The National Crime Agency v Namli & Anor [2014] EWCA Civ 411

[2014] EWCA Civ 411Case No A2/2013/1459/1465
IN THE COURT OF APPEAL (CIVIL DIVISION)
2013] EWHC 1200 (QB)
ON APPEAL FROM THE HIGH COURT
MR JUSTICE MALES
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Friday 4 th April 2014
Before
LORD JUSTICE MAURICE KAYVice President of the Court of Appeal, Civil DivisionLORD JUSTICE TOMLINSONLORD JUSTICE CHRISTOPHER CLARKE
Between
The National Crime Agency (Previously known as Serious Organised Crime Agency)Claimant/Appellant(1) Hakki Yaman Namli (a.k.a. Ferdal Cakmak, Sarif Sarikaya and Dr Yaman)Defendants/Respondents(2) Topinvest Holding International Limited (a company incorporated in the BVI)Respondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Michael Beloff QC, Tom Richards and Alexander Cook (instructed by the National Crime Agency, Civil Recovery & Tax Legal Department) for AppellantAndrew Mitchell QC and Kennedy Talbot (instructed by Mackrell Turner Garrett) for RespondentsHearing Hearing date: 19 th February 2014Judgment
[1]Hakki Yaman Namli (“Mr Namli”), who is ordinarily resident in Turkey, owns and controls First Merchant Bank OSH Ltd (“FMB”), a company incorporated in the part of Cyprus known as the Turkish Republic of Northern Cyprus. He also owns and controls Topinvest Holding International Ltd (“Topinvest”), a company incorporated in the British Virgin Islands. Between 12 March 1999 and 4 February 2005 sums were credited to Topinvest’s account with Coutts & Co such that at the date of trial the amount in the account was about US $ 7 million. The Serious Organised Crime Agency (“SOCA”), now named the National Crime Agency (“NCA”), sought a recovery order in respect of the monies in that account on the grounds that they were the proceeds of crime.[2]Males J held that most of them were and made a recovery order accordingly. Mr Namli appealed from that decision with the permission of the judge, but that appeal has been stayed because he has failed to put up the security required of him. The appeal before us is the appeal of the NCA in relation to that part of the funds in the account in respect of which the judge did not make a recovery order.[3]Males J found that Mr Namli was a serial liar and an international fraudster and that monies that went into the Topinvest account (and the profits accruing thereto) were the proceeds of his criminal conduct. The following credits were made to the Topinvest account: Number Date of receipt Details 1 12.3.99 $ 1 million paid from FMB’s account at ABN- AMRO, New York 2 14.12.01 $ 1 million received from Deutsche Bank, Frankfurt by order of Libra Bank Bucharest (another bank owned and controlled by Mr Namli) 3 6.3.02 $ 1.2 million received from an account at Libra Bank in the name of United Systems Ltd, a BVI company owned and controlled by Mr Namli 4 16.9.02 $ 550,000 received from an unspecified account at Libra Bank 5 13.4.04 $ 697,500 received from an investment account of Mr Namli at Deutsche Bank, Geneva 6 4.2.05 $ 1.41 million received from an investment account at a Luxembourg bank held in the name of Stuart & Associates Corporation, another entity owned and controlled by Mr Namli

The judge considered six sets of fraudulent activity, which were labelled as follows:

[4](i) the German fraud;(ii) the English frauds;(iii) the Lepkanich fraud;(iv) the Turkish loan backs;(v) the Bankhouse fraud; and(vi) the Laconia fraud. The German fraud[5]On 15 October 1991 a civil judgment was obtained against Mr Namli in absentia in a court in Cologne in favour of the Central Bank of Turkey (“the Central Bank”) for 411,500 DM. The basis of the judgment was apparently that in 1987, when he was aged 21, Mr Namli had withdrawn monies totalling that sum from 10 different branches of Dresdner Bank on the strength of false letters of credit purportedly issued by the Central Bank. That judgment was registered in Turkey and was satisfied by Mr Namli. The judge did not accept that the evidence before him established that Mr Namli had committed the fraudulent conduct alleged against him. But he regarded Mr Namli’s account of how he came to seek to withdraw money from the bank as implausible and as providing: “some evidence of his willingness to engage in questionable transactions since he was, at the least, seeking to withdraw money from an account which he knew was being dishonestly used for a purpose for which it was not intended". The English frauds[6]Between 1996 and 1998, as the judge found, Mr Namli was involved in frauds whereby FMB issued, for large fees (over $ 3 million in all), credit reference letters to customers of English solicitors representing falsely, as Mr Namli knew, that they had funds available with FMB and specifying a condition for the transfer of the funds (namely the provision within 15 days of a guarantee acceptable to FMB from a major international bank) which FMB knew that it would be impossible for the customers to fulfil. These instruments, which were in fact of no commercial value, would supposedly enable the customers to participate in a highly remunerative, secret and exclusive investment programme for which potential investors were required to demonstrate access to a significant level of funds: in effect an “advance fee” fraud. When the fee had been paid the credit was not made available and the investor would find that he had no access to the supposed programme. The Lepkanich fraud[7]In 1997 FMB issued to Mr Gerry Lepkanich what purported to be a standby letter of credit for $ 85.75 million. The judge concluded that Mr Namli knew that the purported letter of credit (which was in such terms as to be completely unworkable) had no legitimate purpose or value and that he dishonestly defrauded Mr Lepkanich in order to obtain a fee of $ 1 million. The Turkish loan backs[8]In 1996 and 1997 two BVI companies owned and controlled by Mr Namli Citi- Finance Ltd and United Systems Ltd - lent money to Mr Namli and other members of his family in Turkey, the loans being guaranteed by FMB. The funds loaned were paid into bank accounts of members of the Namli family at a bank in Turkey. The judge found that these funds were, in their entirety, a form of money laundering of the proceeds of FMB’s illegitimate business, by which monies which FMB had illicitly obtained appeared to come from a legitimate source. It was common ground that Credits 2 to 4 came, by a very roundabout route, from this source. The BankHouse fraud[9]In May 1998 three would-be investors were persuaded to transfer $ 24 million to an account at the Brussels branch of ABN Amro held by a Delaware corporation called Corporation of the BankHouse Inc. (“CoB”), over which the three investors had signatory control, on the understanding that they were to participate in a $ 100 million Federal Reserve Guaranteed Program which would generate extremely high returns. This programme did not in fact exist. By a series of transfers CoB managed to obtain control of these funds and to transfer the monies to an account at the Bank of New York in the name of Swan Trust of which a Mr Pearlberg was the sole signatory. $ 16.7 million was then transferred from that account to FMB’s correspondent bank account at ABN Amro on 5 February 1999. FMB purported to issue a credit facility agreement for $ 100 million for which a non-returnable fee of $ 5 million was to be paid on issue of the facility, although the credit was only to be available if acceptable collateral was provided. The judge found that the function of the facility was to add colour to the claim that such funds were available for investment and that Mr Namli was well aware of its fraudulent character.[10]Credit 1 for $ 1 million was a transfer from the FMB account referred to in the previous paragraph to Topinvest. The judge found that it was more likely than not that all of the funds in the FMB account from which credit 1 was paid were the result of unlawful activity on the part of FMB. The Laconia fraud[11]Between May 2001 and April 2002 there was a purported sale to a “Michael Shannon” of an FMB banking document which misrepresented the financial position of a company called Laconia Capital by showing that it had assets of $ 20 million available when in truth there would be a side agreement to the effect that FMB need not provide the $ 20 million unless Laconia provided collateral which would never happen. This was to be done for a fee for FMB of $ 2 million. In fact Michael Shannon was an FBI Special Agent. The judge found that Mr Namli was well aware of the fraudulent nature of the proposal. In the event Mr Namli and a Mr Jarson were charged with conspiracy to commit wire fraud and wire fraud. Mr Jarson was convicted on six counts, including on one count of conspiracy with Mr Namli. Mr Namli was recorded as a fugitive and not tried on the indictment.[12]In addition to credits 1-4 the judge found that credits 5 and 6 were also the product of fraudulent and unlawful activity on the part of FMB in the form of unlawful conduct, being in the case of Credit 6 money laundering [194-6]. The law[13]Section 304 (1) of the Proceeds of Crime Act 2002 (“POCA”) provides that “recoverable property” is “property obtained through unlawful conduct". Section 242 defines property obtained through unlawful conduct as follows:
“(1) A person obtains property through unlawful conduct (whether his own conduct or another's) if he obtains property by or in return for the conduct. (2) In deciding whether any property was obtained through unlawful conduct— (a) it is immaterial whether or not any money, goods or services were provided in order to put the person in question in a position to carry out the conduct, (b) it is not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct.” (a) it is immaterial whether or not any money, goods or services were provided in order to put the person in question in a position to carry out the conduct, (b) it is not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct.”
[14]Section 241 defines unlawful conduct in the following terms:
“241. 'Unlawful conduct' (1) Conduct occurring in any part of the United Kingdom is unlawful conduct if it is unlawful under the criminal law of that part. (2) Conduct which— (a) occurs in a country or territory outside the United Kingdom and is unlawful under the criminal law applying in that country or territory, and (b) if it occurred in a part of the United Kingdom, would be unlawful under the criminal law of that part, is also unlawful conduct. (3) The court... must decide on a balance of probabilities whether it is proved— (a) that any matters alleged to constitute unlawful conduct have occurred...” (a) occurs in a country or territory outside the United Kingdom and is unlawful under the criminal law applying in that country or territory, and (b) if it occurred in a part of the United Kingdom, would be unlawful under the criminal law of that part, is also unlawful conduct. (a) that any matters alleged to constitute unlawful conduct have occurred...”
[15]Sections 306 and 307 contain provisions relating to mixing and profits. “306 Mixing property(1) Subsection (2) applies if a person's recoverable property is mixed with other property (whether his property or another's).(2) The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.(3) Recoverable property is mixed with other property if (for example) it is used— to increase funds held in a bank account... 307 Recoverable property: accruing profits (1) This section applies where a person who has recoverable property obtains further property consisting of profits accruing in respect of the recoverable property. (2) The further property is to be treated as representing the property obtained through unlawful conduct.”[16]On the judge’s findings Topinvest had obtained the monies represented by credits 1 - 6 by or in return for unlawful conduct and it was thus recoverable property in relation to which he made a recovery order.[17]The question at issue in this appeal is whether certain monies loaned by Coutts to Topinvest, and the profits made therefrom, were also recoverable property. The factual position as found by the judge was as follows: “201 ...... On or about 27 May 1999, on Mr Namli's instructions, Coutts invested the US $1 million which constituted Credit 1 in a US equity programme and in a portfolio of US dollar denominated Turkish bonds. Given my finding that Credit 1 constituted recoverable property, there can be no doubt that any profits earned on that investment also constitute recoverable property. 202 In or about June 2004 Coutts and Mr Namli agreed that an investment of US $4.5 million would be made into funds operated by Coutts and known as Coutts' "Orbita Strategies". US$1.8 million of this (i.e. 40%) was to be funded from the Topinvest account. US $2.7 million (i.e. 60%) was to be loaned by Coutts to Mr Namli. This investment proceeded, and by 24 April 2006 the value of this US dollar fund had grown to US $5,605,750, a profit of $1,105,750. On that date, the fund was redeemed and the proceeds were credited to the Topinvest account after repayment of Coutts' loan together with accrued interest in the sum of US $2,965,512.23. The balance on the account at that time was US $5,605,512.23. 203 In addition, in September 2005 Topinvest borrowed a further €2 million to be invested in a Euro Orbita investment. This too was profitable. The fund was redeemed in two tranches in April and May 2006. After repayment of the loan plus interest the balance of funds amounted to €149,999. This was transferred to a Euro accounts at Coutts. 204 Since 2006 the balances on these dollar and euro accounts have earned interest. 205 On the basis of my findings, there is no doubt that 40% of the profit on the US dollar Orbita investments comprise recoverable property pursuant to section 307 of POCA. The issue is as to the remaining 60%, which represents the profit earned by the funds which were loaned, together with the profit of €149,999 on the Euro Orbita investment".[18]The judge accepted that the decision of this Court in Olupitan v Director of the Assets Recovery Agency [2008] EWCA Civ 104 bound him to hold that a loan obtained as a result of a fraud on the lender did comprise recoverable property but that if there was no such fraud a property purchased in part with tainted funds and in part with a loan comprised mixed property, even if without the tainted funds the property could not have been purchased.[19]As to whether the loans had been so obtained he said this: “212 I can see the possibility that Coutts may have agreed to provide the loans as a result of a representation, express or implied, by Mr Namli to the effect that the credits to the Topinvest account represented money to which he was lawfully entitled. However, SOCA did not put its case in this way or call evidence from Coutts to explain what motivated the making of the loans. Indeed, such a case was not even pleaded, the nearest that SOCA's pleading claim to such an allegation of fraud being that: "Coutts' lending decision was accordingly based (unwittingly so far as Coutts was concerned) upon the fact that the defendants had acquired substantial property through unlawful conduct, and without that unlawfully obtained property Coutts would not have advanced the loan to the defendants." 213 Moreover, while I would assume that Coutts would not have advanced the loans if it had known for sure that the money in the Topinvest account was the product of unlawful conduct, it is not at all clear what Coutts' actual state of mind was at the time when the loans were made or whether those at Coutts who made the decision to lend applied their minds to this question. There was from time to time a degree of suspicion on the part of at least some at Coutts as to the source of Mr Namli's wealth and a consciousness that he still had questions to answer, but although Mr Namli was cross-examined on the basis that he had told lies to Coutts, it does not necessarily follow that Coutts was in fact deceived. 214 In the circumstances, I consider that it would not be right to find that the loans were made as a result of a fraud on Coutts... ” "Coutts' lending decision was accordingly based (unwittingly so far as Coutts was concerned) upon the fact that the defendants had acquired substantial property through unlawful conduct, and without that unlawfully obtained property Coutts would not have advanced the loan to the defendants."[20]Accordingly he made a civil recovery order in respect of the money in the Topinvest accounts except for the money in the euro account, and such part of the money in the US dollar account as represented profit on the part of the Orbita investment which was funded by a loan from Coutts, together with interest thereon. The issues[21]There are, therefore, two issues(a) whether the judge ought to have held that the loans from Coutts were obtained by fraud; and(b) whether, on the pleadings, he was entitled to do so. It is convenient to consider (a) first. In that respect, no oral evidence was adduced by SOCA from Coutts. But Coutts’ file was before the court. In those circumstances Mr Michael Beloff QC for the NCA is, in my judgment, right, to say that this Court is in as good a position as the trial judge to determine whether or not the evidence and the inherent probabilities establish that Coutts was the victim of fraud.[22]As to the latter, one of the matters that the judge (and we) have to consider is how probable it is that a bank such as Coutts would be prepared to lend substantial sums to a borrower such as Topinvest unless they believed that the sources of its own funds were legitimate.[23]In Olupitan property had been purchased in part with a cash deposit which was found to constitute tainted funds and in part with a mortgage loan obtained by fraud. Carnwath LJ, as he then was, held that in order to comprise “property obtained through” i.e. “by or in return for unlawful conduct” something more than bare “but for” causation was necessary. He gave an example of a house purchased for £ 100,000, £ 75,000 of which had been stolen, while £ 25,000 had come from an untainted source. As to that he said:
“In such a case it could no doubt still be said that the £100,000 house would not have been acquired 'but for' the theft, and possibly, in ordinary language, that it was 'obtained’ by theft. However, the Act seems to me to require a more precise analysis. The original recoverable property is the stolen £75,000, which is then 'mixed' with the lawful £25,000. Under section 306, the recovery order can only bite on the 'portion' of the mixed property which is attributable to the unlawful £75,000.”
[24]The majority of the Court, Carnwath LJ dissenting on this point, held that the property had been purchased in part with tainted funds and in part with a mortgage loan which had been obtained by fraud and thus constituted recoverable property.[25]It is, in my judgment, necessary to use some care in treating “but for” causation as insufficient to mean that property has been obtained by or in return for unlawful conduct. In the example given by Carnwath LJ the purchase could not have gone ahead without the tainted funds; but the seller is not assumed to have asked or been told anything about the source of the monies. A bank like Coutts lending to a customer like Topinvest which is seeking to make a leveraged investment may well be concerned about the source of any funds of the borrower’s own, especially if they are to stand as security, and may seek and be given information about their source. If what is said amounts to a representation that the funds are from an untainted source a bank claiming to have been deceived will, classically, say that without (but for) such representation it would not have lent at all: Assicurazioni Generali SpA v Arab Insurance Group [2002] EWCA Civ 1642; Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland PLC [2010] EWHC 1392 (Comm). For such a lender the representation about the source of monies may be the (or a) cause of his preparedness to have the borrower as a customer and to lend to him. There is a distinction between a lender about whom all that can be said is that he would not have lent if the tainted monies were not in the account and one who would not have lent but for what he was told about the source. The history of the accounts[26]The history of the Topinvest account reference T 312 - is apparent from Coutts’ internal papers from which the following summary is derived. The dollar account was opened on 3 March 1999. Mr Namli (described in the file as “Dr Yaman”) was introduced to Coutts by Nigel Rowley (“Mr Rowley”) of Mackrell Turner Garrett, his solicitors, as “a man of high personal standing”. A bank reference was received from First Merchant Bank, Cyprus, of which Mr Namli was the Chairman and General Manager. On 12 March 1999 Coutts received $ 1,000,000 from that bank.[27]On 9 November 2000 the Serious Fraud Office (“SFO”) approached Ms Jenny Sallnow, Coutts’ central fraud liaison officer. The SFO was assisting the US authorities in investigating Mr Pearlberg and others. It served Coutts with a notice under section 2 of the Criminal Justice Act 1987 requiring production of the Topinvest account opening details, statements of account for 1999 and transfer vouchers relating to the transfer of $ 1 million into the account in March 1999.[28]It was in the light of this that the bank had concerns about dealing with Mr Namli. An internal note of 22 February 2001 from Brenda Holden (“Ms Holden”) of Group Compliance to Graham Curtis (“Mr Curtis”), the Client Relationship Manager, Richard Wilson (“Mr Wilson”) and Stephen Bishop (“Mr Bishop”), all of Coutts, recorded that Jenny Sallnow had telephoned the SFO who: “confirmed that it was in order for us to operate the account as normal Jenny mentioned that during the course of a recent routine review it had come to our notice that our initial due diligence did not appear to be as robust as we would wish and consequently it was our intention to remedy this”.[29]A note of a telephone conversation on 17 December 2001 with Mr Rowley recorded that Mr Curtis had told him that Coutts had received some funds (in fact $ 1 million, being Credit 2) from a bank in Bucharest which was unknown to them, which were completely unexpected. Mr Rowley said that he was aware of the situation and should have spoken to Coutts and pre-warned them. The money was, he said, to be for the purchase of a lease of a flat in London. On 18 December 2001 Mr Curtis wrote to Mr Rowley requiring, as soon as possible, confirmation as to the origin of the funds and the purpose to which the funds were to be applied.[30]On 27 December 2001 Mr Rowley sent to Coutts a hard copy of an email he had received from Mr Namli recording that the funds transferred had been in the accounts of Mr Namli’s family with 3 Turkish banks; and that “our banker in ... Libra Bank - Bucharest” had proposed an attractive opportunity and at first he had asked the banks in Turkey to transfer the funds to them. However he had in the end decided against the proposed investment, because there was a currency risk, and therefore had finally decided to transfer the funds to the account with Coutts.[31]A note from Mr Bishop to Mr Curtis of 19 February 2002 said: “I believe overall that with the solicitor’s involvement the explanation for the receipt of US $ 1.5m is adequate and discounts any suspicion at that stage”.[32]On 27 February 2002 Mr Rowley wrote to Coutts to confirm that Mr Namli was purchasing a property in London for about £800,000; that he (Mr Rowley) had advised Mr Namli to ask Coutts for a mortgage, with the repayments to be made from the interest on the investments that Coutts had already purchased with monies already deposited by Mr Namli; and that Mr Namli intended to transfer funds of approximately $ 1 million for investment, such that the combined interest on all investments would service the mortgage. The incoming funds, he said: “are from his own family resources and I am instructed have been in the family for a number of years. He has liquidated local investments in Turkey to produce the available funds”.[33]On 4 March 2002 Ms Holden wrote a note to Mr White and Mr Curtis in which she said:
“As you are aware, there have been a number of incidents which have resulted in yourself and Graham referring Dr Yaman to ourselves over the past 19 months or so. Whilst each one of this (sic) has had a plausible explanation, plus comfort has been taken from the client’s Solicitor’s active involvement, when all the events are looked at together question marks do arise!”
[34]On 6 March 2002 Mr Rowley wrote to Mr Curtis to confirm that Mr Namli had arranged for Libra Bank to transfer $ 1,200,000 to the Coutts bank account for the purpose described in his letter of 27 February 2002. This was Credit 3. He repeated that his instructions were that this was family money which had been in the family for many years.[35]A note from Mr Curtis of 15 April 2002 to Ms Holden included the following paragraph:
“I think that the previous “deficiencies” have been cleared but we will, as stated, pay particular regard to overseeing this account. We have not had an opportunity of meeting the client since February 2000 but we will make a point of trying to see him on the next visit to Turkey or alternatively when he visits the UK...”
[36]On 13 August 2002 Mr Rowley sent a fax to Mr Curtis informing him that Mr Namli had asked him to advise that he, Mr Namli, would shortly be transferring to his account with Coutts the sum of $ 550,000 from his personal family account in Turkey, in the short term for the purchase of securities, and in the long term for the financing of a residential property then under consideration. This was to be Credit 4.[37]A note from Mr Curtis of 15 August 2002 to Ms Holden referred to the history of dealing with Mr Namli and included the following: “The SFO order, needless to say, made us wary and subject to further meetings with Dr Yaman in the future we would be working on the basis of eventually moving the account out from the department unless we have greater evidence as to his wealth and circumstances. However, in the meantime, there has been no change insofar as the lawyers are continuing to run with this gentleman providing information as requested and unless you have a marker outstanding for this gentleman or his company Topinvest ...we would propose accepting a transfer to the account and subsequent investment/mortgage arrangements”.[38]The purchase of a property with a mortgage from Coutts did not go ahead. On 19 August 2002 Mr Curtis wrote to Mr Rowley to inform him that in circumstances where Coutts had had little contact with Mr Namli since the account was opened some years ago Coutts could not at the present time accept further transfers into the account until “we have updated our records with regard to due diligence etc..” He required completion of an enclosed statement of assets and liabilities and a statement from a lawyer or accountant stating what the activities of Topinvest were and producing documentary evidence of the source of the funds passing through the company earlier in the year as well as those in contemplation.[39]On 9 September 2002 Mr Namli was in England and he and Mr Rowley met with Mr Curtis, Mr White and Mr Murphy, a Portfolio Manager, of Coutts. Mr Curtis told him that for due diligence requirements a number of searching questions would be asked. Mr Namli said that that was not a problem. In relation to Topinvest Mr Namli said that he was the owner of the bearer share certificate. Of its assets about $ 3 million was with Coutts; $ 5 million was with Credit Agricole and the rest were in Global bonds and cash. The funds were “family monies”. At one time Mr Namli owned three company accounts at Turkish banks; each company belonged to him but he regarded himself as the manager of the family which consisted of his brother and his mother. His wealth had originated mainly from real estate and speculation in the currency/bond markets where he had made a few million dollars. His family owned a lot of property in Turkey where land previously registered as farmland was valued at l/20th or even l/40th of its true value. He had speculated in property dealing in Turkey for some years. He said that he would be more than happy to provide documented information as to the source of funds for future transfers. There was discussion of the Orbita Global Opportunity fund. Mr Namli produced a statement of his entire wealth, held through another company, which was said to be US $ 58,711,900.[40]On 10 September 2002 Mr Curtis sent Ms Holden a long note of the meeting. He recorded that Mr Namli had come across as “completely upfront and willing to answer all our questions”. He had told them that “Goldmans, Citibank, Deutsche, Kleinwort, Smith Barney and Credit Agricole” had all carried out their own due diligence and set up investment and banking connections with him. He expressed the view that the information received to date was, he believed, sufficient to be satisfied in running this relationship. It had been made clear that any further funds to be brought in should be documented as to where the funds came from. He said “that the information does hold together” but that he would like to see one further reference from a recognised international bank rather than relying on the original bank reference.[41]On 12 September 2002 Ms Holden replied. She said that the key issue going forwards, as Mr Curtis had highlighted, was that Coutts should be satisfied with the source of funds prior to accepting any future significant sums and, where appropriate, the bank would require copies of contracts etc. On 16 September 2002 Mr Curtis wrote to Mr Rowley to say that he had reported the additional information “to our Compliance people and all appears now to be in order”. Transfer of the $ 550,000 was, he said, now acceptable.[42]By the end of October 2002 Coutts had received a favourable reference from Credit Agricole Indosuez (Suisse) SA (“a well and favourably known person and is of excellent standing and integrity”). On 30 October 2002 Mr Curtis told Mr Rowley that receipt of the reference completed Coutts’ records with regard to the due diligence exercise.[43]In January 2003 Ms Ebru Ozsezgin (“Ms Ozsezgin”) took over from Mr Curtis as relationship manger. She and Mr Curtis met Mr Namli in Istanbul on 23 January 2003 and she met him again there on 20 June 2003.[44]On 17 March 2004 Mr Namli had a further meeting in Istanbul with Ms Ozsezgin. Their discussion included reference to the Orbita strategies and a detailed discussion as to how he initially built up his vast wealth. He said that his family was wealthy by inheritance to start with; that he had made substantial profits trading emerging markets bonds in the late 1980s and through the 1990s; he had a team of traders in the same building as him (one of whom came into the room); he had vast land just on the outskirts of Istanbul, in which Disney was interested, and a number of flats on prime land in Istanbul.[45]A further meeting took place with Ms Ozsezgin in Istanbul on 15 May 2004. Mr Namli confirmed that there was no material change to his circumstances and that he would like to continue with the mandate. A full discussion took place on the 3 Orbita strategies. He confirmed that he wished to invest $ 1,500,000 in each of the Orbita Global Opportunities, Orbita Capital Return and Orbita European Growth Funds. He expressed a desire to borrow $ 2.5 million against his planned investment in these 3 strategies. Either at or before that meeting Mr Namli filled in application forms dated 14 May 2004 for investment in the shares of each of Orbita Global Opportunities Strategy Ltd, Orbita Capital Return Strategy and Orbita European Growth Strategy Ltd.[46]On 8 June 2004 Coutts issued their Advice of Borrowing Terms in respect of the loan of $ 2,700,000 to Topinvest. Ms Ozsezgin signed for Coutts. Mr Namli signed the Advice by way of acceptance for Topinvest on 23 June 2004. Topinvest executed a charge in favour of Coutts of the shares in the Orbita portfolio and a charge over cash balances in the account. An internal document of the same date described Mr Namli as a sophisticated investor who was very wealthy with total assets estimated at $ 50 million as a minimum. No subsisting concerns were expressed.[47]In February 2005 Mr Namli advised Ms Ozsezgin that the $ 1.41 million that Coutts had received (Credit 6) was the sale proceeds of a bond portfolio from Kleinwort Benson. This was, on the judge’s findings, a lie.[48]Mr Namli met Ms Ozsezgin again on 4 March, 15 April and 15 and 19 September 2005. On 15 September 2005 he again confirmed that there was no material change to his circumstances and that his assets and liabilities schedule remained unchanged. He said that he had considered adding to his Orbita portfolio for which purpose he wanted to borrow in Euros. He was told that a figure of € 4 million looked possible.[49]On 27 September 2005 Coutts issued its Advice of borrowing terms in respect of the loans of € 4 million, and $ 2,720,000. The Advice in respect of the $ 2,720,000 was expressed as a replacement of an Advice dated 15 June 2005; the Advice for the € 4 million was said to be additional to the loan the subject of that Advice. The Advice of 15 June 2005 is not in the Coutts’ file. Miss Ozsezgin signed the Advices on behalf of Coutts and on 28 September 2005 Mr Namli accepted on behalf of Topinvest. Charges were again given over the relevant shares and credit balances in the Topinvest account.[50]On 28 October 2005 Ms Ozsezgin compiled a summary of the account history. She recorded that “in all of our dealings, he has been very open and forthcoming with the information both requested and given voluntarily”.[51]Two things arc, in my judgment, apparent from these documents. The first is that, whilst initially Coutts had concerns, in large measure as a result of the SFO’s approach, those concerns were assuaged and any suspicions allayed by what they were told by Mr Namli about the source of his wealth and of the funds coming into the account. The second is that they relied on what they were told in continuing to maintain the account with him and in extending to him the two loans in June 2004 and September 2005.[52]The September 2005 Advices of Borrowing Terms included the following term: “ILLEGALITY If it is or becomes unlawful for the Bank to make available to the Borrower the Loan or to maintain or fund the Loan or any part of it, the Bank shall notify the Borrower and(a) the amount of the Loan shall be reduced to zero, and(b) the Borrower will be obliged to repay the Loan together with all other amounts payable by the Borrower under this letter by the latest date permitted by the relevant law or regulation”.[53]Coutts thus made express provision against the contingency that the loans were or became unlawful for any reason, as they would if they were, to the knowledge of the bank, part of a money laundering exercise.[54]The judge said that it was not at all clear what Coutts’ actual state of mind was at the time when the loans were made. I do not agree. It seems clear to me that a number of individuals at Coutts addressed their minds to the question whether Mr Namli was an honest businessman, possessed of funds lawfully obtained, whom Coutts would be prepared to retain as a client. Those individuals had been satisfied from what he told them that he fell into that category. They included Ms Ozsezgin, who signed the Advices of Borrowing in 2004 and 2005. She had received clear representations from Mr Namli as to the legitimate source of his wealth, and had recorded at subsequent meetings that that there had been no material change. These representations cannot be regarded as no longer operative when the loans were agreed.[55]In fact, as the judge has found, all the monies that went into the Topinvest account, other than what was loaned by Coutts, were derived from FMB’s criminal activities. In those circumstances what Mr Namli represented to Coutts was, to his knowledge, false. The making of false statements as to the source of funds coming into an account, made to a bank which has had concerns about the integrity of its customer, is inherently likely to be relied on by the bank to which they are made in relation to all its subsequent dealings with him. Such a misrepresentation is material to it and likely to induce any loan contracts it enters into with the client. In such circumstances inducement may be inferred without the need for direct evidence: St Paul and Marine Insurance Co Ltd v McConnell Dowell Construction Ltd [1996] 1 All ER 96. Not only is there nothing in the Coutts’ documentation which suggests that such an inference would be misplaced: the sequence of events recorded in, and the contents of, the file show that Coutts was relying on what they were being told. No distinction can sensibly be made between Coutts’ reliance on what they were being told for the purpose of deciding whether they were prepared(a) to continue having Topinvest (in effect Mr Namli) as an account holder and(b) to lend money to it. If Coutts was only prepared to retain Topinvest as a client if satisfied that its monies were clean, they would scarcely have been prepared to go a stage further and lend him money if they were not so satisfied.[56]The judge said that “although Mr Namli was cross-examined on the basis that he had told lies to Coutts, it does not necessarily follow that Coutts was in fact deceived”. I am not sure exactly what he had in mind. This passage appears to contemplate the possibility that Coutts simply did not address its collective mind to the legitimacy of the funds coming into the Topinvest account; or that it was either aware that they were the result of criminal conduct or indifferent to whether they were or not. I accept the submission of Mr Beloff that these are not available conclusions on the evidence from the Coutts’ file which is both contemporaneous and in no way shown, or appearing, to be unworthy of belief.[57]SOCA did not call anyone from Coutts to give evidence. In January 2009 Daniel Bailey, a member of SOCA’s staff, wrote to Coutts to ask for a formal witness statement in respect of the two loans and specifically to ask whether the bank would have continued with the application had they been aware of the circumstances affecting Mr Namli at the time. Coutts declined to provide a formal written response due to an internal policy of not providing “negative” statements. Later in 2011 Coutts advised SOCA that both Mr Curtis and Mr White were no longer employed by them and that they were unable to provide personal contact details without being ordered to do so by the court. In those circumstances SOCA obtained a witness statement from a lady at Coutts who produced the files.[58]It may be that SOCA could have done more to procure the attendance of live witnesses e.g. by obtaining their contact details through (what was then) the FSA, although the extent to which they were or could be made available to give evidence is unclear. I do not, however accept that SOCA’s failure to call Coutts witnesses to give oral evidence precludes a finding that dishonest statements from Mr Namli induced the loans. In Assets Recovery Agency v Jackson and other [2007] EWHC 2553 King J had no hesitation in concluding that the respondent had obtained his mortgage by knowingly providing false particulars, rejecting, in my view rightly, the submission that it was not open to him to do so because he had not heard directly from the mortgage provider.[59]Mr Mitchell QC submitted that in such a case it is apparent from the loan documentation that the mortgage was obtained as a result of the particulars given in order to obtain the loan and there is no need to call a witness; whereas here it is far from clear what led the Bank to make the loans, an issue which was never the focus of the case. He drew our attention to Rex v Clucas [1949] 2 KB 226. In that case the appellant and another man induced bookmakers to bet with them by representing that they were commission agents acting on behalf of a large number of workmen when in fact they were betting considerable sums of money for themselves alone. The convictions for obtaining or attempting to obtain monies by false pretences were overturned (by a court of five, a previous court of 3 not having been unanimous) on the basis that the money paid by the bookmaker was not obtained by false pretences since the effective cause of the payment was the horses winning and not the false representation. The Court of Criminal Appeal held that a distinction had to be made between one contributing cause and the effective cause which led the bookmaker to pay the money. So here, he submits, the effective cause of Coutts making the loans was the fact that there was money in the account which would stand as security.[60]I accept that the present case is less open and shut than one in which a loan is obtained on the basis of false statements in the application form. What I do not accept is that that means that, whereas the continuation of the account may be regarded as resulting from what Mr Namli said about the funds the same cannot be said about the making of the loans. In Clucas the Court was persuaded that, whereas the appellant may have obtained the chance to bet by pretending to be a commission agent, he obtained his winnings because he bet on the horse that won. The need to have bet on the winner prevented the lies about the capacity in which the bets were placed from being the effective cause of his scooping the prize. The circumstances of the present case are different. There is nothing akin to the need to have bet on a winner that breaks the link between Mr Namli’s lies about the source of the funds and the loans. In Clucas the lies were not regarded as either the or an effective cause, whereas in the present case they were at least the latter.[61]In my judgment, subject to the pleading issue, the judge should have concluded that the two loans were made on the basis of false representations by Mr Namli that the funds in the Topinvest account were derived from family wealth lawfully obtained, and the provident investment thereof in legitimate business, so that the monies loaned were, for that reason, obtained by or in return for unlawful conduct. The pleadings and the trial[62]The sequence of events was as follows.[63]The claim was begun under CPR Part 8 in April 2010. The witness statement of Mr Bailey for SOCA of 30 April 2010 accepted that the sums in the Topinvest account which derived from the profits on the Coutts’ loans were not recoverable property.[64]The position changed with the Points of Claim of 17 September 2010 which, as amended on 14 June 2012 included paragraphs 92 and 93 which read as follows:
“(2) Income from the US$ Orbita Investment and the Euro Orbita Investment 92. All income generated on the US$ Orbita Investment and paid to the Defendants is recoverable property in that it constitutes property obtained through unlawful conduct: (1) As set above, Coutts provided a US$2.7m loan facility in relation to the US$ Orbita Investment. (2) Coutts agreed to provide that loan on the basis that: (a) The Defendants would make a payment of US$1.8m towards the US$ Orbita investment. (b) The Defendants had a history of substantial credit balances on bank accounts held by Coutts. However, the true position was that: (c) The Defendants’ investment of US$1.8m was made from property obtained through unlawful conduct and the credit balances on his their accounts were obtained through unlawful conduct. (d) Coutts’s lending decision was accordingly based (unwittinglyso far as Coutts was concerned) upon the fact that the Defendants had acquired substantial property through unlawful conduct, and without that unlawful property Coutts would not have advanced the loan to the Defendants. (e) The profits generated by the US$ Orbita investment accordingly constitute property obtained through unlawful conduct. 93. All income generated on the Euro Orbita investment and paid to the Defendants is recoverable property in that it constitutes property obtained through unlawful conduct: (1) As set out above, Coutts agreed to provide a $2m loan facility in relation to the Euro Orbita Investment. (2) Coutts agreed to provide that loan on the basis that the Defendants had substantial credit balances on bank accounts held at Coutts. (3) The credit balances comprised property obtained through unlawful conduct. (4) Coutts’s lending decision was accordingly based (unwittingly so faras Coutts was concerned)upon the fact that the Defendants had acquired substantial property through unlawful conduct, and without that unlawful property Coutts would not have advanced the loan to the Defendants. (5) The profits generated by the Euro Orbita investment accordingly constitute property obtained through unlawful conduct.” (1) As set above, Coutts provided a US$2.7m loan facility in relation to the US$ Orbita Investment. (2) Coutts agreed to provide that loan on the basis that: (a) The Defendants would make a payment of US$1.8m towards the US$ Orbita investment. (b) The Defendants had a history of substantial credit balances on bank accounts held by Coutts. (c) The Defendants’ investment of US$1.8m was made from property obtained through unlawful conduct and the credit balances on his their accounts were obtained through unlawful conduct. (d) Coutts’s lending decision was accordingly based (unwittinglyso far as Coutts was concerned) upon the fact that the Defendants had acquired substantial property through unlawful conduct, and without that unlawful property Coutts would not have advanced the loan to the Defendants. (e) The profits generated by the US$ Orbita investment accordingly constitute property obtained through unlawful conduct. (1) As set out above, Coutts agreed to provide a $2m loan facility in relation to the Euro Orbita Investment. (2) Coutts agreed to provide that loan on the basis that the Defendants had substantial credit balances on bank accounts held at Coutts. (3) The credit balances comprised property obtained through unlawful conduct. (4) Coutts’s lending decision was accordingly based (unwittingly so faras Coutts was concerned)upon the fact that the Defendants had acquired substantial property through unlawful conduct, and without that unlawful property Coutts would not have advanced the loan to the Defendants. (5) The profits generated by the Euro Orbita investment accordingly constitute property obtained through unlawful conduct.”
[65]Topinvest contends that this was, in effect, an allegation of mere “but for” causation in that all that was being said was that without the monies in the account that had been obtained from fraudulent activity the loans would not have been made. It did not contain an allegation of deliberate misleading of the bank. Any such allegation of fraud needed to be distinctly pleaded, especially by a public authority seeking to recover allegedly tainted funds.[66]It is, however, material to note that the pleading, as well as contending that all the credits and the interest accruing on them were obtained though unlawful conduct, (in which case Mr Namli’s statements about the source of his wealth were untrue) contains a number of allegations of what amount to positive misrepresentations to Coutts. Paragraph 50 refers to the Coutts’ contact report of 17 December 2001 (see para [29] above) and Coutts’ need to have confirmation of the origin of the $ 1 - $ 1.5 million to be transferred. Paragraphs 51-3 pleaded(a) the 27 December 2001 email from Mr Namli (see para [30] above) with its reference to family accounts as the source of funds;(b) Mr Rowley’s letter of 27 February 2002 (see para [32] above) referring to a further $ 1 million from “his own family resources”; and(c) the letter of 6 March 2002 (“this is my client’s family money and has been in the family for many years”) [34]. Paragraphs 58, 60 and 61 pleaded(d) Mr Rowley’s letter of 13 August 2002 (“$ 550,000 from his personal family account in Turkey”) (see para [36] above);(e) Coutts’ letter of 19 August 2002 asking for information as to the source of further funds (see para [38] above); and(f) the meeting of 9 September 2002 at which Mr Namli said that the funds received since 2001 were family monies belonging to Mr Namli alone (see para [39] above).[67]Paragraph 63 pleaded that the explanations given by Mr Namli and Mr Rowley in relation to the provenance of credits 2, 3 and 4 were incomplete and/or misleading for the reasons set out in some detail in the following sub-paragraphs. Paragraph 69 pleaded that no credible evidence was provided to Coutts to show the source of funds for Credit 5. Paragraph 77 pleaded that the information given to Coutts as to the source of funds comprising Credit 6 was false. Paragraph 78 said that his explanation was dishonest and used to give false comfort to Coutts in relation to the source of funds. Paragraph 79A pleaded that the true position was that at least $ 906,556.13 was property obtained through Mr Namli’s criminal participation in the English frauds.[68]In April 2011 there was an agreed case summary. This included the statement that the defendants had made certain investments with, and had received interest upon, the six credits to the Coutts accounts and that the investment income and interest so received also constituted property obtained through unlawful conduct. But it did not say in terms that Coutts had agreed to make the loans on the basis of any representations, false or otherwise.[69]SOCA’s written opening submissions were delivered on 5 April 2013. In paragraph 81 (3) it was said that it would be necessary for the Court to consider whether Mr Namli had lied to Coutts.[70]On 8 April 2013 the Respondents filed a skeleton argument in which paragraph 117 said:
“There is no evidence and it is not pleaded that the loans were fraudulently obtained”
[71]At the very end of his opening on 12 April 2013 Mr Beloff on behalf of SOCA said that its case was: “...to put it in the vernacular, you would not have got the loans had you not in fact got the substantial credit balances in your account”.[72]That is, as it seems to me, a pure “but for” contention unrelated to any representation as to the source of the funds. But in an earlier passage Mr Beloff had referred to Mr Namli as having made statements as to the source of his assets which were confusing and contradictory and to his having been, in relation to what he said to Coutts, guilty “not only of the sins of omission, not giving the full story, but of commission, actually misleading, suggestio falsi as well as suppressio veri”. Mr Byrne’s statement made specific allegations of misleading information in relation to credits 2-4 and 6.[73]On 24 April 2013 (the day of oral final submissions), in paragraph 19 of its closing note on recoverable property SOCA said:
“SOCA invites the Court to find that not only has Mr Namli failed to explain the ultimate source of the six credits, but he has made positive misrepresentations as to their more immediate provenance, not only in the course of these proceedings (as addressed below under the heading of SOCA’s micro case) but to Coutts.”
Specific allegations were then made in relation to Credits 2-4 and 6.[74]At paragraph 50 SOCA said that it had pleaded that the loans were obtained by unlawful conduct (Particulars paras 92-93) and that the case had been proved because Mr Namli obtained the loans(a) by having in their account property which was obtained by unlawful conduct and(b) by concealing the true nature of that property from Coutts. No suggestion was made that that was not a claim that it was open to SOCA to make. Discussion[75]SOCA’s pleadings on the issue which presently concerns us are poorly drafted. An allegation that the loans were obtained on the basis of false representations made to the bank ought to have been put in stark terms rather than by an allegation that the lending decision was based “unwittingly” upon the fact that the Defendants had acquired substantial property through unlawful conduct - a means of expression which, if it stood on its own, might be taken to mean no more than that Coutts did not know that the source of the funds was fraudulent conduct or, to a lawyer, that what was being alleged was a case of non disclosure.[76]It is, however, necessary to take the pleading as a whole. If one does that it is, in my view sufficiently apparent that what was being said was that all the credits were the product of unlawful conduct (as the judge has found), that Mr Namli made a series of representations about their source which were false, and that Coutts made a decision to lend in the erroneous belief that the source of the funds was legitimate (as they had been told) when in fact the monies had been unlawfully obtained. Indeed, if all that was intended to be said was that the existence of Topinvest’s own funds was sufficient “but for” causation, whatever the reason for Coutts’ decision to lend, it is not easy to see why any reference to that upon which Coutts’ lending decision was “unwittingly” based was of any relevance at all.[77]Further, as it seems to me,(i) Mr Namli was well aware that what was being said was that all the credits to the account other than those derived from Coutts’ loans were the product of criminal activity, that he had misled Coutts as to their source, and that Coutts would not otherwise have continued to deal with him at all; and(ii) that the poor quality of the pleading is not such as to mean that there has been any unfairness so far as he is concerned.[78]As to the former, Mr Namli was at pains to say in his cross examination that “I declared always to Coutts who were the ultimate source and who were the beneficiary of everything...” (Day 8, pl23, II 21-2). In other words, according to him, he had made declarations to Coutts as to the ultimate source on which they were entitled (and likely) to rely. That was his defence to the claim that he had lied to Coutts. As the judge records at [213], Mr Namli was cross examined on the basis that that is what he had done. Mr Mitchell submitted that SOCA made use of the Coutts file at trial to support its claim that Mr Namli was not to be believed so that what he said about the source of the monies was not to be accepted. Even if that was the prime focus of SOCA’s approach the fact that Mr Namli lied about the source of the funds inevitably meant that what he had said to Coutts was false and the effect of what was said on Coutts was apparent from the file.[79]In re-examination Mr Namli was asked whether he had provided Coutts with full and truthful and accurate information that they required as bankers. When the judge observed that he could guess what the answer would be to that question Mr Namli was asked whether, if Coutts required more information from him, did he give it to them? He said that he did. So the question whether Mr Namli had lied to Coutts was squarely put. Apart from his defence that the credits were not the proceeds of crime, it is difficult to see what more Mr Namli could have said in relation to the claim of lying that was being made against him.[80]As to the latter, the reference to “unwittingly” did not in context mean that Coutts did not know the true position because they had not cared to inquire but that they had been misled. The conduct by which the property had been obtained was unlawful but appeared to Coutts to be the opposite. The allegation, as Mr Beloff made clear in opening in two languages, was that Mr Namli had told lies to Coutts about the source of the funds.[81]I also take into account that, once it had become apparent that what Mr Namli had told Coutts was, as he knew, false, the question became whether or not Coutts had relied on what they were told in agreeing to make the loans. That depended on what inferences could properly be drawn from the contents of the file, and not on any evidence from Mr Namli. It was not suggested, and it is fanciful to suppose, that Mr Namli would ever have sought to call Coutts witnesses himself, even supposing that they were available to him. Mr Mitchell submitted that if the matter had been properly pleaded it might have been possible to undermine SOCA’s case and show that representations which led to the continuance of the account did not cause the making of the loans. Whether that was possible depends on an analysis of the Coutts’ file which, in my judgement, leads to a different conclusion.[82]In those circumstances I regard the allegation that Mr Namli had misled Coutts as to the source of the monies coming in to the account and thereby secured the loans as sufficiently pleaded. Result[83]I would accordingly allow NCA’s appeal and declare that the entirety of the T 312 US $ and Euro monies are recoverable property within the meaning of section 304 of the Proceeds of Crime Act 2002. Lord Justice Tomlinson[84]I agree. Lord Justice Maurice Kay[85]I agree.