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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		12 October 2005

Mr. Justice Forbes :

1. This is an application for summary judgment against the First Defendant, Mr. Shahabuddin Saadi, pursuant to the provisions of CPR Part 24. The First Claimant (hereafter "BCCI SA") is a company registered in Luxembourg and is part of the wellknown BCCI group of companies. It is in compulsory liquidation following an order made by the High Court on 14 January,1992. As it happens, BCCI SA was also ordered to be wound by the Luxembourg District Court on 3 January, 1992.

2. The Second Claimant ("BCCI Overseas") is a company registered in the Cayman Islands and is also part of the BCCI group of companies. In this judgment I will refer to both BCCI SA and BCCI Overseas collectively as BCCI, except where it is necessary to refer to them individually. BCCI Overseas is also in liquidation following an order of the Grand Court of the Cayman Islands made on 14 January, 2002.

3. As set out in the first affidavit of Mr. Andrew Witts, the solicitor acting for the joint liquidators of BCCI in these matters, there is an asset pooling arrangement between BCCI SA and BCCI Overseas.

4. Mr. Saadi is a former employee of BCCI SA. He worked at BCCI's offices in London between September 1976 and January 1988. Part of Mr. Saadi's job entailed booking business on behalf of BCCI Overseas.

5. The Second Defendant, Mrs. Saadi, is the wife of Mr. Saadi. She has been joined in these proceedings solely for the purposes of enforcement.

6. The evidence in the case is very substantial, but the essential material is contained in the following affidavits and witness statements: (a) the first affidavit of Mr. Witts, sworn on 26 May, 2005; (b) a witness statement of Mr. David Waters of Deloittes, who is also duly authorised to act on behalf of the joint liquidators. Mr. Waters' witness statement is dated 12 August, 2005; (c) a witness statement of Mr. Naseem Ahmad, who was an employee of BCCI and who was admittedly involved in the fraudulent activities with which these proceedings are concerned. Mr. Ahmad's witness statement is dated 25 August, 2005; and, finally, a witness statement of Mr. David Langford, a solicitor in the firm of Wallis & Co., who was concerned in a conveyancing transaction to which I will refer in due course and which is part of the evidence relied on by BCCI as demonstrating Mr. Saadi's participation in the fraud with which these proceedings are concerned. Mr. Langford's witness statement is dated 7 September, 2005.

7. There is also a very detailed Particulars of Claim which has been served together with the other documentation in this case.

8. As at today's date, Mr. Saadi has not filed any defence; nor has he served any evidence. He has, however, sent a letter dated 26 July, 2005 to BCCI. On behalf of BCCI, Mr. Dougherty has quite properly drawn attention to that letter and its contents, but has made it quite clear - correctly, in my view - that the letter does not have any real evidential value for the purposes of these proceedings.

9. The hearing bundle also includes various statements that deal with questions of service and other procedural matters. It will not be necessary to refer to those in any great detail.

10. The factual background to the claim is set out in Mr. Witts' first affidavit. The claim against Mr. Saadi arises out of a series of frauds carried out against BCCI that were perpetrated through BCCI's Affiliate Co-ordination Unit (conveniently referred to as 'ACU'). At least US$40 million (excluding interest) was misappropriated from BCCI in total. Proceedings against other parties in respect of those frauds have so far recovered about US$15 million (including interest). Other details of the fraud and the general circumstances of the case are set out in the Judgment of Mr. Justice Jonathan Parker (as he then was) in the case of BCCI & Ors. -v- Makhan Jan & Ors., handed down on 17 November, 1999, and also in the Judgment of Sir Donald Rattee in BCCI -v- Masoom & Ali (and Ors.), given on 21 January, 2002. For convenience, those fraudulent activities can be described collectively as the 'ACU fraud'.

11. In summary, the ACU fraud involved the creation of false loans which were recorded in the books of BCCI Overseas. Unauthorised debits were then paid under these false loan accounts with payment being made out of BCCI SA's account in London. In each case there was then a corresponding book entry as between BCCI SA and BCCI Overseas that recorded the fraudulent transaction.

12. A comprehensive schedule of the fraudulent payments that resulted from the ACU fraud is to be found in the court bundle at pages 117 to 124. Other than to say that this schedule sets out details of the various fraudulent payments by means of which money was purloined from BCCI, it is not necessary to go into it in any further detail for the purposes of this Judgment.

13. Until January 1988 Mr. Saadi worked as an account manager in the ACU. He was an authorised signatory of BCCI SA and BCCI Overseas. It is BCCI's case that Mr. Saadi was an active participant in the ACU fraud, and thereby that he acted in breach of trust and in breach of fiduciary duty in respect of the monies misappropriated from BCCI during the period that he, Mr. Saadi, worked in the ACU.

14. It is helpful to make a short reference to some procedural aspects of this case. On 26 May, 2005 BCCI applied for, and obtained from Mr. Justice David Steel, a without notice worldwide freezing order as against Mr. Saadi. That freezing order was then continued until further order by Mr. Justice Goldring on 9 June, 2005.

15. The claim form, Particulars of Claim and application for summary judgment, as well as the freezing orders, have all been served personally on Mr. Saadi.

16. BCCI has also obtained permission from Master Rose to issue an application for summary judgment notwithstanding that no acknowledgement of service or defence has been served by Mr. Saadi. BCCI seeks summary judgment in these proceedings rather than a default judgment on the basis that a summary judgment will be easier to register and enforce abroad, because there will be a reasoned Judgment.

17. The test for summary judgment is set out in CPR 24.2. The court may give summary judgment against a Defendant if it considers that there is no real prospect of the Defendant succeeding at trial and that it considers that there is no other compelling reason why the case, or the issue, should be disposed of at a trial. The burden of proof is on the claimant to establish that there are grounds to believe that the Defendant has no real prospect of successfully defending the claim. If the Claimant adduces credible evidence in support of the application, the Defendant becomes subject to an evidential burden of proving a real prospect of success (or some other compelling reason for trial) - (see generally the current edition of the White Book, and the notes at CPR 24.2.5).

18. In these proceedings it is BCCI's case that Mr. Saadi has no real prospect of successfully defending the claim and that there is no other compelling reason for a trial. It is to be noted, as I have already pointed out, that Mr. Saadi has not served any evidence in this matter, nor has he filed a defence. To the extent that there is anything from him at all, it is solely in the form of his letter to BCCI dated 26 July, 2005.

19. Mr. Dougherty submitted, correctly in my judgment, that Mr. Saadi's control over the BCCI SA accounts was such as to make him a constructive trustee of the monies in the accounts and/or that he owed fiduciary duties to BCCI in relation to the monies in those accounts. As such, he had a duty, amongst other things, to act in good faith and in the best interests of BCCI. Mr. Dougherty submitted - and I agree - that in this regard Mr. Saadi was in precisely the same position as Sarfaraz Khan (a fellow officer in the ACU) who was held to have been a constructive trustee and to owe fiduciary duties to BCCI in relation to the relevant bank accounts in the proceedings before Mr. Justice Jonathan Parker in BCCI -v- Makhan Jan to which I have earlier referred.

20. It is BCCI's case that Mr. Saadi caused, procured, connived and/or assisted in the misapplication of BCCI's funds, whether for his own benefit or for the benefit of others, and/or that he failed to act or intervene in circumstances where he knew that BCCI's monies were being misapplied. To that end BCCI rely on a number of matters, and in my judgment those matters do demonstrate that Mr. Saadi is guilty of the misconduct to which I have just referred.

21. The first such matter is that Mr. Saadi held the same position in the ACU as Sarfaraz Khan, Raza Ali and Naseem Ahmad, who have all already been held liable for the ACU fraud in separate proceedings. Mr. Saadi was there when the fraud started. For at least part of the time during 1986/87, and whilst the ACU fraud was occurring, Mr. Saadi, Sarfaraz Khan, and Raza Ali worked closely together in a relatively small open plan office, that was separate from other departments at the Leadenhall branch of BCCI SA. In total, there were only some four or five ACU officers with signing authority, of whom Mr. Saadi was one. In the circumstances it is suggested, and I agree, that it is an appropriate inference to draw that Mr. Saadi was fully aware that Sarfaraz Khan and Raza Ali, and subsequently Naseem Ahmad, were dishonestly misappropriating monies from BCCI from the very outset.

22. The second matter is that, as set out in the first two pages of the schedule of the fraudulent transactions, from the early days of the ACU fraud substantial sums of money were misappropriated from the BCCI accounts and paid out in the name of one Shoukat Piracha. Mr. Piracha, as it happens, was a close family friend and business partner of Mr. Saadi.

23. Third, BCCI rely on the circumstances surrounding the purchase and sale of a property known as Willow Cottage, which demonstrate that Mr. Saadi must have known about the misappropriated money and/or that he was involved in its misappropriation. The relevant circumstances supporting that assertion are as follows:

(i) At least £70,000 of the money misappropriated from the accounts was actually used in the purchase of Willow Cottage. The evidence shows that £70,000 of misappropriated money was transferred to Wallis & Co., the solicitors acting on the purchase. The transfer of the £70,000 took place on 20 October, 1987. Completion of the Willow Cottage purchase took place on 22 October, 1987, there having been insufficient funds available to Wallis & Co. on the contractual completion date of 19 October, 1987. It can be seen therefore that, as between the contractual date for completion and the actual date of completion, the necessary funds to enable the purchaser to complete was transferred to Wallis & Co. There were no other property transactions being undertaken by Wallis & Co. at the time. The irresistible inference, therefore, is that the mis-appropriated £70,000 that was transferred on 20 October, 1987 was used to make up the purchase price of Willow Cottage and thus enable the transaction to be completed.

(ii) The evidence shows that, in the previous four months, more than enough money had been misappropriated from BCCI and paid out to Shoukat Piracha to fund the entire purchase of Willow Cottage. I emphasis, once again, that Mr. Shoukat Piracha was a close friend and business associate of Mr. Saadi.

(iii) The documents show that the name of the purchaser of Willow Cottage was one Amna Begum, who appears to have been either Shoukat Piracha's aunt, or possibly his mother.

(iv) During - and, in my judgment, importantly - throughout this entire transaction it was Mr. Saadi himself who gave instructions with regard to the purchase of Willow Cottage to the solicitors, Wallis & Co.

(v) Mr. Saadi was also involved in the subsequent sale of Willow Cottage, which took place in February 1992. In that regard, he gave instructions to a Mr. Tasselli, who was then the solicitor acting on the sale of the property. Mr. Tasselli was a solicitor who had acted for Mr. Saadi personally in other transactions. It is perhaps worth noting that the sale proceeds were then paid to Mr. Tasselli.

(vi) The purchase of Willow Cottage actually followed the same pattern as that of other properties that have already been found to have been purchased using money misappropriated from BCCI. In particular, the property was purchased using Wallis & Co., who had acted in relation to the purchase of other properties funded with monies misappropriated from BCCI. As I understand it, Wallis & Co. were a firm of solicitors who did do a considerable work for BCCI and its employees.

(vii) Mr. Saadi's attempted explanation of the Willow Cottage transaction which is to be found in his letter dated 26 July, 2005, is, in the light of the evidence which I have just summarised, simply not credible. According to Mr. Saadi, he merely introduced the Pirachas to Wallis & Co. He accepts that the Pirachas are old family friends. However, the assertion that he merely introduced the Pirachas is plainly untrue. The documents clearly show that it was Mr. Saadi who gave instructions in relation to the purchase of Willow Cottage. He was heavily involved in the whole transaction. Furthermore, in his letter, Mr. Saadi provides no explanation for the misappropriated £70,000 which was plainly used to enable the transaction to proceed to completion.

24. In my judgment, the evidence relating to the Willow Cottage transaction is very powerful and compelling evidence of Mr. Saadi's involvement in the ACU fraud.

25. If that were not enough, Mr. Sarfaraz Khan, who was heavily involved in the ACU fraud himself, has now stated that Mr. Saadi was involved in the ACU fraud and that Mr. Saadi did receive misappropriated money. Furthermore, and separately, Mr. Naseem Ahmad, who was also involved in the ACU fraud has stated in his witness statement that Mr. Saadi must have known of the fraud and benefited from it personally.

26. I accept that the evidence clearly shows that Mr. Saadi misappropriated money from BCCI during the period that he worked for them in the capacity that I have earlier described - or, at the very least, that he was aware from the outset that monies were being appropriated from accounts over which he had control and responsibility as an account manager.

27. In my judgment, both on the basis that Mr. Saadi knew that monies were being appropriated from the accounts over which he had control and took no action, and/or that he knowingly benefited from the misappropriated monies, Mr. Saadi clearly acted in breach of his fiduciary duty and/or in breach of trust.

28. Accordingly, I have come to the firm conclusion that there is, for those reasons, no real prospect of Mr. Saadi successfully defending this claim at trial, and that BCCI is entitled to equitable compensation in the sum of the misappropriations that took place whilst Mr. Saadi worked for BCCI in the capacity described earlier in this Judgment. The total figure of those misappropriations during that period is £3,174,215.68. In my judgment, and having regard to what I have to say about limitation, BCCI are entitled to judgment in that sum.

29. I merely refer to limitation to make it clear that I have considered the point and have come to the conclusion that there is no limitation problem in this case. It is to be remembered that no defence of any sort has been raised by Mr. Saadi, and thus no limitation defence has been raised by him.

30. Accordingly, as Mr. Dougherty submitted, strictly speaking no limitation issue is raised in this summary judgment application. However, given the importance of the case it is, in my view, appropriate to consider it and deal with it very briefly. The point is a very short one. It is BCCI's case - and I agree - that no limitation period applies in this case. The reason for that is the provisions of Section 21 of the Limitation Act 1980, which, so far as material, are as follows:

"(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action:-

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use; "

(3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued".

31. Mr. Dougherty submitted that this is a case which clearly falls within the provisions of Section 21(1)(a) of the 1980 Act having regard to the following:

(a) Mr. Saadi was an account manager and had control of the relevant bank accounts from which the monies were misappropriated. He plainly owed fiduciary duties in respect of the sums held in those bank accounts and was a constructive trustee of the funds under his control. His overriding fiduciary duty was to exercise that control for the benefit of BCCI and, for the reasons already given at some length, it is BCCI's case, which I accept as well-founded, that Mr. Saadi knowingly breached his fiduciary duties and/or acted in breach of trust.

(b) In Paragon Finance plc -v- DB Thakerar [1999] 1 All ER, 400 at p.408ff, Millett, LJ distinguished constructive trust cases where there was a relevant preexisting fiduciary/trust relationship (Category 1 cases) from cases where the constructive trust is simply imposed as a formula for equitable relief in fraud cases (described as Category 2 cases).

(c) I accept the submission that on the basis of the Paragon Finance analysis, the case with which these proceedings are concerned is a Category 1 case because there was a pre-existing fiduciary relationship between Mr. Saadi and BCCI in relation to the monies in the bank accounts that were the subject of the dishonest transactions. The claim against Mr. Saadi is that he was fraudulently involved in the breach of trust and/or that he misappropriated money belonging to BCCI. He knowingly permitted breaches of trust and/or breaches of fiduciary duty to take place in relation to monies under his control and/or caused the monies to be misappropriated for his own benefit.

(d) It follows from that that I am satisfied that the claim does fall within Section 21(1)(a) of the 1980 Act and that therefore pursuant to the express provisions of that sub-section no limitation period applies.

32. I am fortified in that conclusion by the Judgment of Jonathan Parker, J. in relation to the claim brought by BCCI for breach of fiduciary duty and/or breach of trust against Sarfaraz Khan. Mr .Saadi held an equivalent position to Mr. Khan within the ACU. In that case, Jonathan Parker, J. came to the conclusion, for the reasons set out in his Judgment (which in substance are the same as those which I have given in this Judgment) that the claim in relation to Mr. Khan fell within Section 21(1)(a) of the 1980 Act and that therefore no limitation period applied.

33. Accordingly, I have come to the firm conclusion that the limitation period has either not expired or that there is no relevant limitation problem.

34. Finally I turn to the question of interest. Mr. Dougherty submitted that since Mr. Saadi's breach of duty involves a breach of trust and a breach of fiduciary duty, BCCI are entitled to claim compound interest: see Wallensteiner -v- Moir [1975] 1 QB, p.373. This was the approach that has been adopted in all the other ACU fraud cases. I am equally satisfied that it is the appropriate approach in this case. I therefore adopt the same approach as that adopted in the earlier cases of calculating compound interest at the relevant judgment rate with six-monthly rests. Calculated on that basis the figure for interest is some £14 million-odd. The precise figure will be given to me in just a moment by Mr. Dougherty when I finally deal with the terms of the order.

35. Accordingly, for all those reasons I am satisfied that the Claimants are entitled to summary judgment against the First Defendant pursuant to CPR 24, and that the judgment sum will be £3,174,215.68, together with interest in the sum of £14,746,130.87.

36. I also order that the First Defendant is to pay the Claimants' costs of the claim, to be subject to a detailed assessment, if not agreed, such assessment to be on an indemnity basis.

MR. JUSTICE FORBES: I do not think there is anything wrong with your draft order. I have filled in the sum for interest. I have also added the words to the end of para. 2 'Assessment to be on an indemnity basis'.

Once again, thank you very much for your very carefully prepared skeleton. It has been a great help.

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