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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		St Dunstan's House Fetter Lane London EC4A 1HD
		26th November 2008

1. MR DONALDSON: The second claimant, who I shall call PacNet, is the subsidiary of a Canadian company called PacNet Services Ltd. The PacNet Group processes large volumes of small value payments, in particular in foreign currencies, on behalf of international companies such as direct mail companies, internet retailers or publishers, such payments being made by cheque, credit or debit card or electronic transfer.
2. The second claimant operates from offices in Shannon, in Ireland, and handles payment processing across Europe, mainly in the UK, France and Germany.
3. In 2006 PacNet was considering the provision of a new service for its clients concerning pre-paid debit cards. The concept was that customers of PacNet's clients could credit or load the cards with a sum of money which could then be used to make payments for goods or services supplied by the PacNet clients.
4. The defendant, Mr Bentolila, was engaged by PacNet as a consultant to carry out a feasibility study for the project. Initially his engagement was on terms set out in a memorandum dated 10th May 2006 and a letter of 29th May 2006. He was to be paid £10,000 in instalments and the work was to be completed by the end of August 2006.
5. PacNet further agreed to reimburse the defendant:

"All reasonable expenses properly incurred by you in the performance of your duties, provided such expenses have been authorised by PacNet Europe in writing to you in advance."

6. At the suggestion of PacNet, he was issued with a PacNet company credit card which, it was said, he could use for flights, hotels, et cetera, and for such matters it was obvious that it would not always be practicable to receive specific approval in advance.
7. The defendant presented his feasibility study to PacNet on 4th July 2006, that is some weeks ahead of schedule. The study proposed that an English company should be established with premises in England to conduct the new debit card business and that that company should apply to the United Kingdom FSA for an e-money licence (which would enable it to operate throughout Europe) and to Mastercard for a card issuer's licence.
8. This led to the defendant being engaged to carry out further work on the project, including the preparation of the proposed applications to the FSA and Mastercard. The engagement was on the basis of a further agreement with PacNet set out in a letter dated 25th July 2006. This provided for the defendant to move to Shannon and to work from the offices of PacNet, being paid five instalments of £3,600. The agreement included the phrase "the general provisions of your prior contract relating to expenses, et cetera, are extended to this agreement".
9. The first claimant, who I shall call Aeropay, was set up as the United Kingdom company vehicle for the project. The defendant was employed as Chief Operating Officer under a Contract of Employment with effect from 1st January 2007 at a salary of £4,804.17 per month, subject to a 50 per cent reduction if there was a delay in receiving the necessary licences from the FSA or Mastercard.
10. In addition, the contract provided for a bonus as follows:

"As and when Aeropay becomes profitable, and after recovering any losses incurred in the set-up period, you will be paid a bonus of 9 per cent of the company's net pre-tax profit. Your entitlement to bonus will not survive termination of the employment contract for any reason."

11. Otherwise the conditions of the previous engagements with PacNet were to apply.
12. Premises were found for Aeropay at Kiddlington, near Oxford, and the defendant and his wife moved to England early in 2007, after a brief trip to Russia, from where I understand his wife originated, over Christmas, taking up residence in rented accommodation in Oxford.
13. In April/May 2007 they moved to London, though Aeropay's premises remained at Kiddlington.
14. In fact, no licence was ever obtained from the FSA and the company never began trading.
15. A deposit account and a current account were established for Aeropay at HSBC, the latter account being fed by the former which was in turn funded by PacNet. £700,000 was used for the purchase and fitting out of Aeropay's office, including the provision of substantial quantities of IT equipment.
16. The defendant was issued with a chequebook for Aeropay's current account, though not an authorised signatory, and he was provided with 30 blank cheques signed by Dr Paul Davis, one of Aeropay's two directors and an authorised signatory on the account. The defendant was also provided with an Aeropay company credit card.
17. The claim made in the present action is based upon misuse by the defendant of (a) Aeropay cheques; (b) the Aeropay credit card, and (c) the PacNet credit card. The first part, that is to say the misuse of the Aeropay cheques, amounts for very much the lion's share of the claim, being approximately £250,000. The second part of the claim, that relating to the Aeropay credit card, is some £25,000. The third, that relating to the PacNet credit card, is some £22,000.
18. As to the first part of the claim, the defendant used the cheques in part to pay substantial sums of money to himself. He also used the cheques to pay sums to third parties, to purchase items or services which the claimants say were not for company purposes and were for personal purposes. The cheques in question were not only the cheques signed in blank by Dr Davis, but others taken from the chequebook which were "signed" with a stamp of Dr Davis's signature. It is unclear how that stamp was available to the defendant.
19. As to the two credit cards, these were also used to purchase items or services which the claimants say were not for company purposes and were for personal purposes.
20. The issue in the present case is whether or not these payments were authorised, i.e. whether they were for company purposes or personal purposes. If it was not the former, they are, as is accepted by the defendant, repayable by him.
21. The defendant was arrested on 17th May 2008 and interviewed by the police who removed, and I understand still retain, a substantial quantity of items taken from his flat and also five cars. I understand that the defendant is due to stand trial in the Crown Court in March 2009.
22. The present proceedings were begun in June 2007, when a freezing order was obtained. The defendant has acted throughout in person and appeared before me in person also. The defendant served a defence on 10th October 2007 and on 4th January 2008 he also served a response, though categorised as inadequate by the claimants, to a lengthy request for further information.
23. On 30th June 2008 Master Rose ordered that the parties should exchange witness statements by 20th August 2008, a time limit with which the defendant did not comply. Instead, he informed the claimants that he intended to rely on all witness statements which he had previously served in connection with the interlocutory matters, in particular the freezing injunction and his attempt to discharge it and which had ranged far and wide, indeed into matters which the claimants regarded as irrelevant.
24. The claimants then sought, and obtained, an order from the Master that the defendant should by 6th November 2008 serve a witness statement which was limited to the issues in the action and, for both convenience and certainty, the issues were identified in the order. In default of serving such a witness statement or statements, he was to be debarred from adducing evidence on the issues, in effect from adducing evidence in his defence.
25. On 6th November 2008 the defendant informed the court that with reference to the order of Master Rose he had decided not to serve any witness statements, stating that:

"I will be relying on the claimants' evidence and put the claimants to proof of their own evidence through cross-examination."

26. The result was that in the trial before me the defendant did not, and indeed was unable to, give evidence in support of his case and of the allegations outlined in his defence and in the response to the request for further information or intimated in any of the witness statements served at earlier interlocutory stages of the case. He did cross-examine a number of the claimants' witnesses, though not at very great length.
27. With that background, I turn to the detail of the claim. I start, firstly, with the claim of Aeropay based on misuse of the cheques and, as I indicated earlier, this accounts for most of the claim.
28. I deal, first of all, with the cheques made payable to the defendant totalling £225,819.23. As to some £93,000, which I understand were the cheques which were for what the defendant called a round number, the defendant's case was that they were justified by an agreement to pay him a bonus of £100,000 which was made orally in October 2006, i.e. at the same time as the parties concluded the employment contract. There is perhaps an interim question as to whether he was entitled to pay himself those monies by the use of the cheques, as opposed to expecting it to be remitted to him by PacNet into his own bank account, but I think one can set that question on one side, because, if he was in fact entitled to the bonus, he would have had a cross-claim which he would be entitled to set-off. But the prior and more fundamental difficulty relates to the question of whether there was any such agreement. An initial hurdle is, of course, that because of the decision he took, he did not give evidence in support of his contention that there was an agreement to pay him a bonus of £100,000.
29. The claimants' witnesses stated that there was no such agreement and they did not change that evidence in the course of giving their testimony.
30. I have moreover to say that it is inherently and highly improbable that the parties would have entered into any such agreement. The contract of October 2006 explicitly provided for a bonus to be paid according to a different formula and subject to considerable conditions. The effect of the bonus clause, which I quoted earlier, was that a bonus would become payable only when Aeropay became profitable and it would be after recovering any losses occurred in the set-up period and calculated at 9 per cent of net pre-tax profit.
31. On any view, the bonus which was provided for in the written contract could not become payable until, as an absolute minimum, the FSA licence had been obtained and the company had begun trading, which never occurred. It verges on the inconceivable that simultaneously, in October 2006, the parties should have agreed for payment of a £100,000 bonus without these tight conditions. Indeed, it would appear in that case to have been simply remuneration which one might have expected to form part of the agreed salary and consolidated into it.
32. I note also that when pressed by the claimants in March 2006 for an explanation of the many payments from the bank account, the defendant did not suggest that any of them were justified by reference to the supposed bonus agreement. Indeed, instead of referring to such agreement, he gave a wholly incorrect explanation of two payments of £2,500 by saying that he had had to make these payments to the FSA, though the paid cheques show that they were actually made payable to himself. So not only has the defendant failed to establish that there was an agreement for a bonus of £100,000, which would have justified the £93,000 which he says were covered by that bonus, but the probabilities are strongly to the contrary.
33. As to a further approximately £60,000, which was the figure that was mentioned by the defendant but it may be that it should be £45,000, the defendant's case was that they had been paid as bribes to procure the opening and operation of bank accounts in Russia. Again, given the defendant's stance, he did not, and indeed was unable to, give evidence in support of this contention. He did draw attention, both in cross-examination and in submissions, to an e-mail exchange with Dr Davis as to the opening of a bank account in Russia. He there outlined a number of possible solutions, all with their own and varying disadvantages. One of these involved dispensing with a tax ID. The defendant indicated that this would involve finding a co-operative bank and "a small bribe". This was the route which Dr Davis opted for. This does not, however, go anywhere near establishing either that many months later the defendant in fact paid out £60,000 or £45,000, whatever the correct figure is, for the purposes which he suggests, i.e. bribes in connection with the bank accounts, or that indeed the proceeds of any of the cheques paid to himself were used for this purpose.
34. It is also difficult to see that Dr Davis's approval of the route involving a small bribe to open a Russian bank account in June 2006 can provide authority for the payment of sums totalling £60,000 or £45,000 many months later.
35. There are then a further nine cheques, totalling £27,434.73. These are said to have been for reimbursement of expenses paid for out of personal funds or put on the defendant's personal credit card, but in the event I had no evidence which would support this contention. What the effect would have been of the clause requiring prior approval of expenses I do not need to examine, though I have indicated that it is hard to see how in relation to certain types of expense that could operate practically and it may be that the actual practice between the parties would have shown that it was not intended that that should have been operated with strict rigour, but I do not need to go into these questions, nor were they explored before me, because I simply do not have any evidence that the cheques were indeed paid in reimbursement of expenditure which could be said to be proper company expenditure.
36. I do not think that the figures which I have mentioned so far add up to 225,000. Insofar as there is a shortfall, I simply received no evidence by way of explanation.
37. It follows that the defendant had no authority to make these payments to himself by the use or, as the claimants would say, the misuse of the cheques and Aeropay is entitled to repayment of these sums. It is unnecessary for me to go into the fairly obvious causes of action which are available to the claimants.
38. I then turn to the cheques which were made payable to third parties and these amount to a much smaller sum of £25,305.86. It is most easily addressed by reference to the itemisation as it is to be found in the witness statement of Dr Davis. The various payments were itemised in a schedule attached to the Particulars of Claim, but in Dr Davis's witness statement they have been usefully grouped, and that is why I propose to follow the organisation of the claim as set out in the witness statement, for both these matters and the claims relating to the two credit cards.
39. Given the fact that these are all somewhat smaller items and amount in aggregate to much smaller sums, I can take the matter perhaps rather more quickly so far as each individual item is concerned. Occasionally I will be able to adopt a group approach. It will, however, become rapidly apparent that there are many similarities.
40. I start with the cheque referred to in paragraph 187 of the witness statement for £1,200 which was made out to Mr Brian Smith. It was dated 2nd February 2007. Research by the claimants has ascertained that this was for a second-hand graphics printer. Mr Smith was a wedding photographer and had a printer surplus to requirements. The defendant paid for the printer by cheque and was going to come and pick it up but his van broke down on the agreed day and he never got round to collecting the printer which is still with Mr Smith. Absent a cogent explanation from Mr Bentolila which because of his stance I do not have, it is impossible for me to see how this could be company expenditure. It certainly does not appear to have been a clear company requirement, given that the printer was never picked up.
41. I move forward to two cheques referred to in paragraph 197 to The Laptop Shop. These were for, not surprisingly, two laptops but also a Samsung display. Neither of the laptops were found in the company's office. The office was fully equipped and, on the face of it, there was no need for this equipment. It is possible that if the defendant had chosen to give evidence he might have satisfied me that one of the laptops was necessary and appropriate for working at home and it might have been that, in those circumstances, it would have been appropriate to give him credit for one of the laptops, subject always to the argument about prior authorisation for expenses. However, I had no such evidence and, in the circumstances, these machines, which presumably went to his home or were taken home, cannot be regarded as being authorised company expenses or within any kind of implied authority.
42. Paragraph 199, six cheques made out to Amazon totalling £11,000. It appears part of this sum was returned by Amazon, presumably because the goods in question were returned, and those returns amount to £3,867.44 which the defendant effectively has pocketed. So far as the uncancelled purchases are concerned, they include a camcorder, an Apple Mac, high-definition flat panel display, a Play Station console, a book entitled, "Piano for Dummies" which may tie in with the fact that at a later stage he also bought a digital piano, Jamie Oliver saucepans, knife block sets, and so forth, and a 75-piece cutlery set. I am told that there is a small kitchen area for making hot drinks in the Kiddlington office and it is possible that a kettle or some modest amount of crockery might have been appropriate. Again, I did not have any evidence to that effect and, on the face of it, all these items look as if they were for domestic, personal use. They were also all delivered to his home address. All the cheques made out to Amazon go into the personal side of the equation and are not implicitly authorised company expenditure.
43. Then paragraph 203 covers purchases from a shop called OSS Technology which apparently describes itself as a trusted spy shop, offering clients quality surveillance and spy equipment. The purchases included night-vision binoculars, a key tracker and some flash cards and a card reader, all delivered to the home address and some of which were found during the police search. Again, it is extremely hard to see, and I certainly cannot see, how they can possibly be for company purposes and I have no evidence which might help me to determine the contrary.
44. Paragraph 209, a cheque paid to Cherton Computers to purchase a Thinkpad laptop with five additional gigabytes of memory, this costing over £2,500. I repeat the point I made earlier in relation to laptops that the office was fully kitted out with the necessary equipment. Had I received evidence or heard evidence from the defendant, I might have been persuaded that one laptop was appropriate, but I never did receive such evidence. Given that position, again I am unable to conclude that this was implicitly authorised company expenditure.
45. Paragraph 210, two cheques which bought a tablet PC, a desktop computer, a mobile phone with a complete navigation system, a docking cradle for that phone, another pocket navigator, two memory cards for a digital camera and an all-in-one card reader. On the face of it, none of that appears to be company expenditure. Again, it is just possible that the card reader might have qualified, had I had evidence explaining why that was so but I did not.
46. A further cheque at paragraph 213 was for a massage chair which was delivered to the defendant at his home address. Had it been an office chair, even a slightly orthopaedic office chair, for the Kiddlington premises it might have been possible to see how that could be implicitly authorised, but, given that it is a massage chair and went to his home, it would appear to be a personal expenditure and I have certainly not seen enough to make it possible to conclude that it was implicitly authorised company expenditure.
47. So all these cheques payable to third parties are not covered by authority and the sums must be paid by the defendant to the claimants.
48. I turn therefore now to the claim on the PacNet credit account. This was between 22nd December and 30th March, so it will be noted that even after he transferred to Aeropay he was using the PacNet credit card and he was using the Aeropay company credit card as well, as will become apparent in a moment.
49. The total of the sums claimed by PacNet in relation to the use of the credit card are £14,838.53. There are quite a number of items, but, again, I can go fairly rapidly through them. To some extent they echo the pattern of expenditure which we have already seen in the case of the third party cheques which I have just reviewed. Again, these are grouped together in Dr Davis's witness statement.
50. The first are at paragraph 215 and they are a series of 30 items, totalling 4,947.94 Euros. These items were all paid or the card was used in respect of all these items incurred in Russia in late December 2006 and early January 2007 when the defendant had made the trip to Russia with his wife from which he returned to the UK. Most of them are for hotel expenses or restaurant expenses, as one can tell by the payee. One payment was for a laptop and software to access a Russian bank account online. It has been agreed that this was proper expenditure and the claimants have removed it from the claim. So the amount of that, the precise figure I do not have immediately to hand but that can be cleared up at the end of this judgment, will be deducted, but, apart from that, this would appear to be personal expenditure for the defendant and his wife. Again, I did not have any evidence which might have suggested that a significant or indeed any part of the trip was to explore business opportunities or anything of that sort so this cannot be brought within the implicitly authorised company expenditure.
51. At paragraph 216 we have 12 payments to Amazon, totalling 6,436.09 Euros. I can run very rapidly through them. They cover such things as a Tom Tom GPS satellite navigation system. There was another which was bought with the PacNet credit card. I think he bought another one as well. There is a wireless range expander, a Nokia SIM-free mobile Smart phone, a Sony radio cassette Walkman. I should add all these matters were delivered to the defendant's home address. A screen remote, a Kenwood device for playing films, music and an iPod for a car, an in-car stereo system, another Tom Tom navigation device, an internet tablet, a Kenwood navigation unit, an active subwoofer, an Epson-style colour printer. Absent cogent evidence, I simply cannot conclude that this was anything other than personal expenditure.
52. Paragraph 217, a payment of 211.64 Euros to a company called Photo Deal, but the claimants have not been able to ascertain what that is and I have absolutely no explanation, so the defendant cannot get credit for that.
53. Then at 218, two payment cash advances to the Post Office Travel Fund. I have absolutely no explanation as to the purpose of these payments, either the immediate or the ultimate purpose, so the defendant cannot be given credit for that.
54. Then paragraph 220, a debit or 458.22 Euros to VLM Airlines. The defendant suggested that this was a flight to Spain to attend a conference there, but I did not have of course any supporting evidence. The claimants say that VLM do not fly to any destination in Spain and the statement appeared to suggest that it was a ticket for Mrs Bentolila to go to Luxembourg. On that state of the evidence, I am unable to say that the defendant should be given credit for that as a legitimate and authorised company expense.
55. Paragraph 222, a payment of just over 90 Euros to Curry's, Oxford, for a cordless phone and a television aerial. The office had all its phones and it had a television there and there is no suggestion that it did not have an aerial. Again, absent any evidence to the contrary, this would appear to be personal expenditure.
56. Paragraph 223, a debit of 293.91 Euros to Scanning Pens Ltd for a docupen portable page scanner. This was recovered by the police in a search on 5th February 2008. Again, absent evidence, I cannot see that this was necessary for or implicitly authorised expense of the company.
57. So that covers the claim based on the use of the PacNet credit account and, after deduction of the Russian laptop and software, which I think is just over 1,000 Euros or a sum of that order, these sums are payable by the defendant to the claimants.
58. That leaves the claim by Aeropay in respect of the use of its credit card between 21st December 2006 and 16th May 2007. The first group of payments covered by paragraph 225 of the witness statement are Russian expenditure, that is to say expenditure during the stay in Russia in late December/early 2007. Again, they appear to cover hotels, restaurants and similar personal matters, save for another laptop, which is item 6, in the sum of 1,114.03 Euros. Again, the claimants have conceded that that was proper and, I should add, indeed as elicited by the defendant in cross-examination, these two purchases were known about, that is to say of the two laptops.
59. Paragraph 226, a number of purchases from Curry's and PC World, totalling £2,048. The claimants have been able to investigate with the payee, Curry's and PC World, what at least some of the purchases were for: a Packard Bell computer, Altech speakers, laser printers, snaggle cables, a Belkin router, Logitech headset, Panasonic fax machine, plasma screen, keyboard, surge protector, digital TV recorder. They were not in the offices when the defendant was arrested, with the exception of the Belkin router which cost £69.99. The fax machine was found at the defendant's apartment. I cannot see how a fully equipped office would require these items. Though the Belkin router was found at the office, the office already had a wifi system. It is possible that if I had heard evidence from the defendant he would have been able to satisfy me that it was there for a purpose, but I did not, so I cannot give him credit for £70 for that or for any of the other items.
60. There is a shortfall between the items which Curry's and PC World were able to identify and the total payments. Insofar as I have no explanation there, it is impossible for me to give any credit to the defendant.
61. At paragraph 232 we have a large number of items purchased from Amazon. Again, I will just go through them, highlighting some things. There is a memory stick which apparently was of particularly high quality and useful for playing back video or CD quality music, a digital camera, a tripod. I ought to add, all these items were delivered to the defendant's home address. A Photo Bank portable digital storage device, Epson picture pack for home photo printing, a Picture Mate compact printer, bluetooth connection, a filing unit which one might have thought could conceivably be relevant to the office but in fact was not found at the office, a bluetooth MP3 compatible CD player for a car, a fire-resistant safe box found at home, a fast ethernet internet camera, 300 Watt 5.1 channel home theatre system, an optic slim document scanner, again delivered to the home address, not found at the office and in fact found at the apartment in February 2008, a Phillips touch screen remote control system, an AV receiver, an automotive toolkit, an inflatable aerobed, a set-up box and Freeview box, a toy action water-gun, a memory disc, a memory for note books, telephoto zoom lens, Belkin bluetooth keyboard, Mastech hurdle, vertical scanner, battery grid for digital camera, computer mouse, wireless PC to TV converter, another computer mouse, software pack, another software pack, two walkie-talkies, Windows software pack, stainless steel telephone, SIM-free, two XBox play and charge kits, XBox console, two video games, Yamaha digital piano, speed camera detector, a £1,000 computer, another portable computer, another satellite navigation unit and a Kenwood device for playing films and music and controlling an iPod in a car (which I think is the second of them).
62. Even if I had had evidence from the defendant, I think it well nigh inconceivable that he could have persuaded me that these were anything other than personal expenditure. I repeat the comment I made about laptops earlier.
63. Paragraph 234 is a memory card for a Dell hand-held computer. Again, absent explanation in evidence, I cannot give credit for that.
64. A debit to British Airways in-flight sales of £239 for a Sandisk flash drive. Again, without evidence, I do not see that I am able to conclude that this was implicitly authorised company expenditure.
65. Paragraph 236, payments to the Post Office. I just have no explanation at all as to this, as to either the immediate or the ultimate purpose, and I cannot see how the defendant can be given credit for that.
66. Paragraph 239 is a payment of £1,623.61 to a firm called Power Positioning. The researches of the claimants have not found out what it is for. I have absolutely no explanation and no evidence. It is impossible for me to give the defendant credit for that.
67. Paragraph 240, these apparently relate to, four items totalling £420, expenses incurred by the defendant on a holiday which he took with his wife after a business trip to Luxembourg. Apparently they include the hire of a car, toll road charges and a payment to a hotel or restaurant. Again, it is possible that these were expenses that might have been brought either in whole or in part within the ambit of the business trip, but for me to conclude that I would have to have heard and accepted the evidence of the defendant in relation to that. Absent such evidence, I am unable to give him any credit for these items or any part of them.
68. Then paragraph 241, a number of items totalling just over £4,000 which are transfers made to a money card called the Bank Invik Everywhere Money Card. It appears that the defendant was issued with a sample pre-paid debit card from Bank Invik in his own name in order to try it out, but he loaded it up with £4,088.99, which may be a Euro equivalent, and used them to make payments to that aggregate amount between March and May 2007. I have absolutely no evidence as to what the expenditure was on and the researches of the claimants have not ascertained that and I have no evidence from the defendant so I cannot give him any credit for that.
69. Accordingly, with the exception of the payment for the Russian laptop, I find that he cannot be given credit for any of the payments on the Aeropay credit card, with the exception of the Russian laptop.
70. With that adjustment, the claimants are entitled to a judgment for the sum claimed in relation to the credit card.
71. I add finally that many, though not all, of the items purchased, in whole or in part, by use of the cheques and the credit cards are still in existence, though mainly, if not wholly, currently retained by the police. The claimants originally sought, by the use of tracing, to establish a proprietary interest in these items, but in their closing submissions decided not to pursue that course further. Their relief will therefore be restricted to monetary judgment in favour of the two claimants.
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