Bank of Tokyo-Mitsubishi UFJ, Ltd & Anor v Baskan Gida Sanayi VE Pazarlama A.S. & Ors, Court of Appeal - Chancery Division, June 11, 2009,  EWHC 1276 (Ch)
|Resolution Date:||June 11, 2009|
|Issuing Organization:||Chancery Division|
|Actores:||Bank of Tokyo-Mitsubishi UFJ, Ltd & Anor v Baskan Gida Sanayi VE Pazarlama A.S. & Ors|
Neutral Citation Number:  EWHC 1276 (Ch)Case No: HCO3C2596IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONRoyal Courts of JusticeStrand, London, WC2A 2LLDate: 11/06/2009Before :MR JUSTICE BRIGGS- - - - - - - - - - - - - - - - - - - - -Between :- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -Mr John Wardell QC, Ms Clare Stanley and Mr Alexander Winter (instructed by Forsters LLP, 31 Hill Street, London W1J 5LS) for the ClaimantsMr Nicholas Strauss QC, Mr James Goldsmith and Mr Alexander Polley (instructed by Barlow Lyde & Gilbert LLP, Beaufort House, 15 St Botolph Street, London EC3A 7NJ) for the Ferrero DefendantsMr Raymond Werbicki (instructed by Steptoe & Johnson, 99 Gresham Street, London EC2V 7NG) for the 12th DefendantHearing dates: 20th October 2008 - 18th February & 16th March - 7th April 2009 - - - - - - - - - - - - - - - - - - - - -Mr Justice Briggs: INTRODUCTION1. At the end of December 2001 Baºkan Gida Sanayi Ve Pazarlama A.S. (``Baºkan Gida'') was, and had for many years been, the largest single exporter of hazelnuts in Turkey and, indeed, in the world. On 14th December 2001 Baºkan Gida made a loan agreement (``the Facility'') with the Bank of Tokyo-Mitsubishi UFJ Ltd and KBC Bank N.V. (respectively ``BTM'' and ``KBC'' and collectively ``the Banks''), the stated purpose of which was to enable Baºkan Gida to borrow, on a rolling basis, up to US$35 million in order to finance the purchase and processing of hazelnuts prior to their export, it being envisaged that repayment would be achieved by the assignment by Baºkan Gida to the Banks of its rights to receive the proceeds of the sale of its hazelnuts to its largest foreign customer, the Ferrero group of companies (collectively ``Ferrero'').2. By the end of February 2002 Baºkan Gida had drawn down 22,821,566 pursuant to the Facility, and repaid through Ferrero only 1,402,022.68. During January and February 2002, unknown to the Banks at the time, Baºkan Gida transferred substantially the whole of its business, assets, trading premises, hazelnut stocks and employees to Aksu Gida Sanayi Ve Ticaret Limited (``Aksu Gida''). Baºkan Gida ceased trading at the end of February and thereupon defaulted on its repayment obligations to the Banks. In May 2002 there was a further purported transfer of the hazelnut business and assets to Baºkan Yuksel.3. The Banks therefore suffered a net shortfall of 21,419,543.32, against which they received a payment of $75,000 from Baºkan Gida in June 2002, and a further $720,000 from the sale of pledged hazelnuts later that year.4. The Banks claim, and this is not seriously in dispute between the active participants in this litigation, that from start to finish they were the victims of a premeditated fraud in which the prime movers were those members of the Baºkan family who owned Baºkan Gida and who (although this is in dispute) were also the beneficial owners of Aksu Gida and Baºkan Yuksel. The Banks' case is that the Baºkans' real purpose in negotiating the Facility was to obtain by deception the funds necessary to rescue their potentially profitable hazelnut export business from the state of hopeless insolvency into which Baºkan Gida had fallen, using the Banks' money for the purchase and transfer to Aksu Gida (and later Baºkan Yuksel) of the hazelnut stock necessary to continue that business into the future, leaving the Banks with a worthless recourse against Baºkan Gida.5. With the benefit of hindsight and detailed subsequent research, the Banks say that the Baºkans negotiated the structure of the Facility in such a way as to enable them to obtain the Banks' money, use it for the purchase of hazelnuts and their transfer to Aksu Gida, together with the ongoing hazelnut business and associated assets, within a time-frame which would enable the fraud to be completed before any default in re-payment to the Banks could put them on notice of what had been planned and implemented. For that purpose the Baºkans stated falsely to the Banks during the negotiation of the Facility that Baºkan Gida's terms of trading with Ferrero gave rise to a 45 day period between Baºkan Gida's requirement to pay its suppliers and the receipt of payment from Ferrero for exported hazelnuts, a falsehood which has come to be known in the proceedings as ``the 45 Day Lie''.6. Although the Banks anticipated incurring a risk of some loss in the event that Baºkan Gida ceased trading during the period of the revolving Facility, they claim that the extent of their loss was primarily attributable to two specific frauds in the manner in which Baºkan Gida operated the Facility. The first consisted of the presentation to the Banks of false invoices suggesting that Ferrero was instructed to make payments in respect of hazelnut purchases to the Banks' collection agent, while at the same time instructing Ferrero to make those payments elsewhere in the invoices actually delivered. The second consisted of the obtaining of hazelnuts purchased with the Banks' money and pledged by way of security by false statements that they were to be used to satisfy Ferrero's export orders, whereas in truth they were then transferred to Aksu Gida. More generally the Banks say that they were the victims of fraudulent trading, since the Baºkans did not intend when drawing down money under the facility, that it would ever be repaid.7. Although the Baºkans succeeded in defrauding the Banks, they were largely denied the benefit of that fraud, primarily because of the prompt intervention of one of their Turkish banks, Yapi Kredi, into the affairs of Aksu Gida. Despite an attempt at a further transfer of the hazelnut business from Aksu Gida to Baºkan Yuksel later in 2002, no long-term rescue of the family business was thereby achieved. Although Baºkan Gida, Aksu Gida and four members of the Baºkan family are joined as the first, sixth and second to fifth defendants respectively, and have all formally denied the claim, they have taken no active part in these proceedings. Even if a judgment in these proceedings could be enforced against them in Turkey, it is unlikely that any of them are worth powder and shot.8. The Banks have however sought to recover their losses from two groups of defendants. The first (``the Abidali Defendants'') consists of Mr Shabbir Abidali, his company Indo Mediterranean Commodities Limited (``Indo-Med'') and two entities in which, or in the assets of which, the Banks allege that Mr Abidali has a beneficial interest, namely Alanvar Establishment and Ridgebeach Limited. Indo-Med went into voluntary liquidation in March 2006, and its only participation since then has been the provision of documents and a waiver of legal professional privilege, by its liquidator on its behalf.9. The Banks claim that Mr Abidali and Indo-Med played a central part in both the planning and implementation of the fraud. They are therefore sued as participants in an alleged unlawful means conspiracy. Mr Abidali denies this. He accepts that, at his direction, Indo-Med played a central role in the transactions between Baºkan Gida and Aksu Gida in early 2002, but claims that Indo-Med thereby did nothing unlawful, and did not knowingly or intentionally harm the interests of the Banks.10. The second group of defendants are four Ferrero companies. They are Ferrero Industrial Services G.E.I.E. (``Ferrero Industrial''), Ferrero S.p.A. (``Ferrero Italy''), Ferrero OHGMBH (``Ferrero Germany'') and Ferrero France S.A. (``Ferrero France''). I shall refer to them collectively as ``the Ferrero Defendants''. The Ferrero group included companies incorporated in other countries, but Ferrero Italy, Germany and France together made the overwhelming bulk of hazelnut purchases from Baºkan Gida at the material time. I shall refer to them as ``the Ferrero Operating Defendants''. Ferrero Industrial did not itself purchase hazelnuts, but was formed to manage, on a collective basis, all the raw material purchases required by the operating companies in the Ferrero group, including the Ferrero Operating Defendants. 11. The Banks put their claim against the Ferrero Defendants on a number of alternative grounds. Originally, they claimed that by reason of assignments by Baºkan Gida of its rights to the payment by Ferrero of the price for the exported hazelnuts, duly notified to the Ferrero Operating Defendants, those defendants are liable in contract, notwithstanding having paid Baºkan Gida in full for the specific purchases. Before these proceedings were issued, that claim was made the subject of negative declaration proceedings in Italy, with the result that the contractual claim in these proceedings was stayed by Lawrence Collins J. pursuant to the Judgments Regulation. That claim remains pending in Italy, and its determination is unlikely to occur in the near future. 12. Secondly, the Banks claim that the Ferrero Defendants are liable in unlawful means conspiracy for having participated with knowledge in Baºkan Gida's fraud, in particular through the activities and knowledge of three Ferrero employees, Mr Casale, Mr Rosa Brunet and Mr Bolowich. As against the Ferrero Defendants, the claim is that they participated in the implementation rather than in the design of the fraud. 13. Next, the Banks claim against the Ferrero Defendants in deceit, upon the basis that they were induced to lend to Baºkan Gida by dishonest misrepresentations made, principally by Mr Casale, on their behalf. Alternatively the Banks claim that the same misrepresentations were made negligently.14. Finally, the Banks claim against the Ferrero Operating Defendants an account upon the basis of their receipt of hazelnuts subject to a continuing security interest in favour of the Banks, or because of receipt of hazelnuts purchased with the proceeds of the sale of hazelnuts subject to that security interest. I will refer to this final type of claim as the Banks' Proprietary Claim.15. The Ferrero Defendants deny all these claims. As to the conspiracy claim, they admit the Baºkans' fraud on the Banks, but deny either knowledge, participation or intent to harm the Banks. As to the claim in deceit, they deny both misrepresentation and dishonesty. As to the claim in negligence they deny negligence, and reliance by the Banks, assert contributory negligence on the part of the Banks, and advance both ``scope of duty'' and remoteness defences. In relation to both the deceit and negligence claims Ferrero deny causation by advancing a novus actus defence. As to the Banks' Proprietary Claims they say that the Banks cannot prove that Ferrero received any hazelnuts subject to any continuing security interest of the Banks, let alone any interest of which they had knowledge when making payments for them to Aksu Gida and Baºkan Yuksel.16. The Banks do not claim that they can prove the fraud and deceit which they allege against the Ferrero Defendants by reference to `smoking gun' direct evidence, although to some extent they do as against Mr Abidali. Rather they say that, when the whole of the facts about the defendants' participation in the relevant events is examined in detail, their conduct is explicable only in terms of an inference of dishonesty. For this purpose, and for the active defendants' purpose of demonstrating the exact opposite, no stone has been left unturned, both in preparation and during the conduct of the trial. Every aspect of the parties' dealings during two hazelnut crop seasons has been examined in minute detail. Lengthy evidence from hazelnut market experts has been deployed and tested in relation to the central allegation that the Ferrero Defendants' purchases from Baºkan Gida were not on normal arms-length market terms. Enormous efforts were devoted by forensic accountants into establishing (happily in the end by agreement) relevant statistics regarding Ferrero's stock levels and hazelnut requirements, in relation to an allegation that Ferrero dishonestly assisted Baºkan Gida by ordering large quantities of hazelnuts which were not needed. The entirety of Ferrero's hazelnut purchasing programmes from all sources over two years has been precisely recreated for the purpose of testing allegations of unusual, and therefore suspicious, trends during the period of the fraud.17. In addition, the Ferrero defendants' allegations of contributory negligence by the Banks in the negotiation and operation of the Facility have led to the most detailed examination of the minutiae of the Banks' conduct during the relevant period, by reference to comprehensive surviving documentation, many days of cross-examination of the Banks' employees, and the deployment and testing of the evidence of banking experts.18. The overall result has been a trial of spectacularly large proportions, even by reference to the substantial sums at stake. The trial bundles run to more than 190 lever arch files. There have been 56 days of oral evidence, 30 days of submissions, and 35 days for judicial reading and preparation of this judgment.19. In the end, as is typical of relatively well documented commercial transactions mainly between sophisticated entities, the primary facts are, though very detailed, not the subject of large dispute. What the parties did, wrote and said to each other is either established by surviving documents and notes of meetings, or largely forgotten beyond practical recall during the six years since the relevant events occurred. The critical factual disputes concern the matters which they knew, suspected, or to which it is alleged that they deliberately turned a blind eye. In addition, (as often in a case where fraud is alleged), there is the major question of motive.20. In the absence of admissions, and there are none, these issues turn on inferences properly to be derived from the primary facts viewed in their entirety, paying due regard to the demeanour and apparent credibility of the witnesses, but remembering ``always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities.'' (Armagas Ltd v Mundogas SA  1 Lloyd's Rep. 1 at 57, per Robert Goff LJ).21. As for motive, both groups of defendants put this question in the forefront of their respective arguments. For the Ferrero Defendants it is said first, that nothing has emerged to displace the prima facie improbability that a large, respectable group of soundly based companies should wish to participate in a fraud on their Turkish supplier's bankers, and secondly, that despite exhaustive enquiry there is not a shred of evidence that the individual employees alleged to have been dishonest had any personal motive (such as corrupt inducement from the Baºkans) to involve their employer in any such impropriety.22. For Mr Abidali it is submitted that while Indo-Med's participation in the transactions complained of is readily explicable as a legitimate means of assisting its investing partners in obtaining repayment of substantial loans from Baºkan Gida, no motive for participation in a dishonest conspiracy to injure the Banks has been identified.23. In the present case my conclusions on all those difficult issues have been informed by my ever-increasing immersion in the detailed commercial realities of the international trading and financing relationships between the parties, gained during the course of a very long trial, at the invitation of all them. Although mindful of the advantages of economy in the expression of reasons for my conclusions, I have found it impossible to provide a full and fair expression of them without reference to a detailed and mainly chronological account of the facts, and an explanation of the relevant commercial background.24. Before doing so, I must state my conclusions about the general demeanour and credibility of the witnesses, which I do by reference to the order in which they were called.THE WITNESSESThe Banks' Witnesses25. The Banks first called Mr Philip Lewis, now the Head of Credit and Risk Management within the London Branch of KBC. In 2001-2 he was a member of KBC's Marketing Support Group (``the MSG'') in London, which was itself part of KBC's Global Trade Finance Group (``GTFG''), also based at its London branch. 26. The role of the staff of the MSG was to provide support and assistance to relationship managers within the GTFG. KBC's relationship with Baºkan Gida was managed by Mr Kris van Broekhoven, and Mr Lewis was, in effect, his right hand man during the negotiation and operation of the Facility. Although he was in that sense subordinate to Mr van Broekhoven, he remained with KBC after Mr van Broekhoven's departure in May 2002, with the result that he was deployed by KBC as its main factual witness and, for the same reason, endured the longest cross-examination.27. Mr Lewis made an immediate initial impression as a helpful, straightforward and relaxed witness, whose ability to assist the court with factual evidence derived from a good memory was fortified by his own realistic appreciation of its inevitable limitations, and a readiness to explain and distinguish between the relatively few occasions when he could recall relevant events, and the more frequent occasions when he was obliged to reconstruct from subsequent work on surviving documents. With the assistance of the Banks' legal team he had evidently taken considerable care to piece together his detailed account of events in his long witness statement from contemporaneous documents. That care was if anything exemplified by his considerable disappointment at having his reconstruction revealed to be erroneous on one significant point (namely that he had attended a particular meeting in March 2002, when in fact documents which he had missed showed that he had not), and his dismay at being asked in the middle of his cross-examination to check again whether he had made any other errors.28. He was however a witness with a mission, namely to educate the court and in particular his cross-examiner Mr Strauss QC in what he regarded as the fundamental differences between structured trade finance as a niche form of bank lending and what he described as traditional or balance sheet based bank lending, and thereby to emphasise what he regarded as the large differences in the principles properly to be applied to each. At the heart of his perception of the differences between the two types of lending lay his frequently repeated assertion that analysis of the creditworthiness of the intending borrower plays a much less significant part of the necessary due diligence to be applied to a structured trade finance proposal, than it does in relation to a proposed traditional loan.29. Since a central thrust of the Ferrero Defendants' case on contributory negligence was that the Banks failed to carry out a proper analysis of Baºkan Gida's creditworthiness, this was a mission designed to assist the Banks in repelling that allegation. It was also a self-serving mission, since Mr Lewis' admitted mistake in mis-understanding Baºkan Gida's audited accounts lies at the heart of that part of the Ferrero Defendants' case.30. While I have no doubt that Mr Lewis' views on the differences between structured trade finance and traditional bank lending were sincerely held, the fact that they served the interests both of his continuing employer and himself inevitably detracted to some extent from his independence, and therefore from his reliability as a witness. As will appear when I state my findings of fact, the evidence as a whole shows that Mr Lewis considerably exaggerated those differences. The result is that I found his opinions about those matters less than wholly persuasive, despite his considerable experience in the field of structured trade finance. His evidence about factual matters which did not relate to the alleged shortcomings of his part in the Banks' due diligence was nonetheless generally reliable. 31. The Banks then interposed Mr Izzet Gokdeniz, a Turkish businessman with considerable experience in international trade, who had given evidence in a criminal trial in Turkey in which members of the Baºkan family were accused of defrauding one of Baºkan Gida's Turkish banks. He was (I think to his considerable surprise) called only as a witness of fact, rather than as an expert, and found it hard to contain his firm opinion that, despite their acquittal, the Baºkans were guilty as charged. Nonetheless his factual evidence, which he gave through an excellent interpreter, was careful, helpful and reliable.32. Next to be called was Mr van Broekhoven. I have already identified him as the relationship manager for the purposes of KBC's relationship with Baºkan Gida. He left KBC in May 2002. As a result, although his two witness statements were made after careful consideration of the underlying documents, he lacked that ongoing relationship with KBC which contributed both to the strengths and weaknesses of Mr Lewis's evidence, being less well prepared than Mr Lewis and therefore having his recollection less well refreshed, but on the other hand being inherently less likely to have his independence undermined by loyalty to a continuing employer. 33. That said, Mr van Broekhoven was, as the person within KBC responsible for the day to day conduct of its relationship with Baºkan Gida, inevitably the target of allegations of negligence during cross examination, and therefore in the position of someone having to defend his reputation for competence and skill. 34. He came across as a fluent and intelligent witness, ready to engage openly and with good humour with the subject matter of his cross examination. In my judgment he believed that he could recall from memory rather more than that which he really remembered about events taking place 7 years ago, in particular in relation to an important meeting he had with Mr Casale in July 2001, where his apparent recollection in cross-examination went further either than the meeting note made at the time, or in his first witness statement, made in July 2008. Apart from that tendency to over- remember, he was a generally reliable witness of fact.35. As for his response to allegations of negligence, it seemed to me that, initially, he adopted a rather unsatisfactory refusal to accept responsibility for matters of criticism, although as his lengthy cross examination continued, this tended to wear off. 36. Next to be called was Mr Anthony Parello, BTM's first witness. He was at the material time in charge of the Import Section within the Trade Finance department of BTM, which was itself part of the European Operating Service Centre of the bank, providing back office services for BTM as a whole. His job was to supervise that part of the operation of the Facility which consisted of BTM'S response to utilisation requests from Baºkan Gida pursuant to the facility agreement, an important but essentially mechanical function which required him and his team to satisfy themselves that upon every request for a draw-down under the Facility, Baºkan Gida had provided appropriate documentation to justify the issue of a letter of credit in its favour, pursuant to the detailed terms and conditions of the agreement. 37. Mr Parello was an obviously honest and, on matters of fact, wholly reliable witness. He saw his job as consisting of following orders and procedures without troubling himself as to the underlying reasons for them. As a disciplined foot soldier, rather than general, he was unable to respond to cross examination as to the underlying purpose of various of the detailed conditions with which Baºkan Gida had to comply. 38. A little more insight into the thinking behind BTM's operational processes was later provided by his manager Lance Wenden, then the Head of Trade Finance Products in BTM's European Operations Department. He was another generally reliable witness on matters of fact, but was understandably reluctant to engage in any in depth analysis of the alleged shortcomings in BTM's part of the operational management of the Facility. To the extent that he was prepared to do so, I found his explanations for alleged departures from the strict letter of the Facility Agreement generally convincing.39. Of more importance to the issues of contributory negligence was the evidence of Mr Philip Graham, who was at the material time the Deputy General Manager of the European Credit Division of BTM, who therefore played an important executive role in BTM'S decision to participate in the Facility. He was, in every respect, a most impressive witness, demonstrating a thorough appreciation of the issues, gained after a careful refreshment of his memory from the surviving documents, and a careful reading of the criticisms of his bank's conduct set out at length in the report of Mr Rex, the Ferrero defendants' banking expert. Although still employed by BTM, and the target of a relatively small part of the criticisms of its conduct pursued in cross-examination, I detected no defensiveness or partiality in his evidence. On the contrary, he made sensible admissions after evidently careful thought about matters which might have been handled better, and provided helpful explanations of aspects of the detail of the conduct of due diligence in relation to the proposed Facility. 40. Mr Graham was followed by Mrs Soskin-West, at the material time head of the International Banking division of BTM. She was the immediate superior in the BTM chain of command to Mr Byles, the relationship manager with immediate day to day responsibility for BTM's negotiation of the Facility, and continued to be employed by BTM at the time of the trial. She had less immediate contact with the negotiation and operation of the facility than BTM's other witnesses, and therefore less to contribute. She was however directly involved in BTM's response to Baºkan Gida's default in early 2002, and provided a useful insight into the thinking behind its conduct at that stage. She was a generally reliable and straightforward witness, although not as precise in her recollection or as penetrating in her analysis as Mr Graham.41. Mr Byles was an important and valuable witness, both because of his central involvement in BTM's part in the story, and because, having ceased to work for BTM in 2006, his evidence was unaffected by loyalty to a continuing employer. He joined BTM in late 1998 with considerable previous experience in factoring transactions, and he was BTM's main point of contact both with Baºkan Gida and with Ferrero throughout. I found him to be a helpful witness, the reliability of whose recollection was fortified by his ready acknowledgment of the gaps in his memory, and a determination not to guess or reconstruct. Although personally criticised for aspects of BTM's alleged negligence, he did not generally allow his evidence to be marred by defensiveness or prevarication, and made sensible admissions in relation to relevant shortcomings in his and BTM's due diligence. My only reservation as to the independence of his approach to the matters of criticism of the Banks' conduct was that his overall conclusion was that their loss was primarily the fault of KBC (in the operational monitoring of the Facility) rather than BTM. In this respect he succumbed to the inevitable temptation to pass the buck.42. Mr Byles' evidence was interrupted by a pre-arranged video conference, over two days, for the examination of Mrs Gulay Pay, through an interpreter, in Giresun. She was engaged successively by Baºkan Gida, Aksu Gida and by Baºkan Yuksel as an export supervisor at the Giresun factory, before being made redundant in 2004. Subject to the combined difficulties imposed by the language and locational barriers, she provided helpful and honest evidence from her experience in that capacity, both in explaining procedures within the factory, where she personally prepared Baºkan Gida's export documents and invoices, and in describing from her perception as a middle ranking member of staff Baºkan Gida's descent into insolvency, and the manner in which its business was from February 2002 taken over by Aksu Gida and then by Basken Yuksel. Apart from a moment of unease at questioning which implied that she had participated in conduct contrary to a Turkish court order, I found her approach to giving evidence to be a careful and dispassionate process of assisting the court, without any apparent agenda of her own.43. BTM's final employee witness was David Philbin, at the material time a credit analyst in its European Business Division. He performed much the same supporting role for Mr Byles that Mr Lewis performed at KBC for Mr van Broekhoven, until he was re-assigned to other credit analysis tasks in early October 2001. As a result he played no part in the later stages of the Banks' due diligence, and no part in the operational or post-default stages of the Facility, and was for that reason subjected to a much shorter and less searching cross-examination than either Mr Lewis or Mr Byles. He remained employed by BTM at the time of the trial.44. Mr Philbin's shorter cross-examination and more limited role in the relevant events meant that he had less opportunity than the Banks' main witnesses to settle in as a witness, and I had less opportunity to form a detailed view of his reliability. Nonetheless his factual evidence appeared to be reasonably reliable, and his response to criticisms of the Banks' conduct much less a matter of mission that was that of Mr Lewis, despite his continuing loyalty to BTM as his employer. He made some sensible admissions, for example as to the importance of studying Baºkan Gida's audited accounts (which became available only after he had been re-assigned to other work). In certain respects however I found his attempts to respond to alleged failures to identify weaknesses in the financial information about Baºkan Gida which he did study rather unconvincing. He did at the end of his evidence provide a useful interpretation of his manuscript notes of his and Mr Byles' visit to Giresun in July 2001, when they both met Mr Casale.45. The Banks' final witness of fact was Mr Rahmi Aslan (usually mis-spelt Arslan in the documents, including his own witness statement). He was the store keeper employed by SGS Turkey to manage the warehouse (``Warehouse 2'') at Baºkan Gida's Giresun factory premises which was used for the storage of hazelnuts while pledged to the Banks pursuant to the Facility. He gave his evidence through an interpreter, since he spoke no English at all. He was a solid and reliable witness with no axe to grind who gave a clear explanation of his limited role at Giresun, and of the warehouse receipts and other documents which he created while employed there.Ferrero's Witnesses46. Ferrero's first witness was Mr Antonio Do, the Chief Operating Officer of Ferrero at the time, Chairman of Ferrero Industrial, and a member of the main board of Ferrero International SA, the group's holding company. He remained employed by Ferrero at the time of the trial, as head of Soremartec, the unit which provides the design and testing of Ferrero's new products. As might be expected from such a senior employee, Mr Do's evidence was carefully prepared, consistent and usually authoritative, but inevitably limited in its recollection of the detail of the Ferrero relationship with Baºkan Gida and the Banks, being matters mainly handled by his juniors Mr Rosa Brunet and Mr Casale.47. Mr Do made no secret of the fact that he was a witness with a mission, namely to uphold the good name of Ferrero against allegations of fraud, dishonesty and reprehensible business dealings. He sought to do so not by any display of indignation, but with a well-controlled, patient and fully engaged response to two days of cross-examination, conducted initially in English but latterly mainly in Italian through an excellent interpreter, as his perceived need for precision in his replies came to tax the considerable skill with which he spoke English.48. Mr Do did not stand personally accused of fraud or dishonesty in any part of the Banks' meticulously pleaded case. Nonetheless, two related aspects of his evidence gave me reason to doubt whether his evidence in Ferrero's defence was entirely honest. The first was Mr Do's denial of any knowledge at the time that the Baºkans remained the controlling force behind both Aksu Gida and Baºkan Yuksel, when Ferrero continued to trade with those companies in and after February 2002, a trade which continued after it became apparent to Ferrero that the Baºkans could no longer be trusted. The second related to Mr Do's reason for the failure of Ferrero to respond more constructively to requests by the Banks for information after Baºkan Gida's default in February 2002. Mr Do put this down to the Banks' refusal to provide a requested agenda for proposed face to face discussions, but there was no documentary or other evidence that this request had been communicated to the Banks, and I reject that explanation.49. I consider that Mr Do and (as will appear) Mr Rosa Brunet and Mr Casale all decided to lie about the first of those matters, with the result that Mr Do, who was in charge of Ferrero's response to the Banks' claims, and who therefore faced the main cross-examination about it, was also driven to lie about that as well. Where a witness is prepared to lie when he perceives it to be in his or his company's interests to do so, it deprives his evidence of inherent reliability. Nonetheless, much of Mr Do's evidence was either unchallenged or corroborated, and it was, much more often than not, reliable for that reason.50. Mr Alessio Casale was at the material time first the Deputy Purchasing Manager and, from January 2002, a ``Direttore'' (i.e. manager) of Ferrero Industrial, with particular responsibility for the purchase of hazelnuts. He had as a result the day to day responsibility for the conduct of Ferrero's relationship with Baºkan Gida, which he conducted on an almost daily basis on the telephone and by faxes and emails, mainly with Melih Baºkan, who was in charge of Baºkan Gida's export sales. Mr Casale has continued to be employed by Ferrero, and is now a manager within Ferrero Trading SA. In addition to his native Italian, he is a fluent speaker of English, with a working knowledge of German and French as well. He and the Baºkans used English as their common language. He also gave his evidence in English, with very occasional help from an interpreter. 51. Mr Casale came to the witness box quite extraordinarily well prepared to give evidence, extending to the minutest detail, of matters which occurred several years ago. He had a very good but not absolutely infallible memory for detail, occasionally appearing genuinely to recall points of detail which proved to be inaccurate by reference to contemporary documents. These occasional inaccuracies in no sense detracted from the generally comprehensive quality of his evidence, which he gave at great length in a written witness statement and, in cross-examination, over ten days. Generally, he displayed an articulate determination to address head on the questions he was asked and, despite a cross-examination aimed at challenging his honesty in numerous respects, remained calm, courteous and cooperative throughout.52. The care and thoroughness which he brought to giving of evidence was matched, in my judgment, by similar qualities which he applied to his work for Ferrero at the time. Although it was put to him that he had participated in the Baºkans' fraud on the Banks out of a corrupt motive, I have no hesitation in concluding that, throughout his dealings with the Baºkans on Ferrero's behalf, he acted in pursuit of what he genuinely believed to be Ferrero's best interests.53. I have unfortunately been driven to the conclusion that in certain specific respects Mr Casale persuaded himself that Ferrero's interests required him to lie in the evidence given at this trial. I shall describe those aspects of his evidence in due course, together with my reasons for rejecting both his evidence, and his professed honesty, on those occasions. In summary, they comprise first, his denial that he knew in substance the meaning of the English word ``assignment'' when negotiating in careful detail the English language versions of documents which involved Ferrero in the structure of the Banks' Facility to Baºkan Gida, in the later part of 2001. Secondly, and this is a falsehood into which Mr Do and Mr Rosa Brunet were also drawn, he untruthfully denied knowing that the Baºkan family were at all times in de facto control of Aksu Gida, and later Baºkan Yuksel, while they were simultaneously pretending to have withdrawn from the hazelnut market. Thirdly, he was not frank with the court about the extent to which, and the time at which, he suspected that the Baºkans were dealing otherwise than honestly with the Banks. 54. I consider it possible that the shortcomings in Mr Casale's evidence about the first and third of those matters may have been caused or at least substantially contributed to by his convincing himself into a state of denial about the extent of his knowledge at the material time, faced with the unpalatable consequences for Ferrero and for himself personally of facing up to the reality now that the matter has become the subject of major litigation. But I have been unable to persuade myself to any such sympathetic conclusion in relation to his denial that he and his colleagues within Ferrero Industrial knew that the Baºkans were, throughout, in de facto control of Aksu Gida and Baºkan Yuksel. That is something impossible for him to have forgotten, or even to have deceived himself about.55. The result of having come to those conclusions about Mr Casale's preparedness to lie by no means leads to a conclusion that his evidence as a whole is to be rejected. On the contrary, large parts of it accord both with contemporaneous documents, other corroborative evidence, and with the balance of probabilities. Nonetheless, his readiness to depart from the truth in accordance with his perception of Ferrero's interests leads to the result that I have been unable to place unquestioning reliance on Mr Casale as a witness of truth, but have been forced to address all of his detailed evidence with an open mind as to its truth and accuracy, as dictated by a consideration of the evidence as a whole.56. I have reached the same overall conclusion about Mr Rosa Brunet. He was throughout the material period Mr Casale's immediate superior at Ferrero Industrial, as one of its two capital Managing Directors, his responsibility being for raw materials procurement, including, but by no means limited to, hazelnuts. As Mr Casale's superior he was involved in the important decisions about Ferrero's relationship with Baºkan Gida, but much less with the day to day detail. He retired from Ferrero in 2005.57. As a witness, Mr Rosa Brunet faced difficulties considerably greater than those of Mr Casale, in particular because first, his English was less good, so that he needed much more assistance from an interpreter. Secondly he was experiencing real difficulties with his eyesight, which made it hard for him to read important documents put to him in cross-examination. More generally, and not least because of his detachment from Ferrero for the last few years, his recollection of events, and in particular dates and times, was much less precise than that of Mr Casale. He was less focused in his evidence and occasionally a little muddled. Nonetheless he showed no less enthusiasm than Mr Casale to engage with his cross-examiner, in providing full and usually direct answers to questions.58. Unfortunately for the reliability of his evidence, Mr Rosa Brunet associated himself with the general Ferrero denial of knowledge that the Baºkans were in de facto control of Aksu Gida and Baºkan Yuksel, a reality which, however deniable in the sense of there being no surviving documents to show that he knew otherwise, he cannot in my judgment have forgotten. For reasons which I shall in due course explain, an understanding of who in 2002 really controlled Aksu Gida and Baºkan Yuksel was essential to Ferrero's commercial decision-making at the time, and must have formed a lasting impression on those, including Mr Rosa Brunet, who took those decisions.59. The result is that, as with Mr Casale, I have been obliged to test Mr Rosa Brunet's evidence, step by step, against the evidence as a whole, and the general probabilities, without being able to attribute inherent reliability to it. But as with Mr Casale I have no doubt that Mr Rosa Brunet's conduct, both at the time and at the trial, has been motivated by his genuine perception of Ferrero's best interests, rather than by any corrupt motive of his own. 60. Mr Michael Bolowich was, on the Banks' pleaded case, the third member of the fraudulent triumvirate within Ferrero, but at the end of his cross-examination Mr Wardell promptly acknowledged, in response to my enquiry, that in the light of the evidence as it then stood, he could no longer pursue any allegation of dishonest participation by Mr Bolowich in the matters complained of. That sensible concession accorded with the impression which I had by then formed of him, namely that of a relatively lowly but wholly honest fringe participant in the relevant events.61. His official role at the material time was that of deputy purchasing manager within Ferrero Industrial, with particular responsibility for Ferrero Germany's requirements for certain raw materials, including hazelnuts. Prior to the centralisation of Ferrero's purchasing he had been a buyer of certain raw materials, not including hazelnuts, for Ferrero Germany as its direct employee, with executive responsibility for buying decisions. After the establishment of Ferrero Industrial he remained in Germany in effect in a branch office of Ferrero Industrial there, but since all executive buying decisions were made by Mr Rosa Brunet's team in Italy, his function was reduced to the purely administrative task of placing purchase orders for Ferrero Germany, on strict written instructions, usually from Mr Casale in relation to hazelnuts, with no executive responsibility or discretion of his own. Having thus been marginalised, he eventually retired from Ferrero in June 2004, aged 63.62. Four years' separation from Ferrero did nothing to assist his long term memory of relevant events, and even his short term memory proved less than reliable under cross-examination, giving opposite answers to the same question put in cross and then re-examination on two consecutive days without any apparent appreciation that he was contradicting himself. Nonetheless he clearly did his best honestly to assist the court to the limited extent that he could, and was generally careful to distinguish between reconstruction and recollection. He was open and frank in his answers, readily agreeing with the logic of questions where appropriate, and disclosed no partiality either for or against Ferrero and its senior staff, while disclosing that he and Mr Rosa Brunet had a less than entirely harmonious working relationship. He was therefore a helpful and reliable witness, to the limited extent that his recollection permitted.63. Ferrero's last witness was Mrs Mariapia Di Matteo who, both at the material time and when she gave evidence, was a senior member of the Ferrero Italy treasury department, reporting at the material time to Mr Salomone. Her responsibilities included making sure that payments the subject matter of Baºkan Gida invoices to Ferrero Italy were, once approved, paid efficiently and on time by Ferrero's Italian bankers to the appropriate Baºkan Gida recipient bank. In that role, she played an important part in Ferrero's contribution to the finally agreed wording upon which Ferrero was asked by Baºkan Gida to acknowledge the assignment to the Banks of receivables arising from its sales to the Ferrero operating companies.64. Subject to one or two small points where I doubted the precise accuracy of her recollection, Mrs Matteo proved to be a thoroughly good and reliable witness. The combination of a good memory and careful preparation enabled her to provide useful evidence as to the functioning of Ferrero Italy's treasury department, and its particular role and responsibilities in relation to the making of payments for deliveries by Baºkan Gida. She gave her evidence with conspicuous care and caution, and her evident desire to assist the court was in no way affected by any partiality towards her continuing employer.Mr Abidali's Witnesses65. Mr Abidali went first, and was cross-examined at great length, and in minute detail by reference to the surviving documents. His behaviour in the witness box had many of the trappings of a reliable witness. For example, he gave his evidence firmly and with clarity. He was well prepared, and had an evidently good memory of particular events. He was articulate, generally good humoured, and endured a lengthy and persistent cross-examination challenging his honesty and integrity with unfailing courtesy and restraint. 66. That said, he proved to be a thoroughly unreliable witness, essentially because of the hopeless conflict between both the gist and the detail of his written and oral evidence, and the usually clear contrary picture presented by the contemporaneous documents, many of which had either been written to or by him. Those conflicts, almost all of which I had found myself compelled to resolve against Mr Abidali, will become apparent from my findings of fact about the matters in which he was personally involved.67. My conclusion that Mr Abidali is not an honest man is reinforced by three aspects of his conduct which occurred before he began to give evidence at trial. The first was that he took an active part in the formulation, execution and backdating of apparently contractual documents in 2002 which were plainly designed to give a false and misleading impression to outsiders (i.e. they were sham documents) purporting to record the circumstances and terms of the transfer of assets between Baºkan Gida and Aksu Gida. The second was that he authorised false explanations of those documents by Indo-Med in its pleadings in this litigation before Mr Abidali himself was joined as a party, supporting them by statements of truth and witness statements, including an obviously false witness statement in support of Aksu Gida's case in Turkish proceedings in 2002. The third was that while Mr Abidali was responsible on behalf of Indo-Med for its compliance with its disclosure obligations in these proceedings, Indo-Med failed to disclose the overwhelming bulk of the documents which, when subsequently disclosed by its liquidator, revealed the truth of the matters about which Mr Abidali had previously provided false evidence. When cross-examined about all these matters at trial, Mr Abidali provided explanations and excuses which I found wholly unpersuasive. My reasons for so doing will emerge in detail in the next section of this judgment.68. Mr Ashraf Dahod was called to corroborate much of Mr Abidali's evidence. In terms of demeanour, he was just as, if not more, persuasive than Mr Abidali, giving his evidence with an apparently convincing air of quiet restraint. Furthermore, Mr Wardell for the Banks had much less by way of inconsistent contemporary documents with which to undermine his account of events, since Mr Dahod had allowed Mr Abidali to act as his agent for almost all purposes in relation to his substantial investment in Baºkan Gida and Aksu Gida.69. His credibility was however fatally undermined towards the end of his cross-examination by his resolute refusal to face the realities displayed in an email sent to him by Mr Abidali on 14th October 2002, and in his reply to it, both of which I shall have to describe later in some detail. The gist of them was a description of Mr Dahod's interest in the hazelnut business by then being run by Aksu Gida and Baºkan Yuksel as that of a pure financier of a business belonging to the Baºkans, with a right to a profit share, rather than that of an owner of the business. This was flatly contradictory not merely to Mr Dahod's evidence about the emails, but to the whole of his and Mr Abidali's case about their participation in Aksu Gida. Unless satisfactorily explained, which it was not, it revealed Mr Dahod as a liar, not merely about a particular incident, but in the central aspects of his attempted corroboration of Mr Abidali.70. It may be that Mr Dahod's untruthfulness can be put down in part to his having been deceived throughout by Mr Abidali, and having since then been in denial about the misconduct of a fellow member of a tightly knit religious community. Unlike Mr Abidali, Mr Dahod does not stand accused of active participation in a conspiracy against the Banks, and I make it clear that nothing in my description of his misconduct as a witness should be taken to imply a conclusion that he was indeed a fellow conspirator at the time. Nonetheless, he has had plenty of time before giving evidence in these proceedings to choose between telling the truth and lying in support of Mr Abidali, and my clear conclusion is that, whether for reasons of loyalty or otherwise, he chose to do the latter.71. Mr Zoeb Raniwala was a chartered accountant who provided part-time accountancy assistance to Indo-Med during the relevant period. He was called to corroborate Mr Abidali's account of certain mainly peripheral aspects of his evidence, having no close involvement in the central aspects of the case affecting Mr Abidali, and in particular of the role of Aksu Gida. He came across as a fair-minded, relatively independent and therefore generally reliable witness, whose evidence I found easy to accept, albeit that, save in relation to one matter concerning the use made of an account of Safe Holding Limited at Habib Bank in Zurich, it was not of central materiality. 72. The last witness to give oral evidence for Mr Abidali was his English solicitor, Mr John Trotter, who was at the material time the senior partner of the London solicitors firm of Bates Wells and Braithwaite. He was called to provide a character reference for Mr Abidali, and to corroborate certain aspects of the non-critical detail of Mr Abidali's account of the facts in issue.73. For most of his time in the witness box, Mr Trotter gave the impression of a man in real fear and trepidation, as well he might, because the important part of his participation in the matters in issue was as the English legal contributor to the drafting of the sham agreements by which the Baºkans and Mr Abidali sought to present to the outside world a thoroughly misleading picture of the circumstances of the transfer of the hazelnut business from Baºkan Gida to Aksu Gida. I have no doubt that Mr Trotter's apparent trepidation stemmed from a fear that it would be suggested to him in cross-examination that he had played a part in that process thoroughly unbecoming of an English solicitor. In the event, Mr Wardell chose to save his ammunition for more important targets and, as this became apparent to Mr Trotter, his confidence as a witness visibly increased.74. The result of Mr Trotter being spared a more searching examination of his role was that the limited ambit of the matters about which he gave evidence did not include much about which, in the event, I found it necessary to disbelieve his evidence. To the limited extent that he therefore provided corroboration for parts of Mr Abidali's evidence, it did him no good on the central matters in issue. Mr Trotter did provide Mr Abidali with a character reference, but coming from a solicitor who assisted in the drafting of documents which, in my judgment, he ought to have appreciated were being improperly backdated, the reference was of no assistance to Mr Abidali. Indeed, Mr Trotter's role in the matter can only have been honest if he was thoroughly deceived by Mr Abidali.75. Finally, Mr Abidali tendered under the Civil Evidence Act a statement of a Mr Hatim Husain, an employee of Habib Bank Zurich, a member of Mr Abidali's and Mr Dahod's religious community and a director of Safe Holding Limited. His very brief evidence was not accepted by the Banks in the sense of going unchallenged, but Mr Husain was proffered for cross-examination only upon condition that the Banks paid his expenses, which they declined to do. The result of this rather childish standoff, (bearing in mind the vast costs employed generally in this litigation), was that Mr Husain was not tendered for cross-examination, and I was left to give such weight to his witness statement, tendered under the Civil Evidence Act, as I thought fit. In the event, Mr Husain's evidence corroborated Mr Abidali's case only in relation to the issues affecting Safe Holdings Limited, as to which, I did not in the end disbelieve Mr Abidali. Expert WitnessesThe Banking Experts76. The lengthy and detailed allegations of contributory negligence on the part of the Banks contained in Ferrero's defence inevitably led to both parties calling banking experts. Both of them brought to bear long experience in banking, in consulting and advisory work relating to banking transactions, and in the preparation and giving of expert evidence on banking issues. The independence of each expert went wholly unchallenged. 77. Ferrero called Mr Paul Rex, now the managing director of the banking and securities consultancy company GBRW Limited. His banking career began as a graduate trainee at Chemical Bank in London in 1974. By the time he left in 1988 he was vice-president and head of ship finance and commodities finance within Europe. From 1988 to 1992, as assistant general manager at the London branch of Crédit Agricole, he was head of its Corporate Banking and Finance Division with responsibility, among many other things, for its commodity and trade finance units. Since 1993 Mr Rex has been engaged full time in consulting. 78. In cross-examination Mr Rex acknowledged that he had not at any time in his career led an emerging country structured trade finance transaction from start to finish. Nonetheless his responsibilities had included the risk analysis of such transactions from the perspective of a participating bank in a syndicate, the management of the department regularly taking a wide range of country risk, and the preparation of expert evidence on pre-export facilities with characteristics similar to the Facility in the present case. In my judgment the range and depth of Mr Rex's banking experience qualified him well for his task in this litigation, even if he had not sat precisely in the hot-seats occupied by the Banks' main witnesses. Both in his reports (including the joint statement of the two banking experts) and in his response to cross-examination, Mr Rex proved to be measured, articulate, reasonable and persuasive, keeping an open mind to the consideration of alternative points of view, and giving his opinions with care and precision. All in all I found him to be a most impressive witness.79. The Banks' expert Mr Robin Bryant gained his direct banking experience from 1960 through to 1991 at Westminster Bank Limited, County Bank Limited, Standard Chartered Bank plc, NM Rothschilds & Sons Limited and finally at Riggs AP Bank Limited, dealing with a wide range of lending transactions, as well as sitting on credit committees. He had even less hands-on experience of structured trade finance for emerging market exporters than Mr Rex, although his time at Riggs AP Bank Limited (between 1989 and 1991) necessarily involved international trade finance, `AP' standing for Anglo-Portuguese. Since 1992 Mr Bryant has been engaged in the provision of consultancy services to the banking industry, including the preparation and giving of expert evidence in a large number of cases. Again, I am satisfied that his broad and long experience well qualified him to provide expert evidence in the present case, even though his career had not been focused upon the particular type of lending with which it is concerned.80. As will appear from my conclusions in due course, to the effect that the Banks were indeed contributorily negligent in a number of respects, Mr Bryant had a difficult task in acting as an expert witness for the parties defending those allegations. Nonetheless, both at his meeting with Mr Rex, in his written reports and in particular in cross-examination, Mr Bryant sensibly acknowledged, without partiality or undue defensiveness, that the Banks had indeed fallen short of the standards to be expected of reasonably competent bankers at various points in an otherwise lengthy and thorough due diligence, and he managed to keep well in mind the distinction which needed to be made between the acknowledgement of shortcomings, his evident sympathy for the individuals concerned, and his humane understanding of the reasons why they had fallen into error.81. All in all, Mr Bryant was another impressive expert witness, who provided substantial assistance to the court. The Hazelnut Market Experts82. The Banks called Mr Murat Solak who is currently the foreign trade manager of Basaran, a large Turkish producer and exporter of hazelnuts. His twenty years' experience in the hazelnut business included working full time for another large exporter Sezginler from when he left university in 1992 until called to do military service in 1998. In 1999 he formed a joint venture with a Dutch company with a view to setting up a new hazelnut producing, exporting and trading business, called Arasco. This did small-scale business (by comparison with Baºkan Gida) in exporting hazelnuts during the material period, not exceeding about 2,000 metric tons (``mt'') of kernels per annum and doing little business with the chocolate making industry. Arasco closed its processing and exporting business after a bad crop in 2003. 83. Notwithstanding that his experience during the material period was not directly comparable with a business like Baºkan Gida's, Mr Solak demonstrated an impressive knowledge and understanding of the Turkish hazelnut market (including the export market) both before, during and after the relevant period, so that he was well qualified from the perspective of experience to provide the expert opinions requested of him.84. As a Turkish resident and speaker throughout, this no doubt added to the depth of Mr Solak's knowledge of the market, but his relatively limited English meant that he delivered his written reports and most of his oral evidence in Turkish, using English only where he encountered difficulty in getting across a technical point through a non-technical interpreter. His English was, for most of the time, amply sufficient for him to understand the gist and usually the nuances of questions asked of him in cross-examination, with the need for only limited assistance from interpreters for that purpose. 85. Notwithstanding his long and broad experience, Mr Solak had no prior dealings with Ferrero or with Baºkan Gida. In one sense this was an advantage, since it provided for him a standpoint of complete independence. His absence of experience in dealing with Ferrero and comparable foreign customers on the scale manifested by the transactions in issue, particularly during the relevant period, did constitute a disadvantage in terms of his attempt to assess the commerciality or otherwise of the transactions in issue from Ferrero's point of view as customer.86. Mr Solak had no previous experience as an expert witness, or more generally of participating in the litigation process. To some extent this led to his offering enthusiastic participation in the debate about certain contested issues of fact which went well beyond the ordinary role of a market expert. Because they were often based upon hearsay and rumour, it was necessary for me to treat those contributions with some caution.87. More generally however, Mr Solak presented a lively, intelligible and usually vivid picture of the Turkish hazelnut market at the material time, which I found to be of considerable assistance. My main reservation with his evidence was that he demonstrated a certain rigidity of thought in relation to the complicated issues about Baºkan Gida's likely processing costs, which appeared to stem...
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