England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		The Royal Courts of Justice The Strand London
		19 February 2001

MR JUSTICE GOLDRING:

The application

This is an application under section 37(1) of the Supreme Court Act 1981 to appoint a receiver. An interim order is sought. By that section the High Court may grant such an application "in all cases in which it appears to the court to be just and convenient to do so".

The respondent company is English. The applicant company is Israeli. The court has power to make interim orders in relation to foreign proceedings wherever in the world they have been, or are to be, instituted: see the Civil Jurisdiction and Judgments Act 1982.

The background

The applicant is in liquidation in Israel. It is alleged that the company was the vehicle for a massive commercial fraud committed by a man called David Hyam Fisher. He is referred to as Dr Fisher. He is an Italian citizen with family connections in Israel. The basis of the allegations - and I emphasise that they are only allegations - can be summarised shortly. Dr Fisher obtained huge loans for the applicant in respect of a construction contract in Israel. The amounts were based upon the value of the contract. The contract between the applicant and the contractor was said to be at arm's length. It was signed, as I understand it, in 1992. Petitions for the applicant's bankruptcy were issued, again as I understand it, in January 1998. Dr Fisher in fact controlled both the applicant and the contractor. The value of the contract was grossly overstated. The applicant was charged inflated prices. False completion certificates were signed. Dr Fisher siphoned off huge sums for his own benefit. The sums involved in the alleged fraud are said to be enormous; in excess of $100m.

Dr Fisher is currently a defendant in proceedings being brought by the liquidator in Israel. The liquidator is claiming that Dr Fisher is liable for the applicant company's debts, some $130m. Dr Fisher also faces a criminal investigation. He faces arrest should he go to Israel.

The respondent company is English. Its shares are directly held by two Isle of Man companies, Rivercroft and Cedargrove. Each owns half. Those companies are owned by another Isle of Man company, formerly known as Bentinck. It is trustee for a Swiss fiduciary company called Arner Consulting SA. The applicant alleges that Arner Consulting SA held its beneficial interest in the shares for Dr Fisher. The respondent alleges that its beneficial interest is held for Dr Fisher's wife, Miss Snyjders. That is a crucial issue in this application.

The respondent company formerly owned an Italian company, Immobiliare Villa Daniella ("IVD"). IVD's sole asset was what has been described as "a magnificent villa" called Villa Daniella. The villa was in the respondent company's books at £674,752. The liquidator values it at around $2m. In 1998 IVD sold the villa to Miss Snyjders for about £150,000 or £195,000; in other words, for a sum far less than its value.

The injunction

On 1 September 1999 the applicant applied without notice for a world-wide freezing order against the respondent company. Among other things, by it the respondent,

". . . must not in any way dispose of, or deal with, or diminish the value of any of its assets, whether they are in or outside England and Wales, and whether in its own name or not, or whether solely or jointly owned, up to . . . [$2 million] . . . This prohibition includes the following assets in particular -

(a) the respondent's interest in [the villa];

(b) any money in any bank accounts."

On 22 September 1999, by consent, the injunction was ordered to continue "until trial in the Israeli proceedings or further order". Mr Davies, the solicitor acting for the Israeli liquidator, swore an affidavit in those proceedings. He drew attention to the liquidator's comments in a report dated 8 July 1999. Under the heading "Housepower", the liquidator said,

"This company, which is a British company whose directors are resident in the Isle of Man, hold shares in an Italian company, IVD.

As became clear to the liquidator during his visit to Italy, and as was indicated to him by parties closely associated with Fisher in Italy, this company owns a magnificent villa. From the questioning of neighbours living on the same street it arises that Fisher acquired this villa and has abided [sic] therein since the time of such acquisition. For these reasons it is clear that Fisher is the owner or ultimate beneficiary with respect to this villa and Housepower is another one of the holding companies under his control."

As well as applying for an injunction, Mr Davies indicated that he was applying for a receiver to be appointed. This application was not proceeded with. In his first witness statement made for these proceedings, Mr Davies says it was considered that there was insufficient evidence available at the time. In the affidavit he finally said,

"This is a case where there has been a massive fraud. Furthermore, Fisher has shown that he is adept at operating through shelf companies in jurisdictions of convenience and at concealing assets."

What was revealed after the injunction

Nothing was achieved by the injunction. After it had been served, Mr Davies spoke to Ms Jane Bates, who was the Bentinck in-house lawyer. She told him:

(1) Bentincks maintain the respondent company on behalf of clients;

(2) Bentincks' clients were a Swiss fiduciary;

(3) the directors of the respondent company were Bentinck appointees;

(4) the respondent company's bank account in the Isle of Man had been closed;

(5) as far as Bentincks were aware, IVD had been wound up;

(6) she thought that the villa had been sold and the the proceeds of sale had been paid into an account in Lugano (Arner Bank, part of the same group as Arner Consulting, is based in Lugano);

(7) Bentincks had not issued a power of attorney to anybody to deal with the account in Lugano; nobody with authority to deal with it had done so;

(8) Bentincks had instructions to wind up the respondent and were doing so; they were merely awaiting the finalisation of the accounts before applying for the company to be removed from the register (see 1/15/165 paragraph 5).

Further inquiry revealed, among other things, the following.

On 30 September 1998 the respondent company, as a shareholder of IVD, granted a power of attorney to Rita Grisoni, as liquidator of IVD, to attend an Extraordinary General Meeting to approve its liquidation. Rita Grisoni is an employee of Arner Consulting. On 6 October there was a further power of attorney granted to her to attend a meeting and to give IVD's administrator power to conclude the sale of the villa. The closing IVD accounts recorded a loss on sale of £537,203. The proceeds of sale were recorded in the accounts as £150,000. According to the sale documents sent to Bentinck by Arner Consulting, the villa was sold to Miss Snyjders for £195,000: see Mr Davies' statement (1/15/168, paragraph 13). The proceeds of sale, such as they were, were credited to the respondent company's bank account at the Arner Bank on 27 October 1998. After expenses they were subsequently paid out, it may be assumed to the respondent's beneficial owners. As to the respondent's bank account held at Arner Bank and money paid out of it, Ms Bates said,

"I confirm that I am not aware of any instructions having been given by any competent officer of [the respondent] for any money to be paid out of the account. I further confirm that no power of attorney has been given to any other person to deal with the account, which was opened by Carlo Scribani-Rossi pursuant to a Board Resolution of [the respondent] dated 19 December 1995."

Mr Stewart, one of the respondent company's directors, nominated by Bentincks, swore an affidavit. He said that the respondent company had no assets in England or Wales. Its account at Arner Bank had a credit balance in the total sum of about £40,000 on 15 December 1998. It was closed the next day. The funds were transferred out. Although he was a director he was not aware of any details relating to the transfer out of those funds. In his second witness statement Mr Davies says (paragraph 17),

"I am informed by [the liquidator] who has visited Italy a number of times in connection with this case, most recently about two months ago, that Mr Fisher and his family are still residing in the villa themselves . . . It would appear that the sale of the villa to his wife, apart from being at an undervalue, was a mere sham carried out with intent to defraud creditors and to put Mr Fisher's assets beyond the reach of his creditors."

In short, the position on its face regarding the respondent company's villa therefore is:

(1) It was sold at a substantial undervalue, apparently to Dr Fisher's wife.

(2) Not all the proceeds of sale, even at that undervalue, appear to have been accounted for to the respondent.

(3) The proceeds of sale have been removed from the respondent's account; the respondent's directors do not know about and have not consented to their removal.

(4) Dr Fisher and his wife are still living in the villa.

Other information has come to light. The liquidator of the applicant company instructed lawyers in Switzerland. Criminal proceedings against Arner are under way. A search warrant was issued. It was discovered that large sums of money passed through the respondent company's account at Arner; in one of his witness statements Mr Davies speaks of a sum possibly in the region of $1m. By July 1999, the account at Arner Bank had been entirely emptied of assets. The respondent company was about to be wound up.

The basis of the application

How then does Mr West put the application on behalf of the applicant company?

First, given the way its assets have on the face of it been dealt with, the respondent company has rights of action. In his first witness statement filed in respect of this application, Mr Davies says that the Swiss lawyers instructed by the liquidator have advised that a virtually unanswerable case can be brought against Arner Bank for permitting funds to be paid out of the respondent's account without proper authorisation. This applies to the proceeds of the villa. It would also apply to the other large sums which I have already mentioned. Until such a case is brought the exact extent of those sums will not be known. In short, the respondent does have assets; they are its rights of action against Arner.

Second, there is no prospect of the respondent exercising those rights of action if left to its own devices. It will be wound up. Only if a receiver is appointed is there any prospect of those rights being exercised.

Third, the court may appoint a receiver although the applicant has no legal or proprietary interest in the assets in respect of which the application is made. It is sufficient that the applicant has a claim against the respondent, even though that claim is unrelated to the assets: see Derby v Weldon [1990] Ch D 65. I do not understand that proposition to be in dispute.

In this case it is said to apply in the following way. The applicant company's liquidator has a claim against Dr Fisher in Israel. The respondent company is in reality a mere puppet of Dr Fisher. He effectively manages and controls it. Its existence as an independent legal entity is nothing more than "a facade and a fiction". In such circumstances the corporate veil can be lifted. The applicant company therefore has a claim against a respondent company. Its assets can, and in the interests of justice should, be used for the benefit of the applicant company's creditors who have been defrauded by Dr Fisher.

Fourth, it is just and convenient for the orders sought to be made.

Those propositions raise a number of issues. I shall take each issue in turn.

Beneficial ownership

The approach I should adopt is agreed. I should not take the assets as Dr Fisher's unless I "had good reason to suppose they were in truth his": see Allied Arab Bank Ltd v Hajjas & Ors, Times Law Report, 18 January 1988. I have also considered SCF Finance Co v Masri [1985] 1 WLR 876. The test (in the context of a Mareva injunction) was set out by Lloyd LJ (as he then was) in the following terms (page 884B),

"(i) Where a plaintiff invites the court to include within the scope of a Mareva injunction assets which appear on their face to belong to a third party, eg a bank account in the name of a third party, the court should not accede to the invitation without good reason for supposing that the assets are in truth the assets of the defendant. (ii) Where the defendant asserts that the assets belong to a third party, the court is not obliged to accept that assertion without inquiry, but may do so depending on the circumstances. The same applies where it is the third party who makes the assertion, on an application to intervene."

Ms Myer, on behalf of the respondent, does not suggest that a different approach should be adopted when considering the appointment of a receiver in this case.

The evidence regarding beneficial ownership

Matters relied upon by the applicant

I shall summarise them.

(1) The whole basis upon which the freezing order was obtained was that Dr Fisher was the beneficial owner. The respondent did not object to that assertion. It consented to the continuation of the order. Nowhere in the correspondence is it suggested that Dr Fisher is not the beneficial owner.

(2) This application was made on 15 December 2000. In his witness statement (page 170, paragraph 20), Mr Davies said,

"Investigations carried out by the liquidator and persons acting on his behalf in Switzerland have confirmed that Mr Fisher is the beneficial owner of all the shares in Housepower Ltd and that Arner Consulting were accustomed to act in accordance with instructions given to them by Mr Fisher."

On 16 January 2001, by Mr Vyas, a solicitor, the respondent responded. It did so in these terms. Mr Vyas said (2/242, paragraph 7),

"It is the Israeli court that is seised of all the facts and circumstances relating to the alleged fraud. If after hearing all the evidence the claim by the liquidator fails, there would be no basis on which the liquidator would be entitled to gain control over Housepower through the appointment of a receiver. In my submission, therefore, the proper method of proceeding would be for the liquidator to await the outcome of the substantial proceedings in Israel before proceeding with any application regarding Housepower in England."

Referring to the injunction and the consent order, he said,

"It was clearly the intention of the parties and the court at the time that the status quo should be preserved until the outcome of the Israeli proceedings and there is no good reason whatsoever to depart from that view." (paragraph 9)

Nowhere does he suggest that Dr Fisher was not the beneficial owner; neither does he suggest that the Mareva was obtained on an incorrect understanding of the facts. It was only in the statement of 22 January 2001 that the assertion was first made that the beneficial owner was Miss Snyjders. That is when certain documents, with which I shall deal below, were produced in these proceedings.

(3) There is a document dated 21 December 1995 which clearly sets out who the beneficial owner of the funds in the respondent's bank account is. It was recovered in the course of the Swiss proceedings. It is referred to as Form A. I refer to the translation (2/31/331). It is headed "Bank Arner: determination of claimant to commercial rights". It refers to Housepower Properties Ltd, London. It states that,

". . . the claimant claims the commercial right to the sums conferred to the Bank of Arner SA."

The claimant is Dr Fisher. His address is said to be one in Italy (although not Villa Daniella). The document is signed by Mr Rossi. It is not signed by Dr Fisher. That is the same Mr Rossi to whom I have already referred and who is also described in the course of the statements as Dr Fisher's mouthpiece.

Matters relied on by the respondent

(1) The respondent produces what are referred to as mandates. They too were apparently seized in Switzerland. By those documents, Dr Fisher's wife is said to be the beneficial owner of the respondent. What appears to be her signature is on them. One document bears the date 8 February 1995; another at the end of it, where signed, has the date 8 February 1985. That, of course, is well before the respondent company was incorporated. In that document there is also a reference to 8 February 1995. There is produced too a copy of Miss Snyjders' passport. It is apparently part of the documentation relating to the mandates. That passport was first issued on 24 July 1995, some five months after 8 February 1995.

(2) Miss Snyjders has made a statement. Among other things she says that she has been the sole beneficial owner of the respondent since 8 February 1995. On 2 July 1995 she says that she entered into a deed of separation of assets between herself and her husband. She says she provided the money for the purchase of the villa. The respondent bought it on her instructions. Completion of the purchase was on 12 April 1996. It was decided, because the means of holding the villas was no longer "fiscally beneficial", that the villa should be purchased from IVD. It was decided that the respondent should be wound up. She says that she was entitled to the proceeds of the liquidation of IVD.

As to Form A, she says she knows nothing about it. It was not signed by Dr Fisher or her. The address on it is five years out of date. She says nothing as to details of any money into or out of the respondent's account at Arner Bank. Given that she is saying she was the beneficial owner of that company, she should presumably have documents or knowledge about such matters.

(3) Mr Rossi has made a statement. He says, among other things, that he does not recall Form A. Such a document would be placed in the archives.

(4) Rita Grisoni has made a very short statement. It contains little detail. She says that Miss Snyjders gave instructions regarding the respondent company and its bank account. Sometimes she would be instructed to pay money from the account to Dr Fisher "since he was more available for travels". She too produces no documents relating to the running of the account. Neither does she in terms say who the beneficial owner of the respondent company is.

(5) In addition to the criticisms made of Form A by Miss Snyjders, the respondent criticises the way in which Form A was obtained by the applicant. It is not necessary to go into detail. It does not seem to me to matter in the context of this application.

My view as to the beneficial ownership

I am satisfied that there is good reason to suppose that Dr Fisher was in truth the owner of the assets. I say so for several reasons.

(1) Form A is clear on its face. It post-dates the mandates since produced. Mr Rossi does not suggest that it is not authentic. It is reasonable to infer that it is the relevant document.

(2) In my view the matters raised by Mr West on behalf of the applicant have substance. I have summarised them above. The suggestion that Dr Fisher was not the beneficial owner came late.

(3) There is plain evidence that Arner Consulting was Dr Fisher's mouthpiece.

(4) The witnesses relied on by the respondent are not independent. There are grounds to doubt the integrity of those at Arner. Rita Grisoni, on the documents before me, requested that a power of attorney be back-dated. She was involved in the sale of the villa at a substantial undervalue. Arner is being investigated by the local attorney general. Rita Grisoni does not say who the beneficial owner of the respondent company is. Mr Rossi was the individual who, on the documents before me, was the mouthpiece of Dr Fisher.

(5) Miss Snyjders plainly has an interest in the outcome of the proceedings. It seems, moreover, hard to understand why she should buy what is, according to her, already her property.

(6) Although it is said that the beneficial owner is Miss Snyjders, no documents or copies are produced by her or by any of her witnesses as to the detail of the running of the respondent's account, nor are any details produced orally in the witness statements. It seems to me probable that they would be, if helpful to the respondent company's case.

Lifting the corporate veil

The court is entitled to lift the corporate veil to achieve justice: see Re: A Company [1985] BCLC 333, Adams v Cape Industry Plc [1990] Ch 433 and Re: H & Ors [1996] 2 AllER 391. If the reality is that these are assets of Dr Fisher, the court should have regard to that reality. His creditors, assuming success in the litigation in Israel, should be entitled to have recourse to those assets.

Just and convenient

In his clear skeleton argument, Mr West sets out why it is just and convenient to appoint a receiver. In general terms, he submits that the order will be purely preservative. It will be to the benefit of whichever of the parties before the court is eventually successful in the Fisher litigation.

Specifically, he submits:

(1) The respondent is a dormant company. It does not trade. It was about to be wound up. The appointment will therefore not prejudice the respondent's trading position.

(2) The respondent does not appear to have any other creditors. (3) If the applicant's attempts to proceed against the respondent in the Fisher litigation are unsuccessful, the applicant will be able to pay any damages suffered. It has posted $1.3m security in Israel for this purpose.

(4) If the applicant's candidate is appointed receiver, the respondent will not have to pay for him to act. His expenses will be paid out of the costs of the liquidation.

(5) The appointment will not prejudice the respondent's position in the main litigation. Protective provisions are included in the order.

(6) This is not a case in which it is sought to appoint a receiver over a company whose solvency is not in doubt. There is no possibility whatsoever of the respondent remaining solvent if it is held liable in respect of the judgment against Dr Fisher in Israel.

(7) The case against Dr Fisher in Israel is very strong.

(8) The freezing order is not sufficient by itself to protect the applicant's position pending trial. Delay, pending the outcome of the proceedings, is likely to prejudice the applicant in a number of ways. It will delay the recovery of assets following judgment. It will enable further concealment of assets. It may well result in any actions which the respondent possesses being time barred in the jurisdictions in which they would have to be brought.

In argument, I asked Ms Myer what the prejudice of such an order would be. Although she sought to put forward various arguments, it seems to me that there was no real answer to the question. For, at the end of the day, the position is clear. The company is not trading. It was about to be wound up. If the actions have merit, it will recover what has been lost. There is security for costs. If Dr Fisher is not the beneficial owner, anything recovered by the actions will not be recoverable by the liquidator.

Ms Myer suggests that there is no urgency. The outcome of the litigation in Israel can be awaited. I have already set out Mr West's submissions regarding that. I should add this. The litigation in Israel may be rather more prolonged than anticipated. Although I do not need to go into detail, there are grounds for suspecting that Dr Fisher is trying to delay the case as long as he can.

In short, the sooner the receivership starts, in my view, the better. I have borne in mind all the submissions made by Ms Myer. However, my view is clear: justice and convenience suggest that the order should be made.

Conclusion

It comes to this. The injunction was to prevent the respondent company disposing of its assets. Its basis was that Dr Fisher controlled that company. He placed his assets in it. The respondent company disposed of its assets before the injunction. It did so, on its face, at an under value. Other assets may well have been disposed of through its bank account. The injunction could not bite. There is a clear prima facie case that the respondent company has rights of action in respect of the disposal of its assets. There is good reason to suppose that Dr Fisher was the beneficial owner of the company. Its use by him was merely a device. Justice requires that the corporate veil should be lifted. Justice and convenience clearly suggest quite clearly that the order should be made.

I will hear submissions as to the precise form of any order and also as to costs.