Avrahami & Ors v Biran & Ors [2013] EWHC 1776 (Ch)

Case No HC09C04299

[2013] EWHC 1776 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Rolls Building, Royal Courts of Justice, 7 Rolls Buildings, Fetter Lane

Date 25/06/2013

London, EC4A 1NL

Before

MR JUSTICE NEWEY

Between

MR RAN AVRAHAMIClaimants

BE-READY LIMITEDClaimant

CARLTON LANDMARK PROPERTIES LIMITEDClaimant

MR DORON BIRANDefendants

LANDMARK MANAGEMENT LIMITEDDefendant

AQUARIUS DEVELOPMENTS LIMITEDDefendant

CARLTON LANDMARK PROPERTIES LIMITEDDefendant

(a company incorporated in England and Wales)

Mr Tim Penny (instructed by Asserson Law Offices) for Claimants

Mr Saul Lemer (instructed by DAC Beachcroft LLP) for First and Second Defendants

Hearing Hearing dates: 5-8, 11-15 and 18-21 February and 12-13 March 2013

Judgment

Mr Justice Newey :

[1]This case arises out of the development of a site at 17-23 Farringdon Road in London. The development was undertaken by the third claimant, a Gibraltar-incorporated company called Carlton Landmark Properties Limited (“CLP”) which was beneficially owned by the first and second claimants, respectively Mr Ran Avrahami and Be-Ready Limited (“Be-Ready”), and the first defendant, Mr Doron Biran. The project was managed by Mr Biran, whose idea it had originally been to purchase the site.

[2]The present proceedings are principally concerned with whether, as the claimants say, Mr Biran perpetrated a fraud on them in the course of the Farringdon Road project. According to the claimants, Mr Biran was responsible for large-scale misappropriation. Mr Avrahami and Be-Ready also allege that they were induced to enter into the agreement governing their joint venture with Mr Biran by deceit or culpable non-disclosure on his part. Complaints of negligence have been made as well.

Factual history

[3]Mr Avrahami is an Israeli citizen and served in the Israeli air force before becoming an airline pilot, first for Arkia Israel Airlines and then for El Al. While working for Arkia Israel Airlines, Mr Avrahami obtained first a law degree and then an Executive MBA from Tel Aviv University. He has been on unpaid leave from El Al since late 2009.

[4]It was while studying for the MBA in 1999 that Mr Avrahami met Mr Rami Lerner (“Mr Lerner”), whose family owns and controls Be-Ready and who was taking the same degree course. Mr Lerner, who is also an Israeli citizen, served in the Israeli Prime Minister’s Office for more than two decades and then, from 2003 to 2005, as the chief executive officer of the Society for the Protection of Nature in Israel. His father, Mr Dov Lerner, was a businessman with interests in construction and, to a lesser extent, real estate in Israel.

[5]Mr Avrahami has known Mr Biran since 1991 or 1992. They met through their wives, who had been friends for many years, and became close friends themselves.

[6]Mr Biran served in Israeli army intelligence between 1984 and 1988 and was commissioned in 1986. On leaving the army, Mr Biran obtained a degree in insurance from Tel Aviv University and then set up an insurance brokerage business. He sold this in 1994 and studied law and business at the London Guildhall University from 1994 to 1998. It was also during this period that Mr Biran first became involved in property development, and he has now been involved in more than 50 projects. Mr Biran moved to England with his family in 2001 and acquired British (as well as Israeli) citizenship in 2007. He has lived in Switzerland, however, since 2010 or 2011.

[7]Mr Avrahami introduced Mr Biran to Mr Lerner and Mr Dov Lerner in about 1999. The four met at Mr Dov Lerner’s flat in Israel. They proceeded to invest in a portfolio of properties in Britain through a company called Lab Holdings Limited (“Lab Holdings”), whose name was derived from the first letters of the participants’ surnames (Lerner, Avrahami and Biran). The project was a great success.

[8]By 2002 Mr Biran was interested in purchasing the Farringdon Road site. He initially agreed a joint venture with a Mr Edward Azouz. Their plans proceeded far enough for Mr Azouz to supply money for a deposit. The Farringdon Road site was to be purchased by “Carlton Landmark Properties Limited” and A. R. & V. Developments Limited, a company associated with Mr Azouz. A. R. & V. Developments Limited was to provide 75% of the required equity and “Carlton Landmark Properties Limited” the remaining 25%. Profits and losses were to be shared between the companies on an equal basis.

[9]In the event, however, Mr Biran decided to undertake the Farringdon Road project with Mr Avrahami and the Lerner family rather than Mr Azouz. The money Mr Azouz had provided was returned to him in mid-December 2002.

[10]Mr Biran had talked to Mr Avrahami about the Farringdon Road project by 11 October 2002, when he faxed to Mr Avrahami an “Appraisal Summary” that he had prepared in respect of the project. This included a section headed “Land” in which “2%” was shown in respect of “Agent”. Percentage figures were also given as regards, for example, “Architect” (4.00%), “Quantity Surveyor” (1.50%) and “Project Manager” (1.50%). Towards the end of the document, “Gross Development Costs” were put at £10,830,781 and “Net Profit” at £3,213,542. As a result, “Profit on equity employed” (stated as “£3m-£4m”) was calculated at 107.12%.

[11]Mr Biran, Mr Avrahami, Mr Lerner and Mr Dov Lerner discussed the Farringdon Road project at a meeting in Mr Dov Lerner’s flat in about November 2002. They agreed to pursue the project using a Gibraltar special purpose vehicle in which the Lerners (or a company nominated by them) would have a 50% interest with the other 50% shared between Mr Biran and Mr Avrahami. As regards funding, the Lerners were to provide 85% of the required funding and Mr Biran and Mr Avrahami 7.5% each.

[12]There were very few further meetings between Mr Biran and Mr Lerner. Mr Biran suggested that there was another meeting at Mr Dov Lerner’s flat in December 2002, but Mr Avrahami and Mr Lerner gave evidence to contrary effect, and they are probably correct.Mr Biran’s recollection is that he saw Mr Lerner at a service held after Mr Dov Lerner’s death in late 2003. Over the years, a small number of other meetings took place. At some point, there was also a conference call.

[13]As already mentioned, it was decided at the November 2002 meeting that Mr Avrahami and Mr Biran would between them have a 50% interest in the company used for the Farringdon Road project. Following the meeting, Mr Avrahami and Mr Biran agreed that the former’s share should be 17.5%% and the latter’s 32.5%.

[14]In late November 2002, CLP was acquired on an off-the-shelf basis for the purposes of the project, with companies in the Grays group (“Grays”), which provided corporate administration services, as its directors and registered shareholders. On 25 November, CLP resolved to change its name to “Carlton Landmark Properties Limited”, which was also the name of a UK company through which Mr Biran operated. The UK company (“CLP (UK)”) is the fourth defendant to these proceedings.

[15]The parties differ as to how CLP’s name was chosen. Mr Biran said that he thought that Mr Avrahami had suggested the name, whereas Mr Avrahami said that the name had come from Mr Biran. The likelihood, I think, is that it was Mr Biran who was responsible for the choice of name.

[16]It is common ground that the parties agreed that Mr Biran (or CLP (UK)) would be entitled to management fees of £5,000 per month for the period from exchange of contracts on the site to the grant of planning permission and subsequently £10,000 per month. Mr Biran alleges that he was also to receive a finder’s fee of £80,000 whereas Mr Avrahami and Mr Lerner deny that any finder’s fee was agreed. I return to that issue below – see paragraphs 97-99.

[17]On 26 November 2002, Be-Ready and Mr Avrahami transferred £170,000 and £15,000 respectively to Lawrence Graham, the solicitors instructed, by way of “shareholder” loans in preparation for exchange of contracts on the Farringdon Road site. On 28 November, Mr Biran also contributed £15,000.

[18]Contracts for the purchase of the Farringdon Road site were exchanged on 6 December 2002. The purchase was conditional on the grant of planning permission. The price was set at £3,950,000, subject to adjustment upwards or downwards depending on the extent of the development for which planning permission was obtained. A £200,000 deposit was paid on exchange.

[19]On 13 December 2002, Mr Avrahami sent an email to “Landmark Properties” in which he said that he was “expecting a founders agreement from you”. Ms Sara Canning, Mr Biran’s personal assistant, replied that she would “get [Mr Biran] to send [Mr Avrahami] the Agreement” when he came in. At 12.17 pm on 19 December, Ms Canning told Mr Avrahami in an email, “We are just finalising the contract agreement now”. Later in the day, Ms Canning attached a draft agreement to an email to Mr Avrahami.

[20]The draft agreement identified the parties to it as Mr Biran, Mr Avrahami and the “Lerner family”. A recital stated that Mr Biran, Mr Avrahami and the Lerner family were the beneficial owners and shareholders in a new company, with 32.5% of the shares beneficially owned by Mr Biran, 17.5% beneficially owned by Mr Avrahami and 50% beneficially owned by the Lerner family. The company was to “act as nominee and as the Joint Venture vehicle for the Shareholders in the development and sale of” the Farringdon Road site. The draft agreement also provided as follows: “2.5 Remuneration (management fee) shall be payable to [Mr Biran] as follows: from exchange of contract until planning permition will be achieved £5000 a month. From then onwards to the end of the project £10,000 a month. 2.6 Reasonable expenses shall be payable by the Joint Venture in order to run the company in good order”.

[21]Mr Biran asserted that the draft agreement had been prepared by Mr Avrahami. Mr Avrahami, in contrast, denied having drafted the document, and his evidence is consistent with Ms Canning’s and also the contemporary emails. I accept Mr Avrahami’s account.

[22]On 7 April 2003, Mr Avrahami emailed a “short agreement” in Hebrew to Ms Canning with a request that she translate it into English. Ms Canning sent back an English version, and Mr Avrahami in turn made minor alterations. A slightly adjusted text had been signed by all parties by 2 July 2003. By this stage, Mr Lerner had decided that his family’s interest would be held through Be-Ready. The parties to the agreement were therefore Mr Biran, Mr Avrahami and Be-Ready (of which Mr Lerner is a director).

[23]In keeping with the draft agreement of December 2002, the signed agreement, which was headed “Terms of Engagement”, stated that the joint venture company was owned as to 50% by Be-Ready, 17.5% by Mr Avrahami and 32.5 % by Mr Biran. The agreement (“the Shareholders Agreement”) also confirmed that the funding for the company was to be provided in different proportions: Be-Ready as to 85%, Mr Avrahami as to 7.5% and Mr Biran as to 7.5%. Clause 8 of the agreement provided as follows: “Management Company: a) The parties are committed to hire Carlton Landmark Properties services for the management of the Activities. (‘Management Company’) b) The fee for the Management company will be as follows: i. From exchange until obtaining the planning permission - £5000 a month, limited to 12 months ii. From planning permission until completion of the construction - £10,000 a month, limited to 24 months”. i. From exchange until obtaining the planning permission - £5000 a month, limited to 12 months ii. From planning permission until completion of the construction - £10,000 a month, limited to 24 months”.

[24]Clause 8 thus provided for the management fees to be capped. Mr Biran claimed that he had not really thought about the provision and that no cap had actually been agreed. In my view, however, clause 8 accorded with what the parties had agreed.

[25]A little earlier, on 12 June 2003, Mr Biran had sent Grays a fax:

“to confirm that the beneficial ownership of Carlton Landmark properties is: Doron Biran Ran Avrahami And Be-Ready Ltd”

. The fax also included this:

“All instructions regarding and affecting the business activities of the company, (including material and non material matters) will be done only and directly by Doron Biran and treated as a unanimous decision of all the beneficiary owners”

. Doron Biran

Ran Avrahami

[26]In November 2003, Grays executed documents confirming that they held 50% of the shares in CLP on trust for Be-Ready, 32.5% of the shares on trust for Mr Biran and the remaining 17.5% of the shares on trust for Mr Avrahami.

[27]Until 2004, CLP did not have any bank account of its own. Payments relating to the Farringdon Road project were instead routed through the client account of its then accountants, Fox Associates.

[28]On 11 March 2003, Ms Canning sent Mr Avrahami the first of a series of spreadsheets said to show expenses in respect of the Farringdon Road project. As explained below, the claimants challenge many of the entries in these spreadsheets.

[29]Planning permission for the development of the Farringdon Road site was first given on 6 November 2003. Full planning permission followed in April 2004.

[30]At around this time, Bank of Scotland agreed to provide loan facilities. A facility letter dated 24 February 2004 offered to make available an acquisition facility of £2,785,911 and a development loan facility of £6,258,670. CLP accepted the offer on 7 May 2004 and drew down the acquisition loan on 13 May. From May 2004 CLP also had a current account with Bank of Scotland. In about September the balance held in Fox Associates’ client account was transferred into the Bank of Scotland account.

[31]CLP’s purchase of the Farringdon Road site was completed in May 2004 with the assistance of the acquisition loan from Bank of Scotland and further shareholder loans.

[32]According to Mr Biran, he and Mr Avrahami had arrived at what is referred to in the pleadings as the “Management Fees Agreement” in late 2003. Mr Biran explained this in these terms in a witness statement:

“Instead of me taking my finder’s fee and management fee Ran [Avrahami] and I agreed that I would be allowed to take money from [CLP] as and when cash was available. We agreed that if I ended up taking less than I was entitled to then at the end of the Project I would be paid what I was owed and if I ended up taking more than I was entitled to at the end of the project then I would pay back the difference. The agreement made sense because it meant that I would only take money out of the Project when it was available and it avoided any of the shareholders having to pay in any more equity which Ran made clear was not an option”

. The claimants dispute that there was any such agreement. The dispute is addressed below.

[33]In 2004-2005 Mr Biran, in conjunction apparently with his mother, established a trust called the Amos Trust in favour of his children. The Amos Trust is the beneficial owner of Landmark Group Limited (“Landmark Group”), which itself holds the shares in Odin Limited (which owns a flat in Hampstead), Landmark FP Limited (which was used for a development that Mr Biran undertook at 29-35 Farringdon Road), the 50% interest that Mr Biran formerly had in Aquarius Developments Limited (“Aquarius”) (which undertook a development at West Heath Road in Hampstead) and his 32.5% interest in CLP. The interest in CLP was transferred to Landmark Group at a consideration of £450,000. The one interest in a company that was transferred to Landmark Group without payment was Mr Biran’s interest in the second defendant, Landmark Management Limited (“Landmark Management”). Landmark Management’s role was, it seems, to act as banker for other companies associated with Mr Biran: according to Mr Biran, Landmark Management did not have assets of its own, but held an account with UBS in Jersey that was used to hold money to which other companies were entitled.

[34]One of the complications with the Farringdon Road project was that the Crossrail line was to pass under it. Negotiations with Crossrail led to a written agreement dated 8 October 2004, and further discussions followed as to the extent to which it would be necessary to remove piles beneath the Farringdon Road site. Skanska undertook the required work between December 2004 and around February 2005, following which the substantive redevelopment work could begin.

[35]Scanmoor Limited (“Scanmoor”) was employed as the main contractor for the project. CLP entered into a written agreement with Scanmoor on 21 February 2005, and Scanmoor worked at the site until about March 2007. The company went into administration in April 2007.

[36]By this stage, the Farringdon Road development was already well advanced. Parts of the building had been sold for £8,507,842 in October 2006, allowing £8.4 million to be repaid to Bank of Scotland. In October 2007, further sales were effected, for sums totalling in excess of £5.1 million, as a result of which the balance of CLP’s indebtedness to Bank of Scotland was discharged. £1 million of the £1.532 million that Be-Ready had advanced was also paid back. In April of the following year, by which time the last penthouse in the Farringdon Road development had been sold, Be-Ready was paid the remaining £532,000 that it was owed in respect of its loans, and Mr Avrahami and Mr Biran were each paid £135,250 in respect of their contributions to the project. The outstanding freehold interest in the Farringdon Road site was sold for £56,007 in February 2009.

[37]The project was not, however, represented as having been successful. In March and April of 2008, Mr Biran met Mr Avrahami on several occasions to discuss why the project had not achieved the returns that had been anticipated.

[38]On 3 April 2008, Mr Biran sent an email in these terms: “Dear Rami and Ran, Following my conversation with Ran today I would like to raise a few points which are important for me on a personal and business level 1) In the past 5 years Landmark group has experienced a big loss towards Farringdon in a few areas. We manage and exercise the joint venture to the best of our ability without being paid 2) A decision had been made 3 years ago to employ Scanmoor on another job for Landmark Group in order to avoid a claim of 1.8M GBP on extra costs on the Farringdon project. Subsequently, Scanmoor has had a bankruptcy and Landmark group suffered a loss of the excess of 4M GBP on the other project Despite the above, I recognise the full confidence, trust and support that both of you gave me in the past few years, and more importantly the obligation that I owe to Rami’s father in which he gave me his full trust when he invested in our mutual project. Therefore, I decided not to charge any management fee as agreed by the joint venture, and to try my best to finish off all of the company’s obligation with the rest of the money which has been retained after the return of the equity. I will advise to Gibraltar to send all the remaining equity back to the shareholders”.

[39]Mr Lerner acknowledged Mr Biran’s gesture later that day. Among other things, he said (as translated into English from Hebrew): “Firstly, I have to express my great appreciation for the ‘business chivalry’ you have chosen to demonstrate in this situation” and “And it is really not a trivial thing to give up on something that was agreed and I respect that a lot”.

[40]In June 2009, Ms Canning ceased to work for Mr Biran: a letter dated 5 June records the termination of Ms Canning’s employment with effect from 8 June. Later in the year, in about the October, Ms Canning told Mr Avrahami that he and Mr Lerner had been defrauded by Mr Biran.

[41]The present proceedings were issued on 13 November 2009. The claimants had already, on 11 November, been granted a freezing order on a without notice basis. The freezing order was served on Mr Biran on 12 November. Later that night, Mr Biran sent Mr Avrahami a text message in these terms: “Ran and Rami, I’m so sorry, there is not enough words to say how sorry I’m, one day I will explain the circumstances, I can’t say it was not intentional but it was. I truly worked so hard for 6 years to succeed with that venture please take it into account when you make your decisions how to accou[…]nt this venture I’m in your hands and I will respect any decision with full responsibility, please I ask you to find a small corner in your hurt and forgive me, I’m not worthy to be your friend but I love and respect you both from the bottom of my hurt. All of us in our lifetime making mistakes the important thing is to take responsibility and learn from it, I assure you I learn mine”.

[42]Mr Biran gave the following explanation of this text in a witness statement: “When I was served with the freezing order I was completely shocked, I could not believe what Ran [Avrahami] was doing. Having been served with the freezing order I spoke to Ran who said that Rami Lerner had found out about me taking money for non-Project purposes and was pushing for me to be sued. I was very surprised as I assumed that Ran had kept Rami fully informed about the fact that we had agreed that I could take funds from [CLP] instead of monthly management fees. Ran said that I should send an apologetic SMS which he would then show to Rami and that that might make Rami feel better and allow us to avoid litigation. Ran promised that he would show Rami the SMS and then delete it. Of course what Ran has in fact done is keep the SMS in order to try to use it against me in this claim”.

[43]This account of events makes little sense and is contradicted by evidence given by Mr Avrahami, who was emphatic that he had not asked Mr Biran to send the text. Mr Avrahami observed that Mr Biran was “admitting that he did something wrong”. I agree. The text was sent, I think, because Mr Biran was, at the time, contrite.

[44]On 17 November 2009, Mr Avrahami and Mr Lerner took control of the board of CLP. A resolution was passed appointing Mr Avrahami, Be-Ready and Professor Tzvike Metzger (Mr Lerner’s brother-in-law) as additional directors. In the following month, the Grays companies resigned as directors, and Professor Metzger also resigned in 2010. The present directors of CLP are therefore Mr Avrahami and Be-Ready.

[45]Following service of the claim, Mr Biran instructed Arithma LLP (“Arithma”), a firm of accountants, to prepare a report. He explained his thinking and what ensued in these terms in a witness statement: “My position was that because the issue with Crossrail had not yet been finalised I was not yet required to account to [CLP] in respect of the sums that I took as fees. However, because I knew that I would have to give an account of the money that I had taken at some point in the future, rather than fighting the claim, I arranged for Arithma LLP … to prepare a full account setting out exactly what was taken and assisted the process as much as I could. Arithma delivered a copy of its report … which is dated 19 January 2010 …. The Arithma Report listed all of the sums that were spent on the Project … , set out all of the VAT refunds sent to [CLP] … and listed all of the sums that were spent on non-Project items …. On the basis of that information the Arithma Report concluded that I was required to repay £1,545,285 to [CLP] … and, taking that payment into account, the Project made a surplus of £1,298,229 …. In the light of the Arithma report I replied to the items listed in the schedule attached to the first claim admitting those items that the Arithma Report stated were non-Project items. Ran and Lerner’s response was to seek an interim payment and then summary judgment against me. I disputed the applications mainly because Ran [Avrahami] and the Lerners were alleging fraud and I did not want those issues summarily decided. I would also note that the interim payment and summary judgment application gave me no credit for my finder’s fee or management fee. In other words Ran and the Lerners sought to recover all of the non-Project items without taking account of my fees. Ran and the Lerners won their summary judgment application but I appealed. I would have pursued my appeal but in the end, because I always accepted that I would have to account for the money as fees, Ran the Lerners and I agreed that I would pay a sum of money in respect of the items that I had accepted I owed and the summary judgment and the appeal would fall away. Our agreement was put in to a Tomlin order dated 9 September 2011 …”.

[46]The Tomlin order mentioned in this passage (“the Tomlin Order”) provided for Mr Biran to pay the claimants £1,684,826.07. This was explained to be the principal sum that Deputy Master Lloyd had ordered to be paid by an order dated 1 and 21 July 2010. The £1,684,826.07 was attributable: i) As to £914,457.75, to a VAT refund received in September 2008; ii) As to £224,211.37, to other VAT refunds; and iii) As to £546,156.95, to money which Mr Biran accepted had not been used for the purposes of the Farringdon Road project.

[47]The money due under the Tomlin Order has been paid.

[48]During 2009, the Trustees of the Cranewise Limited Directors’ Pension Scheme and A. R. & V. Investments, a company associated with Mr Azouz, issued proceedings in the Commercial Court against Mr Biran and two companies linked with him, Landmark Management and Landmark Healthcare Limited. On 22 June 2010, Burton J gave judgment on an application for judgment in default as against Mr Biran and summary judgment as against the other defendants. He concluded his judgment by stating that he was satisfied that there should be summary judgment for the claimants. It is worth quoting from a few paragraphs of Burton J’s judgment:

“5. On an occasion in November 2007, it appears that Mr Biran invited the Claimants to pay $2 million to him, to an account in the name of the Second Defendant company at UBS Bank in Jersey, on the basis of Mr Biran’s agreement to hold the $2 million as to half for each of the two Claimants, but that does not matter – for the purpose of using that $2 million to acquire shares for the Claimants in three companies with which he said he was concerned, called Simoned, Sinopharm and Porter Precision (now Maestro Precision). The $2 million were paid over, in fact into an account in the name of the Second Defendant company, by the Claimants on 20 November 2007. 6. It now appears from the evidence that money was almost immediately misappropriated, by the First Defendant giving instructions to that effect to the Second and Third Defendants, because the monies were paid out of the accounts at UBS on 23 November, three days after their receipt, and were in fact it seems used to buy shares for the personal benefit of the First Defendant…. 8. Without dealing in any detail with the efforts that have been made by the Claimants to recover those monies, once it became apparent that they had not been expended on shares for the Claimants as they had expected, I can concentrate only on five documents, which are of very considerable importance in this case. The first two documents are letters both dated 31 July 2009; they are on headed notepaper of the Second Defendant company and are signed on behalf of the Third Defendant company by Grays Directors Limited, … which company it seems is a director of the Third Defendant, certainly the letter is so signed, and I assume also on behalf of the Second Defendant. The first letter is addressed to the Second Claimant and the second letter is addressed to the First Claimant, and the $2 million is split … as to half between each of them. I read only the first letter: ‘Dear Sirs, re. Landmark Healthcare Limited. We write on behalf of Landmark Healthcare Limited (“Landmark”) to confirm that Landmark holds on account the sum of one million US dollars (US$1,000,000) received on 20 November 2007 into the account of Landmark Management Limited from AR & V Investments Limited.”

As I have indicated, there is an identical letter relating to the other $1 million and mentioning the First Claimant. 9. Those are extraordinary letters. The evidence put in on behalf of the Second and Third Defendants makes it plain that those letters were written on the instructions of the First Defendant, but the fact is that the monies had already gone, we now know, 18 months or so before …”.

[49]A month or so earlier, in May 2010, a company called Sinocare Group Limited (“Sinocare”) had also issued proceedings, in Hong Kong, against Mr Biran, Landmark Healthcare Limited and Landmark Management.

[50]From March 2004, Mr Biran (and CLP (UK)) operated from an office at 9 Mansfield Street, London. Mr Biran initially occupied a ground floor room, but he moved to larger premises on the first floor in December 2007.

[51]CLP (UK) was struck off the Register of Companies and dissolved on 13 October 2009, but it was restored to the Register at the instigation of the claimants on 7 September 2011. Evidential points The principal witnesses

Evidential points

[52]The three main protagonists (Mr Avrahami, Mr Lerner and Mr Biran) all gave evidence.

[53]Mr Avrahami impressed me as a truthful and careful witness. Understandably, his recollection of events was not always perfect (for example, he had forgotten that he had approved the fax by which Fox Associates were asked to transfer the balance on their client account to Bank of Scotland), but I nonetheless feel that I can have considerable confidence in his evidence.

[54]Mr Lerner also struck me as an honest and generally reliable witness. His evidence is, however, less important than Mr Avrahami’s because he was not as closely involved in the relevant events.

[55]In contrast, I cannot consider Mr Biran a reliable witness or even a truthful one. His evidence was often evasive. More importantly, it was at variance not only with that of other witnesses, but with the available documents and the inherent probabilities. In numerous respects, it was utterly implausible. It is indicative of Mr Biran’s dishonesty that he relied on a number of documents that he must have known to have been fabricated. These include a letter purportedly written to Ms Canning by a Mr Jorge Farkash on 31 March 2007 but which must in fact have been created in the course of the present proceedings (see paragraphs 185-187 below); letters purportedly written by Mr Farkash between April and January 2008 but which again were, in my view, generated after these proceedings had been issued in 2009 (see paragraphs 203-204 below); and invoices from Dunleigh Investments Limited (“Dunleigh Investments”) which are also likely to have been produced during the proceedings rather than on the dates they bear (see paragraphs 242-244 below). Other documents that Mr Biran knew to have been falsified include, in my judgment, an invoice purportedly from “EQITA Limited” (see paragraphs 192-195 below); an invoice from Power Office Services Limited (“Power Office”) from which words seem to have been removed with the help of Tipp-Ex (see paragraphs 178-179 below); and two invoices supposedly issued by “Space Design” (see paragraph 82(xi) below).

[56]The other principal witness was Ms Canning. Ms Canning was Mr Biran’s personal assistant from August 2002 until June 2009. For most of this period, she was employed by CLP (UK). Latterly, her employer was Landmark Telos Group (“Landmark Telos”), a joint venture between Mr Biran and a Mr John Porter. Ms Canning had previously obtained degrees in political science and marketing from Haifa University and University of Westminster respectively before running a smoked salmon club for a smoked salmon company. While working for Mr Biran, Ms Canning studied for the graduate diploma in law (“GDL”) and undertook the legal practice course (“LPC”) on a part-time basis.

[57]As the claimants acknowledged, there is good reason for me to treat Ms Canning’s evidence with caution. By her own account, she was involved in dishonest conduct during the period she was Mr Biran’s personal assistant, albeit (according to her) on Mr Biran’s instructions. She now works for Sinocare, which is itself engaged in litigation against Mr Biran. The fact that she had a personal relationship with Mr Biran for a number of years (from around 1999-2000, when she was still a student, to 2007) could also, potentially, give her a motive to denigrate Mr Biran, as could resentment that Mr Biran had failed to give her shares in Sinocare to which she believed herself to be entitled.

[58]Another factor to be considered relates to the basis on which she has helped the claimants. Shortly after Ms Canning first told Mr Avrahami that Mr Biran had acted fraudulently, she asked to be remunerated for her assistance, and put forward a 15% figure. Mr Avrahami did not agree to the 15%, but he did indicate to Ms Canning that she would receive appropriate compensation, of an amount to be determined in the future. In cross-examination, Mr Avrahami explained:

“For assisting our team and providing information and for the time that she is spending and the risk she is taking with her family and with … other people … involved, we appreciate her contribution and we are going to compensate her and I think that is fair”

. However fair these arrangements might seem, though, they might be thought to have given Ms Canning a financial incentive to impugn Mr Biran. I should perhaps add that the prospect of Ms Canning being paid was disclosed at the outset, when the claimants first applied for a freezing order in November 2009, and that it was not originally envisaged that Ms Canning would herself be a witness.

[59]It is also relevant to bear in mind that on 31 July 2009, when she was no longer working for Mr Biran, Ms Canning entered the 9 Mansfield Street office without permission and sent herself an email to which she had attached information relating to a Landmark Management bank account. I did not find Ms Canning’s evidence about this incident altogether convincing.

[60]On the other hand, much of what Ms Canning has said is borne out by other evidence. While, therefore, I approach Ms Canning’s evidence with a degree of caution, I do not regard it as by any means worthless. As will appear, I consider her account of the main events to be broadly accurate.

Documentary evidence

[61]Ms Canning explained in evidence that she and Mr Biran would exchange 15 or so emails a day, and a good many of these will have related to the Farringdon Road project. However, Mr Biran has disclosed only some 52 emails in total. Mr Biran said that information on his server had been lost, that he did not know what had become of a backup of the server that he had given his then solicitors in 2009, that he had lost a Sony computer he used to have and that an Apple replacement had been stolen shortly before the trial. While elements of this account may well be true, the likelihood, I think, is that Mr Biran has withheld or destroyed some relevant electronic materials.

Offers to potential witnesses

[62]Mr Biran and Landmark Management (“the Represented Defendants”) sought to suggest that Mr Farkash and a Ms Hazel Sallis had been offered money by the claimants’ solicitors, Asserson Law Offices, to give evidence against them. The allegation was emphatically denied by Mr Elliot Lister of Asserson Law Offices, and I have no hesitation in accepting his evidence.

The parties’ cases in brief outline

[63]The claimants’ case is primarily founded on allegations of large-scale fraud on the part of Mr Biran and CLP (UK). According to the claimants, the money in respect of which Mr Biran accepted liability in the Tomlin Order was not taken pursuant to the “Management Fees Agreement” or otherwise with their agreement but was dishonestly misappropriated, as (they say) were numerous other sums. The claimants further contend that they were deceived into pursuing the Farringdon Road venture with Mr Biran as a participant; that Mr Biran failed to contribute his full share of the shareholder loans; and, in at least one respect, that Mr Biran/CLP (UK) acted negligently.

[64]The Represented Defendants reject all these allegations. Mr Saul Lemer, who appeared for the Represented Defendants, summarised their case in the suggestion that there had in effect been four “stories” being played out. The first of these concerned fees due to Mr Biran/CLP (UK). Mr Lemer submitted that Mr Biran/CLP (UK) had been entitled to management fees of upwards of £300,000 and a finder’s fee of £80,000, but Mr Avrahami was unwilling to ask Mr Lerner to provide further funding and, as a result, it was agreed between Mr Avrahami and Mr Biran that Mr Biran/CLP (UK) would take their fees as and when funds became available.

[65]The second story related to a payment of £914,457.75 that was received from HM Revenue and Customs (“HMRC”) in September 2008. On the Represented Defendants’ version of events, Mr Avrahami and Mr Biran agreed by telephone that the £914,457.75 should be paid into an account held by Landmark Management pending agreement on what should be done with the money.

[66]The third story was of money being taken by a third party for non-project purposes. Mr Lemer maintained that the Represented Defendants had no knowledge of such payments at the time and suggested that Ms Canning might have been to blame.

[67]The fourth story was again one of which the Represented Defendants were said to have learned only during the course of the proceedings. Mr Lemer said that it had become apparent that some payments for non-project purposes had been made from CLP’s funds by mistake. Here, too, the finger was pointed at Ms Canning.

[68]As regards defendants other than the Represented Defendants, CLP (UK) (which, as already mentioned, was restored to the Register at the claimants’ instigation) has taken no active part in the proceedings. For its part, Aquarius has agreed terms pursuant to which, among other things, the claimants will in due course have to elect whether to pursue an account of profits.

Ms Canning’s role

[69]It is convenient to say something at this stage about Ms Canning’s role when she was working as Mr Biran’s personal assistant.

[70]According to Ms Canning, “in essence [she] was a junior employee and only and always acted on [Mr Biran’s] instructions”. In general, Ms Canning said, Mr Biran checked any communication leaving the office. Thus, spreadsheets “were constructed by [Mr Biran] or by [Ms Canning] pursuant to his instructions and would not have left the office without prior confirmation from him that he was happy”, and while Ms Canning “did often arrange various payments via Grays this was only ever done at [Mr Biran’s] instruction and request”.

[71]Mr Biran painted a very different picture. He maintained that Ms Canning did not need his permission to send emails and faxes, to speak on the telephone to Mr Avrahami, Grays, contractors or professionals, to arrange payments to contractors or to deal with invoices. Further, it was, Mr Biran said, Ms Canning who created the spreadsheets that were sent to Mr Avrahami. According to Mr Biran, if mistakes were made, or money misappropriated, the person responsible is likely to have been Ms Canning.

[72]Mr Biran sought support in evidence given by Mr Azouz and a Mr Daniel Auerbach. Mr Azouz did not consider Mr Biran a “details man”, and Mr Auerbach thought Mr Biran “more of a broad brush stroke type person”.

[73]In my judgment, the picture painted by Ms Canning is essentially an accurate one. That conclusion is in part based on my general assessment of the witnesses. The following specific points also point to Mr Biran’s knowledge of, and involvement with, the events at issue: i) As mentioned in paragraph 55 above, I consider that Mr Biran relied on a number of documents that he must have known to have been fabricated. Some of the documents in question will have been created in the course of the present proceedings. There can be no question of Ms Canning having had any responsibility for those; ii) The NHBC cheque addressed in paragraphs 311-322 below was not issued until June 2011. Again, Ms Canning can hardly be responsible for what happened to that; iii) The fact that Mr Biran sent the text quoted in paragraph 41 above also indicates that he bore responsibility for the matters of which the claimants complain; iv) There is no direct evidence of Ms Canning receiving any benefit from the misappropriations alleged; v) In contrast, Mr Biran had plainly benefited from the matters dealt with in the Tomlin Order (including the cheques in favour of Kenneth Harvey Antiques and Theodore Alexander which will not have reached their addressees – paragraph 181 below); vi) Mr Biran can also be seen to have benefited from some of other misappropriations the claimants allege (see e.g. paragraphs 213-235, 249-260 and 263-270 below); vii) There are further ways in which Mr Biran can be seen to have played a part in some of the alleged misappropriations. For instance, he was copied in on or himself sent some of the relevant emails; signed some of the relevant faxes; gave Lawrence Graham the instructions mentioned in paragraphs 82(v) and 218 below; spoke to Grays about certain transactions; told Grays that money required for school fees was going to mechanical electrical engineers (paragraph 82(xi) below); asked for an invoice to be re-issued as mentioned in paragraph 233 below; made cash withdrawals; wrote “Ask to put the amount on Farringdon” as mentioned in paragraph 258 below; and wanted work over-certified (paragraph 268 below); viii) Mr Levy Benaim, who features in the incidents discussed in paragraphs 172-178 and 240-244 below, was a friend of Mr Biran; ix) The Mansfield Street offices were not large.

The legal framework

[74]It is common ground between the parties that Mr Biran owed fiduciary duties to CLP. More specifically, Mr Biran accepts that he had the following duties: i) Not to put himself in a position of conflict between his personal interests and the interests of CLP; ii) To act honestly, in good faith and in the best interests of CLP at all times; iii) Not to make a secret profit; iv) To exercise his powers for proper purposes.

[75]It is alleged by the claimants, and I accept, that CLP (UK) owed similar duties. That is admitted by the Represented Defendants, and it is not denied by CLP (UK), which, as already mentioned, has not taken an active part in the proceedings.

[76]Some of the other legal issues aired before me (for example, as to the extent to which Mr Avrahami had authority on behalf of Be-Ready, the burden of proof and whether Mr Biran was a de facto and/or shadow director of CLP) do not in the event seem to matter. As for whether Mr Biran was a de facto and/or shadow director of CLP, I am inclined to think that he was at least a shadow director, but I do not need to arrive at a final view on the point.

The issues

[77]The parties helpfully agreed a list of issues before the trial. As matters have developed, the issues that fall for determination or comment can, I think, be summarised as follows: i) Whether any or all of four agreements alleged by the Represented Defendants (viz. the “Management Fees Agreement”, the “VAT Agreement”, the “£914,457.75 VAT Agreement” and the “finder’s fee agreement”) were entered into and, if so, what their terms were; ii) Whether Mr Biran failed to contribute all or part of his share of the shareholder loans; iii) Whether Mr Biran/CLP (UK) misappropriated sums beyond those that Mr Biran has accepted were used for non-project purposes; iv) Whether Mr Biran/CLP (UK) are liable to pay interest and costs in respect of the items taken by Mr Biran/CLP (UK) and dealt with in the Tomlin Order; v) Whether Mr Biran/CLP (UK) are liable for consequential losses caused by Mr Biran misappropriating funds and, if so, the extent of those losses; vi) Whether Mr Biran/CLP (UK) have any liability in respect of payments that were made to Hurford Salvi Carr Limited; vii) Whether Mr Biran/CLP (UK) acted negligently in relation to a claim for fees advanced by Masons Property Advisers Limited; viii) Whether Mr Biran received and cashed a cheque from the National House-Building Council made payable to CLP; ix) Whether Mr Biran’s actions resulted in the forfeiture of 25/32.5ths of the 32.5% stake in CLP that was initially allocated to him; x) Whether Mr Avrahami and Be-Ready are entitled to damages for misrepresentation or non-disclosure and, if so, what damages; xi) Whether Mr Biran/CLP (UK) are liable to pay interest in respect of items other than those dealt with in the Tomlin Order; xii) Whether Mr Biran/CLP (UK) are entitled to a finder’s fee and/or management fees or, alternatively, whether Mr Biran/CLP (UK) are entitled to a quantum meruit for work done in managing the Farringdon Road project.

Issue (i): The agreements alleged by the Represented Defendants

(i) : The agreements alleged by the Represented Defendants

[78]As mentioned above, the Represented Defendants allege four relevant agreements: a “Management Fees Agreement”, a “VAT Agreement”, a “£914,457.75 VAT Agreement” and a “finder’s fee agreement”. I shall take these in turn.

The Management Fees Agreement

[79]It is the Represented Defendants’ case that in about December 2003Mr Biran and Mr Avrahami entered into an agreement (termed “the Management Fees Agreement”) under which: i) In lieu of receiving the fees payable to them, Mr Biran and CLP (UK) would be entitled to take money from CLP as and when they wanted to meet personal liabilities; and ii) Once the Farringdon Road project had been completed, an account would be taken, and, if Mr Biran and CLP (UK) had received more than the fees due to them, they would return the excess.

[80]Mr Biran explained matters in these terms in a witness statement: “By December 2003 I was owed in excess of £100,000 in fees, but even with the [Bank of Scotland] facility in place cash remained tight …. The final instalment of the £350,000 equity investment was paid into the Fox Associates’ account in around mid-December 2003…, Ran [Avrahami] absolutely refused to ask the Lerners for any more money. Instead of me taking my finder’s fee and management fee Ran and I agreed that I would be allowed to take money from [CLP] as and when cash was available. We agreed that if I ended up taking less than I was entitled to then at the end of the Project I would be paid what I was owed and if I ended up taking more than I was entitled to at the end of the project then I would pay back the difference. The agreement made sense because it meant that I would only take money out of the Project when it was available and it avoided any of the shareholders having to pay in any more equity which Ran made clear was not at an option”.

[81]For his part, Mr Avrahami denies that any such agreement was concluded. He described the alleged agreement as “simply fiction” in a witness statement. What happened, according to Mr Avrahami, is that he was more than once told by Mr Biran (and relayed to Mr Lerner) that he (Mr Biran) would not take management fees until the Farringdon Road project had achieved a profit. Mr Avrahami said in a witness statement: “It seemed reasonable to wait until there were profits given that we were close friends, that we were aware that Rami [Lerner] was making a big effort to finance the second-stage (the development part) and that so far as I understood Doron [Biran] did not need the money at the time…. So far as Rami and I were concerned, Doron had continued to put off taking his management fee right up until the time that he then waived his fee by email…”.

[82]There are numerous reasons for preferring Mr Avrahami’s version of events. They include these: i) Mr Avrahami is a reliable witness. Mr Biran is not; ii) Mr Lerner confirmed that he had been told by Mr Avrahami that Mr Biran had agreed not to take management fees until CLP was profitable. Ms Canning said that she too was unaware of an agreement such as Mr Biran alleges; iii) No reference to the agreement alleged by Mr Biran has been found in the contemporary documents; iv) The alleged agreement lacks commercial sense. It would have allowed Mr Biran and CLP (UK) to take sums far in excess of the maximum amount that could become due as management fees. In fact, that is what happened on the Represented Defendants’ case; v) Once the purchase of the Farringdon Road site had been completed in May 2004, Lawrence Graham still held more than £270,000 for CLP. Mr Biran gave instructions for £220,000 of the money to be transferred to Landmark Management’s account with UBS in Jersey and, as explained below (paragraphs 218-219), caused £52,000 to be applied in purchasing a Range Rover for his personal use. When, later in the year, Mr Avrahami chased for a completion statement, he was sent a document showing payments of £155,000 and £100,000 in respect of “Stamp duty” and “Scanmore” respectively which had not in fact been made. Had the supposed Management Fees Agreement existed, there would have been no need to lie. Mr Avrahami was lied to because Mr Biran had no intention of accounting for the money he had taken; vi) In an email to Mr Avrahami of 8 November 2006, Mr Biran said, “You know that [I am] working on this project for 3 to 4 years every day free”. This remark would have made little sense had it been understood between them that Mr Biran / CLP (UK) had been taking substantial sums pursuant to the alleged agreement. It is consistent with Mr Avrahami’s evidence that Mr Biran was presenting himself as taking no money until the project had achieved a profit; vii) On 2 April 2008, Mr Avrahami was sent a spreadsheet for the Farringdon Road project as an attachment to an email that was copied to Mr Biran. The spreadsheet showed management fees of £295,000 to have been earned and outstanding, and there was no reference to Mr Biran or CLP (UK) owing anything in respect of sums they had withdrawn. This is again consistent with Mr Biran portraying himself as waiting for his management fees and concealing his withdrawals; viii) As mentioned above (paragraph 38), on 3 April 2008 Mr Biran told Mr Avrahami and Mr Lerner that he had managed the joint venture “without being paid” and that he had “decided not to charge any management fee … and to try to finish off all of the company’s obligation with the rest of the money which has been retained after the return of the equity”. There was no reference to Mr Biran repaying the large sums he and CLP (UK) had taken; ix) Little more than a month later, Grays were requested to transfer £80,000 to Landmark Management, following a “conversation with Doron [Biran]”, “on account of management fees that were never paid”. However, Mr Biran and CLP (UK) had taken far more money than would ever have been payable in management fees even if Mr Biran had not waived such fees. The email testifies to Mr Biran’s dishonesty and indicates that he was not intending to account for the money he had taken; x) Mr Biran gave the impression that the Farringdon Road project had been unprofitable. It is hard to see how he could have done so had he been intending to bring his withdrawals into account; xi) Grays were given false explanations of some of the items that were accepted in the Arithma Report as not having related to the Farringdon Road project. When, for example, a cheque was required to pay school fees, Mr Biran told Grays that the payees were mechanical electrical engineers. Similarly, the management company in respect of Mr Biran’s then home was said to be “accountants for company”. When Mr Biran wanted Grays to pay sums totalling £46,000 in respect of a liability unrelated to the Farringdon Road site, Grays were told that money was owed to “Space Design” “regarding the design of the flats in Farringdon Rd” and two invoices from Space Design were concocted. There would have been no need to give false explanations for personal payments had the Management Fees Agreement really been concluded; xii) As mentioned above (paragraph 41), Mr Biran expressed contrition in a text message he sent following service of the freezing order. He would not have done so had he been authorised to take money as he did; xiii) Mr Biran did not keep the records that would have been required to enable him to account properly for the money he and CLP (UK) had taken. That is consistent with his having had no intention of so accounting.

[83]In short, I do not believe Mr Biran’s evidence about the Management Fees Agreement and consider that no such agreement was ever entered into.

The VAT Agreement

[84]It is the Represented Defendants’ case that in about August 2004 Mr Biran and Mr Avrahami entered into an agreement (referred to as “the VAT Agreement”) under which: i) VAT refunds that CLP received were to be paid into CLP (UK)’s bank account either in lieu of fees or to be used by CLP (UK) for expenses related to the joint venture; and ii) Mr Biran would account for the refunds at the end of the joint venture.

[85]Mr Biran explained matters in these terms in a witness statement: “From around August 2004 onwards we started to receive VAT refunds in respect of VAT that we paid to the contractors. When the first VAT cheques arrived Ran [Avrahami] and I agreed that rather than paying the cheques in to [CLP’s] bank account I should pay the cheques into [CLP (UK)’s] bank account and I could then either use the money for the Project or keep it instead of my management fee. My recollection is that I spoke to Ran every time we received a VAT refund, and whenever we discussed the matter, he agreed that I should carry on paying the cheques into [CLP (UK)] and either keep the money as management fees or use it for the Project. The understanding was that at the end of the Project I would prepare my account and, if it showed that I had not been paid enough in the way of fees, I would be paid more and if it showed that I had taken too much I would return the extra bit…. One of the main reasons why Ran and I agreed that I should take the VAT payments myself rather than paying them to [CLP] was because we both thought that if the money was paid into [CLP’s] bank account it would be automatically treated as a loan repayment, which would mean that the money could not be taken out of that account again. If I kept the money rather than paying it into the account it meant that it remained available to be used either to cover the costs of the Project or to pay my fees”.

[86]However, Ms Canning said that she was positive that no such agreement was ever made. She explained in a witness statement:

“Doron [Biran] kept the existence of the VAT returns a secret from Ran [Avrahami] who was not aware of them at that stage at all. It was not until I informed him about them in late 2009 that Ran first became aware of the VAT returns due to [CLP]”

. Elsewhere, Ms Canning said:

“Doron’s banking of the funds in the [CLP (UK)] account was not one of mistake, but was quite deliberate. Doron talked about the issue with me and stated quite clearly that as the companies had the same name nobody would know the difference”

. In cross-examination, Ms Canning said: “I think I agree that at the beginning there was no intention to keep [VAT] secret. I do not think it was something … from the start, but when the cheques started to arrive at Mansfield, then there was an opportunity and Doron [Biran] took that opportunity”.

[87]For his part, Mr Avrahami said that Mr Biran’s claims regarding the supposed VAT Agreement were “simply untrue”. He said that he had not even been aware that CLP was VAT-registered.

[88]Mr Lemer submitted that Mr Avrahami’s evidence in this respect was not credible. Mr Avrahami would, he suggested, have been bound to consider whether CLP was registered for VAT. He pointed out, moreover, that a spreadsheet Mr Avrahami was sent in December 2004 included an entry in respect of “VAT from Fox Associates”.

[89]Asked about this, Mr Avrahami said that he “simply missed” the reference to VAT. He also explained that the Lab Holdings project in which he had previously been involved with Mr Biran and Mr Lerner had not been registered for VAT.

[90]I accept Mr Avrahami’s evidence. What is striking about the documents in evidence is not that VAT was mentioned in a spreadsheet sent to Mr Avrahami but that the Represented Defendants were unable to identify more references to VAT in the documentation that was available to Mr Avrahami. That is consistent with Ms Canning’s evidence that VAT matters were kept secret from Mr Avrahami and helps to account for Mr Avrahami’s ignorance of the fact that CLP was registered for VAT purposes.

[91]With regard to the suggestion that money paid into CLP’s current account would automatically be treated as a loan repayment (for which, see paragraph 85 above), this is not supported by the terms of the relevant facility letter. There is, moreover, no reason to suppose that a sum of £52,070.94 paid into CLP’s current account in October 2004 (as to which, see paragraph 164 below) was treated as a loan repayment. Even supposing, however, that Mr Biran (wrongly) believed that money would not be available to CLP if paid into its own account, I do not think that Mr Avrahami shared that belief or that Mr Biran discussed the point with him.

[92]In short, I do not believe that the alleged VAT Agreement was ever entered into.

The £914,457.75 VAT Agreement

[93]In September 2008, CLP received a VAT refund of as much as £914,457.75. The money was paid into CLP (UK)’s bank account on 24 September, and £900,000 was then transferred from that account to Landmark Management’s account with UBS Jersey.

[94]The Represented Defendants’ case is that these steps were taken in accordance with an agreement made between the parties (termed the “£914,457.75 VAT Agreement”). According to the Represented Defendants, it was agreed that: i) The £914,457.75 would be paid into CLP (UK)’s bank account and then transferred offshore to the UBS Jersey account; and ii) The money was to remain in the UBS Jersey account until a decision had been made as to what should be done with it.

[95]Mr Biran gave the following account of events in a witness statement: “In September 2008 I received a call from Sara [Canning] who explained she had just received a VAT refund cheque for £914,457.75 in respect of work carried out by Scanmoor. I was in China on business when I received that call but as soon as I found out about the cheque I called Ran [Avrahami] to tell him. At that time, as far as I was aware, [CLP] no longer had a UK bank account because I thought that it had been closed down when the [Bank of Scotland] loan facility had been repaid and so we agreed that until we negotiated with the Scanmoor administrators or got a demand from them we should pay the money into [CLP (UK)’s] account and from there move it off shore into the UBS Jersey account owned by Landmark Management Ltd … to which I had access”.

[96]I reject this evidence. As indicated above, I do not think Mr Avrahami was even aware that CLP was VAT-registered. Further: i) Mr Avrahami stated that he had no knowledge of the £914,457.75 refund and that the conversation to which Mr Biran referred in the passage quoted in the previous paragraph did not take place; ii) Ms Canning said that Mr Biran had decided not to tell Mr Avrahami about the refund; and iii) I cannot accept that Mr Biran believed (as he claimed to have done) that CLP ceased to have a bank account once Bank of Scotland had been fully repaid. It is significant in this context that CLP continued to make payments from its current account even after it was no longer indebted to Bank of Scotland. For example, it was from CLP’s current account that the payments mentioned in paragraph 36 above were made to Be-Ready, Mr Avrahami and Mr Biran in April 2008. On 2 May 2008 Mr Biran emailed Grays to confirm that Bank of Scotland should be asked to transfer £80,000 “from Carlton Landmark Properties account to Landmark Management UBS”, and the transfer was made from CLP’s current account on 23 May 2008.

The finder’s fee agreement

[97]It is the Represented Defendants’ case that Mr Biran/CLP (UK) were entitled to an £80,000 fee for finding the Farringdon Road site. This, it is said, was agreed with Mr Lerner at the November 2002 meeting in Israel, confirming something that had already been agreed as between Mr Biran and Mr Avrahami.

[98]Support for the Represented Defendants’ case is said to be found in the “Appraisal Summary” Mr Biran sent Mr Avrahami in October 2002. As mentioned above (paragraph 10), this included “2%” for “Agent”.

[99]In my judgment, however, no agreement for Mr Biran or CLP (UK) to receive a finder’s fee was ever made. My reasons include these: i) Mr Avrahami and Mr Lerner both denied agreeing to pay any finder’s fee to Mr Biran. Mr Avrahami said that the issue was not even raised and observed that Mr Biran “was already getting great terms - £300,000 plus a 32.5% share of the profits in exchange for putting up 7.5% of the shareholders loans”; ii) Ms Canning said that she was unaware that any finder’s fee had been agreed; iii) No finder’s fee had been paid in respect of the Lab Holdings project; iv) The “Appraisal Summary” attributed the relevant 2% to “Agent”, not to Mr Biran, and there was evidently an issue at the time as to whether a 2% management fee should be paid to Masons Property Advisers Limited (“Masons”). Mr Jeremy Fooks of Masons wrote to Mr Biran on 3 June 2004: “As discussed, I understand from Pat Gill that you are not prepared to pay the 2% Project Management fee that we agreed from the outset of this project in lieu of the acquisition work that I undertook on behalf your company (reference my emails dated 2nd, 13th and 20th June 2002)”; v) No reference to the alleged finder’s fee is to be found in any of the contemporary documents. There is no mention of it in, for example, the Shareholders Agreement or its precursors (including the draft agreement Ms Canning emailed to Mr Avrahami on 19 December 2002) or the schedules relating to the Farringdon Road project that Mr Avrahami was sent over the years. Issues (ii) and (iii) (part): Shareholder loans and misappropriations during the Fox Associates period The ledgers

Issues (ii) and (iii) (part): Shareholder loans and misappropriations during the Fox Associates period

[100]From time to time, Ms Canning sent Mr Avrahami Excel spreadsheets purporting to record payments into and out of the client account that Fox Associates maintained for CLP between 2002 and 2004. The final version of this spreadsheet (“the Spreadsheet”) was emailed to Mr Avrahami on 23 March 2004.

[101]Mr Biran’s disclosure in the present proceedings included a page of manuscript that also relates to the client account with Fox Associates. Mrs Marie-Christine L’Aimable, an administrator with Fox Associates, identified the document in question (“the Manuscript Ledger”) as part of a client ledger kept by a Mr Richard Ezra of Fox Associates. It contains entries dating from late 2002 to 6 September 2003. Mr Ezra will have continued to maintain the ledger until the autumn of 2004, when the balance on the account was transferred to Bank of Scotland, and Ms Canning said that there used to be copies of the complete ledger at the Mansfield Street office. Only the one page has, however, been disclosed, and Fox Associates have been unable to provide any more.

[102]The Spreadsheet and the Manuscript Ledger do not wholly tally. Ms Canning’s explanation for the discrepancies was that the Excel spreadsheets had been “doctored by Doron [Biran] or by me under his instruction so that the real movement of the monies into and out of the client account was disguised”. According to Ms Canning: “the true picture of the movement of monies into and out of the account is that which is provided in the manuscript ledger. The excel schedules which were sent to Ran [Avrahami] were designed to paint a different picture which disguised what was really happening”.

[103]During cross-examination, Mr Biran was inclined to accept that the Spreadsheet is not reliable. Mr Biran was insistent, however, that he was not to blame for deficiencies in the Spreadsheet. The Excel spreadsheets, he said, were produced by Ms Canning, not him.

[104]In a mechanical sense, it may well be the case that the Excel spreadsheets were produced by Ms Canning. Mr Biran said that he did not even know how to use Excel, and I have no reason to disagree. In my judgment, however, Ms Canning will have acted on instructions from Mr Biran, whose personal assistant she was. I accept Ms Canning’s evidence to that effect, and I further accept her evidence that the Excel schedules did not merely contain mistakes but were deliberately misleading.

[105]Mr Biran was inclined to suggest that, if money was misappropriated, it was probably taken by Ms Canning. Ms Canning vehemently denied such accusations, and I accept her evidence.

Shareholder loans

[106]It is common ground that, in the period during which the Fox Associates account was operated (“the Fox Period”), Be-Ready, Mr Avrahami and Mr Biran were between them supposed to make loans totalling £350,000 to CLP and that Mr Biran’s share of this figure amounted to £26,250. The claimants allege that £26,232 went unpaid. Mr Biran, on the other hand, claims to have paid all that was due from him.

[107]The Spreadsheet records receipts from “Landmark” in four stages. Sums of £46,244 and £3,750 are said to have been received in both December 2002 and March 2003. Payments of £42,494, £3,744 and £3,744 are entered as having been made by “Landmark” in the middle of 2003. Finally, amounts of £14,988, £127,494 and £11,244 are reported as having been received from “Landmark – Doron”, “Be Redy” and “Ran Avrahami” respectively in the latter part of 2003.

[108]The Manuscript Ledger differs significantly from the Spreadsheet. The Manuscript Ledger extends only as far as September 2003 and so does not cover the period when the £14,988, £127,494 and £11,244 payments are said to have been made. As regards the earlier payments, however, the Manuscript Ledger features payments of £46,244 in December 2002 and March 2003, but does not show the £3,750 payments found in the Spreadsheet. Similarly, the Manuscript Ledger includes payments of £42,494 and £3,744 in July 2003, but not the second £3,744 payment entered in the Spreadsheet.

[109]The claimants have produced documents confirming that they made contributions totalling £46,244 in December 2002 and March 2003 and of £42,494 and £3,744 in July 2003. They suggest, accordingly, that the receipts recorded in the Manuscript Ledger relate entirely to sums they paid.

[110]The likelihood, in my view, is that Mr Biran did not contribute his share of the loans to CLP and was wrongly credited as having done so when shareholder loans were repaid in April 2008. My reasons include these: i) The Manuscript Ledger provides compelling evidence that (aside from Mr Biran’s £15,000 contribution to the initial deposit – see paragraph 17 above)the only loans made up to September 2003 were those attributable to Mr Avrahami and Be-Ready and, hence, that the further receipts shown in the Spreadsheet were not made; ii) Ms Canning gave evidence to the effect that the Spreadsheet was designed to reassure Mr Avrahami that Mr Biran was contributing. It was not, Ms Canning said, “the real document”; iii) Unlike the claimants, Mr Biran has not produced any document corroborating the contributions he claims to have made. For example, no bank statements or payment instructions evidencing such contributions are in evidence.

Archaeological desktop survey

[111]The Spreadsheet features four payments ascribed to “archaeological desktop survey”. The first two payments, of £1,700 and £1,500, are said to have been made on 23 December 2002. The other payments, of £2,900 and £300, are attributed to 18 June 2003.

[112]The Manuscript Ledger includes payments of the same amounts, but none of them is stated to have been in respect of an archaeological survey. Payments of £1,700 and £1,500 on 23 December 2002 are said to have had “Doron Biran” as their payee. Payments of £2,900 and £300 are recorded as having been made on 21 July 2003 to “ABM re: Carlton Landmark Properties Ltd” and “Michael Schutze re: Carlton L Prop”.

[113]Mr Biran maintained that all four sums were spent on obtaining an archaeological survey. Support for this is, it was said, to be found in a list of “Expenses expected in the coming year” dating from late 2002 (which provided for £6,000 to be spent on an archaeological desktop survey) and a letter from GVA Grimley of July 2003 (which noted that English Heritage would wish “to consider any archaeological impacts of the scheme, given the location of the site within an Archaeological Priority Area”).

[114]However, Ms Canning said in evidence that it had not in fact been necessary to spend as much as the total of the four disputed payments (viz. £6,400) on an archaeological survey. She thought that only a basic report had been needed and that it was likely to have cost in the order of £300.

[115]While the position is not clear, I am prepared to accept that the £300 payment was probably made for an archaeological survey. The likelihood is, however, that the other three payments were not made for project-related purposes. My reasons include these: i) The Manuscript Ledger is a much more reliable source than the Spreadsheet; ii) I also consider Ms Canning a more reliable witness than Mr Biran; iii) Mr Biran has not produced either the report or any invoice or quotation for it. Nor did he identify, let alone call, the report’s author; iv) The VAT return for the Fox Period does not include the disputed payments.

Rights of light report

[116]Three entries in the Spreadsheet refer to “Rights of light report”. The items in question record payments of £4,850 and £2,150 on 3 February 2003 and a payment of £5,600 on 18 June 2003.

[117]Mr Biran’s case is that the Spreadsheet is correct and that all three payments were made for a rights of light report. Mr Lemer argued that Mr Biran’s evidence to this effect derives support from, among other things, the geography of the Farringdon Road site and the 2002 list of “Expenses expected in the coming year” (which included £12,000 for a “Rights of light report”).

[118]On the other hand: i) “re Carlton Landmark (to D. Biran)” is entered against the £4,850 and £2,150 payments in the Manuscript Ledger; ii) Ms Canning said that she and Mr Biran had used the “Expenses expected in the coming year” document to help them “fabricate the accounts”; iii) Mr Biran has not produced either any rights of light report or any invoice or quotation for one. Nor did he identify, let alone call, the report’s author; iv) The VAT return for the Fox Period does not include the disputed payments.

[119]The likelihood, I think, is that the payments challenged in the Particulars of Claim (viz. those of £4,850 and £2,150) were not made in respect of any rights of light report and that the money in fact went to, or otherwise benefited, Mr Biran.

Camden Building Control

[120]According to the Spreadsheet, sums of £4,500 and £3,500 were paid to “Camden Building Control” on 23 December 2002. It is Mr Biran’s case that these payments are likely to have been made in respect of building control consultancy services. The claimants, in contrast, dispute that the money was expended on project-related expenses.

[121]Both sides sought support in evidence given by Mr Carlos Martin, a planning officer with the London Borough of Camden. Mr Tim Penny, who appeared for the claimants, pointed out that Mr Martin had explained that the amounts at issue had not been received in respect of planning matters and that no records from payable building control applications had been found. In contrast, Mr Lemer stressed that Mr Martin had acknowledged that Camden Council offers building control services, that Mr Martin does not himself deal with building control matters and that Mr Martin had been unable to say whether Camden Council issues invoices for building control services.

[122]On balance, I think the relevant payments are unlikely to have been made for project-related purposes. The Manuscript Ledger, which I regard as much more reliable than the Spreadsheet, gives the payee in each case as “Doron Biran”. Further, the Spreadsheet apart, there is no documentary confirmation that the money was paid to Camden Council. There is, moreover, evidence suggesting that building control services were obtained from the National House-Building Council (“NHBC”) rather than Camden Council.

Other Camden payments

[123]The Spreadsheet includes payments of £1,414.57 (on 30 April 2003) and £1,467 (on 16 March 2004) in respect of which the payee is given as “LB Camden”.

[124]The claimants challenge both payments. Their case derives support from the following: i) I do not regard Mr Biran as a reliable witness or the Spreadsheet as a reliable record of project-related payments; ii) The ledgers apart, there is no documentary evidence that either of the relevant sums was spent on project-related expenses; iii) Mr Martin explained that the £1,414.57 and £1,467 payments had not been paid in relation to planning applications for the Farringdon Road site and (as mentioned above) that no records from payable building control applications had been found; iv) Ms Canning said that it was “more likely they were Doron’s private council tax and things like that that they were payments for”.

[125]On the other hand: i) The Manuscript Ledger identifies the payee of the £1,414.57 as “L.B. Camden” and does not extend to March 2004; ii) Mr Martin and Ms Canning accepted that fees could fall to be paid to Camden Council in respect of matters other than planning applications and building control (for example, fire safety consultancy fees, designer fees and highway report fees); iii) Mr Martin had not checked Camden Council’s records for such fees; iv) Mr Martin also said that Camden Council did not issue invoices for planning payments.

[126]On balance, I am prepared to accept that the £1,414.57 and £1,467 payments were made for project-related purposes.

Payments to Fox Associates

[127]Issues arise as to various payments attributed to Fox Associates. £1,175 is described in the Spreadsheet as having been paid to “Fox Associate on account” on 23 December 2002. Payments to Fox Associates are also said to have been made on 12 December 2003 (£1,000), 5 January 2004 (£1,175 and £118) and 19 April 2004 (£161.87). Further, the claimants complain that £4,850 was withheld when Fox Associates transferred the moneys they held for CLP into the company’s current account with Bank of Scotland.

[128]The first of the £1,175 payments features in the Manuscript Ledger as well as the Spreadsheet. The claimants do not therefore dispute that the £1,175 was paid to Fox Associates. Their case is that the payment did not relate to CLP or the Farringdon Road project. They point out that the payment does not appear in CLP’s VAT return and that there is no documentary confirmation that the payment was made in respect of a project-related expense.

[129]On balance, I have concluded that the £1,175 was not paid in respect of a project-related expense. The fact that the VAT return (which was prepared by Fox Associates) does not include the payment seems to me particularly persuasive.

[130]Moving on to the other £1,175 payment and that of £1,000, they post-date the Manuscript Ledger, and there is no other documentary confirmation that the sums were even paid to Fox Associates. These payments, like the earlier £1,175 payment, do not feature in CLP’s VAT return. In the circumstances, it seems to me that the money is likely to have been misappropriated by Mr Biran.

[131]Turning to the £118 and £161.87 payments, hearsay evidence from Ms Debbie Smith of Fox Associates indicates that these were made in respect of services provided, and invoices rendered, to CLP (UK). Her account is consistent with the fact that the payments were not included in CLP’s VAT return. In the circumstances, notwithstanding Mr Biran’s evidence, it seems to me that the payments are unlikely to have been made in respect of project-related expenses.

[132]As regards the £4,850 that is said to have been withheld, the (somewhat meagre) evidence suggests(a) that only £4,152.50 was kept back and

(b) that £2,500 of this was due to Fox Associates for completing CLP’s VAT return. On balance, I consider that the remainder of the £4,152.50 (viz. £1,652.50) was probably attributable to project-related expenses too.

Items in the Manuscript Ledger alone

[133]The Manuscript Ledger includes payments described as being to or for the benefit of Mr Biran or CLP (UK) that have no counterparts in the Spreadsheet. The payments, which are said to have been made between 27 March and 6 September 2003, total £39,571.

[134]Mr Lemer suggested that the ledgers could contain mistakes and that, if money was misappropriated, Ms Canning was well placed to do so. In the light, however, of the evidence that Mr Biran was responsible for other misappropriations, the likelihood is, as it seems to me, that the £39,573 was taken by Mr Biran.

R.D. Services Building Inspection

[135]According to the Spreadsheet, a sum of £5,000 was paid to R.D. Services Building Inspection on 27 March 2003.

[136]However: i) Ms Canning thought that the entry was a fabrication; ii) The Manuscript Ledger states that the money was “paid to Carlton Landmark Ltd” for “Doron Biran”; iii) No invoice or other documentary evidence is available to confirm that the £5,000 was used for project-related purposes; iv) Mr Biran said in cross-examination that, although he recalled the name, he had “no idea who RD Services Building Inspection is” and did not know whether it was connected with the £5,000.

[137]It seems to me that Mr Biran probably misappropriated the £5,000.

Cash payment of £2,000

[138]The Manuscript Ledger records a £2,000 payment on 30 April 2003 in respect of which the payee was given as “Carlton Landmark”.

[139]The Spreadsheet does not contain any entry of precisely £2,000 on 30 April 2003, but it states that £2,300 was paid to Quadrant Estates Project Management for “Project Management”. Ms Canning said of this entry that the “whole purpose of this is that it looks legit and it sounds legit, but it is not”. Further, Mr Chris Daniel, a director of Quadrant Estates Limited (“Quadrant”), which undertook work in relation to the Farringdon Road project, said that it neither invoiced nor received the £2,300 shown in the Spreadsheet. For his part, Mr Biran said that he did not know whether the £2,300 had been paid to Quadrant.

[140]Mr Lemer pointed out that Mr Daniel had not been involved in the Farringdon Road project personally and suggested that the £2,300 might have been paid directly to a Mr Gill, who dealt with the project. In my view, however, it is much more likely that neither Quadrant nor Mr Gill received either £2,300 or £2,000 and that the true position is that the £2,000 shown in the Manuscript Ledger was not used for project-related expenses but paid to CLP (UK).

FPD Savills

[141]According to the Spreadsheet, there was a £9,097 payment to FPD Savills on 14 May 2003. The Manuscript Ledger, however, indicates that the relevant sum (more precisely, £9,096.85) was in fact paid to CLP (UK). A payment of the same amount to FPD Savills is recorded as having been cancelled.

[142]There was helpful evidence on this aspect of the case from a Mr Paul Atherton, a director of Savills (formerly FPD Savills). He explained that Savills had been instructed to prepare a valuation for the Farringdon Road development for which it had rendered an invoice for £11,862.57 in December 2003. Savills had earlier (in April 2003) sent Mr Biran an invoice for £9,096.85, but that related to a different development and was paid by Aquarius in July 2003.

[143]Mr Biran’s oral evidence about the £9,097 payment was, as it seems to me, designed to confuse. He did not provide any satisfactory explanation of events.

[144]In my judgment, Mr Biran probably misappropriated the £9,097.

Trehearne

[145]The Spreadsheet includes a number of entries in respect of payments to Trehearne Architects (“Trehearne”). The claimants challenge them in two respects: first, as regards £17,273 of a payment of £86,566 that is said to have been made on 12 December 2003 and, secondly, a payment of £13,202 on 5 January 2004.

[146]It is not in dispute that Trehearne were employed in relation to the Farringdon Road project. On 19 November 2003, they invoiced CLP for £86,565.78. “Not for use” has, however, been written (in Hebrew) on the copy of the invoice in the bundles, and a further invoice with the same date and number was issued for a reduced sum, £69,293.28. This invoice was reflected in both CLP’s VAT return and a schedule of fees that Trehearne prepared in December 2003.

[147]When giving oral evidence, Ms Canning gave the following explanation of events: “What I think would have happened is that [Trehearne] would have initially sent out the larger [invoice] for the £86,000. I think Doron [Biran] would have negotiated with them that we paid them the VAT later or something like that so we actually only had to pay them the lower amount, but still to inflate the amounts, we would have put in the larger amount”.

[148]In the circumstances, the likelihood is, I think, that the Spreadsheet overstated the amount paid to Trehearne in December 2003 by £17,273 and that that sum was misappropriated by Mr Biran.

[149]Turning to the £13,202 entry, it is apparent from the Spreadsheet that in February 2004 Trehearne were paid in respect of fee instalments that fell due in December 2003, January 2004 and February 2004, plus disbursements. There is no reason to suppose that Trehearne were entitled to the additional £13,202 that they are said to have been paid on 5 January 2004.

[150]The chances are, I think, that the £13,202 was not paid to Trehearne but rather misappropriated by Mr Biran.

£26,982.62 payment

[151]The Spreadsheet includes a £26,986.62 debit dating from October 2003. No payee is given.

[152]Mr Biran did not accept that the £26,986.62 had been paid to him or CLP (UK), but said that he could not comment on “a spreadsheet I never saw in my life”. He did not identify the payee or produce any documentation confirming that the money had been spent on the Farringdon Road project.

[153]Mr Lemer submitted that the £26,986.62 had been spent on the project or, alternatively, been misappropriated by Ms Canning. In my view, however, the likelihood is that the money was misappropriated by Mr Biran.

Crossrail

[154]The Spreadsheet shows a £10,000 payment to “Cross Rail” by way of “Part payment for tunnel experts pilling”.

[155]Mr Biran said in a witness statement that he was “sure that the payment of £10,000 was to one of the tunnelling experts that I hired”. However: i) In cross-examination, Mr Biran said that he could not comment on “this fabricated, inaccurate Excel sheet”; ii) Mr Biran also failed to identify the recipient of the £10,000 or, the Spreadsheet apart, to produce any documentary confirmation of the payment; iii) Ms Canning said that the payment was not a legitimate one.

[156]In my judgment, the £10,000 was probably misappropriated by Mr Biran.

Grays Management

[157]The Spreadsheet includes an entry in respect of a £1,326 payment to “Grays Management” on 23 February 2004. “Chap fees” of £23 appear to have been incurred in relation to the £1,326 payment.

[158]Mr Abraham Cohen of Grays said this about the £1,326 payment in an email to the claimants’ solicitors in respect of which a hearsay notice was served: “We do have a payment for £1326, logged into our current account on 24 February 2004, in payment of Grays invoices (NON-Carlton). The bank advice states ‘Swift Payment by order of Fox Associates Clients Account’”.

[159]Mr Lemer suggested that, if the £1,326 was paid to Grays for a non-project purpose, then the payment (and the associated £23) was made by mistake. Seen in the context of other misappropriations, however, I think it more likely that Mr Biran knowingly used the £1,326 for a non-project purpose and sought to conceal the fact in the Spreadsheet.

Mr Colin MacKenzie

[160]The Spreadsheet records a payment of £8,750 to a Mr Colin MacKenzie on 24 February 2004 for “Cross Rail report”.

[161]Mr Biran claimed that the £8,750 was indeed paid to Mr MacKenzie, a civil engineer, for work he undertook in relation to Crossrail. However, Mr MacKenzie (an obviously reliable witness) himself said that he neither invoiced nor received the £8,750. He explained that the first conversation he had about the project did not take place until 8 March 2004 and that he charged only £550 (which sum was paid in 2005 rather than 2004).

[162]Mr Lemer put forward two possibilities. One, he said, was that the £8,750 had been erroneously recorded as having been paid to Mr MacKenzie but none the less used for project-related purposes. The other, he argued, was that Ms Canning had misappropriated the money.

[163]In my view, the £8,750 was misappropriated, but not by Ms Canning. It is overwhelmingly likely that the money was misappropriated by Mr Biran.

VAT refund

[164]In June 2004, CLP submitted a VAT return in which it claimed a repayment of £64,670.94. In October 2004, however, the amount transferred into CLP’s (recently opened) current account with Bank of Scotland by Fox Associates was a smaller figure: £52,070.94. The claimants suggest that Mr Biran misappropriated the difference between that sum and the £64,670.94 that will have been received into Fox Associates’ client account from HMRC.

[165]The Represented Defendants maintain that other explanations of the relevant events are possible. Mr Lemer argued that the money might, for example, have been kept by Fox Associates in respect of fees or used to meet other project-related expenses.

[166]However, Mr Biran seems to have tried to reduce Fox Associates’ fees from £4,800 to a lesser figure; it is difficult, therefore, to see how they could have been allowed to retain £12,600 by way of fees. Further, there is nothing to show that the £12,600 was spent on project-related expenses.

[167]In the circumstances, the chances are, I think, that Mr Biran misappropriated the £12,600.

Limitation

[168]As regards claims made in respect of events before 13 November 2003 (i.e. six years before the proceedings were issued in 2009), Mr Lemer put forward limitation as a defence. Mr Penny, however, argued that the claimants are entitled to pursue their claims by virtue of section 21(1)(a) and/or (b), section 32(1)(a) and/or (b) and section 36 of the Limitation Act 1980.

[169]In my judgment, I do not need to look beyond section 32. So far as relevant, that provides as follows: “(1) Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either—(a) the action is based upon the fraud of the defendant; or

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it. References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent. (2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty”.

[170]The Fox Period claims made in respect of events before 13 November 2003 that I have found proved all appear to me to be based on fraud for the purposes of section 32(1)(a) of the 1980 Act (compare G. L. Baker Ltd v Medway Building and Supplies Ltd

[1958] 1 WLR 1216

). I consider, too, that facts relevant to the claimants’ rights of action in respect of those matters were deliberately concealed from them (within the meaning of section 32(1)(b)), notably by the provision of misleading Excel spreadsheets. Summary

[171]By my calculations, the total amount for which the claimants are entitled to judgment in respect of the matters addressed in this section of the judgment (paragraphs 100-170 above) is £196,790.49 (i.e. the aggregate of £26,232 Paragraphs 106-110 above , £6,100 Paragraphs 111-115 above , £7,000 Paragraphs 116-119 above , £8,000 Paragraphs 120-122 above , £3,629.87 Paragraphs 127-132 above , £39,571 Paragraphs 133-134 above , £5,000 Paragraphs 135-137 above , £2,000 Paragraphs 138-140 above , £9,097 Paragraphs 141-144 above , £17,273 Paragraphs 145-150 above , £13,202 Paragraphs 145-150 above , £26,986.62 Paragraphs 151-153 above , £10,000 Paragraphs 154-156 above , £1,349 Paragraphs 157-159 above , £8,750 Paragraphs 160-163 above and £12,600 Paragraphs 164-167 above ). Issue (iii) (part): Other misappropriations Cheque cashing through Marvelpride

Issue (iii) (part): Other misappropriations

[172]Between June 2005 and February 2007, 20 cheques drawn on CLP’s current account with Bank of Scotland were exchanged for cash through Marvelpride Limited (“Marvelpride”).

[173]Marvelpride operates a bureau de change in Stoke Newington. Among other things, it cashes cheques, including cheques made out in favour of third parties, for a small percentage of their face value. At the relevant times, a Mr Kazen effectively ran a branch for Marvelpride. He would pay customers for cheques and then bring them to Marvelpride to be banked.

[174]The evidence indicates that the cheques referred to in paragraph 172 above all reached Marvelpride via Mr Kazen and Mr Benaim. Mr Aron Goldman, Marvelpride’s director, explained that he had been told by Mr Kazen that he had received the cheques from Mr Benaim. The back of one of the cheques is, moreover, signed “Benaim” in Hebrew.

[175]The earliest of the 20 cheques dates from June 2005 and was drawn in favour of Lurie & Associates LLP (“Lurie”). Grays had been sent a fax signed by Mr Biran advising them to provide a cheque payable to Lurie for £2,500. In his witness statements, Mr Biran claimed that CLP owed Lurie the £2,500 for tax advice.

[176]There is, however, no documentary support for that claim. No quote or invoice from Lurie has been produced. Further, it seems clear that the cheque did not reach Lurie: Mr Biran accepted that they would not have cashed a cheque, and they have themselves said that their recollection is that the cheque was never banked by them. There is, none the less, no evidence of Lurie chasing for payment of the £2,500 which, on Mr Biran’s case, would have been outstanding. Ms Canning said that Lurie were not even consulted in relation to the Farringdon Road development.

[177]The next seven cheques date from November 2005. On 10 November, Ms Canning sent Grays an email asking that they send two cheques for a total of £6,751.55 in favour of Power Office, two cheques for a total of £6,168.75 in favour of Kingsland Surveyors, a cheque for £2,350 in favour of Taylor Whalley Spyra and two cheques in favour of Trehearne for a total of £8,658. The email was copied to Mr Biran and began, “Following your conversation with Doron [Biran]”.

[178]Grays issued cheques as requested, but none of the named payees received them. Mrs Jackie Dropik of Power Office explained in evidence that Power Office had rendered an invoice for £6751.55 to “Carlton Landmark”, but the invoice was for work in relation to a different development (viz. Farringdon Point), it was addressed to “Carlton Landmark” only because Power Office had been asked to re-address an invoice previously submitted to a company called Useshield Limited, and Power Office received full payment from a different source in October 2005. The cheques made payable to “Power Office Services” in the November were not, Mrs Dropik confirmed, received by Power Office. Mr Biran accepted that Power Office was not owed the £6,751.55.

[179]It is also noteworthy that Grays were sent a version of the re-issued Power Office invoice from which words had been deleted. The version provided by Power Office included:

“Re: 3rd Floor Ceiling To strip out existing ceiling tiles completely and dispose of approximately 438 sq mt.”

These words were missing from what was faxed to Grays, having, I imagine, been removed with the aid of Tipp-Ex. To strip out existing ceiling tiles completely and dispose of approximately 438 sq mt.”

[180]The story is similar with Kingsland Surveyors Limited (“Kingsland”). Kingsland carried out a survey at Farringdon Point, issued an invoice for £6,168.75 and was paid in July 2005. It was not owed any money by CLP in November 2005, and it did not receive the cheques made payable to it. Similarly, it has, I think, become common ground that Taylor Whalley Spyra and Trehearne did not receive the cheques that were made out to them (and I in any event so find).

[181]The next two cheques cashed through Marvelpride were issued in April 2006, in favour of Kenneth Harvey Antiques (for £100) and Theodore Alexander (for £1,211). The cheques were provided after Grays had been sent faxes asking for them that had been signed by Mr Biran. The payments were treated as not having been made for business purposes in the Arithma Report and so dealt with in the Tomlin Order. It can now be inferred, however, that the cheques did not reach Kenneth Harvey Antiques or Theodore Alexander at all.

[182]The next two Marvelpride cheques date from December 2006. On 6 December 2006, Ms Canning sent a fax asking Grays for four cheques payable to “P Baranowski”, in three cases for £4,850 and in the fourth for £1,000. The fax included a request that Grays contact Mr Biran on his mobile to obtain authorisation, and a manuscript note on a copy of the fax kept by Grays appears to confirm that they spoke to Mr Biran, who, according to the note, said that Mr Baranowski was “the person who has sorted out all the IT jobs on the property”. A similar manuscript note refers to two of the four cheques being left “without payee”, and, in the event, Grays supplied two cheques for £4,850 each without a named payee as well as cheques made payable to Mr Baranowski for £4,850 and £1,000 respectively. The £1,000 cheque was cashed through Marvelpride, as was one of the cheques sent with no payee. I deal with the other two cheques supplied in paragraphs 198-201 below.

[183]Mr Biran suggested as one possibility that Mr Baranowski might himself have cashed the two Marvelpride cheques. This, however, seems unlikely. Since Mr Baranowski appears to have had a bank account, it is hard to see why he would have wanted to use a cheque-cashing service. Further, Ms Canning gave evidence to the effect that Mr Baranowski did not provide IT services at the Farringdon Road development – see paragraph 201 below.

[184]The other eight cheques cashed through Marvelpride were drawn in February 2007. On 31 January 2007, Grays were advised in a fax signed by Mr Biran to make four payments of £5,000 each by cheque to “General Demolition”. Grays promptly supplied four cheques made out to “General Demolition Ltd”, but on 5 February Ms Canning emailed Grays to ask for cheques payable simply to “General Demolition”, without the “Ltd”; she said that she would cancel the existing cheques. That same day, four cheques were issued in favour of “General Demolition”, and these were all cashed through Marvelpride. Thereafter, the original cheques payable to “General Demolition Ltd” were also cashed through Marvelpride. They had evidently not been cancelled.

[185]Mr Biran maintained that “General Demolition” was employed to carry out work at the Farringdon Road development by Mr Farkash who operated through New Age Building Services Limited (“New Age”). Mr Biran said this in his second witness statement:

“In terms of the General Demolition cheques, until I read the other side’s evidence, as far as I was aware Farkash asked for cheques for sub-contractors and Sara [Canning] arranged for the cheques to be delivered, after which Farkash sent Sara a letter making clear that the cheques had been paid to General Demolition. Beyond that I was not involved. If the cheques were in fact cashed through a cheque cashing company then that is something that Sara and Farkash need to explain. I have seen the evidence of Gary Turner who says that General Demolition did not work on the Project but I think that he is wrong; I recall that General Demolition did do work on the Project, but it may be that they did not work in an official capacity and do not have a record anymore”

. The letter from Mr Farkash to which there is reference in this passage bears the date 31 March 2007 and is in these terms: “I confirm that General Demolition and New Constructions were employed as subcontractors on the site at 17-23 Farringdon Road London EC1 for the purpose of undertaking finishing works on the site. I also confirm receipt from you of the following cheques: 10006, 10007 (dated 01/02/2007); 10008, 10009, 10010 (dated 05/02/2007); 10004 (dated 09/03/2007); 10005 (dated 15/03/2007), each cheque in the amount of £5,000 totalling £40,000 inclusive of VAT payable to General Demolition and New Constructions, which we received from you on their behalf, in payment of their work”.

[186]I cannot accept Mr Biran’s version of events. There are many problems with it. They include these: i) Mr Gary Turner, the managing director of General Demolition Limited, explained in evidence that his company had neither undertaken work at the Farringdon Road development nor received any payment for such work. He also said that his company has no record of either Mr Farkash or New Age on its systems and that it did not bank any of the eight cheques at issue. He further observed that, were employees of the company to have undertaken work on a cash basis (which he thought extremely unlikely), they would not have done so as “General Demolition”; ii) Mr Farkash and New Age do not appear to have become involved with the Farringdon Road development before March 2007 at the earliest. It is difficult, therefore, to see how they can have been employing “General Demolition” as a subcontractor by the February, when Grays were asked for the cheques; iii) There is very compelling evidence that the letter Mr Farkash supposedly sent on 31 March 2007 was in fact concocted in the course of the present proceedings.

[187]With regard to the last of these points, when the claimants served their original Particulars of Claim in 2009 they had seen only six of the eight “General Demolition” cheques. While, therefore, the Particulars of Claim listed two of the “General Demolition Ltd” cheques and all the “General Demolition” cheques by their date of issue, the other two “General Demolition Ltd” cheques were entered by reference to the dates they featured in the bank records (9 and 15 March 2007). Cheque numbers 10006, 10007, 10008, 10009, 10010 and 10011 thus appeared before cheques 10004 and 10005 even though these were written before 10008 to 10011. The 31 March letter follows the same pattern: the cheques are referred to in the same order and, in so far as dates are given, with the same dates. Cheques 10004 and 10005 are accordingly said to be dated 9 and 15 March 2007 notwithstanding the fact that they were drawn on 1 February. It is also of significance that the Farkash letter emerged only in the course of the proceedings. It was disclosed in a supplemental list of documents served in, I think, 2011. Arithma was not provided with the letter when preparing its report.

[188]In the circumstances, I consider that Mr Biran caused cheques to a total value of £72,278.30 (i.e. the sum of £2,500, £6,751.55, £6,168.75, £2,350, £8,658, £1,000, £4,850 and eight cheques of £5,000 each) to be misappropriated. I also consider that the Farkash letter was fabricated.

Cheque cashing in Israel: Equita

[189]On 14 July 2005, Grays were sent a fax signed by Mr Biran asking that they issue cheques in favour of “Equita” and “Camden”. The “Equita” cheques were to be for £2,551 each (in one case, described as “for transport for Farringdon”) and the “Camden” cheques for £3,500 and £2,000 respectively.

[190]A file note prepared by Grays indicates that Mr Biran spoke to them on 14 July 2005 about the payments. The note reads as follows: “Doron returned my call to give details on cheques to Equita and Camden. Equita is an association linked to the Camden Borough and the company has to pay them a fee relating to the traffic … in/out/around the development. The two payments to Camden are fees related to the land. pm Called again to request we issue all four cheques to Equita”.

[191]That same day, Grays issued four cheques in favour of “Equita” for the amounts given in the fax. The cheques were subsequently cashed through Change Place Limited in Israel.

[192]In his first witness statement, Mr Biran said that his recollection was that the payments “related to fines or fees in respect of the parking of vehicles outside the Farringdon Road site which Equita collected on behalf of Camden Council”. “Equita”, Mr Biran said, “sent an invoice for £10,602 which was paid”.

[193]The invoice in question is stated to have been issued by “EQITA Limited” of “42-55 Halsbury Street, Northampton” whose registered number is “316137”. Equita Limited, which is based at “42/44 Henry Street Northampton” and whose registered number is “3168371”, have denied that the invoice has any association with them. Moreover, while the invoice purports to be in respect of services rendered “in connection with the removal of goods”, Equita Limited is an enforcement and debt recovery company.

[194]Mr Biran was unable to provide satisfactory explanations of either the invoice or the cheques in cross-examination. It seems clear that the invoice has been fabricated and that the £10,602 was neither due to, nor received by, Equita Limited.

[195]Here, as elsewhere, Mr Biran sought to suggest that Ms Canning was to blame. However, Mr Biran not only signed the fax to Grays but spoke to them on the telephone. In my judgment, the £10,602 was misappropriated by Mr Biran himself. I also consider that the invoice will have been fabricated by or on the instructions of Mr Biran.

Cheque cashing in Israel: Long & Partners

[196]On 5 May 2005 Grays were sent a fax signed by Mr Biran asking that they issue cheques for £3,525 and £1,762.50 in favour of “Long & Partners”. Grays responded by issuing cheques for the requested amounts in favour of “Long & Partners Ltd” on the following day. The cheque for £1,762.50 was banked in Israel, and Long & Partners (a London-based firm of building services consultants) do not appear to have issued any invoice for this sum.

[197]The likelihood is, I think, that Mr Biran misappropriated the £1,762.50.

Payments to Mr Baranowski, DCE and Quattro

[198]I referred earlier to the four cheques which were issued in December 2006 following an initial request for cheques payable to “P Baranowski”. As explained above (paragraph 182), two of the cheques were cashed through Marvelpride. Each of the other cheques was for £4,850. “DCE” was inserted as the payee in one of them. The remaining cheque was made payable to Mr Baranowski.

[199]In the following year, two further cheques, for respectively £4,150 and £18,000, were issued in favour of Quattro Group UK Limited (“Quattro”), which Mr Baranowski owns. The £4,150 cheque was said to be required in respect of the balance outstanding on an invoice from Quattro dated 4 June 2007 (payment of £4,850 having already been received) for “Network Installation”, “Network Configuration”, “Internet Services Configuration” and “Computer’s Setup” at “Farringdon Road”. The £18,000 cheque was said to be required in respect of an invoice from Quattro dated 28 September 2007 for “Data Cabling” at “Farringdon Road”.

[200]The claimants’ case is that neither the £4,850 cheques in favour of “DCE” and Mr Baranowski, nor the £4,150 and £18,000 cheques in favour of Quattro, related to the Farringdon Road project. The Represented Defendants, on the other hand, maintain that the Quattro invoices reflect work it carried out at the Farringdon Road site.

[201]On balance, I consider that none of the cheques at issue related to the Farringdon Road project. My reasons include these: i) There is no evidence of any significance that “DCE” was owed any money in respect of the Farringdon Road project, nor even as to who “DCE” might be; ii) Mr Biran is not a reliable witness; iii) Ms Canning gave evidence to the effect that neither Mr Baranowski nor Quattro provided services such as are detailed in the invoices at the Farringdon Road site. Ms Canning stated in a witness statement, “CLP Gibraltar paid Quattro £4,150 and £18,000 … for IT installation work which had nothing to do with the Farringdon Development and which work was carried out at the Mansfield Street offices rented by CLP UK”. In cross-examination, she said: “There is no way we would have taken … for such big quantities and a big project, a one-man band to do this project”; iv) The invoices apart, there is no documentary evidence that Quattro was employed to undertake work at the Farringdon Road site; v) There is no evidence from Mr Baranowski.

Cash payments allegedly made to New Age

[202]Between April 2007 and January 2008, sums totalling £113,000 were withdrawn in cash from CLP’s current account with Bank of Scotland. On six occasions, money was collected from the bank by Ms Canning, but Mr Biran collected £65,000 in three visits. He was also copied in on emails relating to two of the other withdrawals.

[203]Mr Biran’s case is that the sums withdrawn were all paid on to Mr Farkash in order to get the Farringdon Road development completed. In one of his witness statements, Mr Biran said that the cash payments “were all paid to Farkash who used the money to pay sub-contractors to finish the Project and provided [him] with invoices for each of the payments”. Mr Biran relies on a series of letters, purportedly dated between 30 April 2007 and 9 January 2008, in which Mr Farkash acknowledges the receipt by New Age of cash payments “for subcontractors working on finishes in 17-23 Farringdon Road Project”.

[204]On the other hand: i) Other evidence suggests that New Age’s work at the Farringdon Road development was undertaken between May and November of 2007. New Age came to be involved because Scanmoor became insolvent. Anticipating Scanmoor’s failure, CLP entered into a deed of settlement with it on 23 March 2007 under which its contract was terminated. In Mr Biran’s words:

“In order to avoid the collapse of the Project I basically took over as the contractor…. I hired Jorge Farkash who operated through a company called New Age in order to assist and I then began negotiating with contractors and professionals”

. On 3 May 2007, New Age quoted for “Re-finishes works in Farringdon Road”; ii) Mr Biran’s account receives no support from the schedules prepared in connection with CLP’s VAT returns. The payments are not said to be connected with New Age even though other items in the schedules are so described. The first two of the disputed withdrawals are stated to be “for petty cash expenses”; iii) The Farkash letters were not provided to Arithma for the purposes of their report and were not originally included in the first and second defendants’ disclosure. They featured for the first time in the supplemental list of documents; iv) The Represented Defendants have not called Mr Farkash to confirm Mr Biran’s account.

[205]In my judgment, the £113,000 was probably misappropriated and the Farkash letters were fabricated.

Other payments to New Age

[206]Between May and August of 2007, CLP made payments totalling £89,584.58 to New Age by cheque and transfer. Mr Michael Cooke, the principal of a firm of quantity surveyors instructed by the liquidator of New Age, explained that he had been told by Mr Farkash that CLP had in fact paid £66,113.47 to New Age. The claimants infer from this that the difference between the £89,584.58 and £66,113.47 (viz. £23,471.11) was misappropriated or, alternatively, that Mr Biran has failed to account for the money satisfactorily.

[207]However: i) Mr Cook explained that he had only succeeded in arranging one meeting with Mr Farkash and received no more than a few documents relating to New Age. He observed that New Age was “one of the worst cases I have ever dealt with”; ii) The evidence indicates that the full £89,584.58 was paid to New Age, a company that carried out work at the Farringdon Road site; iii) There is no evidence as to how the £23,471.11 might have been misappropriated; and iv) (For what it is worth) Mr Biran has denied taking the £23,471.11.

[208]In the circumstances, the likelihood is, I think, that the £23,471.11 was not misappropriated.

Cash payments allegedly made to Ruane, Testconsult and Scanmoor

[209]On 19 October 2004, Grays were sent a fax asking them to authorise Mr Biran to withdraw up to £50,000 in cash for the Farringdon Road development. The fax, which was signed by both Mr Biran and Mr Avrahami, stated:

“Those include payments as follow: Scanmoor - £20,000 Testconsult - £10,000 Ruane - £20,000”

. Subsequently, Mr Biran collected sums totalling £50,000 from Bank of Scotland on 22 October, about 5 November and 9 December 2004. Scanmoor - £20,000

Testconsult - £10,000

[210]Mr Avrahami agreed to the withdrawal of £50,000 on the basis that the money would be used to pay Ruane Construction Limited (“Ruane”), Testconsult Limited (“Testconsult”) and Scanmoor, all of which undertook work in connection with the Farringdon Road project. In his witness statements, Mr Biran maintained that it had been. However, the evidence indicates otherwise: i) Mr John Ruane, who is the owner and a director of Ruane, explained that the sums it was owed were paid by cheque and CHAPS transfer. It did not receive any cash payments; ii) Mrs Diane DeBoorder, a director of Testconsult, said that it too had received no cash payments. Its invoices were, Mrs DeBoorder stated, paid in full by cheque; iii) Ms Canning also gave evidence to the effect that Ruane, Testconsult and Scanmoor were paid by cheque or transfer, not in cash; iv) There are no receipts from Ruane, Testconsult or Scanmoor in respect of the £50,000. Further, Mr Biran has not identified any invoices as having been paid with the money; v) Mr Biran asserted during his oral evidence that he had paid employees of Testconsult and Scanmoor rather than the companies themselves, but he did not make this claim in his witness statements and was unable to name the relevant individuals.

[211]In my judgment, the £50,000 was misappropriated.

Cash withdrawal of £2,000

[212]On 9 February 2009, Ms Canning sent Grays an email advising them to authorise the withdrawal of £2,000 in cash “with regards to a settlement agreed with Fourways Ltd”. The email was copied to Mr Biran, and he withdrew the money that same day. However, a Tomlin order agreed on 9 February in respect of proceedings brought by Fourways Plant Limited in fact provided for the payment to it of a somewhat smaller sum, £1,500. There is no satisfactory evidence as to what became of the £500 balance. The chances are, I think, that it was misappropriated.

Payments to Grays

[213]The claimants complain of four payments to Grays.

[214]The first two payments date from mid-2004. On 7 June 2004, Grays invoiced Odin Limited (“Odin”, as to which see paragraph 33 above) for £1,187.50, but on 14 July Mr Biran asked Grays to invoice “Farringdon” instead, and Grays were subsequently paid from CLP’s current account. At about the same time, CLP met a £700 invoice that Grays had issued to Landmark Management.

[215]The Represented Defendants sought to justify the payments by reference to the Management Fees Agreement they allege, but, as I have said above, I do not accept that there was such an agreement. In my view, the money (amounting in total to £1,887.50) was misappropriated by Mr Biran.

[216]The other payments at issue were made in the spring of 2005. In early 2005, Grays invoiced Landmark Holdings Limited, which Mr Biran controls, for £1,408. According to a file note made by Grays, they were instructed by Mr Biran on 6 May “to pay the Carlton & Landmark bills from the Carlton Landmark BOS account”. At all events, the £1,408 was paid from CLP’s current account.

[217]The Represented Defendants’ case is that Mr Avrahami might have agreed to the liability being discharged by CLP (although Mr Biran said that he could not recall the position clearly) or, alternatively, that CLP’s account was used by mistake. On balance, I think it more likely that Mr Biran knowingly misappropriated the £1,408.

Ziv Gani and BOS Asset Finance

[218]Following completion of the purchase of the Farringdon Road site in May 2004, there remained a substantial balance standing to the credit of CLP on its client account with Lawrence Graham. On 18 May Mr Biran instructed Lawrence Graham to pay £6,292.37 of the money to Ziv Gani and a further £45,707.63 to BOS Asset Finance. Both payments related to the purchase of a Range Rover car for the Biran family.

[219]Mr Biran accepted for the purposes of the Arithma Report that the payments were not made for the purposes of the Farringdon Road project. Mr Biran claimed that the Management Fees Agreement he alleged entitled him to take money for his own benefit, but, as I have said above, I do not believe that such an agreement existed. It seems to me that the £52,000 concerned was misappropriated.

£30,000 payment to Landmark Management

[220]On 17 April 2008, Grays transferred £165,280 to Landmark Management from CLP’s current account. £135,250 was attributed to the money that Mr Biran was said to have lent CLP. As regards the balance, Ms Canning had told Grays in an email of 11 April: “Doron [Biran] is also owed an additional £30,000 for fees to Barrie Tankel that he has personally paid”.

[221]Mr Biran explained matters in this way in his first witness statement: “The [£30,000] was transferred to me at the same time that I arranged for the shareholders equity investments to be returned in April 2008. The reason that I received the additional £30,000 was because, in around 2007/8, I paid Barrie Tankel Partnership (‘BTP’) £30,000 out of my own money. At that time the Project was very short on cash and BTP were demanding to be paid around £170,000. I negotiated with BTP and we agreed that [CLP] would pay them £100,000, I would pay them £30,000 and they would not claim the extra £40,000. This was a great deal for the Project. I spoke to Ran [Avrahami] and he agreed that it was a great deal and that I could take the £30,000 that I had paid back [when] the Project had more money; which is what I did”.

[222]Mr Lemer argued that Mr Biran’s account derives support from schedules dating from August 2007 and April 2008. The first of these documents includes a £30,000 entry in respect of “BTP – Project manager (paid by Doron)?” The other document showed “BTP paid by DB” against a £30,000 entry.

[223]On the other hand: i) Ms Canning denied that Mr Biran had paid £30,000 to Barrie Tankel Partnership Limited(“Barrie Tankel”). Ms Canning said that the £30,000 figure had been inserted into a number of the Excel schedules sent to Mr Avrahami, but said that these had been fabricated. In cross-examination, she said: “as the payment was not a real payment there was no need for this to be inserted in the table in the first place”; ii) Mr Avrahami denied making any agreement with Mr Biran relating to the £30,000. Asked in cross-examination about one of the schedules mentioned in the previous paragraph, Mr Avrahami explained, “[Mr Biran] said he was paying an architect on behalf [of] Barry Tankel Partnership and I believed him”; iii) Mr Biran’s account is not supported by any invoices or other documentation from Barrie Tankel; iv) Mr Biran has not produced any bank statement evidencing his payment of £30,000 to Barrie Tankel. In cross-examination, he said that he was unable to identify the account from which the alleged payment had been made; v) Mr Biran did not call anyone from Barrie Tankel to confirm that he had paid them £30,000.

[224]On balance, I consider it unlikely that Mr Biran made any relevant payment to Barrie Tankel himself. In my view, the £30,000 was misappropriated.

£80,000 payment to Landmark Management

[225]On 2 May 2008, Grays were asked to transfer £80,000 to Landmark Management. On 16 May, Ms Canning told Grays in an email that the £80,000 was “on account of management fees that were never paid”. On 23 May, the transfer was made, at a cost to CLP of £80,042.

[226]The Represented Defendants claim in their Defence that the money was taken in respect of the finder’s fee to which Mr Biran was said to be entitled. As explained above, I do not consider that any finder’s fee was in fact payable. What matters for present purposes, however, is that the Represented Defendants accept that the money should be set off against their entitlement to fees. The money falls to be treated as paid for the benefit of Mr Biran/CLP (UK).

Payment to Landmark Telos

[227]On 13 May 2009, Ms Canning sent an email to Grays in which she asked for £23,000 to be transferred to Landmark Telos. Shortly afterwards, Mr Biran emailed Grays to confirm the request. On the following day, Ms Canning sent Grays an email in which she said:

“Following your conversation with Doron regarding additional fees that need to be paid, pls find attached an invoice from TWS for £3851. In addition to this we need to pay: - £5000 plus vat (total of £5750) to barrie tankel - [£12000] plus vat (total of £13,800) Solomon Taylor & Shaw Both these are on account of costs, so there are no invoices yet, but we need to pay them if we want them to proceed with the Cross Rail claim”

. In a further email, Ms Canning said:

“We are paying all from Landmark Telos, that is why we need the £23,000 transferred to Landmark Telos”

. Once again, Mr Biran emailed to confirm that Grays should pay, and Ms Canning confirmed that the named payees had already been paid. Grays then transferred £23,000 (£23,025 with the transfer fee) from CLP to Landmark Telos.

[228]The Represented Defendants maintain that the £23,000 payment was made for the purposes given in the email chain. However: i) Until it was amended, the Represented Defendants’ Defence asserted that the money had been taken “as part of fees pursuant to the Oral Agreement, the Shareholders Agreement, the Management Agreement and the Management Fees Agreement”. It was not at that stage claimed that the money represented reimbursement of expenses that Landmark Telos had met; ii) There is no documentary confirmation that Landmark Telos had paid any expenses; iii) Ms Canning said in a witness statement that “no payments had really been made from Telos to the three purported payees and nor were they made after the money was transferred to Telos’ account”; iv) Mr Porter explained in a witness statement: “paying [CLP’s] expenses through Landmark Telos would have been wholly contrary to my expectations and a matter of great concern to me. Landmark Telos is not intended to deal with anything other than its own business …. Payment out of third party invoices on behalf of another entity would not have been authorised”.

[229]In all the circumstances, I consider that the £23,000 was probably misappropriated.

Payments to Mr Auerbach

[230]Between 2004 and 2007, payments totalling £110,022 were made (or purportedly made) to Mr Auerbach by way of payment for the use of accommodation at 9 Mansfield Street, where Mr Biran and CLP (UK) were based. From March 2004 to December 2007, Mr Biran and CLP (UK) occupied part of the ground floor at 9 Mansfield Street. The licence fee was initially £15,000 a year, rising to £30,000 a year from March 2005.

[231]The claimants’ case is that CLP had no liability for any of the licence fees and that the £110,022 was misappropriated. The Represented Defendants, on the other hand, claim that the payments were properly chargeable to CLP. Mr Lemer put the point as follows in his written closing submissions: “The Represented Defendants’ case is that [CLP (UK)] was entitled to charge a proportion of the costs of running [the 9 Mansfield Street office] to [CLP] because a proportion of those costs were a legitimate expense of the Project in the same way that Trehearne’s architectural fees or the contract price charged by Scanmoor were legitimate costs of the Project. [CLP (UK)’s] right to use Project funds to pay its rent was not based on any conversation or agreement between [Mr Biran] and [Mr Avrahami] but on its general entitlement, as the manager of the Project, to pay legitimate costs”.

[232]Was, then, CLP (UK) entitled to recover from CLP costs incurred in relation to the 9 Mansfield Street office? In my view, it was not. The costs were not incurred as a result of the Farringdon Road project or otherwise directly related to it. They were simply an overhead of Mr Biran’s business. The Mansfield Street premises were Mr Biran’s general office. Matters relating to the Farringdon Road project were handled there, but so were other schemes with which Mr Biran was involved. Mr Biran and CLP (UK) were to be recompensed for such matters through the management fees and Mr Biran’s 32.5% interest in CLP. Mr Biran and CLP (UK) had no right to be reimbursed in respect of such costs.

Payment to GAP Lettings

[233]On 11 November 2004, GAP Lettings and Development Limited (“GAP Lettings”) issued an invoice for £2,000 plus VAT (£2,350 in total) for decorations at “the above address”. Higher up the page, the “Site Address” was given as 33 Ferncroft Avenue, where Mr Biran and his wife had a flat. At Mr Biran’s behest, the invoice was re-issued with 17-23 Farringdon Road as the “Site Address”, and payment was made from CLP’s current account.

[234]Mr Biran claimed that GAP Lettings had initially made a mistake, but: i) There is documentary evidence confirming that GAP Lettings was a sub-contractor in respect of work carried at 33 Ferncroft Avenue; ii) Ms Canning said in evidence that GAP Lettings never carried out any work at the Farringdon Road development; iii) It is hard to see how there can have been any question of decoration being carried out at the Farringdon Road development in the autumn of 2004. Even in March 2005, construction work was not very far advanced: there was as yet no building to be decorated.

[235]The likelihood is that the £2,350 was not paid in relation to the Farringdon Road project.

LB Camden

[236]On 2 November 2004, a cheque for £7,600 in favour of Camden Borough Council was drawn on CLP’s current account. The claimants’ case is that the payment did not relate to the Farringdon Road project.

[237]The Represented Defendants’ pleaded case is that the £7,600 was paid “as fee for planning permission in respect of the Farringdon Road project”. In the light, however, of evidence given by Mr Martin, Mr Lemer accepted that the payment was unlikely to have been made for that purpose.

[238]It was suggested that the payment must have been made in respect of some other expense relating to the Farringdon Road project. No such expense has, however, been identified, and there is no documentary support for the suggestion.

[239]On balance, I consider that the payment was not made in respect of the Farringdon Road project. Mr Biran said that he was “doing a lot in Camden”.

Payments to Dunleigh Investments

[240]On 19 September 2006, Grays were sent a fax signed by Mr Biran in the following terms:

“Enclosed are copies of two cheques for Barrie Tankel that we didn’t deposit and are going to shred. Instead we advise you to make cheques for the same amounts payable to Dunleigh, [w]hich is a subsidiary of Barrie Tankel”

. Thereafter, Grays supplied cheques in favour of “Dunleigh” for £7,050 and £21,150 respectively. Both cheques were debited to CLP’s current account on 23 October 2006, having apparently been presented for payment in Israel.

[241]“Dunleigh” is not in fact a subsidiary of Barrie Tankel. Rather, Dunleigh Investments Limited (“Dunleigh Investments”) is associated with Mr Benaim, who is a friend of Mr Biran.

[242]According to Mr Biran, the cheques in favour of Dunleigh Investments represent payment for invoices the company rendered on 10 August and 12 September 2006. Both invoices were stated to be in respect of “assistance in connection of the purchase and development as well as introducing an investor to purchase residential flats” at 17-23 Farringdon Road. Mr Biran maintains that Mr Benaim provided a considerable amount of assistance in the course of the Farringdon Road development.

[243]On the other hand: i) This account of events is not consistent with what Grays were told at the time. As already mentioned, Grays were informed that Dunleigh was a subsidiary of Barrie Tankel, which was untrue; ii) Ms Canning said that Mr Benaim had not been involved in the Farringdon Road development and that she had not seen the invoices from Dunleigh Investments until she was shown them in the course of these proceedings; iii) Grays repeatedly asked for copies of invoices relating to the £7,050 and £21,150 payments. Had the Dunleigh Investments invoices been available, Grays could have been expected to be given copies. They were not; iv) Arithma was not originally supplied with the Dunleigh Investments invoices. They were provided on 22 January 2010; v) The invoices apart, there is no documentary confirmation that the sums paid to Dunleigh Investments were due to it in respect of the Farringdon Road development. In particular, no written agreement between CLP and Dunleigh Investments exists; vi) Although in 2008 Mr Biran was instrumental in causing £20,000 to be paid into an account Dunleigh Investments held with Bank Hapoalim in Jerusalem, he denied knowledge of the account both in an affidavit he swore in these proceedings in November 2009 and in an affidavit he swore in August 2010 in proceedings brought by Sinocare Group Limited; vii) Mr Biran did not call Mr Benaim as a witness.

[244]In my judgment, the £28,200 taken from CLP by means of the two cheques in favour of “Dunleigh” was misappropriated. I also consider that the Dunleigh invoices were fabricated during the proceedings.

Torchwood

[245]In early 2008, Torchwood Investments (“Torchwood”) issued invoices for £39,068.75 (for “Development consultancy”) and £33,250 (by way of “finders fee”). Both invoices were met by CLP, but Mr Biran accepted for the purposes of the Arithma Report that the £33,250 did not relate to the Farringdon Road project.

[246]The claimants maintain that CLP should not have had to bear the £39,068.75 invoice either. Ms Canning said that she was confident that both invoices in fact related to another project that Mr Biran was involved in.

[247]Mr Biran claimed in a witness statement that the £39,068.75 invoice related to advice that a Mr Howard Kaufman had provided about how to market units at the Farringdon Road project. During cross-examination, Mr Biran said that both invoices had in fact related to the Farringdon Road project. He said: “In these proceedings, because I want to be fair, reasonable, whatever you can call it, I admit one of these payments was not for the project and one of the payments was in the project. The matter of fact in my evidence is that these both payments was for this project. Because I cannot pinpoint every moment that Mr. Howard Kaufman was working for us in Carlton Landmark, and I recall that he also had worked for us for another project, which he wasn’t being paid enough, in my eyes, I thought that the amount of time that he spend on this project for these two invoices is the right amount that he should receive. I reduce one of the invoice and to just to accept one of them”.

[248]On balance, it seems to me that neither of the Torchwood invoices should have been borne by CLP. Mr Biran’s oral evidence is at odds not only with Ms Canning’s, but with what he told Arithma. Moreover, the invoices apart, there is no documentary evidence that Torchwood provided any services in relation to the Farringdon Road project. It is noteworthy, too, that the Represented Defendants did not call Mr Kaufman to confirm Mr Biran’s evidence. NHBC

[249]On 18 February 2008, NHBC issued a cheque for £2,355.94 in favour of “Carlton Landmark Properties”. The money was due to CLP, but the cheque was paid into a CLP (UK) account.

[250]In cross-examination, Mr Biran said that this “was completely and utterly with the permission of Ran Avrahami”. Mr Biran may well have been referring to the Management Fees Agreement that he alleged but which I have rejected (see paragraphs 79-83 above). At all events, I do not accept that Mr Avrahami consented to the £2,355.94 being paid to CLP (UK).

[251]In my judgment, the £2,355.94 was misappropriated.

Payments by Lawrence Graham

[252]On 12 August 2005, Lawrence Graham sent Mr Biran a cheque for £3,325.17 in respect of money to which CLP was entitled. In November 2007, Lawrence Graham drew two further cheques in favour of CLP, for £1,489.40 and £1,794.60 respectively. All three cheques were deposited in CLP (UK)’s account with National Westminster Bank.

[253]Here, as with the NHBC cheque discussed above, Mr Biran maintained in his oral evidence that Mr Avrahami had consented to how the payments were dealt with. He said, for example, of the £1,794.60: “according to this oral agreement, I can take money in lieu of my management”.

[254]I cannot accept that Mr Avrahami consented in any way to the cheques being deposited in the CLP (UK) account. It seems to me that the money was misappropriated.

Lawrence Graham and Oak Lodge

[255]On 2 May 2003, Lawrence Graham sent Biran an “account in respect of the letting to Sainsbury’s and the option agreement relating to Oak Lodge”. The enclosed invoice, for £31,507.66, was stated to be for fees “in connection with transactions relating to Farringdon Road, London EC1 and Oak Lodge, London NW3”. A breakdown shows that £21,985.97 was attributed to the Farringdon Road project and £9,521.69 to “Oak Lodge”, where Aquarius was undertaking a development. Mr Biran nonetheless asked Fox Associates to send Lawrence Graham a cheque for the whole £31,507.66 out of the money they held for CLP, and Lawrence Graham acknowledged receipt on 22 July 2003.

[256]Mr Lemer disputed that the £9,521.69 was owed by Aquarius. He also argued that, if the full £31,507.66 should not have been borne by CLP, Ms Canning must have made a mistake.

[257]To my mind, however, the chances are that Mr Biran knowingly caused CLP to bear a liability of Aquarius. That is what the documentary evidence suggests, and Mr Biran’s evidence on the subject (as on many others) was unsatisfactory.

Lawrence Graham and Odin

[258]On 30 November 2007, Lawrence Graham sent Mr Biran an invoice for £2,473.50 in respect of fees for work for Odin. Mr Biran wrote in Hebrew on the letter under cover of which the invoice was sent, “Ask to put the amount on Farringdon”. Thereafter, Lawrence Graham issued a credit note dated 31 March 2008 in respect of the Odin invoice. An email from Lawrence Graham to Ms Canning of 1 April enclosed an invoice and continued, “When you confirm I can take our costs, I will also be able to send a credit note on Fitzjohns Avenue”. Odin was the owner of a property at Fitzjohn’s Avenue, London NW3.

[259]Mr Biran gave this explanation of events in cross-examination: “What I recall is that in lieu of my management fee I am allowed to take money and use it for my own purposes. Odin was my own purposes. I have done it. I asked it. I put it straight on the page with no maybe and no any other trying to avoid it by any other mechanism …, only letter of Mr. Doron Biran to Odin saying in Hebrew very clearly, ‘Put it on [Farringdon]’. What could be more clear than that? This is the right approach. This is what I agree with Mr. Avrahami, and that is what I have done, and I took it out of my management”.

[260]This evidence implies, as it seems to me, that the £2,473.50 should be charged to Mr Biran. Mr Biran sought to justify his conduct by reference to the Management Fees Agreement he alleged, but I have concluded that there was no such agreement. The reality, in my view, is that the £2,473.50 was misappropriated.

Sunset

[261]On 6 May 2007 Grays were sent a fax signed by Mr Biran asking that they pay Sunset Trading Corporation (“Sunset”) £1,567.95. As requested, Grays arranged for CLP to pay Sunset £1,567.95.

[262]The Represented Defendants’ pleaded defence is that the payment was made in respect of advice given for the benefit of the Farringdon Road project, but Mr Porter gave evidence to the effect that he was the beneficial owner of Sunset and that it would not have provided any advice to CLP. In his closing submissions, Mr Lemer accepted that the £1,576.95 did not appear to have been spent on purposes related to the Farringdon Road project. Mr Lemer suggested that a mistake had been made, but I think it more likely that Mr Biran knowingly misappropriated the money.

Sainsbury

[263]On 5 July 2005, Ms Canning sent Sainsbury’s Supermarkets Limited (“Sainsbury”) invoices for rent due in respect of the period between April and September of that year. The invoices asked that payments be made to:

“Carlton Landmark Properties Ltd NatWest Account number: 10474595 Sort code: 60-09-05”

. As asked, Sainsbury paid the amount of the invoices (viz. £57,180.50) into the specified account. However, the account in question was held by CLP (UK), not CLP, to which the money was due. NatWest

Account number: 10474595

[264]The Represented Defendants’ position is that(a) Mr Biran arranged for the £57,180.50 to be paid into the CLP (UK) account because he believed that, were the sum credited to a CLP account, it would be used to repay indebtedness of CLP to Bank of Scotland and

(b) having been paid into the CLP (UK) account, the money was used to carry out work on the premises occupied by Sainsbury.

[265]I cannot accept either (a) or (b). I have commented on (a) when addressing the supposed VAT Agreement (see paragraph 91 above). With regard to (b), there is no documentary support for the claim that money in the CLP (UK) account was spent on work on the Sainsbury unit, and Ms Canning was clear that the costs of any such work had not been met from the CLP (UK) account; in fact, Ms Canning said that she did not believe that Mr Biran ever made any Farringdon Road-related payments from CLP (UK)’s account.

[266]The reality, as it seems to me, is that the £57,180.50 was misappropriated.

Ruane

[267]On 22 November 2004, Ms Canning sent Ruane an invoice for £15,000 in respect of “17-23 Farringdon Rd” with a fax in which she said:

“Following your previous discussions with Mr Biran, please find enclosed an invoice for £15,000. This is to be paid into our UK company, which is not elected for VAT and therefore there is no need to pay VAT on the invoice”

. Ruane’s cheque for the amount of the invoice was paid into a CLP (UK) account.

[268]Mr Ruane explained the circumstances in these terms in his witness statement: “My recollection is that Mr Biran wanted to over certify the work carried out by Ruane by £15,000. I didn’t want to get involved and I do not recall for sure exactly how it all happened, but the end result was that Ruane’s work was over-certified by this sum. We agreed the final account. I was then provided with the invoice dated 22 November 2004 which Ruane duly paid by cheque made out to Carlton Landmark Properties Limited”.

[269]Mr Biran sought to suggest that the £15,000 invoice related to a project other than that at the Farringdon Road site, but Mr Ruane said (and I accept) that that was impossible. Mr Ruane explained that “the only job I ever did for Carlton Landmark was Farringdon Road”.

[270]The simple truth, in my view, is that Mr Biran misappropriated the £15,000.

Trehearne

[271]In June 2006 Trehearne were paid £5,945.09 by means of a cheque drawn on CLP’s current account. The claimants allege that the payment did not relate to the Farringdon Road project, essentially on the basis that(a) Trehearne undertook work for Mr Biran (or entities associated with him) elsewhere and

(b) the £5,945.09 payment cannot be tied in with any invoice relating to the Farringdon Road project. Mr Biran asserted that the payment would have been in respect of that project, but he cannot be regarded as a reliable witness. It is more likely than not, I think, that the £5,945.09 was not paid in relation to the Farringdon Road project.

Greenhatch

[272]Greenhatch Group (“Greenhatch”) carried out work in relation to both the Farringdon Road project and a development that Aquarius was undertaking in Hampstead. On 31 October 2003, Greenhatch raised an invoice for £934.13 for Hampstead work, and on 30 December of the same year it issued an invoice for £1,521.63 in relation to the Farringdon Road project. On 10 November 2004, P & A Debt Recovery sent a fax pressing for payment of both invoices, and Ms Canning promptly forwarded the fax to Grays. A cheque for £2,455.76 was drawn on CLP’s current account with Bank of Scotland to cover both invoices. CLP thus discharged a £934.13 liability of Aquarius.

[273]The Represented Defendants’ case is that a mistake was made. On balance, I am prepared to accept this. Ms Canning said that mistake provided a possible explanation, and Mr Biran pointed out that he had only a 50% interest in Aquarius. He said in cross-examination:

“There is no reason for me to discharge a 50% shareholding of Mr Auerbach. By the way, if Mr Auerbach will see something like that, Mr Auerbach will immediately correct the situation”

. Summary

[274]By my calculations, the total amount for which the claimants are entitled to judgment in respect of the matters addressed in this section of the judgment (paragraphs 172-273 above) is £756,258.89 (i.e. the aggregate of £72,278.30 Paragraphs 172-188 above , £10,602 Paragraphs 189-195 above , £1,762.50 Paragraphs 196-197 above , £31,850 Paragraphs 198-201 above , £113,000 Paragraphs 202-205 above , £50,000 Paragraphs 209-211 above , £500 Paragraph 212 above , £1,887.50 Paragraphs 214-215 above , £1,408 Paragraphs 216-217 above , £52,000 Paragraphs 218-219 above , £30,000 Paragraphs 220-224 above , £80,042 Paragraphs 225-226 above , £23,025 Paragraphs 227-229 above , £110,022 Paragraphs 230-232 above , £2,350 Paragraphs 233-235 above , £7,600 Paragraphs 236-239 above , £28,200 Paragraphs 240-244 above , £39,068.75 Paragraphs 245-248 above , £2,355.94 Paragraphs 249-251 above , £6,609.17 Paragraphs 252-254 above , £9,521.69 Paragraphs 255-257 above , £2,473.50 Paragraphs 258-260 above , £1,576.95 Paragraphs 261-262 above , £57,180.50 Paragraphs 263-266 above , £15,000 Paragraphs 267-270 above and £5,945.09 Paragraph 271 above ).

Issue (iv): Interest and costs in respect of items dealt with in the Tomlin Order

[275]Paragraph 7(b) of the schedule to the Tomlin Order provided for questions of interest and costs as regards the items dealt with in the order to be reserved to the trial Judge.

[276]Mr Lemer recognised that these issues depended on my findings on the alleged Management Fees Agreement, VAT Agreement and £914,457.75 Agreement. If, he said, those agreements were entered into, then Mr Biran and CLP (UK) were justified in taking the sums that were returned pursuant to the Tomlin Order and so they should not be ordered to pay either interest on the money or costs.

[277]In the event, however, I have concluded that the supposed Management Fees Agreement, VAT Agreement and £914,457.75 Agreement were not in fact concluded. That being so, it must be right to make orders for the payment of costs and interest against Mr Biran and CLP (UK).

[278]Mr Penny argued that I should order interest to be(a) paid at 2% above Bank of Scotland’s base rate from time to time and

(b) compounded monthly. That would mean, as Mr Penny pointed out, that the defendants had to pay interest on the same basis as CLP was charged interest by Bank of Scotland. The Bank of Scotland facility letter provided for CLP to pay interest at 2% above the bank’s base rate with monthly rests.

[279]Mr Lemer did not quarrel to any great extent with the rate proposed, but he took issue with the suggestion that there should be monthly compounding. He submitted that annual rests would be more appropriate than monthly rests. He noted, among other things, that Bank of Scotland had been repaid in full by October 2007 and that CLP had ceased at that juncture to pay interest on the basis for which the facility letter provided.

[280]In my view, it makes sense that the defendants should pay interest at 2% above base rate with monthly compounding up to October 2007, when CLP was itself paying interest on that basis to Bank of Scotland. It seems to me, however, that compounding should be on an annual basis from November 2007 onwards. After November 2007, CLP was no longer incurring interest charges, and neither it nor Mr Avrahami or Be-Ready could have expected to achieve an interest rate as high as that charged by Bank of Scotland had the moneys taken by Mr Biran/CLP (UK) instead been available for investment.

[281]A particular point arises in relation to the £900,000 that was transferred to Landmark Management’s UBS Jersey account following receipt of the £914,457.75 VAT repayment (see paragraph 93 above). £846,569.68 of the £900,000 was transferred on to Aquarius, as a result of which claims against Aquarius were included in the present proceedings. A consent order of 8 September 2011 required Aquarius to disclose information as to what use had been made of the £846,569.68 so that the claimants could make an informed decision on whether to seek an account of profits. It seems to me that the defendants should not be ordered to pay interest on the £846,569.68 if the claimants are to receive profits derived from it. It could hardly make sense for the claimants to obtain both profits and interest.

[282]In the circumstances, I shall order interest to be paid at 2% above base rate with monthly rests up to October 2007 and annual rests thereafter. However, I shall hear further submissions as to whether interest should be payable on the £846,569.68.

Issue (v): Consequential loss

(v) : Consequential loss

[283]The claimants claim to be entitled to damages for two species of consequential loss: i) Costs associated with an increased loan facility agreed with Bank of Scotland in June 2006; ii) Fees and expenses arising from work carried out by Mr Avrahami.

[284]I shall take these in turn.

The loan facility

[285]The facility letter pursuant to which Bank of Scotland made loan facilities available to CLP in May 2004 was the subject of more than one variation. In December 2005, the “Final Repayment Date” was deferred to 31 December 2005. In February 2006, there was a further extension, to 30 April 2006. In June 2006, the “Final Repayment Date” was changed again, this time to 30 August 2006, and the loan facility was also increased, by up to £1,395,000. Several more extensions of time seem to have been agreed subsequently.

[286]Bank of Scotland charged an arrangement fee of £90,000 in connection with the June 2006 variation. No arrangement fee was levied in relation to any of the other extensions, except that of February 2006, where there was a £15,000 fee.

[287]The claimants seek damages in respect of the £90,000 arrangement fee and the legal expenses associated with the June 2006 variation. They argue(a) that CLP would not have had to borrow the extra £1,395,000 but for the defendants’ misappropriations and

(b) that five sixths of the arrangement fee and legal expenses can be attributed to the increased facility.

[288]On 21 December 2012, Arnold J directed that the precise mathematical quantification of this part of the claim should await this judgment. Mr Penny, however, said that the damages should be calculated by reference to the following formula: [X (being the amount of further borrowing required as a result of Mr Biran’s default prior to 6 June 2006) / Y (being the sum of £1.395 million or (if lower) the amount of the further facility in fact used by CLP)] x [5/6ths of £90,000 + the associated legal fees]

[289]Mr Lemer submitted that the £90,000 arrangement fee related in its entirety to the revised “Final Repayment Date” rather than the increase in the facility. In support of this contention, he took me to an email of November 2009 in which a Mr Mike French of Bank of Scotland referred to a “£90,000 term loan extension fee”. However,(a) an email Mr French had sent Mr Biran on 5 June 2006 tends to suggest that the arrangement fee related in part at least to the change in the facility and

(b) Bank of Scotland did not charge more than £15,000 for any of the other deferrals of the “Final Repayment Date”. In the circumstances, I accept Mr Penny’s submission that five sixths of the £90,000 (and associated legal fees of £464.88) can fairly be attributed to the extra borrowing. I also consider that the damages payable in this respect should be calculated using Mr Penny’s formula.

Mr Avrahami’s work

[290]On 19 November 2009, CLP’s board resolved that it was in the company’s best interests that Mr Avrahami and Be-Ready should lend the company money to fund these proceedings, which had been issued six days earlier. A further resolution was in these terms: “The Company will reimburse the directors and funders for their outlay of expenses connected with this litigation and other aspects of the matter, in particular to Mr Avrahami and Mr Lerner. They will be compensated for their time and paid suitable management or consultancy fees. Any connected loss of income whilst engaged in taking these proceedings forward will also be compensated”.

[291]In March 2012, CLP’s board agreed that Mr Avrahami should receive up to £150,000 for his work. To date, he has been paid £100,000 of the £150,000 by way of fees and also about £10,150 in respect of expenses.

[292]Mr Avrahami had this to say about his role in a witness statement:

“The investigation into what Doron [Biran] has done has involved an analysis of complex facts covering a 7 year period of time. I was best placed to work closely with [CLP’s] and UK lawyers on this. I have been able to cut back on some of the lawyers’ time and expense and the time of other experts and specialist advisers, and overall fees and disbursements have been reduced. I have spent many long hours and days working in the investigation and trying to piece together the jigsaw of what Doron actually did by reviewing all the documents and emails and receipts and invoices and schedules and putting them in order for the lawyers to work with”

. During his oral evidence, Mr Avrahami confirmed that his fees related to “the investigation of this litigation”.

[293]The claimants argue they are entitled to damages in respect of Mr Avrahami’s fees and expenses. The Represented Defendants, however, deny that damages can be payable for such items, on the ground that the work in question was undertaken in connection with the current litigation.

[294]As a general rule, expense incurred in connection with litigation will be recoverable, if at all, pursuant to a costs order rather than by way of damages. The principle can be seen in Cockburn v Edwards (1881) 18 Ch. D. 449. In that case, the damages awarded to a plaintiff included “the difference between the amount of his costs of the action as between party and party and the amount of his costs as between solicitor and client”. An appeal on this point was successful. Brett LJ said (at 462): “[T]he damages in an action of tort must have been incurred when the action is brought, except in some cases where they include everything up to the time of trial, and they cannot include any expenses incurred in the action itself. The law considers the extra costs which are disallowed on taxation between party and party as a luxury for which the other party ought in no case to be liable, and they cannot be allowed by way of damages”.

[295]Much more recently, there was reference to the distinction between “work referable to the claim” and “work referable to the attempted reconstitution of the claimants’ business activity” in Aerospace Publishing Ltd v Thames Water Utilities Ltd

[2007] EWCA Civ 3

, [2007] Bus LR 726. There, the defendant (Thames Water) was liable for flood damage the claimants had sustained. The claimants were awarded damages in respect of, among other things, sums paid to two ex-employees who had returned to work for them on a freelance basis. This part of the award was overturned by the Court of Appeal. Wilson LJ (with whom Pill and Longmore LJJ expressed agreement) said (in paragraph 75): “As summarised in Thames Water’s grounds of appeal, ‘the judge should have held that the freelance costs were costs of the action to be assessed’. What, then, was the evidence in relation to the work done by the two freelancers? According to Mr Moeng, most of their work related to the inspection and assessment of damage in February and March 2003. In that the claim was issued on 27 May 2003, it seems to be a fair inference that the assessment done by the freelancers some three months earlier was referable to preparation of the claim. The balance of the claim referable to freelance work related to six small payments made to one freelancer between August 2003 and June 2005. The third of the six was described by the claimants as ‘Writing witness statement’ and, before us, Mr Young was quick to concede that such, at least, was an item of costs rather than of damages. No doubt the dividing line between work referable to the claim and work referable to the attempted reconstitution of the claimants’ business activity is narrow; but, in light of the fact that two of the areas of work done by the freelancers thus appear to relate to costs, the onus was in my view firmly on the claimants to adduce clear evidence that the other items were not analogous. This they failed to do. So I consider that, had the judge descended to this minor issue, he should have upheld Thames Water’s contention”.

[296]Wilson LJ’s observations were applied in Al-Rawas v Pegasus Energy Ltd

[2008] EWHC 617 (QB)

. In paragraph 24 of his judgment, Jack J said: “I accept that management time spent on preparing a claim for damages for breach of contract is not recoverable as damages. I also accept that it is not recoverable as costs, and so is irrecoverable. That is the law”.

[297]Those cases can be compared with 4 Eng Ltd v Harper

[2008] EWHC 915 (Ch)

, where the costs of investigating a fraud were held to be recoverable. In 4 Eng Ltd v Harper, the claimant had been induced by deceit to buy the issued capital of company referred to as “Excel” in 2001. Following completion, it soon became apparent to the individuals who had established the claimant (a Mr Shepherd and a Mr Tapping) that there were problems in Excel and “as a result of their painstaking investigations over a period of at least four years it was revealed that the defendants had over a long period engaged in the systematic bribery of employees of [a customer]” (see paragraph 3 of the judgment). In 2005, the defendants were convicted on charges of conspiracy to corrupt and conspiracy to defraud, and in 2008 the claimant issued civil proceedings. David Richards J awarded damages of £624,888 in respect of the claimant’s liability to Mr Shepherd and Mr Tapping for their work. David Richards J said this about the work in paragraph 29 of his judgment: “Mr Shepherd and Mr Tapping appreciated that much of the work on the fraud investigation would have to be done out of usual working hours, both for reasons of confidentiality and because their usual working hours would largely be devoted to managing the business. The financial position of Excel was such that neither it nor [the claimant] could afford either to engage outside professional accountancy services, or to take on appropriate accountancy staff, to undertake the investigations. Their inquiries showed that such services from an outside firm would cost about £200 per hour. At a board meeting of [the claimant] on 26 September 2001 they resolved to undertake the investigations themselves at a rate payable to them of £100 per hour. The resolution provided that [the claimant] was liable to pay this amount to them and would be entitled to charge 50% to Excel. Mr Shepherd explained that they considered this to be a fair and proper rate taking account on the one hand of the rate at which they were to be paid under their service contracts and on the other hand of the rate at which external accountants would charge. The investigatory work lasted until late 2004 but no claim is made for any time spent after 26 April 2004 when Excel assumed responsibility for their salaries”.

[298]Mr Penny argued that there is a close analogy between the 4 Eng case and the present case. To my mind, however, the 4 Eng case does not assist the claimants. There is no reference in David Richards J’s judgment to paragraph 75 of Wilson LJ’s judgment in Aerospace Publishing Ltd v Thames Water Utilities Ltd nor, more generally, to the principle that expense incurred in connection with litigation will be recoverable, if at all, pursuant to a costs order rather than by way of damages. The omission is unsurprising. The work for which damages were awarded had been completed three or four years before the claimant even issued proceedings. There was no question of it having been undertaken in the context of pending litigation.

[299]The present case, in contrast, concerns work carried out in the course of litigation. Proceedings had already been issued when CLP resolved to compensate Mr Avrahami for his time. Moreover, Mr Avrahami accepted that his fees related to “the investigation of this litigation”. In the circumstances, I agree with Mr Lemer that I cannot award damages in respect of Mr Avrahami’s fees and expenses. The evidence indicates that they fall within the principle seen in the Aerospace Publishing and Al-Rawas cases.

Issue (vi): Hurford Salvi Carr

[300]Mr Biran was first introduced to the Farringdon Road site by Hurford Salvi Carr Limited (“Hurford Salvi Carr”), which carries on business as property advisors and development consultants, in 2001. At that stage, Mr Biran did not proceed with a purchase of the Farringdon Road site and when, the following year, Mr Biran pursued the possibility of acquiring the site, he did so with help from Masons rather than Hurford Salvi Carr. None the less, once CLP had exchanged contracts to buy the site, Hurford Salvi Carr invoiced Mr Biran for £40,000, plus VAT of £7,000, as “Fees as agreed at 1%”. The invoice not having been paid, on 24 March 2003 Hurford Salvi Carr issued proceedings against Mr Biran personally. Mr Biran instructed Lawrence Graham, who advised that Mr Biran had a “reasonable legal argument” but that his position was “far from being unassailable”. In the circumstances, Lawrence Graham suggested that Mr Biran might wish to consider compromising the claim, and the matter was subsequently settled on the basis that Hurford Salvi Carr was paid £42,500 plus costs, which were later agreed at £26,000. Lawrence Graham were also paid for their work.

[301]The claimants’ complaint is that both Hurford Salvi Carr and Lawrence Graham were paid by CLP rather than Mr Biran himself. The total in dispute is £99,702.78.

[302]One of Mr Biran’s answers is that he (and, to an extent, Grays) kept Mr Avrahami informed in relation to the Hurford Salvi Carr claim. I do not find that convincing. It is apparent from Mr Avrahami’s evidence in this respect (which I accept) that his knowledge of the claim was very limited indeed.

[303]Another answer that is put forward to the claimants’ allegations is that it was implicit in the arrangements between the parties that Mr Biran should be entitled to use CLP to meet expenses of the Farringdon Road project. The point was put in this way in Mr Lemer’s closing submissions: “The question of whether [Mr Biran/CLP (UK)] was entitled to spend [CLP’s] money on any particular item of cost will be a matter of interpretation of the Shareholders Agreement. It is submitted that the test to be applied should be whether the costs can fairly be said to be a cost of the Project. In most cases the answer will be obvious, e.g. Scanmoor and Trehearne’s costs were clearly costs of the Project. It is submitted that the answer is just as obvious in respect of [Hurford Salvi Carr]. [Hurford Salvi Carr] may have been wrong, but the claim was brought on the basis that the Farringdon Road site was bought by [CLP] as a result of the [Hurford Salvi Carr] action, i.e. the premise of [Hurford Salvi Carr’s] claim was that [CLP] benefited from [Hurford Salvi Carr’s] actions. The reason why the Claimants are able to make their claim is because the [Hurford Salvi Carr] costs were incurred before the Shareholders Agreement was entered into. It is submitted that that fact should not affect the question of whether the [Hurford Salvi Carr] costs were properly payable by [CLP]. As noted above, that question turns on whether the costs relate to the Project, regardless of the question of timing. If, for example, Trehearne Architects had provided plans to [Mr Biran] whilst [Mr Biran] was deciding whether to go ahead with Mr Azouz or [Mr Avrahami/Be-Ready] and those plans were then used for the Project, it would be very odd if the Claimants could require [Mr Biran] to pay for those plans. The reason why it would be odd is because it would be obvious that the cost of the plans were costs of the Project that [CLP] benefited from. The same applies to the [Hurford Salvi Carr] costs”.

[304]With a degree of hesitation, I accept this argument.

Issue (vii): Masons

[305]The claimants contend that Mr Biran acted negligently in relation to a claim for fees advanced by Masons and that loss was suffered as a result.

[306]The background is explained as follows in an email a lawyer acting for Masons sent on 12 May 2012: “In 2002, Masons … provided [CLP] with advice on the purchase of 17-23 Farringdon Street, London (‘the Property’) for no initial ‘purchase price’ on the basis that [Masons] would receive fees from property management, ongoing advice and agency disposals. CLP purchased the property in and around September 2002. [Masons] provided ongoing advice to CLP regarding the design of the property and specifications from a marketing perspective but was not instructed on project management. In January 2003, [Masons] negotiated and secured a letting of the ground and basement of the Property to J. Sainsbury for which [Masons] were duly remunerated. In June 2005, [Masons] set out the basis upon which it would act on behalf of the company in relation to a freehold disposal of the Property or part thereof. By March 2006, [Masons] had secured an offer from A.G.A. Food Service Commingled Pension Fund for the freehold interest for a consideration of £8,300,000 subject to adjustment in relation to floor areas. A further £200,000 or so was negotiated on behalf of the CLP by [Masons]. On conclusion of the sale and following a discussion with Mr Doron Biran, who then represented CLP, [Masons] sent an invoice dated the 3rd Nov 2006 at a reduced rate premised strictly on the condition that the amount would be paid immediately. When the fee invoice was not paid, a credit note was issued with an invoice for the full amount of 1% of the purchase price i.e. £85,780.42 plus £14,888.72 i.e. a total £99,967.14 on the 26th April 2007”.

[307]Masons also rendered an invoice in respect of other work. The email from its lawyer said this about that invoice: “In addition to the outstanding invoice for the identification and negotiation of the sale of the property, [Masons] provided advice to the CLP over and above [Masons’] standard agency role. The work thus undertaken is reflected in correspondence written to Mr Biran on the 3rd June 2004 and the 14th February 2006. A further invoice for £35,250.00 (inclusive of V.A.T.) dated the 1st December 2010, was issued in January 2011”.

[308]On 11 February 2011, lawyers acting for Masons sent CLP a letter before action claiming £135,217.14 (i.e. the total of the two invoices referred to in the previous paragraphs). In the July, a formal demand was served pursuant to section 221(A) of the Gibraltar Companies Act, and a winding-up petition dated 17 November 2011 was subsequently presented. Matters were eventually resolved by a written agreement dated 26 October 2012. In essence, Masons accepted a payment of £90,625 in settlement of all its claims and costs.

[309]The claimants’ complaint is that Mr Biran should have caused CLP to pay the reduced-rate invoice of 3 November 2006. It is said that his failure to do so led Masons to issue an invoice for a figure 33% higher (on 26 April 2007) and, in the longer term, to(a) CLP having to pay Masons £90,625 rather than the £74,906.25 originally invoiced and

(b) the claimants having to incur legal costs as they investigated and dealt with Masons’ claims.

[310]During closing submissions, Mr Penny described the claimants’ Masons claim as “rather an add-on”. In my view, it fails for more than one reason: i) According to Mr Biran, he adopted a policy of delaying payments to creditors. “Occasionally,” Mr Biran said, “that meant paying more but on the whole it resulted in [CLP] having to pay less and being able [to] manage its cashflow better”. That approach may or may not be considered fair to creditors or consistent with commercial morality, but I do not think it has been established that it involved a failure to exercise appropriate care; ii) It has not been established, either, that CLP suffered loss as a result of the conduct the claimants criticise. It is true that Masons was ultimately paid about £16,000 more than the amount of its reduced-rate invoice, but it settled for substantially less than the total of the two invoices (viz. £135,217.14) in respect of which it took proceedings. I can only speculate as to whether Masons would have been willing to settle all its claims (including that based on the £35,250.00 invoice) for less than the £90,625 it was in fact paid; iii) There is no evidence of any significance as to what costs the claimants incurred investigating and dealing with Masons’ claims.

Issue (viii): NHBC cheque

[311]In 2005 CLP applied for registration with NHBC, and it was entered on the register in March 2006. At that stage, it was required to pay £28,000 to NHBC as a deposit. In the following year, CLP sent NHBC £29,447.06 in respect of plot registration fees, but the correct figure was in fact £27,091.12, so £2,355.94 was returned to CLP.

[312]When the claimants brought their proceedings, they initially included a claim relating to the £29,447.06 that had been paid to NHBC.

[313]On 7 June 2011, Mr Biran telephoned NHBC and spoke to a Ms Victoria Nagle, a commercial underwriting assistant. Having given CLP’s registration number, Mr Biran said that there were “two problems here” of which one related to the £29,447.06 payment. Mr Biran asked to be emailed an invoice in respect of that and went on to say:

“now there’s another thing. There’s another bond that we gave you”

. There then ensued the following exchanges between Mr Biran (“R” in the transcript of the recording NHBC made of the call) and Ms Nagle (“I” in the transcript):

“I This is the deposit account, so that’s part of your conditions of registration for being on the NHBC register. And that money would be held with the NHBC while you remain on the NHBC register building properties and for any properties that you have built with us, we would hold it for two years and six months after the final property completes. R Okay, but we’ve already done it. I If you’re already out of that time then I can put in a request to release that security payment for you. R Okay, I have a question. Can you sent it to … Number 9 Mansfield Street … London … W1G 9NY. I Okay, yes. R Okay and … you have to send … to Carlton Landmark Property, yes? I We would have to, yes. R Okay, we cannot give you any other company? I No, it would have to be the company that paid it originally. R Okay. So you send to Carlton Landmark Properties. I That’s right …. R … Okay, you have in Gibraltar as well the address but send it to London it’s easier. I Alright, no I’ve got the address you’ve given me at Mansfield Street”

. R Okay and … you have to send … to Carlton Landmark Property, yes?

R Okay, we cannot give you any other company?

[314]On 22 June 2011, NHBC sent a cheque for £27,838.43 (“representing the closure of the deposit account previously set up as security”) to “Carlton Landmark Properties Limited” at 9 Mansfield Street. At the end of August, the cheque reached Marvelpride as part of a bundle of cheques sent to it from Israel by an Israeli cheque wholesaler called “KR”.

[315]On 25 August 2011, however, the claimants’ solicitors had written to NHBC asking for confirmation as to whether it still held money on its deposit account for the Farringdon Road development. NHBC responded on 26 September that it had returned the money on 22 June. That led the claimants’ solicitors to obtain a copy of the relevant cheque and, hence, to Marvelpride. Once Mr Goldman of Marvelpride had become aware that there was a problem with the cheque, he told KR and retained £27,838.43 from a transaction with it.

[316]Mr Goldman explained what happened next in these terms in a witness statement:

“There was then quite a lot of conversations going backwards and forwards between KR and I and KR’s client. I understand that KR’s client was asking for the money back. I told my contact at KR … that they could have the money back but that there was something wrong with this money. Eventually, I was informed by KR that its client had requested that I send the same sum back to NHBC”

. This Mr Goldman did. £27,838.43 was paid into an account of NHBC on 2 July 2012. On 28 November, NHBC passed the money on to the claimants’ solicitors.

[317]In the meantime, in May 2012, the claimants had issued an application to amend their Particulars of Claim to include a claim in respect of the £27,838.43. Even before this, however, Mr Biran had had two further conversations with NHBC. On 20 March, Mr Biran telephoned and said that he was “Doron” calling from “Grays basically” and “Carlton Landmark Properties”. He said that there was “a bond that you owe us”, but was told that someone more senior would ring him back. Asked to confirm his name, Mr Biran said that it was “George” and would not give his surname.

[318]Mr Biran called NHBC again on 11 April 2012. On this occasion, having given CLP’s name, address and registration number, Mr Biran said that there was “supposed to be some cheque that’s coming to us”. Having been told of a letter from the claimants’ solicitors, Mr Biran identified himself as “Abraham Cohen”.

[319]The claimants’ case is that Mr Biran misappropriated the £27,838.43 and that, although the money was ultimately returned to NHBC and passed on to CLP, it(a) lost the interest that would otherwise have been earned between June 2011 and November 2012 and

(b) incurred costs investigating the matter.

[320]The Represented Defendants contend that Mr Biran never received the £27,838.43 cheque. They cannot, it is said, be sure why the cheque did not reach Mr Biran, but one possibility (so they say) is that the cheque was taken by someone after it had arrived at 9 Mansfield Street, where it would have been left on the stairs.

[321]In my judgment, Mr Biran received and cashed the £27,838.43 cheque. My reasons include these: i) I find it hard to understand why Mr Biran would have asked for the cheque unless he intended to misappropriate it. By June 2011, when the request was made, Mr Biran knew that he had no authority to represent CLP. He therefore had no business asking for CLP’s deposit to be released, let alone asking for it to be sent to 9 Mansfield Street, which was CLP (UK)’s address; ii) Mr Biran did not express any concern at the time that he had not received any cheque from NHBC. He never raised such a concern with Mr Auerbach, and he did not speak to NHBC until March 2012 (by which time he had probably, I think, learned that the missing cheque was being investigated); iii) Mr Biran was in Israel for part of August 2011 and had used cheque-cashing facilities (including in Israel) to facilitate misappropriation in the past (see paragraphs 172-197 above); and iv) Mr Biran is not a reliable witness.

[322]With regard to the loss claimed, Mr Lemer argued that CLP should only be entitled to claim interest up to July 2012 because CLP could have taken the money at any point after that. I do not think, however, that it has been established that the claimants were responsible for the delay before NHBC issued a new cheque. In cross-examination, Mr Avrahami spoke of not knowing “why it takes them so long to send us the cheque”. In the circumstances, I consider that CLP is entitled to be compensated for loss of interest in respect of the whole of the period from June 2011 to November 2012.

Issue (ix): Forfeiture of 25/32.5ths of the 32.5% stake in CLP allocated to Mr Biran

[323]This issue was not in the end pursued by the claimants and so I need say no more about it.

Issue (x): Deceit and non-disclosure

(x) : Deceit and non-disclosure

[324]Mr Avrahami and Be-Ready allege that they were induced to enter into the Shareholders Agreement by deceit on the part of Mr Biran and/or his failure to disclose wrongdoing. The case put forward by Mr Avrahami and Be-Ready can be summarised as follows: i) In March 2003, Mr Avrahami was supplied with Excel spreadsheets containing a number of entries which Mr Biran knew to be false; ii) It can be inferred that Mr Biran intended to act dishonestly from the outset. That is apparent from, in particular,(a) the fact that much of the money contributed by Mr Avrahami and Be-Ready in December 2002 was misappropriated within a week of receipt and

(b) the fact that Mr Biran chose to give CLP an identical name to CLP (UK) (which must have been to facilitate the misappropriation of money); iii) Mr Biran owed fiduciary duties to Mr Avrahami and Be-Ready and so had a duty to disclose his own wrongdoing; iv) Mr Avrahami and Be-Ready were induced to enter into the Shareholders Agreement by Mr Biran’s fraudulent misrepresentations and failure to disclose his wrongdoing. Had they known the truth, Mr Avrahami and Be-Ready would not have been prepared to proceed with Mr Biran as a co-venturer and would have excluded him from CLP; v) Mr Avrahami and Be-Ready would then have needed to obtain a project manager, but there is no reason to believe that such a manager would have charged fees greater than those payable to CLP (UK) under the Shareholders Agreement (i.e. up to £300,000); vi) Mr Avrahami and Be-Ready would thus have enjoyed higher profits from the Farringdon Road project than they are entitled to pursuant to the Shareholders Agreement (which gives 32.5% of profits to Mr Biran).

[325]I accept much of propositions (i) and (ii). With regard to (i), Mr Biran had, in my view, knowingly made false representations to Mr Avrahami and Mr Lerner by the time the Shareholders Agreement was signed. An Excel spreadsheet that Ms Canning sent to Mr Avrahami on 11 March 2003 was said in the email to which it was attached to contain “all the expenses for Farringdon”, but in several instances the money had in fact been misappropriated. The spreadsheet recorded expenditure on “Archaeological desktop survey”, “Camden Building control” and “Rights of light report” which had not in my view been incurred (see paragraphs 111-122 above). Similar entries were to be found in an Excel spreadsheet Mr Avrahami was sent on 14 March 2003, but on this occasion details were also given of “Money sent to Fox Associates”. Here, “Ran & Lerner” were correctly recorded as having contributed £46,250, but Mr Biran was said to have provided £3,750, which was not true (see paragraphs 106-110 above). Both spreadsheets were, as it seems to me, sent to Mr Avrahami on Mr Biran’s instructions and in the knowledge that they contained false information.

[326]So far as (ii) is concerned, I agree that the evidence establishes that money contributed by Mr Avrahami and Be-Ready in December 2002 was misappropriated within a week of receipt: the Manuscript Ledger records that £46,244 was received from Mr Avrahami and Mr Biran on 19 December 2002 and that payments totalling £11,200 were made to Mr Biran on 23 December. I do not think, however, that Mr Avrahami and Be-Ready have proved that Mr Biran was intending to act dishonestly before this. The fact that Mr Biran chose to give CLP the same name as CLP (UK) does not appear to me to demonstrate the point.

[327]As for (iii), Mr Penny referred to Conlon v Simms

[2006] EWHC 401 (Ch)

, where Lawrence Collins J held that “prospective partners have a duty to disclose material matters” (paragraph 199) and that a fraudulent failure so to disclose could give rise to a claim for damages. In paragraph 202 of his judgment, Lawrence Collins J said:

“But it is clear that where there is a duty to disclose, and the failure to disclose is fraudulent, there will be an action in deceit and damages will be an available remedy. In such cases ‘the non-disclosure assumes the character of fraudulent concealment, or amounts to fraudulent misrepresentation, or is otherwise founded on, or characterized and accompanied by, fraud’: Spencer-Bower, para. 14.02”

. On appeal (

[2006] EWCA Civ 1749

[2008] 1 WLR 484

), Jonathan Parker LJ (with whom Ward and Moore-Bick LJJ agreed), expressed agreement with this view, observing (in paragraph 130): “Non-disclosure where there is a duty to disclose is tantamount to an implied representation that there is nothing relevant to disclose”.

[328]Mr Lemer denied both that Mr Biran had an obligation of disclosure and that any failure to disclose could entitle Mr Avrahami and Be-Ready to damages. Mr Lemer said that Mr Avrahami, Be-Ready and Mr Biran were never partners, let alone prospective partners. He also referred me to Chitty on Contracts, 31st ed., which states (at paragraph 6-151):

“A breach of the duty to disclose will give rise to the right to rescind the contract but, it is submitted, not to a right to damages even if the other party kept quiet ‘fraudulently’ in the sense of intended deliberately to mislead the claimant. In Conlon v Simms it was said that: ‘ … where the breach of the duty of disclosure is fraudulent, a party to whom the duty is owed who suffers loss by reason of the breach may recover damages for that loss in the tort of deceit … Non-disclosure where there is a duty to disclose is tantamount to an implied representation that there is nothing relevant to disclose.’ This, with respect, is very doubtful, and cannot be supported on the ground given. It is well-established that breach of the duty of disclosure in insurance does not of itself give rise to an action for damages. A negligent failure to speak may give rise to liability in damages but only if there is a ‘voluntary assumption of responsibility’. If silence when there is a duty to disclose amounted to an implied representation that there was nothing to disclose, that would make even a non-fraudulent non-disclosure into a positive misrepresentation for which damages could be recovered under Misrepresentation Act 1967 s.2(1), unless the non-disclosing party could show that he had reasonable grounds for believing that there was nothing to disclose. It is almost certain that without a voluntary assumption of responsibility there is no liability in damages for merely keeping silent, and it is submitted that this is so even if there was an intention to deceive”

. In relation to the reference to “voluntary assumption of responsibility” in the last sentence of this passage, Mr Lemer submitted that any assumption of responsibility will not have taken place until after the contract between Mr Avrahami, Be-Ready and Mr Biran had been concluded and so could not assist Mr Penny in his arguments.

[329]I do not think I need to attempt to resolve the issues between Mr Penny and Mr Lemer on these matters. I have already found that Mr Biran made express representations that he knew to be false before the Shareholders Agreement was concluded. That being so, it cannot be important whether Mr Biran was also guilty of deceit by reason of non-disclosure. The position might have been different had it been established that there had been a failure to disclose wrongdoing before late December 2002, but I do not consider that to have been proved (see paragraph 326 above).

[330]A point of much greater significance is that I do not accept that it was open to Mr Avrahami and Be-Ready simply to exclude Mr Biran at the time the Shareholders Agreement was entered into. It seems to me that Mr Biran must have been entitled to a 32.5% interest in CLP since at least the previous December. It was not until November 2003 that Grays executed documents confirming that they held the shares in CLP on trust for Mr Avrahami, Be-Ready and Mr Biran, but there can be no question of their ever having owned the company beneficially themselves. Mr Lemer argued that the shares must have been held on trust for Mr Biran alone until the parties entered into a contract settling their mutual entitlements. Even if that is going too far, Mr Penny was, I think, right to concede that Grays did not hold the company beneficially. Mr Penny suggested that the beneficial interests might have reflected the contributions that the parties had made and that, Mr Biran having failed to make his contribution, he had no interest. I do not think, however, that that can be right. Mr Biran having told Mr Avrahami and Mr Lerner of the potential he had identified in the Farringdon Road site, the parties agreed to purchase the site together. Mr Biran arranged with Grays that CLP would be acquired for this purpose, and the company entered into a contract to buy the Farringdon Road site on 6 December. At much the same time, Mr Avrahami and Be-Ready made loans, and by now the parties’ share entitlements must have been agreed. In these circumstances, Mr Biran must have had a beneficial interest in CLP’s shares as great as the 32.5% that had been agreed. The fact that he had not contributed his share of the shareholder loans doubtless meant that he had an obligation to do so, but I do not think it can have operated to leave Mr Avrahami and Be-Ready as the sole beneficial owners of CLP. On this basis, Mr Biran did not acquire his interest in CLP by means of his false representations and he could not readily have been deprived of that interest had Mr Avrahami and Be-Ready discovered his wrongdoing.

[331]What, then, would have happened had Mr Avrahami and Be-Ready learned of Mr Biran’s wrongdoing in the period between December 2002 and the signing of the Shareholders Agreement? Mr Avrahami and Mr Lerner said, and I accept, that they would not have wished to continue in business with Mr Biran. The chances are, I think, that they would have withdrawn from the project, which was still at a relatively early stage. Possibly, Mr Biran would then have continued with the project in conjunction with someone else. Be that as it may, Mr Avrahami and Be-Ready would not have derived any more profit from the Farringdon Road project than they stand to now. That, in my view, is fatal to the deceit and non-disclosure claims.

[332]Even supposing that Mr Avrahami and Be-Ready had somehow managed to oust Mr Biran from the Farringdon Road project and keep it for themselves, it is not apparent that they would have achieved a higher return than that in fact attained. In the first place, there is no satisfactory evidence as to the terms on which an appropriate project manager could have been obtained. Mr Penny suggested that I could take the management fees for which the Shareholders Agreement provided as a guide, but those fees were agreed in circumstances where Mr Biran was also to have a 32.5% interest in the company. I do not think they can be regarded as a reliable indicator of the remuneration that a project manager with no interest in the company’s shares would have required. In this connection, it is noteworthy that Mr Biran said this in a witness statement:

“In my experience on a project like the Farringdon Road development a good project manager insisted on working on a 2 and 20% basis or even a 2 and 25% basis. That means that he would charge 2% of the total building costs per year plus 20%-25% of any profits”

. While I do not consider Mr Biran a reliable witness, Mr Avrahami and Be-Ready have not themselves adduced any evidence of any weight as to what a project manager would have cost.

[333]A second reason why Mr Avrahami and Be-Ready might have been no better off without Mr Biran is that the evidence suggests that, on a commercial level, he managed the Farringdon Road project well. It seems, in particular, that he coped well with the problems that arose during the project (e.g. from Crossrail and the failure of Scanmoor). For instance, Mr Thomas Scanlon, a former director and shareholder of Scanmoor, explained: “Having worked with Doron [Biran] on 2 projects …, I found Doron to be great to deal with; he works very hard. On both projects he was faced with a number of unexpected problems during the construction phase, but he just got on with things and managed to get the buildings built. Doron is very practical and resourceful and was very enthusiastic about the Project …. In the time that I worked with Doron I was impressed with his ability to negotiate good commercial deals which benefited his projects greatly”.

[334]In all the circumstances, it seems to me that it has not been proved that Mr Avrahami or Be-Ready suffered any loss as a result of deceit or culpable non-disclosure. These claims accordingly fail.

Issue (xi): Interest on items other than those dealt with by the Tomlin Order

[335]I have concluded above (paragraphs 275-282) that, as regards the items dealt with in the Tomlin Order, interest should be payable at 2% above base rate with monthly rests up to October 2007 and annual rests thereafter. It seems to me that I should also order interest to be paid on this basis in relation to the other misappropriations I have found proved.

Issue (xii): Entitlement to fees

[336]The relief sought in the Re-Re-Re-Amended Particulars of Claim includes a declaration that Mr Biran and CLP (UK) have forfeited any right to management fees and consequential orders for repayment of any fees that have already been paid. Mr Biran, on the other hand, has advanced a counterclaim for unpaid fees or, in the alternative, for an equitable or quantum meruit payment for finding and developing the Farringdon Road project and seeing it through to completion.

[337]The counterclaim is in part based on the £80,000 finder’s fee that Mr Biran alleges. As explained above, however, I have concluded that no such fee was ever agreed.

[338]The question remains whether the right to management fees has been lost as a result of Mr Biran’s misconduct. The claimants maintain that it has.

[339]The relevant legal principles are summarised in these terms in Snell’s Equity, 32nd. ed., at paragraph 7-062: “If a fiduciary acts dishonestly he will forfeit his right to fees paid or payable by the principal. He will also forfeit his right to such fees if he takes a secret profit from a third party which is directly related to performance of the duties in respect of which the fees were payable, even if the principal has benefited from the fiduciary’s performance of those duties. A fiduciary will also lose his or her right to fees if the fiduciary’s breach of duty is so grave that there has effectively been no performance at all, on the basis of total failure of consideration”.

[340]The authorities to which I was referred in this context included Keppel v Wheeler

[1927] 1 KB 577

, Imageview Management Ltd v Jack

[2009] EWCA Civ 63

, [2009] Bus LR 1034 and Stevens v Premium Real Estate Ltd [2009] NZSC 15. In Keppel v Wheeler, a firm of estate agents had failed to pass on an offer to a client. It was held that they had to pay damages but had not lost their right to commission. At 592, Atkin LJ said: “Now I am quite clear that if an agent in the course of his employment has been proved to be guilty of some breach of fiduciary duty, in practically every case he would forfeit any right to remuneration at all. That seems to me to be well established. On the other hand, there may well be breaches of duty which do not go to the whole contract, and which would not prevent the agent from recovering his remuneration; and as in this case it is found that the agents acted in good faith, and as the transaction was completed and the appellant has had the benefit of it, he must pay the commission”.

[341]In Imageview Management Ltd v Jack, a footballer’s agent had made a secret side deal with a club when negotiating for his client. He was held to have forfeited his commission. Jacob LJ (with whom Mummery and Dyson LJJ agreed) said (in paragraph 44):

“I accept [counsel for the agent’s] submission that there can be cases of harmless collaterality. And that there can be cases where there is just an honest breach of contract such as Keppel's cases [1927] 1 KB 577. But this is simply not such a case. This is a case of a secret profit obtained because Mr Berry/Imageview was Mr Jack’s agent. And there was a breach of a fiduciary duty because of a real conflict of interest. That in itself would be enough, but there is more: the profit was not only greater than the work done but was related to the very contract which was being negotiated for Mr Jack. Once a conflict of interest is shown, as Atkin LJ said in the last passage quoted, the right to remuneration goes”

. Jacob LJ explained the policy behind the rule in paragraph 50: “The policy reason runs as follows. We are here concerned not with merely damages such as those for a tort or breach of contract but with what the remedy should be when the agent has betrayed the trust reposed in him – notions of equity and conscience are brought into play. Necessarily such a betrayal may not come to light. If all the agent has to pay if and when he is found out are damages the temptation to betray the trust reposed in him is all the greater. So the strict rule is there as a real deterrent to betrayal. As Scrutton LJ said in Rhodes's case 29 Com Cas 19, 28, ‘The more that principle is enforced, the better for the honesty of commercial transactions’”.

[342]Commission was also held to have been forfeited in Stevens v Premium Real Estate Ltd, which concerned estate agents. The judgment given by three judges in the Supreme Court of New Zealand (Blanchard, McGrath and Gault JJ) included this passage (at paragraph 90); “The remuneration is forfeited because it has not been earned by good faith performance in relation to a completed transaction. There is no inconsistency in awarding the principal both damages and the refund of the commission, as there would be, for instance, if a court were to order a defendant fiduciary both to pay damages and to account for profits made by the use of the principal’s asset. Remuneration for services is not a profit of this kind. It is something to which an agent has no entitlement once he or she has committed a breach of fiduciary duty save in the circumstances described by Atkin LJ [in Keppel v Wheeler]”.

[343]The principle is more obviously apt in the context of one-off transactions than long-term relationships. A director who has loyally served his company for years before, say, submitting a single dishonest expenses claim should not be equated with an estate agent who commits a breach of duty in relation to the single transaction he was asked to undertake. This sort of distinction is reflected in Vos J’s decision in Governor and Company of the Bank of Ireland v Jaffery

[2012] EWHC 1377 (Ch)

, where Mr Jaffery, whom the Bank of Ireland had employed as a senior executive, was found to have committed various breaches of fiduciary duty. Vos J said this about whether Mr Jaffery’s salary and bonuses fell to be forfeited: “371 This is not a case such as Imageviewsupra, where an agent has betrayed the trust of his principal in relation to the sole subject matter of the agency. As I have already said, Mr Jaffery was employed by the Bank in a senior position and betrayed the Bank's trust in respect only of the transactions involving the RGC Customers. In other respects, he seems to have been a valuable and diligent employee promoting the Bank’s interests successfully. Of course, the Bank must be compensated on normal principles for the breaches of duty that I have found. The law applies the rules as to breach of fiduciary duty strictly for the reasons given by Jacob LJ in his judgment in Imageview, but it does not do so unfairly. 372 [Counsel for the Bank] argued that the equitable solution would be to require Mr Jaffery to forfeit his bonuses, since they would not have been paid had his breaches been uncovered. That was the clear benefit that [counsel for the Bank] said he obtained from his failure to disclose his wrongdoing. Whilst it might be true, as I have said, that, had he given a true certificate of compliance (or rather non-compliance) with Code of Conduct in 2010, he would have been dismissed and lost a large part of his bonuses, that does not mean that it is equitable for him now to have to repay them. The bonuses were paid for the good job he was doing to improve and promote the Bank’s business generally. The Bank can be fully and properly compensated by requiring Mr Jaffery to disgorge his profits or paying equitable compensation. 373 It would be unfair in my judgment, even taking into account the nature of Mr Jaffery's breaches, to require him to repay his salary and bonuses, or indeed any part of them. The breaches must, as I have already said, be looked at in the context of his employment as a whole. Mr Jaffery worked long hours over several years for the Bank. It would be both disproportionate and inequitable in the circumstances of this case to require Mr Jaffery to repay some 5 years of salaries and bonuses in addition to disgorging his profits or paying equitable compensation”.

[344]The present case involves a relationship that endured for a number of years: the fiduciary duties that Mr Biran accepts that he owed to CLP, Mr Avrahami and Be-Ready must have lasted from 2002 to 2009. On the other hand, Mr Biran was guilty of dishonest conduct throughout this period. He misappropriated some of the money Mr Avrahami and Be-Ready lent in December 2002, and the last of the misappropriations took place in 2009. In the interim, there had been numerous other misappropriations amounting, in total, to substantial sums. It is also relevant to note that Mr Biran (or, rather, the trust to which Mr Biran has transferred his interest in CLP) stands to benefit from the success of the Farringdon Road project regardless of whether the management fees are forfeited: the claimants have not pursued their attempt to forfeit the 32.5% stake now vested in the Amos Trust.

[345]In these circumstances, it seems to me that the present case is readily distinguishable from the Jaffery case. On the particular facts, forfeiture of the management fees would be neither disproportionate nor inequitable; to the contrary, it would accord with the case law and the policy underlying it. I hold, accordingly, that the management fees have been forfeited. I also consider that it would not be appropriate to order any other payment (whether by way of equitable allowance, quantum meruit or otherwise) to be made to Mr Biran or CLP (UK) for their services.

Conclusions

[346]In my judgment, the claimants’ claims are to a considerable extent well-founded. They have proved most of the misappropriations they allege and also that Mr Biran largely failed to contribute his share of the shareholder loans. I consider, too, that Mr Biran and CLP (UK) have forfeited any right to management fees as a result of their conduct. On the other hand, I do not think the claims for deceit/non-disclosure or negligence have been made out.

[347]I should be grateful if counsel would seek to agree an order reflecting the conclusions I have arrived at.

[348]I should like finally to thank both counsel for their considerable assistance. Among other things, their detailed written closing submissions made my task far easier than it would otherwise have been, as did the intelligent way in which the trial bundles were organised. That Mr Lemer has ultimately been unsuccessful on many points is no reflection on the quality of his advocacy.

Avrahami & Ors v Biran & Ors [2013] EWHC 1776 (Ch)

Factual history

Ran Avrahami

Evidential points

Documentary evidence

Offers to potential witnesses

The parties’ cases in brief outline

Ms Canning’s role

The legal framework

The issues

Issue (i): The agreements alleged by the Represented Defendants

(i) : The agreements alleged by the Represented Defendants

The Management Fees Agreement

The VAT Agreement

The £914,457.75 VAT Agreement

The finder’s fee agreement

Issues (ii) and (iii) (part): Shareholder loans and misappropriations during the Fox Associates period

Shareholder loans

Archaeological desktop survey

Rights of light report

Camden Building Control

Other Camden payments

Payments to Fox Associates

Items in the Manuscript Ledger alone

R.D. Services Building Inspection

Cash payment of £2,000

FPD Savills

Trehearne

£26,982.62 payment

Crossrail

Grays Management

Mr Colin MacKenzie

VAT refund

Limitation

Issue (iii) (part): Other misappropriations

Cheque cashing in Israel: Equita

Cheque cashing in Israel: Long & Partners

Payments to Mr Baranowski, DCE and Quattro

Cash payments allegedly made to New Age

Other payments to New Age

Cash payments allegedly made to Ruane, Testconsult and Scanmoor

Testconsult - £10,000

Cash withdrawal of £2,000

Payments to Grays

Ziv Gani and BOS Asset Finance

£30,000 payment to Landmark Management

£80,000 payment to Landmark Management

Payment to Landmark Telos

Payments to Mr Auerbach

Payment to GAP Lettings

LB Camden

Payments to Dunleigh Investments

Torchwood

Payments by Lawrence Graham

Lawrence Graham and Oak Lodge

Lawrence Graham and Odin

Sunset

Sainsbury

Account number: 10474595

Ruane

Trehearne

Greenhatch

Issue (iv): Interest and costs in respect of items dealt with in the Tomlin Order

Issue (v): Consequential loss

(v) : Consequential loss

The loan facility

Mr Avrahami’s work

Issue (vi): Hurford Salvi Carr

Issue (vii): Masons

Issue (viii): NHBC cheque

R Okay, we cannot give you any other company?

Issue (ix): Forfeiture of 25/32.5ths of the 32.5% stake in CLP allocated to Mr Biran

Issue (x): Deceit and non-disclosure

(x) : Deceit and non-disclosure

Issue (xi): Interest on items other than those dealt with by the Tomlin Order

Issue (xii): Entitlement to fees

Conclusions

Cited in 5 later judgments