Bank of Tokyo-Mitsubishi UFJ, Ltd & Anor v Baskan Gida Sanayi VE Pazarlama A.S. & Ors, Court of Appeal - Chancery Division, June 11, 2009, [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
 
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Neutral Citation Number: [2009] EWHC 1276 (Ch)

Case No: HCO3C2596

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 11/06/2009

Before :

MR JUSTICE BRIGGS

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Between :

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Mr John Wardell QC, Ms Clare Stanley and Mr Alexander Winter (instructed by Forsters LLP, 31 Hill Street, London W1J 5LS) for the Claimants

Mr 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 Defendants

Mr Raymond Werbicki (instructed by Steptoe & Johnson, 99 Gresham Street, London EC2V 7NG) for the 12th Defendant

Hearing dates: 20th October 2008 - 18th February

&

16th March - 7th April 2009

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Mr Justice Briggs:

INTRODUCTION

  1. 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'...

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