Shalson and Others v Russo and Others; Mimran and Another (Part 20 Claimants)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Rimer |
| Judgment Date | 11 July 2003 |
| Neutral Citation | [2003] EWHC 1637 (Ch) |
| Docket Number | HC 200 No. 0101101 |
| Court | Chancery Division |
| Date | 11 July 2003 |
[2003] EWHC 1637 (Ch)
The Honourable Mr Justice Rimer
HC 200 No. 0101101
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand,
London WC2A 2LL
Mr Anthony Trace QC, Mr Michael Green, Miss Louise Hutton and Mr Oliver Michell (instructed by Allen & Overy) appeared for the claimants
Mr Stephen Sm1th QC and Mr Graham Shipley (instructed by Withers) appeared for the Part 20 claimants (Jean-Claude Mimran and Oceanwave International Holdings Limited)
Mr Michael Pooles QC and Mr Francis Bacon (instructed by Vizards Wyeth) appeared for the second to fifth defendants (the Cantrust parties)
I direct pursuant to CPR PD 39, para. 6, that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
Introduction
These proceedings were started by a claim form dated 12 March 2001. The claimants are: (1) Peter Shalson, (2) Promptcroft (UK) Limited ("Promptcroft") and (3) Promptcroft (Netherlands) BV ("Promptcroft BV"). Promptcroft BV is a subsidiary of Promptcroft, which is wholly owned by Mr Shalson. They were represented by Mr Anthony Trace QC, Mr Michael Green, Miss Louise Hutton and Mr Oliver Michell.
The first defendant is Onofrio Russo, an Italian national. The litigation arises out of frauds he practised on the claimants and others. He induced Mr Shalson to part with £19.45m. The issue of the claim form was followed by early interim orders of a freezing and interrogatory nature against Mr Russo and he was cross-examined about what he had done with the money. He breached various orders and on 9 July 2001 Neuberger J committed him to prison for contempt for two years. On 3 October 2001, Jacob J entered summary judgment against him for £20m and interest. Mr Russo has taken no part in the trial. Before it started, the claimants had settled their claims against Enter Five Limited, the seventh defendant, one of Mr Russo's companies.
The claimants' claims against the second to fifth defendants remained alive until day nine of the trial, when they were settled on undisclosed terms. These defendants are: (2) Cantrust (CI) Limited ("Cantrust"), a Jersey company; (3) Darleen Holding Co NV ("Darleen NV"), a Cantrust subsidiary incorporated in the Netherlands Antilles; (4) Darleen (UK) Limited, a subsidiary of Darleen NV; and (5)Homaco BV, another subsidiary of Darleen NV. They were referred to at the trial as "the Cantrust parties" and were represented by Mr Michael Pooles QC and Mr Francis Bacon. The claims against them were for compensation for their allegedly dishonest assistance in breaches of trust and fiduciary duty committed by Mr Russo and for tortious misrepresentation. Cantrust held the shares in Darleen NV as trustee of the Brookscastle settlement, a Russo settlement. Cantrust is independent of Mr Russo, but the claimants' position was that, despite Cantrust's formal control of Darleen NV and its subsidiaries as such trustee, it left Mr Russo to run these companies and to deal with other trust assets as if they were his own. A further claim brought by the claimants against Cantrust —also disposed of on the compromise with the Cantrust parties —was that the settlement was a sham and that its assets were in reality Mr Russo's. A holding that the settlement was a sham would have facilitated the enforcement of the judgment against Mr Russo.
The sixth defendant is Westbond International Bank Limited ("WIB"), a company incorporated in Antigua and Barbuda. WIB is a bank which was at all material times under Mr Russo's de facto control, although some 70 per cent of its shares were held by the Brookscastle settlement. It had an account with PKB Privatbank AG ("PKB"), a Swiss bank based in Lugano. Mr Shalson's £19.45m was paid into that account. On 3 October 2001, Jacob J entered summary judgment against WIB for £19.45m, On 9 October 2001, Patten J made an order appointing provisional liquidators of WIB and on 28 November 2001 it was ordered to be wound up. It has not taken part in the trial.
The eighth and ninth defendants are Jean-Claude Mimran and his company, Oceanwave International Holdings Limited. They were referred to as "the Mimran parties" and are also victims of Mr Russo's frauds. On 3 October 2001, Jacob J acceded to their application to be joined in the proceedings. On 29 January 2002, they served a Part 20 claim, joining as defendants the claimants (hereafter "the Shalson parties"), the Cantrust parties, WIB and two new parties, Westland Portfolio Limited and Hamilton Holdings Limited ("Hamilton"), although in the latest version of their pleading they abandoned their claims against Hamilton, the claims both by and against Hamilton having been compromised in December 2002. The Mimran parties were represented by Mr Stephen Smith QC and Mr Graham Shipley.
The Mimran parties claim to have been swindled out of (at least) US$7.5m by Mr Russo, which they too paid into WIB's account with PKB. Their primary claim is to trace the US$7.5m into a valuable motor yacht called the Mosaique, which was constructed and acquired pursuant to a joint venture between Mr Shalson and Mr Russo. That venture was carried out through Edenton Limited, in which Mr Shalson and Mr Russo each had a share, held in turn through companies. Following some complicated events in August 2001, Mr Shalson now has the sole beneficial enjoyment of the Mosaique (via its lessee, Braemar Limited ("Braemar"), a subsidiary of Promptcroft), although he claims that it is owned by an independent company called Cardinal Yachting Limited ("Cardinal"). In these circumstances, the Mimran parties' tracing claim is resisted by the Shalson parties. An odd feature of the tracing claim is that the Mimran parties have not joined as defendants either of the companies which between them can be said to own the Mosaique —namely, Cardinal and Braemar.
On 21 June 2002, Lightman J made an order requiring WIB's liquidators to write to all known creditors and any other persons they thought might wish to make a tracing claim. He further ordered that the Mimran parties' and all other tracing claims, should be heard together. Both WIB and Hamilton made such claims, but both have since withdrawn them.
Apart from their tracing claim, the Mimran parties ask for money judgments for the US$7.5m and other sums against Mr Russo and WIB. With a view to assisting the enforcement of any judgment against Mr Russo, they too ask for a declaration that the Brookscastle settlement is a sham. As I have said, the Shalson parties had themselves originally claimed such a declaration, and the Mimran parties' original plan was (with certain reservations) to adopt and support that case. Following the settlement of the Shalson parties' claims against the Cantrust parties, the Mimran parties pursued the challenge to the settlement on their own.
I turn to the facts. I will first say something about WIB, then set out the background to the Mimran parties' tracing and money claims, which will also involve setting out the Shalson story. I will then set out my decisions on those claims. Finally, I will deal with the Mimran parties' claim to challenge the Brookscastle settlement.
Westbond International Bank Limited ("WIB")
WIB is at the heart of the case. It had a banking licence from the Government of Antigua. The court has been assisted in understanding its affairs by the evidence of Nicholas Wood. He and Andrew Conquest (both partners in Grant Thornton) are licensed insolvency practitioners and are the joint liquidators of WIB.
WIB was incorporated in 1996 after which it carried on business as a bank accepting deposits from individuals, companies and other entities. It had about 75 account holders, its customers including the Government of Antigua. Its customers used standard form documents when opening their accounts. It maintained separate ledgers for each of its depositors, which recorded the receipts from them and the payments purportedly made on their behalf. It would pay money received from its depositors into one or other of its own current accounts with PKB. In relation to those deposits, the relationship between PKB and WIB was that of banker and customer, or debtor and creditor. WIB did not maintain separate accounts at PKB for its own depositors. It simply issued statements to its depositors based on the ledgers it kept. However, the WIB statements issued to its own customers did not reconcile with the PKB statements issued to WIB in respect of its own account. Mr Wood said in his witness statement:
"In particular [WIB] statements for individual depositors detail credits which are not reflected in the PKB Account which, at least as far as the Liquidators are aware from the documentation retained by them, are not reflected in any [WIB] statements. The Liquidators do not, therefore, accept that the [WIB] bank statements accurately reflect what funds were, in fact, received and paid out on behalf of individual depositors."
In cross-examination, Mr Wood said that the extent of the false accounting at WIB was "endemic" and that its customer statements were thoroughly unreliable. All payment instructions with regard to the WIB accounts with PKB were given either by Mr Russo or by Dr Alberto Petronio, his associate, and Mr Russo had de facto control of WIB.
WIB's current account with PKB was divided into 13 sub-accounts in eight different currencies. PKB issued separate statements to WIB for each of these accounts. In addition, PKB would periodically transfer money from these accounts to fiduciary deposit, or call, accounts ("the deposit accounts"). These were held at financial institutions other than PKB, and earned...
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