England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		1 February 2002

MR JUSTICE LLOYD:

1. Mr Martin Halley, the Claimant, describes himself as a corporate funding broker. In this claim, he seeks payment of the balance of sums which he says became due to him for having introduced potential investors to certain transactions. The sums were originally held in the client account of a solicitor, Mr Michael Wilson-Smith, but the Law Society intervened in his practice under the Solicitors Act 1974, and in consequence it now holds his client account on statutory trusts: see para 6 of Sch 1 to the 1974 Act. If the money which Mr Halley claims was held to his order by Mr Wilson-Smith, as appears to be the case from Mr Wilson-Smith's ledgers, then the Law Society holds it on trust for him. That is how the Law Society comes to be the Defendant in the claim. However, whatever position Mr Wilson-Smith would have taken, the Law Society resists Mr Halley's claim on the grounds that he is not entitled to the money. Part of its defence is based on points which might be regarded as relatively technical. However it also claims that the transactions, the introduction to which are the basis of Mr Halley's claim, were fraudulent and dishonest. It contends that he was aware of this, actually or in a Nelsonian way, but also argues that, even if he was not aware of it, the fraudulent and dishonest nature of the transactions disentitles him to his commission.

2. I will say at this stage that, for reasons explained below, I am satisfied that Mr Halley is not entitled to the sum he claims. In the end my decision on this depends hardly, if at all, on whether he, or anyone else, was dishonest. It might have been possible to reach the same conclusion without making a finding as to his dishonesty or that of any other person. However, given the amount of time that was devoted at trial to the issue of dishonesty, and given that the matter may proceed further and a different view might be taken of the relevance, or otherwise, of dishonesty, I have made findings on that issue, and the need to do that has contributed substantially to the time that it has taken to prepare this judgment. For reasons explained hereafter, I have come to the conclusion that the transactions at issue were dishonest, that there was no chance that applicants (at any rate, honest applicants) could get the benefit from them that they sought, that both Mr Martin Gibbins (who features extensively in the story) and his associate Mr Halley were aware of this, and that both of them made implicit fraudulent misrepresentations to applicants leading the latter to enter into the agreements.

3. There are four transactions which are directly relevant. One of them, however, is not documented at all in the evidence and I know little about it. Most attention during the trial has been given to two transactions. They are undoubtedly remarkable in their terms, and I will have to examine them in detail. I will also have to consider the way in which it is said that the transactions are fraudulent, and particularly the respects in which fraud, and knowledge of others' fraud, is alleged against Mr Halley in the statements of case.

4. It is a regrettable and unsatisfactory feature of the case that a great deal of the necessary preparation for trial was packed into a period of a few weeks before the trial. The Law Society took over Mr Wilson-Smith's papers when it intervened in his practice, but the Serious Fraud Office has been pursuing enquiries into transactions in which he was involved, and in turn it took possession of the documents. This led to difficulties as regards disclosure of documents which were not resolved until a relatively short time before the trial was due to start. In October, the Law Society sought to amend the basis of its defence, which was agreed to. Having originally contended that the transactions at issue were frauds on the investors introduced by Mr Halley, the Law Society then said, in the alternative, that they were money-laundering schemes, whereby the investors sought to conceal the fraudulent or other criminal provenance of money which they held. Witness statements had been ordered to be exchanged in April, but were not in fact exchanged until late October. The trial started on the afternoon of 8 November, a few days after the date originally envisaged. It opened with a number of applications, one of which was by the Law Society for permission to re-amend its defence. I permitted this only to a limited extent. Mr Dutton, for the Law Society, sought to persuade me on the third day of the trial to add some further material by way of the re-amendment, which I declined. Mr Tager re-amended his Reply in consequence, but not until the end of the evidence. In these circumstances, there are respects in which the preparation for the trial has been more rushed than it should have been.

5. The amount directly at stake is not especially large, the principal sum being of the order of $114,000. However, the nature of the defence raised makes it an important claim for the parties, and from the Law Society's point of view also more generally. Given the importance of the issues I would have wished that the trial preparation had been conducted under less time pressure, and had afforded more opportunity for reflection. Nevertheless, it would have been wrong to have adjourned the trial, nor did either party suggest an adjournment, and I have had to determine the issues that are raised in the statements of case on the basis of the evidence that has been put before me.

6. Among the applications which I dealt with at the outset of the trial was one by the Law Society to allow it to adduce the evidence of a Mr Charles Moro. He and his son Richard are the individuals behind a company, M Toro Limited ("Toro"), incorporated in the Bahamas, which was involved in one of the transactions. He lives in the USA. He had heard about the proceedings from the Law Society, and came to England in order to find out anything that might be of use to him. He contacted the Law Society's solicitors, and gave them a statement, having previously given a statement to the British police. Though this witness statement came very late, Mr Tager did not oppose its admission. Mr Moro was anxious to return to the USA soon after the start of the trial and accordingly the first evidence I heard was his, for the Defence. Though highly unusual, this course in the event proved valuable, as well as convenient for Mr Moro, since it enabled the evidence called on behalf to Mr Halley to be considered in the light of the real experience of Mr Moro as a disappointed investor.

7. I also heard an application by Mr Dutton for the Law Society to admit expert evidence. This I rejected as being made too late. I also rejected an application by Mr Tager to take the evidence of two other witnesses resident in the USA by video-link. Their evidence was peripheral at best, since neither of them was involved in any of the transactions from which Mr Halley's claim arises. Mr Tager said frankly that their importance was not such that it would have justified bringing them over to this country specially, but that it would be convenient to hear them by video-link, assuming that they could have been made available at a suitable time. Mr Dutton did not oppose this application. For all that the video-link process can in some circumstances provide a sensible and satisfactory method of taking evidence, as I have found in other litigation, I took the view that their evidence was of such marginal relevance that it would not be appropriate to resort to the exceptional, and not always satisfactory, video-link procedure. I therefore rejected this application.

8. In the event, therefore, the witnesses were limited to Mr Halley and Mr Gibbins for the Claimant, and Mr Moro together with Mr Gould, of Russell-Cooke, and a Mr Coletta, who is concerned with the running of the Law Society Compensation Fund, for the Defendant. Mr Halley's evidence took some 3 days, and Mr Gibbins' two, so a case which was originally estimated for 5 days ended up taking over 8. In saying that I do not complain about the length of the trial, because the issues are important, and the facts are not at all straightforward, and needed exploration, especially with Mr Halley and Mr Gibbins. Also, Mr Moro's evidence, which took a day, was unexpected until a very late stage before the hearing.

Mr Halley and Mr Gibbins

9. Before I come to the transactions at issue, I must say something about the two protagonists on the Claimant's side, and the history of their business co-operation. Mr Halley uses the trading name of Benington Securities. He started using this name in about 1984, at which stage he was in partnership with his wife and his main business was as a mortgage broker. He had started in business in 1971 dealing with domestic mortgages and soon after that expanded into other mortgage business and then some insurance work. In the later 1980's he got into some property deals on his own account. These led to severe financial difficulties in 1989 from which he was only able to emerge through the means of an individual voluntary arrangement with his creditors, agreed in 1991, which lasted until 1998. In 1990 he suffered a heart attack. Eventually in late 1997 he underwent major surgery and not until then was he able to consider returning to work. It was then that he resumed trading, using the name Benington Securities again, but no longer in partnership with his wife.

10. He had met Mr Gibbins in 1989. The latter was then working for a bank called Riyad Bank in London, and they met in connection with a client building contractor who sought finance. They remained in touch. In 1991 Mr Gibbins left Riyad Bank. According to his oral evidence he left as Head of Banking, but in an affidavit made in relation to the proceedings concerning the intervention in Mr Wilson-Smith's practice he exhibited a c.v showing that he was Head of Personal Banking. In a police interview in 1993 he said he had left as Head of Corporate Banking. That being much nearer to the relevant time, it is likely to have been the most accurate statement. They both said in evidence that in 1993 they came to an informal agreement that, if and whenever Mr Halley was able to introduce someone to Mr Gibbins who met the requirements of "funders" known to Mr Gibbins, and the introduction led to a completed transaction, Mr Gibbins would share the net fees on an equal basis with Mr Halley.

11. Mr Gibbins calls himself a property developer and venture capital and finance broker. Since 1991 he has worked on his own account. He has used a succession of companies, including Bankmead Investment Management Ltd, Loomis Ltd (or maybe Loomis Finance Ltd) which later changed its name to MTG Finance Ltd, and Global Commercial Ltd (incorporated in the Bahamas). For the purposes of the transactions now relevant he used a BVI company called Tidal Services Inc ("Tidal") set up in 1997. He said he was not a director or shareholder of, or financially interested in, this company, and that he is not the only broker who uses it. He claimed to be a self-employed representative of Tidal. In relation to his transactions which involve Tidal he said he paid a fee to Tidal and that it acts in accordance with his instructions. It is not necessary for me to decide whether the reality is that Tidal acted as an agent for Mr Gibbins rather than the other way round.

12. He seems to have become active in business such as the transactions which I have to consider in or about 1995, through getting to know one Jimmy Sanchez, an American broker, whom he met in 1994, and who wanted to use Mr Gibbins' funding contacts. Later (in about 1996) he introduced Mr Gibbins to Mr Wilson-Smith. Mr Wilson-Smith prepared a new set of agreements for Mr Gibbins to use for these transactions. Mr Gibbins said on the one hand that they were fairly standard in their terms but on the other that they evolved over time and were adjusted as necessary for a particular transaction.

13. It seems from this that what was contemplated by the two men at the time of their original agreement in 1993 was not introductions by Mr Halley leading to the particular type of transaction which I have to consider, because Mr Gibbins was not yet involved in that sort of business. I do not need to consider what type of business might have been involved at that time, because it is clear from the evidence of Mr Halley and Mr Gibbins that no introduction from Mr Halley led to a binding contract of any kind before the transactions under examination. Both men said that Mr Halley had introduced a large number of propositions to Mr Gibbins, in the hundreds, but that only some half dozen got to a contract. Mr Gibbins also worked with other brokers and intermediaries. Mr Halley, by contrast, does not seem to have had any other business than that which he did by introduction to Mr Gibbins.

14. The close friendship between Mr Gibbins and Mr Halley, the trust between them and their close collaboration in business is amply shown in the evidence. Mr Gibbins referred to Mr Halley as a trusted friend in his witness statement. Mr Halley referred to his utmost trust in Mr Gibbins in his fourth witness statement, and said in oral evidence that they were trusting friends and understood each other. Mr Halley spoke of their free exchange of information, and Mr Gibbins agreed that they worked and spoke completely frankly with each other. He would not, of course, have told Mr Halley about the detail of transactions with which Mr Halley was not involved, but certainly he told him of anything of importance that might affect a transaction with which he was concerned.

15. The closeness of their relationship is exemplified by the fact that in January 1999 Mr Halley lent to Mr Gibbins the sum of £ 100,020 which he said was agreed to be repayable with interest at 21/2% per month, with no documentation to record it other than a reference to the payment being a loan in Mr Wilson-Smith's ledger entry recording the transfer of the original sum (confirmed by a letter from Mr Wilson-Smith to Mr Halley), possibly a promissory note since lost and a cheque for £ 96,000 drawn by Mr Gibbins in January 2001 and not presented. Mr Halley said in his fourth witness statement that part of this loan had since been repaid and that the terms had been varied. There is no document recording the original transaction, the variations or the current terms. This informality does suggest a substantial degree of trust and confidence between the two men.

16. Their reciprocal trust is also evidenced by their dealing with Mr Halley's entitlement to payment under the agreement between them without any accounting or documents to record or test the accuracy of the calculation.

17. In the mid 1990's Mr Halley was learning from Mr Gibbins about the sort of business that the latter was, or professed to be, able to undertake, through his contacts with people holding large sums of money available for an investment project of one kind or another - the funders referred to in para 10 above. Just as Mr Gibbins acted, in essence, as a broker looking for opportunities for these funders, so Mr Halley would do the same, finding people through his contacts to introduce to Mr Gibbins and thereby to a funder. Because of his state of health, Mr Halley was not able to do anything effective in this respect until 1996. At that stage he placed an advertisement in the Wall Street Journal and he started to take steps with a view to setting up a website on the Internet, which he eventually established in 1997 or 1998.

18. Also at the end of 1996 he wrote a letter apparently inviting the holders of large US dollar deposits to participate in a facility which would substantially enhance their yield on the deposits. This attracted the attention of the Securities and Investments Board, which took the view that he appeared to be offering a service which constituted investment business under the Financial Services Act 1986 without being authorised to do so. In his letter, which he says that he sent only to a very small number of people, and achieved no business as a result, he referred to the facility being managed by a "private banking consultant" together with two firms of solicitors: these were, respectively, Mr Gibbins (or rather the company he then used), and Mr Wilson-Smith and another firm called Rhodes Barlow. In his witness statement Mr Halley says that the letter was inadvertently worded in such a way as to suggest, contrary to the truth, that what he did was investment business. He also said that "after consulting a solicitor suggested by Mr Gibbins as being knowledgeable in this field", namely Mr Wilson-Smith, he accepted that he had made an error of judgment and apologised unreservedly to the SIB, and that they told him they would take no further action. Later in the witness statement he says that this was the only occasion on which Mr Wilson-Smith acted for him.

19. From documents in Mr Wilson-Smith's files, on which Mr Halley was cross-examined, the true story is seen to be somewhat different. He wrote his letter without consulting Mr Gibbins or any lawyer. He was asked by the SIB to name the banking consultant and the two firms of lawyers, and did so by a letter of 7 May 1997. He seems to have done that without telling Mr Wilson-Smith, who was cross at him for doing so. Mr Wilson-Smith wrote to him making it clear that he was not able to give him advice on the point. He did, however, express some views to Mr Gibbins, saying that the original letter appeared to infringe the 1986 Act, but that bank guarantees, certificates of deposit and letters of credit might not be investments within the meaning of the Act. It is true that the SIB wrote to Mr Halley saying that, although what he had done appeared to infringe the Act, it did not seem to them that it would be in the public interest to take the matter further. There is no evidence to support Mr Halley's contention that he offered an unreserved apology, and his evidence about his consulting Mr Wilson-Smith is untrue, though he did, no doubt, get from Mr Gibbins the gist of Mr Wilson-Smith's advice.

20. Mr Gibbins also considered getting advice in 1997, through Mr Wilson-Smith, from Counsel. Mr Wilson-Smith prepared draft instructions to Counsel and sent them to Mr Gibbins who commented on their terms. The instructions were never in fact sent to Counsel. I will deal with the details of the draft and the episode generally later in this judgment. It followed the issue in July 1997 by the Office for the Supervision of Solicitors to Mr Wilson-Smith (and no doubt to other solicitors in practice) of a warning about "Banking Instrument Fraud", in terms which may have led Mr Wilson-Smith to wonder whether the business brought to him by Mr Gibbins was of a kind to which the warning related. I did not have evidence from Mr Wilson-Smith, but Mr Gibbins did say in his oral evidence that in 1997 he and Mr Wilson-Smith invited the police to go through some transactions where they had documents from the banks, but the police declined the invitation.

21. Mr Halley's letter in December 1996 may have produced no opportunities of business, but according to his evidence his advertisement in the Wall Street Journal generated a lot of enquiries, and led to his name (or rather that of Benington Securities) becoming widely known without his having conducted any other advertising or promotion. According to his evidence, he received many enquiries or applications, of which some, he realised (sometimes with the help of advice from Mr Gibbins), were not practicable, but others seemed to be worth investigation. At some point in the early to middle part of 1998 he had an approach from a Mr John Wagner, whom he passed on to Mr Gibbins, and who, it turned out, already knew Mr Gibbins having dealt with him at some time in the past. This was the first contact of Mr Halley that led to a contract of any kind, but very little about that contract features in the evidence in this case. For reference purposes I will call it the Wagner contract. In the middle of 1998 he was also contacted by a Mr Arthur Agustin, of Abacus International Financial Network, of Florida. This also led to a contract, which I will call the Abacus contract, this time one in which Mr Halley was more substantially involved. Leaving aside Mr Halley's part in reintroducing Mr Wagner and Mr Gibbins, this was the first time that an approach to Mr Halley bore fruit in the sense of a contract under which money changed hands. The Abacus contract is dated 26 August 1998.

22. Also in August 1998 Mr Halley received a call from an American broker who he had met some time before, from whom he obtained the introduction of a Mr Walter Combs who wanted to discuss the possibilities of business whereby funds might be obtained for use in an investment strategy, the nature of which he would not disclose. This led to the next two contracts for which Mr Halley was the effective introducer to Mr Gibbins. In the first, the Young contract, concluded in early September 1998, Mr Combs acted on behalf of a Mr J W Young and in the second, the Toro contract, in November 1998, for Mr Charles Moro's company Toro. The Abacus, Young and Toro contracts were thus the first fruits of Mr Halley's new business, apart from his small part in the Wagner contract. By then, however, he had received a large number of approaches, had pursued a proportion of them, and had in quite a lot of cases got as far as draft documentation. In any case which was not rejected at a very early stage Mr Gibbins was involved in the discussions.

23. There was some evidence about Mr Halley's website, including a print of it as at September 1999. Mr Moro also provided documents which had come to him from Mr Halley via Mr Combs. These include documents described as an Introductory Document Set (dated August 1998) for the provision of cash backed bank funding commitments, bank funding letters and bank letters of credit. These start with a page describing Benington Securities in terms which, certainly so far as the firm's history and business is concerned, are highly misleading. In cross-examination he said that he was indicating that he had what would by now be nearly 30 years of commercial experience in commercial finance. He maintained that it gave an honest impression of his business experience. It seems to me that it does not do that, and that it was carefully constructed not to do so. It conceals, first, the fact that for 7 years up to its date Mr Halley was the subject of an individual voluntary arrangement by reason of insolvency, and in addition that not only did he undertake no business at all from 1990 to 1997 due to ill health but also that the business on which he started in 1997 was an entirely new venture of which he had no previous experience. This document might in other circumstances not be taken too seriously, and be treated as a mere advertising puff, in which a strict regard for the truth is not to be expected. But it is part of a package designed to instil confidence on the part of applicants in Mr Halley. It seeks to convey the impression that Mr Halley operates in good faith, that he knows of risks of fraud in relation to certain types of business, and that he is anxious to avoid involvement in that, for his own sake and that of those who approach him. In that context the false impression conveyed by Mr Halley as to the history of the business and his experience is open to serious objection. The package of documents included draft versions of the main documents to be used for transactions. These are not identical with those used in the cases I have to consider, but they are substantially similar.

24. Mr Gibbins described Mr Halley as being very intelligent. No doubt there was a lot that Mr Halley learned from Mr Gibbins' longer experience of the particular types of business he undertook and of banking in general, but these documents and the contents of the website show that Mr Halley devoted a lot of time and thought to the tasks he undertook, and I am satisfied that he had acquired a good understanding of what was involved.

25. Mr Halley gave some rather surprising evidence about his having discovered about the Law Society's intervention in Mr Wilson-Smith's practice. This took place by notice dated 22 March, pursuant to a resolution dated 19 March, which itself followed the submission of a report dated 17 March, based on an inspection of Mr Wilson-Smith's books of account begun in the previous August.

26. The Law Society had inspected Mr Wilson-Smith's practice before, in 1996, and Mr Wilson-Smith had been sent an earlier version of the warning letter in respect of Prime Bank Instrument Fraud. Mr Wilson-Smith is reported to have said then that he was thinking of taking Counsel's opinion as to the nature of the transactions in question. This may have contributed to the preparation of the draft instructions in 1997.

27. In March 1999, Mr Wilson-Smith applied to the court to set aside the intervention, but on 29 March that application was dismissed on an interim basis. Mr Halley knew about the intervention (according to his witness statement) by 12 May, when he wrote to Russell-Cooke, for the Law Society, seeking payment of the sum now claimed, following a fax from him to Mr Wilson-Smith of 26 April. In cross-examination he was initially very vague about when he first knew of the intervention. He could not be sure even that he knew of it by the autumn. He said that he certainly did not know of it at the end of March, that when he learned of it, he had been very surprised, but that it was by then a historical event. However, he accepted in cross-examination that he had had dealings between February and April with a man called Darrell Kay, and his dealings with Mr Kay show that he came to know of the intervention at the latest in the course of these dealings. Mr Halley accepted that he may have heard of it first from Mr Kay. Unfortunately two important documents are undated. Mr Kay sent a fax to Mr Halley on 24 March mentioning Mr Wilson-Smith in terms which suggest that he did not then know about the intervention. That is not surprising since it had been timed to start effectively only the previous day, and it was the subject of arrangements for interim protection until the hearing on 29 March. A fax from Mr Halley to Mr Kay which is at least in part a response to the fax of 24 March includes the phrase "In view of the Law Society's remark to you we will use another of the UK Law firms". This is not dated but it bears a handwritten note "Tape 2 Side 2, 24/3/99". I conclude from this and its terms that it was written, at latest, soon after 24 March and that there had been a further communication between the two men in which Mr Kay had told Mr Halley of having been told something by the Law Society which showed that Mr Wilson-Smith should not be used. A later email from Mr Kay (undated) refers to "the Wilson-Smith matter" as undermining his confidence. This was answered by Mr Halley on 20 April, and may have been sent not long before that date. Mr Halley was pressed with these documents in cross-examination and denied the proposition that he knew of the intervention within days. He said that when he did hear about it he understood that it was a serious matter, that he was inquisitive about why it had happened, but that he learned no more than that there was a suspicion of dishonesty, though not in relation to what part of the business.

28. I do not believe that Mr Halley was telling the truth in giving this evidence. In my judgment he did know about the intervention by the end of March at the latest. I consider that the extremely vague evidence he gave first under cross-examination was not the result of forgetfulness but of an attempt to distance himself from the matters affecting Mr Wilson-Smith. Given the reliance that Mr Halley knew had been placed on Mr Wilson-Smith for the purposes of transactions such as those now at issue, it seems to me that it must have been a shock to Mr Halley to hear of the intervention, quite apart from the fact that Mr Wilson-Smith held money that Mr Halley considered to be his own. I do not believe that, even after some two and a half years, Mr Halley would have forgotten his discovery of the intervention. Of course, memory is fallible, but this event was so important to Mr Halley that, on the best judgment I can make of him from having seen him giving evidence for three days, I do not believe that he would have forgotten or did forget it. I regard his evidence on this as being deliberately untruthful.

29. A curious incident following the intervention deserves mention here. On 8 November 1999 Mr Halley sent an email to Mr Gibbins saying that he was in desperate need of a copy of his instructions to Mr Wilson-Smith as regards payment of the $114,000 by Tidal to him, and a letter from Tidal confirming that the sums were payable to him. On 8 December 1999 Tidal Services Ltd (a Bahamas company) wrote to him a letter which, in terms, appeared to provide the confirmation that he sought. However, this was a company with which he had had no dealings, quite distinct from Tidal Services Inc, the BVI company which was a party to the various contracts and which had given instructions to Mr Wilson-Smith as regards the distribution of the Arrangement Fees. By itself that might be no more than odd, and explainable as a slip by persons involved as regards which company should have been giving the confirmation, though it would not give much ground for confidence in the care which had gone into making the statement. But when Mr Halley was first asked about the letter from Tidal Services Ltd in cross-examination, he said that it was provided out of the blue and without having been asked for by him, and that the issue of the proof of transfer of funds had only come up recently and after the date of this letter. When shown the earlier email he had to accept that this was not correct, though he could not explain the error. This is an instance of his initial evidence being given without any thought as to whether, or belief that, it was true, or any recollection to justify it.

30. It is convenient that I should deal with some other matters affecting Mr Halley's credibility now. He put in evidence with his fourth witness statement (at a very late stage) his business accounts and tax returns. These showed him starting business on a self-employed basis on 19 September 1998, as an international corporate finance broker. I assume in his favour that he did not intend by the choice of the opening date to exclude from his returns the sum he received from Tidal or Mr Gibbins on 16 September 1998, being his first payment in respect of this new business. The opening documents were sent to the Revenue in January 2000 and in April a tax return for the year to 5 April 1999 was sent, with accounts for the period 19 September 1998 to 31 March 1999. His accountant, sending them to him on 4 April 2000, said that he had included a provision for irrecoverable fees and commission "as previously discussed". He may have done so, but nothing in the accounts shows or suggests that he had. They show fees and commissions received of £ 52,810, expenses of £ 17,431, net profit of £ 35,379 and £ 2,761 capital expenditure. Mr Halley signed these accounts and the corresponding tax return based on them and they were submitted to the Revenue on 10 April with no further explanation.

31. Since, on the assumption I have mentioned above, Mr Halley in fact received some $322,000 gross in that period, the figure of £ 52,810 is clearly false. If he sought to claim a deduction from an actual receipts figure of, say, £ 200,000 by way of a provision for bad debts, that ought to have been mentioned specifically in the expenses section, not deducted silently from the receipts figure. Moreover, a deduction for irrecoverable fees, even treating that concept broadly, could not properly extend to more than the $114,000 still held in Mr Wilson-Smith's client account. In fact, even this sum did not represent irrecoverable fees, since (subject to the issues of entitlement later raised by the Law Society) they had been received and recovered. They were in the same category as money received by Mr Halley but lent by him to a third party who could not or would not pay it back.

32. Mr Halley's accounts for the year to 5 April 2000 show gross fees and commission of £ 59,700, expenses of £ 6,600 and a "provision against SFO and the Law Society action" of £ 59,700. In that instance at least the provision is expressed and not concealed, and the provision is more aptly described. Correspondingly I was shown draft accounts for the year to 5 April 2001 which give gross fees and commission of £ 123,600, expenses of some £ 16,000 and "provision against regulatory intervention" of 50% of gross fees, or £ 61,800.

33. Mr Halley was cross-examined about the figures in his first accounts and tax return. He said that he had been advised to make a 100% provision for the $114,000 and a substantial provision for costs expected in any attempt to recover that sum. Pressed with the absence of any reference in the first accounts to any provision of any kind, he said that he presumed that in the correspondence with the Inland Revenue the accountant dealt with the provisions. Since, however, he had obtained from his accountant, for the purposes of the witness statement, all relevant correspondence, which does not include any such explanation or indeed any reference to the provision, he had no basis for giving that answer.

34. It seems to me that the position as regards receipts and expenditure of the business was misrepresented to the Inland Revenue by concealing the fact that gross receipts were of the order of £ 200,000, and that they were being treated as reduced by an unstated provision, the nature and justification of which seem to me far from clear, but whose very existence was unknown to the Revenue. Mr Halley says this was done on the advice of his accountant, which he simply accepted. I do not propose to form a view as to his personal responsibility for that, not having had evidence from the accountant. But it does seem to me clear that, when Mr Halley said that he presumed the accountant had explained the position to the Revenue, he was giving evidence regardless of whether it was true or not, and with no basis of knowledge or actual belief in its truth.

35. A further point in his evidence which demonstrates to me his unreliability came when he was asked about a warning which he included on his website, with the suggestion that the warning should have been in different terms. The website warning was in these words:

"We have no first-hand experience of any 'High Yield Investment Program' that has successfully produced the fantastically high levels of yield commonly promoted by amateur brokers and intermediaries. Any scheme offering fantastically high returns for its participants should be thoroughly investigated by the Applicant before any binding commitment is made with the funder. Consider all such programmes as potentially fraudulent."

36. Mr Dutton suggested to Mr Halley in cross-examination that a warning should have been issued to the effect that "none of the people we have arranged agreements for have obtained access to funds". Mr Halley did not say that it would not have been appropriate or necessary to issue such a warning (and he was right not to do so). What he did say was that the website said the same thing in different words, and that the difference was only subtle. Plainly it would be a very different warning, and I have no doubt that Mr Halley, who is far from stupid, realised that. I have to say that it seems to me that Mr Halley's warning was a diversionary tactic, consistent with the tenor of his introductory documents, designed to lead readers to suppose that he was anxious to protect them against fraud, and taking their attention away from the defects of his own proposals.

37. Another, more minor example of Mr Halley saying whatever occurred to him as opportune, rather than that which he really believed to be true, arose when on 15 November (Transcript p 44) he said that Mr Gibbins was a very wealthy man who could raise $1 million if he wanted to, whereas the next day (Transcript p 2) he said that he and Mr Gibbins were unable to take advantage of a particular investment opportunity because they could not raise $1 million. The two statements, taken literally and strictly, can be reconciled, but I had the clear impression that on these occasions, as on many others, Mr Halley was really making up his evidence as he went along.

38. I will mention in this context a misrepresentation which he made to a potential Applicant, a Mr Caceres, in January 1999. The latter had made the point that the escrow lawyer must not be related to any party involved. Mr Halley said in reply that the Escrow Agent "is in no way related to or acting for the Funder or for us. He is completely independent." Strictly this might be true, as regards acting in a particular transaction, though even that is open to doubt. It creates a misleading impression, however, because, to Mr Halley's knowledge, Mr Wilson-Smith had acted for Mr Gibbins before and could not in any real sense be said to be "completely independent". Mr Halley denied in cross-examination at this stage that he knew that Mr Wilson-Smith had previously acted for Mr Gibbins, but it later became plain that this was untrue, and another instance of Mr Halley saying what he thought suited him, either knowing it not to be true (as I think is probable in this instance) or at least without any regard to whether it was true or not.

39. One feature common to the evidence of Mr Halley and Mr Gibbins was that they described the applicants who dealt with them (both generally and, as regards some individuals, specifically) as being sophisticated and experienced businessmen. In most cases I am not in a position to review their assessment directly. Mr Halley, however, said that Mr Charles Moro was a sophisticated businessman who knew what he was getting into, and Mr Gibbins said that Mr Moro was meant to be a very sophisticated businessman with a property company, a trading company and an insurance business. I saw Mr Moro give evidence for a day, as, perhaps, did Mr Gibbins and Mr Halley. It is true that he has property interests involving renting out houses and also commercial greenhouses, that he once had an insurance agency business and that he also had a retail business buying, selling and repairing office equipment. But with all respect to him, it seems to me that it would be a misuse of language to describe him as a sophisticated businessman, and he certainly did not have any very clear idea of what he was getting himself into. He did not take any legal advice before committing the company to the Toro contract. At an earlier stage, when investment or trading programmes with very high rates of return had been mentioned to him, he tried to make some investigations, and he asked a variety of people about them. The only professionals he approached were two bankers, who told him that he would be wasting his time and money. He refused to be deterred by that advice. He put a small amount into a programme, through an entity called Greater Ministries, which he had been led to believe in some way combined elements of giving to charity and also getting a high rate of return on the sum so given, but not until after 6 months from the date of the gift. Within the 6 months, the particular programme was closed down by the regulators and he lost his money. Undeterred he put $750,000 into a bank in Antigua, which was then promptly closed down by the local regulators. In a way which he could not explain he managed to recover his money, apparently with the help of Mr Combs. He then placed the same funds with Mr Combs for investment, via the Toro contract, in a trading programme which he hoped would give him a high rate of return on a principal sum of $30 million in return for his laying out no more than $750,000 plus some fees payable to Mr Combs, amounting to $40,000. Instead he lost the whole sum. Those are not the acts, nor was his testimony the evidence, of a sophisticated businessman who knew and understood what he was getting into. It seems to me revealing that Mr Halley and Mr Gibbins should describe him as if he were one and knew what he was doing.

40. Mr Tager pointed out that, within the Moro family, the son Mr Richard Moro had contributed more, and had therefore lost more, of the $750,000 than his father, that from his father's evidence it seemed that the son was a more experienced, or at any rate a more qualified businessman, that he had had more direct contact with Mr Combs, and that he had not complained about what had happened. The last is a separate point, and a bad one. The person entitled to complain is Toro, which Mr Charles Moro has been doing on its behalf, and thereby for the benefit of both himself and his son. Through him, for example, Toro has claimed compensation for the loss of the $750,000 out of the Law Society Compensation Fund. As for sophistication, however, this is pure guesswork. Mr Halley and Mr Gibbins had no contact with either father or son, and were therefore not entitled to form or express any view as to how sophisticated they were.

41. Mr Gibbins was also cross-examined about a transaction with an entity called Fedecredito, which seems to be a consortium of agricultural co-operatives in Costa Rica. This laid out $875,000 twice in the hope of a high return on $20 million, all for nothing. At first Mr Gibbins professed not to be able to remember the case at all, despite having shared substantially in the aggregate Arrangement Fees of $1,750,000. When reminded of it he said that the company was "obviously a sophisticated party, because I assume it is a finance company" and later said that they were obviously (or rather that he assumed they were) "very experienced in the financial markets". This evidence shows a degree of assumption, presented as if it were obvious and clear fact, which seems to me wholly unwarranted, certainly as regards Mr Moro and equally (given that Mr Gibbins actually knew nothing of Fedecredito) unjustified in that case also. In these instances also I find that both Mr Halley and Mr Gibbins said what they thought would suit their case, without any regard for whether it was actually true.

42. Considering Mr Halley as a witness generally, he appeared to be careful and sometime even meticulous. Mr Dutton asked him, for example, whether he had ever seen various types of document, which he said he had not. It later became clear that he was confining his answer to not having seen an original document of the kind mentioned, as distinct from a copy, draft or any other version. This may have been a legitimate distinction on the express terms of the question, but it would have been more helpful to have been made aware of the distinction in Mr Halley's mind at the time. In a number of respects, some of which I have mentioned already and others which I will mention later (without enumerating every single one), I find that his evidence is unreliable, sometime actually dishonest, sometimes given recklessly as to its accuracy. At times, Mr Halley's precise and limited answers seemed to me to conceal the fact that he had knowledge of relevant matters. I do not disagree with Mr Gibbins' assessment of him as very intelligent. I think he knew more about what was really involved in the transactions at issue than he was prepared to admit. I do not find him at all a satisfactory witness. Of course it does not follow that nothing he said was true, and I shall have to consider his evidence on the critical points in due course.

43. Mr Gibbins suffered from a difficulty in giving evidence because he is very short-sighted. When, as often happened, he was asked about a document, he had to read it more slowly than would be normal for a witness, because he had to use a magnifying glass in addition to strong spectacles, and to read it line by line. This did however give him additional time in which to think about the question. He is a clever man, but he tended to be argumentative in answering questions. It seemed to me that he often tried to avoid answering inconvenient questions, in this way and in others. I am satisfied that at times in his evidence he said things which either he knew to be untrue, or at any rate he did not believe to be true, but said it because he thought it would help Mr Halley's case. I have mentioned some examples in the course of this judgment already, and others are mentioned later, but my conclusion as to his lack of credibility is not only based on these particular instances. In relation to him as well as to Mr Halley, I treat the evidence given with a great deal of scepticism and reserve.

The transactions at issue

44. I will describe in detail one of the transactions which gave rise to Mr Halley's claim to commission, and then more briefly the others. He denies that the claim is to commission, but it does not seem to me to be misleading to refer to it in that way, even though it is to 50% of the net benefit to Tidal (or to Mr Gibbins) of the particular transaction. I will take as my sample the Toro contract, particularly because of having had the evidence of Mr Charles Moro, as I have mentioned. The agreements are not dated, but they seem to have been signed on 13 November 1998. There are two agreements, a Principal Agreement, between Tidal and Toro, and an Escrow Agreement between those two parties and Mr Wilson-Smith. In order to describe this and the other transactions I will use some labels for convenience and consistency of reference. Tidal is defined in the agreements as the Company, but I can simply call it Tidal. Toro is referred to as the Client, but I will use the label "the Applicant" for the party in this position. Mr Wilson-Smith was the Escrow Agent, and that is the appropriate term to describe him. There is another entity referred to in the agreements, though not a party, sometimes called the funder, but whom I will call the Account Holder. Two banks also feature in the agreements, first the Issuing Bank, which was in all of these cases to be the Royal Bank of Canada, and would be a bank at which the Account Holder had an account. The other bank is called the Receiving Bank, whose identity was to be notified by the Applicant to the Escrow Agent. Torocontract.

45. The Toro contract may be summarised as follows, starting with the Principal Agreement.

i) First, the Applicant was to pay to the Escrow Agent an Arrangement Fee, in this case $750,000, which was to be held and dealt with in accordance with the Escrow Agreement.

ii) Tidal was then to procure the issue by the Issuing Bank of three Bank Advices; these were three letters addressed to the Account Holder each evidencing the sum of $10 million, in the form set out in App A. The form there set out was in fact to be addressed to Mr Combs, as agent acting on behalf of the Applicant. The definition of Funds in the agreement makes it clear, if that were needed, that the three Bank Advices are to relate to three separate sums of $10 million.

iii) Next Tidal was to see to the issue by the Account Holder of what was defined as the Corporate Documents. These were also to conform with forms set out in Appendices. One was a Board resolution and the other a letter of appointment. I will come to their details later. There was to be one of each in relation to each of the three Bank Advices.

iv) The Bank Advices and the Corporate Documents were to be delivered to the Escrow Agent, who was then to verify that the Bank Advices were duly issued by the Issuing Bank. Having done that he was to deliver the Bank Advices to the Receiving Bank and the Corporate Documents to Mr Combs or the Applicant.

v) These steps were to be completed within 7 banking days, save that delivery to the Receiving Bank had to await notification by the Applicant of the identity of that bank. It had to be a Western European Bank rated no less than AA- by Standard & Poors or Moody's and acceptable to the Issuing Bank.

vi) Under the terms of the Escrow Agreement (more specific in this respect than the Principal Agreement) if the Bank Advices were issued by the Issuing Bank within 7 banking days after the date of the signature of the Escrow Agreement and payment of the Arrangement Fee, and conformed in all material respects to the text set out in Sch A to the Principal Agreement, and if they were verified by the Escrow Agent as having been issued by the Issuing Bank, then the Escrow Agent was to release the Arrangement Fee to Tidal. If those conditions were not satisfied, then the Arrangement Fee was to be repaid to the Applicant.

vii) According to the Principal Agreement, the Bank Advices would be effective and valid for use by the Applicant for the Validity Period, which was 15 international banking days from and including the date of issue of the Bank Advices. The use which could be made of them, as set out in cl 3.6, was that the Applicant is to be entitled to exchange the funds represented by the Bank Advices for Negotiable Instruments, conforming with the description in the Principal Agreement, in the principal amount of those funds.

viii) Negotiable Instruments were defined as meaning unconditional negotiable bank instruments to be issued by a Western European or American Bank rated no less than AA- by Standard and Poors or Moody's, each in the Principal Sum of $10 million, acceptable to the Issuing Bank and payable within not less than one year from the date of delivery thereof to the Issuing Bank pursuant to the agreement and each carrying interest at 8% per annum.

ix) The Principal Agreement contains a number of other provisions to which I should refer. By cl 3.7 Tidal is stated to have no interest in the transactions or business of the Applicant for or in connection with which the Bank Advices are to be issued, otherwise than in connection with the acquisition by the Account Holder of any Negotiable Instruments delivered in exchange for the Funds. By cl 3.8 the Applicant accepts that it is not entitled to receive the original or any copy of any Bank Advice, nor to see the originals before delivery to the Receiving Bank except upon request in writing to the Escrow Agent at his office. By cl 4, all communications with the Issuing Bank are to be solely from an officer of the Receiving Bank and in writing, and any attempt by or on behalf of the Applicant to communicate otherwise with the Issuing Bank renders the agreement null and void at once and terminates the Validity Period. The terms of the agreement are also said to be confidential. Clause 5 makes time of the essence of all dates or periods, requires that any amendment or variation of the agreement be in writing and signed by both parties, and includes an entire agreement provision and an acknowledgement that neither party has entered into the agreement in reliance on any representation warranty or undertaking by the other except as expressly set out in the agreement.

x) The Principal Agreement also contains a series of warnings. These are to the following effect.

a) The Arrangement Fee will become payable to Tidal under the Escrow Agreement notwithstanding that the Applicant may not deliver acceptable Negotiable Instruments, request the funds to be exchanged or make any other use of the Bank Advices during the Validity Period.

b) Tidal's only representation is that the Bank Advices will be duly issued by the Issuing Bank and delivered to the Escrow Agent and that the funds will be available "as therein provided".

c) Tidal has only agreed to seek to arrange for the issue of the Bank Advices and Corporate Documents as specified, and has not given any advice to the Applicant as to the availability or otherwise of any Negotiable Instruments for exchange against the Funds.

d) Tidal gives no assurance as to whether or not the Bank Advices will be suitable for the needs of the Applicant and has given no advice as to whether or not it is in the Applicant's interest to proceed with the transaction set out in the Principal Agreement or the transaction or investment transaction or project finance or otherwise howsoever proposed by the Applicant as the purpose for which the client has requested the issue of the Bank Advice, details of which have not been provided by the Applicant to Tidal.

e) Tidal has not given and is not qualified to give any investment advice to the Applicant.

f) The Applicant confirms that it has obtained its own legal and financial advice or that it has had sufficient opportunity to do so before entering into the agreement.

xi) The Escrow Agreement includes various relevant provisions, besides those setting out the Escrow Agent's duty to dispose of the Arrangement Fee as described above. Thus, the other parties acknowledge that the Escrow Agent is acting as stakeholder only and shall be under no further obligation once he has paid the Arrangement Fee in accordance with the agreement. His duties are only those specifically provided for in the agreement, and he is under no liability to the Applicant or Tidal for any action taken or omitted to be taken except for wilful misconduct or gross negligence (though clearly that would not exempt the Escrow Agent from liability in contract for paying the Arrangement Fee away inconsistently with the terms of the agreement). It is acknowledged that, except as regards the drafting and any amendment of the agreements, the Escrow Agent is not the solicitor for either the Applicant or Tidal, has not advised either on the terms of the agreement and owes neither of them any professional or other duties except those expressed in the Escrow Agreement, nor has either of them entered into the Escrow Agreement or the Principal Agreement in reliance on any representation or advice by the Escrow Agent. There are also similar disclaimers to those in the Principal Agreement set out at sub-paras (x)(d) and (e) above. The Applicant represents that the Arrangement Fee comprises funds which are "clean, clear and of non-criminal origin and freely and legally available to it for the purposes of the Principal Agreement". Cl 8 records that Tidal is to be responsible for the fees of the Escrow Agent for acting under the Escrow Agreement and all bank charges and the like.

xii) The form of Bank Advice prescribed by the Principal Agreement and set out in Sch A was to be addressed, as above mentioned, to Mr Combs. It would state the name of the Account Holder, the number of the account and the account reference. The text would confirm that the "above company", that is to say the Account Holder, "is considered highly respectable and trustworthy and undoubted for its normal business engagements", and that the principal had been a client of the Royal Bank Financial Group for many years. It would confirm specifically that "there is within Royal Bank Financial Group the availability of US $10,000,000 free and clear of all encumbrances."

xiii) The form of Board resolution was to be in the following terms, apart from formalities:

a) The corporation will consider participating in a US$10 million bank guarantee investment program, subject to the following conditions:

A Recommendation by the president of the corporation

B Satisfactory due diligence by the corporation's law firm

C The guarantee is acceptable to the bankers for the corporation

(b) The president is mandated to enter into such discussions and negotiations and if necessary to appoint an agent to assist in such process

(c) The funds mentioned at (a) above will be available for a period of 15 international banking days.

(d) The president is to report back to the board within 15 international banking days on the status of any discussions that have taken place.

xiv) The other Corporate Document was a letter of appointment, implicitly under paragraph (b) of the resolution set out above. The agent to be appointed was Mr Combs. He was appointed as agent for the "sole purpose of negotiating a 108% negotiable bank instrument". That instrument is to be acceptable to the corporation, its bankers and its legal advisers. It is to be issued by a Western European bank rated AA- or better, and the documentation relating to the bank guarantee investment programme is not to incur any financial liability for the corporation other than purchase of the 108% negotiable bank instrument. Any profit generated by Mr Combs through the investment programme he is entitled to keep.

xv) Despite the reference to his appointment for the "sole purpose" mentioned above, the letter goes on to authorise him to create, negotiate and sign all documentation appertaining specifically to the investment programme which will come into effect only after the exchange of the $10 million of corporate funds. The letter of appointment also confirms that the Bank Advice and the letter of appointment are valid for 15 banking days from their date, and that the Account Holder will not change its financial position, which will remain as stated in the Bank Advice, during the period of 15 banking days from that date.

46. The Principal Agreement and the Escrow Agreement were signed on behalf of M Toro Ltd by Mr Combs, pursuant to an authority issued by the company's director, based in the Bahamas. They were signed on behalf of Tidal by its director, Star Services Inc. also incorporated in the BVI, its stamp being authenticated by an initial in a way which is apparent from several documents in the case. Mr Wilson-Smith signed the Escrow Agreement for himself as Escrow Agent.

47. The Account Holder in this transaction was to be a company called Lardel Holdings Inc ("Lardel"). It is associated with a Canadian resident, Mr William Deluce. Another of his companies, Chaynemac Financial Inc. ("Chaynemac"), was the Account Holder for two other transactions with which I am concerned. The Corporate Documents and Bank Advices were issued on 16 November 1998. The Bank Advices all bear the same account number but they bear different numbers as the account reference, namely 304 909 02, 03 and 04. There was in fact a fourth Bank Advice, corresponding exactly with the other three, but with the account reference 304 909 05; this represented a repeat of the Young contract, though here by reference to Lardel, rather than Chaynemac as on the first occasion. In the course of the evidence, the question was touched on whether these separate Bank Advices showed the existence of separate amounts of $10 million or whether they could or did all relate to the same single amount. I will deal with that question later, on which Mr Dutton sought to have further evidence admitted after the close of the trial. On the basis that 16 November was the issue date of the Bank Advices, it seems that the Validity Period of 15 "international banking days" probably expired on 7 December, ignoring weekends and also 25 November as Thanksgiving Day in the USA, but nothing turns on the precise expiry date of that period.

48. On 18 November 1998 Mr Wilson-Smith wrote to the director of Toro in the Bahamas, and also to Mr Charles Moro, confirming that he had the hard copies of the Bank Advices, that they conformed with the Principal Agreement and that he had verified their issue with the Bank. He confirmed that he would be releasing the Arrangement Fee to Tidal. He awaited the identification of the Receiving Bank to whom the Bank Advices were to be sent, and he held the Corporate Documents to be handed over to Mr Combs, to whom facsimile copies had already been sent. So far as the documents show, no Receiving Bank was ever identified to him, so he presumably never parted with the original Bank Advices.

49. His files include a single page addressed to him by Tidal, dated 19 November, but faxed to him in the morning of 20 November, giving instructions as to how to deal with the Arrangement Fee on this transaction. The page bears the initialled stamp of Star Services Inc on behalf of Tidal. The payments directed, which left some $6,000 or so unallocated, were as follows:

i. About $134,400 to Mr Martin Gibbins or to his order;

ii. $154,000 to Mr Halley

iii. $50,000 to Mr Wilson-Smith

iv. $136,000 to Mr Deluce

v. $43,500 to a Mr Colin Youell, who had played a part in effecting the introduction of Mr Gibbins to Mr Deluce

vi. $168,000 to an entity referred to as MCY which according to the evidence is a joint venture of some kind involving Mr Gibbins, Mr Deluce, Mr Wilson-Smith and a Mr Imdad Ullah

vii. $58,000 to persons whose connection with the transaction is not altogether clear but which may represent payments for the benefit of Mr Ullah.

50. Mr Wilson-Smith released the Arrangement Fee to Tidal by transferring it from his stakeholder's account to his client account, giving the instruction on 19 November. On 20 November he caused to be made entries in relation to his client account which showed the transfer of $154,000 to the credit of Mr Halley. That is part of the credits which, after several payments out, make up the balance claimed by Mr Halley against the Law Society.

51. I can deal much more briefly with the other transactions directly relevant to the case. The second in time, the Young contract, was dated 3 September 1998, and the Applicant was Mr J W Young, already mentioned. Tidal played the same role, Mr Wilson-Smith was the Escrow Agent but the Account Holder was Chaynemac. The Arrangement Fee was $400,000 and the funds to which the Bank Advice and the Corporate Documents were to relate would be $10 million. The Principal Agreement and the Escrow Agreement were in substantially the same form as for the Toro contract. Originally the Corporate Document was to be the board resolution only, with no letter of appointment being provided for, and the form of Bank Advice was not expressed to be addressed to Mr Combs, and contained a manifest error, inserting the figure of $10 million in the place where the name of the bank should appear rather than where the figure should appear. variationvariationBy one of two agreements by way of variation, signed by all three parties, this one taking the form of a letter from Mr Wilson-Smith dated 8 September, the letter of appointment (in substantially the same form as for the Toro contract) was added, and the error in the form of Bank Advice was corrected. Mr Wilson-Smith also wrote a letter to Mr Combs on 9 September recording that it had been agreed between him and Mr Combs, who also acted for Mr Young, that the Bank Advice and letter of appointment would be issued in the name of Mr Combs. On 9 September the Bank Advice and other documents were issued, and on 11 September Mr Wilson-Smith confirmed to Mr Combs and Mr Young that they had been issued and verified, and that the Arrangement Fee would be released to Tidal. He awaited identification of the Receiving Bank, which never came. The documents in evidence do include a letter of 25 September, within the validity period, from Chaynemac to Tidal, commenting on another letter not in evidence. Mr Deluce says in this letter that Chaynemac is not prepared to incur the financial risk of buying a US Treasury Bond, unless it has absolute confirmation that the bank is prepared to exchange that Bond for an acceptable Bank Guarantee conforming with the board resolution. So far as the evidence goes, Mr Young seems to have got nothing of value for his Arrangement Fee, in the sense that he was unable to make any use of the Bank Advice and the corporate documents issued. The transaction was repeated in November, by reference to Lardel as Account Holder. It does not seem that Mr Young was able to use the Bank Advice and corporate documents issued on this occasion either.

52. Mr Wilson-Smith's files include a page dated 16 September addressed to him by Tidal, but not signed by or for Tidal, with instructions for the payment of the Arrangement Fee under the Young contract. These follow a similar pattern to the later instructions. Mr Halley received $143,750, Mr Wilson-Smith $10,000, Mr Deluce $25,000, Mr Youell $33,000, MCY $82,000 and payments to the order of or for the benefit of Mr Gibbins amounted to at least $80,000. Mr Halley's payment seems to have reflected not only his share of the Arrangement Fee on this transaction but also that due to him in respect of the first in time, the Abacus contract.

53. The Abacus contract differs in its documentation because the Escrow Agent was a different firm, Rhodes Barlow, of which the principal was a Mr Peter Barnett, and he may have drafted the documents, which differ in drafting style, but not much in content, from the Wilson-Smith documents. Tidal played the same part, the Account Holder was Chaynemac, and the Issuing Bank was RBC, the Validity Period was 30 banking days, the funds required were $1 million and the Arrangement Fee was $140,000. In this case a Receiving Bank was nominated, and after initial hesitation, because it was not a Western European Bank, it was accepted. The agent for Abacus was a Mr Rufus Wells. The documents were issued on 1 September and verified. On 8 September Tidal wrote to Rhodes Barlow to instruct them as to disposing of the Arrangement Fee; the letter is signed in the usual way. $7,500 went to Rhodes Barlow for their legal services, $16,500 to one of Mr Gibbins' companies, $20,500 to Mr Youell, $10,000 to one of Mr Deluce's companies and $75,500 to an account of Tidal, with $10,000 to another account whose connection with the transaction is unclear. It seems that no benefit accrued to Abacus from the transaction; the documents include a fax suggesting that the terms of the Bank Advice were not acceptable to the party with whom Abacus wished to use it.

54. The fourth transaction directly relevant, the Wagner contract, involved Mr John Wagner, but as introducing broker only. I do not know who the principal was. This was a transaction involving Tidal, in respect of which Mr Gibbins caused Tidal to credit Mr Halley with $25,000 on its completion. Mr Halley had played some part in introducing Mr Wagner to Mr Gibbins, but the circumstances were different from the transactions already described, because the broker who introduced the actual Applicant was Mr Wagner, and so Mr Halley was not entitled to so large a proportion of the Arrangement Fee. Mr Gibbins offered him $25,000 and he was content to accept this. This was transferred to his credit in Mr Wilson-Smith's client account on 25 November 1998. According to the ledger entries the transfer came from an account of CBOD. This, according to Mr Halley's evidence, was an entity associated with Mr Wagner. Mr Gibbins referred in evidence to the transaction as having been a bank advice transaction; Mr Halley said in evidence that although he had known nothing about the transaction at the time, after the event he learned from Mr Wagner that it had involved the provision of a funding commitment. It seems, therefore, that it was similar in essence to the other three contracts.

55. It is convenient at this stage that I should summarise the movements in relation to Mr Halley's account within Mr Wilson-Smith's client account, to show how the sum claimed is arrived at. The first credit was the $143,750 already mentioned on 16 September. Then on 27 October $7,500 was transferred to Mr Gibbins' account and $36,000 paid out at Mr Halley's order, with some bank and agent's charges being incurred and debited. Then the $154,000 was credited on 20 November and the $25,000 on 25 November. Lastly, on 11 January 1999 $164,952.98 was transferred to the credit of Mr Gibbins by way of loan, the equivalent of £ 100,020. The balance left was $114,209.72, and that, with interest, is what Mr Halley claims in these proceedings.

56. The basis on which Mr Halley claims to have become entitled to these moneys is, according to his Counsel Mr Tager QC, irrelevant and unnecessary to his claim, except insofar as he may have to show that he gave value, so as to be a purchaser for value of the funds without notice of any defect of the title to Tidal to them. The way it is put in his Particulars of Claim is that he acted for lenders of money by introducing to them or their agents persons wishing to borrow money, that in the course of such business he acted as agent for Tidal, and so acted on the basis that, as and when he introduced an Applicant to Tidal which introduction resulted in the Applicant entering into an agreement with Tidal in the form described above, he and Tidal (acting by Mr Gibbins) orally agreed between themselves what proportion of the Arrangement Fee would be paid by Tidal to Mr Halley in consideration of his acting as Tidal's agent in the transaction, and that no fixed proportion was agreed for all transactions because the amount of time and attention devoted to a transaction by Mr Halley varied from one case to another, but that typically he would check an Applicant's credentials before the introduction and would thereafter assist in the preparation of documentation. (In Further Information about the Particulars of Claim he amplified this allegation.) In accordance with that basis of proceeding, he alleged that the fees of $143,750, $154,000 and $25,000 were agreed ad hoc for the several transactions already mentioned.

57. In Mr Halley's witness statement he gave a somewhat different account, namely that in 1993 he and Mr Gibbins agreed that, if Mr Halley was able to introduce Applicants whose propositions fitted with the requirements of Account Holders for whom Mr Gibbins acted, and a transaction resulted, they would split the net fees equally between them, after deduction of the Escrow Agent's fee, the Account Holder's fee and any fee due to any other introducer (such as Mr Youell, mentioned above). He confirmed this in oral evidence, though saying that the principle was not applied strictly, nor did he ever seek or receive accounts showing how the transaction worked out. He was always content to accept whatever figure Mr Gibbins put forward as being due to him.

58. Mr Tager submitted that, in the case of each transaction, there was an ad hoc accord and satisfaction when Mr Gibbins proposed a given figure as being payable in respect of Mr Halley's entitlement and Mr Halley agreed to accept it. The point of this was to avoid having to rely on the original agreement between Mr Halley and Mr Gibbins or Tidal, in case that might be tainted with illegality or fraud on the part of Tidal. That submission does not seem to me to recognise the realities of the situation, but I will come back to the point later in this judgment.

59. From what I have said about the agreements, it may be wondered what was the point of them as regards the Applicants. In return for payment of a significant sum of money, they obtained evidence that someone else, not contractually bound to them, namely the Account Holder, had a given sum of money in a bank account. They had a corporate decision by the board of the Account Holder which indicated a willingness to enter into a transaction with these funds. This transaction, however, involved the Account Holder receiving, within a strictly limited time, a bank instrument issued by the Receiving Bank which appeared to ensure the payment to the Account Holder of the principal amount of the funds plus 8% p.a. interest. The terms of the board resolution were subject to such caveats and qualifications that, even if every other aspect of the proposition were apparently satisfactory, and shown to be so within the validity period, the Account Holder could simply choose not to enter into the transaction. The Applicant's agent (Mr Combs or Mr Wells) was given limited authority on behalf of the Account Holder to negotiate the terms of the bank instrument, but not to commit the Account Holder to it. They, or someone on their behalf, would have to persuade the Receiving Bank to commit itself to issuing such an instrument. Since the Applicant did not, in any of these cases, have the principal amount, which was why it needed to borrow it, the Receiving Bank would be bound to require security in one way or another for its liability. As explained to me by Mr Gibbins, the Receiving Bank would insist on retaining the principal amount of the funds under its control, so as to be safe in that respect. It would however be at risk for the interest which, at 8%, was significantly higher than rates normally obtainable at that time. Mr Gibbins said that it would therefore require the Applicant to provide security for that liability, by depositing a sum which, with interest accruing on it, would provide the 8% payable at the end of the year; he suggested this might be about 7.7%. The profit to be made by the Applicant would be the amount by which the return which it was able to secure on the principal sum during the period would exceed 8% plus any margin required by the Receiving Bank for its services.

60. Mr Moro, in his evidence, showed no awareness of a possible need to fund the Receiving Bank to the extent of interest on the principal amount. Since on the figures mentioned he would have been required to put up well over $2 million as security for the Receiving Bank's obligation as regards interest over a year, his lack of awareness of this requirement seems to be a rather major flaw in his understanding of the transaction. Though his willingness to believe in the existence of fabulously profitable investment opportunities which would be opened up to him by way of the transaction with Tidal was remarkable, it has to be open to very serious question whether he would have undertaken the transaction if he had known that he had to put up not just $750,000 up front at once but then a further $2.3 million or so within a matter of days.

61. Mention was made in the evidence of other transactions, some of which followed a different pattern. Those that I have described were all cases where the Applicant did not have the full amount it wanted to be able to use, or to have someone else use on its behalf, in some investment or trading operation, and where it was necessary for that operation that the Account Holder's funds be made available. There were other cases in which the person in the position of the Applicant did have the funds, and did not need to do anything in the nature of borrowing: the considerations affecting such transactions might be different. I am concerned only with cases which, in substance, involved borrowing by the Applicant, as the Particulars of Claim recognised. These were sometimes referred to as leveraged transactions, or as involving the leasing or renting of money, but it seems to me clear that, in reality, the purpose was for the Account Holder to lend its money for use by or on behalf of, and at the risk of, the Applicant.

62. There seem also to have been other transactions in which it was not necessary for the Applicant to obtain the actual use of the Account Holder's funds, but only that those funds should remain for a given time untouched in the Account Holder's account. These were sometimes referred to as Blocked Funds transactions. What the commercial sense or purpose of these can have been I do not know. Mr Halley gave evidence in his witness statement that, after the four transactions with which this case is directly concerned, he was able to introduce three other Applicants who completed their transactions and were entirely satisfied with the results. These, however, were of this latter category of Blocked Funds cases. Again, the circumstances may have been materially different, and I cannot draw any inference from the professed success of those transactions which helps me with the issues actually before me.

63. Mr Gibbins emphasised that he was involved in very many different types of transaction, including the underwriting of medium term notes, and he stressed the legitimacy of such instruments and their use by many entirely respectable bodies. The issues for decision in this case turn only on the particular transactions which I have mentioned. I do not propose to spend time considering other transactions of which I do not have full, or sometimes any, details, and which are likely to be materially different from those I have to assess.

The issues in the case

64. Having described the transactions at the heart of the case, I must now turn to the issues as they appear from the statements of case. I have summarised already how Mr Halley puts his claim in the Particulars of Claim: see paragraph 56.

65. The Defence is a long and discursive document. It relies on a number of different points:

i. It is said that the Arrangement Fees paid under the agreements were obtained by fraud, or alternatively that the agreements were shams entered into for the purpose of laundering money.

ii. Mr Halley is said to have known, or recklessly to have disregarded the fact, that the purpose of the transactions in respect of which he claims commission was to defraud the Applicant or to launder money.

iii. If the money represents the proceeds of fraud, Mr Halley is said not to be entitled to it because he is not a bona fide purchaser for value without notice: he did not provide any consideration, or he was a party to the fraud, or knew of, or recklessly disregarded, it.

iv. By way of more formal points, it is denied that the Arrangement Fees became payable to Tidal in accordance with the Young and Toro contracts, and it is also denied that the beneficial interest in the money was transferred to Mr Halley.

v. As a matter of public policy, the Law Society says that even if Mr Halley would otherwise have a valid proprietary claim to the money, it would be contrary to public policy to enforce such entitlement, because the money represents the proceeds of fraud or crime or both, or the agreement through which he claims relates to the proceeds of fraud or crime or both, or is a money laundering agreement, or both, or it would be unconscionable for Mr Halley to seek to enforce his equitable title to the money claimed.

66. The case of fraud is in essence this. One or more participants in the fraud expressly represented to the Applicant that in exchange for the Arrangement Fee he would or might obtain the means of investing in an investment programme or of buying bank instruments or both. Alternatively, by entering into the agreement or by encouraging the Applicant to enter into the agreement, the participants in the fraud impliedly represented by their conduct that they at least believed that there was a prospect that the Applicant would obtain the means of investing in an investment programme or of buying bank instruments. In fact the participants in the fraud knew, or recklessly disregarded the fact, that the documents which the Applicant would receive for the Arrangement Fee were worthless, and that the Applicant would not enter into the agreement if he knew this. The Law Society gave, as the best particulars it could of the identity of the participants in the fraud, a list of Mr Halley, Mr Gibbins, Tidal, Mr Wilson-Smith and Lardel (which I take as a general reference to Mr Deluce's companies, so as to include Chaynemac).

67. I should mention that, Mr Charles Moro having given evidence during the trial, Mr Dutton's case is that Toro was a victim of fraud; he says, rightly in my judgment, that there is no reason to suppose that Toro's Arrangement Fee was other than its own money honestly obtained.

68. As for the more formal points, and first the question whether the Arrangement Fee became payable to Tidal in accordance with the agreements, the points relied on are as follows:

i. For the Young contract, that the Bank Advice was addressed to Mr Combs, not to the Account Holder; that the wording of the Bank Advice was different from that in the relevant appendix; and that the Bank Advice did not satisfy the definition in the Principal Agreement because it did not provide any evidence that the sum of $10 million was in the Account Holder's account;

ii. For the Toro contract, that the Bank Advices were addressed to Mr Combs not to the Account Holder; and that the three identical letters, each of which referred to the same account, did not each evidence a separate sum of $10 million.

69. In relation to the question of Mr Halley's title to the money, while it is admitted that the three sums were credited to Mr Halley's name in the client ledger, it is denied that the beneficial interest was transferred to him. That could only have passed to him by virtue of a written instrument satisfying s 53(1)(c) of the Law of Property Act 1925, and it is denied that any such disposition was effected by the person entitled to that beneficial interest, including (without admitting their beneficial entitlement) Tidal or Mr Gibbins.

70. The Law Society's position is that there may be a deficiency as regards Mr Wilson-Smith's client account, but for the purposes of this claim only it admits that there is no such deficiency, so that no question of priority arises as between Mr Halley and anyone else who may be entitled to claim against the account.

71. I need only refer to a few points taken in the Re-Amended Reply.

i. Mr Halley relies on the fact that no Applicant rescinded the contractual arrangements under which the fees in question were held by Mr Wilson-Smith under the Escrow Agreements.

ii. He says he was and remains the beneficial owner of the funds, and no prior beneficial owner has asserted title thereto, or has rescinded the contracts or other arrangements whereby the legal or beneficial title (or both) was transferred to Mr Wilson-Smith, Tidal or any other party. In particular, he says, neither Mr Wilson-Smith, nor Tidal nor Mr Gibbins was the beneficial owner of money in the client account, so that no writing signed by any of those parties was required to give him the right to call for those moneys, and s 53(1)(c) does not apply.

iii. As regards the points concerning the non-conformity of the documents, Mr Halley contends, first, that Mr Combs and Mr Wilson-Smith agreed that the Bank Advice and letter of authority for the Young transaction be addressed to Mr Combs before they were issued, when Mr Combs was acting with the authority of Mr Young, that this was then acted on by Tidal in arranging the issue of the Bank Advice and the letter of authority, and that on 12 November 1998 Combs, on behalf of Young, accepted that the first transaction had been duly and properly performed in all respects. On this basis, it is said that anyone claiming in respect of Mr Young would be estopped from relying on the fact that the Bank Advice was addressed to Mr Combs, not to the Account Holder. He also relies on a document of Mr Combs dated 8 October 1999, to which I will refer later, and on the fact that, in and after November 1998, Mr Gibbins, on behalf of Tidal, undertook further work and engaged in negotiations with Mr Deluce to provide further or other bank documents to meet the requirements of Mr Young and of Toro, in circumstances where Combs must have been aware that they would not have been willing to go to those efforts had it not been accepted by Combs on behalf of Young and Toro that the Arrangement Fees had been duly released by Mr Wilson-Smith under the respective transactions. That is said also to give rise to an estoppel.

iv. The re-amendment does not in terms refer to the agreement by way of variation of the Young transaction to which I have referred in para 51 above, which overcomes some of the discrepancies, but I propose to take that into account even though it was only raised during Mr Tager's final speech. He said that if necessary he would seek permission to amend, but I will treat this point as properly raised even without an amendment.

72. So far as the issue of fraud is concerned, therefore, I must first consider whether the four transactions did provide the Applicants with supposed benefits which were worthless, then whether the participants knew this, or recklessly disregarded it, and third, whether they represented expressly or impliedly that the Applicant would or might, by entering into the transaction, obtain the means of investing in an investment programme or of buying bank instruments, or at least that they believed that there was a prospect that the Applicant might do so. I have spoken of the participants generally, but my attention has to be focussed on Mr Gibbins and Mr Halley. Given the close involvement of Mr Gibbins, it would be difficult to conclude that the transactions were worthless but that Mr Gibbins was unaware of this. Close as the two men were, Mr Halley was at one remove from the transaction itself, and was not involved in so many transactions as Mr Gibbins. Accordingly, if the worthlessness of the transactions is made out, I need to consider whether this is something which Mr Halley realised, or whether he recklessly disregarded it. The evidence relevant on each of these successive issues overlaps, but I will start by considering the transactions themselves, in the light of the description of them set out above.

73. Neither Counsel alluded to the point, no doubt because it is so clear, that the burden is on the Law Society to prove its case of fraud, but that it has to do so only on the civil standard of proof, even though, if it is right, criminal offences have presumably been committed by those involved. I have borne in mind the words of Denning LJ in Bater v Bater [1951] P 35, [1950] 2 All ER 458 at p 37 of the former report, often followed and applied since then:

"So also in civil cases, the case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter. A civil court, when considering a charge of fraud, will naturally require for itself a higher degree of probability than that which it would require when asking if negligence is established. It does not adopt so high a degree as a criminal court, even when it is considering a charge of a criminal nature, but still it does require a degree of probability which is commensurate with the occasion."

Did the transactions with Tidal give the Applicant a chance of any real benefit?

74. This case is not, directly, about the investment or trading programmes which the Applicants sought to get into by means of the transactions with Tidal. I know very little about what these programmes were, or were supposed or represented to be. Mr Moro's evidence and understanding on this was not at all clear. Mr Dutton submitted that no such programmes exist. He may be right, but I cannot, and do not have to, decide about that. Clearly the belief that such programmes exist, as opportunities for making large profits, is the lure that draws Applicants into transactions such as those I am considering. The attack on these transactions is based on the terms and circumstances of the transactions themselves, not on the non-existence of the opportunities which Applicants hoped would be unlocked for them by the fruits of the transaction with Mr Gibbins.

75. The case is therefore about the transactions with Tidal, and these particular transactions, of a kind that was referred to as leveraged transactions, which I would characterise as introductions to possible lenders. In substance, what the Applicant was looking for was a way of getting the use of money, for a period, which it did not own but someone else did, that is to say, to borrow money from the Account Holder. If it could get the money, it would then use it for profit (it hoped) in an investment or trading programme. Since there was to be security for the borrowing, consisting of an obligation entered into by the Receiving Bank, to which the Account Holder would look for recovery of its loan and interest, it is possible to lose sight of the fact that the Applicant is the borrower, but that seems clearly to be the true analysis. As mentioned above, I am not here considering what were called blocked funds transactions which may not have involved borrowing.

76. The Arrangement Fee is paid for the introduction to, and for the provision of an opportunity to enter into a transaction with, the Account Holder. The challenge by the Law Society is on the basis that the supposed benefits are worthless, that is to say that the opportunity to borrow is illusory.

77. I have already noted that the Applicant does not obtain any contractual obligation on the part of the Account Holder at this stage, and that such commitment as he gets, through the board resolution and letter of appointment, is heavily qualified, such that the Account Holder can refuse to proceed for any reason, even if the Applicant is able to put forward documents which would objectively be satisfactory. The period during which the Applicant has to get his documents in order and present them to the Issuing Bank is very short, and might well be too short in any event unless the Applicant had had the documents pre-cleared by the Receiving Bank and the Issuing Bank and Account Holder.

78. I should mention, on this point, that a version of the draft agreement which seems to have been prepared by, or for use by, Mr Wilson-Smith in August 1998, was apparently slightly less stringent in this respect. It provided for the alternatives of exchange of the negotiable instruments within the Validity Period, or for the Receiving Bank to request, by the end of the Validity Period, that the funds be reserved for a further period. What was to happen in that regard is unclear, which may be why this version was not used, so far as I know, in any actual transaction, and certainly not in those I have to consider.

79. Other versions of the contract documents for use in cases involving Mr Wilson-Smith exist. The draft just mentioned is identified in the footer on each page as T76DRAFT1.T1. This was adapted for use for the Young contract, though some of the adaptation was inept, leading to the need to vary the contract in several respects. I proceed on the basis that the copy of this in the core bundle, which has a few manuscript changes, is what was sent by Mr Halley to Mr Wilson-Smith on 27 August, in respect of Mr Young, though this was not, I think, proved in evidence and I have my doubts about it. Mr Dutton said in his written opening that it was, this was not questioned during the hearing, and it should therefore be assumed. There is also a draft identified in the footer as T76PRE1.T1 and marked at the top in handwriting on the first page as "Revision (3) Nov 98". Mr Halley had sight of at least some of these drafts, and commented to Mr Wilson-Smith on some of them, albeit only on what might be called proof-reading points according to the documents in evidence.

80. The Applicant also faces another difficulty that I have mentioned, namely that the Receiving Bank is bound to require security from or on behalf of the Applicant. So far as the principal amount is concerned that could be covered if the funds borrowed can stay on deposit with the Receiving Bank throughout the relevant period. Whether that is consistent with the profitable use that the Applicant hopes will be made of the funds is another matter. But even if that is so, the interest obligation needs to be covered, and covered from the outset. No mention of that is made in any of the documents that I have seen emanating from Mr Halley or Mr Gibbins, replete with warnings to would-be Applicants as these are. Whether a particular Applicant would have the money to provide the security is of course a question of fact, but judging, for example, by reference to the Toro contract, it would have transformed the deal for the Applicant to have known that the money to be put up at the start would have been not only $750,000 but a total of the order of $3 million. Both Mr Halley and Mr Gibbins suggested in evidence that the security required by the Receiving Bank, or some of it, might be put up by others involved in the trading or investment programme. But there would be no reason for them to do so, or at any rate not without a further return for them, so either way it involves added cost for the Applicant of which there is no evidence that Applicants were made aware.

81. For these reasons it seems to me that the odds of using these transactions successfully to secure funds were, to say the least, stacked against the Applicant.

82. It is therefore not surprising that, first, in none of the three cases concerned in this claim of which I have any detail was the Applicant able to secure the release of the Account Holder's funds, and secondly, that neither Mr Gibbins nor Mr Halley knew of any transaction of this kind in which the Applicant had ever been able to obtain the release of these funds. In particular, they both said in evidence that, to their knowledge, none of Mr Deluce's companies had ever exchanged funds for a bank instrument. They sought to distance themselves from the hoped-for investment or trading programmes, but it does not seem to me that they can distance themselves from the outcome of the transactions with Tidal. If in every instance of a funding commitment facility, or whatever label one likes to use for cases of the kind that Toro entered into, the Applicant failed to secure the release of the Account Holder's funds, which is the purpose of the substantial Arrangement Fee, it seems to me that one must wonder whether there is some fundamental flaw in the transaction.

83. This thought seems to have occurred to Mr Gibbins and Mr Wilson-Smith in September 1997. At that time Mr Wilson-Smith prepared draft instructions to Counsel which he sent to Mr Gibbins, who annotated them. In the end the instructions were not submitted. But their terms, and Mr Gibbins' notes, are revealing. The type of transaction described in the instructions is of the very kind which I have to consider. The draft includes the following passages of particular interest:

"Having carried out a number of transactions, neither Mr Gibbins nor any of instructing solicitors' other clients have seen a transaction actually complete by the delivery of the bank instruments in question."

"Prior to an agreement being entered into the Contracting Party [ie the Applicant] is made aware of the real need for him to have made arrangements for the delivery of the Bank Instrument and also that Mr Gibbins has not seen a transaction complete by the delivery of the Bank Instrument."

"Upon the Contracting Party failing to deliver the Bank Instrument and the Arrangement Fee having been paid to Mr Gibbins or [Tidal] the Contracting Party may then and does indeed frequently complain making claims that fraud has been committed or that Bank Advices has not been properly issued or that the Issuing Bank does not have the funds and so forth but at no time do they attempt to deliver the Bank Instruments.

However, instructing solicitors are concerned as to the possibility of it being said that, taken as a whole the business is fraudulent by reason of none of the Contracting Parties in any of the agreements having in practice been able to perform by delivery of the bank instruments."

84. Among Mr Gibbins' several annotations on the draft is a note at the end, as follows:

"Michael, the opinion needs to cover:

1. Front end fees. I am paid after the issue of the Advice and after authentication.

2. My function is to arrange for the issue of the Advice; what if any other responsibilities do I have?

3. The fact that I am approached by clients to arrange funds on transactions that the clients cannot themselves perform; is this a problem?"

85. The Instructions were prepared after Mr Wilson-Smith had had a visit from the Law Society. According to the draft, there would have been submitted to Counsel, besides some typical documentation for and in relation to the agreements, some correspondence with the Law Society. Mr Gibbins wrote on the draft by this point "This may weaken the opinion". Clearly he read the draft with care, since there are annotations in his hand on pp 4, 5 and 6 as well as the first and last pages. He was asked about this document in cross-examination. He sought to minimise the significance of his comment, as having been scribbled in a hurry and without sufficient thought. He said that "it was at about this time that we had clients who actually showed us that they had performed". But when pressed on the question whether to his knowledge any Applicant had completed a transaction by delivery of a bank instrument, he confirmed that he had not seen a transaction in which he was involved completed in that way, and said that many of his transactions were not involved with the delivery of an instrument.

86. I find that Mr Gibbins did not know of any transaction in which he had been concerned, and which was to involve the delivery of a bank instrument and the release of the Account Holder's funds, which had completed by the delivery of the required bank instrument. I also find that he was in a position to know whether such transactions did complete or not. Not only would he be likely to have heard of this from the Account Holder, if not from other sources, if it did complete, but also he often knew for a fact that it had not, because Applicants often came back to ask for a renewal or extension of the facility, and these were often granted, sometimes for an additional Arrangement Fee and sometimes for none. That was the case with Abacus, with Mr Young and with Toro. I therefore find as a fact that no transaction of the kind that Mr Young and Toro entered into with Tidal ever did complete by the delivery of a bank instrument. That provides powerful support, in addition to the view I have expressed from the terms of the transactions themselves, that these transactions could not have been brought to a successful outcome from the Applicant's point of view. Mr Gibbins was asked in re-examination why the instructions were prepared and why they were not in the end submitted to Counsel. He said that the original concern arose following a visit from the Law Society to Mr Wilson-Smith, and the issue by the Law Society of the so-called "orange card" in July 1997, a warning card about fraudulent investment schemes headed "Banking Instrument Fraud". As to why they remained only in draft, he said this followed discussion with other escrow agents and Applicants. Clearly he, and Mr Wilson-Smith, concluded that they did not want the advice, and could come to their own conclusion about the propriety of their transactions. His annotation suggesting suppression of the Law Society correspondence shows that he did not want Counsel to be shown material which might have produced a less favourable opinion. It seems to me that this is one of the most revealing documents in the case, and that it does nothing to support Mr Halley's case that these transactions were legitimate and might have a successful outcome for an Applicant.

87. Mr Gibbins was cross-examined at some length about these draft instructions. I found his evidence on this particularly evasive, at times, and unconvincing in general. It seems to me clear that he did not have the instructions submitted to Counsel because he did not want to submit to any kind of independent examination of his methods of business, which might have led to an inconvenient conclusion.

88. It may be that the sort of concerns that underlay the preparation of the instructions also led to the development of the standard contract documentation by the inclusion of the warnings at the end to which I have referred. Warnings which are relevant to the point under consideration include those mentioned in sub-paras 45(x)(b) to (d) above. They do not include a warning of the kind that the draft instructions say was always issued to Applicants, that Mr Gibbins had never known an Applicant be able to deliver the required bank instrument. I find that Applicants were not given any warning to that effect by Mr Gibbins or Mr Halley. I have already referred (in paras 35 and 36) to evidence that Mr Halley gave when it was suggested to him that such a warning should have been given.

89. Mr Tager submitted that a conclusion that the transactions with Tidal offered Applicants no real chance of a successful outcome, or at any rate a conclusion that Mr Gibbins and Mr Halley realised that this was so, was not compatible with a number of aspects of the case. He relied on the involvement of English solicitors and other lawyers on behalf of Applicants in a number of cases, and the provision in some draft versions of the Principal Agreement for an Applicant's lawyers to be involved; he relied on acknowledgements by a number of Applicants, or those acting for them, that they knew what they were doing; he also asked rhetorically what was the point of the involvement of Mr Combs if there was and could be no trading or investment programme to which the Tidal transaction would enable the Applicant to have access.

90. General points such as these have some forensic force, but they need to be examined by reference to the particular facts in issue. As Mr Gibbins was at pains to say, he was concerned with many different kinds of transaction. Not all kinds were necessarily equally pointless for the Applicant. So far as acknowledgements by Applicants are concerned, Mr Halley developed a text which he asked Applicants to confirm at an early stage. His third witness statement (para 40) makes it specifically clear that, in asking them about this, he was concerned with the underlying investment or trading programme, not the transaction to be entered into with Tidal. A typical example (dating from 1999) included the following:

"I am familiar with the type of transaction that I am considering and I have previously been successfully involved in transactions of this nature."

91. It does not seem to me that, in the context, this is to be read as referring to the transaction with Tidal; rather it means the transaction for which the funds are needed, from which Mr Gibbins and Mr Halley wish to distance themselves. In relation to the particular example which I have in mind, Mr Halley confirmed in evidence that he believed that, though the individuals behind the Applicant were very experienced businessmen, this was the first time they had undertaken a transaction on a leased basis. So it is clear that the reference to their experience was to the investment of the proceeds, rather than the process of borrowing. In another instance where the correspondent did not use Mr Halley's set form, he said "we need no training in High Yield Investment Programmes", again making it clear that their experience related to the contemplated investment, rather than the immediate transaction with Tidal. In that respect it is consistent with evidence from both men to the effect that their Applicants, while being secretive about their purposes in wanting the money, did profess that they had successful experience of such dealings in the past. It is also consistent with a specific relevant example, recorded in an attendance note by Mr Wilson-Smith of a meeting with Mr Combs in early November 1998, when the Toro contract was first contemplated. In that case (as also in the case of Mr Young) it was said that the proposed investment or trading programme was operated by a Mr Thompson. The note records Mr Combs as saying that "he had dealt in trading transactions with Thompson in the past for in excess of $100 million and was happy that Thompson could perform". Whether or not that statement was true, it does not itself show that Mr Combs had had any experience of a successful transaction of the kind proposed, designed to obtain the money with which to participate in the trading programme. Mr Combs had, of course, had at least one unsuccessful experience, namely the Young contract.

92. As for the actual or contemplated involvement of lawyers acting for the Applicants, I should first note that in none of the three cases directly at issue of which I know the details was any lawyer involved on behalf of the Applicant. Both Mr Gibbins and Mr Halley knew this. The Principal Agreement in relation to Mr Young does contain some references to a Designated Solicitor, but no definition of such a person. These were taken out by amendment on 8 September, at the same time as other amendments were made. These were all explained as word-processing errors, and that is what they seem to be. The papers do include a precedent of a Principal Agreement which provides for a designated solicitor, to whom the Bank Advices would be sent and who is required to give an undertaking as to their use. There is no evidence that this was ever used as such, or that it was made available to Mr Combs. Some drafts were sent to Mr Combs, but the only such document in evidence is in a simpler form and does not refer to any solicitor. I cannot, therefore, conclude that the exclusion of reference to a designated solicitor was the result of negotiation with Mr Combs. The agreement he signed may have included these references simply by mistake, Mr Wilson-Smith having adapted the draft and excluded the designated solicitor definition of his own accord, knowing that Mr Combs was not in fact using a lawyer.

93. Mr Tager showed me a number of references to lawyers being involved for Applicants in transactions of one kind or another. He submitted that if there had been any fundamental flaw in the transactions, some lawyer or other would have spotted it, and the transactions would not have proceeded. He also referred to Mr Halley and Mr Gibbins encouraging Applicants to take legal advice, and expressing willingness to submit the paperwork to any lawyer they might use. He submitted that this was inconsistent with the idea that the transactions were fraudulent or worthless, and certainly with any awareness on the part of Mr Gibbins or Mr Halley that the transactions were of that character. On examination, at least one transaction in which a respectable London firm was involved was not of the same type as those directly at issue before me, so that I cannot draw, from the fact that these lawyers did not stop their client proceeding in that case, the inference that they would have found satisfactory the type of transaction which I am considering. In a number of cases where Mr Tager relied on references to lawyers, it turns out that the transaction was materially different from those I have to consider, some of them, for example, being of the blocked funds variety. It is quite true that, on occasion, Mr Halley expressed willingness to send the documents to a lawyer acting for the Applicant. I saw no examples of this offer being taken up, so I do not know what the lawyer would have said if the documents had been examined and if they had been of the same kind as I have to consider. I have examined the documents to which Mr Tager referred me in this respect, not all of which were dealt with in evidence. In most of them it is impossible to tell the exact nature of the transaction, whether actual or contemplated. In some cases it is clear that it was not of the same type as I have to consider. Accordingly I do not find this to be an argument of any substance.

94. Mr Tager also submitted that Mr Combs only stood to gain from his Applicants if they got as far as the intended trading programme. However, it is clear that he sought $20,000 towards his expenses from each client, and in the case of Toro he sought and obtained payment of twice this amount. So his entitlement to be paid those sums did not depend on the Applicant getting as far as successful trading. It is fair to say that I do not know a lot about Mr Combs, but this particular point is based on a misreading of the facts. It does not, of course, follow, from the fact that Mr Combs would receive some payment from the Applicant even if the matter did not proceed to a trading programme, that he was acting dishonestly. For reasons which I will mention below, I have an open mind as to whether Mr Combs was honest in relation to the relevant transactions, and if not then from what date. I cannot and do not decide anything on this.

95. Mr Tager submitted that Mr Halley's involvement in each transaction was limited to the early stages and did not extend to the negotiation of the detailed contractual terms, that he did not even see the final form of the agreement, and that he could not therefore be expected to be aware of the contractual detail. I do not accept any of that. Mr Halley had draft agreements and, for example, sent drafts to Mr Combs before the Young contract. Once that was agreed in principle he wrote to Mr Wilson-Smith on 27 August in order that the contracts be prepared and he enclosed "the agreed draft agreements and schedules" for the transaction. On 13 August he had written in similar terms to Rhodes Barlow, with draft contract terms, about the Abacus transaction. From other correspondence relating to that transaction it is clear that he was involved then and thereafter with the documentation. In his third witness statement he spoke (in general terms) of acting as a go-between on the negotiations about the schedules and the definitions, and again said that Mr Gibbins and the Applicant would negotiate, "often through me", the final draft. He also mentioned going through the agreements in detail with Mr Combs. In cross-examination he did say that on the Toro contract, unlike the others, he was not involved in the last stages, but even there he was writing letters up to 6 November, the contract being signed a week later. I accept, as both Mr Halley and Mr Gibbins said, that the documents were mainly in fairly standard terms, that a draft was prepared by Mr Wilson-Smith, that amendments were made from time to time, no doubt in the light of experience and comments, and that the main negotiation concerned financial details rather than the legal wording. Nevertheless, it seems to me that Mr Gibbins was correct when he accepted in cross-examination that he and Mr Halley worked to put together the contractual package, in conjunction, for the Young and Toro contracts, with Mr Combs. In re-examination, Mr Gibbins said that Mr Halley was not involved in the negotiation of the terms of the contracts, which was between himself and Mr Combs. That may have been true of the financial details, but Mr Halley was fully aware of those negotiations and their result at the time even if he was not a party to them. In my judgment Mr Gibbins' evidence in cross-examination is more reliable as regards Mr Halley's involvement in the negotiations with, for example, Mr Combs. Mr Halley cannot distance himself from these transactions and their terms by feigning non-participation in and ignorance of the terms of the contracts. I find that Mr Halley knew what was going on, to a considerable level of detail, in all these cases except that of the Wagner contract.

96. I am satisfied that these particular transactions produced no benefit to the Applicants. Moreover I do not see how they could have done, unless, first, the Applicant was aware that the payments that would need to be made would have to cover both the Arrangement Fee and whatever was needed by the Receiving Bank to provide collateral security for the bank instrument, and the Applicant was in a position to pay or arrange payment of those sums and, secondly, the Applicant was ready to proceed at once upon the agreement becoming unconditional. Even if the Applicant were in a position to offer a bank instrument from the Receiving Bank which would be objectively satisfactory, within the short period available, the Applicant would be at risk of the Account Holder rejecting the offer within its discretion. There was in fact no real commitment from the Account Holder at all. Mr Halley explained the position to me by pointing out that Mr Combs was believed to be ready to go at once, but that he was not ready to commit himself to one particular form of document - or even to a particular Receiving Bank. He therefore reserved flexibility to himself, but with the consequence of giving corresponding flexibility to the Account Holder. The person who would suffer from that flexibility would be the Applicant who, having parted with the Arrangement Fee, and the Bank Advice and other documents having been issued, then found that he could not use them because, either he could not get the necessary bank instrument at all, or he could do that but could not make the Account Holder accept them. The former might be the greater problem, because of the difficulty of persuading the Receiving Bank to issue a commitment to pay to the Issuing Bank for the Account Holder the whole principal plus interest at a rate much higher than normal commercial rates at the time, on behalf of someone who is likely to have little if any security to offer.

97. Mr Tager submitted that this aspect of the transaction was not for Mr Halley or Mr Gibbins to look after, but rather for the Applicant and any broker acting on his behalf, such as Mr Combs. That does not fit well with the evidence of Mr Halley and Mr Gibbins that both men took a lot of trouble to satisfy themselves, not only that the Applicant's proposition was one which would suit the Account Holder, but also that the Applicants knew what they were up to, not least in order to try to avoid recriminations. Both of them knew perfectly well that the Receiving Bank would require security. They made the point that the Receiving Bank might not be the Applicant's bank but one involved in the ultimate trading or investment programme, and that the security might be offered from within that programme. However even if that were so, it would not be made available to an Applicant except at an additional cost. I am satisfied that neither of them drew to the attention of Applicants the fact that, one way or another, there would be this further cost over and above the Arrangement Fee. Equally, although the documentation contained various warnings, none of them referred generally or specifically to this hidden cost. In my judgment Mr Gibbins knew, by the summer of 1998, that no transaction of this kind in which he had been involved had ever led to the exchange of funds for a bank instrument, and therefore that no Applicant seeking such funds had ever been satisfied. He also knew at least some of the reasons why this had not happened, principally that Applicants never got their act together in the short time available, and never would be able to, because, among other things, of the hidden cost that I have mentioned.

98. Of course, before the summer of 1998 Mr Halley had not introduced a proposal which had ever got to a binding contract, but he had put forward many proposals by then. I am satisfied that he and Mr Gibbins had discussed these openly and frankly between themselves, and in the course of that Mr Halley had come to know that which Mr Gibbins knew as mentioned in the last paragraph.

99. Mr Tager submitted that, as regards the lack of any binding commitment on the part of the Account Holder, there was an analogy with commercial transactions of an everyday kind whose genuineness no-one would challenge, namely facility letters issued by banks. These, he said, are normally expressed in terms which give the bank the right to withdraw with impunity, so that there is no enforceable commitment. They also tend to involve the charging of an arrangement fee by the bank, which may be payable even if the facility is not drawn on. I do not find it helpful to consider possible analogies between the transactions which I have to consider, which are unusual and elaborate, and transactions of a different type, as to which, though of course I have from time to time seen examples in other cases, there is no evidence before me as to their terms. However, there is one very clear difference between the cases I am examining and a typical sort of facility letter, in that the latter is likely to involve only two parties, the bank who will (or may) make credit available and the customer who wants to have it. Thus, the facility letter will also spell out the terms and conditions of the facility, whereas Tidal's agreements left the terms of the possible agreement between the Applicant and the Account Holder to be negotiated separately. It may be that a bank would charge an arrangement fee for a facility letter despite the fact that the customer does not take advantage of the facility and possibly could never comply with the conditions of the facility so could not have got the benefit of it anyway. But even if there is not a legal obligation on the bank to advance the credit, it is at least a clear bilateral arrangement, such that the customer can seek to exercise direct pressure or persuasion of a commercial kind on the bank, either to make the funds available or not to charge the arrangement fee, and the customer also knows from the start what the deal is. I am therefore not persuaded, by this suggested analogy, of the legitimacy of the contracts which I have under consideration.

100. As a further point against a finding of dishonesty Mr Tager pointed to the large number of cases, overall, where the Arrangement Fee was paid to the Escrow Agent, and was then repaid to the Applicant because the conditions of the escrow were not satisfied. Rhetorically he asked, if these schemes are fraudulent, how come that all Applicants were not defrauded of their Arrangement Fees. I do not find that a cogent point. There could be a number of reasons, quite apart from the point that not all of the transactions were of the particular kind that I am considering; one might be that the fraudsters are not always as efficient as they intend or would wish. At all events, I am not persuaded, by this point either, of the legitimacy of the transactions with Mr Young, Toro, Abacus and Mr Wagner.

Overlapping Bank Advices: the Law Society's application to adduce further evidence

101. Mr Dutton, on the other hand, submitted that the transactions were doomed to failure for another reason, unknown to the Applicants, namely that the Account Holders did not have enough money to exchange cash for bank instruments if such instruments were presented, or if they were presented in more than one case. From this point of view it was important for the Account Holder not only that it was not a party to the contract, but that its commitment, such as it was, in the board resolution was highly qualified, and that it was entitled to decline to proceed for any reason or none. The Bank Advice was supposed to be evidence that the Account Holder had the funds in question which would be available for exchange within the Validity Period. But none of the relevant Bank Advices represented in terms that the sum to which it related was separate from any other sum referred to in any other Bank Advice issued at the same time or in the recent past.

102. The significance of the point can be seen in relation to the Toro contract, taken with the simultaneous renewal of the Young contract. These together envisaged the provision of $40 million by Lardel, thirty for Toro and ten for Young. But for reasons which were differently explained in the evidence, the condition was that, for Toro, three Bank Advices each for $10 million be issued, rather than one for $30 million. The Bank Advices were duly issued, but they were in identical terms, and each would have been true (together with the fourth issued for Young) if Lardel had had a credit balance at RBC of $10 million, even though, in that case, it could not possibly exchange funds for more than one lot of $10 million at most. Mr Halley's explanation in cross-examination (different from that in his witness statement) for the use of several documents was that Mr Deluce or his bank would have been unwilling to accept a single bank instrument for $30 or $40 million, and asked that the obligation be split. (The changes in his evidence on this, and his lame explanation for the inconsistencies, further undermine his credibility.) However, as Mr Gibbins and Mr Halley both said, the Bank Advice was there not to constitute any part of the commitment but to show that the Account Holder had the funds required. Accordingly this explanation does not justify (any more than his other version did) arranging for the issue of one or more Bank Advices which do not prove the existence of funds amounting to $30 million in this case, or, put more generally, of funds which are not the subject of comparable commitments (if that is the right word) in relation to other transactions. Both Mr Halley and Mr Gibbins agreed that to have several Bank Advices in issue at the same time relating to the same funds would be dishonest.

103. It was put to each of Mr Halley and Mr Gibbins that the same $10 million was involved in every case. Mr Halley denied this and said that he had been told by Mr Deluce that the Serious Fraud Office had visited RBC and enquired, checked the balances and found that they tallied correctly, with sufficient money in hand at any time to cover all the Bank Advices. Mr Gibbins said that he understood from Mr Deluce that he had confirmed that he had the financial facility to back up all the letters. In re-examination he said that Mr Deluce, in response to a fax, had confirmed that there were funds which covered all the Bank Advices. The Law Society's solicitors asked for the document but it has not been produced.

104. If it were proved that Bank Advices had been issued in relation to the same sum of $10 million to support several simultaneous contracts, or amounts exceeding $10 million under one contract, so that the supposed comfort given by the Bank Advices was illusory and there was in fact not enough money available, that would clearly be a further reason to hold that the transactions were worthless to the Applicant and that the Arrangement Fee was paid out for no benefit. Some time was devoted to this in evidence and in submissions. Then, on the day after the end of the hearing, the Law Society applied to adduce further evidence on the point, just received from RBC. I received written submissions on that application from each party.

105. So far as the pleaded issues are concerned there is no specific allegation that the Account Holders did not have enough money at RBC to have honoured all the commitments they entered into pursuant to the various board resolutions. In the Re-Amended Defence there are three relevant passages. Paragraph 8 alleges that Bank Advices were issued on RBC paper in substantially the same form in about 35 cases of agreements involving Mr Wilson-Smith. Paragraph 9 then says:

"It is possible that the letter [ie the Bank Advice] is strictly accurate as regards the account holder's account but the letter is worthless to a genuine investor (who is not the account holder referred to in the letter)."

106. Paragraph 20(a) brings in the Second Schedule as an analysis of the agreements. Paragraph 26 of the Second Schedule is in these terms:

"No reputable bank would have knowingly released four identical letters, each referring to the availability of $10 million, with the intention that they be used cumulatively for the purposes of purchasing $40 million of financial instruments."

107. Then para 24A of the Defence brings in the Fourth Schedule, introduced by re-amendment, alleging respects in which the terms of the contract were not satisfied. In para 5(c) it is said that the Bank Advice in the Young contract did not satisfy the definition of Bank Advice in cl 1 of the contract as it did not provide any evidence that the sum of $10 million was in the Account Holder's account. In para 6(b), as regards the Toro contract, it is said that the three identical letters, each of which referred to the same account, did not "each evidence the sum of $10 million" as required by cl 1 of the contract. These various allegations are denied in the Reply without any separate case being set up in response.

108. As it seems to me, the point made at para 9 of the Defence does not involve saying that the funds were not there, or that not enough money was there to cover all concurrent commitments. The plea there made would be the same even if all the relevant funds had been present and correct. The point in para 26 of Sch 2 is a little obscure, but cannot reasonably be read as saying that the funds were not there, or that not enough money was available.

109. So far as the point in the Fourth Schedule is concerned, this relates to the terms of the contract, and I will deal with it later. It is true that the Bank Advice does not show the existence of a separate balance of $10 million which is not the subject of any comparable contract or board resolution, but that is not the point made. The point which is made in this paragraph goes to documentation, not substance. If correct, it would be justified on the terms of the Bank Advices issued even if in fact Lardel had $30 million to the credit of the relevant account at the time. Moreover it does not make any point about the inadequacy of funds available to meet calls under other concurrent contracts with other Applicants.

110. Although the question whether there were in fact adequate funds for the relevant Account Holder to meet all calls under all current contracts was addressed in evidence (and that evidence has a relevance to credibility) it does not seem to me that it is one on which I ought to make a finding either way. Since the case is one of fraud, all necessary particulars must be clearly alleged: see PD16 para 9.2(1). This point not having been alleged, Mr Halley was not, for example, on notice that he ought to try to get from Mr Deluce, or from RBC, evidence as to the balances at relevant times. It is true that Mr Halley and Mr Gibbins did say that Mr Deluce had given some information on the point. In view of the non-production, despite demand, of the document referred to by Mr Gibbins, I find that it did not exist and that the evidence was untrue. But this conclusion does not by itself prove the truth of the opposite proposition. Moreover, even if Mr Deluce was approached, it does not follow that different steps might not have been taken if the point had been alleged in the Defence. Also, the point made in the Fourth Schedule was introduced, as I have mentioned, during the trial itself, and on the basis that it did not require an adjournment to deal with the new points, since they were points on the existing documents. That is a further reason for not concluding that this plea raised (for the first time) an issue to which evidence about the actual bank balances would have been relevant.

111. It was for this reason that, when the Law Society made its late application, I asked for submissions directed in particular to whether the evidence was relevant to an issue raised on the statements of case. Mr Dutton's response to this request confirms that the Law Society's primary position is that the Bank Advices do not even purport to say that more than one amount of $10 million is available, and that it was for this reason that the Law Society had not pleaded that there was not $30 or $40 million in any relevant bank account. He said that the first suggestion that the RBC Bank Advices outstanding at any one time related to different sums of money came from Mr Halley. That is true, but it was in response to a question from Mr Dutton: "so far as you know it is the same $10 million that is involved?", ie in all the concurrent Bank Advices. That being so, it was clearly Mr Dutton who raised the point, and Mr Halley answered (accurately or not) in a legitimate way having regard to the question. Given that Mr Dutton accepts that the point was not raised on the pleadings, the truth of the evidence only goes to credit, and it is not legitimate to introduce rebutting evidence on a question of credibility.

112. Accordingly, I will not admit the late evidence, I will not make a finding on the point from the evidence which is before me, and I will draw no inference as to the availability or otherwise of funds exceeding $10 million at any one time.

113. Nevertheless, for the other reasons already given, I am satisfied that the contracts were worthless to the Applicants, and that the Arrangement Fees were in fact paid out for no benefit, at any rate in the type of cases with which I am concerned, where the Applicant's objective was to secure the release of the relevant funds by the Account Holder.

Was Mr Halley aware that the contracts were worthless to the Applicant?

114. It seems to me that, as the mastermind of the transaction, there can be no doubt that Mr Gibbins realised that these agreements were worthless to Applicants. I have given careful thought to whether Mr Halley also realised this, or whether he was innocent, even if naïve. I am satisfied that he did. I will set out some of the factors that have influenced me in this conclusion, in addition to what I have already said about his involvement in the business generally and the transactions in particular.

115. First there is the question of the supposed commitment. Mr Halley explained the basis of the transaction in para 35 of his third witness statement as being that Tidal obtains a commitment from the Account Holder to provide the funds in exchange for the bank instrument to be offered by the Applicant. For the most part in his oral evidence he remained consistent with this, saying, for example, that the Bank Advice was merely supporting evidence for the commitment made by the Account Holder, showing that he has the wherewithal to make the commitment, and later that the Principal Agreement in the Young case was a commitment by Chaynemac to support Mr Combs' project, and denying that there was no commitment in the agreement. (There is one answer in the transcript, on 14 November, p 124 lines 11 to 13, which I think is recorded wrongly on this. It reads "it is a commitment to provide a bank advice and nothing else", but I believe the word "not" has been omitted.) In answer to questions from the court at the end of his evidence, however, he did accept that the terms of the board resolution were so conditional and qualified that, even if the Receiving Bank did offer a negotiable instrument conforming with the contract and objectively satisfactory in every way, the Account Holder could refuse to accept it, for any reason or none, so that there was no real commitment. I do not believe that this was a realisation that only came to Mr Halley in the process of my questioning. He knew all along how precarious was that which was offered to Applicants, and that there was no real or reliable commitment, in any sense.

116. The other point to be mentioned in this context is the question of risk. His statements about the risks involved in the transaction obscured the reality. In para 113 of his third witness statement he said that the Applicant was never at risk for the capital amount, and that if the Account Holder lost his money he could not claim it back from the Applicant. Contradicting this, however, in his para 143 he spoke of the Receiving Bank guaranteeing the obligation of the Applicant to return the capital and agreed interest to the Account Holder at the end of the year. In oral evidence, however, he reverted to his first position, denying that Toro was at risk as regards the Account Holder, and then going on to deny that Toro would be at risk as regards the Receiving Bank, who had issued the guarantee and which he said would look to the operator of the investment programme, even though he recognised that the funds were being made available for the benefit of the Applicant, and that in substance the Applicant would be borrowing money from the Account Holder.

117. Mr Gibbins' evidence as to the commercial nature of the transaction was clearer and more realistic. Although the point was not made in submission, I have asked myself, particularly on this point, whether Mr Halley's evidence shows that he did not really understand what was going on, possibly being taken in by the version of the transactions given to Applicants by Mr Gibbins. If that were so, it might show that Mr Halley neither actually realised, nor did he recklessly disregard, the fact that Applicants could not in truth gain any benefit from these transactions. He could not therefore be regarded as dishonest. Nevertheless, after careful reflection, with the benefit of having observed him giving evidence for three days, having read and re-read both the transcript and my notes of his evidence, I find that he did know what was going on. Accordingly, I conclude that para 143 of his witness statement allowed the truth to show through, but that otherwise his evidence misrepresented the reality of the transaction, in just the way (I have no doubt) as he explained it to Applicants, both as regards the element of risk for the Applicant and as regards the lack of reality of the supposed commitment by the Account Holder. In so acting, I am satisfied that he was dishonest, just as I am of his not believing the truth of what he said in evidence on these points.

Did Mr Halley or Mr Gibbins make a fraudulent misrepresentation as alleged?

118. I therefore come to the question whether Mr Gibbins or Mr Halley or both made an express or implied representation as alleged in the Defence as regards these various contracts, to the effect that by entering into the contract, in exchange for the Arrangement Fee the Applicant would obtain the means of entering an investment programme or of buying bank instruments, or at least that the person making the representation believed that there was a prospect that the Applicant would obtain one or the other. Mr Tager rightly pointed out that there is virtually no evidence of what was actually said by either Mr Halley or Mr Gibbins to Mr Combs, on behalf of Mr Young or of Toro, or to anyone on behalf of Abacus, let alone to Mr Wagner or the Applicant in that case. Mr Halley says something about what was said by Mr Gibbins to Mr Combs at one stage, but this does not include anything relevant. It seems to me that the case is one of implied rather than express representation. The representation, if any, was not as to the opportunity of investing in an investment programme, but as to being able to buy bank instruments, so as to exchange such an instrument for funds of the Account Holder and thereby to obtain access to or the use of those funds.

119. I have no doubt that the conduct of Mr Halley and Mr Gibbins in turn to those with whom they dealt on behalf of Applicants (whether the Applicant direct or a broker such as Mr Combs) involved the making of an implied representation to this latter effect. I am satisfied, for reasons already given, that neither Mr Gibbins nor Mr Halley believed that there was in fact any such chance that the Applicant would obtain that opportunity. They both knew that it had never happened before in any case of which either of them was aware and that there were such obstacles to it happening in future that it could be ruled out as a practical possibility. The representation was therefore dishonest and fraudulent. There was and could be no point for the Applicant in entering into the agreement, which was no more than a vehicle for obtaining money from him by false pretences.

120. Mr Tager pointed out that in each agreement there are several terms designed to eliminate any liability for misrepresentation. In the Young and Toro contracts cl 5.3 includes a sentence by which each party accepts that he has not relied on any representation by the other which is not expressly set out in the agreement. The Abacus contract has the same at cl 14. Each contract also has a series of warnings, to which I have referred at para 45(x)(b) to (d) above. It is, however, a clear rule of public policy that a party to a contract cannot exclude liability for his own fraud. Although as a matter of law it is open to a contracting party to exclude the consequences of his agent's fraud leading to the conclusion of the contract, this must be done by way of the clearest possible wording: see HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2001] EWCA Civ 1250, [2001] 2 Lloyd's Rep 483, 31 July 2001, paras 75 to 110. Any misrepresentation by Mr Gibbins must count as the misrepresentation of Tidal as principal, whatever may be the true nature of the relationship between the two of them. Mr Halley was Tidal's agent in procuring Applicants to enter into contracts. If he had made innocent or negligent misrepresentations as such agent, the disclaimers might have been effective. However it does not seem to me that the general words of the disclaimers can qualify as being sufficiently clear to exclude what would otherwise be the consequences of Tidal's agent having made fraudulent misrepresentations to induce the Applicant to enter into the contract. In any event equivalent misrepresentations were also made by Mr Gibbins. Furthermore, Mr Halley did not rely on these disclaimers in his Reply so that, strictly, the point does not arise.

121. I therefore find that the Abacus, Young and Toro contracts were entered into after implied misrepresentations by Mr Halley and Mr Gibbins which were fraudulent. So far as the Wagner contract is concerned, on the basis of the limited information that I have, it was of a similar kind to the others I am considering. The same considerations therefore apply to it. It may be that no misrepresentation was made by Mr Halley in this case, given his limited involvement, but Mr Gibbins did make such a misrepresentation in this case as well. If the Applicants or their representatives to whom the misrepresentation was made were honest (which is the hypothesis on which, at present, I am proceeding) it seems to me clear that the contract was induced by the misrepresentation in each case.

Does the fraudulent misrepresentation bar Mr Halley's claim?

122. Mr Dutton submitted that, if this is accepted, Mr Halley cannot establish his claim to be entitled to the funds in the former Wilson-Smith client account, because he would have to rely on a fraudulent and illegal agreement with Mr Gibbins or Tidal, or on an agreement between Tidal and the Applicant which he knows and always knew would be, and was, fraudulent on the part of Tidal. Mr Tager, however, had two answers to this: first that the money belongs to Mr Halley unless and until the contract is avoided for fraud, which it has not been and, he says, could not now be because of ratification (in the Young and Toro cases at least) and secondly that Mr Halley does not need to rely on any illegality to make good his entitlement to the money, and that any illegality is therefore not a bar to his assertion of his proprietary rights.

The absence of rescission of the contracts

123. It seems to me that Mr Tager's first point is correct, subject to Mr Halley being able to show that he has acquired title to the money, which is a separate question to which I will come later. Taking the Toro contract as an example, the Arrangement Fee belonged to Toro. It was paid over by the Escrow Agent to Tidal under the Principal Agreement. I have held that this was procured by misrepresentation, and Toro would be entitled (subject to later events) to rescind for misrepresentation. However, it has not done so. Unless and until it does so, and validly, there can be no question but that the property passed to Tidal. As to this see Millett J in Lonrho plc v Fayed and others (No 2) [1991] 4 All ER 961, [1992] 1 WLR 1 at p 11-12 of the latter report, and the Court of Appeal in Halifax Building Society v Thomas [1996] Ch 217, [1995] 4 All ER 673. Since on any footing there has not been an attempt to rescind by any of the Applicants, it is not necessary for me to rule on Mr Tager's point about waiver of the right to rescind. The points he relies on are the same as he would use for a different waiver argument, which arises on the question of conformity with the terms of the contracts, and I will consider the point in that context.

Does Mr Halley's claim fail because it relies on illegality?

124. As regards the illegality defence, Mr Dutton relied on the decision of Hutchison J in Thackwell v Barclays Bank [1986] 1 All ER 676. There a Claimant was held not entitled to sue the Defendant bank for the proceeds of a cheque which had been presented to it with a forged and fraudulent endorsement, because this was part of a dishonest scheme of which the Plaintiff was fully aware and to which he was a party. The judge accepted a proposition from the Defendant's Counsel that the court should apply a conscience test in deciding whether a party's involvement in illegality was a bar to recovery. That test involved the court looking at the quality of the illegality relied on and all the surrounding circumstances, without fine distinctions, and seeking to answer two questions: first, whether there had been illegality of which the court should take notice and, second, whether in all the circumstances it would be an affront to the public conscience if by affording him the relief sought the court was seen to be indirectly assisting or encouraging the Plaintiff in his criminal act. This approach was accepted and endorsed by the Court of Appeal in later cases, including Saunders v Edwards [1987] 2 All ER 651, [1987] 1 WLR 1116 and Euro-Diam v Bathurst [1990] 1 QB 1, [1988] 2 All ER 23, as well as their decision in Tinsley v Milligan [1992] Ch 310, [1992] 2 All ER 391. However in the House of Lords in Tinsley v Milligan [1994] 1 AC 340, [1993] 3 All ER 65 a public conscience test was rejected by all members of the House, though they differed as to the test which should be applied. Though Thackwell was not expressly disapproved, the use of a flexible and discretionary public conscience test was expressly excluded. The effect of this was considered in Webb v Chief Constable of Merseyside Police [2000] QB 427, [2000] 1 All ER 209. There May LJ disapproved the reliance of the judge below on Thackwell. He said at p 223 of the latter report that the formula relied on in Thackwell "does not survive the rejection by the House of Lords of the public conscience test". He reserved the possibility that there might be circumstances where the court would refuse relief where to grant it would be indirectly assisting or encouraging the Plaintiff in his criminal act. On that state of the authorities, it does not seem to me that it is open to me to reject Mr Halley's claim on the basis of illegality in reliance on the Thackwell test, unless it would come within that last phrase. Mr Dutton sought to distinguish Tinsley v Milligan as not being concerned with an attempt by the Claimant to establish and enforce a proprietary interest in the proceeds of fraud or crime. It is not open to me to distinguish the House of Lords decision on that basis. It seems to me that, in the light of Tinsley v Milligan, illegality on Mr Halley's part is only relevant as a defence if Mr Halley has to rely on his illegal conduct to prove his claim. Whether that is so is a point to which I will return.

125. It follows that, even though I hold in favour of the Law Society that the four contracts were procured by fraudulent misrepresentations on the part of Mr Gibbins (and in the case of all but the Wagner contract, also of Mr Halley) and that this was part of a fraudulent scheme to which both Mr Gibbins and Mr Halley were parties, I cannot, on that ground alone, reject Mr Halley's claim to the funds.

The alternative case of money-laundering

126. The Law Society asserts in the alternative that the contracts (other than the Toro contract) were money-laundering schemes, so that the Applicants were not innocent victims but dishonest conspirators with the other participants. Essentially this alternative is put forward as the only plausible explanation for the Applicants (other than Toro) not having complained about the loss of their money. Even in the case of Toro, though there has been complaint against various parties, the nature of the complaint has not been that the Arrangement Fee was taken under false pretences and the scheme could never have worked, but that Toro feels let down both by Mr Wilson-Smith in releasing the money when he should not have done, and by Mr Combs and others for not ensuring that Toro was able to participate in the lucrative trading or investment opportunities which it hoped to gain access to by way of the contracts. Mr Moro said in cross-examination that he did not feel that he had been let down by Mr Halley. It seems to me that this attitude on Mr Moro's part is attributable to his not being fully aware of the deceit that was practised on him. Mr Moro had plainly not understood the transaction. His evidence as to how he thought it would work so as to allow him to participate in a profitable investment programme showed that he had had wool pulled over his eyes very successfully. In particular, he had not understood the need, in order to persuade a Receiving Bank to undertake liability for the Account Holder for $30 million, to put up, or procure that someone else put up on his behalf, security for the interest on the $30 million.

127. I do not know what Mr Combs' position was in this. He may have been trying to help Toro, with a view to earning fees for himself, and unaware of the reasons why it could not be done, or he may have been fully aware of the position and, whether or not in cahoots with Mr Gibbins, aiming to earn money from Toro and others without any real prospect of their obtaining the benefits hoped for. The Law Society does not allege in its Defence that Mr Combs was dishonest. Mr Moro said he felt, after a time though not at the outset, that he was being tricked by Mr Combs. I cannot proceed on the basis that Mr Combs has been shown to have been dishonest. But I am satisfied that Mr Gibbins' and Mr Halley's explanations to Mr Combs were incomplete and misleading, and that those explanations of the particular transactions involving Tidal did amount implicitly (even if not explicitly) to a representation as alleged, which to the knowledge of Mr Halley and Mr Gibbins was untrue. It is clear to me that Mr Moro did not understand this when he gave his evidence, and it is therefore in no way surprising that he did not regard Mr Halley as to blame for his disappointment.

128. Likewise I cannot come to the conclusion that Abacus, or Young, or whoever was the Applicant in the case of the Wagner contract, was dishonest. If all or any of them were honest, then the conclusions that I have expressed about the Toro contract would also apply to them. The same would also apply if the Applicant was honest but his representative (such as Mr Combs) was dishonest. If, however, an Applicant was dishonest and was in league with Mr Gibbins and the others, then, no doubt, he realised that he would not secure the ostensible benefits of the contracts, and he was not deceived by the implied representation that the contracts might achieve their object, or that Mr Gibbins and Mr Halley believed that they might. However, in those circumstances, the whole scheme would be a sham and a pretence. As parties to the scheme and the conspiracy, Tidal, Mr Gibbins and Mr Halley could not assert a good claim to the money by virtue of the pretended or purported contract. I therefore need not devote any further attention to the alternative of money-laundering. I will continue to consider the matter on the footing that the Applicants were honest.

129. I was told that Mr Young is in prison in the USA awaiting trial on charges of fraud. It would not be right for me to proceed on the basis that those charges, even if relevant, are justified. I was shown documents to suggest that Mr Young may not have been the true owner of the $400,000 paid for his Arrangement Fee. I cannot decide anything on that. Similarly there was reference to complaints of misconduct and fraud on the part of some involved in the Abacus matter, to Mr Sanchez, the broker who introduced Mr Gibbins to this kind of business, having been a Defendant in proceedings in the US, dealt with by agreement, and also to another associate of Mr Gibbins having been convicted of fraud. The principle "know him by his associates" may be well applied in social dealings, but it is not a basis for adverse findings in proceedings such as these. So far as I can see no fact relevant to the issues in this claim has been proved as it would need to be in respect of the matters which I have mentioned in this paragraph, and I do not base any part of this judgment on any fact on the basis of these matters. In particular, whatever issues may arise in another context, I do not proceed on the basis that Mr Young or Abacus were not the beneficial owners of the money used to pay their respective Arrangement Fees.

Can Mr Halley show that the money in the client account belonged to him?

130. Part of the Law Society's defence is directed to the point whether Mr Halley can show a good title to the money in the former Wilson-Smith client account. This is a necessary part of their case, but in principle it applies whether or not Mr Gibbins and Mr Halley were fraudulent. The point starts with the undeniable proposition that Mr Halley does not have a legal title to the money, which is vested now in the Law Society, by a statutory divestment from Mr Wilson-Smith. Clearly Mr Wilson-Smith held the funds on trust for someone, since they were in his client account. The question is whether Mr Halley can show that the beneficiary under that trust is him.

Were the conditions for the release of the Arrangement Fee to Tidal satisfied?

131. When an Arrangement Fee was paid to the Escrow Agent under one of these contracts, it was held by him on trust to dispose of it in accordance with the terms of the Escrow Agreement. (Not all stakeholder arrangements involve trusts, but this form of agreement clearly does.) If the conditions were duly satisfied, he held it for Tidal, and if not then he held it for the Applicant. Until the time came when it would be determined whether or not the conditions had been satisfied, he could not dispose of it without the agreement of both parties. The involvement of a solicitor as Escrow Agent was an important element in seeking to persuade Applicants to commit their money by way of the Arrangement Fee. Mr Gibbins and Mr Halley held this out to Applicants as giving them security, in that the solicitor as Escrow Agent would not release the funds unless satisfied that the contract was correctly performed. Mr Halley's introductory document set includes a number of documents designed to foster this impression. They do not say in terms what Mr Halley said in evidence, namely that the funds would not be released unless the contract was performed, but I have no doubt that this is the impression that was intended to be given and was in fact received.

132. It is convenient here to set out the terms of cl 4 of the Escrow Agreement:

"The Escrow Agents shall irrevocably pay and release the Arrangement Fee to either [Tidal] or to the [Applicant] (as the case may be) as follows:

A. Upon and in the event that the Bank Advices are issued by the Issuing Bank conforming in all material respects to the text set out in Schedule A to the Principal Agreement and upon the Escrow Agents being able to satisfy themselves that the Bank Advices have been duly issued by the Issuing Bank then the Escrow Agents shall release and pay the Arrangement Fee to [Tidal] or to its order

B. In the event that the Bank Advices are not issued or that originals of the Bank Advices are not received by the Escrow Agents within 7 banking days after [the date when the Arrangement Fee is paid to the Escrow Agents] or that the Escrow Agents are unable to satisfy themselves that the Bank Advices have been duly issued by the Issuing Bank or that they do not in all material respects conform to the text set out in Schedule A of the Principal Agreement then the Escrow Agents shall release and pay the Arrangement Fee to he [Applicant] or to its order."

133. Mr Dutton submits that the conditions were not satisfied in the Young and Toro contracts, with the result that the Arrangement Fee never did become payable to Tidal, should have been paid to the Applicant, and remains the property of the Applicant.

134. In relation to Young he has three points. One is that the Bank Advice was addressed to Mr Combs, not to the Account Holder as required by the form set out in Sch A. The second is based on the original form of Sch A, which was corrected by an agreement by way of variation dated 8 September, mentioned at para 51 above. In the light of that agreement, which was noticed in the papers at a very late stage, this is a bad point. The revised Schedule does provide for the Bank Advice to be addressed to the Account Holder. A letter from Mr Wilson-Smith to Mr Combs dated 9 September records that the Bank Advice was issued addressed to Mr Combs at his request and with his agreement. It is true that this variation is not recorded in writing signed by the parties, unlike the other variations, and I do not overlook cl 5.2 of the agreement which requires amendments to the contract to be in writing and signed by both parties. But it seems to me that, Mr Combs having, apparently, asked for and agreed to this change, it would not be open to Mr Young to assert that the Bank Advice issued in conformity with this request, and otherwise complying with the contract, did not satisfy the conditions in the Principal Agreement. He would be met by a defence of estoppel or waiver. It also seems to me that Mr Combs' authority on behalf of Mr Young was in wide enough terms to empower him to agree to this, or to waive the non-conformity, on behalf of and so as to bind Mr Young.

135. The third point is that the Bank Advice does not satisfy the terms of the Principal Agreement because it does not provide any evidence that $10 million is in the Account Holder's account. This turns on the use of the rather odd phrase "there is within the Royal Bank Financial Group the availability of $10 million free and clear of all incumbrances." An account number is quoted in the heading to the letter, together with the name of an Account Holder (Chaynemac). Since the Bank Advice had to use this phrase in order to correspond with the form in Sch A, it does not seem to me that it is open to challenge on the basis that the phrase is not ideal for the purpose. In context, it must be read as representing that the stated amount is available in the account referred to.

136. As regards the Toro contract, Mr Dutton relies on two points: first that the Bank Advices were addressed to Mr Combs. That is not a good point, because in Sch A to the Toro contract, the form set out is to be addressed to Mr Combs. It is true that in the text of the Principal Agreement the definition of Bank Advice is that it is to be addressed to the Account Holder, but it also has to be in the form set out in Sch A. This produces an inconsistency. That has to be resolved and it seems to me clear that the text of the form in Sch A should prevail over the inconsistent part of the definition.

137. The second point, however, is that, although the three Bank Advices use the form set out in Sch A, as substituted, they do not comply with the Principal Agreement and do not qualify as "Bank Advices" under that agreement because they do not "each evidence the sum of $10 million", that is to say, three separate sums. In my judgment, this is the correct reading of the contract. That seems to me clear from the definition of "Funds" in the contract, which speaks of "each of the said sums of $10 million the subject of the Bank Advices". The Bank Advices had to be in the form set out in Sch A to the contract, but they also had to warrant the existence of separate sums of $10 million. How they did that is not prescribed. They could, for example, have referred to three separate accounts, each of which held the necessary sum.

138. It is not sufficient to say that, by using the bare text of Sch A, the Bank Advices conform "in all material respects to the text set out in Schedule A". "Bank Advices" has the same meaning as in the Principal Agreement, and they must therefore evidence three separate sums. Use of the text in Sch A is only part of the definition of Bank Advice. It seems to me that the Escrow Agent could only properly release the funds if what was issued complied with the Principal Agreement in evidencing three separate amounts of $10 million.

139. For these reasons, I reject Mr Dutton's submission that the conditions were not satisfied in the case of the Young contract, but I hold that he is right as regards the Toro contract. It follows that the Arrangement Fee under the Toro contract ought not to have been released to Tidal and should have been repaid to Toro. Mr Wilson-Smith as Escrow Agent acted in breach of the Escrow Agreement and in breach of trust in releasing the Arrangement Fee to Tidal. Even if he was unaware of the fact of non-conformity with the contract, the terms of the Escrow Agreement are such that objective compliance was required as well as the Escrow Agent being satisfied of compliance.

Waiver of non-conformity, or estoppel

140. Mr Tager had a further response to this point, in para 10A of his Amended Reply. He says that Toro waived the conditions, or ratified the release of the fee by Mr Wilson-Smith to Tidal, or would be estopped from relying on the lack of satisfaction of the conditions. I have of course accepted the same point, to an extent, as regards the Bank Advice for the Young contract being addressed to Mr Combs, not to the Account Holder. But the failure of the Bank Advices to evidence three separate sums of $10 million for the Toro contract seems to me a different matter. What Mr Tager relies on in this regard is, first an "affidavit" made by Mr Combs on 8 October 1999, and secondly further efforts by Mr Gibbins and Tidal after November 1998 to seek to obtain further or substitute Bank Advices and corporate documents to satisfy the requirements of Toro, in circumstances where he says that Mr Combs, as agent for Toro, must have been aware that Tidal and Mr Gibbins would not have been willing to undertake those steps if it had not been accepted by Toro that the Arrangement Fee had been properly releasedestoppelestoppel.

141. I will deal first with the Combs "affidavit". It is in fact merely a statement in writing, though headed "affidavit". It is expressed to have been made in support of Mr Wilson-Smith in connection with the proceedings arising from the intervention by the Law Society. It refers to the Young and Toro transactions, and to the allegation by the Law Society that these were dishonest and that Mr Combs or his clients had been defrauded of the Arrangement Fees paid. It says, among other things, that,

"Mr Wilson-Smith, Mr Gibbins and Mr Deluce all acted professionally and in good faith and honestly in relation to us and the transaction I and my associates carried out. We do not have any complaint to make against any of them. . . . We (Mr Young, Mr Moro and I) relied upon Mr Wilson-Smith only to ensure that the Bank Advices issued by [RBC] were genuinely issued by that bank and I am satisfied that he did so."

142. Mr Moro did not know that Mr Combs had made that statement until the late summer of 2001. He did not give him any specific authority to make it. If he had been asked at the time he would not have agreed with it or authorised Mr Combs to make it on his or Toro's behalf. Already before that date he and his son were complaining vociferously to Mr Combs about their disappointment with the transaction. On the date which the statement bears, Mr Combs did have a power of attorney from Toro, but it was in quite limited terms. Though expressed to be made under a resolution of the company dated 17 November 1998 it was to be effective for up to a year ending on 10 November 1999. It was limited to transactions between Mr Wilson-Smith and individuals or businesses designated by Mr Wilson-Smith "to be necessary for the completion of this trade agreement which commenced on or about November 9 1998". That is somewhat obscure wording, but I do not see how it can be said to have given Mr Combs authority, in October 1999, long after the event, on behalf of Toro to waive compliance with contractual conditions under the Principal Agreement or the Escrow Agreement. Mr Moro was asked some questions in cross-examination about the scope of the authority which Toro had given to Mr Combs at first. His answers suggested that the authority was quite broad. However, Mr Tager did not by then realise that the actual 1998 authority was in the bundles and therefore Mr Moro was not being asked questions by reference to the actual document. The scope of the authority depends on the terms of the document, rather than Mr Moro's understanding of it. However, I have borne his evidence in mind in considering the document. Despite this my conclusion is that it is not so wide as would have been supposed from Mr Moro's evidence, and certainly it is not wide enough for the submission which Mr Tager makes on the basis of it.

143. The text of the "affidavit" was provided to Mr Combs, as a draft, by Mr Gibbins and he was asked to sign it, and duly did. This was put to Mr Gibbins in cross-examination, who did not accept it, and denied that he had put any statement to Mr Combs. However, later Mr Tager accepted on behalf of Mr Halley that the history was as had been put to Mr Gibbins and denied (so that Mr Gibbins' denial turns out to have been untrue). The statement was not in fact used by Mr Wilson-Smith in relation to the proceedings about the intervention, and seems to have come to the Law Society's attention only when sent to them by Mr Combs. In those circumstances, I find it hard to see that the document can have had any effect at all such as is asserted by Mr Tager, having been produced at the request of Mr Gibbins, sent to him and kept by him to himself, and, according to his evidence, not being the basis of any further action by Mr Gibbins or any other relevant person. Accordingly, this document is of no assistance in rebutting the case that the terms of the Toro contract were not complied with. Since it was not used at the time, and only came to light so recently, I do not see that any question of apparent authority can be relevant in relation to this document even if, as I doubt, it could arise on the facts.

144. As for Mr Tager's other point summarised in para 140 above, Toro could only be found to have waived, or to be estopped from reliance on, the non-compliance with the terms of the contract if it was fully aware of the relevant circumstances. Mr Moro was asked some questions relevant to this, though not in great detail. He said that he did not realise in November 1998 that Mr Wilson-Smith had released the Arrangement Fee to Tidal, and he thought that the time had not come when the Arrangement Fee could be released under the contract, and although he feared, when he learned of the intervention in Mr Wilson-Smith's practice, that the money might have been lost, he did not know that it had gone from the client account and hoped that it had not. This is an odd belief in the face of Mr Wilson-Smith's letter of 18 November 1998 stating that he would be releasing the Arrangement Fee, but I am satisfied that, whether or not reasonably, Mr Moro did genuinely hold this belief. Also, although Mr Combs told him (he now thinks, by way of fobbing him off) that there was something wrong with the Bank Advices, as a reason why he was unable to get into the trading programme, he was never told that the problem was that the Bank Advices did not show that there were three separate sums of $10 million in Lardel's account. It seems to me to follow that Toro cannot be regarded as having waived the consequences of that non-compliance with the contract.

145. Mr Tager suggested in his final speech that Toro's application to the Law Society Compensation Fund could be a waiver. Apart from the fact that this is not pleaded, and cannot therefore be relied on, it could not succeed on the facts. Such a claim is in no way inconsistent with a claim under the agreement.

146. Accordingly, even though Tidal's entitlement to the Arrangement Fees in the Abacus, Young and Wagner contracts is unchallenged by rescission or otherwise under the contracts (as yet), it did not become entitled to the Arrangement Fee under the Toro contract. Mr Halley's claim involves showing that he was entitled to $154,000 under his agreement with Mr Gibbins as his share of the net proceeds for Mr Gibbins (or Tidal) from the Toro contract. In my judgment he cannot show that he became entitled to that sum, or that Tidal became entitled to the money out of which it was paid.

Was the beneficial interest in the money validly assigned to Mr Halley?

147. Mr Dutton has a further point on entitlement, of a more formal kind. He says that, even if Tidal became entitled to the Arrangement Fees, Mr Halley cannot show that he became entitled, beneficially, to any of the funds in Mr Wilson-Smith's client account because the necessary formal steps were not taken. In particular he says that, on the assumption that on or about 14 September 1998 (for the Young contract) and on or about 18 November 1998 (for the Toro contract) the respective Arrangement Fees became payable by the Escrow Agent to Tidal, (and on the basis of my having rejected his other arguments for defeating claims to the money by Mr Halley) from that moment the money in the client account was beneficially that of Tidal. In order that it should become that of Mr Halley, a disposition of the equitable interest in the money by Tidal or on its behalf was required. This would have to satisfy s 53(1)(c) of the Law of Property Act 1925. It must therefore be in writing, signed by the person entitled or his agent.

148. In a case where entitlement to a fund is at risk because of s 53(1)(c) but is based, substantively, on contract, it might be open to the person claiming to be entitled to rely on the contractual rights in order to overcome the formal difficulty. In the present case, however, Mr Halley would then have to rely on his contract with Mr Gibbins or Tidal. Having regard to my findings as to the fraudulent nature of the transactions under which the Arrangement Fees were paid, and as to Mr Halley's knowledge of that fraud, Mr Halley could not, in my view, rely on the contract. To do so would involve relying on illegality and would be precluded by Tinsley v Milligan.

149. Mr Tager submitted that Mr Halley did not have to rely on the 1993 contact, but only on the accord and satisfaction come to in each case in relation to the sum due. As I have said, I do not conclude that the 1993 contract was of itself illegal or fraudulent, because I am not satisfied that it would only relate to fraudulent transactions. However, Mr Halley does have to rely on it in relation to particular transactions which, in the event, were fraudulent. In those circumstances it seems to me that Tinsley v Milligan does apply and Mr Halley cannot avoid the consequences of that by saying that he only relies on the settlement, by agreement, of the amount due.

150. Mr Tager also submitted that it was not necessary to satisfy s 53(1)(c) as regards payments such as these by way of transfer within a solicitor's general client account, from one client's ledger to another's. I will come back to that point after considering s 53.

151. As to whether s 53(1)(c) was satisfied, and taking first the amount paid out of the Young Arrangement Fee ($143,750), the papers in evidence include a letter dated 16 September 1998 from Tidal to Mr Wilson-Smith containing the necessary instructions. It has handwriting on it which I assume to be that of Mr Wilson-Smith. It is not signed by anyone on behalf of Tidal. By contrast, the similar letter of instructions dated 19 November 1998 as regards the Toro Arrangement Fee is signed for Tidal. Under the words "Yours truly" at the bottom it has an impression of a stamp reading "Tidal Services Inc. / Star Services Inc. / Director" and against the middle of those three lines there is a handwritten letter or symbol which I accept as being authentication of the signature on behalf of Star Services.

152. Mr Tager submitted that I should infer that, in addition to the unsigned instruction from Tidal in the bundle about the $143,750, there was a properly signed version, albeit now lost. I am not prepared to draw that inference. Although there ought to have been such a document, it seems to me that, if there had been, it would have been on that document that Mr Wilson-Smith would have made his annotations. Since he made them on an unsigned version, it seems to me most probable that this is all he had. Therefore, if compliance with s 53(1)(c) is necessary, Mr Halley cannot prove his title to this payment.

153. There is no document in evidence at all containing an instruction to pay the $25,000 to Mr Halley. Nothing relevant was found by the Law Society in Mr Wilson-Smith's files, other than the ledger entries as regards Mr Halley. Mr Halley said he had no part in the matter beyond passing Mr Wagner on to Mr Halley, and that he had had no knowledge of what happened after that until Mr Gibbins told him that he was due an introductory commission and offered him $25,000. He did not ask Mr Gibbins for any documents to help make good his claim to the $25,000 since he did not see the need to do so. Mr Gibbins was asked some questions about authorising the transfer but gave no useful evidence in answer. Again, Mr Tager submitted that I should infer that Mr Wilson-Smith was acting on a proper written instruction signed by or on behalf of the appropriate party, which he supposed to be Tidal. However, from the exiguous information in the papers about this transfer it seems that it was from a client account of CBOD (which was an entity associated with Mr John Wagner), not of Tidal, and accordingly that CBOD would have had to have given the necessary instructions and made the relevant disposition. I do not consider that I can properly infer the existence of an appropriate written document. Having acted without a signed document as regards the payment in September, it seems to me that Mr Wilson-Smith could well have acted without a document at all as regards the $25,000. In this case also, therefore, Mr Halley is unable to prove his title to the money, so far as s 53(1)(c) is concerned.

154. Mr Tager submitted that the requirements of s 53(1)(c) do not apply to a disposition of funds in a solicitor's client account, in reliance on provisions in the Law Society rules governing such accounts. At the time the position was governed either by the Solicitors' Accounts rr 1991 or, if the practice had already adopted them (which was not yet mandatory), by the replacement rules of 1998. The 1998 rules were made on 22 July 1998, and had to be implemented by 1 May 2000. So far as I am aware there is no indication that Mr Wilson-Smith had already gone over to the new rules, and it seems to me that the probability is that he had not, by the time of the transfers relevant in this case, between September and November 1998. I will therefore proceed on the basis that the 1991 rules applied, though I will also refer to the position under the 1998 rules.

155. Under both sets of rules a transfer from one client's account to another is permitted if and only if it would be legitimate, under the rules, to withdraw the money from the first client's account, and to pay it into the second's: see 1991 r 10(1), and 1998 r 30. Rule 7(a) of the 1991 rules deals with withdrawal from a client account, and allows withdrawal, relevantly, under paragraph (iii), in the case of money drawn on the client's authority. Money can be paid into a client account for a particular client only if it is held on behalf of that client. If money is withdrawn from a client's account, on his authority, and paid out to a third party on his instructions, it would become the property of that third party, legally as well as beneficially. Section 53(1)(c) does not apply there, because the legal title is transferred. If then the third party were to pay it to the solicitor to be held as client's money on his behalf, it would belong beneficially to the third party. It seems to me that, by virtue of r 10, what happens on a transfer between two clients' ledgers should be treated as simply short-circuiting the process which I have described. It would be rather absurd if money which had properly (under the rules) been transferred from A's client ledger to B's within the same general client account should have to be regarded by the solicitor as still belonging to A unless and until the disposition was authorised by a written document signed by or on behalf of A Mr Dutton objected that subsidiary legislation such as the Solicitors' Accounts Rules could not override the effect of general legislation such as s 53(1)(c). I do not accept that. It seems to me that it must be open to the makers of such rules to make whatever provision is thought appropriate for the formalities required for, for example, transfers between clients' ledgers, unfettered by a general provision such as s 53(1)(c). It is of course prudent for the solicitor to require written authority, or confirmation, but that is not essential under the 1991 rules.

156. Under the 1998 rules, by contrast, there is such a requirement, though one which is qualified. Rule 22 permits a withdrawal, in the corresponding circumstances, if there are instructions, either given by the client in writing, or given by some other means and confirmed by the solicitor to the client in writing. Thus under the 1998 rules, either a written instruction from the client or written confirmation of the instruction to the client is needed. But this is not necessary under the 1991 rules. For that reason, it seems to me that the absence of a signature to Tidal's instructions as regards the $143,750 is not fatal to Mr Halley's claim, even though it would not satisfy s 53(1)(c).

157. On the facts, it seems to me that I should regard the unsigned document concerning the $143,750 as being a proper instruction from Tidal authorising Mr Wilson-Smith to withdraw that sum from Tidal's (or Mr Gibbins') client ledger. So this formal point taken in respect of that sum is not made out.

158. So far as the $25,000 is concerned, however, since it appears not to have been held, before the transfer, to the credit of Tidal or Mr Gibbins, but to that of CBOD, an instruction from Mr Gibbins or Tidal is not what is needed. Rather there would have to be an instruction from Mr Wagner or CBOD. There is no evidence of any such instruction. In the circumstances, I do not feel able to make an inference as to what happened. As regards this transfer, therefore, I hold that Mr Dutton's formal objection is justified.

159. However, accepting Mr Tager's point about the $143,750 does not in fact show that his client is entitled to any of the money left in the account, and the same would still be true if I had been in his favour about the $25,000. This is because of the applicable rules of appropriation.

160. If the applicable rule were that in Clayton's Case (1816) 1 Mer 572, [1814-23] All ER Rep 1, the principle would be "first in, first out", and Mr Halley would be left with the $25,000 last paid in, as part of the ultimate balance, as his own money, even though he had drawn out some $165,000 after this credit for his own use. However, because the competition is between money which does, and that which does not, belong to him, the correct rule is that in Re Hallett's Estate (1880) 13 Ch D 696, 49 LJ Ch 415. Under this rule a person is to be treated as drawing out for his own benefit his own money before any that belongs to another. Thus all the drawings, including that of $165,000 by way of loan to Mr Gibbins, are treated as drawn first on the payments to which Mr Halley was entitled, (including the $25,000 even though last paid in, if he were entitled to it), in priority to the other money in the fund, the $154,000, which did not belong to him. The result, therefore, is that he is treated as having taken out the whole of his entitlement, and more, and no part of the remaining balance of $114,210 is regarded as belonging to him.

161. After the intervention Mr Wilson-Smith wrote to Mr Halley on 15 November 1999 stating that he regarded the balance as belonging to Mr Halley and as being properly payable to him. That statement is irrelevant. If Mr Halley could show that the money did belong to him, he would not need this statement from the former trustee. If he cannot, this statement cannot improve his position. The letter of 8 December 1999 from Tidal Services Limited of the Bahamas is also of no effect, not least because that company had no standing in the matter.

162. For the reasons which I have given, in my judgment Mr Halley cannot show that he is entitled to the funds remaining in the former client account of Mr Wilson-Smith, and his claim must be dismissed.