England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Rolls Building, Fetter Lane, London, EC4A 1NL
		19 December 2014

See also: [2016] EWCA Civ 1004

Mr Justice David Richards:

Introduction

1. In this action Jeffrey and Peter Barnett (the claimants) seek an account and associated enquiries against their former solicitor, Stuart Creggy.
2. The claimants are brothers who were born and brought up in England. They emigrated to Canada, Jeffrey in about 1957 and Peter in about 1964. They built up a successful pizza restaurant business from the early 1960s in Canada and overseas. They sold this business in about 1982 and began a new venture of English-styled pub restaurants through Elephant & Castle Group Inc (Elephant & Castle). By 1986 they had opened restaurants in 7 cities in Canada and by about 2000 there were restaurants in 19 cities in Canada and the United States. Until 1993, the claimants were the sole owners of Elephant & Castle, together with a senior employee whose shareholding was ultimately about 12.5%. In June 1993, the shares of Elephant & Castle were listed on NASDAQ and thereafter were publicly traded. The claimants continued as directors, and retained significant shareholdings until they sold their remaining shares in about 2004.
3. Mr Creggy's practice principally consisted of establishing off-shore companies for clients and providing services to those clients in respect of depositing, investing and withdrawing funds held in those companies. Although he ceased to be a solicitor and gave up practice in 1998, he continued until at least 2002 to provide these services.
4. The claimants were clients of Mr Creggy from the mid-1970s until about 2002. Mr Creggy established two principal companies, one for each claimant. Both companies were incorporated in Liberia, with directors in Gibraltar and accounts with a number of banks in Switzerland. The shares in these companies were held in bearer form. There was therefore no visible link to the claimants but it is not in doubt that they were the beneficial owners of the companies. Funds were moved into and out of these companies' accounts. So far as the evidence in this case shows, funds were always routed either through the client account of Talbot Creggy, Mr Creggy's firm in London, or through corporate entities established for the claimants.
5. The signatories on the bank accounts in Switzerland were the two officers of the companies and Mr Creggy. All payments of which there is any evidence in this case were made on Mr Creggy's instructions. Once funds entered the corporate structures created by Mr Creggy, he gave all instructions for their movement until payments were made out of the structure to the claimants or others.
6. The purpose of these arrangements was to conceal any interest of the claimants in the funds held by the off-shore companies. The motives of the claimants in making these arrangements are not directly relevant to the issues in this case, although each of them and Mr Creggy gave some evidence on this topic. Mr Creggy does not raise any defence of illegality and, even if there was illegality involved, it did not arise under English law but under Canadian law on which there is only limited evidence. Peter Barnett's evidence was that he understood the funds would be invested in "a tax efficient way". Jeffrey Barnett's written evidence was that he considered it would provide security for the claimants and their families in retirement and as a source of working capital for their various business ventures. In his oral evidence, he elaborated on this by saying that he feared a rise in anti-semitism and wanted to have secure funds readily available. He said that this was a reason put forward by Mr Creggy. Mr Creggy denied saying any such thing and I accept his evidence. I have no doubt that the primary motive was tax avoidance, and I have no evidence on whether such avoidance was legal or not. There were additional motives, as will be seen when dealing with the arrangements with Molson Breweries.
7. Over the years substantial sums were paid by or at the direction of the claimants into the offshore structures created by Mr Creggy. Their evidence is that they kept no record of the sums transferred by them, but they believe that it was over CAD$5 million. A schedule produced for the purpose of the trial on behalf of the claimants lists for the period 1985-2002 sums totalling over CAD$3.28 million, US$2.27 million and £906,504. These funds were not for the most part paid by the claimants personally but by companies under their control, in particular Elephant & Castle, or by companies with which they had some association or arrangement.
8. Very substantial sums were paid out of the corporate structures for a wide variety of purposes, on the instructions of the claimants. The schedule produced by the claimants shows authorised payments totalling approximately CAD$1.81 million, US$2.45 million and £418,000.
9. Relations between the claimants and Mr Creggy deteriorated after Mr Creggy transferred funds totalling approximately US$1.2 million from the claimants' companies to a Maltese lawyer, Dr Patrick Spiteri, from whom the claimants have never recovered any funds. I will give more detail of this transfer later. The claimants say that it was made without their knowledge or authority. They do, however, accept that they became aware of it during 2001.
10. The claimants believe that substantial sums paid at their direction to Mr Creggy over the years are unaccounted for. They therefore seek an order for an account against Mr Creggy. They also seek equitable compensation in respect of the transfer of funds to Dr Spiteri.

The course of the proceedings

11. The proceedings were not issued until 2012, which, as well as giving rise to limitation defences, affected the quality of the evidence available.
12. The trial took place in May 2014. I circulated a draft judgment in late September 2014, with 3 October 2014 fixed as the date for handing down judgment. At that hearing Mr Lundie on behalf of Mr Creggy for the first time raised an argument based on the reflective loss principle as set out in Johnson v Gore Wood & Co [2002] 2 AC 1. Mr Thompson was understandably not in a position to deal with this submission immediately. As it appeared to be a submission of law going to the power of the court to award compensation against Mr Creggy in the circumstances of this case and not requiring further evidence, I considered it right to deal with the submission and Mr Thompson did not object. I accordingly adjourned the hearing without handing down judgment. A further hearing took place on 17 November 2014. This judgment takes account, in the section below headed Reflective loss, of the submissions made on that occasion.

Evidence

13. The parties were the principal witnesses. Mr Creggy's former secretary from August 1995 to late 2000 was called by the claimants but her evidence, honestly and clearly given, did not add very much.
14. The claimants and Mr Creggy are all in their late 70s, and were trying to recall events which occurred between 10 and 30 years ago. Not only that, but each of them has been very seriously ill – Mr Creggy in 2000-01, Jeffrey Barnett in 2001 and Peter Barnett in 2011. These illnesses have affected their memory of events. This is particularly so in the case of Peter Barnett, whose recollection was very limited indeed. These factors may well have caused, or significantly contributed to, the numerous inconsistencies in the evidence of Jeffrey Barnett and the very guarded way in which Mr Creggy gave his evidence.
15. None of the parties has an unblemished reputation. Not only did the claimants conceal large sums in the offshore structure created by Mr Creggy for no obviously legitimate purpose, but their dealings with Molson Breweries showed their willingness to receive very large sums which were illegally paid under Canadian law and which, if they could have been made at all, should have been made to Elephant & Castle, which was by then a publicly listed company. I found it revealing that Jeffrey Barnett should describe the receipt of sums totalling £650,000 as "a perk".
16. As well as running a practice whose sole purpose was to enable his clients to conceal large funds in offshore locations, Mr Creggy was convicted in 2007 of money-laundering offences, for which he received a suspended term of imprisonment of 18 months and a fine of £900,000. The charges and offences were unconnected with the claimants.
17. The documentary evidence is far from complete. The evidence discloses that there was a significant amount of written correspondence between the claimants and Mr Creggy but the claimants have not retained much of it. Their disclosure ran to about 470 pages of documents.
18. A very large number of files were seized at the offices of Talbot Creggy in June 1998 by the National Crime Squad, now called the National Crime Agency, (NCA) in connection with an investigation into suspected boiler room fraud, not involving Mr Creggy. Five pallets of documents, each measuring 5ft wide, 5ft long and 4ft high were taken. Some of the documents were returned in June and August 2013 by the NCA to a partner in the successor firm to Talbot Creggy. Those documents which appeared to relate to the claimants and their offshore companies were subsequently provided to them. Those documents were in 9 trial bundles, presented in the order and in the files handed over by the NCA. (I have to say that the presentation of documents in this way did not assist the trial or the preparation of this judgment.) Further disclosure was sought against the NCA which resulted in the production of 116 further documents. Mr Creggy gave evidence that the NCA also carried out raids in June 1998 at his premises in St John's Wood, London and in Brighton.
19. It is almost certain that the documentation which had been held by Talbot Creggy is significantly incomplete. Mr Creggy himself gave very limited disclosure. It is to be expected that his papers and files relevant to the period until he left Talbot Creggy in January 1998 were with Talbot Creggy when the firm was raided. He has not retained much documentation for the period after that time when he continued to act for the claimant and other clients. It should be noted that he stopped acting for the claimants in about 2002, but these proceedings were not issued until 2012.
20. These deficiencies in documentation and in the parties' recollections have two significant consequences. First, it obviously makes the fact-finding exercise more difficult, both at this trial and in the proceedings which would follow an order for an account. Secondly, it is very unlikely that on taking an account there will be much, if any, evidence which has not been available at this trial.

Dealings between the parties

21. I turn now to look in more detail at the evidence of the dealings between the parties.
22. Although it appears that the claimants and Mr Creggy knew each other, though not well, as children in London, there was no contact between them until by chance Mr Creggy and Peter Barnett met in Israel in 1970 or 1971. Mr Creggy and both claimants met again in Vancouver a year or so later. They discussed each other's businesses. The claimants asked Mr Creggy to act for them in holding funds outside Canada.
23. Mr Creggy had meetings with the claimants, or perhaps separate meetings with each of them, to make the initial arrangements, including setting up a company for each of them. Pound Investments Limited (Pound) was established for Jeffrey Barnett and Glacier Investments Limited (Glacier) for Peter Barnett. They all remember that the claimants chose the names for their respective companies. The claimants deny that they knew they were Liberian companies but, whether or not that is so, the important point for them was that they were offshore companies which could not be traced back to them.
24. Pound and Glacier played a central role in the corporate structure set up by Mr Creggy for the claimants. They were, as their counsel Mr Thompson said in opening, the central hub for investment and for bank accounts for the claimants. There is a very significant amount of evidence of payments being made to and from the Swiss accounts of Pound and Glacier. I find that, while there may have been some exceptions, the bulk of funds received by Mr Creggy or his firms, or by other off-shore companies established for the claimants, were paid on to Pound and Glacier.
25. The claimants gave evidence in their witness statements that Mr Creggy would hold funds for them and invest the funds on their behalf. They say that he said that if they allowed him to invest on their behalf he would double their income within 7 years. Mr Creggy denied that he ever said that he could double their income, or their funds, within 7 years or that he would in effect act as their investment manager. I accept Mr Creggy's evidence on this. The course of dealing shown by the evidence is not one of investment management, as counsel for the claimants indeed accepted, but of funds being held by Swiss banks pending instructions from the claimants as to their application. I do not accept Jeffrey Barnett's evidence that the claimants remitted money to Mr Creggy "without any thought as to how and where it would be held." I find that they took a keen interest in their funds and the banks at which they were held. They frequently requested and received up to date balances, often described as "telephone numbers" in order to conceal their true significance. In the early 1980s, Jeffrey Barnett visited the banks in Switzerland which held accounts for their companies.

Payments to Talbot Creggy or the off-shore companies

26. There is no evidence relating to the parties' dealings in the 1970s and early 1980s. The evidence starts in 1986 when Elephant & Castle won a contract for an official restaurant at the British pavilion at the EXPO World Trade Fair in Vancouver. It was profitable and, according to Jeffrey Barnett's evidence, the claimants remitted approximately CAD$1 million to Mr Creggy.
27. Another company owned by the claimants, Ole Cantina Inc, ran a bar and restaurant in the Mexican pavilion, which was also successful. Jeffrey Barnett states that, as with Elephant & Castle, the claimants "devised a means to remit" profits from that business to Mr Creggy, involving he thinks about CAD$250,000. When asked in cross-examination where the figure of CAD$250,000 came from, he replied that they sent about CAD$10,000 per week but there is no other evidence of this. Mr Creggy recalled that sums in Canadian dollars were remitted but could not remember their amount or whether they were significant.
28. There is clearer evidence of some sums being remitted to a company established on the claimants' instructions, called Hospitality Marketing Limited (Hospitality). Advertising and other revenue generated from British companies were not paid to Elephant & Castle, which paid the relevant costs, but to Hospitality. The claimants have disclosed a few invoices and other documents evidencing payments totalling £25,500 to Hospitality but are unable to provide further evidence to substantiate a figure as large as the CAD$200,000 suggested by Jeffrey Barnett.
29. As the onus would be on the claimants, if an account were ordered, to establish the sums paid by them or at their direction to Mr Creggy or his firms, it is important to note here that the only evidence in support of the claimants' case that over CAD$1.45 million was paid at their direction in or about 1986 is their own recollection now over 25 years later. By looking at sums subsequently paid out on their instructions, it may be possible to determine a minimum figure paid in by them, but it is far from clear that it was as much as now claimed.
30. Apart from the repayment of some of the loans referred to below, the only further substantial payments into the off-shore companies of which there is evidence were made by a UK subsidiary of Molson Breweries, a leading Canadian brewery. There is clear evidence of annual payments made in 1992, 1993, 1994 and 1996. The payment in 1992 was CAD$150,000 and the others, totalling £313,487, were each in an amount of or close to £80,000. Each payment was made, on the claimants' instructions, to a separate off-shore company established by Mr Creggy for the claimants and, on the claimants' instructions, invoices were issued by each of those companies for services which were not in fact provided by them.
31. The claimants maintain that a similar payment was made in 1995 and, while there is no direct evidence of it, I did not understand Mr Creggy to dispute this. He did, however, dispute the claimants' suggestion that further similar payments were made in 1997, 1998 and 1999. There is no documentary evidence of any such payments and, unlike the payment made in 1995, they would not fall into a sequence of regular payments. There is no substantial evidence to support the allegation of these further payments, although presumably an attempt could have been made to obtain evidence from the UK subsidiary of Molson Breweries which is said to have made the payments. I am not persuaded that these further payments were made.

Payments to and from Carlton Agencies Limited

32. Between October 1988 and February 1990, a company called Carlton Agencies Limited (Carlton) was used for the receipt and payment of funds. Elephant & Castle paid or directed the payment of sums totalling £327,517 and CAD$62,523 to Carlton. Jeffrey Barnett's written evidence was that Mr Creggy instructed the claimants to send the funds to Carlton, which he assumed was "another company owned and controlled by Stuart Creggy and used by him as a vehicle for receiving and holding funds from his clients". He goes on to say that while the claimants generally intended that Mr Creggy would hold funds remitted to him for a long period, it was convenient for him to make payments on their instructions to third parties.
33. A substantial amount of documents concerning Carlton were returned by the NCA. They show that Jeffrey Barnett was actively involved in giving instructions for the distribution of funds and for the issue of invoices by Carlton. The schedule prepared by the claimants for the trial show payments into Carlton of the sums referred to above and payments out of almost £128,000 to suppliers and other third parties in the UK. A sum of US$5,000 was paid to Peter Barnett. The documents also show instructions being given by Jeffrey Barnett and acted on by Mr Creggy in February 1991 for the balance of funds then held by Carlton to be remitted to Elephant & Castle as part of a loan totalling CAD$300,000. It appears from the evidence, as Jeffrey Barnett accepted, that the disposition of funds from the bank accounts of Carlton was controlled by the claimants.
34. The evidence shows that for all practical purposes all the funds paid to Carlton were disbursed in accordance with the claimants' instructions.

Payments from the off-shore companies authorised by the claimants

35. The evidence establishes that a significant number of substantial payments were made out of funds held by Pound and Glacier and other off-shore companies incorporated by Mr Creggy for the claimants.
36. As well as the loan of CAD$300,000 to Elephant & Castle, repaid with interest in March 1991, the claimants instructed Mr Creggy to arrange a loan of US$600,000 from funds held in their companies to Elephant & Castle in mid 1990. On 31 August 1990, the claimants authorised its repayment with interest by 50 monthly instalments of US$15,307.64.
37. In January 1991 Jeffrey Barnett instructed Mr Creggy to make a loan of US$200,000 out of funds held for him to David Matheson, a business contact of Jeffrey Barnett. Repayments of the loan with interest totalling US$327,880 were made between 1990 and 2002.
38. In November 1990 and April 1991, Peter Barnett gave instructions for loans or other investments to be made for a business venture proposed by a Richard Tarling. Between November 1990 and March 1995, sums totalling just over £92,000 and Aus$77,000 were paid to this business venture and by way of personal loan to Mr and Mrs Tarling. None of it has been recovered.
39. In February 1993, Jeffrey Barnett invested US$1 million from the funds held in the off-shore companies in bonds issued by a company called Pacific Enterprises (USA) Inc. Contrary to Jeffrey Barnett's evidence this was not made on Mr Creggy's advice but at his own initiative. It proved to be very unsatisfactory but, with Mr Creggy's assistance, repayment in full was made in June 1993.
40. In February 1994, on the claimants' instructions, a loan of CAD$650,000 was made from the funds held by Pound and Glacier to a Canadian company owned by the claimants called Inter Provincial Investments Limited (Inter Provincial). It was routed through a company established by Mr Creggy for the claimants called Lansdowne Investments Limited. The available evidence, as summarised in the claimants' schedule, shows that between March 1994 and September 2001 a total of CAD$378,950 was paid by Inter Provincial in monthly instalments of CAD$7,150 but there are only a small number of instalments in the period 1994-1997. It might be expected that Inter Provincial's own records would provide evidence of its payments, but the claimants have been unable to produce any records from it.
41. In 1995, on the claimants' instructions, loans of CAD$350,000, CAD$85,000 and US$275,000 were made in business ventures in the United States through an off-shore company called Morton Investments Limited, established by Mr Creggy for the claimants. These loans were fully or partially repaid with interest in 1995-1997. In December 1996, a further business loan or investment of CAD$200,000 was made on the claimants' instructions in a business called Dine One Rewards, through an off-shore company called Purcell Investments Limited, which was likewise established for the claimants by Mr Creggy. This investment was a failure and was never repaid.
42. In August 1997, on the claimants' instructions, Pound paid US$150,000 to a company in Vancouver, Conrad International Financial Corporation, for the purchase of shares in a company called Optigo International. This investment was not successful and the sum of US$150,000 was not repaid.
43. These various transactions are significant for present purposes for three principal reasons. First, they demonstrate that the claimants were closely and actively involved in dealing with the funds held in the off-shore companies. Mr Creggy was acting on their instructions. Secondly, the pattern generally was that the payments were routed from Pound or Glacier through further off-shore companies established by Mr Creggy for the claimants. Thirdly, the claimants saw the funds held in the off-shore companies as available for investment in high risk ventures on a substantial scale. This was not a case where the funds were simply to be squirrelled away in Switzerland and left to accumulate through investment in low risk bonds or bank deposits.

Dealings alleged by the claimants to be unauthorised

44. The evidence discloses a number of dealings with funds held in the off-shore companies which the claimants allege were unauthorised. On the evidence available, I feel able to make findings as to whether some, but not all, of these dealings were authorised.
45. Part of the funds held by Pound was subject to a discretionary management agreement made in 1993 with Republic Bank of New York. Mr Creggy instructed the managers to adopt an "aggressive" approach to investment. The size of the fund in 1999 was US$228,000. The claimants allege that this management agreement was made without their knowledge or consent and that they would not have agreed to an aggressive investment policy, given that they had asked that the funds be invested in safe bonds and bank deposits. Mr Creggy's evidence was that he would not have caused this investment management agreement to be made on the basis of an aggressive investment policy or any other investment policy, without the agreement of the claimants.
46. I accept Mr Creggy's evidence. I can see no plausible reason why Mr Creggy should have made this arrangement without authority, nor was a plausible reason put to him. The only suggestion was that it was intended to make good an alleged assurance said to have been given many years earlier that Mr Creggy could make a lot of money for the claimants, an allegation which I have earlier rejected. Moreover, the various substantial investments made by way of loan or otherwise, which clearly were made on the claimants' instructions, show that they were perfectly prepared to commit to high risk investments.
47. A Liberian company called Inter-Provincial Investment Corporation (IPIC) was incorporated in early 1994 on Mr Creggy's instructions as a company to be owned by the claimants, as the contemporaneous documents record. In September 1994 IPIC lent £105,000 to a company called Stargrove Properties Limited (Stargrove), secured on a property, Newton Court in London W1. Stargrove was beneficially owned by Mr Creggy. In October 1994 Mr Creggy was in correspondence with a bank as regards a possible sale of Newton Court to IPIC for £150,000. In a letter dated 14^th October 1994 to the bank, Mr Creggy stated that he would be "seeing the Beneficial Owners in America". Mr Creggy met Jeffrey Barnett in Florida and reported back to the bank on 3^rd November 1994 that he had returned from the United States and that "this matter is not proceeding at present". Thereafter interest was paid to IPIC, at least in 1995-1998 by Stargrove. A further legal charge securing £158,400 in favour of IPIC was granted on 26^th March 1996.
48. The claimants say that these transactions were made without their knowledge or authority. Mr Creggy says that he discussed them orally, as was often the case, and he acted on instructions. None of the parties has any clear recollection of discussions in the 1990s but, on balance, I consider it more likely than not that Mr Creggy did discuss these matters with one or both of the claimants. The documents are clear that the claimants were the beneficial owners of IPIC and Mr Creggy was entirely open with the bank that he was the beneficial owner of Stargrove. None of this suggests that Mr Creggy was acting in an underhand way and there is no obvious reason why he should not have sought the claimants' agreement to the loan or loans. At that time they were on very good terms with Mr Creggy and there is no reason why they should not have agreed to the loan for relatively modest amounts at a good rate of interest and secured on the property.
49. Jeffrey Barnett draws attention to two transfers of CAD$494,827 and US$298,352 in May 1994 from Pound to Euro Management Corporation Limited (EMC), a company of which he says he knew nothing. It would, however, appear that EMC was used as a party for the claimants' investment in Mr Tarling's earlier business venture in Australia. There is no evidence of the circumstances or purposes of these transfers, but on the whole, in the light of other substantial payments that were authorised and the use of EMC in the Tarling investment, I consider it unlikely that they were made without the claimants' authority, and I so find.
50. Jeffrey Barnett identifies from the documents a sum of £35,000 paid on Mr Creggy's instructions by Pound to a trust company in Geneva called Eaton Trust Limited in August 1997, which he says was unauthorised. Mr Creggy's instructions to the bank were given in a letter dated 26^th August 1997 in which he also gave instructions for the payment of US$150,000 to Conrad International Finance Corporation which were indisputably given with Jeffrey Barnett's authority. On the same day, Mr Creggy wrote to Jeffrey Barnett, saying that "All matters have been attended to" and "I have notified the proposed beneficiaries of the funds". This is consistent with Mr Creggy acting on Jeffrey Barnett's instructions as regards the payment to Eaton Trust Limited but the matter is not clear cut.
51. The claimants point to a number of other payments which they say were unauthorised. First, payments totalling $70,000 were made to a company called Euro Management (Suisse) SA by Pound and Glacier on 23^rd October 1997. Secondly, in June 1996 Pound made a bridging loan of £60,000 to an English company called Starchance Limited owned by a long-standing friend of Mr Creggy, Tony Aston. It was secured on the property being purchased and guaranteed by Mr Aston, with interest at a high rate. Thirdly, Jeffrey Barnett questions two payments totalling US$25,000 made on Mr Creggy's instructions while he was in Florida in July 2001.
52. A more substantial item are the fees received by Mr Creggy or his firms for his services. The available evidence indicates that they amount in total to some £340,000. Mr Creggy does not challenge this figure and regards it as a reasonable amount for the services which he provided over a long period. He said that he agreed fees with the claimants whenever he finished a particular transaction. The claimants say that it was agreed that Mr Creggy should be paid an annual retainer of a reasonable amount. There is no evidence of any particular amount being agreed and, in answer to a question from me, Jeffrey Barnett said that he thought a retainer of about £8,000 to £10,000 pa would have been reasonable. I cannot at this stage determine the correct position as regards the entitlement of Mr Creggy or his firms to fees.

Transfer of funds to Dr Spiteri

53. At the end of July 1998, Mr Creggy gave instructions for the sums held in the Swiss bank accounts of Pound and Glacier, as well as funds held by him personally in Switzerland, to be transferred to a lawyer in Malta, Dr Patrick Spiteri. Mr Creggy says that Dr Spiteri was the senior partner of "one of the most respectable law firms in Malta" and had a reputation as an expert in international finance and taxation. Mr Creggy says he had been introduced to Dr Spiteri by the Minister of Justice of Malta, Dr Charles Magnion.
54. The reason for these transfers given by Mr Creggy in his evidence is that earlier in 1998 he had acquired a Swiss visa which allowed him to work in Switzerland, but he was later advised that as a result any bank account of which he was an authorised signatory "would become subject to the Swiss Revenue".
55. There is no contemporaneous record of the amounts transferred but an e-mail dated 20 December 2001 from Dr Spiteri's office records that Pound and Glacier then held US$1,192,836 and US$23,675 respectively.
56. The claimants say that they had no knowledge of Dr Spiteri or the transfer of funds to him until 2001, when Peter Barnett began making inquiries about the whereabouts of the funds. Beginning in about October 2001, the claimants were in contact with Dr Spiteri but never succeeded in recovering any funds from him. It seems that Mr Creggy also encountered difficulties with Dr Spiteri as regards his own funds and brought proceedings for their recovery.
57. Mr Creggy says that he believes that the claimants authorised the transfer and, in his witness statement, he relies in any event on what he says was a general authority to deal with these monies as if they were his own. This contrasts with his evidence generally that he always acted on instructions from the claimants.
58. The claimants also say that the transfer was imprudent and a breach of Mr Creggy's duties as signatory of the bank accounts of Pound and Glacier.
59. In my judgment, the claimants are correct in their contention that the transfers were unauthorised and a breach of duty on the part of Mr Creggy. It is for Mr Creggy to establish that he was authorised to make the transfers and, in my judgment, he cannot do so. I am not satisfied that he obtained the claimants' agreement to the transfers, before or after they occurred.
60. I will consider later the precise position and duties of Mr Creggy as a signatory to the off-shore companies' accounts, but at this stage it is enough to say that he owed duties of care and good faith to the claimants in the exercise of his powers as signatory and that it was a breach of duty to make these transfers without authority and to a person unknown to the claimants. Such information as was available about Dr Spiteri was clearly inadequate to qualify him as a suitable custodian of these funds.

Later payments

61. After the transfer of funds to Dr Spiteri, further payments were made for the claimants to a firm (T. Thornton & Co) and a company (Queen Anne Street Registrars Limited) through which Mr Creggy was operating. He also, on the instructions of the claimants, made payments from these funds. The total amount received by him between August 1998 and the last payment, in October 2001, was CAD$300,362 and US$80,000, while the total disbursements apparent from the evidence were CAD$200,690 and US$10,000. In addition, Pound continued to own the investments which were subject to the discretionary management agreement referred to earlier in this judgment.

The equitable remedy of an account

62. An order for an account may be made against a person who holds or has held money or other property for another in a fiduciary capacity, most obviously as a trustee. It is the means by which the beneficial owners of the fund can ascertain the manner in which the fund has been administered and applied, and it may provide the basis for proceedings to recover trust property or for personal remedies against the trustee or others.
63. It is a discretionary remedy which will be ordered if the circumstances of the case warrant it.
64. If an account is ordered, the procedure is summarised in Snell's Equity at 20-014:

"The accounting party first submits his verified accounts and supporting documents, and the beneficiary may then raise any specific objections he may have. Objections to an account presented to the court as complete are either by way of surcharge or falsification. The beneficiary surcharges the account when he contends that the accounting party should have charged himself on the incoming side of the account with more than he had admitted. The beneficiary falsifies the account when he challenges an item of discharge entered into the outgoings side of the account."

65. As to the burden of proof, the beneficiary must prove surcharges, i.e. the payment of funds to the accounting party, while the accounting party carries the burden of proving that his application of funds was proper and authorised.
66. Mr Lundie, appearing for Mr Creggy, submitted that the claimants could not seek an account unless they could establish that they were the legal or beneficial owners of the funds paid over to Mr Creggy. As I have already mentioned, the funds for the most part did not come from the claimants but from companies under their control, particularly Elephant & Castle, or other parties. A requirement that they were legally or beneficially entitled to the funds might well pose a significant challenge to the claimants in this case. But, in my judgment, there is no such restriction on the jurisdiction to order an account and Mr Lundie did not cite any authority in support of it. If a party (A) receives funds on the basis that he will hold them for the benefit of another party (B), I see no reason in principle why B should not be entitled to an account, even though he in turn will be accountable to another person (C). The claim of C may well be disputed, but there is no reason to delay an account as between A and B while that other dispute is resolved. Further, A would have no duty to account to C, if he did not have notice of C's rights to the funds and of B's lack of authority to deal with them, but that should be no bar to an order for an account against A on B's application. This would in turn facilitate the enforcement of C's rights.

Should an account be ordered?

67. As to whether an account should be ordered and, if so, in respect of what period, issues arise as to both jurisdiction and discretion.
68. As regards jurisdiction, the issue is whether, in respect of any particular period, Mr Creggy was holding funds or exercising powers in a capacity which renders him amenable to an order for an account.
69. The case pleaded by the claimants is that Mr Creggy was a trustee of the funds paid to him by them or on their behalf. It is said that the claimants made clear that he was to keep control of the money and to act as a trustee of it. All sums received by him were upon receipt held by him on an express, alternatively a resulting, trust for the claimants and, to the extent that he passed legal title in such money to third parties, they held the money on trust for Mr Creggy who held it on sub-trust for the claimants. Mr Creggy was accordingly a trustee of the funds and accountable as such.
70. This pleaded case does not in my judgment accurately describe the relationship between the claimants and Mr Creggy. It is vital for these purposes to analyse the manner in which funds were held. The structure agreed with the claimants was that funds would be held in Swiss bank accounts in the names of off-shore companies incorporated for the claimants. The shares in those companies were in bearer form and were held for the benefit of the claimants.
71. Funds provided by or for the claimants were paid, often to the client account of Talbot Creggy, so that they could be paid into and held, pending further application, in the Swiss bank accounts of the off-shore companies. Until the transfer of funds to Dr Spiteri in July 1998, I am satisfied that full effect was given to these arrangements and all sums were paid into accounts of the off-shore companies. The funds were not, save while passing through Talbot Creggy's client account, held by Mr Creggy as trustee for the claimants nor were the funds in the Swiss bank accounts held on trust for Mr Creggy as trustee for the claimants.
72. There was exploration in the course of the oral evidence as to whether, in addition to owning the off-shore companies, the claimants were themselves the beneficial owners of the funds held in the Swiss bank accounts. This was an issue left open on the statements of case and was specifically raised by Mr Lundie in his opening on behalf of Mr Creggy. It is fair to say that the claimants found it difficult to see the difference. Their view was that if they owned the companies, as they did, they also owned the funds. As a broad commercial matter, as opposed to a legal matter, that was no doubt true. The companies had no liabilities and the claimants as the sole owners of the companies could direct the application of the funds as they saw fit. But I am satisfied that the funds were, as was intended, the property of the companies. The funds, and any income or other return on them, did not in law belong to the claimants. There was no evidence, for example the claimants' Canadian tax returns, to show that the income of Pound and Glacier was treated as the income of Jeffrey Barnett and Peter Barnett respectively. It is impossible to see that a pure nominee relationship would achieve anything beyond a simple cloak of deception.
73. Funds held in the bank accounts of Pound, Glacier and other off-shore companies were therefore legally and beneficially held by those companies. They were not held by Mr Creggy. He was not a trustee of those funds. He had a power to control the disbursement of funds by virtue of being an authorised signatory on the accounts. He owed fiduciary duties in respect of the exercise of his powers as a signatory and would be liable for any misuse by him of those powers. He was in a similar position to a director of a company having powers of disposal of the company's funds or other assets.
74. Claims for breach of duty will lie against directors in respect of the misuse of their powers, just as such claims would lie against Mr Creggy, but an order for an account does not lie against them, precisely because they are not trustees of the funds. An equitable account is, of course, available against a director in respect of the company's funds received by him, but I am not aware that it has ever been suggested that an order for an account in equity can be made against a director or similar agent in respect of funds held not by himself but by the company or his principal. An account is an appropriate remedy against those who hold funds, not against those who hold powers of disposal of funds vested in their principal. Equity has very extensive powers in such cases to require directors and others in similar positions to provide information as to their dealings, but an order for an account, imposing on the trustee the onus of establishing that any disposition of funds held by him were proper, is not available.
75. It follows that the remedy of an account is not available against Mr Creggy as regards the funds held in the bank accounts of Pound, Glacier and other off-shore companies. Mr Creggy can be liable for any misuse by him of his powers of disposal of those funds as an authorised signatory. It might be a fine question whether he held the power solely on behalf of the companies, as owners of the relevant funds, or also on behalf of the claimants from whom he took his instructions. In my view, it was both. Although ordinarily the power would be held for the companies, in this case Mr Creggy and the claimants were in a relationship of solicitor and client and he held his powers as signatory by virtue of his position as solicitor to the claimants. If he misused the power so as to cause them loss, he could be liable to them, subject to appropriate protection against double recovery against him. In view of the absence of any liabilities in the companies and the claimants' ownership of the companies, the amount of any loss suffered by the claimants would on the face of it be the same as the amount of loss suffered by the companies. The evidence suggests that Pound and Glacier have been dissolved and, in any event, the prospect of any claim being made by any of the off-shore companies against Mr Creggy is so small as can for all practical purposes be discounted.
76. An order for an account could be made against Mr Creggy as regards the funds held in the client account of Talbot Creggy. There would however be no point in this. It is clear from the evidence, as I have already mentioned, that funds paid to Talbot Creggy were, as was intended, passed on to the off-shore companies.
77. In any event, and even if an order for an account could be made against Mr Creggy as regards funds held in the off-shore companies, the circumstances of this case are in my judgment such that it would not be appropriate to do so.
78. As I have already stated, the claimants are unable to establish that any funds were paid over by them or at their direction beyond those shown in their schedule, and they cannot even establish all of those. It is clear from the evidence that substantial sums were paid out on their instructions, and significant amounts were not repaid.
79. Because of the uncertainty of the amounts paid over at the claimants' direction, particularly in 1986, it is impossible to arrive at precise figures but overall the conclusion is inescapable that taking account of the disposal of funds indisputably authorised by the claimants, the bulk of the funds that remained were paid to Dr Spiteri in 1998. The only exceptions are those payments disputed by the claimants, to which I have earlier referred. The most significant of these items are the fees retained by Mr Creggy. The Claimants do not need an order for an account to make claims against Mr Creggy in respect of these fees and other payments. They have the information available to enable them to do so. The same is true of the investment portfolio subject to discretionary management which was still held for Pound after the transfer of funds to Dr Spiteri, which was liquidated on Mr Creggy's instructions.
80. The question remains whether an account should be ordered in respect of funds received by or to the order of Mr Creggy after July 1998. The evidence establishes that funds were paid into accounts with Thornton & Co and Queen Anne Street Registrars Limited after that time, to be held to the order of Mr Creggy for the claimants. There is no evidence to suggest that any of these funds were paid to offshore companies owned by the claimants. The claimants accept that they authorised some payments out of these funds, but that leaves sums unaccounted for.
81. It was submitted for Mr Creggy that any claim for an account was time-barred. As the purpose of an account is to obtain an order for payment in respect of unspecified breaches of trust, to which a six-year limitation period applies under section 21(3) of the Limitation Act 1980, so also must be the claim for an account. Reliance was placed on section 23 which provides:

"An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account."

82. Section 23 would not appear to apply to a beneficiary's claim against a trustee for an account in equity, as it is a free-standing remedy which is not based on any other claim: see Attorney-General v Cocke [1988] Ch 414, Lewin on Trusts (18^th edition, 2008) at 44-41, Underhill & Hayton: Law of Trusts and Trustees (18^th edition, 2010) at 94.32. Nonetheless, as observed in Lewin, a trustee cannot be deprived of a limitation defence otherwise available to him merely because the beneficiary seeks an account. If it is clear that all claims against the trustee would be time-barred, and an account would serve no other useful purpose, the court will not order an account: see How v Earl Winterton [1896] 2 Ch 626.
83. However, in the present case, some of the funds received by Mr Creggy from the claimants after 1 August 1998 remain unaccounted for. It is entirely possible that Mr Creggy has retained some of these finds or converted them to his use, and there is no limitation period for a claim to recover such sums from Mr Creggy. The taking of an account will, or may, show whether this is the case.
84. Accordingly, limitation does not provide a defence to a claim for an account in respect of sums received by Mr Creggy after 1 August 1998.
85. In my judgment, it is right to order an account of all sums paid by the claimants or at their direction to Mr Creggy (or to Thornton & Co or Queen Anne Street Registrars Ltd) for the period after July 1998. Not only can an order for an account properly be made against Mr Creggy in respect of that period but it may serve a useful purpose. Relevant evidence may still be obtainable in respect of the funds which remain unaccounted for.

Relief in respect of the payment of funds to Dr Spiteri

86. The question arises as to whether any relief should at this stage be ordered in respect of the funds paid to Dr Spiteri.
87. The relief sought in the claim form is an account and an inquiry into the whereabouts of the money received from the claimants "and in particular the circumstances of the transfer of money to Dr Spiteri". The particulars of claim seek an account and inquiries and other relief, including "equitable compensation for the Defendant's breaches of trust". The particulars of claim specifically plead that the transfer to Dr Spiteri was a breach of trust and a breach of Mr Creggy's duty of care and skill, and that Mr Creggy is liable to account or to pay compensation for the money paid to Dr Spiteri. This was directly addressed by Mr Creggy in his Defence.
88. The opening of counsel for the claimants raised as issues for the trial whether the payment to Dr Spiteri was authorised by the Claimants and whether a defence of limitation or laches was available to Mr Creggy in respect of such payment. These issues were addressed by both parties in submissions and in the evidence.
89. In these circumstances, it appears to me appropriate to decide now the relief, if any, to which the claimants are entitled in respect of the payment to Dr Spiteri.
90. I have decided earlier in this judgment that the payment to Dr Spiteri constituted a breach by Mr Creggy of his duty to the claimants. Their loss was the amount paid to Dr Spiteri. Mr Creggy in his witness statement accepts that the amounts transferred were US$1,192,836 from Pound and US$23,675 from Glacier and, on the evidence available which is unlikely to be supplemented, I find that they were the amounts which were so paid.
91. It follows that the claimants would be entitled to orders against Mr Creggy for compensation in these amounts, unless either the reflective loss principle applies or the limitation defence is well-founded.

Reflective loss

92. The reflective loss principle has been extensively discussed in a number of authorities but for present purposes it may be summarised as follows. Where a person acts in breach of duties owed separately to both a company and a shareholder, the shareholder will not be entitled to recover for loss which is merely reflective of the loss suffered by the company, ie a loss which would be made good if the company enforced in full its rights against that person. The principle is not rooted simply in the avoidance of double recovery, but extends to loss which the company could have claimed but has not done so. See Giles v Rhind [2001] 2 BCLC 582 at [27] per Blackburne J, approved by the Court of Appeal in Gardner v Parker [2004] EWCA Civ 781, [2004] 2 BCLC 554 at [33] and in Webster v Sandersons Solicitors [2009] EWCA Civ 830, [2009] 2 BCLC 542 at [36] – [37].
93. Mr Lundie submits that this principle is directly applicable to the circumstances of this case. The funds transferred to Dr Spiteri were the beneficial property of Pound and Glacier. In causing those companies to transfer the funds, Mr Creggy acted in breach of duty to those companies, and also, as I have held, in breach of duties separately owed by him to the claimants. The loss to the claimants simply reflects the loss suffered by the companies. If the companies were to recover full compensation for their loss, the loss to the claimants personally would have been made good. While the prospects of any recovery now by the companies is remote or non-existent, since both companies have been dissolved under Liberian law and any relevant limitation period would appear to have expired, this does not affect the application of the underlying principle. In this connection, it may be noted that the companies were not dissolved for some years after the claimants became aware that the funds had been transferred to Dr Spiteri without their consent or authority.
94. Mr Thompson submits that the facts of this case come within the exception to the general principle against the recovery of reflective loss established by the Court of Appeal in Giles v Rhind [2002] EWCA Civ 1428, [2003] Ch 618. The exception applies where the company could not sue for its loss, because of the very wrongdoing of which complaint was being made by the shareholder: see Gardner v Parker at [57] and Webster v Sandersons Solicitors at [34] and [38]. In Giles v Rhind, not only had the defendant caused the impecuniosity of the company but he had frustrated proceedings by the company against himself by successfully applying for security for costs, which by reason of such impecuniosity the company was unable to provide. I think it clear, at least from the later cases discussing the exception established by Giles v Rhind, that the second feature, a successful application by the wrongdoer for security for costs, is not essential for the existence and application of the exception. While this exception has been the subject of criticism by Lord Millett NPJ, sitting in the Court of Final Appeal in Hong Kong, in Waddington Ltd v Chan Chun Hoo [2008] HKCFAR 370, the decision of the Court of Appeal in Giles v Rhind is binding as a matter of English law: see Webster v Sandersons Solicitors.
95. Mr Thompson submits that the transfer of funds to Dr Spiteri disabled the companies financially from being able to pursue remedies against Mr Creggy, even if anyone other than Mr Creggy had been in effective control of the companies in time to do so. This was therefore a case which fell within the exception established by Giles v Rhind.
96. Mr Lundie's response was that the evidence shows that the companies still possessed funds after the transfer to Dr Spiteri. Although it would appear that no funds remained in the Swiss bank accounts of the companies, there is evidence that Pound still owned a portfolio of investments managed by Republic Bank of New York with a value of US$228,000 in 1999, after the transfer of funds to Dr Spiteri. The claimants were informed by the Bank in August 2001 that the whole portfolio had been liquidated in accordance with instructions given by Mr Creggy and that the proceeds had been transferred to an unknown client account at HSBC Republic in Zurich. It is not known when the portfolio was liquidated nor have the claimants been able to discover anything further about the whereabouts of the proceeds. No information or evidence has been forthcoming from Mr Creggy.
97. The precise circumstances in which this investment portfolio came to be liquidated and the subsequent application of the proceeds of sale were not investigated in evidence at the trial. There was no particular reason to do so. The primary relief which the claimants were seeking was an order for an account in equity against Mr Creggy and, as I have set out above, they relied on a long course of dealing as the basis for this claim. The position might well have been different if there had been raised on behalf of Mr Creggy the defence based on the reflective loss principle. In those circumstances it would be expected that the claimants would have relied, in reply, on the exception established in Giles v Rhind to which Mr Creggy would have responded, as he did in Mr Lundie's submissions on 17 November 2014, that the companies retained funds even after the transfers to Dr Spiteri. In those circumstances, it would have been highly material for there to be investigated the circumstances of the liquidation of the investment portfolio and the disposal of the proceeds of sale. Such evidence as exists in relation to this suggests that there is at least a plausible case that in this respect also Mr Creggy was guilty of breach of duty. The claimants would have been able to investigate at trial whether in this respect also Mr Creggy wrongly deprived the companies of their last remaining resources. If that were shown to be the case, the exception in Giles v Rhind would clearly apply.
98. In these circumstances, the submissions based on the reflective loss principle do not raise simply issues of law to be decided on the basis of the findings of fact made on the evidence at the trial. The submissions open up new issues of fact which were not explored at trial but which, it is likely, would have been explored if the defence based on reflective loss had been raised on Mr Creggy's behalf at an earlier stage. There can be no question of re-opening the trial for the purpose of further investigating this issue of fact when the matter could have been raised by Mr Creggy before the trial and it would be contrary to all fairness to hold that the reflective loss principle applied in this incomplete state of evidence.
99. Accordingly, I hold that Mr Creggy does not establish a defence to this part of the claim on the basis of the reflective loss principle.

Limitation defence

100. For the purposes of the Limitation Act 1980, Mr Creggy's powers as a signatory on the bank accounts of Pound and Glacier were such that, like directors of a company, he falls within the extended concept of "trustee" as used in section 21. The relevant limitation period is six years from the date when the right of action accrued, it not being suggested that Mr Creggy was guilty of fraud or that payment to Dr Spiteri constituted conversion to Mr Creggy's use (in which case no limitation period would have applied).
101. The right of action accrued on the payment to Dr Spiteri in mid-1998, but the present proceedings were not issued until January 2012.
102. The claimants rely on a series of letters signed by Mr Creggy as "acknowledgments" falling within section 29(5) of the Limitation Act, the last of which was dated 21 July 2006. The previous letters were written in 2002, 2004 and 2005 and, if they constituted acknowledgments, were each effective to extend the limitation period.
103. Section 29 (5) of the Limitation Act provides so far as relevant:

"… where any right of action has accrued to recover

(a) any debt or other liquidated pecuniary claim; …

and the person liable or accountable for the claim acknowledges the claim or makes any payment in respect of it the right should be treated as having accrued on and not before the date of acknowledgment or payment"

104. The letters signed by Mr Creggy were in almost identical terms. The letter dated 21 July 2006, like the previous letters, was addressed to Jeffrey Barnett and his wife and stated:

"I understand [this is a misprint for undertake] in the event of your funds currently held by Dr Patrick Spiteri in Malta, not being returned to you by the end of July 30^th, 2008 to procure that my estate acknowledges a debt to you of $961,416 (US).

This letter is sent to you so that you should have protection in the event of my death prior to that date.

This debt will of course only come into effect on my death and at no time prior and the debt will not bear interest."

105. No similar letter was sent to Peter Barnett, whose claim would lie in respect of funds paid from Glacier to Dr Spiteri, so that any claim by him is time-barred. The bulk of the funds, however, came from Pound.
106. It is submitted for Mr Creggy that, on two grounds, the letters did not constitute an acknowledgment of a claim within section 29(5).
107. First, it is submitted that as the claim is equitable compensation for breach of duty it is not a "debt or other liquidated pecuniary claim". I would certainly accept that where a claim for equitable compensation, like a claim for damages at common law, requires quantification and assessment applying principles of law and equity, it would not fall within these words. But when the claim is for an amount paid out in breach of duty, that amount being known or being capable of straightforward calculation on the evidence, I do not understand why it is not a liquidated pecuniary claim. Mr Creggy himself quantified the amount in his letters as US$961,416, although the evidence now establishes, as he accepts, that it was US$1,192,836.
108. Secondly, Mr Creggy relies on the terms of the letters drafted by him. They did not acknowledge a debt or claim but only contained an undertaking, if the funds were not returned by Dr Spiteri by the date specified in the letter, to procure that his estate would acknowledge a debt to Jeffrey Barnett and his wife. The letter stated that the debt would come into effect only on the death of Mr Creggy. The purpose of the letter was said to be to give some protection to Jeffrey Barnett and his wife if Mr Creggy died before the specified date.
109. This line of argument, based on what I have no doubt Mr Creggy thought was an ingenious piece of drafting, is in my judgment flawed. Mr Creggy's estate could only acknowledge a debt if it already existed. Mr Creggy was not undertaking to provide a legacy for Jeffrey Barnett and his wife. An acknowledgment of a debt by Mr Creggy's estate in respect of funds paid to Dr Spiteri must pre-suppose that Mr Creggy had a liability in respect of such funds. Mr Creggy's executors would have had no power to divert funds from the beneficiaries under his will by acknowledging a debt which did not exist. In my judgment, the letters written by Mr Creggy necessarily acknowledged Jeffrey Barnett's claim in respect of the monies paid by Pound to Dr Spiteri.
110. In my judgment, therefore, the limitation defence against the claim by Jeffrey Barnett fails and he is entitled to judgment against Mr Creggy in respect of the sum paid by Pound to Dr Spiteri in mid-1998.

Interest

111. Submissions were made to me on 17 November 2014 as to the interest to be awarded on the compensation in respect of the transfer of funds to Dr Spiteri. Three issues arise: the rate of interest, whether interest should be simple or compound and the period in respect of which interest should be awarded.
112. As to the rate of interest, both parties agreed that a US dollar rate of interest was appropriate on a judgment debt in US dollars.
113. Mr Thompson submitted that the appropriate rate would be 2% above US Prime Rate from time to time. He noted that the general approach of the courts is to take a rate which reflects the rate of interest at which a claimant approximately in the position of the claimant could have borrowed funds and that, where the claimant is a small business or an individual, a higher rate might well be appropriate to reflect the higher borrowing costs. The principal ground for his proposed rate of interest was that Jeffrey Barnett was an entrepreneur and a sophisticated investor who adopted an aggressive approach to investing and regularly invested large sums in a variety of business ventures. It is very unlikely that he would have allowed substantial sums to remain in a deposit account for long, earning a very low rate of return.
114. Mr Thompson referred to Challinor v Bellis [2013] EWHC 620 (Ch), in which Hildyard J considered that the rate of interest should reflect the fact that the claimant was an investor who would not have borrowed funds for investment purposes, and that therefore the rate should broadly reflect the potential for investment returns. The Judge was concerned that a rate of interest based on that at which the claimant could borrow on a short term and unsecured basis would significantly exceed any return that the claimant might in fact have made. Equally, a minimum investment rate based on bank deposit rates was inappropriate, given that the claimants were sophisticated investors who would have sought other investment opportunities. The Judge ordered interest at Bank of England base rate plus 3%.
115. Mr Lundie submitted that the appropriate starting point was not US Prime Rate but either US$ LIBOR or, more conveniently, US Federal Funds Rate. Whichever base rate were chosen he submitted that interest should be awarded at that rate plus 1%. He too relied on Jeffrey Barnett being an investor, not a borrower, of funds and in this respect relied on the approach adopted by Roth J in Slocom Trading Ltd v Tatik Inc [2013] EWHC 1201 (Ch) where the Judge said at [42]

"… in the exercise of the court's discretion as regards rates, I think it is appropriate to have regard to the fact that Slocom was not a trading entity but effectively an investment vehicle. There is no evidence, or even any grounds on which to infer, that it borrowed money, so that by being out of its money what it lost was only the investment potential which that money could have earned. In all these circumstances, I see no reason to award a higher rate than the ECB rate plus 1%."

116. The general approach of the courts has been to determine the rate of interest by reference to the rate at which the recipient could have borrowed the funds of which he has been deprived, on a short-term and unsecured basis. At the same time, the courts do not have regard to the rate at which a particular recipient might have borrowed funds but will consider only the general characteristics of the recipient in order to decide whether to assess interest at a rate that is higher or lower than is conventional. The court will determine whether the recipient falls into one of a small number of general categories, determined in an objective sense. For example, the court may well award a higher rate of interest to a small business than to a large business with a high credit rating. The power to award interest is discretionary and if the result produced by the adoption of this approach produces a result which the court considers to be clearly unjust, it will adjust the interest rate accordingly: for example, see Hackney Empire Ltd v Aviva Insurance UK Ltd [2013] EWHC 2212 (TCC).
117. The courts do not generally award interest on the basis of investment returns, in commercial or similar cases. The principled ground for this is that a rate of interest linked to borrowing costs compensates the claimant for the lack of funds which should have been paid by the defendant. What the claimant would do with those funds, and the return if any which it would make, are a matter for the claimant and may well be highly speculative. The practical ground, closely linked to the principled ground, is that there are no readily available yardsticks for measuring investment returns. All would depend on the investment policy followed by the claimant. Some investment policies may in a particular period result in high returns, while others may result in losses. There would be no particular logic in adopting a diversified portfolio approach, unless that happened to reflect the investment policy of the claimant. None of this means that a claimant cannot recover the return which it would have been likely to achieve if it had received payment from the defendant when it was due or when it incurred loss or damage. But it is for the claimant to plead the alleged loss as special damage and to satisfy the applicable tests of causation and remoteness.
118. In adopting a lower rate of interest than borrowing costs, it seems to me that the judges in Challinor v Bellis and Slocom Trading Ltd v Tatik Inc were adjusting the applicable interest rate to prevent a result which in each case the court would have considered to be clearly unjust.
119. In the present case, the right approach in my judgment is to start with a borrowing cost but to bear in mind the submissions made by both sides in relation to Mr Barnett's position as an investor.
120. I start with the appropriate base rate. US Prime Rate is an interest rate benchmark based on the rates that banks in the United States charge their best customers. The Federal Funds Rate is the rate at which US banks borrow from each other on an overnight basis. It is a variable rate based on actual transactions, but the Federal Reserve sets a target rate from time to time and this is often referred to as the Federal Funds Rate. LIBOR is the rate at which banks lend to each other on an international basis. While the Federal Funds Rate applies only to US banks, LIBOR is an international interest rate benchmark, fixed in London, and used throughout the world as the benchmark for a wide variety of loans. LIBOR is calculated on a daily basis by reference to different terms, for example overnight, three months and six months. LIBOR and Federal Funds Rates tend to be very similar, but US Prime Rate runs at 2.5 – 3% above those rates.
121. Recent authorities in the Commercial Court indicate that in respect of claims in US dollars outside the United States, an appropriate commercial rate is linked to US$ LIBOR rather than US Prime Rate: see Fiona Trust & Holding Corporation v Privalov [2011] EWHC 664 (Comm) and Vis Trading Co Ltd v Nazarov [2013] EWHC 491 (QB).
122. In my judgment, the right base rate in this case is US$ LIBOR. Neither US Prime Rate nor Federal Funds Rate has any obvious application to parties and transactions which are unconnected with the United States. In view of the long period involved in this case, I consider that six-month LIBOR, rather than three-month LIBOR, should be adopted as the base rate.
123. As to the appropriate rate over US$ LIBOR it is to be noted that over the period since the funds were transferred to Dr Spiteri in 1998, there has been a very wide variation in interest rates. The prevailing rates since late 2008 have been at an historically low level, but the same is not true of earlier periods. A conventional rate such as 2% or 3% above LIBOR produces a relatively low rate since late 2008, whether judged by reference to interest on borrowing or investment returns. But the same is unlikely to be true in respect of earlier periods.
124. The high rate of interest proposed by Mr Thompson was justified on the basis of the returns to be expected from an aggressive investment policy. It is apparent on the evidence that the investment policy pursued by the claimants led them to incurring significant losses as well as making gains. No evidence has been put before the court to demonstrate the rate of return in fact achieved by the claimants on the funds invested through Pound and Glacier. In any event, as I have earlier observed, such a claim must in my view be the subject of a pleaded case of special damage and appropriate evidence.
125. In all the circumstances, I consider it right to use six-month US$ LIBOR as the base rate and to order interest to be paid at 3% above that rate.
126. Mr Thompson submits that compound interest should be awarded so as to ensure that the claimants are properly reinstated to the position which they would have been in but for Mr Creggy's breach of duty. As the claim is in equity, the court has power to award compound interest but it remains the case that the court will normally do so only if either the defendant has been guilty of fraud or if the defendant has retained and been able to make use of the funds which are the subject of the claim. Neither of these circumstances exist in the present case. It is not alleged that Mr Creggy was guilty of a fraudulent breach of duty in causing the transfer of funds to Dr Spiteri. Indeed it appears that Mr Creggy has personally lost a significant sum as a result of trusting Dr Spiteri. Likewise, Mr Creggy did not himself retain or have use of the funds transferred to Dr Spiteri. In those circumstances, this does not appear to me to be an appropriate case in which to exercise the power to award interest on a compound basis.
127. As to the period for which interest should be awarded, Mr Lundie submits that there was a long delay on the part of the claimants in bringing the present proceedings and that they should receive interest only from February 2011 when the first letter making their claim was sent to Mr Creggy or his solicitors.
128. It is true that the claimants knew from 2001 that the funds had been transferred on Mr Creggy's instructions to Dr Spiteri without their consent or authority. However, for much of the period which followed they were reassured by Mr Creggy's statements as to his attempts to recover funds from Dr Spiteri and by the letters which he sent to Jeffrey Barnett which, I have held, had the effect of extending the limitation period. Moreover, in unchallenged evidence, Jeffrey Barnett explained that the claimants were reluctant to commence proceedings against Mr Creggy, both on account of the ill health that Mr Creggy and they themselves had suffered and on account of the friendship and relationship of trust that they had built up with Mr Creggy over a long period, such that they continued to have some trust that he would ensure that they would recover their money. It would not, in my judgment, be just to deprive Jeffrey Barnett of interest for the period during which he has been deprived of access to these funds. I will accordingly order interest to be paid from the date of transfer in 1998.

Conclusion

129. For the reasons given in this judgment, I have concluded that the claim for an account in respect of any period before 1 August 1998 fails but that, first, there should be an account of all sums received by or to the order of Mr Creggy from or at the direction of the claimants from 1 August 1998 and, secondly, an order that Mr Creggy pay to Jeffrey Barnett the sum of US$1,192,836 by way of compensation for breach of duty in procuring the unauthorised payment of that sum by Pound to Dr Spiteri, together with interest at 3% above six-month US$ LIBOR. I will hear submissions from counsel as to the terms of the order.