Sinclair Investment Holdings SA v Versailles Trade Finance Ltd (in Administrative Receivership)
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE RIMER,MR JUSTICE RIMER |
| Judgment Date | 30 April 2007 |
| Neutral Citation | [2007] EWHC 915 (Ch),[2004] EWHC 2169 (Ch) |
| Docket Number | Case No: HC03C03183,Case No: HC 03 00091 |
| Court | Chancery Division |
| Date | 30 April 2007 |
[2004] EWHC 2169 (Ch)
Mr Nicholas Strauss QC
(Sitting as a deputy judge of the High Court)
Case No: HC 03 00091
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Approved Judgment
Mr Strauss QC:
This is an appeal against the decision of Master Bowman on 16 March 2004 to strike out the Particulars of Claim, having refused permission to amend them.
The Master held that the claimant's secured claims, which are referred to as the Kensington claim and the cross-firing claim, were unarguable even in their proposed amended form. He further held that, whilst the claimant's unsecured claims were arguable, there was no prospect of their being pursued having regard to the financial position of the 1 st defendant, which is in administrative receivership.
The claimant (to which I shall refer as "Sinclair") now appeals against the decision of the Master with regard to the secured claims. Sinclair accepts that the Master was right about the unsecured claims.
It is common ground between the parties that Sinclair should be given permission to amend its claim, and that the amended claim should proceed, unless —as the respondents successfully contended before the Master —it stood no real prospect of success even in its amended form. The test is whether the claim has a real, as opposed to fanciful, prospect of success: see per Lord Woolf M.R. in Swain v Hillman [2001] 1 All E.R. 91. It is also common ground that I should proceed on the basis that the facts set out in the Amended Particulars of Claim are correct.
On this basis, the proceedings result from a fraud committed by Mr. Carlton Cushnie and Mr. Frederick Clough in relation to the Versailles group of companies, which included Versailles Group Plc ("VGPLC"), its subsidiary Versailles Trade Finance Limited, the 1st respondent, ("VTFL") and Trading Partners Limited, a company incorporated in the British Virgin Islands ("TPL"). The 2nd and 3rd respondents are the joint administrative receivers of VTFL. VGPLC was a holding company, and carried on no business of its own.
VTFL carried on inter alia a factoring business of a kind known as accelerated payment trading. This worked as follows. It purchased at a discount, and acquired title to, manufactured goods which the manufacturer had already agreed to supply to a customer. It insured the goods for their full face value, sold them to the customer for their full face value and on delivery of the goods to the customer paid the manufacturer 80% of the discounted value of the goods. The customer acquired title to the goods as and when VTFL paid for them and —when VTFL received the purchase price of the final 20% of the goods —it paid the manufacturer the remaining 20% of the discounted value less the daily interest charge. VTFL thereby achieved a profit, represented by the amount which the discount and interest charges exceeded the cost of the operation. By 1996, this part of VTFL's business had been moved offshore, and was carried out by TPL, which was associated with VGPLC and VTFL but not owned by either of them.
Accelerated payment trading was funded by wealthy individuals, or by companies owned by them, known as "the Traders", who advanced sums on the promise of an estimated return of the order of 15% per annum. These included Sinclair, which invested a total of £2,350,000 on four different dates between May 1996 and February 199The terms on which each of these payments was made were evidenced by standard form letters, but these were replaced after the final payment by a further letter referring to the whole of the advance which was countersigned on behalf of TPL by Mr. Cushnie who, according to TPL's records, was a director, although he has denied this.
Each of the letters records that Sinclair's funds had been provided for the purpose of buying and selling goods for Sinclair, but that:
"If any of the money provided by me/us is not currently used in the purchase of goods it shall be deposited by you in trust for me/us in a money bank account or such other account as I/we shall from time to time discuss."
There were management agreements between TPL and VTFL, under which VTFL had the responsibility of administering TPL's business activities and were entitled to open, maintain and operate bank accounts in TPL's name. These agreements did not entitle VTFL to use the funds advanced to TPL by the Traders for its own purposes.
The funds advanced to TPL by the Traders (of which Sinclair's funds represented about 10%) were not used to purchase goods on behalf of Sinclair, but were instead paid to VTFL and used by it as part of the sums employed in a process known as cross firing. This involved VTFL making payments to other companies controlled by some of the directors, which returned the payments to VTFL, thereby apparently inflating its turnover and profits. The advances made by other Traders, and certain bank loans, were used for the same purpose.
The result of all this was to create a false market in the shares in VGPLC throughout 1998 and 1999, until trading was suspended on 8th December 1999. In particular, a company called Marrlist Ltd, wholly owned by Mr. Cushnie, made a profit of some £28.9m on 9th November 1999, part of which was used to fund the purchase by Mr. Cushnie of a house in Upper Phillimore Gardens, London W8. Subsequently, this property was sold for £8.6m, and on 26th February 2001 Mr. Cushnie entered into a settlement agreement with the joint administrative receivers of VTFL to pay the proceeds to them. Sinclair claims this money or a share of it, and this is the Kensington claim.
In addition, the receivers have made claims, which I was told by Mr. Collings might be accepted, to sums totalling some £1 million held for three of the companies involved in the payments which were made to artificially inflate VTFL's profits and turnover. Sinclair claims this money or a share of it as well. This is the cross-firing claim.
Taking the Kensington claim first, the starting point is the uncontroversial allegation in para. 10 of the Amended Particulars of Claim that TPL held the money advanced by Sinclair on a Quistclose trust, so that the money was to be used in the purchase of goods and, because it was not so used, was held on trust for Sinclair.
Then at para. 12 it is alleged that, when TPL transferred the money to VTFL in order artificially to inflate its turnover, it acted in breach of trust and that VTFL, by dishonestly assisting in that breach of trust, itself became a constructive trustee. At para. 13 it is alleged that Mr. Cushnie owed TPL and VTFL fiduciary duties, including duties not to make a personal profit or benefit save as disclosed to and properly authorized by TPL and VTFL and not to misuse his position of trust for his own advantage and a duty to account for secret or improper profits.
Paras. 13A and 13B allege that Mr. Cushnie also owed fiduciary duties to Sinclair. I set out them out in full:-
"13A. Mr. Cushnie personally dealt with the representatives of the Claimant and presumably also with the other persons who had provided TPL with funds on the same or a similar basis (the "Traders"):-
(i) Mr. Cushnie persuaded the principal adviser of the Claimant to advice the Claimant to invest in TPL in the course of a series of meetings over a number of years, at which Mr. Cushnie explained in detail how funds provided to TPL would be dealt with, particularly emphasizing that any funds which were not being used in the purchase of goods would be held on trust. Further, on 14 February 1996, immediately prior to the first transfer of funds by the Claimant to TPL, Mr. Cushnie had personally written to the company secretary of the Claimant setting out the basis on which any funds transferred would be used and managed.
(ii) Mr. Cushnie repeatedly stated to the principal adviser of the Claimant that he dealt personally with the relationship between TPL and the Traders and he personally signed all five of the agreements between the Claimant and TPL, including the Agreement.
(iii) Once the Claimant had invested with TPL, Mr. Cushnie met the principal adviser of the Claimant two or three times a year and also organized annual meetings between himself and all the Traders. At these meetings Mr. Cushnie invariably gave assurances that the funds invested with TPL, and therefore the Funds, were being used in accordance with the terms of the agreements which they had signed with TPL, and therefore in accordance with the terms of the Agreement, and that those funds were ring-fenced and kept separate from the funds utilized by VTFL.
(iv) The last of these annual meetings was held at the Lanesborough Hotel, London, in December 1999 and took place a few days after trading in the shares of Versailles Group plc had been suspended. At this meeting, at which the principal adviser of the Claimant was present, Mr. Cushnie personally assured the Traders that their funds were safe and ring-fenced and that those funds were invested in a diversified portfolio or receivables, each of which was individually insured.
(v) Mr. Cushnie's own solicitor, Keith Edward Oliver of Messrs. Peters & Peters, has deposed in an Affidavit filed in the proceedings in the British Virgin Islands relating to the liquidation of TPL that Mr. Cushnie had in January 2000 personally made, on behalf of Marrlist Limited, a loan of £1.75 million to...
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