UK (Aid) Ltd. v Damian & Ors [2007] EWHC 1052 (Ch)

[2007] EWHC 1052 (Ch)

Case No HC06C02879

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 08/05/2007

Before

MR JUSTICE DAVID RICHARDS

Between

UK (Aid) LimitedClaimant

Martin Damian Andrew MitchellDefendants

Leslie John SilvermanDefendant

Steven Andrew SilvermanDefendant

Stephen Phillips QC and Ian Wilson (instructed by Addleshaw Goddard LLP) for Claimant

Paul Girolami QC (instructed by Bates Wells & Braithwaite) for Defendants

Hearing Hearing dates: 27 and 28 March 2007

Judgment

Introduction

[1]There are a number of applications before the court, but this judgment is concerned principally with the claimant’s application for summary judgment against the first defendant, Martin Mitchell, and for judgment in default of defence, alternatively summary judgment, against the second defendant, Leslie Silverman. An order for an interim payment of £5.5 million is also sought against them both. The position as regards Mr Silverman is complicated because, as the claimant accepts, he is incapable of giving instructions and the Official Solicitor has been appointed his litigation friend. I will deal with the particular circumstances of Mr Silverman at the end of this judgment.

[2]On 24 July 2006, on an application without notice to the defendants, Warren J made a freezing and disclosure order against the three defendants (the July 2006 order). There are before the court applications to commit Mr Mitchell and Mr Silverman for breaches of this order, in respect of alleged non-disclosure and transfers in breach of the order. In view of Mr Silverman’s medical condition, the committal application against him is not being actively pursued at present. The application against Mr Mitchell is being pursued and was opened to me. Mr Mitchell has very recently accepted extensive breaches of the July 2006 order, in his third and fourth affidavits sworn by him on 20 March and 27 March 2007. His fourth affidavit was provided to the court and to the company’s solicitors and counsel ten minutes before the start of the hearing before me. In the light of Mr Mitchell’s stated willingness to cooperate with the claimant company’s liquidators in every respect in relation to tracing the funds in issue, Mr Phillips QC for the claimant company (the company) applied at the start of the second day of the hearing for an adjournment of the committal application to a date not before 24 April 2007. This application was supported by Mr Mitchell and I agreed to it. I continued to hear the summary judgment application, to which much of Mr Phillips’ opening on the first day was relevant. Mr Mitchell’s affidavits on the committal application are also relevant to the summary judgment application.

The company’s claim

[3]The company is in creditors’ voluntary liquidation. The claim is for an order that Mr Mitchell and Mr Silverman, formerly the directors of the company, account to the company for the funds and assets of the company misappropriated and/or diverted by them (or each of them) in breach of their fiduciary duties to the company, together with all income and profits derived from those funds and assets, and an order for the payment of all sums found due upon the taking of the account. Further or alternatively, an order is sought that Mr Mitchell and Mr Silverman compensate the company for their breaches of fiduciary duty. There are also claims against Steven Silverman on the grounds that he dishonestly and knowingly assisted Mr Mitchell and Mr Silverman in the breach of their fiduciary duties, and a claim for damages for conspiracy against all the defendants.

[4]The amounts alleged to have been misappropriated by transfers from the company are at least £3,621,617 (from which £700,000 repaid to the company should be deducted) and US$2,118,023.25. In addition, it is alleged that at least £211,592 and US$392,500 was diverted from third party debtors of the company. All these payments were made between October 2001 and November 2002 to an account in the name of a company incorporated in the British Virgin Islands, Lake Charles Inc (LCI). The account was with a bank in Andorra, Bank Agricol Commercial D’Andorra (Andbanc). The signatories to the account were Mr Silverman and his son, the third defendant Steven Silverman. The company alleges that LCI was beneficially owned and/or controlled by the defendants. The liquidators obtained disclosure of Andbanc’s records for LCI which showed that the funds had been paid out of LCI’s account between November 2001 and September 2003 to a number of payees. The sums paid out amounted to £4,751,411.83, $816,360.84 and €153,848.37. Most of the payees were either entities which on the company’s case are fronts for the defendants, or accounts in the names of Mr Mitchell or Mr Silverman at Credit Suisse in Geneva, or third parties for the purchase of villas in Spain and cars and other goods which on the company’s case were for the use and benefit of Mr Mitchell and/or Mr Silverman.

[5]It is alleged that the defendants wrongfully concealed the existence of LCI and their control of it, and the payments into and out of its account. Steps taken for that purpose included producing to the auditors a false invoice purportedly issued by LCI for £1,591,712, falsely representing to the liquidators that the company had purchased pharmaceutical products from LCI and failing to produce the company’s books and records, giving inconsistent and incredible reasons for this failure.

[6]It is convenient at this point to refer briefly to the various entities which either received funds from LCI’s account or were connected with them. As well as LCI, there are three companies incorporated in the BVI: Bawdwin Investing Inc (Bawdwin), Heaton Moor Limited (Heaton Moor) and Deerfield Services Limited (Deerfield). Bawdwin had an account with Andbanc on which Mr Mitchell was a signatory. Sums totalling £1,366,900 and $258,404 were paid to it from LCI’s account. Heaton Moor received a total of £1,395,000. It and Deerfield were involved in a series of property developments in England with two English companies, Madison UK Limited (MUK) and Madison Properties UK Limited (MPUK). MUK itself also received a total of £205,000 from LCI’s account. MUK and MPUK were both owned and controlled by the defendants. Deerfield and Bawdwin were struck off the register of companies in the BVI in May and November 2006. MUK was struck of the register in England in August 2005.

[7]A Gibraltar-based trust company, BDO Fidecs Management Limited (BDO Fidecs) maintained accounts for Heaton Moor and Deerfield. On the instructions of Mr Mitchell and Mr Silverman, BDO Fidecs also established and administered two family trusts to which their homes in England were transferred. Further, it established and administered a trust to which the shares in the company, then owned by Mr Mitchell and Mr and Mrs Silverman, were transferred. Mr Mitchell’s evidence is that this was a purchase by a third party. BDO Fidecs also maintained an account for the seller of the villas in Spain.

[8]Funds transferred to the accounts at Credit Suisse, Geneva, in the names of Mr Mitchell and Mr Silverman were subsequently transferred to Black Vulture Limited (Black Vulture), a company incorporated in the Bahamas in June 2006. It has an account with Credit Suisse in Liechtenstein, on which the defendants are the signatories. Mr Mitchell’s evidence is that Black Vulture was established to provide a fund against which MPUK could borrow for property investment.

Mr Mitchell’s pleaded defence

[9]Mr Mitchell denies all allegations of wrongdoing. He accepts that the payments in issue in these proceedings from the company were made to LCI’s account as alleged but denies knowledge of the payments into LCI’s account from third parties. He denies that he gave instructions for the payments from the company, not being a signatory on its bank account, but he has in evidence accepted that they were made with his knowledge and consent. His case is that they were legitimate payments by the company and the nub of his case in contained in paragraph 12 of his defence:

“(a) The Company received orders for the sale of pharmaceutical products through introductions made by Mr Yaroslav Farber. In return for the orders and introductions, the Company agreed to pay a commission to Mr Farber that Mr Farber instructed the Company to pay to LCI. (b) Accordingly all payments made to LCI were in consideration of the placing of orders for the resale of pharmaceutical products and were made in the ordinary and proper course of the Company’s business.”

[10]Mr Mitchell denies that he gave instructions to Andbanc for payments out of LCI’s account. He accepts that he was a signatory on Bawdwin’s account with Andbanc, but denies that he had any other control over, or any legal or beneficial interest, in Bawdwin or its account. As regards the account in his own name with Credit Suisse, he pleads that it:

“was opened on the instruction of Mr Farber to receive commission payments due from the Company to him. The monies held in this Credit Suisse account were held for the benefit of Mr Farber and [Mr Mitchell] only made payments out of this account on the instruction of [Mr Silverman] who in turn was acting on the instruction of Mr Farber.”

Background facts

[11]The company was incorporated on 20 September 1996 and started to trade in or about 1997. Its business was the purchase of pharmaceutical products and their re-sale in the Ukraine and Belarus. The principal suppliers to the company, and on the company’s case the only suppliers, were companies in what is now the GlaxoSmithKline group (GSK). Trading with GSK companies began in 1997 and by a letter dated 14 December 2000 Glaxo Welcome plc appointed the company as its sole agent for the Crimea and its agent for the Ukraine and Belarus.

[12]The sole directors and employees of the company were Mr Mitchell and Mr Silverman. Its issued share capital comprised 100 shares, which until 8 April 2002 were held by Mr Silverman (51 shares), his wife (24 shares) and Mr Mitchell (25 shares). On 8 April 2002 all the shares were transferred to Shilton Trust, a trust administered in Gibraltar by BDO Fidecs.

[13]A dispute developed between GSK and the company acting by its directors over amounts shown as due in invoices issued by GSK between 14 September 2001 and 15 May 2002. The amount in issue after credits but before interest was £5,421,768. On 22 November 2002 GSK presented a petition to wind up the company. It was opposed by the company and Mr Mitchell made six witness statements on its behalf. The company’s case rested largely on Mr Mitchell’s evidence of oral discussions with GSK personnel and his own notes of the conversations. After a contested hearing over a number of days, Blackburne J held that, although GSK had advanced a very powerful case against the company, he could not say with confidence on the witness statement evidence before the court that there was no substance to the company’s dispute. Accordingly, he dismissed the petition: see

[2003] 2 BCLC 351

[14]GSK issued proceedings for the sums claimed by it and applied for an order under CPR Part 24.6 that the company pay £2 million into court as a condition of defending the claim. The application was at first resisted by the company but at a hearing before Blackburne J on 2 July 2003 it withdrew its objection in principle but contested the amount of the payment into court. There was produced a witness statement made on 30 June 2003 by Mr Mitchell indicating that, although the company had cash at bank of over £1.3 million at 31 March 2002, it had since then ceased trading and had only £82,000 in cash. Blackburne J made orders requiring the company to make full and frank disclosure of its financial position and assets and liabilities, the application of the funds which had been held in its bank account as at 31 March 2002 and the financial position of Mr Mitchell and Mr and Mrs Silverman, together in each case with all relevant supporting documentation. He adjourned the application to 31 July 2003.

[15]The disclosure order was not complied with. By a letter dated 15 July 2003 the company’s solicitors (who act for the defendants in the present proceedings) stated that the directors had decided to put the company into voluntary liquidation and that the solicitors would cease to act. Mr Mitchell and Mr and Mrs Silverman declined to provide any funding to the company and declined to provide the company with information as to their own financial position to enable the company to comply with that part of the disclosure order.

[16]A meeting of creditors was held on 29 July 2003 and the directors’ nominee was appointed as liquidator, but only because GSK’s proof for voting purposes was rejected save for £24,000. On 31 July 2003, on the application of GSK, Blackburne J reversed the decision to reject GSK’s proof and accordingly removed the liquidators and appointed the present liquidators, both partners in KPMG. He also ordered that the company should pay £100,000 into court as a condition of defending GSK’s claim. No payment into court was made and GSK entered final judgment on 22 August 2003 for £5,980,067.45. The liquidators have admitted GSK’s claim in the liquidation.

Proceedings to date

[17]Before turning to the substance of the summary judgment application, it is necessary to set out some of the steps in the proceedings to date, and to refer to the development of the evidence provided by the defendants. The July 2006 order restrained each of the defendants in standard form from disposing of or dealing with their worldwide assets up to a value of £6.75 million. Assets for these purposes was defined to include any asset which a defendant had the power to dispose of or deal with as if it were his own. Assets specifically listed included accounts in the names of Mr Mitchell and Mr Silverman at Credit Suisse in Geneva. The order also required each defendant within 24 hours of service of the order and to the best of his ability to inform the company’s solicitors of his assets worldwide and within 3 days to provide information to facilitate the tracing of assets derived from the company, including the current value, nature and location of any asset constituted by or derived from any monies or assets transferred or diverted to LCI or the identities and contact details of any persons who might have such information. Within 7 days each defendant was required to confirm the information in an affidavit.

[18]The July 2006 order was personally served on Mr Mitchell and Mr Silverman between 9 and 10 pm on 24 July 2006 at their homes and on Steven Silverman by arrangement at 4 pm on 25 July 2006.

[19]Mr Mitchell and Mr Silverman consulted solicitors on 25 July 2006 and a final extension of time for the initial provision of information to 2 pm on 26 July 2006 was agreed by the company’s solicitors. Late in the afternoon on 26 July 2006 a one page statement of assets for all three defendants was faxed to the company’s solicitors. As regards Mr Mitchell and Mr Silverman, it stated that the balance on their Credit Suisse accounts was nil and that their houses and, in the case of Mr Silverman, another property were held by trusts of which they were not beneficiaries. The other property was 8 Queen Elizabeth Close, Meridian Park, Waltham Abbey, Essex (8 Queen Elizabeth Court), from which the company traded. The only other assets disclosed by them were cars and, for Mr Silverman, a balance of £4,000 on an account with HSBC. On 1 August 2006 disclosure was made of the defendants’ ownership of shares in MPUK (Mr Mitchell 40 per cent, Mr Silverman 40 per cent, Steven Silverman 20 per cent) and of MPUK’s ownership and development of three properties. On 3 August 2006, this was qualified by stating that the shares in MPUK were beneficially owned by Deerfield and that, while MPUK held the legal title to the three properties, its beneficial ownership was confined to sharing any profits with Deerfield. Deerfield’s registered office in England was 8 Queen Elizabeth Close and it was said to be owned by BDO Fidecs. It was stated that the defendants had no legal or beneficial interest in Deerfield.

[20]Steven Silverman swore an affidavit on 8 August 2006. He accepted that he and his father were signatories on LCI’s account with Andbanc, although he could not recall ever signing an authorisation for a transfer, and to the best of his knowledge instructions relating to transfers “were always received personally from Mr Farber by telephone and/ or fax”. He described Mr Farber as a business associate of his father. He had met Mr Farber on several occasions since the mid-1990’s, both in this country and in the Ukraine, but had no personal contact with him in his dealings with the company. As regards LCI he stated:

“In respect of LCI, further information may be available from Mr Jaroslav Farber. I understood that LCI was owned and run by more than one partner, but the sole individual I knew of was Mr Farber. I do not know of Mr Farber’s current whereabouts although I believe he last contacted my father in early July 2006. The only address I have for him is 8 Mukhina, Yalta, Crimea, Ukraine 33403. I do not know the names or contact details of any other individual who may be or have been involved in LCI.”

[21]As regards the issued shares in MPUK held by the defendants, he stated:

“All of these shares are held on behalf of Deerfield Services Limited (“Deerfield”), a company I understand to be under the control of Mr Jaroslav Farber. Therefore, whilst they are held in my name, and those of my co-Defendants, I do not regard them as assets belonging to me or my co-Defendants.”

He continued:

“Properties developed by MPUK are purchased by MPUK with funds belonging to Deerfield. They are held in MPUK’s name on behalf of Deerfield, but the beneficial interest in each property is Deerfield’s. Profits generated by these developments are shared between Deerfield and MPUK. The Defendants’ interests in MPUK are therefore confined in practice to a profit share.”

In a corrective affidavit sworn on 19 December 2006, Steven Silverman said that his first affidavit was wrong and that the shares in MPUK were owned beneficially by the defendants, and not held on behalf of Deerfield.

[22]Neither Mr Mitchell nor Mr Silverman provided any affidavit or any further information pursuant to the terms of the July 2006 order. Correspondence from their solicitors relied on their medical conditions for these failures. On 29 August 2006 the company issued an application to commit them for contempt in failing to comply with the disclosure orders.

[23]On 1 November 2006 Lawrence Collins J made an order requiring the defendants to execute letters of authority for disclosure of information by Credit Suisse, HSBC, BDO Fidecs and Andbanc, and requiring Mr Mitchell and Mr Silverman to make and serve affidavits setting out full details of all trusts or similar arrangements set up on their instructions. Before making the order, the judge considered the evidence which had been filed dealing with the medical condition of Mr Mitchell and Mr Silverman. They served affidavits on 8 November 2006 and Mr Mitchell made a second affidavit on 22 November 2006.

[24]In his affidavit, Mr Silverman stated that only one trust had been set up on his instructions. It was operated by BDO Fidecs and the beneficiaries were his grandchildren. His home and 8 Queen Elizabeth Court had been transferred to the trust in early 2003 for inheritance tax purposes. He and his wife were allowed to live rent-free in the house during their lifetime. He did not have a copy of the trust documents.

[25]As regards the transfer of funds from the company to LCI and their subsequent disposal, Mr Silverman stated:

“10.1.1 I am able to comment in general but not specific terms. Mr Farber represented a number of officials from the Ukrainian Ministry of Health (though I do not know what arrangements were in place between Mr Farber and his associates). Orders for pharmaceuticals were received by the Company via Mr Farber and he was in return paid commissions by the Company through LCI. This amounted to an informal profit sharing arrangement between the Company and LCI. 10.1.2 I had worked with Mr Farber and his associates since the mid 1990s. Later they began to trade in pharmaceuticals. I believe that commissions were initially paid to Mr Farber personally but that as the level of trade increased he decided to establish a company, I believe LCI, to receive payments due to him. 10.1.3 I have no memory of this but I believe that all transactions between LCI and the Company would have been recorded in the Company’s records and in its accounts but I have unable been to verify this as, even if I was well enough to consider them, I do not have access to the Company’s records. 10.1.4 LCI introduced pharmaceutical orders to the Company, and the Company in turn place orders with GlaxoSmithKline Export Limited (“GSK”) or its predecessors. 10.1.5 The Company agreed to pay GSK for the pharmaceuticals ordered according to a payment schedule which was agreed between the parties. The Company would then receive payments for the goods supplied from its customers and commission payments due were made to LCI. 10.2 I am unable to comment on the transfers from the Company to LCI or any payments by LCI as I have no memory of them. I believe the payments made are likely to have been commission payments for business LCI introduced to the Company referred to above. I cannot say what any of the payments by LCI were for as I have no memory of the transferees or why the transfers were made, and I am unable to provide any information as to the current value, nature and location of the funds transferred. 10.3 I have never had any legal or beneficial interest in LCI, and have never exercised direct or indirect control over LCI. 11.1 In respect of LCI, further information may be available from Mr Jaroslav Farber. Whilst I understood that LCI was owned and run by more than one person, the only individual that I knew of was Mr Farber. The only address I have for him is 8 Mukhina, Yalta, Crimea, Ukraine 33403.”

I should mention that the medical reports indicate that for some time before making this affidavit Mr Silverman had been suffering from the incapacity which was officially recognised in December 2006.

[26]I will refer later in more detail to Mr Mitchell’s first and second affidavits, but they can be summarised as follows. In his first affidavit, he stated that he had set up one trust, operated by BDO Fidecs, to which his house at 5 Halley Road, Waltham Abbey, Essex (5 Halley Road) was transferred in February 2003. He stated that 5 Halley Road had been purchased in March 2001 with the proceeds of sale of his previous house, which had been owned by his mother and had been settled by her on trust for his children, and with further funds from a separate trust established some years earlier by his mother for his children. His mother’s requirement was that 6 Halley Road was also to be held on trust for his children and he had been remiss in not making the appropriate formal arrangements until February 2003. The beneficiaries of the trust were his four children, while he and his wife were permitted to live at the house rent-free during their lifetimes. As regards LCI, he believed that it was owned by Mr Yuroslav Farber and that the company’s payments to LCI were commission payments. He stated that his account at Credit Suisse was set up for receiving commission payments which he understood would be paid for the benefit of Mr Farber or his associates. He gave some information as regards a few of the payments made out of LCI’s account. Overall, the affidavit is in terms very similar to Mr Silverman’s affidavit.

[27]In his second affidavit, Mr Mitchell confirmed his earlier statement that he did not know why any of the ten payments totalling £2,297,100 from LCI to accounts maintained by BDO Fidecs had been made, nor did he know the present location or nature of any assets representing those payments. He had no knowledge of the entities to which they were made. In his first affidavit he had given the address in Yalta as a contact address for Mr Farber. The liquidators’ agent had found no connection there with Mr Farber or LCI, as to which Mr Mitchell stated in his second affidavit:

“As to the contact details I have provided for Mr Farber, the information at paragraph 11.1 of my first affidavit is the only information I am able to provide. I have complied with my obligation to provide information to the best of my ability. Whilst I have met Mr Farber, business communications were made solely between Mr Farber and the Second Defendant. The Claimant’s solicitors state that the address I have provided “does not appear to exist” but they do not say what leads them to this conclusion. It was my understanding that the address is that of the Institute of Child Healthcare in Yalta, and that Mr Farber had offices in this complex.”

[28]He confirmed that the beneficiaries of the trust holding 5 Halley Road were his children, adding that his wife was also a beneficiary, and asserted that he had given full details of the trust.

[29]On 1 November 2006, Lawrence Collins J also ordered Mr Mitchell and Mr Silverman to serve their defences by 10 November and 16 November 2006 respectively, failing which they would be debarred from defending the proceedings. Mr Mitchell’s defence was duly served, but Mr Silverman has not served a defence. On 15 November 2006 he applied for an extension of time for service of his defence “until 28 days after [he] is certified fit to deal with these proceedings” and on 16 November 2006 he applied for relief from the debarring order made by Lawrence Collins J. These applications are before me and I deal with them later in this judgment.

[30]On 21 February 2007 the claimant issued its application for summary judgment and an order for an interim payment against Mr Mitchell and Mr Silverman. On 6 March 2007 Mr Mitchell made a witness statement in opposition, to which I will later refer in more detail. In summary, he reiterated that he understood that LCI was controlled by Mr Farber and his associates and that the payments to it were commissions. He denied that any of the payments from LCI were made for his benefit. He repeated that his account at Credit Suisse was:

“a mechanism for providing commission payments to Mr Farber and his associates. I do not know why this additional step (in addition to the use of LCI) was put in place. I have been unable to explain why the account was set up, because I do not have that information. I believe that the Second Defendant would be able to provide an explanation, if he was well enough to do so.”

For the same reason, he was unable to comment as to where the monies received into his Credit Suisse account were ultimately transferred. He denied that the sums transferred from LCI to BDO Fidecs were made for the benefit of himself and the other defendants. As to the trust established to hold 5 Halley Road, he added only that he believed that Mr Silverman had an existing relationship with BDO Fidecs and had “suggested that my matrimonial home be placed in a trust operated by BDO”. He emphasised that Mr Silverman was very much the “senior partner” in the company. The business was founded on Mr Silverman’s contacts in the former Soviet Union and he took responsibility for dealings with the company’s “partners”. Mr Mitchell’s responsibilities were confined largely to dealing with the company’s supplier, GSK. He concluded his witness statement by saying:

“Throughout my involvement with the Claimant, I acted on the Second Defendant’s instructions. I did not question those instructions or seek further information from him. With hindsight, I now accept that this may have been naïve. However, I have no reason to believe that the Second Defendant acted improperly.”

[31]The committal and summary judgment applications were listed for an effective hearing before the Chancellor on 8 March 2007. On the evening of 7 March 2007 and on the following day the claimant received information from BDO Fidecs that on 25 July 2006, the day after service of the July 2006 order, Mr Mitchell had instructed BDO Fidecs to transfer £150,000 to each of the accounts at Credit Suisse in the names of Mr Silverman and himself. In the light of this information, the Chancellor ordered Mr Mitchell to provide further information as regards these transfers, to be verified by affidavit. The existing applications were adjourned to 27 March 2007 and directions were given in relation to a proposed further committal application against Mr Mitchell arising from the new information.

[32]The initial provision of information by Mr Mitchell was made in a letter dated 9 March 2007. He stated that he did not give the instructions for the transfers totalling £300,000 from BDO Fidecs to Credit Suisse, but as a result of enquires he had “been able to establish the following information.” The transferred funds had been held to the order of Deerfield and had been transferred to his and Mr Silverman’s accounts at Credit Suisse. The sum of £150,000 transferred to his account was subsequently transferred to an account in the name of Black Vulture with Credit Suisse, but he gave no further details of this entity.

[33]On 20 March 2007 Mr Mitchell made his third affidavit, very different in tone from his earlier affidavits and witness statement. He began with “an abject apology” to the court and an acceptance that he had plainly committed a series of breaches of the July 2006 order and that his “numerous contempts of court”, in failing to comply with his obligations to disclose the existence of assets and with the prohibitions on dealing with assets, were “particularly grave”. He stated that he believed that Andbanc would act on his instructions for the transfer of funds from Bawdwin’s account to an account in England and that Credit Suisse would do likewise in respect of Black Vulture.

[34]He confirmed the information given in his letter of 9 March 2007 regarding the transfers totalling £300,000 from BDO Fidecs to Credit Suisse and on to Black Vulture, adding that Black Vulture’s account was with Credit Suisse in Liechtenstein. He stated that the sum of £300,000 originated with a transfer on 25 July 2007 from MPUK to BDO Fidecs. He signed the instructions for the transfer on 24 July 2006, but he stated that he did so before service of the July 2006 order on that day. However, he accepted that on 25 July 2006 he telephoned BDO Fidecs to check whether they had received the transfer, knowing of the instructions for the onward transfer to Credit Suisse which he took no steps to prevent. He accepts therefore that he was actively involved in giving effect to the transfer to Credit Suisse after service of the order.

[35]As regards the reason for these transfers, he stated:

“I believed that the £300,000 transferred to Fidecs was a sum payable to Deerfield under the profit sharing arrangement between MPUK and Deerfield. I accept that this was an irrational conclusion for me to have drawn in view of the timing of the transfer and the elaborate nature of the series of transfers of which it formed part. With hindsight I now accept that those transfers amounted to an attempt to put assets beyond the reach of the Claimant. I did not believe that I had any beneficial interest in the £300,000,”

[36]He stated that he and the other defendants were signatories to the Black Vulture account but to the best of his knowledge and belief it contained no assets belonging to him. He stated that the sums transferred previously from LCI to the Credit Suisse accounts of Mr Silverman and himself were likely also to have been transferred to Black Vulture’s account. He gave no information as to the circumstances in which Black Vulture was established or as to its ownership or control or as to the beneficial ownership of assets in its name.

[37]Mr Mitchell swore his fourth affidavit on 27 March 2007. He stated that there were “certain statements in my previous affidavits which I now realise to be false, incomplete or misleading”. He stated:

“8.1 At paragraph 10.5.12 of my first affidavit and paragraph 15 of my second affidavit, I stated that I did not know why the payments from Lake Charles Inc (“LCI”) to Fidecs Management Limited (“Fidecs”) listed at Annex B to the Particulars of Claim were made, and that I had no knowledge of the entity to which they were made (i.e. the entities on whose behalf Fidecs held the sums transferred). Those statements are false: as I explain below, I did have some knowledge as to why payments were being made to Fidecs, and of what sort of entity Fidecs was. I admit that I did not give proper consideration to these payments and therefore failed to disclose information that I should have provided in my earlier affidavits. I regret that failure and sincerely apologise to the court for it. 8.2 I accept that I myself notified Fidecs that it would be receiving some of the Annex B payments (and other payments) and that I gave instructions as to what Fidecs should do with the monies received. Prior to receiving the documents exhibited at pages 10-56 of AM1, I did not connect the “Annex B” payments made from LCI to Fidecs to the payments in respect of which I gave instructions to Fidecs. Given the large sums of money involved, I accept that I should have done so. I should also have remembered, and stated, that the payments in respect of which I gave instructions to Fidecs related to investments by the Second Defendant’s Ukrainian partners on specific property developments. I should have stated that I knew that Fidecs operated accounts on behalf of those partners in the names of Deerfield and Heaton Moor. 8.3 Even if I had been unable to recall which transaction a specific payment related to, I should have been able to obtain further information in respect of those transactions from third parties (most obviously the conveyancing solicitors, Edward Oliver, from whom I and my co-defendants have now requested copies of all documentation held by them: pages 12-15 of MDAM5). 8.4 However, I maintain that whenever I gave instructions to Fidecs I was simply relaying the Second Defendant’s instructions to me. I have not yet been able to ascertain what became of the monies transferred by Fidecs on those instructions but I will make every effort to do so and to facilitate enquiries by my solicitors and the Claimant’s solicitors in this regard.”

[38]As regards Black Vulture, he stated that it was set up at the instigation of Mr Silverman and that he understood from Mr Silverman that its purpose was to provide a fund against which MPUK could borrow for investment in further properties for development. MPUK was, as he has accepted, beneficially owned by the defendants, whatever its profit-sharing arrangements, if any, with Deerfield.

[39]The declarations of trust for the trusts which hold title respectively to 5 Halley Road and to Mr Silverman’s house and 8 Queen Elizabeth Court had been disclosed on 20 March 2007. They were both made by BDO Fidecs as trustee on 21 December 2002 and are in identical terms save as to the identity of the beneficiaries. The beneficiaries of the trust holding 5 Halley Road are named as Mr and Mrs Mitchell and their children and remoter issue. The declaration of trust gives a life interest to Mr and Mrs Mitchell and empowers the trustees to transfer part or all of the trust assets back to them in their lifetimes. In his fourth affidavit, Mr Mitchell accepted, “having studied the declaration of trust”, that his earlier evidence as regards the trust was wrong.

[40]As well as the transfers of £300,000 from MPUK to BDO Fidecs and onwards, Mr Mitchell accepted that other transfers from MPUK were made in breach of the July 2006 order. These included in particular the transfer of £20,000 to Steven Silverman who paid it to the defendants’ solicitors on account of costs in the present proceedings. As Mr Mitchell accepts, the defendants wrongly told their solicitors that these were Steven Silverman’s own funds and in turn the company’s solicitors were misled as to the source of the funds.

The application for summary judgment

[41]The company seeks summary judgment against Mr Mitchell on the grounds that it has an overwhelming case that the payments to LCI were misappropriations by Mr Mitchell and Mr Silverman and that Mr Mitchell’s defence that they were commission payments to Mr Farber and his Ukrainian associates is wholly incredible.

Summary judgment: the legal test

[42]The test under CPR Part 24 for summary judgment against a defendant is that he has no real prospect of defending the claim. Where that conclusion would require the court to disbelieve the defendant’s evidence as deliberately false and to find that he has been guilty of fraudulent conduct, the court is highly reluctant to do so without a trial, involving the usual process of pre-trial disclosure of documents and the opportunity for the defendant to give his evidence orally and to cross examine witnesses against him.

[43]It was at one time thought by some that summary judgment should not be given in such circumstances unless on the evidence not even a faint possibility of a defence existed. It was considered that the defendant’s written evidence should be rejected only if it was self-contradictory or inadmissible or irrelevant. The court would not reject his evidence if, only because of its inherent implausibility or its inconsistency with other evidence, the court found it incredible or almost incredible. See Paclantic Financing Co Inc v Moscow Narodny Bank Ltd

[1983] 1 WLR 1063

, although on appeal the Court of Appeal without hearing argument on the point expressed reservations as to this approach: see

[1984] 1 WLR 930

, 939.

[44]In National Westminster Bank v Daniel

[1993] 1 WLR 1453

, the Court of Appeal reviewed the authorities. It concluded that the approach at first instance in Paclantic Financing Co Inc v Moscow Narodny Bank Ltd was too restrictive. Glidewell LJ stated the correct approach at p1457:

“I think it right to ask, using the words of Ackner L.J. in the Banque de Paris case, at p. 23, "Is there a fair or reasonable probability of the defendants having a real or bona fide defence?" The test posed by Lloyd L.J. in the StandardChartered Bank case, Court of Appeal (Civil Division), Transcript No. 699 of 1990 "Is what the defendant says credible?," amounts to much the same thing as I see it. If it is not credible, then there is no fair or reasonable probability of the defendant having a defence.”

The passage in the judgment of Ackner LJ in Banque de Paris et des Pays-Bas (Suisse) SA v Costa de Naray

[1984] 1 Lloyds Rep 21

at 23 is:

“It is of course trite law that Order 14 proceedings are not decided by weighing the two affidavits. It is also trite that the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend; the court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair or reasonable probability of the defendants having a real or bona fide defence.”

[45]There are no grounds for thinking that a different test, certainly not a higher test, applies to applications under CPR Part 24 than previously applied to RSC Order 14. In Wrexham Association Football Club Ltd v Crucialmove Ltd

[2006] EWCA 237

, the Court of Appeal affirmed an order for summary judgment against a company owned and controlled by a former director of the claimant which involved a finding of bad faith on the part of the director. There must, however, be noted the cautionary comments of Sir Igor

Judge P in his concurring judgment:

“57. I do not underestimate the importance of a finding adverse to the integrity to one of the parties. In itself, the risk of such a finding may provide a compelling reason for allowing a case to proceed to full oral hearing, notwithstanding the apparent strength of the claim on paper, and the confident expectation, based on the papers, that the defendant lacks any real prospect of success. Experience teaches us that on occasion apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate. In short, oral testimony may show that some such cases are only tissue paper strong. As Lord Steyn observed in Medcalf v Weatherill [2003]1 AC120 at paragraph 42, when considering wasted costs orders: "The law reports are replete with cases which were thought to be hopeless before investigation but were decided the other way after the Court had allowed the matter to be tried". And that is why I commented in Esprit Telecoms UK Ltd and others -v- Fashion Gossip Ltd , unreported, 27 July 2000 that I was "troubled about entering summary judgment in a case in which the success of the claimant's case involves, as this one does, establishing allegations of dishonesty and fraud, which are strongly denied, and which cannot be conclusively proved by, for example, a conviction before a criminal court." 58. This collective judicial experience does not always, or inevitably, provide a compelling reason for allowing the case to proceed to trial, nor for that matter require the judge considering the application to reject the conclusion that there is no real prospect of a successful defence of the claim if he is satisfied that there is none. That is not what the Rules provide, and if that had been intended, express provision would have been made. It is however a factor constantly to be borne in mind, if and when, as here, the reason for concluding summary judgment is appropriate is consequent on a disputed finding, adverse to the integrity of the unsuccessful party.”

The seriousness of the allegations against Mr Mitchell and Mr Silverman must be constantly borne in mind in considering whether this is a suitable case for summary judgment.

Grounds for the company’s application for summary judgment

[46]The company’s submission that Mr Mitchell’s defence is incredible and that he has accordingly no real prospect of successfully defending the claim is based on the following principal matters. First, there have been significant inconsistencies in his explanation over time for the payments. Secondly, the scale and timing of the payments is inconsistent with the alleged defence. Thirdly, the transferred funds were used for the benefit of Mr Mitchell and/ or Mr Silverman. Fourthly, there are clear connections between the defendants, LCI and many of the payees of funds from LCI, but none with a Mr Farber or any Ukrainian associates. Equally, there is no evidence of any involvement by a Mr Farber or Ukrainian associates, beyond the affidavits of the defendants which in the case of Mr Mitchell and Steven Silverman are based on what Mr Silverman allegedly told them. Fifth, Mr Mitchell’s evidence, and his conduct in relation to the July 2006 order, demonstrates that his uncorroborated evidence is not to be accepted. Finally, the transfer of properties into the Gibraltar-based trusts and Mr Mitchell’s conduct as regards the records of the company undermine the defence. (1). Mr Mitchell’s explanations for the payments to LCI

[47]Mr Mitchell was originally asked about LCI in early 2004. The auditors had produced documents in support of a trial balance as at 1 April 2002, including a document purporting to be an invoice dated 5 March 2002 from LCI to the company for £1,549,712 for “mixed pharmaceuticals, (as packing list supplied)”. The company’s bank produced to the liquidators copies of a number of cheques, including some in favour of “Y. Farber & Co”. Together with an extract from a cash ledger provided by the auditors, these indicated that from April to November 2002 payments of £7,200, or occasionally £6,200 or £5,400, were made in each month except August to “Y. Farber & Co”. In March 2004 the liquidators asked Mr Mitchell what the company had purchased from LCI and the purpose of the payments to Y Farber. In a letter dated 16 March 2004, Mr Mitchell replied “mixed pharmaceuticals” to the first question and “commissions” to the second. When the liquidators requested further details of the purchases from LCI, Mr Mitchell referred back to the information provided by the auditors, i.e. the purported invoice. When the liquidators asked Mr Mitchell for contact details for LCI, he replied “we have already provided you with all information regarding this company including the contact details we had.” At this stage, therefore, there was no suggestion that commissions were paid to LCI or that there was any connection between LCI and Mr Farber.

[48]In late 2004, as part of the Insolvency Service’s consideration of whether to bring directors’ disqualification proceedings against Mr Mitchell and Mr Silverman, Mr Mitchell was asked to provide full details of the relationship and dealings between the company and LCI, particularly details as to the type and quantities of pharmaceutical products allegedly supplied by LCI. Mr Mitchell replied on 10 February 2005:

“To clarify the monies paid to Lake Charles Inc. there has never been any requests by the liquidator for any explanations regarding these. These transactions comprised a number of payments made over a period of time and all related to purchases made in 2001, 2002. These payments reflected the trading and credit terms that UK AID LTD had with both GSK and Lake Charles Inc. and are recorded in the audited accounts. The proof of consideration of goods is undeniable, as all supporting documentation for the company’s sales and purchases, including all dealings with Lake Charles Inc. were presented to the auditors for the preparation of the accounts.”

[49]Mr Mitchell’s position at that stage was therefore that the payments to LCI were for purchases of pharmaceutical products. Again, there was no suggestion of a connection with Mr Farber. However, in his first affidavit dated 8 November 2006, as in his defence served on 10 December 2006, Mr Mitchell stated that the payments to LCI were commission for Mr Farber and his associates and that LCI was controlled by them. He stated:

“8.2.2 It was at all times and remains my understanding and belief that LCI was owned by Mr Yaroslav Farber. I understand from the Second Defendant that Mr Farber represented a number of officials from the Ukrainian Ministry of Health (though I do not know what arrangements were in place between Mr Farber and his associates). Orders for pharmaceuticals were received by the Company via Mr Farber and he was in return paid commissions by the Company through LCI. This amounted to an informal profit sharing arrangement between the Company and LCI. 8.2.3 It was at all times and remains my understanding that the Second Defendant had worked with Mr Farber and his associates since the mid 1990s. I understood that they traded in metals, oil, sugar, wheat, and that in 1997 they began to trade in pharmaceuticals. I believe that commissions were initially paid to Mr Farber personally but that as the level of trade increased he decided to establish LCI to receive payments due to him. 8.2.4 To the best of my recollection, all transactions between LCI and the Company were recorded in the Company’s records and in its accounts but I have unable been to verify this as I do not have access to the Company’s records. 8.2.5 LCI introduced pharmaceutical orders to the Company, and the Company in turn place orders with GlaxoSmithKline Export Limited (“GSK”) or its predecessors. The Company’s point of contact within GSK was Richard Jones. 8.2.6 The Company agreed to pay GSK for the pharmaceuticals ordered according to a payment schedule which was agreed between the parties. The Company would receive payments for the goods supplied from its customers and payments due were made to LCI. 8.2.8 As to the eleven transactions referred to at paragraph 9.2 below, to the best of my knowledge and belief, these were commission payments made in the ordinary course of business between the Company and LCI.”

[50]In his second affidavit dated 20 November 2006, there was a change in Mr Mitchell’s evidence as regards the purpose of the company’s payments to LCI. On the basis that the total sterling value of the payments was £5,022,680 he stated in paragraph 25:

“I believe that these payments were broken down as follows. £1,549,712 related to purchases paid (please see the invoice no 3005/01 from LCI dated 5 March 2002 at page 238 of IJH1). The remaining £3,472,968 constituted commission/profit share payments. The commissions paid equate to under half of UK (Aid)’s turnover. I believe that this was the basis of the informal profit sharing arrangement between the company and LCI, but I was not made aware by the Second Defendant of the details of that arrangement.”

[51]In his witness statement made on 6 March 2007, Mr Mitchell stated:

“Commission payments 8. Mr Hastings argues, at paragraphs 7, 8 and 9(a) of his witness statement, that the payments made from UK (Aid) to Lake Charles Inc (“LCI”) cannot have been legitimate commission payments. Arrangements in respect of commission payable by UK (Aid) to LCI were made by the Second Defendant, and I do not therefore have first hand knowledge of them. I understood that the commission payments were made to LCI in return for the introduction of business to UK (Aid) by Mr Farber. 9. With the help of UK (Aid)’s accountants, I have described my understanding of the basis on which the commissions were paid at paragraph 8.2 of my first affidavit and paragraphs 24 to 26 of my second affidavit. Lake Charles Inc 10. At paragraph 9(b) of Mr Hastings’ witness statement he states that I have not explained why it was necessary for LCI to be established in order to receive commission payments. I have provided as much information as I am able to give in relation to LCI at paragraphs 8.2.2 and 8.2.3 of my first affidavit. I understood LCI to be a company controlled and operated by Mr Farber and his associates. I can only speculate as to why UK (Aid)’s Ukrainian partners chose to receive commission payments through a BVI company, but I think it is entirely plausible that they should not wish to receive payments directly. I understood that they were employees of the Ukrainian Ministry of Health and they may have wished to avoid drawing attention to the sums of money they were receiving. I would reject the suggestion that there is anything inherently sinister in this arrangement.”

Lake Charles Inc

[52]In his fourth affidavit sworn on 27 March 2007, the first day of the hearing, Mr Mitchell stated that:

“It was my genuine understanding that the monies paid to LCI were commission payments for Mr Farber and his associates.”

This is consistent with his defence and first affidavit and makes no reference to a purchase of goods by the company from LCI or the alleged invoice from LCI for £1,549,712. (2). Timing and size of the payments to LCI

[53]Secondly, the company relies on the timing and the scale of the payments. Payments into the LCI account started on 26 October 2001 with a payment of $255,000 from C Horn et Cie, a Swiss customer of the company, which the company alleges was a sum due to it for supplies. The first payment directly by the company was $921,850 on 20 November 2001. The next direct payment was £1,500,000 on 28 February 2002 and further direct payments were made in each month until September 2002, although in March 2002 only $100,000 was paid at the start of the month. A final direct payment of $255,000 was made on 14 November 2002 and the company ceased trading on 9 December 2002. In addition, there were throughout the period payments into the account from two third parties, C Horn et Cie and Polish Pharmaceuticals Services SP.

[54]The direct payments totalled over £5 million. Over much the same period (14 December 2001 to 13 August 2002) the unpaid amounts invoiced by GSK grew from £528,750 to over £5.4 million. During that period, some payments were made to GSK: £600,000 on 20 December 2001 and $335,229 and £400,000 in March 2002. Putting it broadly, payments were made each month either to GSK or, in total on a much larger scale, to LCI’s account.

[55]The payments to LCI were very substantial compared to the company’s turnover and profits. For the entire period from 1 April 2000 to the end of trading on 9 December 2002, turnover (net invoiced sales excluding VAT) amounted to £8,654,310. The payments to LCI amounted to £5,022,680 (adopting the dollar/ sterling exchange rate used by Mr Mitchell in his evidence), representing 58 per cent of the turnover. The payments to LCI did not start until November 2001, so that if the comparator for turnover is taken as being the turnover for the period from 1 April 2001 to 9 December 2002, turnover was £6,148,741 of which the payments to LCI represented over 81 per cent. The company submits that it is incredible to suggest that 58 per cent or more of turnover would be paid in commissions to obtain orders.

[56]The company further submits that Mr Mitchell’s statement in his second affidavit that it was an informal profit sharing arrangement is absurd. The accounts show that the bulk of turnover was applied in the cost of purchases. According to the audited accounts for the year to 31 March 2002, the “cost of sales” (which relates entirely to the cost of stock and does not include commissions for sales: see p.11 of the accounts) in that year was £4,929,961 against a turnover of £5,293,908, leaving gross profits of £363,947. After overheads, including directors’ remuneration of £127,556, the net profit for the year was £94,320. Turnover for the period from 1 April 2002 to December 2002 when the company ceased trading was only £854,833, according to Mr Mitchell’s evidence. Even assuming that in truth nothing had been due to GSK on the invoices in issue in the winding-up proceedings, the great majority of turnover, let alone gross profits, of the company for the period from 1 April 2001 to 9 December 2002 was paid to LCI. This could not be a “profit-sharing” arrangement.

[57]The above figures assume that all payments to LCI are said to have been commission, which is Mr Mitchell’s pleaded defence and the position as stated by him in his first and fourth affidavits. Even if £1,549,712 related to purchases from LCI as per the alleged invoice dated 5 March 2002, the balance of £3,472,968 paid to LCI represents over 56 per cent of turnover in the period from 1 April 2001 to 9 December 2002 and, even if nothing at all was due to GSK in respect of its disputed invoices, over 100 per cent of a gross profit for that period of £3,368,773 (i.e. turnover of £6,148,741 less purchases from LCI of £1,549,968 and payments totalling £1,230,000 to GSK in December 2001 and March 2002). (3). Payments out of LCI’s account

[58]The third principal ground relied on by the company is the use to which the funds transferred to LCI were put. It is the company’s case that these funds were paid to or for the benefit of Mr Mitchell and Mr Silverman, with their knowledge. There were a substantial number of payments out of LCI’s account and it is convenient to deal with them in categories. (i). Transfers to Swiss bank accounts in the names of Mr Mitchell and Mr Silverman

[59]On 6 March 2002 and 26 June 2002 payments of $50,000 and $215,000 respectively were made to each of two accounts in the names of Mr Mitchell and Mr Silverman with Credit Suisse in Geneva. The instructions were signed by Mr Silverman. In his first affidavit, Mr Mitchell stated only that his account was set up for receiving commission payments which he understood would be paid for the benefit of Mr Farber or his associates. In his second affidavit he stated that he knew nothing more about the purpose of the payments made from the account, which were arranged by Mr Silverman. He continued:

“I recall that he informed me that Mr Farber wanted payments to be made into a Swiss account because of concerns over the stability of the Russian currency. I cannot provide details of when commission/profit share payments were made as I do not have any records. I am therefore unable to say more as to what became of the $265,000 transferred into this account. The Claimant’s solicitors insist that my disclosure in relation to my Credit Suisse account is “obviously inadequate” but they do not explain why. I have already stated everything that I am able to tell them about this account.”

[60]In March 2007 it became clear that this statement was untrue. As already detailed, new evidence revealed that Mr Mitchell had been closely involved in the transfer of £150,000 from BDO Fidecs to each of the Swiss accounts held by Mr Silverman and himself, the day after service of the July 2006 order. He had then instructed the transfer of £150,000 from his account to Black Vulture, as did Mr Silverman. There has been no suggestion that Black Vulture or funds held in its name are connected with Mr Farber or other unconnected third parties. On the contrary, the defendants are the signatories on its account in Liechtenstein and Mr Mitchell has said that he understands that Black Vulture is a fund against which MPUK can borrow for property investment and development. Rather than being unable to say what became of the $265,000 transferred into his Credit Suisse account in 2002, Mr Mitchell now says that he believes that it is likely to have been transferred to the Black Vulture account. While he says that he does not especially recall giving the instructions for this transfer, he accepts that he must have done so. Black Vulture was not incorporated, and its account was not opened, until June 2006. It would seem to follow that the funds remained in Mr Mitchell’s account at Credit Suisse until June or July 2006 when they were transferred not to Mr Farber or an entity controlled by him but to Black Vulture.

[61]Mr Mitchell also disclosed for the first time in his third affidavit that he held a Swisscard credit card with Credit Suisse which he used for personal expenditure and which was serviced from his Credit Suisse account. He further disclosed that he had short-term maturity fund units with Credit Suisse, which were credited to his account on maturity, although he says that he had not been aware of these units.

[62]There was therefore considerably more about his Credit Suisse account which Mr Mitchell was able to tell, but did not do so until his third affidavit. His original claim that he understood the account to be a conduit for funds for Mr Farber or his associates is not only undermined by his failure to provide the further information, but it is entirely inconsistent with his more recent evidence that the sums of $50,000 and $216,000 were transferred to the Black Vulture account and by the use of the account for the transfer on 25 July 2006 and for his Swisscard credit card. Further, on 10 July 2001 Mr Mitchell had given his wife a power of attorney in respect of the account. He provides no explanation why his wife should be an attorney for an account said to be held by him as nominee for Mr Farber. (ii). Purchase of cars

[63]The first payment out of LCI’s account was $7,357 to a car dealer in Belgium, as the deposit on a purchase of a Chrysler Voyager vehicle. The balance of the purchase price, €37,377, was paid on 7 March 2002. The vehicle was registered in Mrs Mitchell’s name in April 2002, as Mr Mitchell disclosed in his fourth affidavit, and has been kept at their home since then. In his first affidavit Mr Mitchell stated that the vehicle was purchased “at the request of Mr Farber…for use by LCI in the UK” and that “Mr Farber of LCI agreed that I could use this vehicle when it was not in use by LCI”. In his second affidavit, he said that it was owned by LCI, although in fact LCI had been dissolved two years earlier in December 2004.

[64]On 12 February 2002 a sum of £100,000 was paid to a car dealer in Hadley Green for the purchase of a Bentley. Subsequent payments of £1,603, £978 and £11,176 were made to the same garage in May, September and October 2002. In his first affidavit, Mr Mitchell stated that this car too was purchased at the request of Mr Farber who had agreed that Mr Silverman could use it when it was not in use by LCI. In his fourth affidavit, Mr Mitchell stated that he believed the car was registered in Mr Silverman’s name.

[65]In his fourth affidavit, Mr Mitchell stated that his understanding of the position as regards the Chrysler and the Bentley was based on Mr Silverman’s assurances, and that he was not aware that either vehicle was purchased with funds derived from the company. There is no evidence that either vehicle was ever used by Mr Farber or anyone else except Mr Mitchell or, as the case may be, Mr Silverman and their families.

[66]In January and March 2003 two payments totalling £27,361 were made to Broom Broom Limited in Southampton for the purchase of a motor vehicle. The payment instructions, involving transfers from Bawdwin to LCI and the onward transfer to the car dealer, were signed by Mr Mitchell and Mr Silverman. Mr Mitchell denies all knowledge of the purpose of these payments. (iii). Purchase of watches

[67]Andbanc’s records showed that a number of payments totalling £28,661 had been made to the credit of a Mr Andrew Lanczak at a bank in Derbyshire. A further payment of $5,000 was made to Oldwatch.com in Oklahoma. The liquidators’ solicitors located Mr Lanczak who informed them in a telephone conversation the day before the hearing that he runs a small business selling watches and that he remembered selling several watches to Mr Silverman between December 2001 and March 2003. Mr Mitchell denies knowledge of these transfers or purchases. (iv). Purchase of Spanish properties

[68]In June and July 2002 three transfers of €70,000 and £30,000 were made to the Madrid bank account of Paradise Travel of the Seas SL (Paradise Travel), a Spanish company incorporated on 5 April 2002. Its shareholders were Mr Silverman and his wife, and its directors were Mr Silverman and Roger Griffiths. On 18 September 2002 it was registered at the Spanish land registry as the owner of two villas in the same development in Tenerife. Mr Griffiths is an estate agent based in Tenerife and appears as the key contact on the website of Villasur Property Sales and Administration. Between April and July 2002 three sums totalling £750,00 were transferred from LCI’s account to BDO Fidecs “ref Immobiliara Villasur”, each on the written instructions of Mr Silverman. On 31 July 2002, a further payment of £6,824 was made on Mr Silverman’s instructions to a Spanish company, World Wide Moving and Storage. This company has informed the liquidators that the payment was for the removal of personal effects of Mr Silverman from storage in England to one of the villas in Tenerife. There is presently no explanation as to why the two villas were bought. Mr Mitchell has denied knowledge of any of these transfers.

(v) Payments to Madison UK Limited

[69]On 9 January 2002 and 23 July 2002 the sums of £150,000 and £55,000 were transferred to the account of MUK at HSBC in London. As I have mentioned, MUK was an English company of which Mr Mitchell, Mr Silverman and Steven Silverman were the only directors and shareholders. According to Mr Mitchell’s second affidavit, it was a property maintenance and development company. There has never been any suggestion of any involvement by Mr Farber or any other third party in this company. It was dissolved on 24 January 2006 on the defendants’ application. Mr Mitchell stated in his first affidavit that he could not provide any further information about these transfers. He stated that MUK’s records had been kept by its accountants, MP Saunders & Co, who were also the company’s auditors, and that they had been destroyed in a fire at their offices on 24 March 2005. However, in his second affidavit, Mr Mitchell gave some additional information. He said that he had understood from Mr Silverman that the transfers were to provide start-up capital and were used to provide working capital for its day-to-day activities, which included property maintenance for a housing association. In its later stages it developed properties, including 1 King’s Head Hill, London E4 and 5 Blackstock Mews, London N5. There is no evidence of what became of any profits of MUK’s trading. (vi). Payments to Heaton Moor

[70]Between November 2002 and 30 June 2003, a total of £1,395,000 was transferred to BDO Fidecs for the account of Heaton Moor. The instructions were signed by either Mr Silverman or Steven Silverman. In some cases the same instructions also required a prior transfer from Bawdwin to LCI and in each of those cases the instructions were signed also by Mr Mitchell. Nothing is presently known about any transfers from Bawdwin to LCI. No transfers appear on the records for LCI’s account disclosed by Andbanc.

[71]Mr Mitchell was closely involved in the disposition of the funds transferred to BDO Fidecs for the account of Heaton Moor. Documents disclosed by BDO Fidecs show that Mr Mitchell telephoned BDO Fidecs as regards some of these transfers. On 2 April 2003, following the transfer of £215,000 on 27 March 2003, he requested that £210,000 be transferred “to the solicitors for the purchase of property” and the remaining £5,000 be kept for expenses. On 24 April 2003, following the transfer of £370,000 on 14 April 2003, he requested that £370,000 be transferred “to the solicitors for the purchase of the properties” and that contract notes would be sent to BDO Fidecs by courier the next day. Following the transfer of £400,000 on 19 May 2003, Mr Mitchell faxed a letter dated 21 May 2003 to BDO Fidecs, stating:

“Further to our conversation, you should now have received £400,000 for Heaton Moor Ltd to invest in the properties previously discussed. Please now transfer these funds to our solicitor so that he can exchange contracts on Heaton Moor Ltd’s behalf.”

Mr Mitchell gave the bank details for “our” solicitors, Edward Oliver & Bellis. On 24 June 2003 Mr Mitchell wrote again to BDO Fidecs that:

“I have been advised that £150,000 is being transferred to your account, ref Heaton Moor Ltd, for the completion of 5 Blackstock Mews.”

He instructed that upon receipt the funds should be transferred to “our solicitor”, Edward Oliver & Bellis. The transfer of £150,000 was made from LCI to BDO Fidecs on 30 June 2003, pursuant to instructions signed by Mr Mitchell and Steven Silverman.

[72]A schedule of property transactions involving Heaton Moor was disclosed by BDO Fidecs. Six properties in London and Essex were purchased by it between January and June 2003 at a total cost of £1,146,500. Between September 2003 and January 2005 they were sold for a total of £1,581,000. A further schedule disclosed by BDO Fidecs lists three properties in Essex as purchased in the name of Deerfield. They were purchased in July and September 2004 for a total of £555,000 and sold between September 2005 and June 2006 for a total of £1,013,500.

[73]As well as Mr Mitchell’s instructions by telephone and letter referred to above, other documents disclosed by BDO Fidecs show his involvement in the dealings with these properties and their development: see faxes dated 10 September and 7 November 2003 and 27 January, 31 August and 21 September 2004. These include properties purchased by Deerfield as well as by Heaton Moor.

[74]In relation to the transfers to Heaton Moor, Mr Mitchell stated in his first affidavit that he did not know why they had been made and was unable to provide any information as to the current value, nature or location of the funds. He stated that MUK and MPUK had acted as property developers and building contractors with working capital provided on a profit sharing arrangement by Heaton Moor and Deerfield. He stated that he had no legal or beneficial interest in the latter companies. He confirmed his lack of knowledge in his second affidavit.

[75]Mr Mitchell made clear in his fourth affidavit that this evidence was false. I should set out his further evidence in full:

“8.1 At paragraph 10.5.12 of my first affidavit and paragraph 15 of my second affidavit, I stated that I did not know why the payments from Lake Charles Inc (“LCI”) to Fidecs Management Limited (“Fidecs”) listed at Annex B to the Particulars of Claim were made, and that I had no knowledge of the entity to which they were made (i.e. the entities on whose behalf Fidecs held the sums transferred). Those statements are false: as I explain below, I did have some knowledge as to why payments were being made to Fidecs, and of what sort of entity Fidecs was. I admit that I did not give proper consideration to these payments and therefore failed to disclose information that I should have provided in my earlier affidavits. I regret that failure and sincerely apologise to the court for it. 8.2 I accept that I myself notified Fidecs that it would be receiving some of the Annex B payments (and other payments) and that I gave instructions as to what Fidecs should do with the monies received. Prior to receiving the documents exhibited at pages 10-56 of AM1, I did not connect the “Annex B” payments made from LCI to Fidecs to the payments in respect of which I gave instructions to Fidecs. Given the large sums of money involved, I accept that I should have done so. I should also have remembered, and stated, that the payments in respect of which I gave instructions to Fidecs related to investments by the Second Defendant’s Ukrainian partners on specific property developments. I should have stated that I knew that Fidecs operated accounts on behalf of those partners in the names of Deerfield and Heaton Moor. 8.3 Even if I had been unable to recall which transaction a specific payment related to, I should have been able to obtain further information in respect of those transactions from third parties (most obviously the conveyancing solicitors, Edward Oliver, from whom I and my co-defendants have now requested copies of all documentation held by them: pages 12-15 of MDAM5). 8.4 However, I maintain that whenever I gave instructions to Fidecs I was simply relaying the Second Defendant’s instructions to me. I have not yet been able to ascertain what became of the monies transferred by Fidecs on those instructions but I will make every effort to do so and to facilitate enquiries by my solicitors and the Claimant’s solicitors in this regard. 9.1 None of LCI, Heaton Moor, Deerfield or Bawdwin were set up on my instructions. I do not know how these companies were set up and I am not aware of any other BVI companies. I was a signatory in respect of the Bawdwin account but I did not give instructions in respect of the LCI, Heaton Moor and Deerfield accounts. I do not know why BVI companies were used or what became of the profits made from the sale of properties purchased through them. The Second Defendant dealt with the accounting to his Ukrainian partners for profits made on developments. I maintain that it was my genuine understanding that the monies paid to LCI were commission payments for Mr Farber and his associates.”

[76]Other than what Mr Mitchell there states, there is no evidence to link Heaton Moor or the purchases financed by transfers from LCI with Mr Farber or other alleged Ukrainian associates. (vii). Transfer to BDO Fidecs ref. Liz Plummer

[77]On 13 January 2003 £100,000 was transferred to BDO Fidecs “ref. Liz Plummer”, who is an employee of BDO Fidecs. The instruction for a transfer from Bawdwin to LCI and the further transfer to BDO Fidecs was signed by Mr Mitchell and Mr Silverman. No explanation for this transfer has been provided. (viii). Transfers to PR accounts

[78]On 17 July 2002, three payments of $10,000 each were made to accounts PR 10266/7/8 and on 10 December 2002 and 26 September 2003 two payments of €25,000 each and $16,000 each were respectively made to PR 10266/7. A document disclosed by BDO Fidecs and dealing with a separate transaction shows that the reference for account PR 10268 was “Steven”. It was authority for a transfer of £50,000 from Bawdwin’s account to the PR account and it was signed by Mr Mitchell. Mr Mitchell has provided no evidence in respect of these transfers. The company submits, and I accept, that almost certainly “Steven” is Steven Silverman and that it is likely that the other two PR accounts were held for Mr Mitchell and Mr Silverman. (ix). Transfers to Bawdwin

[79]On 13 January, 27 March, 29 September and 4 October 2003, sums of £50,000, £1,000, £1,315,900 and $258,404 were transferred from LCI’s account to Bawdwin. Most of the funds were subsequently transferred out of Bawdwin’s account but the liquidators presently do not have information as to the transferees or the purpose of the transfers. Bawdwin was incorporated in the BVI on 14 March 2002 by the same agents as incorporated LCI. In his affidavits Mr Mitchell has stated that it was set up by LCI to invest in property and that, while he has no legal or beneficial interest in it, he is a signatory for its account with Andbanc. He says that he was asked by Mr Silverman to become a signatory for reasons of convenience and that he was asked to sign instructions for transfers from its account but their purpose was never explained. He states that he is unable to provide information relating to payments from its account.

(x) Transfer to Shilton Trust

[80]Shilton Trust is the sole registered holder of all the company’s shares, following their transfer to it by Mr Mitchell and Mr and Mrs Silverman in April 2002. Shilton Trust is established in Gibraltar and administered by BDO Fidecs. According to Mr Mitchell’s evidence in the action brought by GSK, the shares were sold to Shilton Trust for £50,000 and neither he nor Mr Silverman nor any members of their families have any interest in the trust or its shareholding in the company. His recollection was that the consideration of £50,000 was paid into the company’s account and then paid out to the three selling shareholders. Mr Mitchell repeated this evidence in his second affidavit in these proceedings. According to Mr Mitchell, the sale of the shares was negotiated with Roger Griffiths, whom he believed was a trustee.

[81]On 22 July 2002 a sum of £52,100 was transferred to BDO Fidecs for the account of Shilton Trust. The company submits, and it appears highly likely, that this refunded Shilton Trust for the sum earlier paid in connection with the transfer of the shares. (xi). Transfers between the company and LCI in March and April 2002

[82]On 26 March 2002 a sum of £700,000 was transferred from LCI to the company, described in Andbanc’s records as directors’ loan repayments, but on 3 April 2002 a sum of £1,056,338 was transferred back from the company to LCI, described as stock purchase and sales. The company’s year-end, 31 March, fell between those dates and the first transfer enabled its accounts to show a very healthy cash balance at bank of over £1.3 million. The company submits that this transfer is likely to have been made for window-dressing purposes, but in any event it demonstrates that cash held in LCI’s account could be used, on instructions from Mr Silverman or Steven Silverman, for the purposes of the company, rather than Ukrainian associates.

[83]Taking together the evidence as to the use to which the funds transferred to LCI were put, the company submits that it is clear that they were applied not for a Mr Farber or his associates but, directly or indirectly for the benefit of the defendants, principally Mr Mitchell and Mr Silverman. (4). Links between the defendants and the transferees

[84]Closely associated with the transfers out of LCI’s account is the fourth principal point relied on by the company, that there is substantial evidence linking the defendants with LCI and the transferees of funds from LCI’s account, but no evidence of any link with a Mr Farber or Ukrainian associates other than the defendants’ affidavits.

[85]The two issued shares of LCI were bearer shares and its only director and secretary was a Bahamian company. None of its official documents provide any evidence of a connection with any individual, except for a written resolution dated 6 July 2001 to open an account with Andbanc with Mr Silverman as sole signatory. The records disclosed by Andbanc also show no connection with any individuals except the defendants. Mr Silverman and Steven Silverman are recorded on 24 October 2001 as the signatories on LCI’s account. There are a substantial number of payment orders signed by the defendants, although Mr Mitchell says that he was signing them on behalf of Bawdwin.

[86]Leaving aside the third party sellers of cars, watches and villas and the accounts of Mr Mitchell and Mr Silverman at Credit Suisse, the entities to which payments were made had substantial connections to Mr Mitchell and Mr Silverman. MUK was owned by the defendants and engaged in property investment and development with Heaton Moor and Deerfield. Both Heaton Moor and Deerfield maintained accounts with BDO Fidecs, and Mr Mitchell was giving detailed instructions to BDO Fidecs in relation to the sums held in Heaton Moor’s account. Likewise, he gave instructions as regards the sum of £300,000 paid in July 2006 to Deerfield’s account with BDO Fidecs. BDO Fidecs also administered the family trusts for Mr Mitchell and Mr Silverman and the Shilton Trust. Roger Griffiths is said to be a trustee of the Shilton Trust and he was involved in the purchase of the villas in Spain, was a director with Mr Silverman of the Spanish company which owned the villas and has been helping to fund the defendants’ costs in the present proceedings. There is no evidence of the beneficial ownership of Bawdwin, but Mr Mitchell was the signatory for its account with Andbanc. In records disclosed by Andbanc, its address is shown as 8 Queen Elizabeth Court, which was also given as the address for Heaton Moor and Deerfield in entries at the Land Registry.

[87]No connection is shown between any of these companies and Mr Farber or any Ukrainian associates or indeed with anyone except the defendants. (5). Mr Mitchell’s evidence

[88]The company’s fifth principal point is that Mr Mitchell has shown himself to be unreliable and untruthful. I have set out at some length the development of his evidence in this case. He accepts that in a number of important respects it has been false, in some cases deliberately so. He has also, as he accepts, failed in many instances to comply with his obligations under the July 2006 order.

[89]Examples include his denial in his first affidavit of any knowledge of the purpose of the payments from LCI’s account to BDO Fidecs for the account of Heaton Moor or of what became of these payments. In his second affidavit he said that he was unable to say what became of the $265,000 transferred to his Credit Suisse account, while admitting in his fourth affidavit that it was transferred to Black Vulture. He accepts that the transfer of £300,000, after service of the July 2006 order, was an attempt to put assets beyond the reach of creditors. He accepts that there were serious deficiencies in his disclosure affidavits, notwithstanding warnings from his solicitors. He accepts that he misled his own solicitors, who in turn unwittingly misled the company’s solicitors, as to the source of funds for the payment of legal costs.

[90]The false evidence and the breaches of the order are not minor matters or matters with no substantial connection with the central issue in the case. The uses to which the funds transferred to LCI were put go to the heart of the case and Mr Mitchell’s attempts to conceal the true position is highly material to a consideration of his uncorroborated evidence as to the purpose of the payments to LCI and the involvement of Mr Farber. (6). Family trusts

[91]Finally, the company submits that there should also be taken into account the transfers into trust of the houses in England of Mr Mitchell and Mr Silverman, and the attempts by the liquidators to obtain the company’s records from Mr Mitchell.

[92]I have set out above the facts relating to the transfers into trust. The establishment of the trusts and the transfer of properties into them were clearly coordinated by Mr Mitchell and Mr Silverman. They were made between December 2002 and February 2003 at a time when the company was faced with a winding-up petition from GSK. Mr Mitchell denied that he was a beneficiary of the trust holding his house, but the terms of the declaration of trust show not only that is he a beneficiary but also that he and his wife can require the transfer of the house back to them at any time. These terms are also inconsistent with his earlier evidence that his mother required the house to be held on trust for his children. In my judgment, it is highly likely that Mr Mitchell and Mr Silverman established the trusts in an attempt to put assets beyond the reach of potential claimants. There was no obvious reason to do so if the payments to LCI were bona fide payments made properly in the course of the company’s business. (7). Accounting records

[93]The company’s accounting and other records would obviously be highly material to a consideration of the company’s claim and Mr Mitchell’s defence. In his second affidavit, Mr Mitchell stated that all transactions between LCI and the company were recorded in the company’s records and in its accounts, but that he was unable to verify this because he did not have access to them.

[94]The first liquidator sought to obtain the company’s books and records immediately on his appointment. He sought first to obtain them from Mr B Taylor of the company’s auditors, whom he had been told had possession of them. Mr Mitchell had said so in a witness statement made on 25 July 2003 in the action brought by GSK. Mr Taylor replied that he was not in possession of any of the company’s books and records, which he said were with the directors. On 1 September 2003 Mr Mitchell told the joint liquidators that he had the records and would forward them later in the week, and on 10 September he wrote to say that he had arranged for “the information you have requested” to be delivered on 12 September. Nothing was delivered and the liquidators sent chasing letters on 3 October and 7 October 2003, as well as trying to contact Mr Mitchell by telephone. On 8 October Mr Mitchell replied that he had arranged for “the stock etc to be delivered to your offices this Friday”. Again nothing was received. In answer to a further letter from the liquidators, Mr Mitchell replied on 22 October that:

“We take note of your comments that under no circumstances would UK-AID’s books and records ever be passed on to GSK, unless they obtained a court order for some reason. In any event this would be irrelevant as we confirmed yesterday, the books and records were placed in storage in a garage adjacent to our office. Whilst I was on holiday, workmen cleared furniture and rubbish from this garage and removed a number of boxes, some of which contained the records. However you do have full audited accounts and other relevant financial information supplied by M.P. Saunders & Co.”

[95]Mr Mitchell was subsequently the subject of enquiries by the directors’ disqualification unit of the Insolvency Service. They raised questions as to his apparent failure to maintain or preserve or deliver up accounting and other records. Mr Mitchell replied in a letter dated 10 February 2005:

“We have supplied confirmation to the liquidators regarding the books and records as stated in our letter of Oct 22nd 2003. This letter covered the points raised at our meeting with KPMG of Oct 21st 2003. We did not state that the books and records had been destroyed, but rather had been mislaid and we were investigating the matter. Subsequently, as the records were boxed in empty GSK packing boxes, we believe that they were delivered to KPMG with the rest of the similar boxes containing the stock. On receipt, KPMG for reasons of their own immediately transferred all the boxes to GSK, who then destroyed them, without prior, written authorisation. The delivery occurred on Friday October 17th 2003 and our meeting with KPMG was on Tuesday October 21st.At the meeting KPMG confirmed receipt of the delivery, which had been forwarded on to GSK, they confirmed that they had not received the books and because we believed that they had checked everything we could only assume that they had been mislaid, we informed KPMG as such and stated that we would investigate further.”

[96]This suggestion that the company’s records were delivered to the liquidators in GSK boxes has been addressed and rejected in evidence provided by the relevant individual at the liquidators’ firm. In a letter dated 20 November 2006 the company’s auditors stated that the company’s records had been destroyed in a fire. The prevarications and the inconsistencies in Mr Mitchell’s responses to the requests for the company’s accounting records raise serious concerns that he knows that they would not support his case as regards the payments. It is to be noted that although nearly £2.5 million was paid by the company to LCI’s account in the year to 31 March 2002, there is no indication of those payments in the audited accounts for that year nor any evidence from the auditors who would have had access to the accounting records for the audit.

[97]The company submits that, taking together all this evidence and all these points, the company’s case is overwhelming and Mr Mitchell’s defence is incredible and has no prospect of success.

[98]I have not dealt separately with the payments into the LCI account from C Horn et Cie and Polish Pharmaceutical Services. There is a substantial amount of documentary evidence that C Horn et Cie was a customer of the company. There are also e-mails between C Horn et Cie and Mr Mitchell on behalf of the company in December 2001 relating to a supply of products at a total cost of $42,500. An invoice for that amount was sent by Mr Mitchell in the name of LCI and that sum was paid by C Horn et Cie to Andbanc on 17 December 2001. In view of the totality of the evidence as regards the payments into and out of the LCI account, there is in my view no basis for treating these payments differently from the payments by the company and it was not submitted on behalf of Mr Mitchell that I should do so.

Submissions on behalf of Mr Mitchell

[99]Counsel for Mr Mitchell made eight points on his behalf on this application. First, Mr Mitchell still strongly disputes GSK’s claim against the company, although he accepts that this was irrelevant on this application. The point made is that if Mr Mitchell believed that GSK was not owed anything, there were profits out of which commissions to Mr Farber could be paid. However, even if nothing was owed to GSK, it would mean that the whole of the profits were paid in this way.

[100]Secondly, Mr Mitchell’s evidence is that he dealt with purchases from GSK and that Mr Silverman was responsible for sales in the Ukraine and Belarus. Thirdly, he was not a signatory on the company’s account and he did not himself give the instructions for the transfers to LCI’s account, but he accepts that he knew that the transfers were being made. In view of his knowledge of the transfers and their size as compared with the company’s turnover and profits, the fact, if correct, that Mr Silverman and not Mr Mitchell dealt with sales does not take Mr Mitchell very far.

[101]Fourthly, Mr Mitchell was not a signatory for LCI’s account. He was, however, a signatory for a number of entities which received funds from LCI’s account as well as on his own Credit Suisse account. He accepts that he knew that many of the transfers from LCI’s account were being made.

[102]Fifthly, Mr Mitchell believed that the payments to LCI were commission payments and, sixthly, at the time there were grounds for him to believe that this was so. Reliance is placed on the oral assurances which Mr Mitchell says that he received from Mr Silverman, the cheques in favour of Y. Farber & Co and the invoice for £1.5 million on LCI-headed paper. As to the payment made through his Credit Suisse account in July 2006, he accepts that it was not made for the benefit of Mr Farber, but, it was submitted, that is not inconsistent with the earlier payments having been made for Mr Farber. As to the payments apparently made for Mr Silverman’s benefit, such as those for the purchase of watches and villas in Spain, there was no reason for Mr Mitchell to know about these at the time. As counsel reminded me, it is important to judge Mr Mitchell’s state of mind in the light of the matters known to him at the time, not on all the evidence which is now available.

[103]Seventh, it cannot be said that Mr Farber or his Ukrainian associates did not exist, in view of the cheques payable to Y. Farber & Co and the fact that the address in Yalta shown on the LCI invoice existed, albeit that the liquidators’ agents could not find anyone there (according to Mr Mitchell’s evidence, it is an institute of child health). As it seems to me, it is immaterial that a Mr Farber may exist, because the issue is whether the company paid commissions amounting to over £5 million to him or for his benefit. I should however comment that there is no evidence as to the identity or location of Y Farber & Co or the reasons for the cheques made payable to it.

[104]Eight, if Mr Mitchell believed that the payments were for commission and the purchase of pharmaceutical products, he has a good defence to the claim made against him. Mr Girolami submitted that this was not an issue which should be decided on a summary judgment application. I should mention that the company’s case against Mr Mitchell is based on knowing involvement with the misappropriations constituted by the transfers to LCI. It is not pleaded as a case of negligence.

Conclusion on the application for summary judgment against Mr Mitchell

[105]In my judgment, the case against Mr Mitchell is overwhelming and his defence is incredible. In reaching this conclusion, I rely on all the submissions made by the company, although according rather less weight to their points on the family trusts and the failure to produce accounting records. The evidence as to the uses to which the sums paid to LCI’s account and the links between the relevant entities and the defendants is by itself enough, in my view, to establish the company’s case at a summary stage. The total absence of any evidence of any connection with a Mr Farber or his alleged Ukrainian associates, other than the defendants’ affidavits, is to be contrasted with Mr Mitchell’s close personal involvement in many of the payments. For example, there are the payments to Heaton Moor where he was giving detailed instructions in connection with property acquisitions and developments in which MUK and MPUK, both beneficially owned by the defendants, were participating. There are the unexplained payments to Bawdwin, of whose account he was the signatory and which shared the same office address in England as the company. There are the payments to his Credit Suisse account and their subsequent transfer to Black Vulture, whose purpose (it is said) was to provide a fund against which MPUK could borrow. There are the payments to the PR accounts and the payments to MPUK. Mr Mitchell’s explanation for the purchase of the Chrysler Voyager and the Bentley borders on the farcical.

[106]When this evidence is combined with the admittedly false evidence which Mr Mitchell has given and with his inconsistent explanations for the payments to LCI’s account and with the size and timing of those payments, I am in no doubt that the case is established against him. His defence rests entirely on what he said he was told by Mr Silverman about the payment of commissions for Mr Farber and about the subsequent use of the monies paid to LCI’s account. The evidence as a whole, in my view, demonstrates that he has no prospect of establishing that he was told these things by Mr Silverman or, if he was, that he believed them. He does not explain how, as a 25 per cent shareholder, he was prepared to agree to all the company’s profits and the greater part of its turnover being paid away to an unconnected third party, nor does it explain the benefits which he subsequently enjoyed from the payments. His admittedly false evidence on central issues does telling damage to his credibility on evidence which, in any event, is implausible. I should add that, in the light of all the evidence, I am also satisfied that the purported invoice from LCI dated 5 March 2002 is false and that Mr Mitchell knew it to be false.

Applications by and against Mr Silverman

[107]Having failed to serve a defence, Mr Silverman is by the terms of the order of Lawrence Collins J dated 1 November 2006 presently debarred from defending the action. He was certified on 13 December 2006 as incapable of managing and administering his property and affairs by reason of mental disorder within the meaning of the Mental Health Act 1983 and is therefore a patient for the purposes of CPR Part 21.1(2)(b). On 26 January 2007 the Official Solicitor agreed to act as Mr Silverman’s litigation friend, against an undertaking by Steven Silverman to pay his costs.

[108]Because Mr Silverman is a patient, an application for judgment in default of defence must be made in accordance with CPR Part 23 and must be supported by evidence: CPR Part 12.10(a) and 12.11(3). Judgment on such an application is such judgment as it appears to the court that the claimant is entitled to on his statement of case: Part 12.11(1). By reason of 12 PD 4.2(2), the claimant must satisfy the court by evidence that it is entitled to the judgment claimed. In procedural terms, therefore, it matters not whether the company seeks judgment under Parts 12 and 23 or summary judgment under Part 24, unless grounds of defence could be put forward on behalf of Mr Silverman if the debarring order were lifted. Mr Girolami, who appeared for Mr Silverman as well as Mr Mitchell, stated that without taking instructions from Mr Silverman no defence could be shown to the claim.

[109]Mr Girolami’s application was that the company’s application for judgment should be adjourned generally, to be restored when Mr Silverman has recovered sufficiently to give instructions. Mr Silverman has been examined by Dr Andrew Margo, a consultant psychiatrist. Dr Margo signed the certificate of mental capacity, in which he also stated that the present mental disorder has lasted since March 2006 and that Mr Silverman’s prospects of recovery of capacity are good in the long run. In his report dated 29 November 2006, Dr Margo stated the he could not see any reason why there would not ultimately be significant improvement but he could not specify a timeframe. On 13 December 2006 Dr Margo wrote that the prognosis should be good and he anticipated a full recovery in due course. On 23 February 2007 Dr Margo reported that there had been only minimal progress and that there was no improvement in Mr Silverman’s ability to deal with these proceedings. On 28 February 2007 Mr Silverman was examined by a consultant psychiatrist nominated by the company who agreed with Mr Margo’s conclusions.

[110]In the event of the death or permanent incapacity of a defendant, the court would proceed to consider on all the evidence before it whether there was any reasonable prospect of a successful defence, making due allowance for the fact that the defendant could not himself give instructions or evidence. In these circumstances, the defence could rely on all other available evidence, in documents or from individuals. I do not consider that the approach can or should be any different in the case of Mr Silverman. It is said for Mr Silverman that there is no available evidence to support a defence, whether from Steven Silverman, the auditors, Roger Griffiths, BDO Fidecs or anyone else. Although there is considered to be a good prospect of recovery at some time in the future, no time can be put on it. It may be years from now. I do not consider it right that the company should be precluded from prosecuting its claim for an indefinite period.

[111]On the evidence before the court, the case against Mr Silverman is every bit as overwhelming as, in my judgment, it is against Mr Mitchell. There are, in addition to the payments involving Mr Mitchell, the purchases of watches and villas in Spain for the benefit of Mr Silverman. It is not suggested that there is any defence which he might put forward other than that the payments were commission payments to Mr Farber and his associates. For all the reasons already given, it is an incredible defence.

[112]Accordingly, in my view, the company is entitled to judgment on its claim against Mr Silverman. Mr Silverman’s circumstances would make it appropriate to give relief from the effect of the debarring order, at least if there could be shown any prospect of a successful defence. I think it right that judgment should be given on the explicit basis that Mr Silverman has no real prospect of successfully defending the claim. I will therefore accede to the application for relief from the debarring order but refuse the application for an extension of time for service of a defence. I will give judgment under CPR Part 24.

Interim payment

[113]The company seeks an order against Mr Mitchell and Mr Silverman for an interim payment of £5.5 million, being the amount of the misappropriations (dollar sums converted into sterling at current rates) and interest at 8 per cent per annum. No separate submissions were addressed to me on the principle or the quantum of this proposed order. In my judgment it is a clear case for an interim payment and I will make the order sought.

Cited in 1 later judgment

UK (Aid) Ltd v Mitchell & Ors 2007