Langbar International Ltd v Rybak & Ors [2007] EWHC 3255 (Ch)

Case No 1HC/480/07[2007] EWHC 3255 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Friday, 31 st August 2007
Before
THE HONOURABLE MR JUSTICE RIMER
Between
LANGBAR INTERNATIONAL LIMITEDClaimantRYBAK & OTHERSDefendant
Wordwave International, a Merrill Communications CompanyPO Box 1336, Kingston-Upon-Thames, Surrey KT1 1QTTel No: 020 8974 7300  Fax No: 020 8974 7301Email Address: tape@merrillcorp.com
Mr David Quest (instructed by Messrs Jones Day) appeared on behalf for ClaimantMr Edward Sawyer (instructed by Messrs Withers) appeared for First, Second, Third and Fourth Defendants
Judgment

Introduction

[1]This is an application by the claimant, by a notice dated 30 July 2007, for(i) an order for specific disclosure by four of the seven defendants;(ii) an order permitting the addition of an eighth defendant; and(iii) an interim proprietary injunction against that additional defendant.[2]The claimant is Langbar International Limited (“Langbar”). The first defendant is Marios Rybak. The fifth defendant is his company, CMC Crown Management Limited (“CMC”). The sixth defendant is his wife, Izabela Rybak. The seventh defendant is SCI Atol, a company owned by Mr and Mrs Rybak’s daughter, Magdalena. These are the four defendants (“the Rybak defendants”) against whom specific disclosure is sought. Magdalena Rybak is the proposed eighth defendant. The three other defendants, and their number in the list of defendants, are (2) Jean-Pierre Regli, (3) Abraham Arad and (4) Lambert Financial Investments Limited (“Lambert”). The claim was started on 28 February 2006, having been preceded on 24 February by the making by Lindsay J of a freezing order against the then defendants, being the first five of the current defendants. At that stage neither Mrs Rybak nor SCI Atol was a party.[3]Langbar is an investment company that was founded by Mr Rybak in July 2003. It is incorporated in Bermuda. He was its chief executive and was also, or at any rate by June 2005 had become, its majority shareholder. I was told that by then he was understood to have owned about 60 per cent of its shares. Mr Rybak held his founder shares in Langbar through CMC, which gave him voting control. He never subscribed more than nominal amounts of cash for his shares.[4]Langbar’s shares were admitted to trading on the AIM in London in October 2003 and also on the Xtra exchange in Germany. There was limited trading initially, but between June and October 2005 there was considerable market interest from institutional and private investors. This was largely fuelled by optimistic market announcements made by Langbar during this period.[5]Mr Rybak resigned as chief executive on 6 June 2005, a time when Langbar’s main assets were reported as comprising some US$660 million in cash, deposited at Banco de Brasil. That cash was said to have derived from Lambert, which was Mr Arad’s company. Mr Rybak was succeeded as chief executive by Mr Pearson. During the following period down to October 2005, Mr Rybak sold most of his Langbar shares, making cash profits of at least €49.8 million.[6]Trading in Langbar shares was suspended on 12 October 2005 when it was discovered that the claimed cash deposits were and always had been fictitious and that its shares were worthless. Those who had invested in it and remained shareholders found they had wasted their money. The discovery of those events led to the institution within five months of the present proceedings, with the original defendants being those involved in the management of Langbar and their companies.[7]The essence of Langbar’s case against Mr Rybak is that he and the others engaged in the business knew that it had no genuine business and that it did not have any substantial assets. Mr Rybak, Mr Regli and Mr Arad are accused of conspiring to hype Langbar’s shares fraudulently. It is said that during 2003 to 2005 they conspired to invent evidence of fictitious bank deposits purportedly owned by Langbar; and that from June 2005 onwards they procured Langbar to make fraudulent market announcements which caused its share price to increase. It is said that Mr Rybak acted dishonestly and in breach of fiduciary duty to Langbar. The claims against him are for the imposition of a constructive trust upon the shares allotted to him and their proceeds of sale. The first basis for this claim is that it is said that they were allotted to him by reason of a dishonest breach of fiduciary duty. The second basis is that he is said to have breached his fiduciary duty to Langbar by participating in the dishonest statements as to its prospects for the purpose of falsely inflating its share price. On either basis, Langbar claims against him an account of profits upon the sale of his shares. In addition, it sues for damages in respect of losses suffered by innocent investors in it, their claims having been assigned to Langbar under a scheme of arrangement made under section 425 of the Companies Act 1985.[8]The Rybak defendants are the only defendants who are defending the proceedings. They sought an expedited trial, which is due to start in early November 2007 with a time estimate of some five weeks. Mr Rybak claims he acted honestly at all times and that he genuinely believed that Langbar held the substantial cash assets that it claimed. He says it was simply fortuitous that he was able to sell his shares at a profit when he did. He accepts that it appears that Langbar was defrauded, but denies he was a party to the fraud. He asserts he had reasonable grounds for believing that the claimed deposits existed, claiming in particular to have relied at all times on Langbar’s professional advisers, who did not tell him that there was any cause to doubt their existence. If there was a fraud, he claims he did not know about it.

The specific disclosure that is sought

[9]Langbar’s application notice originally sought specific disclosure against the Rybak defendants under four heads. For practical purposes, the relevant Rybak defendants are Mr Rybak and his company, CMC, which also held Langbar shares. Paragraph 1 related to documents evidencing the identity of all brokers instructed by them in relation to dealings in Langbar shares. That head of relief has not been pursued, no doubt because it has become apparent that all such dealings were carried out by one or other of two Swiss banks, UBS Zurich and Wegelin & Co, Lugano (“Wegelin”). Paragraph 2 sought disclosure of all broking agreements between the Rybak defendants and the two banks, but that has also not been pursued in the face of evidence that there were no such agreements. Paragraph 4 sought itemised telephone records for mobile telephones and land lines in the names of any of the Rybak defendants from 4 June 2003 to 12 October 2005. That has not been pursued either, in the face of evidence that the Rybak defendants have no such records and nor can their service provider, Monaco Telecom, provide any.[10]All that has remained alive is paragraph 3 of the application, which can be summarised as seeking the disclosure of the trading records of the Rybak defendants in relation to Langbar shares, being documents such as trade confirmations, contract notes or instructions. On one reading, the paragraph seeks disclosure of documents relating also to the purchase of Langbar shares, but there appears to be no evidence of any such transactions, nor are any pleaded, and that element of the application has not been pursued. It has been confined to trading documents in relation to sales and further confined to such trading documents as relate to sales subsequent to 6 June 2005.[11]Part of the voluminous evidence on the application relates to an issue about when Mr Rybak acquired an interest in what are referred to the Demagistri and Michelluti shares in Langbar (“the D & M shares”), the issue being whether (as he asserts) he only acquired such interest in June/July 2005, or whether (as Langbar asserts) he was their beneficial owner as from the time when they were first allotted, in October 2003. I need say no more than that no disclosure is sought in relation to the D & M shares other than like trading records in relation to sales of them after 6 June 2005.[12]The evidence in support of the Langbar application is the eleventh witness statement of Sion Richards, a partner in Jones Day, Langbar’s solicitors. It occupies 34 pages comprising 133 paragraphs, plus a 302 page exhibit, which might be regarded as collectively on the disproportionate side for an application of this nature. Mr Richards opened by explaining the history of the proceedings. He referred to the freezing order of 24 February 2006, including its wide disclosure requirements. Those were answered by a letter of 31 March 2006 from Withers LLP, the solicitors for the Rybak defendants, who stated that Mr Rybak retained some 34 million Langbar shares, with his remaining holding having been sold, the proceeds of some €49.5 million having been received by UBS AG Zurich, with most of the proceeds having then been transferred onwards, including to:(i) two joint accounts in the name of Mr Rybak and his wife, Izabela, at UBS Singapore;(ii) three accounts in Izabela’s name at UBS Singapore; and(iii) an account in the name of SCI Atol at UBS Monaco. Mr Rybak confirmed the truth of that response in his affidavit of 3 April 2006. That disclosure led to the joinder of Izabela and SCI Atol as defendants and the making by Lightman J of interim proprietary injunctions against them. Langbar has also started proceedings in Singapore against Mr and Mrs Rybak, and has obtained interim injunctions there as well. The €49.5 million figure is admitted to have been an understatement, said to be attributable to the time pressure of the disclosure exercise. The correct figure is said by Mr Rybak to be €49.8 million.[13]During 2006 Mr Rybak issued an application for the striking out of, or for summary judgment on, Langbar’s claim against him and he made a comprehensive witness statement in support of that application on 25 September 2006. In paragraph 6 he pointed out that he had been advised of the potential danger of making such a statement in advance of disclosure, but said that he nevertheless wanted to set out his side of the story as early as possible as he had nothing to hide. In the event, he did not proceed with that application, but his witness statement is relevant in the present context since in paragraph 423 and following he provided an account of the shares in Langbar that were issued to him or CMC, and he dealt also with the sales he made in the summer of 2005. In that context, he referred to his instructions to Wegelin for the sale of a total of 18.7 million shares in July and August 2005. He said he gave broad instructions to Wegelin, who sold them over a period of days in small parcels. He said that by 30 August 2005 he had, however, decided to move his shares from Wegelin to UBS Zurich and that between then and 11 October 2005 he instructed UBS to sell a further 27.86 million shares, which realised some £14 million. He also said, in paragraph 429, that he had made no secret of his intention to sell his shareholding, asserting in particular that Mr Pearson (his successor as chief executive), Mr Storar and Mr Arden were well aware of his desire to sell. He explained in paragraph 433 why he was selling his shares for between 52 and 90 pence a share, when it might be said that on paper they had a value of about £2 each. He said it was because he had left the company, had little interest in remaining a long-term shareholder and the prices he achieved were the market prices at the time.[14]An important element of Mr Rybak’s witness statement was its exhibit MR7, page 12 of which contained a list he had compiled of the parcels of Langbar shares sold on 44 different days. The shares so sold totalled 46,608,512, of which 3,200,712 were listed on the Xtra market and the remainder on the AIM. The list did not attribute the price realised for each parcel sold. It is obvious that in order to compile it, Mr Rybak had access to documentary aids, a matter to which I will return.[15]That witness statement did not fully harmonise with Mr Rybak’s earlier disclosure in March and April 2006. Paragraph 423 had asserted that he and CMC had been issued with 72.7 million shares, with exhibit MR7 indicating that he had sold 46.6 million of them. He ought, therefore, to have retained 26.1 million shares, whereas in April 2006 he claimed to have retained 34.1 million. Langbar sought, therefore, to tie down the precise number of Langbar shares which had been issued to Mr Rybak or in which he had an interest.[16]To that end, on 21 November 2006 Jones Day wrote to Withers referring to paragraph 423 and asking whether the table in it listed all the shares in which Mr Rybak or CMC had a legal or beneficial interest; and, if it did not, they asked for full details of all share interests not disclosed. Withers’s reply, on 2 January 2007, was that the details of Mr Rybak’s shareholdings in Langbar were irrelevant to the alleged fraud. All that was relevant was the proceeds of any sale of shares in which he had an interest, and Withers said that details of those proceeds had been provided. By 6 March 2007 Withers had relented from that perhaps slightly extreme position and they reported that Mr Rybak and CMC had now decided to volunteer further information as to their shareholdings. The information they volunteered was that paragraph 423 had not disclosed the full position and that, in addition, Mr Rybak had acquired an interest in over 10 million Langbar shares originally allotted on or before 30 October 2003 to Pierre and Ursula Demagistri and Pierre Michelutti (the shares I have called the D & M shares). Withers asserted that Mr Rybak had acquired the beneficial interest in those shares shortly after he resigned from the Langbar board on 6 June 2005, although they did not explain how, why or for what (if any) consideration. They added that some of the D & M shares had since been sold, and that details of the proceeds had been included in the disclosure provided to Langbar. No mention of the D & M shares had been made by Mr Rybak at any time before then.[17]Mr Richards devoted a material part of his witness statement to the D & M shares. The position of all three D & M individuals is said to be that from the outset they held their Langbar shares as nominees for Mr Rybak. They said they did so until the accounts in which their respective shares were held were transferred to accounts in the name of Mr Regli at Wegelin. Their assertions in this respect are said to be supported by various documents to which Mr Richards refers. Mr Rybak’s response was to dispute this account. He advanced various points in support of his different case, including that certain of the documents upon which Mr Richards relies are apparent forgeries and do not justify the assertions made in respect of the D & M shares.[18]In paragraphs 39 to 58, Mr Richards summarised the history of the parties’ performance of their standard disclosure obligations and concluded that there were material gaps in the disclosure by the Rybak defendants, in particular in relation to the remaining matter the subject of this application, namely the trading records in relation to the sale by the Rybak defendants of Langbar shares. This was despite an unambiguous statement made by Withers in their letter of 29 March 2007 that:
“… for the avoidance of doubt, our clients will be serving all the disclosure in its control evidencing ownership and dealings with company shares in which they have or have had an interest (legal or beneficial) and all documents evidencing the receipt and transfer of proceeds of sale of the same. This disclosure will be given in accordance with the Richards’ Order.”
[19]Langbar’s complaint, however, is that that promise has not been performed. Thus, for example, all that has been disclosed in relation to share sales effected through UBS are copies of UBS bank statements showing credits against legends inviting the inference that they are the proceeds of Langbar share sales, although they provide no details of what parcels of shares they relate to or what price per share was obtained. No other trading documents have been disclosed. It may be, as he asserts, that Mr Rybak no longer has any such documents in his own possession, but some late evidence from Andrew Wass, his solicitor, confirms that enquiries recently made of UBS Zurich have produced the intelligence that UBS does have trade confirmations in relation to the Langbar transactions, but did not send them to Mr Rybak, although after each trade they did provide him with confirmation in Excel format listing the ongoing position of his holdings, sold shares, price and number of shares. Mr Wass explains, however, that no such confirmations were found in the Rybak defendant’s possession.[20]The position, therefore, is that on the face of it, as one would expect, UBS has trading confirmations of sales of Langbar shares that they effected, although there has been no disclosure of this by the Rybak defendants. There is no suggestion that any request has been made of UBS to provide them with copies of such confirmations so that disclosure could be made of them. Nor is it said that any such request, if made, would have been refused as being one that UBS was not obliged to honour.[21]As regards Wegelin, the disclosure is similarly sparse, although in the case of Wegelin sales, disclosure has at least been given of certain contract notes or of documents that look like contract notes. For example, the evidence includes one dated 19 July 2005 in relation to the sale of 300,000 shares on 15 July 2005. But the note does not match MR7, which lists sales of four separate holdings on each of 11, 13, 14 and 15 July 2005. Ignoring a sale of a parcel of shares on 15 July, which were not listed on the AIM, those four parcels total 300,000 shares, but the price obtained for each parcel is apparent neither from MR7 nor from the disclosure subsequently given. Mr Wass has similarly made a late enquiry of Wegelin as to the extent of any trading documents that it may hold, but no response had been received by the time of the hearing.[22]Mr Richards explained that, in general, the response on behalf of Mr Rybak was that any such documents were irrelevant to the issues in the claim and anyway he did not have any such documents. Mr Richards claims to be at a loss to understand how such documents can be said to be irrelevant, although he does not advance an impressive case on paper in support of his apparent belief that they are relevant. A good deal of the argument on the application turned on relevance, and I shall return to it. One point Mr Richards does make is that Mr Pearson told him that Mr Rybak reported to him (Mr Pearson) following his resignation that he was not selling shares and Mr Richards asserts that it is vital to know when he was in fact selling them so that it can be seen whether what Mr Rybak was telling Mr Pearson was true. Mr Rybak’s evidence is, by contrast, that he had told Mr Pearson that he was selling shares. Mr Richards’s point amounts to an assertion that the claimed disclosure is necessary for the purposes of cross-examining Mr Rybak as to credit, whereas it is agreed that that is not a proper justification for a specific disclosure order.[23]The response to the application is contained in the witness statement of Mr Wass. In making it, he relied on an affidavit made by Mr Rybak on 9 August 2007 in the Singapore proceedings. He opened with a fulsome criticism of all suggestions in Mr Richards’s evidence that any of the Rybak defendants has lied in evidence, or has been obstructive, or has prevaricated in the course of the litigation. He pointed out that they voluntarily provided pre-action disclosure comprising some 10,000 emails, disclosed €52.7 million worth of assets, served a 98 page Defence, served a pre-disclosure 112 page witness statement in September 2006 setting out the Rybak defendants’ case and successfully applied for an expedited trial so that they could clear their names as soon as possible. He says their conduct in the litigation has been the opposite of secretive or obstructive. The extension of the original freezing order to include Izabela Rybak and SCI Atol flowed from the full compliance made by Mr Rybak in response to the original freezing order. Mr Wass also pointed out that the sale proceeds of the Langbar shares had all remained in UBS, no attempt having been made at any stage to conceal or dissipate them. That, it is said, is the opposite of what a fraudster would have done. There was, in particular, ample opportunity to do so after the trading suspension in Langbar shares and before the proceedings were started. As a result of the Rybak defendants’ disclosure, the amount of the original freezing order was increased from a limit of £29 million to €49.5 million.[24]Mr Wass then turned to meeting Mr Richards’s assertion that Mr Rybak had lied about his, or the timing of his, acquisition of the D & M shares in Langbar. He re-affirmed Mr Rybak’s case that he only became the beneficial owner of these shares after he had left Langbar on 6 June 2005 and pointed out that these shares were then sold and their proceeds included in the disclosure that Mr Rybak made in response to the disclosure requirements of the freezing order. The only dispute between both sides is whether Mr Rybak owned them from as early as October 2003 or only from June/July 2005. If, as Langbar asserts and Mr Rybak denies, Mr Rybak did own them from October 2003, it is conceded that he probably understated his share sale disclosure by €1,114,855. That, I understand, is because certain of those shares were sold for that sum in January 2005 by Mr Regli, who was then in control of the accounts which held them. I understand the concession to flow from the fact that later Mr Regli is said to have made a loan of, or including, the amount of these proceeds to Mr Rybak, being a loan which is said to have been written off when Mr Rybak left the board of Langbar in June 2005.[25]Mr Wass also complained that Langbar’s case in relation to the beneficial ownership of these shares is based on unreliable evidence. He asserted that some of this evidence was acquired in a manner contrary to Swiss law. He asserted that it was in part obtained with the assistance of Mr Regli, who is said to be implicated in the fraud and whose evidence is open to doubt. He said it in part also derived from SCS Alliance, whose evidence is also said to be open to doubt. He said that the key documents upon which Langbar relies appear to be forgeries. He purported to give expert evidence as to matters of Swiss law and elaborated each of his points. I do not propose to summarise Mr Wass’s evidence in these various respects, which occupied a material part of his statement. I say merely that I accept that he has shown that there are two sides to the D & M story, and I am not in a position to make any finding one way or the other as to the truth. That could only be done after a trial of the relevant issues.[26]As regards the complaints as to the Rybak defendants’ disclosure, Mr Wass deals first with share sales generally. He disclaimed any understanding as to the relevance for the purposes of the trial of any documents relating to sales of particular holdings. He referred to exhibit MR7, which Mr Rybak prepared for the purposes of his September 2006 statement, and said it was “compiled on receipt of information from UBS that was created for the purposes of creating the evidence”. I interpret that as meaning that the information so provided was specially created by UBS for that purpose and Mr Sawyer, for the Rybak defendants, confirmed on instructions that that was so. It is said, therefore, that the information so created was and is privileged from disclosure.[27]Mr Wass then confirmed the response that had already been made by Withers in answer to Langbar’s request for broking and other documents evidencing sales transactions. That was that Mr Rybak does not have any of the documents that Jones Day described, save perhaps that he may have had a broking agreement with Insinger Townsley, which Jones Day would have received already. Broking agreements were anyway irrelevant to the claim and all instructions to brokers were given by telephone. Withers had further asserted, and Mr Wass confirmed, that “there are no other disclosable documents on which the defendants have relied to compile their evidence other than those disclosed to date”. I have explained that this application does not now pursue the claim in respect of broking agreements.[28]Mr Wass then explained how, on 13 July 2007, Withers provided the same response to Jones Day’s repeated request for documents. They there again questioned the relevance of broking agreements to issues in the action and said that anyway Mr Rybak did not have copies of any broking agreements, again qualifying that in relation to the Insinger Townsley agreement. They confirmed that the Rybak defendants had contacted their bankers and UBS had confirmed that they had no broking agreements with the Rybak defendants. They said they would seek like information of Wegelin. Mr Wass confirmed that Mr Rybak gave his instructions on the telephone. He quoted from Mr Rybak’s witness statement of September 2006 in which he explained how he gave written instructions first to Wegelin and then to UBS for the sale of his shares. He there explained what numbers of shares he sold and when and at approximately what prices, being prices lower than the paper value of the shares, but being prices he says represented the market value at the time.[29]For the purposes of the sole remaining matter that still is in issue, the essence of what Mr Wass was saying was that the Rybak defendants do not have any other trading documents relating to the post-6 June 2005 sales. He did not deal with the question of whether UBS and Wegelin had any such documents or whether, if so, the Rybak defendants had “control” of them for disclosure purposes, but I have recorded how Mr Wass made a subsequent witness statement explaining the recent enquiries made of the two banks in relation to such documents.[30]CPR Part 31.6 provides for the giving of standard disclosure. That requires a party to disclose the documents on which he relies and those which(i) adversely affect his own case;(ii) adversely affect another party’s case; or(iii) support another party’s case. Part 31.8 provides that a party’s disclosure duty applies, however, only to documents which are or have been in his control. That rule explains that a party has or has had a document in his control if “(a) it is or was in his physical position; (b) he has or has had a right to possession of it; or (c) he has or has had a right to inspect or take copies of it”. Part 31.12 provides for the making of applications for specific disclosure, with sub-rule (2) providing that:
“An order for specific disclosure is an order that a party must do one or more of the following things - (a) disclose documents or classes of documents specified in the order; (b) carry out a search to the extent stated in the order; (c) disclose any documents located as a result of that search.”
[31]Paragraph 5.4 of the Practice Direction to Part 31 provides that, in deciding whether or not to make an order for specific disclosure, the court will take into account all the circumstances of the case, including in particular the overriding objective. The order now sought is that the Rybak defendants should carry out a search for trading records relating to the share sales which are in their control, and should disclose any such records as are located as a result of that search. The evidence suggests they have done no more than to look in their own drawers for documents, but have not sought to locate any such documents in the hands of UBS and Wegelin to which they may be entitled. They have not, therefore, performed a proper search and should now be required to do so.[32]Mr Sawyer, for the Rybak defendants, dealt first with the application in so far as it refers to sales of shares other than the D & M shares. His submissions were(i) that the records sought are irrelevant to the issues in the claim; and(ii) that there is no evidence that any such records as the banks may have are within the control of the Rybak defendants. If right on either or both submissions, he said that it would not be appropriate to make the order sought.[33]As to whether or not the trading records are relevant, the answer is to be found by identifying the issues in the pleadings. Mr Sawyer supported that proposition by reference to paragraph 12 of Chadwick LJ’s judgment in Harrods Limited v Times Newspaper Limited and others [2006] All ER (D) 302. I accept that submission. The pleadings show that Langbar’s case is that the conspiracy was hatched in October 2003, when its shares were listed on the AIM, with its consummation being in the period post-6 June 2005, following which various market announcements about Langbar’s fortunes were made. It was during that period that Mr Rybak was selling his shares. Mr Sawyer said the issue was whether he was selling them honestly or dishonestly. It is said that he made a representation that he was not selling shares whereas in fact he was. That he was in fact selling was not in dispute. The issue as to the representation is whether or not he made it, and that is not one as to which the trading records can be of any relevance. Mr Sawyer said the question, therefore, was whether the trading records would shed any light on Mr Rybak’s honesty in effecting the sales.[34]Mr Quest, for Langbar, argued that they would or might, on the basis that they would show the precise price at which Mr Rybak was selling at any particular time in relation to any market announcements that Langbar was making at about the time of, or just before, any such sales. The argument was that the sale prices could or might be linked to events happening at Langbar over the relevant period and so could or might assist in the building up of the picture of fraud that Langbar levels against Mr Rybak.[35]Mr Sawyer’s response to this was that it was complete speculation. With one exception, the Particulars of Claim plead no facts that purport to link the share sale prices to inferences of fraud. The exception is paragraph 171, which asserts that Mr Rybak sold his shares at a price of less than one third of that implied by the reported net assets of Langbar. Paragraph 304 of the Defence admits that assertion, but denies that it justifies any inference of dishonesty against Mr Rybak, and reliance is made on various points pleaded in paragraphs 273 to 281. The pleadings therefore raise the single question of whether the sales at the admitted prices justify an inference of fraud, and there will be evidence and argument both ways on that. They do not, however, raise particular sub-issues to the effect that a sale at Xp on or about a particular day was triggered by a particular company event that had happened or was known to be about to happen. Nor have any such events been identified. In those circumstances, Mr Sawyer submitted that the claimed disclosure was simply irrelevant to any issue of dishonesty raised on the pleadings.[36]Mr Sawyer made various subsidiary points. First, to the extent that the disclosure is sought for the purposes of cross-examining Mr Rybak as to credit, that is not a proper basis for ordering it. Mr Quest did not dispute that. Secondly, if and to the extent that disclosure was sought of the documents created by UBS for the purpose of preparing exhibit MR7, that was protected from disclosure by litigation privilege. I did not understand Mr Quest to dispute that either. Thirdly, to the extent that disclosure was sought in order to cross-check the correctness of the information that Mr Rybak had already provided as to the proceeds of share sales, that is unnecessary since the bank statements he has provided constitute all that Langbar can reasonably need.[37]Turning next to the question of “control”, Mr Sawyer accepted that both UBS and Wegelin have documents in the nature of trading records relating to the sales. He said, however, that the Rybak defendants can only give disclosure of them if those documents are within their control in the sense that they have a legal right to possession of them or to inspect or take copies of them. If there is no such right, it is not enough that UBS or Wegelin might anyway be willing to permit Mr Rybak to have copies of such records as they may have. Mr Sawyer’s submission was that the present case concerns the rights of individuals residence in Monaco in relation to access to documents held by Swiss banks. That raises issues that are properly governed by Swiss law. He said that Langbar had done nothing to prove that the Rybak defendants do have any rights to possession or to take copies of the bank’s trading documents and so it follows that Langbar has not shown that the claimed documents are in the control of those defendants. That being so, Mr Sawyer submitted that no case for a specific disclosure order was made out.[38]Mr Sawyer then referred to the slightly different position as regards the D & M shares. There is of course a factual issue as to when Mr Rybak became the beneficial owner of those shares, but that issue is not raised by the pleadings. To the extent that disclosure is or ever was sought in relation to that issue, such disclosure would at most go to the cross-examination of Mr Rybak as to credit (for example, as to whether he lied in relation to the beneficial ownership of the D & M shares in the statements he made on the admission of the Langbar shares to the AIM in October 2003), and would not therefore be properly ordered. As I say, I do not understand that such disclosure is sought. I understand the only disclosure that is sought in relation to the D & M shares to be confined to the like trading records as those sought in relation to the other share sales, namely the post-6 June 2005 trading records. So far as their relevance is concerned, Mr Sawyer’s points were the same.[39]As regards control in relation to the D & M shares, Mr Sawyer had an additional point. That is that whilst Mr Rybak admits that he became the beneficial owner of the D & M shares in June 2005, he disputes that he became the beneficial owner of the accounts at Wegelin which held such shares; and those accounts, of which there are three, were, and I understand still are, in the name of Mr Regli. Mr Richards’s evidence includes a letter dated 28 June 2007 from Wegelin to Mr Regli which refers to the three accounts and describes Mr Rybak as being the “economic beneficiary” in relation to each of them for certain periods. In the case of only one account does the identified period cover a post-6 June 2005 period, and in that case it only extends to 30 August 2005. Therefore, it is said, the evidence suggests that Mr Rybak was an “economic beneficiary” for at most only part of the relevant period in relation to only one of the three accounts; and in any event Wegelin apparently corresponds with Mr Regli not with Mr Rybak and it is Mr Regli who was and is the legal owner of the accounts. Mr Sawyer submitted that, in the case of the D & M shares, Mr Rybak’s “control” of the claimed trading records was therefore even more in doubt. Moreover, as Mr Regli now appears to be in the Langbar camp, there is no need for a disclosure order against Mr Rybak in relation to the D & M shares; it can be presumed that Mr Regli will provide Langbar with whatever it wants.[40]Mr Quest’s response to those submissions was that an examination of Mr Rybak’s pattern of sales in relation to events then happening at Langbar went to the central issue in the case as to whether or not Mr Rybak was acting honestly in selling as and when he did. As to that, I comment that it is understandable that there is currently no pleaded case that purports to identify any such pattern, since it may well be that, until such time as Langbar has the disclosure that it seeks, it is not possible for it to plead such a case. But, if so, that means that the reason for seeking the claimed disclosure on this particular basis is to see if a case along the suggested lines can be pleaded and proved. In my judgment, that is no proper ground for exercising a discretionary jurisdiction to order specific disclosure. The giving of disclosure and the making of orders for disclosure are governed by the existing pleaded issues, not by considerations that a particular head of disclosure may enable a new case to be made.[41]Mr Quest also submitted that the disclosure sought is relevant to the ascertainment of the correctness of the information that Mr Rybak has provided about the sales of his Langbar shares. In that connection, he referred to the amended Particulars of Claim served in January 2007 and, in particular, to paragraph 148 which asserted that by the end of July 2005 Mr Rybak and CMC had together acquired about 76 million shares in Langbar; and to paragraph 152 in which, after referring to certain material from which Langbar inferred that Mr Rybak and/or CMC had “sold at least about 41,400,000 common shares”, Langbar added that “[p]ending disclosure, [it] is unable to give further particulars of the dates and prices of the sales”. It still cannot do so because the disclosure does not enable it to do so. In paragraph 154, Langbar asserted that “[b]ased on the information from Mr Rybak”, the various UBS accounts at Zurich, Monaco and Singapore appeared to represent the proceeds of sale of the Langbar shares by Mr Rybak and CMC, and various account balances were set out totalling €49.8 million. That pleading therefore reflects uncertainty on the part of Langbar as to the details of dates and prices of sales. Moreover, it appears that not even the Rybak defendants assert that the details of their share acquisitions and sales can be said to have been demonstrated with precision. Thus, paragraph 274 of the amended Defence (also served in January 2007) reads:
“The Rybak Defendants are continuing to investigate the precise volume and timing of the relevant share acquisitions and sales. Accordingly, save that it is admitted that Mr Rybak and CMC had acquired very substantial shareholdings at Langbar by the end of July 2005, Paragraph 148 is not admitted.”
As for paragraph 152 of the amended Particulars of Claim, in paragraph 279 of the amended Defence the Rybak defendants merely “noted” the inference as to the minimum number of shares that had been sold. They offered no definitive explanation, although it can perhaps be said that they were not obliged to do so. They did, however, admit paragraph 154.[42]Langbar’s pleading therefore makes it clear that it is dependent upon disclosure to satisfy itself as to the dates and prices of the relevant share sales, details of which have not been provided by the Rybak defendants. The amended Defence suggests that not even the Rybak defendants are confident as to those details. Mr Quest submitted that it followed that Langbar is entitled to the disclosure sought with a view to ascertaining the position with more precision.[43]My instinctive reaction to that submission was that there was no justification for such disclosure at this stage of the proceedings. The relief sought against Mr Rybak in the prayer to the amended Particulars of Claim includes a claim for an account of profits made on the sale of his Langbar shares; and I had assumed that, if Langbar were to succeed at the trial in establishing liability against Mr Rybak so to account, then such an account would be ordered. If so, then it appeared to me that Langbar would, in principle, be entitled at that stage to the disclosure sought, that is in the course of the taking of that account. Any such account would be on the basis that Mr Rybak was accountable as a constructive trustee of the shares and the profits derived from them and, as such a constructive trustee, he could properly be required to produce all trading documents within his control so that Langbar could be satisfied that it was being provided with a full and proper account. On that basis, however, there would be no need for any such disclosure at this stage, but only if and when an account was ordered.[44]That was, as I say, my instinctive reaction, but neither counsel regarded it as justified. Whilst the relief sought includes a claim for such an account, Mr Quest’s position was that, subject to sufficient disclosure having first been given, the taking of the account was something which was sufficiently simple to be dealt with at the trial itself. Mr Sawyer also disclaimed any suggestion that either side had it in mind that there was to be any sort of split trial, with liability to be established at the trial and an account to follow it.[45]That being so, it appears to me to follow that the disclosure which I consider would be required to be given upon any order for the taking of the claimed account ought instead to be given at this stage, and in advance of the trial, so that the account can, as counsel suggest, be taken at the trial itself. I therefore consider that, subject to the “control” issue, Langbar is entitled to require the Rybak defendants to conduct the further search that I have identified. Moreover, such a search appears to be further justified by other heads of relief that are claimed against them. That includes the forfeiture to Langbar of any unsold shares, a head of relief which underlines the need to know, with precision, how many shares were sold and how many remain unsold. The claimed disclosure will additionally assist that inquiry.[46]Do Mr Sawyer’s points about “control” provide an answer to the application? Leaving aside for the moment the D & M shares, I am not convinced that they do. His proposition is not that the Rybak defendants do not have relevant control of the claimed documents, but that Langbar has not proved that they have control. In practice, in a case such as the present, it would be close to impossible for Langbar to prove that, and it appears to me to be close to absurd to suggest that their success on this application must be dependent upon their being able to do so. They could, I suppose, have adduced expert evidence as to whether, as a matter of Swiss law, there is in principle any difficulty in the way of clients of a Swiss bank recovering from it copies of trading records that the bank has created in connection with the carrying out of share sales for that client. But the position is also ultimately likely to turn on any special agreement the client might have entered into with the bank, to which the applicant for disclosure would ordinarily have no access.[47]Under the previous practice governed by the Rules of the Supreme Court, there was no need on a specific discovery application to prove more than that there was a prima facie case that the documents were in the respondent’s power; and I am not convinced that under the CPR there is a burden upon the applicant of proving the relevant control. No doubt in a case in which it is apparent that the documents are not in the respondent’s control, the court will not make an order. In the present case, however, there is no material before the court sufficient to justify it in concluding that the UBS and Wegelin documents are not within the control of the Rybak defendants, although I accept that it is possible that they may not be. That last consideration being so, it would not be appropriate to make an order positively requiring those defendants to disclose the UBS and Wegelin documents, since it is conceivable that they would be unable to perform such an order. There is, however, no reason why the court should not order them to carry out an appropriate search and to disclose any documents located in doing so. That exercise would require them to consider the obtaining of documents from the banks. If they are entitled to do so, then they must. If they are not, then they will be entitled to say so and need not.[48]As regards the shares other than the D & M shares, I propose therefore to make an order requiring the Rybak defendants to carry out an appropriate search. As for the D & M shares, the matter is a little more difficult because of the admittedly somewhat starker question of whether Mr Rybak has relevant control of those documents. That is because, in the circumstances explained, there is a question as to whether he is entitled to give instructions in relation to the accounts by which the shares were held. Given, however, that the Rybak defendants have apparently been able to disclose certain contract notes in relation to sales, I am not satisfied that I should presume at this stage that they do not have relevant control. I propose, therefore, to make a like order in relation to the D & M shares. I will hear counsel as to the precise form of the order that I should make in relation to all the share sales.[49]The background to this is that Mr Rybak’s response to the disclosure obligations in the February 2006 freezing order purported to disclose what had happened to the proceeds of sale of all Langbar shares he had sold, and I have summarised what explanation he gave. It did not include any suggestion that money had been paid to Magdalena, but Langbar’s subsequent consideration of the UBS Zurich bank statements revealed that, in addition, €2 million of share sale proceeds had been paid to Magdalena on 14 November 2005. The payment was made on the same day as, and immediately before, a payment of €6 million to Mr Rybak’s own account at UBS Singapore, which was admittedly a payment of share sale proceeds and the inference that is invited is that so was the Magdalena payment.[50]Withers do not act for Magdalena, but admit that at least €645,000 of that payment did represent share sale proceeds, although it is denied that the balance did. The omission to disclose even the €645,000 is said to be an error based on information provided by the banks, although Mr Wass’s explanation is that that sum was included within the €49.8 million figure disclosed pursuant to the disclosure requirements of the freezing order. The explanation as to the balance is that the UBS Zurich account included funds from other sources, including the loan of €1,114,855 from Mr Regli to which I have referred and which Mr Regli is said to have written off when Mr Rybak resigned from the Langbar board. What is said by Mr Wass is that this sum is the proceeds of Langbar shares sold by Mr Regli at a time when Mr Rybak was not the beneficial owner of such shares. I have recorded that if, contrary to his case, Mr Rybak was the beneficial owner, then he accepts that he has understated the proceeds of sale of Langbar shares, since on that basis this money belonged to him. If he was not such an owner, the payment to him was in the nature of the loan he claims he has always understood it to be.[51]Whilst, as I say, Withers disclaim that they act for Magdalena, Mr Wass’s evidence and Mr Sawyer’s written submissions have nevertheless ought to argue her corner. Miss Rybak has apparently accepted that it is arguable that €1,114,855 of the payments to her might ultimately be regarded as representing proceeds of Langbar shares in respect of which Langbar might make a good claim against her as an innocent volunteer; and to protect that position she has paid that sum of Withers on terms that they will hold it in their client account pending the outcome of the trial. I understand that arrangement to be a continuing one, and it appears therefore to meet the justice of the case as regards any claim in relation to the €1,114,855. It does not, however, meet the position with regard to the €645,000 which the Rybak defendants admit represents the proceeds of Langbar share sales.[52]Mr Sawyer’s argument is that, as the claim to the €1,114,855 is, so he asserts, so feeble, the protection in respect of it is more than sufficient protection in respect of the rather better €645,000 claim. I do not accept that argument. On the material at present before the court, Langbar has at least a serious claim to be tried in respect of the €1,114,855 claim, which is sufficient to justify an appropriate proprietary injunction in respect of that sum over a short period whilst Miss Rybak is joined as a defendant and is given the opportunity, should she wish to take it, to argue otherwise on a return date. There is, however, no need for that course to be adopted, because she has volunteered to deal with that money in the way I have described. There still remains, however, the €645,000 claim, in respect of which it is openly admitted that that represents share sale proceeds, yet in respect of which she has made no like proposal. In my judgment, it is appropriate for there to be a proprietary injunction protecting Langbar’s claim in respect of that sum.[53]I will, therefore, order that Miss Rybak be added as the eighth defendant and I will make an order in an appropriate form against her in relation to the €645,000 claim. I will hear counsel as to the precise form of that order.[54]As regards service, I have been satisfied that I can and should give permission for the service of Miss Rybak out of the jurisdiction in Monaco. I am also asked to make an order for alternative service in case it proves impossible to serve her in Monaco. I am not satisfied that I can or should make any such anticipatory order for alternative service at this stage and I decline to do so. If service difficulties emerge, it is open to Langbar to return to the court for further directions. - - - - - -

Cited in 1 later judgment