The Honourable Mr Justice David Richards:
Introduction
- There are a number of applications before the court,
but this judgment is concerned principally with the claimant's application for
summary judgment against the first defendant, Martin Mitchell, and for
judgment in default of defence, alternatively summary judgment, against the
second defendant, Leslie Silverman. An order for an interim payment of £5.5
million is also sought against them both. The position as regards Mr Silverman
is complicated because, as the claimant accepts, he is incapable of giving
instructions and the Official Solicitor has been appointed his litigation
friend. I will deal with the particular circumstances of Mr Silverman at the
end of this judgment.
- On 24 July 2006, on an application without notice to
the defendants, Warren J made a freezing and disclosure order against the
three defendants (the July 2006 order). There are before the court
applications to commit Mr Mitchell and Mr Silverman for breaches of this
order, in respect of alleged non-disclosure and transfers in breach of the
order. In view of Mr Silverman's medical condition, the committal application
against him is not being actively pursued at present. The application against
Mr Mitchell is being pursued and was opened to me. Mr Mitchell has very
recently accepted extensive breaches of the July 2006 order, in his third and
fourth affidavits sworn by him on 20 March and 27 March 2007. His fourth
affidavit was provided to the court and to the company's solicitors and
counsel ten minutes before the start of the hearing before me. In the light of
Mr Mitchell's stated willingness to cooperate with the claimant company's
liquidators in every respect in relation to tracing the funds in issue, Mr
Phillips QC for the claimant company (the company) applied at the start of the
second day of the hearing for an adjournment of the committal application to a
date not before 24 April 2007. This application was supported by Mr Mitchell
and I agreed to it. I continued to hear the summary judgment application, to
which much of Mr Phillips' opening on the first day was relevant. Mr
Mitchell's affidavits on the committal application are also relevant to the
summary judgment application.
The company's claim
- The company is in creditors' voluntary liquidation.
The claim is for an order that Mr Mitchell and Mr Silverman, formerly the
directors of the company, account to the company for the funds and assets of
the company misappropriated and/or diverted by them (or each of them) in
breach of their fiduciary duties to the company, together with all income and
profits derived from those funds and assets, and an order for the payment of
all sums found due upon the taking of the account. Further or alternatively,
an order is sought that Mr Mitchell and Mr Silverman compensate the company
for their breaches of fiduciary duty. There are also claims against Steven
Silverman on the grounds that he dishonestly and knowingly assisted Mr
Mitchell and Mr Silverman in the breach of their fiduciary duties, and a claim
for damages for conspiracy against all the defendants.
- The amounts alleged to have been misappropriated by
transfers from the company are at least £3,621,617 (from which £700,000 repaid
to the company should be deducted) and US$2,118,023.25. In addition, it is
alleged that at least £211,592 and US$392,500 was diverted from third party
debtors of the company. All these payments were made between October 2001 and
November 2002 to an account in the name of a company incorporated in the
British Virgin Islands, Lake Charles Inc (LCI). The account was with a bank in
Andorra, Bank Agricol Commercial D'Andorra (Andbanc). The signatories to the
account were Mr Silverman and his son, the third defendant Steven Silverman.
The company alleges that LCI was beneficially owned and/or controlled by the
defendants. The liquidators obtained disclosure of Andbanc's records for LCI
which showed that the funds had been paid out of LCI's account between
November 2001 and September 2003 to a number of payees. The sums paid out
amounted to £4,751,411.83, $816,360.84 and €153,848.37. Most of the payees
were either entities which on the company's case are fronts for the
defendants, or accounts in the names of Mr Mitchell or Mr Silverman at Credit
Suisse in Geneva, or third parties for the purchase of villas in Spain and
cars and other goods which on the company's case were for the use and benefit
of Mr Mitchell and/or Mr Silverman.
- It is alleged that the defendants wrongfully
concealed the existence of LCI and their control of it, and the payments into
and out of its account. Steps taken for that purpose included producing to the
auditors a false invoice purportedly issued by LCI for £1,591,712, falsely
representing to the liquidators that the company had purchased pharmaceutical
products from LCI and failing to produce the company's books and records,
giving inconsistent and incredible reasons for this failure.
- It is convenient at this point to refer briefly to
the various entities which either received funds from LCI's account or were
connected with them. As well as LCI, there are three companies incorporated in
the BVI: Bawdwin Investing Inc (Bawdwin), Heaton Moor Limited (Heaton Moor)
and Deerfield Services Limited (Deerfield). Bawdwin had an account with
Andbanc on which Mr Mitchell was a signatory. Sums totalling £1,366,900 and
$258,404 were paid to it from LCI's account. Heaton Moor received a total of
£1,395,000. It and Deerfield were involved in a series of property
developments in England with two English companies, Madison UK Limited (MUK)
and Madison Properties UK Limited (MPUK). MUK itself also received a total of
£205,000 from LCI's account. MUK and MPUK were both owned and controlled by
the defendants. Deerfield and Bawdwin were struck off the register of
companies in the BVI in May and November 2006. MUK was struck of the register
in England in August 2005.
- A Gibraltar-based trust company, BDO Fidecs
Management Limited (BDO Fidecs) maintained accounts for Heaton Moor and
Deerfield. On the instructions of Mr Mitchell and Mr Silverman, BDO Fidecs
also established and administered two family trusts to which their homes in
England were transferred. Further, it established and administered a trust to
which the shares in the company, then owned by Mr Mitchell and Mr and Mrs
Silverman, were transferred. Mr Mitchell's evidence is that this was a
purchase by a third party. BDO Fidecs also maintained an account for the
seller of the villas in Spain.
- Funds transferred to the accounts at Credit Suisse,
Geneva, in the names of Mr Mitchell and Mr Silverman were subsequently
transferred to Black Vulture Limited (Black Vulture), a company incorporated
in the Bahamas in June 2006. It has an account with Credit Suisse in
Liechtenstein, on which the defendants are the signatories. Mr Mitchell's
evidence is that Black Vulture was established to provide a fund against which
MPUK could borrow for property investment.
Mr Mitchell's pleaded defence
- Mr Mitchell denies all allegations of wrongdoing. He
accepts that the payments in issue in these proceedings from the company were
made to LCI's account as alleged but denies knowledge of the payments into
LCI's account from third parties. He denies that he gave instructions for the
payments from the company, not being a signatory on its bank account, but he
has in evidence accepted that they were made with his knowledge and consent.
His case is that they were legitimate payments by the company and the nub of
his case in contained in paragraph 12 of his defence:
"(a) The Company received orders for the sale of pharmaceutical
products through introductions made by Mr Yaroslav Farber. In return for the
orders and introductions, the Company agreed to pay a commission to Mr
Farber that Mr Farber instructed the Company to pay to LCI.
(b) Accordingly all payments made to LCI were in consideration
of the placing of orders for the resale of pharmaceutical products and were
made in the ordinary and proper course of the Company's
business."
- Mr Mitchell denies that he gave instructions to
Andbanc for payments out of LCI's account. He accepts that he was a signatory
on Bawdwin's account with Andbanc, but denies that he had any other control
over, or any legal or beneficial interest, in Bawdwin or its account. As
regards the account in his own name with Credit Suisse, he pleads that it:
"was opened on the instruction of Mr Farber to receive
commission payments due from the Company to him. The monies held in this
Credit Suisse account were held for the benefit of Mr Farber and [Mr
Mitchell] only made payments out of this account on the instruction of [Mr
Silverman] who in turn was acting on the instruction of Mr
Farber."
Background facts
- The company was incorporated on 20 September 1996
and started to trade in or about 1997. Its business was the purchase of
pharmaceutical products and their re-sale in the Ukraine and Belarus. The
principal suppliers to the company, and on the company's case the only
suppliers, were companies in what is now the GlaxoSmithKline group (GSK).
Trading with GSK companies began in 1997 and by a letter dated 14 December
2000 Glaxo Welcome plc appointed the company as its sole agent for the Crimea
and its agent for the Ukraine and Belarus.
- The sole directors and employees of the company
were Mr Mitchell and Mr Silverman. Its issued share capital comprised 100
shares, which until 8 April 2002 were held by Mr Silverman (51 shares), his
wife (24 shares) and Mr Mitchell (25 shares). On 8 April 2002 all the shares
were transferred to Shilton Trust, a trust administered in Gibraltar by BDO
Fidecs.
- A dispute developed between GSK and the company
acting by its directors over amounts shown as due in invoices issued by GSK
between 14 September 2001 and 15 May 2002. The amount in issue after credits
but before interest was £5,421,768. On 22 November 2002 GSK presented a
petition to wind up the company. It was opposed by the company and Mr Mitchell
made six witness statements on its behalf. The company's case rested largely
on Mr Mitchell's evidence of oral discussions with GSK personnel and his own
notes of the conversations. After a contested hearing over a number of days,
Blackburne J held that, although GSK had advanced a very powerful case against
the company, he could not say with confidence on the witness statement
evidence before the court that there was no substance to the company's
dispute. Accordingly, he dismissed the petition: see [2003] 2 BCLC 351.
- GSK issued proceedings for the sums claimed by it
and applied for an order under CPR Part 24.6 that the company pay £2 million
into court as a condition of defending the claim. The application was at first
resisted by the company but at a hearing before Blackburne J on 2 July 2003 it
withdrew its objection in principle but contested the amount of the payment
into court. There was produced a witness statement made on 30 June 2003 by Mr
Mitchell indicating that, although the company had cash at bank of over £1.3
million at 31 March 2002, it had since then ceased trading and had only
£82,000 in cash. Blackburne J made orders requiring the company to make full
and frank disclosure of its financial position and assets and liabilities, the
application of the funds which had been held in its bank account as at 31
March 2002 and the financial position of Mr Mitchell and Mr and Mrs Silverman,
together in each case with all relevant supporting documentation. He adjourned
the application to 31 July 2003.
- The disclosure order was not complied with. By a
letter dated 15 July 2003 the company's solicitors (who act for the defendants
in the present proceedings) stated that the directors had decided to put the
company into voluntary liquidation and that the solicitors would cease to act.
Mr Mitchell and Mr and Mrs Silverman declined to provide any funding to the
company and declined to provide the company with information as to their own
financial position to enable the company to comply with that part of the
disclosure order.
- A meeting of creditors was held on 29 July 2003
and the directors' nominee was appointed as liquidator, but only because GSK's
proof for voting purposes was rejected save for £24,000. On 31 July 2003, on
the application of GSK, Blackburne J reversed the decision to reject GSK's
proof and accordingly removed the liquidators and appointed the present
liquidators, both partners in KPMG. He also ordered that the company should
pay £100,000 into court as a condition of defending GSK's claim. No payment
into court was made and GSK entered final judgment on 22 August 2003 for
£5,980,067.45. The liquidators have admitted GSK's claim in the liquidation.
Proceedings to date
- Before turning to the substance of the summary
judgment application, it is necessary to set out some of the steps in the
proceedings to date, and to refer to the development of the evidence provided
by the defendants. The July 2006 order restrained each of the defendants in
standard form from disposing of or dealing with their worldwide assets up to a
value of £6.75 million. Assets for these purposes was defined to include any
asset which a defendant had the power to dispose of or deal with as if it were
his own. Assets specifically listed included accounts in the names of Mr
Mitchell and Mr Silverman at Credit Suisse in Geneva. The order also required
each defendant within 24 hours of service of the order and to the best of his
ability to inform the company's solicitors of his assets worldwide and within
3 days to provide information to facilitate the tracing of assets derived from
the company, including the current value, nature and location of any asset
constituted by or derived from any monies or assets transferred or diverted to
LCI or the identities and contact details of any persons who might have such
information. Within 7 days each defendant was required to confirm the
information in an affidavit.
- The July 2006 order was personally served on Mr
Mitchell and Mr Silverman between 9 and 10 pm on 24 July 2006 at their homes
and on Steven Silverman by arrangement at 4 pm on 25 July 2006.
- Mr Mitchell and Mr Silverman consulted solicitors
on 25 July 2006 and a final extension of time for the initial provision of
information to 2 pm on 26 July 2006 was agreed by the company's solicitors.
Late in the afternoon on 26 July 2006 a one page statement of assets for all
three defendants was faxed to the company's solicitors. As regards Mr Mitchell
and Mr Silverman, it stated that the balance on their Credit Suisse accounts
was nil and that their houses and, in the case of Mr Silverman, another
property were held by trusts of which they were not beneficiaries. The other
property was 8 Queen Elizabeth Close, Meridian Park, Waltham Abbey, Essex (8
Queen Elizabeth Court), from which the company traded. The only other assets
disclosed by them were cars and, for Mr Silverman, a balance of £4,000 on an
account with HSBC. On 1 August 2006 disclosure was made of the defendants'
ownership of shares in MPUK (Mr Mitchell 40 per cent, Mr Silverman 40 per
cent, Steven Silverman 20 per cent) and of MPUK's ownership and development of
three properties. On 3 August 2006, this was qualified by stating that the
shares in MPUK were beneficially owned by Deerfield and that, while MPUK held
the legal title to the three properties, its beneficial ownership was confined
to sharing any profits with Deerfield. Deerfield's registered office in
England was 8 Queen Elizabeth Close and it was said to be owned by BDO Fidecs.
It was stated that the defendants had no legal or beneficial interest in
Deerfield.
- Steven Silverman swore an affidavit on 8 August
2006. He accepted that he and his father were signatories on LCI's account
with Andbanc, although he could not recall ever signing an authorisation for a
transfer, and to the best of his knowledge instructions relating to transfers
"were always received personally from Mr Farber by telephone and/ or fax". He
described Mr Farber as a business associate of his father. He had met Mr
Farber on several occasions since the mid-1990's, both in this country and in
the Ukraine, but had no personal contact with him in his dealings with the
company. As regards LCI he stated:
"In respect of LCI, further information may be available from Mr
Jaroslav Farber. I understood that LCI was owned and run by more than one
partner, but the sole individual I knew of was Mr Farber. I do not know of
Mr Farber's current whereabouts although I believe he last contacted my
father in early July 2006. The only address I have for him is 8 Mukhina,
Yalta, Crimea, Ukraine 33403. I do not know the names or contact details of
any other individual who may be or have been involved in LCI."
- As regards the issued shares in MPUK held by the
defendants, he stated:
"All of these shares are held on behalf of Deerfield Services
Limited ("Deerfield"), a company I understand to be under the control of Mr
Jaroslav Farber. Therefore, whilst they are held in my name, and those of my
co-Defendants, I do not regard them as assets belonging to me or my
co-Defendants."
He continued:
"Properties developed by MPUK are purchased by MPUK with funds
belonging to Deerfield. They are held in MPUK's name on behalf of Deerfield,
but the beneficial interest in each property is Deerfield's. Profits
generated by these developments are shared between Deerfield and MPUK. The
Defendants' interests in MPUK are therefore confined in practice to a profit
share."
In a corrective affidavit sworn on 19 December 2006, Steven Silverman said
that his first affidavit was wrong and that the shares in MPUK were owned
beneficially by the defendants, and not held on behalf of Deerfield.
- Neither Mr Mitchell nor Mr Silverman provided any
affidavit or any further information pursuant to the terms of the July 2006
order. Correspondence from their solicitors relied on their medical conditions
for these failures. On 29 August 2006 the company issued an application to
commit them for contempt in failing to comply with the disclosure orders.
- On 1 November 2006 Lawrence Collins J made an
order requiring the defendants to execute letters of authority for disclosure
of information by Credit Suisse, HSBC, BDO Fidecs and Andbanc, and requiring
Mr Mitchell and Mr Silverman to make and serve affidavits setting out full
details of all trusts or similar arrangements set up on their instructions.
Before making the order, the judge considered the evidence which had been
filed dealing with the medical condition of Mr Mitchell and Mr Silverman. They
served affidavits on 8 November 2006 and Mr Mitchell made a second affidavit
on 22 November 2006.
- In his affidavit, Mr Silverman stated that only
one trust had been set up on his instructions. It was operated by BDO Fidecs
and the beneficiaries were his grandchildren. His home and 8 Queen Elizabeth
Court had been transferred to the trust in early 2003 for inheritance tax
purposes. He and his wife were allowed to live rent-free in the house during
their lifetime. He did not have a copy of the trust documents.
- As regards the transfer of funds from the company
to LCI and their subsequent disposal, Mr Silverman stated:
"10.1.1 I am able to comment in general but not specific terms.
Mr Farber represented a number of officials from the Ukrainian Ministry of
Health (though I do not know what arrangements were in place between Mr
Farber and his associates). Orders for pharmaceuticals were received by the
Company via Mr Farber and he was in return paid commissions by the Company
through LCI. This amounted to an informal profit sharing arrangement between
the Company and LCI.
10.1.2 I had worked with Mr Farber and his associates since the
mid 1990s. Later they began to trade in pharmaceuticals. I believe that
commissions were initially paid to Mr Farber personally but that as the
level of trade increased he decided to establish a company, I believe LCI,
to receive payments due to him.
10.1.3 I have no memory of this but I believe that all
transactions between LCI and the Company would have been recorded in the
Company's records and in its accounts but I have unable been to verify this
as, even if I was well enough to consider them, I do not have access to the
Company's records.
10.1.4 LCI introduced pharmaceutical orders to the Company, and
the Company in turn place orders with GlaxoSmithKline Export Limited ("GSK")
or its predecessors.
10.1.5 The Company agreed to pay GSK for the pharmaceuticals
ordered according to a payment schedule which was agreed between the
parties. The Company would then receive payments for the goods supplied from
its customers and commission payments due were made to LCI.
10.2 I am unable to comment on the transfers from the Company to
LCI or any payments by LCI as I have no memory of them. I believe the
payments made are likely to have been commission payments for business LCI
introduced to the Company referred to above. I cannot say what any of the
payments by LCI were for as I have no memory of the transferees or why the
transfers were made, and I am unable to provide any information as to the
current value, nature and location of the funds transferred.
10.3 I have never had any legal or beneficial interest in LCI,
and have never exercised direct or indirect control over LCI.
11.1 In respect of LCI, further information may be available
from Mr Jaroslav Farber. Whilst I understood that LCI was owned and run by
more than one person, the only individual that I knew of was Mr Farber. The
only address I have for him is 8 Mukhina, Yalta, Crimea, Ukraine
33403."
I should mention that the medical reports indicate that for some time
before making this affidavit Mr Silverman had been suffering from the
incapacity which was officially recognised in December 2006.
- I will refer later in more detail to Mr Mitchell's
first and second affidavits, but they can be summarised as follows. In his
first affidavit, he stated that he had set up one trust, operated by BDO
Fidecs, to which his house at 5 Halley Road, Waltham Abbey, Essex (5 Halley
Road) was transferred in February 2003. He stated that 5 Halley Road had been
purchased in March 2001 with the proceeds of sale of his previous house, which
had been owned by his mother and had been settled by her on trust for his
children, and with further funds from a separate trust established some years
earlier by his mother for his children. His mother's requirement was that 6
Halley Road was also to be held on trust for his children and he had been
remiss in not making the appropriate formal arrangements until February 2003.
The beneficiaries of the trust were his four children, while he and his wife
were permitted to live at the house rent-free during their lifetimes. As
regards LCI, he believed that it was owned by Mr Yuroslav Farber and that the
company's payments to LCI were commission payments. He stated that his account
at Credit Suisse was set up for receiving commission payments which he
understood would be paid for the benefit of Mr Farber or his associates. He
gave some information as regards a few of the payments made out of LCI's
account. Overall, the affidavit is in terms very similar to Mr Silverman's
affidavit.
- In his second affidavit, Mr Mitchell confirmed his
earlier statement that he did not know why any of the ten payments totalling
£2,297,100 from LCI to accounts maintained by BDO Fidecs had been made, nor
did he know the present location or nature of any assets representing those
payments. He had no knowledge of the entities to which they were made. In his
first affidavit he had given the address in Yalta as a contact address for Mr
Farber. The liquidators' agent had found no connection there with Mr Farber or
LCI, as to which Mr Mitchell stated in his second affidavit:
"As to the contact details I have provided for Mr Farber, the
information at paragraph 11.1 of my first affidavit is the only information
I am able to provide. I have complied with my obligation to provide
information to the best of my ability. Whilst I have met Mr Farber, business
communications were made solely between Mr Farber and the Second Defendant.
The Claimant's solicitors state that the address I have provided "does not
appear to exist" but they do not say what leads them to this conclusion. It
was my understanding that the address is that of the Institute of Child
Healthcare in Yalta, and that Mr Farber had offices in this
complex."
- He confirmed that the beneficiaries of the trust
holding 5 Halley Road were his children, adding that his wife was also a
beneficiary, and asserted that he had given full details of the trust.
- On 1 November 2006, Lawrence Collins J also
ordered Mr Mitchell and Mr Silverman to serve their defences by 10 November
and 16 November 2006 respectively, failing which they would be debarred from
defending the proceedings. Mr Mitchell's defence was duly served, but Mr
Silverman has not served a defence. On 15 November 2006 he applied for an
extension of time for service of his defence "until 28 days after [he] is
certified fit to deal with these proceedings" and on 16 November 2006 he
applied for relief from the debarring order made by Lawrence Collins J. These
applications are before me and I deal with them later in this judgment.
- On 21 February 2007 the claimant issued its
application for summary judgment and an order for an interim payment against
Mr Mitchell and Mr Silverman. On 6 March 2007 Mr Mitchell made a witness
statement in opposition, to which I will later refer in more detail. In
summary, he reiterated that he understood that LCI was controlled by Mr Farber
and his associates and that the payments to it were commissions. He denied
that any of the payments from LCI were made for his benefit. He repeated that
his account at Credit Suisse was:
"a mechanism for providing commission payments to Mr Farber and
his associates. I do not know why this additional step (in addition to the
use of LCI) was put in place. I have been unable to explain why the account
was set up, because I do not have that information. I believe that the
Second Defendant would be able to provide an explanation, if he was well
enough to do so."
For the same reason, he was unable to comment as to where the monies
received into his Credit Suisse account were ultimately transferred. He denied
that the sums transferred from LCI to BDO Fidecs were made for the benefit of
himself and the other defendants. As to the trust established to hold 5 Halley
Road, he added only that he believed that Mr Silverman had an existing
relationship with BDO Fidecs and had "suggested that my matrimonial home be
placed in a trust operated by BDO". He emphasised that Mr Silverman was very
much the "senior partner" in the company. The business was founded on Mr
Silverman's contacts in the former Soviet Union and he took responsibility for
dealings with the company's "partners". Mr Mitchell's responsibilities were
confined largely to dealing with the company's supplier, GSK. He concluded his
witness statement by saying:
"Throughout my involvement with the Claimant, I acted on the
Second Defendant's instructions. I did not question those instructions or
seek further information from him. With hindsight, I now accept that this
may have been naïve. However, I have no reason to believe that the Second
Defendant acted improperly."
- The committal and summary judgment applications
were listed for an effective hearing before the Chancellor on 8 March 2007. On
the evening of 7 March 2007 and on the following day the claimant received
information from BDO Fidecs that on 25 July 2006, the day after service of the
July 2006 order, Mr Mitchell had instructed BDO Fidecs to transfer £150,000 to
each of the accounts at Credit Suisse in the names of Mr Silverman and
himself. In the light of this information, the Chancellor ordered Mr Mitchell
to provide further information as regards these transfers, to be verified by
affidavit. The existing applications were adjourned to 27 March 2007 and
directions were given in relation to a proposed further committal application
against Mr Mitchell arising from the new information.
- The initial provision of information by Mr
Mitchell was made in a letter dated 9 March 2007. He stated that he did not
give the instructions for the transfers totalling £300,000 from BDO Fidecs to
Credit Suisse, but as a result of enquires he had "been able to establish the
following information." The transferred funds had been held to the order of
Deerfield and had been transferred to his and Mr Silverman's accounts at
Credit Suisse. The sum of £150,000 transferred to his account was subsequently
transferred to an account in the name of Black Vulture with Credit Suisse, but
he gave no further details of this entity.
- On 20 March 2007 Mr Mitchell made his third
affidavit, very different in tone from his earlier affidavits and witness
statement. He began with "an abject apology" to the court and an acceptance
that he had plainly committed a series of breaches of the July 2006 order and
that his "numerous contempts of court", in failing to comply with his
obligations to disclose the existence of assets and with the prohibitions on
dealing with assets, were "particularly grave". He stated that he believed
that Andbanc would act on his instructions for the transfer of funds from
Bawdwin's account to an account in England and that Credit Suisse would do
likewise in respect of Black Vulture.
- He confirmed the information given in his letter
of 9 March 2007 regarding the transfers totalling £300,000 from BDO Fidecs to
Credit Suisse and on to Black Vulture, adding that Black Vulture's account was
with Credit Suisse in Liechtenstein. He stated that the sum of £300,000
originated with a transfer on 25 July 2007 from MPUK to BDO Fidecs. He signed
the instructions for the transfer on 24 July 2006, but he stated that he did
so before service of the July 2006 order on that day. However, he accepted
that on 25 July 2006 he telephoned BDO Fidecs to check whether they had
received the transfer, knowing of the instructions for the onward transfer to
Credit Suisse which he took no steps to prevent. He accepts therefore that he
was actively involved in giving effect to the transfer to Credit Suisse after
service of the order.
- As regards the reason for these transfers, he
stated:
"I believed that the £300,000 transferred to Fidecs was a sum
payable to Deerfield under the profit sharing arrangement between MPUK and
Deerfield. I accept that this was an irrational conclusion for me to have
drawn in view of the timing of the transfer and the elaborate nature of the
series of transfers of which it formed part. With hindsight I now accept
that those transfers amounted to an attempt to put assets beyond the reach
of the Claimant. I did not believe that I had any beneficial interest in the
£300,000,"
- He stated that he and the other defendants were
signatories to the Black Vulture account but to the best of his knowledge and
belief it contained no assets belonging to him. He stated that the sums
transferred previously from LCI to the Credit Suisse accounts of Mr Silverman
and himself were likely also to have been transferred to Black Vulture's
account. He gave no information as to the circumstances in which Black Vulture
was established or as to its ownership or control or as to the beneficial
ownership of assets in its name.
- Mr Mitchell swore his fourth affidavit on 27 March
2007. He stated that there were "certain statements in my previous affidavits
which I now realise to be false, incomplete or misleading". He stated:
"8.1 At paragraph 10.5.12 of my first affidavit and paragraph 15
of my second affidavit, I stated that I did not know why the payments from
Lake Charles Inc ("LCI") to Fidecs Management Limited ("Fidecs") listed at
Annex B to the Particulars of Claim were made, and that I had no knowledge
of the entity to which they were made (i.e. the entities on whose behalf
Fidecs held the sums transferred). Those statements are false: as I explain
below, I did have some knowledge as to why payments were being made to
Fidecs, and of what sort of entity Fidecs was. I admit that I did not give
proper consideration to these payments and therefore failed to disclose
information that I should have provided in my earlier affidavits. I regret
that failure and sincerely apologise to the court for it.
8.2 I accept that I myself notified Fidecs that it would be
receiving some of the Annex B payments (and other payments) and that I gave
instructions as to what Fidecs should do with the monies received. Prior to
receiving the documents exhibited at pages 10-56 of AM1, I did not connect
the "Annex B" payments made from LCI to Fidecs to the payments in respect of
which I gave instructions to Fidecs. Given the large sums of money involved,
I accept that I should have done so. I should also have remembered, and
stated, that the payments in respect of which I gave instructions to Fidecs
related to investments by the Second Defendant's Ukrainian partners on
specific property developments. I should have stated that I knew that Fidecs
operated accounts on behalf of those partners in the names of Deerfield and
Heaton Moor.
8.3 Even if I had been unable to recall which transaction a
specific payment related to, I should have been able to obtain further
information in respect of those transactions from third parties (most
obviously the conveyancing solicitors, Edward Oliver, from whom I and my
co-defendants have now requested copies of all documentation held by them:
pages 12-15 of MDAM5).
8.4 However, I maintain that whenever I gave instructions to
Fidecs I was simply relaying the Second Defendant's instructions to me. I
have not yet been able to ascertain what became of the monies transferred by
Fidecs on those instructions but I will make every effort to do so and to
facilitate enquiries by my solicitors and the Claimant's solicitors in this
regard."
- As regards Black Vulture, he stated that it was
set up at the instigation of Mr Silverman and that he understood from Mr
Silverman that its purpose was to provide a fund against which MPUK could
borrow for investment in further properties for development. MPUK was, as he
has accepted, beneficially owned by the defendants, whatever its
profit-sharing arrangements, if any, with Deerfield.
- The declarations of trust for the trusts which
hold title respectively to 5 Halley Road and to Mr Silverman's house and 8
Queen Elizabeth Court had been disclosed on 20 March 2007. They were both made
by BDO Fidecs as trustee on 21 December 2002 and are in identical terms save
as to the identity of the beneficiaries. The beneficiaries of the trust
holding 5 Halley Road are named as Mr and Mrs Mitchell and their children and
remoter issue. The declaration of trust gives a life interest to Mr and Mrs
Mitchell and empowers the trustees to transfer part or all of the trust assets
back to them in their lifetimes. In his fourth affidavit, Mr Mitchell
accepted, "having studied the declaration of trust", that his earlier evidence
as regards the trust was wrong.
- As well as the transfers of £300,000 from MPUK to
BDO Fidecs and onwards, Mr Mitchell accepted that other transfers from MPUK
were made in breach of the July 2006 order. These included in particular the
transfer of £20,000 to Steven Silverman who paid it to the defendants'
solicitors on account of costs in the present proceedings. As Mr Mitchell
accepts, the defendants wrongly told their solicitors that these were Steven
Silverman's own funds and in turn the company's solicitors were misled as to
the source of the funds.
The application for summary judgment
- The company seeks summary judgment against Mr
Mitchell on the grounds that it has an overwhelming case that the payments to
LCI were misappropriations by Mr Mitchell and Mr Silverman and that Mr
Mitchell's defence that they were commission payments to Mr Farber and his
Ukrainian associates is wholly incredible.
Summary judgment: the legal test
- The test under CPR Part 24 for summary judgment
against a defendant is that he has no real prospect of defending the claim.
Where that conclusion would require the court to disbelieve the defendant's
evidence as deliberately false and to find that he has been guilty of
fraudulent conduct, the court is highly reluctant to do so without a trial,
involving the usual process of pre-trial disclosure of documents and the
opportunity for the defendant to give his evidence orally and to cross examine
witnesses against him.
- It was at one time thought by some that summary
judgment should not be given in such circumstances unless on the evidence not
even a faint possibility of a defence existed. It was considered that the
defendant's written evidence should be rejected only if it was
self-contradictory or inadmissible or irrelevant. The court would not reject
his evidence if, only because of its inherent implausibility or its
inconsistency with other evidence, the court found it incredible or almost
incredible. See Paclantic Financing Co Inc v Moscow Narodny Bank Ltd
[1983] 1 WLR 1063, although on appeal the Court of Appeal without hearing
argument on the point expressed reservations as to this approach: see [1984] 1
WLR 930, 939.
- In National Westminster Bank v Daniel
[1993] 1 WLR 1453, the Court of Appeal reviewed the authorities. It concluded
that the approach at first instance in Paclantic Financing Co Inc v Moscow
Narodny Bank Ltd was too restrictive. Glidewell LJ stated the correct
approach at p1457:
"I think it right to ask, using the words of Ackner L.J. in the
Banque de Paris case, at p. 23, "Is there a fair or reasonable
probability of the defendants having a real or bona fide defence?" The test
posed by Lloyd L.J. in the Standard Chartered Bank case, Court
of Appeal (Civil Division), Transcript No. 699 of 1990 "Is what the
defendant says credible?," amounts to much the same thing as I see it. If it
is not credible, then there is no fair or reasonable probability of the
defendant having a defence."
The passage in the judgment of Ackner LJ in Banque de Paris et des
Pays-Bas (Suisse) SA v Costa de Naray [1984] 1 Lloyds Rep 21 at 23 is:
"It is of course trite law that Order 14 proceedings are not
decided by weighing the two affidavits. It is also trite that the mere
assertion in an affidavit of a given situation which is to be the basis of a
defence does not, ipso facto, provide leave to defend; the court must look
at the whole situation and ask itself whether the defendant has satisfied
the court that there is a fair or reasonable probability of the defendants
having a real or bona fide defence."
- There are no grounds for thinking that a different
test, certainly not a higher test, applies to applications under CPR Part 24
than previously applied to RSC Order 14. In Wrexham Association Football
Club Ltd v Crucialmove Ltd [2006] EWCA 237, the Court of Appeal affirmed
an order for summary judgment against a company owned and controlled by a
former director of the claimant which involved a finding of bad faith on the
part of the director. There must, however, be noted the cautionary comments of
Sir Igor Judge P in his concurring judgment:
"57. I do not underestimate the importance of a finding adverse
to the integrity to one of the parties. In itself, the risk of such a
finding may provide a compelling reason for allowing a case to proceed to
full oral hearing, notwithstanding the apparent strength of the claim on
paper, and the confident expectation, based on the papers, that the
defendant lacks any real prospect of success. Experience teaches us that on
occasion apparently overwhelming cases of fraud and dishonesty somehow
inexplicably disintegrate. In short, oral testimony may show that some such
cases are only tissue paper strong. As Lord Steyn observed in Medcalf v
Weatherill [2003]1 AC120 at paragraph 42, when considering wasted costs
orders:
"The law reports are replete with cases which were thought to be
hopeless before investigation but were decided the other way after the Court
had allowed the matter to be tried".
And that is why I commented in Esprit Telecoms UK Ltd and
others -v- Fashion Gossip Ltd , unreported, 27 July 2000 that I was
"troubled about entering summary judgment in a case in which the
success of the claimant's case involves, as this one does, establishing
allegations of dishonesty and fraud, which are strongly denied, and which
cannot be conclusively proved by, for example, a conviction before a
criminal court."
58. This collective judicial experience does not always, or
inevitably, provide a compelling reason for allowing the case to proceed to
trial, nor for that matter require the judge considering the application to
reject the conclusion that there is no real prospect of a successful defence
of the claim if he is satisfied that there is none. That is not what the
Rules provide, and if that had been intended, express provision would have
been made. It is however a factor constantly to be borne in mind, if and
when, as here, the reason for concluding summary judgment is appropriate is
consequent on a disputed finding, adverse to the integrity of the
unsuccessful party."
The seriousness of the allegations against Mr Mitchell and Mr Silverman
must be constantly borne in mind in considering whether this is a suitable
case for summary judgment.
Grounds for the company's application for summary judgment
- The company's submission that Mr Mitchell's
defence is incredible and that he has accordingly no real prospect of
successfully defending the claim is based on the following principal matters.
First, there have been significant inconsistencies in his explanation over
time for the payments. Secondly, the scale and timing of the payments is
inconsistent with the alleged defence. Thirdly, the transferred funds were
used for the benefit of Mr Mitchell and/ or Mr Silverman. Fourthly, there are
clear connections between the defendants, LCI and many of the payees of funds
from LCI, but none with a Mr Farber or any Ukrainian associates. Equally,
there is no evidence of any involvement by a Mr Farber or Ukrainian
associates, beyond the affidavits of the defendants which in the case of Mr
Mitchell and Steven Silverman are based on what Mr Silverman allegedly told
them. Fifth, Mr Mitchell's evidence, and his conduct in relation to the July
2006 order, demonstrates that his uncorroborated evidence is not to be
accepted. Finally, the transfer of properties into the Gibraltar-based trusts
and Mr Mitchell's conduct as regards the records of the company undermine the
defence.
(1) Mr Mitchell's explanations for the payments to LCI
- Mr Mitchell was originally asked about LCI in
early 2004. The auditors had produced documents in support of a trial balance
as at 1 April 2002, including a document purporting to be an invoice dated 5
March 2002 from LCI to the company for £1,549,712 for "mixed pharmaceuticals,
(as packing list supplied)". The company's bank produced to the liquidators
copies of a number of cheques, including some in favour of "Y. Farber &
Co". Together with an extract from a cash ledger provided by the auditors,
these indicated that from April to November 2002 payments of £7,200, or
occasionally £6,200 or £5,400, were made in each month except August to "Y.
Farber & Co". In March 2004 the liquidators asked Mr Mitchell what the
company had purchased from LCI and the purpose of the payments to Y Farber. In
a letter dated 16 March 2004, Mr Mitchell replied "mixed pharmaceuticals" to
the first question and "commissions" to the second. When the liquidators
requested further details of the purchases from LCI, Mr Mitchell referred back
to the information provided by the auditors, i.e. the purported invoice. When
the liquidators asked Mr Mitchell for contact details for LCI, he replied "we
have already provided you with all information regarding this company
including the contact details we had." At this stage, therefore, there was no
suggestion that commissions were paid to LCI or that there was any connection
between LCI and Mr Farber.
- In late 2004, as part of the Insolvency Service's
consideration of whether to bring directors' disqualification proceedings
against Mr Mitchell and Mr Silverman, Mr Mitchell was asked to provide full
details of the relationship and dealings between the company and LCI,
particularly details as to the type and quantities of pharmaceutical products
allegedly supplied by LCI. Mr Mitchell replied on 10 February 2005:
"To clarify the monies paid to Lake Charles Inc. there has never
been any requests by the liquidator for any explanations regarding these.
These transactions comprised a number of payments made over a period of time
and all related to purchases made in 2001, 2002. These payments reflected
the trading and credit terms that UK AID LTD had with both GSK and Lake
Charles Inc. and are recorded in the audited accounts.
The proof of consideration of goods is undeniable, as all
supporting documentation for the company's sales and purchases, including
all dealings with Lake Charles Inc. were presented to the auditors for the
preparation of the accounts."
- Mr Mitchell's position at that stage was therefore
that the payments to LCI were for purchases of pharmaceutical products. Again,
there was no suggestion of a connection with Mr Farber. However, in his first
affidavit dated 8 November 2006, as in his defence served on 10 December 2006,
Mr Mitchell stated that the payments to LCI were commission for Mr Farber and
his associates and that LCI was controlled by them. He stated:
"8.2.2 It was at all times and remains my understanding and
belief that LCI was owned by Mr Yaroslav Farber. I understand from the
Second Defendant that Mr Farber represented a number of officials from the
Ukrainian Ministry of Health (though I do not know what arrangements were in
place between Mr Farber and his associates). Orders for pharmaceuticals were
received by the Company via Mr Farber and he was in return paid commissions
by the Company through LCI. This amounted to an informal profit sharing
arrangement between the Company and LCI.
8.2.3 It was at all times and remains my understanding that the
Second Defendant had worked with Mr Farber and his associates since the mid
1990s. I understood that they traded in metals, oil, sugar, wheat, and that
in 1997 they began to trade in pharmaceuticals. I believe that commissions
were initially paid to Mr Farber personally but that as the level of trade
increased he decided to establish LCI to receive payments due to
him.
8.2.4 To the best of my recollection, all transactions between
LCI and the Company were recorded in the Company's records and in its
accounts but I have unable been to verify this as I do not have access to
the Company's records.
8.2.5 LCI introduced pharmaceutical orders to the Company, and
the Company in turn place orders with GlaxoSmithKline Export Limited ("GSK")
or its predecessors. The Company's point of contact within GSK was Richard
Jones.
8.2.6 The Company agreed to pay GSK for the pharmaceuticals
ordered according to a payment schedule which was agreed between the
parties. The Company would receive payments for the goods supplied from its
customers and payments due were made to LCI.
8.2.8 As to the eleven transactions referred to at paragraph 9.2
below, to the best of my knowledge and belief, these were commission
payments made in the ordinary course of business between the Company and
LCI."
- In his second affidavit dated 20 November 2006,
there was a change in Mr Mitchell's evidence as regards the purpose of the
company's payments to LCI. On the basis that the total sterling value of the
payments was £5,022,680 he stated in paragraph 25:
"I believe that these payments were broken down as follows.
£1,549,712 related to purchases paid (please see the invoice no 3005/01 from
LCI dated 5 March 2002 at page 238 of IJH1). The remaining £3,472,968
constituted commission/profit share payments. The commissions paid equate to
under half of UK (Aid)'s turnover. I believe that this was the basis of the
informal profit sharing arrangement between the company and LCI, but I was
not made aware by the Second Defendant of the details of that
arrangement."
- In his witness statement made on 6 March 2007, Mr
Mitchell stated:
"Commission payments
8. Mr Hastings argues, at paragraphs 7, 8 and 9(a) of his
witness statement, that the payments made from UK (Aid) to Lake Charles Inc
("LCI") cannot have been legitimate commission payments. Arrangements in
respect of commission payable by UK (Aid) to LCI were made by the Second
Defendant, and I do not therefore have first hand knowledge of them. I
understood that the commission payments were made to LCI in return for the
introduction of business to UK (Aid) by Mr Farber.
9. With the help of UK (Aid)'s accountants, I have described my
understanding of the basis on which the commissions were paid at paragraph
8.2 of my first affidavit and paragraphs 24 to 26 of my second affidavit.
Lake Charles Inc
10. At paragraph 9(b) of Mr Hastings' witness statement he
states that I have not explained why it was necessary for LCI to be
established in order to receive commission payments. I have provided as much
information as I am able to give in relation to LCI at paragraphs 8.2.2 and
8.2.3 of my first affidavit. I understood LCI to be a company controlled and
operated by Mr Farber and his associates. I can only speculate as to why UK
(Aid)'s Ukrainian partners chose to receive commission payments through a
BVI company, but I think it is entirely plausible that they should not wish
to receive payments directly. I understood that they were employees of the
Ukrainian Ministry of Health and they may have wished to avoid drawing
attention to the sums of money they were receiving. I would reject the
suggestion that there is anything inherently sinister in this
arrangement."
- In his fourth affidavit sworn on 27 March 2007,
the first day of the hearing, Mr Mitchell stated that:
"It was my genuine understanding that the monies paid to LCI
were commission payments for Mr Farber and his associates."
This is consistent with his defence and first affidavit and makes no
reference to a purchase of goods by the company from LCI or the alleged
invoice from LCI for £1,549,712.
(2) Timing and size of the payments to LCI
- Secondly, the company relies on the timing and the
scale of the payments. Payments into the LCI account started on 26 October
2001 with a payment of $255,000 from C Horn et Cie, a Swiss customer of the
company, which the company alleges was a sum due to it for supplies. The first
payment directly by the company was $921,850 on 20 November 2001. The next
direct payment was £1,500,000 on 28 February 2002 and further direct payments
were made in each month until September 2002, although in March 2002 only
$100,000 was paid at the start of the month. A final direct payment of
$255,000 was made on 14 November 2002 and the company ceased trading on 9
December 2002. In addition, there were throughout the period payments into the
account from two third parties, C Horn et Cie and Polish Pharmaceuticals
Services SP.
- The direct payments totalled over £5 million. Over
much the same period (14 December 2001 to 13 August 2002) the unpaid amounts
invoiced by GSK grew from £528,750 to over £5.4 million. During that period,
some payments were made to GSK: £600,000 on 20 December 2001 and $335,229 and
£400,000 in March 2002. Putting it broadly, payments were made each month
either to GSK or, in total on a much larger scale, to LCI's account.
- The payments to LCI were very substantial compared
to the company's turnover and profits. For the entire period from 1 April 2000
to the end of trading on 9 December 2002, turnover (net invoiced sales
excluding VAT) amounted to £8,654,310. The payments to LCI amounted to
£5,022,680 (adopting the dollar/ sterling exchange rate used by Mr Mitchell in
his evidence), representing 58 per cent of the turnover. The payments to LCI
did not start until November 2001, so that if the comparator for turnover is
taken as being the turnover for the period from 1 April 2001 to 9 December
2002, turnover was £6,148,741 of which the payments to LCI represented over 81
per cent. The company submits that it is incredible to suggest that 58 per
cent or more of turnover would be paid in commissions to obtain orders.
- The company further submits that Mr Mitchell's
statement in his second affidavit that it was an informal profit sharing
arrangement is absurd. The accounts show that the bulk of turnover was applied
in the cost of purchases. According to the audited accounts for the year to 31
March 2002, the "cost of sales" (which relates entirely to the cost of stock
and does not include commissions for sales: see p.11 of the accounts) in that
year was £4,929,961 against a turnover of £5,293,908, leaving gross profits of
£363,947. After overheads, including directors' remuneration of £127,556, the
net profit for the year was £94,320. Turnover for the period from 1 April 2002
to December 2002 when the company ceased trading was only £854,833, according
to Mr Mitchell's evidence. Even assuming that in truth nothing had been due to
GSK on the invoices in issue in the winding-up proceedings, the great majority
of turnover, let alone gross profits, of the company for the period from 1
April 2001 to 9 December 2002 was paid to LCI. This could not be a
"profit-sharing" arrangement.
- The above figures assume that all payments to LCI
are said to have been commission, which is Mr Mitchell's pleaded defence and
the position as stated by him in his first and fourth affidavits. Even if
£1,549,712 related to purchases from LCI as per the alleged invoice dated 5
March 2002, the balance of £3,472,968 paid to LCI represents over 56 per cent
of turnover in the period from 1 April 2001 to 9 December 2002 and, even if
nothing at all was due to GSK in respect of its disputed invoices, over 100
per cent of a gross profit for that period of £3,368,773 (i.e. turnover of
£6,148,741 less purchases from LCI of £1,549,968 and payments totalling
£1,230,000 to GSK in December 2001 and March 2002).
(3) Payments out of LCI's account
- The third principal ground relied on by the
company is the use to which the funds transferred to LCI were put. It is the
company's case that these funds were paid to or for the benefit of Mr Mitchell
and Mr Silverman, with their knowledge. There were a substantial number of
payments out of LCI's account and it is convenient to deal with them in
categories.
(i) Transfers to Swiss bank accounts in the names of Mr Mitchell and Mr
Silverman
- On 6 March 2002 and 26 June 2002 payments of
$50,000 and $215,000 respectively were made to each of two accounts in the
names of Mr Mitchell and Mr Silverman with Credit Suisse in Geneva. The
instructions were signed by Mr Silverman. In his first affidavit, Mr Mitchell
stated only that his account was set up for receiving commission payments
which he understood would be paid for the benefit of Mr Farber or his
associates. In his second affidavit he stated that he knew nothing more about
the purpose of the payments made from the account, which were arranged by Mr
Silverman. He continued:
"I recall that he informed me that Mr Farber wanted payments to
be made into a Swiss account because of concerns over the stability of the
Russian currency. I cannot provide details of when commission/profit share
payments were made as I do not have any records. I am therefore unable to
say more as to what became of the $265,000 transferred into this account.
The Claimant's solicitors insist that my disclosure in relation to my Credit
Suisse account is "obviously inadequate" but they do not explain why. I have
already stated everything that I am able to tell them about this
account."
- In March 2007 it became clear that this statement
was untrue. As already detailed, new evidence revealed that Mr Mitchell had
been closely involved in the transfer of £150,000 from BDO Fidecs to each of
the Swiss accounts held by Mr Silverman and himself, the day after service of
the July 2006 order. He had then instructed the transfer of £150,000 from his
account to Black Vulture, as did Mr Silverman. There has been no suggestion
that Black Vulture or funds held in its name are connected with Mr Farber or
other unconnected third parties. On the contrary, the defendants are the
signatories on its account in Liechtenstein and Mr Mitchell has said that he
understands that Black Vulture is a fund against which MPUK can borrow for
property investment and development. Rather than being unable to say what
became of the $265,000 transferred into his Credit Suisse account in 2002, Mr
Mitchell now says that he believes that it is likely to have been transferred
to the Black Vulture account. While he says that he does not especially recall
giving the instructions for this transfer, he accepts that he must have done
so. Black Vulture was not incorporated, and its account was not opened, until
June 2006. It would seem to follow that the funds remained in Mr Mitchell's
account at Credit Suisse until June or July 2006 when they were transferred
not to Mr Farber or an entity controlled by him but to Black Vulture.
- Mr Mitchell also disclosed for the first time in
his third affidavit that he held a Swisscard credit card with Credit Suisse
which he used for personal expenditure and which was serviced from his Credit
Suisse account. He further disclosed that he had short-term maturity fund
units with Credit Suisse, which were credited to his account on maturity,
although he says that he had not been aware of these units.
- There was therefore considerably more about his
Credit Suisse account which Mr Mitchell was able to tell, but did not do so
until his third affidavit. His original claim that he understood the account
to be a conduit for funds for Mr Farber or his associates is not only
undermined by his failure to provide the further information, but it is
entirely inconsistent with his more recent evidence that the sums of $50,000
and $216,000 were transferred to the Black Vulture account and by the use of
the account for the transfer on 25 July 2006 and for his Swisscard credit
card. Further, on 10 July 2001 Mr Mitchell had given his wife a power of
attorney in respect of the account. He provides no explanation why his wife
should be an attorney for an account said to be held by him as nominee for Mr
Farber.
(ii) Purchase of cars
- The first payment out of LCI's account was $7,357
to a car dealer in Belgium, as the deposit on a purchase of a Chrysler Voyager
vehicle. The balance of the purchase price, €37,377, was paid on 7 March 2002.
The vehicle was registered in Mrs Mitchell's name in April 2002, as Mr
Mitchell disclosed in his fourth affidavit, and has been kept at their home
since then. In his first affidavit Mr Mitchell stated that the vehicle was
purchased "at the request of Mr Farber…for use by LCI in the UK" and that "Mr
Farber of LCI agreed that I could use this vehicle when it was not in use by
LCI". In his second affidavit, he said that it was owned by LCI, although in
fact LCI had been dissolved two years earlier in December 2004.
- On 12 February 2002 a sum of £100,000 was paid to
a car dealer in Hadley Green for the purchase of a Bentley. Subsequent
payments of £1,603, £978 and £11,176 were made to the same garage in May,
September and October 2002. In his first affidavit, Mr Mitchell stated that
this car too was purchased at the request of Mr Farber who had agreed that Mr
Silverman could use it when it was not in use by LCI. In his fourth affidavit,
Mr Mitchell stated that he believed the car was registered in Mr Silverman's
name.
- In his fourth affidavit, Mr Mitchell stated that
his understanding of the position as regards the Chrysler and the Bentley was
based on Mr Silverman's assurances, and that he was not aware that either
vehicle was purchased with funds derived from the company. There is no
evidence that either vehicle was ever used by Mr Farber or anyone else except
Mr Mitchell or, as the case may be, Mr Silverman and their families.
- In January and March 2003 two payments totalling
£27,361 were made to Broom Broom Limited in Southampton for the purchase of a
motor vehicle. The payment instructions, involving transfers from Bawdwin to
LCI and the onward transfer to the car dealer, were signed by Mr Mitchell and
Mr Silverman. Mr Mitchell denies all knowledge of the purpose of these
payments.
(iii) Purchase of watches
- Andbanc's records showed that a number of payments
totalling £28,661 had been made to the credit of a Mr Andrew Lanczak at a bank
in Derbyshire. A further payment of $5,000 was made to Oldwatch.com in
Oklahoma. The liquidators' solicitors located Mr Lanczak who informed them in
a telephone conversation the day before the hearing that he runs a small
business selling watches and that he remembered selling several watches to Mr
Silverman between December 2001 and March 2003. Mr Mitchell denies knowledge
of these transfers or purchases.
(iv) Purchase of Spanish properties
- In June and July 2002 three transfers of €70,000
and £30,000 were made to the Madrid bank account of Paradise Travel of the
Seas SL (Paradise Travel), a Spanish company incorporated on 5 April 2002. Its
shareholders were Mr Silverman and his wife, and its directors were Mr
Silverman and Roger Griffiths. On 18 September 2002 it was registered at the
Spanish land registry as the owner of two villas in the same development in
Tenerife. Mr Griffiths is an estate agent based in Tenerife and appears as the
key contact on the website of Villasur Property Sales and Administration.
Between April and July 2002 three sums totalling £750,00 were transferred from
LCI's account to BDO Fidecs "ref Immobiliara Villasur", each on the written
instructions of Mr Silverman. On 31 July 2002, a further payment of £6,824 was
made on Mr Silverman's instructions to a Spanish company, World Wide Moving
and Storage. This company has informed the liquidators that the payment was
for the removal of personal effects of Mr Silverman from storage in England to
one of the villas in Tenerife. There is presently no explanation as to why the
two villas were bought. Mr Mitchell has denied knowledge of any of these
transfers.
(v) Payments to Madison UK Limited
- On 9 January 2002 and 23 July 2002 the sums of
£150,000 and £55,000 were transferred to the account of MUK at HSBC in London.
As I have mentioned, MUK was an English company of which Mr Mitchell, Mr
Silverman and Steven Silverman were the only directors and shareholders.
According to Mr Mitchell's second affidavit, it was a property maintenance and
development company. There has never been any suggestion of any involvement by
Mr Farber or any other third party in this company. It was dissolved on 24
January 2006 on the defendants' application. Mr Mitchell stated in his first
affidavit that he could not provide any further information about these
transfers. He stated that MUK's records had been kept by its accountants, MP
Saunders & Co, who were also the company's auditors, and that they had
been destroyed in a fire at their offices on 24 March 2005. However, in his
second affidavit, Mr Mitchell gave some additional information. He said that
he had understood from Mr Silverman that the transfers were to provide
start-up capital and were used to provide working capital for its day-to-day
activities, which included property maintenance for a housing association. In
its later stages it developed properties, including 1 King's Head Hill, London
E4 and 5 Blackstock Mews, London N5. There is no evidence of what became of
any profits of MUK's trading.
(vi) Payments to Heaton Moor
- Between November 2002 and 30 June 2003, a total of
£1,395,000 was transferred to BDO Fidecs for the account of Heaton Moor. The
instructions were signed by either Mr Silverman or Steven Silverman. In some
cases the same instructions also required a prior transfer from Bawdwin to LCI
and in each of those cases the instructions were signed also by Mr Mitchell.
Nothing is presently known about any transfers from Bawdwin to LCI. No
transfers appear on the records for LCI's account disclosed by Andbanc.
- Mr Mitchell was closely involved in the
disposition of the funds transferred to BDO Fidecs for the account of Heaton
Moor. Documents disclosed by BDO Fidecs show that Mr Mitchell telephoned BDO
Fidecs as regards some of these transfers. On 2 April 2003, following the
transfer of £215,000 on 27 March 2003, he requested that £210,000 be
transferred "to the solicitors for the purchase of property" and the remaining
£5,000 be kept for expenses. On 24 April 2003, following the transfer of
£370,000 on 14 April 2003, he requested that £370,000 be transferred "to the
solicitors for the purchase of the properties" and that contract notes would
be sent to BDO Fidecs by courier the next day. Following the transfer of
£400,000 on 19 May 2003, Mr Mitchell faxed a letter dated 21 May 2003 to BDO
Fidecs, stating:
"Further to our conversation, you should now have received
£400,000 for Heaton Moor Ltd to invest in the properties previously
discussed. Please now transfer these funds to our solicitor so that he can
exchange contracts on Heaton Moor Ltd's behalf."
Mr Mitchell gave the bank details for "our" solicitors, Edward Oliver &
Bellis. On 24 June 2003 Mr Mitchell wrote again to BDO Fidecs that:
"I have been advised that £150,000 is being transferred to your
account, ref Heaton Moor Ltd, for the completion of 5 Blackstock
Mews."
He instructed that upon receipt the funds should be transferred to "our
solicitor", Edward Oliver & Bellis. The transfer of £150,000 was made from
LCI to BDO Fidecs on 30 June 2003, pursuant to instructions signed by Mr
Mitchell and Steven Silverman.
- A schedule of property transactions involving
Heaton Moor was disclosed by BDO Fidecs. Six properties in London and Essex
were purchased by it between January and June 2003 at a total cost of
£1,146,500. Between September 2003 and January 2005 they were sold for a total
of £1,581,000. A further schedule disclosed by BDO Fidecs lists three
properties in Essex as purchased in the name of Deerfield. They were purchased
in July and September 2004 for a total of £555,000 and sold between September
2005 and June 2006 for a total of £1,013,500.
- As well as Mr Mitchell's instructions by telephone
and letter referred to above, other documents disclosed by BDO Fidecs show his
involvement in the dealings with these properties and their development: see
faxes dated 10 September and 7 November 2003 and 27 January, 31 August and 21
September 2004. These include properties purchased by Deerfield as well as by
Heaton Moor.
- In relation to the transfers to Heaton Moor, Mr
Mitchell stated in his first affidavit that he did not know why they had been
made and was unable to provide any information as to the current value, nature
or location of the funds. He stated that MUK and MPUK had acted as property
developers and building contractors with working capital provided on a profit
sharing arrangement by Heaton Moor and Deerfield. He stated that he had no
legal or beneficial interest in the latter companies. He confirmed his lack of
knowledge in his second affidavit.
- Mr Mitchell made clear in his fourth affidavit
that this evidence was false. I should set out his further evidence in full:
"8.1 At paragraph 10.5.12 of my first affidavit and paragraph 15
of my second affidavit, I stated that I did not know why the payments from
Lake Charles Inc ("LCI") to Fidecs Management Limited ("Fidecs") listed at
Annex B to the Particulars of Claim were made, and that I had no knowledge
of the entity to which they were made (i.e. the entities on whose behalf
Fidecs held the sums transferred). Those statements are false: as I explain
below, I did have some knowledge as to why payments were being made to
Fidecs, and of what sort of entity Fidecs was. I admit that I did not give
proper consideration to these payments and therefore failed to disclose
information that I should have provided in my earlier affidavits. I regret
that failure and sincerely apologise to the court for it.
8.2 I accept that I myself notified Fidecs that it would be
receiving some of the Annex B payments (and other payments) and that I gave
instructions as to what Fidecs should do with the monies received. Prior to
receiving the documents exhibited at pages 10-56 of AM1, I did not connect
the "Annex B" payments made from LCI to Fidecs to the payments in respect of
which I gave instructions to Fidecs. Given the large sums of money involved,
I accept that I should have done so. I should also have remembered, and
stated, that the payments in respect of which I gave instructions to Fidecs
related to investments by the Second Defendant's Ukrainian partners on
specific property developments. I should have stated that I knew that Fidecs
operated accounts on behalf of those partners in the names of Deerfield and
Heaton Moor.
8.3 Even if I had been unable to recall which transaction a
specific payment related to, I should have been able to obtain further
information in respect of those transactions from third parties (most
obviously the conveyancing solicitors, Edward Oliver, from whom I and my
co-defendants have now requested copies of all documentation held by them:
pages 12-15 of MDAM5).
8.4 However, I maintain that whenever I gave instructions to
Fidecs I was simply relaying the Second Defendant's instructions to me. I
have not yet been able to ascertain what became of the monies transferred by
Fidecs on those instructions but I will make every effort to do so and to
facilitate enquiries by my solicitors and the Claimant's solicitors in this
regard.
9.1 None of LCI, Heaton Moor, Deerfield or Bawdwin were set up
on my instructions. I do not know how these companies were set up and I am
not aware of any other BVI companies. I was a signatory in respect of the
Bawdwin account but I did not give instructions in respect of the LCI,
Heaton Moor and Deerfield accounts. I do not know why BVI companies were
used or what became of the profits made from the sale of properties
purchased through them. The Second Defendant dealt with the accounting to
his Ukrainian partners for profits made on developments. I maintain that it
was my genuine understanding that the monies paid to LCI were commission
payments for Mr Farber and his associates."
- Other than what Mr Mitchell there states, there is
no evidence to link Heaton Moor or the purchases financed by transfers from
LCI with Mr Farber or other alleged Ukrainian associates.
(vii) Transfer to BDO Fidecs ref. Liz Plummer
- On 13 January 2003 £100,000 was transferred to BDO
Fidecs "ref. Liz Plummer", who is an employee of BDO Fidecs. The instruction
for a transfer from Bawdwin to LCI and the further transfer to BDO Fidecs was
signed by Mr Mitchell and Mr Silverman. No explanation for this transfer has
been provided.
(viii) Transfers to PR accounts
- On 17 July 2002, three payments of $10,000 each
were made to accounts PR 10266/7/8 and on 10 December 2002 and 26 September
2003 two payments of €25,000 each and $16,000 each were respectively made to
PR 10266/7. A document disclosed by BDO Fidecs and dealing with a separate
transaction shows that the reference for account PR 10268 was "Steven". It was
authority for a transfer of £50,000 from Bawdwin's account to the PR account
and it was signed by Mr Mitchell. Mr Mitchell has provided no evidence in
respect of these transfers. The company submits, and I accept, that almost
certainly "Steven" is Steven Silverman and that it is likely that the other
two PR accounts were held for Mr Mitchell and Mr Silverman.
(ix) Transfers to Bawdwin
- On 13 January, 27 March, 29 September and 4
October 2003, sums of £50,000, £1,000, £1,315,900 and $258,404 were
transferred from LCI's account to Bawdwin. Most of the funds were subsequently
transferred out of Bawdwin's account but the liquidators presently do not have
information as to the transferees or the purpose of the transfers. Bawdwin was
incorporated in the BVI on 14 March 2002 by the same agents as incorporated
LCI. In his affidavits Mr Mitchell has stated that it was set up by LCI to
invest in property and that, while he has no legal or beneficial interest in
it, he is a signatory for its account with Andbanc. He says that he was asked
by Mr Silverman to become a signatory for reasons of convenience and that he
was asked to sign instructions for transfers from its account but their
purpose was never explained. He states that he is unable to provide
information relating to payments from its account.
(x) Transfer to Shilton Trust
- Shilton Trust is the sole registered holder of all
the company's shares, following their transfer to it by Mr Mitchell and Mr and
Mrs Silverman in April 2002. Shilton Trust is established in Gibraltar and
administered by BDO Fidecs. According to Mr Mitchell's evidence in the action
brought by GSK, the shares were sold to Shilton Trust for £50,000 and neither
he nor Mr Silverman nor any members of their families have any interest in the
trust or its shareholding in the company. His recollection was that the
consideration of £50,000 was paid into the company's account and then paid out
to the three selling shareholders. Mr Mitchell repeated this evidence in his
second affidavit in these proceedings. According to Mr Mitchell, the sale of
the shares was negotiated with Roger Griffiths, whom he believed was a
trustee.
- On 22 July 2002 a sum of £52,100 was transferred
to BDO Fidecs for the account of Shilton Trust. The company submits, and it
appears highly likely, that this refunded Shilton Trust for the sum earlier
paid in connection with the transfer of the shares.
(xi) Transfers between the company and LCI in March and April
2002
- On 26 March 2002 a sum of £700,000 was transferred
from LCI to the company, described in Andbanc's records as directors' loan
repayments, but on 3 April 2002 a sum of £1,056,338 was transferred back from
the company to LCI, described as stock purchase and sales. The company's
year-end, 31 March, fell between those dates and the first transfer enabled
its accounts to show a very healthy cash balance at bank of over £1.3 million.
The company submits that this transfer is likely to have been made for
window-dressing purposes, but in any event it demonstrates that cash held in
LCI's account could be used, on instructions from Mr Silverman or Steven
Silverman, for the purposes of the company, rather than Ukrainian associates.
- Taking together the evidence as to the use to
which the funds transferred to LCI were put, the company submits that it is
clear that they were applied not for a Mr Farber or his associates but,
directly or indirectly for the benefit of the defendants, principally Mr
Mitchell and Mr Silverman.
(4) Links between the defendants and the transferees
- Closely associated with the transfers out of LCI's
account is the fourth principal point relied on by the company, that there is
substantial evidence linking the defendants with LCI and the transferees of
funds from LCI's account, but no evidence of any link with a Mr Farber or
Ukrainian associates other than the defendants' affidavits.
- The two issued shares of LCI were bearer shares
and its only director and secretary was a Bahamian company. None of its
official documents provide any evidence of a connection with any individual,
except for a written resolution dated 6 July 2001 to open an account with
Andbanc with Mr Silverman as sole signatory. The records disclosed by Andbanc
also show no connection with any individuals except the defendants. Mr
Silverman and Steven Silverman are recorded on 24 October 2001 as the
signatories on LCI's account. There are a substantial number of payment orders
signed by the defendants, although Mr Mitchell says that he was signing them
on behalf of Bawdwin.
- Leaving aside the third party sellers of cars,
watches and villas and the accounts of Mr Mitchell and Mr Silverman at Credit
Suisse, the entities to which payments were made had substantial connections
to Mr Mitchell and Mr Silverman. MUK was owned by the defendants and engaged
in property investment and development with Heaton Moor and Deerfield. Both
Heaton Moor and Deerfield maintained accounts with BDO Fidecs, and Mr Mitchell
was giving detailed instructions to BDO Fidecs in relation to the sums held in
Heaton Moor's account. Likewise, he gave instructions as regards the sum of
£300,000 paid in July 2006 to Deerfield's account with BDO Fidecs. BDO Fidecs
also administered the family trusts for Mr Mitchell and Mr Silverman and the
Shilton Trust. Roger Griffiths is said to be a trustee of the Shilton Trust
and he was involved in the purchase of the villas in Spain, was a director
with Mr Silverman of the Spanish company which owned the villas and has been
helping to fund the defendants' costs in the present proceedings. There is no
evidence of the beneficial ownership of Bawdwin, but Mr Mitchell was the
signatory for its account with Andbanc. In records disclosed by Andbanc, its
address is shown as 8 Queen Elizabeth Court, which was also given as the
address for Heaton Moor and Deerfield in entries at the Land Registry.
- No connection is shown between any of these
companies and Mr Farber or any Ukrainian associates or indeed with anyone
except the defendants.
(5) Mr Mitchell's evidence
- The company's fifth principal point is that Mr
Mitchell has shown himself to be unreliable and untruthful. I have set out at
some length the development of his evidence in this case. He accepts that in a
number of important respects it has been false, in some cases deliberately so.
He has also, as he accepts, failed in many instances to comply with his
obligations under the July 2006 order.
- Examples include his denial in his first affidavit
of any knowledge of the purpose of the payments from LCI's account to BDO
Fidecs for the account of Heaton Moor or of what became of these payments. In
his second affidavit he said that he was unable to say what became of the
$265,000 transferred to his Credit Suisse account, while admitting in his
fourth affidavit that it was transferred to Black Vulture. He accepts that the
transfer of £300,000, after service of the July 2006 order, was an attempt to
put assets beyond the reach of creditors. He accepts that there were serious
deficiencies in his disclosure affidavits, notwithstanding warnings from his
solicitors. He accepts that he misled his own solicitors, who in turn
unwittingly misled the company's solicitors, as to the source of funds for the
payment of legal costs.
- The false evidence and the breaches of the order
are not minor matters or matters with no substantial connection with the
central issue in the case. The uses to which the funds transferred to LCI were
put go to the heart of the case and Mr Mitchell's attempts to conceal the true
position is highly material to a consideration of his uncorroborated evidence
as to the purpose of the payments to LCI and the involvement of Mr Farber.
(6) Family trusts
- Finally, the company submits that there should
also be taken into account the transfers into trust of the houses in England
of Mr Mitchell and Mr Silverman, and the attempts by the liquidators to obtain
the company's records from Mr Mitchell.
- I have set out above the facts relating to the
transfers into trust. The establishment of the trusts and the transfer of
properties into them were clearly coordinated by Mr Mitchell and Mr Silverman.
They were made between December 2002 and February 2003 at a time when the
company was faced with a winding-up petition from GSK. Mr Mitchell denied that
he was a beneficiary of the trust holding his house, but the terms of the
declaration of trust show not only that is he a beneficiary but also that he
and his wife can require the transfer of the house back to them at any time.
These terms are also inconsistent with his earlier evidence that his mother
required the house to be held on trust for his children. In my judgment, it is
highly likely that Mr Mitchell and Mr Silverman established the trusts in an
attempt to put assets beyond the reach of potential claimants. There was no
obvious reason to do so if the payments to LCI were bona fide payments made
properly in the course of the company's business.
(7) Accounting records
- The company's accounting and other records would
obviously be highly material to a consideration of the company's claim and Mr
Mitchell's defence. In his second affidavit, Mr Mitchell stated that all
transactions between LCI and the company were recorded in the company's
records and in its accounts, but that he was unable to verify this because he
did not have access to them.
- The first liquidator sought to obtain the
company's books and records immediately on his appointment. He sought first to
obtain them from Mr B Taylor of the company's auditors, whom he had been told
had possession of them. Mr Mitchell had said so in a witness statement made on
25 July 2003 in the action brought by GSK. Mr Taylor replied that he was not
in possession of any of the company's books and records, which he said were
with the directors. On 1 September 2003 Mr Mitchell told the joint liquidators
that he had the records and would forward them later in the week, and on 10
September he wrote to say that he had arranged for "the information you have
requested" to be delivered on 12 September. Nothing was delivered and the
liquidators sent chasing letters on 3 October and 7 October 2003, as well as
trying to contact Mr Mitchell by telephone. On 8 October Mr Mitchell replied
that he had arranged for "the stock etc to be delivered to your offices this
Friday". Again nothing was received. In answer to a further letter from the
liquidators, Mr Mitchell replied on 22 October that:
"We take note of your comments that under no circumstances would
UK-AID's books and records ever be passed on to GSK, unless they obtained a
court order for some reason. In any event this would be irrelevant as we
confirmed yesterday, the books and records were placed in storage in a
garage adjacent to our office. Whilst I was on holiday, workmen cleared
furniture and rubbish from this garage and removed a number of boxes, some
of which contained the records. However you do have full audited accounts
and other relevant financial information supplied by M.P. Saunders &
Co."
- Mr Mitchell was subsequently the subject of
enquiries by the directors' disqualification unit of the Insolvency Service.
They raised questions as to his apparent failure to maintain or preserve or
deliver up accounting and other records. Mr Mitchell replied in a letter dated
10 February 2005:
"We have supplied confirmation to the liquidators regarding the
books and records as stated in our letter of Oct 22nd 2003. This
letter covered the points raised at our meeting with KPMG of Oct
21st 2003.
We did not state that the books and records had been destroyed,
but rather had been mislaid and we were investigating the matter.
Subsequently, as the records were boxed in empty GSK packing boxes, we
believe that they were delivered to KPMG with the rest of the similar boxes
containing the stock. On receipt, KPMG for reasons of their own immediately
transferred all the boxes to GSK, who then destroyed them, without prior,
written authorisation. The delivery occurred on Friday October
17th 2003 and our meeting with KPMG was on Tuesday October
21st. At the meeting KPMG confirmed receipt of the delivery,
which had been forwarded on to GSK, they confirmed that they had not
received the books and because we believed that they had checked everything
we could only assume that they had been mislaid, we informed KPMG as such
and stated that we would investigate further."
- This suggestion that the company's records were
delivered to the liquidators in GSK boxes has been addressed and rejected in
evidence provided by the relevant individual at the liquidators' firm. In a
letter dated 20 November 2006 the company's auditors stated that the company's
records had been destroyed in a fire. The prevarications and the
inconsistencies in Mr Mitchell's responses to the requests for the company's
accounting records raise serious concerns that he knows that they would not
support his case as regards the payments. It is to be noted that although
nearly £2.5 million was paid by the company to LCI's account in the year to 31
March 2002, there is no indication of those payments in the audited accounts
for that year nor any evidence from the auditors who would have had access to
the accounting records for the audit.
- The company submits that, taking together all this
evidence and all these points, the company's case is overwhelming and Mr
Mitchell's defence is incredible and has no prospect of success.
- I have not dealt separately with the payments into
the LCI account from C Horn et Cie and Polish Pharmaceutical Services. There
is a substantial amount of documentary evidence that C Horn et Cie was a
customer of the company. There are also e-mails between C Horn et Cie and Mr
Mitchell on behalf of the company in December 2001 relating to a supply of
products at a total cost of $42,500. An invoice for that amount was sent by Mr
Mitchell in the name of LCI and that sum was paid by C Horn et Cie to Andbanc
on 17 December 2001. In view of the totality of the evidence as regards the
payments into and out of the LCI account, there is in my view no basis for
treating these payments differently from the payments by the company and it
was not submitted on behalf of Mr Mitchell that I should do so.
Submissions on behalf of Mr Mitchell
- Counsel for Mr Mitchell made eight points on his
behalf on this application. First, Mr Mitchell still strongly disputes GSK's
claim against the company, although he accepts that this was irrelevant on
this application. The point made is that if Mr Mitchell believed that GSK was
not owed anything, there were profits out of which commissions to Mr Farber
could be paid. However, even if nothing was owed to GSK, it would mean that
the whole of the profits were paid in this way.
- Secondly, Mr Mitchell's evidence is that he
dealt with purchases from GSK and that Mr Silverman was responsible for sales
in the Ukraine and Belarus. Thirdly, he was not a signatory on the company's
account and he did not himself give the instructions for the transfers to
LCI's account, but he accepts that he knew that the transfers were being made.
In view of his knowledge of the transfers and their size as compared with the
company's turnover and profits, the fact, if correct, that Mr Silverman and
not Mr Mitchell dealt with sales does not take Mr Mitchell very far.
- Fourthly, Mr Mitchell was not a signatory for
LCI's account. He was, however, a signatory for a number of entities which
received funds from LCI's account as well as on his own Credit Suisse account.
He accepts that he knew that many of the transfers from LCI's account were
being made.
- Fifthly, Mr Mitchell believed that the payments
to LCI were commission payments and, sixthly, at the time there were grounds
for him to believe that this was so. Reliance is placed on the oral assurances
which Mr Mitchell says that he received from Mr Silverman, the cheques in
favour of Y. Farber & Co and the invoice for £1.5 million on LCI-headed
paper. As to the payment made through his Credit Suisse account in July 2006,
he accepts that it was not made for the benefit of Mr Farber, but, it was
submitted, that is not inconsistent with the earlier payments having been made
for Mr Farber. As to the payments apparently made for Mr Silverman's benefit,
such as those for the purchase of watches and villas in Spain, there was no
reason for Mr Mitchell to know about these at the time. As counsel reminded
me, it is important to judge Mr Mitchell's state of mind in the light of the
matters known to him at the time, not on all the evidence which is now
available.
- Seventh, it cannot be said that Mr Farber or his
Ukrainian associates did not exist, in view of the cheques payable to Y.
Farber & Co and the fact that the address in Yalta shown on the LCI
invoice existed, albeit that the liquidators' agents could not find anyone
there (according to Mr Mitchell's evidence, it is an institute of child
health). As it seems to me, it is immaterial that a Mr Farber may exist,
because the issue is whether the company paid commissions amounting to over £5
million to him or for his benefit. I should however comment that there is no
evidence as to the identity or location of Y Farber & Co or the reasons
for the cheques made payable to it.
- Eight, if Mr Mitchell believed that the payments
were for commission and the purchase of pharmaceutical products, he has a good
defence to the claim made against him. Mr Girolami submitted that this was not
an issue which should be decided on a summary judgment application. I should
mention that the company's case against Mr Mitchell is based on knowing
involvement with the misappropriations constituted by the transfers to LCI. It
is not pleaded as a case of negligence.
Conclusion on the application for summary judgment against Mr
Mitchell
- In my judgment, the case against Mr Mitchell is
overwhelming and his defence is incredible. In reaching this conclusion, I
rely on all the submissions made by the company, although according rather
less weight to their points on the family trusts and the failure to produce
accounting records. The evidence as to the uses to which the sums paid to
LCI's account and the links between the relevant entities and the defendants
is by itself enough, in my view, to establish the company's case at a summary
stage. The total absence of any evidence of any connection with a Mr Farber or
his alleged Ukrainian associates, other than the defendants' affidavits, is to
be contrasted with Mr Mitchell's close personal involvement in many of the
payments. For example, there are the payments to Heaton Moor where he was
giving detailed instructions in connection with property acquisitions and
developments in which MUK and MPUK, both beneficially owned by the defendants,
were participating. There are the unexplained payments to Bawdwin, of whose
account he was the signatory and which shared the same office address in
England as the company. There are the payments to his Credit Suisse account
and their subsequent transfer to Black Vulture, whose purpose (it is said) was
to provide a fund against which MPUK could borrow. There are the payments to
the PR accounts and the payments to MPUK. Mr Mitchell's explanation for the
purchase of the Chrysler Voyager and the Bentley borders on the farcical.
- When this evidence is combined with the
admittedly false evidence which Mr Mitchell has given and with his
inconsistent explanations for the payments to LCI's account and with the size
and timing of those payments, I am in no doubt that the case is established
against him. His defence rests entirely on what he said he was told by Mr
Silverman about the payment of commissions for Mr Farber and about the
subsequent use of the monies paid to LCI's account. The evidence as a whole,
in my view, demonstrates that he has no prospect of establishing that he was
told these things by Mr Silverman or, if he was, that he believed them. He
does not explain how, as a 25 per cent shareholder, he was prepared to agree
to all the company's profits and the greater part of its turnover being paid
away to an unconnected third party, nor does it explain the benefits which he
subsequently enjoyed from the payments. His admittedly false evidence on
central issues does telling damage to his credibility on evidence which, in
any event, is implausible. I should add that, in the light of all the
evidence, I am also satisfied that the purported invoice from LCI dated 5
March 2002 is false and that Mr Mitchell knew it to be false.
Applications by and against Mr Silverman
- Having failed to serve a defence, Mr Silverman
is by the terms of the order of Lawrence Collins J dated 1 November 2006
presently debarred from defending the action. He was certified on 13 December
2006 as incapable of managing and administering his property and affairs by
reason of mental disorder within the meaning of the Mental Health Act 1983 and
is therefore a patient for the purposes of CPR Part 21.1(2)(b). On 26 January
2007 the Official Solicitor agreed to act as Mr Silverman's litigation friend,
against an undertaking by Steven Silverman to pay his costs.
- Because Mr Silverman is a patient, an
application for judgment in default of defence must be made in accordance with
CPR Part 23 and must be supported by evidence: CPR Part 12.10(a) and 12.11(3).
Judgment on such an application is such judgment as it appears to the court
that the claimant is entitled to on his statement of case: Part 12.11(1). By
reason of 12 PD 4.2(2), the claimant must satisfy the court by evidence that
it is entitled to the judgment claimed. In procedural terms, therefore, it
matters not whether the company seeks judgment under Parts 12 and 23 or
summary judgment under Part 24, unless grounds of defence could be put forward
on behalf of Mr Silverman if the debarring order were lifted. Mr Girolami, who
appeared for Mr Silverman as well as Mr Mitchell, stated that without taking
instructions from Mr Silverman no defence could be shown to the claim.
- Mr Girolami's application was that the company's
application for judgment should be adjourned generally, to be restored when Mr
Silverman has recovered sufficiently to give instructions. Mr Silverman has
been examined by Dr Andrew Margo, a consultant psychiatrist. Dr Margo signed
the certificate of mental capacity, in which he also stated that the present
mental disorder has lasted since March 2006 and that Mr Silverman's prospects
of recovery of capacity are good in the long run. In his report dated 29
November 2006, Dr Margo stated the he could not see any reason why there would
not ultimately be significant improvement but he could not specify a
timeframe. On 13 December 2006 Dr Margo wrote that the prognosis should be
good and he anticipated a full recovery in due course. On 23 February 2007 Dr
Margo reported that there had been only minimal progress and that there was no
improvement in Mr Silverman's ability to deal with these proceedings. On 28
February 2007 Mr Silverman was examined by a consultant psychiatrist nominated
by the company who agreed with Mr Margo's conclusions.
- In the event of the death or permanent
incapacity of a defendant, the court would proceed to consider on all the
evidence before it whether there was any reasonable prospect of a successful
defence, making due allowance for the fact that the defendant could not
himself give instructions or evidence. In these circumstances, the defence
could rely on all other available evidence, in documents or from individuals.
I do not consider that the approach can or should be any different in the case
of Mr Silverman. It is said for Mr Silverman that there is no available
evidence to support a defence, whether from Steven Silverman, the auditors,
Roger Griffiths, BDO Fidecs or anyone else. Although there is considered to be
a good prospect of recovery at some time in the future, no time can be put on
it. It may be years from now. I do not consider it right that the company
should be precluded from prosecuting its claim for an indefinite period.
- On the evidence before the court, the case
against Mr Silverman is every bit as overwhelming as, in my judgment, it is
against Mr Mitchell. There are, in addition to the payments involving Mr
Mitchell, the purchases of watches and villas in Spain for the benefit of Mr
Silverman. It is not suggested that there is any defence which he might put
forward other than that the payments were commission payments to Mr Farber and
his associates. For all the reasons already given, it is an incredible
defence.
- Accordingly, in my view, the company is entitled
to judgment on its claim against Mr Silverman. Mr Silverman's circumstances
would make it appropriate to give relief from the effect of the debarring
order, at least if there could be shown any prospect of a successful defence.
I think it right that judgment should be given on the explicit basis that Mr
Silverman has no real prospect of successfully defending the claim. I will
therefore accede to the application for relief from the debarring order but
refuse the application for an extension of time for service of a defence. I
will give judgment under CPR Part 24.
Interim payment
- The company seeks an order against Mr Mitchell
and Mr Silverman for an interim payment of £5.5 million, being the amount of
the misappropriations (dollar sums converted into sterling at current rates)
and interest at 8 per cent per annum. No separate submissions were addressed
to me on the principle or the quantum of this proposed order. In my judgment
it is a clear case for an interim payment and I will make the order sought.
