Alternative Investment Solutions (General) Ltd v Valle De Uco Resort & Spa SA & Ors [2013] EWHC 333 (QB)

Case No HQ12X04556

[2013] EWHC 333 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

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

Date 22/02/2013

Before

MR JUSTICE CRANSTON

Between

Alternative Investment Solutions (General) LtdClaimant

(1) VALLE DE UCO RESORT & SPA SADefendants

(2) JONATHAN CROSSICKDefendant

(3) ALISE CROSSICKDefendant

Mr Alain Choo-Choy QC and Mr James Fletcher (instructed by Squire Sanders) for Claimant

Mr Paul McGrath QC (instructed by Addleshaw Goddard) for Defendants

Hearing Hearing dates: 5-6 February 2013

Judgment

INTRODUCTION

[1]Last October the claimant obtained, without notice, a worldwide freezing order against the defendants. In broad outline the claimant had provided finance for a proposed luxury development of the defendants in Argentina, had not been repaid and feared it never would be. This is the defendants’ application to discharge that order. The defendants contend that the order should never have been granted: first, none of the allegations advanced before the judge could be supported to justify the relief obtained; and secondly, the claimant failed to comply with its duties of disclosure to the court resulting in the judge not having the benefit of all the relevant evidence and full and proper submissions. My conclusion is that for the time being a world wide freezing order is justified.

BACKGROUND

[2]The second and third defendants are two British nationals, resident in England, Jonathan (known to his business associates as “Jonty”) Crossick and Alise Crossick. They have been involved with a number of development schemes abroad and are associated with a large number of companies, including Ready 2 Invest Ltd. The first defendant, Valle de Uco Resort & Spa SA (“VDU”), is a company incorporated in Argentina having its principal office in Buenos Aires. The Crossicks are directors and majority shareholders of VDU. The claimant is Alternative Investment Solutions (General) Limited, a private limited company incorporated in England and Wales, which makes investments in various enterprises. At the relevant times it has acted through its sole director, Paul Chandler.

[3]VDU owns a 310 hectare site in Mendoza Province, Argentina (“the site”). A Business Plan published in 2009, with the imprimatur of the Crossicks, set out plans for a project to develop a luxury resort on the site to be called the Valle De Uco Golf and Wine Resort. There would be vineyards and an 18-hole golf course designed by a leading professional golfer, Eduardo Romero, together with a number of residential villas, a boutique hotel and spa, and various other amenities. VDU was the vehicle to develop the site.

[4]There were a number of meetings and contacts in the second part of 2009 between Mr Chandler and Mr Crossick about a possible investment of $6 million in the project. Eventually, the claimant signed a loan agreement on 5 February 2010 to provide £1 million to VDU. Interest was to be payable at a rate of 24 percent per annum on 10 December 2010 and on the redemption dates. The governing law of the agreement was English law. Disputes were subject to the jurisdiction of the English courts. The claimant provided money in tranches with the last tranch being paid on 16 August 2010. Although some interest payments were made to the claimant, the last payment was in April 2011. In short the loan is in default.

[5]Under clause 9 of the loan agreement VDU agreed on the date of the agreement that it would enter into a charge as security for the loan. Charge was defined as a legal charge “in the agreed form attached hereto”. However, there was no form attached. The Business Plan for the project spoke of investors receiving a first legal charge over part of the development proportionate to their investment. At some point it appears to be thought that the claimant’s charge would cover 55 percent of the development. In December 2010 the claimant’s Argentinean lawyer estimated the cost of implementing the charge to be $US 44,000. To date no charge has been executed or registered in favour of the claimant.

[6]The application to Lindblom J for the world wide freezing order was made on 31 October 2012. It was advanced on the basis that, during the due diligence process, the Crossicks made fraudulent representations which induced the claimant to enter the loan agreement. The application was supported by evidence from Mr Chandler; Ana Jauregui, a qualified Argentinean lawyer and former director of VDU, who subsequently resigned and is in dispute with the Crossicks; Lee Pattenden, who was engaged by the claimant to carry out due diligence before any loan was entered into; and German Savastano, the claimant’s Argentinean lawyer. In the course of the hearing the judge pressed the claimant’s counsel on a number of aspects of the application but ultimately granted it. On 23 November 2012 there was an application to vary the order, to enable US$125,000 to be paid in relation to a potential funder of the project. Stadlen J refused the variation and in the course of his judgment raised concerns about its bona fides.

[7]The principles governing the grant of a freezing order under section 37 of Senior Courts Act 1981 and CPR 25.1(f) are well known. It is a discretionary remedy that the court may grant where it is just and convenient to do so. First, there must be a good arguable case on the merits of the substantive claim, in other words, “a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50 per cent chance of success”: Lakatamia Shipping Company Limited v Nobu SU Limited

[2012] EWCA Civ 1195

, per Longmore LJ at [19] and [25]-[28]; Ninemia Maritime Corporation v Trave Schiffahrtgesellschaft MBH und Co KG (The Niedersachsen)

[1983] 2 Lloyd’s Rep 600

, per Mustill J, at 603, 605;

[1983] 2 Lloyd’s Rep 600

, 613-614. When applying this test, the court should not attempt to try the issues but takes into account the apparent strength or weakness of the respective cases to decide whether the claimant’s case, on the merits, is sufficiently strong to reach the threshold. That includes assessing the apparent plausibility of statements in the affidavits: Steven Gee QC, Commercial Injunctions(5th ed. 2004), at paragraphs 12.023 and 12.024.

[8]Secondly, a defendant has to have assets within the jurisdiction or, if there are no or insufficient assets within the jurisdiction, assets outside. Thirdly, for a freezing injunction to be justified there must be a real risk of the dissipation of assets such that there is a real risk of a judgment in the claimant’s favour going unsatisfied if the injunction is not granted: Derby v Weldon

[1990] 1 Ch 48

at 57D-E. There is no need for a claimant to show an intention to dissipate assets, nor dishonesty or fraud. Where there is a good arguable case of dishonesty or fraud the risk of dissipation may speak for itself. The conduct giving rise to a real risk of dissipation must not be capable of justification: Ketchum International v Group Public Relations Holdings

[1997] 1 WLR 4

, per Stuart Smith LJ at 10: White Book, 2012, v.2, 15-69.

INJUNCTION AGAINST VDU

[9]It is common ground that the claimant has not been repaid capital and interest pursuant to the loan agreement. An explanation the Crossicks give is that, along with other such developments, this one has been adversely affected by the world-wide economic recession. Moreover, the claimant remains unsecured, despite clause 9 of the loan agreement. In his evidence Mr Crossick asserts a readiness to grant the claimant security. He says that VDU has retained 55 percent of the land unencumbered for the claimant and that new investors have no rights over a share of the site greater than 45 percent. In a series of emailed updates to investors in VDU late last year and early this year, Mr Crossick explained the interest of a potential funder in carrying the project forward. With regard to a change in December 2011 in Argentinean legislation regarding the foreign ownership of land, one of the updates read:

“The good news is that our land is already owned by foreigners. Therefore, as we are expecting to transfer (in part) ownership [of the land] from one set of foreigners (us) to a new foreigner (the funder) we expect this to be do-able.”

[10]In a spread sheet he has produced with his evidence Mr Crossick has detailed how much land at the site has been allocated to investors and the names and amount of land allocated to each. Only 65,003 square meters of 3,108,863 square meters is still available. Thus it appears that almost the full 45 percent of the land Mr Crossick mentions as not reserved for the claimant has been allocated to investors. On one interpretation it would appear that the allocated land constitutes most of the habitable land. There is no direct evidence of what allocation entails. However, among the names of those on the list of investors to whom land has been allocated is Ian Brown. In a witness statement Mr Brown explains how he paid £136,607 and was allocated so many square metres of land on the site. (His investment in a Romanian development of the Crossicks was also rolled over into VDU). He exhibits the offer letters he received from VDU in 2008 and subsequent documentation. It is not my task to suggest a legal interpretation of their effect. Suffice is to say that they purport to confer on Mr Brown an option to be paid out or otherwise to acquire “domain title” over an unidentified plot of land on the site.

[11]There is no evidence about what VDU has raised from investors and little about how it has been spent. Mr Chandler’s evidence is that Mr Crossick told him in November 2009 that some $4 million had already been raised and that Alise Crossick said a year later that the project had been successful in attracting money from investors and a potential hotel brand. Extrapolating from what Mr Brown paid for his rights, such as they are, to 5000 square meters of the site, Mr Choo-Choy QC for the claimant contends that VDU would have raised considerable sums of money if other investors paid what he did. VDU’s only asset is the site. The evidence before me about the site’s development is that it has been fenced and some trenches have been dug but no building work has begun. In a witness statement Alise Crossick asserts that a lack of funds has meant that it has not been possible to take the project forward. VDU has a bank account with HSBC in Argentina but disclosure under the order reveals that it has a negligible balance. Moneys raised by investors have been routed through other entities controlled by the Crossicks, including Valle De Uco Resort & Spa (UK) Ltd and Ready 2 invest Ltd. There has been expenditure on management and marketing and, in Argentina, on salaries and fees. In 2010 Mr Chandler was given a breakdown of where the claimant’s money had gone.

[12]The focus before the judge was on the case for freezing orders against the Crossicks. The case in relation to VDU hardly featured. It is not said that there was any non-disclosure at the hearing with regard to the VDU application. Nonetheless Mr McGrath QC, for the defendants, submits that if the injunctions against the Crossicks fail for non-disclosure the injunction against VDU must fail as well. Whatever the finding on the order against the Crossicks, I do not accept that the quite separate case for an injunction against VDU is in any way affected. In my opinion there is no rule of infection whereby if the injunction against A is vitiated for non-disclosure, an injunction against a separate legal personality, B, suffers the same fate.

[13]In my view the claimant had, and continues to have, every justification for an injunction restraining VDU from dissipating, disposing of, or otherwise dealing with its assets. I accept the claimant’s submission that the basis of the injunction is both in terms of a conventional freezing injunction to prevent the dissipation or diminution in value of VDU’s assets, and a proprietary tracing injunction in support of the claimant’s proprietary interest arising out of VDU’s agreement to execute a charge over the land as security for its loan. In the continued absence of VDU’s execution of the legal charge, and the claimant’s investment remaining unsecured after the time for repayment has expired, there is a real risk of dissipation as the Crossicks involve investors and potential funders in relation to the project on the site. The funder’s involvement militates against the claimant obtaining security. It is difficult to accept as a practical proposition Mr Crossick’s assurance that 55 percent of the site is reserved for the claimant. There is also the additional evidence referred to below, in particular the evidence of Snr. Flores, a Spanish lawyer.

THE CROSSICKS

[14]Neither Mr nor Mrs Crossick was a party to the loan contract, nor did they give personal guarantees in respect of the obligations under it. Consequently, the claimant has contended that there is a good arguable case against them for fraudulent misrepresentations in respect of(1) the planning status of the project:

(2) the use to which the claimant’s funds were to be put; and

(3) the execution of the legal charge under the loan agreement. Fraud in this context extends to situations where a person, while having no knowledge of a representation’s falsity, makes it recklessly, not caring whether it is true or not.

The Planning Issue

[15]In a nutshell the claimant has alleged that it entered the loan agreement because the Crossicks deceived it as to the planning status of the project on the site. The particulars of claim contend that the site did not have full planning permission and that the project was required to submit further documentation to achieve it. It also alleges that changes were made to the Master Plan which meant it required a re-submission for the purposes of planning permission. The Master Plan aspect of the claimant’s case was abandoned at the hearing before me in the light of the case Mr McGrath QC advanced on the defendants’ behalf.

[16]The planning issue arises as follows. At some point in 2009 the Crossicks prepared a Business Plan for the development. (There was also a brochure along the same lines). In its executive summary the Business Plan stated that “Full Planning has been secured ahead of schedule”. In the body of the document planning was addressed in greater detail. First, a “zona de frontera” certificate had been obtained, which was necessary because the development was close to the Chilean border. Secondly, the development had obtained outline planning permission from the Tunuyan Municipality (“the municipality”) under certificate 2165/09, issued in March 2009. Thirdly, the technical presentation of the Master Plan had been accomplished in March 2009. “This is effectively what we know as an approved Subdivision Plan, together with permission to commence construction”. The discussion of planning continued: “As of April 1 2009, Valle de Uco Golf and Country Club has approval to proceed with the Development of the said project as defined by the technical presentation and by the Master Plan. This means that the Development can begin work in an orderly fashion on the entire project and see it through to completion...It is now the developer’s intention, as soon as the next phase of finance is in place, to commence with the works as outlined on page 26 [which] is estimated to commence in Q3 2009”.

[17]The timeline on the following page of the Business Plan showed that shaping and “bulk civil engineering” for the golf course would commence in October 2009. That would be followed in October 2011 by work beginning on the construction of the 40 founders’ club villas, the golf clubhouse, the on-site sales and marketing suite, the boutique hotel and the spa and wellness centre. The grand opening of the development would be in July 2012. Under the heading “exit strategy” the document said that it was intended that the revenue from the sale of the founders’ club would provide the primary exit for the mezzanine investor (who was to provide $6 million). The text continued:

“A key strategy behind the whole development is the early expenditure on infrastructure, golf, vineyards and sporting facilities.”

The final page of the Business Plan was a legal disclaimer. In part it advised investors to undertake their own due diligence.

[18]Through Mr Pattenden the claimant employed Kirt Barker to conduct due diligence about the development. Mr Barker was based in Panama, was a Spanish speaker and had undertaken this type of work previously. In an email on 3 August 2009 Mr Pattenden entrusted Mr Barker with the task of visiting the site to determine whether “[t]he site exists and has FULL planning permission, including any unknowns such as local council fees and that all these have been paid.” Mr Barker visited the site in early September 2009. He met various representatives of the defendants, including Mr Vletas of Southern Cross Land Company, their local development adviser. Mr Barker also obtained documentation.

[19]After the visit, on 4 September 2009, Mr Vletas emailed Mr Barker – VDU’s director, Ms Jauregui, was copied in – that the project had pre-feasibility approval and that “as long as [it] conforms with existing development rules of lots sizes, reg[ulation]s for electricity, streets, potable water, etc [it] can go ahead and develop their entire project”. Mr Vletas went on to state that the pre-feasibility approval which had been obtained “could have required an environmental study, but it did not. Up to this point, no environmental study has been required. As of today [VDU] could go ahead and develop their entire project as shown on their current master plan as long as they conform to existing building regulations for urbanisation, building codes, safety and fires codes etc.” As regards environmental assessment Mr Vletas stated:

“So far, we’ve received favourable feedback from the Mayor’s office that no further study will be needed. Ideally, this person will sign off specifically that no further study is needed. However, as mentioned above, VDU could go ahead now and complete the development. That said, rules and regulations can and do change in Argentina, so we will monitor this closely and respond accordingly, politically and technically.”

[20]On 9 September Mr Barker emailed Mr Chandler that the site existed, it had full planning permission and in general the project looked very good. Preliminary work, i.e. legal and engineering were well done. Water rights existed, the lakes would make the golf course attractive and the site was excellent for golf. The investment would enhance the project and the value of the investor’s mortgaged land.

[21]The pre-feasibility certificate 2165/09 of 18 March 2009, mentioned in the Business Plan, had set out the requirements for the project to obtain (in translation) “construction habitability”. One of these was a requirement to initiate proceedings at the municipality department of environment. At some point VDU commissioned an environmental impact study by Biovalle Consultancy Group for the express purpose of petitioning the municipality in compliance with various local and regional laws. They prepared a lengthy report (“the environmental consultant’s report”). It explained that it covered the environmental requirements at various stages of the project. The planning and design stage would be carried out prior to construction. The report’s recommendations included a series of measures to mitigate the project’s environmental impact and for research into that impact. For example, there needed to be studies about water supply, which would need the approval of the municipality. Other studies were needed in relation to the treatment of effluents, and solid waste, the monitoring and treatment of rain/water run-off and the plan for fire prevention.

[22]In mid-October 2009 the environmental consultant’s report was submitted to the municipality by VDU, the “petitioner”, as a “project notice” pursuant to the various named laws. On 20 October 2009 the municipality wrote to the Institute of Environmental Administration at the University of Congreso asking it to carry out a technical consultation so that the municipality could fulfil its regulatory obligations. At some unknown date, the university reported on the project’s compliance with the various legal requirements (“the university report”). While some aspects of the project met these requirements, the report said that others did so only partially, yet others not at all. For example, the university report said that there was no mention of any water or land quality investigations nor of any hydro-geological studies, which meant that there was non-compliance with established requirements. As to the land mass covered, the university report concluded that the situation was confusing and added that there was no indication of the feasibility of electricity supply. The university report recommended that the municipality take action to clarify non-compliant matters, to consult with a number of governmental and regulatory bodies and to request reports on the feasibility of various services required by the project such as water, sewage, electrical energy, natural gas, and waste collection. It added that steps should be taken to ensure that its recommendations were taken into consideration and were fulfilled under the supervision of the municipality.

[23]As a result of the university’s report, the municipality issued Document 2165/09 on 11 November 2010 (“the municipal notice”). That obliged compliance with the obligations which the university had found needed to be met, some before the construction stage. The notice was open for compliance until 31 January 2011. Compliance measures had to be submitted and approved.

[24]In addition to the Business Plan, the defendants responded to Mr Chandler’s request in late November 2009 for a “legal due diligence pack”. The claimant was provided with the password for access online and offered, if required, hard copies of any documents. The legal due diligence pack included the pre-feasibility certificate but not the environmental consultant’s report. On 4 November 2009, Ms Jauregui sent an update to the Crossicks about the situation at the project. In it she said that the university had approved the project, saying that there was no need to prepare a further environmental impact assessment and that the file was going back to the municipality that week or early the following week.

[25]In his attractively put submissions on the defendants’ behalf, Mr McGrath QC contended that the claimant was fully informed as to the planning permission status of the project. The defendants were open with the claimant’s representatives. In particular Mr Barker, who was employed by the claimant to investigate the project, was provided with full access to the site and all planning documentation and Mr Vletas, the defendants’ expert advisor explained the position to him. Mr Barker told the claimant that the site had full planningpermission and that was, indeed, the position. If the claimant’s own expert agreed with the way VDU described the project’s planning status, wherein lay the deceit?

[26]Moreover, submitted Mr McGrath QC, VDU’s on-site expert, Mr Vletas, fully and accurately explained the planning status and process in some detail in the email to Mr Barker dated 4 September 2009. Mr Barker does not criticise Mr Vletas or anything he said about planning. In his evidence Mr Barker does not say that he was misled by anything said; he does not support a case that no planning permission or no full planning permission was obtained; and he does not support a case that anything happened after the project obtained planning permission which required a fresh application. In short, submitted Mr McGrath QC, Mr Barker’s own evidence was on its face inconsistent with a case in deceit. Mr McGrath QC underlined his submissions by reference to the procedural and professional bars to alleging deceit (CPR 16.4(e)), 16PD 8.2; Bar Code of Conduct, 704 (c)) and the difficulties in establishing it.

[27]In my view, there is a good arguable case of fraudulent misrepresentation by the Crossicks as to the planning status of the project, in particular as to the entitlement to start building, prior to the claimant’s execution of the loan agreement. That good arguable case lies in the representations in the Business Plan, clearly proffered as an inducement to invest, that the project had (as quoted above) “full planning” or “permission to commence construction”, or that they “can begin work in an orderly fashion”, or that it was the intention, subject to finance being in place, “to commence with the works”. The real intended meaning of the Business Plan was the representation to potential investors, including the claimant that, subject to finance, the project was already in a position to commence construction. Yet contrary to the clear impression given that there were no impediments to immediate commencement (subject only to finance), there were substantial planning steps and approvals required. Prior to the claimant’s execution of the loan agreement there is no evidence that the environmental requirements had been fulfilled. It is plain from the documents that in important respects the environmental requirements were not matters to be addressed during construction but prerequisites to building commencing. That was still the situation when the claimant made its last advance under the loan agreement on 16 August 2010, which preceded the municipal notice on 11 November 2010. In fact there is no evidence before me that to this day the outstanding requirements described in the university’s report and the municipal notice have been met.

[28]In the light of the environmental consultant’s report, Mr Vletas’ email to Mr Barker of 4 September 2009 is quite wrong in suggesting that “no environmental study has been required”, that “as of today [VDU] could go ahead and develop their entire project” and that “no further [environmental] study will be needed”. At that point the environmental consultant’s report had not been submitted to the municipality. Given its length and detail it is a reasonable inference that it was in train when the email was sent. In evidence to the court Mr Vletas explains that the project did not need an environmental assessment initially, but then did. He does not identify the date when the requirement changed. Mr Vletas adds that the fulfilment of the environmental requirements was “part of an iterative process between the developer and the municipality” which “does not mean that the developer does not have planning permission”. That is certainly not how the documents read, nor describe the reaction of the municipality, in mid-October 2009, when the environmental consultant’s report was submitted and it referred it almost immediately for evaluation to the environmental institute at the University of Congreso. Ms Jauregui’s email to the Crossicks of 4 November 2009, that the University had approved the project, does not seem to accord with the facts either.

[29]Although ultimately it will be a matter for trial, at this point I simply cannot accept Mr Vletas’ evidence. Either he was unaware of what the pre-feasibility certificate provided, and that the environmental consultant had been commissioned to report, which seems unlikely, or it appears that he was at the least reckless as to what he was telling Mr Barker. Mr Barker relied on what he was told and was consequently misled. In light of the documents, and the Argentinean environmental laws referred to there, it is fanciful to suggest that a major project such as this had full planning permission and was ready to begin construction without an approved, environmental assessment. The fact is that at the time the claimant entered the loan agreement the project was subject to further significant requirements. The claimant was never told about them.

[30]Unfortunately, the Crossicks do not address these matters in their evidence before me. However, they present themselves as having been involved in a number of successful developments around the world. Although neither was on the ground in Argentina at the time, an environmental assessment, and the commissioning of the (no doubt costly) environmental consultant’s report must have been within their knowledge. That report on its face was a submission by VDU as “petitioner” to the municipality in purported compliance with the Argentinean legal and regulatory requirements. It was clearly part of the planning process to require an evaluation of the environmental impact of the project. Before construction began there were outstanding requirements to be met, further investigations to be carried out, and additional reports to be submitted. It was clearly misleading for the Crossicks to represent in the Business Plan and elsewhere that there was full planning permission and that building could commence. That position was maintained prior to the loan agreement and well after. Clearly it was intended that the representation should be relied on by potential investors. As underlined in Mr Pattenden’s commissioning of Mr Barker in this role, full planning permission is a key requirement for an investor in this type of project.

[31]To my mind there is a good arguable case that the claimant relied, at least in part, upon what the Crossicks represented. Certainly the claimant undertook their own due diligence through Mr Barker. Mr Barker was not informed about the environmental consultant’s report and was expressly assured in Mr Vletas’ 4 September 2009 email that no environmental study was needed and that the project had been approved and there were no impediments to immediate building. Whether Mr Barker should have discovered the environmental obstacles is not relevant to the issue. Contributory negligence on a claimant’s part cannot defeat a claim in deceit. In the result there is a good arguable case against the Crossicks in fraudulent misrepresentation.

Use of loan funds

[32]The claimant submitted that there is a good arguable case that the Crossicks fraudulently represented that the moneys the claimant was to loan to VDU were to be used for the project’s infrastructure. Mr Choo-Choy QC submitted that that could be seen in various communications sent to the claimant over the July - October 2009 period, including a 16October 2009 report on “Mendoza Finance Costs 1 year”. On the basis that the claimant would loan $6,000,000, and that VDU would receive $640,000 in sales every month, that report showed that just over a third of the moneys loaned could achieve the construction of all fencing, the entrance and internal roads, the marketing suite/winery, a reservoir for potable water, an electricity substation, the shaping of the golf course, irrigation and lakes. (The other costs were buying more land, overheads and marketing.) In fact, submitted Mr Choo-Choy QC, the breakdown of the loan moneys provided on 5 October 2010 showed only about a fifth had been used in Argentina, and a great deal of this went on fees.

[33]In my view the claimant has not made its case under this head. First, there was nothing in the loan agreement by way of a purpose clause about how the funds were to be spent. Secondly, there appears to be nothing in the contemporaneous documents that it was on construction that the funds were to be spent. Certainly at the point when the claimant was to advance US $6 million there had been representations that most of the moneys would go on construction, as detailed in the 16 October report. But once the claimant indicated that it would only make £1 million available the position changed. Without exploring the matter in detail, the issue was related to the role of Mr Barker in monitoring the use of the moneys lent in construction. Once the smaller sum was to be lent, his services were no longer required as monitor. This was set out in communications from Mr Crossick to Mr Chandler, for example on 23 November 2009:

“If we are seeking a small amount of money from you right now there is no pressing need for a financial monitor. We would need this when we start construction which would be later.”

The conduct of the parties after the loan agreement seems consistent with there being no representation that expenditure of the loan moneys was to be confined to project infrastructure.

Security

[34]The loan agreement required VDU to provide the claimant with a charge by the way of security. The claimant accepts that as a result of a side letter to the loan agreement it cannot complain about the non-execution of a charge until after it made available the last tranch of the moneys in August 2010. The story from there begins with an email from the Crossicks’ lawyer in England, Gordon Bull, to Mr Chandler on 8 October 2010, in which he sent drafts of a legal charge, outlined the procedures, and explained that the claimant would need an Argentinean reference number (a tax code). On 25 October Mr Bull emailed again that he anticipated that the lender to the project would have a first charge over all the land. In December 2010 Mr Chandler referred the draft to his Argentinean lawyer, Mr Savastano, and asked if he could oversee its implementation. In January 2011 Mr Savastano was put in touch with the defendant’s lawyer in Buenos Aires. In mid January 2011 Mr Bull indicated that he was ready to proceed with the charge.

[35]At this point Mr Chandler introduced Mr Crossick to a project finance broker, Solutio, to explore whether funds could be raised so that the claimant could be bought out. It was also at this time that VDU ceased making interest payments under the loan agreement. Mr Chandler wrote to Mr Crossick on 31 January 2011 that until the interest payments were made, and the legal charge was in force, he would not assist with any further funding via Solutio. Mr Crossick responded later that day:

“However, your demand for the charge to be registered before funding discussions continue is not reasonable or practical. Please do not forget that it was you that insisted that we do not put the charge in place. Since you reversed this decision we have co-operated fully.”

[36]In mid February 2011 Mr Savastano raised issues about the coverage of the draft charge the defendants had presented. For example, as drafted it permitted VDU to grant leases of the land, and the area reserved for the claimant under the charge diminished on each repayment. Mr Chandler informed Mr Crossick and Mr Bull that this was not acceptable. In April 2011 the claimant’s side suggested a trust arrangement. Mr Chandler says in evidence that that was because execution of the charge was not being advanced. On 24 May 2011 Mr Bull responded that the trust idea would be examined and added two options, the charge as originally drafted and a “private arrangement” where VDU would hold the land for the benefit of the claimant until it was paid. Mr Savastano advised against the private arrangement on 23 June 2011 because it did not offer equivalent protection to a charge. There was further discussion in August 2011 between the claimant and Mr Bull about the requisites of a charge.

[37]Then in late October 2011 Mr Crossick wrote that a potential funder had visited the site, signed terms, with completion aimed for the following month. In light of that he suggested to the claimant that it did not make sense to proceed with the charge. “If the funding does not come through next month then we can complete the security process”. The claimant demanded proof that there was a funder. In mid November the claimant insisted on its security. Mr Crossick replied that the defendants were in no position to remit the costs of the legal charge but, if it wished, the claimant could pay for it and add the amount to the loan. In an email in mid-December Mr Crossick again suggested the claimant hold off for a month, since taking a charge would complicate matters with the funder, who was to advance $135 million. Completion with the funder was expected by the end of January 2012. On 7 February 2012 Mr Savastano reported that he had had no luck with the Crossicks in signing the relevant documents and that it appeared to be a delaying tactic. Nothing eventuated and by March 2012 the claimant had decided on legal action. No charge has ever been executed or registered.

[38]It seems common ground that there was an express representation that a charge would be given and, at the least, an implied representation that the defendants intended to take the necessary steps to procure its execution and registration. There seems to be no question but that the claimant relied on the Crossicks’ representations when entering the loan agreement. The issue is whether there is a good arguable case that the Crossicks fraudulently represented their intention to give a charge.

[39]For the defendants Mr McGrath QC submitted that the claimant has been responsible for the delay in the execution and registration of the charge. There was Mr Bull’s email as early as October 2010 sending the claimant a draft charge indicative, submits Mr McGrath QC, of the defendants’ willingness to act. It was the claimant which then wanted to delay taking a charge, since it had introduced the defendants to Solutio in the hope that it could be bought out of the project. Later, in 2011, the defendants pursued other methods of securing repayment such as a trust arrangement. In his evidence Mr Crossick states that the registered title to the land is unencumbered, VDU remains willing to provide security to the claimant, and the only problem has been that the claimant had not obtained a tax code. VDU’s lawyer in Argentina, Esteban O’Farrell, has given evidence that the Crossicks never instructed him “to do anything other than fully co-operate with AIS’ lawyers and to get the charge completed”. He adds that, without a tax code, no charge was possible.

[40]In my view the evidence outlined leads to the inference that there is a good arguable case that the Crossicks never intended to have VDU enter into the charge. What others such as their lawyers, Mr Bull and Snr O’Farrell thought they were doing, is irrelevant to that. Similarly irrelevant is the matter of the tax code. The evidence from Mr Savastano is that the claimant has had the relevant code since mid December 2011. Although the defendants deny that they knew this, Mr Savastano’s exhibits support the view that they did, or certainly ought to have known about it. In any event, the lack of a tax code does not provide the reason for the charge not having been progressed. If the Crossicks had intended VDU to grant security, obtaining a tax code was a goal relatively easily achievable.

[41]The reality seems to be that, in trying to get the charge executed and registered, the claimant faced obstacles created by VDU and the Crossicks. My reading of the chronology is that it is the claimant who has generally granted indulgences to the defendants, not the other way round. Whatever one makes of the background to Mr Crossick’s 30 January 2011 email, quoted above, nothing happened after this date. The draft charge the defendants proffered fell far short of what the agreement demanded as Mr Savastano, the claimant’s Argentinean lawyer, advised. The “private arrangement” the defendants’ Argentinean lawyer suggested was even worse for the claimant. In May 2011 Mr Bull gave, as one of the options, a draft charge with the same deficiencies the claimant had previously emphasised. Then later in 2011, and into 2012, there was Mr Crossick’s excuse about the funder. To attract the funder the land needs to be unencumbered so it can be transferred to him. All of this leads me to conclude that there is a good arguable case that the Crossicks never intended to grant security and engaged in a series of delaying tactics with excuses for inaction.

Evidence of the Crossick’s business practices

[42]Since the hearing before the judge the claimant has collected a body of evidence from which, it submits, inferences about the Crossicks may be drawn. Thus the proposed funder for VDU, Mr Irving Davidson, is identified as a person convicted of investment frauds in the United States. In addition to material on the internet about the disgruntled investors in the Crossicks’ projects are a number of statements from such investors. Mr Brown’s statement has been touched on earlier. There is a statement from Jamie Davies who worked as a sales consultant for the Crossicks over two different periods. He asserts that Ready 2 Invest Ltd “entices investors to stump up cash with the promise of very high returns over relatively short time periods. It then continually fobs them off without ever returning their money. The brochures look very impressive and there is always the promise of another large investor on the horizon to progress maters and allow for investments to be returned, but in my experience this is just a con and monies are never returned.”

[43]Antonio Flores, a Spanish lawyer whose company held deposits on behalf of Ready 2 Invest Ltd in relation to Spanish development, concluded that there was an investment scam, and Mr Crossick behaved as though “he was just trying to get as much money from investors/customers as possible and did not care whether the properties got finished or not.” Snr. Flores also asserts that one of the Spanish developments, administered by Mr Crossick, was sold off without advising investors. Ashley Edwards, a chief operating officer in the fixed income division of a Swiss investment bank was told he would be given a charge over land in a Spanish project as security for his €300,000 investment. There were a number of reasons given as to why this was not done once he had invested. When he threatened legal action Mr Crossick proposed that his investment be rolled into VDU. “I have not been repaid any of my money and I am aware that there are numerous other investors that stand in the same position as me. There is no overall exit plan to pay off all of the investors in any given project; thereby ongoing fundraising is nothing more than Ponzi activity.”

[44]Although in their evidence the Crossicks do not comment on what the claimant has adduced about Mr Davidson, Mr McGrath QC submits that the identity of the funder is irrelevant, so long as he advances the requisite funds. As to the other evidence, Mr McGrath QC points to general assertions and internal inconsistencies and raises question marks over the credibility of the witnesses. In my view, this evidence can contribute to the inference that the Crossicks behaved at least recklessly in this case. Whether, as Mr Choo-Choy QC submitted, it is similar fact evidence can be left for trial.

Real risk of dissipation

[45]In my view there is a real risk of dissipation of assets by the defendants. The position of VDU itself was referred to earlier in the judgment. As regards the Crossicks themselves they have disclosed a number of investment properties in this country, which are in their own names. Mr McGrath QC submits that there is no evidence which supports a finding of a genuine risk of dissipation of assets. In seeking the order the claimant delayed over eight months after deciding to take legal action in March 2012, which he submits is perhaps the best evidence of the absence of any risk of dissipation. In my view, however, there is the Crossicks’ involvement in international projects and the circumstances of that involvement, in particular with VDU, where the money raised has been channelled not through VDU but through Ready 2 Invest Ltd. Albeit untested there are some disturbing features in the additional evidence. All this leads me to the conclusion that there is a real risk of the dissipation of assets. The fact that there was no such dissipation after March 2012 is not sufficient to counter that risk.

BREACH OF DUTY OF FULL AND FRANK DISCLOSURE

[46]For the defendants Mr McGrath QC submitted that in this case material non-disclosure to the judge did not involve minor technical inaccuracies, which had little to do with the underlying merits. Rather, the failures to disclose were widespread, material and inextricably intertwined with the merits and, on a proper approach, the injunction should never have been obtained and cannot now be maintained.

[47]Mr McGrath QC pointed out that at the hearing before the judge the planning aspect was advanced as the “central plank” of the claimant’s case for a world-wide freezing order. The claimant produced no evidence to the judge from Mr Barker, although his name was mentioned. Mr McGrath QC highlighted that one part of the evidence before the judge was that during a visit to the site by Mr Pattenden in November 2009 Alise Crossick had represented to him that the site had full planning permission. That evidence was supported by the evidence of Mr Chandler and Ms Jauregui. In his witness statement before the judge Mr Chandler suggested that he relied on Alise Crossick’s representation in entering the loan agreement. The claimant now concedes that this was incorrect. The visit which Mr Pattenden made to the site was, in fact, a year later, in November 2010, well after the loan agreement had been entered and the money fully drawn down. The judge was given an incorrect account. Mr McGrath QC submitted that an error of this magnitude in the pleaded case, and what was presented to the judge, vitiates the order. Mr Chandler could not have honestly made this error if he had investigated the matter properly. For Mr Pattenden it was a matter of simply checking his diary.

[48]As to the charge over the project Mr McGrath QC pointed to omissions in what the judge was told. The judge was not informed that the charge was not due on signature of the loan agreement in February 2010 but only in October that year, once the claimant had made available the full amount being funded. There also had to be agreement over its form. Nor was the judge informed about the tax code and its essential role if a charge were to be taken under Argentinean law. If the judge had been taken through an accurate chronology, Mr McGrath QC submitted, it would have been evident that the delays in executing the charge over a two year period were attributable to the claimant, not the defendants.

[49]As with other applications for ex parte interim relief, an applicant for a without notice freezing injunction is under a duty to present all material facts to the Court. In Brinks Mat v Elcombe

[1988] 1 WLR 1350

, 1356-1357, Ralph Gibson LJ held that the material facts are those which it is material for the judge to know in dealing with the application as made. An applicant must make proper enquiries. These depend on the circumstances of the case including(a) the nature of the case the applicant makes in the application;

(b) the order and its probable effect on the defendant; and

“(5) If material non-disclosure is established the court will be “astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage he may have derived by that breach of duty ... (6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends upon the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty upon the applicant to make all proper inquiries and to give careful consideration to the case being presented. (7) Finally it “is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded”: … The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms. “When the whole of the facts, including that of the original non-disclosure are before the court, it may well grant … a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed”: per Glidewell LJ: in Lloyds Bowmaker Ltd v Britannia Arrow Holdings PLC, pp 1343H-1344A.”

[50]In Re OJSC Ank Yugraneft (also know as Millhouse Capital UK Ltd v Sibir Energy Plc)

[2008] EWHC 2614 (Ch)

; [2010] B.C.C. 475; [2009] 1 B.C.L.C. 298, [102] Christopher Clarke J accepted the principles guiding the court in cases of culpable non-disclosure as set out by Mr Alan Boyle QC in Arena Corp Ltd v Schroeder

[2003] EWHC 1089 (Ch)

1089 at [213]. Christopher Clarke J added that they were subject to the overriding principle that the question of whether, in the absence of full and fair disclosure, an order should be set aside and, if so, whether it should be renewed in some way, was pre-eminently a matter for the court’s discretion. Relevant in that regard were whether the non-disclosure was innocent and that an injunction or other order could properly have been granted if the relevant facts had been disclosed: [103]. The court, like Janus, looked both backwards and forwards, back at the need to secure the integrity of the court’s process and to protect the interests of those potentially affected by the order the court, forward to the situation now before the court. The court strongly inclined towards setting its order aside and not renewing it with serious breaches, but the court could not be blind to the fact that a refusal to continue or renew an order may work a real injustice: [103] – [105].

[51]As I have indicated, the position about the tax code does not in my view have the importance which Mr McGrath QC seeks to place on it. The non-disclosure about the timing of the security is more significant. The claimant should have disclosed these points but the failure to do so does not, in my view, vitiate the order. The false evidence about what Alise Crossick was supposed to have said in 2009, and on which the claimant was said to have relied, is more serious. Such culpable non-disclosure could well lead to the order being set aside. However, as Christopher Clarke J explained in Millhouse, the court cannot be blind to the fact that a refusal to continue or renew an order may work a real injustice. The claimant has apologised for this error and underlined, correctly, that the defendants do not deny representing that the site had full planning permission which, as I interpret it, means that construction could begin. Taking the circumstances of the case as a whole, I am persuaded that there are strong reasons to continue the order.