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Cite as: [2011] EWHC 2552 (Comm)

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Neutral Citation Number: [2011] EWHC 2552 (Comm)
Case No: 2011 FOLIO 671


Royal Courts of Justice
Strand, London, WC2A 2LL

B e f o r e :


Stratford Coin & Bullion Inc
- and -

(1) Youssry Henien
(2) Harry Henien
(3) Leman Wealth Management SA
(4) London Zurich International Ltd


Peter de Verneuil Smith (instructed by Ince & Co LLP) for the Claimant
Michael Fealy (instructed by Pinsent Masons LLP) for the Defendants
Hearing date: 15 September 2011



Crown Copyright ©

    Mr Justice Beatson:

    I. Introduction

  1. In these proceedings, the claimant, a company incorporated in Florida, which trades in precious metals and coins, claims that the defendants have misappropriated US$ 940,579.53 held by them for it. The first defendant, Youssry Henien, has worked in the financial services sector for many years. The second defendant, Harry Henien, is his 26 year old son. The third defendant is a company incorporated in Geneva, acquired by the first and second defendants in 2010 as a vehicle for the second defendant to use to provide wealth management services. The second defendant is its sole shareholder. The fourth defendant is a company which was incorporated in England and Wales in June 2010 as part of a trading structure set up by the claimant and the first two defendants to facilitate trading by the claimant in precious metal and coins on the London metal market. The first defendant is its sole director and shareholder.
  2. On 8 June 2011, after a hearing without notice to the defendants, Hamblen J. made freezing injunctions and asset disclosure orders against the defendants. On 17 June, the return date, Teare J. continued the orders with variations and allowed the defendants an extension of time to comply with the disclosure requirements in the orders.
  3. The substantive claims against the first to the third defendants are for damages for breach of contract, tort (including conspiracy to defraud), and claims in equity for breach of fiduciary duty and trust, and in restitution. Similar claims (save for those for breach of contract) are made against the fourth defendant.
  4. The claimant now applies for summary judgment. Its primary claim is for summary judgment against (a) the first and second defendants in respect of the entire sum claimed and interest, (b) the third defendant for US$ 26,762.44, and (c) the fourth defendant for US$ 73,179.50. In respect of the first and second defendants, the claimant alternatively applies for summary judgment against them in the sum of US$ 301,713.63 and interest. The claimant also seeks a conditional order under CPR 24.6 (b) whereby the defendants may only defend the claims by paying into court the full amount of the claim less the amount in any order for summary judgment. The defence is that the claimant entered into an oral agreement to share profits from metal trading in London equally and that some funds were retained against the fourth defendant's potential tax liability.
  5. The pleadings allege dishonesty but the claimant, understandably in the light of the authorities (see [42] below), does not seek summary judgment on the basis of dishonesty. Mr de Verneuil Smith, on its behalf, submits that it does not need to rely on any dishonesty in this application and can rely on non-fraudulent breaches of contract and of equitable duties and its restitutionary claim which in themselves satisfy the requirements for summary judgment.
  6. The evidence (all statements and affidavits are dated 2011) on behalf of the claimant consists of statements of Stuart Mehler, a consultant to the claimant (1 August), Jeremy Biggs, a partner in the firm of Ince & Co LLP, the claimant's solicitors (3 August, 8 and 15 September) and John Ciaramella, the President and owner of the claimant (7 September). The evidence on behalf of the defendants consists of statements of Youssry Henien (24 August), Harry Henien (24 August), and Andrew Herring, an associate in the firm of Pinsent Masons LLP, the defendants' solicitors (13 September). The documentation before me also included material relating to the freezing injunction; namely affidavits of Mr Biggs (10 June) on behalf of the claimant, and those of Gregory Lowson, a partner in the firm of Pinsent Masons LLP (16 June), Youssry Henien (two, both dated 23 June, and two, both dated 30 June), and Harry Henien (two, both dated 23 June and two, both dated 30 June),
  7. II. The factual background and the claims

  8. In May 2010 the first and second defendants were introduced to Mr John Ciaramella, the President and owner of the claimant, and Mr Stuart Mehler, a consultant to the claimant who became the main intermediary between it and the defendants. It is common ground that after that meeting the claimant engaged the first two defendants and that they assisted the claimant in establishing a trading structure to enable the claimant to trade on the London metal market, although there is a dispute as to the extent of the second defendant's role. After the fourth defendant was incorporated, trading accounts were set up first with Berkeley Futures and later with IFX Markets (the trading name of City Index) and a bank account was opened for it with Barclays Bank in August 2010. The claimant's case is that the first and second defendants were actively involved in setting up the fourth defendant, and its bank and trading accounts.
  9. It is also common ground that the claimant was given a mandate to trade on the accounts with Berkeley and IFX. Over a period of time it remitted some US$ 490,000 to the fourth defendant's US$ account at Barclays and the funds were transferred to the trading accounts at Berkeley and IFX as instructed by Mr Mehler. Mr Ciaramella gave the trading instructions to Berkeley and IFX. The trading between August 2010 and January 2011 was profitable.
  10. The net profit from the Berkeley trading account was US$ 192,574.29, and that from the IFX trading account was US$ 1,085,157.62. US$827,152.38 of the profit was remitted to the claimant. In the light of the disclosure made pursuant to the orders of Hamblen and Teare JJ, the claimant maintains that the defendants, in breach of contract and fiduciary duty, wrongfully misappropriated almost all of the remaining US$ 940,579.53. US$ 73,179.50 remains in the fourth defendant's account with Berkeley Futures. The claimant's case is that US$ 867,400.03 was transferred from the trading accounts and the fourth defendant's account at Barclays Bank to the bank accounts of the first and second defendants and their families, business associates, and a number of companies associated with them.
  11. The defence to the claims for damages for breach of contract, tort (including conspiracy to defraud), and equitable compensation, and for restitution is (see paragraph 18) that the first defendant made a binding agreement with Mr Mehler, the claimant's representative, by telephone on or around 21 November 2010, that the profits from the Berkeley Futures and IFX Markets trading accounts would be shared equally in order to reflect the risk being shouldered by the fourth defendant and the first defendant, that is the risk of margin calls against the fourth defendant which, since the first defendant is its sole director and shareholder, would expose him. The first defendant claims that he also agreed this with Mr Ciaramella, although he does not recall when he did so.
  12. The claimant denies that there was any agreement to share the profits from the trading accounts equally. Its case (Points of Claim, paragraph 14) is that all sums received by or held to the direction of the third or fourth defendant would be held on trust for the benefit of the claimant and only used in accordance with its instructions, and that payment for services rendered by the first and second defendant would consist of the claimant meeting disbursements incurred by them, referring potential clients to them (a draft intermediary agreement was emailed to Mr Mehler by the second defendant on 18 May 2010), or paying them a reasonable fee for professional services rendered. The principal issue is thus whether there was an agreement entitling the first and fourth defendant to retain any of the trading profits.
  13. The alternative claim for summary judgment against the first and second defendant in the sum of US$ 301,713.63 and interest proceeds on the basis that the part of the net profits from the trading not remitted to the claimant was greater than the 50% the defendants claim pursuant to the alleged agreement made in November 2010. The defendants' case is that the excess was retained because of and to cover the fourth defendant's possible tax liability.
  14. I will first deal with the claims against the first second defendants; then with the claims for US$ 26,762.44 and US$ 73,179.50 against the third and fourth defendants respectively; and then with the application for a conditional order under CPR 24.6.
  15. (a) The claimant's primary case against the first and second defendants

  16. The general principles to be applied by the court in considering an application for summary judgment were recently helpfully summarised by Kitchin J in Allen v Bloomsbury Publishing PLC [2010] EWHC 2560 (Ch) at [11] – [13]. I refer to them in more detail later in this judgment. At this stage it suffices to state that CPR 24.2 provides that a claimant who applies for summary judgment must satisfy the court that the defendant has no real prospect of successfully defending the claim, and that a defendant resisting an application for summary judgment must show that he has a real as opposed to a fanciful prospect of success.
  17. On behalf of the claimant, Mr de Verneuil Smith submitted that there was no real dispute that in contract and at common law the first and second defendants owed the claimant a duty to take reasonable care in setting up and managing the trading structure and trading accounts. That duty, he maintained, included a duty to comply with the claimant's instructions regarding transferring funds, and a duty not to transfer monies that were held for the claimant, pursuant to the trading structure, in the trading accounts and the account at Barclays, without the claimant's authority. As far as contractual duties are concerned, there is no dispute that the first and second defendants were engaged by the claimant to set up the fourth defendant as a trading vehicle, and that they set up the trading structure (see defence, paragraphs 2, 12, and 17) and that the first defendant wound down the trading accounts: defence, paragraph 20.
  18. In the light of the submissions on behalf of the second defendant that his involvement was minimal and not culpable, the claimant relied on contemporaneous documents showing his active engagement in setting up the fourth defendant and operating the trading structure and trading accounts. It relied in particular on emails dated 2, 9 and 14 June 2010. In those, the second defendant asked for the names which the claimant wished for the projected companies (at that stage one was to be a British Virgin Islands company), provided information about Swiss and Monaco metal dealers, informed Messrs Mehler and Burstein (another person involved with the claimant) that the fourth defendant had been incorporated and enclosed the documents, and stated that the next step was to open bank accounts with inter alia Barclays. The last email to Mr Mehler attached a form that would give authorisation for two of the claimant's traders on the IFX account and asked for it to be signed and returned.
  19. The claimant also maintained that there can be no real prospect of the first and second defendants successfully denying that they were fiduciaries in handling its funds. They were in a position of trust and confidence through their complete control of those funds and their role was equivalent to that of a broker or trustee managing a bank account on behalf of a beneficiary. Although the first and second defendants have not admitted that they had exclusive control over the funds which the claimant remitted to the accounts at Barclays, the claimant submitted this was clearly established by the documents. Mr de Verneuil Smith relied on three emails from the first defendant, two to Mr Ciaramella, and the third to Mr Mehler.
  20. The first of these, to Mr Ciaramella on 1 September 2010, stated "for distribution of funds you will tell Harry what you need and he will execute for you…so if you transfer now US dollars to Barclays and say this is to go to IFX, then Harry will do the transfer to them…always transfer has to be done via us…". The first defendant's email to Mr Mehler dated 10 September stated that "already Harry transfer $49,850 to IFX…" and that dated 22 September to Mr Ciaramella said "Harry is doing the transfer (hope it works out, as I explained before that I am the only one authorised to sign on the account)…anyway Barclays have already send (sic) a mandate so I can add Harry to the account…".
  21. Reliance was also placed on a letter dated 22 April 2011 from the first defendant's US attorneys, Holland and Knight, to Luxembourg lawyers instructed by the claimant. The letter stated that Mr Mehler had explained to the first defendant that he needed an experienced brokerage services provider in Europe to facilitate any and all trading between the claimant and its American clients, and that the claimant and the first defendant "entered into a contractual arrangement for Mr Henien to provide brokerage services in Europe". It is also common ground (see the first defendant's statement dated 24 August, paragraph 25.8) that the claimant was not able to access the fourth defendant's Barclays US dollar account, which was operated and controlled by the first defendant.
  22. It was submitted that the evidence that funds were transferred from the fourth defendant's Barclays US dollar account to the first, second and third defendants, and to their nominees, without the claimant's authority, is overwhelming: see the table produced by the claimant at the hearing and annexed to this judgment. It was not suggested on behalf of the defendants that the transfers were not made; only that they were justified by the profit sharing agreement.
  23. The claimant maintains that the first and second defendants have no real prospect of succeeding in their defence that there was an agreement on or around 21 November 2010 by which the profits from the trading accounts would be shared equally in order to reflect the risks being shouldered by the first and fourth defendants, and that the balance retained reflected tax liability which might be levied against the fourth defendant. It relied on what it submits is the inherent improbability of the defence, the contemporaneous documents which it maintains demonstrate that the defendants' cases are hopeless, and what it maintains is the inconsistency of the defence now advanced with the position taken by the defendants at earlier stages and before legal proceedings were instituted. I deal with each in turn.
  24. Mr de Verneuil Smith submitted that the alleged oral agreement, which is denied by Mr Mehler and Mr Ciaramella, is incredible. He argued that if the defendants were concerned about the exposure of the first and fourth defendants to the risk of operating the trading accounts, they would have had this concern when they agreed to set up the trading structure and either made provision for it or at least raised it. Although the first defendant is a sophisticated financial expert, at that stage neither he nor the other defendants raised the question of compensation for exposure to this risk. At that time they were happy to have only reimbursement for their disbursements. The claimant relied on an email dated 27 May 2010 in which the second defendant quoted the costs of setting up companies in the British Virgin Islands and Panama and gave his own bank details but did not require any remuneration. It also relied on Mr Mehler's response on 2 June. That stated that the second defendant would receive a wire for US$ 4,000, "which should cover all costs and leave a balance".
  25. Secondly, the claimant relied on the fact that the defendants did not seek compensation for any perceived risk during the operation of the trading accounts, but only sought compensation for the second defendant's time spent authorising transfers between bank accounts: see the first defendant's email dated 28 October 2010. This inter alia stated that the defendants considered it a problem that the claimant thought that they worked for it, and would "run and do the transfer immediately" when the defendants had another business to take care of. The email suggested organising transfers twice a month, and stated that the claimant "should have compensated Harry for his effort". The point raised in the email was the time the second defendant was spending organising and effecting transfers, not the risk in respect of margin calls.
  26. Thirdly, the claimant submitted that it is inherently improbable that it would have agreed to reward the defendants with 50% of the large sums of money made in trading profit. The defendants had no involvement in the actual trading. All they were doing was complying with instructions regarding bank transfers. Mr de Verneuil Smith argued that a 50% share of profits for what he described as essentially clerical services would be commercially unreal. Moreover, since the claimant was trading on behalf of its United States customers, it was contended that it is fanciful that Mr Mehler would have agreed to terms which would have put the claimant in breach of its duty to those customers in respect of their funds.
  27. The claimant also relied on the response of the defendants to its requests for transfers and for explanations about missing funds in the period between November 2010 and January 2011. There are emails dated 23 and 28 November, 3, 8, 14 and 16 December, and 13 January, asking for explanations about withdrawals from the trading funds and discrepancies between amounts sent to the claimant and the amount requested. The emails stated that the shortfall placed the claimant in a serious predicament with its customers. Mr de Verneuil Smith submitted (skeleton argument, paragraph 37(e)) that in the face of these complaints "it flies in the face of reality…that D1/D2 would not mention a bona fide profit-sharing agreement". The first time such an agreement was mentioned was 2 March 2011, after the funds had been dissipated and the claimant had threatened legal action. He submitted that "the failure to mention any form of alleged profit-sharing for over three months is incredible if such an agreement had been reached".
  28. As to the documents, the claimant relied on the bank records, the absence of any contemporaneous documents supporting the existence of the alleged profit-sharing agreement, and the inconsistency of certain contemporaneous documents with such an agreement. The fact the first defendant did not mention a profit-sharing agreement when he was first challenged to explain missing funds was said to be particularly telling, as was the fact that the defendants gave other and false excuses when asked to explain where the funds had gone.
  29. A reconciliation of payments out of the fourth defendant's Barclays Bank account made by Mr Biggs (first statement, paragraph 21.2) shows that before 21 November, the date on which it is said the agreement was made, the defendants had already removed some US$ 150,000 from the account without authorisation. The transfers before 21 November included some US$ 170,000 to the first defendant's wife. The claimant relied on the absence of any explanation by the defendant for the unauthorised transfers which occurred before the date of the alleged agreement.
  30. Secondly, Mr Mehler's email of 22 November (the day after it is alleged he entered into the agreement) does not refer to a profit-sharing agreement although it does refer to a conversation with the first defendant. There is also no reference to an agreement in Mr Mehler's email dated 26 November complaining about the withdrawal of US$ 80,000 from the IFX account, or that of 2 December asking for an explanation of why the transfer to the claimant from the Barclays account was less than it should have been. More significantly, the first defendant's responses on 28 November and 3 December to the claimant's enquiries and complaints do not refer to retaining sums pursuant to a profit-sharing agreement. The 28 November email stated that the transfer would be effected the next day and the 3 December text stated that the defendant's accountant had advised the first defendant they "have to withhold taxes (18%) in escrow account".
  31. As to material which is inconsistent with the alleged agreement, the claimant relied on 6 contemporaneous documents. The first defendant's 12 October response to an email asking for an answer to questions about the status of the balance of a transfer "as this outstanding matter is hindering my efforts in solidifying the structuring of Harry's compensation" was to state "Harry he is in no need for you commission…I will do the transfer tomorrow…". It was argued that this is inconsistent with a genuinely held belief by the defendants that their services merited 50% of all the profits of the trading. Secondly, the email dated 28 October, to which I have referred (see [23]) asked for compensation for the second defendant's time, not for profit-sharing, and the claimant's response on 2 November referred to compensation for the time taken. Significantly, given the date on which the agreement is alleged to have been made, on 21 November the first defendant sent a text to Mr Mehler which did not mention a profit-sharing agreement but only referred to the tax consequences of folding the fourth defendant as a reason for withholding funds. Mr Mehler's response the next day also did not mention a profit-sharing agreement. The claimant's case is that it is incredible that this would not have been mentioned and that Mr Mehler's response referred only to the defendant's "acts of kindness, goodwill [and] generosity of time" and stated that they have not "been taken for granted". That, Mr de Verneuil Smith submitted, was an entirely inconsistent description of an arrangement between parties who had just agreed to share the trading profits equally.
  32. I have referred (see [28]) to the text in which the first defendant stated that his accountant had advised that they had to withhold tax in an escrow account. It was submitted that this is undisputed contemporaneous evidence showing that the first defendant did not believe he was entitled to retain the sum involved, US$ 180,000, by reason of an alleged profit-sharing agreement. The reference to an escrow account was said to be a lie because the fourth defendant did not and does not have any escrow accounts, and because none of its bank accounts show that sum of money being set aside or paid to an accountant.
  33. The claimant also relied on what it described were the defendants' "repeatedly invented false excuses" when challenged to explain where the claimant's funds had gone. Mr de Verneuil Smith referred to a text from the first defendant dated 6 December 2010 stating that the accountant was releasing the escrow money the next day, and the fact that no evidence has been disclosed to support the existence of this accountant or the accountant's receipt of funds or advice by the accountant that sums be retained against potential tax liability. He also relied on a text from the first defendant dated 10 December, which stated "all my accounts are block (sic) in Switzerland/France/UK by the police with reference to an account I had earlier this year from Bolivia…my lawyers are trying to unblock…". A text from the first defendant dated 11 December referred to his lawyers "trying to unblock company/personal account". The claimant relied on the fact that none of the disclosed accounts of the first or fourth defendants were blocked in December 2010, and the first defendant has not produced any documents to evidence the engagement of lawyers at that time. As to these matters, first defendant's statement (paragraph 52) stated that the reference to an account in Bolivia was not to his personal account but to a customer's account, and that there had been a dispute with a customer which was resolved by a settlement which avoided the first defendant's bank accounts outside Bolivia being blocked.
  34. The final matter on which the claimant relied is in an email dated 14 January 2011. In this the first defendant stated to Mr Mehler that "…once IFX account closed, then VAT and taxes will be paid for the company, then the company will be closed, and the processed (sic) will be transferred to your Florida account…but not before".
  35. I turn to the differences and alleged inconsistencies in the evidence put forward by the defendant at different stages. The claimant relied on the fact that the defence that the defendants were entitled to retain monies to meet a potential tax liability by the fourth defendant has not been pleaded. Nor is there any evidence before the court of advice that the fourth defendant was exposed to such liability, or might be exposed to such liability. It is submitted that such a defence would be fanciful because the fourth defendant's own case is that it was acting as a "vehicle" and had no funds of its own, so that its only tax liability would be corporation tax on its retained profits, but it does not allege it has made any profits.
  36. Mr Fealy, on behalf of the defendants, submitted that, while these points based on the documents may be good cross-examination points to be put to their witnesses at trial, the question whether there was a profit-sharing agreement is a disputed issue of fact that can be determined only at trial. It is, he argued, not suitable for determination on summary judgment because it can only be determined by the court forming a view as to the credibility of Mr Youssry Henien, and Messrs Mehler and Ciaramella.
  37. Mr Fealy also submitted that the context of the agreement is highly relevant to an assessment of whether the pleaded defence is inherently improbable and inconsistent with the contemporaneous documentary evidence on those matters. The inherent probability of the alleged agreement, he argued, depended on the context in which the parties were operating. In particular it depended on the motive for the claimant to establish an indirect trading relationship with Berkeley Futures and IFX Markets, rather than a direct one, and the reasons the agreements between the claimant and the first and second defendants were oral and not documented. He pointed to the fact that no evidence has been adduced by the claimant as to why it wanted this indirect trading structure. The claimant's response to the defendants' Part 18 request for this information was that the matter is not relevant to the pleaded case and is for evidence. But the claimant's evidence in support of its application for summary judgment is silent on this point.
  38. Mr Fealy argued that discovery, oral evidence, and cross-examination is necessary in order to assess and determine these matters. He contended that the evidence strongly suggests that the claimant established the trading structure with the first and fourth defendants acting as conduits in order to enable it to trade in commodities futures contracts outside the United States. Such trading is unlawful under United States unless authorised by the relevant United States authorities, but neither the claimant nor Mr Ciaramella had such authority. It is thus the defendants' case that the motive for the claimant was to enable it to engage in transactions that are illegal in United States law, and this was the reason there is no reference in the documents to a profit-sharing agreement.
  39. Thirdly, the defendants relied on what they maintain is evidence of a disreputable regulatory record (or worse) on the part of Mr Mehler and other individuals (Messrs Ciaramella, Burstein and Stern) and companies associated with the claimant.
  40. The claimant strongly denied that individuals associated with it had bad regulatory records and maintained that the trading was not unlawful commodities futures trading, but spot-physical trading. It also pointed to the fact that it is not pleaded by the defendants that the claimant's business is illegal under United States law, and the first and second defendants' evidence does not state that either of them believed the enterprise was illegal. The claimant also pointed to the fact that, after the first transaction was placed with Berkeley Futures, it made a complaint because it appeared from the statement that "a forward contract was purchase rather than spot-physical, as was requested, and required for [Mr Ciaramella] to be compliant": see email dated 19 August 2010 from Mr Mehler to the first and second defendants. This, submitted Mr de Verneuil Smith, showed that the claimant was aware that futures contracts were not compliant and was requiring confirmation that in future the statements should reflect the fact that the purchases were of physical bullion and not forward contracts.
  41. In relation to the second defendant, a young man of 26 who has only recently completed his education, they also rely on the fact that the claimant's case is based on inference and is thus not suitable for summary judgment. It is submitted that there is no evidence that the second defendant had known of any unlawful conduct by the first defendant, or did not honestly believe the first defendant was entitled to make such payments to him as he received from the trading accounts and from the fourth defendant's account at Barclays Bank.
  42. I have briefly referred (see [14]) to the general principles to be applied by the court in considering an application for summary judgment and to Kitchin J's summary of them Allen v Bloomsbury Publishing PLC [2010] EWHC 2560 (Ch) at [11] – [13]. When considering whether a case has a real as opposed to a fanciful prospect of success the court has to avoid conducting a mini-trial on the documents. This is (see Three Rivers DC v Bank of England (No. 3) [2001] 2 All ER 513 at [95]) because choosing between facts which are apparently credible and those being advanced by the other side is the function of the trial judge after discovery and in the light of oral evidence. In de Molestina v Ponton [2002] 1 Lloyd's Rep 271 Colman J stated (at [3.4]) that in a complex case where an application for summary judgment relies on inferences of fact, and the frontier between what is merely improbable and what is clearly fanciful is blurred, the case should be left to trial.
  43. In the Three Rivers case Lord Hope gave an example of a case where it can be said at this stage that the factual basis for the claim is fanciful. This was where it is "clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based" (emphasis added). In E, D & F Mann Liquid Products v Patel [2003] EWCA Civ 472 Potter LJ at [10] did not refer to "all the documents". In Mentmoor International v Abbey Healthcare (Festival) Ltd [2010] EWCA Civ 761 at [23], Carnwath LJ stated that the omission by Potter LJ to do this did not qualify Lord Hope's approach, and that it is important not to equate what may be very powerful cross-examination ammunition, which will not suffice, with a kind of "knockout blow", which Lord Hope appeared to have in mind.
  44. It is also clear that there are particular concerns about summary judgment in cases where fraud is alleged. The seriousness of the allegation does not mean, as Sir Peter Gibson observed in Wrexham AFC Ltd v Crucialmove Ltd [2006] EWCA Civ 237 at [51], that the court is obliged to dismiss an application for summary judgment. In that case the Court of Appeal upheld the order for summary judgment made by the trial judge because it was derived from matters which were either common ground or which were adduced by the person against whom the allegation was made. But the concern about summary judgment in such a case was emphasised by Sir Igor Judge PQBD, as he then was, in the Wrexham AFC case and in his judgment in Espri Telecoms UK Ltd v Fashion Gossip Ltd, 27 July 2000. In the Wrexham AFC case he stated (at [55] – [58]) that the importance of a finding adverse to the integrity of one of the parties was important and in itself may provide a compelling reason for allowing a case to proceed to a full oral hearing notwithstanding the apparent strength of the claim on paper. He also stated that "on occasion, apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate". In the Espri Telecoms case he stated that he was troubled about entering summary judgment in a case in which the success of the claimant's case involves establishing allegations of dishonesty and fraud which are strongly denied and which have not been be conclusively proved by, for example, a conviction before a criminal court.
  45. I have concluded that on the claimant's primary case, in the light of the material before me, the defendants' case faces very significant hurdles. I have reached the conclusion that it is unlikely to succeed. But I do not feel able at this stage to say that its prospects are so low and the case is so bad that I can properly describe it as fanciful. As to the claimant's submission that the making of an oral agreement in these circumstances on these terms is incredible given the nature of the defendants' tasks, I bear in mind that on any view no formal agreement was entered into between the parties in respect of the activities undertaken by the defendants. Mr Mehler's email of 22 November stated that "the parties have forged ahead" on "a handshake and mutual understanding". No document has been shown to me which states that it is agreed that the defendants would be (or would only be) remunerated by reimbursement for disbursements and/or by the claimant providing introductions to potential clients. Whether or not it is pleaded that the trading by the claimant was illegal under United States law, the inherent probability of the agreement the defendants allege was made depends to some extent on the context in which the parties were operating and the reasons the trading relationship with Berkeley Futures and IFX Markets was an indirect rather than a direct one.
  46. Moreover, although the claimant has sought to disengage its application from the serious dishonesty which it has pleaded, and, as a matter of abstract principle, such disengagement may be possible, the very nature of the breaches of contract and breaches of fiduciary duty alleged involve serious misconduct. In these circumstances, summary judgment would constitute a conclusion at this stage that the defendants, or at least the first and second of them, acted in a seriously improper way. The seriousness of the allegations will not (see Sir Peter Gibson in the Wrexham AFC Ltd case to which I have referred) be fatal to an application for summary judgment. But, the points made by Sir Igor Judge PQBD (see [42]) show that, despite the apparent strength of the claim on paper, caution is needed. In the Wrexham AFC Ltd case, notwithstanding the gravity of the allegations, the trial judge was able to conclude that a defence was fanciful on the basis of evidence on matters which were common ground or which had been adduced by the defendant. However, for the reasons I have given this is not such a case.
  47. (b) The claimant's alternative case against the first and second defendants

  48. I turn to the claimant's alternative claim for summary judgment in the sum of US$ 301,713.63 and interest against the first and second defendants. The defendants' case is that they were entitled to half the profits of the trading accounts. The claimant, for the reasons I have set out earlier, fiercely disputes this, but its alternative case proceeds on the assumption that even if the defendants are entitled to 50% of the net profits they have retained a larger proportion of the profits and have no defence in respect of the excess.
  49. It is not disputed that the profit from the Berkeley Futures trading account was US$ 192,574.29 and that from trading at IFX Markets was US$ 1,085,157.62. Half of that total is US$ 638,865.90. The sum from the profits that the defendants have not remitted to the claimant totalled US$ 940,579.52. Even on the defendants' case, Mr de Verneuil Smith submitted that the difference, US$ 301,713.63, was a sum to which the defendants had no entitlement but was retained by them.
  50. It is the defendants' case (see the first defendant's statement, paragraphs 48 – 50) that this sum has been retained to cover any potential tax liability within the fourth defendant, that potential liability to UK taxes was an issue from the outset (see the second defendant's email dated 27 May 2010), and that there is an issue as to whether the US$ 1.25 million profit the fourth defendant made through metal trading would give rise to a liability to tax and, if so, in what sum. Mr Fealy submitted that the issue is not a straightforward issue because of the unusual nature of the trading arrangement. The first defendant's evidence is that the advice he received is that there is a real prospect of tax liability and that in the absence of any evidence by the claimant as to the position, it would be wrong to assume in its favour that no tax falls to be paid.
  51. The difficulty with this argument is that the defendants have not adduced evidence as to the advice they received as to tax liability, although there are, as I have mentioned, references to the advice of an accountant in a number of the emails and the first defendant's statements. That accountant has not been identified. Nor has any document been adduced to show that the prospect of liability to tax was a live issue. It is not part of the pleaded defence that the sum was retained for tax. Finally, it appears from the spreadsheets that the US$ 301,713.63 was not in fact retained by the fourth defendant. In these circumstances, I have concluded that the claimant is entitled to summary judgment in restitution against the first and second defendants for this sum, plus interest. There was no issue raised at the hearing as to the amount of interest, stated by the claimant to be 8% from 31 December 2010 to 16 September 2011, and totalling US$ 17,686.77. After receiving the draft judgment, Mr Fealy stated that he had anticipated dealing with this as one of the consequential matters. Accordingly, I will hear submissions on this when judgment is handed down, and I do not now state the total sum for judgment. Whatever that sum is, the order will have to reflect the need (see [52]) to eliminate the possibility of double-recovery.
  52. III The applications for summary judgment against the third and fourth defendants

  53. Although there are other claims pleaded against the third and fourth defendants, the application for summary judgment is confined to the claims in restitution. Summary judgment is not sought in respect of the claims based on breach of contract, negligence and equitable compensation. The claimant applies for summary judgment in the sum of US$ 26,762.44 against the third defendant and US$ 73,179.50 against the fourth defendant.
  54. With regard to the third defendant, Leman Wealth Management SA, the only pleaded defence is (see defence, paragraph 21) that the first and second defendant were acting in a personal capacity and the third defendant was not party to any agreement made with the claimant. It is, however, clear from the evidence before the court, in particular the schedule of payments from the fourth defendant between 1 October 2010 and 23 June 2011 (exhibit YHH3 to the first defendant's third affidavit), that the third defendant received US$ 26,762.44 from the fourth defendant's account at Barclays Bank. To the extent that sum is part of the excess of the 50% of net profits not transferred to the claimant, in the absence of a pleaded defence by the third defendant concerning it, since the transfer was made on the instructions of the first and second defendants, the claimant is entitled to summary judgment.
  55. With regard to the fourth defendant, it is common ground that US$ 73,179.50 remains in the fourth defendant's trading account with Berkeley Futures. There is no defence pleaded in respect of the restitutionary claim for this sum. The only possible basis given for retaining this sum suggested by or on behalf of the defendants is that in the first defendant's witness statement that the sum has been retained on the advice of his accountant because of a potential liability on the part of the fourth defendant for tax: see [28] and [30]. But, apart from the fact that this is unpleaded, the accountant has not been identified, no evidence has been disclosed to support his existence or his receipt of funds: see [31], [43], and [48]. In these circumstances, I have concluded that the claimant, the fourth defendant's principal, is entitled to summary judgment against the fourth defendant for this sum, held to that principal's order.
  56. Given the basis upon which the claimant has succeeded in its application for summary judgment against the first and second defendants, it is important that there should be no double recovery. Although this was not explored at the hearing, the total sum claimed against the first and second defendants in the alternative claim does not appear to take into account the sums transferred to the third defendant and remaining in the fourth defendant's trading account with Berkeley Futures. The order must reflect the need to avoid double recovery. One way would be to deduct from the sum recoverable from the first and second defendants under the claimant's alternative claim the amount recovered from the third and fourth defendants. Since the issue was not canvassed at the hearing, I will hear submissions on it from the parties.
  57. IV A conditional order pursuant to CPR 24.6(b)

  58. The claimant submits that if I am against it on its primary application, then I should make a conditional order under CPR 24.6. It seeks a payment into court of the full value of the claim less the amount of any order for summary judgment.
  59. The principles regarding conditional leave to defend are set out in paragraphs 24 – 27 of Mr de Verneuil Smith's skeleton argument, which were in substance accepted by Mr Fealy. They can be summarised thus:
  60. (a) A defendant must frankly disclose not just his own assets, but his ability to raise funds from friends, relatives, and business associates: see Yorke Motors v Edwards [1982] 1 WLR 444, 449 per Lord Diplock.
    (b) The burden is upon a defendant to show he cannot make the proposed payment by evidence that it can place clearly before the court: Agrichem v Hammond-Suddarts [2002] EWCA Civ 335 at [9].

  61. Mr Fealy submitted that the number of issues which remain to emerge in evidence mean that the court is not able to form a provisional view as to the likely outcome at trial and the first defendant's evidence that the defendants could not comply with a conditional order to pay even the US$ 301,713.63 in the claimant's alternative claim mean that a conditional order is inappropriate because it would be tantamount to granting judgment. The first defendant's evidence is that they have some US$ 330,000 in tangible assets, but that the, in round terms, US$ 73,000 is held in the fourth defendant's trading account with Berkeley Futures.
  62. The position in this case differs from that in Allen v Bloomsbury Publishing PLC, in which Kitchin J stated ([2010] EWHC 2560 (Ch) at [89]) that the claimant in that case, against whom a conditional order was sought, had not had "an opportunity to address the very serious allegations made against him" or "to adduce evidence as to whether an order for security would deny him access to the court". In the present case the defendants have had an opportunity both to respond and to adduce evidence as to whether a conditional order would be equivalent to judgment against them.
  63. I reject the submission that I am not able to form a view as to the likely outcome of these claims at trial. I have, for the reasons I have stated (see [43]), concluded that while the defendants' defence may succeed, in the light of the contemporary documents and the time when it was first advanced, it is improbable that it will do so. As to the second point, whether a conditional order is tantamount to granting judgment, the only evidence as to the defendants' assets is that provided in the first and second defendants' statements. There is, for example, no evidence that there will be no further funds from Mr Tice, who made a loan to fund this application, or from the first defendant's brother-in-law, who has (see first defendant's first affidavit, paragraph 39) made a payment to the solicitors representing the defendants which is held in escrow because the payment was routed through the third defendant. There is also no evidence as to the ability and willingness of the first defendant's wife to assist in funding this litigation. She is said (first defendant's first affidavit, paragraph 42) to pay his living expenses and (ibid, paragraph 18) has assets. Since she has properties in the United States (albeit subject to substantial mortgages), and holds bank accounts in four jurisdictions, and currently resides in Dubai, it is submitted on behalf of the claimant that she is a woman of substantial means.
  64. Moreover, in the period since this dispute arose, the first defendant has travelled extensively on business trips to France, the United States, Dubai, Saudi Arabia and Russia, and has stayed at hotels: see his statement, paragraph 6; and his third affidavit, paragraph 31.11. I accept the submission that no adequate explanation has been given by him to explain how he funds his lifestyle and that, in the present state of the evidence, he has not discharged the burden upon him to satisfy the court that he is unable to raise funds to meet the conditional order sought.
  65. The second defendant's evidence on this point (statement, paragraph 16) is confined to stating that the defendants are not in a position to comply with a conditional order. The state of his evidence in relation to this is sparce in the extreme. It is also to be observed that, in paragraph 4 of his first affidavit, the second defendant stated that he was receiving US$ 3,100 per month in rent from a property in Seminole Circle, although initially he had not disclosed his ownership of this. His explanation was that he was unaware of that ownership. He has also stated that he was receiving US$ 5,200 rent from a property owned by his mother in Northridge, California. Again, nothing is said about the ability or willingness of his mother to fund the litigation.
  66. There is also evidence that the over US$ 300,000 mortgage over a property in Florida owned by the first defendant's wife was discharged with monies derived from the trading activities, and the property was then given as a wedding present to a relative and transferred to him in December 2010: (first defendant's second affidavit, paragraph 19 and second defendant's first affidavit, paragraph 3.2.6(d)-(f)). Making a gift of this sort also suggests that the family has substantial funds. There has been no explanation of how, if they are unable to fund this litigation, they were able to make such a valuable wedding present so recently.
  67. In these circumstances, I consider it appropriate to make a conditional order requiring security in a substantial amount as well as ordering summary judgment in respect of the claimant's alternative claim. I will, however, hear submissions as to the precise amount under that order.

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