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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Gresport Finance Ltd v Battaglia [2018] EWCA Civ 540 (23 March 2018) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2018/540.html Cite as: [2018] EWCA Civ 540 |
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ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
MR G BOMPAS QC (Sitting as a Deputy High Court Judge)
Strand, London, WC2A 2LL |
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B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE FLOYD
and
THE RIGHT HONOURABLE LORD JUSTICE HENDERSON
____________________
| GRESPORT FINANCE LIMITED |
Claimant/ Respondent |
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| - and - |
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CARLO BATTAGLIA |
Defendant/Appellant |
____________________
Mr Duncan Macpherson (instructed by Cartwright King Solicitors) for the Respondent
Hearing dates: 16 & 17 January 2018
____________________
Crown Copyright ©
Lord Justice Henderson:
Introduction
The Factual Background
"Second, there is the undoubted fact, as demonstrated by his involvement with the Alpha Group, that Mr Mackey is a competent accountant, and could be expected to be interested in and have no difficulty in finding out about his financial affairs including the disposition of money and securities held for him through Gresport."
(a) a print-out of a March 2010 statement showing movements of monies handled by H&G, through its clients' account, for Gresport;
(b) a "portfolio statement" as at 12 December 2006, giving details of the various securities and other assets then held on the account, with their current values; and
(c) a short run of month-end cash statements, starting on 31 December 2006 and continuing to 30 June 2007, showing movements of cash and balances in the three relevant currencies in the form of conventional bank statements.
"67. Whatever may have been said about the ownership of Gresport or its funds during 2007 or 2008, it is now undisputed that Gresport belonged to Mr Mackey, and that its property was held by it for him.
68. As I find, the function of Mr Bodnar-Horvath, and that of his firm, in relation to Gresport and the property from time to time held in the name of Gresport was to act on the instructions given by Mr Battaglia as a relay from Mr Mackey. Mr Bodnar-Horvath and H&G had no discretion. Effectively Gresport was a money-box to which Mr Bodnar-Horvath and his firm held the key: and the money-box and the contents were to be disposed of at the directions of Mr Battaglia given on behalf of Mr Mackey. This is to say, directions for Mr Bodnar-Horvath and H&G were not expected by Mr Bodnar-Horvath, or for that matter by Mr Mackey or Mr Battaglia, to come direct from Mr Mackey. Further, it was not expected that Mr Bodnar-Horvath or H&G would contact Mr Mackey direct. This arrangement continued until 2008.
69. Mr Mackey, in my judgment, had two characters in relation to Gresport. On the one hand he was the beneficiary for whom Gresport held its property as nominee. As such, he was entitled to require Gresport to dispose of his property as he wished. On the other hand he was the owner of Gresport, and in that capacity the person whose commands Gresport by its nominee directors would follow. To this extent he was also a shadow director of Gresport."
The Impugned Transactions
1) four relatively small payments in euros or sterling made between August 2005 and March 2007 to Elina Eglite (who was then Mr Battaglia's wife), and a payment of £2,000 made in August 2005 to G. Teoli & Co (who were UK accountants acting for Mr Battaglia and clients of his);
2) the nine payments to the ROSS account at BPER Geneva to which I have already referred, made between June 2006 and March 2007, totalling US$83,087 and 327,989;
3) the payment of 30,000 to ARAAL SA on 1 March 2007;
4) a payment of 110,000 on 22 May 2007 to Freemont Business Inc;
5) a payment of US$23,924 on 20 June 2007 to Westbend International Ltd; and
6) two payments to Bank Syz & Co SA, Geneva, the first of 598,980 on 11 July 2007, and the second of 19,245 on 8 October 2007.
"He owed in contract a duty, and in tort a duty to use reasonable care, to give directions in accordance with, and only in accordance with, Mr Mackey's instructions. His mandate was only to give directions which would result in property held by Gresport being applied in accordance with those instructions. A fortiori, he was not to give unauthorised directions which would result in that property being applied to or for his own benefit."
"It is asserted by Gresport, and (as already mentioned) admitted by Mr Battaglia, that as Gresport's agent he owed fiduciary duties in parallel with his common law duties described above. I agree. While Mr Battaglia did not himself hold any Gresport property, and was not a trustee of such property importantly, he had the power to control all disbursements of funds by his relationship with H&G. And this power was a fiduciary one, to be used only for the purpose for which it had been given (namely to bring about dispositions of Gresport property instructed by Mr Mackey)."
"118. I have already indicated my conclusion concerning the payments to the ROSS Account and the transfer of the securities to the GRESS Account. While I am not satisfied that the evidence establishes beneficial receipt by Mr Battaglia of Gresport's money or its securities, the evidence is in my judgment sufficient to establish that these items went to accounts which Mr Battaglia controlled or with which he was associated. That, together with the absence of any explanation to show how Mr Mackey might have benefited or why he should have wanted Mr Battaglia to bring about the payments and the transfer, is also sufficient to lead me to reject Mr Battaglia's evidence that the transactions were after all instructed to him by Mr Mackey.
119. Related to the previous point is the absence of any documents from Mr Battaglia concerning his activities on behalf of Gresport and Mr Mackey. It seems to me that the arrangements put in place with Mr Mackey and Gresport contemplated that Mr Mackey's instructions to him, Mr Battaglia, would not be written for reasons of secrecy. Given this, it maybe understandable that for just those reasons Mr Battaglia would make or keep no record of his dealings with, and hence his instructions from, Mr Mackey. Thus, the only relevant documents with Mr Mackey's signature are one or two which were transmitted to, and retained by Mr Bodnar-Horvath despite his promise to Mr Battaglia [in October 2007] to shred documents.
120. But while it may be understandable that there are no written communications, or records of communications, between Mr Mackey and Mr Battaglia, I consider that Mr Battaglia's failure to produce anything concerning, or indeed to give any worthwhile explanation of, the ROSS Account or Gressler or the GRESS Account stands in a different case. In short, it seems to me that, once it is shown that there has been an allegedly unauthorised disposition of property directed by Mr Battaglia to a recipient connected with him, it is reasonable to infer in the absence of any further evidence or explanation that in fact the disposition was unauthorised.
121. There is sufficient evidence, in my judgment, to enable me to conclude also that Mr Battaglia was associated with ARAAL SA. In this case, too, the absence of explanation for the payment in the face of that association puts the payment into a similar light to the transfers of securities to the GRESS Account. Had there been a proper explanation for Mr Battaglia to give for the payment he could and should have given it."
"124. On the other hand I am not convinced that Mr Mackey's evidence is to be accepted as necessarily accurate. In particular I do not think he was being truthful when he explained to me both (a) that his last meeting with Mr Battaglia was in December 2006 which was when he had last seen a portfolio statement for the SPORT Account and (b) that he had seen a SPORT Account statement very shortly after the December 2006 sales of securities. His first evidence was because familiarity with deals on the SPORT Account would have undermined the case that the various dispositions were unauthorised; his second evidence was because it would have been implausible to say that he had had no interest in learning what the sales of securities had realised.
125. In the result my conclusion is that Gresport has failed to show the Freemont, Westbend and Bank Syz payments to have been unauthorised. Mr Battaglia, it is accepted by Gresport, did not divert improperly the entirety of Mr Mackey's property which had passed to Mr Bodnar-Horwath or lain in the SPORT Account. The beneficial recipients of the authorised payments, other than H&G itself, were as obscure as any of Freemont, Westbend and Bank Syz. The only evidence Gresport has indicating that payments to these three payees were unauthorised is the unsupported statement of Mr Mackey. If Mr Battaglia had wanted to remove from the SPORT Account the amounts paid to Freemont, Westbend and Bank Syz, I cannot see why he would not simply have paid the amounts to the ROSS Account or to Gressler."
"However Mr Mackey's evidence as to his meetings with Mr Battaglia and his receipt of statements for the SPORT Account was not satisfactory, and leads me to doubt that Mr Mackey was as little informed as to the balances on the SPORT Account during 2007 as he is seeking to convey. When he was asked in the course of his oral evidence whether he had taken an interest in finding out how much had been raised by the sales of the securities he had requested at his meeting with Mr Battaglia in December 2006, his response was that he knew immediately at the time because he went through the portfolio statement. The difficulty with this answer is that the first SPORT Account statement which showed the sales was not that of 12 December 2006, the portfolio statement in evidence, and was obviously not one available at the meeting with Mr Battaglia when Mr Mackey gave the instruction for the sales. In other words, it must have been after the meeting that he saw a statement reflecting the sales. If true this would point to there having been at least one subsequent occasion when Mr Battaglia and Mr Mackey met for the latter to consider a later portfolio statement for the SPORT Account."
Mr Battaglia's appeal: could Gresport with reasonable diligence have discovered his concealment of any fact relevant to its right of action before 7 August 2007?
"(1) where in the case of any action for which a period of limitation is prescribed by this Act,
(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant;
the period of limitation shall not begin to run until the plaintiff has discovered the concealment or could with reasonable diligence have discovered it. References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent."
"(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty."
"Mr Battaglia must have appreciated that what he was doing, when he went ahead and gave the unauthorised directions, was unlikely to be discovered for some time. There was no direct communication between Mr Mackey and H&G (and thus Gresport): the arrangements which Mr Battaglia had had a hand in organising anticipated that there would be no direct communication. The communication was, and was expected to be, channelled through Mr Battaglia. In the absence of communication between Mr Mackey and H&G, Gresport would not be able to determine whether or not the dispositions directed by Mr Battaglia had in fact been sanctioned by Mr Mackey (and hence whether it had correctly applied his property). Gresport was at all times supposed to act on directions given by Mr Battaglia without further question or checking. This was an arrangement which Mr Battaglia had himself been instrumental in making."
"The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take. In this context the length of the applicable period of limitation is irrelevant. In the course of argument May LJ observed that reasonable diligence must be measured against some standard, but that the six-year limitation period did not provide the relevant standard. He suggested that the test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency. I respectfully agree."
"142. In the present case a significant feature of Gresport's business, and one which is relevant to what could and should have been done by Gresport, is the fact that Gresport was supposed to dispose of the property held by it for Mr Mackey in accordance with directions communicated only through Mr Battaglia: Gresport was not to have direct communication with Mr Mackey about those directions. This, indeed, was what made it easy for Mr Battaglia to give directions for unauthorised dispositions.
143. In the circumstances I am satisfied that Gresport could not reasonably have been expected to have discovered before 7 August 2007 that Mr Battaglia had been giving, without Mr Mackey's sanction, directions as to Gresport's dispositions of property held by it. Only by taking the exceptional step of direct communication with Mr Mackey could it have discovered Mr Battaglia's want of authority in relation to the relevant transactions."
1) the judge's finding at [7] that Mr Mackey was a competent accountant, who could be expected to be interested in and have no difficulty finding out about his financial affairs, including the disposition of money and securities held for him through Gresport;
2) Mr Mackey's evidence that from time to time between 2002 and December 2006 he would meet Mr Battaglia, who gave him portfolio statements which he would check to ensure that everything was in order ;
3) the fact that on Mr Mackey's evidence the funds held in the SPORT account represented his only significant asset;
4) the judge's finding that Mr Mackey was not being truthful when he said that his last meeting with Mr Battaglia was in December 2006;
5) Mr Mackey's evidence that a deficit of 1million would have shown up on a portfolio statement in July 2007, and that had he been shown such a statement he would have seen anything which was obviously surprising;
6) the absence of any explanation from Mr Mackey as to why the meetings ceased completely after December 2006, just when the great majority of the securities in the portfolio had been turned into cash;
7) the fact that Mr Bodnar-Horvath could at any time have discovered Mr Battaglia's breaches of duty by contacting Mr Mackey, whose identity and contact details were known to him, and with whom he had been in direct contact on at least one occasion prior to the impugned payments; and
8) the fact that Mr Mackey could at any time have discovered Mr Battaglia's breaches of duty by contacting him or Mr Bodnar-Horvath and/or requesting copies of the portfolio statement for the account from which moneys were paid away.
" it is inherent in section 32 (1) of the 1980 Act, particularly after considering the way in which Millett LJ expressed himself in Paragon Finance , that there must be an assumption that the claimant desires to discover whether or not there has been a fraud. Not making any such assumption would rob the effect of the word "could", as emphasised by Millett LJ, of much of its significance. Further, the concept of "reasonable diligence" carries with it, as the judge said, the notion of a desire to know, and, indeed, to investigate."
"I conclude, first of all, that it is impossible to devise a meaning to be put on those words [reasonable diligence] which can be generally applied in all contexts because, as it seems to me, the precise meaning to be given to them must vary with the particular context in which they are to be applied. In the context to which I have to apply them [the mistaken attribution of an old master drawing], in my judgment, I conclude that reasonable diligence means not the doing of everything possible, not necessarily the using of any means at the plaintiff's disposal, not even necessarily the doing of anything at all, but that it means the doing of that which an ordinarily prudent buyer and possessor of a valuable work of art would do having regard to all the circumstances, including the circumstances of the purchase."
1) Although Mr Mackey is a qualified accountant, and no doubt took a close interest in his financial affairs, the judge accepted his evidence that he had no reason to think that there was anything amiss, or that he had cause to ask for further information; see the judgment at [66]. Accordingly, this factor alone could not have triggered an obligation to investigate whether the "protocol" which Mr Mackey had established was working according to plan.
2) Similarly, the fact that Mr Battaglia occasionally gave him portfolio statements when they met between 2002 and December 2006 does not mean that Mr Mackey was guilty of any lack of reasonable diligence in not requesting similar statements between late December 2006 and early August 2007. On the contrary, he knew that the bulk of the portfolio had been liquidated in December 2006, so it now mainly comprised cash; and on at least one occasion thereafter, in March 2007, he requested a substantial payment of 390,000 to be made from the SPORT account, via instructions given by Mr Battaglia in the usual way. No challenge is made to that transaction, which would presumably have reassured Mr Mackey that the protocol was working as normal: see the judgment at [37] [38].
3) Again, the fact (if it be true the judge made no such finding) that the funds held in the SPORT account represented Mr Mackey's only significant asset, takes matter no further forward in the absence of anything to put Mr Mackey on enquiry. The same goes for the point that, had Mr Mackey been shown a portfolio statement in July 2007, he would doubtless have seen that there was a deficit of some 1 million.
4) Similarly, there is no reason why H&G should have taken steps to contact Mr Mackey directly, in the absence of anything to put them on enquiry as to Mr Battaglia's honesty. It needs to be remembered, in this connection, that there was nothing obviously suspicious about Mr Battaglia requesting payments to be made to accounts connected with him, because he had an established asset management business and Mr Mackey had been his client for several years. Furthermore, the whole point of the protocol was to distance Mr Mackey from the assets held for his benefit and administered by H&G. In that context, H&G were expected to act on instructions received from Mr Battaglia without demur.
"Q. But you must have taken an interest in how much was raised by selling all those shares?
A. I did. I knew at the time because I knew in December when I went through the portfolio statement. The shares were sold straightaway, so I knew what the proceeds were."
Gresport's cross-appeal: should the judge also have given judgment for Gresport in respect of the other main impugned transactions?
Conclusion
Lord Justice Floyd:
Lord Justice McFarlane: