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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> GI Globinvestment Ltd & Ors v Faleschini & Ors [2024] EWHC 481 (Comm) (05 March 2024) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2024/481.html Cite as: [2024] EWHC 481 (Comm) |
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OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Fetter Lane London EC4A 1NL |
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B e f o r e :
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| (1) G. I. GLOBINVESTMENT LIMITED (2) MATTEO CORDERO DI MONTEZEMOLO (3) LUCA CORDERO DI MONTEZEMOLO |
Claimants/Respondents |
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| - and |
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(8) FEDERICO  FALESCHINI(9) LEADER LOGIC HOLDING AG(10) LEADER LOGIC AG |
Defendants/Applicants |
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| - and |
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| (1) XY ERS UK LIMITED (2) SKEW BASE INVESTMENTS SCA RAIF (3) SKEW BASE S.A.R.L. (4) VP FUND SOLUTIONS (LUXEMBOURG) S.A. (5) VP FUND SOLUTIONS (LIECHTENSTEIN) A.G. (6) TWINKLE CAPITAL S.A. (7) DANIELE MIGANI |
Defendants |
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Philip Ahlquist (instructed by Enyo Law LLP) for the Eighth Defendant
Adam Cloherty KC (instructed by Bird & Bird LLP) for the Ninth and Tenth Defendants
Hearing dates: 31 January 2024, 1 February 2024
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Crown Copyright ©
Mrs Justice Cockerill:
INTRODUCTION
Faleschini.
Faleschini that it was an independent and conflict-free adviser. They also say that on XY UK's recommendation and on the understanding that XY UK was wholly independent from the Skew Base Fund, GIG and MDM invested very substantial sums in the Skew Base Fund.
Faleschini and the Leader Logic Defendants (the Ninth and Tenth Defendants, the "LL Defendants") say that whatever may be said against the other defendants, there is no realistic case against them[1]. They have therefore brought applications for strike out and/or reverse summary judgment. These have been argued with great focus and skill across two days of court time.
THE FACTS
Faleschini was the company secretary of XY UK and CFO of XY SA, a Swiss company in the same group.
Faleschini. Mr Faleschini is also the CFO of XY SA, XY UK's parent company, and the XY Group. He is also a director of a company connected to Mr Migani, called Twinkle Capital SA ("Twinkle") (a Swiss company and the Sixth Defendant), which was involved in the events in question.
Faleschini attended a meeting with a Mr Nuzzo who acted as representative of GIG and LDM. It is alleged that at that meeting, he made representations as to the independence of XY UK when giving financial advice. The Claimants' case is that GIG and MDM (and LDM) engaged XY UK as a financial adviser because they were told by XY UK, Mr Migani and Mr Faleschini that it was an independent and conflict-free adviser. They say that on XY UK's recommendation and on the understanding that XY UK was wholly independent, the Claimants later made investments in the Skew Base Fund. This include investments in compartments investing in "HFPO" (High Frequency Price Opportunity) notes, i.e. market instruments that are close to their maturity, as well as investment in "MIN" (Market Insurance Notes) and other very similar investments.
i) The Skew Base Fund was created with involvement on the part of XY UK and Mr Migani, who were involved in its operation thereafter. That company was a new company, with no track record, no infrastructure, and no public presence;
ii) XY UK recommended to its clients that they invest in the Skew Base Fund, and for present purposes it is accepted that all investors were directed to the fund by XY UK except for Twinkle, which was a connected company;
iii) Twinkle, a Swiss company owned by Mr Migani and incorporated specifically to establish and run the Skew Base Fund, and of which Mr Faleschini is sole director, received significant sums deriving from investments in the fund, purportedly for a significant (and the Claimants allege, concealed) role in operating the Skew Base Fund;
iv) The LL Defendants, companies owned by Mr Migani, also received substantial sums deriving from investments in the fund again on the supposed basis of providing services to the fund, although there is no trace, in the documents, of any services of substance having been so provided;
v) In addition to his roles at XY UK and Twinkle, Mr Faleschini is married to Ms Viviana Gaveni, who is Twinkle's administration, finance and control manager and one of three directors of the General Partner of the Skew Base Fund (the third Defendant) ("SB GP");
vi) There were undisclosed services agreements with the LL Defendants, also companies owned by Mr Migani.
i) It is to be inferred that the Defendants combined together and/or acted in concert pursuant to an agreement or common understanding, with an intention to maintain the fa็ade that the Skew Base Fund was independent of XY UK and managed by VP Luxembourg without any connection to or involvement from XY UK or related persons;
ii) The unlawful means used included deceit, breach of fiduciary duty and dishonest assistance;
iii) The fraud involved substantial sums, derived from investments in the Skew Base Fund, being paid to undisclosed corporate vehicles owned by Mr Migani.
Faleschini says that the claim which is realistic against the other Defendants cannot succeed against him because the facts he is alleged to have known did not exist, there is no realistic basis for a case of continuing representations persisting to the point when he did have the relevant knowledge and that the case in conspiracy against him is exiguous to vanishing point. The Claimants' case is that Mr Faleschini's attempts to position himself on the outskirts of the fraud are unrealistic and that there is ample material to make for a case which passes the "fanciful" mark.
i) The Skew Base Fund (the Second Defendant) is a partnership incorporated under Luxembourg Law, operating as an alternative investment fund. It was managed by its general partner, SB GP (the Third Defendant);
ii) Pursuant to agreements with SB GP, VP Luxembourg (the Fourth Defendant) was the Alternative Investment Fund Manager of the Skew Base Fund, and VP Liechtenstein (the Fifth Defendant) had day-to-day responsibility for managing its investments;
iii) SB GP was owned by Twinkle (the Sixth Defendant);
iv) Leader Logic was owned by Leader Logic Holding (also Swiss companies);
v) Both Twinkle and Leader Logic Holding were owned by Mr Migani.
Chronology
Faleschini is alleged to have made the Independence Representation to Mr Nuzzo on behalf of GIG and LDM at a meeting. This covers the investments which would be recommended and lack of connection to them. It is said that he acted fraudulently in not disclosing the connections between Skew Base and XY UK and participating in deceit to maintain a fa็ade of independence.
Faleschini attended a further meeting. It is not alleged by the Claimants that he made any representation at this meeting. On the Claimants' case it was also attended by MDM as well as Mr Nuzzo.
i) Twinkle's Service and Technological Agreement with the VP Defendants was signed on Twinkle's behalf by Mr Grasso (not Mr Faleschini who was not yet a director of Twinkle).
ii) Twinkle's Support Services Agreement with SB GP was signed on Twinkle's behalf by Mr Grasso.
There is an issue as to whether these agreements are shams but that is not a relevant issue for the purposes of this application.
Faleschini was appointed director of Twinkle.
i) The Third GIG/Advisory Agreement was signed.
ii) The XY EOS Ticino SA/GIG reporting agreement was signed.
iii) The LDM Advisory Agreement was signed.
iv) The XY EOS Ticino SA/LDM reporting agreement was signed.
i) GIG invested 3,999,999.99 in the Tangible Credit compartment.
ii) GIG invested 10 million in the Real Estate compartment.
i) The MDM Advisory Agreement was signed.
ii) The EOS Ticino SA/MDM planning agreement was signed.
"Although I accept that there is no direct evidence of knowledge by VP Liecht of these matters I do not consider that I can say that there is no real prospect of the trial judge inferring such knowledge. The facts prayed in aid at this stage by Cs are essentially the same as those they rely on in relation to the existence of the combination. I stress that I accept that it is perfectly possible that the VP Defendants had no knowledge, nor even any suspicion, that Mr Migani and XY might have been presenting the Skew Base Fund as independent when in fact it was not; but I do not consider that I can be so confident that those allegations will fail that I can say that there is no serious issue to be tried.
It seems to me that if this case proceeds to trial the judge may or may not draw the inferences against the VP Defendants upon which the Claimant seek to rely. Whether he or she does so will depend on what has happened on disclosure and on what evidence the VP Defendants chose to call. But it seems to me there is amply sufficient material pleaded against the VP Liecht at this stage for me to be able to say that as things stand there is a serious issue to be tried as to whether or not VP Liecht was party to a combination to use the unlawful means alleged, and as to VP Liecht's knowledge of the facts constituting those unlawful means."
THE LL DEFENDANTS' STRIKE OUT APPLICATION
The pleaded claim and the attack on it
i) The LL Defendants are (directly or indirectly) owned by Mr Migani (which he admits) and his knowledge and intent is to be attributed to those entities;
ii) The LL Defendants entered into "Support Service Agreements" dated 1 October 2019 and 16 January 2020 with SB GP (the "LL Agreements").
iii) The involvement of the LL Defendants, Mr Migani's vehicles, in the Skew Base arrangements, and the existence of the LL Agreements (as well as other agreements between certain Defendants) for the purported provision of services relating to the Skew Base Fund, were not disclosed to the Claimants before they invested in the Skew Base Fund nor at any time prior to the issue of the Claim (referred to as the "Undisclosed Agreements"). This allegation is not denied, though there is a vibrant issue about the date of the LL Defendant's incorporation and its implications (see further below);
iv) The LL Defendants received very substantial payments from SB GP which were not disclosed to the Claimants before they invested in the Skew Base Fund nor at any time thereafter (referred to as the "Undisclosed Payments"). This is again not disputed, subject to the timing point. The Undisclosed Payments are understood to be in the range of at least 5,000,000;
v) The Undisclosed Agreements were not genuine and were entered into to provide a pretext for the making of the Undisclosed Payments. In their Amended Particulars of Claim, the Claimants referred to the following matters in support of that case:
a) It is inherently unlikely that SB GP would have paid the LL Defendants such substantial sums for mere "support services";
b) Leader Logic Holding had been incorporated for just 4 months before the 2019 LL Agreement was entered into and had no website, infrastructure or employees of which the Claimants are aware to deliver any such services;
c) A substantial payment of 2,000,040 was made to Leader Logic Holding just 15 days after the 2019 LL Agreement was entered into;
d) A further substantial payment of 3,034,529 was made to Leader Logic less than a month after the 2020 LL Agreement was entered into.
vi) The arrangement and/or combination between the Defendants, supporting the conspiracy claim, is to be inferred from (amongst other things) the Undisclosed Payments and Undisclosed Agreements including the fact that they were not disclosed; that the Defendants had a financial interest in encouraging more investors to invest in the Skew Base Fund, because of fees, commissions or other receipts that would result; and that Mr Migani was the ultimate beneficiary of the proceeds of the fraud through a complex web of transactions which were also not disclosed;
vii) Pursuant to that agreement the LL Defendants received substantial proceeds of the fraud (i.e. the Undisclosed Payments) for the ultimate benefit of Mr Migani. The LL Defendants were, in effect, vehicles for the extraction of substantial proceeds of the conspiracy;
viii) Further, the alleged conspiracy was ongoing and subsisted for the duration of the relationship between XY UK, GIG and MDM, which continued well after the LL Defendants' involvement in the scheme.
"The elements of the cause of action are as follows:
i) A combination, arrangement or understanding between two or more people. It is not necessary for the conspirators all to join the conspiracy at the same time, but the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of: Kuwait Oil Tanker at [111].
ii) An intention to injure another individual or separate legal entity, albeit with no need for that to be the sole or predominant intention: Kuwait Oil Tanker at [108]. Moreover:
a) The necessary intent can be inferred, and often will need to be inferred, from the primary facts see Kuwait Oil Tanker at [120-121], citing Bourgoin SA v Minister of Agriculture [1986] 1 QB: "[i]f an act is done deliberately and with knowledge of the consequences, I do not think that the actor can say that he did not 'intend' the consequences or that the act was not 'aimed' at the person who, it is known, will suffer them".
b) Where conspirators intentionally injure the claimant and use unlawful means to do so, it is no defence for them to show that their primary purpose was to further or protect their own interests: Lonrho Plc v Fayed [1992] 1 AC 448, 465-466; see also OBG v Allan [2008] 1 AC 1 at [164-165].
c) Foresight that his unlawful conduct may or will probably damage the claimant cannot be equated with intention: OBG at [166].
iii) In some cases, there may be no specific intent but intention to injure results from the inevitability of loss: see Lord Nicholls at [167] in OBG v Allan, referring to cases where:
"The defendant's gain and the claimant's loss are, to the defendant's knowledge, inseparably linked. The defendant cannot obtain the one without bringing about the other. If the defendant goes ahead in such a case in order to obtain the gain he seeks, his state of mind will satisfy the mental ingredient of the unlawful interference tort."
iv) Concerted action (in the sense of active participation) consequent upon the combination or understanding: McGrath at [7.57].
v) Use of unlawful means as part of the concerted action. There is no requirement that the unlawful means themselves are independently actionable: Revenue and Customs Commissioners v Total Network [2008] 1 AC 1174 at [104].
vi) Loss being caused to the target of the conspiracy."
i) Have formed the alleged combination with the other Defendants;
ii) Have intended to cause the Alleged Damage, not least because if the Alleged Damage were caused it would already have been caused;
iii) Have agreed to the employment of the alleged unlawful means, because if any of those means had been used they must all on this hypothesis have already occurred; and
iv) Have caused GIG or MDM any loss, because if any loss were caused GIG and MDM had already sustained it.
"examine[] the position of each individual [defendant] in order to determine whether and, if so, how he had become party to the unlawful conspiracy ie. by looking to see what part, if any, each [defendant] had played in connection with each specific incident [of alleged unlawful means] and then considering whether such part necessarily compelled the inference that the particular [defendant] was party to a conspiracy to use unlawful means to further the object of [the alleged conspiracy]".
i) Mr Migani did not acquire ownership of Leader Logic Holding until 24 September 2019, and Leader Logic Holding did not enter into its Support Service Agreement until 1 October 2019; and
ii) Leader Logic did not even exist until 18 December 2019 and did not enter into its Support Service Agreement until 16 January 2020.
iii) So far as GIG is concerned, there is no dispute that its last investment occurred by 7 December 2018.
iv) So far as MDM is concerned, he had actually made his decision around 30 July 2019; and in any event that he submitted his request to purchase shares in that Compartment which was the last step he did or could take in respect of the investment on 2 September 2019. Again, therefore, as a matter of timing if nothing else, it is impossible to see how the LL Defendants can have been implicated in the alleged conspiracy against MDM.
The "chronology" case
"Of course, as in any case of this kind, it is necessary to examine the evidence with care to see whether each defendant was involved in each fraudulent transaction, but once one reaches the conclusion that the Defendants combined to steal from their employer by whatever means might present themselves, the question in relation to any particular scheme or enterprise in which only one or some of them can be shown to have directly participated is whether that enterprise fell within the overall scope of their common design. If several people agree to enable each other to steal from their employer, lending their support in different ways at different times and taking different shares of the proceeds (or even each retaining for himself what he takes), each of them is party to the agreement pursuant to which all the thefts take place."
" before a court can determine whether a defendant has been a party to a combination, it is necessary to identify what the combination is said to be and what part the defendant played in that combination. I can see that if a defendant is in a position of authority over other persons and those other persons want to feel that they have the defendant's authority to proceed before they do proceed, then the defendant's omission to stop their activity might be regarded as a sufficient signal to them that they have the defendant's backing in what they are doing. Such a defendant could be held to be participating in the combination. However, I do not think that every person who knows unlawful acts are being committed and who does nothing to stop those acts, is a party to a combination to carry out those acts."
i) There is no requirement that all of the conspirators will use unlawful means: Lakatamia Shipping Company Ltd v Nobu Su [2021] EWHC 1907 (Comm) at [83].
ii) Further, "a party can be party to a conspiracy to use unlawful means even if he does not himself commit some or all of the relevant unlawful acts": Erste Group Bank AG (London) v JSC VMZ Red October [2013] EWHC 2926 (Comm) at [103].
"What is clear from the authorities is that it is necessary to look at all the particular facts of the case to establish whether there was a combination and whether someone participated, actively or passively in the conspiracy being aware that someone was committing a potentially unlawful act, but (simply) not taking steps to stop it, may not suffice to demonstrate a combination, but it all depends on the circumstances, and in particular the position of the individual concerned."
" On the LLH side, bill GP a total of 5,410 + 672 (RE reporting) - 2,000 (advance paid in December) = approx. 4,082
On the TC side, bill VP a total for the second half (the first half has already been paid) of 2,985 - 1,377 (1st half 1st tranche) - 23 (1st half 2nd tranche) = approx. 1,585
So a profit for SB of 860 then remains (of which 231 to repatriate in another way)
Can you please confirm by simulating the various tranches, the times and amounts (from SB to LLH and from VP to TC) and also the distribution of the cumulative dividends in SB to TC (now the architecture is complete so we can repatriate the maximum dividends).
Then when you can, please send me the first bills with attachments (LLH and TC) so we can check compliance and also the reason for the transfers."
Loss
MR FALESCHINI'S STRIKE OUT APPLICATION
The deceit claim against Mr Faleschini
Faleschini is as follows:
i) Mr Faleschini is and was at all material times the company secretary of XY UK and the CFO of the parent company XY SA;
ii) He was a director of Twinkle from 15 December 2017;
iii) Mr Faleschini made representations that XY UK was an independent adviser and provided unbiased advice, during meetings on 12 May 2016 and 9 June 2016;
iv) It is to be inferred that Mr Faleschini was formally or informally remunerated in correlation with the performance of XY UK, XY SA or Twinkle and/or from XY UK and Twinkle's activities in designing, pricing and/or negotiating trades on behalf of VP Liecht and XY UK directing investors to the Skew Base Fund;
v) It is alleged that Mr Faleschini made the representations with the knowledge of the facts that made them unlawful;
vi) Even if the representations were not false when they were made, they were continuing representations and became false by the time they were acted upon by GIG and/or MDM when investing in the Skew Base Fund; Mr Faleschini was aware that they had become false given his role in the XY Group and Twinkle; and Mr Faleschini did not retract the representations when he became aware of their falsity.
i) The defendant makes a false representation to the claimant;
ii) The defendant knows that the representation is false, alternatively he is reckless as to whether it is true or false;
iii) The defendant intends that the claimant should act in reliance on it, and
iv) The claimant does act in reliance on the representation and in consequence suffers loss.
"At the outset it is necessary to reiterate certain well-established principles.
First, though the representation must be one of fact representations as to the future or of opinion frequently contain implied representations with regard to the present or to the knowledge of the representor. ...
Second, a representation once made is likely to have continuing effect. So if made for the purpose of an intended transaction it will continue until the transaction is completed or abandoned or the representation ceases to be operative on the mind of the representee.
Third, if at a time when it is continuing the representor discovers that the representation was false when made or has become false since he should correct it. ...
Fourth, the meaning and effect of a statement or of conduct must be ascertained in the light of the circumstances pertaining at the time. Those circumstances will include the course of the negotiations and any earlier representations."
Faleschini's strike out application is that he could not have known that the representations were untrue at the time they were made because he had no role at Twinkle and on the Claimants' own case, the alleged connections and mutual benefits which are said to render the representation untrue did not exist at the time of the initial Independence Representations. Further, it is submitted that it cannot be said that the Independence Representations relied on were representations of existing fact, or were false at the time they were initially made. Overall it is submitted for Mr Faleschini that the case against him has not been properly considered, and when considered, cannot stand.
Faleschini advanced the submissions with great skill and clarity, and that those submissions could not well have been put better.
Overarching issues
Faleschini's case has to be considered entirely distinctly from the case being advanced against the other defendants notably Mr Migani. There is some force in Mr Ahlquist's submission here, which was that Mr Faleschini must not simply be subsumed into the case as a defendant because those he worked with or for are legitimately defendants in the action.
Faleschini with the other defendants if he is on analysis distinct from them. There must be no "lumping in" of Mr Faleschini simply because claims are being brought against people with whom he associated or companies for whom he worked. Nor would I tend to accept the argument advanced for the Claimants that even if there was no sufficiently arguable case against Mr Faleschini he should be kept in because he will inevitably have to be at trial, qua witness if not qua Defendant.
Faleschini's position has to be completely (and artificially) divorced from that of the other Defendants. The case against him concerns allegations of interrelationship with those Defendants. It arises in the context of a broader claim by the Claimants against Mr Migani, companies alleged to be owned or otherwise controlled by him, and individuals and entities alleged to have been involved in Mr Migani's activities. It would be inappropriate in a matter such as this, where the relationship between the Defendants is a central part of the case, to consider the position of each Defendant not just individually but also in isolation from the broader claim. Just as Mr Faleschini cannot be elided with the other Defendants, nor can his position be considered without looking at how he and his actions fit into the broader picture.
"Where, as will often be the case where permission for service out of the jurisdiction is sought, there are particulars of claim, the analytical focus should be on the particulars of claim and whether, on the basis that the facts there alleged are true, the cause of action asserted has a real prospect of success. Any particulars of claim or witness statement setting out details of the claim will be supported by a statement of truth. Save in cases where allegations of fact are demonstrably untrue or unsupportable, it is generally not appropriate for a defendant to dispute the facts alleged through evidence of its own. Doing so may well just show that there is a triable issue."
Faleschini's position. The perceived need to take these points reflects the reality which emerges when the position overall is considered.
Representations: Existence
Faleschini knew that Mr Migani had intended to create the Skew Base Fund (or a similar captive investment vehicle) and that XY UK intended to advise its clients to invest in that fund, then any actionable independence representations made by Mr Faleschini would have been false when they were made. So falsity can in essence be put to one side.
i) The Claimants allege that the representations were made during meetings on 12 May 2016 and 9 June 2016. Mr Faleschini also accepts that he attended a meeting with the Claimants on 14 July 2016;
ii) For the purposes of the strike out application, Mr Faleschini does not dispute that the Independence Representations were made, though his case is that he was there to talk about something completely different namely the technological reporting services that XY UK could provide;
iii) Twinkle was incorporated relatively shortly thereafter, on 28 October 2016, for the purpose of launching the Skew Base Fund;
iv) SB GP was incorporated on 24 November 2016;
v) The Skew Base Fund was incorporated on 9 February 2017;
vi) On 2 March 2017, MDM signed a "Commitment Letter" to subscribe 10 million in the HFPO compartment of the Skew Base Fund;
vii) GIG and MDM invested in compartments of the Skew Base Fund between June 2017 and October 2019.
Faleschini made representations about the position XY UK intended or anticipated to be in, vis-เ-vis the Claimants, those could be actionable as representations as to present intent, which is itself a fact.
Falsity and Knowledge
Faleschini knew that Mr Migani had intended to create the Skew Base Fund, the Claimants' case as developed in the evidence is that:
i) He was aware of the intention to create the Skew Base Fund (although potentially not then named as such) at the time the representations were made;
ii) He was involved in early meetings with private equity investors in the Skew Base Fund before he became a director of Twinkle.
Faleschini and Mr Migani were first meeting with the Claimants and making the Independence Representations.
Faleschini at paragraph 47 of his first witness statement refers to an "internal discussion" at the XY Group in or around March 2016 (i.e. before the representations were made) which concerned "establishing a vehicle for XY's clients to make private equity investments" and from which the Skew Base Fund was derived.
Faleschini states that (i) he understood that the idea never progressed; and (ii) he was not made aware of the Skew Base Fund until after it was created. Mr Faleschini's evidence in his first witness statement for the purposes of this application at [49] is that "I was not aware of the Skew Base Fund at the time it was created because I was not involved in its creation and was not a director of Twinkle until much later, in December 2017." But he is not clearly right about this. On the face of it there is a tension between that case and the evidence that he attended or was scheduled to attend a meeting in 2017 where the agreement was concluded to set up the fund.
Faleschini knew that the fund was to be called "Skew Base Fund" is nothing to the point. What does matter is whether it is realistic to contend that he was aware that XY UK intended to establish a captive investment vehicle. That is, on the basis of this evidence, arguable.
Faleschini knew the intent was to direct XY UK's clients (and specifically the Claimants) to invest in that vehicle, at the time when the representations concerning XY UK's independence i.e. that it was independent from the financial products which it recommended - were made.
Faleschini only needed to be aware of a class of people (of which the Claimants are part) that were intended to be misled by the misrepresentations. There is therefore no need to establish that Mr Faleschini knew specifically that the Claimants were investors in Skew Base Fund.
i) Mr Faleschini participated in meetings with the Claimants in May to June 2016, during which he personally made the Independence Representations. He held very senior roles in the XY Group and later in Twinkle;
ii) Twinkle was created in order to launch the Skew Base Fund and it was intended that he be appointed as a director before the operations began;
iii) He knew that XY UK's clients were to be advised to invest in the Skew Base Fund;
iv) He was aware that the Claimants continued to be clients of XY UK until at least September 2019.
Faleschini of course points to the fact that the pleaded case is largely pointing at his role at Twinkle. What is said is that in the absence of an existing connection to Twinkle, or Twinkle doing any of the things that it is alleged to have done for the Skew Base Fund, which only started in 2017, at the time of the representations in May 2016 the representations cannot have been made fraudulently.
Faleschini's role at Twinkle. Once one pans out slightly, this point appears, on the pleaded case and evidence to date, to be very well arguable and therefore comfortably to clear the relevant merits hurdle.
Faleschini's argument ignores his (pleaded) role at XY UK (company secretary and CFO of XY SA). That role is reflected in the factual evidence. Mr Faleschini does not appear from nowhere when appointed to Twinkle. On the contrary, Mr Faleschini was to all appearances rather involved in the arrangements for the establishment of the Skew Base Fund and in its affairs before he became a director of Twinkle. Firstly, as already noted, he accepts that he was aware of discussions in March 2016 around the creation of a "vehicle for XY UK's clients to make private equity investments".
Faleschini accepts he knew, was plainly at odds with any assertion of XY UK's independence.
Faleschini cannot escape from the Independence Representations themselves. Mr Faleschini accepts in his evidence to the Swiss prosecutor that he was aware of the terms of the XY UK website which (then and now) professed transparency and independent advice. The current iteration states that XY UK: "operates in line with the highest quality standards and is committed to transparency and independence in all aspects of its work in accordance with its Code of Ethics and framework for working with all internal and external parties without conflict of interest". The 2016 version is not significantly different.
Faleschini therefore at least arguably amounts to an acceptance that he knew that XY UK was holding itself out as independent to clients and prospective clients. It is also for present purposes accepted that he made the Independence Representations at the May 2016 meeting.
Faleschini as well as Mr Migani knew both what was being said and what was the real state of affairs and therefore had knowledge of falsity. That is the more so when one bears in mind the background facts that (i) Mr Faleschini is a close associate of Mr Migani, at least in matters relating to Mr Migani's business activities; (ii) Mr Faleschini is XY's company secretary and CFO of the XY Group; (iii) Mr Faleschini was in a relationship with and is now married to Ms Gaveni, an employee of both Twinkle and SB GP.
Faleschini had a key role in the alleged criminal conduct of Mr Migani:
"Given the complexity of the facts, explicitly invoked by the investigating magistrate, considering that Daniele Migani obviously did not act alone in the matter for which he was investigated, but rather was coordinating several people and different companies, also considering that the roles of Pietro Dell'Era, Antonio Grasso, Stefano Sampietro and Federico
If the Defendants, due to their roles, their functions, their tasks and, furthermore, due to their training and professional experience and their personal knowledge of Daniele Migani (through professional or private association) knew or should have known of the existing conflicts of interest in which Daniele Migani found himself, their possible complicity in the facts cannot in fact be ruled out."
Faleschini's involvement generally and the likelihood of him being outside the circle of knowledge as he alleges, there is evidence that dovetails with the pleaded point about meetings before he became a director of Twinkle. That is because, in the context of setting up Skew Base Fund potentially with a private equity element, Mr Konig of HarbourVest Partners (UK), a private equity investor, had a discussion with someone using the "Info Skewbase" email address in March 2017 (i.e. just after the MDM Letter of Commitment) which indicated Mr Faleschini, though not yet a director of Twinkle, was involved in Skew Base's business. So:
i) By email on 27 March 2017, the Skew Base team invited HarbourVest to a meeting with (amongst others) Mr Migani and Mr Faleschini to discuss the Skew Base Fund. The email states that "subscriptions to the RAIF will be over 100M". Mr Faleschini is not just named, he is second in a list of eight people likely to attend.
ii) The email goes on to state that "[o]ne relevant topic of the discussions will be the investment policy (in particular geographical diversification and exposure to Italian market will be relevant given the presence of Italian subscriber". The Claimants infer that this is a reference to MDM, but certainly at this stage I accept the submission for Mr Faleschini that it is a step too far to infer that Mr Faleschini was aware that XY UK had recommended that the Claimants personally invest in the Skew Base Fund. Nonetheless it raises a question.
iii) Enclosed with this email was a diagram which explained the operation of the Skew Base Fund. It posits a structure whereby clients of the XY Group would (presumably on advice) invest in the relevant compartments of the Skew Base Fund, and the flow of funds to Mr Migani (p.1). It also states (under the heading "Ziusudra SA", which was the former name of Twinkle) "Ziusudra SA will appoint Federico Faleschini as a member of the board before operations start." While it is possible for this to be consistent with Mr Faleschini's evidence he was not aware of the Skew Base Fund at the time it was created (i) it is in tension with his attempt to suggest he was a tabula rasa on the subject until December 2017, and (ii) it is not fanciful to suppose that he saw it and hence is a matter for exploration at trial.
iv) Most significantly at this stage, the response from HarbourVest stated "Daniele Migani is the founder and CEO. Federico Faleschini is his second hand man, CFO. Not sure I know the others". Given that "second hand man" appears likely to be a phrase intended to reflect the concept of "right hand man" there appears to be a credible case that Mr Faleschini had a key role, at an early stage, before he was publicly involved with the Skew Base Fund and formally appointed a director of Twinkle.
Faleschini objected to this evidence as being a new factual case, that is not really correct. Mr Faleschini's role as "second hand man, CFO" is pleaded (explicitly as to CFO, and by fairly clear implication as to second/right hand man by his bracketing with Mr Migani) in paragraph 13 of the Particulars of Claim.
Faleschini knew that investors in Skew Base Fund might be misled. On the evidence before me the only investors in Skew Base Fund other than Twinkle itself were XY investors. Given the facts noted above it is clearly arguable and a point for trial as to whether Mr Faleschini must have known that all investors in Skew Base Fund apart from Twinkle were clients of XY UK and were recommended to invest in Skew Base Fund by XY UK. He accepts some part of this, saying that "it is true that I knew, and I believe others at Twinkle knew, that 'some clients in the Skew Base Fund' were also XY's clients." This involves an implied suggestion that the Skew Base Fund might have had clients which did not derive from XY UK, and therefore that Mr Faleschini might not have previously known.
Faleschini was heavily involved in the operation of Twinkle in relation to the Skew Base Fund.
i) Mr Grasso described Mr Faleschini's work as follows:
"
ii) When asked what he saw Twinkle doing for the Skew Base Fund, he said:
"I did not actually see any work being done, it was
Faleschini knew facts which are sufficient to enable him to know that the representations were false when made or became false.
Faleschini was aware that the Claimants were investors of the Skew Base Fund. This knowledge is denied by Mr Faleschini. For the reasons given it is not necessarily a legally significant point. Mr Ahlquist attempted to persuade me that there was a non sequitur here in that "it does not follow that claimants were among the group of XY clients who were given that advice". However given the knowledge of structure, the knowledge of the plan as to advising investors, the knowledge of lack of independence, the knowledge of falsity and the question raised by the reference to the Italian investor against the background of Mr Faleschini's right hand man role I would conclude that there is sufficient evidence for the point to be arguable at trial.
Faleschini also asserts that the Claimants do not allege that he knew that they would rely on the Independence Representations. The criticism therefore appears to be that the Claimants have not sufficiently particularised the basis upon which it is said he knew the relevant matters. Given the point just made, knowledge of reliance by the Claimants personally is not significant, and given the nature of the allegations it is plainly arguable that the other parts of the cause of action provide enough material for this. Further I am not minded to regard this pleading point as to a subsidiary aspect of the cause of action as material. It is not unusual for the Claimants in a fraud claim to be unable to provide further particulars at the pleading stage: Gulati v MGN Ltd [2013] EWHC 3392 (Ch) at [9].
Faleschini was aware of the key matters as to advice and lack of independence, as well as reliance for the case not to be fanciful and that the case is one which requires to be tested at trial.
Continuing representations
Faleschini was aware that they had become false given his role in the XY Group and Twinkle, and did not retract the representations when he became aware of their falsity. The argument at the hearing focused on whether, assuming the representations continued, they did continue beyond the First Advisory Agreement between GIG and XY UK on 18 July 2016 or when the Claimants first invested in the Skew Base Fund.
Faleschini refers plainly did exist and he was indisputably aware of them. Mr Faleschini was on his own case by then aware of the fact that Mr Migani (directly or indirectly) owned XY UK, XY SA, Twinkle, the Skew Base Fund and SB GP. Mr Faleschini occupied very senior roles at XY UK, XY SA and Twinkle, and he also knew that XY UK was recommending the Skew Base Fund to its clients (which of course included the Claimants, whom he knew continued to follow XY UK's advice into late 2019). In the circumstances, if the representations continued he would have had a duty to correct the representation or communicate the change in circumstances.
Faleschini's case is that the analysis based on continuing representations cannot be correct because the representations only continue until the point of the parties entering into the relevant contract. Mr Faleschini relies on the case of Gross v Lewis Hillman [1970] Ch 445. This was a case where A made a fraudulent misrepresentation to B, in reliance on which B purchased property from A, which B then sold to C. Upon discovering the misrepresentation, C sought to rescind the sale and claim damages for deceit as against A. Mr Ahlquist points to the judgment of Harman LJ, who followed a line of analysis by reference to the judgment of Cross LJ in Peek v Gurney (1873) LR 6 HL 377, 411 that "when the contract is made with A, the misrepresentation is spent".
Faleschini. It is clearly a different kind of case where there was a chain of contracts, one of which was voidable for fraudulent misrepresentation by A and one which was not. The factual distinction is also highlighted later in the same passage, where Harman LJ stated that the "misrepresentation was not made to the plaintiff: it was made to
the persons who entered into the contract to purchase the property. It was, therefore, they who relied on the representation and not the plaintiff." This is clear from the later reference to avoiding the position where "everybody who comes to know of [the misrepresentation] can rely on it." This present case a case of a contract to advise, with the representation being made to the claimants themselves, is a long distance from the Hillman case which was a one-off property transaction where a representation was made and (without the representor's knowledge) was relayed to a third party who relied on it.
Faleschini's part, if (contrary to the conclusions I have reached above) the argument arose.
Conspiracy
Faleschini is "[t]he only alleged involvement in unlawful means by Mr Faleschini is through his allegedly fraudulent representations". Mr Faleschini concedes that, if the Court were to conclude there was a triable issue on the deceit claim, then the same would follow for the unlawful means conspiracy claim. Accordingly, as already noted, the arguments on conspiracy do not arise.
Faleschini was a party to the conspiracy. This is substantially the same point as that made above in relation to "passive participation" on the part of the LL Defendants.
Faleschini could be found to be part of a conspiracy, the object of which was to create and maintain the fa็ade that the Skew Base Fund was independent of XY UK. There are other unlawful means available to supply that element. As regards Mr Faleschini's involvement in such a conspiracy, this case hinges on the background information outlined in relation to the deceit claim, in particular:
i) Mr Faleschini held senior positions in the XY Group and Twinkle. He was seen as Mr Migani's right hand man;
ii) He was involved in the process to establish the Skew Base Fund;
iii) In the context of the Swiss criminal investigation, the Swiss Court of Appeal concluded that Mr Migani did not act alone in the matter for which he was investigated, that Mr Faleschini had a key role in the alleged criminal conduct of Mr Migani and that he could, subject to the evidence, also be found to be liable:
"Given the complexity of the facts, explicitly invoked by the investigating magistrate, considering that Daniele Migani obviously did not act alone in the matter for which he was investigated, but rather was coordinating several people and different companies, also considering that the roles of Pietro Dell'Era, Antonio Grasso, Stefano Sampietro and Federico
If Ds, due to their roles, their functions, their tasks and, furthermore, due to their training and professional experience and their personal knowledge of Daniele Migani (through professional or private association) knew or should have known of the existing conflicts of interest in which Daniele Migani found himself, their possible complicity in the facts cannot in fact be ruled out."
iv) Further, the evidence of Mr Grasso, the director of Twinkle from October 2016 to February 2018 and Chairman of the Board from February 2018 to December 2019, reveals that Mr Faleschini was heavily involved in the operation of Twinkle in relation to the Skew Base Fund. Mr Grasso described Mr Faleschini's work as follows:
"
v) When asked what he saw Twinkle doing for the Skew Base Fund, he said:
"I did not actually see any work being done, it was
Negligent misrepresentation
Faleschini. The only debate was as to what should be done about that in my judgment and the order which will follow. As to this Mr Faleschini contended for a strike out, while Mr Saoul suggested that it was an obvious error and that there should simply be an amendment to remove it.
The individual Claimants
Faleschini also contends that the cases advanced by the individual Claimants, MDM and LDM ought in any event to be struck out.
Faleschini; it is said that his case rests as pleaded on representations made by XY UK and Mr Migani. On examination I was not persuaded of the robustness of this argument. The Particulars of Claim may not be as explicit as they could/should be but what is clearly pleaded is that the representations made to Mr Nuzzo by Mr Faleschini were repeated at the meeting attended by MDM. Mr Nuzzo's attendance at that earlier meeting is said to be on behalf of GIG and LDM (not MDM) but he is elsewhere pleaded as head of the di Montezemolo family office. In the normal course of events it would be expected that representations made to him would be passed on (inter alia) to MDM. On this basis I accept Mr Saoul's submission that there is plainly a sufficient degree of proximity for there to be at least an arguable case that the representation made by Mr Faleschini is conveyed to MDM, whether through Mr Nuzzo or through the representations which are expressly pleaded in paragraph 15 of the Particulars of Claim and that this is sufficient to give rise to a viable cause of action. It is probably preferable for this point to be dealt with by way of tidying up of the pleading, but it is not a strike out point.
CONCLUSION
Note 1 It is common ground that as a matter of law the critical test is whether the case has realistic or not fanciful prospects of success. [Back] Note 2 Though it would benefit from some tidying to drop the portions which are chronologically incoherent and join up the elements of the real case more explicitly. [Back]