England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		4th October 2002

MR LESLIE KOSMIN Q.C.

INTRODUCTION

1. This is an application brought by the Claimant for

(1) summary judgment under Part 24 of the CPR against the Defendants; and/or

(2) strike out of the Defendants’ Defences under Part 3.4(2) of the CPR and a consequential order for judgment in the Claimant’s favour; and/or

(3) an interim payment pursuant to Part 25.7(1)(c) of the CPR in the event that the application for summary judgment or strike out is not successful.

Mr Robert Hunter of Allen & Overy, who appears on behalf of the Claimant, has made it clear that the application for summary judgment under Part 24 is his client’s principal claim. I should also mention that the Defendants, who are represented by Mr Andrew Clutterbuck of Counsel, have served as part of their evidence a draft Amended Defence which replaces those filed in October 2001 and for which permission will be sought if the case continues to trial.

2. The Claimant is the UK Branch of a French company which specialises in providing global telecommunications and network services, and in particular integrating, operating and managing global IP, e-business and data services. It was formerly known as International Telecommunication Services (“ITS”). At all material times from about 1991 the First and Second Defendants, Mr Ives and Mr Lee, were senior employees of the Claimant, based at its cabling division known as Equant Cabling, which was located in Wakefield, West Yorkshire.
3. The Claimant alleges that Mr Ives and Mr Lee, as the managers of Equant Cabling, conspired together to make secret profits from their employment and to deceive the Claimant by the submission to its Finance Department in Slough, Berkshire of false invoices in the name of the Third Defendant (“Tristar”) purportedly in respect of services performed on contracts carried out by the Claimant for its customers. The Claimant alleges in particular that Mr Ives, acting fraudulently and in breach of fiduciary duty as the senior manager of the cabling division, was responsible for approving Tristar as a supplier and authorised sub-contractor and enabling it to receive payment from the Claimant on such bogus invoices. A total of 133 invoices were submitted to the Claimant by Tristar and paid by it between February 1998 and November 2000. The amount paid to Tristar totalled £1,842,611.58 (inclusive of VAT). A large number of the invoices were paid pursuant to a standing purchase order No: 00453 dated 16th March 1999 which had been signed by Mr Ives on behalf of the Claimant.
4. Tristar was incorporated in England on 20th October 1997 and changed its name to Tristar in January 1998 when it was acquired from company registration agents, First Class Company Services Limited, by Mr Ives and Mr Lee. It is admitted by the Defendants that they are the only two directors and shareholders of Tristar and the directing mind and will of that company. However, they assert that they did not attempt to conceal their involvement in Tristar from the Claimant. Indeed, they allege that the idea of setting up Tristar was suggested to them in November 1997 by Mr Daniel Ronald Hector (“Mr Hector”), the UK General Manager of the Claimant and its most senior officer in this country. One extraordinary feature of the case is that the Defendants admit that the bulk of the invoices supplied by Tristar to the Claimant were fictitious and did not represent work carried out for the Claimant. However, they claim that invoices to the value of £317,040 (excluding VAT) did represent actual work carried out on a sub-contract basis. They claim that the other invoices were understood and intended by Mr Hector to be the agreed method by which they would extract their share of the profits of Equant Cabling in the period after November 1997. I shall refer below to this alleged agreement in more detail.
5. There is no dispute that Tristar’s source of income was from the Claimant. Only two receipts (payments of £250 and £8,675.02) may have emanated from entities other than the Claimant. An analysis of bank statements shows that Mr Ives, Mr Lee arid their respective wives have together received about £1,369,223 from Tristan In addition cheques totalling £103,299 were paid to the Fourth Defendant (“Magellan”), which is another company owned and controlled by Mr Ives and Mr Lee. Magellan was incorporated in England on 13th September 2000 and was used by Mr Ives and Mr Lee as their trading company after they had left the employment of the Claimant in late December 2000 when Equant Cabling was closed down by the Claimant.

PROCEDURAL HISTORY

6. This application has had a somewhat lengthy history. The Action was begun by an application made without notice to Neuberger J for a worldwide freezing injunction against the Defendants on 24th September 2001. The Claim Form was issued on 25th September 2001, alleging breach of fiduciary duty, breach of contract and deceit against Mr Ives and Mr Lee; knowing receipt, dishonest assistance in a breach of trust and deceit against Tristar; and dishonest assistance in a breach of trust against Magellan. In addition, damages are sought for conspiracy against all the Defendants.
7. The freezing injunction was renewed by Pumfrey J on 8th October 2001 and by Neuberger J on 12th and 19th November 2001 and remains in force. It restrains the Defendants from removing or disposing of or dealing with or diminishing the value of their assets up to an amount of £1,842,611.58 on the usual terms. In addition, the Claimant has obtained a number of disclosure orders against the Defendants and against the Thames Valley Fraud Squad who have investigated this affair. I have been informed by their Counsel, Mr Clutterbuck, that Mr Ives and Mr Lee have both been charged by the police with numerous counts of theft in relation to this matter and have pleaded “Not Guilty” to the charges made against them. They have appeared before the Magistrates’ Court and have been released on bail pending a further hearing on 31 October 2002. I am told that it is likely that the trial at the Crown Court will be fixed for sometime in 2003.
8. In his second witness statement signed on 24th January 2002 Mr Ives points out that he and Mr Lee first knew of the allegations against them when he (Mr Ives) was arrested by the police on 25th September 2001. Owing to the fact that Mr Lee’s father had died on the previous day he was not arrested but volunteered for questioning on 4th October 2001. Following the service of the Freezing order Mr Ives and Mr Lee represented themselves at the hearing before Pumfrey J on 8th October 2001. At that stage they had instructed solicitors and counsel specialising in criminal law as the criminal investigation was, they say, the main focus of their concern. They did not instruct their present solicitors until December 2001. The Claimant’s Particulars of Claim were served on 11th October 2001. On 26th October 2001 two separate Defences were filed, one on behalf of Mr Ives and Magellan and the other on behalf of Mr Lee and Tristar. (It is not clear why this division of representation was made.) The Defences (with one important exception to which I shall refer below) largely consist of a traverse of the allegations contained in the Particulars of Claim. On 12th December 2001 the Defendants gave notice of change of solicitors.
9. In the light of the purely formal nature of the Defences served it is not surprising that on 21st December 2001 the Claimant issued this application for the summary disposal of this matter. The application was at that stage supported by an Affidavit of Mr William Albert Watts, a former policeman and private investigator employed by the Claimant, and a witness statement of the Claimant’s solicitor, Mr James Partridge. However, on 24th January 2002 the Defendants served the lengthy second witness statement from Mr Ives setting out their detailed defence to the allegations, which statement was confirmed and supported by Mr Lee. Exhibited to Mr Ives’ witness statement was the draft Amended Defence which pleads in formal terms the material set out in the witness statements.
10. On 22nd February 2002 Mr Ives and Mr Lee swore further disclosure affidavits in answer to the freezing injunction, having waived the privilege against self-incrimination which they had previously claimed. When this application came before the Master in February 2002 it was adjourned by consent to enable the Claimant to reply to the Defendants’ detailed evidence. It was further adjourned at the request of the Claimant in April 2002. In or about the beginning of July 2002 the Claimant served three further witness statements from Mr Hector, their former UK General Manager, Mr Rajesh Mavji Patel, their Finance Director and Mr Russell Edward Bolan, one of Mr Hector’s successors as UK General Manager.
11. On 10^th July 2002 the application came before Park J and was again adjourned, this time at the request of the Defendants who sought additional time to deal with the three new witness statements served by the Claimant. A fourth witness statement from Mr Ives was served on 9th July 2002. The matter was adjourned to 9th September 2002. In the meantime, on 13th August 2002 two additional witness statements were served by the Defendants (Mr Ives’ fifth and Mr Lee’s third) and these were followed by a second witness statement from Mr Patel on 28th August 2002 in response. On 6th September 2002 Mr Ives signed a sixth witness statement in response to Mr Patel.
12. The application could not be heard by the vacation judge, His Honour Judge Rich Q.C., on 9th September owing to insufficient time and so was again adjourned until 18th September 2002 when it came before me. The result of these exchanges of evidence is that the Court bundles for this application comprise six affidavits and witness statements served on behalf of the Claimant and eight served on behalf of the Defendants. The exhibits to these statements consist of 760 pages of documents contained in two large files. In the circumstances it can be seen that this application can hardly be described as a typical one for summary judgment under Part 24 of the CPR. The hearing took two and a half court days, after I had spent half of the first day reading the key documents suggested by the parties. On the final day of the hearing Mr Hunter sought permission to correct an error in an important paragraph (number 28) in the first witness statement of Mr Patel made on 1st July 2002. I granted permission for that correction to be made and on 23rd September 2002, after the hearing was concluded, was provided with a witness statement of Mr Rainer Evers of Allen & Overy correcting the mistake. I shall refer to this matter later in this judgment.

THE LEGAL TEST FOR A PART 24 APPLICATION

13. I have drawn attention to the scale of the evidence served on this application because of the very obvious restrictions imposed on the use of Part 24, Rule 24.2 provides:

“The Court may give summary judgment against a ... defendant on the whole of a claim or on a particular issue if–

(a) it considers that-

(i) ... ... ...

(ii) the defendant has no real prospect of successfully defending the claim or issue; and

(b) there. is no other compelling reason why the case or issue should be disposed of at a trial.”

14. It has been said many times that an application for summary judgment is appropriate only in clear cases and that the Court should not be drawn into conducting a mini-trial on the basis of conflicting witness statements, without disclosure and without oral evidence. It is designed to deal with those cases that are not fit for trial at all. These principles were emphasised by Lord Hope in the House of Lords in Three Rivers District Council v Bank of England [2001] UKHL/16: [2000] 2 WLR 15; [2001] 2 All ER 513. At paragraph [90] Lord Hope approved the reasoning of Lord Woolf MR in Swain v Hillman [2001] 1 All ER 91 at 92 where he said:

“The words “no real prospect of being successful or succeeding” do not need any amplification, they speak for themselves. The word “real” distinguishes fanciful prospects of success or [as counsel for the defendant] submits, they direct the court to the need to see whether there is a “realistic” as opposed to a “fanciful” prospect of success.”

15. In Three Rivers at paragraph [92] Lord Hope stated:

“The overriding objective of the CPR is to enable the court to deal with cases justly (see r 1.1). To adopt the language of art. 6.1 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969) set out in Sch 1 to the Human Rights Act 1998) with which this aim is consistent, the court must ensure that there is a fair trial. It must seek to give effect to the overriding objective when it exercises any power given to it by the rules or interprets any rule (see r 1.2).”

Later at paragraph [93] Lord Hope again cited Lord Woolf’s judgment in Swain v Hillman where he stated that Part 24 is not meant to dispense with the need for a trial where there are issues which should be investigated at the trial. At paragraph [95] Lord Hope summarised the position in the following terms when answering the question - what is to be the scope of the court’s inquiry?:

“The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf MR said in Swain’s case (2001) 1 All ER 91 at 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.”

16. These principles were followed by Moore-Bick J in International Fund for Agricultural Development v Jazayeri 2001 WL 1476313 (QBD (Comm Ct)) which concerned an application under Part 24 for summary judgment where the Fund’s case was that the defendant had obtained payments from four consultants dishonestly and in fraud of his employer. The learned judge pointed out at paragraph [5] that the mere fact that the defendant has put forward evidence which tends to contradict the claimant’s case does not invariably lead to the conclusion that the case must be allowed to go to trial. It is sometimes apparent from independent evidence that the defendant’s account is plainly without substance and has no prospect of being accepted by the court at trial. In such a case the court will exercise its power to give summary judgment. He continued:

“However, in a case where the defendant’s account appears farfetched but is not contradicted by independent evidence, the court should in my view normally hesitate long before rejecting it as incredible at a preliminary stage. The evaluation of witnesses is essentially a matter for a judge at trial who has the benefit of seeing them give evidence. Moreover, where contradictory accounts are given in the witness statements, any attempt to evaluate the competing accounts inevitably involves an exercise in the nature of a trial.”

17. It is still a little unusual for there to be an application for summary judgment in a case involving serious allegations of fraud or dishonesty. Indeed, prior to 1992 it was not possible to make such an application in a fraud case. However, the predecessor of Part 24 of the CPR, namely Order 14 of the Rules of the Supreme Court, was amended in March 1992 (S.I.1992 No: 638) to permit an application to be made for summary judgment even where the case was based upon allegations of fraud. Nevertheless, where allegations of dishonesty are made the Court will of course require cogent evidence before being satisfied that such allegations are made out.
18. I have paid much regard to these statements of principle when considering the evidence filed on this application. In particular I am very conscious that this is not the appropriate stage at which to embark upon any kind of trial and nor is it the occasion on which to assess the weight of the competing evidence. However, the Claimant, while recognising these principles, nevertheless has urged me to find in its favour in the light of what it asserts is the overwhelming nature of the case against the Defendants, and the absence of any realistic prospect that its defence will be successful at trial. The effect of the Claimant’s assertion that the Defendants have no prospect of successfully defending the claim is that the onus is put on the Defendants to bring forward evidence in response in support of their defence. With that in mind I now turn to consider the details of the evidence filed with the Court.

THE EVIDENCE

19. In the second witness statements of Mr Ives and Mr Lee dated 24th January 2002 the Defendants claim that their division was run with a considerable degree of autonomy from the Claimant’s senior management in Maidenhead and Slough. It is claimed that although the continuing success of the division was due to their efforts this was not reflected in substantially increased remuneration and that by 1997 they had become disenchanted. In late 1997 they had decided to leave the Claimant’s employment and start their own company to compete with Equant Cabling. In November 1997 Mr Ives met Mr Hector, the UK General Manager, during a scheduled visit to Wakefield and informed him of their intention to resign unless he could offer a very significant increase in salary, part ownership of the division or something like a profit share. Mr Hector is said to have acknowledged their grievances and to have offered them a deal on the basis that they would have a share of the profits whilst the Claimant retained its revenue stream.
20. Paragraphs 25 to 28 and 30 of Mr Ives’ witness statement provide his account of the alleged “arrangement” that he made on behalf of himself and Mr Lee with Mr Hector. In view of their crucial importance I shall quote these paragraphs verbatim:

“(25) The proposal was that Mr Lee and I had to guarantee him 32.5% gross profit on a turnover of £2 million per year. Allowing for £250,000 overheads, this equated to a requirement to guarantee the Claimant net profits of £400,000 per year. Mr Hector stated that he did not appreciate having a gun pointed at his head but that being a realistic businessman he realised that to a degree we had backed him into a corner. Anything over the required £400,000 net profit contribution he agreed that we could take. There would however be no further investment in the division, pay rises would be minimised and sales support would be unavailable except where the rest of the company had an interest in the client. A corollary of the proposal that Equant Cabling would receive no investment was that there would be no objection if Mr Lee and I sought to take advantage of business opportunities that Equant Cabling, because of the decision that it would receive no investment to expand into new product and service areas, could not take up.

(26) Having heard Mr Hector’s proposal I went out of my office and briefed Mr Lee. The three of us then went and continued the discussion over lunch at the New Miller Dam pub. It was agreed that we would take out any additional profit by invoicing the Claimant from a new company as if it were a supplier. Mr Hector was to arrange for the new company to be approved. I assumed that he would inform the finance department of the arrangement since they were responsible for setting up new supplier accounts and running the necessary credit checks. Mr Hector made it clear that he wanted the arrangement kept confidential. We agreed to this - we were aware that there were other similar arrangements within the Claimant’s organisation which were kept as confidential as possible in order to prevent everyone pressing for a special deal.

(27) As agreed with Mr Hector, Mr Lee and I accordingly acquired [Tristar] and started invoicing in accordance with the new arrangement. Presumably Mr Hector made the necessary arrangements with the finance department to ensure that the invoices were paid.

(28) To ensure that we were not abusing the arrangement and that the £400,000 annual net profit was safe, Mr Hector of course had the monthly spreadsheets on which he could check that margins were intact and that revenue was meeting projections.

…

(30) The arrangement which we had reached with Mr Hector continued after he left his post as UK General Manager and went to work for the Claimant’s parent company, SITA. This was in late 1999. Mr Hector was replaced temporarily by a Mark Hayden. I did not expressly discuss the arrangement with Mr Hayden. He was only in post for a short time and Mr Hector told us that the necessary people knew of what we were doing. At about the end of the year Mr Hayden was replaced by a new acting UK General Manager, Russell Bolan. Mr Hector told us that he had explained everything to Mr Bolan and indeed Mr Bolan mentioned his conversation with Mr Hector to me at a management meeting I attended in February. He expressly mentioned that he knew of Tristar and the arrangement we had agreed with Mr Hector. He said that if the deal was good enough for Mr Hector it was good enough for him.”

The substance of these crucial paragraphs is repeated in the draft Amended Defence and they are confirmed as accurate by Mr Lee in his brief second witness statement dated 24th January 2002.

21. The Claimant takes issue with this account. The details are expressly denied by Mr Hector in his witness statement dated 26th June 2002. Mr Hector is no longer employed by the Claimant and is resident in Switzerland. He left his post as UK General Manager in October 1999. He denies the alleged discussion with Mr Ives and that he ever discussed such an arrangement with him. He points out that Mr Ives did receive increased remuneration in the period from April 1996 and participated in bonus arrangements. Under the heading “Why I would not have agreed to the Arrangement” he maintains amongst other things that:

(1) the method by which the payment was to be made would have appeared to him to be fraudulent as it involved a company being paid for services it had not provided

(2) the proposal would have been outside the scope of his authority and that Mr Ives and Mr Lee were aware of the limits under which he operated

(3) he would not have agreed or have been able to agree to any such confidential arrangement

(4) there was nothing to stop him agreeing to setting up a transparent bonus scheme if he had wanted to increase their salaries

(5) his own bonus was in part linked to the financial performance of the division and the arrangement would have had an adverse effect on him

(6) Mr Ives is silent as to how he and Mr Lee could have guaranteed net profits of £400,000 per year for the division.

22. Mr Hector denies that he could possibly have monitored the arrangements in the way suggested by Mr Ives. He also denies mentioning the arrangement to Mr Bolan, who was not his immediate successor. He insists that he did not approve any purchase orders raised by Mr Ives, in particular the purchase order with Tristar, and had no reason to challenge documents put in front of him. He was not required to countersign purchase orders relating to costs incurred under a contract which was in line with budget forecasts. He concludes that no such arrangement was entered into and that it is entirely implausible that he would ever have contemplated or entered into such an arrangement on behalf of Equant.
23. Mr Hector’s evidence is supported by a witness statement from Mr Russell Bolan, who became UK General Manager in March 2000. Mr Bolan states that he never had any contact with Mr Hector concerning any aspect of his take-over of the role of UK General Manager as Mr Hector was working in Geneva at the time he was appointed. He also points out that the arrangement could not have been operated on the basis Mr Ives claims, as the evidence of the invoices paid (listed in schedule 1 to the Particulars of Claim) shows that payments were made to Tristar before it was possible to know whether the cabling division had made any profits at all, let alone whether they had reached £400,000. He states that during his time as UK General Manager he met Mr Ives frequently to obtain reliable financial data which Mr Ives had difficulty producing. In such circumstances he states that it is absurd to suggest that he would have been content for the alleged arrangement to continue. Mr Bolan asserts that in the latter part of 2000 he discussed the closure of the cabling division with Mr Ives owing to poor revenues and that at no point in those discussions did Mr Ives raise the issue of the alleged arrangement. Mr Bolan states that it was not part of his duties to counter-sign invoices and that he naturally assumed that invoices initialled by Mr Ives were both legitimate and accurate.
24. The Claimant’s evidence also includes a lengthy witness statement from Mr Patel, the Finance Director, dated 1st July 2002. It is important to note at the outset that Mr Patel did not become the Claimant’s acting Finance Director until May 2000 and therefore cannot give first-hand evidence of the Claimant’s internal procedures for the approval of purchase orders and invoices prior to that time. Nevertheless, Mr Patel quite fairly points out that the case set out in the draft Amended Defence requires the Defendants to allege that the Claimant sanctioned an arrangement which potentially involved a fraud on the Inland Revenue (by escaping liability for income tax and national insurance contributions) and would have resulted in a large amount of futile work being carried out by its employees in processing false invoices. Mr Patel refers to his having been informed by the Claimant’s investigator, Mr Watts, that he (Mr Watts) had spoken to some 15 people (including Mr Hector and Mr Bolan) in the Claimant’s administration at the relevant time, all of whom deny any knowledge of the arrangement. There is no direct evidence from any of these individuals apart from Mr Hector and Mr Bolan.
25. The strongest evidence against the Defendants is in fact provided by the elaborate form of the invoices they created for Tristar, the bulk of which they acknowledge were entirely false. The invoices have been exhibited by Mr Watts. They provide details of the services allegedly provided on specific projects, in particular the contract between Equant and Citibank for work at its offices at Lewisham and Hammersmith. The invoices contain the dates of the work carried out, the time worked, the number of persons employed, the total number of hours worked at an identified hourly rate and the order number. VAT is charged on each invoice. Mr Ives admits the payment of VAT but asserts that this was passed on to Customs and Excise. It is difficult to see why the invoices (133 in total) took this form if what was really being charged was a profit share for Mr Ives and Mr Lee. Many of the invoices were preceded by a Tristar “Quotation” describing in considerable detail the work to be carried out. These documents were addressed to either Mr Ives or Mr Lee and frequently signed on Tristar notepaper by a Mr Philip Croshaw or purportedly sent by him. The documents disclosed to the Claimant have revealed that the services of Mr Croshaw were supplied for this purpose by First Class Company Services, the registration agents from whom Mr Ives and Mr Lee acquired Tristar. A company search shows that Mr Croshaw, who lives on Sark in the Channel Islands, was the secretary of Tristar from 5th January 1998 to 20th August 1998 and a director of Tristar from 5th January 1998 to 18th May 1998.
26. Other significant evidence against the Defendants is provided by their own reaction to the Claimant’s investigations into these matters in the second half of 2000 and early 2001. It is apparent, as they now admit, that when questioned by Mr Patel, the new Finance Director who was struggling to reconcile the financial figures for the cabling division’s Citibank contract, they gave untruthful answers to his enquiries. At paragraph 51 of his second witness statement Mr Ives expresses his regret and apologises stating:

“It was clear to me that some sort of inquiry was going on into the Citibank costs. I did not want to open up altogether the arrangement we had reached with Mr Hector and Mr Bolan, and my responses were the best I could come up with.”

I have been referred by Mr Hunter to a lengthy e-mail sent by Mr Ives to Mr Patel dated 11th January 2001. This contains a purported explanation of the problems arising on the Citibank contract and refers to a summary of fictitious “events” which caused the costs to escalate. The e-mail, which was copied by Mr Ives to Mr Bolan, also suggests that the new company set up by Mr Ives and Mr Lee be engaged to resolve the problems at no cost to Equant. It is claimed by Mr Hunter that this was an attempt by the Defendants to cover their tracks and conceal the financial difficulties and inconsistencies that had arisen as the result of the fact that they had procured the payment to Tristar of sums totalling £809,516.25 in respect of the Citibank contract.

27. Mr Ives states in his witness statement that he mistakenly believed that Mr Bolan was still the UK General Manager at this time and that he copied the e-mail to him in the hope that he would be able to sort the matter out. Mr Hunter emphasises the extraordinary nature of this response. He submits that if Mr Ives and Mr Lee had really made the alleged arrangement with Mr Hector (and continued it after his departure and replacement by Mr Bolan) they would have mentioned it at this juncture in their own defence. Instead they withheld the truth and invented a false account of why the costs of the work had escalated. This is a powerful argument. In his submissions Mr Clutterbuck acknowledged that this e-mail was a “dishonest smokescreen”. He suggested that it was perhaps apparent by then to both gentlemen that Mr Hector and Mr Bolan had acted without authority. The e-mail was, he suggested, sent to Mr Bolan to warn him that he would have to speak to Mr Patel.
28. Another matter of importance relied upon by the Claimant is the change introduced by the draft Amended Defence on the key issue of whether the Claimant’s UK General Manager, Mr Hector, was aware of the creation of Tristar. Paragraph 22 of the Particulars of Claim pleads in part:

“Furthermore, and in breach of the duties pleaded in paragraphs 9 and 10 above, Mr Ives and Mr Lee did not have the consent of the Claimant’s UK General Manager to the creation of Tristar, nor did either of them report the other’s wrongdoing in procuring payment of the invoices referred to at Schedule l.”

The Defence of Mr Ives and Magellan served on 26th October 2001, which was settled by experienced counsel and is supported by a statement of truth signed by Mr Ives, pleads at paragraph 22:

“Save that it is admitted that the First and Second Defendants did not have the consent of the Claimant’s UK General Manager to the creation of Tristar, no admissions are made as to paragraph 22 of the Particulars of Claim.”

29. This concession in paragraph 22 of the Defence is withdrawn in Mr Ives’ second witness statement and in the draft Amended Defence. In paragraph 32 of the draft Amended Defence it is expressly pleaded that Mr Ives and Mr Lee “did have the Claimant’s UK General Manager’s agreement to the entire arrangement. Further there was no wrongdoing and the Claimant, through Mr Hector (and later, Mr Bolan) at least, was aware of the entire arrangement.” Mr Ives states that the original wording of paragraph 22 was an error and that what he intended to plead in the original Defence was that he did not have Mr Hector’s “written” consent to the creation of Tristar as required by clause 5 of each of his and Mr Lee’s service agreements. That provision, which is relied upon by the Claimant, states:

“5. You will not carry out any other professional activity without the written consent of the General Manager ITS UK.”

Mr Hunter argues that this explanation is spurious and indicative of the lack of credibility in the Defendants’ evidence. For my part, in the absence of cross-examination I do not consider that that is a conclusion that the Court can fairly reach.

30. In support of the Defendants’ contentions as to the existence of the arrangement with Mr Hector they refer to the fact that all the Tristar invoices were approved and paid by the Claimant’s Finance Department and service centre at Slough, which they argue is evidence that the necessary individuals in that department must have been informed by Mr Hector that the payments were to be permitted. I was addressed at length on the evidence of the procedure for approving invoices. Mr Clutterbuck pointed out that the Claimant’s evidence consisted largely of hearsay statements of Mr Watts and Mr Patel, the latter because he had only arrived on the scene in May 2000. The Claimant has been challenged to produce its authorisation procedures for both invoices and purchase orders but has not done so. It is pointed out on behalf of the Defendants that not all the invoices were initialled by Mr Ives or Mr Lee. Some were initialled by Donna Townsend, another employee of the division. It is claimed that the initials on invoices did not signify approval as argued by the Claimant, but merely identified the employee who coded the invoice (i.e. linked it to a specific contract or purchase order) before sending it to the Finance Department for approval and payment. Ms Townsend did not have authority to approve invoices for payment and therefore, it is contended, it must be the case that merely initialling an invoice did not constitute management approval for payment.
31. The Claimant’s answer to this contention was, in my view, somewhat inadequate and unclear. Mr Hector says that Mr Ives’ initials amounted to an endorsement that the invoice was properly rendered to the best of his knowledge, but he does not deal with the invoices initialled by Ms Townsend. Mr Patel’s response in his second witness statement dated 1st July 2002 was as follows:

“28. I am informed by Mr Watts that due to the passage of time, Equant no longer holds every copy of every invoice and purchase order for the relevant period, but does still hold the majority. Of these, every invoice or order has been initialled by Mr Ives alone, save for a small number initialled by Donna Eccles. Mr Watts informs me that Donna Townsend has told him that she only initialled purchase orders on Mr Ives’ instructions, that she is unaware of any circumstances in which purchase orders had to be referred to anyone else in senior management, and that she understood that Mr Ives’ signature authorised all purchase orders. I am also informed that there is no indication that any other person authorised these documents prior to payment or reviewed their authenticity.”

Mr Clutterbuck pointed out that this paragraph was not only not direct evidence of the procedures, but it did not explain Ms Townsend’s role in signing invoices. I was told during the hearing that Donna Eccles and Ms Townsend were one and the same person. (It is also somewhat strange that the Finance Director should rely on Mr Watts to tell him what documents had been retained in his department.) Mr Hunter responded by acknowledging that there was a mistake in the evidence and that the third sentence should have referred to the invoices initialled by Ms Townsend rather than purchase orders. Mr Hunter offered to correct the error by means of a witness statement from his colleague, Mr Rainer Evers, who had responsibility for the proof of evidence from which the witness statement of Mr Patel was drafted. I directed that the Claimant was at liberty to produce such a corrective statement after the close of the hearing provided that it was first shown to Mr Clutterbuck and he had the opportunity to comment on its contents.

32. On 23rd September 2002 I received a short witness statement from Mr Evers which contained the following material passage:

“4. On the evening of 19th September 2002, while reviewing the First Witness Statement given by Mr Rajesh Mavji Patel on 1^st July 2002 in support of the Claimant’s application, it became clear to me that there were mistakes in paragraph 28 of that Statement. The words “or order” should not appear in the second sentence beginning “Of these, every invoice or order”. In the third sentence beginning “Mr Watts informs me that Donna Townsend has told him that she only initialled purchase orders on Mr Ives instructions”, the reference to “purchase orders”, where it appears for the first time in that sentence, should be a reference to “invoices”.”

Mr Evers exhibits an excerpt from a draft statement given by Ms Townsend to Mr Watts on 24th March 2002 and states that the mistakes in Mr Patel’s witness statement were his and not those of Mr Watts or Mr Patel. He apologises for the mistake.

33. Mr Clutterbuck, in a short additional written submission, submits that this new evidence strongly supports the Defendants’ contention that the Court cannot be sufficiently confident at this stage so as to give judgment in favour of the Claimant. I am inclined to agree. The allegations being made by the Claimant are very serious and have resulted in criminal charges. The correction of this paragraph highlights the absence of any direct evidence from Ms Townsend and the reliance that the Claimant has placed on statements made by witnesses to Mr Watts, which have been shown to Mr Patel and then incorporated in his evidence. There is no corrective statement from Mr Patel. I consider that the present state of the Claimant’s evidence on the question of the approval of invoices is less than satisfactory.
34. In my view, the above summary of key parts of the very extensive evidence that has been filed illustrates the wide range of factual issues that are in dispute in this case. I should also mention that the Defendants complain that they have not had the benefit of disclosure, that many of their papers have been seized by the police and that the documents before the Court are mainly those selected by the Claimant and its advisers.

SUBMISSIONS OF THE PARTIES

(1) The alleged arrangement

35. Mr Hunter has nevertheless argued that the evidence shows beyond doubt that the alleged arrangement on which the Defendants rely is completely fanciful. The Court is not required to suspend disbelief when faced with such evidence and it obvious that even if everything the Defendants say was true there is no defence to the claim. He relied on the analogous facts and the finding of the Court of Appeal in University College Hospitals London NHS Trust v Gahan (1999 WL 982510) where summary judgment was granted in a claim against a former employee who claimed that she had been authorised to submit invoices in her maiden name so as to obtain additional remuneration whilst drawing her income in her own name. The alleged agreement was made orally and conflicted with the express terms of her later contracts of employment with regard to the payment of overtime. However, despite the close factual analogy there is, in my view, no such easy legal answer to the defence put forward in this case.
36. Mr Hunter also maintains that the question of the authorisation of the payment of the Tristar invoices is really a non-issue because even on its own evidence the supposed arrangement with Mr Hector cannot have been legally binding on the Claimant. He contends that as a result of further information received by the Claimant in April and May 2002 following a Norwich Pharmacal application in the Isle of Man, new evidence has shown that in 1995 Mr Ives and Mr Lee opened bank accounts there. Between 8th August 1995 and 11th September 1997 they each received into those accounts £152,521.96 from another sub-contractor of Equant, Data Communications Services Limited and £83,588 from the director of another sub-contractor, Cabling Concepts Limited. During this period Mr Ives’ salary from Equant was £37,150 and Mr Lee’s somewhat less. Mr Hunter argues that the evidence shows that these payments were not drawn to the attention of Mr Hector when he made the alleged arrangement. Accordingly, even if the arrangement was lawful, it was made on a false premise as to the incomes of Mr Ives and Mr Lee and could therefore be set aside for misrepresentation or material non-disclosure. It is also pointed out that Mr Lee still has the bank account in the Isle of Man and this was not disclosed to the Court in his first response to the freezing injunction.
37. Mr Ives and Mr Lee have admitted the existence of the bank accounts and the receipt of these sums in the Isle of Man in their witness statements filed on 13^th August 2002 (Mr Ives’ fifth and Mr Lee’s third). They have identified the owner of the company making the payments as a Mr Nick Harker. It is claimed that the payments were “sales benefits” paid when this sub-contractor obtained work from the Claimant. Mr Ives and Mr Lee both insist that the receipt of these sums was notified to Mr Andy Wilson, who was the Claimant’s UK General Manager from 1993 to 1996, who indicated that he did not object provided that the payments came out of the sub-contractor’s own pocket and profits. Mr Ives states that any benefits were not dependant on the providing of contracts to Mr Harker’s companies and were “solely at Mr Harker’s discretion”. He states that such arrangements were “not unknown at [the Claimant], indeed were common practice and accepted”. Mr Lee supports this evidence and apologises for the non-disclosure of his Isle of Man bank account.
38. I have been greatly troubled by this evidence which indicates a pattern of extraordinary business activity within the cabling division of the Claimant whilst Mr Ives and Mr Lee were in charge. It is difficult to envisage how these payments could possibly be justified unless there was full and frank disclosure to the Claimant and an informed consent given to what were otherwise payments in the form of secret commissions. However, this new material is not pleaded as part of the Particulars of Claim and no recovery is sought in respect of the sums paid to Mr Ives and Mr Lee. These sums total £388,632. There is no evidence from Mr Wilson in answer to the allegations made by the Defendants.
39. For my part I am not convinced by the Claimant’s contention that non-disclosure of these matters to Mr Hector would necessarily jeopardise the arrangement made with him on behalf of the Claimant, if it were otherwise lawful. I accept that, assuming Mr Ives to be a fiduciary for these purposes, he would be obliged to make full disclosure of all material matters to his principal before he could benefit from an arrangement to his advantage of the type alleged. But the events surrounding these payments are again far from clear and, in the absence of a pleaded case on this issue, it does not necessarily follow that this information was material to Mr Hector’s alleged decision.
40. Mr Hunter also contends that Mr Ives and Mr Lee must have been aware of the restrictions on Mr Hector’s authority that would have prevented him from agreeing to the arrangement and such agreement binding the Claimant. In addition, he points to the agreed fact that the arrangement was not recorded in writing and was made over lunch in a public house. The arrangement is also said to be implausible because it resulted in two project managers eventually receiving incomes in excess of that paid to the president of a multinational company. (This last argument is not convincing because it is based on a degree of hindsight.) He makes much of alleged inconsistencies in the Defendants’ evidence, in particular the documents showing their use of nominee directors for Tristar and their instructions to the company registration agents that they would prefer to retain “total anonymity” and not to be associated with the company if anyone were to make contact. On the other hand, the Claimants have themselves produced a letter from Mr John Barducci FCCA, who was allegedly a temporary employee of the Finance Department, addressed to Mr Lee in first name terms and relating to Tristar matters. I understand that Mr Barducci is now deceased.
41. Mr Hunter accepted that he had a heavy burden to discharge in order to succeed under Part 24 of the CPR. Indeed, at one stage, recognising the reluctance of a Court to make a finding of fraud against parties in the absence of their giving oral evidence and having the opportunity to cross-examine their opponent’s witnesses, he urged me that there was no need to make such a finding in this case but that I should simply rule that there was no realistic prospect of the Defendants establishing the arrangement at trial and proving the Claimant’s consent to the payments. However, I do not consider this to be appropriate. The Claimant’s case is based on allegations of fraud and the Claimant can only succeed at this stage if the Court determines that there is no real prospect of the Defendants defending the claim of dishonesty and fraudulent breach of trust.
42. It is an essential part of the Claimant’s case (see paragraph 11 of the Particulars of Claim) that Mr Ives and Mr Lee were senior employees of Equant Cabling and fiduciaries of the Claimant. This allegation is based on the further contention that they had authority to select sub-contractors and procure the payment of sub-contractors’ invoices. These allegations are vigorously disputed in the draft Amended Defence and the Defendants’ evidence. It is admitted that they were employees and that they were trusted by the Claimant but denied that they were fiduciaries or that they had the authority to procure payment to sub-contractors. An employee unlike a director is, of course, not necessarily in a fiduciary position towards his employer. In my view, these are issues of fact which cannot be resolved convincingly at this stage.
43. Mr Hunter drew my attention to the dictum of Lord Reid in Brown v IRC [1965] AC 245 at 256G that “If a person in a fiduciary position does gain or receive any financial benefit arising out of the use of the property of the beneficiary he cannot keep it unless he can show such authority”. However, this anti other passages from the case relied upon by Mr Hunter simply serve to show the importance of proving the facts alleged, which are now so clearly in dispute.
44. Mr Clutterbuck submitted that the case was not suitable for summary judgment because of the many disputed factual issues which could only be resolved at trial. He pointed out that there was little independent evidence of fact, in that each of the Claimant’s witnesses could not properly be regarded as disinterested in the outcome of the case. The Defendants’ case was that they believed that Mr Hector had authority to enter into the arrangement and if this belief was genuine there could not be a finding of dishonesty against them. It would be unfair to decide this issue against them other than at trial. He submitted that the evidence as regards the payments indicated that someone in the Finance Department must have known of the arrangement and this factor supported its existence. Mr Clutterbuck cited the pre-CPR decision in Miles v Bull [1969] 1 QB 259 at 266C - 266D where Megarry J held that summary judgment would be refused in a case where the circumstances were such “as to require close investigation”.

(2) The Lufthansa invoices

45. As mentioned above, the Defendants contend that invoices to the value of £317,040 (excluding VAT) out of a total of £1,568,180 were for genuine work carried out by Tristar as a sub-contractor for the Claimant. The Defendants claim that the customer was Lufthansa Passage and the work carried out was for a specific project of a type that the Claimant did not wish to pursue. They have produced a letter dated 27th July 2002 from an employee of Lufthansa, one Bjorn Schultz, who is an IT infrastructure project leader at Lufthansa. The letter, which was written at the express request of Mr Lee and addressed to his solicitors, provides evidence of the work allegedly carried out by Tristar for Lufthansa as a sub-contractor of Equant.
46. Mr Hunter criticised the authenticity of this evidence which he says is clearly contrived. He points to the lack of detail of what work was done and what the end-product was. However, at this stage of the proceedings there is simply no way of dismissing what appears on its face to be an account of the arrangements made between Mr Lee and Mr Schultz for work to be carried out. In his second witness statement dated 28th August 2002 Mr Patel states that the Claimant cannot ask Lufthansa what work Tristar supposedly performed as it such a large company. He also points to the letter being on unheaded paper with no contact details for Mr Schultz. I cannot accept these arguments. On any view there is clearly a substantial conflict of evidence in respect of these particular invoices, which cannot be resolved by way of summary judgment.

(2) The claim against Magellan

47. Magellan was not a party to the Tristar arrangements but is the successor company used by Mr Ives and Mr Lee when they left the Claimant’s employment. It was never a party to the original conspiracy as it was not operated until early 2001 and only incorporated in September 2000.
48. The claim against Magellan is one of conspiracy to deceive and knowing assistance in a breach of trust. The pleaded allegation in paragraph 33 of the Particulars of Claim connects Magellan to the conspiracy involving the payments to Tristar made pursuant to the alleged arrangement, which came into existence before it was even incorporated. Mr Hunter relied upon Derby v Weldon (No.7) (1990) 1 WLR 116 at 1174E in support of the proposition that steps can be taken in furtherance of an initial fraud if they are taken to conceal and render irrecoverable profits to which a claimant asserts a claim. That may be so but it is difficult, at least at this stage, to envisage a finding against Magellan of liability in damages for conspiracy in respect of monies taken in the period prior to its incorporation or in excess of the sums whose recovery was hindered by its later conduct. I note that the sums received by Magellan from Tristar have been secured by a payment into Court pursuant to the freezing order.
49. There is a conflict of evidence as to the extent to which Magellan assisted the other Defendants to conceal from the Claimant the true facts of what had taken place. In particular, it is alleged that the offer of cost-free assistance on the Citibank contract in January 2001 was not designed to attract new business but to cover the tracks of the other Defendants. In my view this is not a matter where one can conclude that Magellan has no real prospect of defending the claim and I would therefore not grant any relief against Magellan at this stage.

(3) Another compelling reason

50. Contrary to the submission made by Mr Clutterbuck, I do not consider that there is another compelling reason why this case should be disposed of at a trial, namely that Mr Ives and Mr Lee are now the subject of criminal proceedings which are likely soon to be transferred to the Crown Court. There has been no application by the Defendants for an adjournment or stay of this hearing on the ground that this might adversely impact on the fairness of their criminal trial. Whether such an adjournment should be allowed will always be a matter for the discretion of the Court. A summary judgment application can proceed despite concurrent criminal proceedings. There is no right to silence in the context of civil proceedings. This principle was upheld by the Court of Appeal in V v C [2001] EWCA CIV 1509 where summary judgment was awarded against a defendant who, claiming the privilege against self-incrimination, declined to put in a positive defence.

CONCLUSION

51. The unusual nature of this Part 24 application is shown by the extensive evidence that has been filed before the Court. Whilst I well appreciate why this application was launched in December 2001 at a stage when the Defendants had failed to plead an adequate defence or to put forward any explanation for their conduct, the position has now changed. In my view, the evidence as it now stands on the undisputed Tristar invoices does not permit me to conclude that the Defendants have no real prospect of successfully defending this claim. I have already mentioned that I consider that there must be a trial on the invoices relating to the alleged Lufthansa contract.
52. Whilst I have considerable doubts as to the truth and accuracy of parts of the Defendants’ case (and those doubts have been strengthened by the admissions made in respect of the Isle of Man payments) I cannot regard the matters set out in the draft Amended Defence as fanciful. This is not a simple or straightforward case and in my view both sides would benefit from disclosure of relevant documents and clarification of the issues.
53. On balance, and after a careful consideration of all the matters raised by the parties, I consider that in the interests of justice the whole of this case should go to trial. This will enable the Claimant to present its full case and give the Defendants the opportunity to challenge the Claimant’s witnesses. The evaluation of the witnesses will be a matter for the trial judge.
54. In the circumstances therefore I will dismiss the application for summary judgment under Part 24. I reach a similar view in respect of the Claimant’s alternative application to strike out the Defence under Part 3.4 (2) and will grant permission to the Defendants to serve and file their Amended Defence in the form exhibited by Mr Ives. In addition, I refuse to order an interim payment under Part 25.7 as, for the reasons given above, I am not at present satisfied that the Claimant will necessarily obtain judgment for a substantial amount of money at trial to the standard required by the rule.
55. Subject to the views of Counsel, I propose to give case management directions for this matter to proceed to a trial without further delay.