England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings, London EC4A 1NL
		14th March 2013

Mrs Justice Gloster:

Introduction

1. The previous history of this matter, prior to my giving judgment in favour of Barclay Pharmaceuticals Limited ("the First Claimant") in February 2012, is set out in my judgment reported at [2012] EWHC 306 (Comm). Of particular relevance for present purposes is an ex parte order made by Burton J on 10 December 2009, whereby Mr. Geoffrey Carton-Kelly ("the Receiver"), a partner in Baker Tilly, chartered accountants, was appointed as receiver of the "Receivership Assets" as therein defined. That order was continued on its return date on 15 January 2010.
2. In my judgment I adjudged the First, Second and Fourth Defendants liable to the First Claimant in the amount of £8.7 million in relation to a fraudulent operation of letters of credit. I made adverse findings as to the credibility of Mr. Antoine Mekni ("the Second Defendant"). He was represented by solicitors and leading counsel who prepared his case before coming off of the record shortly before trial. The Second Defendant was unrepresented throughout the trial but engaged the same solicitors and leading counsel to prepare his closing submissions.
3. At the outset of the trial, the Second Defendant announced his intention to make a claim against the Claimants and the Receiver for many tens of millions of euros. The Second Defendant had at no time sought to vary or discharge either the Freezing Order against him and Waypharm LP or the Receivership Order. Throughout the trial the Second Defendant repeatedly reiterated his intention to bring such claim against the Claimants and the Receiver.
4. Judgment was handed down on 28 February 2012. Late in the afternoon of 27 February 2012, the Second Defendant emailed the Court stating that he could not attend Court because of his health issues; he said that he needed to "undergo heavy checks and bio explorations" the following week. The Second Defendant asked the Court to give him until early April 2012 to bring his (purported) claims against the Claimants and the Receiver.
5. On the handing down of judgment (which the Second Defendant did not attend), and in light of the Second Defendant's late representations by email that he still wished to bring claims against the Claimants and the Receiver, I gave directions for a further hearing to consider any representations in relation to post-judgment applications. These included a direction that if the Second Defendant proposed to make any application against the Claimants and/or the Receiver he do file and serve any such application together with any supporting evidence by not later than 19 April 2012.
6. On 18 April 2012 the Second Defendant filed a claim titled "Application in respect of the Receivership against the Receiver and the claimants severally and individually" ("the Claim").
7. Upon receipt of the Claim, the Claimants determined that they should apply to strike out the claim as baseless, as set out below. The Claimants and the Receiver filed and served skeleton arguments for the consequential hearing on 23 May 2012 and the Claimants informed the Judge that they would seek to strike out the claim against them.
8. At the hearing on 23 May 2012 of all outstanding post-trial applications, I made orders for the continuation of the receivership and freezing orders, and that the First, Second and Fourth Defendants do make a payment on account of costs in the amount of £1 million. I also gave certain case management directions for the future conduct of the Second Defendant's claim against the Claimants and the Receiver, including orders:

i) that the fourth witness statement of the Receiver dated 17 May 2012 and the skeleton argument filed on behalf of the Receiver dated 21 May 2012 be treated as the Receiver's response to the Second Defendant's application dated 18 April 2012;

ii) that the Second Defendant do serve any evidence in response to the Receiver's fourth witness statement and skeleton argument and paragraphs 10-22 of the skeleton argument filed on behalf of the Claimants dated 21 May 2012, by way of a witness statement verified by a statement of truth with any evidence exhibited thereto, by 4pm on 4 July 2012;

iii) that the Claimants and the Receiver be at liberty to respond to any evidence so provided by the Second Defendant within 21 days of service of such evidence.

In other words I provided that all evidence was to be given in writing prior to the hearing.

9. The Second Defendant attended this hearing, without any apparent health problems preventing him from participating in the proceedings.
10. To date, the Second Defendant has apparently recognised his liability to the Claimants in respect of the judgment sum but, to date, has not paid the judgment sum or appealed the Judgment. A little over £9.7 million is now owed by the Second Defendant to the Claimants.
11. A hearing was listed pursuant to the directions order dated 23 May 2012, for 18-19 October 2012, to deal with: a) the Claimants' application to strike out the Second Defendant's claim against them; b) the issue as to whether the Second Defendant requires the permission of the Court to bring a claim against the Receiver; and c) if so, whether permission should be granted.
12. On 31 May 2012, the Second Defendant emailed a document called "Application to postpone submission of the second defendant", seeking an extension of time on grounds of ill-health for him to serve evidence as provided for in the directions order to the 4 September 2012. I directed that the Second Defendant be granted an extension of time in which to serve evidence, to Friday 31 August 2012.
13. On 25 July 2012 the Second Defendant sent a further email to the Court stating:

"My health status lead me to intensive care and deep checking these recent weeks as a result I have been instructed by my cardiologist to refrain from any activity, to avoid strictly all kinds of stress, travels and any activity impacting my cardiovascular status. As a result I will not be able to attend any court hearing or any meetings with my solicitors in England for the next 3 months.

My doctor foresee a period of recovery of at least 6 months as of beginning of August.

I respectfully ask you to inform the Judge who will be in charge of the case to amend the schedule directed by Mrs Justice Gloster.

I will this coming Friday or Monday next week send you the doctor's certificate"

14. In consequence of this email the Claimants' solicitors sent a letter dated 26 July 2012 to the Court submitting:

i) that the Second Defendant had provided no medical certificate, and that the Claimants did not expect any credible medical certificate to be provided;

ii) that there must be finality to the litigation; and

iii) that the Second Defendant did not have a claim against the Claimants; that the Claimants, having applied to strike out his claim, should be entitled to come before the Court to have the claim struck out.

15. I subsequently directed that the matter should remain listed for 18/19 October 2012 and the earlier directions (as previously varied) should stand. I noted that it would be a matter for the judge hearing the application to decide, in light of any medical evidence produced by the Second Defendant, whether the matter should go ahead and if so in what manner.
16. On 31 July 2012 the Second Defendant provided a purported medical certificate to the Court, the Claimants' and the Receiver's solicitors. However he did not comply with the Directions Order nor did he provide the further evidence which he indicated that he wished to provide by the Court's extended deadline of 31 August 2012.
17. On 8 October 2012, the Second Defendant e-mailed the Claimants' solicitors stating that he would not attend any hearing nor add any documents because his health issues did not allow him to meet his legal team in London and appear before the Court. On 11 October, the Second Defendant e-mailed the Court, attaching a purported medical certificate and stating that he would not be able to attend any hearing or "give evidence at present moment". The Claimants replied to the Second Defendant and to the Court pointing out that the Second Defendant had a legal team in London, requesting the scheduled hearing dates to remain effective and confirming that the hearing bundles had been served by hand to the Second Defendant's nominated service address in London.
18. I refused to adjourn the hearing fixed for 18/19 October 2012. The Second Defendant had produced no satisfactory medical evidence to justify a further adjournment; the hearing did not in any event involve the giving of any oral evidence by the Second Defendant; the applications were effectively claims by the Claimants to strike out his claim as against them, and similarly by the Receiver to strike out the claims against him, on the basis that leave was required, to bring proceedings against a court-appointed receiver, and should not be given; and there had to be finality to the litigation.
19. However, having heard the Claimants' and the Receiver's arguments on 18 October 2012, I gave the Second Defendant a period of 28 days to respond in writing to the submissions of the Claimants and the Receiver as made at the hearing on 18 October 2012; I directed that the transcript of the hearing on 18 October 2012 should be sent to the Second Defendant.
20. On 19 November 2012, the Second Defendant sent to the Court and the parties by email, a written response titled "Responses in relation to the Hearing dated 18/19 October 2012". Pursuant to the directions I had made on 18 October 2012, the Claimants and the Receiver each had leave to serve reply submissions. These were duly served on 28 November 2012.
21. In reaching my conclusions, I have considered all the arguments and materials supplied by the Second Defendant as well as those provided on behalf of the Claimants and the Receiver. I am satisfied that the Second Defendant has had more than ample opportunity to address the arguments against him. I have also taken into account the conclusions which I reached as to the Second Defendant's credibility as set out in my judgment.

The Receivership Assets

22. The Receivership Assets are in essence,

i) shares in three English registered companies: Brookmill, Coppelia and Pegassus (together "the Companies");

ii) the assets/business/undertakings of Brookmill and Coppelia, including their respective shareholdings in a French company SCI Les Deux Villages ("SCILDV"); and

iii) the assets/business/undertakings of Pegassus, including the shareholding it was then understood to have in a French company called SCI Le Montfort.

23. A site and pharmaceutical manufacturing plant in Les Essarts Le Roi, France ("the Property") was the main (underlying) receivership asset. It was at all material times owned by SCILDV. Brookmill and Coppelia together own all the shares in SCILDV. The tenant of the Property was a French registered company, Waypharm SAS, which was put into administrative receivership on 3 September 2009, and has been in liquidation in France since 1 October 2009. Maitre Cosme Rogeau has been its liquidator at all material times.
24. On 26 October 2010, the Court of Versailles ordered that the liquidation of Waypharm SAS should be extended to SCILDV. The evidence showed that French law procedure effectively conjoins insolvent estates in circumstances where the separation of assets and liabilities is considered to be impossible, with the consequence that assets and creditors are "pooled". The Property was sold on 14 December 2011 by order of the Court of Versailles, under the auspices of Maitre Rogeau, who is the liquidator of the merged estates of SCILDV and Waypharm SAS. According to his interim report dated 25 September 2012, there is a substantial deficit so far as unsecured creditors are concerned, apparently in excess of €8.9 million, with only the senior secured creditors being paid in full. There is no prospect of any distribution to Brookmill or Coppelia in their capacity as shareholders from the merged estates.
25. After some vacillation, the Second Defendant's current position is that he is the beneficial owner of both Brookmill and Coppelia and that therefore - and through beneficial ownership of those companies - he is interested in SCILDV (and through SCILDV, in the Property).

The Second Defendant's complaints against the Claimants and the Receiver

26. The nub of the Second Defendant's present complaint and his claims against both the Claimants and the Receiver is the liquidation of SCILDV. He states that his claim is brought:

"… due to the loss of my assets held by SCILDV in France of which I'm the ultimate owner, these assets have been financed by my other companies where I'm also the ultimate owner since 1998 up to 2009. These assets have been subject to a Receivership and freezing orders since December 2009 to date with their respective continuation orders."

27. There are three elements to the claim which the Second Defendant puts forward:

i) a claim for €37 million allegedly lost in the liquidation of SCILDV in respect of alleged investments, and/or capital loans and interest, made by a company called SCILDV SA Panama and by Best Financial Services Corp in or to SCILDV in respect of land, buildings and equipment;

ii) a claim for €16 million said to have been advanced to Waypharm SAS for the validation of equipment at the Property (so the Property could become licensed pharmaceutical premises);

iii) a claim for £5 million for other unparticularised losses, described as "… damages for depriving me to exercise opposition to the Versailles merger ruling".

The Claimants' application to strike out the Second Defendant's claim against them

28. I am satisfied that the Second Defendant's claim against the Claimants and his evidence in support of such claim disclose no reasonable grounds for bringing a claim, whether as a free-standing counter-claim, or as an application under the cross-undertaking in damages. His claim, in my judgment, is totally without merit. I propose to strike it out pursuant to CPR Rule 3.4 and the inherent jurisdiction. My reasons are set out below.

Claim for €37 million: loan to or investment in SCILDV

29. The Second Defendant's claim that he has lost €37 million in respect of "capital and interests" in SCILDV, which he also refers to as "invested monies in the land, the building and the equipment" has no evidential support. He asserts that the sum of €37,000,000 "… is of course mine and came straight out of my SCILDV SA/ Panama account and Best Financial Services Corp. accounts which for both I'm the ultimately owner. [sic]". However, as Miss Barbara Dohmann QC, leading counsel for the Claimants, submitted, the evidence does not support this contention. SCILDV Panama sought to make a demand for payment in the sum of €22,241,546.24 from SCILDV in June 2010; however, despite being requested to do so, SCILDV Panama failed to submit a claim in the merged liquidation within the timescale prescribed by French law; it also failed to provide any supporting documentation to substantiate this alleged claim, despite a request from the Gérant of SCILDV, Mr. Lloyd, in June 2010.
30. In annexes 4 and 5 to the Second Defendant's Claim, the Second Defendant sought to "simulate the interests income I could have made" (emphasis added) on the basis of a (clearly fictitious) loan commencing in 2010 (sic) at an annual rate of interest of 7%. These annexes purport to show a capital sum of €22,500,000 and "simulated" interest of €5,684,822 between 2010 and 2016. But the Second Defendant has not provided any evidence demonstrating an actual flow of funds, to substantiate that such funds were ever loaned or invested, let alone in 2010.
31. But even if the Second Defendant had been able to demonstrate fund flows substantiating this alleged investment, any claim would have been the claim of the companies, SCILDV Panama and Best Financial Services Corp., not of the Second Defendant. The Second Defendant has never disclosed any interest in SCILDV Panama in any of his affidavits of means ordered by the Court, nor any debts owed to him, nor any beneficial interest in any receivables.
32. As Miss Dohmann QC submitted, the Second Defendant has in any event no standing in relation to loans/investments allegedly made by these companies. He has no interest in SCILDV and has merely claimed to be beneficial owner of Brookmill and Coppelia, the shareholders of SCILDV. In accordance with the "no reflective loss" principle he has no standing to bring such a claim. As Lord Bingham explained in Johnson v Gore Wood & Co (A Firm) [2002] 2 AC 1 at 35F:

"… (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co Ltd C v Newman Industries Ltd (No 2) [1982] Ch 204, particularly at pp 222-223 ... (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192,195-196, George Fischer and Gerber. (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other."

33. But even if I were to assume - in his favour - that the Second Defendant had a sufficient interest to bring such a claim, and that any separate corporate identity of the various companies should be disregarded, and the Second Defendant should be regarded as the real beneficial owner of the relevant assets, there is, most importantly, absolutely no evidence to support the contention that any inability of SCILDV to repay any alleged loans or compensate for any loss of investment was caused by the Claimants, or indeed the appointment of the Receiver. The evidence demonstrated that SCILDV was unable to pay its debts before the Claimants asked for a Receiver to be appointed; it had debts of approximately €42.8 million as at 31 December 2009 and was insolvent on a balance sheet basis by the time that the Court appointed the Receiver as Receiver of Brookmill and Coppelia, (and thus he became in a position to exercise the powers of those companies qua shareholders); by September 2010 it had become cash flow insolvent. The Receiver appointed a suitable Gérant, Mr. Lloyd, and the funding for short term trading was provided by the Second Claimant. There was no obligation on the Claimants' part to fund the insolvent operation in an attempt to effect the alleged turnaround which the Second Defendant speculated in his evidence could have been achieved.
34. Accordingly this claim has no prospect of success, reasonable, realistic or otherwise.

Claim for €16 million: loss of alleged investment in Waypharm SAS pharmaceutical validation exercise

35. Under this head the Second Defendant seeks to claim sums (said to amount to €16 million) allegedly spent on the pharmaceutical validation process undertaken by Waypharm SAS since 2004. However no evidence has been provided to support the case that any such expenditure had anything to do with the Second Defendant personally or that there was any debt owing to the Second Defendant in this respect. Certainly no such debt was disclosed in his affidavits of means.
36. However, even if the Second Defendant were able to demonstrate a personal entitlement to the repayment of a debt, or any similar interest, any such claim would lie in the liquidation of Waypharm SAS. It has nothing to do with SCILDV, the Receiver or the Claimants. Furthermore any non-completion of the validation exercise was not caused by the Claimants. Waypharm SAS went into liquidation in September 2009, at the instigation of the Second Defendant before the Receiver was appointed on 10 December 2009. Thus such claim, if any, in relation to the validation exercise is a claim relating to the assets of Waypharm SAS and lies against the liquidator of Waypharm SAS and not against the Claimants. Waypharm SAS was not a receivership asset. The Claimants had no duty in law to fund the Receiver. The funding was to cover running expenses and had nothing to do with any validation process. The Second Defendant also complains that he was not called upon to provide "commercial and technical assistance". There is no evidence of him offering to do so or that he had the necessary funds available to provide such assistance.
37. Thus, the Second Defendant has no claim against the Claimants in respect of this second head either.

Claim for £5 million

38. The third head of claim put forward by the Second Defendant is a claim for "interim compensation" in the sum of £5 million. This appears to be a claim for unparticularised and unspecified damages for what the Second Defendant characterizes as a loss of opportunity to oppose the merger of the assets of SCILDV with the liquidation of Waypharm SAS. In his evidence the Receiver has explained why: (a) the merger could not be resisted; and (b) even if it had been possible to resist the merger, SCILDV would in any event have had to file for liquidation with the same result. According to his claim, the Second Defendant appears to complain that SCILDV could have been put into receivership in Paris rather than in Versailles. It is wholly unclear what difference, if any, that would have made, and why it could conceivably have been in the interest of the Claimants, or the Receiver, to diminish assets which might otherwise have been available to satisfy the judgment. Moreover, the Second Defendant appears to have been aware at the time of the proposal to merge the assets of SCILDV with the liquidation assets of Waypharm SAS but took no steps to oppose the merger. I address this issue in greater detail below.
39. The Second Defendant sought to rely on an annual report of Maitre Rogeau (the liquidator of Waypharm SAS and SCILDV) dated 25 September 2012 which he attached to his submissions. Although the report is dated 25 September 2012, it was only sent out by the French Court on 17 October 2012 and only reached Mr. Lloyd (as Gérant of SCILDV) on 9 November 2012. For that reason, it was not before the Court on 18 October 2012. I have considered the report. There is nothing in it which assists the Second Defendant. On the contrary, in my judgment it supports the Claimants' case that there is nothing in the Second Defendant's claim, and that, to the extent that he has suffered any loss, he has brought that loss about himself through his fraudulent and unsuccessful commercial activities.
40. Therefore I conclude that this third head of claim is also hopeless.

The Receiver's application that the Second Defendant's claim against him should be dismissed

41. Ms. Marcia Shekerdemian, counsel on behalf of the Receiver, submits that the Second Defendant's claim against the Receiver should be dismissed on the grounds that:

i) he requires the permission of the Court to bring a claim against the Receiver;

ii) the evidence does not disclose that he has any cause of action against the Receiver, or that the claim is genuine, or is one which has any real prospect of success; and

iii) that, accordingly, permission should not be granted.

She also submitted that, irrespective of whether permission to bring a claim against the Receiver were necessary, the Second Defendant had not established on the materials before the Court that he had suffered any loss as a result of the Receiver's conduct of the receivership and therefore his claim should be struck out.

42. The authorities show that the Second Defendant requires the permission of the Court before he can continue with his application against the Receiver, a court appointed officer; see e.g. McGowan v Chadwick and Grant [2001] EWCA 1758 per Jonathan Parker LJ at paragraph 32 and Glatt v Sinclair [2012] BPIR 309.
43. As Jonathan Parker LJ stated in the former case at paragraph 78:

"… it is a matter for the Court's discretion whether or not to grant permission and accordingly no hard and fast rules can be laid down as to the requirements which a prospective claimant must meet or as to the manner in which he brings forward his application. What can, in my judgment, safely be said is that permission will not be granted unless the applicant satisfies the court that his claim is a genuine one, in the sense that the allegations which he seeks to make are such as to call for an answer from the receiver. On the one hand, the receiver must not be subjected to vexatious or harassing claims; on the other hand, as Nevill J observed, the court must see that justice is done."^[1]

44. However, where, as in the present case, the claim has been fully pleaded out (and indeed evidence has been served in respect of the claim), it may be appropriate for the Court to consider whether the claim has a "real prospect of success"; see per Jonathan Parker LJ in McGowan, at paragraphs 79- 81:

"79 ... But where the court is faced with a draft pleading, it may well find it appropriate (as it has done in the instant case) to proceed as if the proposed action had already commenced and an application had been made by the defendant to strike out the claim pursuant to CPR part 3 or for summary judgment under part 24, if only because there can be no purpose giving permission for the commencement of pleadings which will inevitably come to grief at the interlocutory stage.

80. In agreement with the Deputy Master and the judge, I would in any event have considered that to be the right approach to the application for permission in this case; but given that the action has in fact been commenced and that the third pleading is no longer a draft pleading but a real pleading there can no longer be any other approach.

81. Hence I proceed to consider whether (and if so in what respects) the claim as pleaded in the third pleading has a real prospect of success" (emphasis supplied).

45. For similar reasons to those given above in relation to the Second Defendant's claim against the Claimants, I am satisfied:

i) that I should not grant permission to the Second Defendant to bring a claim against the Receiver;

ii) that the claim as formulated in the documents provided by him is not a genuine one;

iii) that the claim has no real prospect of success; and

iv) accordingly it should be dismissed.

My reasons are set out below.

Duties of the Receiver

46. As Ms. Shekerdemian correctly submitted, a court-appointed receiver has equitable duties: he must act in good faith and for proper purposes; he must not profit from his position, he must take reasonable care to obtain the best price reasonably obtainable for any property that he sells. Whether there is a general duty of care (over and above the duty to act in good faith), or an equitable duty of care, may depend on the facts of the case. A receiver who exercises a power of management in respect of charged property owes a duty to the mortgagor and to those interested in the equity of redemption to do so with due diligence (Medforth v Blake [2000] Ch 86, per Scott VC at 102B-H) and to be active in the protection and preservation of the property over which he has been appointed (Lightman & Moss at 13-039). A court-appointed receiver's powers are not at large, or unfettered. They are limited to the powers set out in the order appointing him to office. Accordingly, the duties owed only arise in and about the exercise of those powers, rather than on any freestanding basis.
47. Again, as Ms. Shekerdemian also correctly submitted, the Receiver had no powers in respect of SCILDV, let alone in respect of the Property. All he could effectively do (exercising Brookmill/Coppelia's powers as shareholders) was appoint a Gérant.

Did the Receiver owe any duties to the Second Defendant?

48. Ms. Shekerdemian correctly submitted that the Receiver only owed the relevant duties to persons having an interest in the equity of redemption or a sufficient interest in the property over which the receiver has been appointed (Silven Properties v Royal Bank of Scotland Plc [2004] 1 WLR at 22, at paragraph 29). She submitted that, in the present context, the Second Defendant would only have sufficient standing, and could only make a claim, if he had a sufficient interest in the underlying asset, analogous (if not necessarily directly equivalent) to an interest in the equity of redemption. She argued that the Second Defendant had no interest in the equity of redemption in the Property, because that interest lay with SCILDV; he had no interest in SCILDV and no interest in any notional surplus which might be generated in SCILDV's liquidation. His only interest (such as it might be, and put at its highest) was as the claimed beneficial owner of Brookmill and Coppelia. But that interest, submitted Ms. Shekerdemian, was too remote and would require the Court to pierce not one but three corporate veils (SCILDV, Brookmill and Coppelia); even if French law was to permit this (which is not known), English law did not: see Burgess v Auger [1998] 2 BCLC 478, at 483.
49. Whilst there is force in this submission, I nonetheless approached this issue on the assumption (but without deciding the point), in the Second Defendant's favour, that, subject to his establishing that he was the, or one of the, ultimate beneficial owners of the Companies, the Receiver did indeed owe him the relevant duties. I made this assumption in the Second Defendant's favour because the initial receivership order was originally made on the basis that the underlying assets of the Companies were to be regarded as his assets.
50. The Second Defendant's position on the question of the beneficial ownership of the Companies has been confusing and contradictory, starting with his disclosure affidavit dated 11 April 2008, in which he did not disclose any interest in any company and asserted that he did not have assets anywhere in the world exceeding £10,000 in value "… whether in my own name or not and whether solely or jointly owned". During the course of the litigation his position changed from time to time, as and when it suited him. Again, I assume in his favour, for the purposes of these applications, that he is the sole ultimate beneficial owner of the Companies.

Has the Second Defendant demonstrated that he has a genuine claim, or a real prospect of success of establishing, that the Receiver breached any of his duties?

51. In my judgment, the Second Defendant has failed to demonstrate either that he has a genuine claim, or that he has any real prospect of successfully establishing, that the Receiver has breached any duties owed to the Second Defendant.
52. I turn first to consider the Receiver's conduct of the receivership. He failed to file monthly receivership reports as directed by the orders of 10.12.2009 and 15.1.2010. However, his relevant witness statements adequately explained the reasons for his oversight. I find that this failure caused no loss to the Second Defendant. I am satisfied from the evidence that, notwithstanding the Second Defendant's complaints, the Receiver and his staff have acted properly in the conduct of the receivership. They have been assisted and guided by a suitably qualified Gérant in France (Mr. Lloyd) and with advice, via Mr. Lloyd, from French lawyers.
53. The evidence which the Receiver has adduced demonstrates that the reality is that SCILDV's liquidation (and its merger with the liquidation of Waypharm SAS) was wholly unavoidable. SCILDV's books and records were incomplete and/or in disarray. Nonetheless, based on Mr. Lloyd's initial "flash audit" report to the Receiver in February 2010, it was clear, even at that early stage that SCILDV was heavily insolvent. In the circumstances, its liquidation was inevitable. Furthermore, the risk of the extension of Waypharm SAS' liquidation to SCILDV was recognised at an early stage. Attempts to pre-empt liquidation by marketing and selling the Property were not successful, despite the retainer of BNP Paribas as selling agents and an extensive marketing exercise.
54. As I have already described above, SCILDV's post receivership activity was largely funded through loans made by Brookmill and Coppelia, from funds which had in turn been lent specifically for that purpose by the Second Claimant. By September 2010, all funds had been exhausted. As Gérant, Mr. Lloyd was obliged under French law to take steps to place SCILDV into liquidation. The Receiver's options at that point were limited. He could either consent to the extension of Waypharm SAS' liquidation to SCILDV, or he could take steps to place SCILDV into liquidation independently. The latter course would not have prevented Maitre Rogeau (Waypharm's liquidator) from proceeding with his own application for the merger of the two estates. The advice received by the Receiver at that stage was that the evidence in support of Maitre Rogeau's merger application seemed relatively strong. Moreover, and importantly, the Receiver did not have any evidence capable of establishing that the affairs of Waypharm SAS and SCILDV were not inextricably conjoined. As already stated, on 26 October 2010, with the consent of Mr. Lloyd, the French Court ordered that the liquidation of Waypharm SAS should be extended to SCILDV. The Receiver explained that the provision of consent was not taken lightly and advice was taken. Indeed, the position had been held at bay for as long as possible, until it became clear that no further funding would be available and that a buyer for the Property could not be found. It is clear from the evidence that every effort was made by the Receiver to stave off formal insolvency for as long as possible, despite the pressure from the liquidator of Waypharm SAS.
55. In any event, as the evidence demonstrated, once the Claimants were no longer prepared to fund the receivership, Mr. Lloyd had no option other than to accede to the merger of the liquidation; there was no question of the Receiver having abdicated all responsibility to Mr. Lloyd. The unchallenged evidence shows that there was close liaison between the two office holders and that the Receiver properly monitored the situation throughout. Even if the merger had not taken place, SCILDV would nonetheless have had to go into liquidation in any event. By September 2010 it was insolvent on any basis. Moreover the Receiver could not have stopped or controlled the process in his capacity as receiver, particularly given the absence of funds to save SCILDV.
56. The complaint made by the Second Defendant is that the Receiver should have referred back to the English Court for directions on the question of what, if anything, ought to be done with regard to the prospective merger of the liquidations. Although I consider that, with the benefit of hindsight, this might have been desirable, in any event, even if this course had been taken, the outcome would have been the same. There is no basis for the suggestion that the failure to do so caused any loss to the Second Defendant.
57. Nor is there any substance in the Second Defendant's complaint that the Receiver failed to inform him about the impending extension of the liquidation. The evidence strongly suggests that he was well aware of that fact: he does not say that he did not know about it; and the probability is that he did know, given that "his" company SCILDV Panama, claims to be a creditor of SCILDV and would therefore have been notified by the Liquidator of Waypharm SAS. In any event, the reality is that the Second Defendant would never have been in a position to oppose the merger of the liquidations, for the reasons set out in paragraph 12 of the Claimants' Further Response. As for the Receiver, his decision not to seek to intervene was properly made, on the basis of professional advice. It is difficult to envisage what, if any, other steps the Court would have required the Receiver to have undertaken, even if he had applied for further directions.
58. I also hold that the Second Defendant's complaint that the Receiver failed to complete the validation process, is misconceived. There was no funding for this purpose and no obligation upon the Receiver to secure funding for SCILDV, let alone for Waypharm SAS, which was the only applicant for validation.
59. I conclude that no sensible or serious criticism can be made of the Receiver's conduct following his appointment. The Second Defendant has failed to demonstrate any genuine claim that the Receiver acted in breach of duty or that he has any real prospect of establishing such a claim at trial.

Does the Second Defendant have a genuine claim, or any real prospect of establishing, that he has suffered any recoverable loss as a result of the Receiver's alleged breaches of duty?

60. Again, in my judgment the Second Defendant has no genuine claim in this respect and certainly no real prospect of establishing this element of his case at trial. He claims €53m "(purchase value of the assets and interests: €37m and €16m validation costs of the equipment paid through Waypharm SAS)" plus "£5m damages for depriving me to exercise opposition to the Versailles merger ruling". The €37m is said to have:

"…. come straight out of my SCILDV SA/Panama account and Best Financial Services Corp. Accounts which for both I'm the ultimately [sic] owner".

61. As I have already mentioned, there is no adequate explanation or particularisation of the claim for £5 million; the strong inference is that the Second Defendant has merely claimed this sum because it reflects the figure of the Receiver's security deposit.
62. The evidence does not establish that the purchase price for the Property was directly or indirectly paid by the Second Defendant, in the manner alleged. The only evidence that there is, shows that the money came from SCILDV's bank account. SCILDV Panama made a demand for payment from SCILDV in June 2010 but subsequently did not lodge any claim in the merged liquidations within the timescale prescribed by French law. Moreover, it is wholly unclear what the Second Defendant's interest in SCILDV Panama is, let alone how it can be said that any advances made by SCILDV Panama translate into actionable/recoverable losses sustained by the Second Defendant.
63. As I have already said, the evidence clearly demonstrates that SCILDV was hopelessly insolvent well before the Receiver was appointed. There is nothing to suggest that the Second Defendant's alleged loss of his investment in SCILDV was caused, directly or indirectly, by any act or omission on the part of the Receiver.
64. Likewise there is no evidence supporting the Second Defendant's claim that it was he who paid or funded the €16m said to have been spent on validation. In any event, irrespective of the source of funds, the beneficiary of those payments would have been Waypharm SAS, as occupier and validation applicant. It is significant that no debt allegedly owed to him by Waypharm has ever been disclosed by Mr. Mekni as an "asset" in his disclosure affidavits.
65. I conclude that there is no substance in any of the Second Defendant's claims against the Receiver; not only do they have no real prospect of success but also they cannot be characterised as genuine claims. In reaching this conclusion I have taken into account the adverse findings which I made against the Second Defendant at trial.

Conclusion

66. Accordingly I dismiss the Second Defendant's claims against both the Claimants and the Receiver. The Second Defendant must pay the costs of and incidental to the applications on the standard basis.

Note 1    Applied inGlatt v Sinclair, ibid, per Kitchin LJ at para 11.    [Back]