Simtel Communications Ltd v Rebak & Ors [2006] EWHC 572 (QB)

Case No HQ04X01555

[2006] EWHC 572 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

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

Date 22 nd March 2006

Before

THE HONOURABLE MR JUSTICE FORBES

Between

Simtel Communications LimitedClaimant

Peter Daniel RebakDefendants

Telec LimitedDefendant

Chwee Tian ChanDefendant

Gabriel Buttimore (instructed by Healys) for Claimant

Jacques Algazy (instructed by TNW Solicitors) for Defendants

Hearing Hearing dates: 15 th, 16 th, 17th, 20 th, 21 st, 22 nd, 23 rd, 24 th, 27 th, 28 th, 29 th and 30 th June 2005; 1 st, 6 th, 7 th, 13 th, 14 th and 15 th July 2005 and 10 th, 11 th and 13 th January 2006.

Judgment

[1]Introduction. This short introduction is intended to set out the general background to this rather complex and fragmented litigation. Any facts stated in this introduction form part of my findings of fact, based on the evidence that I have heard and considered. The Claimant Company (“Simtel”) has been in administrative receivership since 27th January 2004. It has since ceased trading and certain of its assets were sold to a Jersey based company on or about 3rd March 2004. However, when Simtel was trading its business was the international wholesale of mobile phones, mainly (but not exclusively) to Nigeria.

[2]Simtel was originally set up in 2001 by Peter Rebak (“Mr Rebak”, the first Defendant) and Michael Djanogly (“Mr Djanogly”). Mr Djanogly is the sole director and shareholder of Merchant Finance Holdings Ltd (“MFH”). MFH was the financial backer for Simtel and entered into two facility agreements with it on 22nd April 2002 (for credit up to £600,000) and 2nd December 2002 (for additional credit up to £750,000) secured by a debenture dated 25th April 2002. This action is not brought by the Administrative Receivers or by the Jersey company, although neither have raised any objection to the bringing of these proceedings. The action is brought and supported, in Simtel’s name, by Mr Djanogly and/or MFH pursuant to the terms of a shareholder’s agreement and/or the debenture.

[3]In late 2003/early 2004, it appears that Mr Djanogly was considering calling in the MFH loans, having experienced various alleged problems with Mr Rebak’s management of Simtel. Many of these alleged problems now form the subject matter of these proceedings, which is concerned with issues of liability only.

[4]As the result of an important meeting between Mr Djanogly and Mr Rebak on 14th January 2004 (“the 14th January meeting”), Mr Djanogly became, for a short time, optimistic about the future of the business and injected, through MFH, further sums into Simtel. However, on the morning of 26th January 2004, Mr Djanogly received notification from Simtel’s bank that a relatively small cheque from Mr Rebak had been dishonoured (the cheque was for £250). Mr Djanogly regarded this as the last straw, in view of the previous history with Mr Rebak, and so he decided that MFH should call in its loans totalling £1,251,373.68 (including interest), which it then proceeded to do by letter of the same date. On 27th January 2004, MFH appointed Paul Clark (“Mr Clark”) and Andrew Stoneman from Menzies Corporate Recovery as Administrative Receivers in respect of Simtel, pursuant to the terms of the debenture.

[5]On the same day that MFH called in its loans (26th January 2004) and the day before the receivers were actually appointed, a Hong Kong company called Great Wealth made a prepayment of $727,500 into Simtel’s account, in anticipation of receiving mobile phones to this value. But for the receivership, Simtel would have used the bulk of the money to pay Samsung for the phones that it had contracted to sell to Great Wealth. The Defendants and Great Wealth both allege that Mr Djanogly unlawfully conspired with Duncan Alexander (“Mr Alexander”: Company Secretary of both MFH and Simtel) and Jayne Rhodes (“Ms Rhodes”: Simtel’s financial controller at the date of the receivership) to entrap these funds in the receivership (thus benefiting MFH). This allegation is strongly denied by Mr Djanogly, Mr Alexander and Ms Rhodes. However, Great Wealth have issued proceedings against them in this country.

[6]Telec Limited (“Telec”), the second Defendant, was incorporated on 26th January 2004 and is the company set up by Mr Rebak and Mr Larry Chan (“Mr Chan”), the Third Defendant, to carry on Simtel’s business where it left off. Mr Chan joined Simtel in November 2001 as a trader. He is now a director and majority shareholder in Telec.

[7]Whilst it was still in business, Simtel operated as a middle man. It would source mobile phones and then sell them on. Most trades were sales to Nigeria but it also traded with Russia and Europe, amongst other places. Usually, in the case of larger purchases, finance for the purchase of the phones from the suppliers was through arranging back to back deals with the purchaser and requiring prepayment by the purchaser. These prepaid funds would then be utilised by Simtel to pay the suppliers (e.g. as would have been the case in the Great Wealth transaction, but for the receivership).

[8]In cases where the foregoing method of financing the deals was not or could not be adopted, trade with Nigeria would generally operate on the basis that the phones would not be released by the freight forwarders (Simtel used a firm known as Duncan’s) until payment had been received, usually into the “Oceanic” account, a bank account opened in Nigeria by Kenny Bolodeoku (“Kenny”: Simtel’s trusted contact and deal facilitator in Nigeria) in the name of one of his companies Multipath (Nigeria) Ltd and operated by him for the benefit of Simtel. Kenny would then make appropriate arrangements for the monies to be transferred into Simtel’s account with Lloyds in London. In addition to acting on Simtel’s behalf in Nigeria, Kenny was also a customer and purchased phones from Simtel via his own companies, i.e. Multipath (Nigeria) Ltd, Benarins and Crest.

[9]The Claims. These can be conveniently divided into two categories, albeit with some slight degree of overlap, namely(i) pre-receivership complaints and

(ii) post-receivership complaints. (i) The Pre-receivership claims: So far as concerns the pre-receivership claims, these mainly concern Mr Rebak and can be summarised as follows (the paragraph references are to the Re-Re-amended Particulars of Claim – “the Particulars of Claim”): (i) failure to recover certain Nigerian debts (paragraph 9); (ii) the financial mismanagement of the “Falcon” deal (paragraph 10);

(iii) the unauthorised removal of petty cash (paragraph 13);

(iv) the issuing of an unauthorised company cheque to pay for private car repairs (paragraph 14(ii));

(v) making unauthorised loans (paragraphs 15 and 17);

(vi) conspiring with Mr Chan and others to set up a business in direct competition with Simtel (paragraphs 18 and 19: this allegation straddles the periods pre- and post-receivership and is made against all three Defendants);

(vii) an allegation that Mr Rebak is personally liable in respect of a van sold to Wingate & Finchley Football Club of which he was the Chairman and a Member (paragraph 19A to 19D).

[11](ii) The Post-receivership claims: In addition to the alleged conspiracy to set up a competing business, the post-receivership claims comprise the following wrongful and/or conspiratorial acts by the Defendants:(i) the destruction and/or removal of data and company files (paragraphs 21 to 24);

(ii) releasing stock held on Simtel’s behalf in Nigeria in respect of certain invoiced transactions notwithstanding no payment had been received by Simtel for these goods (paragraphs 25 and 26);

(iii) releasing stock held in Nigeria on behalf of Simtel (but where no invoices have been found), notwithstanding no payment had been made to Simtel).

[12]The Duties owed to Simtel by Mr Rebak and Mr Chan The duties alleged to have been owed to Simtel by Mr Rebak and Mr Chan (and in which it is said they acted in breach in the various respects set out above) are pleaded in paragraphs 7 and 8 of the Particulars of Claim, as follows:

“Mr Rebak’s and Mr Chan’s Duties to Simtel 7. Mr Rebak has as a director of Simtel and at all material times owed Simtel the following fiduciary duties: (i) to act bona fide in the interests of Simtel, (ii) to act honestly and in good faith in the exercise of his powers as director of Simtel, (iii) to act for proper purposes, (iv) not to misapply Simtel’s assets, (v) not to enter into any engagements which conflict with the interests of Simtel, (vi) not to make any secret profit at the expense of Simtel. 8. During the currency of Mr Rebak’s employment at Simtel, and during the currency of Mr Chan’s employment with Simtel, the following were express alternatively implied terms of their contracts of employment: (i) That they would comply with Simtel’s policies and directions, (ii) that they would carry out their duties with reasonable care and skill, (iii) that they would serve Simtel faithfully and not act against the interests of Simtel’s business, (iv) that they would carry out their duties conscientiously and honestly, (v) that they would not use or disclose Simtel’s confidential information, (vi) that Mr Rebak (but this was not an implied term of Mr Chan’s employment) would act in accordance with his fiduciary duties set out in the previous paragraph hereof.” (i) to act bona fide in the interests of Simtel, (ii) to act honestly and in good faith in the exercise of his powers as director of Simtel, (iii) to act for proper purposes, (iv) not to misapply Simtel’s assets, (v) not to enter into any engagements which conflict with the interests of Simtel, (vi) not to make any secret profit at the expense of Simtel. (i) That they would comply with Simtel’s policies and directions, (ii) that they would carry out their duties with reasonable care and skill, (iii) that they would serve Simtel faithfully and not act against the interests of Simtel’s business, (iv) that they would carry out their duties conscientiously and honestly, (v) that they would not use or disclose Simtel’s confidential information, (vi) that Mr Rebak (but this was not an implied term of Mr Chan’s employment) would act in accordance with his fiduciary duties set out in the previous paragraph hereof.”

[13]On behalf of Simtel, Mr Buttimore submitted that whilst Mr Rebak was a director of Simtel, and for a period after, he owed the company the various fiduciary duties pleaded in paragraph 7 of the Particulars of Claim (quoted above) of which the key ones for present purposes are:(i) a duty to act bona fide in the interests of the company;

(ii) a duty to act for proper purposes and

(iii) a duty not to misapply the company’s assets: see Gore Brown on Companies, Chapters 15 and 16. Mr Buttimore also stressed (rightly, in my view) that a director’s duty not to misapply the company’s assets is a consequence of the director being a trustee of the company’s assets and, as a result:

“a director is answerable as a trustee for any misapplication of the company’s property in which he participated and which he knew or ought to have known to be a misapplication.”

See Gore Brown on Companies Chapter 16.1

[14]On behalf of the Defendants, Mr Algazy submitted that the locus classicus with regard to a director’s duties of care is to be found in the judgment of Romer J in City Equitable Fire Insurance Company Limited, Re (No 1)

(1925) Ch 407

at page 427, where he said this:

“In discharging the duties of his position thus ascertained a director must, of course, act honestly, but he must also exercise some degree of both skill and diligence. To the question of what is the particular degree of skill and diligence required of him, the authorities do not, I think, give any very clear answer. It has been laid down that so long as a director acts honestly he cannot be made responsible in damages unless guilty of gross or culpable negligence in a business sense … There are, in addition, one or two other general propositions that seem to be warranted by the reported cases: (1) A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. A director of a life assurance company, for instance, does not guarantee that he has the skill of an actuary or physician. In the words of Lindley M.R.: “If directors act within their powers, if they act with such care as is reasonably to be expected from them, having regard to their knowledge and experience, and if they act honestly for the benefit of the company they represent, they discharge both their equitable as well as their legal duty to the company.”

It is perhaps only another way of stating the same proposition to say that directors are not liable for mere errors of judgment.”

[15]Mr Buttimore acknowledged that the City Equitable case remained one of the leading authorities on the question of a director’s duties of care and he summarised (correctly, in my view) the principles established by that case and Brazilian Rubber Plantations and Estates Ltd

(1911) 1 Ch 425

, as follows:(i) A director must show some degree of skill and diligence; as long as he has acted honestly he cannot be made responsible in damages unless guilty of gross or culpable negligence in a business sense (City Equitable);

(ii) A director’s duty has been laid down as requiring him to act with such care as is reasonably to be expected from him, having regard to his knowledge and experience (Brazilian Rubber).

[16]Mr Buttimore submitted further that regard should also be had to Bairstow ~v~ Queen’s Moat Houses plc

(2000) 1 BCLC 549

which is authority for the proposition that where there is a service contract between a director and the company, pursuant to which the director is under a contractual obligation to fulfil specific tasks within the company based on his expertise, knowledge and experience, the director will be required to display an objective level of skill. It was therefore Mr Buttimore’s submission that the degree of negligent culpability necessary to establish breach of duty is less stringent in cases of employed directors and the statement of the law in City Equitable needs to be tempered accordingly.

[17]Before turning to set out my findings of fact and conclusions in respect of the various complaints made by Simtel, I consider that it would be helpful to set out my general conclusions with regard to the credibility of some of the main witnesses that gave evidence before me during the course of the trial. As Mr Algazy observed at the beginning of paragraph 23 of his closing submissions:

“Credit is plainly an issue of fundamental importance in this case and matters affecting the credit of the witnesses pepper the evidence before the Court.”

[18]Peter Rebak (the first Defendant). Mr Rebak was clearly an articulate and intelligent witness. However, I found his evidence to be generally unsatisfactory and, in many respects, untruthful. As Mr Buttimore submitted, cross –examination produced long and often unsatisfactory replies and lies and evasions were exposed in many key areas. Thus, by way of example:(1) Although Mr Rebak’s dealings with the Joan Rebak Trust and with the Safas were not directly concerned with any of the issues raised in this case, the various criticisms which are identified in paragraphs 4 to 9 of Mr Buttimore’s written closing note are fully justified for the reasons given in the note. Undoubtedly, Mr Rebak’s less than satisfactory conduct was the result of the financial difficulties he was experiencing at the time.

(2) In paragraph 13 of his closing note, Mr Buttimore identified a number of significant conflicts of evidence between Mr Rebak and Mr Paul Clark (the Administrative Receiver). I am satisfied that Mr Clark was a truthful and accurate witness. He is an experienced insolvency practitioner (20 years) and a partner in a reputable firm. His evidence was clear and balanced. However, as Mr Buttimore observed, Mr Rebak’s evidence conflicted with that of Mr Clark in a number of significant respects. I have come to the firm conclusion that I prefer the evidence of Mr Clark to that of Mr Rebak on these various matters, for the reasons carefully explained and cross-referred by Mr Buttimore in paragraph 13 of his closing note, which I adopt but do not repeat.

(3) I agree with Mr Buttimore that Mr Rebak was evasive and untruthful in his account of what happened to the Nigerian stock and its proceeds at the time of the receivership: see paragraphs 14 to 35 of Mr Buttimore’s closing note, which contains a careful summary of the main evidence on this aspect of the matter. I accept the accuracy and fairness of that summary, which I adopt but do not repeat. As Mr Buttimore observed in paragraph 35 of his closing note, Mr Rebak’s story as to why he released Simtel’s stock in Nigeria at the time of the receivership is “plagued by contradictions”. In my judgment, that is due to the evasions and lack of truth which characterise so much of Mr Rebak’s evidence, of which a number of clear examples are given in paragraphs 14 to 35 of Mr Buttimore’s closing note. In short, I accept the validity of the criticisms made of Mr Rebak in these paragraphs.

[19]Larry Chan (the Third Defendant). I did not find Mr Chan a satisfactory or credible witness. The main reasons giving rise to concern about Mr Chan’s truthfulness have been clearly identified in paragraphs 36 to 42 of Mr Buttimore’s closing note, which I accept as both accurate and valid. I therefore adopt the criticisms contained in those paragraphs, without repeating them.

[20]Michael Djanogly. Mr Djanogly impressed me as a very careful, somewhat pedantic witness. He gave his evidence in a measured and thoughtful manner, taking care to consider the question before giving his answer. I accept that he was a truthful witness. He was also accurate. The main attack on his credit was based on the Great Wealth transaction (see paragraphs 38 to 45 of Mr Algazy’s written closing submissions). It was alleged that Mr Djanogly had deliberately set about trapping the three sums of money that he knew would be paid on 26th January 2004 (the Great Wealth payment was one of these) and that he did so with a view to ensuring that he would benefit (unjustly) as the debenture holder (through MFH).

[21]In order to bolster his case on this aspect of the matter, Mr Rebak alleged (falsely, in my view) that Mr Djanogly said something at the 14th January meeting, to the effect that he was considering putting in a receiver once a big prepayment came in from a customer. In paragraph 13 of his second witness statement, Mr Rebak expressed this allegation in the following terms:

“At this meeting, Mr Djanogly said that he was depressed about the Customs & Excise situation and that he wanted to get his money out of the business. At this stage, he was owed over £1 million by the company. He had recently undergone a major gall bladder operation and was clearly upset by what had happened with Customs (albeit expressing no concern that anyone was to blame for this other than Customs & Excise). He said words to the effect that probably his best way of getting repaid was to wait until a big pre-payment came in from a customer, such as Mobile World or Sunico, and then put in a receiver to seize that money to repay his loans and shut down the company. When I strongly disapproved of such behaviour, he backed down from his suggestion, saying words to the effect that he was not the kind of person who would do such a thing.”

[22]I have considered this aspect of the matter very carefully and have come to the conclusion, on the evidence available to me, that Mr Djanogly was not engaged in any cynical ploy to trap Great Wealth’s money as alleged by the Defendants. I accept Mr Djanogly’s evidence that he never said anything of the sort alleged in paragraph 13 of Mr Rebak’s second witness statement: see paragraph 24 of Mr Djanogly’s witness statement, in which he said:

“I am astonished at the allegations made by Mr Rebak at paragraph 13 of his second Witness Statement that I would wait for pre-payment to come in from a customer and then appoint a receiver to entrap the money to pay the loans owed to MFH. This conversation never took place and it is simply an attempt by Mr Rebak to attack my credibility.”

[23]In my judgment, Mr Djanogly spoke the truth when he gave the following answer when dealing with the matter in cross-examination (20th June 2005: Transcript p.9):

“… If there is a system an established system for dealing with these sorts of situations, and I have not written the law and I am not re-writing the law either, but if there was a standard procedure to deal with these matters and one has taken proper advice as to what the procedure [is], in my capacity as the director of Merchant Finance Holdings I have made a decision, which I was perfectly entitled to do, to demand repayment. I have also made a decision at that point that if (there) anything has happened at all during that time that this is a matter for the receiver to sort out. That is what I understood as being the system and I was merely working within the system not recreating a new system.”

[24]In my view, the point was well made by Mr Buttimore, to the effect that Mr Djanogly simply allowed the system and the law to take its course, by drawing attention to Paul Clark’s evidence on the matter, when he was asked why he did not send Great Wealth’s money back (29th June 2005: Transcript p.25), as follows:

“I think, as an insolvency practitioner, it’s appropriate to weigh up all of the circumstance(s), then act according to what I would regard as an appropriate course of action. I took legal advice on this issue, and the advice that I received was very straightforward, and it was that it was not for me to adjudicate as to who the moneys belonged to from any of the claiming parties, and that they should therefore be placed in an account.”

When Mr Clark was asked why he did not simply conclude the transaction with Great Wealth, he said this (29th June 2005: Transcript p.25):

“Because on legal advice, it was that the moneys should be, as I said, ring-fenced and put in a separate position. There was no question of the deal being concluded, because if that had of been the case, then there was a risk that certain of the creditors could have said that I had failed in my duty as a receiver. I would have been paying moneys away. There was no substantial benefit to the company in receivership from that, but I accept it was a possibility.”

[25]As I have already indicated, I found Mr Djanogly to be a truthful and accurate witness. Where his evidence was in conflict with that of either Mr Rebak or Mr Chan, I preferred the evidence of Mr Djanogly.

[26]Duncan Alexander and Jayne Rhodes. I am satisfied that these were both witnesses of truth, whose evidence I accept. I also accept as fair and valid the points made about each of them in paragraphs 50 to 54 of Mr Buttimore’s written closing note.

[27]I now turn to state my findings of fact and conclusions in this case, having considered all the evidence that I have heard, read and seen. The task of evaluating all the evidence in this case has been an extremely challenging one and has not been made any easier by the fragmented history of the trial. It has taken me a great deal of time and much anxious thought. I have done my best to read, absorb and remind myself of all the relevant evidence. I have been greatly assisted in my task by the well presented oral arguments put forward on behalf of the parties and, in particular, by the careful and detailed written closing submissions prepared by Mr Buttimore and Mr Algazy, all of which I have read and carefully considered. I have reached my various conclusions only after having given full consideration to all the points made by Counsel in their submissions, both oral and written. Where appropriate in the course of this judgment, I have identified those submissions that I have found particularly helpful or persuasive. Inevitably in a case of this magnitude and complexity, it is not possible to refer to all the evidence and to every point made on behalf of the parties. I emphasise, however, that I have made every effort to take all submissions and all the evidence fully into account.

[28](1) The Failure to recover various Nigerian debts. I can deal with this claim fairly briefly. It concerns only Mr Rebak and relates to his failure to observe Simtel’s alleged policy that goods would not be shipped or released to customers until payment had first been received in cleared funds. A total of 4 transactions spanning the period September 2001 to December 2003 are said to be ones where Mr Rebak failed to observe company policy and took insufficient steps to recover the outstanding money: see the Particulars given under paragraph 9 of the Particulars of Claim.

[29]However, I am not persuaded that there was a specific and clear-cut company policy that freight forwarders would not be instructed to release goods until payment had first been received in cleared funds, although this was how business was generally done. As Mr Algazy observed in paragraph 65 of his closing submissions, Mr Rebak had no written contract and there was no internal policy document imposing a particular regimen as a matter of compulsion. In any event, Mr Rebak was the Managing Director and had a discretion to depart from such a policy, if one existed. As Mr Algazy pointed out, Mr Rebak was never disciplined or reprimanded in any meaningful way about any of these matters at the time. In truth, these matters represented a tiny percentage of Simtel’s trading history, both in terms of the number of trades and the amount of money involved. I accept Mr Algazy’s submission that four relatively small “bad deals” over a 2½ year trading history in a “young, vibrant, chaotic and immature market in which trading was fast-paced” (i.e. Nigeria) do not amount to breaches of Mr Rebak’s fiduciary duties as director nor of his implied contractual duties. Accordingly, this particular head of claim fails for those reasons.

[30](2) The financial mismanagement of the “Falcon” deal. Put broadly, Simtel’s primary contention is that Mr Rebak should never have committed Simtel to an order for 200,000 phones from Falcon Telecom W.L.L. (“Falcon”) in circumstances where:(i) Simtel could not fund the purchase price for the phones without onward sales and

(ii) where such onward sales had not been secured.

[31]The brief facts are as follows. In or about the beginning of March/April 2002, Mr Rebak negotiated the purchase of a quantity of Siemens A35 handsets from Falcon Telecom W.L.L. for the purposes of sale in Nigeria at an agreed price of €59 each FOB Bahrain, with shipment in 4 lots over a 4 week period. Later in March 2002 this order was increased to 35,000 on the same terms and conditions. Simtel duly paid two deposits to Falcon in respect of this transaction, totalling €103,250.

[32]On or about 25th March 2002, Mr Rebak increased Simtel’s order to 200,000 Siemens A35s at a total purchase price of €12.6 million for shipping on 15th May 2002 (subsequently varied to 4 shipments during April 2002). The contract is contained in a pro-forma invoice dated 25th March 2002 and a letter from Simtel to Falcon of the same date. The following were express terms of this increased order (“the Falcon Contract”):(i) that 5% of the price was to be payable immediately as a non-refundable deposit,

(ii) that the balance of 95% was to be paid within 24 hours of receipt of the inspection report from the freight forwarder and

(iii) 35,000 phones were ready for inspection immediately, with the balance of 165,000 to be delivered in 6 to 7 weeks (in fact, precise shipment dates were confirmed on 27th March).

[33]Falcon requested payment of the 5% deposit by letter dated 26th March 2002. By 25th March Simtel had paid €103,250 and the increased order required a further €526,750 to be paid to make up the total deposit of 5% of the price of the 200,000 phones. However, Mr Rebak appears to have achieved a concession in respect of the deposit terms and agreed a reduction in the total required to €315,000 (2½% of the whole or 5% of 100,000 pieces). So it was that on or about 4th April 2002 Mr Rebak caused a further €211,750 to be paid to Falcon by way of deposit, making the required total €315,000.

[34]I accept Mr Djanogly’s evidence that once Mr Rebak had entered into the Falcon contract, he then advised Mr Djanogly that he had done so. When Mr Djanogly expressed his considerable concern at Simtel entering into such a contract, including the obligation to pay such a sizable deposit:

“Mr Rebak advised me that: firstly, agreement had been reached whereby Econet (a Nigerian GSM telephone network) would be buying substantially the entire quantity, mainly through Kenny, and payment would be by cash in advance and/or letter of credit; secondly, Mr Rebak assured me that he had checked out Falcon, who were, as he claimed, substantial Siemens distributors of long and good standing; and thirdly, unless the payment was made the contract was in danger of being cancelled by Falcon with the resultant loss of business, reputation with suppliers and also in the market generally; and also the existing deposit: whereas, if payment was made, the sales proceeds would be imminently forthcoming thus making the exercise worthwhile.”

See paragraph 24 of Mr Djanogly’s third witness statement.

[35]I am satisfied that it was by giving these assurances that Mr Rebak was able to persuade Mr Djanogly to fund the required deposit for the Falcon contract via MFH on 3rd April 2002.

[36]In fact there was no agreement or contract for the sale of the “Falcon” phones to Econet. As Mr Buttimore observed, there is a complete absence of any documentary communications confirming prospective purchases by Kenny/Crest/Econet prior to Simtel entering into the Falcon contract. Furthermore, there is a complete absence of any attempt to secure a written agreement with Kenny/Crest (or others) or any attempt to secure payment for the phones from Kenny /Crest.

[37]Mr Buttimore submitted that the very fact that Mr Rebak deliberately misrepresented the position with regard to onward sales so as to persuade Mr Djanogly to inject MFH funds clearly shows that Mr Rebak considered the transaction to be a high risk one to which Mr Djanogly would not otherwise have consented. I agree with that submission.

[38]In the event Simtel was unable to comply with the conditions of the Falcon contract (i.e. it was not in a position to pay for the phones by the due dates, except to the limited extent of purchasing 35,000 of the total of 200,000). By letter dated 19th June 2002, Falcon gave written notice to Simtel cancelling the contract and forfeiting the balance of the deposit amounting to €496,818 (approximately £308,935).

[39]I accept with Mr Buttimore’s submission that it was the height of folly for a businessman of Mr Rebak’s experience to enter into the Falcon contract for the purchase of 200,000 phones in such circumstances. As Mr Buttimore pointed out, in effect Mr Rebak was gambling with MFH’s/Simtels’s money without having any real regard to the high degree of risk involved in the transaction. I also agree with Mr Buttimore’s submission (see paragraph 76 of his closing note) that it is clear from the fact that he misled Mr Djanogly as to the existence of sales orders that Mr Rebak was well aware that this was an unacceptable risk and that his conduct went beyond a mere error of judgment.

[40]I also agree with Mr Buttimore’s criticisms of Mr Rebak’s various excuses for the failure of the deal (see paragraph 77 to 80 of his closing note, from which it suffices to quote paragraph 78), as follows: “To summarise, Mr Rebak knew at the time that he was taking an unacceptable risk, …, knew after the matter had blown up that he had committed a gross error of judgment which is evidenced by his original explanations about a Bahrein fraud (it was all down to Mr Fouad, not his fault) and then more recently about network congestion (again, nothing he could do about it, not his fault).

[41]Having regard to the foregoing matters, I am satisfied that in his conduct of the Falcon deal, Mr Rebak acted in breach of his fiduciary duty as a director (see paragraph 7 (i) to (v) of the Particulars of Claim) and also of his implied duty as employee to carry out his duties with reasonable skill and care (see paragraph 8(ii) of the Particulars of Claim in both the respects pleaded in paragraph 10E of the Particulars of Claim). Accordingly, for those reasons, this head of claim succeeds.

[42](3) The unauthorised removal of Petty Cash. In my view, this is a relatively minor matter. It is alleged that, during the course of his employment, Mr Rebak withdrew cash from Simtel’s safe from time to time and applied it for his own purposes: see paragraph 13 (ii) to (vii) of the Particulars of Claim (paragraph 13(i) is no longer pursued). The brief facts are as follows.

[43]The Simtel office was a small one and the business did not possess a company credit card. Consequently, as Mr Algazy observed, more than usual use was made of the petty cash, both for business expenses and for “lubricating” the wheels of business in Nigeria. The use of petty cash vouchers was undisciplined and erratic. There is no doubt that Mr Rebak did take various sums of petty cash for various purposes, a number of which are admitted in paragraph 20 of the Re-Amended Defence, some of these were legitimate business purposes and others were private in nature (e.g. the loan of £1000 to Mr Rebak’s father). It should be noted that it appears that no complaint was made at the time.

[44]I accept Jayne Rhodes’ evidence that, after she joined Simtel in September 2002, she regularly prepared management accounts which contained appropriate details of the petty cash withdrawn by Mr Rebak. She was able to do this because Mr Rebak “admitted” that he had taken the petty cash sum in question and Jayne Rhodes then entered the amount in the accounts as having been drawn by him. Thus, apart from the sum alleged in paragraph 13(i), the relevant sums taken by Mr Rebak are those identified in paragraph 13 (ii) to (vii) and I am satisfied that those sums were in fact withdrawn by him as alleged. In my view, to the extent that any of these sums have not been repaid and/or properly vouched by Mr Rebak, they are repayable as money had and received by him to the use of Simtel in any event.

[45]As it seems to me, Mr Rebak was not ipso facto acting in breach of his fiduciary duties as a director of Simtel or of his implied duties as its employee in making use of Simtel’s petty cash as he did. However, in my view Mr Rebak is in breach of those duties to the extent that he is unable to provide appropriate vouchers or otherwise properly account for such of these petty cash sums as have not been repaid. In my judgment, the real gravamen of the situation is as summarised by Mr Algazy in paragraph 74 of his closing submissions), as follows:

“…as Managing Director, Mr Rebak was entitled to utilise the company’s petty cash in furtherance of legitimate company purposes and that the worst that can be alleged is the Mr Rebak adopted a cavalier style in respect of supplying supporting paperwork. In any event if Mr Rebak did not account for sums taken, Jayne Rhodes’ evidence is that they were treated as loans to Mr Rebak in the Addendum to the management accounts. It seems likely therefore that these would then either be accepted as legitimate expenses, written-off or stand as a sum owing by Mr Rebak.”

[46]Accordingly, I am satisfied that Mr Rebak’s liability under this head of claim is limited to such of the particularised petty cash amounts as have not been repaid and for which he is unable to provide appropriate vouchers or otherwise properly account for. Ascertaining the precise amount will be a matter for the assessment of damage.

[47](4) Issuing company cheque for private car repairs. Again this is a relatively trivial matter involving a cheque for £1,594.57 that was made out in favour of Whetstone Audi in order to pay for repairs carried out to Mr Rebak’s private car.

[48]Simtel’s bank mandate provided that cheques in excess of £500 were to be signed by two of the following people: Mr Rebak, Jayne Rhodes, Duncan Alexander and Mr Djanogly. However, on or about 14th November 2003, Mr Rebak issued a Simtel cheque in favour of Whetstone Audi for £1,594.57 under his signature only. The cheque was used to pay for the repairs that had been carried out to his private vehicle.

[49]It was Mr Rebak’s case that Mr Djanogly approved this payment after the cheque was issued and/or that it was a payment in lieu of expenses. I do not accept this explanation. I have no hesitation in accepting Mr Djanogly’s evidence that he never approved any such payment. There were no vouched expenses. In my view, this was little more than a misappropriation of Simtel’s funds and in acting as he did, Mr Rebak acted in breach of his fiduciary duties as director and of his implied duties as employee. Accordingly, for those reasons, Mr Rebak is also liable under this head of claim.

[50](5) Unauthorised Loans. The only outstanding loan claimed relates to a Mr D. C. Nwachukwu: see paragraph 17 of the Particulars of Claim. There was little evidence about this particular matter and I accept Mr Algazy’s analysis at paragraph 76 of his closing submissions, as follows:

“In the context of trade in Nigeria, a small advance to a potential business associate, in anticipation of a substantial transaction, cannot be characterised as anything other than a legitimate commercial courtesy as pleaded at paragraph 24 of the Re-Amended Defence and Counterclaim.”

[51]Accordingly, I am not persuaded that this matter constitutes any breach of either Mr Rebak’s fiduciary duties as director or of his implied duties as employee. For those reasons, this head of claim fails.

[52](6) The Van sold to Wingate & Finchley Football Club. Again this is a trivial matter. The brief facts are as follows. In or about April 2003, Mr Rebak, who was then the Chairman and a member of the Wingate & Finchley Football Club (“the Club”: an unincorporated association), purported to agree to purchase on behalf of the Club a van belonging to Simtel for the sum of £5,875 (inclusive of VAT).

[53]The sale terms are evidenced by an invoice raised on behalf of Simtel dated 17th April 2003. These provided for stage payments to be made in April, May and June 2003. The van was duly delivered to the Club in April 2003, but none of the agreed payments have been made and the Club has denied that it authorised the purchase in any event.

[54]In evidence, Mr Rebak maintained that, although he was the Chairman of the Club, he did not have authority to contract on behalf of the committee to buy the van and that he did not contract to buy the van. However, it is clear from the contemporary documentation that Mr Rebak did purport to buy the van for the Club and I agree with Mr Buttimore’s submission that Mr Rebak cannot set up his own want of authority as a defence to breach of a contract that he clearly purported to make on behalf of the committee of which he was the chairman. I also agree with Mr Buttimore that, alternatively, Mr Rebak is liable for breach of warranty of authority. Accordingly, for those reasons, this head of claim succeeds.

[55](7) Setting up a Competing Business. This is an allegation of conspiracy and breach of duty. It is one of the principal allegations of substance in this case. It involves all the Defendants, it embraces events both before and after the receivership, it includes matters that are separately identified as post-receivership heads of claim and can be summarised as follows (see paragraph 18 of the Particulars of Claim):(1) From in or about November 2003, Mr Rebak conspired with Mr Chan and others to set up a business in direct competition with Simtel.

(2) Whilst he was still a director and employee of Simtel, Mr Rebak (with the informed assistance of Mr Chan and, after its incorporation on 26th January 2004, the assistance of Telec) furthered the object of the conspiracy in the following ways: (i) he arranged for a lease of commercial premises to be negotiated and obtained from which Telec was to operate; (ii) he planned and arranged for the incorporation of Telec and the setting up of its business in direct competition with Simtel; (iii) he kept secret from Mr Djanogly the extent of his involvement in the setting up of business with Mr Chan and the nature of the business that he and Mr Chan were to operate through Telec; (iv) he solicited customers and/or potential customers of Simtel for the benefit of Telec; (v) shortly after the receivers were appointed, either by himself or with the assistance of associates, unlawfully destroyed data on Simtel’s computers and unlawfully removed working files of the company; (vi) in or about January/February 2004 took over for the benefit of Telec or otherwise diverted away from Simtel the benefit of a contract which was at least at an advanced stage of being negotiated on behalf of Simtel shortly prior to the receivership for 50,000 Motorola mobile handsets for shipment to Simtel’s customer, Econet, in Nigeria, valued at approximately £1.9 million; (vii) in or about January/February 2004 took over for the benefit of Telec or otherwise diverted away from Simtel the benefit of a contract for the supply of 1,250 Samsung C100 phones and 1,066 Samsung E100 phones to Planet Telecom with a total value in excess of US$386,000.

[56]As Mr Buttimore observed (see paragraph 88 of his closing note), there is, as in many areas of this case, a conflict of evidence on the key issues. The principal key issues here are:(i) whether Mr Rebak and Mr Chan kept secret from Mr Djanogly the extent of Mr Rebak’s involvement prior to 14th January 2004,

(ii) whether Mr Rebak was actively pursuing setting up business with Mr Chan prior to January 2004 and

(iii) whether Mr Rebak and Mr Chan kept entirely secret their plan for the new company to have a mobile phone element or whether Mr Djanogly was specifically informed of this fact at the 14th January meeting.

[57]My conclusions on these key issues can be summarised as follows:(i) I am satisfied that Mr Rebak and Mr Chan did keep secret from Mr Djanogly the extent of Mr Rebak’s involvement prior to 14th January 2004,

(ii) Mr Rebak did actively pursue setting up business with Mr Chan prior to January 2004 and

(iii) Mr Djanogly was not informed at the 14th January meeting that the new company was to have a mobile phone element; in fact, at the meeting, Mr Rebak carefully concealed this important fact from Mr Djanogly.

[58]I have no doubt that, during the second half of 2003, Mr Rebak and Mr Chan did embark upon a plan to set up a company that would directly compete with Simtel. There were a number of reasons for this. Mr Rebak, Mr Chan and Mark Lennard (a Simtel trader) were all unhappy about the situation at Simtel during 2003, partly because of dissatisfaction over bonuses, partly because of the delay in recovering VAT (this greatly affected Simtel’s liquidity) and partly because of a perceived lack of investment. In addition, Mr Rebak was under considerable personal financial pressure and was probably aware that Mr Djanogly was uneasy with him and his style of management.

[59]I accept Mr Buttimore’s submission that both Mr Chan and Mr Rebak were looking for ways to “parachute” out of Simtel in due course and so they decided to set up a new company that would not only trade in consumer electronics but also in mobile telephones in direct competition with Simtel. In order to conceal what was really going on, the line fed to Mr Djanogly (who was becoming suspicious that something was afoot) was that Mr Chan was intending to leave Simtel in order to set up a consumer electronics business (not involving the sale of mobile phones) and that Mr Rebak was giving him some limited assistance to that end. The essentials of the real plan were, however, kept secret from Mr Djanogly, in particular the extent of Mr Rebak’s personal involvement and the fact that the new company was also going to trade in mobile phones in direct competition with Simtel.

[60]I accept Mr Buttimore’s submission that the documentary evidence is a powerful endorsement of Mr Djanogly’s evidence (which I accept) that Mr Rebak was intimately involved in the plan to set up the new company with Mr Chan well before January 2004 and that the new company was to trade in mobile phones.

[61]Thus, the emails passing between Mr Rebak and a business contact based in Dubai, Mr Manoj Mohanty, clearly show that Mr Rebak was anticipating setting up and being personally involved in the new consumer electronics business well before January 2004, as follows: From Mr Rebak dated 8th August 2003:

“Manoj, I want to re-open the discussions with you about joining us when u leave Jumbo. We have now decided that we want to expand our electronics business in Nigeria and now want to take our discussions further forward. Are u still interested? From Mr Rebak dated 4th November 2003: “Manoj, We are getting close to having a clear picture of your business & thus reaching a conclusion of how to proceed. We are optimistic that we can structure a deal with you that will be very attractive. … Once we have this info we will be able to make a firm proposal to you within 7 days and I would suggest we either meet in Lagos of Dubai depending on timing.”

[62]Mr Djanogly had heard about Mr Mohanty, having been told about him by Mr Rebak in June 2003 (see paragraph 20 of Mr Djanogly’s first witness statement). However, I accept his evidence that he was not told and had had no idea that Mr Rebak had reopened discussions with Mr Mohanty in August 2003.

[63]Furthermore, the emails regarding the lease of premises at Winston House (the proposed new business premises for the new company) clearly demonstrate Mr Rebak’s close involvement with Mr Chan’s project – an involvement that was plainly much closer that he told Mr Djanogly at the time (see below) or later claimed in evidence. I am entirely satisfied that Mr Rebak was heavily involved in the negotiations for the new premises (the lease of which was to be in his name) because he was to be personally involved in the new business, thus: From Shaw James to Mr Rebak, dated 12th December 2003:

“Peter, I’m still awaiting to get the landlord instruction about taking the room and the relocation clause. But heads of terms and Plan are attached subject to client’s approval. Please let me know what you think.”

From Mr Rebak to Shaw James, dated 14th December 2003:

“James, Thanks for the info – I am not using Simtel Communications Ltd as the Co. – we are setting up a new Co. to take the premises in Winston Hse – no problems with emails but please send any correspondence to my home address 30 Adelaide Close Stanmore Middx HA7 3EN Thanks.”

From Shaw James to Mr Rebak, dated 15th December 2003:

“I think possibly the best way to document it is if we have the lease in your name or a directors name. As it is a new company with no history the landlord would probably prefer this.”

From Mr Rebak to Shaw James, dated 15th December 2003:

“No problem – you can put lease in my name.”

[64]I accept that Mr Djanogly had no idea of the real level and nature of Mr Rebak’s involvement in this new company, although he suspected that something was going on. The picture painted to him by Mr Rebak was quite different from the reality, as is clear from the following passage in paragraph 20 of Mr Djanogly’s first witness statement (the truth and accuracy of which I accept):

“In early December 2003 Mr Rebak advised me that Larry Chan was very keen on the consumer electronics business and he wished to pursue it, based at an office in Finchley, and since Simtel was not interested in pursuing it Mr Chan wanted to have a go himself. Furthermore, Mr Rebak advised that he had been requested to provide some support in the area of documentation, logistics and also letters of credit. He advised that he did not consider that this would conflict with Simtel and he stated that he had not been offered a share in the business. I did not believe him.”

[65]By early January 2004, the plans for the new company were well advanced and Mr Chan’s minutes of meetings held on the 8th and 13th January 2004 (meetings about which Mr Djanogly knew nothing at the time) still exist (CB 284-286). As Mr Buttimore observed, these minutes underscore Mr Rebak’s illicit involvement in the plans for the new company. The minutes also clearly demonstrate that the plan was for the new company to trade in mobile phones. Thus, for example, item 7.1.1 of the 13th January Minutes records:

“Samsung SA: Larry [Chan] to start talking to Frank Oliveira. P(eter) R(ebak) have provided the contacts.”

[66]By January 2004, the plans for the new company were almost complete. Mr Chan had effectively resigned from Simtel and I reject his evidence and that of Mr Rebak to the contrary effect. I am satisfied that Mr Djanogly’s account is correct, as set out in paragraph 21 of his first witness statement, as follows:

“21. On 12th December 2003, Mr Rebak advised me that Mr Chan had gone on holiday and would no longer be employed by Simtel following his return as he had effectively resigned. He also stated that Mr Chan would be operating from office space in Finchley which he had taken for his new venture. As I was aware of Mr Chan’s intentions I had no further comment. I was suspicious of Mr Rebak’s agenda at that time and intended to check further.”

[67]On 14th January 2004, Mr Djanogly confronted Mr Rebak about his suspicions and concerns and I accept Mr Djanogly’s following account of what transpired at that meeting as truthful and accurate, see paragraph 23 of Mr Djanogly’s first witness statement:

“23. Reference has been made to a meeting of 14th January 2004 between myself and Mr Rebak. This was, as far as I was concerned a vital meeting. I was no longer prepared to have the “cash burn” of the last few months continue, and we needed to establish a clear path forward. Fortunately, trade had picked up significantly, and the atmosphere of the meeting was for my part both serious and very positive. We needed to consider the viability of Simtel post VAT difficulties. This would involve reducing costs; the mix of business we were going to seek; the level of VAT exposure we were prepared to permit; staffing and other cost reductions. The costs cuts agreed represented approximately 20% of the overheads. I also needed to establish Mr Rebak’s position concerning the consumer electronics business. The outcome of the meeting, I considered to be vital, and we did agree a clear action list, some of which had already been implemented. We also discussed Mr Rebak’s financial position. Notwithstanding his overall remuneration package of approximately £15,000 per month including pension contribution, he said that he did not earn enough to sustain his current standard of living and meet his children’s educational needs. I stated that I did not have a problem in paying bonuses (that applied to myself also); but it had to be out of profits earned. We did agree to reduce his pension contribution so that he would receive an increased monthly salary level. Mr Rebak and I also discussed the matter of the consumer electronics business. He admitted that he had been offered a stake in the business, and he conceded that the share intended for him would now be for both of us in equal proportions reflecting our shareholding in Simtel. I also understood that Larry Chan was happy with this arrangement. With these matters settled we agreed that he should go to Dubai with Larry Chan to progress matters to a conclusion. There was no further feedback from Mr Rebak on this matter. On the strength of this meeting I arranged for MFH to loan an additional £75,000 on 16th January 2004, and a further US$120,000 on 23rd January 2004. The business day before the day on which demand was served for payment.”

[68]I am satisfied that Mr Rebak only told Mr Djanogly part of the story at the 14th January meeting. In particular, Mr Rebak concealed from Mr Djanogly that the new company was going to trade in mobile phones (it is noteworthy that Mr Chan admitted that, initially, the financial backer for the new company was to be Raj Singh, a major supplier of mobile phones to Simtel). If Mr Rebak had mentioned this fact, it would have confirmed Mr Djanogly’s suspicions and it is highly improbable that Mr Djanogly would have agreed to be involved in any way because of the clear conflict with Simtel’s business.

[69]Despite having resigned from Simtel, Mr Chan stayed on at Simtel’s offices for reasons associated with the new company and I accept Jayne Rhodes’ evidence that he set up an office in the boardroom for that purpose.

[70]As I have already indicated, on 26th January 2004 Mr Djanogly/MFH called in the loans before Mr Rebak and Mr Chan could take their plans any further. However, I accept Mr Buttimore’s submission that they then set about negotiating the purchase of Simtel’s business and, having failed in that, they simply took it.

[71]It was Mr Rebak’s contention that, in reality, the new company was not going to compete with Simtel, because Simtel’s board had decided to limit its VAT exposure and the market would therefore be big enough for both companies. However, I agree with Mr Buttimore that this contention is fallacious because:• The new company was to compete in the same market (i.e. the market of mobile phones). Whilst Simtel’s trade in Europe was limited at the time, it was not non-existent.

• Even if Simtel was not trading in Europe at the time, it could very easily do so (subject to finance) and the very fact that the new company was being set up to compete in that market would be to limit Simtel’s future options and future ability to make a profit.

• It was Mr Rebak and Mr Chan who were setting up the new business and they would be using the same contacts that generated trade with Simtel for the purposes of developing the growth of trade in the new company.

[72]I am satisfied that, in acting as they did, Mr Rebak and Mr Chan both acted in breach of their duties to Simtel. It is to be noted that in this case, as Mr Buttimore observed in paragraph 93 of his closing note, the setting up of a competing business, whilst a breach of Mr Chan’s and Mr Rebak’s duties to Simtel, did not ipso facto cause Simtel any loss (other than nominal) until the events of the receivership, although it would have provided appropriate grounds for summary dismissal. However, Mr Buttimore suggested that it was part of a course of conduct by both of them which then continued after the receivership and which is relied on with respect to the alleged tortious conspiracy, an aspect of the matter that I will consider separately at a later stage of this judgment.

[73]I therefore now turn to deal with those matters which occurred during the receivership and which are said to be further breaches of fiduciary duty and/or wrongful acts of an unlawful conspiracy to injure Simtel. The first of these is the “Motorola Deal”.

[74](8) The Motorola Deal. At the time of the receivership, a large and profitable deal was in the process of going through for the purchase of Motorola phones for onward sale to Econet, Nigeria. Stated shortly, it is Simtel’s case that this deal was unlawfully poached by the conspirators. The brief facts are as follows.

[75]During the 14th January meeting between Mr Djanogly and Mr Rebak, Mark Lennard came in to discuss a potential profit of £250,000 that would come from a sale of mobile phones to Econet, Nigeria. As a result, Mr Rebak and Mr Lennard agreed that they would carry out appropriate negotiations with Motorola to obtain the necessary supply of phones: see paragraph 5 of Mr Djanogly’s third witness statement. So it was that, on the same day, Mr Lennard emailed Stephen Nolan (“Mr Nolan”) of Motorola in the following terms:

“With regard to our conversation this afternoon, we can confirm that we have an interest in securing first quarter allocation of circa 50,000 pieces Motorola C200 for final export to Nigeria. This enquiry has come from extremely good sources to whom we have supplied over 250,000 handsets to over the past 2 years and from whom enquiries normally lead to orders. We estimate that these goods will be required circa end February/beginning March 2004 and we believe we will receive confirmed orders within the next 10-14 days.”

[76]Motorola C200s were in short supply and it was therefore very important for Simtel to ensure that it had secured a first quarter allocation for the phones in question in order to meet the anticipated orders from Econet. Mr Nolan replied to Mr Lennard’s email, stating that the C200s would be available from February and that there was “about 50K left” (15 p.4176).

[77]On 26th January 2004 Simtel placed a purchase order with Motorola for 50,000 C200s. The purchase order was signed on behalf of Simtel by both Mr Rebak and Mr Lennard (4 pp. 921/922). After the receivership and within days this purchase order had been cancelled (4 p.923). In a Motorola internal email dated 6th February 2004, Mr Nolan stated as follows:

“A short while ago we received a 50K order from Simtel. A few days ago we were advised by Mark Lennard that Simtel will no longer exist. Himself and Peter Rebak will apply for a new account with us under a new name. We have sent the documents. Once done, a new order would be sent and processed accordingly … cash with order …”

[78]It should be noted that it is clear from the evidence that Mr Djanogly was willing to finance the deal during Simtel’s receivership via MFH and that Mr Clark was willing that Simtel should proceed with the transaction, if it had still been possible. However, it was no longer possible for Simtel to go ahead with the deal. Not only had the original purchase order been cancelled, but on 30th March 2004 a fresh purchase order was placed with Motorola for 30,100 pieces (4 p.930), later amended to 50,400 pieces on 31st March 2004. Again the new purchase order was signed by Mr Lennard and Mr Rebak. However, on this occasion they signed the order on behalf of Telec. In due course, Telec sold the phones to Econet or their local suppliers in Nigeria (for summarised details, see paragraph 104 of Mr Buttimore’s closing note).

[79]I agree with Mr Buttimore’s submission that it is clear that the Motorola/Econet deal was a maturing business opportunity for Simtel which Mr Rebak, Mr Chan and Mr Lennard diverted for the benefit of Telec. This was precisely what was threatened at the time of the receivership, when Mr Clark was told that if no agreement could be achieved with Mr Djanogly, then this deal would be taken elsewhere. As Mr Buttimore observed, that is precisely what they did.

[80]It is clear that a director’s fiduciary duties do not necessarily come to an end when he ceases to be a director (see Gore-Brown at 15(8)). Whether there is a continuing duty will depend on all the facts. In this case, Mr Rebak was well aware of this maturing business opportunity whilst he was still a director of Simtel and he was well aware that Mr Djanogly was prepared to finance the deal for Simtel and that Mr Clark was willing that the transaction should go ahead – a proposition that he and Mr Chan rejected. In any event, where a director takes advantage of a maturing business opportunity by exploiting it after his resignation, he is likely to be held in breach of his fiduciary duties to the company: see CMS Dolphin Ltd ~v~ Simonet

(2001) 2 BCLC 704

at paragraph 96, where Lawrence Collins J. put the matter thus:

“In my judgment the underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity of the company is that the opportunity is to be treated as if it were property of the company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating for himself that property. He is just as accountable as a trustee who retires without properly accounting for trust property. In the case of the director he becomes a constructive trustee of the fruits of his abuse of the company’s property, which he has acquired in circumstances where he knowingly had a conflict of interest, and exploited it by resigning from the company.”

[81]Accordingly, I am satisfied that in diverting the Motorola deal from Simtel to Telec, Mr Rebak clearly acted in breach of his fiduciary duties to Simtel and that both Telec and Mr Chan are jointly liable having jointly participated in that breach of trust: see CMS Dolphin (supra) at paragraphs 98 to 103. In reaching that conclusion, I am satisfied that Mr Chan’s participation in Mr Rebak’s breach of fiduciary duty was dishonest in the sense that he was “not acting as an honest man would in the circumstances or acting in a way which is commercially unacceptable in the particular context involved”: see Gore-Browne at 16 (4) and Royal Brunei Airlines ~v~ Tan Kok Ming

(1995) 2 AC 378

at 392. The same is also true of Mr Chan’s participation in Mr Rebak’s other breaches of fiduciary duty carried out by him pursuant to the conspiracy. As to the issue of conspiracy, as I have already indicated, this is a matter that I will consider separately at a later stage of this judgment.

[82](9) The Planet Telecom deal. By the date of the receivership, Simtel had secured a contract for the supply of 1,250 Samsung C100 phones and 1,066 Samsung E100 phones to Planet Telecom with a value in excess of US$386,000. However, as soon as the receiver was appointed, the Planet Telecom deal was “diverted” by Mr Rebak and Mr Chan, who decided to tell Planet Telecom to “recall” its pre-payment. The deal then appears to have been transacted directly between Samsung and Planet Telecom, with Mr Chan supplying Planet Telecom with the details of Samsung’s bank account by letter dated 27th January 2004 (see CB 170f).

[83]In my view, there was no justification for Mr Chan and Mr Rebak acting as they did, which was in clear breach of duty to Simtel. As Mr Buttimore succinctly put it: “”In short:(a) They admit that they caused the deal to be diverted from Simtel

(b) They admit that the profit element was lost to Simtel.” I accept that Simtel was willing and able to continue with this trade, notwithstanding the receivership. Simtel’s best interests would have been best served by doing the deal. Mr Clark was willing, in principle to permit Simtel to carry on trades where a profit could be made (and this was one such) and Mr Djanogly was willing to fund such trades via MFH. As I have already indicated, I am not persuaded that Mr Djanogly was engaged in any cynical ploy to “entrap” money in the receivership and Mr Clark certainly would not have been a party to any such abuse. I will consider the issue of conspiracy later.

[84](10) Data Deletion and Transfer. Stated briefly, Simtel claims that in or about January/February 2004 (i.e. at the time of the receivership), Mr Rebak unlawfully conspired with Mr Chan and Telec to remove and/or destroy significant parts of Simtel’s trading computer data and paper files. It is said that this was done with the intention of injuring Simtel (see paragraph 21 of the Particulars of Claim).

[85]It is important to note that at the beginning of the receivership, Mr Clark impressed upon Mr Rebak the need to keep Simtel’s records, including computerised data, harm free. Similar advice was also given by the Police (the Police were briefly involved in early February 2004, following a complaint by Great Wealth). However, it is clear from the expert evidence that a substantial amount of data was actually deleted/removed from Simtel’s computer system during the period 26th January to 3rd March 2003 (during which period the computer equipment was still in the possession and under the control of Mr Rebak and Mr Chan), as follows:(1) the entire Simtel\logistics folder was deleted from the Simtel server (at least 1833 files);

(2) the Microsoft exchange server folder was deleted in its entirety from the Simtel server (i.e. all email information was deleted;

(3) 229 files had been deleted from Mr Rebak’s Users Folder; It is to be noted that the experts not only agreed that the foregoing data had been deleted, but they also agreed that, since the data had only been deleted from specific areas, it was unlikely that this had happened accidentally or as a result of corruption.

[86]The agreed expert evidence also established the following:(1) the operating system on Natasha Rooney’s desktop computer had been deleted or the hard disk reformatted (this is not specifically agreed by Mr Kim Fai Yip, the Defence expert);

(2) the Email Exchange data files on the Simtel Server were deleted or moved some time between 26th January 2004 and 4th March 2004;

(3) there was no trace of the Simtel\logistics data having been moved elsewhere on the Simtel Server;

(4) After Mr Yip had restored the Berg Kaprow Lewis (“BKL”) back up (this back up was carried out by BKL on Mr Rebak’s instructions on 26th February 2004), the Simtel\logistics folder only contained the 4 hidden /temp files as on the Simtel server. Accordingly, it was concluded that the logistics folder data had been deleted or moved between 27th January 2004 and 26th February 2004. The amount of data involved was considerable, and included customer invoices, Customs’ invoices, correspondence with Duncans, Nigerian and other releases etc: see the summary of deleted data attached to David Garrett’s Addendum Report (Mr Garrett is Simtel’s expert).

(5) the email exchange data files were deleted or moved sometime between 26th February 2004 and 4th March 2004.

[87]I accept Mr Buttimore’s submission that it is clear from the evidence of Mr Clark, Jayne Rhodes and Mr Djanogly that a substantial amount of Simtel’s data on the server has been removed/deleted: for example, see paragraph 35 of Jayne Rhodes’ first witness statement and paragraph 5 of her first affidavit and paragraph 62 of Mr Djanogly’s second witness statement together with the exhibits referred to.

[88]In his first affidavit, Mr Rebak admitted:(i) erasing data from the server, but only to the extent that he deleted the back up file for his laptop and

(ii) deleting information on his laptop using special software obtained for that purpose. In his first affidavit Mr Rebak also stated that the data on his laptop was transferred to his home PC, where he was then:

“able to sort through the data I had transferred, deleting information I no longer required because it was out of date. The remaining data was then transferred to a new laptop since which time I have overwritten and amended some of the data. I have since disposed of the Family Computer because it became infected by a virus.”

[89]I accept Mr Buttimore’s submission (see paragraph 165 of his closing note) that Mr Rebak’s purportedly innocent explanations stretch credulity and I do not believe them. As Mr Buttimore observed, it can be safely assumed that little (if anything) now remains in Mr Rebak’s present laptop of the data that was once on his Simtel laptop that might damage Mr Rebak.

[90]For his part, Mr Chan admitted in cross-examination that he had deleted files relating to the new company and Mr Mohanty. He accepted that his original witness statement had been inaccurate in this respect in stating that he had only deleted personal information. I have no doubt that he was heavily involved in the deletion/removal of data from the Simtel server.

[91]It is also clear that a large amount of Simtel’s data was copied across to Telec’s server, including the Access data files (see CB 354-357). Furthermore, Mr Rebak accepted in cross-examination (Transcript 10th January 2006) that the Simtel\logistics folder was on the Telec server and that he had instructed that Simtel emails be transferred to the Telec server, something that he admitted he should not have done.

[92]I have no doubt that it was Mr Rebak and/or Mr Chan who deleted the data in question from Simtel’s server or it was done on their instructions and also that they were responsible for the transfer of Simtel data to the Telec server. In the course of his evidence, Mr Rebak sought to blame BKL for the data deletion, but he did not call any evidence (expert or otherwise) to support this assertion (the precise nature of which was, in any event, far from clear). I accept Mr Buttimore’s submission (see paragraph 172 of his closing note) that both Mr Rebak and Mr Chan had both motive (covering tracks/preventing competition with Telec) and the opportunity to delete all the data that was removed from the Simtel server and that is precisely what they did. I reject the suggestion that it was Mr Djanogly who was responsible for deleting the data (to the extent that Mr Rebak and Mr Chan deny having done so): see paragraphs 87 to 91 of Mr Algazy’s closing submissions.

[93]As for the missing sales files and other documents (see paragraphs 178 to 181 of Mr Buttimore’s closing note for details), references 3416, 3427, 3432 and 3440 (see CB p.261) all relate to the invoiced stock released to Kenny by Mr Rebak (as to which, see below). I agree that this is more than just a coincidence. In my judgment, they were removed/destroyed by Mr Rebak in order to confuse matters and/or cover his tracks.

[94]Accordingly, I have come to the conclusion that, in the foregoing respects, Mr Rebak acted in breach of his fiduciary duties and that Mr Chan is jointly liable for the breach of trust involved because he knowingly assisted him in this breach. I will consider the issue of conspiracy later.

[95](11) The Nigerian “invoiced” and “non-invoiced” Releases. This aspect of Simtel’s case is pleaded in paragraphs 25 to 28 of the Particulars of Claim, as follows:

“The Invoiced Nigerian Transactions 25. On or about 26th and 27th January 2004, Mr Rebak (in breach of his contractual and fiduciary duties and in unlawful conspiracy with Telec and Mr Chan and with the intention thereby to injure Simtel authorised the release of stock held in Nigeria on behalf of Simtel totalling US4290,924 to various parties notwithstanding that no payment had been received by Simtel for these goods (full details are set out in Schedule 3 hereto). 26. In breach of his fiduciary duties to Simtel, payment for these goods was wrongfully diverted by Mr Rebak with the assistance of and in conspiracy with, it is believed, Telec and Mr Chan away from Simtel and neither Telec, Mr Chan nor Mr Rebak has accounted to Simtel with respect to this money. Nigerian Transactions where no Sales invoices have been found 27. On dates unknown but it is believed between 26th January and early February 2004, Mr Rebak (or someone acting on his instructions and/or under the instructions of Telec or Mr Chan but in any event in conspiracy with Mr Rebak) authorised (in breach of his contractual and fiduciary duties and with the intention to injure Simtel) the release of stock held in Nigeria on behalf of Simtel totalling US$80,182.50 notwithstanding that no payment had been received by Simtel for these goods (full details are set out in Schedule 4 hereto). 28. In breach of his fiduciary and contractual duties to Simtel and with the intention so to injure, payment for these goods was wrongfully diverted by Mr Rebak with the assistance of and in conspiracy with, it is believed, Telec and Mr Chan away from Simtel and neither Telec, Mr Chan nor Mr Rebak has accounted for Simtel with respect to this money.”

Nigerian Transactions where no Sales invoices have been found

[96]There was no real issue with regard to the fact of the stock in question having been released by Mr Rebak on or after 27th January 2004. With the exception of one of the invoiced transactions (Dax Tech, which matter is no longer pursued by Simtel), Mr Rebak effectively admitted that he had authorised the release of all the stock in question (both invoiced and non-invoiced) on or shortly after 27th January 2004. The invoiced stock and the first three items of the non-invoiced stock were released to Kenny and the remaining non-invoiced stock (the Al Basha stock) was released to either Phone House or possibly Kenny.

[97]I accept Mr Buttimore’s comment that Mr Rebak has made a number of inconsistent assertions with regard to the stock released to Kenny (see paragraph 144 of Mr Buttimore’s closing note and paragraphs 66 and 67 of his opening skeleton argument). However, with respect to the released stock (both invoiced and non-invoiced), the essential thrust of Mr Rebak’s case now appears to be:(i) that he released the stock to Kenny, notwithstanding payment had not been made for the stock, as part of an arrangement whereby he ensured that Kenny recouped foreign exchange advances made to Simtel and

(ii) that the Al Basha/Phone House stock was released because he honestly believed that Rita/Phone House had paid for the phones.

[98]All the main accounts, schedules and reconciliations upon which Simtel’s case was based were prepared by Jayne Rhodes, Simtel’s Financial Controller, on the instructions of Mr Djanogly. I accept as truthful her evidence of how she went about this task and the conclusions that she reached, as set out in her two witness statements paragraphs 6 to 11 and paragraphs 36 to 44 respectively. I am satisfied that her evidence is reliable and helpful. In order to make it more straightforward to follow this aspect of the case, Mr Buttimore also arranged for all the relevant documentation to be placed in one file (bundle 22), which was called the “Accounts and Reconciliation” Bundle.

[99]I agree with Mr Buttimore’s submission (see paragraph 147 of his closing note) that Mr Rebak’s release of Simtel’s stock to Kenny was not in the best interests of Simtel at the time (i.e. on and after 26th January 2004) and Simtel suffered injury as a result, because:• Whilst Simtel owed Kenny £109,224.90 in respect of his foreign exchange advances to Simtel (see 22 p.18), as far as Simtel was concerned, Kenny owed Simtel £115,925.78 in respect of unpaid phones (see 22 p.19);

• Releasing stock to Kenny meant that Simtel was left with no realistic prospect of ever recouping the sums owed to it by him;

• Mr Rebak should have concerned himself with the overall state of the Kenny account before acting as he did and it is clear that he did not do so when taking the decision to release stock to Kenny; and in any event

• Mr Rebak’s actions were not in the best interests of the debenture holder.

[100]Furthermore, it is also clear that the release of stock to Phone House was not in the best interests of Simtel and that such release injured it, because:• The phones were released prior to payment having been made: see the Phone House account at bundle 22 p.113. The released Phone House/Al Basha stock does not feature in the Phone House account because it was not invoiced. As at 28th January 2004, it can be seen that the Phone House account balanced (see 22 p.113). There was therefore no prepayment for the Al Basha stock.

• By releasing this stock, Simtel was left with no real prospect of ever recouping the money owed in respect of it.

[101]As I have already indicated, it was Mr Rebak’s case that he honestly believed that, in releasing stock to Kenny, he was effectively releasing stock that Kenny had already paid for (via the advance of foreign exchange arrangement). He also claimed that the reason he released the Al Basha/Phone House stock was that Phone House had made prepayment for the stock and, in support of this assertion, he referred to the payment of Naira 10,000,000 on 22nd January 2004 (see 22 p.113).

[102]However, I agree with Mr Buttimore that it is clear that Mr Rebak was not telling the truth about either of these matters. As for the Kenny releases, I accept, and adopt without repeating, the points made by Mr Buttimore in paragraph 150 of his closing note. As Mr Buttimore observed in paragraph 151 of his closing note:

“However one looks at the figures, Mr Rebak’s assertions that he was merely trying to ensure that Kenny got paid what what he was due, cannot be right.”

I also agree that the real reason behind his actions was simply to ensure that Simtel’s assets were put beyond the reach of Mr Djanogly. In my view, he was also probably anxious to maintain good relations with Kenny so as to pave the way for securing investment in the company that was to be set up “on the ashes of Simtel” (see paragraph 145 ii of Mr Buttimore’s closing note).

[103]As for the Phone House releases, there does not appear to be any real justification or excuse. Plainly there had been no prepayment. The 10,000,000 Naira payment was before the account was in balance which was before the releases in question. In any event, the 10,000,000 would have only been a part payment: see bundle 22 pp.12-13.

[104]Accordingly, I am satisfied that in the foregoing respects, Mr Rebak acted in breach of his duty to act bona fide in the interests of Simtel. An intelligent and honest man in the position of Mr Rebak could not, in the whole of the circumstances, have reasonably believed that these transactions were for the benefit of Simtel: see Charterbridge Corporation Ltd ~v~ Lloyds Bank Ltd

(1970) 1 Ch 62

. Furthermore, by a parity of reasoning, I am satisfied that Mr Rebak was also in breach of his contractual duty to carry out his services with reasonable skill and care.

[105]Conspiracy. A conspiracy consists in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means: per Wiles J in Mulcahy ~v~ R (1868) L.R. 3 H.L. 306 at 317. The elements of the tort are therefore:(i) an agreement, combination, understanding or concert

(ii) by two or more persons

(iii) to injure

(iv) by lawful or unlawful means.

[106]In my view, in paragraphs 197 to 206 of his closing note, Mr Buttimore has fairly and accurately summarised the general nature of the conspiracy and I agree with and adopt it without repeating it, together with the points and submissions made in support.

[107]Having regard to my foregoing findings in respect of Simtel’s claims (7) to (11) above, I am satisfied that Mr Rebak, Mr Chan and Telec were acting pursuant to a common design or agreement to set up a competing business, and that they acted in breach of fiduciary duty and contract, diverted Simtel’s business, and destroyed and transferred data in furtherance of that common design. Telec, as a separate legal person, is able to conspire with its directors Mr Rebak and Mr Chan and its knowledge is to be found in the persons having control over its transactions (in this case, Mr Rebak and Mr Chan).

[108]Accordingly, I am satisfied that, for the foregoing reasons, the first two elements of conspiracy have been established.

[109]By a parity of reasoning, I am also satisfied that the conspirators intended to injure Simtel by, in effect, damaging or destroying its business. Accordingly, the third element of conspiracy has also been established.

[110]So far as concerns the fourth element, it is Simtel’s case that this was an unlawful means conspiracy. On this aspect of the matter, I accept the following propositions put forward by Mr Buttimore:• The acts complained of must be actionable in a civil action: see Clerk & Lindsell 18th edition paragraph 24-121;

• Where the act is in itself tortious, a combination to do that act is a tortious conspiracy: see Crofter Hand Woven Harris Tweed Co ~ Veitch (1942) A.C. 435;

• A deliberate breach of contract is likely to be “unlawful means” for the purposes of conspiracy: see Clerk & Lindsell paragraph 24-128 and Rookes ~v~ Barnard (1964) A.C. 1129.

• Whilst breaches of equitable obligations will not usually amount to unlawful means, breaches of a director’s fiduciary duties are applicable for the purpose of conspiracy: see Clerk & Lindsell paragraph 24-121 and Belmont Finance Corp. ~v~ Williams Furniture Ltd (No 2)

(1980) 1 All ER 393

• There must be an intention to injure: see the judgment of Lord Denning MR in Lonhro plc ~v~ Shell (Unrep: 6th March 1981), quoted by Lord Bridge with apparent approval in Lonhro ~v~ Fayed

(1991) 3 WLR 188

, as follows: “I would suggest that a conspiracy to do an unlawful act – where there is no intention to injure the plaintiff and it is not aimed or directed at him – is not actionable … But if there is an intent to injure him then it is actionable. The intent to injure may not be the predominant motive. It may be mixed with other motives … It is sufficient if the conspiracy is aimed or directed at the plaintiff, and it can reasonably be foreseen that it may injure him, and it does in fact injure him.”

• Where there is an intention to do an unlawful act which, on any view, will cause harm to the Claimant, the requisite intention to injure cannot be denied or, put another way, will inevitably be inferred: see Kuwait Oil S.A.K. ~ Al Badir, LTL 18th May 2000 at paragraphs 120-121 and Canada Cement ~ British Columbia Lightweight Ltd (1983) 145 D.L.R (3d) 385 at pp. 398 to 401.

• Having regard to my foregoing findings and conclusions, the result is that Mr Rebak, Mr Chan and Telec possessed the requisite “intention to injure” for the purposes of conspiracy, even if the primary or main intention of their actions may have been:

(i) to cover their tracks (i.e. to effect a significant impediment to subsequent investigations into unauthorised transactions by deleting files etc) and/or

(ii) to injure MFH and/or Mr Djanogly through Simtel and/or

(iii) to stifle or prevent competition.

[111]For the foregoing reasons I am therefore satisfied that the fourth and final element of conspiracy has been established and that each of the Defendants is liable accordingly.

[112]The Counterclaims. Mr Rebak’s counterclaim for his January 2004 salary is admitted as is his entitlement to his pension contributions (although the amount is not admitted). His counterclaim for unpaid expenses fails, because no evidence was adduced in its support. Mr Chan’s counterclaim is in respect of an alleged entitlement to bonuses. However, I am quite satisfied that there never was any binding agreement made relating to bonuses and I accept Mr Djanogly’ s evidence to that effect. Mr Chan’s counterclaim is therefore, for that reason, dismissed.

[113]Conclusion. For the foregoing reasons, I have come to the firm conclusion that this claim succeeds to the extent indicated in the body of this judgment. There will be judgment for the Claimant accordingly. I will hear further submissions from Counsel as to the appropriate form of relief to be awarded at this stage (if any) and as to the precise terms of the order.