agreement and said to be in the account of Mr Bawany were part of the parcel of 20.22 million shares in Fluid Leader acquired by Global PIK.

I find as a fact that no shares in Fluid Leader were ever allocated to an account held on behalf of the Claimant. Various documents in the disclosure files purport to establish that there was an allocation of 3.8 million shares to ANA Holdings, i.e. to Mr Bawany. However there are a number of documents on the file which are plainly forgeries and, indeed, all parties appearing before the Court accept that they are either forgeries or false records generated after the event to convey a false impression. These particular documents are after the event creations designed to give the illusion that Fluid Leader shares were, in actual fact, allocated into a cell account held on behalf of the Claimant. The most compelling evidence of this is a document of the 1^st August 2008, which is internal to the Defendants, and prepared by a Trust Administrator at Global PIK which reveals that no cells had in fact been created within Global PIK including no cell for ANA Holdings. The document states that: “Nothing has been recorded, resolved or posted, and it appears to have been just left”. Further no “know your client” (“KYC”) had been undertaken for the beneficial owners of any cells. Further, the Trust Administrator records that payments out from Global PIK had been made from the CHF 3m but “with no evidence or details or documentation of what the payments are for”. There are hand written comments upon this document which indicate that only Mr Sun could explain the transactions so as to enable, after the event, minutes and resolutions to be created. The fact that this was an internal document, never intended to be exposed to scrutiny in Court and never intended to be seen by the Claimant, indicates that substantial probative weight may be attached to it. In short, no shares were ever allocated for the benefit of Mr Schenk.

(xiii)

The Claimant threatens proceedings

The Claimant remained in the dark. Communications became increasingly tense. In September 2008 the Claimant instructed Peters & Peters (Solicitors) in England and Bedell Cristin in Jersey to write to both Messrs Cook and Sun. Mr Sun replied that that Mr Schenk was not a CMSL client, that the shares were subject to a “lock-in agreement” and that instructions to deal with them would have to come from GlobalBanc (i.e. Mr Cook).

(xiv)

The collapse of Fluid Leader

Fluid Leader was in fact listed on PLUS on 3^rd June 2008. By 17^th November 2008, Fluid Leader’s share price had collapsed from 52.5p on re-admission to 12.5p per share. They continued to plummet. On 30^th September 2009, Fluid Leader delayed in publishing its accounts for the year ended 30^th April 2009. From about May 2009 the shares were trading at circa 1p. On 9^th November 2009 the shares were suspended.

(xv)

The Jersey proceedings: 3 ^rd December 2008 The “Full and Final Settlement”

Mr Bawany argues that there was a full and final settlement of the claim against the Defendants arising out of proceedings brought in Jersey. I reject this submission. The Jersey Proceedings arose in the following way.

In October 2008 the Claimant applied against CMSL to the Royal Court of Jersey (Samedi Division) seeking an order of disclosure (a “Norwich Pharmacal” type claim) in order to ascertain the use to which the Claimant’s CHF 3m had been put and as to its present whereabouts. The Royal Court of Jersey granted the application on the 23^rd October 2008. A considerable volume of documentation was disclosed, some of which has been valuable in the present case in enabling the sequence of events to be established. Various exchanges between the parties ensued. For present purposes it suffices to record that settlement terms were concluded “without prejudice”. On 3^rd December 2008 the Claimant entered into an agreement with CMSL under which, inter alia, CMSL irrevocably agreed to pay the Claimant CHF 3,475,000 in four instalments in December 2008 and January, February and March 2009. Under the terms of the agreement if any instalment was late the entire sum outstanding became immediately payable. Further once payment had been made “in full” the Claimant would, inter alia, withdraw its claims and complaints against the Defendant to the Jersey Proceedings (i.e. CMSL) and/or its directors and officers. Suffice to say CMSL did not honour its obligations under the Agreement.

Mr Bawany relies upon Clause 8(ii) of the Agreement. In particular he stated that the Agreement demonstrated that, as part of the “Full and Final Settlement”, Mr Schenk agreed to release all claims against CMSL and in particular to assign all and any rights against other potential parties involved in the transaction to CMSL. Mr Bawany submitted that there had been a wholesale failure on the part of the Claimant to provide disclosure of the assignments referred to in the Clause. Mr Bawany was convinced that, in actual fact, Mr Schenk had assigned away his right to bring proceedings and that necessarily included the present claims. Clause 8(ii) reads as follows:

“8.

On payment being made in full, the Plaintiff shall:

(i)

…

(ii)

release all and any claims against the Defendant and assign to the latter all and any rights against any potential party involved in the transaction whereby the Plaintiff purchased 4,200,000 shares in Fluid Leader Group Plc (‘the Fluid Transaction’)…”

The answer to Mr Bawany’s point can be set out shortly. The settlement agreement is of no relevance to the present proceedings not least because (a) it was not concluded as between the Claimant and any of the present Defendants and (b) the terms of the agreement were not complied with by CMSL and the Claimant never received the funds he contracted for. Accordingly the Claimant never came under any obligation of any sort to assign claims to CMSL. There is nothing here which can ride to the aid of Mr Bawany or any other Defendant.

(xvi)

The Particulars of Claim

On 23^rd July 2014 the Claimant served an Amended and re-issued Claim From (the original having been issued on 25^th March 2014 and Particulars of Claim claiming (inter alia): (i) a declaration that all sums and/or assets as amount in equity to the traceable proceeds of the CHF 3 million of which the Claimant was defrauded be held on constructive trust for him; (ii) all such further accounts, enquiries, order for payment or transfer and other consequential relief as the court seem fit; (iii) compound or ordinary interest.

On the first day of the trial the Claimant sought permission to amend his Particulars of Claim in order to address an issue raised by Mr Bawany. The amended Particulars of Claim stated, at paragraph [11A] that the claim was based upon the fraud of the Defendants and upon concealment by them of material facts. It is averred that the Claimant did not discover, and could not with reasonable diligence have discovered, the fraudulent matters alleged until a date after the 14^th July 2008. If this is correct then no issue as to limitation arises, notwithstanding that the original Claim Form was issued more than six years after some of the alleged actionable torts were committed. This is because of the effect of section 32 of the Limitation Act 1980. It will be apparent from the findings of fact that I have made in the present case that the Claimant did not discover, nor could not with reasonable diligence have discovered, the fraudulent and concealed nature of the tortious conduct complained of until a date after 14^th July 2008. I therefore granted permission to the Claimant to amend the Particulars of Claim to clarify this issue.

Introduction

In this section I consider the findings of fact set out above in the context of the causes of action pleaded by the Claimant against the Defendants.

The causes of action relied upon are: (i) conspiracy: (ii) deceit and fraudulent misrepresentation; and (iii) knowing receipt and dishonest assistance. The Claimant also relies upon breach of fiduciary duty against Mr Stramandino, but not other Defendants. All of these principles are well known. I find that each claim has been established to the requisite standard. I set out my conclusions on each tortious/equitable claim below.

(ii)

Conspiracy

The components of the tort of conspiracy include: (i) an agreement or combination between two or more persons; (ii) the intended consequence of which is to injure the Claimant; (iii) the use of unlawful means; and (iv) acts done in execution of that agreement which result in damage to the Claimant’s trade or other interests Both lawful means conspiracy and unlawful means conspiracy require intention to injure. Whilst the former requires proof that the Defendant’s predominant purpose is to injure the Defendant, the latter does not. In Bank of Tokyo-Mitsubishi UFJ Ltd v Baskan Gida [2009] EWHC 1276 (Ch) (Briggs J ) at paragraph [825] Briggs J explained (citing inter alia OBG v Allan [2008] AC1) that unlawful means conspiracy:

“… is in truth a subspecies of the tort of conspiracy to injure in which the ordinary requirement that such intent be predominant in the mind of the Defendant is replaced by the requirement to show that unlawful conduct has been the means of the intentional infliction of harm to the Claimant.”

(Emphasis added)

In Douglas v Hello! (No 3) [2006] QB 125 at paragraph [159] the Court of Appeal set out the range of possible states of mind which could amount to “intention to injure” for torts including conspiracy as:

“(a)

an intention to cause economic harm to the claimant as an end in itself;

(b)

an intention to cause economic harm to the claimant because it is a necessary means of achieving some ulterior motive;

(c)

knowledge that the course of conduct undertaken will have the inevitable consequence of causing the claimant economic harm;

(d)

knowledge that the course of conduct will probably cause the claimant economic harm;

(e)

knowledge that the course of conduct undertaken may cause the claimant economic harm coupled with reckless indifference as to whether it does or not.”

The Court of Appeal held that only (a) and (b) satisfied the test:

“A course of conduct undertaken with an intention that satisfies test (a) or (b) can be said to be ‘aimed’, ‘directed’, or ‘targeted’ at the claimant. Causing the claimant economic harm will be a specific object of the conduct in question. A course of conduct which only satisfies test (c) cannot of itself be said to be so aimed, directed or targeted, because the economic harm, although inevitable, will be no more than an incidental consequence, at least from the defendant's perspective…”

In OBG v Allan [2008] 1 AC 1 at paragraph [51] the House of Lords held:

“51.

Unlawful means therefore consists of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant.”

In this case I am satisfied that the test is satisfied. Even though it is unnecessary for each and every conspirator to be aware of every facet of the overall conspiracy I am satisfied that all of the Defendants: were aware of the fraudulent plan to induce the Claimant to transfer CHF 3m in reliance on false representations; were active participants in it albeit in different ways; intended to defraud Mr Schenk of his money; and, used unlawful means to achieve that end causing damage to Mr Schenk.

First, Messrs Stramandino, Bawany, Cook and Sun participated in an agreement to induce the Claimant to transfer funds into their collective control whereupon they would dissipate those funds forthwith to their own benefit and not invest the funds as they had agreed with the Claimant to do. The agreement spread across two stages (a) inducing the Claimant to transfer funds for the express purpose of investing in MTNs but diverting the funds from that purpose into fees, commissions and other benefits for their own direct and/or indirect benefit; and (b), inducing the Claimant to agree to invest in shares in Fluid Leader. All of the Defendants shared the plan albeit that they played different roles in its implementation.

Second, the intended consequence of the agreement was to divert the Claimant’s CHF 3m to the Defendants’ benefit and thereby deprive the Claimant of his money and the expected/promised benefits of his investment.

Third, the agreement was implemented using deliberate falsehoods (i.e. lies) to induce the Claimant (i) to transfer the CHF 3m initially; and (ii), to conclude the 2^nd June 2008 Agreement.

Fourth, by the agreement and the acts in implementation thereof the Claimant suffered loss and damage.

(iii)

Deceit and fraudulent misrepresentation

I turn now to deceit and fraudulent misrepresentation. To found an action in deceit: (i) there must be a clear misrepresentation of present fact or law; (ii) the misrepresentation must be made knowingly, or without belief in its truth, or recklessly; (iii) the representation must be intended to be acted upon by the representee; and (iv) the representation must be relied on by the representee.

In my judgment the pleaded misrepresentations are established. As already explained they can be analysed in two stages. The first stage focuses upon the false representations made by Mr Stramandino which induced the initial investment but which was agreed to and concurred in by all Defendants. The misrepresentations are those set out at paragraph [25] above. Insofar as these representations were made indirectly by some of the Defendants (i.e. via Mr Stramandino) then this does not render then non-actionable: see e.g. JD Wetherspoon Plc v Van de Berg [2007] EWHC 1044. Each of Messrs Stramandino, Bawany, Cook and Sun were involved in the first stage albeit that it was Mr Stramandino who physically conveyed the representations. The second stage concerns the representations made at the meeting on the 2^nd June 2008. It involves representations made by Mr Bawany and Mr Cook with the agreement and consent of Mr Sun (the details of this have been set out at paragraphs [47] – [51] above). Those representations were intended to be acted upon by Mr Schenk. And they were, in actual fact, relied upon by Mr Schenk since he entered the 2^nd June 2008 Agreement. All of the representations made at both stages were made knowing them to be false and certainly without belief in their truth. At the very least they were made recklessly. The quantum of loss equates to the loss directly flowing from the Claimant’s reliance upon the tortious misrepresentations and is calculated to restore the Claimant to the same position he would have been in had he not relied upon them.

(iv)

Knowing receipt and/or dishonest assistance

I turn now to the tort of knowing receipt and/or dishonest assistance. The Claimant must establish that there has been a breach of trust or fiduciary duty which the Defendant has dishonestly procured or assisted: Royal Brunei Airlines v Tan [1995] 2 AC 378 at page [392]; Fiona Trust v Privalov [2010] EWHC 2583 (Comm) at paragraph [61]; Novoship (UK) Ltd v Mikhaylyuk [2012] EWHC 3586 at paragraph [88] – [92]. The Claimant’s case is that the recipients of the CHF 3 million were Mr Bawany (the payment was “for the further credit to ANA Holdings”, i.e. Mr Bawany, see paragraph [31] above) and Messrs Sun and Cook (albeit via their companies). The “trust property” for these purposes is the entirety of the CHF 3 million which is held by the recipient on constructive trust for the Claimant alternatively upon a Quistclose purpose trust (because its original purpose viz., investment in an undervalued MTN failed). For the tort of dishonest assistance there is however no need to establish trust property: see Novoship (ibid) at paragraph [90]. The test for dishonesty is well known; it is not necessary to set out the test in this judgment. I accept the Claimant’s contention that based upon the evidence before the Court I can be satisfied to the requisite high civil standard that these three Defendants dishonestly assisted each other. They all knew from the outset that they were acting dishonestly and they all acted collectively to implement the fraudulent plan. They are therefore all accountable in equity to make good the Claimant’s losses “as if they were truly trustees for the claimant” (Novoship (ibid) paragraph [74]).

(v)

Breach of fiduciary duty

Finally, I address the allegation of breach of fiduciary duty. Again the principles are well established. The Claimant refers to the statement of the Court of Appeal in Novoship UK Ltd & Ors v Nikitin & Ors [2015] QB 499 at paragraph [104]:

“[104] It is important to appreciate the special position in which a fiduciary finds himself. The essence of the relationship between a fiduciary and beneficiary is that the latter has placed his trust in the former. The core duty of the fiduciary is single minded loyalty to his beneficiary. Thus the breach of duty does not consist in the making of a profit by the fiduciary, but in the keeping of it for himself. That is not a breach of a personal obligation; it is an abuse of the trust and confidence placed in him by his principal who put him in a position to make the profit because he trusted him not to serve his own interests … ”

Mr Stramandino is the target of this particular attack. On the basis of the evidence that I have seen he held himself out as an attorney at law providing advice as to the MTN opportunity. As pleaded his status as a lawyer was intended to and did provide a veneer of trustworthiness. I accept that on the evidence a relationship of trust and confidence arose. Mr Stramandino abused that relationship by allowing his personal interests and those of Messrs Couture, Cook, Sun and Bawany to take precedence over those of the Claimant. In these circumstances he breached his fiduciary duties.

Procedural history leading up to the striking out of the defence of Mr Bawany and the entering of judgment against him

I have found that Mr Bawany is liable to the Claimant on the merits of the claims made against him. I address his appeal in the alternative. On the 19^th November 2015 an order was made for standard disclosure. Pursuant to paragraph 6 of the Order the databases of electronic documents were to be searched for the date range 1^st September 2007 to 25^th March 2014 using a series of identified key words. The documents identified by this process were to be reviewed by the disclosing parties to remove documents not subject to standard disclosure. And then by the 26^th February 2016 the parties were required to give each other standard disclosure of documents by list on form N265 supported by a disclosure statement. At paragraph [7] the Order stipulated that any application by the Fourth and Sixth Defendants to strike out the claim was required to be issued by the 17^th December 2015.

On the 2^nd March 2016 the Claimant applied for disclosure of certain documents said not to have been disclosed by the Fourth and Sixth Defendants. An order was made on the 9^th March 2016 requiring those Defendants to give disclosure in accordance with the previous Order of the 19^th November 2015.

As part of their application the Claimant sought an “Unless Order”. By paragraph 4 of the Order of the 9^th March 2016 the Claimant’s application for an unless order was adjourned generally with permission to the Claimant to restore the same upon notice to the other parties.

On the 18^th July 2016 the Claimant, once again, sought an order for specific disclosure from the Fourth and Sixth Defendants. In relation to this application the Court, on the 22^nd July 2016, made an order that those Defendants give specific disclosure of, inter alia, documents located at the offices of three identified firms of solicitors; documents identified by conducting an electronic search using the other parties surnames (“Schenk”, “Cook”, “Stramandino”, “Couture”, and “Sun”). Further, the Defendants were required to provide the parties with full copies of original emails and documents in relation to large numbers of items in the Fourth and Sixth Defendants’ list of documents served on the 22^nd March 2016, where only part of the document had been provided.

Furthermore, the same Defendants were required to provide the parties with documents which covered such matters as the acquisition or proposed acquisition by the Fourth and/or Sixth Defendant of shares in CMSL or associated companies, documents relating to the terms upon which the shares in Fluid Leader were held and dated on or around 17^th November 2008 and various documents said to amount to emails passing between potentially relevant individuals. Further the same Defendants were required to provide the parties with emails concerning the terms upon which shares in Fluid Leader were acquired with the CHF 3 million paid on the 13^th March 2008.

By application dated the 26^th September 2016 the Claimant sought an order that unless by 4pm on the 17^th October 2016 the Fourth and Sixth Defendants serve and file a witness statement exhibiting the documents set out by the Claimant in a schedule entitled “Claimant’s comments and requests of the Fourth and Sixth Defendants… in order for him to comply with the Order of 22 July 2016…”, the Amended Defence of the Fourth and Sixth Defendants be struck and judgment entered for the Claimant without further order. The Unless Order was made on 3^rd October 2016.

The Claimant contended that the Unless Order had not been complied with and sought a declaration to that effect and that judgment against the Fourth and Sixth Defendants be entered in a specific sum. The application came before Master McCloud. The Master gave her ruling on the 8^th November 2016. She emphasised that in giving judgment she was not considering whether to impose sanctions but only whether the sanctions provided for in the existing Unless Order should now apply. She observed that it took only one material breach to engage the Unless Order and that the task before her was simply to decide whether or not the Unless Order had been “triggered”. The Master identified four breaches. She stated that she had heard lengthy submissions from both sides. The alleged breaches were “very numerous”. On those upon which she heard submissions, which were only a cross section of about a dozen or so alleged breaches, she was satisfied that there were breaches in relation to four particular and relevant documents and to a part 18 request. In paragraphs [3] – [5] of her ruling the Master thus stated:

“3.

With regard to p.313, it is clear that what has been disclosed now is, in fact, a different email chain from the one for which disclosure was ordered. In relation to 324, the distribution agreement has not been disclosed. The explanation put forward in the evidence in reply was more or less to the effect that it might have been a non-disclosure agreement, but I am not satisfied that that has been adequately disclosed or explained.

4.

In relation to 329, I think earlier I said that two of the three pages had been disclosed, I meant two of the three agreements referred to in that document had been disclosed. That is an email at 329 which purports to attach three contracts and it appears that, at best, two of those three have been disclosed. There is some doubt about whether the other two are the same documents. On balance I think they probably are but the third is certainly not there.

5.

In relation to the Part 18 request, I am satisfied that insufficient effort has been made to disclose material that goes to the commission issue and which sets out details of the commission paid. On balance that is a breach but perhaps less strongly convinced than for the other breaches.”

In these circumstances the Master struck out the defences of the Fourth and Sixth Defendants and entered judgment for the Claimant.

Before turning to the merits of the appeal I should record that the Claimant, who is the Respondent to this appeal, has submitted a Respondent’s Notice which falls to be heard only if the Court is minded to allow the appeal. In relation to this it is submitted that there are other documents where the Master should have found that there had not been production as ordered and required by the Unless Order. These are referred to as documents “293” and “334”. I deal with this.

The approach that I, therefore, take in this appeal is (a) first, to decide whether the Master was correct in concluding that there had been non-observance of the Unless Order; and (b), if there has been non-observance whether there should be relief from sanctions in accordance with the CPR and the now well known test laid down in the case law.

(ii)

The appeal

I turn, therefore, to consider whether the Master was correct in concluding that there had been a breach of the Unless Order. I should also record that the Respondent does not seek to support the conclusion of the Master in relation to her finding, in paragraph [3] of her ruling (set out above) with regard to the “313” issue. The Master considered that it was clear that what had been disclosed was in fact a different email chain from the one for which disclosure was ordered. The Respondent now accepts that this finding was in error. Accordingly the Respondent relies upon the other findings of breach by the Master and, to the extent necessary, the additional matters arising under the Respondent’s Notice. I deal below with the disputed matters.

Item 324: Distribution agreement

The Master concluded that the Fourth and Sixth Defendants failed to disclose a distribution agreement. The issue arises in the following way. The Defendants disclosed an email from Mr Bawany to Mr Sun dated the 19^th May 2008. The email states that there is one attachment entitled “Distribution Agreement 2008 (20 March 08). DOC (142.1 KB)”. The email thread shows that the Distribution Agreement was sent by a Mr Zineb Ayouch at ABN Amro to Mr Bawany and to Mr Cook. It is described in the email as an agreement between “GlobalBanc/Collins Stewart”. The text to the email describes it as a standard distribution agreement which covers the relationship where a person purchases securities from ABN Amro and then sells them onwards. The date of the distribution agreement (20^th May 2008) is significant being just over a day after the for-value date and the conversion of the CHF 3m into sterling. The chronology in the present case shows that some of that money was paid out on or around the 19^th March 2008. It is known that Collin Stewart was a broker who had custody of the Fluid Leader shares. Mr Bawany in a witness statement addressing this before the Master explained that he “believed” that it was no more than a non-disclosure agreement but he says that the document had not been found. During the hearing before the Master Mr Bawany stated that documents prior to 2014 could not be found by him. However the Claimant pointed out to the Master that documents disclosed by Mr Bawany made clear that he was in fact able to locate pre-2014 documents. The Claimant considers that this may be a highly relevant document which sheds light upon the diversion of the CHF 3m to various of the alleged fraudsters. Mr Bawany submitted in argument before this Court that the document was not, in his view, a relevant or material document but that, in any event, he could not find it upon his computer system. These reflect the same arguments that he advanced before the Master. It seems to me that the document withheld is potentially materially significant given its timing. There is moreover an inconsistency between the positions adopted by Mr Bawany in his 18^th and 20^th witness statements and there is inconsistency in Mr Bawany’s earlier submission that documents pre-2014 could not be located and the fact that documents have been found to be available. I find that the document has not been disclosed.

Item 329: Attachments to email of 10 ^th March 2008

The second category of documents that the Master held had wrongly not been disclosed are three attachments referred to in an email of the 10^th March 2008 from Mr Bawany to Mr Mike Amery. These documents were sent to Mr Bawany, earlier the same day, by Mr Perez Blanco. The documents include a document entitled “Investment Contract ANA Holdings Ltd”. Mr Walford, for the Claimant, says that this is potentially, again because of its timing, a sensitive and material document. It refers to an investment contract involving Mr Bawany using his trading name “ANA Holdings”. For his part Mr Bawany says that he has disclosed the documents. However the documents which have been identified by Mr Walford as those disclosed are not the documents referred to in the email. The document said by Mr Bawany in his eighteenth witness statement to be that referring to ANA Holdings is dated the 2^nd June 2008 so cannot have been a document in existence and being referred to in March 2008. I find that there has been non-disclosure.

The Part 18 response

The Claimant issued a Part 18 Request for information from Mr Bawany in relation to an admission on the part of Mr Bawany in pleadings that he received commission from Mr Cook, the First Defendant. The Part 18 Request sought details of the commission that Mr Bawany received including as to the form of commission, how much was paid and by whom and how, i.e. by cheque or bank payment. In his response Mr Bawany accepted that he had received a commission pursuant to his agreement with GlobalBanc. He identified three payments of commission in 2007 and 2008 amounting, respectively, to £4,700, £70,000 and £100,000. The answer stated that the payments were “general payments on account”. However, Mr Bawany stated also that: “… no payment made was specifically as commission on any shares allocated to Mr Schenk”. In another document disclosed by Mr Bawany, which appears to be from Mr Cook, there is a reference to an attached spreadsheet reflecting recent transactions and which includes “commissions paid to yourself”. In the column headed “commissions” there is a figure of “250,000”. Mr Bawany denies that this has anything to do with the Claimant. Indeed he considers that this document is probably a fabrication or fraud concocted by other Defendants. Given the evidence I have seen I find that Mr Bawany has not disclosed details of commissions paid to him.

Item 293

The other item of relevance relied upon by the Claimant, by way of cross-appeal, is an email dated the 19^th March 2008. It refers to the CHF 3m and to the acquisition of 3.8 million shares. The email was originally sent by Mr Cook to Mr Bawany. It is important both in terms of its timing and subject matter. It concerns transactions which are plainly connected to the CHF 3m, and was sent and received the day after the for-value date and its conversion into sterling. This was at or about the time when the moneys were dissipated into corporate vehicles owned by Messrs Cook and Sun and when commission payments were being made or planned to be made to Mr Bawany. It is entirely possible that it could shed light on Mr Bawany’s claim that he received no payment for his introduction of the Claimant’s business. It is plainly incomplete in that it refers to a number of other potentially relevant matters but stops, in effect, mid sentence. Mr Bawany accepts that the full email might be upon his computer. He says that he offered to make available his laptop to the Claimant’s solicitors to enable them to search and retrieve the document. However the solicitors were reluctant because of the risk of accessing privileged material. It was suggested to Mr Bawany that he instruct an expert to extract the documents from his laptop. This was not done. The Claimant argues that the Order of the Master may be upheld upon the basis of this failure to give disclosure as well. I agree.

Analysis

I have come to the conclusion that there was a breach of the Unless Order on the part of Mr Bawany. The breach concerned potentially significant documents of an inculpatory nature. I can therefore detect no error on the part of the Master in arriving at her conclusion. I take into account that this was a breach of an Unless Order and that it was the culmination of a series of prior breaches by Mr Bawany of Court orders.

In relation to 293 (raised on the cross-appeal) the Claimant is also correct. It was the responsibility of Mr Bawany to ensure that relevant documents were disclosed. It was not the responsibility of the Claimant’s solicitors to extract documents from his laptop. The document is potentially of some considerable significance. It is a communication between two Defendants which, on one view, suggests that Mr Bawany was going to acquire, on behalf of the Claimant, 3.8m Fluid Leader Group Plc shares. However, as of that particular date (19^th March 2008) Mr Schenk believed that he was obtaining an investment in a MTN. Indeed it was only a considerable period later, in May 2008, that Mr Bawany and other Defendants disclosed to Mr Schenk that, contrary to his initial beliefs, he was acquiring shares in Fluid Leader. The email predates that disclosure by some three months and thereby is indicative of the state of mind of Mr Bawany (and other Defendants) at a key moment.

I therefore turn now to the question of whether Mr Bawany should be granted relief from sanctions.

Relief from sanction

I have found that the Master did not err in concluding that there had been a breach of the Unless Order. The next stage of the analysis is to consider whether Mr Bawany should be given relief from the sanction of the striking out of his defence and the entering of judgment in favour of the Claimant.

The basic test to be applied: The basic test for relief is now well established. It is laid down in CPR Rule 3.9 and was elaborated upon in the judgments of the Court of Appeal in Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537 ("Mitchell"), and, Denton v TW White Limited [2014] EWCA Civ 906 ("Denton"). CPR 3.9 provides as follows:

"3.9

– (1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need:

(a)

for litigation to be conducted efficiently and at proportionate cost; and

(b)

to enforce compliance with rules, practice directions and orders.

(2)

An application for relief must be supported by evidence".

The Court of Appeal first gave guidance as to the approach which should be adopted by courts in circumstances such as the present in paragraphs [40] and [41] of Mitchell. This however led other, inferior, courts to apply the rules in, what turned out to be, a draconian manner and in ways which suggested that lower courts had misunderstood the message sought to be conveyed in Mitchell. In Denton the Court of Appeal took the opportunity to clarify the principles to be applied. It made clear that a court should address the issue before it in three stages. Paragraph [24] of Denton describes the three stages:

"The first stage is to identify and assess the seriousness and significance of the "failure to comply with any rule, practice, direction or court order" which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]".

The materiality of the breach/assessment of underlying merits: The materiality of the breach is also, at least to some degree, relevant. The Supreme Court in Global Torch Limited v Apex Global Management Limited (No.2) [2014] UKSC 64 (“Global”) has made clear that in ordinary cases a court will not be required to undertake an assessment of the underlying merits, nor would it be appropriate to do so (see paragraphs [29] and [30] per Lord Neuberger). However, this is not an absolute rule. Lord Neuberger, in paragraph [31] stated thus:

"In principle, where a person has a strong enough case to obtain summary judgment, he is not normally susceptible to the argument that he must face a trial. And, in practical terms, the risk involved in considering the ultimate merits would be much reduced: the merits would be relevant in relatively few cases, and, in those cases, unless the court could be quickly persuaded that the outcome was clear, it would refuse to consider the merits. Accordingly, there is force in the argument that a party who has a strong enough case to obtain summary judgment should, as an exception to the general rule, be entitled to rely on that fact in relation to case management decisions."

In Joshi &Welsh Ltd v Tay Foods [2015] EWHC B6 (QBD) (“Joshi”) at paragraphs [26] – [29] the Court sought to balance the need to ensure adherence to procedural rules with the need to consider the merits of the claim were relevant, especially if the effect of refusing relief was that it led to judgment:

“26.

Viewed in this light, the violation upon which the judge entered summary judgment was a violation rooted in appearance only but not in substance. When the judge said that it exerted minimal effort upon the proceedings it would have been better to describe the effect as virtually non-existent. I have in this regard considered the observations of the judgment of the Master of the Rolls and of Vos LJ in Denton at paragraph 26 on the relevance of materiality. In that case the court stated as follows:

‘… we think it would be preferable if in future the focus of the enquiry at the first stage should not be on whether the breach has been trivial. Rather, it should be on whether the breach has been serious or significant. It was submitted on behalf of the Law Society and Bar Council that the test of triviality should be replaced by the test of immateriality and that an immaterial breach should be defined as one which “neither imperils future hearing dates nor otherwise disrupts the conduct of the litigation”. Provided that this is understood as including the effect on litigation generally (and not only on the litigation in which the application is made), there are many circumstances in which materiality in this sense will be the most useful measure of whether a breach has been serious or significant. But it leaves out of account those breaches which are incapable of affecting the efficient progress of the litigation, although they are serious. The most obvious example of such a breach is a failure to pay court fees. We therefore prefer simply to say that, in evaluating a breach, judges should assess its seriousness and significance. We recognise that the concepts of seriousness and significance are not hard-edged and that there are degrees of seriousness and significance, but we hope that, assisted by the guidance given in this decision and its application in individual cases over time, courts will deal with these applications in a consistent manner.’

27.

In my judgment, the Court of Appeal was, at least in some degree, endorsing a test of materiality as a useful guide in determining the seriousness and significance of a violation. Of course, the other side of the coin has to be acknowledged. Rules exist for good reason. Non-observance can create adverse ripple effects in the administration of the court service which litigants are rarely cognisant of. The High Court has repeatedly emphasised the real and practical importance of strict observance of procedural rules on a number of recent occasions: see, for example, Akciné Bendrové Bankas Snoras v Antonov & Yampolskaya [2015] EWHC 2136, paragraphs 20 and 21. However, whilst in no way under-playing the importance of observance of the rules in Denton, the Master of the Rolls and Vos LJ were, at the end of the day, anxious to emphasise that the CPR was not to be used as a tripwire (see paragraph 37). The Court of Appeal stated as follows at paragraph 38:

‘It seems that some judges are approaching applications for relief on the basis that, unless a default can be characterised as trivial or there is a good reason for it, they are bound to refuse relief. This is leading to decisions which are manifestly unjust and disproportionate. It is not the correct approach and is not mandated by what the court said in Mitchell: see in particular para 37. A more nuanced approach is required as we have explained.’”

Defendant’s submission: I shall start with the Fourth and Sixth Defendants’ submissions. At the hearing before the Master, the Defendant, who had previously dispensed with his counsel, represented himself. He has however served a detailed Notice of Appeal, which clearly has had some legal input. There is no attempt to differentiate the various heads in Mitchell and Denton. The points are all rolled up together. I summarise the main points below:

a)

Mr Bawany is a litigant in person. He is drawing his pension and is in ill health.

b)

The Claimant has been ruthless in seeking documents.

c)

The Claimant has however failed on multiple occasions in complying with his own duties and obligations. Mr Bawany has hitherto applied to strike out the Claim on the basis that it was frivolous, had no merit, a scam, and based upon extortion and that prior orders (such as the freezing orders) had been obtained by deception and extortion.

d)

The extent of the disclosure obligation imposed upon the defendants was unreasonable.

e)

The Court in Mitchell had made clear that the Courts should no longer treat non-observance with court orders as optional. Nonetheless the Court did not do away with the principle of proportionality and Article 6 ECHR still had to be observed.

f)

The Master did not apply Mitchell and acted disproportionately and violated the Defendants’ right to a fair trial.

g)

The law should not amount to a series of “trip wires” for the unwary: citing Aldington v ELS International Lawyers LLP [2013] EWHC B29 (QB).

h)

Given that the effect of not adhering to the Unless Order was that judgment was entered against the Fourth and Sixth Defendants the consequence of not granting relief was “draconian”.

i)

The Fourth and Sixth Defendants were given no prior warning that the draconian sanction would be imposed.

In the Fourth and Sixth Defendants’ Skeleton there is no actual engagement with the specific reasons given by the Master for her finding that there has been non-adherence to the Unless Order. There is hence no analysis as to whether the failures were material or peripheral.

Stage 1: Seriousness: In my judgment the failings are serious. It suffices to set out briefly the reasons which lead me to this conclusion. First, the failures represent the culmination of a series of repeat defaults which ultimately justified the Master in imposing the Unless Order. I have set out the history. This was not a “one – off”. Second, the defaults were not trivial but related to potentially central matters in dispute. Third, I have had regard to the overall merits of the case. In Global (ibid) the Supreme Court emphasised that normally but not inevitably the merits were irrelevant. In Joshi on very particular facts I observed that the extent to which the merits would be taken into account in a given case was fact sensitive. In some cases, in order to decide an application it might be relatively easy and straightforward to form a view; and in other cases it might be very difficult. The facts of this case are complex. There is therefore a substantial limit as to the extent that it would be possible or appropriate on a summary basis to form a view on the merits. Nonetheless given the way in which the trial came to be conducted I have in fact been able to form the conclusion that the merits lie with the Claimant and against the Defendants. I should add that because of the way this trial unfolded my taking into account of the merits in this case is not a precedent for other cases on this point.

Stage 2: Reasons: I address briefly some of the Defendants’ points. First, it is said by Mr Bawany that he was given no warning about the Unless Order and/or the consequences of not adhering to it. I do not accept this submission. Both the Claimant and the Fourth and Sixth Defendants have in the course of this litigation served a series of applications and counter applications. The Fourth and Sixth Defendants, Mr Bawany, has himself sought to attack the claim. I can detect no lack of sophistication in the approaches of the parties and I can see no basis upon which it could be sensibly or credibly argued that any party was unaware of the consequences of actions pursued by or against them. Second, it is said that the Claimant has acted badly throughout. It is true that Mr Bawany has made a number of applications to Court alleging a range of misconduct by the Claimant. However, these applications have been dealt with and invariably rejected by the Court. Whether Mr Bawany agrees with the course taken by the Court or not is immaterial since the fact remains that this case is not about the Claimant’s conduct but about the Fourth and Sixth Defendants non-adherence to an Unless Order.

Stage 3: Assessment of all the circumstances: There are no circumstances over and above those I have already identified which need to be taken into account. Insofar as the merits are relevant these favour the Claimant.

For all the above reasons: (a) the claims against all the relevant Defendants succeed; (b) in any event the appeal of Mr Bawany fails. I will hear submissions on the form of relief now sought and as to interest.