Fern Advisers Ltd v Burford & Ors [2014] EWHC 762 (QB)

Case No HQ13X02392

[2014] EWHC 762 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

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

Date 01/04/2014

Before

HIS HONOUR JUDGE MACKIE QC

Between

FERN ADVISERS LIMITEDClaimant

ADRIAN BURFORD1 st Defendant

AMBER KENNARD2 nd Defendant

WESTOVER MEDICAL LIMITED3 rd Defendant

SUSHINHO CITY LIMITED4 th Defendant

HEDGEROW MANAGEMENT LIMITED5 th Defendant

Anthony de Garr Robinson QC and Clare Reffin (instructed by Herbert Smith Freehills) for Claimant

Mr Burford, the 1 st Defendant appeared in person for in person

Hearing Hearing dates: 12 and 13 February 2014

Judgment

Judge Mackie QC :

[1]This is an application by the Claimant (“Fern”) for summary judgment on its claims against its former director, the First Defendant (“Mr Burford”). Fern says that between April 2012 and March 2013, Mr Burford used his position as Fern’s executive director to steal more than £12 million from Fern’s bank account. Fern says that he used this money to keep various ailing businesses afloat, to fund an extravagant lifestyle and to buy Broadwell Manor, an estate in Gloucestershire. Mr Burford admits that he took the money and used most of it as Fern alleges but he says that the money was either lent to him by Fern or otherwise spent in good faith for the company’s purposes. He also says that any liabilities he owes are more than offset by a counterclaim for lost future earnings. The question on this application is not who is right but this. Has Fern shown that Mr Burford has no real prospect of successfully defending the claim?

[2]In its Claim Form Fern alleges, against Mr Burford, fraudulent misappropriation and breach of his position as officer and director. Fern seeks damages for deceit, breach of trust and a range of related causes of action. The claim against the Second Defendant is in constructive trust and arises because she is Mr Burford’s wife and Broadwell Manor was bought in joint names. She has been served with and given notice of the application although it does not seek relief against her. There are claims, essentially in restitution, against the other three Defendants, all companies who received some of the money and associated in different ways with Mr Burford. The application seeks no relief against these three Defendants.

Procedural background

[3]This action was commenced on 18 April 2013, when a freezing and disclosure order was made. Mr Burford, then represented by solicitors Brown Rudnick, gave some disclosure on 25 April 2013. Particulars of Claim were served on 16 May 2013. On 10 July 2013, a receiver was appointed to sell Broadwell Manor, on Fern’s application.

[4]On 19 July 2013, default judgment was given against Hedgerow, the Fifth Defendant for £258,096 after a hearing before Burton J. Fern’s claim against Hedgerow was for £460,035 but, at the hearing, Hedgerow (represented by Mr Burford) claimed that it had a defence to the extent of £201,939. The judge gave Hedgerow two weeks to submit evidence justifying the asserted defence, and a draft Defence. On 2 August 2013, Mr Burford submitted a witness statement, but no draft Defence and, with Hedgerow, also issued applications for extensive disclosure and other relief, as to which directions were given on 9 August 2013 by Swift J. Mr Burford did not list the applications for hearing or otherwise pursue his claim for disclosure. Despite this he contends on this application that his Defence depends on important documents that he says Fern has withheld. No draft Defence or Counterclaim has been produced but I bear in mind Mr Burford’s position as a litigant in person.

[5]This application was issued in August 2013 but the hearing fixed for November 2013 was adjourned because it was only then that Mr Burford served any evidence. Mr Burford had hoped to have representation from Counsel but has had to act as a litigant in person. The to and fro about evidence on this application reflects the fact that Mr Burford is now a litigant in person and faces many pressures. Fern says that this is part of a deliberate campaign to spin out the case. Fern is right in the sense that Mr Burford’s defences were only revealed in his witness statement of 6 November 2013 and are new. It is also unfortunate that Mr Burford did not disclose the fact that he has been made bankrupt.

Bankruptcy

[6]Mr Burford was made bankrupt on 10 January 2014 in the Worcester County Court on the petition of Advanced Electrical Systems Limited. Mr Clive Everitt of Shaw Gibbs has recently been appointed Mr Burford's trustee in bankruptcy. After taking advice from counsel, Mr Everitt agreed that this court should determine this application. The petition was presented in August 2013. Fern was unaware of it or of the fact of Mr Burford's bankruptcy until 20 January 2014. Pursuant to section 285(1) of the Insolvency Act 1986, this action is not stayed. There is a power in the court to stay actions against bankrupts, but such actions continue unless that power is exercised. There is no presumption in favour of a stay. Fern says that the Court should determine the issue of what its claim as a creditor is and whether property in Mr Burford’s name forms part of the bankrupt estate. Fern says that its claims against Mr Burford are in respect of fraud and that, under Section 281 (3) of the Insolvency Act 1986, Mr Burford will not be released from any liability in respect of those claims, which therefore need to be determined by court proceedings. The costs of the application have now been incurred (and the great bulk of them were incurred before the appointment of Mr Everitt). Mr Burford submits that the issues in this case should be resolved within his bankruptcy, and on the first day of the hearing I treated him as having made an application under s285 Insolvency Act to stay the action against him on that basis. For the reasons given by Fern, and because of the position taken by the Trustee, I refused Mr Burford’s application.

Evidence

[7]The evidence on this application consists of ten bundles of documents including numerous witness statements made in the course of the action of which the following are the most relevant. For the Claimant there is an affidavit and a witness statement from Mr Ildar Uzbekov, a former colleague and fellow director of Mr Burford at Fern, and witness statements from Mr Paul McKenna, a former director of Sushinho Limited, a company that received some of the money, Mr Jonah Anderson a solicitor from Dechert LLP who took a ‘confession’ from Mr Burford in March 2013, Mr Robert Montague of RKM Entertainment who was shown a forged letter of comfort ostensibly from Coutts in March 2013, James Cecil who confirms that a purported letter dated 12 June 2012 appearing to come from him was forged, Mr Daniel Welker, an investment banker who acts for the Shchukin family, Mr Alexis Tsielepis, a chartered accountant qualified in England and Cyprus who looks after the Shchukin family assets and trusts in Cyprus and from Fern’s solicitors. The Shchukin family have substantial interests in Russia, particularly in the coal business, and provided the money that has gone astray. I also considered a witness statement, filed in costs proceedings, by a partner in Speechly Bircham who had acted for Fern. The Defendant relies on his witness statement of 3 November 2013 which is 81 pages long but exhibits no contemporaneous documents and on one from his wife, the Second Defendant. Parties

[8]Mr Burford is a man of high intelligence and has impressive experience. According to his cv he obtained a Senior Exhibition to a Cambridge College and after graduation worked for some years for McKinsey & Co, in two spells, and the Foreign and Commonwealth Office. He also co-founded and developed some substantial businesses including Pitcher & Piano and Boden. In recent years he has run a boutique management consultancy. Things must have taken a turn for the worse because by 2012, according to his disclosure, Mr Burford faced financial pressures and had few assets.

[9]The Second Defendant is Mr Burford’s wife and the couple have three young children. Dr Kennard is a medical doctor and like Mr Burford had shares in the Third Defendant (“Westover”). Westover supplied medical services. Dr Kennard was the chief executive of Westover and Mr Burford was a director.

[10]The Fourth Defendant (“Sushinho”) is in the restaurant business. Mr Burford was a director and held shares.

[11]Hedgerow, the Fifth Defendant, was a company with interests in Botswana and elsewhere controlled and operated by Mr Burford who owned most of the shares and was the sole director.

The hearing

[12]The hearing lasted its full two days because Counsel for Fern rightly wanted to ensure that all the relevant documents were shown to the Court so that Mr Burford would have a proper opportunity to deal with the issues. Similarly Mr Burford needed a full opportunity to put his case across. By agreement Mr de Garr Robinson would deal with one or two issues at a time and then Mr Burford would respond. This seemed preferable to requiring Mr Burford to respond to all issues in a single oral submission. As Mr Burford is a litigant in person I gave him the last word. However at the end of the second day Mr Robinson had only just started his reply. I agreed that the Reply could be completed in writing and this was submitted on 22 February 2014. Once I had seen this written submission I considered that Mr Burford should have an opportunity to respond and gave him until 7 March to do so. Mr Burford had not responded by 12 March. On 13 March the Claimant’s solicitors wrote to me seeking to put it in additional evidence. As I had by then reached a decision I did not agree to that application which can, if necessary, be renewed when I hand down this judgment.

[13]Counsel for Fern informed me that he had given an explanation to Mr Burford about his right not to incriminate himself. At the hearing Mr Burford was not giving evidence on oath but making submissions. When evaluating submissions that did not seem to me to be correct or consistent I bear that distinction in mind as well as the difficulties facing any litigant in person.

[14]At times Mr Burford’s submissions were very general and related more to background matters than the issues in hand. As it was important to ensure that Mr Burford had a fair chance to address the important points I often asked him questions on the basis that he did not have to respond if he did not wish to do so.

[15]In this judgment I make criticisms of Mr Burford. I should therefore point out that, despite the stress of having to deal with important matters and being a litigant in person, Mr Burford retained his composure and courtesy throughout two days. I thank him for that.

Summary judgment

[16]This is not a trial but a hearing to determine whether the Claimant can show that Mr Burford has no real prospect of defending the action. Counsel rely on various cases but, as Mr Burford is not in a position to address those, I prefer to refer to the decision of the then Lewison J in Federal Republic of Nigeria v Santolina

[2007] All ER (D) 103

; “The courts have now given guidance on the principles to be applied in deciding whether or not to give summary judgment. For present purposes I summarise the relevant ones as follows: i) The court must consider whether the defendant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman

[2001] 2 All ER 91

; ii) A “realistic” defence is one that carries some degree of conviction. This means a defence that is more than merely arguable: ED & F Man Liquid Products v Patel

[2003] EWCA Civ 472

at [8] iii) In reaching its conclusion the court must not conduct a “mini-trial”: Swain v Hillman iv) This does not mean that the court must take at face value and without analysis everything that a defendant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10] v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5)

[2001] EWCA Civ 550

; vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd

[2007] FSR 63

; vii) Although there is no longer an absolute bar on obtaining summary judgment when fraud is alleged, the fact that a claim is based on fraud is a relevant factor. The risk of a finding of dishonesty may itself provide a compelling reason for allowing a case to proceed to trial, even where the case looks strong on the papers: Wrexham Association Football Club Ltd v Crucialmove Ltd

[2006] EWCA Civ 237

at [57].”

[17]This is a fraud case but the causes of action relied on by the Claimant do not require proof of all the allegations I refer to below. This appears from the legal basis on which they are put forward. Legal basis for the claim.

[18]As is often the case when claims are brought against someone directly accused of fraud, rather than a third party, Fern’s claims involve no controversial matters of law. I therefore take the summary from the skeleton argument of Mr de Garr Robinson QC and Ms Reffin. “They are claims by a company against a former director who has misappropriated the company’s funds. The director is, like a trustee, liable to restore the misappropriated funds. And insofar as traceable proceeds of those funds still exist, the company has a proprietary claim over those proceeds against the director and against anyone who derives title from him except a bona fide purchaser for value without notice. A director who takes property from the company without authority and/or in breach of his fiduciary duties is liable as a constructive trustee. See, for example, JJ Harrison (Properties) Ltd v Harrison

[2001] EWCA Civ 1467

[2002] BCC 729

at [25] (Chadwick LJ); Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration)

[2011] EWCA Civ 347

[2012] Ch 453

at [34] (Lord Neuberger MR) and Re Duckwari

[1999] Ch 253

at 262E-B (Nourse LJ). See, also, Zemco Ltd v Jerrom-Pugh

[1993] BCC 275

and Clark v Cutland

[2003] EWCA Civ 810

[2004] 1 WLR 783

. Where an asset of a company or its traceable proceeds are in the director’s hands, the company will often enforce this constructive trust by claiming the beneficial ownership of the asset or its proceeds. However, it has an option to assert an equitable charge, or lien, instead. See, for example, Foskett v McKeown

[2001] 1 AC 102

at 130A-131H. See also Re Hallett’s Estate

(1880) 13 Ch D 696

and Re Oatway

[1903] 2 Ch 356

.”

[19]Fern seeks to apply these principles in the following way. It says that Broadwell Manor represents the traceable proceeds of Fern’s money. The proprietary remedy for which Fern wishes to elect is an equitable charge to save Stamp Duty Land Tax. This election will make no difference to Fern’s recoveries. The proceeds of sale will all go to Fern if it succeeds. Mr Burford does not engage with the legal position (except to a limited extent and on other issues) so I have looked at the cases the Claimant relies on and they do make good its submissions. I shall return to the law when considering the Claimant’s answer to Mr Burford’s proposed defences. Facts agreed or not much in dispute and the picture presented by the documents disclosed.

[20]Many of the relevant facts are not disputed. Mr Burford does however contend that the Claimant has disclosed only a part of a wider picture, that responsibility for some acts attributed to him belongs to others and that the motive behind and reasons for some events are not what the Claimant alleges. Most of the oral submissions by Mr Burford understandably related to the facts, developing and sometimes qualifying what his written evidence says. An unusual feature of Mr Burford’s witness statement is that while it is 81 pages long, it exhibits not one contemporaneous document. It follows that this summary is based only on the documents disclosed by the Claimant and generally follows the order in its skeleton argument. I will deal with Mr Burford’s claims about missing documents once I have outlined the facts so that the competing submissions on this subject are seen in context.

[21]By January 2012, Mr Uzbekov and his friend and colleague Mr Morgon had known Mr Burford for several years. They and Mr Welker had collaborated with him on potential business. They understood that Mr Burford had business connections with the Oppenheimer family. Fern was set up in 2009 with Mr Uzbekov, Mr Burford, Mr Morgon and a Mr Shah as directors and shareholders. Fern had a bank account at HSBC, Mr Burford and Mr Uzbekov each had the power to make payments. In the event Fern was not used for any joint projects.

[22]In January 2012, Mr Burford was under financial pressure. As I have said he had no significant assets, Westover and Sushinho needed cash and there was no sign that Hedgerow was doing well. The solicitor acting for Mr Burford’s mother says that her signature was forged on a charge so that her home became a security for £250,000 that Mr Burford owed to a Mr Hardigg.

[23]By 2012 Mr Uzbekov had married the daughter of the founder of the Shchukin family wealth. In early 2012 Mr Burford gradually convinced Mr Uzbekov and Mr Morgon that a London “Family Office” was needed to manage the lifestyle and investments of the Shchukin family, similar to the Family Office for the Oppenheimer family of which he said he had close experience. He proposed that he would set up the new Family Office and manage it for an initial period, after which someone like Mr Morgon would take over. The proposal was in time accepted. Mr Burford sent a series of cash projections and emails to support his case that between £500,000 and £2 million should be transferred to London for its working capital. At that stage, it was proposed that Mr Burford would work part time, but in November 2012 (after Mr Burford’s apparent successes in attracting funds from Red Star and the Oppenheimers, described below) Fern’s Board formally approved a salary of £20,000 per month for him. Mr Burford, who was responsible for such matters, never arranged for employment contracts to be drawn up.

[24]Mr Burford proposed to use Fern for the Family Office. He said this “would save us quite a lot of time and would short circuit some of the administrative and set up costs”. He more than once said that he was aware of no pre- existing liabilities and that he had “cleansed” Fern. But in case any liabilities turned up, he promised to execute an indemnity in Mr Uzbekov’s favour. So it was agreed that Fern’s shares would be redistributed to Mr Uzbekov and Mr Burford alone, with Mr Burford holding his 50% shareholding as nominee for Mr Uzbekov’s wife. Mr Burford agreed that these shares should be held by a nominee and promised to get a “deed of appointment” drawn up for the purpose. He did not do so.

[25]Despite this Mr Burford has, since November 2013, claimed, that as at the start of 2012, Fern owed him £550,000. This claim arises where there are emails from Mr Burford to his new colleagues suggesting that he might save tax by being paid not income but instead being repaid a false loan. Thus in an email of 25 March 2012 Mr Burford proposed using “a pretty spurious loan repayment technique in Fern to allow my remuneration to be basically tax-free for a year or so which helps!”

[26]On 24 April, £1 million was transferred to Fern’s account at HSBC from the funds in Cyprus available to the Shchukin family. This transfer, like all others from the Cyprus funds, was arranged by Mr Tsielepis and was to meet the expenses identified by Mr Burford. The money was lent by a family company, Upminster Trading Limited, on the terms of a written agreement that Mr Burford signed on behalf of Fern. Clause 3.1 provided that “the Borrower [Fern] shall use all the money borrowed under this agreement as working capital”.

[27]Despite this, within two days Mr Burford had sent £100,000 to Westover, £70,000 to Hedgerow and £12,000 to his joint account at Coutts. By 25 June 2012, there was only £198,109 left as another £200,000 had gone to Westover and £65,000 to Mr Burford personally. Mr Burford maintains that these payments were applied to working capital in a broad sense and the sums received by Westover and Hedgerow were legitimate loans.

[28]In the summer of 2012 Mr Burford bought Broadwell Manor with Fern’s money. Contracts were exchanged on 28 June 2012 and completion took place on 24 August 2012. Although Broadwell Manor is registered in the joint names of Mr Burford and his wife, Dr Kennard has disclaimed any interest in the property and confirmed that she did not contribute money of her own to the purchase. Mr Burford agreed to pay £8.5 million, plus charges to a purchaser’s agent, but he had no means of paying. Coutts had turned him down for a mortgage in May 2012 and another arrangement that he says that he could have reached with Coutts is denied by that bank who say that it would have been illegal.

[29]Mr Burford was able to procure a further transfer from Cyprus on 25 June 2012, in time for him to pay the deposit. He obtained £2.25 million sent for the specific purpose of paying the start-up costs of a proposed fund called the Marylebone Oil & Gas Fund. There was a genuine investment proposition from a Mr Lloyd by which £4 to £5 million seed capital was sought in return for equity in what would become the managing company for the proposed fund. Mr Burford persuaded Mr Morgon and Mr Uzbekov that Fern should invest £2.25 million by claiming that he had obtained a matching investment sum from a Family Office called Red Star Enterprises. He produced a commitment letter from Red Star dated 19 June 2012 and signed on its behalf by James Cecil. This stated that Red Star would transfer £2.25 million to Fern’s bank account for investment “only on a matched basis to Fern’s investment”. The letter also confirmed an intention to invest at least $50 million into the intended oil and gas fund on stated conditions. Mr Burford prepared minutes of Fern’s Investment Committee meeting to the same effect. On 22 June 2012, Mr Uzbekov therefore approved the investment. Red Star never transferred the £2.25 million. James Cecil had met Mr Burford to discuss the proposed Marylebone oil and gas fund but there was no interest. The commitment letter was not signed by James Cecil and was a forgery. Fern claims it was forged by Mr Burford. In submissions Mr Burford says that although he used the document Mr Uzbekov forged it.

[30]The £2.25 million paid on 25 June 2012 from Cyprus was again made on the terms of a written agreement with Upminster that Mr Burford signed on behalf of Fern. Clause 3.1 said that that “the Borrower shall use all the money borrowed under this agreement to invest in the Marylebone Oil & Gas Fund”. But on 26 June 2012 £895,000 was transferred from Fern’s account to Mr Burford’s and Dr Kennard’s joint account at Coutts. On 27 June £850,000 was transferred from their account to their solicitors Withers to pay the 10% deposit.

[31]By this point, since 24 April 2012, Mr Burford had paid out: To Westover or for its benefit: £ 59,000 To Hedgerow: £ 120,000 To himself or for other expenses of his: £ 221,625 Broadwell Manor purchase £ 895,030

£1,795,655

[32]Mr Burford claims that some £700,000 was spent on the costs of Marylebone and of setting it up over a 6 to 8 month period. Fern’s analysis of the records shows a sum of £24,427.65 attributable to this. Mr Burford has not addressed the records in any detail.

[33]In July Mr Burford sought more money for what he called “an Oppenheimer opportunity”. Fern says that he did this as he needed money to pay for Broadwell Manor at completion. The “Oppenheimer opportunity” was first put to Mr Welker. Mr Burford referred to a trust fund of around $150 million which Mr Burford’s “old colleagues at the Oppenheimer family office” might want him to invest. Mr Welker worked with Mr Burford on this apparent opportunity, without ever being in direct contact with the Oppenheimers. On 17 July 2012 Mr Burford introduced the idea to Mr Tsielepis in Cyprus. Mr Burford stated that he had “convinced” his “former colleagues at the Oppenheimer operation to offer Fern a mandate to manage a £170m fund” for attractive fees. The Oppenheimers were “wanting to move at superhuman speed”. Funds for the project would be needed in advance of regulatory approval:

“we will probably look to bring Fern Investors LLP forward with some initial funding in the next 2-4 weeks to satisfy the Oppenheimers’ desire to get on with this before the holiday season.”

[34]From late July Mr Burford made a series of similar claims in various other emails. On 3 August he told Mr Tsielepis this, claiming that he had agreed with the Oppenheimers terms for managing a £162 million fund:

“with an immediate start (13/08) for the management of the Trust’s private equity and non-bond stakes on a consultancy basis by FAL… Oppenheimers are poised to send through to us their free (uninvested) cash (£14.8m as of 31/07/12) by the end of next week (ie by 10/08) and we are committed thereby to £10m of funds into UK investor LLP simultaneously. I need to issue a bank certificate of UK funds held by the end of the following week (17/08). Thereafter we can hold as cash and use to collateralise other obligations rather than invest.”

[35]Apparent corroboration of Mr Burford’s statements about the “investment mandate” was provided by an agreement with the trustees of the alleged Oppenheimer trust fund, dated 10 August 2012, signed by Mr Burford on behalf of Fern and handed to Mr Uzbekov. But the Oppenheimers had not given Fern an “investment mandate” at all. It is not now suggested by Mr Burford that they had. His evidence is that “we had been in discussion with various investors in relation to the Luxembourg fund structure”. False claims continued to be made and on 14 August 2012, Mr Burford apparently emailed to Mr Tsielepis that the Oppenheimers had “performed as normal and sent a somewhat larger amount than expected through to us (I had been told to expect £14.8m but £16.728m has appeared)”. He reminded Mr Tsielepis that he was “meant to issue their [Oppenheimer] trustees a certificate of bank deposit reflecting our £10m commitment for their reassurance by Friday 17th, not wishing to put pressure on or anything”. The same email reassured Mr Tsielepis that Mr Burford had:

“updated the FAL and FI LLP bank mandates as we discussed to require 2 signatures over £100k (Ildar has always been a signatory, although he may not have been aware of it so it was an easy job to amend to 2 signatures).”

I say apparently emailed as Mr Burford says that he did not send this message. The Oppenheimers never transferred £16.728 million (or any sum) to Fern’s bank account.

[36]Since November Mr Burford has denied that he sent the email of 14 August 2012. He suggests that Mr Uzbekov had a motive to do so, in order to deceive Mr Shchukin (his father-in-law) that external funds had been committed to the Family Office. Fern responds as follows. The contemporaneous documents show that this cannot be right. The email is very similar to other statements that Mr Burford had made to Mr Tsielepis, Mr Welker and Mr Morgon as well as Mr Uzbekov, that a large sum had been paid by the Oppenheimers. The email cannot have been a forgery, and must have been sent from Mr Burford’s email account by Mr Burford, not Mr Uzbekov. The email formed part of a chain of email dialogue, involving Mr Burford at multiple stages. Mr Burford had already made false representations that external funds had been committed to the family office, by his forgery of the Red Star commitment letter. He had the pressing motive that he needed over £8 million to complete the Broadwell Manor purchase. It seems that Mr Burford’s recollection is mistaken about this issue. It is most unlikely that the email was sent by anyone else.

[37]On 16 August 2012, Mr Tsielepis reported to Mr Uzbekov his discussion with Mr Burford on this subject, and sought Mr Uzbekov’s authority to send £10 million to Fern next day as Mr Burford had requested. He continued:

“I asked [Mr Burford] if we can do it not as a loan but as a “custody” so that effectively we can show in B[ryankee] that the funds are still the funds of B[ryankee]. [Mr Burford] confirmed this is ok for our purposes as FAL only need to issue a bank certificate showing the amount. Once FSA registration has been completed then we can get the funds back.”

[38]This course was authorised by Mr Uzbekov’s reply email next morning. The evidence is that Bryankee is a company within the Cyprus structure holding funds derived from Mr Shchukin’s coal business. Fern says, and the documents confirm, that the £10 million was to remain in Bryankee’s beneficial ownership and Fern would simply hold it for as long as required (by the supposed agreement with the Oppenheimers). Fern asserts that it was to be a bare trustee for Bryankee. The £10 million would be held in a ring fenced account requiring 2 out of 3 signatures, and would be retained intact until a regulated investment entity was in place (at which stage it could be returned to Cyprus).

[39]The £10 million was paid into Fern’s HSBC account on which Mr Burford alone could sign. The £10 million was never paid into a ring fenced account requiring two signatures. On Monday 20 August 2012, Mr Burford transferred £8,500,000 directly to Withers to fund the completion of the purchase of Broadwell Manor. It is not clear why Withers accepted a third party payment for a purchase by Mr Burford. Mr Burford was a director of Fern but it is unexpected that the solicitors would apply the company’s money to Mr Burford’s personal benefit without obtaining something more from the company. Completion took place on 24 August 2012.

[40]There is controversy about how far Mr Burford had any contacts with the Oppenheimers. In submissions, but not evidence, Mr Burford said that he had dealt with an Oppenheimer “fixer” Joshua Samuels who had introduced him to three members of the family. There is no evidence or correspondence from any of them or their advisers. Mr Burford’s recollections are not consistent and some of what he said at the hearing was falsified by production of a witness statement from a partner in Speechly Bircham. If Mr Burford did have the Oppenheimer connections he claimed in the correspondence one would have expected at least one of the individual connections to confirm this by now. But as I see it the issue does not matter for the purposes of this application. Whatever the level of contact, Mr Burford accepts that he untruthfully said that more than £16 million had come in from the Oppenheimers but it had not.

Sushinho

[41]Mr Burford made payments of almost £1.5 million for the benefit of Sushinho which was building a new City restaurant in Devonshire Square. Mr Burford untruthfully told his fellow directors at Sushinho that the money came from a government-backed loan, as Mr McKenna explains in an unchallenged witness statement. The money was paid out of Fern’s HSBC account but he told his colleagues that it came from Coutts. He produced to Mr McKenna a paper copy of a purported Coutts facility letter dated 12 October 2012. Coutts have confirmed that the letter was a forgery. Fern claims that Mr Burford forged it. Mr Burford gives a complicated account of why he deceived his fellow Sushino directors which Fern seeks to refute. For present purposes it does not matter.

Concealment of Mr Burford’s use of the money transferred to Fern

[42]On 28 September 2012, Mr Burford produced the first of what were intended to be quarterly reports, emailed by him to a Fern staff member Jane Cullen. One report referred untruthfully to obtaining a funding commitment from Red Star and an investment mandate from the Oppenheimer trust. The second report set out false details of the balances in bank accounts of Fern and associated entities. In his witness statement dated 6 November 2013, Mr Burford admits that he, or at any rate Fern, produced written reports of the bank balances held, using a template similar to the report of 28 September 2012. However, he claims in evidence that he did not produce that report, although in his submissions he says he did but only at Mr Uzbekov’s prompting having been put in to a “vice like situation”. The bank report stated that £4.5 million was held in a fixed deposit in connection with Marylebone Oil & Gas, £16.6 million was held in a fixed deposit in connection with the Oppenheimers, and £10 million was held in a third fixed deposit. The process was repeated in much the same way in December. The points made above in relation to the 28 September 2012 bank report apply equally to the December 2012 bank report. Mr Burford does not mention it in his evidence.

[43]On 20 November 2012, Mr Morgon asked Mr Burford for a recent bank statement to provide comfort to the vendors in Fern’s proposed purchase of a business Utility Aid. On 21 November 2012 Mr Burford responded that he had asked the bank for a confirmation of funds letter and later emailed to Mr Morgon a letter, purportedly from Coutts, setting out balances which reflected those reported in the 28 September 2012 bank report. There were no such balances, and the 21 November 2012 Coutts letter was forged.

[44]At around this time, Mr Uzbekov appointed an accountant, Marc Markou, to get Fern’s records in order. On 22 November 2012, Mr Markou asked for documents, including bank statements. In emails dated 22 to 26 November 2012, Mr Burford claimed that that Smith & Williamson, accountants, were due to audit Fern and prevailed upon his colleagues to postpone the matter.

[45]On 25 February 2013, Mr Uzbekov received an email from Coutts asserting that the bank did not hold £10 million as Mr Uzbekov had thought from what Mr Burford had told him. At Mr Uzbekov’s request Jane Cullen emailed Mr Burford asking to be put in touch with the person at Smith & Williamson dealing with Fern so that Mr Uzbekov could meet him in the next two days. Mr Burford asserts that Mr Uzbekov knew the true position all along. If so Mr Uzbekov was covering his tracks in an extraordinarily elaborate way.

[46]This request coincided with Mr Burford’s wife Dr Kennard having been rushed to hospital with a premature birth and complications both for her and their child. For some weeks Mr Burford was unable to attend for work and was understandably preoccupied but still dealt with matters from home. He dishonestly created an email address for a fictitious accountant, “James Butterworth” of Smith & Williamson, and corresponded with Jane Cullen using that email address so that Fern had no reason to doubt that he was real. “Mr Butterworth” was elusive and subject to last minute changes of plan and sudden illness. Eventually Mr Uzbekov lost patience and instructed “Mr Butterworth” to send all documents to Mr Markou.

[47]Texts and emails of 8 March 2013 show that Mr Burford continued to deceive Mr Uzbekov about the existence of “James Butterworth”, expressing disappointment at his unavailability, while, in the person of Mr Butterworth himself, he elaborated his story of illness to Jane Cullen. Mr Burford admits the deceit and says that he suspected an intention to replace Smith & Williamson as auditors without a board minute, which he found embarrassing, and so “provided an email address that was registered to me so that I could find out what was going on first hand”. This was also apparently done to try to elicit information about “a palace coup [that] had been mounted to wrest control of the company and its activity from me”.

[48]In March 2013 Mr Morgon asked Mr Burford for a comfort letter for a Formula One investment opportunity. The events are set out in the unchallenged witness statement of Mr Montague who was soliciting the investment. On 22 March 2013 Mr Burford provided to Mr Morgon a letter of comfort from Coutts which referred to deposits totalling over £31.5 million. On 22 March 2013 Coutts told Mr Uzbekov that both this letter and the similar letter dated 21 November 2012 were untrue and forged. Mr Burford admits that he forged the March letter in a passage beginning at Paragraph 240 of his witness statement, saying that he did this as part of ‘going along’ with what seemed like a suspicious project until he was back at Fern and able to establish the truth.

[49]Mr Burford’s response to being informed of Coutts’ denial was to claim that the missing money was not at Coutts but at HSBC. He texted Mr Morgon that HSBC would email the most recent statement on Fern Investors LLP’s account “which shows the big balance all in one place. Obviously it won’t be enough but it may serve to allow you both to feel a little reassured that I have not left the country with all the money. I hope”. The text added that he was “not playing for time to forge some nonsense”.

[50]Mr Burford next provided to Mr Morgon a bank account statement from HSBC under cover of a forwarded email from HSBC showing a credit of over £36 million. This too was a forgery, as HSBC confirmed and as Mr Burford now admits. He says that he forged this for the same reasons and not to hide the position form Mr Uzbekov, who he says knew the true position all along, but from Mr Morgon. The “confession” and its significance.

[51]The truth about the balances came out, Mr Burford went for an interview with colleagues on Saturday 23 March 2013 and made what is described as “the confession”. Various reputable people were present but the process appears to have involved mainly Mr Burford and Mr Anderson of Dechert LLP, who was there as an independent solicitor.

[52]The confession admits that Mr Burford had taken about £11 million without authority and spent it mainly on buying Broadwell Manor and his ailing businesses. He recognised an obligation to repay the whole sum to Fern. There is nothing in it hinting at the various defences and claims alleged in his witness statement.

[53]Mr Burford now alleges, at Paragraphs 248-250 of his statement, that on that day he decided to “sign whatever they wanted me to sign that day” because James Morgon posed a “direct physical threat” to him and communicated a threat from Mr Uzbekov of “immediate consequences” for Mr Burford’s family. Mr Burford concluded that “I would have to go along with whatever was being required in order to avoid any threat to my family”. He referred in submissions to an indirect threat of retribution from a private army in Siberia. It would appear that these threats have receded since November 2013.

[54]Fern says that the allegation of duress is preposterous, pointing in particular to the evidence of Mr Anderson about what happened and the freedom accorded to Mr Burford in preparing his statement. Mr Burford’s claims look improbable but I cannot decide that issue on an application for summary judgment so for the purpose of my decision I will ignore the content of the confession- but not the fact that the defences relied on were not put forward until 6 November when there had been plenty of opportunities, not just at the time of the interview in March, to raise them before.

Missing documents

[55]I have referred to Mr Burford’s application for disclosure which was made but not pursued. His alleged lack of access to crucial documents which vindicate his case is a theme running through much of his proposed defence. I asked him some questions to try to understand what these documents were and how they would assist him. The following passage from Day One p112 and p114 summarises Mr Burford’s position. “On the broader issue of documentation, I mean, it is 6 a constant theme, and has been for months, of my lack of 7 documentation to provide evidence of any of these things 8 which otherwise I am left to assert, but the sequence of 9 events in March/April 2013 did remove from me all of the 10 documents which otherwise I would have relied on and 11 what I have never been able to really understand is the 12 reversal which occurred in April whereas what I had 13 agreed with Fern and their representatives at the end of 14 March was I would provide immediate access to all of 15 these forms of documentation, principally the Dropbox 16 which Mr Robinson discussed and the email history, on 17 the condition that I could have ongoing access to those 18 precisely so that I could answer these questions and 19 provide evidence. 20 JUDGE MACKIE QC: Can you just explain, I mean have you 21 written -- what are the specific documents that Fern has 22 that you have not had an opportunity to see? 23 MR BURFORD: Email history stretching back over some years 24 and the documents, these loan documents were amongst 25 them, all sorts of documents relating to the set-up of… Page 114 1 internal documents and the corresponding reason that 2 I was asked to sign them, for instance, is precisely 3 because I was appearing on both sides of the coin, 4 really. 5 So they are in -- both in physical form they were 6 left in folders in an office and have disappeared, and 7 the digital form, which I think is more interesting and 8 would be more corroborative, is buried within fairly 9 substantial email history but which would bear 10 reasonable examination. 11 JUDGE MACKIE QC: What are you saying, are you saying it has 12 vanished, or they are deliberately withholding it from 13 you, or what? 14 MR BURFORD: It has certainly been deliberately withheld. 15 I think the grounds for withholding it have changed over 16 time but don't bear up to inspection.

Page 114

[56]Mr Burford asserts that much of the material he says is missing is in a ‘Drop box’ of documents in computer form. In submissions he said that there were also documents in folders on his desk relating to the loans that have also gone missing. The position of the Claimant is as follows-from Page 31 of the Day One transcript; “your Lordship may know what a Dropbox was, 10 I certainly didn't. As I understand it, it is something 11 to do with what one calls the Cloud. Instead of storing 12 documents on your hard drive you store them somewhere 13 intangible outside your computer. That is a Dropbox. 14 What happened was Mr Burford gave -- not 15 surprisingly, bearing in mind what had happened on 16 23 March -- Mr Burford gave access to the Dropbox to 17 Fern. 18 In early April Mr Burford was given a memory stick 19 which contained the contents of the Dropbox. Mr Burford 20 claims that that memory stick is incomplete because some 21 documents were deleted from the Dropbox mysteriously 22 towards the end of March. But in fact that is not so. 23 As Mr Hunter's witness statement shows, the memory stick 24 was actually a copy of a forensic copy that was taken of 25 the Dropbox on 23 March itself. Page 32 1 Mr Burford further claims that the memory stick was 2 taken from him when furniture was taken by Fern from his 3 Ledbury Mews office on 3 May. 4 He says it was in the drawer of a desk that was 5 taken, together with an iMac computer which had a 6 backed-up version of the memory stick. But, my Lord, 7 those files were not taken then, nor the memory stick, 8 nor the iMac. What was taken was put into storage. On 9 30 August, Herbert Smith sent a letter to Mr Burford 10 offering him access to the storage to see what was in 11 the drawers. He did not take the offer up at that time 12 and I interpose there to say it seems he didn't actually 13 want to see what was on the Dropbox. 14 Eventually, however, having received Mr Hunter's 15 witness statement explaining all these things, he did 16 attend and review the contents of the storage early in 17 December and the memory stick and the iMac computer was 18 not there. I am sorry to say my Lord, but in 19 a situation of this sort it suits Mr Burford to be able 20 to say he doesn't have the documents which we say he 21 does have.”

Page 32

[57]The history of Mr Burford’s claims about documents is addressed in formidable and convincing detail in the first 17 paragraphs of Fern’s closing submissions.

[58]There is no prospect of Mr Burford’s claims about missing documents being established at trial. First his assertions about what has gone missing have not been consistent. Secondly there is no reason to doubt the witness evidence about the issue given by the Claimant’s solicitors, amplified in the closing submissions, and it has not really been challenged. Thirdly Mr Burford has been careful not to pursue his quest for documents very hard, not taking forward his application. Fourthly it would be a formidable intellectual feat for someone within the Claimant in Spring 2013 to remove or delete every document that harmed its case particularly where the defences were not disclosed until November 2013. Fifthly none of the documents that do exist, and there are many, refer in any way to the documents said to be missing. Sixthly the documents that do exist are in many respects wholly inconsistent with the existence of the documents said to be missing which would appear to occupy a parallel universe. Seventhly many of the documents said to be missing would exist at least in copy form elsewhere. If loans by Fern to the corporate defendants were documented as Mr Burford claims, copies would be with the borrowers and professional advisers. But even if they were sought by Mr Burford, there is no sign of those being found-even where the companies such as Westover and Hedgerow are closely associated with him. Similarly where there is now access to some documents of third parties such as Sushinho or professional advisers such as Speechly Bircham, Mr Burford’s claims are not made out.

The proposed grounds of defence

[59]In his skeleton argument Mr Burford first submits that there should be no summary judgment because of the delay between 23 March, when the Claimant first complained, and the issue of the application on 29 August. There is nothing in that point.

[60]Secondly he seeks to dismiss the application because that delay was used to remove all sources of documentary evidence from him. The evidence available is that Mr Burford’s claim about that is untrue and it is so strong that there is no prospect of that position changing at trial.

[61]Thirdly there are said to be concerns about the freezing application which, as I see it, are irrelevant.

[62]Fourthly Mr Burford says that Mr Uzbekov agreed with him, in a series of conversations, that Fern would lend millions of pounds to him and/or to companies associated with him.

The involvement of Mr Uzbekov

[63]I have not found it easy to understand Mr Burford’s case about the role of Mr Uzbekov or why this gentleman would wish Mr Burford to have use of Fern’s money for himself, his property purchases and loans for his companies, let alone why he would have a reason to be involved in dishonestly obtaining money from Cyprus and forging documents. Mr Burford’s summary of the position, taken from selected passages in his skeleton argument is as follows; “Transition in the claimant entity’s purpose and operation (2012) Following discussions held between Ildar Uzbekov, James Morgon and the first defendant between November 2011 and February 2012 it was decided to repurpose Fern Advisors Limited as the Family Office of the Shchukin family, a Russian family with interests in Siberian coal mining and of which Ildar Uzbekov had become a member following his marriage to Elena Shchukin, the only daughter of the family’s principal, Alexander Fillipovich Shchukin. The underlying financial basis for this transition of purpose was agreed between Ildar Uzbekov and the first defendant as the equal sharing of the profits that would accrue from the investment management of capital transferred to its management from the Shchukin’s Siberian operations and which they were seeking to remove from Russia. Ildar Uzbekov undertook to procure the transfer of between €250- €400m of capital to Fern’s management within the following two years with a view to taking €1bn under Fern’s management over the following five years. The outline terms of Fern’s management of these investments was to be 2% of the capital committed and 20% of the investment returned. In return the first defendant agreed to develop Fern’s capability to manage investments of this scale, recruiting and employing appropriate staff, advisors and intermediaries, while also operating a family management operation to facilitate the living requirements of Shchukin family members outside Russia. During the course of the establishment of these capabilities and entities the first defendant acted on his own recognisance because of extreme antipathy of Russian family members to document decisions and transactions and he consistently acted on behalf of family members with little more than the most general intimation of objects and means transmitted by telephone conversations often conducted only after considerable delay and many attempts to acquire instructions. 9. The expansion and complication of Fern’s investment mandate (2012) In the development of Fern’s role as the investment manager of the capital being extracted from Russia by the Shchukin family through 2012 it became clear that the Shchukins preference was for Fern to acquire third party investment management funds from other families to complement the Shchukin capital, diversify risk and expand potential investment targets. Nevertheless, as 2012 progressed, the probability that the Shchukins would make a substantial initial capital injection in the originally agreed €250m- €400m range appeared to diminish and its commitment seemed likely to be delayed. In late December 2012 Ildar Uzbekov brought back the news that the principal mechanism for the extraction of capital from Russia, a loan facility from a syndicate managed by Deutsche Bank to the Siberian coal mines owned by Bryankee Holdings Limited on which work had been devoted throughout the year, would not be completed because of family resistance to corporate indebtedness because of the continuing low coal price. This endangered the viability of Fern’s establishment as the Shchukin’s investment managers for capital extracted from Russia as it was impossible to establish this capability without significant initial capital commitment from the Shchukins. 10. The complications of the Cypriot financial crisis (February 2013) Following the decision not to pursue the Deutsche Bank loan, the ~€150m of cash held by the Shchukin family in Cyprus became caught up in the Cypriot financial crisis, despite the strong and consistently delivered advice that the first defendant and others had provided to the family to move cash out of Cyprus through the second half of 2012. Initially this looked as though the family might sustain the loss of a very substantial proportion of cash on deposit in Cyprus, although this was restricted to less that ~ €20m as the bail-out terms were refined. Nevertheless, the loss of this capital, and the retrospective review of the unnecessary risk that leaving cash deposits in Cyprus through the latter half of 2012 had involved put significant pressure on Ildar Uzbekov’s role as the principal intermediary for the Shchukin family outside Russia and appears to have led to the identification of the need for a scapegoat to divert attention from the Cypriot imbroglio. This unfolded in the events of March 2013, culminating in the recharacterisation of the first defendant’s actions through 2012-’13 as fraudulent self-enrichment and the confrontation between the claimant and the first defendant on 23rd March 2013.”

[64]None of this is supported by any document and it is all denied. It appears to be largely speculation. It is unnecessary to examine it in detail on this application because of the view that I have formed about the legal significance of the alleged plot with Mr Uzbekov. I take the principles largely from Fern’s skeleton argument because they are, as I read them, not open to contradiction.

[65]Fern says that by implicating himself and Mr Uzbekov in another fraud, Mr Burford makes it impossible to impute to Fern any of the agreements that he alleges he made with Mr Uzbekov. The first two payments were provided under loan agreements with Upminster which expressly provided that the relevant funds could only be used for the stated purposes. The third payment was made on terms that Fern would merely hold them as bare trustee for Bryankee.Mr Burford’s case is that he and Mr Uzbekov agreed that most of these funds should be paid out to Mr Burford and applied for his purposes. If Mr Burford’s case were correct, he and Mr Uzbekov would have been engaged in a conspiracy to deceive Upminster and Bryankee as to the uses to which the funds were to be put. By the same token, they would have been engaged in a conspiracy to put Fern in breach of its obligations to Upminster and Bryankee (breaches which constituted Events of Default under the Upminster loan agreements) and to expose Fern to substantial liability which it was in no position to satisfy.

[66]These would not have been agreements by Fern but private ones made dishonestly and in breach of their duties by two directors of Fern giving the company a right of action against them.

[67]Moreover, these alleged agreements were not made or ratified by all Fern’s shareholders. Even if they had, this would still not have excused their serious breaches of duty: see Bowthorpe Holdings Ltd v Hills

[2003] 1 BCLC 226

at [48]-[54].

[68]Further Section 197 of the Companies Act 2006 provides:

“197. Loans to directors: requirement of members' approval (1) A company may not– (a) make a loan to a director of the company or of its holding company, or (b) give a guarantee or provide security in connection with a loan made by any person to such a director, unless the transaction has been approved by a resolution of the members of the company.” (1) A company may not– (a) make a loan to a director of the company or of its holding company, or (b) give a guarantee or provide security in connection with a loan made by any person to such a director, unless the transaction has been approved by a resolution of the members of the company.”

[69]The requirements of section 197 have not been met so, amongst other things, the alleged loan would be voidable.

[70]Fern also submits that the Upminster and Bryankee agreements created trusts. The Upminster loan agreements created Quistclose trusts and the Bryankee agreement created a bare trust. It was expressly agreed that Bryankee’s £10 million would remain Bryankee’s property, under an arrangement which Mr Tsielepis called “a custody” and which he plainly meant to be a bare trust. As Lewin on Trusts puts it (18 ed, at [8-48]):

“If the parties did not intend the money to be at the free disposal of the recipient, then there is a Quistclose trust.”

Under these trusts, Fern only had the power to apply the relevant funds in accordance with the terms of the relevant agreements. The loan agreements that Mr Burford claims he made with Mr Uzbekov were beyond Fern’s powers and the carrying out of those agreements would have put Fern in breach of trust. These breaches of trust cannot be relied on by Mr Burford, who was well aware of the terms on which the funds had been provided to Fern (he agreed them). Moreover, as trustee for Upminster and Bryankee, Fern is entitled to seek to restore the relevant trust funds.

[71]The short conclusion I reach from this having read the cases relied upon is that the statements of the law are correct and the legal obligations of Mr Burford to Mr Fern are substantially the same whether or not he conspired with Mr Uzbekov. So for the purposes of summary judgment it is unnecessary for me to resolve the matter, although I will refer to it later for another reason.

Alleged Loans- Mr Burford’s case

[72]In his witness statement Mr Burford claimed for the first time that he and Mr Uzbekov made five loan agreements on Fern’s behalf to fund Hedgerow, Westover, the deposit on Mr Burford’s and Dr Kennard’s purchase of Broadwell Manor, the completion monies for that purchase and Sushinho. I deal with these in turn.

[73]Hedgerow. Mr Burford alleges that the Hedgerow loan – of money paid piecemeal from 25 April 2012 to 25 February 2013 - was evidenced by a document dated 12 April 2012 signed by him alone, apparently as guarantor as well as on behalf of the borrower. This alleged document cannot be found. He also says that there was an oral agreement that Fern would pay the wages of Hedgerow’s employee Georgina Hogarth. He started paying Ms Hogarth’s wages out of Fern’s account on 28 September 2012.

[74]I invited Mr Burford to develop his case and to respond to points put by Fern. His answers are at pages 103 to 108 of the transcript for Day One and he emphasises the need to consider the background:

“3 MR BURFORD: … the financial 4 relationship between Fern and Hedgerow was established 5 even prior to the establishment of the family office as 6 a formal entity and concept and flowed back from the 7 desire to swiftly move ahead with the purchase of 3E, 8 the security company, which had been the subject of 9 discussion even I think prior to Christmas in 10 December 2011 and was a transaction which Ildar Uzbekov 11 and James Morgon were keen to implement but which had 12 been derailed because of problems in moving the funds 13 about to acquire the business and assets of 3E, which is 14 not a large company but required the payment of 15 somewhere around GBP150,000 in a mix of payments to 16 acquire the assets of the old company, the old 3E 17 company, and to recapitalise in working capital and 18 other reasons the new operating company going forward. 19 But this had been delayed and stopped because of 20 problems that Ildar encountered in transferring the 21 money, I think from a BVI back through to -- 22 JUDGE MACKIE QC: But no documents about that either? 23 MR BURFORD: No.”

Westover.

[75]Mr Burford says that this agreement was made, apparently only orally, 2 weeks or so after up to £500,000 was committed to lending to Hedgerow. (Fern points out that Mr Uzbekov was not in London when Mr Burford claims the agreement was made on 23 or 24 April 2012).

[76]Mr Burford seems to suggest that the purpose of the loan was to create goodwill for Fern with Westover shareholders. However, Fern was apparently not disclosed to those shareholders as the lender.

[77]Mr Burford describes the background between pages 84 and 90 of the Day One transcript without seeming to deal with the specific points alleged against him. He presents the rationale for the loan as follows:

“So the process was a three-fold one, was to put 12 funds into Westover that would allow Fern or the wider 13 Shchukin family interests to take a position that would 14 become an equity position over time, that would fund the 15 change in the UK operating companies' cost base and 16 would fund the development of a revised 17 market-appropriate concept that could be taken into 18 expat markets overseas rather than in London. 19 That process was one we then put in place and the 20 money flowed, I think it was described, from Fern 21 directly to Westover, but booked as a loan, with the 22 intention that that should be taken as converted into 23 equity at the point that that conversion was seen as 24 taking place, probably towards the third or fourth 25 quarter of 2013. Page 90 1 So my underlying hope and intent was to obtain 2 a significant minority position for Ildar and the 3 Shchukin family in the form of Fern within Westover's 4 shareholder group but without having to go through the 5 up front and probably impossible process of getting them 6 introduced into the shareholder group in the first 7 quarter of 2012 when the politics of which had already 8 rejected the inclusion of two new shareholders, despite 9 the cash operating position of the company, which 10 desperately needed the new money, but which existing 11 shareholders seemed incapable of accepting that, that 12 was only going to come with a new shareholder injection. JUDGE MACKIE QC: Sorry to interrupt you, but I think their 11 point is a shorter one, which is that you had agreed to 12 use the money for working capital and they say the loan 13 to Westover wasn't a use of working capital. 14 MR BURFORD: I would disagree. The use of all of those 15 funds was seen to make investments, to make -- to defray 16 costs across both what I think was described earlier as 17 the family service element, and the creation of the 18 investment management process and staff remuneration, 19 but was also specifically undertaken at a time when 20 there was considerable confusion, not just in my head, 21 of what the sources and uses of funds should be, and 22 that particularly flowed from the discussion and 23 implementation of the acquisition of 3E”

Page 90

[78]Sushinho. The agreement was allegedly made orally, over lunch in early October 2012. The allegation is that Mr Uzbekov agreed a deal which would see Fern lend up to £1 million (though in fact Mr Burford took a total of £1.15 million) and become the owner of the new City restaurant, after 6 months of its trading, apparently by becoming owner of Sushinho Limited’s subsidiary Sushinho City Limited, “by mutual agreement with the other shareholders”. It is not suggested by Mr Burford that there was any contact with those other shareholders. Nor is it suggested that there was any investigation of the Sushinho group’s creditworthiness – Sushinho Limited was losing around £1 million a year. Despite the obvious complexity and pitfalls of the agreement, there was supposedly no written record, other than a “very brief note” allegedly created by Mr Burford a month or more later (but not alleged to have been given to or signed by anyone else), allegedly included in the Drop box. The evidence (set out above, and including that of the independent Mr McKenna) is clear that Mr Burford concealed from his fellow shareholders and directors that Sushinho’s construction project was being funded by Fern and deceived them about it, so that it is impossible that an agreement of the kind alleged was made with Sushinho. Mr Burford does not as I see it present any coherent response preferring to concentrate on his perception of the background. He says at Day 2 Page 46:

“Sushinho I suppose relates back to a very early 21 stage in the gestation of our thinking about the family 22 office and what we were doing. It was an interest which 23 I had had for a few years, a couple of years, pre-dating 24 the family office and its creation. But the cause of 25 bringing the two things together, of bringing Sushinho Page 47 1 in front of Ildar and of Fern, was the fact that back in 2 December 2011/January 2012 potential investment in 3 restaurant businesses was one of the topics which Ildar 4 and I first discussed, about what they were looking to 5 do in London, which we had not pursued previously. 6 Secondly, that my own ability to actually be 7 involved and spend any time pushing the Sushinho 8 business forward had totally disappeared through 2012 9 because of the monopoly of my time which the Fern 10 process had required. 11 So it seemed like a convenient mixture of interests 12 and one which would allow a separate existence for Ildar 13 to get involved in the restaurant trade. And in our 14 discussions about that in Toronto, I think, 15 in September, the discussion had tended towards Ildar 16 wanting a unit, an actual restaurant of his own, rather 17 than participation in a wider, growing group. 18 And because of the situation with the development of 19 the second Sushinho unit that seemed to be possible if 20 there was more separation between the new City branch of 21 that restaurant business and its existing Kings Road 22 branch, and I juggled a number of balls to try to bring 23 these things together. 24 I saw the investment that was required into the new 25 City branch as separate from that to the existing Page 48 1 business, and it had become obvious over the course of 2 the summer that it would be very unlikely that there 3 would be a bank loan capability into Sushinho to fund 4 the development of the new City branch, partly because 5 of the environment, partly because of the operating 6 performance of the existing Kings Road branch. 7 So I developed this theory that we should separate 8 them more thoroughly with the second branch becoming 9 something that could be separated and owned by either 10 Fern or more likely Ildar separately and personally, 11 perhaps in the same structure and format as we had done 12 with 3E earlier in the year, as it seemed to be 13 a personal interest rather than something that we would 14 pursue from an investment point of view.”

Page 47

Page 48

[79]The undisputed events and documents concerning Sushinho set out above demolish the suggestion that there was any genuine loan by Fern.

Alleged loans to companies- Fern’s position

[80]In addition to detailed comments about the Hedgerow and Westover transactions which I need not record, Fern has general submissions that there were no genuine loans. First Fern says that the alleged loans were only mentioned by Mr Burford in November and he has had many opportunities and obligations within and without the litigation to refer to them before - in the case of Hedgerow, in conversation in court with Burton J in summer of 2013. Secondly although Mr Burford claims that the loans were justified by the remuneration he could confidently expect for management of substantial investment funds, the documents show that no-one could be confident about Fern ever having significant funds to manage, what Mr Burford himself called “an uncertain inbound funds environment”. Thirdly the agreements were allegedly made before Fern had any money to lend or when it was without sufficient funds. Fourthly when cash did arrive it was contractually agreed that Fern would use it for purposes not consistent with lending to Mr Burford’s companies.

Alleged loans to companies- Decision

[81]As I see it there is no prospect of Mr Burford being able to show at trial that there were any genuine loans. These payments to companies in which Mr Burford had a close personal interest cannot have been the bona fide loans he has recently remembered. He could not have made them on Fern’s behalf without declaring his interest. The payments were made from funds intended, and held on trust, for a particular and quite different purpose. They were made to failing companies without security or it seems any terms or conditions. No normal business would have lent on these terms or perhaps at all. At present the details of the ‘loans’ do not matter even though the account given by Mr Burford of them is improbable. Further as he perhaps recognises by claiming that the papers have gone missing, it is highly unlikely that any reputable company would lend or borrow in this undocumented and haphazard way. The broad justifications for the alleged loans advanced by Mr Burford in such general terms would make no difference-even if at trial they emerged to be less far fetched than they currently appear. Broadwell Manor- positions of the

Parties

[82]Mr Burford says that there was an agreement to lend him the money for the deposit on Broadwell Manor made orally by Mr Uzbekov on behalf of Fern, without the need for any written record let alone security over the property or payment of any interest. Mr Uzbekov was apparently happy to treat the loan as an advance on Mr Burford’s remuneration. Mr Burford’s case is brief because he says that, as with the deposit, the agreement to fund the rest of the price was in a brief conversation this time at a meal with wives in Monaco. In submissions Mr Burford suggested that the conversation might have been in an interval when the ladies were not present.

[83]Mr Burford referred to this issue in his submissions when invited to do so. At Day One Page 139 he said; “I did use those funds for the deposit for 22 Broadwell Manor, I discussed it, incredibly briefly, but 23 I did discuss it with Ildar, and because of the lack of 24 time I had had to do very much other than try and 25 arrange Fern matters for I think the previous two Page 140 1 months, I said I hadn't a chance to arrange financing, 2 that I wanted to do it urgently in order to sew up the 3 deal, and that I saw it as a payment for future 4 remuneration that would be repaid out of Fern 5 remuneration at a later stage.”

Page 140

[84]and at 183:

“I mean, the concurrent timetable with the 23 purchase of Broadwell can be made to look as though one 24 causes the other, but they were in fact not connected 25 causally. I suppose the point I would make about the 1 purchase of Broadwell per se is that if I had wanted to 2 arrange to steal, deprive Fern of GBP10 million the 3 process of buying real estate property in the UK through 4 an absolutely transparent process would not have been 5 how I would have set about it. It seems crazily 6 bizarre. 7 JUDGE MACKIE QC: Sorry, you say it is a transparent 8 process? 9 MR BURFORD: Yes, I mean -- 10 JUDGE MACKIE QC: In terms of what, they knew you were going 11 to do this with the money? 12 MR BURFORD: Yes. I made no secret of it. And the 13 existence -- 14 JUDGE MACKIE QC: Of the purchase or that you were going to 15 complete the purchase with the Fern money? 16 MR BURFORD: Both. The purchase I talked about in the 17 office quite openly, and the fact that I would have to 18 use Fern money as I had not time to do any of the 19 processes I would need otherwise to have any chance of 20 getting a mortgage to complete this, I spoke about on 21 three or four occasions.”

[85]Fern alleges that this is nonsense. The agreement was allegedly made at a time when Fern did not have funds to lend. When sufficient cash did arrive on 25 June 2012, the entire remittance of £2.25 million was contractually earmarked for Marylebone Oil & Gas following Mr Burford’s deceit and forgery. Mr Burford failed to mention this alleged loan on 23 March 2013 or in his signed confession, or in the Brown Rudnick document disclosed on 25 April 2013 under compulsion of a court order.

Broadwell Manor-Decision

[86]Fern had no money to buy a country house for Mr Burford or any reason to do so. Fern obtained enormous sums to fund other, different, deceitful schemes of Mr Burford’s, not this one. Mr Uzbekov had no power to authorise such a loan. Further he will say at any trial that he did not do so. The documents show how Fern obtained the money and its purpose and will support his account. Commercial probability will also support his account as it would have been mad for a small company to make an unsecured interest free loan of the kind alleged. Against that the Court will have the improbable and undocumented account, put forward for the first time in answer to this application, of a witness who admits that he has acted dishonestly and told untruths about other aspects of this case. There is no prospect of Mr Burford succeeding with this aspect of his defence. Counterclaim and credits.

[87]Mr Burford argues that if he is liable to Fern he has a variety of matters which he can offset against what is owed. He has a counterclaim for unpaid remuneration and loss of future earnings approaching £18 million and is also owed other sums by Fern.

Counterclaim

[88]The basis and extent of Mr Burford’s counterclaim have shifted somewhat. Essentially he says that if he had remained in place he would have had the benefit of being paid to invest large sums of money very successfully. He says that Mr Uzbekov had made a binding agreement in early March 2012 that he would procure a minimum of €200m for the family office fund to be managed by Fern in London (a sum reduced by half in oral submissions). At Page 93 of Day 2 I asked Mr Burford to explain the counterclaim; “But what is the basis upon which you say you 19 have a counterclaim, that is a contractual right to it? 20 I have your witness statement. Just put it in your own 21 words, as you would like to put it. 22 MR BURFORD: When I -- when Ildar and I agreed to set up the 23 family office and then agreed to set up and to use Fern 24 for that, for Fern Advisers to be the central body, 25 Ildar and I formed an agreement between him and me that 1 we would share the economic benefit of that set-up, that 2 it would be 50/50 split and that the organism that we 3 would set up would do two things, principally: run the 4 family in the UK and run the investment management 5 operation for all of its funds coming out of Russia and 6 take over from Cyprus and devolve them through Europe 7 and elsewhere, other than Russia. 8 And that agreement was, I suppose, between Ildar and 9 me and formed the basis of us adopting Fern as that 10 entity to start that process. 11 JUDGE MACKIE QC: But you understand, do you not, that what 12 Fern says is they don't accept that that was ever 13 agreed, and they say that if it was, that the deal was 14 between you and the gentleman you call Ildar, and 15 therefore it is not their concern. The parties to the 16 contract, to the agreement, were you and Ildar, at most 17 Fern as a vehicle. That is what they say. 18 MR BURFORD: Yes. 19 JUDGE MACKIE QC: Do you have any response to that? 20 MR BURFORD: It forms the foundation stone for all of our 21 activities over the following -- 22 JUDGE MACKIE QC: But in legal terms the contract is between 23 you and Ildar, they say. And you say. So at the moment 24 I don't quite understand why you have a counterclaim 25 against Fern. 1 MR BURFORD: If the -- in terms of employment and 2 remuneration, this agreement was not for Ildar to pay 3 me, this was for Fern to pay me and for my involvement 4 in Fern to produce the economic benefit. Both Ildar and 5 I were directors of Fern at the time that we formed that 6 agreement, and it was of not equal benefit, but it was 7 of benefit on both sides of the coin. That is, it was 8 to remunerate and incentivise me by participation and to 9 provide Ildar both with remuneration in the UK and 10 a structure from which he could hope to benefit from all 11 the functions he had been performing for the family 12 previously but for which he was not remunerated. 13 So I think, I don't know the law, but it was an 14 agreement formed between Ildar and I, for Fern.”

[89]The counterclaim fails because it is common ground that if, which Mr Uzbekov denies, there was an agreement as alleged by Mr Burford, it was not with Fern. If Mr Burford had overcome this first insuperable obstacle his counterclaim would then have faced the series of difficulties outlined at Paragraphs 52 to 56 of Fern’s closing submissions. Credit for alleged loans.

[90]Although at times mixed up with the counterclaim Mr Burford also claims that he is owed money that he lent to Fern. This is the loan, which Mr Burford described as “spurious”. Mr Burford’s case about what is repayment of loan and what salary is not consistent. At the hearing, Mr Burford explained “spurious” as meaning that the debt bore no relation to Fern’s projected use as the Shchukin family office, not as meaning that it lacked reality. That is not a natural reading of the emails. He submitted that the debt was money he had put in to Fern over the previous 3 years to finance “real activities, the great bulk of which were involved in the costs of investigating structures and entities and projects concerned with Russian and East European natural resources… variously the project[s] that [..] [Mr Uzbekov] and [Mr Morgon] and Simon [Shah] brought to the table and indeed some of mine” (Day 2 Pages 128 and 129). This is different somewhat from his witness statement where Mr Burford says “through 2009 and until 2012 I lent capital in to Fern in order to support its operational expenses (office space, furnishing and equipment, office consumables and administrative staff) so as to maintain a creditable presence in case any of the Eastern European natural resources projects should require support. This had led to me advancing loans to Fern which totalled over £550,000 by the end of the calendar year 2011 before the re-purposing of the company to act as the Shchukin’s [sic] Family office entity”.

[91]Mr Burford referred to the fact that Fern’s accounts recorded his director’s loan. Fern has produced these and while they show the existence of loans it is not clear that these are due to Mr Burford and the pattern of them is not consistent with his account. Fern says that these were spurious loans invented by Mr Burford, after it was decided to use Fern as the Family Office, in order to give him a tax advantage and/or an excuse for taking money from Fern’s bank account. Mr Burford also referred to the indemnity he had obtained. This draft was located by Fern after the hearing and does not appear to be consistent with the account that Mr Burford has given.

[92]On Mr Burford’s own account Fern had been “cleansed”, as I mention above. There are no documents recording or referring to the loans. Mr Burford’s case depends only on assertion and on showing that he lied to his former colleagues about the financial position of Fern to persuade them to use it as the platform for the Family Office. There is no real prospect of Mr Burford showing this at a trial. Availability of credits.

[93]Fern argues that personal claims of a director (or trustee) will not be set off against a claim against him for misappropriation of company (or trust) assets. Fern cites much authority including Gore-Browne on Companies at [16(4)], Derham on Set-Off, 4 ed, at [10-12 - 10-13], Davies v Jenkins

[2003] EWHC 1282 (Ch)

; Lehman Brothers International (Europe) v CRC Credit Fund Ltd

[2009] EWHC 3228 (Ch)

. Even “a cast iron case for compensation” cannot be “set off against his obligation as constructive trustee, to restore the Company's money”: Davies v Jenkins

[2003] EWHC 1282

at [38].

[94]This question was not debated at the hearing and I see no purpose in addressing it as, on the facts of this case at present, it does not arise.

Specific potential credits and cross-claims

[95]Fern’s skeleton carefully analyses these in detail. They were not however the subject of debate and I have no clear submissions from Mr Burford about some of these. I will therefore deal with these items one by one when handing down this judgment.

Reviewing matters as a whole

[96]As I see it the position is as follows. This is a summary judgment application not a trial. The court disposes summarily with cases which are fanciful, hopeless or otherwise bound to fail, it does not carry out an abbreviated trial on incomplete evidence. Having looked at the proposed defences one by one I return to the overall picture. The documents produced demonstrate a disgraceful pattern of fraud and forgery. It is important to avoid carrying out a fraud trial by, for example, confusing Mr Burford’s submissions which were almost all about the facts, with his future evidence. Nevertheless the Court should not hide its eyes from the obvious. Mr Burford admits that he acted dishonestly and was in some way involved in forging documents in obtaining funding for Fern, whatever his motive. It is common ground that Fern received money for particular purposes only but that Mr Burford caused it to be spent on his own new home, his failing businesses and personal expenditure. Mr Burford claims, very improbably, that he did this as part of some scheme with a fellow director but, if he did, this makes no legal or practical difference. As a director of Fern Mr Burford misappropriated funds, applying them for an improper purpose. He held the funds as a trustee and is liable to pay them back and Fern has a right to trace, even if, which is very unlikely, Mr Burford did not do all this alone.

[97]For reasons I have given Mr Burford’s claims about missing documents are false. His existing evidence is very lengthy and confusing yet supported by no contemporaneous documents. Even if some of the alleged loans were documented in some way by Mr Burford they would not as a result become legitimate transactions or change the legal position. The documents available about Sushinho are a further pointer to the improbability of claims that the other loans are documented. On what Mr Burford has admitted Fern has demonstrated most of the case it puts forward. Mr Burford’s counterclaim is hopeless and lacks any legal basis. He has no claim against Fern or loan to set off except perhaps small amounts to be determined at hand down of this judgement. In short Fern has established that Mr Burford has no real prospect of successfully defending this case at trial.

[98]The claims succeed without it being necessary to prove that the fraud in this case is as serious as it appears to be. If it had been necessary to reach more conclusive findings about some aspects I would have done so. The court does not always require a trial to be sure that a serious allegation of fraud is true. There is no purpose in a trial when a defence is preposterous and defies commercial, or indeed any, common sense. I remind myself of one of Mr Burford’s claims. He says that money obtained by Fern, through his false claims about the involvement of the Oppenheimer family and their provision of £16 million, expressly to be then held on deposit, was somehow agreed to be used differently. The money arrived in the nick of time, but Mr Burford says coincidentally, for the purchase of Broadwell Manor. He says that following very short conversations, one at a hotel meal, Fern agreed instead of holding money on deposit to provide huge, interest free and unsecured loans for the purchase of Broadwell Manor against future remuneration for Mr Burford for unidentified future services he was not contractually required to provide. The smokescreen created by Mr Burford in his lengthy written evidence and in his submissions does not hide the absurd improbability of these claims.

[99]Mr Burford’s evidence and submissions have been lengthy and rambling generally avoiding or not dealing with the obviously central and important points. Mr Burford is a highly intelligent man who must have been aware of this. At the end of the first day I noticed that Mr Burford had not brought the bundles with him and I advised him to bring them the following day. He did not. I later noticed that Fern’s solicitors had provided him with another set but he showed no sign of referring to these. Mr Burford is reluctant to engage with the detail that matters.

[100]There is no purpose of an action going to trial just because there are serious allegations of fraud against the Defendant. In this case the Claimant is bound to succeed on what the Defendant admits and what is otherwise overwhelmingly clear from the documents.

Mr Uzbekov-further observations

[101]Mr Burford has, only since November 2013, made serious allegations against Mr Uzbekov. This has not been a trial and I would not usually express a view about this. But allegations have been made in public which have been strenuously denied by Mr Uzbekov. I therefore think it right to point out the following. No documents support Mr Burford’s allegations. It is hard to understand what motive Mr Uzbekov could have to join an odd plot to benefit Mr Burford and to steal money from the family he had recently married into. The allegations of forgery by Mr Burford against Mr Uzbekov are particularly unconvincing. Forgery of documents has occurred on two occasions in transactions between Mr Burford and his family, and on at least one occasion over Sushinho, in which Mr Uzbekov cannot have been involved. The March 2013 forgeries of Coutts and HSBC documents were carried out to deceive Mr Uzbekov and his colleagues. It is, as I have said, hard to believe that Mr Uzbekov would go to the lengths that he did in demanding disclosure early in 2013, simply to hide his alleged plot with Mr Burford. A well known additional vice of fraud is the unfair suspicion it casts over the innocent. As the greatest losers in this fraud by Mr Burford are Mr Uzbekov’s own family, the allegations seem particularly inappropriate as well highly improbable.

Conclusion

[102]Fern has shown that Mr Burford has no prospect of successfully defending this case at trial and will have an order in substantially the terms it seeks. I will determine the outstanding minor items at the hand down of this judgement.

[103]I shall be grateful if Counsel for Fern will let me have corrections of the usual kind, a draft order and a note of any matters to be dealt with at the hearing not already covered in written submissions. I shall also be grateful if Fern’s solicitors will write to Mr Burford in clear and neutral terms explaining what it is he should try to do before the next hearing.

Cited in 1 later judgment

PXC v AB College & Ors 2022