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England and Wales High Court (Queen's Bench Division) Decisions
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Cite as:  EWHC 909 (QB)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
SITTING AS A DEPUTY JUDGE OF THE HIGH COURT OF JUSTICE
| (1) GML INTERNATIONAL LTD
(2) STEFAN PAUL PINTER
(3) TRIDENT FIDUCIARIES (IOM) LTD AS TRUSTEES OF THE BERRY REVOCABLE TRUST
- and –
|JONATHAN HENRY MARTYN HARFIELD
Philip Edey QC and Thomas Ogden (instructed by McDermott Will & Emery) for the Defendant
Hearing dates: 17 – 21 February 2020
Crown Copyright ©
Covid-19 Protocol: This judgment was handed down remotely by circulation to the parties' representatives by email, release to BAILII and publication on the Courts and Tribunals Judiciary website. The date and time for hand-down is deemed to be 10:30am on 17 April 2020.
Section Para number A: INTRODUCTION Summary 1 The Parties 3 The Issues 5 The Evidence Presented 7 B: FACTUAL BACKGROUND The Bulgarian Bank 10 The alleged agreement at the Ritz 16 The Minority Shareholders' Exit 23 The Defendant moves on 32 The 'stolen' Cypriot funds 36 The first payment 37 The Defendant leaves GML 39 Procedural History 44 C: THE CORE DISPUTE 47 The Claimants' case 49 The Defendant's case 56 The legal test 60 The approach to evidence and fact finding 61 The Electronic Footprint 68 Conclusions on the core dispute 70 Summary of conclusions on the central issue 99 D: WERE ALL THE PAYMENTS LEGALLY BINDING LOANS? 100 E: TERMS FOR REPAYMENT 109 F: CONSUMER CREDIT ACT 1974 110 G: WHEN DOES INTEREST RUN FROM? 114 H: DECISION 116 I: POSTSCRIPT: CONSEQUENTIAL ORDERS 117
RICHARD HERMER QC:
i) What was the legal effect of each of the payments made by the Claimants – specifically, were they loans, or rather were they payments made pursuant to the alleged compensation agreement with the Defendant?
ii) If some, or all, of the payments were loans then what were the terms of the loans, in particular as to repayment?
iii) If some, or all, of the payments were loans then were they 'non commercial agreements' as defined by s.189(1) of the Consumer Credit Act 1974 and, if not, are the loans enforceable?
iv) In respect of any sum payable to the Claimants, then for what period is the Claimant entitled to interest pursuant to s.35A of the Senior Courts Act 1981 (the parties having helpfully agreed, at the conclusion of trial, an 'in principle' rate of 2% above Bank of England base rate)?
The evidence presented to the Court
i) Mr Pinter, the Second Claimant;
ii) Mr Stohner, a former director and former underlying beneficial owner of the First Claimant;
iii) Mr Harfield, the Defendant;
iv) Mr Boyarkin, the Defendant's former civil partner.
B: THE FACTUAL BACKGROUND
The Bulgarian Bank
The Alleged Agreement at the Ritz
"would compensate me for any financial loss or detriment I suffered as a result of continuing in my role; and
pay me 5% of any gain made by the Minority Shareholders on their investment on the sale of the minority shareholding."
The Minority Shareholders' Exit
The Defendant moves on
The 'Stolen' Cypriot Accounts
The First Payment
The Defendant leaves GML
C: THE CORE DISPUTE
The Claimants' Case on the Core Dispute
The Defendant's case on the Core Dispute
The Legal test
"Generally speaking, it is possible under English law to make a contract without any formality, simply by word of mouth. Of course, the absence of a written record may make the existence and terms of a contract harder to prove. Furthermore, because the value of a written record is understood by anyone with business experience, its absence may – depending on the circumstances – tend to suggest that no contract was in fact concluded. But those are matters of proof: they are not legal requirements. The basic requirements of a contract are that: (i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable: see e.g. Burrows, " A Restatement of the English Law of Contract " (2016)"
The Approach to evidence and fact finding
"Evidence based on recollection
15. An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.
16. While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people's memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.
17. Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called 'flashbulb' memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description 'flashbulb' memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness's memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).
18. Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.
19. The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party's lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.
20. Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness's memory has been "refreshed" by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness's memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.
21. It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth.
22. In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth."
"Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth. I have been driven to the conclusion that the Judge did not pay sufficient regard to these matters in making his findings of fact in the present case."
"In this regard I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party's internal documents including emails and instant messaging. Those tend to be the documents where a witness's guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence."
The Electronic Footprint
a) On 19 December 2008, emails from the First Claimant to its accountants show that it (including the Second Claimant's former business partner Mr Stohner) believed that the £275,000 was being paid to the Defendant as a loan "GML International Limited will make a loan in an amount of GBP 275,000 on 22 December to Jonathan Harfield". The Defendant's case is that, for reasons that were never satisfactorily explained, the Second Claimant wanted to keep the real purpose of the loan (repayments under the Ritz Agreement) secret not just from Mr Stohner and all others at the First Claimant, but their business partners at Thames River/Hillside. This alleged need for secrecy was said to exist notwithstanding that the purported terms of the Ritz Agreement included payment to the Defendant by the First Claimant (and presumably Hillside) of 5% of their profits from the sale of their minority shares.
b) On 18 February 2010, Mr Stohner sent an email to the Second Claimant discussing a proposed bonus for the Defendant covering the period in which he worked as a partner at GML (the Defendant had left by this stage). Mr Stohner's email stated, amongst other things:
"Jonathan also borrowed £275,000 from the company...
I think we have been very generous to Jonathan. A normal firm or employer wold not have provided the loan... At the same time, I know that Jonathan is grateful to us and will try to assist us in any way he can in the future.
Let's discuss your view on Jonathan's bonus. Then I (or you) need to provide guidance to Nilesh on how/when Jonathan will repay the loan. I expect he earns a high salary now and should be able to be begin paying down the loan on a monthly or quarterly basis, unless there are other problems I'm not aware of."
c) On 28 March 2010, the Defendant wrote an email to the Second Claimant. It is expressed as being a very private email, albeit the Defendant suggested in both his written and oral evidence (without any corroborating evidence) that its terms were essentially requested by the Second Claimant and was a means to dupe Mr Stohner into continuing to believe the payments were loans rather than compensation.
"...It is also rather rare for me to write relatively lengthy and personal emails but this is an exception. Much of this email is very private so I would be pretty mortified if it were to fly round the office. However, given all that you have done for me, you probably know more about me in some ways than anybody else...
Personally, it has taken me more than three years to come to terms with what happened at FIB. It is only now that there is any sense of emotional healing. It is rather sporadic too. Sleeping is still enormously difficult. However life is life and ones tries to move forward and face the world afresh. I am fortunate in having you as a friend and in the time I spent with GML. You kindly offered me GBP 50,000 as a bonus which is not only generous but places me in a further hugely embarrassing position. Things remain very tough financially...
On the question of the bonus, at this moment GBP 25,000 would help me greatly from a cash flow perspective and perhaps you would be willing to remit this to me overseas... I shall remit the GBP 25,000 back to you over the coming months as we agreed when my finances should ease a little. However I cannot accept a bonus per se and my obligations to you, because of all your kindness and flexibility, remain at GBP 275K. The personal healing process requires regaining dignity and self-respect. Repaying you (however and whenever) is part of that process...
One final comment on the question of my obligations to you. I agree we should discuss more thoroughly during one of my forthcoming trips to London. By the way my forthcoming guaranteed bonus is US $187,500 in January 2011 and the same in January 2012. These amounts should substantially go to you and represent the best change (sic) of my being able to settle the score in your favour...
So, once again that you for everything."
[Emphasis in original]
d) On 23 May 2010, the Defendant emailed the Second Claimant asking in express terms for a loan to tide him over whilst he was in dispute with his then Saudi employers:
"...Thank you for your understanding, listening so patiently, and be so kind as ever to help me. In the literal sense, God know what I would have done without you!... ....
Could I ask you to lend me GBP 25,000 until I either receive these moneys or until an overall settlement is reached? Otherwise, as we discussed, I shall run into trouble rather quickly. If you are agreeable, could you remit to the same bank account as before?... ...
Another thank you for some office space. No doubt I shall see you a little more over the weeks ahead but do not want to impose more than I have already done so or to be bothersome on the shop floor... ...
Very best wishes and again thanks that words cannot express."
e) On 11 June 2010, the Defendant emailed the Second Claimant updating him on his employment disputes, which were unconnected to GML. The email states, amongst other things "thank you so much for your support today, both financially and otherwise."
f) On 16 June 2010, the Defendant forwarded to the Second Claimant email correspondence with a company called RISC, who were to be employed to seek to recover the sums said to have been stolen in Cyprus. At the Defendant's request the Second Claimant agreed to pay the upfront costs of the investigators although be bridled at the levels of costs because he considered recovering the sums should be easy. The Defendant's gratitude on the face of his email was palpable:
"If you do underwrite the pursuit of my assets from our Bulgarian friends, then please agree between each other that it can be done on a contingency basis for your benefit as well as mine. This allows me to maintain some semblance of dignity and to reciprocate to you (in addition to the hard moneys that I already owe to you and GML International) for your unparallelled (sic) kindness and support. If we do recover Euros 2 million, nothing would give me greater pleasure than not only to repay everything to you and GML International but also for you to benefit in some way. As I said, such an arrangement gives me the chance to maintain some human dignity and to reciprocate you which I dearly wish to do. I do have fire in my belly for this mission and your involvement is hugely important to me and not just financially."
The Second Claimant in his reply stated "... I won't expect a share of recoveries because it is your money!"
g) A few days later, on 22 June 2010, the Second Claimant wrote to Mr Stohner updating him on the Defendant's status. He stated that he had been counselling the Defendant about his almost certain departure from his job in Saudi Arabia, helping him get a new job in London, and providing assistance in facilitating the return of his money from FIB. The Second Claimant told Mr Stohner:
"...This is in aid of getting him liquid so he can repay our loan.
He's almost certainly heading for having his contract with Deutsche Gulf paid out, which would be a little money to repay us, but not enough because unless he gets another job, he will need money to live on."
h) A further email was sent by the Second Claimant to Mr Stohner on 8 September 2010 again updating him on the Defendant. He stated that he had been spending 'a huge amount of time advising Jonathan' on recovery of his money from FIB and his exit from Deutsche Bank, noting that he had underwritten and paid his legal fees in respect of both. He also noted how he had been helping him secure the job as CEO of Delta Trade Finance. He told Mr Stohner:
"The great news is that he is going to be paid USD 500k by Deutsche in relation to his dismissal... .... This will allow him to repay me for the legal fees I have paid, clear some other debts, keep a bit of money for his own expenses and repay a meaningful part of his loan from GML International..."
Noting that RISC were extremely confident of securing the return of the Defendant's stolen funds, he stated:
"If/when this happens, Jonathan will clear the balance of the loan from GML International."
i) On 29 September 2010, the Defendant wrote to the Second Claimant asking for a cheque for £10,000 as he was "not sure I will manage until the DB/GHF moneys come through, I hope by the end of next week. If you are kind enough, and have no objection, would you mind if I drop the office tomorrow..."
j) On 2 November 2010, the Defendant gave the Second Claimant a handwritten letter together with a gift of a watch that he said his mother had bought him on his appointment as CED of FIB. The letter states:
"You have rescued me and my family over the past months, indeed years. I am not sure how to say 'thank-you' and you know that financially things remain precarious. However, I wish to show my gratitude and appreciation... ...
The enclosed is for you and how you came by it is something that one day I hope you will tell Aidan as an example of human kindness...
Thank you, Stefan, for everything. You have been wonderful."
k) On 26 November 2010, the Second Claimant emailed the First Claimant's accountant to give him the details of a repayment by the Defendant of £10,000 towards his loan from the First Claimant. He stated "Further payments can be expected, but probably not before May 2011 which is when his salary will start to be paid in his new job."
l) On 3 January 2011, the Defendant wrote to the Second Claimant asking for more money, "... please could I beg some of your time in the near future? I need to discuss finances to tide me through until I officially go onto the Three Delta payroll and ask for your help with this. I also want to discuss various approaches to RISC which had been going through my mind. I know it is a real bore to you but solving the Bulgaria problem is essential for me if life is to work out in any meaningful way." The Second Claimant replied that evening, "I meant to say when we spoke earlier that if you need money before Thursday, I can easily get a check (sic) dropped off to you if you tell me how much you need."
m) On 20 January 2011, the Defendant emailed the Second Claimant because, amongst other things, "I need to beg your help on tax and for February".
n) On 23 January 2011, the Defendant emailed the Second Claimant because "I owe HMRC GBP 21,555.81 on 31st January 2011. I wonder if you would be so hugely kind as to let me have a cheque for GBP 31,555,81 when we meet on Thursday. I am enormously grateful to you."
o) On 16 March 2011 the Defendant emailed the Second Claimant. He stated, amongst other things:
"...I was extremely grateful for your additional help when you visited our office earlier this month as it enabled me to pay for some outpatient tests and treatment for mother...
I am intending to take a salary from DTF from 1st May with first payment at end of May and to take back salary at end of July (to avoid HMRC suspicions). This amount circa £60k is for you without question or doubt. We must then agree on how I should settle the remaining substantial obligations over time. This weighs on my mind especially as you have been so utterly supportive over so many things and for so long. I hope that you have not become too fed up or weary of me."
p) On 30 March 2011, the Defendant emailed the Second Claimant to update him on his mother's health. He stated, amongst other things, "I have thanked you many times before for all that you have done for me but I can tell you that I have never been so grateful to somebody as I am to you over the past few weeks. Without your financial help, I am pretty sure that mother would have died. It is not easy (and the burden on you has been considerable). Thank God Stefan for your kindness."
q) On 6 April 2011, the Defendant emailed the Second Claimant again asking for money. He stated, amongst other things:
"You very kindly agreed to keep me afloat until I receive my first salary at the end of May and we agreed the amounts when we met in January 2011. I have tried to keep within these amounts and you also very kindly made an advance to me in early March 2011…
Overall, may I ask if I could have an additional £6,000 over and above what we agreed in January 2011. I estimate that I need £16,000 to get through to the end of May 2011. If you are agreeable, and I am entirely at your mercy on this, would you be willing to split this evenly between £8,000 as soon as possible and £8,000 at the beginning of May?
I am so sorry to be begging from you and hope that you do not lose patience or grow to dislike me in some way. You know that I rely on hugely for support in so many ways. By the end of May, I should be on my own feet month to month and in July cash should begin to flow back the other way (i.e. me to you) when I take the moneys due to me from November 2010 to April 2011 (inclusive)."
r) On 18 April 2011, the Second Claimant and the Defendant exchanged emails about the ongoing investigation into the Cypriot funds. The Second Claimant was becoming increasingly frustrated at lack of progress. He told the Defendant:
"I confess that I will never probably understand why you conducted yourself the way you did in terms of your personal finances and expenditures in the wake of the theft. If I had been you, and had decided that I din't have the courage to go after the Subjects to recover the stolen money and knowing that ALL of my life's savings were gone, I would have embarked upon an extreme austerity drive, saving every penny, foregoing holidays, learning to cook etc., etc. and rebuilt my savings until I had a financial cushion to fall back on if my future career ran into difficulties... Had you embarked on an austerity drive, you'd have possibly had the option to forget about the whole horrible FIB experience and moved on if you so chose. But you really don't have that option at this point because of your earlier choices."
The Defendant replied, stating "On the lifestyle question, yours is a rational and logical comment. However, after this type of experience, people (including me) often fail to behave logically and rationally."
s) On 26 April 2011, the Defendant wrote again to the Second Defendant asking for money. He said "Officially, I become employed by DTF on 1st May but could I ask you if you would be so kind as to let me have a cheque sometime in the not to (sic) distant future to enable me to cover May?? This should be the last time I have to ask you!!" [Emphasis in original]. In evidence, the Defendant suggested that the last line was ironic because he sought to convey his frustration that he should by now have received the millions of pounds owed to him by the Second Claimant. Even on the face of the document this is a difficult meaning to construe – seen in the context of all the previous and subsequent requests this becomes almost impossible to sustain.
t) On 18 September 2011 the Defendant wrote again asking for money:
"Hi S, please could you be so kind as to let me know if you are able/willing to extend the financial help that I requested before you leave to Georgia? ...You probably hate me for asking and for being a pest but I no longer expected to be in this position... A simple text or brief email from you would put my mind at rest. I am very much the supplicant."
The following day he wrote again stating "Thank you for saving me".
u) On 9 October 2011, the Defendant wrote to the Second Claimant disclosing some extremely personal details and explaining that he was at a very low point indeed. He thanked the Second Claimant "for being there for me". He stated, "Stefan, the purpose of this email is to help me by telling you of where I stand in terms of my thinking (in itself, self indulgent), to thank you for being there for me and assisting me both financially and as a human being, and to tell you of what I want to achieve for the future. I hope that last Monday was the "bottom" and I feel pathetic. However, getting a stable job and rebuilding my self-confidence and (sic) well as my finances must be at the top of my objectives."
v) On 11 October 2011, the Second Claimant requested that the Third Claimant make a disbursement to the Defendant. When questioned as to its purpose by the trust administrator the Second Claimant stated "Jonathan Harfield is a friend of mine and former colleague. He has some short-term cash flow problems, so this loan from the Trust is simply to alleviate these problems until he is able to liquidate some investments."
w) On 14 November 2011, the Second Claimant emailed the Defendant. He wrote in sympathetic and encouraging terms about the problems the Defendant was facing and his efforts to address them. He also expressed concern that consultants engaged to seek recovery of the Cypriot accounts were charging excessive fees which he thought "seems to me like highway robbery" but caveated that opinion by expressing "but it is your money."
x) On 22 December 2011, a further payment was made by the Third Claimant at the request of the Second Claimant who informed the administrator that "This is a further loan to my close friend Jonathan Harfield, which will be repaid within six months."
y) On 7 March 2012, the Defendant made a further request for money. "Dear Stefan, without wishing to impinge on your generosity or take you for granted, I forgot that I have to pay my tax adviser and I have been chased. I am wondering whether if it is possible for you to me have a cheque for £18,500 instead of £17,500. I apologise for asking but have been running on "empty" save you (sic) kind £5,000 since the end of December 2011." The next day an email thanked the Second Claimant for his "financial support".
z) On 23 April 2012, the Second Claimant and the Defendant exchanged a number of emails. The Second Claimant was agitated that the Defendant had appeared to have got himself into further financial difficulty by an unsuccessful bout of trading. The Defendant appeared to have suggested (in a conversation rather than an email) that he had not used monies from the Second Claimant to trade. The Second Claimant reviewed the trading history and challenged this. He stated in his email "So when you say that you were never using money that I'd loaned you to speculate on currencies, that is SIMPLY NOT TRUE even when you were not altered.". The Defendant wrote back. He did not dispute the categorisation of monies provided as 'loans' but rather stated "I have nothing to hide from you. I have never thought of myself of speculating with your money."
aa) A fuller explanation followed from the Defendant later that day. In an email he stated, amongst other things:
"Whatever, the circumstances I again apologise with complete humility. I attach great importance to honesty and integrity. If I have fallen short of these standards, it is both erroneous and sinful...
I accept that I have behaved incredibly stupidly and need to pull myself together. I am trying to do this both by seeing a psychiatrist and by getting a new job. You mean a huge amount to me NOT just because I am financially reliant on you at present but because in my eyes you represent to me the best that humanity has to offer. Be assured that you are not funding a gambling habit... I have used these moneys to cover some living expenses and pay down some of the remaining final debt remaining from 2006. I have been trying to do my best. As promised on the telephone this evening, I shall now close all forex accounts and they shall remain closed. This is a commitment."
[Emphasis in original]
bb) On 9 June 2012 the Defendant wrote to the Second Claimant with a further request for money pending taking up employment at EY. This email also included disclosing highly sensitive and personal information. The Defendant described his attempts to raise money in order to "enable me to stabilise some of the final credit and charge card debts and to seem me though to September financially without troubling you again....". The Defendant proceeded to request further financial help until he received partnership drawings from EY, he stated:
"I am sorry to be such a huge burden. I really have tried every route to get things under control but in truth the only route is a job and this is looking as certain as anything now that the EY offer letter is signed. If you are able/willing to assist me, then cheques or transfers would be gratefully received...
Stefan, thank you again for being there for me. The last six years have been a horrible situation for me and a massive yoke for you at a time when business has been tough. Words are easy but you know everything and my thankfulness is heartfelt.
Finally Stefan thank you. Moving to Prague is a new beginning and I am looking forward to both the hard work and the challenge. I am more conscious that without your huge support over the past six years I would have gone bankrupt, been expelled from the Institute of Chartered Accountants and very likely have been homeless. As I have said to you before, you have been wonderful."
cc) On 1 August 2012, the Second Claimant's patience appeared to be wearing thin. The Defendant's email to him stated "Thank you for taking my call and I am sorry. I do understand about drawing the line. At last, from September, I shall be working and making a new start in life. I do need £20k and I apologise as I realise the hardship to you."
dd) By September 2012 Mr Stohner was becoming increasingly concerned about the Defendant's failure to repay his loan to the First Claimant. On 28 September 2012 he wrote to the Second Claimant stating "It is long past time that Jonathan repaid his loans to GMLI. What amount of his salary and what portion of his bonus have you agreed will be paid to GMLI?" The Second Claimant then spoke to the Defendant and reported back by email to Mr Stohner on 30 September 2012 that he would start paying back in November and would also be making additional payments when his London flat was sold. The Second Claimant also noted that when the Defendant recovered his Cypriot monies (stating "it really is a matter of 'when' rather than 'if'") that the GML debt would be paid in full. The Second Claimant emailed the Defendant a few weeks later asking him to start small monthly payments to GML from November stating "it would be very helpful from an audit standpoint." The Defendant replied noting that he was cash flow positive but it was rather less than expected and so requested that they spoke to agree an amount for repayment. Thereafter five small monthly payments were made by the Defendant.
ee) On 26 June 2013 the Second Claimant emailed the Defendant. The Second Claimant was very keen that the Defendant progress attempts to recover his Cypriot funds and had helped him engage the law firm, Sidley Austin, to assist. The Second Claimant urged the Defendant not to 'lose his nerve' and that it should be straightforward to recover the funds. He also noted:
"Plus GML and I really do need you to repay the bailouts for the credit cards, the forex trading etc. I didn't even suggest when you sold your flat that some of those proceeds should find their way in GML's direction, because I suspected that you had other issues to finally resolve."
The Defendant's reply did not dispute the reference to the need to repay 'bailouts' to both the First and Second Claimant.
ff) On 25 October 2013, the Second Claimant wrote an email, in exasperated terms, having received a further request for money from the Defendant. He stated, amongst other things:
"Jonathan, this is absolutely the end of my relentless series of bailouts of you because you can't make ends meet. Whatever it takes for you to live within your means, whether that involves moving to a smaller flat, eating lentils three meals per day or whatever, you MUST live within your means, like every responsible person in the world must do.... ..... in light of your financial predicament, it is all the more unfathomable that I had to virtually drag you to meet with Howard to commence the FIB recovery efforts, and that your Mother would be so reluctant to join the effort to save you financially. It is well beyond the time for politeness and trying to accommodate concerns and sensibilities because your creditors have been so forebearing....
That I instructed payment of GBP 15,000 to you today means that I am GBP 15,000 further away from owning a home in the UK and having financial security, which I well and truly deserve after working so hard on behalf of others who I care about, including you, that I very nearly killed myself.
You say that you are grateful and relieved that I bailed you out yet again, which is obvious and which I can understand. However, I am GBP 15,000 (plus USD 11,000) further away from a quiet life when I might enjoy the fruits of my labour and hope to actually meet my grandchildren rather than perish from stress beforehand.
I should not have to work myself to death so you can pay your bills."
gg) On 21 November 2013, the Defendant wrote to the Second Claimant asking him to relax the pressure he felt he was under to recover the Cypriot funds. For the first time in the correspondence he refers to not being properly rewarded over the events that led to his departure from FIB in 2006. He reported that his mother "...feels that I made a huge contribution to the success of the GML/TRC investment in FIB but that this led to my downfall which was not really rewarded. For me this is not a factor any longer and am thankful that you have stood by me. The anger and pain have evaporated."
hh) By February 2014 the Second Claimant was frustrated at the lack of progress in the attempts to secure the Defendant's Cypriot funds. He emailed on 24 February that "... I sincerely need some closure on this, having invested so many hundreds and hundreds of hours, and so many hundreds of thousands personally in you."
ii) On 7 April 2014 the Second Claimant made yet another payment to the Defendant having been told three days previously by email that the Defendant "simply cannot cope without some help, so I am asking you."
jj) In May 2014 the Defendant obtained a report from the investigatory firm KCS. This had been funded by the Second Claimant in yet another attempt to assist in the recovery of the Cypriot monies. In fact, the report contained considerable criticisms of the actions of both GML and Hillside in the sale of their minority stake in FIB and recommended that the Defendant be compensated for his role in securing their exit. This was followed by a very lengthy letter from the Defendant to the Second Claimant of 7 May 2014. The letter set out the Defendant's belief that he played a 'pivotal' role in the successful sale of the Minority Shareholders stake (and their more recent repayments of separate subordinated loans to FIB). The Defendant recorded that the Second Claimant had told him in 2012 that "the investors would always be grateful for your actions in relation to FIB' and in April 2014 that "Jonathan did the right thing". The Defendant set out what had been the devastating consequences of his last months in Sofia and stated:
"Yet it has only just dawned upon me with the benefit of nearly six years of hindsight that the investors should have offered to remedy the matter comprehensively at the time. Despite the grave economic woes of late 2008, Euros 1.9 million would have represented less than 10% of gain even in a "double money" scenario and little more than a 'transactional cost given the size of the profit achieved less than two years earlier. Such an ex gratia payment can be formulated legally, properly and without conflict of interest. It would have been the 'right thing to do' just as my actions in 2006/2007 were the 'right thing to do'. Instead, I have relied upon bail-outs and hand-outs, albeit kindly given and gratefully received."
The Defendant attached a spreadsheet setting out calculations of what he wanted by way of ex gratia payment and stated:
"...it is simply wrong that I should bear such a disproportionate burden and all the pain of events having contributed massively to the advisers and investors being able to navigate the waters to a financially rewarding exit from FIB. The successful exit by the investors did not benefit me in anyway. I was not the recipient of capital gain or carried interest but I did suffer all the loss despite building the foundations of the successful outcome.
Stefan, we need to come to a timely final 'ex gratia' solution so my situation does not deteriorate further."
kk) The Defendant's letter led to a breakdown in his relationship with the Second Claimant, however some three years later on 10 May 2017, the Second Claimant emailed the Defendant on his birthday. He stated:
"It has taken me a long time to come to grips with how you could have abused me to such a huge extent, after I had supported you so consistently and for so long. In fact I would be shocked if anyone else in your life, apart from your parents, had ever supported you in the myriad ways I did. To be honest, what you did to me made me question deeply my instincts about people. And your actions caused major disruptions to my business, as they precipitated the departure from GML of my partner Ted.
I have carried an enormous amount of anger inside of me but I have found a way to make peace with events.
I would therefore welcome a renewal of communications, and perhaps when you are next in London we could meet for a meal."
Conclusions on Core Dispute
i) Multiple emails, over many years, show the Defendant requesting money repeatedly from the Second Claimant;
ii) Those emails on occasion refer to loans, or at least an understanding of indebtedness;
iii) The Defendant's emails repeatedly express enormous gratitude to the Second Claimant for his generosity and acknowledgement that his survival was dependent upon them (i.e. they are consistent with loans and inconsistent with payment of compensation);
iv) Emails between the Second Claimant and third parties (such as his partner, his accountant and the administrators of the Third Claimant) refer to the payment of monies as loans;
v) The documentation, individually and in its totality is consistent with loans being generously made by the Second Claimant to the Defendant as a means of helping a friend who repeatedly expressed his requests in terms of desperation and were also made, as the Second Claimant made plain in evidence, to support efforts to recover monies from Cyprus and thus in turn repay the loans;
vi) The documents show some attempts at repayment by the Defendant. Repayments are obvious evidence consistent with a loan and inconsistent with the Ritz Agreement. The sums repaid were relatively small to the amounts owed but their size consistently reflects the penury that the Defendant was pleading throughout this period and the generosity of the Second Claimant. The Defendant provided an explanation for the repayments, indeed he relied upon them as evidence that supported him, and I deal with that below;
vii) By contrast there is nothing in the documentation, stretching over many years, that makes any reference to the agreement that the Defendant asserts gave rise to an entitlement to millions of pounds. Not only is there no express reference to any such agreement, I do not consider that its existence can be sensibly inferred from the documentation. Notably, even towards the end of the timeline following receipt of the KCS report, when clearly the Defendant was extremely agitated by his spiralling circumstances and plainly bitter that others had made a fortune at FIB whilst he was left with nothing but debt, his 7 May 2014 letter does not categorise the obligations owed to him as anything other than 'moral' obligations requiring an 'ex gratia' payment. Even here he writes that the position 'has only just dawned on me'. The language in this letter, as with so many emails that predate it, is wholly incompatible with the alleged compensation agreement which the Defendant later claimed had entitled him for years to millions of pounds.
(a) The Character of the Second Claimant
(b) The absence of written loan agreements
(c) Repayments by the Defendant
Summary of Conclusions on the central issue
D: WERE ALL THE PAYMENTS LEGALLY BINDING LOANS?
i) The evidence of the Second Claimant (and in addition, in respect of the First Claimant's payment, Mr Stohner) that all the payments were loans. As stated I have found him to be a reliable witness who was clear that the monies paid were always understood to be loans;
ii) The clear course of dealing established in the documentation. I find that they reflect an established framework whereby the Defendant would either ask for money to tide him over in terms that were entirely consistent with further loans or were (save for two payments) advances under the agreed process of covering the costs of the attempt to recover the Cypriot monies. The documentation to my mind establishes a clear pattern of dealing and those advances made without an express reference to the term 'loan' are consistent with the same course of dealing with those that do (for example see email of 23 May 2010 excerpted above). Apart from the terminology used in the requests, the nature of the payments are also evidenced by the Second Claimant's growing frustration with the failure to progress the recovery proceedings as well as his irritation at the Defendant's enjoying a lifestyle beyond his means and the consequential impact on his own (e.g. "I should not have to work myself to death so you can pay your bills"). Neither the terminology nor the tone of the Second Claimant's communications were ever contemporaneously challenged by the Defendant.
E: TERMS FOR REPAYMENT
F: CONSUMER CREDIT ACT 1974
"a consumer credit agreement or a consumer hire agreement not made by the creditor or owner in the course of a business carried out by him."
"35. So the features of the transactions between the parties must be weighed in order to discern whether, taken as a whole, they entitled the judge to conclude that they were not made in the course of a business carried on by the claimant. In my view the balance sheet reads as follows.
36. Indicative of a business are the following features:
(a) the claimant made numerous loans to the defendant;
(b) they were made over a period of almost five years;
(c) they totalled in the region of £7,000,000; and
(d) a substantial profit, reflected in the 10% fee, accrued to the claimant by virtue of them.
37. Contra-indicative of a business are the following features:
(a) although occasionally he made loans to two others, almost all the claimant's loans were made to only one person, namely the defendant;
(b) the loans were made ad hoc, in response to the defendant's sudden requests for immediate, temporary assistance;
(c) the claimant acceded to the requests because he wanted to foster the goodwill of the defendant as an important client of his bank;
(d) there is nothing to indicate that the claimant would have made loans to persons with whom he was unacquainted;
(e) neither the loans nor the repayments were recorded in writing between the parties;
(f) security for repayment was neither tendered nor sought;
(g) the time for repayment of each loan was never identified;
(h) the 10% fee was not related to the time for which each loan remained outstanding; and
(i) the claimant had no business premises, kept no paraphernalia apt to a business and neither advertised nor otherwise published terms upon which he was prepared to make loans.
38. In my view a weighing of the rival features, in particular the necessary attribution of substantial weight to the informality surrounding the loans between the parties, fully entitled the judge to infer that the claimant did not make loans in the course of a business. The defence under s.40(1) of the Act of 1974 was rightly rejected."
G: WHEN INTEREST RUNS FROM
I: POSTSCRIPT - CONSEQUENTIAL ORDERS
Time for Payment
Interim Payment of Costs
|Payment Number||Date||Amount Paid||Net Amount Claimed by the Claimants||Which Claimant paid the sum?||Is it disputed that the sum was paid to D or to a third party?||Documents relating to payment
|1||22.12.2008||£275,000||£263,524||C1 (Bank transfer)||N
|2||24.5.2010||£25,000||£0||C2 (Bank transfer)||N||[F1/103]
|3||11.6.2010||£25,000||£25,000||C2 (Bank transfer)||N||[F1/106]
|4||23.6.2010||£15,000||£15,000||C2 (Bank transfer)||N||[F1/119]
|6||6.8.2010||£5,000||£5,000||C2 (Bank transfer)||N||[F1/125]
|7||25.8.2010||£33,405||£33,405||C2 (Bank transfer)||N||[F1/128]
|11||December2010||£10,000||£0||Alleged by D to be paid by C2 (Cash)
|20||12.10.2011||£40,000||£40,000||C3 (Bank transfer)||N||[F2/213]
|21||23.12.2011||£35,000||£35,000||C3 (Bank transfer)||N||[F2/227]
|23||12.3.2012||£8,000||£8,000||C2 (Bank Transfer)||N||[F3/263]
|31||7.8.2012||£20,000||£20,000||C2 (Bank Transfer)||N||[F3/304]
|32||9.10.2013||$11,000||$0||Alleged by D to be paid by C2 (Cash)
|33||28.10.2013||£15,000||£15,000||C2 (Bank Transfer)||N||[F4/377]
|34||10.2.2014||£29,381.43 (Sidley Austin)
||£29,381.43||GML Capital||C2 claims he reimbursed GML Capital. Defendant disputes that C2 reimbursed GML Capital.
|€5,414,50||GML Capital.||C2 claims he reimbursed GML Capital. Defendant disputes (i) that the sum was paid; and (ii) that C2 reimbursed GML Capital.
|£30,000||C2 (Bank Transfer)||N||[F4/396]
|37||19.3.2014||$5,000||$0||Alleged by D to be paid by C2 (Cash)
|38||7.4.2014||£11,000||£11,000||C2 (Bank Transfer)||N||[F4/403]
PAYMENTS FROM MR HARFIELD TO THE CLAIMANTS
|Payment Number||Date||Amount Paid||Which Claimant was the amount paid to||Is it disputed that the sum was paid by D||Documents relating to payment
|39||22/11/2010||£10,000||C1 (Bank Transfer)||N||[F1/145]
|£25,000||C2 (Bank Transfer)||N||[F2/154]|
|41||1.11.2012||£300||C1 (Bank Transfer)||N||[F3/311]
|42||28.11.2012||£294||C1 (Bank Transfer)||N||[F3/311]
|43||28.12.2012||£294||C1 (Bank Transfer)||N||[F3/311]
|44||4.2.2013||£294||C1 (Bank Transfer)||N||[F3/311]
|45||28.2.2013||£294||C1 (Bank Transfer)||N||[F3/311]
Note 1 I make plain that whilst the fact of the allegations levelled by the parties against the Majority Shareholders is relevant background to this claim, nothing in this judgment should be read as expressing any view, let alone reaching any conclusions, as to whether or not such allegations are well founded. The Majority Shareholders are not parties to these claims and indeed may well be unaware of their existence. [Back] Note 2 Although not referred to by the parties, Gestmin was recently considered by the Court of Appeal in Kogan v Martin  EWCA Civ 1645 – see §§88 et seq. The Court emphasised that Gestmin was not seeking to lay down any golden rule permitting the Court to ignore other sources of evidence. [Back] Note 3 Subsequent correspondence suggests that the source for this analysis was in large measure the Defendant himself. [Back] Note 4 I reject the Defendant’s attempt to explain away the plain wording of this document (whose contents are consistent with many previous communications) as deliberately avoiding mention of the Ritz Agreement because of the concerns of his mother with whom he said he jointly drafted the letter – there was no independent evidence for this, the nature of the letter is consistent in terms and tone with all that predated it and in any event for all the reasons given I find the Defendant a deeply unsatisfactory witness. [Back] Note 5 At trial there was a dispute as to what the dress code was at the Ritz Hotel’s Rivoli Bar in May 2006 and whether the Second Defendant was required (as alleged by the Defendant) to wear a tie provided by the Concierge. I have not found it necessary to resolve that discrete dispute – even if there was such a requirement it does not amount to me to anywhere close to sufficient evidence to conclude the meeting took place let alone that terms were agreed as alleged by the Defendant. [Back] Note 6 In light of the all total absence of documentation capable of substantiating the serious allegations made by the Defendant it is not necessary to go into detail about the allegations. I do note however that the suggestion that the Second Defendant was in cahoots with the Majority Shareholders might be thought difficult to reconcile with the fact he had previously reported them to the Serious Organised Crime Agency. [Back] Note 7 See also Popplewell J (as he then was) in Bassano v Toft & Others  EWHC 377 at §§29 to 37 [Back]
Note 1 I make plain that whilst the fact of the allegations levelled by the parties against the Majority Shareholders is relevant background to this claim, nothing in this judgment should be read as expressing any view, let alone reaching any conclusions, as to whether or not such allegations are well founded. The Majority Shareholders are not parties to these claims and indeed may well be unaware of their existence. [Back]
Note 2 Although not referred to by the parties, Gestmin was recently considered by the Court of Appeal in Kogan v Martin  EWCA Civ 1645 – see §§88 et seq. The Court emphasised that Gestmin was not seeking to lay down any golden rule permitting the Court to ignore other sources of evidence. [Back]
Note 3 Subsequent correspondence suggests that the source for this analysis was in large measure the Defendant himself. [Back]
Note 4 I reject the Defendant’s attempt to explain away the plain wording of this document (whose contents are consistent with many previous communications) as deliberately avoiding mention of the Ritz Agreement because of the concerns of his mother with whom he said he jointly drafted the letter – there was no independent evidence for this, the nature of the letter is consistent in terms and tone with all that predated it and in any event for all the reasons given I find the Defendant a deeply unsatisfactory witness. [Back]
Note 5 At trial there was a dispute as to what the dress code was at the Ritz Hotel’s Rivoli Bar in May 2006 and whether the Second Defendant was required (as alleged by the Defendant) to wear a tie provided by the Concierge. I have not found it necessary to resolve that discrete dispute – even if there was such a requirement it does not amount to me to anywhere close to sufficient evidence to conclude the meeting took place let alone that terms were agreed as alleged by the Defendant. [Back]
Note 6 In light of the all total absence of documentation capable of substantiating the serious allegations made by the Defendant it is not necessary to go into detail about the allegations. I do note however that the suggestion that the Second Defendant was in cahoots with the Majority Shareholders might be thought difficult to reconcile with the fact he had previously reported them to the Serious Organised Crime Agency. [Back]
Note 7 See also Popplewell J (as he then was) in Bassano v Toft & Others  EWHC 377 at §§29 to 37 [Back]