Loan - reasons for dismissing a claim by the Plaintiff for repayment of an alleged loan
Before : |
T. J. Le Cocq, Esq., Deputy Bailiff, and Jurats Olsen and Ramsden. |
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Between |
Alan Paul Booth |
Plaintiff |
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And |
Eelke Jan Bults |
Defendant |
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The Plaintiff appeared on his own behalf.
Advocate E. B. Drummond for the Defendant.
judgment
the deputy bailiff:
1. This is a claim by Alan Paul Booth ("the Plaintiff") against Eelke Jan Bults (also known as Elik Bults) ("the Defendant") for the repayment of an alleged loan in the sum of £160,000 plus interest. The Defendant denies that any such sum is due or that there was a loan between himself and the Plaintiff.
2. The Plaintiff places significant reliance, in support of his claim, on a document dated 17th August, 2005, prepared by the Defendant on the Defendant's headed notepaper with the title "Loan Security" ("the Loan Security Agreement" or "the LSA").
3. The LSA is a short document and it is worth setting out the material parts in full. It describes the parties as the Plaintiff and the Defendant and then, in the body of the document states as follows:-
"It has been agreed that:
A loan has been taken out with Jersey Home Loans Limited, 26 New Street, St Helier, Jersey, JE2 3RA, on The Penthouse, Les Amarrages, Greve d'Azette, St Clement, Jersey in the sum of £321,860 (three hundred and twenty thousand, eight hundred and sixty pounds sterling only).
Under conditions as mentioned in the schedule of Jersey Home Loans dated 21st July 2005 as attached.
Mr Alan P Booth has been mentioned and accepted as the only borrower by Jersey Home Loans.
Mr Elik J Bults PHDLLM as 50% shareholder of the transferred shares and after having received 50% of the borrowing sum, will accept the terms and conditions of the terms and conditions mentioned in the Facility Letter dated 21st July 2005 (pars pari) together with Mr Alan P Booth
For the settlement of controversies arising from the Security Agreement the parties acknowledge the competent court of St Helier, Jersey, Channel Islands."
4. Thereafter the LSA is signed by the Plaintiff and the Defendant and the Defendant specifies the date and place of signature as 17th August, 2005, in St Martin. As can be readily appreciated, although the LSA purports to be a formal document it lacks many of the drafting niceties that one might expect including definitions and a preamble. We also note that the description of the amount involved in written form is different from that in numerical form by £1,000 but we do not think anything turns upon that apparent error.
5. The Plaintiff relies upon the LSA as proof that the Defendant owes him the sum of £160,000 which is approximately one half of the sum mentioned as the loan from Jersey Home Loans Limited ("JHL"). It is apparent that the LSA does not describe the Defendant as the Plaintiff's debtor nor does it describe itself as a loan agreement as such but rather, in the title and in the very last paragraph as a security document. It is necessary to understand some of the background to establish what, if any, meaning may be given to the LSA and whether it does support or vindicate the Plaintiff's claim against the Defendant.
6. The Plaintiff and the Defendant were business associates and friends for some significant period. Much of the background is not in dispute and in essence may be summarised as follows:
(i) The Plaintiff and the Defendant were involved in a UK tax mitigation scheme which was known as the ITPM and which required the use of a number of offshore companies. The ITPM also needed Swiss banking facilities and the Defendant, a Swiss national, was brought in and became a director and co-owner with the Plaintiff of the offshore companies. One of the companies of which the Plaintiff and Defendant were co-owners and directors was a BVI company known as Adelphi Bay Limited ("Adelphi").
(ii) The ITPM ceased in 2002 when it was shut down on the basis of legal advice. It does not appear to be the case that either the Plaintiff or the Defendant had directly contributed any cash to the corporate structure. The Plaintiff's contribution was his intellectual property in that the ITPM was based on his ideas. The Defendant provided services as a director and administrator of the Swiss accounts. The money that came into the structure came from the employers and scheme participants.
(iii) During the operation of the ITPM substantial sums of money moved through the accounts associated with the structure and after the participants received the monies that they were expecting, there was when the scheme ceased approximately £3m remaining. On the closure of the scheme whilst the corporate structure remained in place that sum of money was transferred from the Swiss accounts to the structure's bank accounts in Jersey.
(iv) Outside of the ITPM the Plaintiff had a Jersey company called Custodian Business Management Services Limited ("Custodian"). It was a company without assets and the Plaintiff gave the Defendant some 50% of its shares in 2003. The Defendant was also appointed as a director. It was the hope of the Plaintiff and the Defendant that each would introduce funds and fund projects to their mutual benefit.
(v) As part of that exercise, in late 2003 a decision was taken by the Plaintiff and the Defendant to purchase the property known as The Penthouse, Les Amarrages, Greve d'Azette, St Clement ("the Penthouse"). Ownership of the Penthouse was effected by the purchase of shares in a property holding company known as East Lodge Limited.
(vi) There was no suggestion that the property was to be occupied by either of the Plaintiff or the Defendant but it was purchased rather as an investment. It was rented out.
(vii) The purchase consideration appears to have been provided by a loan made by Adelphi to Custodian and the purchase completed in June 2004. The shares in East Lodge Limited which reflected ownership of the Penthouse were registered in the name of the Plaintiff as legal owner. The rent from the Penthouse was paid into Custodian's bank account, appeared in Custodian's accounts and tax returns and Custodian paid income tax on it.
(viii) There is dispute between the Plaintiff and the Defendant as to whether the Plaintiff held the shares in East Lodge Limited for himself or for Custodian.
(ix) In 2005 the Plaintiff and the Defendant wished to refinance the Penthouse although the circumstances relating to that refinancing are a matter of dispute between them. In any event, in July 2005 the Plaintiff obtained an offer of the mortgage on the Penthouse from JHL and the mortgage monies were to be split roughly equally between the Plaintiff and the Defendant.
(x) It is in this context that the LSA was drawn up and signed by the Plaintiff and the Defendant.
(xi) The mortgage was drawn down in August 2005 and £160,000 was transferred to the Defendant shortly thereafter.
(xii) Custodian paid the larger part of all the mortgage instalments and expenses relating to the Penthouse and these were reflected as expenses in its accounts and claimed as deductions on its income tax returns.
(xiii) In December 2006 the Penthouse was sold and the proceeds of sale were used to repay the mortgage in full. The net proceeds of approximately £228,000 were received by the Plaintiff and in December 2006 some £100,000 was transferred by him to the Defendant.
7. It is the Plaintiff's case that the original purchase consideration for the Penthouse, characterised as a loan from Adelphi, was in fact his money. It is his case that all monies held in the underlying offshore companies, including that held by Adelphi, reflected payment to him for his intellectual property out of the ITPM. Although it was held in a company jointly owned between the Plaintiff and the Defendant the Plaintiff maintains the Defendant knew full well that he was the owner of the money involved. The Defendant had, so the Plaintiff asserts, already received payment for what he was due for services rendered under the ITPM. The Plaintiff further asserts that in 2005 the Defendant contacted him and asked if he could assist the Defendant by providing him with a loan. The Plaintiff replied saying that he had no surplus funds but he would see if a loan could be obtained on the property which he owned, namely the Penthouse.
8. The Plaintiff's case is that the Defendant needed money because he was engaged in a building project in Spain and the Plaintiff himself would have valued extra money because he himself was building a property for his family in Jersey. It was, so the Plaintiff alleges, in that context that he sought a loan from JHL in the sum of £321,860 as explained above.
9. It is the Plaintiff's case that the payment of £160,000 to the Defendant was a loan by the Plaintiff to the Defendant of part of the loan that he had secured over the Penthouse. It was the Defendant who prepared the LSA and the Plaintiff contends that he did so to provide the Plaintiff with comfort regarding the large loan the Plaintiff had provided to the Defendant. The Plaintiff's case is that by preparing and providing the LSA the Defendant acknowledged his indebtedness for 50% of the loan that the Plaintiff had obtained, in his sole name, from JHL.
10. It is the Defendant's case that whilst the shares to East Lodge Limited were held in the sole name of the Plaintiff he held those shares on trust and for the benefit of Custodian which was owned jointly by the Plaintiff and the Defendant. The Defendant did not hold 50% of the shares in East Lodge Limited in his own name because he had been informed that, as a Swiss national and non-Jersey resident, he could not do so. There is some support for this assertion in an email dated 28th October, 2008, passing between the Plaintiff and Mazars, a firm of accountants, in which he says under a section headed Point 4 the following:-
"Les Amarrages was purchased in 2004 making use of a private loan facility from the same source from whom I borrowed in order to purchase my own land in 2003. In 2004 Elik and I sought to obtain a mortgage from JHL but Elik was not allowed to apply being a non-resident so I made the application in my own name. JHL provided the facility of which you are already aware and the substantial increase in interest charges is due to paying interest to JHL."
11. Although this email does not speak directly to the shareholding at the time of purchase of the Penthouse it does suggest that, in the Plaintiff's mind, the Plaintiff saw this as a joint mortgage with the Defendant and the only reason the Defendant had not applied in his own name was because he was a non-resident. That may be said to suggest that the shares were held exclusively in the name of the Plaintiff for a similar reason. The juxtaposition of the description of the purchase of the Penthouse with "my own land" may also suggest that the Plaintiff did not see the Penthouse as solely his. It seems clear that the Defendant was aware of the application for the mortgage and was expecting to receive part of the money from JHL when, in an email between the Defendant and the Plaintiff of 29th June 2005 the Defendant writes:
"Dear Alan,
Enclosed you receive the bank details for the transfer from the loan, i.e. mortgage on the apartment. Please send any monies to: [here bank details are provided].
If there are any queries please call me."
12. It is clear from these facts that the Plaintiff provided to the Defendant 50% of what he borrowed from JHL which is not inconsistent with it's being owned beneficially by the Plaintiff and the Defendant jointly through Custodian.
13. The evidence in this case comprised the live evidence of the Plaintiff and the Defendant who had each also made witness statements to serve as their evidence in chief although inevitably much of the ground provided for in those statements was covered in the live evidence. In addition both parties relied on contemporaneous documentation to support their respective view of the position.
14. We were given very significant amounts of evidence relating to the relationship between the Plaintiff and the Defendant, detail relating to the background of the ITPM and its predecessor RAMS (to which we make reference below), as well as business dealings by and between the Plaintiff and the Defendant. We were shown significant amounts of documentation. We have, of course, as well as evaluating the evidence of the parties also given due weight to the documentation and the significance of it in our view. We do not, however, in this judgment, make reference to all of the matters that we heard about in evidence or read in the documentation.
15. We first heard from the Plaintiff. He is, by qualification, a Chartered Surveyor. He explained to us how in 1999 he was introduced to the Defendant by a Mr Michael Russell ("Mr Russell") of Zenith Trust Company Limited ("Zenith").
16. Prior to that, in 1995, the UK Government had proposed to bring in legislation concerning the construction industry and the Plaintiff had come up with a scheme to mitigate the tax burden attendant upon that legislation. That scheme was known under the acronym of RAMS and in 1995 he was in touch with Mr Russell to put in hand the necessary arrangements to give effect to the RAMS scheme. A number of seminars were conducted during 1996 with a view to explaining the RAMS scheme to possible participants.
17. In the event the UK Government did not enact the proposed legislation and RAMS did not proceed. Subsequently, however, similar legislation was proposed for IT workers and the suggestion was made by Mr Russell that a similar scheme could be put into place. The Plaintiff had been content with that provided the arrangements remained as under the original RAMS agreement with regard to his remuneration. The new scheme was, as mentioned above, referred to as the ITPM.
18. The ITPM for its operation needed accounts in Switzerland and as a result of that the Defendant became involved. Zenith administered the offshore companies. The gross revenues for the scheme were approximately £30 million with approximately £15 million going through the Swiss accounts. The Plaintiff anticipated receiving £3 million for his intellectual property interests in the scheme but in the event received somewhat less. The scheme closed in 2002 on the advice of lawyers. Of the monies held in the Swiss bank accounts some £3 million was returned from Switzerland to the Jersey bank account. In 2003 there was discussion between Mr Russell, the Defendant, and the Plaintiff as to the eventual disposal of the £3 million and an agreement was entered into by them dated 18th July 2003 which is in the following terms:-
"It is hereby formally acknowledged by the undersigned that all and any monies received by ABA Chartered Surveyors (ABA) as a result of the use of IP rights (in respect of National Insurance Mitigation Schemes) belonging to ABA by Adelphi Bay Limited, Alberta Bay Limited, Eastwide Limited, Kopykat Limited, Landau Limited, Lexica Limited, Maden SA, Tihama Limited and Yanucca Corporation, shall be divisible between the parties hereto in the proportions and for the reasons detailed below:
25% to be retained by ABA Chartered Surveyors
20% to be paid to Elik Bults (in recognition of the services provided in respect of the above companies)
55% to be paid to Zenith Trust Company Limited (in recognition of the services provided in respect of the above companies)"
19. We have seen an invoice dated 21st July, 2003, from Zenith in the sum of £410,133.13 and an invoice from the Defendant dated 18th July, 2003, in the sum of £149,139.32 which invoices, the Plaintiff informed us, he paid. The rest of the money, according to the Plaintiff should have come to him and it remained in the offshore companies. Accordingly, so the Plaintiff alleges, any monies loaned by Adelphi to the Defendant or to him was in fact his money. There is confirmation that the Defendant received his payment in that there is a letter from Corporate Law Management Limited ("Corporate"), the Defendant's company, dated 23rd July, 2012, in which the Defendant writes to the Plaintiff:
"I received on 20th July 2003 my remuneration for services provided to Adelphi Bay Limited, Alberta Bay Limited, Eastwide Limited, Kopykat Limited, Landau Limited, Lexica Limited, Maden SA, Tihama Limited and Yanucca Corporation ... and yourself with regards to the structure of the companies mentioned above as well as the administration of the ownership of the IP rights of the National Insurance Mitigation Scheme you introduced me to and is owned by you."
20. In 2004 the Defendant, through his company, Las Nutrias Hill Estate SL ("Las Nutrias"), borrowed from Adelphi some £740,000. We have seen the agreement that reflects this borrowing dated 11th June, 2004, and it is clear on its terms that the borrowing was supposed to be secured by a first charge over the shares in Las Nutrias. The Plaintiff informs us that that charge was not created and, in fact, because he needed further financing, the Defendant offered those shares as security to Jyske Bank in Gibraltar who provided construction financing for the Defendant. Because of the Defendant's ongoing need for money the Plaintiff, as his friend, had assisted him by organising the mortgage from JHL secured over the Penthouse.
21. The Plaintiff, whilst accepting that rental income was paid to Custodian, denied that this showed that Custodian was the owner of the Penthouse.
22. We have seen a further loan agreement dated 23rd May, 2004, (but this is supposedly an error and should read 2006) and signed in May of 2006 by the Plaintiff and the Defendant reflecting a further lending of £220,000 from Adelphi to Las Nutrias. There is the same provision for the securitisation of the shares in Las Nutrias.
23. The Plaintiff told us that at no point did he agree to hold the shares of East Lodge Limited for Custodian. In an email of 18th January, 2007, to the Defendant, however, the Plaintiff writes:
"With specific regard to the apartment and despite the fact we were supposed to have equal responsibility the burden has fallen entirely upon my shoulders, both in establishment of the mortgage, which had to be arranged in my own personal name, and the responsibility for making up deficits incurred when Custodian did not pay the mortgage for several months. Indeed, there have been a number of other expenses which both Custodian and the Offshore have been unable to pay and which I have paid out of my own pocket."
24. This may suggest that the Plaintiff viewed the Defendant through Custodian as responsible for one half of the expenses relating to the Penthouse.
25. In cross-examination the Plaintiff confirmed that he had set up Custodian and given the Defendant 50%. He asserted that a loan had been taken by Custodian through Adelphi in order that he, the Plaintiff, could buy the Penthouse. We note a letter signed by the Plaintiff on Custodian headed paper addressed to Adelphi and dated 11th July, 2005, seeking Adelphi's permission to continue to utilise the loan facility for other purposes in the event that the Penthouse was sold. There is an offer of security made in order to protect Adelphi's financial position.
26. Furthermore, a letter of 23rd November, 2006, on Custodian letterhead addressed to Adelphi and signed by the Plaintiff was put to him. That letter contained the following:-
"Further to our letter to you of 11th July 2005 and your subsequent approval to our request we write to confirm that it is our intention to sell the above property and that we shall re-utilise the proceeds for further property developments.
As agreed, we are prepared to adopt your suggestion regarding your security over the shares of this company until such time as the loan facility together with accrued interest is repaid and enclose a copy of the minute to this effect for your records."
27. Again the Plaintiff was not able to explain why a letter in this form was sent signed by him given that it clearly suggests that it was Custodian who was selling the Penthouse and not the Plaintiff personally.
28. A document signed by the Plaintiff on 22nd November, 2006, and purporting to be minutes of a meeting of the directors of Custodian contains the following:-
"It was resolved that the company agreed to provide to Adelphi Bay Limited (AB) the sum of £525,000 together with accrued interest upon this sum as agreed in the loan documents between the company and AB. The security over company shares is to provide ongoing protection for AB following their agreement to allow the company continued use of the loan funds etc. following the sale of the original loan security the Penthouse, Les Amarrages, Greve d'Azette, St Clement, Jersey by the company."
29. In response to the suggestion that this appeared to be a clear indication that the Penthouse was in fact owned by Custodian the Plaintiff said in cross-examination that the preparation of such minutes was simply "good housekeeping". He could not explain, however, why the sale was reflected as being by the company (although he had signed the minutes) nor why reflecting it as such amounted to "good housekeeping".
30. As mentioned above in paragraph 10 in his email of 28th October, 2008, to Mazars, the Plaintiff indicated that the Defendant and he had sought to obtain a mortgage from JHL but the Defendant was not allowed to apply being a non-resident so he made an application in his own name. It was put to the Plaintiff that this was indicative of the fact that the Defendant and he had a joint interest in the Penthouse but the Plaintiff indicated that it was simply a mechanism to seek to obtain funds for the benefit of the Defendant and had nothing to do with the purchase.
31. The position with regard to the loan from Adelphi was also explored in cross-examination. In an email from the Plaintiff to the Defendant of 25th February 2009 the Plaintiff writes this:-
"Thanks for the email and enclosures which seem fine except the last one which refers to you having repaid the loan which is technically incorrect. So far as the loans situation applies we have a joint loan, via custodian, for £525,000 in respect of purchasing the Penthouse. ... and we applied the funds for alternative purposes when the property was sold; ...".
32. And in cross-examination the Plaintiff was shown what appears to be a draft statement of assets of the company as per 31st December, 2004, relating to Custodian. In that statement the Penthouse is listed as an asset of Custodian with a value of £600,000. In cross-examination the Plaintiff described this document as a fiction and said that he had not prepared it.
33. The Plaintiff confirmed that rental in connection with the Penthouse had been paid not to him but to Custodian and that Custodian had declared that on its tax returns. The Plaintiff had not done so until sometime later.
34. It is clear from correspondence that the Plaintiff in 2008 was chasing the Defendant to address the Jersey tax in respect of Custodian. It was apparent that Custodian for a number of years at least, including from the accounts we have seen dated 31st December, 2005, received rent and paid various charges associated with property ownership.
35. Indeed the receipt of Jersey property income is reflected in the 2004 and 2005 notices of assessment to tax that have been put before us. The Plaintiff's attention was also drawn to an email from the Defendant dated 11th April, 2011, discussing Custodian and asking what should be done with the settlement of the tax bills for 2005/2004.
36. The Plaintiff confirmed that he kept half of the monies received from the JHL mortgage for his own personal use. He borrowed the amount that JHL permitted him to borrow and did not limit it to what the Defendant needed. The payment to the Defendant of the £160,000 was made through Corporate, a BVI company managed by Zenith.
37. There was further documentation put to the Plaintiff in connection with the arrangements for Custodian. For example, in an email from the Plaintiff to the Defendant under the subject "Custodian" which is undated but appears from where it is within the paperwork to date from October 2008, the Plaintiff says:-
"Elik,
I am having some problems with Custodian and the local tax authorities which are presently being sorted out and relate to the fact that although we had a loan from the off co's we also took out a mortgage with JHL thus complicating matters.
Accordingly, as the company is effectively non-trading, a situation which seems likely to exist until such time as you are able to sort out funding, in other words not any time soon, then I suggest to avoid any other costs and bank charges we arrange to close it as soon as practicable after the tax questions are answered.
When we do this the loan obtained from the off co's in respect of my property in Australia, which was arranged through Custodian, will need to have any ongoing arrangements transferred into my name prior to closure..."
38. In response to a question by the Court the Plaintiff indicated that he was happy to leave the rental payments received by Custodian in that company and when asked whether or not he thought that the Defendant should have paid his share, he said "I did not mind".
39. The Defendant was aware of the sale of the Penthouse and indeed in an email dated 21st November, 2006, he thanks the Plaintiff for dealing with it. We note the receipt of the balance left after the repayment of the mortgage following the sale of the Penthouse from the legal advisers involved Messrs Crill Canavan in the sum of £228,833.29. Of that £100,000 was paid to the Defendant. In response to a suggestion put to the Plaintiff that the payment of £100,000 was by way of a distribution following a profitable sale of a jointly owned property, namely the Penthouse, the Plaintiff maintained that it was a loan. He did not, however, have any documentation to reflect the loan nor was the loan to attract any interest. It was paid, so the Plaintiff told us, because the Defendant was "in dire need".
40. A decision was subsequently made to wind up Custodian and in that regard, on 15th July, 2011, both the Plaintiff and the Defendant signed a declaration to the Registrar of Companies to the effect that "having made full enquiry into the company's affairs, are satisfied that the company has no assets and no liabilities".
41. During cross-examination a schedule prepared by the Plaintiff purporting to be loans made to the Defendant was put to him. The schedule did not include the loan of £160,000 which the Plaintiff claims in these proceedings.
42. We were also shown a minute of Adelphi signed by the Plaintiff on 4th March, 2009, which reflected that the Defendant has "today repaid a total sum of £395,806.07 being part loan and accrued interest on the original sums loaned".
43. Although, as we have said, much correspondence and documentation has been shown to us with regard to the financial arrangements between the Plaintiff and the Defendant which were complex the Plaintiff did not raise the claim that has forms the subject matter of these proceedings until 7th January, 2015, when he emailed the Defendant's legal advisers. Through that email he exhibited the LSA which he described as a confirmation by the Defendant of "his liability to me, personally, for the remainder of this sum".
44. We heard from the Defendant. He described for us his educational background which is as a lawyer having studied in Utrecht and elsewhere. He also explained how he was introduced to the Plaintiff and that the context was a scheme for avoiding tax and social security for people in the IT industry. He gave largely the same background as did the Plaintiff in connection with the ITPM scheme, making particular reference to Adelphi as one of the nine offshore companies underlying the scheme. The scheme was shut down on the basis of legal advice because, so the advice suggested, they were "sailing close to the wind". After the various payments out under the scheme had been made there was some £3m left over and this was transferred to Jersey accounts. His view at all times was that that money belonged to the underlying company. The money needed to stay in the company for a period because the scheme needed to be maintained until everyone was out of it.
45. He became a shareholder of Custodian and he recalled the investment in the Penthouse. It was purchased in the Plaintiff's name because he had been told that he was not qualified to buy property. Had that not been the case it would have been purchased in their joint names.
46. It was not until 2004 that he moved to Jersey and he had no experience of the Jersey property market. He did recall, however, that the property was an investment of Custodian, the rent was received by Custodian and that company owned the Penthouse.
47. He was aware of the JHL application and when shown a copy of the facility letter dated 21st July, 2005, from JHL to the Plaintiff the Defendant observed that he, the Defendant, had initialled both pages of that letter.
48. He confirmed that he gave instructions for the Plaintiff to pay one half of the monies received from JHL to an account in the name of Corporate which was a company that was managed by Zenith. He was a consultant to that company. He was referred in examination in chief to the LSA which he confirmed that he had drafted and that it had covered the loan from JHL. It meant that he was giving security for 50% of the borrowing to the Plaintiff as the Plaintiff had taken it out in his name. It was not reflective of the loan between the Plaintiff and himself. He confirmed that he received £160,000 but not by way of a loan. As far as he was concerned, Custodian owned the Penthouse.
49. The Penthouse came to be sold because the Plaintiff wished to sell it. He dealt entirely with it. It was sold, there was a distribution, and the Defendant was paid out his share of the net proceeds of sale. He thought that that was the end of the matter. The £100,000 he received was a distribution out of the sale proceeds, no one ever said to him that it was a loan, and he did not consider it to be such.
50. He was referred to the email between the Plaintiff and himself of 30th December 2008 in which the Plaintiff wrote:
"Following our meeting yesterday and eventual telephone conversation this morning I write to formalise the position as I see it.
...
I am now in an untenable position where progress just has to be made. Accordingly, I have to inform you that unless funds resolving the position between us (as indicated on the enclosed spreadsheet) are placed into my account before Wednesday 7th January 2009 then I have no alternative but to instruct advocates in Jersey and BVI to liquidate the off co's and arrange for settlement of all outstanding accounts, actions which will, necessarily, include enforcing the first charges taken over the shares of Las Nutrias Hill SL in accordance with the terms of the loan agreements."
51. Attached to that was a number of pages of a schedule setting out, it appears, loans taken out by the Defendant and loans taken out by the Plaintiff. The Defendant's understanding of that communication was that the Plaintiff was pointing out an imbalance in the financial arrangements between them in as much as the Defendant had taken more out of the company then had the Plaintiff. This does not and did not in the Defendant's view reflect that they were other than equal 50% owners. The loans referred to in the schedule were loans that the Defendant had taken out with regard to his development of Spanish property owned by Las Nutrias and the money had come from Adelphi. The schedule dealing with the Plaintiff's loan referred, so the Defendant understood, to a loan taken out by the Plaintiff's company in Australia.
52. The Defendant was cross-examined by the Plaintiff. He confirmed that he had been a Jersey resident since 2004 but had partly lived in Spain whilst he was building his house. He had paid tax and social security in Jersey since 2004. He was a lawyer, although was now retired and he confirmed that he had, for his age, a good memory.
53. He was challenged on the amount of records that he had produced in relation to Corporate which records were retained in Switzerland. He said that he had not produced those records because in his view they were not of relevance.
54. Corporate was a BVI company. It appears that it had been struck off for non-payment of fees. He confirmed that he received income from the offshore companies by way of fees and he had not paid for any of the shares in the offshore companies. He recalled discussion about the Plaintiff's intellectual property in the scheme.
55. The agreement of 18th July, 2003, was put to him and he confirmed that it had been prepared by Zenith. He agreed that the IP rights belonged to the Plaintiff and they had come from the original RAMS scheme. Although others had been involved in putting together the tax structure the basis of it had come from the RAMS idea. The RAMS agreement itself was put to the Defendant. The Defendant was not a party to the RAMS agreement which was dated 31st July, 1996, between the Plaintiff who is described as trading as Rainbow Advisory Management Services ("RAMS") and one Raymond Trew therein described as the consultant. Paragraph 9.2 of the RAMS agreement is in the following terms:-
"Where the consultant obtains written consent from RAMS to assign, dispose or part with any interest or delegate any of the rights under this agreement then a consultant agrees to pay RAMS 20% of the gross proceeds. The consultant is responsible for his personal tax liability arising from such a sale."
56. The Defendant confirmed that he had met Mr Trew on one or two occasions and that he was involved in the ITPM scheme. The Defendant was also shown a letter from Russell Limebeer to the Plaintiff dated 25th November, 1996, which reflected an apparent agreement between Mr Russell of that company and the Plaintiff. The numbered paragraphs of the letter contain amongst other things the following provisions:-
"4. We confirm that we will account to you for the surplus of monies of RAMS after payment of fees to ourselves, commissions to consultants and to Budd and Partners, and any other necessary disbursements incurred on behalf of RAMS.
5. We confirm that we will not undertake at any time any services similar to that offered by RAMS without your prior written approval."
57. Again, the Defendant was not of course party to this letter and he was not aware that Mr Russell had made the same deal with regard to ITPM as obtained with RAMS insofar as the Plaintiff was concerned. He agreed, however, that Zenith had been paid fees for administering the companies and that he had been paid for his participation. He confirmed that he had sent an account to ABA Chartered Surveyors for his participation in the scheme in the sum of £149,139.32 which had been paid. He made no distinction between the Plaintiff and ABA Chartered Surveyors and he had been told to invoice ABA Chartered Surveyors by the Plaintiff.
58. He was shown the loan agreement between Las Nutrias and Adelphi dated 11th June, 2004. He confirmed that he owned Las Nutrias and that the company received a loan of £740,000. He needed monies for a building loan and he made further borrowings in order to obtain a mortgage and payback the loan from Adelphi. He had been hit by the difficulties in the property market. No one foresaw that the property market would go "belly up".
59. He was shown this email of 25th November, 2006, to the Plaintiff which contained the following:-
"The other news is that now the new mortgage will be done on a 35 years basis of which the first 10 years will be interest only. After completion the bank might top up the loan and put the amount on asset under management facility just as we discussed in the beginning although the Spanish bank did not want that in 2004. The new bank is not Spanish by nature but Danish with banks in the UK, Netherlands, Switzerland, Gibraltar, Belgium and France. I hope to give you further news on that in the next week. Once that is behind us then we will have breathing space again. I queried of La Finca would be a finance deal for them, but it appeared to be too big."
60. The Defendant confirmed that he had in fact used the shares in Las Nutrias to get a loan elsewhere and had not provided the security as the agreement had anticipated. He had discussions with the Plaintiff to equalise the financial position between them. 2008 had been a disaster for him which involved a lot of hard work and he was not in a position to equalise the position between them in one lump sum.
61. He had always understood the "off co's" were owned as to 50/50 between himself and the Plaintiff.
62. He accepted in cross-examination that ultimately the property in Spain had been repossessed because of the reduction in the market and that he had been short of cash whilst building it. He had in fact sold a flat in Spain which had been owned by his wife in order to carry out work.
63. The Defendant was also shown the loan agreement dated 23rd May, 2006, and he agreed that at the time that agreement had been signed the shares in Las Nutrias had already been given away by way of security. He accepted that when the provisions relating to security contained within that loan documentation were put in he knew they would not be carried into effect as the security over the assets had already been given elsewhere.
64. The Defendant confirmed that he did not think he was able to apply for the JHL loan. He confirmed that he had always understood that Custodian had purchased the Penthouse and that the shares were held by the Plaintiff for the benefit of Custodian. The Defendant was, however, not aware of any documentary proof that Custodian owned the Penthouse.
65. He agreed that he had not paid towards servicing the JHL mortgage because he believed it was payable out of the rent. He told us that he did not know when tenants stopped occupying the Penthouse and therefore there was no money coming in.
66. He confirmed that he wrote a cheque for £60,000 because the Plaintiff had told him that he was in urgent need of money. The Defendant had told the Plaintiff, however, that whilst he would write the cheque it should not be presented until sometime thereafter because there would not immediately be money available to honour it. The Plaintiff, however, tried to cash the cheque some two hours later. The funds did not become available for two months.
67. The Defendant confirmed that he wrote the letter addressed to the Plaintiff on Corporate headed paper which referred to the ownership by the Plaintiff of IP rights of the national insurance mitigation scheme. He had written the letter at the Plaintiff's request and he had thought the contents of the letter were true.
68. It was put to the Defendant that he had not disclosed his ownership of Custodian to his second wife during their divorce and he said that he did not need to.
69. The Defendant repeated his position to the effect that he owned 50% of Custodian and when the Penthouse was sold, and the JHL loan repaid, he owed nothing.
70. We had the benefit of listening to both the Plaintiff and the Defendant give evidence over a protracted period. Both were cross-examined and we were able to evaluate the quality of the evidence that we heard. The evidence from each side was not without its unsatisfactory elements. In our view, however, the evidence from the Plaintiff displayed more inconsistencies than that of the Defendant. He often could not explain documents and it was clear that the Plaintiff was comfortable with signing documents that on any analysis were wholly fictitious and did not represent the true state of affairs. We do not in making that observation suggest that necessarily the Defendant was himself without fault, but in terms of the evidence before us, its consistency with the written material, and the cogency of the understanding that it produced, we prefer the evidence of the Defendant.
71. We have heard a considerable amount of evidence relating to the financial dealings between the Plaintiff and the Defendant, the operation of RAMS and, more recently and more significantly the operation of the ITPM, the structure relating to the offshore companies and the shareholdings and the Plaintiff's claim for the entitlement to the remaining monies in the offshore companies as representing his rights to intellectual property. All of these matters, though informative, are peripheral to the central question that we need to determine. What we need to determine is whether or not the Plaintiff loaned £160,000 to the Defendant either free of interest or subject to interest.
72. It is clear that Custodian was, and was intended to be, jointly owned. It is equally clear that in correspondence the Plaintiff has suggested that it was the approach of both he and the Defendant to secure the JHL loan but that the Defendant was not able to do so. We note that the rental from the Penthouse was received by Custodian and Custodian paid tax on that rental until the matter was adjusted some years thereafter by the Plaintiff. It is equally clear that the Plaintiff has from time to time complained to the Defendant about the fact that he was carrying sole responsibility for meeting any shortfall therefore suggesting that it was the obligation of the Defendant to contribute to that shortfall.
73. In the light of this information, and in our view, of the evidence that we have heard from the two witnesses before us, we think that it is more likely than not that had the Defendant not been led to believe that it was impossible for him to hold the shares in East Lodge Limited those shares would have been held equally between himself and the Plaintiff. And any refinancing would have been done by both of them taking on a joint and several liability to JHL with those shares as security. We think that the Defendant was led to believe that he could not hold the shares in his own name and the fact that they were held entirely in the name of the Plaintiff does not alter the fact that in our opinion they were held in reality for Custodian which was jointly owned by the Plaintiff and the Defendant.
74. Whatever the reason for the refinancing of the Penthouse it is clear that immediately upon receipt of the monies the Plaintiff paid half to the Defendant and kept a half for himself. This in our judgment reflects an understanding that it was a 50/50 relationship. Similarly when the Penthouse was sold the JHL loan was discharged in full and, after expenses, the Defendant received from the Plaintiff a sum that largely reflected 50% of the net proceeds of sale. To us this also suggests a 50/50 understanding.
75. It is to our minds significant that the Defendant, not holding the shares in the property owning company nor being directly obligated to JHL created an agreement, the LSA, which on its terms was designed to take over his responsibility for one half of the obligation to JHL in the event that there was a shortfall. We do not think this document can be construed in a way which reflects a loan between the Plaintiff and the Defendant. We think it is much more likely that this document reflects an attempt by the Defendant to provide security for an obligation which legally was taken on by the Plaintiff but in reality, and beneficially, was for the benefit of them both.
76. We do not make any findings in connection with the provenance of the funds used for the original purchase which appear to have been reflected as a loan from Adelphi. Should either of the parties have expected that loan to be repayable to Adelphi in any way it would have been impossible for them to execute a document which said to the Jersey Financial Services Commission that Custodian had no assets and no liabilities.
77. There is no documentation that states in terms that the Plaintiff lent £160,000 to the Defendant and it would have been simplicity itself for a brief note to have been executed to that effect which would have placed the Plaintiff's position beyond doubt. It is difficult for us to understand why that did not happen, if in fact it was intended that there was a loan between them. In our view the better interpretation of the facts and the one that we find on the balance of probability as established is that the payment of £160,000 to the Defendant by the Plaintiff reflected the Defendant's benefit from a loan which was in underlying reality intended to be joint and was secured on a joint asset. That asset, the shares in East Lodge Limited, was held for the benefit of Custodian and Custodian at all times dealt with the income and outgoings in connection with the Penthouse for as long as it had assets to do so.
78. It is of course for the Plaintiff to prove his case. It is for the Plaintiff to establish that the £160,000 paid to the Defendant was paid to him by way of a loan which is repayable and not by way of a payment to him to reflect his 50% interest, through Custodian, of the Penthouse. We have been shown no documentation that says, in terms, that the Plaintiff lent a sum of money to the Defendant. Similarly, we have seen no documentation in which the Defendant accepts that he owes such a sum in respect of a loan to the Plaintiff. We are not called upon to determine any of the other financial matters that may or may not exist between the Plaintiff and the Defendant - merely the existence of the loan which is the basis of the Plaintiff's claim.
79. We do not make any findings in connection with the general financial arrangements between the Plaintiff and the Defendant. We restrict our findings to whether in our view on the balance of probabilities the Plaintiff has discharged the burden upon him to prove that there was a loan between himself and the Defendant in the sum of £160,000. In our view he has not.
80. The LSA does not in our judgment reflect an acknowledgment by the Defendant that he owes any money to the Plaintiff. In its terms, in our view, it was created to ensure that in the event of a shortfall were JHL to act upon their security over the Penthouse, then the Defendant would be responsible for his part of that shortfall.
81. In the round, for these reasons and those that we have set out above we do not think that the Plaintiff has established his case and we dismiss the claim.
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