HCA 2533/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 2533 OF 2006
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BETWEEN |
| | LIBERTARIAN INVESTMENTS LIMITED | Plaintiff |
and |
| | THOMAS ALEXEJ HALL | Defendant |
| ---------------------- |
Before: Hon Stone J in Court
Dates of Hearing: 20, 21, 22, 24, 27, 28 September, 4, 5, 6 October 2010
Date of Judgment: 25 February 2011
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J U D G M E N T
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This case
1. This is an action for breach of trust and/or breach of fiduciary duty.
2. It is hugely larded with detail, not least since the subject-matter involves what during this trial frequently has been termed “a parallel gaming universe” in which there appears to have been an unusual ‘laissez faire’ attitude to transfers of significant sums of money, but essentially the case involves who did what with whose money, in what capacity, why and when?
3. At the end of the day, the myriad facts/factual disputes notwithstanding, at bottom this dispute boils down to resolution of the following fundamental issues: first, did the defendant, Mr Hall, misappropriate the plaintiff’s funds in his capacity as trustee financing of the plaintiff or otherwise, and second, and dependent upon the answer to the first issue, what represents the plaintiff’s appropriate remedy or remedies?
4. This is not a Commercial List action. I have no idea how it became listed for trial before the Commercial Court, which took little or no part in its case management, but in the event it has some history; accordingly it may assist to set the commercial context against the background of which the actions of the key players took place.
The factual background
5. The activities/personalities of two individuals bestride this case.
6. Although the plaintiff, ‘Libertarian’, is a Hong Kong limited company, this is wholly owned and is the corporate personification of a wealthy gentleman, Mr Alan Woods (sadly now deceased), who had gained a considerable reputation in the gambling world, and with it a commensurate fortune in the hundreds of millions of US dollars, by utilizing his actuarial skills and perfecting, via usage of software he had developed, computerized betting systems on horse racing in Hong Kong and elsewhere.
7. The defendant, Mr Hall, an erstwhile friend and business associate of Mr Woods, is a Hong Kong based businessman whom himself appears to have inhabited the opaque penumbra of the commercial betting world, although it is fair to say that his presence therein was on nothing like the scale or position occupied by Mr Woods. It appears that Mr Woods came to know Mr Hall in mid 2002 through Mr Hall’s then involvement in gaming and online casino businesses, and at one stage Mr Hall wanted Mr Woods to invest in Mr Hall’s company, ESL.
8. It also is clear that it was Mr Hall who had introduced Mr Woods to the idea of purchasing shares in an English private company, ‘The Sporting Exchange Ltd’ (‘TSE’), as to the prospect of which Mr Woods, after initial hesitation, became increasingly enthusiastic. It is TSE, and the purchase of a certain parcel of shares therein, which forms the primary focus of this case.
9. For introductory purposes, however, suffice it to say that Mr Hall and Mr Woods initially appear to have ‘talked the same language’, having a commonality of interest in gambling and gaming related investments, and certainly in the early stages of their relationship at least a degree of trust existed between them; regrettably however that trust gradually eroded as events unfolded and, it is now alleged, Mr Hall has been less than full and frank as to what has happened, and that tranches of money originally entrusted to Mr Hall upon the direction of Mr Woods have been misappropriated.
10. Urgent interlocutory activity on the part of the plaintiff, contemporaneous with the issue on 16 November 2006 by Libertarian of the Writ in these proceedings, resulted in the grant of a worldwide Mareva injunction by Sakhrani J on the same date.
11. That Order speaks for itself. It is worth, however, indicating the main parameters of what then was happening in terms of action taken by plaintiff against defendant.
12. Paragraph 1 of that Order by Sakhrani J, after an application which was made ex parte on notice, sets out the parameters of the restrictions upon dealing with the defendant’s assets, and to an extent this set the tone for much of what occurred thereafter; there were four material subparagraphs of paragraph 1, viz:
“(a) any property acquired with or otherwise representing the funds of the plaintiff which, in 2003 or 2004 the defendant caused to be transferred out of trust account No 21446.00001 maintained by M/s Berwin Leighton Paisner, London solicitors, in the total sum of £13, 646,708 (‘the plaintiff’s funds’); and/or
(b) all entitlements or rights of action acquired in 2004 by the defendant using the plaintiff’s funds to 1,777,700 shares in the Sporting Exchange Limited (‘TSE’) of England (‘the TSE Trust Shares’), plus all dividends which have accrued on those shares; and/or
(c) all proceeds of sale of all or part of the TSE Trust Shares or of the entitlements or rights of action to the TSE Trust Shares; and/or
(d) all interest or other profits which have accrued on the property in (a) to (c) above since the property first came under the control of the defendant.”
13. This injunction was granted subject to, inter alia, a fortified undertaking in the sum of HK$5 million offered by the plaintiff.
14. True it is that over the ensuing months the court record reveals several variations to this primary order, but these variations represent essentially matters of detail, and have no bearing upon the basic thrust of this case as argued before this court.
15. The substance of the worldwide Mareva as granted by Sakhrani J in November 2006 was subject to a substantive contested hearing for the continuation thereof until trial, an argument heard by Fung J in Chambers in late May/early June 2007, and which resulted in his judgment, the Reasons for which are dated 11 June 2007, wherein the learned judge ordered that the injunction be continued until trial save that the amount of £13,646,708 as initially enjoined be reduced to £8,314,680.64.
16. The Reasons for Decision of the learned judge hearing this application set out in concise form the nub of the present dispute between these parties.
17. It is common ground that in 2003 Mr Woods had asked Mr Hall, his then business associate, to acquire shares in ‘TSE’, an English private company which had begun operating an on-line betting website named “Betfair”; it is also common ground that this site, which essentially had introduced a new business model wherein, as an online intermediary, it held the ring between gamblers taking contrary positions, had begun to cause ripples of financial concern within the worldwide gaming industry, which hitherto had been run upon more traditional lines.
18. Be that as it may. It is clear that Mr Woods, as an astute international investor in addition to being a phenomenally successful gambler, after some initial hesitation came to the view that the “Betfair” model was a potential investment goldmine, and thus asked the defendant, Mr Hall, whom, as I have said, earlier had informed Mr Woods that he was in a position to acquire shares for him in TSE, to purchase some shares on his behalf; the evidence is that as his ultimate target Mr Woods was interested in acquiring about 10% of the issued TSE share capital.
19. Accordingly, monetary transfers were effected for this purpose, and on 13 May 2003 Mr Woods arranged for the sum of in the order of £35 million to be deposited into the trust account of a London firm of solicitors, Berwin Leighton Paisner (‘BLP’); this was accomplished by Mr Woods arranging for the transfer of EUR50 million (then equivalent to approximately £35.79 million) from an account at Morgan Stanley in the name of Assanzon Development Corp – a company wholly owned by Mr Woods – into a BLP trust account held with Barclays Bank in the name of Axdale Overseas Corporation, Axdale being a company controlled and wholly owned by Mr Hall.
20. In fact, Mr Hall had requested Mr Woods to remit the money to the BLP account reference “for Momentum Limited/Assanzon”, a request with which Mr Woods duly complied.
21. It is said, and I have no reason to doubt this assertion, that at the time Mr Woods understood that the funds thus remitted would be held in the BLP account in the name either of Momentum Limited, a company controlled and managed by Mr Woods which was the intended vehicle to acquire the TSE shares, or in the name of Assanzon, also wholly owned by Mr Woods, which was the vehicle which was to be the conduit for the purchasing funds.
22. This deposit of funds into the aforesaid BLP Trust Account constitutes the commencement of a series of financial dealings of some detail and complexity, and for present narrative purposes there is no need to go into the minutiae of each and every such transaction, or attempted transaction, undertaken by Mr Hall in order to obtain for Mr Woods the desired TSE shares.
23. In fact, as matters transpired, a First General Tender for TSE shares was unsuccessful, due to the exercise of pre-emption rights by existing shareholders, but a Second General Tender for TSE shares thereafter eventuated.
24. On 12 August 2003 Mr Hall forwarded to Mr Woods an email setting out the anticipated timetables for this Second General Tender.
25. By a message dated 27 August 2003 Mr Hall advised Mr Woods that funds additional to those earlier remitted would be required in the amount of £5.5 million, and on 11 September 2003 the respective sums of £3,449,994 and £2.5 million were transferred to the credit of the same BLP account at Barclays Bank in London. In the broad scheme of things it does not greatly matter, but it transpires (and this is undisputed) that Mr Wood exceeded the amount he was required so to transfer by some £500,000, simply putting the overpayment down to “a mistake”, which perhaps give some indication of this gentleman’s relative wealth.
26. It also seems from the available records that the second tranche of £2.5 million was, somewhat curiously, sent from the HSBC account of Mr Woods’ domestic helper, one Marietta Q. Cao, who was asked by Mr Woods’ secretary “if he could use my bank account in order to make a payment into and out of the account”, a request to which she agreed.
27. Once again, this is an incidental fact which in itself has little resonance in the overall scheme of things, save to emphasise that Mr Woods was an extremely rich man occupying a high profile position in the world of international gambling, and that on occasion undoubtedly he used unconventional means to transfer large monetary sums: in many ways, therefore, this is not the ‘standard’ type of commercial case, and contains what, to put it at its lowest, might be thought to be unusual and perhaps even ‘quirky’ monetary transfer practices, which the court is given to understand often are employed in the world of international gambling.
28. Unlike the First, the Second General Tender in TSE shares yielded fruit.
29. Mr Hall used his own company, Axdale Overseas Corporation, to bid in both the First and Second Tenders, and on 22 December 2003 an email from a Mr Sean Patterson of TSE advised Mr Hall that, following closure of the existing shareholders’ pre-emption period, shares amounting to 5.71% of the TSE issued share capital (about 5.598 million TSE shares) would be allocated.
30. Accordingly, by email dated 24 December 2003 Mr Hall informed Mr Woods of the allocation of 5,598,918 shares in TSE; in the same email, Mr Hall stated that he would be happy to continue with his efforts to obtain additional equity in TSE for Mr Woods, albeit he also indicated that he did not know if he had “the energy or desire to keep chasing this equity. The extra we are talking about is 2.2% to 3.1% from 2-3 people so probably worth finishing off when I am there in January unless you want me to cease now.”
31. Consequent upon the allocation of shares following the Second General Tender, Momentum Limited thus had acquired 5,598,918 shares in TSE at a price of £3.10 per share, making a total outlay of £17,356,645.
32. This was the “second tranche” of such shares acquired for Mr Woods, which shares were onsold to Momentum through the medium of Mr Hall’s company, Axdale Overseas Corporation; a “first tranche”, namely some 125,000 shares (which had become 1,250,000 after a 10:1 split in 2003) earlier had been secured in December 2002, and which had been acquired through a company known as Jamesteer, which shares then were onsold to Growthline Ltd, and thereafter had been held through a trust structure. However, by this stage Mr Woods still had not attained the 10% shareholding he desired.
33. Upon allocation of the “second tranche” of TSE shares, Momentum was required to undertake to TSE that it would not purchase any further shares in TSE which would result in Momentum holding more than 6.5% of the issued share capital of TSE; a further element of this undertaking – ‘the Momentum Undertaking’ ‑ was that it represented that, at the date of the undertaking, neither it, its subsidiary, its parent nor any subsidiary thereof, had any direct or indirect interest in any securities, including shares, of TSE.
34. It is common ground that Momentum issued this Undertaking, the precise terms and form thereof being in the documentary evidence before the court; by this document Momentum also agreed not to acquire further TSE shares unless with the prior approval of the TSE Board. More pertinently, it is said by the defendant, Mr Hall, that Mr Woods was at all material times aware of the ‘Momentum Undertaking’, and of its implications, albeit as a result of Mr Hall’s efforts on behalf of Mr Woods it appears that by that stage Mr Woods already had become the indirect owner of approximately 6.998% of the total issued share capital of TSE.
35. Be that as it may. The share transactions thus far detailed form part of the overall factual matrix, but do not as such give rise to this litigation, which has as its focus the alleged acquisition of an additional parcel of 1,777,700 TSE shares, referred to in this trial as the so-called “third tranche” of such shares, which purchase would, if successful, have made Mr Hall owner of his desired 10% holding.
36. In or about early 2004, Mr Hall informed Mr Woods that he indeed had acquired such additional TSE shares; a Note sent by Mr Hall to Mr Woods read thus:
“DAVIES – SAMOS and CALEDONIAN INFORMATION
1,770,700 shares in Samos and Caledonian Holding Co’s are held by Momentum Limited by way of Davies Family Settlement. Copy of relevant info to be forwarded to Alan to complete file.”
37. It is common ground that this Note contains a typo: the figure of 1,770,700 should in fact have read 1,777,700; indeed, as at January 2004 the share register of TSE showed that 1,777,700 shares were held by Samos Investments Limited and Caledonian Heritable Investments Limited.
38. The defendant pleads that his intention in giving Mr Woods this Note was to indicate that he had obtained the consent of the registered owners, Samos and Caledonian, to hold that which has been referred to as the ‘TSE Trust Shares’ for the ultimate benefit of Momentum, but that Momentum itself could not receive the TSE Trust Shares by reason of the earlier ‘Momentum Undertaking’.
39. I have no reason to doubt the evidence (and do not so do) that as the result of this Note Mr Woods took it to mean that the additional TSE shares had been acquired and were being held for Momentum in like manner as had been the situation with the shares earlier acquired in the Second General Tender via arrangements put in place by Mr Hall on behalf of Mr Woods/Libertarian. I also have no reason to doubt that, at this relatively early stage, Mr Woods did not attach his mind to the precise mechanics/manner of holding the TSE shares obtained on his/Libertarian’s behalf by Mr Hall; in short, at that stage his trust clearly reposed in Mr Hall.
40. The purchase of this “third tranche” of TSE shares, as registered in the name of Samos and Caledonian, subsequently was confirmed by Mr Hall in a document entitled “Summary Overview as at 5/6/04”, which once again is in the documentary evidence and which records, inter alia, that out of a total of 8,626,618 TSE shares, 7,867,166 were due to Libertarian under the rubric: “All shares acquired through momentum (sic) Limited and Samos/Caledonian to be assigned 100% to Libertarian plus balance of Growthlineacquired shares” ‑ this latter being a reference to 1,250,000 TSE shares earlier purchased for Growthline (via that which was termed ‘the Levene Settlement’).
41. The next material development was that on 17 March 2004 Mr Hall emailed Mr Woods a document he had prepared entitled “BLP and Tarlo Lyons Consolidated General Ledger”, which contained information relating to the funds held in the BLP account and also in the account held by another firm of London solicitors, Tarlo Lyons, indicating, inter alia, that a sum of £5,546,424.00 had been used for “Payment to Trust for 1,777,700 shares at GBP3.11” plus GBP27,732.12 (Stamp Duty).
42. Thereafter, in a 7 June 2004 email Mr Hall reiterated these details, and in a further email of 10 June 2004 Mr Hall provided a spreadsheet recording an allocation of 1,777,700 shares to the plaintiff at a price per share of £3.11 under the title “Davies/Samos/Caledonian allocation; on 26 June 2004 Mr Hall emailed Mr Woods a similar Table to like effect, these reports indicating that the total of 1,777,700 TSE Trust Shares as having been bought for the plaintiff, Libertarian.
43. It is clear on the evidence, and once again is not disputed, that it was in 2005 that the hitherto amicable and mutually trusting relationship between Mr Woods and Mr Hall had begun progressively to break down; the details are of no direct relevance to the present dispute, although the deterioration involved the breaking down of a deal to buy shares in a company called Playtech Limited.
44. In this latter regard, Mr Woods seems to have been unhappy about Mr Hall’s role in the collapse of this deal, which he believed had been done at an agreed price, and apparently felt that Mr Hall had not been full and frank, and that he, Mr Hall, had aligned himself with the Playtech interests and not those of Mr Woods, despite the fact that Mr Hall supposedly was representing Mr Woods in this transaction. There further has been reference to Mr Hall’s failure to repay certain personal loans to Mr Woods.
45. For the avoidance of doubt, save to record the apparent provenance of the personal falling out between these two men, I take nothing from this episode in terms of resolving the current dispute, by now it being tolerably well known (I hope) that the Commercial Court has little interest in prejudice.
46. It was in late 2005 that Mr Woods decided that he had to sort out/get to grip with his problems with Mr Hall, and in particular the outstanding questions he then had about the 1,777,700 TSE Trust Shares, as to the existence of which, save for the brief information to-date volunteered by Mr Hall, Mr Woods had seen no objective documentation/substantiation verifying the statements hitherto made to him on the subject by his erstwhile friend.
47. The matter of this tranche of 1,777,700 shares had become more than usually immediately relevant, given that in March 2006 a financial institution, Softbank Ltd, had made a formal open cash offer to all TSE shareholders to purchase TSE shares at a price of £13.2005 per share, which offer was to remain open for acceptance until 31 March 2006.
48. Accordingly Mr Woods had asked an intermediary, a Mr Thomas Levene – formerly an executive with TSE and at that time working for companies owned by Mr Woods – to intercede with Mr Woods on his behalf; Mr Woods knew Mr Levene was a friend of Mr Hall, and thus he asked Mr Levene to contact Mr Hall and to instruct him to make all of the 1,777,700 TSE Trust Shares available for sale into the Softbank cash offer.
49. The evidence, which I accept, was that on 24 November 2005, Mr Levene had met with the Mr Hall specifically to discuss this third tranche of 1,777,7000 TSE shares, and that at that meeting Mr Hall had asserted for Mr Levene that, by reason of the ‘Momentum Undertaking’, the plaintiff was precluded from becoming a registered TSE shareholder, and that for that reason the defendant had been made sole beneficiary of a formal written trust whereby the TSE shares were held on trust for the plaintiff, but that the relevant trust documents had not yet formally been completed.
50. As matters transpired, the Softbank offer of March 2005 was over-subscribed, and as a consequence Softbank acquired 42% of the TSE shares as were offered for sale. On this basis, therefore, it is said by the plaintiff that if the sale of the entire parcel of 1,777,700 shares had been attempted (which it appears it was not), a total of 746,634 of such shares would have been realized at the offer price, thereby yielding proceeds of £9,855,942.10.
51. In the event, in or around mid-August 2006 the plaintiff’s solicitor, Mr John McClellan of Haldanes, was informed by the solicitors for the defendant that only 414,700 of the TSE Trust Shares had been sold to Softbank at the offer price, yielding proceeds of £5,474,247.35, funds which Mr Hall stated were in his possession and were available to return to Libertarian, and that 1,355,300 of the TSE shares thereby remained.
52. Correspondence relevant to this aspect of the case formed part of what by then were ongoing settlement negotiations between Mr Woods and Mr Hall; in fact, a 2007 Settlement Agreement – which had as its subject matter allegations made by Mr Woods regarding the purchases of the “first tranche” and “second tranche” of TSE shares, had been entered into, and forms no part of this case. However, the correspondence to which objection now is taken by the defendant relates to the “third tranche” of 1,777,700 shares, and is expressed to be ‘Subject to Contract’ and ‘Without Prejudice’; with the agreement of counsel these documents have been read by the court on a de bene esse basis, subject to a subsequent ruling in this judgment as to admissibility.
53. In any event, it is common ground that the aforesaid sale proceeds from the Softbank purchase of 414,700 TSE shares in the amount of £5.474 million never were remitted to the plaintiff by Mr Hall; in fact, when Mr Levene checked the TSE share register it indicated that, as at 31 August 2006, the amount of 1,587,700 TSE shares still were held by Samos and Caledonian; it appeared that the shareholding of TSE shares in the name of Samos had decreased by 190,000, whilst the shareholding listed in Caledonian’s name had remained the same as was the position prior to the instruction to sell issued by Mr Woods.
54. The remaining history of this unfortunate matter can be dealt with in relatively short compass.
55. In around February 2006 the evidence, which I further accept, was that the defendant, Mr Hall, had informed Mr Levene that he had established, qua settlor, an irrevocable Channel Islands trust called ‘the Hall of Fame Trust’, which was said wholly to own a company named Hoflim Limited, which in turn wholly owned the beneficial entitlements to the TSE Trust Shares by virtue, it was claimed by Mr Hall, of irrevocable Declarations of Trust made in favour of Hoflim by the two registered shareholders of the TSE shares, Samos and Caledonian.
56. On 25 April 2006 Mr Woods attended a meeting with Mr Hall and a Mr Chris Parker, but despite his earlier assurances so to do, Mr Hall failed to produce any of the relevant documentation which had been requested of him; as a consequence, the matter became steadily embroiled in the hands of litigation lawyers.
57. In July 2006 Mr Levene contacted the London solicitors, BLP, on behalf of the plaintiff to request information regarding the monies as originally deposited in 2003 in the BLP trust account, and as a result a copy of the ‘BLP Axdale Ledger’ was obtained on 30 July 2006.
58. This turned out to be a significant document.
59. Information gleaned therefrom showed that on 14 October 2003, a sum of £5,463,508.46was paid out “as instructed by Axdale” – and thus, it seems by necessary inference on the instructions of Mr Hall, who owned and controlled Axdale – to an Axdale account at Bank Von Ernst in Switzerland; thereafter, notwithstanding further requests for particulars to the London firm of solicitors, no additional relevant information was forthcoming from BLP.
60. In fact, this copy of the BLP ledger for the BLP trust account indicated that the defendant had made a number of money transfers ‑ said by Mr Wood to have been unauthorized – from the BLP trust account to the Axdale Swiss bank account in the total sum of £13,646,718.18 million, these transfers occurring on 15 May 2003 [in the sums of £7,110,758.97 and £404,919.57 respectively], on 14 October 2003 [in the sum of £5,463,508.46], and on 20 April 2004 [in the sum of £667,521.18].
61. In addition, two other transfers out of the BLP account, once again said by Mr Woods to be unauthorized, apparently had occurred on 20 August 2003 [in the sum of £158,000] and on 28 August 2003 [in the sum of £600,000], albeit it is not now alleged (as originally was the case) that these latter two transfers went to Axdale’s Swiss bank account, and, the plaintiff maintains, in breach of certain discovery orders to this date Mr Hall has not revealed where such funds in fact went.
62. It also is clear that such reports/financial information/data as had been produced by Mr Hall to Mr Woods does not match the data in the BLP ledgers as obtained by Mr Levene in August 2006; in particular, for example, hitherto there had been no mention whatever by Mr Hall to Mr Woods of the withdrawal from the BLP Trust Account of the sum £5.463 million on 14 October 2003.
63. In fact, Mr Hall earlier had reported that the payment for the ‘TSE Trust Shares’ had been made on 19 January 2004 in the sum of £5,546,424.00, whilst out of the overall sum totalling £13.646 million which had been transferred from the BLP account on the instructions of the defendant to the Swiss bank account of Axdale, Mr Hall has maintained that the transfer of 14 October 2003 [in the sum of £5.46 million] was transferred to “a nominee appointedby the beneficial owners of the shares”, a person subsequently identified by Mr Hall on affidavit as one “MrMichael Schultz”, whom Mr Hall claims to have been made a nominee of Samos and Caledonian, the registered shareholders of the TSE Trust Shares, in order to facilitate the acquisition of such shares.
64. Finally, in this narrative of the principal historical events, it remains only to add, as a matter of objective fact, that in the Reasons for Judgment of Mr Justice Fung of 11 June 2007, the learned judge observes (at paragraph 24 thereof) that shortly prior to the hearing which took place before him, the plaintiff, Libertarian, had been informed by Samos and Caledonian that:
(1) they had not dealt with the defendant or with a ‘Mr Michael Schultz’ (their nominee as alleged by the defendant);
(2) they did not make any agreement with the defendant in relation to the 1,777,700 shares; and
(3) they did not execute any declaration of trust in respect of the 1,777,700 shares.
65. The learned judge – whom, it will be recalled, had continued until trial the worldwide Mareva injunction then in place, save for varying downwards the amount enjoined – not only accepted this evidence, as I now do given that it was not queried in this trial, but also noted (at paragraph 25 of his Reasons) that it had been revealed that in the sale of the original tranche of 5.5 million TSE shares to Momentum, Samos and Caledonian had received only £2.71 per share, instead of £3.11.
The respective cases
66. Against the foregoing background, in which, save for minor detail there is little if anything of substance/primary fact that is disputed, the plaintiff’s case in outline is that the defendant wrongfully had accessed and utilized the plaintiff’s funds absent authorization so to do, that he had failed to obey the plaintiff’s/Mr Wood’s instructions, and that, in the period 2004‑2006, Mr Hall had set up a UK trust/ private corporate structure whereby the net amount of TSE shares (that is, those remaining outwith the Softbank sale) plus the sale proceeds were held, and yet he had resisted to account to the plaintiff for these assets, including in particular the £5.643 million, which Mr Hall had claimed, it is said falsely, simply to have handed over to the aforesaid ‘Mr Shultz’, notwithstanding that the plaintiff says that the tracing discovery, effected pursuant to the interlocutory injunction granted by Sakhrani J, amply had demonstrated that Mr Hall had used this money for his own, and as yet, unrevealed purposes.
67. In light of these allegations, the plaintiff seeks the remedies outlined in paragraphs (1), (3) and (5) of the Re-Re-Amended Statement of Claim – namely an order that the defendant account to the plaintiff upon the basis of wilful default for the trust property, and in particular for the plaintiff’s funds transferred on the instructions of the defendant from the BLP trust account – and for equitable damages or restitution “of at least £21,424, 503 to restore the plaintiff to the position it would have been in had the defendant honoured his trust obligations”, together with compound interest compound, costs and (at paragraph (7)), the umbrella plea of “all necessary orders, accounts and inquiries”.
68. To the contrary, the defendant, Mr Hall, whilst admitting having had indirect control of the plaintiff’s funds, and also that the sum of £5.474 million has not been returned to the plaintiff, nevertheless denies having been a trustee or fiduciary of or in terms of the plaintiff’s funds, pleading in this context that the registered owners of the 1,777,700 TSE shares, namely Samos and Caledonian, had and have not executed any declaration of trust to the effect that they hold the TSE shares for the benefit of any other party, and further totally denying “that the defendant is accountable to the plaintiff in respect of any property, as alleged or at all”.
69. It is specifically denied that Mr Hall reported to the plaintiff on 12 December 2005 that the 1,777,700 shares were held under written declarations of trust, and that if it be alleged that the plaintiff says that the defendant was the trustee of ‘beneficial entitlements’ to 1,777,700 shares in TSE, such allegation also is denied.
70. Mr Hall further says that the so-called ‘Davies-Samos and Caledonian Note’ [vide paragraph 35 above] was intended only to indicate that he had obtained the agreement of Samos and Caledonian to sell shares in TSE for the ultimate benefit of Momentum, and he further denies that Mr Woods reasonably could have understood that at that time the plaintiff, Libertarian, had acquired proprietary rights in the 1,777,700 TSE shares, given that Mr Woods knew, or ought to have known, by reason of the ‘Momentum Undertaking’ and the content of the TSE Articles of Association, that the plaintiff was unable to acquire such proprietary rights, and further that Samos and Caledonian had not executed any declarations of trust with regard to the TSE shares they were registered as holding.
71. Mr Hall maintains that whilst Mr Levene indeed had asked that the 1,777,700 shares should be placed under the plaintiff’s direct control, he personally had told Mr Levene that given the Undertaking and the Articles of TSE, that the plaintiff could not directly or indirectly become the beneficial owner of the additional shares in TSE; he also accepts that he had told Mr Levene that he was the settlor of the ‘Hall of Fame Trust’, and that the latter was wholly owned by Hoflim, and he accepted that whilst Mr Levene had asked him to arrange for the sale of as many TSE shares as possible to Softbank, he, Mr Hall, had said only that he would “pass the request on” to Caledonian and Samos, but that in the prevailing circumstances he could do no more.
72. As to the transfers of funds out of the BLP trust account to the Bank Von Ernst in Zurich, Mr Hall says that transfers of £7.51 million and £0.66 million were part of the £17.35 million used for the acquisition of the first tranche of 5.5 million TSE shares (ostensibly at £3.11) by Momentum, and that, following these earlier similar transactions, the transfer to Bank Von Ernst of the sum of £5,456,508.46 was made with the consent of the plaintiff, and that these funds subsequently were transferred to a nominee of Samos and Caledonian, namely the aforesaid ‘Mr Shultz’, for the purpose of acquiring interests in shares of TSE.
73. It is also denied that the defendant is accountable to the plaintiff in respect of any property, as alleged or at all, and that the defendant was in breach of any obligation owed to the plaintiff, as alleged or at all. As a final piece of the jigsaw, Mr Hall also mounts a ‘set off’ defence, asserting that he had used his own monies to place the mysterious ‘Mr Schultz’, whom he claims to have been a nominee of the two registered shareholders of the “third tranche” of TSE shares, in funds in the amount of £5.456 million.
74. The foregoing summary attempts to represent no more than a relatively linear outline in a sequence of events in what, even today, remains a tangled historical picture, with perhaps a more than usual number of questions remaining unanswered – a situation, says the plaintiff, which is entirely due to the consistent reticence/dishonesty of the defendant, Mr Hall, who always has refused to ‘come clean’ as to precisely what had happened, and when, to the funds as remitted to him and/or as to the parcel of 1,777,700 TSE shares.
75. Hence the present dispute with which this court now is required to resolve ‑ albeit, if I may say so, this 9 day trial demonstrably has not produced the degree of factual clarity normally emerging from such hearings, and on certain significant matters the court is left none the wiser.
The evidence
76. The plaintiff centrally prayed in aid the content of three affidavits of Mr Woods, sworn prior to his death.
77. The first was on 16 November 2006 and was made on behalf of the plaintiff in aid of the ex parte on notice interlocutory injunctive relief as was granted by Sakhrani J on that date; the second, dated 15 February 2007, was sworn in support of the continuation of the existing injunction, and in response to the defendant’s affidavits of 24 November 2006, 21 December 2006 and 8 January 2007; and the third in response to Mr Hall’s affidavit of 9 March 2007.
78. Viva voce evidence on behalf of the plaintiff was given by Mr Timothy Levene – whom, it will be recalled, was the intermediary asked by Mr Woods to intercede with Mr Hall – and by two members of the plaintiff’s legal team, Mr John McClellan and Mr Patrick Rattigan.
79. Mr Levene helpfully recounted his role in events, with specific reference to his interaction with Mr Hall upon Mr Woods’ behalf, including reference to statements made to him by Mr Hall at various meetings commencing in 2005.
80. Mr McClellan’s evidence primarily concerned inter-solicitor (including in particular the ‘settlement correspondence’, to which objection on behalf of the defendant formally was taken), whilst Mr Rattigan’s evidence was directed at making coherent sense of the mass of diverse figures involved in this case, and in proffering an analysis of the monetary transfers occasioned by Mr Hall; in particular he prepared and produced some extremely helpful and detailed flow-charts, the content of which was derived from the available data, a painstaking exercise which must have occupied a huge amount of time and which was of considerable assistance to the court in trying to make some broad sense of what had gone where, to whom and when.
81. In addition, a Hearsay Notice tendering a witness statement of a Mr Mark Davies dated 5 August 2010 was superceded by an affidavit of the said gentleman dated 24 August 2010; and, finally, an affidavit of Marietta Q Cao, the domestic helper whose bank account once had been used by Mr Woods for an international monetary transfer, also was placed in evidence.
82. For the defendant, only Mr Hall gave viva voce evidence, although given the history of the case his oral evidence before the court had been prefaced by a great deal of accumulated affidavit evidence, Mr Hall having sworn a total of 6 affidavits in the period 24 November 2006 – 29 August 2007.
83. I refer shortly to what I have made of the evidence given on both sides of this dispute; before so doing, however, I should grapple with, and rule upon, the ‘admissibility issue’, which is a facet of this case to which earlier I have made passing reference [vide paragraph 52]; under this head there are two elements which require separately to be considered.
Admissibility of certain evidence
(i) “Without prejudice” correspondence
84. Early in the course of this trial Mr Wright, on behalf of Mr Hall, objected to reliance by the plaintiff on ‘without prejudice’ communications, mainly with respect to Mr McClellan’s evidence, and invited the court to exclude these communications, either by ruling immediately (which the court declined to do), or, as now within this judgment, after considering at trial the communications on a de bene esse basis.
85. I shall not rehearse the normal standard principles/authorities relating to ‘wp’ correspondence, save to refer to M/N24/5/41 in the 2009 edition of the Hong Kong White Book; as Mr Wright correctly pointed out, the purpose of the rule rendering all negotiations for the settlement of a dispute inadmissible is to protect a litigant from subsequent embarrassment should the case (as, sadly, here) fail so to settle. He stressed that the established rule is founded first, upon public policy in the encouragement of parties to negotiate and settle, and second, on an implied agreement arising out of what commonly is understood to be the consequences of offering or agreeing to negotiate ‘without prejudice’.
86. For his part, Mr Barlow SC naturally does not take issue with general principle. However he attacks on two fronts.
87. First, he complains that an indiscriminate ‘blanket’ challenge is made to the 54 emails between instructing solicitors in this case, which were exchanged over a period of 3.5 months between 14 June 2006 and 28 September 2006, of which 46 were written in ‘open’ correspondence and 8 were marked ‘without prejudice’.
88. He referred to the history of this matter, whereby the defendant’s objection has been canvassed before a Master and, on appeal, before a Recorder, and thereafter before Deputy Judge Carlson, who sensibly had stood the matter over to the trial judge. Mr Barlow noted further that later ‘open’ correspondence in fact referred back to earlier ‘wp’ correspondence, and maintained that of the 8 ‘wp’ emails, 2 were so marked by the plaintiff’s solicitors, and that any surviving privilege had been waived by them.
89. Mr Barlow also relied on the so-called ‘fraud exception’, whereby no privilege comes into existence regarding communications made to get advice for the purpose of carrying out a fraud, citing Viscount Finlay in O’Rourke v Darbishire [1920] AC 581, at 604, and also like observations by Goff J (as he then was) in Crescent Farm(Sidcup) Sports Ltd [1972] 1 Ch. 553, at 565D, who observed that in this connection ‘fraud’ “is not limited to the tort of deceit and includes all forms of fraud and dishonesty, such as fraudulent breach of trust…trickery and sham contrivances…” and of Lord Denning MR in Buttes Gas & Oil v Hammer (No 3), [1981] 1 QB 223, at 246G-H, who emphasized that to do away with the privilege “there must be strong evidence of fraud”.
90. Following this theme, Mr Barlow’s premise was that in the present case the factual assertions within the defendant’s correspondence were steps taken by Mr Hall (through the medium of his solicitors) to conceal his frauds/wrongdoings committed with the plaintiff’s funds, and were intended to render irrecoverable trust assets and to defeat the plaintiff’s causes of action – and that against this backdrop the defendant thus should not be permitted “to hide behind the cloak of privilege” in order to cover up the true situation and to impede the process of uncovering the truth of the defendant’s dishonest breaches of trust/fiduciary duty, and of the identification of the remedies to which such breaches should give rise.
91. That at least was the gist of the submissions on both sides of the fence, and I have had now reviewed the entire correspondence in question in light of the established principles which have been brought to the attention of the court.
92. My conclusion on this aspect of the admissibility argument ‑ a conclusion which in the circumstances of this case has caused me little conceptual difficulty – is that in my view the ‘wp’ correspondence (which in any event I have, as I have said, already scrutinized debene esse) is in fact admissible upon the bases canvassed by Mr Barlow. I so hold.
(ii) Aspects of Mr Rattigan’s evidence
93. This is a lesser element of the admissibility argument, and is not one to which I attach a great deal of importance in the overall scheme of things.
94. On behalf of the defendant, objection is taken to the admission in evidence of paragraphs 8-12, 14, and 18-29 of Mr Rattigan’s witness statement, which he adopted as his evidence in chief.
95. These paragraphs contain both objective analysis of the data collated by Mr Rattigan in the course of the case, together with narrative comment, inter alia, upon the merits of Mr Hall’s ‘offset’ argument, and yet further observations upon what certain shareholdings do, or do not reveal, and also Mr Rattigan’s discovery, and consequent submission, to the effect that the defendant has been less than full and frank in his existing statement of assets produced for use in the interlocutory proceedings.
96. My view is that what may be characterized as the ‘commentary aspects’ of these paragraphs strictly speaking is inadmissible, in that these observations purport to tell the court what to think about certain aspects of the evidence. With respect, I have no interest in being told by anybody of what to make, or not to make, of certain evidence.
97. However, if I may say so, this is the Commercial Court and it is tolerably capable of making up its own mind in the face of objective (and apparently incontrovertible) data; nevertheless, and for the avoidance of doubt, with regard to Mr Rattigan’s personalopinions/commentary, which clearly were expressed in good faith after what was undoubtedly his total immersion over hundreds of hours and literally thousands of pages of documents, resulting in the impressive collation of the available data, I have given no weight at all.
98. So that at the end of the day I do not consider this pure ‘admissibility’ objection to be of any practical relevance, albeit such evidential comment/opinion as has been ventured by this witness has not influenced my mind and certainly has not affected my view of the merits of the plaintiff’s claim as brought.
Credibility/Findings of fact
99. If I may say so, I am surprised that this case has found its way to court, far less to completion of a hard-fought 9 day trial, given what strikes me as the overwhelming merit of the plaintiff’s case; in fact, it is unclear to me why this case, which as earlier I have noted has as its primary focus the “third tranche” of 1,777,700 TSE shares, has not been the subject of settlement in like manner to the 2007 Settlement Agreement (which I am told was effected upon payment by Mr Hall of some £1.8 million or thereabouts in respect of the Momentum overpayment for “second tranche” of 5,523,918 TSE shares.)
100. Be that as it may. The court has to deal with the evidence and with the arguments propounded before it.
101. In blunt terms, I accept the plaintiff’s evidence virtually in its entirety; there may be minor incidental matters of detail which do not entirely ‘mesh’, but at the end of the day, given the evidence before the court and the content of such contemporaneous documents as the plaintiff to-date has been able to uncover, in my view there can be no real argument about the truth of the factual underpinning of the plaintiff’s case.
102. Mr Woods, regrettably, was unavailable for cross-examination, but in light of the other evidence and the mass of assembled documentation, I have no reason to believe that the content of his extensive affidavit evidence, sworn before his untimely demise, is other than fundamentally true.
103. I accept the evidence of Mr McClellan and Mr Rattigan (no latter as circumscribed in the manner outlined above), and I also accept the evidence of Mr Levene, Mr Woods’ intermediary with Mr Hall, and in particular his account of his dealings with and his efforts in meetings with Mr Hall, to sort out this particular matter. I found him an impressive witness.
104. The correlative side of this coin, I am afraid, is that Mr Hall does not emerge at all well from this case in terms of this court’s estimate/opinion of his overall probity/veracity.
105. It seemed to me that, at bottom, his defence evidence amounted to little more than denial: denial of lack of authority to use the plaintiff’s funds, denial of responsibility in respect of his handling of these funds, and in respect of the beneficial entitlements to the TSE shares allegedly purchased with these funds, and further, and in the round, a complete denial of any wrongdoing whatsoever. In this regard I have not overlooked that which Mr Barlow characterized as Mr Hall’s “unashamed” late changes to his witness statements only after the plaintiff had closed its case, with the result that fundamental discrepancies emerged between the content of Mr Hall’s prior affidavit evidence, sworn in one context, and his oral evidence before this court.
106. Notwithstanding a certain insouciant and, if I may say so, a degree of personal charm, Mr Hall struck me essentially as a ‘chancer’, who whilst probably not setting out to be dishonest, clearly permitted himself to do as he wished with the considerable amounts of money with which he was entrusted in response to his personal circumstances at any given time: his treatment of the money placed in the BLP trust account, for example, smacked of ‘teeming and lading’ in as much as when Mr Hall faced monetary requirements, in my judgment he allowed the obvious trust initially reposed in him, and the opportunities created thereby, to yield to the temptation to use these funds for his own purposes; indeed, as earlier observed, even now I am far from sure that the true story about all that has happened properly has emerged, and Mr Hall’s own evidence ‑ upon which he strenuously and effectively was cross-examined ‑ pointedly did not reveal the whole truth about the sequence of events which thus far have been discovered to have occurred, consequent upon the attempts by the plaintiff accurately to ‘piece together’ a complex financial jigsaw puzzle without necessarily being in possession of all the relevant pieces.
107. Moreover, even allowing for the ‘idiosyncrasies’ and relative financial informality of the international gambling world, and the obvious casualness with which large sums of money often were transferred, some of Mr Hall’s evidence seemed to me to be wholly far-fetched and unbelievable, and if I may say so more fitting to the stories of Lewis Carroll than hard reality: in this connection the alleged transfer of £5.46 million via Macau ‘junket rooms’ to the apparent stranger “Mr Schultz” (whose provenance was and remains wholly unidentified), qua alleged nominee for Samos and Caledonian, provides a prime example, and in my view in order to take that at face value any hard-nosed court simply would have to suspend disbelief or any element of critical analysis.
108. In this latter regard, Mr Barlow pointed out that there was no mention whatever in the contemporaneous documents of ‘Mr Schultz’, or for that matter any agent or nominee of Santos and Caledonian in or around 2004 when the transaction in relevant tranche of 1,777,700 shares was supposed to be taking place, and in fact the first occasion on which Mr Hall refers to ‘Mr Schultz’ by name was only in his 2nd affidavit dated 21 December 2006, that is, nearly 3 years after the alleged event. He also observes that Mr Schultz deposed to payments being made to this mysterious gentleman through Macau ‘junket rooms’, and thereafter claimed in March 2007 correspondence with the plaintiff’s solicitors that he had ‘lost’ the contact details of this person.
109. As to the alleged involvement of Samos and Caledonian Mr Hall’s story similarly was internally contradictory.
110. Initially he had reported to the plaintiff that he had set up the trust company/structure to hold the beneficial entitlements to the TSE Trust Shares, but this position subsequently moved to the allegation that, after receipt of payment in full, Samos and Caledonian were not prepared to complete the transaction and that, as a consequence, no beneficial ownership of the tranche of 1,777,700 shares was acquired for the plaintiff.
111. Mr Barlow goes on to suggest, not without cause, that Mr Hall’s various accounts in terms of the acquisition of the precise number shares and at what price varied from time to time, and that this internal inconsistency with the relevant figures as presented to Mr Woods was, as Mr Barlow put it, “indicative of his lies and of the fact that he could not keep track of his own lies”. It is difficult in the circumstances to disagree with this pithy characterization.
112. In the Samos/Caledonian context, it is also worth specifically noting that the defendant admits that Samos and Caledonian have not executed any declaration of trust declaring that they hold the TSE shares for anyone, and also it is notable that in cross-examination the defendant made no challenge to the truth of the Samos/Caledonian hearsay evidence (referred to in the interlocutory judgment of Fung J), nor to the affidavit evidence of Mark Davies – evidence which I am also minded to accept.
113. In short, I regret to say that in my judgment Mr Hall ‑ who evidently has accumulated not inconsiderable wealth in his own right as a result of his presence in and around the fringes of the business of international gambling, and whose keen eye for the ‘main chance’ coupled with a superficially appealing personal manner clearly to-date has provided a measure of personal success – did not tell the truth to this court. I regret to say that in my view he continually ‘bobbed and weaved’, evaded and dissembled, and in terms of any internal cohesion within his version of events, unsatisfactorily at that.
114. As to the myriad of factual conflicts between his account, and the account of events as put forward by the plaintiff, on the main issues for decision I have no hesitation whatever in accepting the plaintiff’s evidence and in disbelieving Mr Hall; to take a prime example, there simply can be no doubt that Mr Hall made wholly unauthorized transfers from the BLP trust account into, inter alia, the Axdale Swiss account ‑ I reject unequivocally the idea that was floated by Mr Hall that any such transfers were effected with Mr Woods’ consent – and it is plain that the trust initially reposed by Mr Woods in Mr Hall, coupled with Mr Woods’ apparent lack of interest in mechanics (no doubt a trait of extremely wealthy men who are in the habit of delegating matters of detail to trusted aides) enabled Mr Hall effectively and, I am driven to say, ultimately dishonestly, to do as he wished when he wished with significant funds which were at his practical disposal, absent any material degree of oversight by Mr Woods, who no doubt assumed that Mr Hall would do his best to effect his wishes regarding the acquisition, and subsequent holding, of the TSE shares.
115. It is clear (and I so find) that the contemporaneous documentation amply demonstrates that, consequent upon Mr Hall’s falsified and misleading reports as to what was happening, Mr Woods was operating under the understanding that the purchases of TSE shares either were to be conducted through Momentum, for the benefit of the plaintiff, or through a similar trust structure to the Growthline/Levene Settlement (regarding the “first tranche” of TSE shares) for the benefit of the plaintiff.
116. I also do not find, as was suggested, that there was any voluntary assumption of risk by Mr Woods or the plaintiff, and that by transferring funds to the BLP client account for Momentum/Assanzon ‑ both or which Mr Woods controlled – that somehow Mr Woods/the plaintiff was aware that they would be dealing with Axdale as vendor; in fact, I am driven by the evidence to the finding that Axdale fraudulently was interposed in the sequence of events in order to hide Mr Hall’s wrongful and unauthorized activities/secret profits; in other words, as a convenient (and perhaps initially plausible) cover for Mr Hall’s illegitimate activities, and it is equally evident that Mr Hall never at any time disclosed to Mr Woods Axdale’s true role in the transactions with which this case is concerned.
117. I do not wish to be personally unfair to Mr Hall, who, as I have said, in giving evidence demonstrated a certain element of charm and, on occasion, a quite disarming acceptance of the wholly obvious and egregious nature of aspects of his conduct, but upon the evidence currently available – and I repeat that I do not consider that the full story even now has yet emerged notwithstanding the significant efforts made on behalf of the plaintiff in the preparation of this case for presentation to this court ‑ drives me to the foregoing unpalatable, but I fear, inevitable conclusions.
118. It was, no doubt, with a shrewd eye upon that which the court was likely to view the broad factual merits, and the probable findings of fact consequent thereon, which persuaded Mr Wright, who has said everything that properly could be said on behalf of his client, to rely upon what might be characterized as legal/technical defences in opposition to this claim - and it is to these arguments that I now turn.
Legal defences
119. Mr Wright’s keynote theme to this element of the defendant’s case has as its provenance the words of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, wherein his lordship observed (at 704H):
“…wise judges have often warned against the wholesale importation into commercial law of legal principles inconsistent with the certainty and speed which are essential requirements for the orderly conduct of business affairs.”
120. Warming to this theme, which he expanded in his helpful written closing addresses, Mr Wright says that in the present action, the plaintiff is asking the court to grant equitable relief in what par excellence is a ‘mere commercial dispute’, and that the plaintiff’s attempt to extend these principles to this “wholly inappropriate factual situation” is both flawed and demonstrates a “fundamental lack of understanding” of applicable equitable principles. He stresses also the use in the parties’ affairs of limited liability companies, and thus submits that the manner in which the plaintiff’s claim has been advanced ignores basic principles of company law.
121. Against this conceptual backdrop, counsel takes the following ‘technical’ points.
(i) Wrong plaintiff
122. Since the fact is that the funds in question in this case were transferred by Assanzon to the BLP trust account, it is now said that Assanzon is the correct (and only plaintiff), rather than the current plaintiff, Libertarian.
123. It is not in question – indeed, I fail to see how legitimately it can be doubted – but that Mr Woods wholly owned both companies, and that he caused Assanzon to transfer the funds in question to the BLP trust account for and on behalf of the plaintiff, Libertarian; indeed this seems to have been expressly recognized by Mr Hall, who in his witness statement acknowledges: “I understood that Assanzon was one of Alan Woods’ companies”.
124. I accept the contention by the plaintiff that the uncontroverted evidence, was both to the mass of documentary evidence and, in fact, in Mr Hall’s oral evidence, was that the funds belonged to the plaintiff, and it seems to me, with respect, that this ‘defence’ is scraping the forensic barrel. I reject it.
(ii) Wrong defendant
125. The defendant alleges that the funds were transferred to BLP for the account of Axdale, his company, and not for himself, so that the correct defendant should be Axdale, and not Mr Hall personally.
126. Mr Barlow points out that in the original version of the defendant’s witness statement dated 3 March 2009, the defendant refers to the BLP trust account as being “my client account with BLP in the name of Axdale”, which position pointedly (and unashamedly) was changed at trial at the eleventh hour, by amendment to Mr Hall’s witness statement prior to its formal adoption into evidence, to “…the account with BLP in the name of Axdale…” and consequent deletion of the word ‘my’.
127. I note also that both parties plead that the funds in the BLP trust account were under the control of the defendant through his control of Axdale, and whilst Mr Barlow accepts that the plaintiff also could have sued Axdale for torts committed by the defendant through his wholly-owned and solely-controlled company, what, Mr Barlow asks rhetorically, would be the point, since there can be no doubt whatever that by now Axdale has been stripped of its assets?
128. The plaintiff further argues that as a matter of law if a trustee or fiduciary misapplies trust funds which are under his control, then he commits a breach of trust: see, for example, Belmont Finance (No 2) and Agip Africa Ltd, infra.
129. For my part, I see no merit whatever in the obviously self-serving amendments as so belatedly made to the witness statements of Mr Hall, and in the circumstances of this case I reject as firmly as I may the notion that Mr Hall is the incorrect defendant.
(iii) The ‘Momentum Undertaking’/Terms of the TSE Articles
130. The point also is taken on behalf of the defendant that the plaintiff is debarred from receiving the TSE Trust Shares by either the terms of the ‘Momentum Undertaking’ or by the terms of TSE’s Articles.
131. It further is alleged that the performance of the Samos/Caledonian deal for the acquisition of the TSE shares was impossible or unlawful by reason of the ‘Momentum Undertaking’.
132. The relevance of this latter point is contained in the maxim “he who seeks equity must do equity”, and thus, so the defence argument goes, the ‘clean hands’ maxim should rule, and that when exercising its equitable jurisdiction the court should not enforce/recognise the transaction, thus finding that the plaintiff could not have acquired any beneficial interest in the “third tranche” of 1,777,700 TSE shares.
133. This struck me as an intriguing and ambitious argument in light of the overwhelming evidence of the defendant’s dishonest behaviour, and his clearly cavalier attitude to dealing with the responsibilities he had assumed with regard to the interests of the plaintiff/Mr Woods, and to the sums of money entrusted in good faith to his care.
134. Be that as it may. So far as the ‘Momentum Undertaking’ is concerned, neither the plaintiff nor Mr Woods was privy thereto, and I note that Mr Woods has deposed that he neither knew of or consented to the Undertaking being signed, the latter apparently having been executed by Momentum’s sole director, Sovereign Managers Ltd, through Mr Hall’s friend, one Mr Howard Bilton.
135. So I do not consider this point to have a great deal of resonance in the broad scheme of things, and I pay no further attention to it.
136. As for the ‘TSE Articles’ argument, Mr Barlow has noted that in any event it was the 2002 TSE Articles, and not those adopted in 2004, that are relevant, and indeed Mr Hall’s email Statement of Account showing, inter alia, that £5.56 million had been used to purchase the 1,777,700 TSE Trust Shares had been sent on 22 April 2004, that is, prior to the implementation of the 2004 Articles.
137. Moreover, in terms of the 2002 Articles, Mr Barlow quoted inextenso Article 36 thereof in his written closing argument, the point of which was that under UK law any attempt in TSE’s Articles to regulate or restrict “any interest in shares” [vide Art 36.1(a)] is ultra vires and unenforceable, and in any event – and in the circumstances this seems to me to be the better point – clearly there was no contract between TSE and the plaintiff and/or Mr Woods, so that it is difficult to see how or why either the Momentum Undertaking or the TSE Articles created any enforceable legal or equitable rights against the plaintiff. In this regard Mr Barlow further submits that there is no rule or maxim of equity that would prevent (or have prevented) the plaintiff from acquiring the beneficial rights to TSE shares, if the defendant indeed ever had secured them (which he previously had claimed to have done, but appeared now to deny).
138. Accordingly, I do not think this line of argument is worth powder and shot, and in my view does not amount to any defence to the plaintiff’s present claim.
Substantive defences: Legal status of the defendant
139. For the purpose of this judgment I draw a distinction between the so-called ‘technical’ points taken, and that which usefully may be termed ‘substantive’ legal argument, which in this instance has the parties locking horns as to the defendant’s legal status – the answer to which, of course, necessarily informs the appropriate remedy to which the plaintiff may be entitled.
140. The plaintiff’s case unequivocally is that the defendant, Mr Hall, was acting qua trustee for the plaintiff of the plaintiff’s funds which were deposited in the BLP Trust Account.
141. It is, I think, accepted that as a matter of law that funds held by a solicitor’s firm in a client account are held on trust on behalf of the owner of the funds, who will usually be the client, albeit in the instant case (and, it is said, and as I accept, unbeknownst to the plaintiff/Mr Woods) the account into which the monies were deposited was in the name of Axdale, Mr Hall’s company.
142. The defendant’s argument in this regard, flagged by Mr Wright in his opening skeleton argument, and thereafter further extensively developed in his closing submission, is that Mr Hall was not a trustee of the plaintiff’s funds in the solicitor’s trust account, because BLP’s designated client was Axdale, and not Mr Hall.
143. Mr Barlow’s riposte is that this is nonsense, and that this argument is unsustainable on the known facts, not least in light of Mr Hall’s deception in relation to the designation of the account into which the plaintiff’s funds were transferred (via Assanzon).
144. Mr Barlow says that it is well-established that where one party accepts and takes control and responsibility over property belonging to another, such first party acts qua trustee/fiduciary, and irrespective of whether this relationship is formalized, the resultant trustee/fiduciary will be held accountable for any breach.
145. I dare say that this is trite law, but if any authority be needed for this proposition counsel points to Belmont Finance Ltd vWilliams Furniture Ltd (No 2), [1980] 1 All ER 393 (CA) and Agip (Africa) Ltd v Jackson and ors [1990] 1 Ch. 265, per Millett J (as he then was) at 290B‑F.
146. In the alternative, Mr Barlow relies on the factual matrix as having created what is commonly referred to as a ‘Quistclose trust’, so named after Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (HL) wherein a person makes money available to another on the basis that the latter does not have free disposition over the money and is admitted to use it for a particular identified purpose: see also Lord Millett in Twinsectra v Yardley [2002] 2 AC 164, at 184; Typhoon 8 Research Ltd v Seapower Resources International Ltd & anr [2002] 2 HKLRD 660 (CA), per Le Pichon JA at 668-670.
147. In his helpful and detailed supplemental closing submissions, Mr Wright mounts a strong argument that in no sense was Mr Hall a trustee, and goes to considerable lengths to distinguish the Agip (Africa) line of case law. He also submits that Mr Hall was not a fiduciary, repeating once more his opening thesis that the courts frequently have warned against the extension of equitable principles governing fiduciaries into the domain of commercial relationships, so as not to “strain” the relevant principles and to maintain them within their proper limits.
148. Mr Wright observes that equity traditionally was prepared to supervise fiduciaries in order to prevent them from misusing their position to their own advantage, and that for a person to be a fiduciary he must have bound himself to protect/advance the interests of another, and that it is precisely this requirement that prevents most commercial relationships from giving rise to fiduciary obligations, for example, the relationship between shareholders/shareholders, and directors/shareholders. He says, further, that no fiduciary relationship arises where one party to a contract has “failed to protect himself adequately by accepting terms which are insufficient to protect his interests”, and there is thus no basis for the imposition of fiduciary obligations in order “to overcome the shortcomings in the relationship between them”.
149. Persuasive though he was in his final address, I fear that in the present case Mr Wright has been unable to convince me to ‘ringfence’ the current commercial factual matrix from the intervention of equity.
150. With respect to Mr Wright’s argument, it seems to me to be tolerably clear that when one party trusts and remits to a business associate funds for the specific purpose of buying certain shares (in this case the “third tranche” of 1,777,700 TSE shares), which funds, unknown to the remitting party, are promptly deposited in a solicitor’s trust account not in the name of the donor but in the name of the associate’s own company, and thereafter, together with other funds, wrongfully and dishonestly are abstracted into the associate’s Swiss bank account held in the name of that associate’s own company, once again entirely without notice to, and absent the consent of the remitting party, in my view it does not represent a huge juridical leap (or, for that matter, a misplaced infringement of the ‘accepted’ confines of commercial law) to find, as I do, that the actions of such associate amount to breach of trust and/or fiduciary duty.
151. In the instant case, Mr Barlow has stressed that the actions of the defendant in misappropriating the plaintiff’s funds, through unauthorized transfers patent on the face of the copy of the BLP trust account ledger – vide the pleaded particulars contained in para 37 of the Re-re-Amended Statement of Claim, which themselves are amplified in his written opening and closing submissions, and wherein finally it is said that the total of the defendant’s known misappropriations is in the amount of £8,024,590 – clearly constitute breaches of trust, not least since Mr Hall has admitted in evidence that the funds concerned were not used for any purposes of the plaintiff/Mr Woods, let alone the agreed designated purpose, which was the acquisition of TSE shares; to the contrary, I find that Mr Hall wrongfully abstracted and used these funds for his own entirely unauthorized purposes, absent the knowledge and consent of the plaintiff/Mr Woods.
152. Leading counsel also submits that Mr Hall’s alleged ‘offset’ defence (wherein he claimed to have used funds of his own to make payments to ‘Mr Schultz’ via Macau ‘junket rooms’), even if true ‑ which, he argued, quite palpably was a figment of Mr Hall’s imagination – would be unable to assist the defendant, unless such ‘payments’ had resulted in the acquisition for the plaintiff by Mr Hall of TSE shares, or a clear beneficial entitlement thereto ‑ albeit most certainly this was not the defendant’s case.
153. I agree with this submission also.
154. In my view on the accumulated evidence before the court ‑ and I so find ‑ Mr Hall misappropriated funds of the plaintiff/Mr Woods, through the five unauthorized payments in breach of trust and/or fiduciary duty, for which the plaintiff has an equitable remedy, suggested ‘juridical constraints’ upon the Commercial Court notwithstanding.
The plaintiff’s remedy(ies)
155. Mr Barlow submits that the obligation to provide an account of the trust assets is a basic and fundamental obligation of all trustees, and, in the absence of such an account being provided, in its equitable jurisdiction the court will compel a trustee to provide it, and if the process of an account uncovers (as clearly it has in this case) an absence or shortfall of trust assets, the court duly will make necessary ancillary orders, such as, for example, restitution in specie, or an order that the trustee make a monetary payment to the trust to make good the value of an omission: Snell (31st ed.), at paras 18-01 – 18.04.
156. That Mr Hall has misappropriated trust property in breach of his obligations qua trustee/fiduciary in my view is not in doubt in this case; it also is wholly clear, as I have earlier observed, that even now the court (or for that matter, the plaintiff) does not know the full story of how much money went where, when, and indeed, precisely how many TSE shares now actually remain to be reclaimed by the plaintiff.
157. I appreciate, also, that there must be demonstrated to be some causal connection between the breach of trust in question and the loss to the trust estate for which compensation is recoverable: see in this regard the seminal consideration of applicable principle by the House of Lords in Target Holdings v Redferns [1996] 1 AC 421.
158. That which has provided me cause for concern, however, is how far this court should go at this stage in terms of truncating the usual procedural form of remedy in terms of the formal ‘taking of an account’.
159. In the Re-re-Amended Statement of Claim Mr Barlow has spread his net extremely wide in terms of remedies sought: see in particular Prayers (1), (3) and (5), all of which are predicated on the basis, which I now have found to be established, of wilful default on the part of Mr Hall in relation to the monies deposited in the BLP trust account in London; in fact, the plea at prayer (5) of equitable damages or restitution of at least £21,424,503 – which, as I understand it, is based on the premise that Mr Hall is liable to compensate the plaintiff by providing restitution for Mr Hall’s inability to restore the trust by paying the value of that which the plaintiff would have received but for the defendant’s default; this sum apparently is comprised of the £9,855,942.11 which should have been generated from the sale of TSE shares to Softbank, plus the sum of £11,568,560 that should haveaccrued from the sale of the apparently remaining 1,031,066 TSE shares, even with a 15% discount to the Softbank price ‑ which latter percentage derives from Mr McClellan’s evidence wherein Mr Hall, through his solicitors, had stated that he was negotiating with the registered shareholders of the remaining TSE Trust Shares for them to purchase those shares at a discount of 10 to 15% of the price paid by Softbank Corporation, namely £11.88 or £11.22 per TSE share.
160. On behalf of the plaintiff, Mr Barlow argues strongly that, in the particular circumstances of this case, there is no necessity or good reason now to order the formal taking of an account, and that the like result may be achieved immediately on the basis of the available evidence presently before the court.
161. To the contrary, Mr Wright argued equally strongly that, as a matter of fundamental principle, if liability for breach of trust/fiduciary duty were be established against his client (which, he submitted, should not be the case), then the court simply cannot ride roughshod, at the plaintiff’s instigation, over the established principles/procedure relating to the taking of an account, as set out in some detail in the provisions of Order 43, Hong Kong Civil Procedure 2011.
162. This debate as to the form of appropriate remedy took place on the final morning of this trial, on 6 October 2011 (in fact, and somewhat oddly, the issue first was raised by Mr Wright in the middle of Mr Barlow’s final submission), and I have now had the opportunity of reading the transcript of that which passed between Bench and Bar on the subject, and the opposing contentions of counsel in this regard.
163. In the submissions the court permitted Mr Wright ultimately to make on this point, Mr Wright stressed that, as at the date of trial, liability as such had not been established against his client, and he maintained that as the result his client had been prejudiced; to take but one example, in having no particulars of the allegation that his client should have purchased X shares in TSE on Y date, and at what price. He made the point that whilst the plaintiff had identified the payments made from the BLP account, in accordance with the requirements of Order 43, rule 5 RHC, no notice had been given of the items in the account which the plaintiff sought to charge.
164. Mr Wright naturally accepted that if and in so far as his client lost on the main heads of claim, clearly the defendant would be required to provide a formal account, but that at this stage the court simply could not ‘skip’ this step and behave as if this trial, in addition to generating a finding of liability, in fact also should constitute the taking of an account ‑ which was precisely that which Mr Barlow now was urging the court to do, to the obvious prejudice of the defendant.
165. I confess that my initial reaction to this argument was less than sympathetic, but after some degree of reflection I can see the merit and fairness in Mr Wright’s submissions on this aspect of the case, and I have decided in the circumstances not to indulge, however tempting it may be in the current unfortunate circumstances, in blithely adopting a form of ‘procedural shortcutting’.
166. The short and ineluctable point is that after hearing the evidence the court has decided, as a matter of primary liability, that:
(a) a trust/fiduciary relationship has been established;
(b) that to-date the defendant manifestly has failed to provide any or any true statement of account for the trust assets, which initially took the form of the funds transferred to the BLP account;
(c) that the plaintiff’s allegations of misappropriation of such trust funds, and the diversion of those funds from their intended and designated purpose, have been made out; and
(d) that the plaintiff now must render a true and correct account, which upon the taking of such account may include an order that the trust be restored to the position that it would have been in absent the defendant’s dishonest and wilful breaches of trust.
167. However, as I have said, I do not consider it appropriate now to jump the ‘account fence’ simply because the plaintiff considers ‑ with perhaps understandable cause – it convenient so to do. I do not have any idea, for example, of whether and at what price Softbank indeed would have bought the remaining TSE Trust shares at the discount now claimed, and/or if the entire amount of the 1,777,700 shares had been offered to Softbank (which it appears in fact they were not), how many shares eventually could have been sold in light of the evidence, which is undisputed, that the Softbank purchase offer was over-subscribed.
168. I also bear in mind that Mr Barlow takes the position, understandably in these circumstances, that as the result of Mr Hall’s non-disclosure his client is in a position to ask the court to take every available adverse inference, but it strikes me that the court has more power to enforce the proper taking of an account (if necessary by an order for contempt) if it is satisfied that consequent upon this judgment ‑ which effectively is a judgment upon liability and not quantum ‑ Mr Hall still is refusing to yield up salient information as part and parcel of the due account taking process.
169. This therefore begs the question as to the correct form of Order to be made as a consequence of this judgment, and the findings therein.
170. In this connection I have not overlooked the fact that, on thedefendant’s own case, the sum of £5,474,247.35 represents funds which were and are available to return to the plaintiff, and which have not been so returned, and that a total of 1,355,300 TSE shares still remain (vide paragraph 51 above), albeit I am bound to observe that I presently have no idea of the veracity/accuracy of this latter number.
171. In the circumstances therefore, I have decided that the appropriate course, indeed the best that this court is able properly to do in the current unsatisfactory circumstances, is to make the Order in the terms particularized below.
Order
172. Accordingly, consequent upon this judgment, the order of this court is as follows:
(i) That within 21 days of the date hereof the defendant do pay to the plaintiff the sum of £5,474,247.35, together with interest thereon compounded with quarterly rests at the rate of 2% over sterling prime rate prevailing from the date of the writ to the date of judgment herein;
(ii) That pursuant to the provisions of Order 43, RHC, the defendant do render to the plaintiff a true and proper account upon a wilful default basis for the trust property, and in particular for the plaintiff’s funds as transferred on the instructions of the defendant from the BLP trust account and/or the beneficial entitlements to the 1,777,700 TSE Trust Shares (or such TSE shares as may remain) as purchased with the plaintiff’s funds and/or all property now representing the trust property, including any dividends which have accrued on the TSE Trust Shares and/or other profits which have accrued upon the trust property;
(iii) That if and in so far as monies be found to be due to the plaintiff from the defendant consequent upon the taking of such account, that credit be given for the repayment (if such payment has been effected) of the aforesaid sum of £5,474,247.35, together with interest accruing thereon;
(iv) That absent agreement thereon, appropriate directions be made by a Master for the taking of such an account, and that application therefor be made within 28 days of the date of judgment herein;
(v) That there be an order nisi that the costs of these proceedings be to the plaintiff to be taxed and paid by the defendant upon a common fund basis, such order to become absolute unless written objection thereto is made within 14 days of the date of judgment herein.
| (William Stone)
Judge of the Court of First Instance
High Court |
Mr Barrie Barlow SC and Mr Chan Pat Lun, instructed by Messrs Haldanes, for the plaintiff
Mr Colin Wright, instructed by Messrs Kennedys, for the defendant
Application by the defendant for a stay of excution pending appeal dismissed by Court of First Instance. Please refer to HCA2533/2006 dated 29 March 2011