Mr Justice Sales :
Introduction
- This is the trial of a claim brought by the Liquidator of the claimant company ("Relfo") for recovery of monies belonging to the company which the Liquidator says were diverted by the former director and controller of the company, Devji Ramji Gorecia ("Mr Gorecia") to the account of the Defendant, Bhimji Velji Jadva Varsani ("Bhimji Varsani") at Citibank Singapore Limited ("Citibank Singapore").
- Mr Gorecia is a businessman based in the United Kingdom who has close links with the Varsani family, a wealthy Asian family originating from East Africa. The head of the family is Velji Jadva Karsan Varsani ("Mr Varsani senior"), an elderly man who has extensive business experience, having formerly carried on business in Kenya. He is now based in the United Kingdom. He has two sons, Bhimji Varsani and Manubhai Varsani ("Manu Varsani") who now run the family businesses in Kenya and who are based there.
- The Varsani family maintains a number of bank accounts in various locations and invests in business opportunities as they arise. Some of their accounts are in the joint names of Manu Varsani and Bhimji Varsani and some are in the single name of one or other member of the family. The account which was the focus of these proceedings at Citibank Singapore was in the sole name of Bhimji Varsani. The centre of attention for Bhimji Varsani and Manu Varsani is the family businesses in Kenya which they run. Mr Varsani senior retains the predominant role within the family of managing the bank accounts and investments where the family's accumulated wealth is located. He has joint signing rights over many of the bank accounts held in his sons' names and the bank statements for those accounts are sent to Mr Varsani senior at his home address so he can retain oversight of transactions passing through those accounts.
- Since the late 1980s the Varsani family, and Mr Varsani senior in particular, have treated Mr Gorecia as a business partner in whom they place great trust. Mr Gorecia advises Mr Varsani senior about business opportunities and to a considerable extent Mr Varsani senior authorises Mr Gorecia to make and manage investments on the family's behalf. For his part, Mr Gorecia looks to the Varsani family, and Mr Varsani senior in particular, as a source of funding for business projects in which he also invests and also for loans when Mr Gorecia gets into business difficulties. Mr Gorecia and Mr Varsani senior have a close business relationship with a high degree of trust on both sides, developed and maintained over a long period of time, based as I find on complete openness between them in their business dealings. In particular, I find that the business relationship was of especial value to Mr Gorecia such that it is very unlikely that he would jeopardise it by failing to be completely open with members of the Varsani family when taking actions which might have any impact on them or their interests.
The factual background: Relfo and the payments in issue
- Relfo was incorporated on 17 January 1996 for the purposes of property development and letting. Until June 2001, pursuant to an arrangement agreed between Mr Gorecia and Mr Varsani senior, Bhimji Varsani and Manu Varsani each held 25% of the issued share capital of the company. Mr Gorecia and his wife together held a further 25%. The remaining 25% was held by two other minority shareholders, Mr Roberts and Mr Wainwright.
- Relfo developed a health club. In about June 2001 this was sold for around £4 million, giving rise to a tax liability for Relfo of about £1.26 million. The Varsani family, Mr Roberts and Mr Wainwright wished to take their profits from the venture at that stage. Mr and Mrs Gorecia wished to retain Relfo as a company controlled by them for use as a vehicle for further investments, leaving their share of the profit in the company for tax reasons. Relfo declared a dividend of about £3.54 million and paid out the dividend to the other shareholders who, at the same time, transferred their shares in the company to Mr and Mrs Gorecia. The part of the dividend due to Mr and Mrs Gorecia was retained in the company and they became the sole shareholders in it and its two directors.
- There was some evidence at trial regarding tax advice Mr and Mrs Gorecia received at the time. Mr Gorecia referred to a letter from an accounting firm called Helmores, dated 2 January 2001, in which they gave advice to Mr Wainwright and summarised advice given at a meeting also attended by Mr Gorecia. In that letter from Helmores it was said, "I further understand that Mr and Mrs Gorecia may wish to retain the company after all of the other shareholders have been bought out by the company. They might then use this for other UK ventures and of course would save higher rate tax so long as the profits were retained in the company rather than distributed to them."
- Mr Gorecia's evidence was that he understood from what he was told by Helmores that if he had other companies which made a loss, he could offset their losses against the profit made by Relfo to reduce the tax which might be payable by Relfo. The significance of this evidence was to suggest that Mr Gorecia thought at a later stage that Relfo did not have a tax liability of more than £1 million or could avoid a significant tax liability in respect of the profits it had made, so that, for example, there was no significant wrongdoing on his part when he later used, for other purposes, monies available to Relfo to pay its tax liability and also to bolster evidence he gave about the circumstances in which he caused Relfo to make an investment in Moscow shortly before it went into liquidation, which I describe in more detail below.
- I set out in para. [51] below my assessment of Mr Gorecia as a witness. I did not find Mr Gorecia's evidence about tax advice credible. The letter from Helmores reflecting the advice they had given at their meeting did not suggest that the profits of Relfo could be set off against losses of other companies controlled by Mr Gorecia. Rather, it focused on the scope for Mr and Mrs Gorecia to avoid having to pay higher rate tax themselves in relation to distribution of dividend to them if the money was retained within the company. It is unlikely that Helmores or any other adviser would have advised Mr Gorecia that Relfo's tax liability in relation to its gains or profit in relation to its own business could be reduced by losses suffered by other companies, and Mr Gorecia produced no document setting out such advice. In due course, Relfo's liquidator interviewed the company's accountant, who did not suggest that Mr Gorecia had raised with him any previous advice received from accountants to the effect that Relfo's tax liability could be reduced in this way.
- After the declaration by Relfo of the dividend in 2001 and payment of the relevant part of it to the shareholders other than Mr and Mrs Gorecia, and the restructuring of the ownership of the company in favour of Mr and Mrs Gorecia, a sum of about £2.2 million remained in Relfo's bank account which was sufficient to pay Mr and Mrs Gorecia their share of the dividend and to meet Relfo's tax liability. However, Mr Gorecia did not cause Relfo to pay its tax liability promptly when it fell due in November 2002. Relfo continued to engage in trading activities using the funds retained by it. Its trading activities were not successful.
- On 26 April 2004 HM Commissioners of Inland Revenue (which later became HM Revenue and Customs – I refer to both of them simply as "HMRC") gave notice to Relfo of proposed legal proceedings in relation to the outstanding tax liability from 2001 which had remained unpaid. The notice required payment in full of an amount of £1,409,871 (a sum inclusive of interest) by 3 May 2004.
- At the time of the notice Relfo had £506,707.62 in its bank account. Instead of paying the balance to HMRC, however, on 4 May 2004 Mr Gorecia caused Relfo to pay most of that money (£500,000), after conversion to a US dollar amount of US$890,050, to a company called Mirren Limited ("Mirren") at Mirren's bank account with Rietumu Banka in Latvia ("Rietumu"). The place of registration of Mirren is unclear, but according to the details given by Mr Gorecia in the transfer instruction it had a business address in the British Virgin Islands.
- The next day, an entity registered in Wisconsin in the USA, Intertrade Group LLC ("Intertrade"), paid US$878,479.35 from an account it maintained with Ukio Bankas in Lithuania ("Ukio") to Bhimji Varsani's bank account with Citibank Singapore. A deduction of US$10 was made, apparently in respect of bank charges. The resulting balance of US$878,469.35 was credited to that account on 10 May 2004. The Liquidator maintains that the payment of US$890,050 by Relfo to Mirren ("the Relfo/Mirren payment") and the payment of US$878,479.35 by Intertrade to Bhimji Varsani ("the Intertrade payment") are linked and indeed that the Intertrade payment represents the Relfo/Mirren payment less a 1.3% charge for laundering the money to disguise its true origins. US$878,479.35 is exactly equal to US$890,050 less 1.3%, a calculation which is of significance in light of certain documents which came to the attention of the Liquidator in December 2005, as described below.
- Mr Gorecia and the Varsanis deny that the two payments had anything to do with each other. They say that the Relfo/Mirren payment was in respect of participation by Relfo, acting by Mr Gorecia, in a business venture to acquire and sell computer related parts in Moscow which quickly failed with complete loss of the money by Relfo. They say that the Intertrade payment was the return of funds by business partners of theirs in the Ukraine in relation to a loan or an investment opportunity which could not be carried through successfully and so was abandoned.
- On 13 May 2004, shortly after receipt by Bhimji Varsani of the Intertrade payment into his Citibank Singapore account, US$100,000 was paid from that account to Mr and Mrs Gorecia. The Liquidator maintains that this was a payment to reward Mr Gorecia for diverting Relfo's funds for Bhimji Varsani's benefit. Mr Gorecia and the Varsanis deny this. They say that this payment was to Mr Gorecia for business expenses in relation to a proposed transaction whereby the Varsani family would acquire a sisal farm in Tanzania. In the event, they say, that transaction did not go ahead and Mr Gorecia returned the US$100,000 by crediting the Varsanis with it in the course of operating a running account between him and them.
- On 10 May 2004, Mr Gorecia consulted an insolvency practitioner in relation to the affairs of Relfo and the affairs of two other companies owned by Mr and Mrs Gorecia, called Plusresult Limited ("Plusresult") and Partflat Limited, which were also insolvent. The insolvency practitioner, Mr Reynolds, advised Mr Gorecia to place Relfo into creditors' voluntary liquidation.
- On 23 July 2004, at a meeting of Relfo's members, Mr Reynolds was appointed as liquidator. A statement of affairs was drawn up for that meeting for which Mr Gorecia took responsibility and which he signed. The meeting of members was then converted into a meeting of creditors pursuant to section 98 of the Insolvency Act 1986, at which Mr Bramston was appointed as liquidator in place of Mr Reynolds. Mr Bramston was voted into office by HMRC, who were identified in the statement of affairs as by far the biggest creditor of Relfo. The only other creditor identified in the statement of affairs was Mr Gorecia himself, who claimed that £100,000 was due to him in respect of a loan he had made as a director of the company.
- In the statement of affairs for Relfo dated 23 July 2004, signed by Mr Gorecia, Relfo's assets were stated to be a debt due from Plusresult (book value £1,065,000; estimated current value nil), investments in the Ukraine (book value £500,000; estimated current value nil), investments in Moscow (book value £500,000; estimated current value nil) and £6,657 cash at bank.
- Mr Gorecia's director's report in the same document described how Relfo had lent money to Plusresult to develop and run a hotel, which had proved to be loss-making; that investments were made into a car market and building developments in the Ukraine which had proved to be bad; and gave the following account of the Moscow investment (for which, according to Mr Gorecia's evidence at trial, the Relfo/Mirren payment had been made):
"During February and March 2004, [Relfo] became involved in a transaction whereby a container of computer goods were purchased for distribution throughout Moscow. Mr Gorecia advises that, whilst this transaction was negotiated during February and March, the substantial investment made by [Relfo] was not concluded until April 2004 and amounted to approximately £1/2 million.
Mr Gorecia advises that, not only did the investment fail, in that it showed no profit return but that, furthermore, the company with whom Relfo transacted in Moscow was soon after placed into insolvent liquidation and that the entire investment of some £500,000 was lost with no realistic prospect of return."
- At the meeting on 23 July 2004, Mr Bramston asked Mr Gorecia questions about Relfo's activities and noted his replies. In relation to the Moscow transaction, Mr Gorecia said that he had entered into it on a speculative basis, as an act of stupidity, because he had seen a chance to make back the money which Relfo owed HMRC. He said he had been told he could double his money within 3 or 4 months. The investment was made through the same person with whom Mr Gorecia had been dealing in relation to Relfo's investments in the Ukraine, a Guy Dagan ("Mr Dagan"), a Ukrainian with links to Germany. Mr Gorecia said that Relfo's £500,000 investment had been sent to an account in Moscow, and that he had the details available. The money had been lent to a Russian company. There was no written loan agreement. He did not know who owned the company in Russia or who the Russians were. He had relied on Mr Dagan.
- Within a short time after his appointment, Mr Bramston (whom I call "the Liquidator" hereafter) formed the view that Mr and Mrs Gorecia were likely to have been in breach of their duties to Relfo in relation to their stewardship of its assets. By letter dated 4 August 2004 from the Liquidator to Isadore Goldman (solicitors acting for Mr Gorecia), the Liquidator posed a series of questions about aspects of Relfo's affairs about which he wished to question Mr Gorecia, as follows:
"1. The Statement of affairs records that the Company is alleged to be owed the sum of £1,065,000 in respect of a loan made to an associated Company, Plusresult Ltd, however after inspection of the records of both companies I am only able to identify payments of £420,000, and require an explanation of the variation.
2. The Company is alleged to have invested £500,000 in the Ukraine. The nature and purpose of this investment is not apparent from the papers currently in my possession. However the Company's records show that payments totalling £666,587 were apparently made in respect of these investments.
3. Less than two months before the Company entered into insolvent liquidation, a sum of £500,000 was transferred by the Company to an account in a Latvian bank allegedly maintained by a company registered in the British Virgin Islands (although no such company can be traced in the BVI Companies Registry) [this is a reference to the Relfo/Mirren payment]. This payment was described in the statement of affairs as an investment in Computer chips in Moscow. I require a full explanation of the circumstances of this investment, and the apparent discrepancies.
4. Substantial payments appear to have been made from the Company's account to the directors, including the sum of £250,000 paid by cheque number 100280 on 24th April 2003. In light of these payments I also wish to see copy statements relating to the directors personal bank accounts for a period from 1st June 2001 onwards, and would be grateful if you could arrange for these to be supplied to me prior to our meeting."
- This led to Mr Gorecia promptly approaching the Liquidator with a proposal to pay him a substantial sum in respect of all claims the company might have against him or members of his family. After negotiations, on 29 October 2004 a settlement agreement was entered into between Mr and Mrs Gorecia and the Liquidator ("the Settlement Agreement"), under which Mr and Mrs Gorecia agreed to pay the Liquidator £700,000 "in full and final settlement of all claims of whatsoever nature, whether existing or in contemplation, arising from or incidental to the liquidation of [Relfo] against Mr and Mrs Gorecia and/or the Gorecia family". Mr Gorecia raised the money to pay this sum to the Liquidator by remortgaging the family home and with a loan of £540,000 advanced to him by the Varsani family.
- One line of defence relied on in these proceedings by Bhimji Varsani is that by virtue of the Settlement Agreement the Liquidator has lost the right to maintain the claims he now brings against Bhimji Varsani. I reject that defence below: see paras. [89]-[90].
- Pursuant to the settlement arrangements, Mr Gorecia was to be required to make a formal witness statement verifying the account he had given the Liquidator. In August 2004, in discussion with Isadore Goldman, Mr Gorecia drew up and signed a draft witness statement dealing with all of Relfo's investments in the Ukraine, Moscow and Plusresult. This document and a copy of the letter from Isadore Goldman under cover of which it appears to have been sent to Mr Gorecia were produced by Mr Gorecia for the first time at trial. In his evidence at trial, Mr Gorecia maintained that the draft witness statement was accurate.
- In the draft statement, in relation to the investments in the Ukraine, Mr Gorecia described how he had met Mr Dagan in 1999 and how eventually he had agreed, relying on Mr Dagan and certain Ukrainian or Russian business associates introduced by him, to make an investment on behalf of Relfo and the Varsani family in a Ukrainian company called Corn Ltd ("Corn"), which ran a market in Kiev selling cars, and a further investment in a building development in Odessa. Mr Dagan and his associates were highly placed, influential businessmen and politicians who could resolve any problems Mr Gorecia had with the investments and provided him with comfort that they would not go wrong. Mr Gorecia (via Relfo) and the Varsanis agreed to advance a total of US$3.6 million to Corn, acquiring a 50% interest in that company (16% for Relfo, 34% for the Varsanis) and on the basis that they were to be paid US$50,000 per month from July 2002 by way of repayment, received into Mr Gorecia's bank account and then distributed by him as to one third to Relfo (or Plusresult, on Relfo's account) and two thirds to the Varsanis. Mr Gorecia signed the relevant documents with Corn in his own name - in due course he produced a copy of the relevant agreement, dated 24 December 2001 and entitled "Loan Agreement No. 2412/01-1". There was only an oral agreement between him and the Varsanis. In the event, Corn ran into business difficulties because of a dispute with the city authorities in Kiev and as a consequence stopped paying the monthly sums due, with the result that the final US$600,000 tranche of lending to Corn due to be paid in January 2004 was withheld. 50% of the shares for the Odessa investment had been taken in the name of the Varsani family, of which one third had been transferred to Mr Gorecia to hold for Relfo. Although in the statement of affairs of 23 July 2004 Mr Gorecia had estimated the value of Relfo's Ukrainian investments to be nil, in the draft witness statement he said that he did not consider the investment in Corn to be lost and he said that the Odessa investment was still live, albeit requiring further investment.
- In relation to the Moscow investment, Mr Gorecia said in the draft witness statement that in early 2004 he was aware Relfo might have a liability to pay tax in relation to the health club transaction, but was shocked when the company's accountants at the time advised that some £1.3 million was owed in tax, since he had not expected so much. He said, referring to advice from Mr Wainwright's accountants – i.e. Helmores - "To my mind, I thought if I invested the money and made a profit I would not have to pay a great deal of tax … [that was] the reason why I did not take my dividend out of [Relfo] … [t]heir advice, I thought, was that if I left the money in [Relfo] it would not be liable for corporation tax …" (this should be contrasted with his oral evidence at trial, referred to at paras. [7]-[9] above). He said that Relfo only had about £500,000, so he discussed the problem with Mr Dagan and Mr Gorecia's business partners in the Ukraine, who suggested that he undertake an investment in computer chips which would provide him "with a good return of around 40 per cent within two months or so" (this should be contrasted with the account Mr Gorecia had given the Liquidator at the meeting on 23 July 2004, where he had said that he was told he could "double" his money). He said that he did not check out the investment properly, because he was dealing with people he trusted. In that regard, he also referred to another investment opportunity to acquire a property in Odessa in 2002, at which time about US$1 million had been sent to Mr Dagan for that project which, when it did not proceed, was returned to him. In relation to the Moscow investment, Mr Gorecia said:
"I dealt with [Mr Dagan] alone. The company was Moscow-based. I did not know who the shareholders were but [Mr Dagan] asked me to transfer the money to a Latvian bank. I saw no documentation and undertook that transfer in May 2004 to [Rietumu]. I had no idea where the money was going to.
After the money was transferred I spoke to [Mr Dagan] once or twice a week. He told me around 25.05.04 that the investment in the company had gone bad. I have no further details. He does know the person who received the money and who he dealt with [was] Mr Miroshnichenko. That person apparently, according to [Mr Dagan] is non-contactable but I believe is a Russian national. I need to go to Moscow to see if there is any possibility of recovering at least part, if not all, of the investment."
This account is to be contrasted with the account Mr Gorecia gave in the statement of affairs and the meeting with the Liquidator on 23 July 2004 (see paras. [19]-[20] above), at which he did not mention Mr Miroshnichenko or any need to go to Moscow, but said that the investment had been lost because the company in Moscow had gone into liquidation.
- At the same time that Mr Gorecia made this draft witness statement available at trial, he also produced a copy of a letter on Relfo headed notepaper signed by him dated 29 April 2004 addressed to Mr S.G. Miroshnichenko, Goret Ltd at an address in Moscow. The letter said:
"I confirm that as per our agreement, I am sending you the amount of five hundred thousand pounds sterling as investment for the purchase of computer equipment and parts as discussed. I will be sending the money from UK on or around 30 April 2004. As per your instructions the money is being sent to [Mirren, with its British Virgin Islands address noted]. Beneficiary Bank: [Rietumu]."
- Mr Shaw, for the Liquidator, challenged the authenticity of this letter. Mr Gorecia's evidence at trial was that he had sent it to Isadore Goldman at about the same time as drawing up his draft witness statement, although none of the correspondence from Isadore Goldman referred to it. Nor did Mr Gorecia refer to it in the draft witness statement (indeed, he stated there, "I saw no documentation … I had no idea as to where the money was going to"). Nor did he bring this letter to the attention of the Liquidator either at the meeting on 23 July 2004 (where the account he gave was inconsistent with his having sent such a letter: see para. [20] above) or at a later meeting to discuss the Moscow transaction in September 2007 (see para. [37] below). Nor did he refer to the letter in his affidavit in proceedings in Singapore brought against Bhimji Varsani by the Liquidator (see para. [42] below). In the light of my assessment of Mr Gorecia as a witness (para. [51] below), I find that this is not an authentic letter referring to a genuine transaction.
- In the event, Mr Gorecia did not have to deploy his draft witness statement of August 2004 in his dealings with the Liquidator, because the Liquidator narrowed his requirement for a witness statement from Mr Gorecia to an explanation of the Ukrainian investments. The Liquidator met Mr Gorecia and his solicitor on 15 November 2004. The Liquidator opened the meeting by saying that its purpose was solely to seek information relating to Relfo's investments in the Ukraine. The Liquidator was proposing to visit the Ukraine to check on those investments. Mr Gorecia gave an account of the Corn investment and the Odessa investment (which he said involved a number of companies called Sovignon, Devalex, Romantica and Rokada). He said that Mr Dagan had fallen out with the parties in Kiev and would not be available to assist the Liquidator during his visit. Mr Gorecia stated that he considered that the shares in Corn were worthless, and that the money invested was treated as a loan to Corn. A sum of over US$2 million remained outstanding, since Corn's repayments had ceased by the end of 2003. Mr Gorecia said that whilst the Liquidator should be able to see a set of books for Corn, Mr Gorecia could not vouch for the accuracy of the figures in them, indicating a level of corruption, and commenting in that regard on the contrast between the low official salaries of government ministers and the fact that they owned cars worth US$150,000. In relation to the Odessa investment, Mr Gorecia said there was a written joint venture agreement in place (in his evidence at trial he said this had been kept in the offices in the Ukraine; the Liquidator has never seen it).
- At the meeting Mr Gorecia produced two schedules of payments and receipts, one headed "Payment Schedule for Corn Ltd" and the other headed "Odessa/Devalex". These were presented by Mr Gorecia to the Liquidator as a full picture of the payments in and out for Relfo and the Varsani family in relation to their Ukrainian investments. The Corn schedule showed the last payment by Corn of US$50,000 on 2 December 2003. For trial, the Liquidator undertook an exercise to reconcile these schedules with Mr Gorecia's disclosed bank statements and other documents, and produced forensic schedules which were in substance agreed by the Defendant. These show: (i) in relation to Corn, payments totalling US$3,100,000 (US$1,033,000 from Relfo and US$2,066,667 from the Varsanis) and £72,939 (from Relfo) were made in the period January 2002 to September 2002 against receipts totalling about US$800,000 and £102,200 in the period April 2002 to December 2003; and (ii) in relation to Odessa/Devalex, payments totalling US$3,640,097 (US$150,000 from Relfo, US$530,097 from Mr Gorecia and US$2,960,000 from the Varsanis) in the period January 2002 to December 2003, including a payment of US$1 million from the Varsanis on 24 December 2003, against receipts totalling US$1,604,227 in the period November 2002 to 7 January 2004. The receipts in the schedules came from a number of different sources. Mr Gorecia explained that Mr Dagan and his business associates would use different companies from time to time, depending on which happened to be a convenient vehicle for them to move money around. The receipts in respect of Odessa/Devalex included three payments each of about US$328,988 to Mr Gorecia from Wall Street Investment Group LLC ("Wall Street") in September/October 2003 which in his evidence at trial Mr Gorecia said represented the repayment of the US$1 million for an earlier Odessa project in about 2002 which had not proceeded to which he had referred in his draft witness statement of August 2004 (see para. [26] above). Although at trial the case for the Varsanis and Mr Gorecia was that the Intertrade payment represented a repayment in relation to one of the proposed Ukrainian investments in Odessa, and Mr Gorecia in cross-examination confirmed that it was made in repayment for the US$1 million shown as a payment by the Varsanis dated 24 December 2003 in the "Odessa/Devalex" schedule given to the Liquidator, the Intertrade payment did not feature on either of the schedules presented by Mr Gorecia to the Liquidator. In his evidence under cross-examination, Mr Gorecia suggested that this was because the Intertrade payment had "probably slipped [his] mind". I did not find this a credible account of why he did not include it in the schedules in relation to the Ukrainian investments. In my view, Mr Gorecia did not include it because it did not in fact relate to the US$1 million payment by the Varsanis to which he now seeks to link it and at the time of giving the schedules to the Liquidator he did not yet think that he would ever have to explain the Intertrade payment to the Liquidator.
- After this meeting, Mr Gorecia amended his draft witness statement so that it dealt only with Relfo's Ukrainian investments. He signed the witness statement in this final form on 9 December 2004 and sent it to the Liquidator.
- In January 2005 the Liquidator and representatives from his solicitors visited the Ukraine to try to investigate what had happened to Relfo's money. He instructed investigators but got nowhere at that stage. Mr Gorecia's explanation for this was that the shadowy and elusive businessmen he had been dealing with in the Ukraine were not prepared to deal with anyone other than himself, whom they knew and trusted. The Liquidator felt he had taken things as far as he could and the Relfo case was left to one side.
- That changed when out of the blue in early September 2005 the Liquidator's solicitor received a mysterious unsolicited e-mail from a Timur Kudaev ("Mr Kudaev") enquiring whether the Liquidator was still interested in getting information on investments effected by Mr Gorecia through Relfo. Mr Kudaev emphasised that he and his business partners had had "some very disappointing experience with Mr Gorecia" and asked for his contact with the Liquidator to be kept confidential. With some difficulty the Liquidator's solicitor sought to engage with Mr Kudaev in e-mail correspondence to elicit more information from him. This culminated in an e-mail from Mr Kudaev dated 14 October 2005 - in which he again complained of business difficulties and financial losses for him and his partners arising from Mr Gorecia's actions and said that the Relfo/Mirren payment had been made pursuant to a loan agreement with Mirren which had been cancelled and the payment diverted to an account in Singapore - and a further e-mail dated 15 December 2005 with attachments in the form of copies of documents to back up this story. Hard copies of these same copy documents were also received by post by the Liquidator's solicitor. Attempts by the solicitor to get in touch with Mr Kudaev to find out more about the documents came to nothing. Mr Kudaev was not heard from again.
- The copy documents sent by Mr Kudaev comprised:
i) A copy of a document dated "05.01.2004" entitled "Loan Agreement 01-03/UK About the Loan for the company Mirren Limited", which set out the terms of a loan by Relfo to Mirren of £500,000 to be transferred by Relfo to Mirren "not later than the 5th of May 2004", at an annual interest rate of 10% ("the purported Mirren loan agreement"). The document had been signed by someone on behalf of Mirren (and its British Virgin Islands address was given) and also bore what appeared to be the signature of Mr Gorecia for Relfo. Later, at an interview under caution with a Department of Trade and Industry investigator, when Mr Gorecia was asked about this document he said that the signature was his. But in his evidence at trial he sought to explain this away by saying that he had acknowledged his signature only under "the pressure of the moment" and said that in fact he knew nothing about this document and that his signature on it had been forged. I do not find it credible that at an interview under caution Mr Gorecia would have accepted that the signature on the purported Mirren loan agreement was his if he did not recognise that document;
ii) A copy of an unsigned document entitled "Protocol No. 1 Issued in addition to the Loan Agreement #01-03/UK", dated 5 May 2004 ("Protocol No. 1"), stating that Relfo cancelled the loan agreement and that Mirren "must return the amount of 878,479.35 US dollars in accordance with the payment instructions given by Relfo Limited" after retaining US$11,570.65 as compensation for the cancellation, being "the 1.3% from the amount of the initial loan of 890,050.00 US dollars";
iii) A copy document dated 5 May 2004 from Relfo to Mirren, again bearing what appeared to be the signature of Mr Gorecia, which referred to Protocol No. 1 and instructed Mirren to transfer the amount of US$878,479.35 to Bhimji Varsani's account with Citibank Singapore, with the following explanation to be recorded "Payment on behalf of Corn Ltd (Kiev, Ukraine), Loan Agreement No. 2412/01-1 dated 24.12.2001" ("the purported Relfo/Mirren instruction"). This matched the designation of the agreement with Corn which Mr Gorecia had previously produced to the Liquidator. Mr Gorecia's evidence at trial was that this also was not his genuine signature, and that the document was forged. There was uncontested expert evidence adduced by the Defendant at trial that this signature was exactly the same as that on the purported Mirren loan agreement, such that one must have been a cut and pasted replica of the other or both were cut and pasted replicas of some other signature. The expert had not been asked to compare the two signatures with a known genuine signature of Mr Gorecia;
iv) A copy of an unsigned document entitled "Protocol No. 2 Issued in addition to the Loan Agreement #01-03/UK" between Relfo and Mirren ("Protocol No. 2") recording that Mirren had returned the loan in accordance with Protocol No. 1 and that both parties and fulfilled and settled all their obligations towards each other;
v) A copy of a screen shot dated 19 October 2004 of what appeared to be a statement of account for Mirren's account at Rietumu showing a single transaction of receipt of US$890,050 from Relfo with the explanation "Re loan agreement 01 03 UK".
- Armed with these materials, the Liquidator recommenced his investigations. In due course he obtained bank statements from Citibank Singapore which showed that on 5 May 2004 it received US$878,479.35 from Ukio for Intertrade for Bhimji Varsani's account with the explanation "Payment on behalf of Corn Ltd (Kiev, Ukraine), Loan Agreement No2412/01-1 DD 24.12.2001". This tied in with the documents sent by Mr Kudaev.
- The documents sent to the Liquidator by Mr Kudaev were from a person or persons who seem to have been very well informed about the Relfo/Mirren payment, the Intertrade payment and Mr Gorecia's dealings with Corn. The figures in the documents and the dating of the documents tally exactly with what is known to have occurred in relation to both the Relfo/Mirren payment and the Intertrade payment. Neither party in these proceedings, nor Mr Gorecia, suggests that the purported Mirren loan agreement represents a genuine transaction. The Liquidator submits that the purported Mirren loan agreement, Protocol No. 1, the purported Relfo/Mirren instruction and Protocol No. 2 were all documents brought into existence with Mr Gorecia's knowledge in order to create an apparent audit trail to explain the Relfo/Mirren payment and the Intertrade payment. The Defendant submits and Mr Gorecia maintains that they were documents forged by others without Mr Gorecia's knowledge, either as a way to try to exact revenge on Mr Gorecia for the business disputes to which Mr Kudaev had alluded or to try to create difficulties for Mr Gorecia and the Varsanis to distract them from trying to take action to realise their investments in Corn and Odessa. Against the murky background of Relfo's business dealings in the Ukraine and elsewhere and in the absence of evidence from Mr Kudaev or about who exactly he is and how he came by the documents, the main means available to me to try to work out the significance of these documents and what actually happened is my assessment of the evidence of Mr Gorecia.
- On 19 September 2007 the Liquidator held another meeting with Mr Gorecia, at which he accused Mr Gorecia of having not disclosed all relevant information regarding the Moscow transaction. The Liquidator emphasised that he did not believe the explanation Mr Gorecia had given, and referred to the fact that the Relfo/Mirren payment had gone to a bank in Latvia rather than Russia and to the receipt by Bhimji Varsani of a similar amount in his account in Singapore. Mr Gorecia said he had already given details of the Moscow transaction and would only be repeating himself. The meeting came to an abrupt end.
- The Liquidator also commenced proceedings against Bhimji Varsani in Singapore. The Liquidator obtained a freezing order from the Singapore court in relation to the funds in Bhimji Varsani's account at Citibank Singapore, which still included the sum (or, if the payment to Mr and Mrs Gorecia on 13 May 2004 is to be regarded as a deduction from it, most of the sum) from the Intertrade payment. Bank records were obtained in relation to that account and other relevant accounts including Mirren's account with Rietumu and Intertrade's account with Ukio. The Liquidator proceeded to trial in Singapore on his claim against Bhimji Varsani to recover the sum received by Bhimji Varsani from the Intertrade payment.
- Bhimji Varsani pleaded a defence to the claim and amended it from time to time. There are substantial discrepancies between his pleaded defence in the Singaporean proceedings, in its various versions, and his defence and the evidence of Mr Gorecia in the proceedings before this court. In the original version of the defence in Singapore, dated 3 May 2007, it was admitted that Bhimji Varsani received a sum of US$878,479.35 into his account with Citibank Singapore on 10 May 2004 from Mirren; an elaborate account was given of dealings between Corn and Mr Gorecia and the Varsani family; and it was said that Mr Dagan "suggested an investment in a computer and computer spare parts business which had … high returns, with the intention that the profits therefrom could be used to inject into Corn Ltd", that Mr Dagan and Corn instructed Mr Gorecia to remit monies to Mirren to commence the computer business, that Mr Dagan and/or Corn "may have then used funds from Mirren … to make repayment to the Defendant's family of US$878,479.35 in order to get further larger investments from the Defendant's family"; and that the payment of US$100,000 to Mr Gorecia from Bhimji Varsani's account with Citibank Singapore "was the balance due to Gorecia, in addition to some expenses incurred by Gorecia personally in his dealings with Varsani businesses all over the world, from his one-third share of US$878,479.35 of the Corn Ltd repayment received by the Defendant."
- By extensive amendments to the defence dated 11 July 2007, the admission of receipt of the funds from Mirren was withdrawn and any link between the Relfo/Mirren payment and the Intertrade payment was denied; the explanation for the payment of US$100,000 to Mr and Mrs Gorecia was deleted; it was also pleaded that the Settlement Agreement provided a full answer to the claim.
- Evidence was given at the trial before me by Shreedhar Ghirdharlal Hirji ("Mr Hirji"), a close friend of the Varsani family who is also related to them and acts as business adviser for them, to the effect that he had had to put together the original defence under pressure of time on the basis of documents he had received from the family, in circumstances where "Nobody could explain to me what had happened to give rise to [the Liquidator's] claim", so that he "had to conjure up a defence" on the basis of his reading of documents he had received from the Liquidator and the Varsanis and instruct their lawyers in Singapore accordingly. This version of the defence was later corrected by the amendments referred to above. Mr Gorecia supported this account in his evidence. I did not find this evidence of Mr Hirji and Mr Gorecia credible. There was no good reason why Mr Hirji would not have contacted Mr Gorecia, as a trusted partner and agent of the Varsani family, immediately he was informed about the Liquidator's claim and asked to assist the Varsanis in meeting it. Moreover, the most obvious source for the detail about the dealings with Mirren and Corn in the original defence was Mr Gorecia. Mr Hirji did not explain in any detail how he could have constructed that account simply from documents. His evidence about this was very vague. He had to hand Bhimji Varsani's bank statements showing that the payment into his account came from Intertrade, but the original defence accepted that the payment derived from Relfo and Mirren, which again indicates that it is likely Mr Hirji spoke to Mr Gorecia to arrive at the account of the payment set out in original defence. Further, Mr Hirji's evidence conflicted in certain respects with that of Mr Varsani senior, who said that Mr Hirji's account of being sent documents by him was "wrong" and also that Mr Gorecia had been involved. I did not believe Mr Hirji's evidence about how the original defence had been drafted. The strong probability is that Mr Hirji sought information about the Relfo/Mirren payment and the Intertrade payment from Mr Gorecia, who provided the account which appeared in the original defence.
- In the Singaporean proceedings, Bhimji Varsani also adduced an affidavit sworn by Mr Gorecia on 15 October 2007. This was very short. Mr Gorecia did not give the explanation of his dealings in the Ukraine and Russia which he has given in the proceedings in England. He simply said that he had never seen the purported Mirren loan agreement, Protocol No. 1, Protocol No. 2 and the purported Relfo/Mirren instruction before, nor had he authorised the transfer to Bhimji Varsani's account referred to in that instruction. He also referred to the Settlement Agreement. He did not explain to the Singaporean court that he had in fact been shown the purported Mirren loan agreement previously and had originally acknowledged the signature on it to be his.
- The claim proceeded to trial in Singapore before Judith Prakash J in February 2008. Bhimji Varsani did not call evidence at trial. He submitted that the Liquidator had not established that there was any case to answer on the facts, or at any rate that the Liquidator had not discharged the burden of proof on him. Bhimji Varsani made the further submission that the Liquidator was acting in effect to vindicate a claim by HMRC for payment of United Kingdom tax, and that the Singaporean courts should not lend their assistance to the collection of foreign taxes.
- In a judgment dated 30 June 2008 ([2008] SGHC 105]) Judith Prakash J found that there was sufficient evidence to establish a prima facie case that the Intertrade payment represented the traceable proceeds of the Relfo/Mirren payment (para. [43]) and that she could infer that Bhimji Varsani knew that the Intertrade payment was unusual and made without good reason, and emanated from a breach of duty such that it would be unconscionable for him to retain it (para. [51]). However, she dismissed the Liquidator's claim on the grounds that, if she allowed it, she would be enforcing a foreign revenue law (paras. [53]-[71]).
- The Liquidator appealed to the Court of Appeal in Singapore, but the appeal was dismissed on 1 December 2008.
- Meanwhile, in January 2009, the Singaporean freezing order in relation to the Intertrade payment held in Bhimji Varsani's account with Citibank Singapore was discharged and on 26 January 2009 the Liquidator issued his claim against Bhimji Varsani in the High Court in England. On 20 February 2009 the Liquidator applied for and obtained a freezing order against Bhimji Varsani in relation to his assets in England and Wales to the value of £950,000 (i.e. the order did not cover sums in his account with Citibank Singapore).
- Mr and Mrs Gorecia faced prosecution in England for wrongful trading in relation to their conduct of Relfo's affairs. By a ruling in the St Albans Crown Court on 8 January 2010 the prosecution was dismissed on the grounds that it was an abuse of process, because of involvement by HMRC in the settlement negotiations between the Liquidator and Mr and Mrs Gorecia and the failure by HMRC to explain to them that the so-called "Hansard procedure" being followed to seek a settlement with them related only to their own tax position and not that of Relfo.
Assessment of the witnesses and the evidence
- I accept the submission of Mr Macpherson for the Defendant that, although the Liquidator only has to establish his claims on the balance of probabilities on the facts (see Re B (children)(sexual abuse: standard of proof) [2008] UKHL 35; [2008] 4 All ER 1), there is a substantial onus on him, in view of the seriousness of the allegations he has made, to show that the case he maintains – depending in effect on an allegation that Mr Gorecia fraudulently diverted money from Relfo to Bhimji Varsani - is made out.
- The Liquidator gave evidence about his dealings with Mr Gorecia in a truthful and straightforward way. He has always acknowledged, however, that he is unable to show definitively from such bank records as he has been able to obtain (in particular of Mirren's account with Rietumu into which the Relfo/Mirren payment was received and of Intertrade's account with Ukio from which the Intertrade payment was made) that the Relfo/Mirren payment was then paid to Intertrade which then paid it to Bhimji Varsani. His case in that regard was put forward on the basis that, as Mr Shaw submitted, there was strong circumstantial evidence from which the court should find that there was a direct connection between the Relfo/Mirren payment and the Intertrade payment.
- At the heart of the case was the evidence of Mr Gorecia, who sought to explain his dealings in the Ukraine, Russia and elsewhere in a manner designed to demonstrate that there was no linkage between the Relfo/Mirren payment and the Intertrade payment. My assessment of the facts turns critically upon my assessment of Mr Gorecia as a witness and of his evidence.
- As will already be apparent from comments I have made about aspects of the evidence so far, I did not find Mr Gorecia to be a satisfactory witness. Indeed, in my assessment Mr Gorecia was a thoroughly dishonest witness, prepared to lie whenever necessary to protect himself or to bolster the position of the Varsani family in the legal proceedings in which they became involved as a result of his actions. This assessment is based on my close observation of Mr Gorecia in the witness box, the manner in which he gave his evidence, the way in which his account of what happened has changed in significant ways as events have unfolded, conflicts between his evidence and the evidence given by Mr Varsani senior and the sheer implausibility and incredibility of parts of his evidence, including in particular the accounts he has given from time to time of the supposed Moscow transaction.
- Mr Gorecia's final account of that transaction was in a long paragraph in his witness statement for trial, as follows:
"At around the same time (early 2004), I was offered an opportunity to invest in Moscow. I was promised a 30 per cent return (£150,000) within 2 months on investing £500,000 to buy computer parts for onward sale in Moscow. The proposal was made by a man called Mr. S.G. Miroshnichenko in or about February 2004 when I had travelled to Kiev to meet with our Russian Partners. Whilst there I met with Mr. Vitaly Kudrowski, Alexander Sotskov and Mr. Guy Dagan, who were the key figures involved in the Odessa and Corn projects. Vitaly and Guy Dagan introduced me to Mr. S.G. Miroshnichenko at a meeting at [the offices of Corn in Kiev]. Mr. S.G. Miroshnichenko put the proposal to me at this meeting – he needed to get money up front to bring in a consignment of computer parts and I would get a return of around 30 per cent within 2 months. Mr. Dagan's main role at this meeting was translating. Vitaly backed Mr. S.G. Miroshnichenko up, saying that this would be a profitable short term investment and that he himself had put in USD1.5 million. I said I would think about it and the meeting concluded. I spoke further to Vitaly and Mr. Dagan about the proposal after the meeting. They endorsed the proposal, told me that they knew Mr S.G. Miroshnichenko and said I would make £150,000 to £200,000 on the transaction if I invested the full £500,000 that I had available to invest (I wanted to invest as much money as I could and made sure that I had an assurance from Vitaly and Mr. Dagan that Mr. S.G. Miroshnichenko would allow me to invest the full £500,000). I formed the impression that they had both done business with Mr. S.G. Miroshnichenko before, although I don't remember whether they said so. I gave them an answer, by phone, some time later, then Mr. Dagan gave me the name of Mirren Ltd and the details of its bank account with the timing of the transaction being left to me. I made the payment in early May. As far as I was concerned, I was dealing with the people, not the goods. I wasn't going to retail the computer parts or get involved in their distribution. At the time, I was making frequent visits to Kiev and I had travelled to the Ukraine again just before May. Also, Mr. Dagan used to come to London on a regular basis. Back then, I and the Varsanis were pleased with what appeared to be a good investment in the Ukraine and in the Odessa and Corn projects. I had built up a close personal friendship with those concerned over a period of 2 or 3 years. I felt certain that if I financed the purchase of the computer parts, I would get the £650,000 back quickly and would be in a better position to meet the Claimant's liabilities. The nature of the "deal" was unimportant. I relied on my perceived close association with my Ukrainian partners. If they had recommended me to invest in a fashion business instead of computer parts, I would have done so. My ultimate objective was to ensure the Claimant would continue to trade profitably and meet its liabilities. Within a week of my having remitted the £500,000 to Mirren (on or about 7 or 8 May 2004) I received a telephone call to my mobile telephone from Mr. Dagan. He said that he had bad news. Mr S.G. Miroshnichenko had disappeared. He said there would be difficulty in recovering the monies. Vitaly Kudrowski was a long-time member of the consortium who had been the driving force behind the Odessa project. He told me that my investment had failed and that I was not the only investor to lose money. I did not know whether Mirren went bankrupt or not. All I was informed was that the person who was in control and managing the transaction had disappeared and was uncontactable. Vitaly said he would try to sort matters. However, I decided at this stage to obtain professional advice and so I went to my accountants Richard Anthony & Co. I fully explained my position to them. I pointed out that my objective was to try to raise monies for the Claimant through these business dealings. My accountants introduced me to Valentine & Co (Insolvency Practitioners) in or about May 2004. I had explained the problem to them and I stated that I could raise between £700-800,000 for the Claimant. However, I needed more time in order to raise additional monies to ensure the Claimant could discharge all its liabilities. At this stage I was not absolutely certain that the monies invested in the Mirren deal would not be recoverable. At the time I remitted the payment of £500,000 to Mirren I truly believed what my partners had told me – that this was a good investment by way of a short term loan that would repay to the Claimant £650,000 including the capital. I thought it was an easy way of making money."
- This account falls to be contrasted with previous accounts given or prepared by Mr Gorecia. I note in particular the following points. In this account, the supposed rate of return on the transaction had changed once more (from being able to double his money, para. [20] above, then a promise of a 40% return, para. [26] above); Mr Gorecia no longer claimed that the company to which the money had been paid had gone into liquidation (contrast his account to the Liquidator on 23 July 2004, paras. [19]-[20] above); he introduced a story about being informed that the person behind the deal had simply disappeared with the money which he had not mentioned previously; he now said that he had been told this on 7 or 8 May 2004 whereas in his draft signed witness statement of August 2004 he said he had learned of the problem on 25 May 2004 (para. [26] above); he now spoke of contact with Vitaly about this which he had not mentioned before; and he now claimed that he had dealt with Mr Miroshnichenko, whom he had not mentioned to the Liquidator previously (he had told the Liquidator he did not know the persons involved in the Russian company in the transaction: para. [20] above), and which also conflicts with his account in his signed draft witness statement of August 2004 (para. [26] above) in which he said that he had dealt with Mr Dagan alone.
- Mr Gorecia's account at trial strained credulity beyond breaking point in other ways too. He said that he entered into the transaction to try to make money to improve what he could pay to HMRC in respect of Relfo's tax liability of in excess of £1 million, but putting all Relfo's remaining assets at risk in this highly speculative way to make a mere additional £150,000 would have potentially exposed him to serious charges of mismanaging Relfo's affairs while making little difference to his ability to satisfy HMRC (by contrast with his original claim to the Liquidator that he had been promised he would double his money, albeit that strained credulity in another way, since it might be said that he must have realised that was too good to be true). Mr Gorecia said that he had not got any written agreement for the transaction, even though he had not met Mr Miroshnichenko previously and in his other dealings with Mr Dagan and persons introduced by him in relation to Corn and the Odessa investment he had obtained written agreements. He said he felt certain he would get his money back quickly, even though the payments due in relation to the Corn transaction had ceased by the end of 2003 and in another part of his evidence in chief he said that when he went to see Mr Reynolds on about 10 May 2004 he told him about "failed investments in Kiev" (which in context I consider was a reference to the investments in Corn and Odessa).
- In my judgment, Mr Gorecia lied about the Moscow transaction. It was a pure invention, designed to provide an explanation for the Relfo/Mirren payment which could be put to the Liquidator and HMRC. In support of that lie, he also lied in his evidence about the Intertrade payment, trying to suggest that it represented a repayment in relation to Corn concerning a property investment in the Ukraine, even though he had not included it in the schedules given to the Liquidator in November 2004. His account of this in his evidence also made little sense, since he claimed he had arranged for a payment of US$1 million to Wall Street, a subsidiary of Corn, on 23 December 2003 as a loan for a period of "6 to 12 months" (an implausibly vague period), and that the Intertrade payment was to repay this loan (but it had been made in early May 2004, before the expiry of even 6 months). It also conflicted with evidence about this given by Mr Varsani senior, who said that the payment of US$1 million in December 2003 was for an investment in a property development project for his sons (whereas Mr Gorecia tried to suggest it was a loan) and with the account given in Bhimji Varsani's Amended Defence in these proceedings, where it was said that the payment was a short term loan "for the purpose of enabling Corn … to purchase spares to sell in the car market run by Corn in Kiev". A straightforward, consistent and credible explanation for the Intertrade payment has not been forthcoming. Mr Gorecia also lied in his evidence about the related matter of the payment of US$100,000 by Bhimji Varsani to him and his wife on 13 May 2004 from Bhimji Varsani's account with Citibank Singapore: see para. [61] below.
- Mr Gorecia's evidence at trial conflicted in certain respects with evidence given by Mr Varsani senior. I refer here to two respects in which Mr Gorecia's evidence conflicted with parts of Mr Varsani senior's evidence given in cross examination. I had acceded to an application by the Liquidator for witnesses to be excluded from court while other witnesses gave their evidence, so Mr Gorecia had not heard Mr Varsani senior give his evidence under cross-examination. In both respects, the evidence of Mr Varsani senior had the ring of truth and corresponded with what was in my view inherently likely in the circumstances.
- The first point was that, although both Mr Varsani senior and Mr Gorecia were at pains in their evidence in chief to say that all dealings between them were undocumented and conducted on the basis of trust and faith in each other's word (so as to explain what might have been thought to be a surprising absence of documentation in relation to the transactions under review), in cross-examination Mr Varsani senior said that he and Mr Gorecia maintained a running account between them reflecting the many business transactions in which they were involved together and had a practice of comparing and reconciling their own records of sums due and owing between them every three or four months. Mr Varsani senior said that he kept his running account in the form of a manuscript note (he said he would destroy this after each reconciliation) but that Mr Gorecia came with a print out of the version of the running account which he maintained. When this practice was put to Mr Gorecia in his cross-examination, he sought to suggest that he would just bring bank statements or such like, not a full running account with all significant transactions. To have admitted this might have suggested he had other documents in his possession which might cast further and unwelcome light on the detail of his dealings with the Varsanis. In light of the complexity of the dealings between Mr Varsani senior and Mr Gorecia, and the need to keep track of them between themselves, I think it is very likely that Mr Varsani senior was accurate in this part of his evidence.
- The second point was that, in relation to the conduct of the legal proceedings for Bhimji Varsani in England, Mr Varsani senior was adamant that Mr Gorecia had had responsibility for finding and instructing lawyers to represent Bhimji Varsani, as agent for the Varsani family. I think that is likely, since the Varsanis realised that it was Mr Gorecia's dealings with his Ukrainian contacts and arrangement of the Relfo/Mirren payment which had led to them becoming embroiled in a claim against them, and would naturally have looked to him to sort it out for them. However, when Mr Varsani senior's evidence about this was put to Mr Gorecia in his cross-examination, he denied that he had assumed any such responsibility. In my view, it is probable that he did this out of an awareness that acceptance of this point might make it more difficult for him to preserve room for manoeuvre in his evidence if he were cross-examined on the detail of the pleadings in the case.
- I have adopted the usual cautious approach to assessment of a case based on allegations of fraud, but having done so I consider that on the evidence before me a compelling case has been made out that Mr Gorecia is dishonest and that it is probable that something along the following lines occurred. Mr Gorecia felt under considerable pressure in his relationship with the Varsani family because the Corn and Odessa investments were doing badly by early 2004, at great potential cost to the Varsanis. He therefore decided to divert funds under his control (in the form of the money still held by Relfo, which otherwise would only be lost to the taxman) to the Varsanis in an effort to make some amends. He was aware that the Ukrainian businessmen with whom he dealt had access to networks of entities which could be used as different vehicles to effect payments in ways which obscured the true source of monies and were used to preparing corrupt and fraudulent accounting books and records. He used one or other of his contacts in the Ukraine to arrange to transfer the money from Relfo to the Varsanis in a way that disguised its source and the purpose of the payment. The Intertrade payment represented the onward transmission of the Relfo/Mirren payment, effected and disguised using the complex networks which his contacts had at their disposal. It is probable that the purported Mirren loan agreement, Protocol No. 1, Protocol No. 2 and the purported Relfo/Mirren instruction were drawn up at about the time of the Relfo/Mirren payment and the Intertrade payment to provide some kind of audit trail for Mirren and Intertrade to point to if the payment came under scrutiny and that Mr Gorecia was aware that such false documents would be brought into existence, even if he did not sign them himself. Mr Gorecia did not wish to rely on those documents when he had to give an account of the Relfo/Mirren payment to the Liquidator in late July 2004 because they would tend to expose the Varsanis to a claim by the Liquidator, so he invented the story of the Moscow transaction instead.
- Although parts of Mr Varsani senior's evidence were, in my view, true, I did not believe other parts of his evidence. He grew testy and defensive whenever he was pressed in cross-examination about the detail of his dealings with Mr Gorecia. He expressed genuine outrage that the Varsani family should have had a claim brought against them, representing a threat to their assets. It was obvious from Mr Varsani senior's evidence that he attached very great importance to preserving and increasing the family's assets. The impression he gave was that he believed they should be defended at all costs. I did not believe those parts of his evidence in which he sought to support Mr Gorecia's account of the Relfo/Mirren payment, the Intertrade payment and the payment of US$100,000 to Mr and Mrs Gorecia on 13 May 2004. In my judgment, it is not credible that Mr Gorecia would have kept Mr Varsani senior in the dark about what he had done in relation to the Relfo/Mirren payment. Indeed, he would have had every incentive to explain to Mr Varsani senior that, in order to make amends to the family and at some risk to himself if he were found out, he was making arrangements to transfer about £500,000 from Relfo to the Varsanis. I did not believe Mr Varsani senior's protestations that he knew nothing about such an arrangement and his attempts to explain the Intertrade payment and the payment of US$100,000 to Mr and Mrs Gorecia from Bhimji Varsani's account with Citibank Singapore. It is likely that the payment to Mr and Mrs Gorecia, coming so soon after receipt of the Intertrade payment, was sent as a reward for Mr Gorecia for arranging the Relfo/Mirren payment and the Intertrade payment. It is also significant, in my view, that the Varsanis were willing to lend Mr Gorecia £540,000 to help him make payment to the Liquidator under the Settlement Agreement. That was a very big favour for someone who had to re-mortgage his home to raise the rest of the money, suggesting that there was no immediate prospect of Mr Gorecia being in a position to pay them back. I consider that this indicates either a desire on the part of the Varsanis to try to divert the Liquidator from further investigation of the Relfo/Mirren payment or that the Varsanis felt a sense of obligation to Mr Gorecia for having taken a significant personal risk to benefit them, or both.
- I did not believe the attempt by Mr Gorecia and Mr Varsani senior at trial to explain the payment of the US$100,000 to Mr and Mrs Gorecia from Bhimji Varsani's account with Citibank Singapore on 13 May 2004 as a payment to assist in a proposed investment in a sisal farm. The details of this alleged investment were left hazy in the extreme: not even the address of the property was given and no documentation, such as particulars of sale issued by the seller, was produced to support the allegation. The account now given for the US$100,000 payment is also in conflict with the attempt to explain it in Bhimji Varsani's original defence in the Singaporean proceedings and was not put forward in his amended defence or set out in his evidence in those proceedings. In my view, against the background of the Relfo/Mirren payment and the receipt of the Intertrade payment into Bhimji Varsani's account very shortly before this payment out of that same account to Mr and Mrs Gorecia, the strong probability is (as submitted by the Liquidator) that it was paid to them as a reward for diverting the assets of Relfo to the Varsani family.
- I also found Bhimji Varsani to be an unsatisfactory witness. I found his evidence evasive. In order to distance himself from various affidavits he had sworn in the proceedings in Singapore, he maintained that they had been prepared for him and he had signed them without appreciating that they purported to represent his own genuine belief and evidence about events. I did not believe this. He is an experienced businessman in his own right, and in my view would have read and taken care to understand formal documents which he was signing for use in court. He joined in the attempt to explain the US$100,000 payment from his account to Mr and Mrs Gorecia by reference to a proposed investment in a sisal farm, which I have rejected as set out above. According to his evidence at trial, he knew nothing about what was happening to his account with Citibank Singapore; he simply left everything to do with it to his father. Whilst I accept that Mr Varsani senior had the dominant role in managing Bhimji Varsani's account in the interest of the family as a whole, I did not believe their evidence that Bhimji Varsani was kept in the dark about what was happening with this account. As I have said, Bhimji Varsani is an experienced businessman in his own right, and it is not credible that he would hold significant assets such as the funds in his account with Citibank Singapore without a basic understanding of where they came from, what they represented and the extent to which he could make use of them for his own purposes and the extent to which they were to be held for more general family purposes. Also, I consider that Bhimji Varsani would wish to know and Mr Gorecia and Mr Varsani senior would have been careful to inform him about any commercial risks that might attach to him through use of his bank accounts. In my view, it is highly probable that either Mr Gorecia or Mr Varsani senior informed Bhimji Varsani at about the time of the Intertrade payment into his account that it represented funds which Mr Gorecia had extracted from Relfo to make good some of the losses that the Varsani family had suffered in relation to the investments in the Ukraine, for which Mr Gorecia had had responsibility.
- Similarly, I found Mr Hirji to be an unsatisfactory witness. I did not believe his claim that he had "conjured up a defence" in the Singaporean proceedings simply on the basis of reading documents and without reference to Mr Gorecia: see para. [41] above. Mr Hirji also is an experienced businessman and would have appreciated the importance of giving an accurate picture of the facts in a formal defence prepared for court proceedings in relation to a substantial sum of money. There was nothing to prevent him calling on Mr Gorecia to give him an account of what had happened, and in my view it is highly probable that he did so in order to come up with the first version of events set out in Bhimji Varsani's original defence in the Singapore proceedings.
- Two further witnesses (Colin Daniels and Leonard Nugent) gave evidence for the Defendant, which was not challenged by the Liquidator, to the effect that they had had business dealings with Mr Varsani senior, in particular, which in some respects had been transacted on the basis of oral agreements and trust in his word as a businessman. This evidence went some way to explaining what might otherwise have seemed a surprising absence of documentation in relation to Mr Varsani senior's dealings with, in particular, Mr Gorecia. However, this did not take matters very far. The evidence of Mr Varsani senior himself was that there was some documentation on the basis of which he and Mr Gorecia undertook their partnership, with each maintaining a written running record of sums due and owing, which were the subject of reconciliation between them periodically. Mr Gorecia's evidence was that there were written agreements in place for the investments in Corn and in Odessa.
- The Liquidator also put before the court materials derived from various sources to suggest that Intertrade and Wall Street were entities established by persons involved in money-laundering and/or that Mr Gorecia was involved with Wall Street and/or that persons with whom Mr Gorecia had been involved in the Ukraine were involved in money-laundering. I did not find it possible to draw any conclusions from these materials. At best they showed that suspicions had arisen in the past in relation to these matters, but they fell a long way short of establishing the points which the Liquidator sought to draw from them. A company search for Wall Street, produced for the first time at trial, showed that Mr Gorecia's name had been given as a manager of the business, but there was no document signed by him bearing this out and he said he knew nothing about this and that his name had simply been used by others. On the limited materials available to the court, I did not feel able to reach any different conclusion on this point.
- However, it was clear from Mr Gorecia's own evidence and the schedules of payments and receipts in respect of the Corn and Odessa investments that the shadowy Ukrainian business associates of Mr Gorecia were used to channel payments through business entities which did not on the face of it have anything to do with the transactions to which the payments related and were involved in falsifying books and records in relation to those investments. In my view, therefore, Mr Gorecia had access to Ukrainian business-people who had the capacity and willingness, depending on the circumstances, to use networks of companies to effect payments in ways which could not readily be traced or followed.
- I find, on the evidence taken overall, that Mr Gorecia made use of his access to these contacts and networks to arrange for transfer of the Relfo/Mirren payment to Bhimji Varsani's account with Citibank Singapore.
Legal analysis
- The Liquidator maintained three distinct claims against Bhimji Varsani: (i) a claim that the Intertrade payment can be traced from the Relfo/Mirren payment, that Bhimji Varsani retains the funds from the Intertrade payment in his account and that Relfo (acting by the Liquidator) has a superior title in equity to those funds so that the court should order Bhimji Varsani to pay them to the Liquidator ("the property claim"); (ii) a claim that the Intertrade payment can be traced from the Relfo/Mirren payment and that at the time the funds from the Intertrade payment were received into his account or at a time when he still held those funds in that account Bhimji Varsani was on notice of facts and matters such that he is to be treated as a constructive trustee of those funds, on the basis of his receipt with sufficient knowledge of Relfo's rights in relation to them ("the knowing receipt claim"); and (iii) even if it is not possible to trace the Intertrade payment from the Relfo/Mirren payment, nonetheless the making of the Relfo/Mirren payment was the trigger for the Intertrade payment to Bhimji Varsani such that Relfo has a claim against Bhimji Varsani for his unjust enrichment by receipt of the Intertrade payment at the expense of Relfo ("the unjust enrichment claim"). I address these claims in turn, then consider defences put forward by Bhimji Varsani by reference to the Settlement Agreement and the way in which the case has been pleaded.
(i) The property claim
- In my judgment, the Liquidator fails to make out his property claim because he has failed to establish that Bhimji Varsani has retained any part of the funds from the Intertrade payment and still holds it. The evidence was that funds were transferred to Bhimji Varsani's account with Citibank Singapore for the purposes of making investments. Funds representing the Intertrade payment were frozen in that account by the freezing order issued by the Singaporean Court. But that order was discharged in January 2009 and since then the account and those funds have not been frozen by any court order. The likely outcome is that in the years since then they have been paid out and spent. Counsel for the Liquidator, in cross-examining Bhimji Varsani and Mr Varsani senior, did not elicit answers which would point to any different conclusion. Strictly, in view of the nature of this claim, Bhimji Varsani probably had a duty of disclosure of his bank statements to show what had happened to the funds up till trial, but he had not produced such statements and the Liquidator had not issued any application for them to be disclosed. There was no evidence of what those funds might have been spent on, and the Liquidator did not attempt to introduce any claim to trace those funds into some other asset.
(ii) The knowing receipt claim
- Mr Gorecia caused Relfo to pay the assets of Relfo represented by the Relfo/Mirren payment with a view to conferring an unwarranted benefit on Bhimji Varsani and not for any genuine or bona fide purpose of Relfo. He acted in breach of fiduciary duty and without proper authority from Relfo.
- Two further issues arise under this heading: whether Bhimji Varsani received property which is properly to be regarded as the property of Relfo (i.e. can the the Relfo/Mirren payment be traced into Intertrade payment?) and, if so, whether he received or retained the Intertrade payment with knowledge of facts and matters sufficient to justify the court in treating him as what is sometimes in the cases called a constructive trustee on the grounds of knowing receipt of that property, with a liability in personam to Relfo in respect of that receipt (what, according to modern authority, is now better simply described as a person who is accountable in equity on such grounds: see Paragon Finance plc v Thakerar & Co [1999] 1 All ER 400, 409 per Millett LJ; Dubai Aluminium Co. Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366 at [142] per Lord Millett (as Millett LJ had become) and Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (in administrative receivership) [2011] EWCA Civ 347; [2011] 4 All ER 335 at [43]-[44] per Lord Neuberger of Abbotsbury MR).
- In relation to the first of these issues, Mr Shaw emphasised the well-known passage in the speech of Lord Millett in Foskett v McKeown [2001] 1 AC 102, 128C-F, in which Lord Millett explains that tracing is neither a claim nor a remedy, but "merely the process by which a claimant demonstrates what has happened to his property" as a preliminary to the bringing of some personal or proprietary legal claim. Mr Shaw accepted that the Liquidator could not, on the limited evidence available to him, point to specific transactions passing across the account of Mirren for which he had the bank statements (Mirren may, of course, have had other bank accounts) and the account of Intertrade for which he had the bank statements (Intertrade may also, of course, have had other bank accounts) to show how the Relfo/Mirren payment was converted into the Intertrade payment which went into Bhimji Varsani's account with Citibank Singapore. Nonetheless, he submitted that the surrounding circumstances are such that it can be inferred that the Intertrade payment is indeed the direct product of the Relfo/Mirren payment and represents in equity the traceable proceeds of that payment. He relied on two cases in support of his submission: the Sinclair Investments case and El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717 (Millett J) and [1994] 2 All ER 685 (Court of Appeal).
- I do not think that Sinclair Investments assists the Liquidator. So far as relevant, that decision concerned a complex fraud whereby monies of one company (TPL) had been misdirected, in breach of fiduciary duties owed by an investment management company (VTFL) to TPL under a management agreement, and paid into a complex set of transactions described as "cross-firing arrangements" designed to create the false impression that the turnover of VTFL was inflated beyond the true position. The monies had been transferred from TPL to VTFL and mixed with VTFL's own money and used in the cross-firing arrangements, in breach of VTFL's fiduciary obligations. Receivers appointed by bank lenders to VTFL had made recovery of certain book debts of VTFL. The claimant, who was the successor in title to TPL's rights, claimed against the banks that the monies derived from the book debts so recovered were part of a mixed fund which belonged in equity to TPL. Lewison J upheld the claim that, nothwithstanding that due to the complexity and obscurity of the cross-firing arrangements it was impossible to see what had happened to TPL's money as compared with other funds utilised by VTFL, TPL was entitled to trace its funds into the recovered monies and to maintain a proprietary claim to them.
- The banks appealed against that ruling, arguing that the inextricable mixing of monies in the cross-firing arrangements (which created what was described as a "black hole" or "maelstrom") meant that no tracing claim could be maintained by TPL against the proceeds of the book debts. That appeal was dismissed: see paras. [129]ff. Lord Neuberger MR, giving the lead judgment in the Court of Appeal, addressed the question whether that proprietary claim was defeated by the inextricable mixing of TPL's and VTFL's money in the cross-firing arrangements at [135]-[141]. After reviewing relevant authority he confirmed Lewison J's conclusion that "once it is shown that money held on trust for TPL was paid into a 'maelstrom' account, the administrative receivers, representing VTFL for this purpose, bear the burden of showing that money in that account is not that of TPL": [141]. He also held that "the extent of that burden should not be other than the normal civil standard of proof, namely the balance of probabilities": [141]. He concluded that it had been open to the trial judge to find that certain of the proceeds of the book debts recovered by the administrative receivers were traceable for the purposes of the proprietary claim of TPL.
- The judgment of Lord Neuberger MR is predicated on the fact that the fiduciary in that case (VTFL) had been responsible for mixing the monies of the beneficiary (TPL) with those of VTFL itself in the complex banking arrangements operated by VTFL giving rise to a mixed fund in VTFL's hands, where VTFL (and the administrative receivers who stood in its shoes) could not establish on a balance of probabilities what the respective contributions of TPL and VTFL to that fund had been. The result was that TPL's claim that that fund represented its contributions could not be answered. But in my view the present case is different. Mr Gorecia caused Relfo to pay away the £500,000 in the form of the Relfo/Mirren payment in breach of fiduciary duty, but he did not exercise any control over what Mirren (or recipients taking it from Mirren in order, ultimately, to put Intertrade in funds to make the Intertrade payment or to reimburse Intertrade in some way, after the event, for making it) did with the money. It seems that Mirren mixed the Relfo/Mirren payment with its own funds; intermediate recipients may well have done the same; and the Intertrade payment was made out of a mixed fund owned by Intertrade - but it has not been established that Mirren or Intertrade owed Relfo duties in equity to maintain those payments as separate, unmixed funds or to account to Relfo for their use (unlike the duties owed by VTFL to TPL in the Sinclair Investments case). The money was eventually received by Bhimji Varsani, who was not a fiduciary for Relfo (at any rate, while the funds were being mixed in the hands of others). I am therefore unpersuaded that the circumstances in this case are such that it is appropriate to apply the same approach to assertion of a proprietary claim against a mixed fund as was applied in Sinclair Investments, where VTFL owed fiduciary obligations to TPL to account for the use of the funds, was responsible for causing the monies in issue in that case to be mixed with its own money and for operating the complex banking arrangements under which they were mixed and where VTFL held the fund of mixed money at the end of the process.
- However, I accept Mr Shaw's submission based on El Ajou. In that case the question arose whether the victims of a fraudulent share-selling scheme could follow money they had paid as a result of the fraud through bank accounts where it was or may have been mixed with other money. At first instance Millett J held that they could: equity treated the accounts as charged with the repayment of their money and if the money in an account subject to such a charge was then transferred into different accounts the victims could claim a charge over each of the recipient accounts ([1993] 3 All ER 717, at 735h-736a). The defendant, which was not itself involved in the fraud, submitted that the plaintiff had not established that the money received into a particular account (the Keristal No. 2 account) had been money derived from the fraud, because the money only came into that account in May 1986 whereas the relevant payments by the plaintiff pursuant to the fraud had been made on 30 March and 1 April 1986 ([1993] 3 All ER 717, 734f). However, Millett J found that, by a slim margin, the plaintiff had shown that the inference should be drawn on the facts of the case that the receipts were to be identified with the earlier payments so as to support a tracing claim: [1993] 3 All ER 717, 734h-736d. Millett J's finding on this was upheld in the Court of Appeal: [1994] 2 All ER at 692f-693f. Mr Shaw submitted that in similar fashion, in the circumstances of the present case, the inference should be drawn that the Intertrade payment is to be identified with the Relfo/Mirren payment so as to enable the court to conclude on the balance of probabilities that the Intertrade payment into Bhimji Varsani's account represented the traceable proceeds of the Relfo/Mirren payment.
- I agree with this. On the facts as I find them, Mr Gorecia caused the Relfo/Mirren payment to be made intending to produce the result that the funds so paid should, by means to be devised by his Ukrainian contacts, be paid on to Bhimji Varsani, and it is likely that they acted so as to bring about the result which Mr Gorecia asked them to produce. The Relfo/Mirren payment and the Intertrade payment were closely related in time and amount (and the documents sent to the Liquidator by Mr Kudaev, deriving from someone who obviously had good knowledge of the transactions, provide a plausible explanation for the precise 1.3% difference between the two payments). There was no other reason for Intertrade to make the Intertrade payment to Bhimji Varsani. Although the court has insufficient information available to be able to map each step in the process by which that result was achieved, it is a fair inference that the Intertrade payment was the product of a series of transactions between a number of entities and across a number of bank accounts designed to produce the result that funds paid in the Relfo/Mirren payment were (subject to the 1.3% deduction) paid on to Bhimji Varsani. Each bank account in the journey of the funds, or each chose in action or obligation assumed by one entity to another to pay on the funds or to account for them and/or reimburse the other for paying them on, was charged in equity with the obligation to repay the funds to Relfo, and the funds received by Bhimji Varsani pursuant to the Intertrade payment were similarly so charged.
- As to the second issue referred to in para. [71] above, the question is whether Mr Bhimji Varsani's state of knowledge when he received the Intertrade payment or during the time when he continued to hold the funds derived from the Intertrade payment was such that his conscience became "sufficiently affected for it to be right to bind him by the obligations of a constructive trustee" (per Sir Robert Megarry V-C in In re Montagu's Settlement Trusts [1987] Ch 264, 273, as quoted in BCCI (Overseas) Ltd v Akindele [2001] Ch 437, 455D-E per Nourse LJ), that is to say (reformulating in light of the authorities referred to in para. [71] above) sufficiently affected for it to be right to treat him as bound by obligations in equity giving rise to an in personam claim against him as recipient to account for the money which came into his hands. See also El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, 700 per Hoffmann LJ.
- Nourse LJ, giving the lead judgment in Akindele, said: "All that is necessary is that the recipient's state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt" (p. 455E). I think one needs to be a little careful in using this formulation, because it could be read as appearing to elide the questions whether a person with legal title to property currently in his hands is subject to obligations in equity to hold it for the benefit of another or subject to some equitable interest of another (which may not always depend on him receiving the property knowing of the other's interest: he might be an innocent volunteer against whose property claims are later asserted in equity and upheld after a trial which determines that it is now improper for him to retain the benefit of the receipt) and whether a person who received property in the past took it in circumstances such that it was unconscionable for him to regard it as his own property at that stage and which therefore gave rise to personal equitable obligations on him to account for it (even if the property is no longer in his hands) to the person claiming to be entitled to it in equity. In the latter type of case, in the old language in the authorities, the defendant is found to be bound by a personal obligation to account for the property as if he were a trustee (i.e. as a constructive trustee). That is why I have emphasised the way in which Sir Robert Megarry VC stated the test in In re Montagu's Settlement Trusts, to which Nourse LJ made reference. I also consider that this is in line with the way in which Lord Browne-Wilkinson explained the position in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 707B-E.
- Personal liability to account in equity may be imposed on the basis of knowing receipt where either the recipient had the relevant knowledge at the time he first received the property in question or if he later acquired that knowledge. As Millett J (as he then was) put it at first instance in Agip (Africa) Ltd v Jackson [1990] 1 Ch 265, 291F-G:
"The first [of the two main classes of case] is concerned with the person who receives for his own benefit trust property transferred to him in breach of trust. He is liable as a constructive trustee if he received it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust; or if he received it without such notice but subsequently discovered the facts. In either case he is liable to account for the property, in the first case as from the time he received the property, and in the second as from the time he acquired notice."
See also Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC at 707C-E and 715A-C per Lord Browne-Wilkinson.
- Turning to the facts of the present case, although it seems from the evidence that Mr Varsani senior acted as the agent of Bhimji Varsani when operating his account with Citibank Singapore (so that there might have been a basis on which a case could have been maintained against Bhimji Varsani by reference to his father's knowledge of the circumstances in which the Relfo/Mirren payment and the Intertrade payment were made) the Liquidator did not plead or put his case in that way, so the focus has to be on Bhimji Varsani's own knowledge. I consider that it is highly probable that Mr Gorecia and Mr Varsani senior explained to Bhimji Varsani at the time the Relfo/Mirren payment and the Intertrade payment were made that Mr Gorecia was using money diverted without legitimate reason from Relfo to pay the Varsani family to make good some of the losses they had suffered on the investments in the Ukraine. Mr Bhimji Varsani was therefore aware that the money he received was improperly derived from Relfo in breach of duty by Mr Gorecia. In those circumstances, it is fair and just to treat Bhimji Varsani's conscience as affected at the time of the receipt so as to warrant imposition on him of an equitable obligation to account to Relfo for the money which came into his hands from the Intertrade payment. The timing is of significance, because it means he is liable to account for the entirety of the Intertrade payment, without reduction by the US$100,000 transferred to Mr and Mrs Gorecia on 13 May 2004 out of the funds received by that payment.
- If I were wrong about the timing of Bhimji Varsani's knowledge at the time of receipt of the Intertrade payment, I think it is highly probable that Mr Gorecia and Mr Varsani senior would have explained the position fully to Bhimji Varsani at the latest at the time the Liquidator made claims against him and he was drawn into legal proceedings (the possibility that Bhimji Varsani gained the relevant knowledge at some time after his receipt of the property was properly covered in the Liquidator's pleaded case: see paragraph 3 of the Reply). At that stage he still held funds representing the Intertrade payment, less the US$100,000 paid to Mr and Mrs Gorecia.
- In view of these findings on the facts, it is not necessary to consider a further alternative submission by the Liquidator, that Bhimji Varsani acquired sufficient notice of the relevant facts from the claims made against him by the Liquidator in the Singaporean proceedings, particularly when understood in light of the commentary on those claims by Judith Prakash J in her judgment in those proceedings.
- For the reasons set out above, I find that the Liquidator, for Relfo, is entitled to trace the Relfo/Mirren payment into the Intertrade payment in Bhimji Varsani's hands and that Bhimji Varsani is obliged to account to the Liquidator for the full amount of the Intertrade payment.
(iii) The claim in unjust enrichment
- Since the Liquidator has succeeded in his claim in knowing receipt, he does not need to rely on the claim based on unjust enrichment. However, the issue was the subject of argument and should be addressed.
- Mr Shaw submitted that, even if the Relfo/Mirren payment could not be traced into the Intertrade payment, there was still a sufficient nexus between the two payments such that Bhimji Varsani could be held liable to repay the amount of the Intertrade payment to Relfo on the grounds that he had been unjustly enriched by it at Relfo's expense: see Goff & Jones, The Law of Unjust Enrichment (8th ed. by Mitchell, Mitchell and Watterson), para. 1-09. A fortiori that would be the position if the Relfo/Mirren payment could be traced into the Intertrade payment. Either way, Mr Shaw submitted that Bhimji Varsani's enrichment was sufficiently closely linked with the loss suffered by Relfo for the court to hold that there was a transfer of value between the parties (ibid., paras. 1-15, 6-05 to 6-11, 6-25 and 6-47 to 6-49). Even if the Relfo/Mirren payment could not be traced into the Intertrade payment, it was clear on the facts that, as Mr Gorecia intended, the Intertrade payment was triggered by, and was only made because of, the making of the Relfo/Mirren payment using Relfo's assets. Mr Shaw maintained that a proper ground for restitution was made out, showing that Bhimji Varsani's enrichment at Relfo's expense was unjust, in that the transfer of funds from Relfo by Mr Gorecia had been with a lack of proper consent by Relfo since Relfo was caused to make that transfer by Mr Gorecia acting in breach of fiduciary duty and without authority (ibid., paras. 1-22, 8-32 to 8-36 and at paras. 8-45 and 8-50 to 8-59, with reference in particular to dicta of Lord Nicholls of Birkenhead in Criterion Properties Plc v Stratford UK Properties Ltd [2004] UKHL 28; [2004] 1 WLR 1846 at [3]-[4], who observed that if it were established that a benefit had been conferred on B by company A as a result of the directors of company A acting for an improper purpose and without authority, then "irrespective of whether B still has the assets in question, A will have a personal claim against B for unjust enrichment, subject always to a defence of change of position. B's personal accountability will not be dependent upon proof of fraud or 'unconscionable' conduct on his part. B's accountability in this regard will be 'strict'"). Mr Shaw referred to Hopkins v TL Dallas Group Ltd [2005] 1 BCLC 543 at [87]-[89] in support of the proposition that grant of actual authority to an agent will not include authority to act for the agent's benefit rather than that of his principal.
- There was some debate at trial whether a claim in unjust enrichment can be maintained on the basis of an enrichment established simply on a "but for" test, as the learned editors of Goff & Jones suggest. Mr Van Heck, who presented this part of the argument for the Defendant, referred to the judgment of Mann J in Uren v First National Home Finance Ltd [2005] EWHC 2529 (Ch), at [20]-[28], to suggest that a simple "but for" test in order to establish whether there has been relevant enrichment is not sufficient. Mr Van Heck submitted that this showed that there had to be some element of directness or proximity, over and above a simple "but for" test, in order for the law to recognise an enrichment which could provide the foundation for a claim in unjust enrichment. I note from Uren that Mann J also made it clear that the outcome in Uren could also be explained by reference to the distinct question whether an unjust factor was present (i.e. a basis recognised in law for saying the enrichment in that case was unjust), with Mann J declining to extend the established categories of unjust enrichment to cover the circumstances in that case: see esp. paras. [16]-[18]. However, it is unnecessary to discuss further in this judgment the relevant test for an enrichment to be recognised for the purposes of the law of unjust enrichment, because Mr Van Heck rightly accepted that if the Liquidator made out his case on the facts in relation to the objective that Mr Gorecia had had in arranging for the Relfo/Mirren payment to be made (i.e. to achieve a transfer of value to Bhimji Varsani by triggering a an equivalent payment to him), the necessary element of directness or proximity for which he argued would be present. I have found that the Liquidator has made out that case.
- I accept Mr Shaw's submissions, set out above. In my view Bhimji Varsani was clearly enriched by the Intertrade payment at the expense of Relfo. That is so even if the Intertrade payment cannot be identified with the Relfo/Mirren payment according to the rules of tracing. Relfo had its funds diverted by Mr Gorecia in breach of his fiduciary duty as a director of Relfo and acting outside the scope of his authority from Relfo. In my judgment, that establishes a proper ground for an in personam claim by Relfo under the law of unjust enrichment against Bhimji Varsani for repayment of a sum equivalent to the extent of his enrichment, namely the amount of the Intertrade payment. If Relfo had paid those monies to Bhimji Varsani by mistake it would have had a right to restitution of them. The position can in my view be no different where the matters which have affected Relfo's consent to the transfer of value from itself to Bhimji Varsani involve instead a breach of fiduciary duty and of authority by its director and controller, Mr Gorecia, acting to perpetrate a fraud on the company.
- Liability in unjust enrichment is "strict", in the sense that Lord Nicholls uses that term. It does not depend upon knowledge of the recipient that the receipt is improper in some way, so as to affect his conscience, unlike liability in equity for knowing receipt (and, accordingly, liability under the law of unjust enrichment may not carry the full range of obligations which might arise in relation to a person found liable in equity to account for the property on the grounds of knowing receipt, including perhaps an obligation to keep funds separate and unmixed and to account for their use as referred to in Sinclair Investments). The law of unjust enrichment also carries with it its own framework of legal defences.
- On the facts of this case, Bhimji Varsani has no good ground of defence to the claim that he has been unjustly enriched, such as bona fide purchase for value or good faith change of position (see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548). He received the Intertrade payment as a volunteer, without giving value for it, and although, for example, he paid Mr and Mrs Gorecia US$100,000 out of the monies received by him from Intertrade and by reason of that receipt, he was on notice of how the monies had come into his hands and could not be said to have changed his position in good faith.
Defences on which Bhimji Varsani seeks to rely
- Even if the Liquidator's claims might otherwise be valid, Bhimji Varsani maintained that he had a good defence to them by reason of the Liquidator's settlement of the claims against Mr and Mrs Gorecia and their family under the Settlement Agreement. I do not accept this.
- The payment made to the Liquidator under the Settlement Agreement was not appropriated to the loss suffered by Relfo by reason of the Relfo/Mirren payment. It was a payment made to the Liquidator in relation to a range of potential claims which the Liquidator had intimated he might have against Mr and Mrs Gorecia by the terms in which he wrote to Isadore Goldman by his letter of 4 August 2004 (para. [21] above). There were several aspects of the conduct of Relfo's affairs by Mr Gorecia of which the Liquidator was suspicious, as indicated in that letter, and the potential value of claims was well in excess of £700,000, even leaving aside the value of the Relfo/Mirren payment. For example, the Liquidator was very concerned about the diversion of large amounts of money from Relfo to Plusresult, a struggling company owned by Mr Gorecia, without return (item 1 in the list in the letter of 4 August 2004). Mr and Mrs Gorecia were anxious to have a settlement in relation to all those matters. The deficiency in Relfo's assets leaving its creditor, HMRC, out of pocket was also well in excess of the £700,000 recovered from Mr and Mrs Gorecia. The terms of the Settlement Agreement did not preclude the Liquidator from bringing such claims as might be available to him against any third party to recover what money he could to satisfy the claims of Relfo's creditors. In the circumstances, there is no injustice or unfairness in allowing the Liquidator to recover the full value of Relfo's claim against Bhimji Varsani in respect of his receipt of the Intertrade payment: cf Heaton v AXA Equity and Law Life Assurance Society plc [2002] 2 AC 329.
- As a final alternative submission by reference to the Settlement Agreement, counsel for Bhimji Varsani submitted that the £700,000 paid under that agreement should be allocated pro rata between the various potential claims set out in the Liquidator's letter of 4 August 2004. I do not accept this submission either. The Settlement Agreement did not provide for such an allocation, and it was for the Liquidator to set the sum received against his own costs and whichever of the potential claims he thought appropriate. There is no unfairness or injustice in his allocating the monies paid by Mr and Mrs Gorecia in ways which still left him free to maximise the potential recoveries for creditors in relation to Relfo's insolvency.
- Finally, Mr Macpherson submitted that the Liquidator was not entitled to maintain the claims he did against Bhimji Varsani because they amounted to claims of fraud but had not been distinctly pleaded as such. He also said that the pleading was defective because it pleaded the sum claimed from Bhimji Varsani in US dollars, without a conversion into pounds sterling as required by practice direction under the Civil Procedure Rules: para. 16PD9.1.
- I reject both these objections. The material facts which had to be pleaded to sustain Relfo's claims against Bhimji Varsani in knowing receipt and unjust enrichment were all properly pleaded. He knew full well the case he had to meet. It was not incumbent on the Liquidator, in addition to setting out the material facts to be proved as ingredients of the causes of action to be relied upon, to plead the word "fraud" or some similar term.
- The requirement for a claim to be denominated in pounds sterling is not of the essence of a claim. Judgments can be given and orders made, if appropriate, for payments denominated in other currencies. The omission of the Liquidator to convert his claim in US dollars into a value in pounds sterling has not affected the conduct of the proceedings, or the parties' understanding of the case being presented, in any way at all. The court can waive compliance with such a formal pleading requirement, and in my view it is obvious that the justice of the case in the present circumstances is that I should do so, rather than allowing such a pleading point to defeat what I have found to be a meritorious claim.
Conclusion
- For the reasons set out above, I conclude that Bhimji Varsani is obliged to account to the Liquidator of Relfo for the value of the Intertrade payment received by him.
- As a postscript, for completeness, I should mention two matters. First, on 17 July 2012, long after the end of the trial and with the draft judgment in an advanced state of preparation, the Liquidator issued an application for the Defendant to be ordered to give further disclosure of bank statements in relation to his account at Citibank Singapore. This came as a surprise, since evidence had been closed and full closing speeches had been made and no-one had suggested that the hearing should remain open beyond the last day for the reception of further evidence. I had in fact made it clear in the hearing that evidence was closed and had already declined to accept into evidence additional evidential material put forward by Mrs Gorecia. I had also made the point to counsel during closing submissions that the Liquidator could have made an application for disclosure of further bank statements in respect of Bhimji Varsani's account with Citibank Singapore, but had omitted to do so, and Mr Shaw did not give any indication that the Liquidator would wish to make a late application for disclosure or would wish the end of the trial to be adjourned to allow for that to happen. The Liquidator's application notice of 17 July did not include an application to re-open the trial, which presumably he was holding in reserve. The application for disclosure was made in an effort to plug the gap in the evidence to support the Liquidator's proprietary claim to which I have referred in para. [69] above. It was made far too late in the day. The Liquidator had already had a full and fair opportunity to make any such application before trial, and had failed to take it. He failed in his application to establish any good grounds for re-opening the trial. I refused the application for these reasons.
- The order of closing submissions was that Mr Shaw went first for the Liquidator, followed by Mr Macpherson and Mr Van Heck for the Defendant, with a reply from Mr Shaw. In the course of his oral submissions, Mr Macpherson told me that he would produce within a day or so a written note of the submissions he was delivering orally with clear bundle references, for my assistance. I indicated that that would be helpful. It should be emphasised that Mr Macpherson did not ask for, and was not granted, permission to put in additional written substantive submissions going beyond what he had already submitted orally. Mr Shaw made reply submissions on the basis that he had heard the full submissions made for the Defendant. Time went by and no written note of his submissions was received from Mr Macpherson. That did not matter, since I was able to follow his oral submissions well enough and found I could track down the documents in the bundles without undue difficulty while preparing the judgment. I assumed that Mr Macpherson had simply forgotten to provide his note. However, on 18 July 2012 his clerk informed my clerk that he proposed getting a note of submissions to me by the end of Monday 23 July. That was not helpful, since I was now close to having a full draft of the judgment ready which I wished to circulate to the parties in advance of handing it down in the week commencing 23 July. My clerk replied on my behalf that Mr Macpherson was already late in getting his note to me but that if he wished me to consider it he would need to send it by Friday, 20 July. I received Mr Macpherson's note late in the afternoon that day. I read it in order to check that I had understood his oral submissions.
