“Unless by 4pm on Tuesday22nd April 2008 the First Defendant [Mr Kirby] serves upon DLA Piper UK Ltd (“DLA”), solicitors for the Claimant, the following information documents and affidavits: (a) . . . ; (b) The information required to be provided by paragraph 14 of the Order of Mr Justice Evans-Lombe dated8 April 2008 (“Freezing Order”); (c) The affidavits and exhibits required to be provided by paragraphs 12 and 16 of the Freezing Order; and (d) Copies of the Documents as defined in paragraph 17 of the Freezing Order; the First Defendant shall be debarred from defending these proceedings.” the First Defendant shall be debarred from defending these proceedings.”
“38 . . . first, no document relevant to the case has been provided by Mr Kirby. Secondly, none of the information about the present whereabouts of the payments that have been made to Mr Kirby has been provided. Thirdly, the confirmatory affidavits relating to Mr Kirby’s worldwide assets and as to the present whereabouts of the funds are still outstanding. Fourthly, the information that was provided in relation to Mr Kirby’s assets was inadequate”
“40. In my judgment [the administrators’] complaints about the failure to provide detailed information as to the present whereabouts of the funds and the complaints about the failure to provide a confirmatory affidavit in relation to Mr Kirby’s assets and the complaint about the failure to provide all of the documents relevant to the case are all made out. . . .”
“Unless by midday on 8th July the First Defendant [Mr Kirby] does provide to the Claimant’s solicitors, DLA Piper (a) copies of all documents within his possession custody or control which he would be obliged to disclose on the giving of standard disclosure in this action, (b) any and all details in respect of payments out of HSBC and National Westminster bank accounts of the First and Fifth Defendants that are reasonably requested by the Claimants (such request to be provided to the First Defendant by 4pm on Thursday3rd July 2008 ), and (c) the cash books and narrative accounts of the Fifth Defendant, then the First defendant shall be debarred from defending these proceedings. The First Defendant shall have permission to apply to the Court in the case of doubt as to the validity of any request made by the Claimant under paragraph (b) above.”
“10. FAI is now in liquidation and I have been appointed as one of its liquidators. A sum of approximately£11.8m was paid from FAI to STS from May 2005 to March 2007. Although the information held by FAI is not complete, from the records available to me as liquidator of FAI it appears that 12,704 loans were introduced by STS to FAI in the period from April 2005 through to February 2007. This equates to an average of£932.71 per loan (which is not dissimilar to the payments made in the Tarn scheme) although I understand that individual loan amounts did vary. . . .” . . . “13 The STS Spreadsheet [a spreadsheet attached to the witness statement showing monies received by STS from FAI on a monthly basis] shows that in September 2006 (when the purported agreement between Tarn and STS was entered into) STS would have anticipated having had at least 1,170 completions (as this number would have been 12 months old, and repayment had to take place within one year under the loan terms). In fact, one would assume that a great deal more than this would have been completed had the scheme operated properly, as the loans would be repaid before the one year deadline. At September 2006, the number of introduced loans stood at 10,769. The information available to me as liquidator of FAI does not enable me to calculate when STS introduced loans were redeemed, however, as stated in my first affidavit of7 April 2008 , only 617 have completed to date. A further 10 have since completed. As the one year time limit has now passed, it is unlikely that any further significant redemptions of these loans will take place. Given the low level of STS completions, Messrs Kirby, Bennett and Hirst must have known that the right to buy scheme operated by STS and then by Tarn simply did not work.”
“[12] . . . The case therefore proceeds as is pleaded in paragraph 10.2 of the Particulars of Claim, on the footing that before the agreement was entered into the scheme was ‘in materially the same terms’ as that entered into in the written agreement.”
“3.9.Upon the occurrence of an Uninsured Unsuccessful Completion: 3.9.1 . . . 3.9.2 Tarn shall repay: (i) to the extent already disbursed the Initial Tarn Fee and the Solicitor’s Disbursements; and (ii) to the extent not refunded by the Insurer or CA2, the Customer Policy Premium.”
“9 Given the nature of the unwind liabilities, Tarn was in fact insolvent from the moment it paid away any funds received by it as fees. An analysis prepared by my staff of the liabilities of Tarn from September 2006 to November 2007 is attached at page 101 of “SJG1”
“10. Tarn commenced trading in September 2006. The evidence before me discloses that HCA’s provision of funds was somewhat sporadic and there were problems in the early days but between September 2006 and October 2007 it is said by the administrators, though contradicted by Mr Kirby, that some 6,604 loans were introduced to HCA by Tarn in respect of which Tarn was paid commissions totalling some£5.8 million . However the administrators say that only 48 loans have proceeded to completion (though the reasons for this were not explained or established before me) so there is a very substantial number, which the administrators put at slightly over 4,000, of ‘unwinds’.”
“11.2 The parties acknowledge that in effect the financial income/rewards being generated by Tarn are for the benefit of STS and the directors of STS and that the parties will do and sign all things necessary to effect the spirit and meaning of this agreement.”
“4. Tarn will manage the day to day administration for any RTB schemes for which STS have either introduced funding and or insurance facilities. Tarn agrees to pay to STS a fee for each and every case funded by a funding line introduced by STS and or its directors. Tarn will pay to STS and or its directors 75% of the gross front end fee it obtains for each case funded by an STS introduced funder. Back End fees will be split on an equal basis 50-50.”
“6 Tarn Obligations 1. Tarn irrevocably agrees to pay to STS each week or as directed but no more than once a week 75% of the front end fees it receives from all funders introduced to Tarn by STS, further STS or its directors may at its sole discretion direct Tarn to make directly to one or more directors or to a third party, such payments to be set against the monies due or owed under the terms of this agreement to STS. Payment instructions may be made by fax, email, telephone or by a director of STS directly to the bank subject to the signing conditions of the Tarn accounts for which the money is being paid for amounts due or accruing that are owed by Tarn to STS under the terms of this agreement. 2. Tarn irrevocably agrees that 100% of all monies paid in relation to insurance commissions paid either directly to Tarn, STS or CA2 on cases insured and or funded on the Tarn RTB scheme by a funder introduced by STS or its directors are for the sole benefit of STS and will be paid to STS directly in full or as instructed by STS or a director of STS. 3. Tarn irrevocably agrees to set up all its bank accounts in a way that requires a director of STS to co sign all cheques and transfers of money from the accounts to ensure that STS monies due are protected. Further Tarn agrees to give reasonable access to all its financial records to enable STS to confirm payments are being made to STS and to check the balances of monies owing by Tarn to STS. STS is in effect paid weekly in arrears by Tarn or as directed by STS or a director but in any case no more frequently than once a week. Tarn will set off each week monies owed to STS by Tarn against any financial liabilities owed by STS to Tarn and agree this will be done each Friday or after each payment of the Tarn front end fees by funders introduced by STS and or its directors. 4. Tarn irrevocably agrees to the full liability to fund any and all litigation/legal costs incurred by STS in relation to enforcing the terms of this agreement regardless of the success or failure of such legal action. 5. Tarn shall provide weekly a list of all cases funded and or insured on the Tarn RTB scheme funded by funders introduced by STS and or its directors and a payment schedule detailing the front end fees paid to Tarn.”
“8 Obligation of STS To introduce to Tarn potential new funding line and insurance providers, to assist with the management of the business relationships between Tarn, the Agents, funders and insurers as required or asked by Tarn. To support Tarn in relation to the day to day management of the scheme and to provide access to the directors of STS as required by Tarn. To assist in the development of the scheme.”
“I therefore agree [with counsel] that without further order Mr Kirby is debarred from defending the case”
“for, if he is not, the Administrator Claimants are entitled to such judgment as may appear right on the face of their pleaded case without any question of considering the underlying evidence”
“[43] Balanced with the importance of strict compliance with court orders, particularly unless orders, there is also the attainment of the overriding objective, to deal with cases justly. There is no doubt that Mr Kirby is in breach of the ‘unless order’. The jurisdiction underCPR 3.9 is there precisely to relieve him from that sanction if the justice of the case – that is, the justice not only to him but also to the beneficiary of the unless order – so requires. Whilst I do not underestimate the significance of a failure to comply with an unless order, it does not relieve me of the obligation of considering all of the other heads underCPR 3.9 . The weight to be accorded to the various factors will differ from case to case.” (2) Whether the application was made promptly. The judge took the view that the application was made in Mr Kirby’s affidavit of22 April 2008 ; rather than on28 April 2008 (the date of the application notice).22 April 2008 was as he said, the last day for compliance with the “unless order”
“[47] . . . [The administrators] have in place a ‘freezing order’ which protects all of the assets which Mr Kirby now owns worldwide from disposal. Mr Kirby has by letter identified those assets and valued most of them. He has not by affidavit verified the entirety of the information he has provided. What the administrators are now seeking to do is to identify those assets into which they can make a specific tracing claim, but it cannot be said that delay in their ability to formulate a detailed tracing claim . . . prejudices their ability to recover the assets once identified. That is because they have in place the general freezing order covering both assets to which they have a proprietary claim and those against which they would enforce a personal judgment. . . .”
“[56] . . . To enforce the ‘unless order’ according to its terms and not to allow relief from sanction would deprive [Mr Kirby] of the opportunity of putting forward that defence in circumstances where challenges are made to his integrity, which he is otherwise unable to address by cross-examining those who make the charges against him. In my judgment, the seriousness of the charges which are made against Mr Kirby is a decisive factor which brings down the balance firmly in favour of granting relief from sanctions.”
“[49] Doing my best to gather together the various points which Mr Kirby advanced in his defence, his defence seems to lie along these lines. First, he disputes the figures on which the administrators are operating. He says the administrators are assuming that HCA provided Tarn with 6,604 cases but it is demonstrable from the documents that they provided only 5,903. He says that the administrators are proceeding on the footing that Tarn received something of the order of£900 as up front commission, but it did no such thing. It received only about£429 by way of up front commission, the remainder being payable to sub-agents. Moreover, part of the£429 which Tarn itself received came not from HCA but from a borrower under arrangements made at the time when the borrower applied to HCA for the loan and consented to payment out of the loan advance of a commission to Tarn. Lastly, he says that on the figures used the administrators appear to have taken no account of a deduction from the front end commission payable to Tarn of approximately£275 in each case which has been placed to the credit of a reserve account. He therefore says that he has a defence to the claim against him for some£3 million which he says proceeds on the wrong basis.” . . . “[51] Secondly, Mr Kirby says that there is indeed no formal minute of Tarn’s board which approves the STS agreement but that is because STS and Tarn operated on an entirely informal basis. He says that the shareholder of Tarn, his wife Atiyah Mirza, knew exactly what was going on and that there was disclosure to her or to the true owners sufficient to satisfy the requirement for disclosure to a general meeting of shareholders. He says he is entitled to invoke – a matter on which he has been advised when solicitors were retained by him – the ‘Duomatic principle’[1969] 2 Ch 365 , namely that since all persons beneficially interested in the company have assented to the procedure adopted, the lack of formality is not an objection.”
“[50] It is difficult to make an estimate of the worth of this defence since it was not addressed in any evidence on the part of the administrators to which my attention was drawn. It seems to me that the administrators have proceeded not by reference to some notional calculations but by reference to actual payments made by HCA to Tarn. But I am not sufficiently confident that upon proper scrutiny this is the actual basis on which the administrators have proceeded to say that Mr Kirby’s criticisms are entirely fanciful. In particular, the fact that as a matter of mechanics Tarn made the payment does not address the question ‘whose money (HCA’s or the borrower’s) was being paid?’”
“The ‘Duomatic principle’ does not apply where the company is insolvent or rendered insolvent by the impugned transaction”
“[53] In response to that, Mr Kirby says that he does not accept the assertion of the administrators contained in the Particulars of Claim that Tarn was, at all material times, insolvent. He says that his understanding is that insolvency requires an inability to pay debts as and when they fall due for payment and that, on that basis Tarn was not insolvent when the agreement with STS was entered. He says Tarn was not rendered insolvent by the transaction because, at the time when the STS agreement was entered into, the actual agreement between Tarn and HCA had not yet been embodied in the March 2007 agreement. On the then state of the negotiation, nobody at that time thought about the unwinds (a position which I note is contrary to that taken by Mr Hirst and Mr Bennett but on which Mr Kirby would be entitled to cross-examine these). In any event, STS was intended to receive only 75 percent, not 100 per cent, of the payments made to Tarn and essentially it was a question of risk management, i.e. that the volume of ‘unwinds’ would be so large that Tarn might have to repay some of its receipts. STS received the money from Tarn at a time when the directors and participators in STS had no idea that the scheme was going to be the failure which it has turned out to be, and did not know that HCA would not have sufficient funds available to make the scheme work and create a backlog of borrowers. Further, Mr Kirby and the STS/Tarn [directors] thought at the time that there was in place an insurance policy with Lamp Insurance of Gibraltar, securing the repayment of 40 per cent of any failed cases and he complained that subsequent to the [entry] of the STS agreement HCA had altered the terms of cover. Taken together, he said there were sufficient indications to him for him not to believe that the transaction he was entering was going to render Tarn insolvent.” . . . “[55] Equally he says that for the same reasons there is no question of him entering the STS agreement in bad faith. He says that, contrary to what the administrators say, STS did indeed put together all of the input which enabled Tarn to be created and to establish a business. He specifically denies the allegation contained in paragraph 35.2 of the Particulars of Claim that Tarn had already identified HCA as its funder and procured its insurance provider from sources other than STS prior to the execution of the agreement. . . .”
“[54] In my judgment, it is not possible on the present state of the evidence to say that these matters simply have no prospect of success and are entirely fanciful creations of Mr Kirby, and that as the evidence now available or which might be available as a de facto director [or] a shadow director is liable for breach of fiduciary duty to Tarn in entering into the STS agreement.”
“[55] . . . Once again, it seems to me impossible to say on the present state of the evidence that that assertion has no real prospect of success; that if the action follows its normal course (with disclosure on either side and exchange of witness statements), no fact will emerge which will cast any real doubt on the full present pleaded case of the administrators; and that Tarn was at all times insolvent and that the STS agreement can only have been entered into in bad faith”
“[71] These are huge sums to seek against a modestly remunerated employee. In my view there is a compelling case for requiring proper proof of the charge against Mr Holden and for affording him a proper opportunity (such as does not exist at this stage, when he is acting in person and is having to deal with the effect of a succession of interlocutory applications) to place before the court such defence as he has and such case as he has that he ought fairly to be relieved from the whole or some of his apparent liabilities to Tarn. He has been faced in quick succession with the Particulars of Claim, the summary judgment application to preclude him advancing a defence, and a debarring order precluding him from opposing the summary judgment application. It would in my judgment be wholly unjust to give judgment against Mr Holden but not against any of the other Defendants.”
“[59] . . . As I have said, Legal-4-Life Ltd was a sub-agent of Tarn under the scheme. It is Mr Kirby’s case that he entered into an arrangement with Legal-4-Life for the payment to him of a consultancy fee in the sum of£50 for each case which HCA funded on the application of Legal-4-Life. He says that pursuant to that arrangement he received£185,850 which was his contractual entitlement. The administrators say that that sum was a bribe paid by Mr Rodriguez to Mr Kirby in order to obtain an advantage.”
“. . . For the purposes of the civil law a bribe means the payment of a secret commission, which only means (i) that the person making the payment makes it to the agent of the other person with whom he is dealing; (ii) that he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the other person with whom he is dealing that he has made the payment to the person whom he knows to be the other person’s agent.”
“[204] The essential vice inherent in bribery is that it deprives the principal, without his knowledge or informed consent, of the disinterested advice which he is entitled to expect from his agent, free from the potentially corrupting influence of an interest of his own: see Logicrose Ltd v Southend United Football Club[1988] 1 WLR 1256 at 1260-1261 per Millett J . . . [205] The liability of the payer to have the ensuing contract rescinded is based upon him having been an accessory to the agent’s breach of fiduciary duty to his principal: see Hurstanger v Wilson[2007] 4 All ER 1118 , at [35],[2007] 1 WLR 2351 . But the payer will not merely by paying his counterparty’s agent incur liability as an accessory, unless the payer actually knows or is wilfully blind to the question whether the agent has concealed the payment from his principal: see again per Millett J in Logicrose Ltd v Southend United Football Club[1988] 1 WLR 1256 at 1261-1262 . . .”
“[63] . . . It must therefore be shown that Mr Kirby concealed the£50 consultancy fee from Tarn and that Legal-4-Life actually knew that to be so, or was wilfully blind to this issue.”
“[66] First, whether disclosure was made and whether sufficient informed consent was obtained seems to me a pure question of fact and inappropriate to be decided on contested evidence on a summary judgment application. It is Mr Kirby’s position and that of Mr Rodriguez that everybody knew of the arrangement: that Mr Hirst’s and Mr Bennett’s professed ignorance on which the administrators rely is suspect (not least because there are in existence meeting notes concerning a tax planning conference which plainly shows that Mr Hirst and Mr Bennett were aware of the payments being made to Mr Kirby in respect of dealings with Legal-4-Life). It is also the case that Mr Holden, the operations manager and a director of Tarn, was aware of the arrangement. Indeed, the actual bribe so called itself was not paid by Legal-4-Life to Mr Kirby but by Tarn to Mr Kirby and appears in its books. [67] Second, it is also the case that the administrators arguably have misunderstood the nature of the arrangements which existed in relation to approval of HCA funded loans. The administrators appear to have presented the case on the footing that it lay within the power of Tarn to accept or reject applications made by borrowers through sub-agents to HCA for finance so that this was something which Mr Kirby could be bribed to influence. But there is sufficient material to demonstrate that this view is mistaken. HCA only approved lending when it had received what was in effect a clear certificate from its nominated accountants, who considered each transaction independently on HCA’s behalf. [68] Third, so far as Mr Rodriguez is concerned, I accept as entirely genuine his evident outrage that he should be accused of bribery and fraud when, so far as he is concerned, he entered into what he thought was an ordinary, open commercial arrangement for the benefit of Legal-4-Life and not to the disadvantage of Tarn or STS. . . .”
“In these circumstances, summary judgment against Mr Kirby on the bribe claim or against Mr Rodriguez is not warranted”
“[69] If Mr Kirby and Mr Rodriguez are to be permitted to defend, it would seem to me to follow as a matter of course that the companies in which they were respectively involved, STS and Outtake, should also be given permission to defend.”
“23 Should STS be successful in its defence, the STS Agreement will be rectified and an unwind term will be incorporated into the STS Agreement. As stated above there have been 6,555 Loans which have not been repaid within the necessary timescale (unwinds) and therefore STS would have a liability to pay£2,586,940 to the Company.”
“24 If the Claim and Defence were to proceed to trial, the Company would obtain judgment for a substantial sum of money (other than costs) against STS, as either: 24.1 It succeeds on its Claim to avoid the STS Agreement, and STS is obliged to repay£1,566,440 paid to it; or 24.2 STS succeeds on its Defence, an unwind term is included in the STS Agreement and STS is liable to pay to the Company the sum of£2,586,940 .” 25 The sum of money sought by way of interim payment is the lower of the Claimant’s claim in these proceedings and STS’s liability to the Company should its rectification argument succeed.” 24.1 It succeeds on its Claim to avoid the STS Agreement, and STS is obliged to repay£1,566,440 paid to it; or 24.2 STS succeeds on its Defence, an unwind term is included in the STS Agreement and STS is liable to pay to the Company the sum of£2,586,940 .”
“. . . the need for the application arises principally because, well I think, being frank, it is acceded to by Mr. Kirby that there are some instances of non-compliance.” (3) Following the hearing on16 April 2008 Mr. Kirby could have been in no doubt that Mr Justice Evans-Lombe had taken the view that he was in serious and substantial breach of the disclosure provisions contained in the order of8 April 2008 ; and had failed to comply with the undertakings given to His Honour Judge Pelling QC in February 2008 (transcript, pages 39- 50). Mr Kirby acknowledged this in his affidavit of22 April 2008 . He deposed (at paragraph 18) that: “I understand the judge was particularly concerned at the hearing on16 April 2008 to ensure that the disclosure of documents, particularly the schedule F requirements, was dealt with” (4) In his affidavit of22 April 2008 , sworn in support of his application for relief from sanctions, Mr. Kirby addressed (at paragraph 28(f)) the question whether failure to comply with the orders of 8 April and 16 April had been caused by his legal advisers. He deposed: “. . . I have endeavoured to comply at all times with my obligations. I am not the type of person that normally retains copies of paperwork and have not therefore kept, in my own possession, copies of documents that might have been relevant to have been disclosed. I have therefore been obliged to request copies of documents from third parties and have been in their hands to a large extent in producing information. My legal representatives are also constrained by the funding which I can provide to them in respect of the Section 236 proceedings and these proceedings, and my solicitors are simply unable to put a team of lawyers on this in the same way that the claimants can.”
“It is difficult to make an estimate of the worth of this defence since it was not addressed in any evidence on the part of the administrators to which my attention was drawn”
“In particular, the fact that as a matter of mechanics Tarn made the payment does not address the question ‘whose money (HCA’s or the borrower’s) was being paid?’”