1993 Folio No 624
1996 Folio No 1206
Consolidated as 
1993 Folio No 624
IN THE HIGH COURT OF JUSTICE  
QUEENS BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
24th June 1999

BEFORE LORD JUSTICE MANCE 

1993 Folio No 624

BETWEEN

(1)  GRUPO TORRAS S.A.
(2)  TORRAS HOSTENCH LONDON LIMITED (in liquidation)
Plaintiffs
-and-

(1) SHEIKH FAHAD MOHAMMED AL-SABAH 
(2) RICHARD ROBINSON
(3) FOUAD KHALED JAFFAR
(4) WALID EDMOND  MOUKARZEL
(5) FRANCISCO JAVIER DE LA ROSA MARTI
(6) MIGUEL SOLER SALA
(7) JORGE NUNEZ Y LASSO DE LA VEGA
(8) NARCISO MARIA DE MIR FAURA
(9) JUAN JOSE FOLCHI BONAFONTE
(10) PLINIO NICHOLAS COLL GUTIERREZ
(11) COLL & CO LIMITED
(12) JUAN PIQUE VIDAL
(13) MICHAEL CHARLES RUSSELL 
(14)  RUSSELL LIMEBEER (a firm)
(15)  WARDBASE LIMITED
(16)  OAKTHORN LIMITED
(17)  WESTOW LIMITED
(18)  ANSLOW LIMITED
(19)  CROESUS INTERNATIONAL LIMITED
(20)  WANTLEY DEVELOPMENTS LIMITED
21)  COGGIA I B.V.
(22)  RIQUEL B.V.
(23)  ESTEEM LIMITED
(24)  CARIN LINDA PARKER
(25) ERIC SYDNEY AXFORD
(26)  JACQUELINE BRENDA COLLINS
(27)  PETER RANDOLPH LEWIN
(28)  PIRUNICO TRUSTEES (JERSEY) LIMITED 
(29)  PIRUNICO NOMINEES (JERSEY) LIMITED
(30)  SIERRA TRUST COMPANY LIMITED
(31)  SIERRA MANAGEMENT LIMITED
(32)  ACIE SA
(33)  ALTHESA NV
(34)  BOND STREET HOLDINGS LIMITED (formerly SETSAR LIMITED)
(35)  BRADMORE LIMITED
(36)  CARROW  LIMITED
(37)  DACTARON LIMITED
(38)  GOLDFLEET LIMITED 
(39)  HAMMARSTONE INTERNATIONAL BV
 (40)  HAMMARSTONE HOLDINGS NV
(41)  HERTILI BV
(42)  LANCEWOOD HOLDINGS LIMITED
(43)  LINDAM LIMITED
(44)  LLOTASA SA
(45)  PINTHIRTEEN LIMITED
(46)  ROUNDABOUT HOLDINGS LIMITED
(47)  SCOURSHAM  LIMITED
(48)  VALOUR LIMITED
(49)  WENTLAND LIMITED
(50)  COTONDALE INCORPORATED
(51)  PARROT CAY DEVELOPMENT COMPANY LIMITED
(52)  RAOUL OBERSON
(53)  SHEIKH KHALED NASER HAMOUD AL-SABAH
(54)  PAUL AMAGER DAWSON
(55)  SIMUL ET SEMPER SA
(56)  SIMILL MODO SA    
 
Defendants

AND BETWEEN

FOUAD KHALED JAFFAR

(Third defendant by
original action and
Plaintiff by Conterclaim)

and 

(1) Grupo Torras S.A.
(Plaintiff by original
action and First
Defendant by Counterclaim)

(2) Kuwait Investment Authority
(Second Defendant
by Counterclaim)

1.  Anthony Boswood Q.C., Andrew Popplewell Q.C. and Paul Wright were instructed by Baker & McKenzie for the Plaintiffs.

2.  Richard Field Q.C., Robin Knowles  and Antony Zacaroli were instructed by Nicholson Graham and Jones for the first defendant until 4th December 1998

3.  John Jarvis Q.C. and Michael Rollason were instructed by Simmons and Simmons for the third defendant until 3rd December 1998

4.  Edward Bailey was instructed by Edwin Coe for the fourth defendant.

5.  The sixth defendant Miguel Soler Sala represented himself and the forty-fourth defendant.

6.  The ninth defendant Juan Jose Folchi Bonafonte represented himself.

7.   The tenth defendant Plinio Nicholas Coll Gutierrez represented himself and the nineteenth twentieth twenty-first and twenty-second defendants.

8.  The 24th defendant Carin Linda Parker represented herself.

9.  John McGhee and John Bignall were instructed by Morgan Lewis & Bockius for the fifty third defendant.

10.  Richard Hacker Q.C. was instructed by Norton Rose for the second defendant by counter claim.

PURSUANT TO THE PRACTICE DIRECTION OF THE MASTER OF THE ROLLS DATED 9TH JULY 1990,

I certify that the attached text records my Judgment and that no further record or transcript need be made.

The Rt. Hon. Lord Justice Mance

Copies of this text are also available in Word on provision of a clean 3.5” floppy disc on application to the Clerk to Lord Justice Mance. 

JUDGMENT

I. INTRODUCTION

I.1 INDEX

PARA.	SUB-PARA.	SUBJECT	PAGE	
				
I		INTRODUCTION	1	
I.1		Index	1	
I.2		Representation and appearance	3	
I.3		The Cast	6	
				
II		THE TRANSACTIONS	13	
II.1		Croesus	13	
II.2		Oakthorn 1	17	
II.3		Oakthorn 2	22	
II.4		Pincinco	25	
II.5		Wardbase	31	
II.6		Accounting treatment of the transactions	34	
II.7		Events after the transactions	38	
II.8		The claims in outline	45	
				
III		OBJECTIONS TO THE PROCEEDINGS	47	
III.1		Authority and/or capacity	47	
III.2		Article 134(1) of the Spanish Companies Act 1989	47	
III.3		Article 5.4 of the Law of Suspension of Payments	68	
III.4		Limitation under article 949 of the Commercial Code	85	
III.5		Miscellaneous objections	96	
	III.5(a)	Lis pendens/stay in view of Spanish criminal/civil proceedings	96	
	III.5(b)	Articles. 5(3) and (4) of Brussels Convention	99	
	III.5(c)	Articles 111-4 of Criminal Procedural Law	100	
	III.5(d)	Articles 16(2) and 19 of Brussels Convention and stay until Spanish judgment	100	
	III.5(e)	Sheikh Fahad’s application to strike out the plaintiffs’ case.	102	
	III.5(f)	Kuwaiti criminal proceedings	108	
	III.5(g)	Forged documents	108	
	III.5(h)	The obtaining of Juge Tappolet’s documents relating to account G772	112	
	III.5(i)	Immunity	114	
	III.5(j)	Conclusion	115	
				
IV		THE FACTS	116	
IV.1		Onus and standard of proof	116	
IV.2		The purposes of the transactions	118	
	IV.2(a)	Introduction	118	
	IV.2(b)	Croesus	121	
	IV.2(c)	Oakthorn 1	125	
	IV.2(d)	Oakthorn 2	128	
	IV.2(e)	The suggested BP bonus	129	
	IV.2(f)	The Hammarstone transaction	133	
	IV.2(g)	Pincinco	134	
	IV.2(h)	Wardbase	139	
	IV.2(i)	Summary regarding purposes	139	
				
IV.3		Individual defendants	140	
	IV.3(a)	Sheikh Fahad	140	
	IV.3(b)	Mr Jaffar	151	
	IV.3(c)	Mr de la Rosa	155	
	IV.3(d)	Sheikh Khaled	160	
	IV.3(e)	Mr Soler	177	
	IV.3(f)	Mr Coll	192	
	IV.3(g)	Mr Folchi	207	
	IV.3(h)	Mrs Parker	254	
	IV.3(i)	Mr Moukarzel	261	
				
V		THE CLAIMS	275	
V.1		Conspiracy	275	
	V.1(a)	English law	275	
	V.1(b)	The incidence of loss	279	
	V.1(b)(i)	Croesus	279	
	V.1(b)(ii)	Oakthorn 1	281	
	V.1(b)(iii)	Oakthorn 2	281	
	V.1(b)(iv)	Pincinco	282	
	V.1(b)(v)	Wardbase	284	
	V.1(b)(vi)	The capitalisation	285	
	V.1(c) 	Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Sheikh Khaled	297	
	V.1(d)	Other defendants	307	
	V.1(e)	Conflict of laws	308	
	V.1(f)	Spanish law	316	
V.2		Breach of directors’ duty	326	
V.3		Dishonest assistance	326	
	V.3(a)	English law	327	
	V.3(b)	Conflict of laws and Spanish law	335	
V.4		Money had and received and/or knowing receipt	339	
V.5		Equitable tracing	343	
				
VI		CONCLUSIONS	345	
VI.1		Summary	345	
VI.2		Orders	350	

I.2  Representation and appearances
This is the trial of actions which have occupied much time in the Commercial Court and on appeal over the last five years. Their title identifies two plaintiffs, fifty-six defendants, and a counterclaim joining as second defendant to counterclaim the plaintiffs’ ultimate parent, the Kuwait Investment Authority (“KIA”). The actions concern transactions or operations which it is convenient to call by the names Croesus, Oakthorn 1 and 2, Pincinco and Wardbase. The number of effective parties and live issues has substantially reduced over the years, especially during the trial itself. I am now only concerned with the trial of the plaintiffs’ claims against the first, third to sixth, ninth to eleventh, nineteenth to twenty-second, twenty-fourth and fifty-third defendants. I have also before me an application for judgment for declaratory relief against the twenty-third defendant, Esteem Limited (“Esteem”), a Jersey company which was the ultimate beneficiary of certain monies from Oakthorn 2 and which failed to acknowledge service or to give notice of intention to defend and upon which points of claim were served on 7th December 1998.

The first plaintiff, Grupo Torras S.A. (“GT”), and the second plaintiff, Torras Hostench Limited (“THL”), have been represented at trial by Mr Boswood Q.C., Mr Popplewell Q.C. and Mr Wright.  Until early December 1998, the first defendant, Sheikh Fahad, was represented by Mr Field Q.C., Mr Knowles and Mr Zacaroli and the fifth defendant, Mr Jaffar, by Mr Jarvis Q.C. and Mr Rollasen.  On 3rd December 1998 (Day 25) Mr Jaffar and on 4th December 1998 (Day 26) Sheikh Fahad dispensed with legal representation and indicated that they would play no further part in the trial and give no evidence.  Mr Jaffar further submitted to judgment on his counterclaim both as against GT as first defendant to counterclaim and as against the second defendant by counterclaim, the KIA, represented by Mr Hacker Q.C.  He also indicated that he would, on the basis of money had and received, submit to judgment in respect of an unexplained receipt of $15 million - though, in the event, such judgment was not entered because of the possibility that it might involve a waiver of any tort which the plaintiffs might otherwise establish.  Sheikh Fahad and Mr Jaffar both sought through counsel, then and in Sheikh Fahad’s case in correspondence thereafter, to put favourable complexions on their respective withdrawals. But the precipitating cause of their withdrawals was, without doubt, material produced by a Swiss investigating judge, Juge Tappolet, in criminal proceedings based on a complaint which the plaintiffs made against Mr Yves O. Byrde, a Swiss banker, in April or May 1998 in respect of the Pincinco operation and an expanded or further complaint made in late November 1998 to cover the other operations. In the result no oral evidence was adduced by Sheikh Fahad and Mr Jaffar to support their pleaded cases on the facts. The issues as against Sheikh Fahad and Mr Jaffar are whether the plaintiffs have on the evidence before the court made good to a commensurate standard the serious charges which they make.

In late January 1999, as oral evidence was about to conclude in accordance with the set timetable, Sheikh Fahad chose to renew contact with the case. He communicated a request to the court that I should hear consider and if necessary hear oral evidence from Professor Cortes on Spanish law. Still later he sought to expand this to include an accountant said to be relevant on the subject of loss. The request led, unsurprisingly, to objections by the plaintiffs, not least in view of Sheikh Fahad’s own failure to comply with orders which I had made and the fact that Sheikh Fahad was not present or represented before the court. I ruled on the issue on 3rd February 1999. The matter went with my leave to the Court of Appeal. That Court in reasons given on 19th February 1999 explaining its previously communicated decision upheld my ruling  allowing Professor Cortes to be called, on a qualified basis, and refused leave to call the accountant. I heard Professor Cortes accordingly. These events are further referred to in sections III.4 and V.1(b)(vi).

Since the hearing, Sheikh Fahad has continued to send, or cause others (including his Spanish lawyers) to send, to the court numerous communications, containing submissions and material relating to his position as well as requests to have the whole case or judgment dismissed, stayed or postponed on various bases. So far as such submissions  and material related to points on which I asked all parties for further assistance after the oral hearings, I have taken them into account in this judgment. But some entirely new matters were raised which ought to have been raised (if at all) either at an interlocutory stage or in pleadings and skeleton arguments and during the trial. Where appropriate, Sheikh Fahad was, however, offered the opportunity to appear and make oral submissions (an offer not taken up); I have also communicated rulings on various matters raised by him. Section III.5 addresses those matters which call for any attention in this judgment.

So far as other defendants are concerned, proceedings continue effective against only a limited number of the 56 defendants named on the writ.  The fourth defendant, Mr Moukarzel, has been represented by Mr Edward Bailey, and gave evidence.  The fifth defendant, Mr de la Rosa, was the subject of my order dated 12th August 1998 striking out, on the grounds of contempt, his points of defence to the extent that they relate to the Oakthorn 2 and the Pincinco transactions, and giving leave to enter judgment in default of defence accordingly.  He has not appeared or been represented.  He was prohibited by the Spanish criminal courts from leaving Spain, and was shortly after the start of the trial before me re-committed to prison in Spain.  On 16th November 1998, at a time when the giving of evidence by Sheikh Fahad by video-link was under consideration, Mr de la Rosa wrote to the court asking whether that would be possible in his case. After discussion in court, my clerk responded on 17th November 1998 sending Mr de la Rosa a copy of the Supreme Court protocol of video-conferencing and informing him that I would consider any proposal from him. Despite a reminder dated 21st December 1998, Mr de la Rosa did not respond or play any further part in the trial.

The sixth defendant, Mr Soler, the ninth defendant, Mr Folchi, and the tenth defendant, Mr Coll, have all conducted their own cases and given evidence in person.  The eleventh defendant, Coll & Co. Limited (“Coll & Co.”), is a company formed for Mr Coll’s use by Mr Russell (who, until he reached a settlement with the plaintiffs, represented it before me). The only claims against Coll & Co. before me are by THL, since at an early stage I stayed GT’s claims against Coll & Co. pending arbitration (see [1995] 1 Ll.R. 374). Mr Coll, with my leave, represents the nineteenth, twentieth, twenty-first and twenty-second defendants, Croesus International Limited (“Croesus”), Wantley Developments Limited (“Wantley”), Coggia 1 B.V. (“Coggia”) and Riquel B.V. (“Riquel”), all of which were and are his creature companies. Mrs Parker, the twenty-fourth defendant, acts in person and gave evidence. Sheikh Khaled, the fifty-third defendant, has been represented by Mr McGhee and Mr Bignall and gave evidence. In respect of all other defendants, there has either been no appearance or proceedings have been concluded, whether by discontinuance, death or dissolution, stay or judgment.

A summary of my conclusions on the issues decided by this judgment and on the plaintiffs’ claims against the defendants still involved will be found in section VI.1 at the end of this judgment.

I.3 The Cast
GT (known until June 1989 as Torras Hostench S.A.) was incorporated in Spain in 1941.  THL was incorporated in England on 31st August 1988 and has been at all material times a 100% subsidiary of GT. THL’s original purpose was to borrow monies outside Spain for group purposes, at a time when GT, if it had borrowed abroad, would have been required to make a deposit in Spain of 30% of the value of any such borrowing (known as “withholding tax”).

The KIA was established in Kuwait by Emiri Decree, Law No. 47 of 1982, with responsibility for managing the funds of the Government of Kuwait. A significant part of this responsibility has been at all material times carried out through its London office, the Kuwait Investment Office (“KIO”), based at St Vedast House, Cheapside, EC2. The KIO was at all material times the ultimate controller of GT. The KIO had in the 1980s and early 1990s considerable autonomy under the chairmanship of Sheikh Fahad. Attempts by  the KIA to establish greater insight into and/or control over the affairs of the KIO and a measure of resentment within the KIO at these attempts are part of the background to certain events and issues examined before me.
 
By the late 1980s the KIO was known as a prestigious and powerful organisation. It was also secretive. With hindsight at least, it is clear that, within the KIO, too much power was concentrated in too few hands and was exercised without adequate internal controls. One area of its operations important in this case was the use of overseas companies and/or external accounts, particularly at Lombard Odier & Cie. in Switzerland. By using such companies and/or accounts, KIO could invest in other companies without the abnormal price increases which tended otherwise to result once the KIO disclosed any interest. The KIO’s Swiss accounts were controlled until his death on about 1st January 1991 by Mr Trevor Ball, the KIO’s chief financial officer and chief investment manager. The only information about these accounts which Mr Ball passed to Mr Betts, the KIO’s chief financial officer, consisted in consolidated monthly totals. One witness, Mr Robinson, described the KIO’s attitude to the secrecy of its external accounts as “paranoid”.

The KIO acquired control of GT through offshore companies - in particular through two Netherlands Antilles companies, Hainingend Holdings B.V. and Clachard Holdings N.V., which in turn owned two Netherlands companies, Koolmees Holdings B.V. (”Koolmees”) and Kokmeeuw Holdings B.V. (“Kokmeeuw”). The acquisition came about as follows. First, in December 1984 the KIO through it seems Koolmees acquired 81% of the shares in Industrias del Papel y de la Celulosa S.A. (“Inpacsa”), a Spanish packaging company. These shares had previously  been held by a Barcelona bank of which Mr de la Rosa was Vice President. Mr de la Rosa became a Vice President of Inpacsa, in which Koolmees’s holding at some point increased to 95.50%. In June 1986, at suggestion of Mr de la Rosa, made through Quail Espana S.A. (“Quail”), a company controlled by Mr de la Rosa and Mr de Mir, an investment was made in GT. Kokmeeuw acquired about 25% of GT’s shares in Spain while further holdings of 24% and (it seems) 3% were acquired through Swiss external accounts with the relevant banks (Lombard Odier & Cie and Pictet et Cie.) acting, it seems, as nominees for the KIO. By management agreement dated 3rd October 1986 GT’s management was then entrusted to Quail for five years. Inpacsa was on 1st April 1987 sold by Koolmees to GT.  An unsuccessful rights issue in November 1988 led to shares which had not been not taken up by the market being acquired by companies controlled by Mr de la Rosa (in particular by companies which can be called simply Folma, Philby, CAOS and MIRA). During 1989 the KIO and Mr de la Rosa’s companies controlled some 62% of GT’s shares. On 30th December 1989 Koolmees and Kokmeeuw launched a public offer for GT’s shares and convertible bonds, offering in exchange a mixture of shares in a company called Prima S.A. and cash.  Thereafter the KIO through Koolmees and Kokmeeuw held some 72.6% of the shares and Mr de la Rosa’s companies in excess of 20%, with the remaining 5% or so being held by outsiders. In July 1990 as part of a process of delisting GT issued a public share offer to buy its own shares, and by September 1990 the KIO holdings stood at 76%, with Mr de la Rosa’s companies still owning over 20%.  In July 1991 GT compulsorily bought out the sole remaining small shareholders.  Thereafter the KIO controlled almost 80% of GT’s capital, with Mr de la Rosa’s companies holding 17.35% and with no outside shareholders. Mr de la Rosa has contended that the shareholdings held by Folma, Philby, CAOS and MIRA were in fact held for the KIO or for its subsidiaries, but this is not accepted (and is I understand the subject of Spanish proceedings). If it is of materiality, it has not been shown before me to be the fact.

Sheikh Fahad, a member of the Kuwaiti royal family of Al-Sabah, was chairman of the KIO from July 1984 until 8th April 1992, although ceasing to play an active role in the KIO after the end of 1991.  From April 1990 he also held the office of general manager previously held by Mr Jaffar. Sheikh Fahad was a director of Koolmees and Kokmeeuw, and a director and chairman of the board of GT from June 1986 until 1992. Precisely when and how he ceased to be a director of GT is a matter in issue, to which I shall return. Sheikh Fahad’s early career involved four years in England from 1956 learning the language and attending courses on accounting and local government. He returned to Kuwait to work in the Ministry of Finance until 1964.  He joined the KIO in 1964 as an administrative manager, becoming general manager for the first time in 1967.

Mr Jaffar was deputy chairman and general manager of the KIO from 1st July 1984 until 21st April 1990. Although formally he resigned, he did so because the KIA had decided that he should be recalled to Kuwait, in the context (according to evidence of the KIA’s then managing director, Dr Al-Rashed) of its desire to gain greater control over the KIO. Mr Jaffar was also a director of Koolmees and Kokmeeuw until 15th March 1990, and a director and Vice President of GT from June 1986.  Formally, he retained his positions in GT until 26th May 1992. It is in issue whether this was with his consent and whether he had any further involvement with GT after ceasing to be deputy chairman and general manager of the KIO. During the Iraqi occupation of Kuwait, which began on 4th August 1990, the KIO in London, by reason of its position and control over very substantial Kuwaiti assets, acquired central importance in the efforts to recover Kuwait. During that period and in that context, Mr Jaffar returned to the offices of the KIO to assist on a voluntary part time basis which he described to me as advisory rather than executive.

Sheikh Khaled is a younger member of the Al-Sabah family.  He was born in 1955, came to England to take his “O” and “A” levels, and attended Warwick University where he read economics and international relations. After starting a master’s degree in London, he devoted himself full-time to training and then working with the KIO.  From 1983/4 he was an analyst in its Japanese department. In 1987 he was promoted to assistant general manager, reporting to Mr Jaffar. In December 1989 he became deputy general manager - the previous holder, Mr Bruce Dawson, having reached retirement age and become a consultant. When in April 1990 Mr Jaffar ceased to be general manager, Sheikh Khaled moved into his office on the same floor as Sheikh Fahad. Sheikh Fahad held out to him the prospect that he would succeed Mr Jaffar as general manager, but the Finance Minister of Kuwait, who chaired the KIA, would not agree, and Sheikh Fahad himself re-assumed the office. Sheikh Khaled became a director of GT in 1987 and a director of Koolmees and Kokmeeuw in 1990.

Mr de la Rosa was by background a banker, who during the 1980s rapidly acquired a reputation as a formidably successful entrepreneur.  In addition to his role in Quail, as GT’s appointed manager, he was a director and deputy chairman of GT from 15th September 1986 until 26th May 1992. His close collaborator was Mr de Mir, also a director of GT from September 1987 until 26th May 1992 and now deceased. He visited London regularly, where, according to Mr Betts, he would on each visit meet Mr Ball who took a particular interest in Spain.

Mr Soler was born in 1943, graduated in industrial engineering and economics and is an adjoint professor at the IESE where he taught both Mr de la Rosa and Mr de Mir in about 1972.  He worked in the Banca Catalona from 1971 until 1987, when he contacted Mr de la Rosa looking for a new post. Mr de la Rosa suggested that he contact Mr Nunez. After applying and being interviewed for the position, Mr Soler was from 1st June 1987 appointed general manager of administration and finance of GT. His main expertise lay in financing. On technical accounting matters, Mr Puig and Mr Coll were involved. From 8th September 1988 Mr Soler was, with Mr Vasconcellos and Mr Moukarzel, a director of THL, although his active participation as a director appears to post-date Mr Vasconcellos’s death on 20th August 1989, from when at least it is also clear that THL was run from Spain.

Mr Folchi was born in 1948. He read economics with law at the University of Barcelona, and after graduating became the youngest professor of law there. In 1974 he qualified as a lawyer, practising as a government lawyer and teaching thereafter. From 1976 he also became involved in politics, and was finance minister of the Catalonian government from 1977 until 1980.  That year he added to his activities his own legal practice. In 1986 Mr Folchi acquired the KIO and subsidiaries including GT as major clients, for which he thereafter frequently acted under powers of attorney. After acquiring them as major clients, Mr Folchi’s law firm grew rapidly. By 1992-3 Mr Folchi and his partners had some 60 professional staff. Neither Mr Betts nor Mr Nigel Black (an investment manager with the KIO from March 1989) experienced or heard of any respect in which Mr Folchi’s services, conduct or co-operation gave rise to concern.

Mrs Parker has made a career as a linguist, graduating from the University of London as a Bachelor of Education in 1976 and from the University of Reading with an MA in applied linguistics in 1984 and possessing various other diplomas. She speaks English, French, German, Russian, Spanish and basic Portuguese. From the mid-1980s she developed with a colleague the market for teaching foreign languages to Spanish executives and professionals, moving eventually to Spain around the end of 1988. Mr Folchi and members of his firm became her clients, and at about the time when she moved full-time to Spain she accepted an offer from him to join his full-time staff to assist with translations and foreign telephone calls.  She subsequently became involved in administrative and other tasks. In England she had used as her accountants the firm Russell Limebeer, which then had English and Jersey branches. In 1988 she introduced Mr Folchi to Mr Russell.

Mr Coll was born in 1953 in Gibraltar.  He graduated with a BSc in Economics and Business at the University of Wales in 1974, and became an accountant and member of the Institute of Chartered Accountants of England and Wales in 1978.  He acquired the Spanish accountancy qualification of Censor Jurado de Cuentas in 1986. He served his articles with Touche Ross & Co. in London, after which he moved in 1980 to Touche Ross in Barcelona.  There he was engaged by the KIO to undertake a pre-acquisition review in respect of Inpacsa shares, and in so doing met Mr de la Rosa. After the take-over in December 1984 Touche Ross were duly appointed auditors of Inpacsa, and in 1985 Mr Coll moved over to become financial controller of Inpacsa. He thus met Mr Jaffar, president of Inpacsa, Mr Robinson, a director, and Mr Folchi, Inpacsa’s legal adviser. When GT sold the majority of its Inpacsa shares in January 1989, Mr de la Rosa offered Mr Coll a retainer to act as consultant to GT and its subsidiaries. Mr Coll resigned his Inpacsa post to take up this offer, and acted as consultant to GT until 1992. His consultancy was for tax reasons put into the name of Coll & Co., incorporated for the purpose in 1989. Mr Russell, who incorporated Coll & Co. was introduced to Mr Coll by Mr Folchi. The consultancy agreement was dated 5th November 1989 and provided for fees of about $165,000 in 1989 rising in 1990 to nearly $200,000. Mr Coll’s work as a consultant to GT occupied him for up to three days a week. Mr Coll’s main contact within GT was Mr de Mir, to whom he understood Mr de la Rosa to have delegated accounting matters.

Croesus, Wantley, Coggia and Riquel are represented by and are creature companies of Mr Coll.

Mr Moukarzel was born in 1964, educated in England and graduated with a physics degree from Imperial College.  While working with Mercury Asset Management (“MAM”), he met Mr Vasconcellos who had responsibility for Spain. In summer 1988, Mr Vasconcellos was recruited to be London director of THL. Mr Vasconcellos persuaded Mr Moukarzel to join THL as his personal assistant. To lend him external stature Mr Moukarzel was made a director along with Mr Vasconcellos and Mr Soler. Mr Vasconcellos died in the Marchioness disaster on 20th August 1989. Mr Moukarzel was persuaded to stay on as the sole London director of THL. THL’s only other relevant employee was a Mr Curton, an accountant and close childhood friend of Mr Coll, whom Mr Coll introduced to THL in late 1989.

II. THE TRANSACTIONS 
In giving judgment on jurisdiction in 1994 ([1995] 1 Ll.R. 465), I spoke of “black holes” into which the plaintiffs alleged that monies had disappeared. This case shows that over time light may emerge even from black holes. Particular importance attaches in this regard to Juge Tappolet’s Swiss banking documentation.

The relevant transactions were deliberately contrived to be complex or obscure. I must now describe them.

II.1 Croesus
By undated letter in about May 1988 Mr de la Rosa requested the KIO to advance the sum of $27.4m

“corresponding to payment of services rendered by [sic] TORRAS HOSTENCH S.A. and by companies making up its Group between September 1987 and May of 1988.
Our momentary lack of ready cash and the need to pay these invoices outside of Spain with the utmost urgency prompt us to ask you for the advance of this sum, which we will repay in installments over the coming twelve months.
....”
 
The letter was initialled by Mr Jaffar. The usual practice within the KIO was for payment instructions to be initialled (and thereby approved) in this way before their implementation. The letter was then submitted to Mr Betts, the KIO’s chief financial officer, by Mr Robinson, head of the KIO projects department responsible for direct investments in Spain, together with a memorandum requesting payment from Koolmees’ account to Republic Bank of New York “for the account of Merrill Lynch Bank Suisse, No. 608103179, sub-account 261319”.  Mr Betts implemented the instructions, possibly (he said) without even reading the memorandum - though it seems improbable that he did not take it in at least briefly. Despite his title, it was not his responsibility to know the identity of the recipient or the reasons for such a payment, or therefore in any way to evaluate its regularity. The monies were actually advanced by Kokmeeuw (being made available for the purpose by the KIO through Clachard). On 31st May 1988 Mr Betts asked Mr Robinson for repayment terms and interest rates with a view to drawing up a loan agreement between Kokmeeuw and GT.  At GT, Mr Soler was, he told me, unaware of any such transfer or loan, with the result that no relevant entry was made in GT’s books. Juge Tappolet’s documents show that account 261319 at Merrill Lynch Bank (Suisse) S.A. (“Merrill Lynch Banque Suisse”) was opened by Bigley Management Inc. (“Bigley”) in December 1987, and that Bigley is a Panamanian company incorporated in February 1986 and controlled by Enrique Sarasola Lerchundi, of Madrid, who had  signing rights over the account. On about 2nd June 1988 five payments totalling $5,996,000 were made out of Bigley’s account 261319 by bearer cheques which were paid into an account Carnation at Bank of America, Geneva. Juge Tappolet’s documents show this to be an account which was opened in January 1987 by and to belong to Mr de la Rosa and his wife. By mid-1990 all monies in and interest which had been earned on account 261319 were transferred elsewhere or used. On the evidence, Mr Sarasola is a well-known Spanish businessman, with high political connections.

By April 1989 no part of the advance of $27.4m had been repaid by GT.  Mr Robinson left the KIO in late March 1989. Mr Nigel Black, who joined the KIO at about the same time, visited GT in mid-April. He there met Mr de Mir who promised to document the loan. On his return Mr Black wrote pointing out that the loan was outstanding, first to Mr Betts on 19th April 1989, and then to Mr Ball with copy to Mr Jaffar and others on 31st May 1989. Mr Black visited GT again on 12th/13th June 1989 and wrote this further memorandum to Mr Betts with copy to Mr Ball dated 14th June 1989:

“Mr de la Rosa gave me a copy of a draft agreement that was never signed, between Torras Hostench and KIO for a loan from the office to T-H.  This loan for US$27.4m was made by Kokmeeuw rather than KIO, and is past its original due date.  Mr de la Rosa is aware that I would like to have this matter put in good order, and FKJ [i.e. Mr Jaffar] has emphasised this to him as well. ....”

In early 1989 Koolmees had agreed to sell certain shares in Cartera Central for Ptas. 42b.  Of  this price, Ptas.30b was payable by promissory notes maturing on 6th April 1993 with interest at 6% p.a. in the meantime. These promissory notes were issued by Construcciones y Contratas S.A. (“Conycon”) and Grueyesa S.A. (“Grueyesa”) and were guaranteed by first class banks. In July 1989 Mr Nigel Black was informed by Sheikh Fahad and Mr Jaffar that it had been agreed to swap these notes for THL notes. A THL board minute dated 21st July 1989 records that such agreement was to enable THL to raise money by pledging the Conycon/Grueyesa notes with Banco Santander. In a memorandum dated 20th July 1989 addressed to Sheikh Fahad, Mr Jaffar, Mr Dawson, Sheikh Khaled, Mr Ball and another, Mr Black reported that Mr de la Rosa had told him that THL would discount Conycon/Grueyesa notes with banks and use the proceeds to pay down existing debt, “including an amount owing to Kokmeeuw of about US$30m”. This was a reference to the $27.4m loan plus interest. On 25th July 1989 by an agreement entered into in Spanish in Tarragona, Koolmees represented by Mr Nigel Black agreed the swap with THL represented by Mr Vasconcellos;  THL’s notes were to carry a higher effective interest rate than Conycon’s and Grucsya’s.

On 26th/27th July 1989 Mr Black visited GT once again, and in a further memorandum of 27th July 1989 recorded that he had agreed the rate of interest with GT on the loan outstanding from 1988 and that GT intended to repay within a week. Under a loan agreement dated 15th September 1989 executed in Madrid by Mr Soler with Mr Folchi attending, THL procured a loan of $25m from Banco Santander’s London branch, using two of the guaranteed promissory notes as collateral. The $25m was on 18th September 1989 transferred to Kokmeeuw’s account at Amro Bank, London.  On the same day, a further $3m was paid to Kokmeeuw’s same account under a payment advice showing Morgan Grenfell, Jersey as the ordering customer. The $3m came in fact from monies advanced by THL to Oakthorn in the first Oakthorn transaction (see below). The instructions given for Oakthorn to make this payment came from or through Mrs Parker.

These two payments, according to a calculation of interest faxed by Mr Black to Mr de Mir on 10th October 1989, left $2,576,707 outstanding to Kokmeeuw. That sum was paid to Kokmeeuw’s London account on 16th October 1989 from an account Stuart 130900 at Banker’s Trust, Geneva, with the indication that the authorising customer was “one of our clients”. Juge Tappolet’s documents show that Mr de la Rosa opened three Stuart accounts (nos. 130670, 130671 and 130900) at Bankers Trust, Geneva on 13th July 1989, in each case as beneficial owner and in each case on a basis giving him and/or his wife  signing rights. Account 130900 appears to have been used generally as a clearing account for receiving and making outside payments, with monies being transferred internally to and from other Stuart accounts, particularly 130671. Juge Tappolet’s documents further show that Mr de la Rosa personally signed the instructions for the payment to Kokmeeuw of the $2,576,707. Around the same time, Mr de Mir arranged for Mr Soler to remit an equivalent sum from GT to THL, and on 13th and 20th November 1989 Mr Moukarzel on behalf of THL instructed payments to account Stuart 130900 at Bankers Trust, Geneva of first $1,576,707 and then $1m, so reimbursing $2,576,707 to the Stuart account. Mr Moukarzel’s evidence was that these payments were made on the instructions of Mr de la Rosa, who made a point of telling him that it was not his concern to know their reason.

Documentation was at some stage brought into existence to cover the payment of $25m and the two payments totalling $2,576,707 which had been made to Kokmeeuw.  One set of documentation purported to record a loan to Mr Coll’s company, Croesus. An unsigned letter from THL dated 15th September 1989 addressed to and purportedly signed by way of acceptance for Croesus on 14th [sic] September 1989 recorded a purported loan of $25m to Croesus for six months from 16th September 1989. Further undated letters purportedly accepted for Croesus on 20th March 1990 and 21st December 1990 recorded purported roll-overs of this loan for further periods, from 21st March 1990 to 31st December 1990 and from then to 30th June 1991.  None of these letters was prepared on the date it bears. The letter dated 15th September 1989 was backdated from a date in March 1990. Mr Curton used as its template a rollover agreement prepared in about early March 1990 for the first Oakthorn loan. In his evidence, he suggested that he had done this on instructions received from a Mr Puig or Mr Catala, members of GT’s accountancy department in Spain, but he accepted that it could have been from Mr Coll, to whom he in fact addressed drafts of the agreement, and I think this more probable. There is also a letter dated 14th September 1989 from Mr de la Rosa to Croesus, purporting to confirm

“with regard to the loan agreement which you will shortly enter into with [THL] that
1.- The full amount of the loan will be paid directly by us to a third party or you will be called upon to transfer the full amount to a third party.
2.- You will not be called upon to repay any amount of the loan or related interest except and to the extent that you are put in funds by said third party or on behalf of said third party.
3.- On consideration of acting as an agent in this matter, we will pay you on behalf of the third party a fee of 5 pounds.”

For reasons which will appear when discussing Mr Coll’s position (section IV.3(f)), I conclude that this letter is unlikely to have been prepared before March 1990

I am satisfied, despite Mr Moukarzel’s attempts to maintain the contrary, that the roll-over letters dated 20th March 1990 and 21st December 1990 were produced together as late as in May 1991.

A further document was created to cover the two payments totalling $2,576,707. Mr Coll’s company, Wantley, produced an invoice to THL dated 31st January 1990, expressed to be

“For the provision of strategic and general advice relating to the world wide development and expansion of the Torras Group.”

Mr de la Rosa evidently knew and approved what was happening, since by letter dated 17th February 1990 he responded on behalf of GT to Wantley’s invoice, by confirming:

“1.- The invoice amount was paid directly by our subsidiary to a third party.
2.- In consideration for you having acted as an agent in this matter, we will arrange for a fee of 10 pounds to be paid to yourselves.”

II.2 Oakthorn 1
Oakthorn Limited (“Oakthorn”) is a Jersey company.  Its directors were Messrs. Russell, Axford and Lewin and Mrs Collins, respectively 13th, 25th, 27th and 26th defendants in these proceedings until they reached an accommodation with the plaintiffs.  They were four partners in the Jersey firm of accountants, Russell Limebeer, which seems to have specialised in the provision of offshore corporate structures designed to accommodate the flow of money in anonymous and tax efficient ways, for purposes understood if at all in only the most general terms. The shares in Oakthorn were owned by a discretionary Jersey Trust, the Castle Trust, set up by trust deed dated 27th January 1989, executed by Mr Coll as settlor. The trustee was another Jersey company, Pirunico Trustees (Jersey) Limited (“Pirunico Trustees”), twenty-eighth defendant in this action. The trust was to service the interests of Russell Limebeer and those from whom it accepted instructions. To enable it to be set up, Mrs Parker consented to appear as the sole named discretionary beneficiary. Numerous other companies owned or controlled by the Castle Trust feature in the transactions before me.

According to an internal memorandum by Mr Russell dated 21st July 1989, on 19th July 1989 Mrs Parker telephoned from Barcelona to request that a structure be set up immediately. The stated urgency was that

“a transaction was in the pipeline which Oakthorn should pass down to a UK subsidiary to enable Torras Hostench to remit the funds without the need for Spanish Withholding Tax to be deducted”.

The structure proposed involved the acquisition by Oakthorn and Westow Limited (“Westow”), another company owned by the Castle Trust, of Wardbase Limited (“Wardbase”) a shelf company which had been incorporated in England on 27th February 1989. THL was to borrow money from the United Kingdom branch of a Spanish bank and to pay it to Oakthorn, which was to be

“required to pay an amount of Pesetas 5 billion immediately to two accounts in Switzerland, with full details being given by Carin Parker, to enable the remainder of the transaction to proceed.”

Oakthorn was not to be liable to repay the money so received and paid away unless and until it “earned” equivalent commission under a “commission transaction”, whereby Oakthorn would, as sole agent, become entitled to a commission of Ptas. 10m to 12m “in connection with the introduction of a share purchaser for a block of shares owned by [GT] which they wish to place”.  Mrs Parker was recorded as being

“confident that Oakthorn Limited will be able to find a purchaser and that discussions along this line will take place in Barcelona next week. Oakthorn Limited has indicated that Wardbase Limited the UK company should act as its agent in this transaction and would receive and retain 5% commission in this transaction.”

Wardbase had in reality no greater capability to undertake any such share placement than Oakthorn, and the only purpose in introducing a United Kingdom company appears to have been to avoid Spanish withholding tax.  But board minutes were produced dated 20th and 21st July 1989 which purport to record that Wardbase’s objects were to act as agent for Oakthorn not only “in connection with any international transactions” and as an international estate agency but also “in connection with a share placement by [GT] in Spain”.  On 21st July 1989 Mr de la Rosa wrote on GT letter paper to Oakthorn confirming, “in connection with your recent appointment to place shares on our behalf”, that a facility of about Ptas. 500m would be granted by THL which would not be repayable unless and until commission has been paid by GT to Oakthorn or its representative. On 25th July 1989 Mr Russell wrote solemnly to Mr de la Rosa referring to GT’s “recent kind appointment of ourselves to try to find international partners to assist with the expansion of [GT]” and asking whether GT had any objection to Oakthorn using Wardbase “as our agent”, with a view to GT remitting any monies due to a United Kingdom company. A letter from Oakthorn dated 26th July 1989 countersigned by Mr Vasconcellos for THL recorded an unsecured loan of $55m from THL to Oakthorn. On 27th July 1989 a written agreement signed by Mr de la Rosa for GT and Mr Russell for Wardbase purported to appoint Wardbase to act on a sliding scale basis to fulfil various sonorous functions, on the basis that it was a company with [in translation] “knowledge of the international markets and of possible industrial partners with symbiotic interests with those of [GT]”.

Under a loan agreement dated 27th July 1989 executed in Madrid by Mr Vasconcellos with Mr Folchi attending, Banco Santander’s London branch lent THL $55m, secured by a pledge of five of the Conycon/Grucsya promissory notes obtained under the swap arrangement with Koolmees dated 25th July 1989. This $55m was remitted to Oakthorn’s account at Royal Bank of Scotland (“RBS”), London branch (with which Mr Russell’s firm communicated in practice through RBS, Jersey branch), and on 28th July 1989 Mrs Parker addressed instructions to Oakthorn by memorandum to Mr Russell requesting him to pay out $50m in three tranches - $37.5m to Lombard Odier, Geneva “Attention: Thierry Lombard”, $7.5m to Privat Bank, Zurich “Attention: Mr Rudy Frei” and $5m to Bankers Trust, Geneva “Attention: Mr Yves. O. Byrde”.

Sheikh Fahad has disclosed a copy of a purported letter dated 3rd July 1989 from a Mr Cordillo at Banco Santander to Mr Russell at Sierra Trust, stating that Oakthorn’s bank account would shortly be credited with $55m and that Mr Cordillo would give Mr Russell instructions as to where to transfer the funds. The letter is a later forgery. All that I need to say about its provenance, in the absence of any evidence from Sheikh Fahad, is that Mr Betts’s evidence negatives the suggestion (put by counsel for Sheikh Fahad to Mr Betts) that Sheikh Fahad received a copy of this from Mr Betts.

Juge Tappolet’s documents show how the money paid out under Mrs Parker’s instructions was further distributed.  Out of the $37.5m, which went to Lombard Odier S.A., Geneva, $22.5m went to an account G772, held in the name of Operfina S.A. This is a Panamanian company with Swiss administrators, owned beneficially and controlled by Sheikh Fahad. Sheikh Fahad suggested, both through his then solicitors’ letter dated 12th December 1997 and in court through counsel before he ceased to be legally represented, that account G772 was simply held in his name, but owned or controlled by the KIA or KIO. This cannot stand in the light of the Swiss documentation, which demonstrates that Sheikh Fahad signed documents and gave instructions in relation to the operation of the account and ultimately for its closure. Since Juge Tappolet’s documents became available, the plaintiffs have also been able to trace very large sums from account G772 to the Better Trust set up in the Bahamas by Sheikh Fahad in January 1993 for the benefit of himself and his family. There can be no doubt that the impossibility of continuing to disassociate himself from account G772, and from receipt of monies originating from Oakthorn 1, led directly to Sheikh Fahad’s withdrawal from participation in the trial on Day 26 (4th December 1998).

A further $15m went to account No. 86332 held at Lombard Odier & Cie in the name of Dorset Corporation, a British Virgin Islands company. The Swiss documents identify Mr Jaffar as the beneficial owner of this account, and show him signing instructions in relation to it. Dorset Corporation was (until dissolution in April 1994) owned by a trust in which Mr Jaffar had a life interest and was (as he made clear on affidavit in 1994 and in his opening statement for trial) a vehicle he used to make payments. His inability to explain Dorset Corporation’s previously undisclosed receipt of the $15m out of Oakthorn I (as well as the receipt by Jakhal Foundation of a further $1m out of Stuart account 130900 in November 1990 - see below) led without doubt to his ceasing to play an active part in the trial on 3rd December 1998.

The $7.5m paid to Privat Bank went into the account designated Fairview held by Jakhal Foundation, a Liechtenstein family foundation in which Mr Jaffar had the life interest and his family the remainder.  When interviewed in October 1992 Mr Jaffar disclaimed any knowledge of the use of the $55m.  His receipt of the $7.5m came to light from the text of a letter located by the plaintiffs on the hard disk of Mr Jaffar’s former secretary’s computer at the KIO. Mr Jaffar’s pleaded case is that the sum was paid to him, by agreement reached between Sheikh Fahad and the Minister of Oil of Kuwait in early 1989, as a commission or bonus for his successful efforts in relation to the acquisition and disposal by the KIO of British Petroleum shares, and that he had no idea that it originated in the $55m.

The $5m paid to Bankers Trust went into Stuart account 103900, in consequence of instructions sent in the name of Mr Folchi and his firm to Mr Byrde as follows:

“As per our telecon, you shall probably be receiving on Monday, July 31st a transfer from Royal Bank of Scotland, London branch, in the amount of US$ 5 million.  The transfer to you will not indicate any account number.
As soon as you receive this transfer, please apply it to account 101 900 [sic] reference STUART.”

These payments account for $50m of the $55m received.  The remaining $5m went initially into Oakthorn’s Jersey account. On 14th September 1989, Mrs Parker instructed the payment of $3m which went towards repayment of Kokmeeuw in Croesus transaction (see above). Other payments included $900,000 to a United Kingdom company, Setsar Limited, on 19th July 1990, from which originated a payment of $775,373 on 13th November 1990 to account “Falcon” at Bankers Trust, Geneva. The Swiss documents show, and Mr Folchi now acknowledges, that account Falcon was his, having been opened on the same day (13th July 1989) as Mr de la Rosa’s Stuart accounts. A further $243,000 went to Hammarstone N.V.  Payments of £20,000 in cash on 9th November 1989 and £20,915 by banker’s draft on 19th April 1990 went to Mrs Parker.

A letter dated 26th January 1990 agreeing to roll-over the $55m loan to Oakthorn until 26th July 1990 was signed by Mr Moukarzel for THL and, on or about 9th March 1990, by Mr Russell and Mrs Collins for Oakthorn. Despite Mr Moukarzel’s disavowals of back-dating, I am satisfied that the letter he signed was only drafted by Mr Curton in early March 1990.

II.3 Oakthorn 2
On 1st June 1990 Mr de la Rosa wrote to Sheikh Khaled referring to a meeting on the previous day and to a request for a $450m facility from the KIO. The idea, which Mr Folchi was instrumental in developing for Mr de la Rosa, was that the KIO should cede Treasury bills to GT, so avoiding Spanish withholding tax and other restrictions. On 6th June 1990 Mr de la Rosa spoke to Mr Betts, explaining that half of the facility would be used to fund a put option exercised by Banco Santander and the balance to finance short term market bank borrowings, and that it would after four months be refinanced by the banks.  In relation to the $50m paid under Oakthorn 2, Sheikh Fahad has disclosed a copy of a purported letter, this time dated 5th June 1990, from Mr Gordillo at Banco Santander to Mr Russell at Sierra Trust, in terms paralleling those of the letter dated 3rd July 1989 referred to in relation to Oakthorn 1. This again is a later forgery, subject to similar observations to those which I have made in relation to the purported letter of 3rd July 1989.

By stock-lending agreement dated 7th June 1990 the KIO ceded to GT Spanish Treasury bills to a value of Ptas. 54.43bn (c.$450m) for a four month period.  Using such bills as security on 11th June 1990 Mr Soler, on the instructions he told me of Mr Nunez, arranged a loan of $50m from The Sumitomo Bank Ltd. of Barcelona to THL’s Barclays Bank account in London. On the same day, on Mr Soler’s instructions, Mr Moukarzel wrote to Barclays Bank asking them to remit the $50m to Oakthorn once it had been received from Spain. On the next day, Mr Moukarzel, wrote offering Oakthorn a further loan of Ptas. 5.2485bn.

By fax of 12th June 1990 countersigned with kind regards by Mr Folchi, Mrs Parker instructed Mr Russell that Oakthorn should, as soon as it received the $50m, pay it away as follows; $22.5m was to go on 13th June 1990 to an account no. 30755601 at Chemical Bank, London, the account name being given as “F.M. Al-Sabah”; $10m was to go to Rud Blass Bank, Zurich, the account being identified as “F.K. Jaffar”; and $2m was to go to Chemical Bank, New York, account “Montrex Inc.” These instructions were implemented. Mr Folchi’s evidence was that Mr de la Rosa gave him such instructions in May 1990, together with an additional instruction to pay $15.5m to Bankers Trust, account Stuart; and that Mr de la Rosa specifically instructed him to tell Mr Russell to warn Chemical Bank about the impending arrival of $22.5m in account 30755600 in the name of Sheikh Fahad. Mr Russell did this as instructed by letter dated 29th May 1990. The payments of $22.5m and $10m were made as instructed. Contrary to a suggestion made by Mr Folchi in his supplemental witness statement, the instructions to pay the $22.5m on 13th June 1990 were met without any delay.

From the $22.5m received into Sheikh Fahad’s Chemical Bank account, $10m was on or about 12th June 1991 transferred to an account in Sheikh Fahad’s name at Overseas Union Bank in Singapore, and on or about 1st April 1992 a further £4,417,666 was transferred to a National Westminster Bank plc, Jersey account of Abacus Nominees [Ltd.] (“Abacus Nominees”) for Abacus (C.I.) acting as trustee of the Esteem Settlement. (The Abacus companies were offshore trust vehicles within the Coopers & Lybrand group.) Out of this latter sum, £3,150,000 was on about 14th April 1992 transferred to Stephenson Harwood, who were at that stage acting for the twenty-third defendant, Esteem Limited, and/or for Sheikh Fahad. It was then used to pay for a 95 year leasehold interest of 52 Cadogan Square which Esteem Limited had agreed to purchase on 8th April 1992. The monies thus passed without consideration from the Chemical Bank account to Abacus (C.I.), the Esteem Settlement, Esteem Limited and/or Sheikh Fahad.

The $15.5m intended for the Stuart account at Bankers Trust was in the event routed indirectly via an account in the name of Allsports Promotions Ltd.(“Allsports”). An Oakthorn board minute purports to record a meeting on 12th June 1990 at which Mr Russell reported:

“that in view of imminent international deals it would be beneficial to purchase a company to act as agent for Oakthorn Ltd.  It was noted that  British Virgin Islands company called Allsports Promotions Ltd. was available and after discussion it was resolved to purchase the said company immediately.”

An account was on 13th June 1990 opened for Allsports at Morgan Grenfell (C.I.) Ltd., Jersey (“Morgan Grenfell”) by Mr Russell, writing on Sierra Trust Co. Ltd. paper with instructions to remit $13m as soon as received to Bankers Trust account 130900 for the attention of Y. Byrde. By fax dated 13th June, but sent (it appears) on 12th June, 1990, and signed by Mr Folchi, Mr Russell was instructed under the heading “All Sports Promotions” to pay away to Bankers Trust, attention Mr Y. Byrde, account 130900 $13m on 13th June and $2.49m on 18th June 1990.

On 5th July 1990 Mr Russell for Oakthorn, witnessed by Mrs Parker, and on 9th July 1990 Mr de la Rosa for GT, witnessed by Mr Folchi, signed an “asset marketing agreement”. It referred to the previous purported contract dated 27th July 1989 between Wardbase and GT, and recited that

“GT now also require Oakthorn to assist them with marketing of assets not covered by the previous Agreement.  These are the interests in ERTOIL S.A. and ERKIMIA S.A.”

It stated that, because Oakthorn “must make substantial payments to seek out offers of purchase”, GT had “through THL” made a loan of $50m to Oakthorn, and that this loan would only be repayable if and when Oakthorn received funds, by a “method .... not yet determined” originating from the disposal by GT of some of its shareholding interests, in Ertoil and Erkimia.  This agreement lacked any commercial rationale, save as a mechanism for covering the potential transfer of monies from GT to Oakthorn.

II.4 Pincinco
Iraq invaded Kuwait on 2nd August 1990. On the same day, and in an amplified form on 24th August 1990, Sheikh Ali Khalifa, Kuwaiti Minister of Finance and Chairman of the KIA, gave plenipotentiary powers over the assets of the State of Kuwait to Sheikh Fahad and Sheikh Khaled. Many countries made freezing orders over assets of the State of Kuwait to prevent them falling into Iraqi hands. GT’s credit standing in Spain suffered. The KIO made available to Koolmees very significant funds - on about 6th September a first advance of Ptas.10b by Koolmees to GT, followed on 14th and 26th September by further advances of Ptas.31.5b and Ptas.38.5b. Sheikh Khaled countersigned the authorisations for advances by the KIO to Koolmees and by Koolmees to GT, aware that they were for GT. The advances were formalised in a loan agreement dated 20th September 1990 for Ptas. 80b.

Shortly thereafter a further loan of Ptas. 40b was agreed, which was formalised in an agreement dated 1st October 1990 signed by Mr Folchi, under it appears a power of attorney, for Koolmees and by Mr de la Rosa for GT. In late September 1990 Mr Folchi signed applications to the Bank of Spain to obtain permissions for this loan to GT and for on-lending of the same amount to THL. The purpose was given as the “financing of productive investment”. Permissions were granted by 28th September 1990.

Pursuant to instructions on behalf of Koolmees given by Mr Folchi on 1st October and confirmed by Mr Ball and Sheikh Khaled on 2nd October, Ptas.40b was transferred from Koolmees’s account at Banco Santander Madrid to GT’s account at Banco Santander Barcelona on 2nd October.

On 1st October 1990 Mr Folchi was appointed as a third director of THL by Mr Soler and Mr Moukarzel. The original idea had been to appoint Mr de la Rosa.

On 2nd October there travelled to Geneva Mr Russell from Jersey and Mr Folchi and Mrs Parker from Spain. All three on 2nd October and Mr Folchi and Mr Russell on 3rd October had a series of meetings at Bankers Trust, with Mr Walter Schnell and Mr Yves Byrde in particular. During their course, on 2nd October Mr Folchi opened an account No. 102148 in the name of THL, for assets said to belong beneficially to GT.  He signed an agreement for fiduciary deposit and a deed of pledge, empowering the bank to make third party deposits or use THL’s deposit for the account and exclusive risk of THL, and an express fiduciary agreement whereby the bank was, on the same express basis, to lend Pincinco Limited (“Pincinco”), another Jersey company owned by the Castle Trust, $300m in return for a fee of 0.70% p.a. payable in advance. A loan agreement whereby the bank agreed to lend Pincinco $300m for 360 days from 4th October 1990 was probably executed between the bank and Pincinco through Mr Russell at the same time. 

Also on 2nd October 1990 GT (through Messrs. Sot and Soler) instructed Banco Santander to transfer the dollar equivalent of Ptas.40b to an account No. 20417 in the name of THL at Banco Santander (Suiza) S.A. Account opening forms for an account in THL’s name with that number were signed by Mr Folchi in Geneva on 3rd October 1990 on Mr de la Rosa’s instructions. Whether GT knew the account’s number already on 2nd October because Mr Folchi or someone else had already contacted this bank by or on 2nd October was not explored in evidence. Mr de la Rosa had good relations with Banco Santander, and it is possible that he had been in contact. As instructed by Mr de la Rosa, Mr Folchi also instructed Banco Santander to transfer $300m from THL’s account to THL at Bankers Trust, attention Yves Byrde. 

During the meetings, Mr Russell signed and Mr Folchi counter-signed a letter produced by Bankers Trust which instructed the payment away of monies to be lent to Pincinco as follows: (i) $80m to SOGENAL, attention Mr Haussler from Lancaster; (ii) $75m, to Lombard Odier, attention Mr Thierry Lombard from Lancaster; (iii) $100m to BTAG [i.e. Bankers Trust A.G.], attention Mr Yves Byrde to Stuart; (iv) $15m to Chemical Bank New York, attention Mr Daniel McKay, for account C.I./83536 Montrex Inc., Ref. Collier; (v) $15m, to Union Bank of Switzerland (“UBS”), Geneva, account 281 987.00E, Ref. PAD; (vi) $4m, to Rud Blass Bank, P.O. Box 8039 - Zurich, attention Rudy Frei; (vii) Ptas.450m to BTAG Geneva, attention Mr Yves Byrde to Stuart and (viii) $1.1m to Merrill Lynch, Geneva, account Bigley. On 4th October Mr Russell signed instructions increasing item (iii) to $101m and altering item (vii) to $4.9m.  On 4th October 1990, once the $300m had been received by Bankers Trust, payments were made and debited to Pincinco matching items (i) to (iv) and (vi) to (viii). Item (v) was paid in a series of instalments. One of $2m and eleven of $1m each went to the UBS account, which was the general client account of a Swiss lawyer, Mr Oberson. The last two of $1m each were in the event routed to another general client account of Mr Oberson at Societe de Banque Suisse (“SBS”), Geneva.

The following is now known regarding the recipients. Mr. Manuel de Prado, in a deposition in Spanish proceedings on 13th May 1997, has identified himself as the recipient of the $80m in item (i), and said - in notably vague terms - that it was received in payment of private business indebtedness of Mr de la Rosa. Mr de Prado is a Spanish businessman with connections with the Spanish royal Palace, and has acted on occasions as special envoy for Spain, including to the Emir of Kuwait.

The $75m in item (ii) is shown by Juge Tappolet’s documents to have gone to account G772 and so to Sheikh Fahad. The $101m and $4.9m in items (iii) and (vii) went initially to Stuart account 130900, from which all but $1m was then transferred to Stuart account 130671 - at the interlocutory stage, this money was thought to have gone to account 130670. In his fifth interlocutory affidavit sworn 20th February 1996 (considered in my interlocutory judgment in respect of him dated 12th August 1998), Mr de la Rosa recounted its subsequent disposal in the first ten days of October 1990 to other accounts on, he said, instructions from Mr Ball confirmed by Sheikh Fahad ($35m to account Montrex at Lombard Odier, $50m and $10m to an unknown account at Lombard Odier and $6m to an account at Union Banques Suisses (“UBS”) which he presumed to be Sheikh Khaled’s). The Stuart account statements received through Juge Tappolet now show that what Mr de la Rosa then said was untrue as regards the Lombard Odier transfers (though $7m was sent to Mr Jaffar at that bank on 20th February 1991, as mentioned below). The monies in truth remained on Mr de la Rosa’s Stuart account 130671 for many months, and were used in a variety of ways. Some $40m of the monies was used to make a loan to GT (ostensibly at arm’s length by the twentieth defendant, Mr Coll’s company Wantley) for a period between December 1990 and April 1991, in circumstances to which I shall return when considering the defendants’ positions, particularly Mr Soler’s, Mr Coll’s and Mrs Parker’s.

Mr de la Rosa’s account in his fifth interlocutory affidavit of the disposition of the $4.9m (viz. that it went on 11th October 1990 to Banque Paribas, Geneva, reference M. Piergili) is also incorrect. The $4.9m appears on 10th October 1990 to have repaid a loan of some $4.9m made to account 130671 by Bankers Trust on 18th September 1990. The loan on 18th September 1990 did cover a payment out of account 130671 of Ptas. 450m to Banque Paribas (Suisse) S.A., attention of M. Piergili (though there is no evidence to support Mr de la Rosa’s interlocutory suggestion that this payment, or the $1.1m in item (viii) was used in connection with the Cartera Central transaction outlined in section IV.2(b) of this judgment).

As to UBS and Sheikh Khaled, Mr de la Rosa’s account was again inaccurate, in that he said that $6m was paid on 9th October 1990. The actual position is that $5m was paid out of Stuart account 130900 in two tranches of $4m and $1m on 6th February and 4th April 1991 to Mr Oberson’s general client account at UBS, each such payment being covered by monies transferred from Stuart account 130671. This $5m together with the $15m in item (v) were received by Mr Oberson in the context of arrangements involving Sheikh Khaled which I examine in section IV.3(d).

Out of Stuart account 130900, $1m was also paid to Mr Jaffar’s Jakhal Foundation account at Rud Blass Bank on 20th November 1990, being covered within two or so days by monies transferred from account 130671. A further $7m was transferred out of account 130900 to Mr Jaffar’s Dorset Corporation account at Lombard Odier, being covered within two days by monies from Stuart account 130671.

In addition, the $4m in item (vi) went to the Jakhal Foundation. At a time before his receipt of the $1m and $7m out of the Stuart account was discovered, Mr Jaffar pleaded that this $4m was received in repayment of sums owed to him by GT and/or the KIO in respect of the Hammarstone transaction, to which I return in section IV.2(f). Account Bigley, the destination of the $1.1m in item (viii), can, as in the context of Croesus, now be seen to equate with Mr Enrique Sarasola. The $15m in item (iv) evidently only went to Montrex in transit, presumably to obscure its origin, since it was immediately remitted onwards to an account No. 400-057298 at Lombard Odier & Cie for the benefit of person(s) who remain unidentified. 

Bankers Trust also debited its 0.70% commission against Pincinco’s account on 5th October, and on 6th October Mrs Parker, purporting to be authorised signatory for Pincinco, gave instructions both for this debit and for payment of $1.3m to Mr Folchi’s account Falcon. On 8th October Mr Russell signed a power of attorney in Mrs Parker’s favour to represent Pincinco vis-a-vis Bankers Trust, and on 23rd October Mrs Parker instructed Bankers Trust to pay a further $267,500 to account Falcon.

On about 24th October 1990 the balance (some $107m) remaining in THL’s account at Banco Santander (Suiza) S.A. was re-paid to GT.

In 1991 an elaborate scheme was developed to deal with the $300m which THL had ostensibly placed on a year’s deposit with Bankers Trust. By mid-1991 the $300m  should with interest have become some $319m. Mr Coll was the primary architect of the scheme (the “Coll scheme”). One avowed and important element of the scheme was its opacity to outsiders. In outline, with the aid of a notional bridging loan from Banco Santander, Mr Coll’s creature company Coggia advanced $319m to Pincinco which repaid Bankers Trust, which repaid THL and in turn lent the sum to Coggia. The deposit by THL with Bankers Trust was in this way replaced by a loan by THL to Coggia. THL bore $36,826.68 of an early repayment fee required by Bankers Trust. The new loan to Coggia was expressed to be unsecured, repayable by 30th June 1992, and interest free provided that Coggia sold to THL on or before 31st December 1991 shares in GT with a face value equivalent to the amount of the loan.

Two additional loans totalling $6.144m were made by THL to Coggia in July 1991 to cover costs and expenses, which, according to Mr Folchi and Mr Coll, were agreed by Mr Folchi with Mr de la Rosa.

Arrangements were made whereby shares were then issued to Mr Coll’s creature company Riquel by GT at par (Ptas.1000 per share), and used to acquire a roughly equivalent number of existing shares. The latter were transferred to Coggia and then sold by Coggia to THL at Ptas.17,000 per share, yielding a sufficient nominal value to extinguish Coggia’s loan debts to THL. The exchange of newly issued for existing shares was designed to conceal the incongruity of GT, in effect, issuing its own shares at par and re-acquiring them at seventeen times par.

In greater detail, what happened was that, at an extraordinary general meetings of GT on 5th July 1991, a resolution was passed to acquire all shares not owned by Koolmees, Kokmeeuw, CAOS, Philby, MIRA and GT itself at a price of Ptas. 17,000 per share (taking into account an increase in par value of GT shares from Ptas.100 to 1000 also agreed at this meeting), and, at a second such meeting on 8th July 1991, further resolutions were passed (a) to issue 2,375,000 shares at par (Ptas.1000 a share) to Riquel (under the different name it then had) and (b) to issue 9,583,070 shares to Koolmees at Ptas. 17,000 a share (i.e. a premium of Ptas. 16,000 a share).  The effect of (b) was to capitalise the Ptas.120b loans outstanding to Koolmees since September/October 1990 together with Koolmees’ Treasury bill lending in the context of Oakthorn 2.

Neither Coggia nor Riquel had GT shares or funds to acquire any. In mid-July 1991 GT advanced to THL Ptas.2.37b, which was in turn advanced by THL to Coggia and by Coggia to Riquel. Riquel then paid this sum to GT to subscribe for the 2,375,000 new shares at par. By a whole series of written agreements carrying dates in September, November and December 1991, Riquel swapped the 2,375,000 new shares issued to it for 2,196,056 existing GT shares held by Philby, MIRA and Folma. On 20th December 1991 Riquel sold the old shares thus acquired to Coggia at an ostensible price of Ptas.17,000 a share, payable by promissory note. On 23rd December 1991 Coggia sold the old shares to THL at Ptas. 17,000 a share, the price being set against the outstanding $319m loan. GT on 31st December 1991 acquired the old shares at the same price under the first resolution passed on 8th July 1991, reducing its capital accordingly.

During the first half of 1992, THL paid various fees related to the Pincinco transaction - specifically Ptas.83,822,630 in total to Zymo, the notary’s offshore company, $38,123 to Russell Limebeer and Ptas.62,000,000 to Coggia.

II.5 Wardbase
Under an agreement dated 21st December 1988 with Societe Regionale d’Investissement de Wallonie (“SRIW”) as majority shareholder in La Cellulose des Ardennes (“CdA”), GT agreed to subscribe for new shares in CdA and in return undertook to procure that specified coated paper machinery would be installed at CdA and be operational by 31st December 1992. A projects committee was set up by GT in January 1989. GT appears to have acted in respect of the project through its paper-making subsidiary, Torras Papel S.A. (“Torras Papel”). Engineering and know-how agreements were concluded by CdA with Jaako Poyry in May/June 1989. Orders were placed between September 1989 and December 1990 and civil engineering work began on 5th September 1989. The project was completed in time on 23rd April 1992.

Documents disclosed by GT and by Mr Folchi include a purported memorandum dated 15th January 1989 from Mr Robinson to Mr de la Rosa. In it Mr Robinson apparently suggests acceptance of a proposal by Wardbase to manage the CdA project, so as to ensure completion of the new plant by the end of 1992, in return for $20m, conditional upon such completion and upon savings of at least that sum from “our provisional budget”.  Mr Robinson could not assist on the document, but it is clearly a forgery. Amongst other things, the 15th January 1989 was a Sunday and Wardbase was not incorporated until 27th February 1989 and was only acquired from its incorporators, Messrs. Jordans, in late July 1989 for the purpose of the Oakthorn 1 operation. There was also no commercial basis for any such letter, whether in terms of any capacity to assist or actual assistance by Wardbase or in the light of the other arrangements actually made by GT to ensure completion. Further, the letter’s only purpose was to cover up an (artificial) payment to be made (on its face) three or four years later. It is implausible to think that such a scheme or letter would have been devised three or four years in advance. There is nothing in any other transaction to suggest that degree of advance planning or patience on Mr de la Rosa’s part.

For similar reasons, there is no substance in an agreement signed and dated as made on 4th September 1989 in Barcelona between Mr Nunez for Torras Papel and Mr Russell for Wardbase. This agreement purports to entrust Wardbase with the installation and its timely completion in return for a fee of Ptas.2b, to be paid within five days “following the day on which Torras Papel S.A. receives the request for payment from Wardbase Ltd. accompanied by the corresponding detailed invoicing of that price by Wardbase Ltd. itself” (clause 3.3) as from which “precise moment Torras Papel S.A. renounces any challenge or any other form of opposition to the assessment of the price by Wardbase Ltd” (clause 3.4). In contrast with the Oakthorn 1 operation of July 1989, there are no Wardbase board minutes purporting to record any decision to become involved in any such operation. Nor does any reference to such an agreement appear in the Castle Trust files, which include a review of Wardbase’s minute book.

The conclusion I reach is that both these documents were falsely created in likelihood in early 1992, in the context of the events to which I next turn. Any suggestion that this might involve some undeserved slur on Mr Russell, as signatory to the document dated 4th September 1989, is alleviated by an extraordinary letter dated 26th May 1992 obtained from RBS Jersey’s files, in which Mr Russell made no mention of any agreement dated 4th September 1989, and sought to explain the operation to the bank in different but equally fictitious terms, as involving the repayment by GT of Swiss borrowings said to have arisen from purchasing CdA in 1990 and in relation to which Mr Russell said that Anslow had had some promissory note involvement.
 
On 30th March 1992 Mrs Parker appears signing for Wardbase a letter addressed to Mr Nunez of Torras Papel. This letter referred to the (purported) contract of 4th September 1989 and to the relevant plant as about to come into service, and said that Wardbase was, without prejudice to its right to require payment under clause 3.3 at the appropriate moment, writing accordingly to draw attention to the precise contractual terms and to ask Torras Papel to take the necessary steps to be ensure prompt compliance. Mrs Parker told me that she remembered receiving this strange and elaborate letter in draft from “a lawyer in Mr Folchi’s office”, though she said that she could not remember who he was. On the same day, according to a form signed by Mr Russell, a board meeting of Wardbase took place on Sark resolving to open an account at RBS London. On 24th April 1992, the day after the CdA plant became operational, Mrs Parker wrote again to Mr Nunez at Torras Papel with Wardbase’s invoice for Ptas.2b. payable to RBS London.

On 4th May 1992, a firm of Spanish lawyers, Arraut & Asociados, wrote to Mr Nunez at Torras Papel referring to the agreement dated 4th September 1989 and to Mrs Parker’s demand for payment, and threatening to contact the KIO and/or commence legal proceedings if payment was not forthcoming within 15 days. On 7th May 1992 Mr Nunez wrote to Mr de la Rosa at GT. He referred to the payment as an urgent matter in the light of the lawyers’ letter and to non-payment as a matter which could cause us “serious problems of lack of service or permits in the future”. He suggested that it would be very inconvenient to ask CdA to take it over, as it should, and asked GT to assume responsibility. Mr de la Rosa duly agreed on 13th May 1992. On 25th May 1992 GT (by instructions signed by Mr Soler) transferred Ptas.2b from its account with Sumitomo Bank, Barcelona to THL’s account with the same, and THL (by instructions signed again by Mr Soler) instructed its bankers to pay the same sum to Wardbase’s account with RBS London. Mrs Parker in turn gave Mr Russell (with copy to RBS) instructions for “pay-away” value 26th May 1992 of Ptas.1.9b by Wardbase to Oakthorn, then to Anslow, and finally to Bank SOGENAL, account ADNHIL in Geneva, keeping the value dates “extremely tight”. Such payment was duly made. Mrs Parker told me in evidence, and I do not doubt, that Mr de la Rosa pressed her repeatedly on 26th May 1992 for confirmation that payment had been achieved.  On 26th May 1992 a new board of GT was appointed at an EGM and Mr de la Rosa resigned as vice-president and director.

The Ptas.1.9b paid to account Adnhil at Sogenal went to Mr de Prado, as he has again admitted in Spanish proceedings. The payment had, I find, nothing to do with CdA or with the successful completion of that project.

II.6 Accounting treatment of the transactions.
GT and THL were in respect of their 1989 years of account audited by respectively CPA Touche Ross of Barcelona and Touche Ross & Co. London. GT’s board resolved on 8th March 1990 to appoint Coopers & Lybrand Barcelona as GT’s auditors for  1990 and subsequent years. Mr Ricardo Gomez of CPA Touche Ross appears to have become a partner in Coopers & Lybrand Barcelona in mid-1990. GT’s accounts suggest that much of GT’s and its group audit was complete by 3rd April 1990, when Mr de la Rosa addressed to GT a personal guarantee of the obligations of Croesus and Oakthorn 1 towards THL. But Touche Ross London did not sign off on THL’s audit until 16th July 1990 and, despite the dates on GT’s audit report, it appears that GT’s audit was not actually complete until around the same time.

By 4th June 1990 Touche Ross London had expressed a wish to know the rationale of the Croesus and Oakthorn 1 loans, and Mr Coll prepared a letter for Mr Soler to sign. This identified various matters as being of note, particularly an alleged commercial justification in the interest differential. It ended grandiloquently:

“However, I understand that you have already been informed that Oakthorn and Croesus are involved in the strategic reorganization of the Group including divestments and forthcoming mergers affecting certain group businesses.
I confirm to you that this reorganization will not affect the Company in any way.”

At Mr Coll’s instance, on 14th and 18th June 1990 Croesus and Oakthorn issued confirmations of their indebtedness for THL’s audit purposes. On 14th June 1990, apparently as a condition of their audit satisfaction in respect of THL, Touche Ross also received a guarantee signed by Mr Nunez for GT in respect of the liabilities of Croesus and Oakthorn to THL.  On this basis, Touche Ross London was evidently prepared to sign off on THL’s accounts, but not without writing on 22nd June to Mr Gomez at Coopers & Lybrand Barcelona, as GT group auditors, pointing out that the recoverability of the Croesus and Oakthorn loans was now a matter for consideration at group level. Mr Gomez’s reaction was that this meant that he could not issue his report on GT, and to ask for details about Croesus and Oakthorn. Touche Ross London also devoted to the problem of the Croesus and Oakthorn loans one and a half pages of a five page letter dated 26th June 1990 to Mr Nigel Black enclosing THL’s draft accounts. On or about the same date, Mr Black and his immediate superior, Mr Al-Haroon, chief investment manager of the KIO, met with Touche Ross, and expressed inability to assist and concern about these loans. Following this meeting, on 29th June 1990, Mr Al-Haroon wrote a memorandum to Sheikh Fahad drawing attention to the issues highlighted by Touche Ross, asking why sums of $25m and $55m had been lent to these companies and saying that he had asked that GT’s accountant try to clarify these issues, while Touche Ross expressed their and the KIO’s concern by message faxed to Cooper & Lybrand Barcelona, asking whether they had been able to obtain like information. There were two reactions, first, from Mr de la Rosa, who telephoned Mr Black to complain that he had involved himself in communications about the affairs and with the auditor of a GT subsidiary, and secondly, from Sheikh Fahad who distributed memoranda dated 5th and 9th July to this effect

(5th July 1990) “Please be informed that all enquiries and information requested by the Office through the Direct Investment Department will be in writing and signed by the Chief Investment Manager in charge of that Department together with the General Manager or his Deputy.”

(9th July 1990) “Please note that all external and internal Office accounting queries should be directed to the Chief Financial Officer or, in his absence, the Financial Controller.”

In the meanwhile, Sheikh Fahad must have sent a copy of Mr Al-Haroon’s letter to Mr de la Rosa, because by fax message to Sheikh Fahad on 3rd July 1990 Mr de la Rosa “clarified” the queries raised by Mr Al-Haroon in respect of Croesus and Oakthorn as follows:

“As you know, the loans to these companies were authorised by the board and the amounts were paid by these companies to KIO as repayment of offbook funds advanced to Grupo Torras.  As you also know it is agreed that these companies will receive commissions on forthcoming divestments which will enable them to repay the loans to [THL]”.

On 17th July 1990 Mr Al-Haroon sent Mr Betts a copy of his memorandum of 29th July, asking in that way in accordance with Sheikh Fahad’s memorandum of 9th July 1990 for the further necessary information. On the same day, Mr Betts wrote to Sheikh Fahad stating:

“7. Mr Al-Haroon has raised specific queries on Grupo Torras and in particular Torras Hostench London Ltd.  The consolidated accounts do not and are not required to give the information requested.  The queries are, in my view, management points and not accounting.  It must be assumed that the auditors have satisfied themselves that the accounts fairly present the financial position of the Group and that the value of debts and other assets is correctly stated.

8. A detailed analysis of the accounts of the holding company and its subsidiary and associated companies would involve considerable effort (eg accountants’ report).  The operations and management of the Group are the responsibility of the Board of Directors and the Office is well represented.”

Mr Betts had very limited recollection of the circumstances in which this memorandum came into existence. But it is in my view quite likely that he had had a meeting with Sheikh Fahad before writing it.

Mr Al-Haroon’s appointment as chief investment manager in March 1990 took place in the context of the KIA’s wish to establish a closer insight into and control over the affairs of the KIO.  This wish was unwelcome to long-standing officers of the KIO, including Sheikh Fahad, and there was undoubtedly something of a power contest between the head office of the KIA and the KIO.  That affected relations between Sheikh Fahad and Mr Al-Haroon. It was also suggested that Mr Al-Haroon was in effect heavy-handed, youthfully arrogant and/or misguided in the points which he sought to pursue. I do not accept these criticisms. Judging both by the memoranda he wrote and by his answers in the witness box, Mr Al-Haroon was and is a diligent and competent accountant, who sought conscientiously and appropriately to raise and investigate a number of relevant matters. The reactions of Mr de la Rosa and Sheikh Fahad to his questions regarding the Croesus and Oakthorn loans throw doubt on their motives.

This is so notwithstanding Mr Betts’ own memorandum to Sheikh Fahad regarding Mr Al-Haroon’s memorandum of 17th July 1990. Mr Betts’s memorandum represents on the face of it a surprisingly cavalier response to limited questions about the purpose of two very large loans to evident front companies, based on mere surmise that group auditors had received unknown satisfaction. Mr Betts was, in matters within his responsibility, clearly a conscientious accountant as well as a diligent noter and follower of events.  But he was also well aware of Sheikh Fahad’s distaste for Mr Al-Haroon’s appointment and activity, and he was, in my assessment, no leader. My assessment of him is that he was prepared to keep his head down, or, as Mr Al-Haroon put it, “not do anything that would be confrontational with Sheikh Fahad, and thus jeopardise his job”. Mr Al-Haroon, with his backing in Kuwait, was in a far stronger position. Mr Betts’s memorandum in my view coincided with, and may well have been influenced by, Sheikh Fahad’s own expressed or perceived disinclination to pursue the matters which Touche Ross and Mr Al-Haroon had raised. The conclusions which I have reached regarding Sheikh Fahad suggest that the disinclination had more fundamental causes. Sheikh Fahad cannot have thought that it would assist to produce Mr de la Rosa’s notably obscure attempt at an explanation by his fax message of 3rd July, but equally he did nothing either to pass to Mr Al-Haroon the knowledge which the letter said that he himself had or to seek further information from Mr de la Rosa, if the letter was wrong in suggesting that he himself had such knowledge. The invasion of Kuwait by Iraq on 2nd August 1990 and the crisis which followed cannot explain Sheikh Fahad’s attitude and conduct prior to that date.

At some stage, GT credited THL on their inter-company account with the amounts of the Croesus and Oakthorn loans. In GT’s 1990 accounts dated 21st March 1991, amounts equivalent to these loans were written off against the share premium account, against the description “Contributions to future increases in share capital” and with notes:

“11 .... (b) No restrictions are established regarding the distribution of this reserve.  Ptas.14,472,629,000 have been charged against the share premium corresponding to a loan granted by a subsidiary to a third party.  The principal shareholder of the Company has taken this under its obligation by assuming a lower share premium in the increase in capital that will be subscribed in annual general meeting of shareholders to be held in July 1991.

....

23.
.....

Of the full amount of the loans to be compensated, Ptas. 14,472,629,000 will be dedicated to covering a subsidiary’s account with third parties.”

Despite the lack of clarity in the description and notes, the amounts lent to Croesus and Oakthorn were written off, as at the end of 1990, against the share premium account. They were never discharged by the principal shareholder or anyone.

Various defendants contend that the effect of these transactions and/or of the capitalisation of the KIO’s loans to GT in July 1991 was to eliminate any loss which THL and/or GT might otherwise have incurred, and/or to transfer it to Koolmees or the KIO. I consider these contentions later in section V.1(b).

II.7 Events after the transactions
During the latter part of 1991 and in early 1992, the KIO’s Spanish investments, and the extent of the loans advanced directly and indirectly by the KIO to GT, came under scrutiny at meetings within the KIO and KIA. Sheikh Fahad’s conduct  in extending such facilities was challenged. On 12th February 1992 Sheikh Fahad tendered his resignation as chairman of the KIO, which was accepted from 8th April 1992. He was replaced from that date by Mr Al-Bader. On 26th May 1992 there was a board meeting of GT, at which Mr de la Rosa presented his resignation as deputy-chairman and director of GT. Mr de Mir, Mr Nunez, Mr Guasch and other Spanish directors also resigned, although they were re-appointed on 1st June 1992. The minutes recorded:

“The General Meeting hereby accepts the resignations presented and unreservedly approves the management activities undertaken by the same in the exercise of their appointments, thanking them for the services rendered, especially the Deputy Chairman Mr ... de la Rosa and - posthumously - Mr ... Ball”

The directorships of Sheikh Fahad, Mr Jaffar and Sheikh Khaled were recorded as terminated, with the rider that

“The management activities undertaken in the course of their appointments .... are unreservedly approved, and they are thanked for the services rendered.”

On 6th July 1992 GT’s parlous financial state and the level of the KIO’s financial commitment led the KIO’s executive committee to appoint accountants (KPMG) and lawyers (Stephenson Harwood) to investigate GT’s managerial, financial and legal position. In September and October 1992 there took place meetings between these investigators and one or other of Sheikh Fahad, Mr Jaffar, Mr de la Rosa, Mr Folchi and Mr Russell. Evidence about these was given by Mr Fordham of Stephenson Harwood, who produced notes or transcripts, as well as by Mr Folchi in his supplemental witness statement and oral evidence. Mr Folchi was first seen on 17th September 1992, when all the transactions with which this litigation is concerned were discussed. He said then that he did not know why loans were given to Croesus and Oakthorn and that Pincinco was an external account operation, a special war payment. He said that he knew of the Wardbase transaction, though not of any payment, that he did not prepare any papers, though others in his office might have done, and that he thought Wardbase might be connected with Mr Russell and was used to ensure that appropriate administrative approvals from public entities were obtained on time for the paper mill construction. Within the next few days, when Mr Fordham telephoned Mr Folchi, Mr Folchi appears to have confirmed Mr Russell’s connection, and Mr Fordham, without telling Mr Folchi, then paid a visit at short notice to Mr Russell. Mr Russell said that, without Mr Folchi’s permission, he could not assist on any of the transactions. Mr Fordham asked Mr Russell to “gather together the papers on the matters raised in the meeting” and to arrange a meeting with Mr Folchi, preferably in Jersey. On 29th September 1992, Mr Fordham met Mr Folchi again, who indicated that he thought that the monies in the Croesus, Oakthorn and Pincinco (“Coggia”) transactions had, minus expenses, left the off-shore companies to which they had been paid and gone to Switzerland, to accounts numbered in a coded name, that he had been instructed not to keep details of the accounts to which the monies had been transferred for reasons of confidentiality, and had instructed Mr Russell accordingly, though the banks would have all the details. He said that either Wardbase had rendered services to GT, or there had been instructions from the KIO to use Wardbase and a contract with Wardbase entitling it to the payment. Mr Folchi said that he had been in touch with Mr Jaffar who had indicated that there could be political implications for the Kuwaiti elections on 5th October 1992 in the information sought about the transactions.

On 29th September 1992 Sheikh Fahad granted a loan facility to Mr Jaffar in the sum of $3m (available for draw-down up to 31st December 1992 and repayable on 30th September 1995). This sum was drawn-down (on a precise date which does not appear) and continued outstanding until 16th January 1994 and presumably today. In the absence of Sheikh Fahad and Mr Jaffar, its background could not be explored in evidence, but there is a fair inference (especially in the light of other payments to which I shall come) that it related to costs of the investigation which had just begun.

On 7th October Mr Folchi indicated that Mr Russell and he had met in Barcelona on the Sunday (4th October) and agreed a procedure for Mr Russell to make available information from the files of off-shore companies involved in the transactions, which he said were also active on behalf of other clients. He himself undertook to provide a summary of bank transfers in the relevant operations. He said that he had decided upon the Croesus and Oakthorn structures, although he did not control the former in the same way as the latter. At a further meeting on 9th October 1992, Mr Folchi indicated that he now had a letter from the manager of the off-shore companies, the Sierra Trust Company (run by Mr Russell’s firm), counter-signed by RBS, but that he wished, out of concern about potential damage to the KIO and the State of Kuwait, to have the KIO’s and the State of Kuwait’s express written authorisation before releasing it.

On 7th, 14th and 19th October 1992 Mr Fordham saw Mr de la Rosa, who said Pincinco was connected with the war effort, and indicated that he could not assist on the Croesus and Oakthorn operations or, it appears, the Wardbase operation. On 22nd October 1992 Mr Fordham met Mr Jaffar, and discussed a number of matters. He asked specifically about the Oakthorn loans in 1989/90, to which Mr Jaffar’s response was that he could not remember. Mr Fordham then showed him a letter dated 20th December 1990 purporting to have been written by Sheikh Fahad confirming these loans.  (The letter is in fact a forgery, the identity of the probable forger being a matter on which I touch later in this judgment. There is no reason to think that this was known to Mr Fordham or that he showed it to Mr de la Rosa other than in good faith, and the contrary was not suggested.) Mr Jaffar simply speculated in response that the $55m loan made in 1989 might have been to settle some obligation. He said that he had returned to the KIO after the invasion, but to advise and not to play any executive role, and that he knew nothing of any $400m payment to GT via Koolmees and Kokmeeuw.

On 23rd October 1992 Mr Fordham saw Sheikh Fahad, who said that Pincinco must amount to political arrangements and war effort, but would not elaborate. As to Croesus and Oakthorn, Sheikh Fahad was also shown his supposed letter of 20th December 1990. Again there is no basis for any suggestion that Mr Fordham was acting other than in good faith. Indeed, Sheikh Fahad himself appears to have thought the letter genuine, since he answered questions upon it on that basis. He said that, prior to signing the letter, the loans had been explained to him by some officer he could not identify as “black money” payments relating to the merger of two of GT’s subsidiaries or associated  companies (Ebro and Agricolas, referred to in section IV.2(c) below).

On 29th October 1992 Mr Fordham had a long interview (which was transcribed) in Barcelona with Mr Folchi, who was attended by his solicitor, Mr Richards of Lawrence Graham. Mr Folchi expressed continued reluctance about disclosing certain sensitive matters without additional comfort from the Kuwaiti side. He said that his understanding was that the loan to Croesus, a company provided by Mr Coll, had been to cover a black money payment and that he had been told that Oakthorn was the same and that the Pincinco payments had been war payments. As to the Wardbase payment of May 1992, he said that he had participated in discussions at the time with Mr de la Rosa and Mr Soler, who had wanted assurance before making the payment. In relation to the correspondence involving Mrs Parker and Spanish lawyers, he said that “the idea of creating the evidence of a demand came from the inside GT people, say Miguel Soler”, but that he would wish to check with Mr Soler who had instructed the lawyers.

In view of the reservations which Mr Folchi was expressing about sensitive information, Mr Fordham proposed a meeting between Mr Folchi and Mr Al-Bader. This took place on 1st November 1992, and led in turn to the suggestion of a meeting with the Attorney General of Kuwait or his representatives. So, on 13th and 15th November 1992 Mr Folchi accompanied by Mr Richards met representatives of the Attorney General and the KIO to discuss matters which Mr Folchi then identified as being, broadly, the operation of KIO external accounts, the KIO’s status in Spain and black money and political payments. Mr Folchi has questioned the accuracy of the note of this meeting, it was not the subject of oral evidence before me and it is unnecessary go further into it. What is clear from other material is, firstly, that some seven operations were discussed including the Croesus, Oakthorn and Wardbase transactions, which Mr Folchi said involved black money payments, and Pincinco, which he said involved war payments; and, secondly, that Mr Folchi made available at the 13th November meeting Sierra Trust’s letter dated 7th October 1992, counter-signed by RBS Jersey, to which Mr Folchi evidently added his own signature which he dated 13th November 1992. This is confirmed in a full written memorandum addressed to the Attorney-General of Kuwait dated 19th November 1992 (“the November 1992 memorandum”) as well as in Mr Folchi’s supplementary witness statement. The November 1992 memorandum featured importantly in Mr Folchi’s cross-examination.

In his oral evidence Mr Folchi said that he met Mr de la Rosa frequently between September and November 1992 to discuss the relevant transactions. He attributed certain parts of the memorandum which can now be seen to have been inaccurate to Mr de la Rosa’s input. He also said that throughout this period he was convinced that the KIO and Kuwaiti authorities’ investigation was not bona fide, and that it was associated with the internal political situation in Kuwait, which he did not understand.

According to Mr Folchi’s and other evidence, a meeting also took place at about this time at Mr Jaffar’s house, involving Sheikh Ali Khalifa. The meeting was attended by Sheikh Fahad, who brought with him Sheikh Khaled, and by Mr Jaffar and Mr Folchi. Mr de la Rosa was supposed to attend but sent apologies through Mr Folchi. Mr Folchi’s evidence places this between his last meeting with Mr Fordham (29th October 1992) and the date of the memorandum (19th November 1992). Sheikh Khaled put it as in October. Its precise date is not material, but it seems to have been just prior to 23rd October 1992, in view of the payment made to Mr Folchi by Sheikh Fahad on that date (see below).

The background to the meeting, according to Sheikh Khaled’s understanding, was that Mr Al-Bader and Mr Al-Rowdan had reported to the Prime Minister of Kuwait that Sheikh Fahad and Mr de la Rosa had embezzled funds, and the Prime Minister had told them that, if this was so, they should do whatever was necessary to pursue the matter and had sent Sheikh Ali to England in an attempt to ascertain the truth. Sheikh Ali’s enquiries of Sheikh Fahad met with denials of any embezzlement. Sheikh Khaled also said in evidence that Sheikh Fahad made reference to participation in a personal investment and to receipt of monies for his role in the BP transaction. If that were so, it would contrast strikingly with Sheikh Fahad’s failure to mention any BP bonus or acknowledge any receipt from Oakthorn 2 or, therefore, to seek to justify any such receipt in this litigation until after the plaintiffs had themselves in November 1993 elicited the Oakthorn 2 payment to him of $22.5m. It is also inconsistent with Mr Folchi’s oral evidence that, when he gave the meeting his understanding of the transactions, no-one suggested to him that it was wrong or said to him that “you cannot be right because .... Hammarstone or BP money was paid to me”.

On the occasion of the same meeting, Mr Folchi took the opportunity, presumably not in Sheikh Ali Khalifa’s presence, to raise the subject of the costs he and other defendants represented by Lawrence Graham were incurring and likely to incur. He told me that he asked the people present to put forward a defence of the professional team. As a result of this request, on 23rd October 1992 Mr Folchi received $2m paid by Sheikh Fahad from account G772 with Lombard Odier in Geneva to Drake Consulting Ltd. (“Drake”), a vehicle provided for Mr Folchi presumably by Mr Russell. Lombard Odier gave express instructions that this transfer was to made “by intermediary of Swiss Bank Corp. GVA without mentioning our name”. The $2m in fact reached Drake via Baring Bros. & Co. When on 21st August 1998 the plaintiffs’ solicitors asked Sheikh Fahad’s then solicitors about the $2m received from Baring Bros. & Co., the latter replied that “Sheikh Fahad instructs us that he has, and had no, account at Baring Bros. & Co. .... and knows nothing of the payment alleged ....” It is difficult to think that Sheikh Fahad was being truthful in the latter part of these instructions.

Later in December 1992, Mr Folchi received another $2m paid by Sheikh Khaled through one Castle Trust company, Greencopse Investments Ltd. (“Greencopse”), to another, Drake Consulting (or “Drake Trading Consultants”) Ltd. (“Drake”) for Mr Folchi’s benefit. Mr Folchi said that he was unaware that the source of this money was Sheikh Khaled. Sheikh Khaled’s evidence, consistent on this point with Mr Folchi’s answers to interrrogatories sworn 14th September 1998, was that Mr Folchi did not in fact direct any request for monies to Sheikh Khaled. Sheikh Khaled told me that, as far as he was concerned, the payment he made was not the result of the meeting, but the result of Mr De la Rosa telephoning him day and night saying that “Mr Folchi is experiencing financial difficulties, he has a court case”. This, Sheikh Khaled said, led him to ask Sheikh Fahad what to do, to which Sheikh Fahad’s answer was “Yes, they are our friends, please loan them and also if, after this case, if I finish from this case, I will guarantee you I will repay you 2 million”. Sheikh Khaled told me that he spoke to Mr Paul Dawson, who arranged the payment with Mr de la Rosa.

The Spanish criminal proceedings were begun on 8th January 1993. On 13th January 1993 Stephenson Harwood sent a letter before action relating to the four transactions to Mr de la Rosa’s Spanish lawyers. On 15th January 1993 Sheikh Khaled through the vehicle of Comprador made a loan of $2m for the purpose of Mr de la Rosa’s legal costs to Firecrest, a vehicle used as a means of transmitting monies to Quail for Mr de la Rosa. On 20th January 1993 Sheikh Fahad made a loan of $20m for similar purposes also to Firecrest. Mr de la Rosa signed personal guarantees of repayment in respect of both loans.

In 1994, Mr Jaffar made a third payment to Mr Folchi for legal costs. In or about 1992 Prima had paid a dividend of Ptas.194m (c.$2m) to Hammarstone. In 1994 Mr Folchi and Mr Jaffar agreed that this sum should be transferred to another of Mr Russell’s companies, Roundabout, for legal costs. Mr Folchi said that he agreed this in the belief that Mr Jaffar was beneficial owner of Hammarstone (as indeed it would appear he was). Mr Jaffar’s conduct in transferring the proceeds of the dividend to Mr Folchi is on any view hard to square with any idea that Hammarstone belonged to GT or the KIO or that Mr Jaffar was acting for GT or the KIO in the Hammarstone operation.

 In early 1995 Sheikh Khaled paid Mr Oberson the sum of $2.5m. I deal in more detail with the circumstances when considering the claim against Sheikh Khaled.

II.8 The Claims in outline  
Claims are made in relation to each of the relevant transactions on several bases: conspiracy; dishonest assistance, breach of director’s duty, money had and received and knowing receipt. Mr de la Rosa is alleged to have been implicated in all transactions on each basis, judgment having already been entered against him in respect of Oakthorn 2 and Pincinco.  Claims are made against Sheikh Fahad and Mr Jaffar for conspiracy, dishonest assistance and breach of director’s duty in respect of all transactions, save Wardbase. Sheikh Fahad is also alleged to have received dishonestly amounts of respectively $22.5m, $22.5m, and $75m in respect of Oakthorn 1, Oakthorn 2 and Pincinco, and Mr Jaffar respectively $22.5m, $10m and $12m. Claims are made against Sheikh Khaled in respect of Pincinco alone, for conspiracy, knowing assistance, breach of director’s duty and dishonest receipt of $20m.

Mr Soler is the subject of claims for conspiracy, dishonest assistance and breach of duty as a director of THL in respect of all transactions, while Mr Moukarzel for like claims in respect of all but Wardbase. In addition, Mr Moukarzel is the subject of a claim for money had and received and/or knowing receipt of some $52,000 in Pincinco.

Mr Coll is the subject of claims for conspiracy and dishonest assistance in respect of all transactions save Wardbase, and for money had and received and/or knowing receipt of $3.569m in respect of Pincinco. The companies which he represents are Croesus and Wantley, which are sued only in respect of the Croesus transaction, and Coggia and Riquel which are sued as members of the Castle Trust in respect of all transactions except Croesus. I do not understand it now to be suggested that any of these companies has liabilities different from or greater than any which Mr Coll may have in the relevant transaction. The claim against them is, as I understand it, put on the basis (clearly correct in fact) that they were the mere instruments of Mr Coll’s will. If I am wrong however in treating it as limited in this way, I will hear further submissions.

Mr Folchi and Mrs Parker are the subject of claims for conspiracy and dishonest assistance in respect of all transactions save Croesus. Mr Folchi is also the subject of claims for breach of duty as a THL director in respect of Pincinco and money had and received and/or knowing receipt of $2.165m in respect of Oakthorn 1 and 2 and $5.567m in respect of Pincinco, while Mrs Parker is the subject of claims for money had and received and/or knowing receipt totalling £40,915 in respect of Oakthorn 1.

The legal elements of the claims are considered in section V on the basis of facts found in section IV.

III. OBJECTIONS TO THE PROCEEDINGS
III.1. Authority and/or capacity
Various defendants plead that GT lacks capacity and/or authority to bring the present proceedings under Spanish law. These pleas rest on two bases: (i) article 134.1 of the Spanish Companies Act 1989 and (ii) article 5.4 of the Spanish Law of Suspension of Payments. The former article was first raised by Sheikh Fahad’s then solicitors in October 1995 and is raised in defences served at the end of 1995 by Sheikh Fahad, Mr Jaffar, Mr de la Rosa, Sheikh Khaled and also (despite the fact that he was never a director of GT) Mr Soler. Article 5.4 is relied upon in the defences served by Mr Folchi, Mrs Parker, Mr Coll and Mr Soler and the companies they represent. So far as they challenge the capacity of GT to instruct Baker & McKenzie or Baker & McKenzie’s authority to act on GT's behalf they should normally have been resolved on application prior to trial: Russian Commercial and Industrial Bank v. Comptoir d’Escompte de Mulhouse [1925] A.C. 112; Banco de Bilbao v. Sancha [1938] 2 K.B. 176. During 1996 and the first half of 1997, steps were taken with a view to the possible determination of the pleas under articles 134 and 5.4 in that way. But in mid-1997 all parties were agreed that both aspects should be determined at trial - one factor at least being Professor Ramos’s evidence limiting the application of article 134 to claims under Spanish law. It was Sheikh Fahad’s solicitors, Ashurst Morris Crisp, who on 4th June 1997, proposed postponement of the article 134 issue to trial, while the plaintiffs agreed not to contend that it should have been dealt with earlier. Postponement to trial of the article 5.4 issue was also agreed. Hence, the fact that these issues are being dealt with now.

III.2. Article 134.1 of the Companies Act 1989
Article 134.1 provides in the translation in Professor Cortes’s report:

“1.	The company claim for liability of directors shall be filed by the company, after a resolution of the company in general meeting, which may be passed even when it is not included on the agenda.
The articles [of association] may not establish a majority different from the one required by article 93 for passing such a resolution [viz.  simple majority].

2.	The company in general meeting may at any time settle or waive the filing of the claim, unless members [shareholders] representing 5% of share capital oppose such action.
A resolution to institute the action or settle shall cause the removal of the Directors involved.

3.	Approval of the annual accounts shall not prevent the filing of a company claim for liability of directors nor shall it imply abandonment of a claim which has already been resolved upon or filed.

	4.	The Shareholders, in the terms provided for in Article 100, may request that a General Meeting be called in order for the latter to decide as to whether the liability proceedings should be carried out, and also jointly undertake the liability proceedings in defence of the Company's interest if the Directors fail to call the General Meeting requested, for such a purpose, if the company does not undertake them within a period of one month from the date of the corresponding resolution or when the latter is opposed to the liability proceedings.

	5.	The Company's Creditors may bring an action in the Company's name against the Directors when it has not been undertaken by the Company or its Shareholders, provided that the Company's net worth is insufficient to pay their claim.”

The facts, as now accepted, are that no relevant resolution of a general meeting was passed prior to the commencement on 14th April 1993 of the first set of proceedings (1993 action Folio No. 624) with which I am concerned. At an extra-ordinary general meeting of the shareholders of GT on 29th April 1996, the following resolution was passed (without being included in the agenda):

“The General Meeting of shareholders, as highest body of the company, considers that the actions initiated by the company and currently in process obviously demonstrate the existence of the company's clear desire to file legal actions against its former directors.  Although the text of the said resolution is not formally recorded in the minutes of previous General Meetings of shareholders, the fact is that the company's will on this question is clear and the successive General Meetings of shareholders have so considered at all times.

Nevertheless, in order to avoid any doubt and without accepting that the claims were not duly and effectively initiated on behalf of the company at the time they were filed, the General Meeting of shareholders of the company hereby ratifies and approves the commencement and continuation by the company of the English actions and the related actions, as well as all related or modified actions, in particular, against all or some of the former directors and executives who held office at any time during the period from 1986 to 26 May 1992, which ratification and approval shall be considered effective as from the date of commencement of the said proceedings.  The terms "English actions" refer to the actions currently before the High Court of England under action numbers 1,993, Folio No 623 and 1,993, Folio No 624.

Furthermore, in order to avoid any doubt and without accepting that the actions were not duly and effectively initiated on behalf of the Company at the time they were filed, the General Meeting of shareholders of the company hereby likewise ratifies and approves the commencement and pursuit of all actions which are the consequence of or related to the English actions and/or the related actions, or which in any way refer to the management of the company and its subsidiary companies during the period in question, in particular, against any of the previous directors and executives, which ratification and approval shall be considered effective as from the date of commencement of the said proceedings.  The ratification and approval resolved herein shall include, by way of example and without limitation, modification of the existing actions, defence against any actions, third party claims or counterclaims, joinder of new parties in the existing actions, and the commencement of new actions in any jurisdiction.”
	
Shortly thereafter, on 24th May 1996 GT and THL commenced a second set of proceedings against Sheikh Fahad, Mr Robinson, Mr Jaffar, Sheikh Khaled, Mr de la Rosa and Mr de Mir (action 1996 Folio No. 1206), mirroring as against those defendants the claims in the first 1993 action. By order dated 23rd June 1997 the 1993 and 1996 proceedings were consolidated, on terms that the consolidation should not affect the date of commencement of action 1996 Folio No. 1206, and both actions are before me for trial.

Expert evidence is relevant to assist me construe the provisions of Spanish statute law arising for consideration and to inform me about relevant principles of Spanish law. The experts have also provided me with views as to the application of these provisions and principles, although their application on particular facts is ultimately a matter for me to evaluate. In particular, I heard evidence in relation to article 134 from Professor Ramos for the plaintiffs, Mr Diaz-Bastien for Sheikh Khaled and Professor Cortes for Sheikh Fahad. Evidence from Mr Carreras, a Spanish lawyer called by Mr Folchi on the article 5.4 issue, also touches on the disputed area of ratification or retroactive correction.

Professor Ramos's evidence impressed with its thoroughness and the quality of the material on which he relied, as well as with its general good-sense and moderation. But his oral evidence suffered at certain points from the difficulty that he chose to give it in English without the assistance of a translator. Mr McGhee suggested that Professor Ramos's evidence was marked by extra-ordinary inconsistencies and changes of position and that Mr Diaz-Bastien and Professor Cortes were generally to be preferred. I do not consider that this general criticism is made good. There are points which can be made on his evidence, but there are also points which can be made on aspects of the evidence of the other experts.  I revert to some of these points in subsequent analysis. I take here only two particular points made by Mr McGhee. Professor Ramos always conceded the literal problem faced by any argument that the requirement of a "prior" resolution in article 134(1) could be satisfied by a resolution at any time prior to the court considering the issue. And the suggestion that Professor Ramos contradicted himself on the question whether the requirement of a prior resolution is mandatory or a matter of jus cogens or public policy appears to me to overlook the potential differences between these concepts, and the emphasis throughout Professor Ramos's evidence - but somewhat lacking in Mr Diaz-Bastien's and Professor Cortes's evidence - upon a measured and purposive approach to the consequences of non-compliance with any legal provision, taking into account its legal context and aim. Mr McGhee also concentrated considerable criticisms on Professor Ramos's oral evidence in relation to article 5.4 and suggested that these undermined his reliability generally. I shall deal more specifically with Professor Ramos's evidence on article 5.4 in section III.3. It suffered from linguistic problems as well as being subject to some valid criticisms. I prefer it nonetheless generally to that given by Mr Carreras in the same context. I do not regard those criticisms which can be mounted in relation to article 5.4 as undermining Professor Ramos's general reliability.

Article 134 establishes a hierarchy of possibilities. The general meeting may, by resolution - even though the matter has not been on the agenda - resolve that the company shall commence liability proceedings against the directors. The force of the word "shall" in article 134(1) is to oblige the company to undertake such proceedings. But one situation catered for in article 134(4) is that, despite such a resolution - and despite the dismissal of directors which it involves under article 134(2) - the company does not in fact commence such proceedings.  Article 134(4) also entitles the shareholders to have a meeting called in order to decide whether liability proceedings should be brought.  It goes on to allow shareholders to bring proceedings themselves in three situations: failure by the directors then to call such a meeting; failure to implement a resolution to commence such proceedings passed at a meeting; and the situation where the resolution passed at such a meeting is unfavourable to liability proceedings. The third situation postulates, presumably, that there has been no settlement or waiver by the general meeting under article 134(2) - such settlement or waiver being impossible if 5% of the shareholders oppose it. Finally, article 134(5) allows a company's creditors to bring liability proceedings against the directors, when the company or its shareholders have not done so, provided that the company's net worth is insufficient to pay their claims.

The overall aim of article 134 is clear and important. Professor Ramos states it, in a way which I accept, in his report at part VIII(3)(b):

"It must be accepted that the purpose of the Law is to facilitate the enforcement of liability and not to create formal obstacles, which could be regularised easily."

I do not detect in article 134 any purpose of protecting directors, rather the contrary.

It is nonetheless common ground between the experts that a resolution of the general meeting is "an indispensable requirement of the proceedings" against a director which, if not fulfilled should lead to their summary rejection, without going into the merits of any complaints about the directors' conduct: decision of Supreme Court of 1st December 1993. It is also common ground that, if a resolution of the general meeting were obtained after such a dismissal, fresh proceedings could be begun in which the merits of any such complaints could be determined. The limitation period for any such proceedings against directors would run from the date when the directors ceased to act as such, or when the damage manifested itself (the precise moment being an issue to which I shall have to return). But I was not referred to any Spanish legal authority addressing the possibility of subsequent validation of proceedings brought without any prior resolution. 

GT’s first contention is that, whatever the Spanish position may be in this respect, the problem is a procedural one. Accordingly, Mr Boswood submits, it does not exist in the context of English litigation, since English courts apply their own procedure. He relies in this regard on Rule 17 in Dicey & Morris on The Conflict of Laws (12th Ed.):

"All matters of procedure are governed by the domestic law of the country of the court to which the country wherein any legal proceedings are taken belongs (lex fori)."

This contention involved considerable evidence from all three Spanish professors. Professor Ramos gave detailed and essentially uncontroversial evidence as to the existence of four categories of issue which may arise with respect to parties in Spanish proceedings: capacity to be a party, procedural capacity, standing to sue and procedural representation. Professor Ramos identified the present issue as one of procedural capacity. Professor Cortes doubted this, and thought it probably fell outside any of the four categories. Likewise, Mr Diaz-Bastien. Professor Cortes in his report (part 7.5) emphasised that the Supreme Court in its decision of 1st December 1993 had not treated the whole proceedings as a nullity upon discovery that there had been no resolution of the general meeting. Rather, he said, it had confirmed the ruling entered by the lower court in the defendant's favour, and had "thus ruled on the merits". Earlier in his report (part 6.4), he also says that

"The situation which arose when the Directors of [GT] decided to file actions against the former Directors is not a case of lack of representation; they may not be said to have acted without powers. What in fact happened is that although the company had not validly formulated its will to bring legal actions, the Directors had it bring such actions; they managed and executed, as the company, a non-existent resolution of the same."

These passages from Professor Cortes appear to suggest that the company would be viewed as a party to the present proceedings, against which the court would be determining the proceedings on the merits. In evidence, however, Professor Cortes and Mr Diaz-Bastien acknowledged that the only matter which could be said to be determined on its merits in such a case is a preliminary question whether there had been a resolution, that, if there was none, the court would not go further into the merits of any complaints against the directors and that such merits would remain open for subsequent investigation if and when a resolution was passed under article 134(1), or the shareholders or creditors brought proceedings under article 134(4) or (5).

Even if Professor Ramos is right in considering that Spanish law would approach the issue under the head of procedural incapacity, it does not follow that the issue is one of procedure for the purposes of the English private international law rule set out in Rule 17 of Dicey & Morris. Contrary to Mr Boswood's further submission, it does not seem to me that article 134(1) can or should be limited to the pursuit of proceedings in Spain. Whether it applies to proceedings other than under the Spanish Companies Act or under Spanish law is a different question to which I shall revert. For the present, what matters is that Professors Ramos, Mr Diaz-Bastien and Professor Cortes were all agreed that article 134(1) identifies the way in which a Spanish company's will requires to be formed and expressed, if it is to pursue liability proceedings in its own name against its actual or former directors for their acts as such. If a resolution under article 134(1) is a requirement of the valid formation and expression of a company's will to bring proceedings within the scope of article 134(1), the position when no such resolution has been passed has analogies with that arising under English law when persons without authority to act on behalf of a particular company purport to give instructions for the institution and pursuit of proceedings by the company. The distinction does, however, exist that under Spanish law the proceedings are treated as valid, to the extent that they may be dismissed as against the company at a preliminary stage for lack of a resolution, whereas under English law the issue is treated as involving the legitimacy of the solicitors’ conduct and requires to be raised at a preliminary stage by an application against the solicitors for acting without authority, which if successful will lead to the dismissal of the proceedings brought purportedly (but not actually) on behalf of the company. The implication of this distinction may be that, under Spanish law, the absence of a resolution under article 134(1) is treated as a preliminary defence to directors' liability proceedings by the company, rather than as having the consequence that the company is not present before the court at all or that its lawyers are acting without the company's instructions.

I turn to the scope of the claims to which article 134(1) applies. "Liability proceedings against the directors" refer to proceedings to enforce the duties of directors "as such" laid down in Spanish companies legislation. In respect of acts prior to 1st January 1990, article 79 of the Act of 17th July 1951 imposed such liabilities only for damages caused to the company's financial position by the directors' "malice, abuse of powers or serious negligence". After that date, article 7 of Law No. 19 of 25th July 1989 (now article 133 of a consolidated text) imposed liability for "acts contrary to the law or the Articles of Association, or acts carried out without the diligence with which they ought to perform their duties". Under article 949 of the Commercial Code, company claims to enforce such liability on the part of directors lapse after four years, "reckoned from the date on which they for whatever reason ceased to hold the office of director". On the expert evidence before me, article 134(1) applies only in respect of company claims to enforce director’s liability as such. It is incapable of assisting non-directors such as Mr Soler, or any of the companies which have pleaded article 134. But it has been held in the Supreme Court (decision of 1st December 1993; Ar. 9480) that the genuine nature of a claim may not be "masked" to avoid the requirement of article 134(1) "by recourse to an action under article 1902 of the Civil Code, disregarding that all liability of directors for their acts as such .... is subject to specific rules of liabilities in .... the Public Limited Companies Act". To attempt to mask the genuine nature of the claim in this way would, according to Professor Cortes’s report, part 2.6, be "a genuine legal sham". A question arises how far this goes. In his report (part 4 and third conclusion), Professor Cortes concluded that article 134(1) would apply to a claim brought to obtain compensation for damage and losses caused to the financial position of the company by a "conspiracy" of the directors among themselves and/or with other persons to defraud and/or damage the company". The basis was that under Spanish law conspiracy is one manifestation of wilful misconduct, liability for which is, as against directors, enforceable through the company claim for liability against them. He said in section 4.2:

"The illegality of the act derives either from its violation of the law or the Articles of Association, or from having been carried out without the diligence due:

‘The directors shall be liable to the company, to the shareholders and to the creditors of the company for any damage they cause through acts contrary to the law or the articles of association, or acts carried out without the diligence with which they ought to perform their duties.’ (article 133.1, L.S.A.)”

Professor Ramos agreed with Professor Cortes's third conclusion. It was also put to Mr Diaz-Bastien and he agreed that article 134(1) was only relevant to the extent that the claims asserted or raised in England constitute "what Spanish lawyers call a company claim or a company liability claim to which Article 134 is capable of applying". But, in response to the proposition that "a company liability claim is a special form of action under Spanish law, and one which exclusively regulates claims against company directors for their acts as such", Mr Diaz-Bastien said that, according to the Spanish Supreme Court's decision of 1st December 1993, the one and only legal route by which the company could claim such liability from directors was "the exercise of the action of 134 of the law for companies", and that one could not circumvent article 134(1) by bringing a claim under, in that case, article 1902 of the Civil Code (concerning extra-contractual liability).

My own view is that the reference in article 134(1) to the “company claim for liability for directors” is to a reference to the conceptual basis of directors’ liability under Spanish law, and under articles 133 and 127 in particular in the Companies Act 1989.  It does not embrace or affect any different legal basis of claim which may be recognised or allowed under any other legal system (except in so far as that legal system itself looks to and applies Spanish law). Nor is there anything to show  that the Spanish concept of “genuine legal sham” extends to any separate legal basis of claim open under any other legal system. It too is a concept regulating claims under Spanish law. I therefore view article 134(1) as restricted to claims under Spanish law. 

It is therefore of potential significance whether and to what extent GT’s claims against its former directors are subject to Spanish law, since to that extent the plaintiffs have to show compliance with article 134(1). The point is of especial relevance in relation to GT’s claims for conspiracy and dishonest assistance, and I shall return to it in sections V.1(e) and (f) and V.3(b). At this stage, I note that if, for the purposes of conspiracy under English law, it is necessary to establish actionability in Spain, then it is immaterial on what legal basis the matter is actionable there, provided that it is civilly actionable on one basis or another. Mr McGhee for Sheikh Khaled did not suggest the contrary, relying (in support of his submissions that the matter was not actionable in Spain) merely on non-compliance with articles 134(1) of the Companies Act and article 5.4 of the Law of Suspension of Payments.

In relation to claims falling within article 134(1), whether the absence of a prior resolution is treated as involving absence of authority or a preliminary defence, the question arises whether the defect can be remedied by a subsequent resolution passed during the proceedings, before the defect has led to any dismissal.

Mr Boswood submits that this is for English law to determine. If one treats the problem as one of lack of authority on the part of English solicitors, Baker & McKenzie, to bring the present English proceedings, it certainly has an English element. It is a question of English law whether English proceedings, brought by solicitors without actual authority, are capable of being ratified by the party on whose behalf they were so brought. That is well established: see Presentaciones Musicales S.A. v. Secunda [1994] Ch.271, where Dillon L.J. with whom Nolan L.J. agreed said at p.277:

"It is well recognised that where a solicitor starts proceedings in the name of a plaintiff - be it a company or an individual - without authority, the plaintiff may ratify the act of the solicitor and adopt the proceedings.  In that event, in accordance with the ordinary law of principal and agent and the ordinary doctrine of ratification the defect in the proceedings as originally constituted is cured: see Danish Mercantile Co. Ltd. v. Beaumont  [1951] Ch. 680, since approved by the House of Lords in Alexander Ward & Co. Ltd. v. Samyang Navigation Co. Ltd. [1975] 1 W.L.R. 673.  The reason is that by English law ratification relates back to the unauthorised act of the agent which is ratified; if the proceedings are English proceedings the ratification which cures the original defect, which was a defect under English law, must be a ratification which is valid by English law.”

Roch L.J. likewise concluded at p.283B-H that:

".... the validating of the act of commencing proceedings by later ratification by those who clearly have authority to do so under Panamanian law on behalf of the plaintiffs must be a matter for English law."

In his report, Professor Cortes expressed the opinion that:

"In fact, under the Spanish rules of procedure, the parties cannot ratify illegal or invalid legal proceedings, because they contain basically judicial acts, which have been carried out by a judicial body, which is in its very essence a Body of the Spanish State. And the validity of the acts of a Body of the Spanish State cannot depend and does not in any case depend on ratification, and therefore on the will, of an individual. .... In other words, the ratification of proceedings is a legal concept unknown to Spanish law."

I find it a little difficult to accept that Spanish law knows no conception whatever of ratification in respect of Spanish legal proceedings. Indeed, Mr Carreras, in a supplementary "opinion" dated 23rd February 1999 which he submitted after he had given his oral evidence about article 5.4 of the LSP, explained the Supreme Court's decision of 10th March 1994 as a case of subsequent validation, by a minor after achieving majority, of that which a defensora judicial or guardian acting without authority had purported to do on her behalf before her majority.

But, whatever the Spanish legal position may be regarding ratification of Spanish legal proceedings, English law is clear. There is no problem under English law about ratifying or retrospectively validating English proceedings begun without authority. English law does not see any problem about allowing “the will of an individual” to determine the validity of English proceedings, although this court is of course also a body of the English state. I am here concerned with English not Spanish proceedings; and it is English not Spanish law which governs the question whether the present proceedings, if viewed as begun by Baker & McKenzie without authority, may be ratified by GT. This again led to a submission by Mr Boswood in his final submissions to the effect that Spanish law was in all aspects simply irrelevant. But it seems to me that a Spanish dimension to the problem still remains. Whether Baker & McKenzie had actual authority to begin the proceedings turns upon whether they received instructions from anyone able to give such instructions on behalf of GT. Who had such authority and in what circumstances is a matter concerning the constitution of GT, governed by Spanish law: see Dicey & Morris Rule 156(2). Likewise, whether the proceedings, if originally unauthorised, were subsequently ratified under the permissive regime of English law depends upon whether anyone able to ratify such proceedings did so ratify them. Of course, in deciding this question a Spanish court might find it of interest that English procedural law freely allows ratification of English legal proceedings.

I would add that, if (contrary to my view) one were to treat the present problem not as one of authority, but as involving a preliminary defence arising under article 134(1), that preliminary defence would also arise under Spanish law and would, as a matter of English private international law, be potentially available so long at least as the claims being considered in the English court were based on Spanish law.

It is therefore necessary, in my judgment, to consider whether, under Spanish law, the effect of article 134(1) is to prevent any company ratifying English proceedings, when ratification of such proceedings is perfectly permissible under English law, or is (alternatively) to provide a preliminary defence to a directors' liability claim which cannot be removed or cured by the passing after commencement of proceedings of a resolution approving the proceedings.

Professor Cortes's opinion in his report (part 6.4) that a non-existent resolution can never be ratified addresses an artificial question, as Professor Ramos points out in his report in response. Professor Cortes's further opinion, that, because the directors acted "as the company" and not as representatives in bringing the English proceedings, all that was possible was to pass a resolution approving future proceedings appears to depend on the force of the word "prior" in article 134(1) and upon an assumption or assertion that this must itself exclude ratification, even of English legal proceedings. If, on the other hand, the perceived problem lies in the suggested impossibility in Spain of ratifying Spanish legal proceedings or in the simple absence of representatives whose conduct could be ratified, neither aspect involves any problem under English law, which allows ratification of legal proceedings and treats solicitors acting without authority as unauthorised representatives.

The essence of Professor Cortes's and Mr Diaz-Bastien's opinion on the present issue is that the word "prior" in article 134(1) is of such force as to exclude any subsequent approval by the general meeting of pre-existing proceedings, even in England. The requirement of a "prior" resolution is, on their analysis, mandatory or imperative or part of the jus cogens, "to such a degree that it must be considered as a provision of public policy" (part 2.4 of Professor Cortes's report). It is common ground that it is mandatory in the sense that it cannot be modified by the company's articles of association. But there are, it seems to me, different senses in which, and degrees to which, legal provisions may be regarded as mandatory, or imperative - let alone as part of the jus cogens or public policy. Not every legal provision, or breach of a legal provision, carries the same weight or significance, and it appears to me that Spanish law recognises this as much as English law. There may thus be a legal requirement that a company should pass a prior resolution. But it does not necessarily follow that article 134(1) intends to provide, or has the effect of providing, that a failure to pass such a resolution cannot ever be retrospectively cured - even in relation to Spanish proceedings and, all the more I would have thought, in relation to English proceedings. Professors Cortes’s and Mr Diaz-Bastien's reasoning for so concluding appears to consist largely of assertion based on the word "prior" without taking due account of the general aim of article 134 (to facilitate the bringing of proceedings against directors) or the sense (or lack of sense and convenience) of the result for which they contend. Professor Cortes cites J. Quilano, La responsibilidad civil de los administradores de la sociedad anonima, for propositions that, firstly,

"taken as a whole, the legal rules governing liability, both in terms of their literal content and their intended purpose, would be characterised as pertaining to public policy, which, consequently, implies their mandatory nature"

and, secondly, that the rules for claims for liability against directors "do not allow conventional derogation". These statements have a clear application to attempts to exclude or qualify directors' liability. It is not obvious why they should have any application in a case such as the present, where the company has been caused to bring proceedings, where the shareholders have never objected and have in April 1996 indicated - or sought to indicate - their will that the proceedings should continue, and where no-one would it seems benefit (except the directors and, probably, lawyers) if the proceedings were held to be invalid or were dismissed and had to be restarted.  What possible purpose this could have in terms of the Spanish Companies Act or otherwise escapes me.  Professor Ramos put the matter in his report (part VIII(3)(b)) in a passage which I find persuasive and from which I have already quoted part:

"It is not possible to derogate from the system imposing civil liability on directors. The Law ensures that the method by which proceedings are brought should always be free from obstacles, assessing the standing to sue of those who might bring proceedings. However, it would be contrary to the purpose of the law if the requirement of the proceedings [the Shareholders' resolution] could not be derogated from. It must be accepted that the purpose of the Law is to facilitate the enforcement of liability and not to create formal obstacles, which could be regularised easily. In this sense, the theory supported by [Professors Cortes and Rojo] would be contrary to the legal system, relying on a non-essential requirement."

In support of his opinion, Professor Cortes (in part 7.1) relies on article 6.3 of the Civil Code, which, he says, leaves no doubt that the actions of GT's directors in initiating the present proceedings and all "juridical acts" in violation of article 134(1) are "absolutely null and void". It is, as Professor Ramos points out (part VIII(6)) not entirely easy to see how this reconciles with Professor Cortes's view expressed elsewhere that legal proceedings commenced without a prior resolution are not themselves void. That may however be a minor point, since it is clear that Professor Cortes regards such proceedings as doomed to failure. For present purposes, it is relevant to note that even Professor Cortes includes in part 7.2 of his report the following hint of flexibility in the principle which he identifies:

"However, as stated by Gullon Ballesteros in [Comentario del Codigo Civil, I, Madrid 1995] there is a tendency in the case-law to weigh the importance of the violation committed by the void act when determining the effects of the nullity considered broadly."

Professor Cortes does not however examine this case-law or undertake any such "weighing" exercise. Professor Ramos, on the other hand, does so in some depth in part VIII(4) of his report, the whole of which I find instructive. I will only quote a few passages:

"Even if one assumes that the requirement of a resolution of the General Meeting is a mandatory provision, which it is not, it is certain that the initial absence of such a formality could not result in total nullity.

Article 6.3 C.C. is a more flexible provision than the Professors suggest. That provision states:

‘Any acts contrary to a mandatory and prohibitive provision are void, unless the provision itself provides that a particular breach shall have a different effect.’"

Professor Ramos says that "the most authoritative Commercial Doctrine" is reflected in this passage from Uria-Menendez-Munoz's "Comentario al regimen de las sociedades mercantiles" (Madrid, 1992, V, p.317):

“However, one cannot underestimate (to avoid an "excessively strict" interpretation of the Law of 1951, as emphasised by the Supreme Court (see STS 7/2/1994) the well known legal principle that the rule established in art. 6.3 CC must be interpreted according to flexible, not rigid, criteria.  Thus any inconsistency with the Law or any absence of legal formalities which may be simply incidental in relation to the act in question does not have to carry the maximum sanction of nullity.  This sanction is only applicable when there are important factors present which characterise the act as a grave breach of the Law, or moral or public policy.”

Professor Ramos goes on to say that the case law is equally conclusive, citing the following analysis by the Supreme Court in its decision of 17th October 1987 (A 7293):
 
“This Court when considering the text of paragraph number 3 of art. 6, which has a precedent in paragraph number 1 of art. 4 of the old CC, has recognised its importance by finding - S. 1-3-1934 (735) - that it permits the remedy of fundamental or serious committed in legal or procedural acts - as for the latter, see arts. 238-243 LOP; however, although [this Court] recognises the above, it has felt compelled to limit its scope, establishing - SS 19-10-1944 (A1176) and 28-1-2958, (A554) - that this provision only formulates a legal principle of a very general nature - judgments, inter alia, of 8-101963 (A4072), 22-3-1965 (A1904), 1-8-1966 and 8-3-1966 (A304), 19-1-1967 (A182), 31-5-1968 (A3746), 14-12-1971 (A5237), 30-6-1978 (A2626) and 8-6-1979 (A247) - which means that it must be interpreted with flexible, not rigid, criteria, therefore not meaning that any inconsistency with any law must always carry the maximum sanction of nullity nor that it is necessary, for an act in breach of the Law to be valid, that such validity is expressly established in the Law.  This legal provision - ss.17-2-1964 (A1152) and 28-7-1986 (A4621) cannot be used indistinctly to determine whether or not an act is void, but acts in breach of the Law must be classified in three different groups: first Acts whose nullity is based on a specific final provision of a Law, making it obvious that in such a case, the nullity must be claimed even "ex officio".  Second, Acts in breach of a law, which, regardless of that breach, admits the validity of the said "contra legem" acts, and Third, Acts in breach of or contrary to a legal provision which does not expressly mention anything about its nullity or validity.  In this case the Court must be extremely careful in using a power which, to a certain extent is discretionary, by analysing the nature and aim of the provision breached, and the nature, motives and circumstances and foreseeable effects of the acts, to conclude that the said act is a valid one, regardless of the breach, whenever the minor nature of the breach so recommends or allows, or to declare it void wherever there are important reasons to describe the act as a serious breach of the Law, the moral or the public order, being affected by what the Code calls "causa torpe".  This doctrine is completed by that of the partial nullity of agreements where only parts of it are in breach of the Law, and where it is certain that the agreement would have been made even without the void part-ss. 10-10-1977 (A3895) and those quoted in it and, finally, of 4-12-1986 (A7219).” (passage italicised for emphasis)

Professor Ramos's concludes in part VIII(4)(c):

	"(c) In the light of this Doctrine and Jurisprudence, it would seem obvious that the absence of the requirement under Art. 134.1 LSA does not make the proceedings brought before the London Courts an absolute nullity.  Art. 134 LSA does not contain any provision which sanctions the absence of the General Meeting's resolution with absolute nullity.  If one considers the object of the provision - supporting claims for liability and the purpose and circumstances of the case - GT wants to bring the action - one must conclude that there would be no significant reason to invalidate the actions brought by the Company.”

In part VIII(5), Professor Ramos then says:

"One eventually sees how the provision, which is in theory the most strict provision in Spanish Law, is interpreted flexibly by Doctrine and case law. It is clear that in our legal system, cases of absolute nullity are judged restrictively, due to obvious reasons of procedural economy. In Substantive Law there is strong authority for the conservation of useful acts, as I have highlighted above (VII, 3-7). I have already explained how, in the field of company law in particular, this Doctrine is applied to void resolutions without any difficulties (Supra VII, 7)."

I shall not go through all the examples which Professor Ramos takes from both substantive and procedural law. He relies upon them, I understand, to illustrate the general approach of Spanish courts, rather than as directly covering the present problem which, as I have said, is not covered by any direct Spanish authority. In that respect, they do, it seems to me, support Professor Ramos’s general thesis that the Spanish courts would be likely to adopt a flexible and proportionate approach to the present issue, even in relation to Spanish legal proceedings and, I would expect if anything, the more so in relation to English proceedings. It is true that, in his oral evidence, Professor Ramos agreed that one example which he took, that of ratification of the acts of an agent acting without authority, was "completely different" from the present situation. But the underlying reason why he said this was, as I understood, him because of the view - already expressed at part VII(5)(d) of his report and repeated in evidence at Day 39 page 107 - that absence of a prior resolution under article 134(1) is under Spanish law an instance of procedural incapacity, rather than a matter of substantive law.

Another case, cited by Professor Ramos in part VII(9), is the Supreme Court's decision of 10th March 1994. The facts were that proceedings begun as plaintiff by the defensora judicial (Dona Josefa) of a minor (Ma. Dulce) were in fact outside the scope of any authority which the defensora judicial had to represent the minor. Nevertheless, after achieving her majority, the minor took up the proceedings and had herself substituted for the former plaintiff. The court held that:

".... the conduct of the minor, rectified the absence of power. It would be absurd, contrary to procedural economy and the right to a trial without undue delays (art. 24 Constitution) that the ground of appeal should be allowed and Ma Dulce required to bring the same action against Mr F. and her mother Ma Jesus."

In the course of his evidence, I suggested to Professor Ramos that the case of a minor growing up fell within the principle discussed in part VII(10) of his report. Professor Ramos disclaimed any connection, with justification as it now seems to me. In part VII(9) he was discussing a different principle - one of substantive law, based on the authority of Chiovenda's Principii de diritto processuale civile (3rd ed. Naples, 1923, p.150), whereby the modern Spanish judge can and should decide litigation on the basis of all the material before him at the conclusion of the case, and should not exclude material arising subsequent to the claim. It would be wrong to treat Professor Ramos, when he disclaimed any connection between this and the principle involved in the decision of 10th March 1994, as withdrawing reliance on the decision of 10th March 1994. It represents, as it seems to me, a relevant example of the Spanish courts apply the principle of procedural economy and recognising that initially defective proceedings may subsequently be rectified. The defendants seek to draw a rigid distinction between the situation before the court on 10th March 1994 and the present case. Proceedings brought in the interests of a minor by a defensora judicial acting without any authority are, they submit, conceptually quite different from proceedings brought in the name of a company without a proper resolution. The element of unjustified representation is present in the former, but not the latter. Quite apart from the element of unjustified representation by Baker & McKenzie as GT’s solicitors which is inherent in the manner in which the defendants primarily put their case, I am wholly unpersuaded that the very technical distinction on which the defendants rely would really appeal to or represent the basis of a Spanish court's resolution of the present issue. I discern in the body of modern Spanish authority cited by Professor Ramos a more flexible and proportionate response to such problems.

One more example of this flexibility, again no doubt not directly applicable but relevant for its general approach, is found in the decision of the Audiencia Provincial of Barcelona (SAP, Barcelona, 14th February 1992, Rev. Jur. Cat. 1993, II, p.452). The case concerned the powers of receivers of companies in bankruptcy under article 1091 of the Commercial Code ("CCo") of 1829, whereby

"The Receivers will also be able to continue with the civil proceedings which the Bankrupt would have filed before falling into Bankruptcy, and advance the resolution of claims against their Debtors. However, they will not be able to attempt any other kind of judicial proceeding for the business or the interest of the bankruptcy, without the prior knowledge and authorisation of the Commissioner."

Despite the requirement of "prior" authorisation, the Barcelona court held:

"Once the "legitimatio ad processum" of the receivership is recognised, the absence of the authorisation by the Commissioners does not necessarily suppose the nullity of the proceedings, since not all breaches of Law incur the extreme sanction of the voidness of absolute rights, and without prejudice to the fact that other effects could cause this absence (as in the case of insufficient "postulacion" (procedural representation)) it is true that rectification should have been possible under the third rule of art.693 of LEC with the consequence of rectification during the proceedings."

According to part VI(4) of Professor Ramos's report, defects in procedural representation can also be rectified at any time.

Professor Ramos also referred in part VII(7) to the provisions of article 115(3) of the Spanish Companies Act allowing the correction or replacement of a defective resolution by a valid resolution. It is argued by the defendants that these provisions count against, rather than in favour of, Professor Ramos's approach - on the basis that the Spanish legislature has catered expressly for defective resolutions, but failed notably to cater for complete failure to pass any resolution at all. However, as Professor Ramos pointed out in his report and evidence, article 115 applies as much to void resolutions as to merely voidable. When interpreting article 134(1), it seems to me that article 115 does give insight into the general policy of the legislation and that it militates against an interpretation which precludes the passing of a rectifying resolution during the course of proceedings begun without a prior resolution.

It is not in my judgment ultimately decisive whether the matter is under Spanish law viewed as involving a question of procedural capacity or a preliminary issue of a limited substantive nature. Whichever it is, I do not consider that the Spanish courts would treat article 134(1) as intended to preclude the possibility of rectification or regularisation, by the passing of a subsequent resolution, of proceedings begun without a prior resolution. The conclusion I reach is that such ratification or regularisation would be permitted and recognised in relation to both Spanish and in any event (which is what matters here) English legal proceedings.

That being so, the defendants submit that the resolution passed on 29th April 1996 should still have appeared on the agenda for the relevant meeting, and was invalid because it did not. As a general principle, Spanish law does require resolutions to appear on the relevant agenda. The Supreme Court in authorities to which Professor Cortes refers (part 6.7.1) has held that the agenda must be drafted so as to allow the matters to be transacted to be determined unambiguously, and that the general meeting cannot adopt valid resolutions on matters not so set out. Article 134(1) is, however, a notable exception to this principle. The reason is clearly to facilitate liability claims against directors. Otherwise, as Professor Cortes said (Day 44, page53):

"since the agenda is established by the directors, then the directors would just keep putting things off, procrastinating, putting obstacles, and it would be necessary to call the General Shareholders Meeting by judicial means".

Professor Cortes went on to suggest that, in the context of ratification, the resolution should appear on the agenda in order to protect the right of the 5% minority mentioned in article 134(2). I can well understand that any resolution to settle or waive claims against directors under article 134(2) would have to appear on the relevant agenda. Otherwise the relevant minority would not have the opportunity of registering its opposition. But that provides no reason why either a prior or a subsequent resolution to pursue such claims should appear on the agenda. Article 134(1) expressly provides that such a prior resolution need not so appear. If, as I have concluded, article 134(1) permits the absence of a prior resolution under article 134(1) to be rectified by a subsequent resolution, it would seem, as Professor Ramos indicates, illogical to reach a different conclusion in respect of a subsequent resolution. It is true, as Mr McGhee points out in his submissions, that the reason for abrogating any requirement for an agenda item (reluctance on the part of directors to include such an item on the agenda) will probably not have the same factual force if current directors have already purported to commit the company to proceedings against other directors. That is no doubt so on the particular facts of this case. But it would not necessarily or always be so.  It would depend who were, or were claiming to be, directors at the time of the resolution. In the absence of a prior resolution, directors against whom proceedings were purportedly brought might still even be exercising, or claiming to exercise, their functions. The dominant consideration appears to me the general purpose of facilitating the bringing of proceedings against directors. That leads as much to the conclusion that, if ratification is permissible, no agenda item is necessary in respect of a resolution ratifying existing proceedings as it does to the express provision in article 134(1) whereby no agenda item is required for a prior resolution.

Finally, it is necessary to consider the defendants' submission, which applies only in relation to the new proceedings begun on 24th May 1996, that the resolution of 29th April 1996 was in terms which cannot constitute valid authority for such proceedings under article 134(1). Two related points are made: (1) the resolution did not identify the directors against whom the fresh proceedings were to be begun; (2) it purported to delegate to current directors the question what action was to be brought against which directors or former directors in what jurisdiction. Professor Cortes, supported in general terms by Mr Diaz-Bastien, supports these objections by reference to the provision in article 134(2) that a resolution to institute or settle an action will constitute a dismissal of the directors involved. Unless the resolution identifies against which directors liability proceedings are to be undertaken, how, it is asked, can it be known which directors have been dismissed? In the present case, it is pointed out that Bruce Dawson was a director until 1992 who has not been made a defendant in any proceedings.

Professor Ramos says in response that such resolutions are generally formulated in wide enough terms to cover any possible actions that may be appropriate, that nothing in article 134 requires a precise identification of the claims which may be made or the defendants - matters which may require investigation - and that, taken against the background of the existing English proceedings, the actual resolution passed was on any view in quite sufficiently specific terms.  Professor Cortes accepted that Professor Ramos was not wrong in stating this, but said that it would be too vague if the company's manifestation of its will to pursue its directors simply took the form of a resolution to take "any type of action" for "any type of behaviour" of its directors. I can understand that. But a little later Professor Cortes appeared to me to revert to a more precise requirement, namely that the resolution should determine "directly or indirectly, if it is established against what persons the proceedings are brought, and for what concrete facts you are demanding liabilities". But nothing in article 134 appears to lend support to Professor Cortes's suggestion that the resolution must serve as a sort of short-hand claim form, identifying the concrete facts relied upon. I would have thought that would be a very unsatisfactory principle. It would leave it open to directors, whose defaults or defalcations had only been partially discovered, to argue that the resolution was invalid or that the proceedings should be limited in scope, because at the time of the resolution "the concrete facts" were not identified in the resolution.

The objection that the resolution should identify the directors in order that it might be known who was or were dismissed under article 134(2) has greater logical rigour. But Professor Ramos's more pragmatic approach seems more likely to represent day-to-day practice in Spain. One matter which appears clear on any view about the resolution of 29th April 1996 is that it intended to authorise the commencement and pursuit of fresh proceedings mirroring those already purportedly in progress since 1993. It is true that it was also couched in terms which could embrace wider or modified proceedings. But it seems to me improbable that a Spanish court would treat the whole resolution as invalid on that account, or would refuse to recognise it as a sufficient authority for fresh proceedings, mirroring the 1993 proceedings already in existence, such as were commenced pursuant to the resolution on 24th May 1996. The reality is that all former directors against whom any action might be taken had already ceased to be members of GT's board. Indeed, the board had been reconstituted on 5th January 1993 so as to consist of only two new directors. Further, those former directors against whom the 1993 actions were in progress can - or would, if they ever read the resolution of 29th April 1996 - have had no doubt that GT's intention was to pursue fresh proceedings against them along precisely the same lines as those already on foot. No suggestion to the contrary has been made on behalf of any such director before me. The points raised on the invalidity of the resolution are, as Mr Diaz-Bastien acknowledged, "very formal ones and very technical criticisms of the correctness of the resolution". In context I find them unpersuasive. I conclude that the resolution of 29th April 1996 was in terms which validly authorised the proceedings begun on 24th May 1996.

III.3. Article 5.4. of the Law of Suspension of Payments
Following a board resolution of 29th November 1992 GT applied to go into suspension of payments under the Law on Suspension of Payments of 26th July 1922 (the "LSP"). By order of 10th December 1992, confirmed on 16th February 1993, the Court of First Instance No. 20 of Madrid admitted the application for consideration. Judicial receivers were appointed and any actions against GT were suspended. But the Court did not at that stage (as it could have done under LSP, article 6 - see below) impose any limits on GT's power to administer its assets and management. On 14th April 1993 the writ in action 1993 Folio No. 624 was issued. GT was declared to be in a state of "definitive insolvency" by the Court on 12th May 1994, a declaration which was ratified by resolution on 25th May 1994. By order of 3rd March 1997, gazetted on 24th March 1997, Court No. 20 approved the agreement of GT's creditors, so lifting finally the suspension of payments.

Articles 5 and 6 of LSP provide as follows:

“Article 5.
The following will be the duty of the receivers of the suspension of payments proceedings:

1.  To inspect the suspended debtor's book and to ensure that after the note of submission mentioned in section 3, whatever dealings are carried out are recorded, in legal form, therein.

2.  Audit all and any dealings the suspended debtor may make in accordance with the Law, requiring him to verify the cash balance every day.

3.  Report to the Judge on any important matters as occur with respect to the suspended debtor and his business for such rulings as are appropriate in safeguard or protection of the creditor's interests.

4.  Report to the Judge on the appropriateness of such claims as the suspended debtor seeks to institute in safeguard or enforcement of his rights in relation to a third party.

It will also be the receivers' duty to propose the bringing of actions appropriate to the interest of the suspended debtor's assets, either on their own or on any creditor's initiative, being able, with the Judge's leave, to bring them on their own if so warranted in the interest of the suspension.

Article 6.
Until such time as the agreement is approved by the creditors in any of the ways established in articles 14 and 18 of this Law, the suspended trader shall maintain the administration of its assets and management of its business, within the limits prescribed by the Judge in each case, based on a preliminary report which the Receivers shall present on this point, thus enabling it to take the necessary precautionary and security measures and so attain at the suspension and substitution of the trader, manager or Board of Directors. While no decision is taken on this matter, the suspended party shall adjust its activities to the following guidelines:

1.  It shall carry out, with the receiver's consent, any collection of monies due, irrespective of the amount and source, together with any transaction of acceptance, endorsement or objection of commercial effects.

2.  It shall also require the Receiver's agreement for every obligation which it may intend to enter into, and to carry out any contract or payment.

3.  It shall continue, again with the Receiver's agreement, its ordinary business operations, proceeding with the sale of assets, goods or merchandise necessary for the interested parties' mutual convenience, or because of the impossible, prejudicial and high costs of preserving these.

The suspended party carrying out any of the activities set out in this article without the Receiver's consent or agreement, or making any payment without the express authorisation of the Judge prior to the appointment of the Receivers, shall incur liability as established in article 548 of the Criminal Code, and any acts which it carries out, or contracts it enters into, will be null and void.”

The defendants contend that there was a failure to comply with article 5.4 and that this failure, although article 5.4 refers to the receivers, affected and affects GT’s ability to pursue the present proceedings. Compliance, they submit, required not merely a report by the receivers to the supervising judge of Court 20, but also his express consent to the proceedings, applied for and manifested, moreover, in a formal written judicial ruling. Non-compliance, they submit, undermines GT's capacity or "personality" under the law of its incorporation, so as to invalidate any proceedings of any nature anywhere, and does so in a way which cannot be rectified or affected by the fact that GT is now no longer in suspension of payments.

As a matter of fact, there is no dispute - and on the evidence before me I in any event find - that prior to the commencement of action 1993 Folio No. 624, GT's receivers reported on the nature of the proposed proceedings to the supervising judge of Court 20 in Madrid. They had received from the plaintiffs' then solicitors, Stephenson Harwood, a Confidential Memorandum and a document entitled "Brief Details of the Claims", with a request that they sign giving their consent. Between 4th and 10th March 1993 they met the judge and informed him of these documents and of the intention to commence proceedings. On 18th March 1993 they returned their own signed consent to Stephenson Harwood.

GT's case is that all that was required under article 5.4 occurred when the receivers reported to the supervising judge on the proposed claims. The judge did not raise any objection. Nor did he then or at any relevant stage impose any limitation on GT's power to pursue such claims. In GT’s submission, article 5.4 does not require receivers to obtain the judge’s positive authorisation, and still less does it require any written procedure or ruling. In any event, GT submits that it retained under article 6 full power to pursue the relevant claims for its own benefit, at least so far as it had the receivers' consent, which it had. Further, even if (contrary to these submissions) there was some defect in what occurred, it related to a matter which was one of procedure and/or which would not, even under Spanish, let alone English, law, nullify the whole proceedings. Finally, if necessary, any such defect was cured when GT ceased to be in suspension of payments and pursued the present action.

Here too, I am faced with a series of points of some technicality involving the proper interpretation of a Spanish statute against a more general background of Spanish legal principles. I heard expert evidence from Professor Ramos for GT and Mr Carreras for Mr Folchi. Mr Carreras's original report appears to me open to the criticism that it contains a selective citation of authority, omitting at least two cases of relevance about which Mr Carreras acknowledges that he was aware and one case of which he was unaware; that it does not set out or do more than briefly advert to article 6 or therefore adequately examine the overall scheme established by articles 5 and 6; and that its reasoning regarding the possibility of correcting any omission under article 5.4 is unimpressive. In contrast, Professor Ramos's report, in this area of the case also, gave a comprehensive and helpful analysis of relevant principles and case-law. But his oral evidence suffered, in this area particularly, from the fact that he gave it without an interpreter. It is also open to legitimate criticism, both for raising a suggestion not made in his report (viz. that a receiver did not necessarily have to make any report under article 5.4 at all but only if he considered the matter sufficiently important) and for failing adequately to explain how this fitted with the wording of article 5.4. Mr McGhee is also able to criticise Professor Ramos for apparent inconsistency, in relation to the question whether judicial consent was required if the receiver did report to the judge. But the answers on which Mr McGhee particularly relies in this regard were given in the form of short assents to propositions put in cross-examination right at the outset of Professor Ramos's evidence (e.g. at Day 39 pages 10-12). It is a difficult exercise for any foreign witness with imperfect English - even one as evidently conscientious as Professor Ramos - to appreciate the full significance of such propositions. I do not doubt that when, later in his evidence (e.g. at Day 39 pages 28 and 31), Professor Ramos came to state in his own words whether article 5.4 requires any formal response from the judge, or any positive assent at all, he was expressing views which he had held throughout.

The scheme of suspension of payments provided by articles 5 and 6 allows the suspended company to administer its assets and manage its business, subject to any limits which the judge may prescribe. But certain activities, specified in article 6(1), (2) and (3), are expressly stated to require the receivers' consent or agreement, failing the obtaining of which the suspended company incurs criminal liability

"and any acts which it carries out, or contracts which it enters into, will be null and void".

Article 5 states the duties of receivers. Paragraphs (1) to (4) involve duties of inspection, of audit and of reporting to the judge in respect of the books, dealings and business affairs of the suspended company and claims which it may propose to pursue. The last paragraph of article 5 concerns claims which the receivers propose to pursue on their own or any creditors' initiative, and enables such claims to be brought "with the Judge's leave". There is a clear contrast between, on the one hand, the emphatic provisions regarding consent or agreement in article 6 and leave in the last paragraph of article 5 and, on the other hand, the limited terms of article 5.4 which, on their face (or “literally”, as Mr Carreras acknowledges in his report) require no more than a report.

Mr Carreras, supported by some statements in the case-law, asks rhetorically what purpose would be served by a mere report, and suggests that the judge's consent must therefore, implicitly, be required. But the answer to that, it seems to me, is that a simple requirement to report would serve an understandable function. Reporting is itself a discipline. The supervising judge’s disapproval of proposed proceedings brought to his attention would be likely to be fatal to their pursuit, both in practice and, as Professor Ramos said, probably in law (Day 39 pages 25-26). Further, although this was not investigated before me and is not essential for my conclusions, it would seem that the judge would have under article 6 the express power to intervene, if he wished, to prohibit or regulate the proposed claim, even though he had introduced no such limitation at the outset of the suspension.

The material before me makes clear that receivers appointed in a suspension of payments do not represent the suspended company. Article 6 provides for the company to continue to represent itself, subject to the receivers' consent or agreement where specifically required. Article 5 provides for the receivers to perform certain functions in relation to the company, but not on the company's behalf. The continued independence of will and activity allowed to the company under article 6 is an important matter which is stressed in Supreme Court authorities cited by Professor Ramos, particularly those of 5th March 1991 and 23rd October 1991 (part III(10)(3)(c) and (d)). It is true that these cases are not directly concerned with article 5.4, but the scheme which they support of continuing authority on the part of the company other than as provided by article 6, and of activity by the receivers as independent supervisors rather than representatives, tends to militate against an interpretation of article 5.4 which would make even a report by receivers to the judge a pre-condition to the company’s capacity or ability to pursue a claim in its own name.

Spanish case-law contains conflicting statements about the significance of article 5.4. I start with authorities to which Mr Carreras referred in his first report. The first is a decision of the Barcelona Territorial Court of 3rd June 1965. But two points arise on this. First, the Barcelona Territorial Court in its decision of 3rd June 1965 relied upon the Supreme Court decision of 25th September 1941 as "backing up" its conclusion that the judge's leave was required under article 5.4.  So too does Mr Carreras, who in his report says that he has found and quotes the wording of the decision of 25th September 1941 and says that it "confirms what has been held by the Territorial Court". But both the Barcelona Territorial Court and Mr Carreras in this respect misread the decision of the Supreme Court (Administrative Chamber) of 25th September 1941 - as indeed Professor Ramos points out in his report (part IV(4)(a)). The decision of 25th September 1941 does no more than refer to and reflect the obligation to report under article 5.4, before going on to refer to the need for the judge's leave under the last paragraph of article 5, if receivers are to bring proceedings on their own. The second point to note is that a successor court, the Audiencia Nacional of Barcelona, has in a fully reasoned decision of 5th April 1989, to which I refer below, arrived at the opposite conclusion to the Barcelona Territorial Court’s decision of 3rd June 1965.
 
Mr Carreras also relies, and in this case correctly, on a further Supreme Court (Administrative Chamber) decision of 18th April 1986 in support of a requirement that a plaintiff should prove both the making of a report, and the granting by the judge of authorisation for the proceedings, both requirements arising under article 5.4. Professor Ramos points out that the decision is one of the Administrative Chamber, which would not be the chamber involved in a civil case between private parties. That is however a very limited point, which might only be relevant if it could be said that different chambers had established different jurisprudence. Of much more materiality, in my view, is Professor Ramos’s submission that other Supreme Court decisions to which he refers establish a different modern approach.

I also interpose that Mr Carreras is on less sure ground in his treatment (in part C(2) of his first report) of that part of the Supreme Court’s decision of 18th April which deals with the effect of non-compliance and the possibility of rectification. I return to that also below.

Professor Ramos relies in relation to article 5.4 upon Supreme Court decisions of 9th April 1985 and 8th July 1985. The former concerned the position of a defendant company in suspension, whose attempt to rely on article 5.4 was plainly hopeless for a number of reasons. Nevertheless, the reasoning confirms that the LSP does not involve any limitation on procedural capacity, that article 5.4 is not only limited to claims where the company is plaintiff but merely requires that they be reported to the judge, and that the nullity provided by article 6 is limited to the three cases there specified. The decision of 8th July 1985 deals with the position of a company in suspension acting as plaintiff and is much closer on its facts to the present. It was not mentioned in Mr Carreras’s original report although he was aware of it. It involved an appeal for alleged procedural defect, involving objections to the capacity and legitimation of the plaintiff company in suspension of payments. The second objection was failure to provide the judicial authorisation required by the LSP. The Supreme Court dismissed this objection on the ground that article 6 preserved the company’s right to administer its assets and manage its affairs, that article 5.4 did not require the company to provide any judicial authorisation, but referred literally to the receivers’ duty to notify the judge regarding the appropriateness of pursuing any proposed claims by the suspended company against third parties and that the objection failed to say how or to what extent the suspension of payments deprived the company of powers. The Court added that the company’s behaviour appeared all the more correct since the judgment below said that the claim was brought with the knowledge of the receiver. Mr Carreras sought to confine the significance of this case to an objection based on a supposed requirement to provide with the claim a copy of a written judicial decision authorising the commencement of proceedings. That is a narrow and to my mind unconvincing view of the court’s reasoning. Mr Carreras said in evidence that the full Spanish text of the judgment would assist its interpretation in this sense, and, after leaving the witness box, he supplied a copy of the full text. Having now seen it in Spanish and in translation, it does not support Mr Carreras’s oral evidence on this point - rather the contrary. Mr Carreras also says that the words added by the Court, referring to the receivers as having consented to the proceedings, show that the receivers must not only have informed the judge but that the judge must also have given his agreement. As regards leave, that is both circular and unpersuasive. In the present case, the receivers informed the judge but did not obtain leave. Why should one assume that the Supreme Court had anything else in mind in the case before it, especially when, earlier in its reasoning and without apparent disapproval, it pointed out that all that article 5.4 referred to was literally a duty to inform?

The next authority referred to by Professor Ramos to which I shall refer is the Supreme Court decision of 11th February 1988. The second procedural objection raised by the defendants was that the plaintiff company in suspension lacked capacity under article 5. The argument evidently was that its receivers should have been the plaintiffs. The translations before me are not good (and the translation given on page 23 of the English version of Professor Ramos’s report clearly omits important words, jumping in error from one to the next appearance of the word “autorisacion” in the Spanish text. But it is clear that the Court in dismissing the objection recited two reasons, one long, one short, which are prefaced in the Spanish by respectively the words “porque, bajo un aspecto” (because, on the one hand) and “y, bajo otro aspecto” (and, on the other hand). The first reason was that the receivers had given express authority for the bringing of such proceedings. The second was that

“the only requirement for the suspended company .... to exercise the above-mentioned action is the proposal and [consequent] authorisation of the receivers, without requiring an authorisation from the judge, which is only necessary, as can be seen from [simply] reading article 5 of the Law of 26th July 1922, should the actions be exercised by the receivers, which is not the case here.”
	
Here too Mr Carreras speculates in his second report that the receivers had in fact informed the judge before the proceedings “and that the Judge raised no objection and authorised the legal action planned by the company” and in his oral evidence he suggested that the Court was only addressing the question whether it was necessary to produce the written authorisation of the judge (Day 40 page 121). Again, however, it seems to me that Mr Carreras is not facing up to the evident sense and force of the Supreme Court’s second reason. This is so whether or not the Court had strictly to make the points dealt with by its second reason and so whether or not the second reason may be regarded as obiter.

I return at this point to the decision of the Audiencia Nacional of Barcelona of 5th April 1989. The Audiencia stated clearly - with express reference to, inter alia, the Supreme Court’s decisions of 25th September 1941 and 8th July 1985 - that the “modern doctrine” is that failure by receivers to comply with article 5.4, and indeed failure by the company even to inform the receivers, in no way affects the company’s capacity to pursue proceedings, except in the three specific cases covered by article 6. The reasoning is full and cogent, and I set it out in full:

“However, modern jurisprudence, by interpreting article 5.4 of the Ley de Suspension de Pagos has declared in judgements 9 April 1985, 22 April 1987 and 11 October 1988 that what this regulation stipulated was that the receivers had a duty to notify the judge regarding the appropriateness of any claims filed by the suspended party against third parties, without alluding in any way - judgement of 8 July - to the powers which the suspended party has, since in principle, it maintains the right to administer its assets freely and any kind of ordinary lawsuits may be filed against it without calling the Receivers to the litis.  And even if the Receivers are not notified, this is not a case for applying article 5.4 of the Ley de Suspension de Pagos, nor does it cause a lack of standing to be a party therein or for lack of standing to be alleged - judgements - of 25 November 1969 and 9 April 1986, as a defect sanctionable under article 533.2 of the Ley de Enjuiciamiento Civil.  The only thing which might be queried is whether filing a claim without the agreement or authorisation of the Receivers is a defective action which lacks effectiveness under article 6 in fine.  This theory must also be rejected because [the claim] could only be null and void if it was described as one of the cases expressly established in the preceding three paragraphs of the regulation, among which the one we are studying here is not included.  Moreover, as established in the Judgements of 22 April 1947 and 11 October 1988, these would be actions which the receivers or, as the case may be, the creditors might contest, if they were damaging to them.  Finally, we must record that since this is a procedural issue, it can be amended.  And during the time the evidence was being gathered, the suspended party presented a document recording the agreement of the receivers (page 138), although the signature appearing on the document was not ratified in the presence of the court, although as we have said above, the fact that it was lacking would not mean that the alleged defect existed.”

Another decision of the same court on 9th November 1989 states that suspension of payments “does not cause a lack of capacity as does bankruptcy, but rather ... an auctoritas impositio”. On the other hand, a still later decision of the Audiencia Nacional of Barcelona dated 20th February 1992 contains a dictum in the opposite direction. I set out the whole of the passage with which I have been supplied in a rather poor translation in order to show its context and weight:

“The first ground of the appeal that have to be analysed is that of the procedural exception of lack of capacity of CGA, S.A. to be a plaintiff, that arises from its Suspension of Payments.  Through the evidence gathered by decision of the Bench, that is, through the certificate issued by the Secretary of the Court of First Instance of Barcelona number 1, the Bench has confirmed that in the File Court number 991/86 the said company applied for the suspension of payments order on 27 October 1986, admitted by the Court by "Providencia" of 29 October 1986, that appointed a sole Receiver, and that the Agreement of the suspended company and its creditors was reached on 15 June 1988.  As far as the first ground of the appeal is concerned, it has to be taken into account the special Law of 26 July 1922 on Suspension of Payments of merchants and mercantile companies, in which text it appears very clearly the limitations to the capacity to operate of the suspended; a) The Judge will order that all the operations and offices of the suspended are intervened; b) The Receivers have to intervene (control) all the operations that the suspended may do in accordance to the law, having the capacity to bring the actions that are convenient to the assets of the suspended, either by their own initiative or by petition of any of the creditors, and although the suspended may also bring those actions by itself, if that is convenient to the good of the said assets.  "is necessary the Court's leave", c) The suspended will keep the administration of its assets and business, with the limitations that in each particular case the Court may introduce, and while this is still to be decided the suspended will operate in accordance to the following rules: every payment received by the suspended, regardless the nature of the payment, have to be intervened by the Receivers (1st Rule article 6), and the same apply to the ordinary operations of the trade of the suspended, and to proceed to the sell of goods or assets, and if the suspended did not comply with this and were to do any of the indicated operations without the intervention or agreement of the Receivers, the suspended will have to respond criminally speaking, and the said operations and contracts that the suspended has made shall be regarded as null and void and of no legal force.

The said rules limit the capacity to appear in Court of the suspended in order to bring actions to recover credits owed to it, as provided by the Special law of 26 July 1922, regardless the fact that the claimed credit was borne before or after the petition of suspension of payments was filed, because articles 4, 5 and 6 of the said Law do not make a distinction, and the last article making it very clear that while the Court does not provide for a new administration of the suspended, the suspended will receive any payment with the intervention of the Receivers, whatever the amount of the credit and its nature may be; and as the plaintiff has failed to give evidence on the fact that he had been authorised by his creditors or by the Court, this means that his capacity was uncompleted as expressed by the first rule of article 6, and furthermore the receivers have not amended the said defect on the capacity of the suspended during these proceedings, and therefore it is fully applicable the rule that makes the acts and contracts of the suspended null and void and of no legal force (second last paragraph in line of the said article), and with accordance with articles 1, 2, 533-2° of the Civil Proceedings Code, leading to the decision that the exception raised by C.S.A (the defendant) has to be upheld.” 

The ratio decidendi of the decision was clearly lack of capacity under and due to non-compliance with article 6: see the second paragraph quoted. But the first paragraph refers to the receivers’ capacity to bring actions that are convenient to the assets of the suspended, either by their own initiative or by petition of any of their creditors - that is clearly a reference to the last paragraph of article 5 - and then adds this:
 
“although the suspended may also bring those actions by itself, if that is convenient to the good of the said assets ‘is necessary the Court’s leave’”.

The words “and is necessary the Court’s leave” are a quotation - on their face also from the last paragraph of article 5. The reference to “actions .... convenient to the good of the said assets” appear to quote the last paragraph of article 5. But the last paragraph of article 5 deals only with actions by the receivers in their own names, not with actions by the suspended company. I find the dictum in this judgment therefore difficult both to follow and to accept. It is clearly less convincing than that of 5th April 1989, and was, as I have indicated, also no part of the ratio decidendi.

The Audiencia Nacional’s decisions of 5th April 1989 and 20th February 1992 do, however, make one common point. Both of them identify the issue before the court as, in Spanish terms, a procedural issue, and as such both indicate that it can be corrected during the proceedings.

Last but not least, I come to the most recent decision before me, the Supreme Court’s decision of 18th December 1995 (A 9141). The defendants point out, correcting Professor Ramos’s report, that the first objection raised in this case was stated by the Court in general terms, as involving breach of articles 5, 6 and 17 of the LSP, and lack of legitimation to exercise the actions, and not specifically as involving lack of a receivers’ report or judicial authorisation under article 5.4. The Court found it difficult in fact to discern whether the precise basis of objection was inadequacy of power, lack of capacity or absence of action (see paragraph (D) in its reasons). The plaintiff company had been in suspension of payments which was lifted by order of 26th January 1989, following a creditors’ agreement, which reserved the pursuit of actions to the settlement committee (presumably a committee of creditors). On the facts, it is not even clear whether the proceedings were begun before or after this order. Paragraph (E) in the reasons may suggest after. Whatever the position in this regard, the Court dismissed the objection for the following clear and all-embracing reasons:

“A) The declaration of Suspension of Payments does not produce any restraints on the legal capacity of the suspended party, who is not unable to act, as in the case of bankruptcy, because this is not stipulated in any legal provision; and so it is highlighted by, inter alia, the decision of this Court of 5th March 1991.  The powers of the suspended party have no limit other than the supervision of the Receivers, or those imposed by the Judge on the management of the business, in the Order declaring the Suspension of Payments.

B) The supervision of the Receivers does not require them to confer powers to litigate, as was stated in the judgment above, and as a result of the 1922 Law, none of whose articles establish the requirement, including those cited by the appellant.

C) The fact that Receivers have the power to propose and even bring actions advantageous to the assets of the suspended party, does not mean that the suspended party cannot pursue the actions itself, notwithstanding the fact that the Receivers can inform the judge of it, as stated in art. 5.4.

D) We cannot distinguish whether the ground alleges inadequacy of power, lack of capacity or absence of action.  If it is the former, then it should have been used in the appeal to the Supreme Court, the channel stated in number 3 of art. 1692, instead of that stated in art. 5.

If the reason for the ground is another, the matter is settled on the basis of the arguments explained above.

E) Finally, in the present case, the Suspension of Payments came to and end and together with it the performance of the Receivers.  If the agreement states rules of conduct for the suspended party which regulate the operation of a Liquidation Commission only the Commission or the Creditors can enforce the fulfilment of such agreement by the suspended party.  Third parties against which the suspended party exercises its rights, do not have such power.”

Once again, whether or not all these reasons were strictly necessary, they give a valuable insight into the thinking of the Supreme Court, with regard to the significance of article 5.4 (paragraph (C)), and a clear hint that, even if the suspension of payments had had any significance, its termination would also be a relevant consideration (paragraph (E).

The conclusions which I reach in the light of the expert evidence and material before me are as follows. First, the Spanish jurisprudence is not consistent. But I am satisfied as a matter of strong probability that, if the present case were fully argued before a modern Spanish court, from the Supreme Court down, the court would be unlikely to interpret article 5.4 as requiring anything more than a report by the receivers to the supervising judge.

I should briefly mention a suggestion which Professor Ramos introduced for the  first time in his oral evidence, namely that article 5.4 does not even require such a report in every case, and that it is up to the receivers whether they consider the matter of sufficient importance for a report. That is difficult to square with the wording of article 5.4. I do not however doubt that Professor Ramos has the experience to which he attested of acting for companies in suspension of payments and for their receivers, and of reporting to judges on proposed actions. The practice may well, it seems to me, be as Professor Ramos describes, difficult though it may be to reconcile with the precise words of article 5.4. But it is unnecessary to spend further time on this.

Secondly, whatever duty article 5.4 may or may not impose on the receivers, failure by receivers to comply with article 5.4 does not incapacitate the company in suspension from commencing proceedings or invalidate any proceedings which it may in fact commence or pursue.

The other points which remain in issue between the experts do not in these circumstances strictly require determination. I deal with them for completeness. The first is whether any report to the judge, and - if, contrary to my first conclusions above, required - any authorisation by the judge would have to be in written form. The absence of any written record is one of several matters about which Mr Carreras expresses surprise when considering the handling by the Judge of Court 20 of the present case (part B(5) of his first report). However, I prefer the evidence of Professor Ramos that the approach adopted can and will, both in practice and in law, depend on the circumstances. If receivers seek a formal legal decision approving a particular course, the judge will respond accordingly. But there is nothing in article 5.4 to require any report to be made in writing, still less to require any authorisation which the judge may choose to give to be written. It is common ground that s.120(2) of the Spanish Constitution provides that “the procedure will predominantly be oral, above all in criminal matters” while section 229(1) of the Judicature Act 1985 provides that “the legal proceedings will predominantly oral”. This reinforces the conclusion that a report may be oral. So far as any authorisation is concerned, the present point is, however, difficult to separate from the more fundamental issue, whether article 5.4 requires authorisation at all. If article 5.4 had contained a specific requirement of judicial authorisation, then Mr Carreras’s approach would evidently have had a much stronger basis. In particular, his argument that others, such as the Attorney-General, must have been intended to be able to check or challenge the leave or refusal of leave could have become more persuasive. As it is, however, his approach seems to me to lack any basis, express or implied, in article 5.4.

That leaves for consideration the question whether, if there had been any non-compliance with article 5.4 and if this might otherwise have affected GT’s ability to pursue the present proceedings, the termination of the suspension of payments could cure this or make it irrelevant. This brings me back to Mr Carreras's treatment in part C(2) of his first report of the reasoning in the Supreme Court's decision of 18th April 1986 on the effect of non-compliance and the possibility of rectification. Firstly, the passage which Mr Carreras cites regarding the suspended company's need to amplify its status (or, in his corrected version, "complete its capacity") concerns failure to obtain the receivers' consent under article 6. Article 6 contains express provisions regarding nullity, and does not appear to me to help (except by way of contrast) on the consequences of any non-compliance with article 5.4.  Secondly, although Mr Carreras acknowledges the decision of 18th April 1986 as containing support for the possibility of rectifying such a defect in status or capacity, he does not quote or, I think, give full weight to the Supreme Court's actual dicta. Nor does Mr Carreras in his first report observe that the decision of 25th September 1941 also alluded to the possibility of correction, saying:

"Since it is a fact that there is no record of any compliance with the requirements of the cited provisions of the Law of 1922 (LSP), it is clear that the claim has not been filed in accordance to the Law; and that the above mentioned defect has not been corrected."

The decision of 18th April 1986 is more specific, containing inter alia this passage:

"When in the Reply to the Claim defects which caused a lack of personality were identified, instead of correcting them in the manner stated in article 129 [of the law governing Administrative jurisdiction], first, the existence of the requirements was denied and then the correct acceptance of them by the Court was challenged."

Mr Carreras pointed out that these were obiter dicta, and suggested that the judge has probably just had the idea of exhausting all possibilities. But, although they were only obiter dicta, they are still capable of providing insight into the way in which the mind of a Spanish court would be likely to work, if faced with a situation where any defect could be said to have been rectified either by taking of the relevant step at a later stage or by its taking ceasing to have any materiality. Paragraph (E) of the Supreme Court's decision of 18th December 1995 points, as I have indicated, in the same direction. The decisions of the Audiencia Nacional of both 5th April 1989 and 20th February 1992 also demonstrate that court’s consistent view, on this point at least, that failure to comply with article 5.4 would be viewed in the Spanish context as a procedural objection which could be rectified during the proceedings.

Finally, I should say a word about the decision of 10th March 1994 to which reference has already been made. Mr Carreras treats it as distinguishable, on the ground that a lack of capacity is incapable of retrospective validation, whereas a lack of authority can be ratified. I have already concluded that article 5.4 has nothing to do with capacity, so that this argument has once again to be approached on a difficult hypothetical basis. But, assuming that one were to regard article 5.4 as introducing a requirement of prior judicial authorisation before a suspended company could validly institute proceedings, I do not find it easy to see why, if the conduct of an agent acting without authority may be retrospectively authorised, any necessary judicial authorisation may not also be retrospectively supplied. In the former situation, covered by the decision of 10th March 1994, the problem arises from a purported plaintiff’s lack of authority to represent the proper plaintiff. Until the proper plaintiff achieved her minority and adopted the proceedings, the situation was one where she (being a minor) could not claim and no-one who ever had any right to claim on her behalf was even named as plaintiff. In the latter situation, the proper plaintiff is at least named, and the alleged problem is lack of authorisation from a third party, the supervising judge. The distinction suggested as critical is between (a) retroactive authorisation by a plaintiff who could not herself have commenced the relevant proceedings which were brought by and in the name of an unauthorised person with no title to sue and (b) retroactive authorisation by the relevant third party, the judge, of proceedings commenced in the name of the proper plaintiff.  The argument that this distinction is or would be viewed as critical by a Spanish court is to my mind unpersuasive.

In summary, the dicta in the Supreme Court decisions of 25th September 1981, 18th April 1986 and 18th December 1985 and in the Audiencia Nacional of 5th April 1985 and 20th February 1992 all point one way. The tenor of much of the material before me is that the Spanish courts have, with increasing determination, sought to avoid technical objections, to allow amendments of defects which can be achieved without injustice and to preserve proceedings which can be continued without injustice rather than force parties to recommence fresh proceedings (see especially part VIII(5) of Professor Ramos’s report on article 134, and also Mr Carreras’s opinion of 23rd February 1999, part 5, although this seeks to exclude issues of capacity). If the issue arose, the conclusion that I would reach would be that the Spanish courts would, after the termination of suspension of payments, recognise the existing proceedings, even if (contrary to my previous conclusions) the lack of prior judicial authorisation to commence such proceedings during the suspension would otherwise have been fatal to their pursuit to judgment.

In the circumstances the objections raised under article 134(1) of the Spanish Companies Act and under article 5.4 of the LSP both fail.

III.4. Limitation under article 949
Sheikh Fahad and Mr Jaffar each contend that they have a defence of limitation in respect of action 1996 Folio No. 1206, begun on 24th May 1996. It is convenient at this point to consider this contention, although it involves a suggested defence rather than an objection to the whole basis of action 1996 Folio No. 1206. It is only of importance if (i) action 1993 Folio No. 624 is, contrary to my previous conclusions, incapable of pursuit and (ii) action 1996 Folio No. 1206 is itself (as I have held) otherwise capable of pursuit, having regard to the resolution of 29th April 1996. Sheikh Fahad and Mr Jaffar rely upon article 949 of the Spanish Commercial Code, providing in translation:

(Professor Cortes’s report) “The right of action against the officers and directors of firms or companies shall lapse after four years, starting from the date on which they cease to be involved in the running of the company for whatever reason.”

(Professor Ramos’s report) “Actions against managing partners and directors of companies will end after four years, counting from the date upon which they ceased acting as directors for whatever reason”

Both Sheikh Fahad and Mr Jaffar contend that they ceased to be involved in the running of GT prior to 26th May 1992 - Mr Jaffar says in 1990 and Sheikh Fahad says as from 12th February 1992 when he tendered his resignation as chairman of the KIO or from 8th April 1992, when his resignation was accepted as effective. Sheikh Khaled does not place any reliance on article 949. Mr Diaz-Bastien gives the reason in his report:

“As I understand it, Sheikh Khaled ceased to act as a director of Grupo Torras SA on 26 May 1992, and therefore any action against him expired four years after that date.”

Article 949 raises a number of questions: (i) What is its scope, in relation to the different types of claims raised in the present action? (ii) From when precisely does the four year period run?  (iii) What is meant by “cease to be involved in the running of the company” or “ceased acting as directors”, expecially in the case of a non-executive director? (iv) On whom is the burden of proof with respect to an issue whether and when a director did cease to be involved in the running, or to act as a director, of the company? Finally, there is the factual question (v) when did Sheikh Fahad and Mr Jaffar cease to act as a director of GT for the purposes of article 949?

Again, I have hear expert evidence, based on reports by Professors Ramos and Villaverde for the plaintiffs and Professor Cortes for Sheikh Fahad. My task in respect of article 949, is complicated by the fact that, by the time Professors Ramos and Villaverde were called (on, respectively, 25/26th January 1999 and 2nd February 1999), Sheikh Fahad and Mr Jaffar had withdrawn from active participation and ceased to be legally represented. Professors Villaverde and Ramos were - in consequence of Sheikh Fahad’s and Mr Jaffar’s own decisions to withdraw - not therefore cross-examined about article 949, when they gave their evidence, since (in contrast to the position relating to other aspects of Spanish law) no other defendants were interested in that article. But just as Professor Ramos was about to give his evidence, Sheikh Fahad decided to renew his involvement with the case, by a letter dated 20th and received late on 22nd January 1999 requesting that I take into consideration Professor Cortes’s report and, if necessary, hear evidence from the Professor orally. This request was pursued by further letters on 26th and 28th January 1999. It led unsurprisingly, as stated in section I.3, to objections by the plaintiffs, in view of Sheikh Fahad’s breach of my previous orders - as well as the fact that he was neither present in person nor represented by lawyers. I ruled on these objections on 4th February 1999, indicating that I would hear cross-examination of Professor Cortes. The Court of Appeal upheld that aspect of my ruling - but with the qualification that Sheikh Fahad was only entitled to have the Professor’s evidence heard if he was himself represented for the purpose. The Court of Appeal’s conclusions were, I understand, announced to the parties at an earlier date than their detailed reasons were given (which was on 19th February 1999, the day following that fixed by me to hear Professor Cortes’s evidence). Sheikh Fahad in correspondence said, without so far as I know objection from the plaintiffs’ solicitors, that his understanding was that the court had merely encouraged, not required, him to be represented in order to call Professor Cortes. I had some doubt about this. So also (as it appeared when the matter came back before me to hear Professor Cortes’s evidence on 18th February 1999) did Mr Boswood for GT. However, since Professor Cortes was by then present in court ready to give evidence, although there was no-one to call him, I received the Master of the Rolls’s permission to my hearing Professor Cortes provided the plaintiffs had no objection. Mr Boswood, in order to avoid further delay, did not pursue any objection. Professor Cortes’s reports were treated as his evidence in chief, and he was cross-examined on inter alia article 949 before leaving the witness box.

It is the duty of a party to raise and investigate by way of cross-examination any points on which he challenges a witness, expert or factual. The position arising from the most unusual circumstances which I have just summarised is that Professor Cortes, whose evidence has been adduced by Sheikh Fahad, has been duly cross-examined by Mr Boswood for GT. But Sheikh Fahad, by his own choice, did not cross-examine either of Professors Villaverde and Ramos. The fact that Professors Villaverde and Ramos did not have the opportunity they should have had to respond in cross-examination on contentious points is a matter which I have to bear in mind, when weighing the expert evidence given before me.

Against this background, I turn to the points arising on article 949. As to point (i), there is no doubt about the application of article 949 to company claims for liability on the part of directors or ex-directors, for acts or omissions as directors of the kind mentioned in articles 133 and 134 of the Spanish Companies Act 1989. It may well also apply to actions by shareholders based on contractual liability (see Professor Ramos’s report, part III(4)(2.1). But a different one year time limit under articles 1902 and 1968 of the Civil Code applies to extra-contractual claims, which may be brought by third parties or even, it seems, by shareholders. This is as much as one can get from the reports of Professors Ramos (part III) and Cortes (part 5(2)). Professor Cortes goes on to assert that article 949 “applies to the action we are discussing”. But in my judgment the most that article 949 can apply to is claims by GT for breach by its former directors of their duties as directors under Spanish law. It has no application to claims against non-directors, no application to claims by THL and no application to any claims which may be brought by GT against  its directors to the extent that such claims are not subject to Spanish law. This raises the potential question, to what extent are GT’s claims for conspiracy or dishonest assistance by its former directors subject to Spanish law.

Turning to points (ii) and (iii), article 949 refers on its face to only one starting point for the limitation period for claims against directors, that is the date “on which they cease to be involved in the running of the company for whatever reason.” But it is common ground that the starting point will be further postponed in any case where damage arises after they cease to be so involved, as a result of acts or omissions committed whilst they were involved. Professor Cortes accepts that article 949 is, to this extent. “plastic” or flexible. According to Professor Ramos (part IV(2)(4)), the governing general principle is stated in article 1969 of the Commercial Code, whereby:

“The time for lapse of all kinds of actions, where there is no specific provision to the contrary, will be counted from the date upon which they may have been exercised.”

The issue between Professor Ramos and Professor Cortes is, as I see it, is whether the date upon which a claim against a director “may be exercised” introduces any consideration of the company’s awareness of the existence of a claim. Professor Cortes says that article 949 makes specific provision, in the interests of certainty, for the limitation period to start whenever directors cease to be involved, and that this is to be taken as the date when the company “may” exercise any rights it has against such directors, unless the damage has not yet been sustained in which case there must be a postponement. That is the extent of the article’s plasticity or flexibility. He accepted in cross-examination that the application of this approach “may seem even unfair” or “a bit astonishing” in a case where, say four directors involved in a fraud on the company left the company at different dates, and, until they had all left the company, the fraud would and did remain concealed.  Professor Ramos, on the other hand, expressed the opinion that articles 949 and 1969 would allow a Spanish court to take into account the date when the damage becomes manifest and the company is able to discover it. But the passages from Suarez-Llanos, Responsibilidad de los administradores de la sociedad anonima, page 931 and Polo Sanchez, Los Administradores, page 329, which he cites do not actually go beyond the case, which is common ground, of damage arising after, from acts or omissions prior to, a director’s cessation of involvement. Professor Ramos also says that limitation under article 949 must be restrictively interpreted, referring to decisions of the Spanish Supreme Court of 8th October 1988 (A 7393) and 20th October 1988 (A 7591). I further note that, according to part II(3) of Professor Ramos’s report, article 1968 of the Commercial Code prescribes the limitation period for extra-contractual claims under article 1902 as being one year from the date upon which the company “had learned of the damages caused to their assets by the actions of the subjects”. This suggests a test of awareness under at least that article. But article 1968 is not quoted, and Professor Ramos’s summary of it may simply reflect his view of article 1969. At the end of the day, I do not find the evidence before me about the starting point for limitation especially compelling in either side’s favour. On balance, however, I am more persuaded by Professor Cortes’s analysis, namely that articles 949 establish a clear-cut (although it may be in some cases harsh) starting point, which is only qualified (by the principle in article 1969) in cases where no damage arises until later.

I turn more specifically to point (iii), which involves the meaning of the words “cease to be involved in the running of the company” or “ceased acting as directors”. Professor Villaverde’s report is here of particular assistance, and is supported by thorough citation of authority. He describes and distinguishes resignation, dismissal and expiry. It is common ground that the critical concept for present purposes is resignation. Professor Villaverde stresses the need for communication of resignation in the following passage:

“Resignation or waiver by the directors is the counterpart or compensation to the company’s freedom of revocation ..... and is configured as the unilateral contractual waiver of administration, specifically a unilateral declaration of the director of a receptive nature, insofar as it comes into effect from the moment the company is aware of it (GARRIGUES Comentario, II, 114; J. GIRO TENA, Sociedades Anónimas 356; E. POLO, Administadores, 242; F. SANCHEZ CALERO, Administradores, 462).  This means that in spite of the tone of Article 131 of the 1989 LSA (and 77.1 of the 1951 LSA), the resignation of a director comes into effect, with regard to the company, from the moment that the company is made aware, without the Board's acceptance being necessary.  Article 147.1 RRM indicates that "The resignation of the directors will be registered by means of a written notification of the director's renunciation of the post, from the director, which has been verifiably notified to the company, or by virtue of a certification of the minutes of the General Shareholders' Meeting or the Board of Directors" (we have underlined the text), from which it can be deduced that a Director's resignation is valid even though the company might wish to oppose it (see RGDRN 26 May 1992, and F.SANCHEZ CALERO, Administradores, 462) or ignore it, providing the company has been notified (RGDRN 26 February 1992).  The relevant point here is therefore that for the resignation to come into effect it is necessary for this statement of the director's wishes to have reached its destination, which is the company, and not that the Board should accept it.  Thus, as indicated by F. SANCHEZ CALERO (Administradores, 463), "Art. 147.1 RRM requires that certain formalities be observed, such as the verifiable notification of the resignation to the company, or that the submission of the resignation be recorded in the Minutes of the General Shareholders' Meeting or the Board of Directors".  From this, it can be seen that the director who resigns must ensure that the statement of his wishes is received by the company, which he can do easily by means of what the RRM calls "verifiable notification" (such as a notarised letter, for example).  If he does not send a verifiable notification, we understand that he must be able to prove that he sent his statement and that the company received it; notwithstanding the possibility of claiming liability of the party who denies having received it, when in fact he did.  And, on the other hand the notification of the resignation should contain those facts which prove the directors' unequivocal desire to resign.

As things stand, if a Director has resigned, and his resignation has not been formally accepted by the Board, it must be considered that, in principle, his resignation came into effect from the moment he notified the company and the company received the notification, so from that moment or he should not appear as a director, since once he has notified the company, his resignation is irrevocable and he is no longer a Director (F. SANCHEZ COLERO, Administradores, 463 - 464); moreover, the registration of the resignation in the Commercial Registry does not effect it efficacy, since its effects are retroactive to the moment at which the company was made aware of the resignation (F. SANCHEZ CALERO, Administradores, 464).”

Professor Ramos also cites Sanchez Calero, pages 462-3 in support of the proposition that the resignation of a director must be notified to - though it need not be accepted by - the company before it can be effective for the purposes of article 949. Professor Cortes too accepts that resignation depends on the company being aware that the director is severing himself from the running of the company.  He says:

“Resignation, like any legal transaction or act, may be express or implied.  Curiously, in Spanish corporate practice, it is not uncommon to see implied resignations, that is, with no document or written instrument, not even verbal notice, addressed to the company which expressly states the wish to leave the company.  In such cases, the resignation is deduced from the act of the Director himself and is as effective as if it had been produced by a formal notification to the company, or to the majority shareholder, or to the Directors as a group, of the desire to no longer work for the company and to no longer represent or manage the same.

It is from the point in time of the removal that the relationship between the company and the Director comes to an end (see for example the reasoning in the Judgment of the Supreme Court, Chamber One dated 8th May 1990) and the limitation period starts to run.

In the second case, that is to say, as regards the company, the resignation takes effect from the moment the company becomes aware of it, directly or indirectly, through any means possible according to whether the resignation is de facto, implied or express.  Its effect is that the Director ceases to manage and represent the company.  From this point in time the Director is not liable for the acts which the governing body carries out, because he is not a Director.”

In his evidence, however, Professor Cortes sought to extend the concept of resignation to include informing any “large” (even though not sole) shareholder. He said that would suffice. Further, he was prepared to extend it still further to cover notifying a shareholder who held only 26% or 30% of the company’s shares in circumstances where there was another larger shareholder of say 40%. This was not evidence about legal principle, but about how Professor Cortes would himself think that the relevant legal principle would apply. The answers he gave were to my mind quite unpersuasive. ignoring as they did the real distinction which exists between a company and its shareholders, certainly in any case where there was more than one shareholder, however large or small the different shareholdings.

Next I can take very shortly point (iv), the burden of proof with respect to an issue whether and when a director ceased to be involved in the running of the company. The evidence of Professor Ramos is uncontradicted. He refers to numerous authorities as establishing that it is for the director or ex-director relying on limitation under article 949 to show that he had ceased to be involved as a director more than four years before the issue of the proceedings.

I turn to the factual question when Sheikh Fahad and Mr Jaffar ceased, by resignation, to be involved in the running, or to act as director, of the company. As stated in section I.3, Mr Jaffar resigned his position at the KIO from 20th April 1990. At the same time he gave written notices of resignation from most of his directorships of subsidiaries. It was announced at an executive committee meeting of the KIO attended by Mr Jaffar in February 1990 that Mr Al-Haroon would be appointed as vice-chairman of GT in his place. But GT was one of the companies in respect of which Mr Jaffar neither prepared nor submitted any resignation. Nor was Mr Al-Haroon ever appointed as director of GT before 26th May 1992. Further, Mr Jaffar appears as a director and vice chairman in GT’s audited accounts for 1990, which he signed expressly as such under the date 21st March 1991. Suggestions put to various witnesses that a party held in Spain by another GT director, Mr Manuel Guasch, in or about spring 1990 was a retirement party for Mr Jaffar were not endorsed by those witnesses or made good by any evidence.

Although Mr Jaffar did not give evidence before me, his opening submissions identified his case as to his departure by reference to specific paragraphs in his witness statement. On that basis, there can be taken into account so far as they contain admissions. They indicate awareness on Mr Jaffar’s part that both Sheikh Fahad and Mr de la Rosa wished to maintain “continuity” by keeping him on GT’s board. At a meeting of the KIO executive committee on 18th/19th September 1991, Mr Jaffar’s continuing directorship of GT was noted by members, and Sheikh Fahad explained that it was “temporary until the AGM of the company is convened”. An executive summary of a presentation on the KIO’s investments in Spain given by KPMG Peat Marwick to the KIO in December 1991 said that five Kuwaiti representatives were on GT’s board, and listed them as including Mr Jaffar and Mr Dawson (in each case with the comment “Resignation tendered”). The basis for that comment is unclear, and it is not made good.

Whatever the reason for his remaining, Mr Jaffar has failed to establish that he ever resigned from, or gave either express or implied notification of resignation to, GT before his directorship was terminated by the resolution passed at the extraordinary general meeting of 26th May 1992. Furthermore, his conduct involving appearance in and signing in 1991 of GT’s 1990 accounts as director is quite inconsistent with resignation.

Sheikh Fahad was, although chairman, at all times a non-executive director of the board of directors of GT. He attended few board meetings of GT, though one which he did briefly attend took place on 18th December 1990. It is apparent, however, from the involvement which I hold (in sections IV and V) that he had in the Croesus, Oakthorn and Pincinco transactions, that he must to some degree have liaised with Mr de la Rosa and Mr Jaffar in respect of the affairs of GT. Bearing in mind that his formal involvement was limited, the question arises whether he resigned from acting as director or from all future involvement in the running of GT prior to 26th May 1992 on which date the board resolved that he should cease to continue to be a director. Sheikh Fahad pleads and relies on his letter to Mr Al-Rawdan dated 12th February 1992 and/or Mr Al-Rawdan’s decree in response which accepted Sheikh Fahad’s resignation from the KIO from 8th April 1992. Sheikh Fahad’s letter reads (in translation):

“Due to health problems from which I have been suffering for some considerable time, I find myself medically unable to continue in my employment as head of the Kuwait Investment Office, London, particularly in view of the increasing workload in the present circumstances which calls for a major effort which I am unable to provide due to my state of health.

I should therefore be grateful if you would retire me from my post as head of the Kuwait Investment Office, London, at a time convenient to you.  I regret that my state of health compels me to leave my employment with the Kuwait Investment Office, London, after serving this Office for nigh on twenty seven years.  Wishing to place my experience at the service of the national financial and economic departments, I shall continue as a member of the management board of the Investment Authority, and I should be pleased to be chairman of a public company in which the Government has a stake if you so wish, so long as such employment is not a full-time requirement due to my state of health.

I take this opportunity to thank you for all your assistance in performing the tasks of my present position, and I trust that Allah will bring success upon all our efforts to serve our country under the leadership and guidance of H.H. the Ruler and Heir Apparent, whom Allah preserve.”

The answering decree, copied to the KIO and also, I would assume, notified to Sheikh Fahad reads:
	
“Decree no. 3/1992 of the
	Ministry of Finance, President of the Board of Directors of KIA  

	Ministry of Finance, President of the Board of Directors of KIA.
-	In view of the stipulations of Law no. 47/1982 on the creation of the Kuwait Investment Authority.
-	And of the Personal regulations of the Kuwait Investment Authority
-	And of the letter received from Sheikh Fahad Mohammed Al-Sabbah, dated 12/2/92 regarding his retirement.
-	And by virtue of the authority invested in us,

	We have decided:

	Article One
As of 8/4/1992, to accept the resignation of Sheikh Fahad Mohammed Al-Sabah, President of the Board of Directors of the Kuwait Investment Office in London, invoking his right to retirement.

	Article Two
The authorities, acting as such, should implement this decision, in force as from 8/4/1992.

	[Signature]
Nasser Abdallah Al Roudham
Minister for Finance and Chairman of the Board of Directors of KIA.

Copy to:	KIA
	KIO - London”

Far from containing his resignation from the board of subsidiaries such as GT, Sheikh Fahad’s letter dated 12th February 1992 holds out willingness to continue to act as a part-time director if wished. The response accepting his resignation does not address the question of subsidiaries at all, but only refers to his role and retirement as president of the KIO with effect from 8th April 1992. Mr Al-Nouri, special adviser to the new president of the KIO from mid-April 1992, who gave sensible and impressive evidence, did not view Sheikh Fahad’s resignation as meaning necessarily that Sheikh Fahad would cease to be on the board of GT. That would be a matter for the Minister.

Neither the letter dated 12th February 1992 nor the response was addressed or, so far as appears, sent to GT. At the extra-ordinary general meeting of GT held on 26th May 1992, the resolution to terminate Sheikh Fahad’s chairmanship and directorship would be inapt, if his resignation from these positions had already been communicated to GT. Further, in June 1992 Sheikh Fahad tendered specific notices of resignation in respect of other subsidiary companies of the KIO, including Koolmees and Kokmeeuw, which is difficult to reconcile with a proposition that his communications with the KIO in February/April 1992 conveyed or involved his automatic resignation from GT, the subsidiary of Koolmees and Kokmeeuw.

I add only that, before and even after July 1991, GT had shareholders which cannot simply be equated with Koolmees and Kokmeeuw. In July 1991 all minority shareholders of GT other than those owned by companies controlled by Mr de la Rosa were bought out. After July 1991 the presence of other shareholders still militates against an argument that a resignation from GT could be communicated to the KIO, even though the other shareholders were then limited to companies controlled by Mr de la Rosa and having relatively small shareholdings. But it is unnecessary to go into this, because Sheikh Fahad’s communication to the KIO did not even purport to be  resignation from GT.

On the material before me, Sheikh Fahad and Mr Jaffar have each failed to show that he - or anyone - did at any time before the meeting of 26th May 1992 communicate to GT either expressly or even implicitly his resignation from his directorship or from any future involvement in GT. Their defences based on article 949 therefore fail.

III.5. Miscellaneous Objections
Mr Folchi, and Sheikh Fahad, so far as it is open to him, seek to raise a number of miscellaneous objections to these proceedings, most of which should have been raised (if at all) at an interlocutory stage. They involve suggestions that jurisdiction should be re-visited and/or that the proceedings should be stayed permanently or temporarily.  The normal stage at which issues of jurisdiction and stay are required to be considered under English procedure is at the outset of the proceedings. Extensive issues of this nature were litigated in the present proceedings: see [1995] 1 Ll.R. 374 and [1996] 1 Ll.R. 7 (C.A.). Issues of jurisdiction and “lis pendens” do not give rise to defences at trial. Both Mr Folchi and Sheikh Fahad therefore face an uphill task in seeking to show some special reason why such areas can and should now be re-visited. Further, Mr Folchi has not complied with any recognised procedure for seeking a stay. But, quite apart from that, it is clear for the reasons which I will give in section III.5(a) that there is no merit in any such application.

Sheikh Fahad has submitted voluminous documents, extending to over 80 pages, described as "Written Closing Submissions on Spanish Law" and "Grounds of Law". These documents raise matters which go well outside Spanish law, and well outside any issue arising during this trial or covered by evidence heard or placed before me during the trial. Sheikh Fahad submits that I should decline or defer jurisdiction, in his case pending Kuwaiti or Spanish proceedings, or, indeed, pending a reference to the European Court under the Brussels Convention. Save in respect of his application for a stay pending certain Spanish proceedings, which I give reasons for dismissing in section III.5(e) below, Sheikh Fahad also has not complied with any recognised procedure for making or supporting such submissions. In addition, in Sheikh Fahad's case they are made by a defendant who does not take notice of this court's orders when they are against him. The Court of Appeal’s judgment of 19th February 1999 lends considerable weight to the plaintiffs’ submission that Sheikh Fahad should not be permitted to make any such application, while he himself remains in clear breach of the court’s orders. But it is unnecessary for me to deal with the matter of this basis, and I prefer not to do so, since it is clear, having read and considered Sheikh Fahad’s submissions, that they have no merit in any event.
.
I take the matters arising in turn.

III.5(a). Lis pendens/stay in view of Spanish criminal/civil proceedings
Mr Folchi describes this point in his final submissions as "Lis Pendens - Stay of English Proceedings". Early in the trial he made a general oral reference to an intention to raise such a point. To raise and pursue it during the trial of an English action which has been proceeding for over five years is, as I have said, to say the least unusual. But Mr Folchi submits that there have been developments in Spain which justify it.

The basis of Mr Folchi's objection is that the Spanish criminal court has in the meantime become seised of the same issues regarding the Croesus, Oakthorn 1 and 2, Pincinco and Wardbase transactions. Sheikh Fahad also places some reliance on this. I am prepared to assume, without deciding (since I do not have the relevant material), that the Spanish criminal court is indeed now seised of the identical civil issues as arise before me regarding the Croesus, Oakthorn 1 and 2, Pincinco and Wardbase transactions. The way Mr Folchi then puts the objection is as follows, in paragraphs 47 and 48 of his final written submissions on Spanish law:

"47. Identity of facts investigated in the Spanish criminal proceedings and of the facts on which the claim is filed in England were based are now absolutely identical (although in Spain other facts are also being investigated). On November 18th 1996 the Spanish Public Prosecutor requested the Court to investigate facts relating to operations "Croesus, Oakthorn I and Oakthorn II, Pincinco and Wardbase". This request was accepted by the Spanish Court, for this reason the aforesaid facts are from that date (and still are) the subject of investigation (Audiencia Nacional ruling dated 16th November 1998 factual precedent first and legal ground first and second) [italics added].

48. [GT] stated on the initial criminal claim in the Spanish proceedings that it exercised civil actions to reimburse itself from the economic damages arising from the facts under investigation in the Spanish criminal proceedings. The civil action expansion to the facts relating to Croesus, Oakthorn I and Oakthorn II, Pincinco and Wardbase took place automatically by a express legal provision, given that at no time [GT] has waived or reserved these civil actions in the Spanish proceedings. This issue has been resolved by the Criminal Division of the National Hearing Court ("Audiencia Nacional" ruling dated 16th November 1998, legal ground fourth)."

The objection is mis-guided for at least the following two separate and fundamental reasons:

(1) Mr Folchi relies on the date of initiation or filing of the Spanish criminal proceedings (8th January 1993) as the relevant date of the pendency of the civil claims raised in them for the purposes of an application under article 21 or 22 of the Brussels Convention. This simply ignores the fact that it has been held, in a manner which binds conclusively Mr Folchi as against GT:

(a) that the date of first seisure for the purposes of articles 21/22 is not defined by the domestic procedural law of Spain, and involves a test of "definitive pendency". The role of Spanish law is to identify pendency, but definitive pendency is a different concept with an international aspect: see my judgment at [1995] 1 Ll.R.374, at pp.426-8; and the Court of Appeal's judgment at [1996] 1 Ll.R. 1, at pp.24-25;

(b) that the civil claims arising in the Spanish criminal proceedings were, therefore, not definitively pending until at least 11th February 1994 (see [1995] 1 Ll.R. at p.428) or even later (see the Court of Appeal at [1996] 1 Ll.R. at pp.25; from which it followed, in the judgments of both myself and the Court of Appeal, which bind Mr Folchi, that (whatever civil issues may have been raised in the Spanish criminal proceedings at any time) this court was and remains the court "first seised" of the claims and issues relating to the Croesus, Oakthorn I and Oakthorn II, Pincinco and Wardbase operations in action 1993 Folio No. 624, for the purposes of articles 21 and 22 of the Brussels Convention.

(2) In any event, the civil claims raised in the Spanish criminal proceedings in 1993 and 1994 did not include claims relating to any of the Croesus, Oakthorn I and Oakthorn II, Pincinco and Wardbase operations. This conclusion was reached in my judgment at the jurisdiction stage at [1995] 1 Ll.R., at pp.428-430, and Mr Folchi now evidently also accepts it, in view of the words "from that date" which he uses in paragraph 47 of his final submissions (quoted above). Again, it has been held, in a manner which binds Mr Folchi conclusively as against GT, that definitive pendency under the Brussels Convention - an international convention designed to achieve once-and-for-all certainty about jurisdiction as between different contracting states - involves "a simple test of chronological priority". It cannot be satisfied retroactively (whatever the domestic procedural position regarding back-dating of amendments under Spanish or indeed English law): see my judgment at [1995] 1 Ll.R., at p.419 and the Court of Appeal's at [1996] 1 Ll.R., at pp.24-25. Thus, the Spanish criminal court was not on any view seised of civil claims relating to the Croesus, Oakthorn I and Oakthorn II, Pincinco and Wardbase operations until some date after 16th November 1996. That is well after the English commercial court was seised both of action 1993 Folio No. 624 and of action 1996 Folio No. 1206.

Mr Folchi asserts in paragraph 50 of his final submissions that:

"Both the Spanish Public Prosecutor and the Madrid Court no. 3 have already resolved that if a civil judgment is issued in England, this decision cannot be accepted or executed in Spain until the Spanish criminal proceedings are determined, and only to the extent on which the judgment issued in England be compatible with the decision of the Spanish criminal proceedings. (General Prosecutor document dated 13th February 1997, point 3 third sentence, annexed and ruling dated 22nd April 1998, legal ground second, annexed)."

The documents to which he refers do not appear to support the rigid proposition which he asserts. But, whatever the position, I am concerned with properly constituted English proceedings, not with the question whether any judgment which I may give may be enforced anywhere else in the world.

There is therefore nothing in the above points. There is nothing which could begin to justify a stay of the English proceedings.

III.5(b) Article 5(3) and (4) of the Brussels Convention
Sheikh Fahad seeks to raise points, based on article 5(3) and (4) of the Brussels Convention. Those paragraphs constitute additional grounds (additional to the basic ground of domicile under article 3l) on which a defendant "may, in another Contracting State, be sued", namely:

"3. In matters relating to tort, delict or quasi-contract, in the courts for the place where the harmful event occurred.
4. As regards a civil claim for damages or restitution which is based on an act giving rise to criminal proceedings, in the court seised of those proceedings, to the extent that that court has jurisdiction under its own law to entertain such proceedings."

Paragraph 3 and 4 of article 5 are thus merely potential grounds of jurisdiction. The English court has jurisdiction on grounds set out at [1995] 1 Ll.R. 374 and [1996] 1 Ll.R. 7. Article 5(3) and (4) are both subject to articles 21 and 22 of the Convention and incapable of "trumping" or undermining litigation already proceeding in the present actions before an English court first seised of the relevant civil matters.

III.5(c) Articles 111-4 of the Criminal Procedural Law
Mr Folchi and Sheikh Fahad refer to articles 111-114 of the Spanish Criminal Procedural Law. These are provisions of Spanish procedural law. They have no direct application in or bearing on the present English proceedings. It appears from the evidence of Professor Ramos and from the decision of the Audiencia Nacional of 16th November 1998, which Mr Folchi put before me, that, if a separate civil action had been commenced in Spain, the effect of the current Spanish criminal proceedings, or of their extension to cover the Croesus, Oakthorn 1 and 2, Pincinco and Wardbase operations, would have been to suspend pursuit of the separate civil action. But English law recognises no such rule. Even in Spain, I understand, the dismissal of criminal proceedings is not necessarily fatal to a civil claim, having regard to the difference in onus of proof. The English proceedings have been in progress for many years, they have been very thoroughly prepared on all sides, doubtless at enormous cost, and they have now come to a trial. The present application is made at a very late stage - the Spanish criminal proceedings were extended to cover the Croesus, Oakthorn, Pincinco and Wardbase operations as long ago as the end of 1996. So far as I have a discretion, there is no basis for exercising it to stay the English proceedings or any claims made in them, pending the outcome of the Spanish criminal proceedings.

III.5(d). Articles 16(2) and 19 of Brussels Convention and stay until Spanish judgment
Next Sheikh Fahad refers to articles 16(2) and 19 of the Brussels Convention. He points out that under article 19 I must, in an appropriate case, act of my own motion: 

"19. Where a court of a Contracting State is seised of a claim which is principally concerned with a matter over which the courts of another Contracting State have exclusive jurisdiction by virtue of Article 16, it shall declare of its own motion that it has no jurisdiction."

Article 16(2) played its part in the hearings on jurisdiction in 1993-95. It assigns jurisdiction to inter alia the following courts:

"In proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or the decisions of their organs, the courts of the Contracting State in which the company, legal person or association has its seat." 

At the jurisdiction stage in 1993-1995, the English courts had to consider an argument that the case was essentially concerned with the conduct of the affairs of GT by its officers pursuant to, and/or ratified and/or made good in terms of capitalisation by, decisions of GT's board and/or principal shareholder, the KIO. That argument was rejected both by myself, [1995] 1 Ll.R., at pp.400-408, and, after it was repeated "faintly" in the Court of Appeal, by the Court of Appeal at [1996] 1 Ll.R., at pp.16-17.

Sheikh Fahad now suggests that these proceedings "have as their object" something which was not even thought of in 1993-1995, that is the article 134 point. I am prepared to assume that that "the object" of proceedings might, in some circumstances, change during their course. But it is an unpromising start for any point based on articles 16(2) and 19 that their application was exhaustively reviewed at the outset of the case and rejected. The delay in making the present application is also notable. Sheikh Fahad pleaded the article 134 point in late 1995. He evidently saw the terms of the resolution in mid-1996. He commenced proceedings in Spain (referred to below) in early 1997. Only now does he suggest that articles 16(2) and 19 apply.

Article 16(2) calls for "an exercise in overall classification": see [1995] 1 Ll.R., at p.403. The question is, with what are the proceedings now "principally concerned": see [1995] 1 Ll.R., at p.401. The article 134 point took a day or so in evidence during this 46 day trial, and the argument and submissions on it were proportionately limited, despite the length of my analysis of them in this judgment. The key point is that the real object or principal concern of the proceedings is clearly and remains what it has always been, namely the plaintiffs' claims - and the issues arising from the plaintiffs' claims - that various frauds were practised on them by their officers and others, conspiring together and/or acting dishonestly: see [1995] 1 Ll.R., at p.408 and [1996] 1 Ll.R., at p.16. The fact that the plaintiffs now maintain as their primary case that the whole loss was sustained by GT does not alter this. Those defendants who were directors of GT have sought to raise as a preliminary objection or defence that GT is not empowered or authorised to bring these proceedings. That objection cannot and does not alter the real object of the proceedings, or their correct overall classification.

Sheikh Fahad has on 31st January 1997 issued legal proceedings in Spain seeking to have declared invalid GT's board resolutions of November 1992 to commence proceedings and GT's shareholders' resolution of 29th April 1996 purporting to ratify action 1993 Folio No. 624 and relied upon, if necessary, as authorising action 1996 Folio No. 1206. The object of those limited Spanish proceedings may fall within article 16(2) - that is not for me to judge. But, even if it does, that cannot determine the object of the quite different proceedings begun by GT which are before me now for trial in England.

By letter dated 26th May 1999 Sheikh Fahad submitted that judgment at first instance was imminent in the Spanish proceedings and that I should postpone the present judgment until after such judgment had been given. After receiving submissions, by letter dated 14th June 1999 I rejected that submission for reasons then given.

Any point based on articles 16(2) and 19 and any submission that the present case should not proceed in the ordinary course to judgment thus fails.

III.5(e)  Sheikh Fahad’s application to strike out the plaintiffs’ case
This is another recent application, which I dismissed without a hearing by my letter dated 14th June 1999 on the basis that I would give reasons in writing subsequently. I now do this. The application was intimated by an imcomplete bundle of documents sent to me by Sheikh Fahad in early April 1999. After my clerk had drawn attention to, inter alia, the incompleteness by letter dated 13th April 1999, a further, complete bundle was received by courier in late April 1999. By letter dated 29th April 1999, I pointed out, inter alia, that it was not my function as trial judge to “conduct an enquiry” into the adequacy of any discovery or disclosure of documents, and that any application which Sheikh Fahad wished to make had not been either properly made or supported by any evidence as required under the rules of the court. By application notice dated 1st June 1999, Sheikh Fahad then made and supported by affirmation an application to strike out the plaintiffs’ case under CPR rules 3.4.(2)(c) and 32.14. The plaintiffs responded by letter dated 3rd June 1999 making a number of submissions. By letter dated 4th June 1999, sent at my instance, I required them to deal with one factual area by witness statement. They did so by witness statement of Mr N. P. Pearson made 8th June 1999, to which Sheikh Fahad responded by witness statement dated 9th June 1999. Neither party requested the oral hearing which I had offered by the letter dated 8th June 1999. In the circumstances, I gave my ruling on Sheikh Fahad’s application in writing by my letter dated ... June 1999.

The application under rule 32.14 was irregular, in the absence of permission to make it from either the Attorney-General or the court. This was pointed out to Sheikh Fahad by letters dated 2nd and 4th June 1999, and the application was dismissed as a result by my letter dated 14th June 1999. The application under rule 3.4(2)(c) was dismissed by my letter dated 14th June 1999 for reasons to be given and which I now give. Once again, I do so on the merits of the application, leaving aside any objection that Sheikh Fahad should not be permitted to make such an application in view of his own default.

Sheikh Fahad’s affirmation dated 27th May 1999 bases his application on the plaintiffs’ alleged failure to produce at least four letters which Sheikh Fahad asserts to be adverse to their case and to “demonstrate that the plaintiffs knowingly have misrepresented to [me] the real parties in interest”. The four documents on which he particularly relies are (1) a report dated 17th Junee 1993 by the Financial and Economic Affairs Committee to the President of the Kuwaiti National Assembly, (2) a letter dated May 1994 from the Kuwaiti Ambassador to Spain to the Vice Prime Minister and Minister of Foreign Affairs of the State of Kuwait, (3) a request for judicial co-operation dated 30th June 1997 by the Department of Justice of the State of Kuwait to the Swiss Federal Police, Berne and (3) a reply (in or about October 1994) in proceedings brought in Barcelona by Folma and MIRA against the KIO.

Under the old rules (which governed these proceedings before 26th April 1999 and so governed the discovery made in these proceedings) the obligation to disclose documents applied to relevant documents within the possession, custody or power of the party. Relevant documents were widely defined, encompassing any which supported or adversely affected any party’s case, including documents which did so by opening up a chain of enquiry in that direction. But the court had a discretion to refuse to require disclosure or production even of otherwise relevant documents if they were not required in the interests of justice. In practice, courts were increasingly concerned to keep the process of discovery within reasonable bounds: see e.g. O. Company v. M. Company [1996] 2 Ll.R. 347. Under the new rules, effective since 26th April 1999, the obligation is re-formulated by reference to a party’s control of the relevant documents, cotrol being defined as covering documents which were or are in his physical possession, or in respect of which he has or had a right to possession or to inspect. The relevant documents in respect of which standard disclosure is required are those on which a party relies or which adversely affect his or another party’s case or support another party’s case.

Striking out any action - let alone the present major proceedings - for failure to give discovery of four documents would be a quite extraordinary and draconian step. It is one which no court would conceivably contemplate, save in the face of the most gross misconduct or persistent breach of some order. The present circumstances fall many miles short of establishing any ground for any such step.

None of the documents are documents which by their nature would on their face originally have been in the possession, custody or power (or control) of the present plaintiffs, that is GT and THL. This is so, even in respect of the fourth (the reply in the Spanish proceedings against the KIO), since subsidiary companies like GT and THL are not equated with their ultimate parent or treated as having possession, custody and power (or control) of their parent’s documents. Mr Pearson’s witness statement gives evidence, which there is no reason to doubt, as to precisely when and how the plaintiffs, GT and THL, actually first came into possession of copies of the documents. Sheikh Fahad’s general statement in his affirmation of 27th May 1999 that “I am advised” that GT made all the documents available in the Spanish proceedings not only fails to state (as it should have done) by whom he was advised, but is wholly unspecific as to when and how GT is supposed to have done so. It can carry no real weight compared with Mr Pearson’s specific account of the position.

Sheikh Fahad’s letter dated 31st March 1999 devotes most attention to the first document, the Kuwaiti National Assemby report. On Mr Pearson’s evidence, that only reached the plaintiffs when Mr de la Rosa was deposed in the Spanish criminal proceedings on 21st April 1997.

Further, although this is not critical to the conclusion which I reach, it seems likely, on the basis of Mr Pearson’s statement, that it was indeed made available then to all parties to those proceedings, including Sheikh Fahad through his Spanish lawyers, Gomez-Acebo y Pombo. The plaintiffs would, if so, have had no reason to think that Sheikh Fahad’s lawyers were not providing him with relevant information and documents obtained in the Spanish proceedings for use in the English proceedings.

In any event, the report does not have the significance which Sheikh Fahad seeks to attach to it. He argues that it shows that the only entity suffering any loss was the KIO. The argument is wholly generalised. It is unrelated to any analysis of the transactions, such as is in fact and law necessary. It is derived from references to “KIO financial loss” and the KIO as ‘plaintiff’ in the report. References of this nature in a non-legal document not produced by GT or THL or even by the KIO have no real evidential value. In a document which actually refers to the English proceedings (begun by GT and THL), such references cannot conceivably be read as indicating that even the Committee of the Kuwaiti National Assembly thought that the KIO was plaintiff (it was not) or that the KIO alone suffered loss. The ‘KIO’ in this document is clearly referred to compendiously by the Committee to include GT - as in the further phrase “the defendants, as directors of the KIO [sic] in Spain” used in the section headed ‘Evaluation’. There is nothing in this report (or indeed in any other of the documents produced by Sheikh Fahad in his letters dated 31st March and 20th April 1999) which avoids the necessity for a close analysis of the relevant transactions to see where loss recoverable in law may have been sustained.

In summary, far from prejudicing the plaintiffs’ case or supporting Sheikh Fahad’s case on loss, the report is to my mind of no assistance. It was not in my view even a discoverable document. Even if that is wrong, any relevance it could be regarded as having would be entirely marginal. It certainly cannot be inferred that the report was deliberately suppressed by the plaintiffs (any more than it could be inferred that it was deliberately suppressed by any other parties to the Spanish proceedings if they did receive a copy in April 1997).

Turning to the second document, the Kuwaiti Ambassador’s letter, the evidence fails to establish that this was ever produced in the Spanish proceedings, or that it was at any time in GT’s or THL’s possession, custody or power.  Further, it was disclosed by Sheikh Fahad himself in the present proceedings as item 147 in his supplemental list dated 27th November 1998. Sheikh Fahad’s recent witness statement fails to comment on this particular point.

In any event, all that Sheikh Fahad’s affirmation said about this document was that it “illustrates the political nature of this case”. In point of fact, all it shows is that a request by the Kuwaiti government in May 1993 for support in the U.N. Security Council on a matter relating to the borders between Kuwait and Iraq met a response that the attitude of the State of Kuwait to GT and the Kuwaiti investment in Spain was intolerable. That has nothing to do with the issues in this case, and certainly does not bear on the question whether there was misappropriation of monies of GT or THL and who suffered loss. Even if GT or THL had been shown to have a copy of this document, which has not been shown at all, the document was and is clearly irrelevant and not disclosable. Even if that were wrong, it could at most have entirely marginal relevance, it could not be inferred that its non-disclosure was deliberate and any non-dsclosure could not possibly justify striking out the action.

 The third document is the State of Kuwait’s request for judicial cooperation in June 1997 to the Swiss Police. All parties, on Mr Pearson’s statement, received it in the Spanish criminal proceedings when it was filed by Mr de la Rosa in early February 1999. There is no reason to think that this is wrong.

In any event, the document is irrelevant and not disclosable. Sheikh Fahad’s statement in his affirmation that it “confirms that it is the State of Kuwait which is prosecuting the civil action in England” is nonsense. The request related - in terms - to Kuwaiti criminal proceedings brought by the Kuwaiti Public Prosecutor in Kuwait. The Kuwait criminal proceedings are expressly described as being against individuals, including Sheikh Fahad, “wanted for having embezzled large sums from these companies” underlining added) - that is from GT and THL.

The fourth document is the reply in the Spanish proceedings by Folma and MIRA. All parties to the Spanish criminal proceedings have, on Mr Pearson’s evidence, had this since May 1997. Mr Pearson’s forty-seventh and forty-eighth affidavits show that there was a careful review and consideration relating to disclosure of documentation from these proceedings following and in accordance with the Court of Appeal ruling dated 6th February 1998 regarding discovery in the present proceedings.

I have also read the very long reply. Nothing in it in my view assists or is relevant for disclosure in the present proceedings. A pleading which merely restates a party’s position on contentious issues is not disclosable. The plaintiffs were in my view absolutely right in not disclosing this document. There is once again nothing about its non-disclosure which could begin to assist or support the present application by Sheikh Fahad.

I would only add that none of the other documents mentioned in Sheikh Fahad’s letter dated 31st March 1999 at pages 7-8 assist or lend any support to the present application.

In conclusion, this was and is a hopeless application. It is not shown that the plaintiffs were in breach of any duty relating to disclosure, or indeed of any order or orders.  In any event, even if they had been, any failure to give full discovery would have been quite incapable as a matter of discretion of beginning to justify an application to strike out the whole case. The case has been tried, and nothing in any non-disclosure (if, contrary to my finding there had been any) could conceivably have made it appropriate to strike the case out or inappropriate to give judgment on the basis of the evidence before the court. The application was and is dismissed it accordingly.
 
 III.5(f) Kuwaiti criminal proceedings
Sheikh Fahad also suggests that I must or should decline or defer jurisdiction, in favour of Kuwait, on the basis that criminal proceedings are there afoot against him. According to Sheikh Fahad, such proceedings have been on foot in Kuwait since 26th October 1992 against him and others for misappropriation of public funds. Leaving aside, here too, the question whether Sheikh Fahad should be permitted to make such a submission in any event in view of his contempt of this court's orders, the propositions which he advances are plainly hopeless and were rightly never raised by his legal representatives when he enjoyed their assistance. There can be no basis for staying the present English proceedings near the conclusion of trial in the light of Kuwaiti criminal proceedings. This is quite apart from the fact that it seems most improbable that Sheikh Fahad ever intends to go anywhere near Kuwait again, or that the criminal proceedings (if and when they conclude) will ever have any practical impact on him.

III.5(g). Forged documents
Sheikh Fahad raises a yet further point which it apparently did not occur to him to raise while he had the benefit of experienced legal advice. It is that these proceedings must be dismissed (and, incidentally, a large number of interlocutory orders set aside) because "proceedings based on forged documents are not valid and must be dismissed". In this connection Sheikh Fahad says:

"On 4th December 1998 I filed criminal proceedings against GT and others demonstrating that these parties have falsely implicated me in the proceedings before Your Lordship and have manufactured forged documents. The forged document issues will be dealt with in the Spanish proceedings. Any judgments in the English proceedings should and can only come after judgments in these criminal proceedings which have now been accepted in Spain."

The submission that I should now suspend the present English trial or any judgment pending the resolution of the Spanish criminal proceedings which he began on 4th December 1998 is one which I am quite unable to accept. I have read the criminal complaint filed in Spain. The commencement of criminal proceedings in Spain on 4th December 1998 appears as a transparent manoeuvre by Sheikh Fahad. Sheikh Fahad has had many years in this jurisdiction to take any steps open to him to raise the sort of points which he now sees fit to ask the Spanish courts to consider. While he was represented his counsel did ask certain questions in this area - see transcript for Day 12 pages 117-127 and Day 13 pages 23-30 (and see pages 44-48). Sheikh Fahad only commenced the present Spanish criminal proceedings after the documentary revelations regarding account G772 made it effectively impossible for him to maintain the case which he had been advancing in England, and after he had refused to comply with my orders in that connection and ceased to to be legally represented before me. There is in these circumstances no merit in his submission that the criminal proceedings should dictate the further progress of the present action.

I do not wish to trespass on matters which may in due course be considered by the Spanish courts, more than is necessary for present purposes. Some further comment is however necessary on allegations made by Sheikh Fahad in his closing submissions with respect to forged documents. The facts of the present case have been investigated, and in many respects clarified, over some six years. At the outset of the proceedings the plaintiffs did rely on certain documents apparently signed by Sheikh Fahad and others (particularly Mr Robinson) which it is now clear were forgeries. That applies, in particular, to Sheikh Fahad's supposed letters of 15th October 1990 and 20th December 1990. Other parties also relied on these documents - see for example Mr Folchi’s and Mr Coll’s defences both served 22nd December 1995, paragraphs 50.2 and 49.2 respectively. Even Sheikh Fahad, when first shown a copy of one of the letters dated 20th December 1990 in interview on 23rd October 1992, appears to have thought that it was genuine. But, throughout the trial before me, it has been common ground that these letters are forgeries. They have not been relied upon against Sheikh Fahad by the plaintiffs in their opening submissions or at all.

Sheikh Fahad suggests in his Madrid complaint of 4th December 1998 that responsibility for the forgeries rests with GT and other defendants to the Madrid complaint - that they "falsely implicated him in the present English action and have manufactured forged documents". As to “falsely implicated”, this statement begs the issue in the present action. As to “manufactured forged documents”, it is a very serious allegation of misconduct against the plaintiffs. Nothing before me (including, since Sheikh Fahad refers me to it, the contents of his complaint dated 4th December 1998) lends it any credence or likelihood.

This is not the place to attempt an exhaustive analysis of all forged documents which may appear in the documents before me. So far as necessary, particular forged documents are considered in the course of this judgment. A considerable number, though not all, of such documents are purported letters to or purported agreements with Mr de la Rosa. I should however make clear that the “Table of Significant Forged Documents” in the Sheikh Fahad’s “Closing Submissions on Legal Issues” dated 2nd March 1999 includes some documents which are (on Mr Betts’s evidence) clearly not forged, such as Mr Robinson’s memorandum dated 27th May 1988 and Mr Betts’s memorandum dated 31st May 1988, both relating to the Croesus transaction. The further table at tab 2 of “Documents where the authenticity is in dispute” has also been compiled incompetently - for example, quite apart from duplication, it includes documents which were provided by Mr Robinson to and used in the reports dated 8th and 9th July 1998 of the hand-writing expert, Dr Audrey Giles, as genuine “comparison material” (cf pages 4-9 and 53-58) and other documents which are not forged (cf pages 31, 33 and 34). It is unnecessary to attempt to go through all the other documents mentioned by Sheikh Fahad, most of which did not feature in any way in the trial. None of them gives any reason to accept Sheikh Fahad’s allegations that the plaintiffs have forged documents.

In so far as it is necessary to express any view on this at all, the probability appears to me to be that most, if not all, of the forgeries were the work of Mr de la Rosa, undertaken with a view to reassuring or, after the event, persuading accountants, auditors and others that all was in order in relation to the Croesus, Oakthorn and Pincinco operations. In the light of my conclusions in sections IV and V, it is a peculiar aspect of this case, that Mr de la Rosa was prepared to forge even letters and the signature of his co-conspirator, Sheikh Fahad. But honour among thieves is not necessarily a reliable commodity, and Mr de la Rosa's unscrupulousness, and capacity for facile manipulation whenever it appeared expedient, do not appear to have had fixed limits. It seems quite possible that Mr de la Rosa even less compunction (particularly at the cover up stages of the conspiracy) about manipulating and forging correspondence of those with whom he was in conspiracy than he would have had in respect of innocent third parties who if they discovered it would have no difficulty in complaining.

Sheikh Fahad asserts that the plaintiffs relied on forged documents in affidavits sworn and applications made to obtain orders at the interlocutory stage. I am now however concerned with the trial of this action, and with the evidence before me at trial. Closing submissions at trial are not the appropriate place to invite a wholesale review of prior orders. If Sheikh Fahad had any cause for complaint about interlocutory affidavits, applications or orders, it was open to him, as his legal representatives would no doubt have advised him, to make any appropriate applications then. Any such complaint (if any) is irrelevant at trial. Under English procedure, the plaintiffs’ case has been based at trial not directly upon the affidavits and material on which the plaintiffs relied in support of their interlocutory applications, but on the oral and documentary evidence specifically adduced before me during the trial. This evidence has of course included material obtained under the interlocutory procedures available under English law. On evidence which is admissible and has been put properly before the court at trial, Sheikh Fahad is shown to have participated in a series of frauds involving GT and THL, which lead now to the conclusion that he is liable to GT for many millions of dollars.

Further, a reading of the interlocutory affidavits and other material to which Sheikh Fahad refers does not justify his assertions of any knowing and deliberate use by the plaintiffs of forged material. Even at an early stage in this action, the plaintiffs were challenging the authenticity of the letter dated 20th December 1990, although at that stage evidently unaware that the whole letter was forged (see my judgment on jurisdiction [1995] 1 Ll.R. at p.406). After Sheikh Fahad had in his points of defence in December 1995 denied signing letters dated 15th October and 20th December 1990, the plaintiffs drew attention to this denial in Mr Keltie’s fifteenth affidavit, paragraph 6,  and twenty-fourth affidavit, paragraph 8(d). Sheikh Fahad’s further denial of the authenticity of the letters dated 3rd March 1992 was mentioned in Mr Pearson’s forty-seventh affidavit, paragraph 35. By the time of the trial, which began in October 1998 and concluded in March 1999 leading to this judgment, it was clear that there had been a number of forgeries of, inter alia, Sheikh Fahad's signature. The plaintiffs accepted this and made it clear before me. As to Sheikh Fahad’s statement in paragraph 26 of his closing submissions that this court has "relied on forged documents in the trial of this case", his submissions do not identify what he is talking about or begin to make good the statement.

III.5(h). The obtaining of Juge Tappolet’s documents relating to account G772
Sheikh Fahad suggests that "documents relating to the G772 account were also obtained unlawfully as further covered in the submission of Spanish counsel". Sheikh Fahad suggests that they were obtained under letters rogatory. There is nothing before me to support any of this. The explanation (given to the court on and after Day 17, 16th November 1998, when Sheikh Fahad still enjoyed legal representation) was that such documents were being obtained, because under Swiss law any partie civile to Swiss criminal proceedings acquires a right to see such documents, and no-one has ever previously suggested still less shown the contrary. Originally it was the Pincinco documentation alone to which that right related, but (as contemplated in court in the presence of Sheikh Fahad’s counsel on Day 22, 25th November 1998) an amended or additional criminal complaint was issued which embraced the other transactions and entitled the plaintiffs to the production of the full documentation, which Juge Tappolet made available. As soon as documents were obtained from Juge Tappolet, they were, I was informed at the time, distributed to all other parties. Sheikh Fahad's lawyers, who were acting for him at the time, never suggested any objection to the procedure followed or to the plaintiff's conduct at the time, and I know of none. The fact that the documents were extremely damaging to Sheikh Fahad's credibility and case, and that they proved to show that he received very large sums of money emanating from THL and/or GT for which he has failed to give any explanation, is a quite different matter.

In very recent communications, Sheikh Fahad or Spanish lawyers on his behalf have suggested that the court should put itself in contact with Juge Tappolet by issuing letters rogatory and/or impose on the the plaintiffs the most rigorous procedures and conditions for proof and/or use of Juge Tappolet’s documents, requiring production or originals together with certification and/or legalisation and/or authentication of originals. permitted. References have also been made to Sheikh Fahad’s human rights. I do not believe that Sheikh Fahad’s human rights have been in any way infringed. What has happened is that, in accordance with Swiss law, documents have become available which afford relevant information regarding Sheikh Fahad’s complicity in serious frauds and, incidentally, also demonstrate that he has lied in a number of respects to avoid being found out. As to the suggestion that more formal proof should be or have been required, the key documents were already produced in court while Sheikh Fahad enjoyed legal representation, without any such suggestions being then made. It was obvious - as Mr Field Q.C. then representing Sheikh Fahad also confirmed in open court - that the most intense consideration was being given to the documents being produced by Juge Tappolet. Sheikh Fahad was ordered to address the basic question whether he challenged the authenticity of the banking documents produced by Juge Tappolet showing him as the signatory opening account G772, giving instructions for its operation and confirming the transfers of monies the subject-matter of this action. The course of events is more fully shown in section IV.3(a) of this judgment and in the separate judgments given in November and early December 1998 to which I there refer as well of course as in the transcript of the trial proceedings. Sheikh Fahad declined to do so or to play any further part in  the trial. For him now to suggest that the most formal proof of such documents is required, which could only be necessary if he is implying that they are forged, is incongruous. The documents have been adduced before the court. Every party has had ample opportunity to consider them. It is plainly implausible to suggest that they or any significant documents among them are forged. In so far as the exercise of my discretion is required to admit Juge Tappolet’s documents in evidence before me in the way and form in which they have been adduced, I have had, and have, no hesitation in admitting them, without further formalities, as true copies of reliable business records obtained from the files of the relevant Swiss banks in the course of Juge Tappolet’s investigations as the officiating Swiss judge. Further, in the context of this case, I do not consider that this affects their weight to any relevant degree. They are internal Swiss banking documents which there is no reason to consider in any way suspect. The existence of forged documents in other areas of this case has nothing to do with the reliability of such documents. Moreover, their contents fit exactly into the overall pattern of money movements already known to have taken place in the relevant transactions. Their reliability and relevance in the case of Sheikh Fahad is, if it were necessary, further demonstrated by the facts that (a) large sums emanating from one or other of the plaintiffs can be traced into account G772 and (b) in early 1993, when the plaintiffs were beginning proceedings against Sheikh Fahad, account G772 was emptied on his instructions and it can be seen (on the basis of documents obtained from quite different banking and other sources) that the balances were remitted onwards by a devious route to the Better Trust set up in January 1993 by Sheikh Fahad to receive them for his and his son’s benefit. Sheikh Fahad’s last minute suggestion that I should require further or more formal proof of these documents amounts in reality to no more than a further attempt to postpone the day of judgment.
 
III.5(i). Immunity
Lastly, Sheikh Fahad makes a brief suggestion that he has diplomatic immunity and/or ought to have been granted immunity from prosecution. Diplomatic immunity could and should have been claimed, if it had any basis, at the outset of these actions. As it is, it has never been the subject of any application, let alone any supported by any evidence supporting any such claim. As to immunity from prosecution, how or why the plaintiff companies should grant such immunity is unexplained. If one looks behind the plaintiffs, how and why the KIA or KIO should do so is likewise unexplained. I would add that, during the trial, on Day 23 (26th November 1998) just before he was due to give his oral evidence by video-link from the Bahamas, Sheikh Fahad sought to obtain further time for compliance with my previous orders and to postpone his evidence, on the grounds of a supposed exposure to breach of the Kuwaiti law establishing the KIA, if he gave evidence without a waiver from the Kuwaiti Minister of Finance which had itself only been requested for the first time by Sheikh Fahad’s solicitors on 20th November 1998. My judgment dated 26th November 1998 recounts the position and gave detailed reasons for considering that there was no substance in the suggestion of exposure under Kuwaiti law. There was (and so far as I am aware remains) no realistic prospect or risk of Sheikh Fahad returning to Kuwait, still less of his facing any criminal penalty there as a result of giving information or evidence about the KIO in the course of defending himself in the English proceedings before me.

III.5(j). Conclusion
Mr Folchi's objection based on "lis pendens" and Sheikh Fahad’s numerous objections on this and other bases thus fail. It is unnecessary to say more about the potential problem posed in respect of some of such objections by Sheikh Fahad’s contempt.

I add only, that, so far as any of the objections which Mr Folchi and Sheikh Fahad seek to raise depend on my discretion, the circumstances in which they are sought to be raised, particularly their lateness and (in relation to the criminal proceedings commenced by Sheikh Fahad in Spain on 4th December 1998) the course of events in the English proceedings which immediately preceded such Spanish proceedings would lead me to exercise any such discretion against the grant of any relief.
IV. THE FACTS
IV.1. Onus and Standard of  proof
The claims made against individual defendants have been outlined in section II.8 and their legal elements will be considered in more detail in section V. This section addresses the facts relevant to those elements.

The plaintiffs assert, and carry the onus of proving, the facts relied upon in their claims for conspiracy, dishonest assistance, money had and received, knowing receipt and breach of directors’ duties. In certain circumstances a defendant may carry at least an initial onus (in this case for example to plead and call evidence to support provisions of foreign law on which he relies). But on the central factual questions, involving honesty and intention, the onus in this case rests on the plaintiffs. The fact that certain defendants have at an interlocutory stage been required to provide certain information as to what became of certain monies, and that all parties have been required under English procedure to exchange relevant unprivileged documents, does not alter the onus at trial. These procedures merely provide material which may be of assistance at trial, either in satisfying the onus or in showing that it cannot be satisfied. Although the onus rests on the plaintiffs, it is not incumbent on a plaintiff to investigate, call evidence upon or negative every speculative possibility which no existing evidence makes credible. It is for a defendant who advances any positive defence or explanation both to plead it and to support it if necessary with evidence. That is of some relevance in this case, where certain defendants have pleaded positive explanations which they have failed to support by giving or calling any evidence. Further, the conduct of a defendant in the face of the court is capable of giving rise to adverse inferences. That applies in particular in this case to the conduct of Sheikh Fahad and Mr Jaffar leading up to and connected with their respective withdrawals from further active participation from the trial. I should add, however, that the conclusions which I have reached in this case regarding the dishonesty of Sheikh Fahad and Mr Jaffar do not depend upon such inferences. The other evidence against Sheikh Fahad and Mr Jaffar is by itself anyway overwhelming.
 
The ordinary civil standard of proof is the balance of probabilities. Mr Folchi, with some support from other defendants, submitted that the nature and seriousness of the allegations of dishonesty made in this case invoked a higher standard, of or approaching the criminal standard of “sureness” or “satisfaction beyond reasonable doubt”. I do not agree, although once again it would not affect my findings in this case if a higher standard were involved. Contrary to Mr Folchi’s submissions, however, and despite the different context of child care proceedings in which these words were spoken, the legal position is in my view covered by and correctly stated in the following passage from the speech of Lord Nicholls, with which Lords Goff and Mustill and (on this aspect) Lord Browne-Wilkinson agreed in In re H (Minors) (Sexual Abuse: Standard of Proof) [1998] A.C. 563, 586-7:

“The standard of proof 
 
Where the matters in issue are facts the standard of proof required in non-criminal proceedings is the preponderance of probability, usually referred to as the balance of probability. This is the established general principle. There are exceptions such as contempt of court applications, but I can see no reason for thinking that family proceedings are, or should be, an exception. By family proceedings I mean proceedings so described in the Act of 1989, sections 105 and 8(3). Despite their special features, family proceedings remain essentially a form of civil proceedings. Family proceedings often raise very serious issues, but so do other forms of civil proceedings. 
The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A step-father is usually less likely to have repeatedly raped and had non-consensual oral sex with his under age stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. 
Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established. Ungoed-Thomas J. expressed this neatly in In re Dellow's Will Trusts [1964] 1 W.L.R. 451, 455: "The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it." 
This substantially accords with the approach adopted in authorities such as the well known judgment of Morris L.J. in Hornal v. Neuberger Products Ltd. [1957] 1 Q.B. 247, 266. This approach also provides a means  by which the balance of probability standard can accommodate one's instinctive feeling that even in civil proceedings a court should be more sure before finding serious allegations proved than when deciding less serious or trivial matters. 
No doubt it is this feeling which prompts judicial comment from time to time that grave issues call for proof to a standard higher than the preponderance of probability. Similar suggestions have been made recently regarding proof of allegations of sexual abuse of children: see In re G. (A Minor) (Child Abuse: Standard of Proof) [1987] 1 W.L.R 1461, 1466, and In re W. (Minors) (Sexual Abuse: Standard of Proof) [1994] 1 F.L.R. 419, 429. So I must pursue this a little further. The law looks for probability, not certainty. Certainty is seldom attainable. But probability is an unsatisfactorily vague criterion because there are degrees of probability. In establishing principles regarding the standard of proof, therefore, the law seeks to define the degree of probability appropriate for different types of proceedings. Proof beyond reasonable doubt, in whatever form of words expressed, is one standard. Proof on a preponderance of probability is another, lower standard having the in-built flexibility already mentioned. If the balance of probability standard were departed from, and a third standard were substituted in some civil cases, it would be necessary to identify what the standard is and when it applies. Herein lies a difficulty. If the standard were to be higher than the balance of probability but lower than the criminal standard of proof beyond reasonable doubt, what would it be? The only alternative which suggests itself is that the standard should be commensurate with the gravity of the allegation and the seriousness of the consequences. A formula to this effect has its attraction. But I doubt whether in practice it would add much to the present test in civil cases, and it would risk causing confusion and uncertainty. As at present advised I think it is better to stick to the existing, established law on this subject. I can see no compelling need for a change.”

IV.2. The purposes of the transactions
IV.2(a) Introduction
The plaintiffs’ case is that each transaction involved misappropriation of monies from GT or THL, accompanied and - save in the case of Wardbase - followed by steps to cover up the misappropriation which may also have had the incidental effect of shifting loss between THL and GT. Various defendants have, prior to and during these proceedings, given various explanations for the transactions which would if correct mean that these were entered into in the interests of GT and THL and/or of the KIO and the State of Kuwait, even though they or certain aspects of them may also have involved infringement of Spanish exchange control, evasion of Spanish tax and ‘complementary’ payments of a possibly questionable nature.

A number of the defendants emphasised, correctly, that the present case cannot and should not be approached on any assumption that Spanish business practice and morality coincided at any relevant time with English. The evidence demonstrates abundantly certain special features of Spanish business practice which are of potential significance in this connection. It was common-place, in Spanish business transactions, to make off-shore and complementary payments to anonymous accounts or companies connected with other parties or persons involved in or able to influence the transactions. The true beneficaries of such payments could evade Spanish exchange controls (which existed at the relevant times) as well as Spanish tax. Complementary side-payments were a well-understood feature of acquisitions and construction projects, whether they represented no more than a hidden addition to the price, or whether there was some element of inducement or bribe involved. Some Spanish professionals - lawyers, accountants and, as this case indicates, even the notary public - were also accustomed to take part-payment of fees offshore; Mr Folchi was included among them, although he told me that it was only through Mr de la Rosa that he started to do so, and that he has ceased to do so as a result of the circumstances of this case. To take payment offshore, a provider of services could use his own offshore vehicle to receive or invoice the payment, or the services of an offshore agent might be employed. In some case, it seems, the payer might itself provide the offshore vehicle, contemplating benefit to itself by making a payment offshore lower than that which would have been required within Spain

The anonymity of the Swiss banking system appears to have been particularly favoured for such purposes. That Swiss criminal proceedings can sometimes act as an ‘open sesame’ may not have been appreciated, although it is a matter of which the relevant Swiss account opening forms gave warning.

The makers of such payments could comfort themselves that it was not their concern to inform the Spanish authorities or to concern themselves whether or not the recipients might perform any duty on their part to inform the authorities. On the evidence before me, it was not only Spanish businessmen and professionals who thought and acted along these lines. Foreigners dealing with Spanish concerns, including officers of the KIO like Mr Robinson, were ready to fall in with Spanish practice, comforting themselves with the thought that it was none of their business what the Spanish implications might be. Mr Nigel Black in a memorandum dated 14th July 1989 recorded that on a visit to Spain he had been given three invoices for legal bills in respect of the Cartera Central operation, one for Ptas.50m payable to Mr Folchi’s firm at a Barcelona account, one for Ptas.15.3m to a second law firm, payable at a Madrid account, and a third for Ptas.220m payable simply to a numbered account at Lombard Odier, Geneva, which Mr Nigel Black noted was in fact for services rendered by the same second law firm. Mr Black advised that in view of their total amount “the advice and approval of General Management should be sought before they are paid”. The sum of Ptas.220m has all the hallmarks of a complementary payment.

The frequency of the Spanish practice of making complementary payments offshore does not mean to say that it can be, or would have been, regarded as proper even in Spain. I do not accept the conduct or attitudes of defendants or other witnesses in this case, including in this respect Mr Robinson, as the touchstone of such propriety. But the prevalence of such Spanish practices is relevant when evaluating matters such as the actual nature of the transactions, the credibility of the accounts given by various witnesses and the actual honesty of their involvement in the transactions which they described.

Many defendants in the present case allege that some or all of the relevant transactions involved - or were at least held out to them as involving - complementary payments of this nature, made off-shore by THL or GT for GT’s own purposes or for the purposes of the KIO. I must therefore examine the state of the evidence in that regard in respect of each transaction.

IV.2(b) Croesus
The letter sent by Mr de la Rosa and initialled by Mr Jaffar in about May 1988 suggested that “the utmost urgency” attached to the payment of $27.4m for the unspecific services to which it referred. Mr de la Rosa pleads that the payment was requested on Mr Jaffar’s instructions “in order to make a payment to the Panamanian company, Horowitz Corporation, the agent for which is the law firm, Arias Fabrega & Fabrega, calle 50, Panama”, this being “a complimentary payment by KIO to one of the vendors of land at Plaza de Castilla in Madrid which KIO was purchasing”. In an interlocutory affirmation and correspondence, Mr de la Rosa also asserted that this payment was based on a contract signed in May 1988 by Mr Jaffar for the KIO and representatives of the vendors. But no such contract has been either produced or proved before me. Mr Jaffar pleads that he was informed by Mr de la Rosa that the payment was required “in order to acquire the property and also to make payments to various persons in order to obtain the requisite planning permission”. In his opening statement he added (with references to his witness statement which justify me looking at that statement to that extent, although it was not otherwise before me in  evidence) that he was told by another GT director, Mr Guasch, that a Spanish political party would benefit. There is no however evidence to support these assertions. Mr Soler said in evidence that Mr de Mir told him in September 1989 (which was he said the first time he heard of any payment) that the payment of $25m had facilitated the profitable disposal by GT of its interest in a company called Cartera Central.

Between 1986 and 1989 the KIO and GT were involved in what has been called the Cartera Central transaction. During 1986 the KIO through GSM Securities Management AG (“GSM”) acquired a stake in Spain’s then largest bank, Banco Central. Part of this stake was sold to GT in early 1987. Also in 1987 the Spanish government told the KIO to reduce its stake in Banco Central. Cartera Central was a joint venture company incorporated in early 1988 to take over the KIO’s remaining stake and acquire further shares. The joint venture was at least initially between the KIO (through), GT and Conycon. To fund Conycon’s participation, Koolmees agreed on 23rd November 1987 to buy from Conycon and Horowitz Corporation 51%, and to subscribe for up to 95% in total, of the shares of Compania Urbanizadora del Norte S.A. (“Urbanor”). Approximately 95% of such shares were so acquired by January 1998 at a cost of around Ptas.23b. Urbanor’s main asset was the undeveloped site at Plaza de Castilla. In March 1988 GT acquired the KIO’s stake in Cartera Central and in August 1988 Koolmees acquired from GT both this stake and GT’s own shareholding in Banco Central. In early 1989, because of continuing Bank of Spain resistance to the KIO’s involvement, Koolmees sold its shares in Cartera Central for Ptas.42b, payable by the Conycon and Gruycsa promissory notes guaranteed by banks and mentioned in section II.1.

According to an audit letter dated 17th May 1990 written by Touche Ross Nederland to Koolmees and the KIO:

“On 7 January 1988 Koolmees paid Ptas.5,181,009,909 via Banco Zaragozano and Ptas. 2,500,000,000 via a bank outside Spain for the acquisition of 70,000 shares par value Ptas.1,000 each from Howritz [sic] Corporation”.

In his evidence, Mr Robinson confirmed the making of this Ptas.2.5b payment, evidently offshore as an additional complementary payment.

The explanations which defendants say they received are not consistent. None of them refers expressly to Mr Sarasola. Mr de la Rosa in an interlocutory affidavit dealing with his alleged knowledge of Croesus produced - without confirming - some press material associating Mr Sarasola with Horowitz Corporation and with alleged services relating to Plaza de Castilla. During final submissions, I observed that the evidence did not disclose any link between Mr Sarasola and Horowitz Corporation, to which Mr Boswood assented, saying

“.... nothing to do with Mr Sarasola, although Mr Sarasola was in some way involved with the Plaza Castilla transaction, but not qua vendor [or?] to do with the vendor of the site”.

Mr Folchi, who was prevented by unavoidable personal circumstances from attending, then made written submissions, attaching a copy of a deposition taken from Mr Sarasola on 24th August 1997 before an investigating magistrate of the Audiencia Nacional in the presence of and under questioning from lawyers acting for GT.  When deposed, Mr Sarasola said that Horowitz Corporation was his mother-in-law’s investment vehicle, which had been established on his advice by her or possibly by him on her behalf. He disclaimed any real knowledge, beyond speculation, that it too was linked to his mother-in-law, as well as about Bigley itself or its receipt of the $27.4m in June 1988 (or about a further $1.1m paid to Bigley from Pincinco in October 1990 - save to speculate that this might represent interest on the $27.4m).

Mr Sarasola’s disclaimer conflicts with strong evidence from the file of Merrill Lynch Bank Suisse. The file starts with a note of a meeting on 8th December 1987 between Mr Sarasola and Chandra Farek of the bank, although Mr Sarasola said in his deposition that he had never heard of him. According to the note, Mr Sarasola told the bank that he maintained an account in the name of Horowitz and said that he was going to open another account in the name of Bigley. The file includes numerous documents indicating that this is what Mr Sarasola then did. The file contains a letter signed by him dated 8th December 1987 instructing the bank to accept orders from a Mr Alvaro A. Alonso, signature cards signed by Mr Sarasola dated 10th December 1987 and 2nd July 1988 (accompanied in the bank’s file by photographs of his passport) and declarations by the account managers dated 10th December 1987 and 21st January 1988 as to Mr Sarasola’s control and beneficial ownership of account Bigley. All Mr Sarasola did when copies were shown to him during his deposition was to refuse to answer to copies, to question their authenticity and to suggest that their use was in some unexplained way illegal. It is true that only copies of these documents were and are available. But it is implausible to think that this internal bank documentation made available by Merrill Lynch Banque Suisse to Juge Tappolet (whether in original or copy form) was or is the product of forgery and of some elaborate plot. 

Mr de la Rosa’s reference to a payment to Horowitz Corporation seems, from Touche Ross Nederland’s letter dated 17th May 1988, to invoke a payment of Ptas.2.5b which had already occurred at the beginning of 1990 quite separately from the $27.4m paid in June 1988. In a letter dated 25th June 1996, Mr de la Rosa actually asserted that the $27.4m was itself paid on 7th January 1988 rather than on 1st June 1988, and that all documents relied upon by GT to show a payment on 1st June 1988 were “sham” - including, it would appear, his own undated letter requesting the payment, which he says he was “asked to sign, without date, some months after the payment had actually been made”. The evidence of Mr Betts, supported by Kokmeeuw’s bank statement and relevant bank transfer documentation, demonstrates this to be nonsense. As to Mr de la Rosa’s statement that the $27.4m was a complementary payment, there is no explanation why, if so, $5,996,000 of this sum passed by bearer cheques to Mr de la Rosa and his wife. Further, I note that Mr de la Rosa was ready enough, when interviewed on 19th October 1992, to acknowledge the making of complementary payments outside Spain in respect of the Diagonal site, but offered no help on the Croesus and Oakthorn transactions.

Mr Robinson, who had disapproved of the Cartera Central transaction and been marginalised in relation to its operation, gave evidence that he was unaware of any help or services provided by Mr Sarasola, while conceding that it was “possible” that Mr Sarasola in fact provided services and that he was unaware of it. That provides no evidence that Mr Sarasola did do so.

Bigley received, as I have said, a further $1.1m from the Pincinco transaction. Mr de la Rosa’s interlocutory suggestion that it also received the $4.9m paid to Stuart account from Pincinco is not supported by any evidence.

In summary, Bigley appears to have been Mr Sarasola’s vehicle. There is reason to think that Mr Sarasola was also involved with Horowitz, although he asserts that this can at most only have been on behalf of his mother-in-law. There is no positive evidence to suggest that the payment away of $27.4m in May 1988 served any purpose of either GT or indeed the KIO, and no apparent reason why there should have been two separate complementary payments (to Horowitz and Bigley) in respect of the same transaction. Mr de la Rosa’s attempt to fuse or confuse the two payments underlines this point. Mr de la Rosa’s receipt personally of monies from Mr Sarasola tends also to undermine the proposition that the payment to Mr Sarasola was for any genuine purpose of GT. The circumstances in which the sums paid to Kokmeeuw to make good the payment away were covered up by the Croesus loan and Wantley invoice, and the subsequent association of the Croesus and Oakthorn transactions in explanations given and steps taken in respect of THL’s and GT’s accounts, do not encourage any belief that the payment away was for any genuine purpose of GT. The wider picture which emerges when the later transactions involving Oakthorn, Pincinco and Wardbase are taken into account suggests that the payment away in May 1988 of $27.4m should be viewed as a first example, in the context of this case, of fraudulent misappropriation of monies. The nature of any dealings with Mr Sarasola which led to the latter being paid $27.4m in mid-1988 and to Mr de la Rosa receiving from this nearly $6m remains obscure. But I conclude as a matter of probability on the material before me that the whole of the payment away of $27.4m in mid-1988 involved misappropriation of monies for purposes other than GT’s.

IV.2(c) Oakthorn 1
Mr Jaffar pleaded and alleged that this payment was made partly to enable the plaintiffs to acquire shares of a sugar company, Ebro, Compania de Azucares y Alcoholes S.A. (“Ebro”), and that part of it went in that context to the sellers of the shares, while another part went to “various politicians and civil servants in connection with the takeover”. Ebro was, once acquired, to be merged with another company, Compania de Industrias Agricolas S.A. (“Agricolas”), to form Ebro Agricolas S.A. and it was necessary to keep the payments secret from other shareholders and from the Spanish Ministry of Agriculture. The $7.5m (which, until Juge Tappolet’s documents showed otherwise, was all that Mr Jaffar admitted receiving himself) was, he pleaded, commission or bonus agreed in respect of his successful efforts in relation to the acquisition and disposal of a stake of 11.5% of the shares of British Petroleum at a profit to the KIO and/or Kuwait Petroleum Corporation of approximately $750m.

Mr de la Rosa pleaded baldly that he believed that the $7.5m and $37.5m were transfers to KIO external accounts - by inference for the KIO’s own purposes - which it was intended would be repaid out of underwriting commission to be earned by Oakthorn on a future increase in GT’s capital. Nothing supports this plea, especially when the actual destinations of the $55m are taken into account.

Mr Soler said that he was informed by Mr Nunez, probably around July 1989, that THL was lending $55m to Oakthorn to make a confidential payment relating to Ebro, which had been acquired by GT about a year previously.

Mr Folchi in his November 1992 memorandum and his first witness statement, seemed clearly to suggest that the arrangements made with Mr Russell for the Castle Trust and Oakthorn took place in the express context of a request by Mr Robinson to establish an offshore structure to enable complementary payments to be made in relation to Ebro. In evidence Mr Folchi said  that this was not what he meant, and that use of Oakthorn for payments specifically relating to Ebro only came later. In his November 1992 memorandum, Mr Folchi described the destination of the payments as (a) $37.5m paid to external accounts, (b) $7.5m also paid to external accounts “in connection with an operation in Kuwait, the details of which were not given to me by Mr Ball”, (c) $3m paid direct to the KIO (i.e. the part repayment of Kokmeeuw in the Croesus transaction), (d) “$5m paid to Bankers Trust as a complementary payment for the takeover of Ebro, according to my information” and (e) $2m “applied to expenses in this and subsequently envisaged operations”.  In his supplementary witness statement, he suggested that the $37.5m paid to external accounts had also been explained as connected with Ebro.  There and in oral evidence he added that, before preparing his November 1992 memorandum, he was also told by Mr de la Rosa that the $5m in (d) was for professional services supplied by a Spanish lawyer, Mr Hermosilla, in connection with Ebro. Mr de la Rosa’s points of defence served 9th November 1995 also plead that this $5m was paid “in relation to the legal expenses incurred by GT in making a bid for [Ebro]”.

Information summarised in section II.2 of this judgment shows that the $37.5m went (in effect) as to $22.5m to Sheikh Fahad and as to $15m to Mr Jaffar (making his total receipts from Oakthorn 1 $22.5m too). The $5m which Mr Folchi now says that he understands went to Mr Hermosilla can only be the $5m which is now known to have gone to Mr de la Rosa. There is nothing positive to link any of the Oakthorn 1 payments with Ebro. I am quite unable to conclude or assume, without any direct evidence, that Mr de la Rosa did in some unknown way and at some unknown date pass on the $5m to Mr Hermosilla for purposes truly associated with GT or the KIO. Any such suggestion places far more weight than could possibly be justified on an understanding only recently volunteered by Mr Folchi and on Mr de la Rosa’s supposed willingness to see large sums go to Sheikh Fahad and Mr Jaffar without any sums coming to him. Mr Folchi’s  account also depends, at its highest, on what he was told by others such as Mr Ball or Mr de la Rosa. Such tracing of the $5m as is possible on the basis of Juge Tappolet’s documentation (essentially up to the end of 1989) shows no sign of any payment to Mr Hermosilla. On the contrary, it indicates that the $5m formed part of monies put on fiduciary deposit and/or invested for periods in Prima shares, always for the benefit of one or other Stuart account at BT. On the evidence before me, it is, in my view, improbable that the $5m went for any proper purposes of GT.

There exists a purported letter dated 21st February 1988 from Mr Robinson to Mr de la Rosa. It reads:

“I refer to our agreement at the [GT] board meeting held on 17th February 1988 to proceed with a public bid for Ebro S.A.
You suggested that from your conversations with Ebro’s management and principal shareholders it may be necessary to pay a premium of up to $90 million out side of Spain. In looking for the best legally acceptable way to accomplish this you might consider providing a loan to a foreign company in the amount of the premium. In order to avoid any question of foreign exchange permissions it might be better if this came from the proposed U.K. subsidiary of Torras.
Please let me know if you intend to proceed by this route”

Not surprisingly, the authenticity of this letter (disclosed by GT and Mr Folchi) is not accepted. No evidence was given to establish its genuineness, and it seem another clear forgery. Aside from its remarkable prescience (in anticipating the formation of THL, the acquisition of any company like Oakthorn and the idea of loan), it is clear that no “premium of up to $90 million” ever had to be paid.

Mr Folchi in fact appended the letter to his memorandum to the Attorney General of Kuwait among authorisations which he said he always regarded it as being of paramount importance to ensure for all operations in which he was involved. In his supplemental witness statement he said that he was unaware of it. He was not however cross-examined about these matters. Neither side in fact referred to or relied upon its appending to the memorandum. Its presence should therefore probably be taken as a neutral factor, though Mr Folchi’s truthfulness in respect of the November 1992 memorandum was in issue. His general explanation for any inaccuracies in it was that they resulted from reliance upon others, particularly Mr de la Rosa. I would accept Mr de la Rosa as a likely author or instigator of the forged letter dated 21st February 1988. Even if one proceeds on the basis that Mr de la Rosa “fed” Mr Folchi with this false letter, it does not however follow that other significant inaccuracies in Mr Folchi’s November 1992 memorandum can be so explained. 

I consider below Mr Jaffar’s suggestion that the $7.5m represented entitlement to a bonus or commission in respect of BP, which others chose, unbeknown to him, to arranged to settle out of the Oakthorn 1 payment.

IV.2(d) Oakthorn 2
Mr Soler said in his witness statement and evidence that Mr Nunez told him in June 1990 that GT needed to make a further confidential payment in relation to the merger of Ebro and Agricolas, that a further loan was to be made by THL to Oakthorn for the purpose and that GT or the KIO would put Oakthorn in funds in due course to enable Oakthorn to repay THL. Mr Folchi in his November 1992 memorandum also explained the second Oakthorn payment as involving complementary payments in the context of the merger between Ebro and Agricolas which he said was announced for March 1990 at GT’s board meeting of 28th February 1990. According to his memorandum, the payments of $22.5m and $15.5m were applied to make complementary payments, while the further transfers of $10m and $2m “went to external accounts, according to the information that I received from Mr. Ball”.

There is nothing to show or suggest that any of the payments totalling $50m made in respect of Oakthorn 2 was actually made as or used for complementary payments in relation to Ebro or its merger with Agricolas, or for any other purpose which might be said to be connected with GT or the KIO. The $22.5m went to Sheikh Fahad, who still asserts that it was a bonus for his services relating to the BP transaction. Mr de la Rosa pleads that he was told by Sheikh Fahad at the time that it was such a bonus. The $10m went to the account of Jakhal Foundation, where it was effectively under the control of Mr Jaffar. It was then used to fund a development in the Turks and Caicos Islands being undertaken by the fifty-first defendants, Parrot Cay Development Company Limited. It is clear that Mr Jaffar had become a moving spirit and source of funding behind this development. Mr Jaffar has claimed that he received the $10m from GT and/or the KIO as partial repayment of sums paid or to be paid by him for their account in connection with the Hammarstone transaction (section IV.2(f) below). The $13m and $2.49m went indirectly to Mr de la Rosa’s Stuart account 130900 at Bankers Trust, the $13m being immediately transferred to Stuart account 130670. Out of the $2.49m, two internal transfers totalling $1.39m went to Mr Folchi’s account Falcon. The beneficiaries of the Montrex account which received $2m remain unknown.

IV.2(e). The suggested BP bonuses
A brief outline of the BP transaction will suffice. In October 1987 the British Government resolved to sell its remaining 31.8% stake in British Petroleum (“BP”). Over the next six months, until 11th March 1988, a 22.5% holding of BP shares was built up in the name of the KIO. This holding gave rise to public disquiet and concern in the United Kingdom. On 3rd May 1988 the British Government referred the matter to the Monopolies and Mergers Commission (“MMC”). The MMC ruled in October 1988 that the KIO holding should be reduced to 9.9% within one year. The BP share price fell significantly, giving rise to a substantial paper loss on the holding in KIO’s name. Mr Jaffar negotiated for sale of part of the holding to Pennzoil Inc. (“Pennzoil”), and entered into an agreement for such a sale, under which the KIO had the right to approach other purchasers for 21 days, subject to Pennzoil’s right to match any offer so obtained. Mr Jaffar then negotiated and on 20th December 1988 agreed with BP for BP to purchase from the KIO 11.5% of BP’s shares at a price which yielded the KIO a profit of around $750m on those shares. Pennzoil declined to match BP’s offer.

In his points of defence served 22nd December 1995 Sheikh Fahad alleged (a) that the $22.5m paid to him in June 1990 was a bonus payment in connection with the BP transaction, paid pursuant to approval given by the Board of the KIO at a meeting in Kuwait in late 1987 or early 1988, and (b) that he had no knowledge that it came from the Oakthorn 2 transaction or from the plaintiffs. In amendments for which leave was given during the trial on 9th November 1998, Sheikh Fahad added allegations that the decision to pay the bonus was made by the Supreme Oil Council of Kuwait - and communicated to Sheikh Fahad by Sheikh Ali Khalifa, then Minister of Oil, in the latter’s office at KPC in Kuwait - in late 1987 or early 1988. He also asserted that Sheikh Ali Khalifa informed the Board of the KIA of the decision without objection in late 1987 or early 1988; that in about October 1988 Sheikh Ali Khalifa told Sheikh Fahad in London that the total of the bonuses to be paid in respect of BP should be $50m; that in April or May 1990 Sheikh Ali Khalifa, by now Minister of Finance and Chairman of the KIA, further informed Sheikh Fahad that his bonus should now be paid and that it would be in the region of $20m and that Sheikh Ali Khalifa would arrange for Mr Ball to make the payment; and that shortly after this the $22.5m was received by Sheikh Fahad. Sheikh Fahad failed to give any evidence in support of his case on any of these aspects.
 
Mr Jaffar alleges in his pleading that Sheikh Fahad informed him in late 1987 that the Board of KIA had agreed to pay an additional reward for their efforts to those involved in relation to the purchase of BP’s shares, and that in reliance on that assurance Mr Jaffar agreed to act in relation to such acquisition, that in early 1989 the amount of Mr Jaffar’s bonus was agreed orally at $7.5m between Sheikh Ali Khalifa and Sheikh Fahad, who informed him accordingly, and that Mr Ball must have arranged through Mr Folchi for the payment to be made, as it was, out of the monies paid in Oakthorn 1. One suggestion which Mr Jaffar made, prior to his withdrawal from further participation in the trial, was that the KIO shareholding in BP was built up using money  from the Kuwait Petroleum Company (“KPC”); that it was appreciated that any KPC holding would not attract the same immunity from taxation as a KIO holding; and that the bonus was to induce Mr Jaffar’s assistance in, and overcome any compunctions on his part about, a delicate and risky situation which might have threatened his continued residence in this country.  In the event Mr Jaffar too failed to give evidence in support of that suggestion or any other aspect of the suggested bonus.

The matter can be taken further. The evidence demonstrates to my satisfaction that there is no basis for any suggestion that either the KIA Board or (as suggested by Sheikh Fahad in his notably late amendment of the pleadings) the Supreme Oil Council ever considered or agreed, or would ever have been likely to consider or agree, any bonuses of the nature suggested. There was some investigation with witnesses of the possibility that bonuses were on occasions paid by KIA or KIO using indirect routes. But nothing lends any credence to the suggestion that the quite extraordinary bonuses suggested by Sheikh Fahad and Mr Jaffar would have been or were ever contemplated or paid. I heard evidence from the managing director of the KIA from June 1982 to February 1991, Mr Al-Rashed.  He proved to be a clear, open and impressive personality. He attended every single meeting of the KIA Board in 1987 and 1988. His evidence left me in no doubt that no such bonuses were ever discussed or agreed, and that Mr Al-Rashed would have had a clear recollection of so unusual an item, if they had been. Mr Al-Hunaif, Under-Secretary of the Ministry of Finance of Kuwait, in his statements admissible under the Civil Evidence Act, confirmed his attendance and the absence of any reference to any such bonuses at the four KIA Board meetings which took place between June 1987 and the beginning of March 1998. Mr Bureslee, Under-Secretary in the Kuwaiti Court and secretary to inter alia the Supreme Oil Council, in a statement admissible under the Act, also confirmed after inspecting the relevant minutes that there was no discussion or approval of any such bonuses at any meeting of the Supreme Oil Council in 1987 or 1988.

No documentary support exists for any discussion, agreement or payment of any such bonuses. Neither Sheikh Fahad nor Mr Jaffar went into the witness box to give any evidence of any such bonuses. If the KIO, KIA or Ministry of Oil had wished to pay any such bonuses, no obvious reason exists why this should have been done or covered up in the way suggested involving GT and THL. That Mr Ball should arrange for payment of Sheikh Fahad’s and Mr Jaffar’s bonuses out of, respectively, the Oakthorn 2 and Oakthorn 1 monies, without either Sheikh Fahad and Mr Jaffar having any idea that this was the source of their bonuses, would anyway be difficult to credit. When interviewed on 27th October 1992 Mr Jaffar could give no explanation for the Oakthorn 1 payment of $55m at all. Sheikh Fahad in his affirmation of 16th January 1994 said that he had no idea why the $7.5m paid away in Oakthorn 1 was so paid, or therefore that it involved any bonus to Mr Jaffar. That Mr Jaffar’s bonus should be paid a year ahead of Sheikh Fahad’s would be, to say the least, strange. That Sheikh Fahad should in late 1993 instigate and fund legal steps to try to prevent Chemical Bank plc having to disclose to the plaintiffs information showing his receipt of an agreed bonus would be difficult to understand. The context of the case as a whole, including the other unexplained receipts which have now been demonstrated, is further confirmation that no such bonus or commission as Sheikh Fahad and Mr Jaffar have sought to allege was ever discussed, let alone agreed.

In the circumstances, it is unnecessary for me to reach or express any view about the source of the funds used for the BP transaction, the basis on which the stake in BP was acquired in the KIO’s name or the UK tax position. Even if one were to assume - and I make it clear that I reach no such conclusion - that shares held in the KIO’s name were in reality acquired for the KPC, I am quite satisfied that this did not lead to any agreement for or payment of any bonus to either Mr Jaffar or Sheikh Fahad. I have little doubt that the real reason why the BP transaction has been invoked by both Sheikh Fahad and Mr Jaffar is that it was a transaction of enormous value and profitability, on which it might just be supposed that commissions or bonuses might have been paid which (it was hoped) could explain in court Sheikh Fahad’s and Mr Jaffar’s otherwise inexplicable receipts of $22.5m and $7.5m respectively. Further, I strongly suspect that the suggestion that the transaction was in truth for the account of KPC and that it involved evasion of UK taxation also offered a prospect of embarrassment to the KIO which (it was hoped) might deter this litigation. I add that there is no evidence to support Mr de la Rosa’s plea that Sheikh Fahad mentioned any BP bonus to him at the time of the Oakthorn 2 transaction, and there is no likelihood in my view that he did. I also reject Sheikh Khaled’s suggestion that Sheikh Fahad mentioned receipt of monies for his role in the BP transaction during the October 1992 meeting (section II.7 above).

IV.2(f). The Hammarstone transaction
As pleaded by Mr Jaffar, in early 1990 Hammarstone Holdings N.V. (“Hammarstone Holdings”) acted on behalf of GT and the KIO in acquiring shares in Prima Immobiliaria S.A. (“Prima”), and to do so borrowed the Deutschmark equivalent of Ptas.10.2b, secured by a cash deposit of $14m. According to Mr Jaffar’s pleading, at the request of Mr de la Rosa for GT and Sheikh Fahad for the KIO, he arranged for the Jakhal Foundation to put up $12.8m of  this deposit on 15th February 1990, on terms that GT and/or the KIO would reimburse him, and used for this purpose inter alia the $7.5m paid to him (on his case as BP “bonus”) under Oakthorn 1. Pursuant to requests by Mr Folchi for GT and/or the KIO, between August 1990 and September 1991, he made additional payments to Banque Paribas totalling $34.57m as well as payments totalling $5m to Banco Santander (Suisse) S.A. (which had lent Hammarstone Holdings $30m). The $10m received out of Oakthorn 2 was pleaded as received in partial reimbursement of outgoings for the account of GT and/or the KIO, and Mr Jaffar counter-claimed against GT and/or the KIO to the extent that he remained allegedly out of pocket.

Mr Jaffar has submitted to judgment on his counterclaim. He has given no evidence in support of his case regarding the Hammarstone transaction. His affidavit of assets in this litigation contained no suggestion that he had any claim for reimbursement of large sums relating to the Hammarstone or any transaction. His original affidavit evidence did not disclose that the $10m from Oakthorn 1 had gone to Parrot Cay, but suggested that it had been used to fund payments to Banque Paribas. The payment to Parrot Cay and the suggestion that it was received in partial reimbursement of outgoings emerged only later, under this court’s orders. Further orders led in 1995 to confirmation that Mr Jaffar has received a further $4m from the Pincinco transaction, which he also explained as reimbursement for the Hammarstone transaction. Still later, the plaintiffs identified the receipt by Mr Jaffar of $1m in an operation involving a Swiss company, Gesfinance S.A., which Mr Jaffar on 10th May 1998 attributed to the Hammarstone transaction. As an explanation for the past receipt of monies, however, Mr Jaffar must have regarded the Hammarstone transaction as exhausted, because he did not invoke it when during the trial there were, for the first time, discovered (a) Dorset Corporation’s receipt of the additional $15m out of Oakthorn 1 and (b) Jakhal Foundation’s receipt of a further $1m and Dorset Corporation’s receipt of a further $7m out of Stuart account in the Pincinco transaction in November 1990 and February 1991.  Indeed, he admitted that he had no justification for the receipt of the $15m and was prepared to submit to judgment on the counterclaim which had been raised in respect of Hammarstone, and it must be regarded as a venture for his own account in respect of which he had no rights against the plaintiffs or the KIO.

I need say no more about the Hammarstone transaction, save that Mr Jaffar’s defence and counterclaim based upon it have failed in their entirety.

IV.2(g). Pincinco
Various defendants have said, that, according to their understanding, the Pincinco transaction took place in the context of the Iraqi invasion of Kuwait and involved highly confidential payments to (as Mr Folchi’s November 1992 memorandum put it) “external accounts and Spanish and foreign political authorities and institutions”. Mr Coll said that, when he became involved around the end of 1990, Mr de Mir explained that payments connected with the occupation of Kuwait had been channelled through GT, and referred him for further information to Mr Folchi who confirmed this. Mr Soler said that one or more of Mr de la Rosa, Mr de Mir and Mr Nunez told him, in September 1990 in relation to the additional Ptas.40b loan to GT, that Ptas.30b for war payments while Ptas.10b was to cover THL’s debt to Banco Santander in respect of the Croesus and Oakthorn 1 operations, although in the event this debt was covered by borrowing from Chase Manhattan. Mr Soler said that Mr Coll also told him in May 1991 that the Ptas.30b had been for war payments.

Mr Betts said that during a flight to Spain with Mr de la Rosa on 10th June 1991, Mr de la Rosa vouchsafed that Sheikh Fahad had been “instructed to pay away” a total of $420m by Sheikh Fahad on behalf of the KIO over the past two years or so. During meetings with Mr de la Rosa, Mr de Mir, Mr Folchi and Mr Soler in Barcelona on 11th/12th June 1991, Mr Betts was then told that some $120m had been advanced on Sheikh Fahad’s instructions in 1988 and 1989 in tranches (noted by Mr Betts as $25m, $55m and $40m) to shell companies in respect of GT’s takeover of and investment in Ebro. He was also told that $300m had been paid away through a Swiss deposit account on behalf of the KIO in highly confidential circumstances, and that all of these sums were irrecoverable and required to be written off by Mr Coll’s scheme. Mr Betts accepted the explanation about Ebro, but was very concerned about the payment away of $300m. On his return to London, he saw Sheikh Fahad on 13th June, told him what he had learned regarding the $300m and the $120m, stated that in his view the $300m should be set against KIO’s lending to GT and disclosed as a capital payment from the KIO’s future generations fund and indicated, finally, that he was thinking of resigning. On the basis of evidence given by Mr Betts which I accept, Sheikh Fahad was clearly aware of the transactions, and clearly understood what Mr Betts was saying. After taking time to think, Sheikh Fahad did not accept Mr Betts’s recommendation, but told him that the payment had been made on behalf of the State of Kuwait and routed through GT because of its extreme delicacy, and that Mr Betts should not discuss the issue with anyone else. This treatment was in Mr Betts’s view wholly exceptional. During the period of the Iraqi invasion of Kuwait, the KIO was the vehicle for many payments in the interests of the State of Kuwait. But other war payments had, so far as Mr Betts knew, been recorded as such in the KIO’s books.  In the light of Sheikh Fahad’s authority and assurances, Mr Betts decided to keep his head down and put aside his thoughts of resignation.

On 18th June 1991, Mr Folchi and Mr Coll visited London and met Mr Betts. Prior to this visit Mr de la Rosa gave Mr Folchi two purported letters from Mr de Prado one dated 10th October 1990 and one dated 5th March 1991.

There are in fact two purported letters dated 10th October 1990. In the longer one, Mr de Prado purports to thank Sheikh Ali Khalifa, as Minister of Finance, for efforts made in the past few weeks “which have been of inestimable help in clarifying the delicate political matters connected with the U.S.A. and the use of their bases so that the agreed plans could be carried out” and for “your latest and very sizeable contribution” which “has made it possible to overcome the obstacles about which we were so concerned”. The other letter dated 10th October 1990 asks Mr de la Rosa to deliver the letter to Sheikh Ali Khalifa, the subject matter of which it identifies as “the 120m.$ of the year 1989 and .... the 300m.$ from few weeks ago”.

On travelling to London, Mr Folchi showed Mr Coll one of these letters, probably the longer letter dated 10th October 1990. Mr Folchi’s evidence varied as to whether and to what extent he had otherwise deployed these letters. Ultimately, his evidence was not that he had showed Mr Betts any of these letters, but that he had explained to Mr Betts the general content of Mr de Prado’s purported letter regarding war payments. This seems likely, in view of Mr Betts’s notation in his day book of a “discussion with Folchi on support operations during emergency”, and his recollection that he was told at some point (not by Sheikh Fahad) that the $300m was paid in return for the Spanish government agreeing to allow refuelling in Spain of NATO bombers en route to the Gulf in breach of NATO regulations. During Mr Folchi’s visit to the KIO in London, he went with Mr Betts, probably without Mr Coll, to see Sheikh Fahad. According to Mr Folchi, although Mr Betts had no recollection of this, Mr Folchi made available to Sheikh Fahad copies of the two purported letters from Mr de Prado which Mr de la Rosa had given him. Sheikh Fahad’s discovery includes copies of those letters.

On 18th February 1991, a KIA board meeting attended by Sheikh Fahad reviewed items of State of Kuwait expenditure by the KIA for the period from the Iraqi invasion on 2nd August 1990 up to the end of 1990. Later in 1991 and early 1992 the KIO’s Spanish investments in and through GT and its loan exposure to GT were reviewed at meetings attended by Sheikh Fahad. The relevant meetings were a meeting of the KIA board on 17th July 1991, a meeting of the KIO executive committee on 18th/19th September 1991, (where Sheikh Fahad’s authority to make the loans to GT totalling $1.7b was challenged), a second meeting of the KIA board on the 4th December 1991 (where this challenge was renewed and the board had before it a memorandum from Sheikh Fahad dated 26th November 1991) and a third KIA board meeting extending over 22nd and 28th January 1992 and 2nd February 1992, where Sheikh Fahad sought to explain the position. At the meeting on 17th July 1991 Sheikh Fahad put the sum requiring to be capitalised at $1.4b, rather than the $1.63b which Mr Betts had, by memorandum dated 15th July 1991, informed him was the right figure. Mr Betts denied, and I accept his evidence, that he ever said to Sheikh Fahad that exchange rate differences reduced the true figure to $1.4b (a statement which would have made no sense). A memorandum by Sheikh Fahad dated 26th November 1991 explained the Ptas.1.2b support afforded to GT in September 1991 unambiguously as necessary to “fund the short-term fall in the company’s cash position and to repay  a large part of the outstanding third party loans” in order to “avoid a fire sale liquidation of the underlying assets”.

Mr Abulhassan attended all the meetings, as a member of KIA board from 9th February 1991 and also a member of the new KIO executive committee from 1st August 1991. I accept his evidence, given straightforwardly, that Sheikh Fahad never suggested that any political payments on behalf of the State of Kuwait had been made through GT. Mr Abulhassan’s evidence was somewhat unclear as to when the KIO’s $1.2b exposure was first mentioned. At some points he accepted that it would have been apparent (from a “source and application of funds” document) as early as the February 1991 meeting, but, in my judgment, the better view in the light of his evidence as a whole and the overall probabilities is that is that this level of exposure was only mentioned at the 18th/19th September 1991 meeting, when and after which its extent and authorisation at once became an issue. Whenever it was mentioned, I find that Sheikh Fahad did not at any point during this whole period - at any of these meetings or in his memorandum dated 26th November 1991 - ever explain or seek to justify a substantial part of the exposure (corresponding with the $300m disbursed on the Pincinco operation) by making any reference, either specific or general, to political, war or other payments made on behalf of the KIO or the State of Kuwait. If this had been, or he had believed it to be, the real explanation, Sheikh Fahad would, I am confident, have mentioned this. 

Nor does the information now available regarding the destination of the disbursements from Pincinco support any explanation of the transaction in terms of war payments. $75m went to and remained with Sheikh Fahad, $20m to Sheikh Khaled and $4m to Mr Jaffar. $80m went to Mr de Prado. Mr de Prado has acknowledged receipt of the $80m.  He has told the Spanish court that it discharged business indebtedness between himself and Mr de la Rosa. His description of the nature and origin of so large an indebtedness remained notably obscure and entirely undocumented. But Mr de la Rosa in a letter to Mr de Prado dated 17th May 1993 has also acknowledged that no political payments were made to Mr de Prado. Mr de Prado’s purported letters dated 10th October 1990 to Mr de la Rosa and Sheikh Ali Khalifa are, on the expert and other evidence before me, forgeries. Mr de la Rosa in his letter dated 17th May 1993 to Mr de Prado disclaimed any knowledge of them. Mr de Prado’s purported letter dated 5th March 1991, addressed to Sheikh Al-Salem Al-Sabah, Crown Prince and Prime Minister of Kuwait and accusing Mr Al-Haroon of passing information about the KIO to Iraq, is equally bogus. All that need be said about responsibility for such forgeries is that anyone involved in misappropriating monies in the Croesus, Oakthorn and Pincinco transactions would have had an obvious motive for attempting to discredit Mr Al-Haroon, on whose diligence in attempting to understand and grasp the position I have already commented.

Mr Al-Bader, as managing director of the KIA since April 1993, was asked by Mr Field (for Sheikh Fahad) and by Mr Coll why Mr de Prado has not been joined in the present proceedings in the ten months which passed between his deposition in January 1996 (admitting receipt of $80m from the Pincinco transaction and $20m from the Wardbase transaction and attributing such receipts to private dealings with Mr de la Rosa) and the expansion of the Spanish proceedings to include these transactions. Mr Field suggested that the inference was that the payments to Mr de Prado were, after all, for political purposes. Mr Al-Bader’s answer was that this was a matter for the legal team handling the matter for GT and that he himself only knew of Mr de Prado’s deposition from Spanish press cuttings. His witness statement of December 1997 also said that he was unaware of any payments to Mr de Prado. I regard Mr Al-Bader as a truthful witness, and I accept this evidence. No relevant conclusion can on the information before me be drawn from the fact that the plaintiffs did not immediately take steps to join Mr de Prado in England. He is now in fact being sued there. Nor can I attach significance to the suggestion put to Mr Al-Bader in cross-examination that GT positively sought to stop criminal proceedings against Mr de Prado in Spain. Mr Al-Bader, I accept, knew nothing about any such attempt. No evidence was put before me by Sheikh Fahad or by anyone else about this, still less any evidence that could justify any inference that the payments to Mr Prado were - alone among the Pincinco payments - political in nature. As a matter of probability, I find the contrary.

IV.2(h). Wardbase
The payment of Ptas.2b had nothing to do with CdA or with the successful completion of that project. It went to Mr de Prado. His explanations - once again of extreme and undocumented generality - attribute the payment to private business indebtedness of Mr de la Rosa. Mr de la Rosa pleads, and there is a hint by Mr Folchi in the same direction in his November 1992 memorandum, that the payment was for the same services by Mr de Prado or his “lobby” in relation to the Iraqi invasion of Kuwait, as Mr de la Rosa suggested were at the root of the Pincinco payment to Mr de Prado. But no reason has been suggested why any such “lobby” payment should be made over a year after the end of the Iraqi invasion. Further, both Mr de Prado and Mr de la Rosa in his letter of 17th May 1993 have denied any political aspect. In another letter dated 15th March 1996 Mr de la Rosa suggested a different kind of activity by Mr de Prado’s lobby, namely services rendered in the interests of CdA, and so indirectly in GT’s interest. This is also clearly nonsense. The real reason why, in the dying days of his hegemony at GT, Mr de la Rosa rushed through a payment to Mr de Prado of so large a sum remains obscure. But there is no evidence, and there does not seem to me any real likelihood, that it was for any purpose of GT, THL or the KIO.

IV.2(i). Summary regarding purposes
This analysis demonstrates that, far from there being any plausible evidence of complementary payments, war payments or payments for services for the purposes or benefit of THL, GT or the KIO, the evidence militates, in some cases very clearly, in others less so, against any conclusion that any of transactions can be so explained. My conclusion is that none of the payments in the relevant transactions was for any purpose of GT, THL or the KIO.

IV.3 Individual Defendants
Against this background I turn to the case advanced by the plaintiffs in respect of the defendants. Each transaction must be evaluated separately. The plaintiffs allege that different transactions involved different conspirators, albeit with other persons unknown. Different transactions also have different characteristics. Wardbase seems likely to have had a purely Spanish origin, and was the only transaction which was not, in some way, financed by the KIO or the subsidiaries through which it held GT. Croesus does not involve any payment to Sheikh Fahad or Mr Jaffar. But there are also common factors between different transactions. Sheikh Fahad and Mr Jaffar received substantial monies from Oakthorn 1 and 2 and from Pincinco. Mr de la Rosa played a part in each transaction and can be seen to have received monies in all save Wardbase. He also arranged for Mr de Prado to receive substantial monies from Pincinco and Wardbase. Even Mr Sarasola, the main beneficiary of Croesus, featured in a very small way in Pincinco. $3m from the Oakthorn operation went towards repayment of Kokmeeuw in the Croesus transaction. The Croesus and Oakthorn transactions were documented together and handled together on the GT group’s audit for 1990. The Croesus, Oakthorn and Pincinco transactions were all, in one way or another, the subject of Mr Coll’s scheme developed from December 1990 and implemented from July 1991 onwards.

IV.3(a) Sheikh Fahad
I did not have the opportunity to assess Sheikh Fahad in person. As a member of the ruling family of Kuwait, a long-standing officer and from 1984 chairman of the KIO responsible for an investment portfolio of some 30 billion dollars, he was a dominant figure within the KIO. He was used, as Mr Al-Haroon agreed, to being treated with respect. Sheikh Khaled, his younger relative, addressed him as “Your Excellency” or “Sheikh Fahad”, while Sheikh Fahad would simply respond “Khaled”. On the evidence, both Sheikh Fahad and Sheikh Khaled were, as one would expect, capable of reading accounts and of asking intelligent questions on any points they did not understand. Further, they would not have been entrusted with control of the entire external assets of the State of Kuwait after the Iraqi invasion of Kuwait, if they had not been capable financial figures. Although I have not had the opportunity of seeing or hearing him give evidence, the suggestion, which it appeared at one stage might be advanced, that Sheikh Fahad should be viewed as a naive or unsophisticated personality has no support in the material before me or in likelihood. After Mr Ball died at the beginning of 1990, and Mr Jaffar ceased to be general manager in March 1990, the dominance of Sheikh Fahad’s position became even more marked.

Spain only represented a relatively small percentage of the KIO’s total investment interests - some 3-5% according to both Mr Robinson and Sheikh Fahad in interview on 23rd October 1992. Nevertheless, Spain was an active area for the KIO, and one requiring continuing and increasing financial support in 1989 and 1990. All the indications are that Mr Jaffar was the KIO officer most closely involved. But Sheikh Fahad would be expected to have been aware of the general nature and level of the support extended and of its general purposes, especially when (as Mr Robinson told me) Sheikh Fahad was sufficiently concerned about the KIO’s Spanish exposure to say that any further investments there required his authority. Transactions of significant size involving Spain - like those the subject of this litigation - would have been expected to attract Sheikh Fahad’s particular interest.

Croesus
In relation to the Croesus transaction, Sheikh Fahad makes no admissions in his pleading regarding the original payment in June 1988. But Mr Robinson gave evidence, which I accept, that, when he received GT’s request for payment of the $27.4m to an account with Merrill Lynch Bank Suisse in May 1988:

“I cleared my lines with Sheikh Fahad, because there had been an issue about ... continuing to make investments in Spain. Sheikh Fahad had said at one point that we should make no further investments in Spain without his authority.”.

Mr Robinson cleared the payment first by putting it to Mr Jaffar who said that he would clear it with Sheikh Fahad, and then at a later date because of his concern by going to see Sheikh Fahad and specifically checking that Sheikh Fahad was happy with what had been done.

Sheikh Fahad admits Mr Nigel Black’s memoranda of 20th and 27th July 1989. These described the promissory notes swap and the intention to use the proceeds of the Conycon/Grueyesa notes to repay “existing debt .... owing to Kokmeeuw of about U.S.$30m”, which was specifically identified as a loan of $27.4m from 1st June 1988 carrying interest. There is no reason to think that these memoranda did not reach or were not read by him. They elicited no response.

A year later at the end of June 1990 Sheikh Fahad received Mr Al-Haroon’s memorandum querying the basis on which $25m had been lent to Croesus (and $55m to Oakthorn). Shortly afterwards, he received Mr de la Rosa’s “clarification” asserting that Sheikh Fahad was already aware that these loans had been authorised and their amounts “paid .... to KIO as repayment of offbook funds advanced to [GT]”, and referring to the intention to “repay” the loans out of commissions generated on “forthcoming divestments”. He did not pass on Mr de la Rosa’s memorandum to Mr Al-Haroon. He did not challenge Mr de la Rosa’s memorandum, which suggests that he was indeed aware of the background, whatever it was. His only reaction was to issue internal orders to restrict and channel any further enquiries like Mr Al-Haroon’s. Neither Mr Betts’s own tame reaction to in mid-July 1990 (see section II.6 above) nor the Iraqi invasion of Kuwait on 2nd August 1990 explains or dispels the adverse inference to be drawn from Sheikh Fahad’s conduct in July 1990.

A year later in June 1991, when Mr Betts was startled to hear that some $420m had been paid away by GT on Sheikh Fahad’s instructions, and told Sheikh Fahad what he had learned, Sheikh Fahad “clearly understood what I was saying” and “was clearly aware of the transactions” (see section IV.2(g) above).

The conclusion I reach is that Sheikh Fahad was at all times aware of the original payment in June 1988 and about its repayment in July 1989 financed by the promissory note swap. If, as I have concluded, the $27.4m was paid away for purposes which were not THL’s or GT’s or the KIO’s, the position must be either that Mr de Rosa misled Sheikh Fahad, or that Sheikh Fahad knew and accepted the true position. Sheikh Fahad has failed to acknowledge or address his awareness of the original payment, or of its repayment funded by the promissory note swap. He failed to respond to reasonable requests by Mr Al-Haroon for explanations, he did not even pass on Mr de la Rosa’s attempt at a response and he sought to suppress further such enquiries. He has failed to plead any explanation, and, since he has chosen not to give any evidence, there is nothing to dispel the adverse inferences which arise naturally from the facts which I have set out.

There is (as I conclude below) compelling evidence that Sheikh Fahad, Mr Jaffar and Mr de la Rosa combined together to misappropriate monies in the Oakthorn and Pincinco transactions. That does not, of course, mean that Sheikh Fahad was involved in the Croesus transaction. Further, the Croesus transaction has features which other  transactions do not have. However, the similarities in the ways in which the payments in all these transactions were sought to be covered up, by use of shell companies and loan or deposit agreements, and the attempt to address them all by the Coll scheme, are certainly consistent with their involving a series of similar misappropriations.

It is in my view legitimate to draw certain adverse inferences from Sheikh Fahad’s payments of fees to Mr Folchi, Mr de la Rosa and Mr Jaffar in 1992-93, and from Sheikh Fahad’s abrupt withdrawal from active participation before me in December 1998. But I do not consider that those inferences assist directly on the question whether Sheikh Fahad knew about, or party to the misappropriation of monies involved in, the Croesus transaction. Sheikh Fahad’s withdrawal from the trial was closely associated with problems he had in maintaining his defence on the Oakthorn and Pincinco transactions. The payment of fees, so far as it is of significance, may simply derive from his involvement in the Oakthorn and Pincinco transactions.

The case against Sheikh Fahad on the Croesus transaction is not as strong as it is on the other transactions. But I am persuaded as a matter of the probability that Sheikh Fahad was party to and involved in the payment away of the original monies by Kokmeeuw in June 1988 and in their repayment by THL and eventually GT in and after 1989, knowing that such payments were not made for the purposes of THL, GT or the KIO.

Oakthorn 1
I turn to Oakthorn 1.  Sheikh Fahad’s involvement in misappropriation is beyond any real doubt or argument. Sheikh Fahad received into his account G772 for his own personal benefit $22.5m out of the $37.5m sent by order of Oakthorn to Lombard Odier, attention Thierry Lombard on 31st July 1989. At an interlocutory stage, after the plaintiffs had issued a summons dated 18th January 1996 seeking a corresponding order against Sheikh Fahad, Sheikh Fahad, in order to procure the court not to make any order, volunteered his eighth affirmation dated 1st March 1996, purporting to comply with the summons. Before me, on 27th March 1996, he then successfully resisted any order, on the basis that it was unnecessary because he had already given on affirmation the information sought. In his eighth affirmation, Sheikh Fahad said expressly that he had no personal knowledge about the payment of $22.5m which (Juge Tappolet’s documents now show) he received from Oakthorn 1. He merely acknowledged his receipt of $22.5m from Oakthorn 2. That receipt from Oakthorn 2 had emerged, against Sheikh Fahad’s resistance, from information obtained by the plaintiffs from an affidavit of 19th November 1993 sworn by an officer of Chemical Bank. Sheikh Fahad said that the receipt was a bonus for the BP transaction, and that he did not realise its origin. For reasons given in section IV.2(e) above, that was a lie. The inevitable inference from all the material before me is that Sheikh Fahad also lied when in his eighth affirmation he denied any knowledge about the $22.5m from Oakthorn 1.

The first reference in this litigation to account G772 came from Sheikh Fahad’s side, in  a letter from his then solicitors dated 12th December 1997.  By that letter, Sheikh Fahad distanced himself from account G772, claiming that he could not recall either its details or its ownership, but saying that he believed that it might be one of many accounts held in his name on behalf of the KIO and/or State of Kuwait and/or other prominent Kuwaitis. After Juge Tappolet’s documentation became available in mid-November 1998, Mr Field Q.C. on behalf of Sheikh Fahad confirmed before me in court (see e.g 26th November 1998, Day 23 page 80) that this remained Sheikh Fahad’s case. In the light of Juge Tappolet’s documentation, Mr Field accepted that Sheikh Fahad’s eighth affirmation required revisiting, on the basis that Sheikh Fahad did, on the face of it, have it within his power to procure relevant further information relating to dispositions of money emanating from the plaintiffs, which would be relevant to the merits or demerits of the claim and of Sheikh Fahad’s response and, possibly also, to the tracing relief sought. On Day 23 I ordered Sheikh Fahad to swear such a further affirmation as soon as possible. On the same occasion, as mentioned in section III.5(i), and for reasons set out in my separate judgment of that date, I rejected a suggestion that his oral evidence should be postponed on the grounds of a supposed exposure to breach of the Kuwaiti law establishing the KIA. On Day 25 (Thursday, 3rd December 1998), Mr Field, while accepting that it would be possible to order Sheikh Fahad to comply with the previous order forthwith, sought further time to enable extensive enquiries into subsequent movements of money out of account G772 to be completed. I concluded that there was no reason for further investigation of subsequent transfers at that stage, that Sheikh Fahad must know and be able to state straightforwardly and immediately (i) whether his position remained as set out in his eighth affirmation, in his solicitors’ letter dated 12th December 1997 and in the statements made through counsel in court, in which case he was presumably challenging the authenticity of Lombard Odier documents purportedly bearing his signatures and should be able to say that straightforwardly and immediately or (ii) whether there was some other and what explanation. In this connection, I expressly acknowledged that there had been some evident forgeries of Sheikh Fahad’s signature, though not, so far as I was aware up to that point, in documents of an internal banking nature. I gave Sheikh Fahad until 3.00 p.m. on the next day (4th December 1998) to answer the basic question which I have set out regarding the essence of his case, and said that I would rule then at 4.00 p.m. on the question whether there should be any further postponement of his oral evidence, due then to commence on Monday, 7th December 1998. My separate judgment dated 3rd December 1998 shows the position more fully. The matter in fact came back before me on the morning of Day 26 (Friday 4th December 1998) at the request of Sheikh Fahad’s legal advisers, when Mr Field Q.C. for Sheikh Fahad announced that Sheikh Fahad would not be complying with my order (or making a further affirmation which I had also ordered verifying his discovery), and would no longer be legally represented in the trial. This position was maintained when I pointed out that the time for compliance had not yet expired and that Sheikh Fahad could seek further time if that were the problem or pursue other remedies if there was any other objection.

The upshot is that Sheikh Fahad was simply not prepared to answer the basic question regarding the essence of his case relating to the transfers into and out of account G772, which he should have addressed at an interlocutory stage some years previously and which he would (quite irrespective of the orders for further affirmations which I made during the trial) have been called upon to answer as soon as he gave the oral evidence arranged to be heard by video-link commencing on Monday, 7th December 1998.  There has been no evidence from Sheikh Fahad personally. There is nothing to suggest, or to make it remotely plausible to suggest, that the documents obtained by Juge Tappolet from Lombard Odier bearing Sheikh Fahad’s apparent signatures are not genuine. Account G772 was administered by Operfina S.A. But as early as 1977 (it seems in relation to a predecessor version of the account also known as account “A”) Operfina S.A. were giving Sheikh Fahad instructions to act on their behalf, and on 1st June 1989 Operfina declared that Sheikh Fahad was the beneficial owner of the account, and Sheikh Fahad himself declared that he was acting for his own account  Further, Sheikh Fahad confirmed or ordered all major payments out of the account as well as its closure in early 1993. On 28th April 1992 he signed a document expressly confirming all major payments out of the account, since May 1989. These included a transfer (via Swiss Bank Corporation) on 12th March 1990 of £5m ($8m) to National Westminster Bank plc., for the account of Abacus Nominees. who in turn credited it to Sheikh Fahad’s Esteem Settlement; and transfers of $20m on 8th February 1991 to Banque Cantonale Vaudoise, Lausanne, of $5m to Pictet & Cie., Geneva on 18th February 1992 and of £5m ($8.65m) on 1st April 1992 to National Westminster Bank plc in Jersey in favour of Sheikh Fahad. On 23rd October 1992 there was a transfer of $2m to Drake Consulting Ltd. (known as the vehicle by which Mr Folchi received $2m from Sheikh Khaled for legal fees in December 1992).

On 13th January 1993 Sheikh Fahad signed a document ordering Lombard Odier to transfer the balance of the assets held in his accounts to Brown Brothers Harriman of New York account Elystum Investments Inc., and to close the accounts. This balance on account G772 was then extinguished by transfers of $50m on 14th/15th January 1993, $80m on 19th/20th January 1993 and $5.3m on 3rd/5th March 1993, and the account was closed.  These payments were all routed on these dates via a chain of accounts at different banks, first to Elystum’s account in New York, then to an account of Leonis Investment Ltd. at Swiss Bank Corp. in Nassau and then to Credit Suisse, Toronto for the account of Pictet Bank & Trust Ltd., who in turn credited it to the account with them of the interestingly named Better Trust, whose trustee is Pictet Overseas Trust Corporation Ltd. of Nassau. The Better Trust was established in the Bahamas by Sheikh Fahad with an initial $10 on 13th January 1993. Its trust deed identifies Sheikh Fahad as primary beneficiary, and his son and descendants as further beneficiaries. When, in purported compliance with my order dated 29th July, as amended 7th October 1994, Sheikh Fahad, by his seventh affirmation dated 11th October 1994, disclosed the existence of this trust with a redacted version of the trust deed. He did so, claiming to have forgotten the identity of its trustees and claiming not to know what the trust owned. That can only have been a lie. Sheikh Fahad must in October 1994 and at all times have known what had become of and who held the $135.3m which he had moved by a devious route from Switzerland to the Bahamas in early 1993.

The amounts standing to the credit of account G772 never fell below the sum of $22.5m which was in that account from Oakthorn 1 on and after 31st July 1989 or the total of $97.5m which was in that account from the combination of the Oakthorn 1 and Pincinco on and after 4th October 1990. Applying traditional tracing principles, and assuming for present purposes that all other monies in or coming into account G772 belonged to him, the plaintiffs are entitled to assume that any payments out of account G772 came out of such other monies rather than theirs. On that basis, it is clear that the sums now residing in the Better Trust still include the $22.5m and $75m received by account G772 from Oakthorn 1 and Pincinco, plus interest on and/or other earnings from such sums.

The timing of Sheikh Fahad’s closure of account G772 is of note. Sheikh Fahad knew of the plaintiffs’ investigations into the relevant transactions in the latter part of 1992. On 8th January 1993 GT commenced the criminal proceedings in Spain, although these did not embrace the present transactions. On 13th January 1993, the day that Sheikh Fahad instructed the closure of account G772, the plaintiffs’ then solicitors wrote a letter before action to his then solicitors in respect of the present transactions. How this was delivered or sent is not clear. But even if it came after Sheikh Fahad’s instructions to Lombard Odier, there is every likelihood that Sheikh Fahad was aware of the Spanish criminal proceedings and realised that the English solicitors handling the investigations into the present transactions must be about to take legal action in relation to them. The Odyssey of the sums from account G772 in Switzerland to Sheikh Fahad’s Better Trust in the Bahamas via New York, Nassau and Toronto tells of desire for concealment.

I am left in no doubt that Sheikh Fahad lied in his seventh affirmation when he said that he had no further information to give about the Better Trust; that he lied in his eighth affirmation when he denied knowing what had become of the $37.5m from Oakthorn 1; that the truth is that he was the beneficial owner of account G772 into which $22.5m of those monies went; that he lied and attempted to obfuscate the position regarding account G772 by his solicitors’ letter dated 12th December 1997 and by the statements which he made through counsel to the court (and thereafter left uncorrected), that he refused to comply with the court’s orders on 4th December 1998, withdrew from further participation in the proceedings and did not give evidence, because there was no satisfactory answer or evidence which he could give; and that in truth he was involved in misappropriation of monies from Oakthorn 1.

Mr Jaffar’s receipt from Oakthorn 1 of $22.5m (an identical amount to Sheikh Fahad’s receipt) can hardly have been coincidence or unknown to Sheikh Fahad. Mr Jaffar’s explanation for receiving $7.5m (before the remaining $15m came to light from Juge Tappolet’s documents) was a supposed BP bonus. Sheikh Fahad deployed a similar explanation when his receipt of $22.5m from Oakthorn 2 was discovered. There was never any truth in the suggestion of any such bonus or bonuses (see section IV.2(e) above). It can be no coincidence that Sheikh Fahad and Mr Jaffar put forward similar entirely unfounded justifications for their respective receipts.

The overwhelming inference is that Sheikh Fahad and Mr Jaffar agreed and were the prime movers in London of a plan to abstract and share the bulk of the monies involved in Oakthorn 1.

I add in parenthesis that it is probably also no coincidence that Sheikh Fahad, on the only occasion that he ever visited Mr Al-Haroon’s office in the KIO, did so not only to override Mr Al-Haroon’s concerns and objections with regard to the cession of Spanish Treasury bills which funded Oakthorn 1, but also to order him to add his signature to Mr Betts’s on the relevant stock-lending agreement. Sheikh Fahad may well have thought it a useful precaution to implicate Mr Al-Haroon as far as he could in this transaction.

Oakthorn 2
Sheikh Fahad’s pleaded case is that he did not know that the $22.5m received into his Chemical Bank account on 13th June 1990 came from the Oakthorn transaction. But Chemical Bank was well aware that these monies came from a company called Oakthorn. Mr Russell on Oakthorn letter paper faxed Chemical Bank regarding the transfer on 13th June and Chemical Bank responded on the same day that they had advised the customer of the receipt of funds. It is improbable that Sheikh Fahad did not know and was not told of the identify of their sender. On that basis, if he had been innocent, one could have expected him to have had Oakthorn’s name in mind, and to have been all the more concerned to read Mr Al-Haroon’s memorandum of 29th June 1989, questioning Oakthorn’s role in Oakthorn 1 and its apparent outstanding loan to THL of $55m dating from 1989. Instead, Sheikh Fahad took steps to prevent or restrict further investigations into such matters.

For reasons already stated, Sheikh Fahad’s plea that his receipt was a BP bonus was and is without any basis.  No such bonus was ever agreed, or ever mentioned until the course of these proceedings. The suggestion of a bonus has been raised by Sheikh Fahad and Mr Jaffar to cloak their receipts of the plaintiffs’ monies. That Sheikh Fahad should in November 1993 attempt to prevent Chemical Bank from disclosing his $22.5m receipt is in the circumstances a further, though unnecessary, pointer towards there being to his knowledge no legitimate basis for this receipt.  

Pincinco
Sheikh Fahad personally received $75m. This went with his Oakthorn 1 receipt into his account G772, the balances from which now reside in his Better Trust in the Bahamas. On the evidence, the whole of the $300m was dissipated for purposes which were nothing to do with war payments, or any other legitimate purpose of THL, GT or the KIO. The dissipation of so large a sum, deriving ultimately from monies borrowed from the KIO and a large part going to Sheikh Fahad himself, cannot have occurred without Sheikh Fahad’s intimate involvement. He has raised no case and given no evidence to dispel that conclusion. His pleaded defence amounts to no more than a series of denials and non-admissions, joined with an assertion that he played no part, directly or indirectly, in setting up or implementing the Pincinco transaction and had no knowledge of the mechanics of the transaction (although his opening statement at trial introduced the suggestion that the payments were war payments, with reference to a supplemental witness statement which he did not support with any evidence). All the indications are that Mr de la Rosa, with Mr Folchi’s advice and assistance, set up the mechanics, so it may be that Sheikh Fahad was not aware of its “mechanics”. But I have no doubt that he knew of the substance of the transaction, was party to it and knew inter alia the precise origin of the $75m coming into his account G772. Sheikh Fahad was aware of the Pincinco transaction when Mr Betts went to see him on 13th June 1991 to voice concern about it. He clearly lied when he told Mr Betts that the payment “had been made on behalf of the State of Kuwait and that, because of its extreme sensitivity, it had been routed through GT”, adding the telling instruction that Mr Betts should not discuss this issue with anyone else.

The upshot is that Sheikh Fahad was a knowing party with others to fraudulent schemes to misappropriate the monies involved in each of the Croesus, Oakthorn 1 and 2 and Pincinco transactions.

IV.3(b) Mr Jaffar
Mr Jaffar as general manager of the KIO worked closely with Sheikh Fahad until March 1990. They had according to Mr Betts “a particularly close relationship”. As general manager in charge of the direct investment department, Mr Jaffar had a significant and, according to Mr Betts, close interest in the KIO’s Spanish investments through GT, even though this may well not have been his main pre-occupation.  He travelled widely, including to Spain. He seemed, according to Mr Betts, to have a close relationship with Mr de la Rosa, who also travelled not infrequently to London. During the Iraqi occupation of Kuwait, Mr Jaffar returned (on a part time basis at least) to the KIO’s offices.

Mr Jaffar received an equal amount ($22.5m) to Sheikh Fahad out of the Oakthorn 1 transaction in July 1989, and a lesser amount ($10m) to Sheikh Fahad out of the Oakthorn 2 transaction. He received $12m out of Pincinco. By the times of the Oakthorn 2 and Pincinco transactions, he had (not it seems entirely of his own choice, but due to KIA influence) ceased to hold formal office in the KIO. His lesser share seems likely to reflect his diminished significance.

Croesus
Mr Jaffar’s principal involvement in Croesus was to counter-sign Mr de la Rosa’s undated and very generally phrased payment request for a twelve-month advance of $27.4m to GT outside Spain. Once Mr Jaffar counter-signed, others including Mr Betts and Mr Robinson were content simply to execute Mr de la Rosa’s request. But, in order to counter-sign, Mr Jaffar would, in view of both his position and his relationship with Mr de la Rosa, have been expected to know much more than the request conveys. That is Mr Jaffar’s pleaded case also. He says that Mr de la Rosa told him that the payment related to the acquisition of the land and/or of planning permission at Plaza de Castilla in the Cartera Central transaction and that Mr Guasch confirmed that part of it was “for political purposes”. I have concluded in section IV.2(b) that this is unlikely to have been the actual purpose. On this basis the choice is between a scenario in which Mr Jaffar was misled by Mr de la Rosa and rejection of Mr Jaffar’s account of what Mr de la Rosa and Mr Guasch supposedly said to him.

A year later, according to Mr Nigel Black, Mr Ball and Mr Jaffar were keen to regularise the loan by an agreement, and as recorded in Mr Black’s memorandum of 14th June 1989, Mr Black asked Mr de la Rosa accordingly. Mr Jaffar was also a recipient of Mr Black’s later memoranda of 20th and 27th July 1989 explaining the promissory note swap between Koolmees and GT as the means by which THL would fund repayment of the existing debt to Kokmeeuw of about $30m or $27.4m plus interest. His opening statement asserts that he does not recall seeing these. But he did not give evidence to support this. It seems most unlikely that he did not understand that THL or GT was thereby repaying the loan which he had authorised the previous year and which he had wished to have regularised.

There is nothing directly linking Mr Jaffar with the Croesus “loan” by THL, which led eventually to the loss being borne by GT in its 1990 year of account. It was probably not conceived until around the time in March 1990 when he left as general manager, and in any event it was set up in Spain. But on 21st March 1991 Mr Jaffar signed the GT and GT group accounts which reflected the writing off of third party lending in a total of Ptas.14.472b. Despite his suggestion that he ceased to take any interest in GT when he ceased to be general manager of the KIO, it seems to me improbable, in view of the conclusions which I reach below regarding his part in the Oakthorn 1 and 2 and Pincinco transactions, that he did not in fact continue to interest himself in relevant respects in GT’s affairs. In particular, it seems to me improbable that he would not have been and was not kept informed by Sheikh Fahad and Mr de la Rosa about the manner in which all these transactions were being accounted for and handled.

Is Mr Jaffar proved to have known that the original payment in June 1988 was not in the interests of THL, GT or the KIO, and to have known that the loss was being transferred to and written off by GT in its 1990 year of account? I have little doubt about Mr de la Rosa’s capacity for deception, even in relation to close friends or colleagues. I allow for this. But it is still I think improbable that both Sheikh Fahad and Mr de la Rosa would have misled, or had any particular reason to mislead, Mr Jaffar about the true purposes of the $27.4m payment. The considerable likelihood is, in my judgment, that this was the first in a series of transactions in which all three joined with shared knowledge.

Oakthorn 1
Juge Tappolet’s documents showed that Mr Jaffar received not simply the $7.5m in Jakhal Foundation which he sought to explain as BP bonus, but a further $15m in Dorset Corporation, where it remained for some time travelling on and off deposit, before part of it ($5m) was transferred at the end of September 1989 to Barclays Bank, London. Mr Jaffar’s suggestion in his 33rd affirmation and through counsel at Day 25 (page 4 onwards) that he could not remember and explain the basis of this receipt is incredible. The payment appears on the Dorset Corporation statement as a receipt from “Oakthorn Limited”. Further, prior to receipt of the $15m, the Dorset Corporation account had had nothing like that sum to its credit. Nor did it receive any like credits in the next two months for which alone bank statements are available.

Mr Jaffar announced on Day 25 (3rd December 1998) that he was withdrawing from the trial because he had exhausted his funds to fight; that his family was not prepared to fund the litigation further; that he had made an open offer to settle which the plaintiffs had refused; that, in the absence of any explanation for the receipt of $15m, he would submit to judgment on the basis of money had and received; and that, as to the balance of his defence, “he acknowledged that the most helpful action which he can now take is to refrain from taking any further part in this trial”, and would seek leave to discontinue his counterclaim. On Day 27 (9th December 1998) I held that, in these circumstances, the counterclaim should be dismissed.  As to the reasons which Mr Jaffar gave through counsel for withdrawing, it may well be that he and his family no longer considered it worth expending any further money on either his defence or his counterclaim. But, if Mr Jaffar had had any genuine defence or counterclaim, it seems to me most improbable that all further resistance would have been abandoned at this stage, even if it did mean Mr Jaffar continuing in person (as a number of defendants have done before me).

In any event, the evidence against Mr Jaffar is unanswerable. His explanation for the receipt of $7.5m (a BP bonus) is without any basis, and must be viewed as a lie. He has no explanation for the $15m. The identical amounts received by Sheikh Fahad and Mr Jaffar out of Oakthorn 1, at a time when they were the KIO’s two most powerful officers, match their equal responsibility for a transaction by which, in my judgment, they dishonestly helped themselves to others’ monies.

Oakthorn 2
Mr Jaffar had by now left the KIO. But there is no reason to think that he did not keep in touch with Sheikh Fahad and Mr de la Rosa. His pleaded case is that the $10m which he received from Oakthorn 2 in Jakhal Foundation’s account at Rud Blass Bank was to reimburse or cover monies disbursed by him for GT and/or the KIO in respect of the Hammarstone. There is nothing to justify this case (see section IV.2(f) above), and Mr Jaffar has not sought to pursue or support it with any evidence at trial. The inference from all the circumstances is that - for whatever reason and whether because they volunteered it or he insisted upon it - Sheikh Fahad and Mr de la Rosa were prepared, or had, to concede to Mr Jaffar a substantial, although reduced share, in the second Oakthorn transaction.

Pincinco
Mr Jaffar received three separate sums from Pincinco: (i) $4m in Jakhal Corporation, which the plaintiffs pleaded against him at the end of 1997 and which he then sought to explain as a Hammarstone repayment; (ii) $1m on 20th November 1990 from the Stuart account, which was revealed by Juge Tappolet’s documentation and which Mr Jaffar said in his 33rd affirmation sworn 27th November 1998 that he could only assume was another Hammarstone payment which he had previously failed to credit; and (iii) a further $7m transferred into his Dorset Corporation account from Bankers Trust (again in fact out of the Stuart account) on 19th February 1991. This third payment had not been detected by the time of Mr Jaffar’s withdrawal from the trial. Although the relevant Dorset Corporation account contains other similar or larger payments, the amount is still substantial. It is hardly a payment that Mr Jaffar could overlook, either when considering what reimbursements he had received in respect of any transaction such as the suggested Hammarstone transaction or in any other context. Mr Jaffar was by October 1990 back, at least part time, within the KIO. The inference is that, once again, he was able to command a share, albeit relatively modest, of monies being fraudulently abstracted by Sheikh Fahad and Mr de la Rosa by the Pincinco operation.

I conclude in relation to Mr Jaffar is that he too was a knowing party with others to fraudulent schemes to misappropriate the monies involved in each of the Croesus, Oakthorn 1 and 2 and Pincinco transactions.

IV.3(c) Mr de la Rosa
Mr de la Rosa was at the relevant times generally regarded as a highly successful entrepreneurial banker. According to Mr Folchi, he was accustomed to obtaining what he wanted, quick-witted, very busy, but clever and able to understand documents. Mr Folchi further described him as having an obsession for obtaining information without giving it, as well as for security and safe communication, and as being charismatic and able to sell everything to everybody. I bear in mind that Mr Folchi and other defendants, who attested to Mr de la Rosa’s charisma and plausibility, could have a potential interest in emphasising Mr de la Rosa’s persuasive skills and insistence on keeping matters to himself. But, subject to that possible reservation, I see no reason not to accept Mr Folchi’s description. Mr de la Rosa’s affirmations and correspondence in the present proceedings attest to Mr de la Rosa’s intelligence, fluency and grasp of affairs, as well as his capacity for self-justificatory explanation and (in the light of all the material before me) obfuscation and deception.  Mr de la Rosa sought at the outset of this case in January 1993 to present the relevant transactions as matters occurring in the day-to-day running of GT’s business, with which he would have had no detailed involvement. The size of the transactions and the evidence before me make that suggestion wholly untenable. That Mr de la Rosa played an important role in each transaction is obvious.

Croesus
He was party to the original request to Kokmeeuw to advance the sum of $27.4m to the account with Merrill Lynch Bank Suisse, held by Bigley and controlled by Mr Sarasola.  The overwhelming likelihood must be that Mr de la Rosa knew that the destination which he specified related to Bigley and Mr Sarasola. Further, out of the amount so advanced he and his wife at once received bearer cheques totalling $5,996,000, paid into their joint account Carnation. He must have known that this came from the $27.4m, yet in his affidavit sworn 20th February 1996 he suppressed this receipt. He asserted, in relation to the payment of $27.4m to Merrill Lynch Bank Suisse account 60810379 (sub-a/c 261319), that he had “no means of knowing any additional details of what has become of the money after it passed to accounts that are completely out of my control, except ....” that the payment had been made (as he asserted) in accordance with a contract between the KIO and Conycon and that “repayments in Merrill Lynch had been made in accordance with instructions of the sells [sic] of the land site at Plaza Castilla”. In October 1989 he paid $2,576,707 out of his Stuart account to Kokmeeuw as interest (explaining in a letter to the plaintiffs’ solicitors dated 29th March 1996 that the KIO needed the payment for audit purposes), and was reimbursed through THL out of monies remitted by GT. In March 1990 the first Croesus documentation was brought into existence, using the template of an Oakthorn 1 rollover agreement. Mr de la Rosa was clearly aware that there was no such loan as this documentation purportedly recorded. On 3rd April 1990 Mr de la Rosa personally wrote to GT guaranteeing Croesus’s and Oakthorn’s commitments to THL. GT’s group audit for 1989 was well under way by 3rd April 1990 (which is in fact the initial date on the auditor’s report), and there can be no real doubt that the letter was written to satisfy the auditors in that context.

GT (from their files) and Mr de la Rosa have disclosed in these proceedings two letters, or copies of two letters, dated 15th October 1990 purportedly signed by Sheikh Fahad on KIO letter paper. As I have pointed out in section III.5(g), both these letters are forgeries. The one is identical to the first paragraph of the other. It refers to information purportedly sent by Mr de la Rosa to Sheikh Fahad concerning the loans to Croesus and Oakthorn, and purports to reiterate Sheikh Fahad’s full approval of these operations. The other in a second paragraph purports to refer to similar information regarding Pincinco and to approve a list of $296m worth of payments by Pincinco.

In December 1990, when the Coll scheme was at its inception, Mr Coll drafted for the KIO to sign two letters dated 20th December 1990 addressed to Mr de la Rosa. One was to confirm that the loans advanced to Croesus and Oakthorn were advanced in accordance with the KIO’s instructions, that they could be written off in GT’s accounts and that “part of the premium in the forthcoming capitalisation is a payment on behalf of the above mentioned companies to cover the outstanding loans ...”. The other was to confirm that Koolmees’ loans to GT would be capitalised at 17 times par. The versions purportedly signed by Sheikh Fahad on out of date letter paper are both forgeries (section III.5(g)), although only the letter involving Croesus and Oakthorn has been analysed and so declared by a handwriting expert. At a meeting on 11th January 1991 Mr Coll informed GT’s auditors that originals of these letters had been signed by Sheikh Fahad and were held by Mr de la Rosa. Copies of the signed versions were found on GT’s files and have been disclosed in these proceedings by Mr de la Rosa (as well as by Mr Soler and in the case of the first letter by Mr Folchi).

Despite the fact that all these purported letters are obvious forgeries, Mr de la Rosa is on record as saying that both the letters dated 15th October 1990 and those dated 20th December 1990 were signed by Sheikh Fahad in his presence (Mr de la Rosa’s fourth affidavit sworn 7th February 1996, paragraph 3). In the light of this and the other evidence in this case, the likelihood is that Mr de la Rosa created or commissioned such forgeries.

Oakthorn 1
The instructions transmitted by Mrs Parker to Mr Russell on 19th July 1989 to set up a structure immediately must have come through Mr Folchi from Mr de la Rosa. The $5m which Mr de la Rosa suggests went to a lawyer identified by Mr Folchi as Mr Hermosilla, stayed in Mr de la Rosa’s Stuart accounts throughout the six months for which banking documentation is now available (section IV.2(c) above). Mr de la Rosa was intimately involved in setting up, operating and using monies held in the Stuart accounts. It was, in parenthesis, his failure to acknowledge and disclose information and documentation relating to such accounts at the interlocutory stage that led me eventually, on 12th August 1998, to strike out part of his defence and order entry of judgment against him in respect of Oakthorn 2 and Pincinco. 

As to the monies paid out of the Oakthorn 1 monies to Sheikh Fahad, Mr de la Rosa has admitted, in a letter dated 15th March 1996, that “I was told by Sheikh Fahad that this amount... should be send [sic] to his account”. 

Mr de la Rosa was a signatory of the Oakthorn 1 loan and rollover documentation, and of the agreements with Wardbase which had no substance or basis other than to mask the fact that the loan would never really be repaid. Mr de la Rosa also signed the letter dated 3rd April 1990 personally guaranteeing Oakthorn’s indebtedness. It is, as I have said, also likely that he forged or procured the forgery of the letters of 15th October and 20th December 1990. 

Oakthorn 2 and Pincinco
In respect of Oakthorn 2 and Pincinco, judgment has already been entered against Mr de la Rosa. Nevertheless, it is relevant to say some words about his role, in so far as it is alleged against other defendants that he was a party to conspiracy. In Oakthorn 2, Mr de la Rosa was involved in setting up the Treasury bill facility whereby the KIO put GT in funds out of which the payments were made to THL and then Oakthorn, and so on to Sheikh Fahad ($22.5m), Mr Jaffar ($10m) and Mr de la Rosa via Allsports ($15.49m). Mr de la Rosa must have known of and been involved in the giving of instructions for these payments. The re-routing of his own payment on 12th/13th June 1990, so that instead of going direct from Oakthorn to account Stuart, it went via Allsports, a British Virgin Islands company specially acquired by Oakthorn for the purpose, must have taken place on his instructions. The inference is that the re-routing was to assist to conceal its receipt. It may be no coincidence that at precisely this time that GT’s auditors were giving renewed attention to the Croesus and Oakthorn 1 loan indebtedness. The asset marketing agreement between GT and Oakthorn which Mr de la Rosa signed had as little substance as the Wardbase agreements which he signed in respect of Oakthorn 1.

In respect of Pincinco, Mr de la Rosa signed the Ptas.40b loan facility with Koolmees. He was behind the movement of the proceeds from GT to THL in Switzerland, and the development, with advice from Mr Folchi, of the idea of a deposit with Bankers Trust, which would be charged to secure a loan to an offshore company, out of which, according to Mr Folchi, Mr de la Rosa explained that Kuwaiti war payments would be made. On the evidence before me, no such war payments were involved at all. Mr de la Rosa must have known this. He received some $105.9m into account Stuart. He also knew that $80m was for Mr de Prado, and the suggestion that this had anything to do with war payments is, as I have indicated, unsupported by evidence. On the contrary, Mr Folchi’s evidence, which I see no reason to doubt on this point, is that copies of Mr de Prado’s two purported letters dated 10th October 1990, purportedly reflecting war payments, were given to him by Mr de la Rosa in mid-June 1991, and the suspicion must be that Mr de la Rosa forged them or procured their forgery to make it appear that the $80m had been paid for war purposes.

$15m, together with $5m from the Stuart account, went to Sheikh Khaled. On the evidence of Sheikh Khaled, whether or not one accepts the reason he gives for his receipt (an issue to which I will revert), his receipt resulted from discussions between him and Mr de la Rosa. Mr de la Rosa must also have known that account Bigley which received $1.1m was controlled by Mr Sarasola.

Wardbase
Mr de la Rosa was involved, with Mr Nunez in particular, in the artificial correspondence which led on 26th May 1992 to GT paying Ptas.20b away, almost all of it destined for Mr de Prado. The forged  memorandum purportedly dated 15th January 1989 was addressed to Mr de la Rosa, and located on GT’s files. The false agreement purportedly dated 4th September 1989 was signed by Mr Nunez and relied upon in the letter from Arraut & Associates, Wardbase’s supposed Spanish lawyers, which Mr Nunez received and forwarded to Mr de la Rosa on 7th May 1992. Mr de la Rosa and Mr Nunez must have known that the agreement dated 4th September 1989 was an ante-dated sham, and that the correspondence received from Wardbase and Arraut & Associates was contrived. Yet Mr de la Rosa on 13th May 1992 agreed to the payment. Mr de la Rosa was, according to Mrs Parker, pressing on 26th May 1992 to ensure that the payment went through. He was very likely aware that that was his last day in office and his last opportunity to procure such a payment.

I conclude in relation to Mr de la Rosa is that he was a knowing party with others to fraudulent schemes to misappropriate the monies involved in the Croesus, Oakthorn 1 and Wardbase transactions, which are the only transactions in respect of which judgment has not already been entered against him.

IV.3(d) Sheikh Khaled
Sheikh Khaled admitted that he was “probably” aware that the KIO was, through Koolmees, making available very large financial support - Ptas. 80b plus Ptas.40b (which in fact went to fund the Pincinco transaction) - to its Spanish subsidiary in the summer and autumn 1990.  I have no doubt that he was actually aware. He gave the relevant authorisation himself and in August 1990 signed instructions at Mr Betts’s request, culminating with the instructions on 14th and 26th September 1990 for Koolmees to pay Ptas.31.5b (c. $315m) and then Ptas.38.5b to GT.

Sheikh Khaled and companies and individuals associated with Sheikh Khaled received sums totalling $20m originating indirectly from Pincinco’s account. Sheikh Khaled’s explanation of their receipt is that they derived from a transaction which occurred, or which at all events Mr de la Rosa led him to believe occurred, involving a management buy out in Spain.

I have described in section II.4 how sums totalling $20m were paid in instalments out of  Pincinco’s account with Bankers Trust into general client accounts maintained by Mr Oberson at UBS (through which $18m passed) and SBS (through which the remaining $2m passed).   Sheikh Khaled received details of Mr Oberson’s UBS account by fax of 17th September 1990 and passed them by telephone to Mr de la Rosa. Instructions for the payments from Pincinco to Mr Oberson’s accounts were given by Mr Folchi and Mr Russell to Bankers Trust in Geneva on 2nd October 1990. On 28th September 1990 Sheikh Khaled passed details of two London and Jersey banks to his Swiss adviser, Mr Dawson. On 1st October 1990 Mr Dawson instructed Mr Oberson that he would be receiving into his client account at UBS two tranches of $1m on 2nd and 5th October 1990, and that these should be split between four banks, including the two which Sheikh Khaled had communicated to him on 28th September 1990. On 3rd October 1990, Sheikh Khaled gave instructions to Mr Oberson how to pay monies to Sheikh Khaled’s Abacus account in Jersey.

On Sheikh Khaled’s case, the proximity of these dates did not involve or indicate any awareness on Sheikh Khaled’s part of the Pincinco transaction. On his case, it resulted from no more than the simple fact that Mr de la Rosa used Pincinco scheme monies to make or purport to make a payment under private arrangements made with Sheikh Khaled which bore no relation to Pincinco.
 
From Mr Oberson’s accounts a total of $9m passed between 9th October 1990 and 6th February 1991, in instalments of between $500,000 and $2.5m, to the Jersey account held by Abacus Nominees on behalf of Sheikh Khaled; further sums totalling in each case $4.5m were passed in instalments of between $250,000 and $1.25m over a like period to each of the fifty-fifth and fifty-sixth defendants, Simul and Semper S.A. (“Simul”) and Simill Modo S.A. (“Simill”), Panamanian companies established for Sheikh Khaled’s benefit; and the final $2m was passed in two instalments each of $1m on about 26th October and 7th December 1990 to Paul Dawson’s own account maintained under the code-name of Alice’s Restaurant.

Paul Dawson, the son of the KIO’s former general manager Bruce Dawson, was a financial adviser to Sheikh Khaled based in Switzerland. Mr Dawson had introduced Sheikh Khaled to Mr Oberson for advice as to structures for receiving and handling sums of money.  In his witness statement, Sheikh Khaled said that, as his position in the KIO increased, so he had “become even more concerned to keep a low profile in the interests of confidentiality and personal security and to avoid the threat of anyone making an unwarranted allegation against [him]”. Sheikh Khaled, Paul Dawson and Mr Oberson met in Geneva on 12th December 1989 and 1st February 1990, and developed proposals whereby, to ensure complete confidentiality, Paul Dawson’s name “should be used for all ostensible purposes”, funds could be paid via Mr Oberson’s accounts and twin Panamanian companies would be set up for Sheikh Khaled’s benefit. Mr Oberson was given a document expressing Sheikh Khaled’s wishes as to what was to happen to any assets involved in the event of his death.  The two Panamanian companies, Simul and Simill, were incorporated on 21st March 1990. Sheikh Khaled told Mr Dawson that the reason for the proposals was that he expected to receive monies from Kuwait.  Initial payments of $500,000 and $300,000, from unidentified funds under Sheikh Khaled’s control, were made to Mr Oberson’s accounts on 3rd April 1990 and 26th June 1990 respectively, and were passed to the Panamanian companies.

The receipt through Mr Oberson’s client accounts by Sheikh Khaled or companies or individuals associated with Sheikh Khaled of the further $20m remained unknown for about two years after the commencement of the present litigation.  It came to light then only as a result of independent action taken by Abacus Nominees in applying to the Jersey court (see below). Sheikh Khaled’s prior behaviour was directed at preventing any disclosure to the plaintiffs of his receipt of any of the $20m. To this end, he was evidently prepared to pay several further millions of dollars. For the moment, however, I confine myself to the explanation which he gave once it was revealed that he had received monies.

Pursuant to my order dated 7th March 1995 Sheikh Khaled was obliged to address both the origin and the whereabouts of the monies he received.  In his first affidavit sworn 31st March 1995, he said simply:

“9. .... To the extent that it appears I was the recipient of monies that may have originated from the Plaintiffs I received such monies in the genuine belief that it represented underwriting fees on an investment in a company nothing to do with the Plaintiffs.  I shall explain in a subsequent affidavit how the monies came to me and what has become of them, when further responding to the Order of 7th March 1995.”

In his second affidavit sworn 24th April 1995, he said:

“2.  At paragraph 9 of my first Affidavit I have stated that I would explain in my second Affidavit how monies that are said to have originated from the Plaintiffs came to be in my possession.  Whilst I personally would like to explain the matter in detail, the whole of the information required is not yet available to me and I am advised by my solicitors that it would be unwise at present to go on oath about the matter.”

In paragraph 3 he said that the $9m received into the Abacus account

“came from monies held by Oberson Thiebaud in Switzerland in an account on behalf of Paul Dawson.”

In paragraph 4 he stated:

“In fact the account at Oberson Thiebaud received a total of $20 million.  At about the end of August or early September 1990 I learned that such monies would be coming to me in the belief, as stated in my first Affidavit at paragraph 6, that it represented underwriting fees on an investment in a company nothing to do with the Plaintiffs.  The term “underwriting fees” is how I viewed it in my mind but it might be that it was more properly a return on a capital investment or a potential capital investment. The matter is unclear to me at present and that is one of the matters that my solicitors are pursuing on my behalf but where so far the full information is not yet available.  Upon hearing that the monies would be paid to me in October I spoke to Mr Paul Dawson about the matter and asked him to let me know the details of the account of Oberson Thiebaud in Geneva.  He gave them to me.  I passed the details on so that arrangements for payment could be made. As will appear below the monies were paid into two accounts of Mr Oberson.”

In his points of defence, served 3rd January 1996 and amended several times over the next years, Sheikh Khaled admitted the transfers to Sheikh Khaled’s account at Abacus Nominees, to the fifty-fifth and fifty-sixth defendants and to Alice’s Restaurant but denied they represented monies which had been transferred from Pincinco or that Sheikh Khaled knew, believed or had any reasonable grounds to believe that they did.  Otherwise, he made no plea as to the circumstances in which such transfers came to be made.

Only in his witness statement dated 21st January 1998 which served as his evidence in chief, did Sheikh Khaled set out any detailed explanation of the transfers.  He said that after his promotion to deputy general manager at the beginning of 1990, Mr de la Rosa began to pay him more attention, dropping into his office for a chat when in London for meetings with Sheikh Fahad or Mr Ball.  During these talks, Mr de la Rosa suggested various investments to Sheikh Khaled.  Sheikh Khaled  already viewed Mr de la Rosa as a highly regarded and successful business-man with the “Midas” touch, and Sheikh Fahad and Mr Bruce Dawson confirmed his integrity when Sheikh Khaled mentioned that he was thinking of making some personal investments upon Mr de la Rosa’s recommendations. In the period May/June 1990, Sheikh Khaled purchased on Mr de la Rosa’s recommendation shares in New Bamsa and a Hong Kong company, Hong Leong. The purchases were made through Mr Paul Dawson using the initial $800,000 paid via Mr Oberson to the Panamanian companies.

Sheikh Khaled’s witness statement went on that, at about this time, Mr de la Rosa invited him to join a small consortium of about 15 (or 10 to 15, as he said in evidence) persons. Mr de la Rosa said that he was putting this together to invest in a management buy out of an arms and explosives business in Spain.  The management was said to lack sufficient funds to complete the buy out.  The shares were said to be held by relatives of the company’s founder, who did not appreciate their true potential or value.  Mr de la Rosa said that the aim was to sell the company on in about six months or so, and that he envisaged making a very considerable profit, multiplying the consortium’s investment many times. Mr de la Rosa said that he was in competition with two other consortiums, one put together by a Syrian arms dealer living in Madrid with certain Kuwaiti members, the other Israeli.  Mr de la Rosa said that he was looking to raise about $30-40 million, and Sheikh Khaled said that he would make available $2-3 million.  Mr de la Rosa said that he would keep Sheikh Khaled informed and Sheikh Khaled “took it for granted that [Mr] de la Rosa was undertaking the due diligence”.

The witness statement continued that in about late August 1990, in the midst of the hectic activity which followed the Iraqi invasion of Kuwait, Mr de la Rosa put his head as usual around Sheikh Khaled’s door and told him that things were proceeding well on the buy out and that he would let Sheikh Khaled know if and when the money was needed. A week or so later, he appeared again and said that the buy out had been concluded, and had proved enormously successful. He had managed to sell the company straight on, he did not therefore need to ask Sheikh Khaled for any funds, but Sheikh Khaled was still entitled to his share of the profit, which would be $20 million.  At this stage Mr de la Rosa said for the first time that the company’s name was Explosivos Rio Tinto or something similar. Two or three weeks later, Sheikh Khaled telephoned Mr de la Rosa, who informed him that the profits had been invested for fixed periods, and would therefore only be forthcoming in instalments of $1 million over the next few months. Sheikh Khaled spoke to Mr de la Rosa thereafter to enquire about payment. In “about mid-September 1990” Mr de la Rosa asked for details of the accounts into which the instalment payments were to be made. After discussions with Mr Paul Dawson, Sheikh Khaled instructed Mr de la Rosa to pay the instalments into Mr Oberson’s account.  He instructed Mr Paul Dawson to arrange for onward transmission out of that account of a total of $18 million to Abacus Nominees and the two Panamanian companies and of $2 million to Mr Paul Dawson. Sheikh Khaled’s instructions to Mr Dawson regarding payment to Abacus Nominees are documented in the form of a fax message dated 3rd October 1990.  In evidence, Sheikh Khaled said that the original intention had  been to remit the whole $18 million to the Panamanian companies, but that unidentified needs for money for family purposes led to the decision (on this basis presumably made in about early October 1990) to send half to Abacus. His witness statement went on that, later, at the end of 1992, Mr Paul Dawson “pleaded for more money, claiming that his costs of making the investments had been higher than he had anticipated” and Sheikh Khaled paid him additional sums of $75,000 and SF150,000. The $2 million to Mr Dawson was “a flat fee of approximately 10% of the funds, for which he would pay all management and administration costs including Mr Oberson’s fees”, which Sheikh Khaled thought was “a much more straightforward way of dealing with the cost than having monthly invoices”.

In evidence Sheikh Khaled amplified certain points.  He was responsible for managing or advising or liaising with those handling family money, consulting - though it appeared only very generally - with his father and mother in Kuwait. The Swiss structure about which he saw Mr Oberson was intended for reasons of secrecy and as “another leg” to add to the family’s existing offshore structures. His family had enquired about the possibility of acquiring a Swiss residence, and it was against that background and for investment purposes generally that the enquiry was made. Asked with reference to his witness statement what sort of “unwarranted allegations” he had had in mind and why, he said that he had just been being ultra cautious. He had had in mind that the structure should receive some of the family’s monies. He gave a rough indication that these were about $15-20 million in trust, and more again elsewhere. He dealt with Mr Ian Fair of Mees Pierson in the Bahamas in relation to monies in trust, and had intended to ask him to remit some monies to Switzerland, but never in fact did so. The reasons remained unclear in his evidence.  As to the monies which went to Mr Paul Dawson, the 10% was not just for Mr Dawson to manage and administer and give investment proposals “because he did not want to be involved in that, and to take time and to be ... the headache of it”, but also to compensate for previous work which Mr Dawson had done on top.

Sheikh Khaled said that, when discussing the proposed buy out, Mr de la Rosa had indicated that the intention was to manage the company for six or twelve months, dispose of peripheral operations, and then sell it to a bigger company that he knew well, a multi-national with whose operations it would fit well. Mr de la Rosa had said that the plan had to remain secret, and would not divulge any names of other members of his consortium.  He had indicated that the $30-40 million which he was raising from his syndicate would itself be used to borrow further money, presumably from financial institutions.

Sheikh Khaled also accepted that the buy out and on-sale must, after they occurred, have been a matter of public record in Spain. But he said that he did not ask Mr de la Rosa for details such as the identity of the multi-national purchaser, explaining that Mr de la Rosa was a “bubbly and volatile” character who controlled any conversation. As to the timing of the whole transaction, Sheikh Khaled suggested at one point that it had extended over a total of six months from March to September 1990 - in particular that it had been about three or so months before he agreed to become involved and another three or so months before its conclusion.  That suggestion was not consistent with the timing in his witness statement. Sheikh Khaled said that, bearing in mind the other events of the period, it would be a miracle if anyone could remember exactly day-to-day chronological events.

Sheikh Khaled said that he had no document, note or communication referring to the transaction which Mr de la Rosa had introduced. His solicitors had attempted to investigate in Spain whether there had been any such transaction, without success. The investigations had been in the last year, but funds to do so had run out. It had been believable, and he had trusted Mr de la Rosa and believed it at the time, but it was now questionable. So far as his information went (and exhibit 4 of Mr Folchi’s November 1992 memorandum bears this out), a company by the name of Explosivos Rio Tinto - “ERT” - had previously merged with Cros to form Ercros S.A., but he had not made that connection in 1990. The loans made to Mr de la Rosa and Mr Folchi followed, chronologically, the meeting at Mr Jaffar’s house which was arranged to try to investigate the allegations which had been made about embezzlement of funds (section II.7 above). Sheikh Khaled’s family had agreed to the loans on the basis that they were to business partners and were underwritten by Sheikh Fahad. When the present litigation began in April 1993, Sheikh Khaled was not named as a defendant, and he had asked Mr de la Rosa “This deal, am I involved?” and Mr de la Rosa had dismissed the idea.  This and the fact that he was not sued gave him, he said, “a sense of confidence, because I had a belief, I am not into such deals”.

Sheikh Khaled was relatively young when he was appointed to the high offices which he held within the KIO.  He was still 36 in August 1990.  It seems probable, from what he told me and other evidence, that, although he was by no means lacking in experience or expertise (see below), he achieved the positions he did because of his membership of the Al-Sabah family and close family relationship to Sheikh Fahad and that he looked up to and would have been much influenced by Sheikh Fahad. At the time of the Iraqi invasion of Kuwait, he was given quite exceptional responsibility. Sheikh Fahad and he had sole power and duty to authorise any expenditure on behalf of the State of Kuwait. It was a wholly abnormal and exceptionally gruelling time.

Sheikh Khaled said to me that, during this time, all his efforts were devoted to saving Kuwait, and described to me his wide-ranging responsibilities and activities. Others working in the KIO at the time have given unchallenged evidence about these, about their surprise at any suggestion that he should at the same time have diverted any funds to himself and others, and about their disbelief that someone of his character and from so obviously rich a family would or would want to do so. The Rev. Scott., a KIO investment manager in 1992, spoke of Sheikh Khaled being put in a position beyond his experience during the Iraqi crisis,  and Mr Meinertzhagen, a partner in Hoare & Co. with whom Sheikh Khaled worked on a disposal of Midland Bank shares in 1992, spoke of his lack of experience or training in the context of so large a transaction, and of his straightforward and honourable appearance.  Mr Dorrance, a former director and substantial private investor, with Campbell Soup Company and a friend of Sheikh Khaled’s, attests to the extent that Sheikh Khaled relies heavily on trust, to his correctness and to the absence of any cause to doubt his integrity.  It was because of his belief in Sheikh Khaled’s integrity that Mr Ian Black went to work for Sheikh Khaled in September 1993.  After he left, Mr Betts went to work for Sheikh Khaled in the same belief.  Mr Betts’s experience of Sheikh Khaled, at the KIO and when working for him, led him to regard Sheikh Khaled as “extremely trusting, and at times naive”.  Mr Betts believed that Sheikh Khaled would have trusted Mr de la Rosa, that the latter could have persuaded Sheikh Khaled to “enter a deal similar to that described in Sheikh Khaled’s witness statement” and that, it Sheikh Khaled had known or believed that the monies he was to receive from the deal were tainted, he would not have accepted them.  In his oral evidence, Mr Betts said that his understanding of the deal was that Sheikh Khaled was involved in the underwriting in Spain of a share issue which was a success.

These are impressive testimonials. They accentuate the burden on the plaintiffs which arises from the seriousness of the charges of dishonest conspiracy and dishonest breach of duty, which they make against Sheikh Khaled. But they cannot be conclusive. Even the traditional exercise of attempting to assess the credibility of a witness, under cross-examination in particular, in the witness box is only one element in an overall judgment. No-one dissented from the relevance in this case to him (as in my view to other defendants) of the following words of Robert Goff L.J. in Armagas Ltd. v. Mundogas S.A. (The “Ocean Frost”)  [1985] 1 Ll.R. 1, 57:

“Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, 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. It is frequently very difficult to tell whether a witness is telling the truth or not; and, where there is a conflict of evidence such as there is in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities can be of very great assistance to a Judge in ascertaining the truth.”

From what I have seen and heard of Sheikh Khaled, I am unable to view him as unsophisticated or unversed in the ways of business or finance.  He went to school in this country and then to the University of Warwick, where he graduated in economics and international relations in about 1978.  He went on to commence a masters degree in international relations in London, before joining the KIO as a trainee (later giving up the degree course on the basis that the additional qualification would not be regarded by the KIO as particularly valuable).  He gained extensive experience in the KIO’s various departments and with various banks and institutions with which it dealt.  He was entrusted with significant responsibilities in respect of family assets.  He viewed himself - in my view also with justification - as someone of financial expertise and experience. He was entrusted with major responsibility following the Iraqi invasion.  When Sheikh Fahad left the KIO, Sheikh Khaled felt that he himself should have been considered for the top post.  Even allowing for an element of hubris in this last belief, the general picture I have formed is not that of a naif. Nor did he come across as such in the witness box. There were occasions when his mastery of English and so of the questioning did not appear perfect. Apart from that, he appeared to be not only to be a person of intelligence but to have a good grasp of affairs.

Sheikh Khaled’s account of the origin of the $20 million represents, even on its face, a very strange story. This goes to two aspects - whether there was any such buy out in or about August 1990, and whether, assuming there was not, Mr de la Rosa gulled Sheikh Khaled into believing that there was and paid him $20m out of Pincinco on that basis. As  to the first, Mr de la Rosa’s Midas touch must clearly have excelled itself in the interests of himself and his favoured partners (and have done so at a time when GT was itself facing major financial pre-occupations), if so spectacular a transaction was really achieved. The overall profit, for the members of the syndicate from whom Mr de la Rosa said that he was raising $30-40 million, must have been some $200-400 million, and this must have been made not just in the face of competition from two other syndicates but with the shareholders all the while remaining ignorant of the true value of their company and with the multi-national end purchaser allowing itself, whether through ignorance or deliberately, to pay several hundred millions more than the shareholders were prepared to take. Further, to achieve the profits which he had originally anticipated, Mr de la Rosa did not need either to manage the company for six months or to dispose of any peripheral business or even to call for any of the monies which it was the sole purpose of  the syndicate to provide. The lack of any detailed information about the transaction or any single document referring to it, even after its overwhelming success, is striking. The explanation for the remission of the profit (viz. that Mr de la Rosa had, for some unexplained reason and without consultation, placed it on deposit for fixed periods maturing in weekly or so instalments over a three month period) is hard to understand. Sheikh Khaled’s evidence did not dispel the strangeness of the account in any of these respects.

There is nothing making it absolutely impossible that such a transaction should occur. But there is neither evidence nor, on the material before me, any likelihood that there was ever any actual transaction like that about which Sheikh Khaled says Mr de la Rosa informed him in summer 1990. It is further clear, although Sheikh Khaled refused directly to acknowledge this, that the $20 million was the direct proceeds of the Pincinco fraud being conducted by Mr de la Rosa, Sheikh Fahad and Mr Jaffar. Such points are also of relevance when considering the second aspect. That is whether, although there was in fact no such transaction, Mr de la Rosa led Sheikh Khaled to believe that there was and paid him $20m out of Pincinco on the basis that there was. As a matter of general probability, and making all due allowance for the fact that Mr de la Rosa had at the time an excellent reputation but was, underneath, dishonest as well as the fact that he was utilising someone else’s money, it is difficult to conceive that even Mr de la Rosa would have acted in this way. Why would Mr de la Rosa (or any of his co-conspirators) decide to invent so remarkable a transaction, about which he or they would have to reckon that even the most trusting person might well wish to have further details, in order to make a gift to Sheikh Khaled of $20 million from the ill-gotten proceeds of their fraud?  Sheikh Khaled acknowledged that this was the “burning question”.

The most obvious answer, and the actual answer according to the plaintiffs, is that the $20 million was a sweetener to Sheikh Khaled to ensure co-operation or silence in relation to the Pincinco fraud involving $300 million. I accept that it is improbable that Sheikh Khaled was a prime mover of the Pincinco fraud and that he appears to have had effectively no day to day involvement with Spain despite his directorship of GT. But it cannot be ignored that he was a close relative who Sheikh Fahad may well have been pleased to involve and to benefit. Further, Sheikh Khaled’s position within the KIO and his responsibilities, especially during the invasion, his awareness of the huge financial support (Ptas.120b) made available to GT through Koolmees in the summer and autumn 1990, and his signature of the relevant authorisation and instructions at Mr Betts’s request, may well have meant that other conspirators would have felt that they either needed or should ensure his co-operation or agreement. Even during the crisis following the Iraqi invasion, I doubt whether Sheikh Khaled really regarded the financial support being afforded to GT with as little interest as his evidence tended to suggest, and the provision of such support was, as later events showed, capable of giving rise to controversy and objections within the KIO or KIA.

Mr McGhee for Sheikh Khaled invited me to consider the possibility that Sheikh Khaled may have been given $20 million out of Pincinco, to buttress Mr de la Rosa’s reputation in the eyes of Sheikh Khaled and/or to secure Sheikh Khaled’s goodwill in case Mr Al-Haroon should continue troublesome and/or to secure a ‘hold’ over Sheikh Khaled (who could later himself be shown to have received money from a dubious source) in case anyone should at any time seem about to investigate or discover the Pincinco fraud. So devious a plot pre-supposes on any view that Sheikh Khaled was seen as having greater significance within the KIO than some other submissions made on his behalf assert. But, assuming that to be so, the suggestion that Mr de la Rosa would, without any specific occasion, have taken the preventative measure of persuading Sheikh Khaled to accept $20m, even a stolen $20m, under a non-existent deal as a type of insurance is difficult to credit. As to the suggested aim of acquiring a ‘hold’ over Sheikh Khaled in case a risk appeared that fraud on GT or THL might be discovered, that appears to postulate that Mr de la Rosa would have been prepared to invest $20m in Sheikh Khaled on the speculation that, although Sheikh Khaled was not involved in the Pincinco transaction and had received the $20m innocently, he would have been prepared to suppress any investigation of the Pincinco transaction, and presumably to retain the $20 million once its origin was pointed out to him, for fear of being (wrongly) implicated in the Pincinco transaction. It is true that Sheikh Khaled cannot be expected to produce anything positive to support any such plot, assuming that there was one, and that the onus of proof of his dishonesty remains on the plaintiffs. But I have to say that the idea of a plot of this extreme nature appears to me far-fetched. The simpler explanation, that Sheikh Khaled was himself knowingly involved, is in my view considerably more probable.

Sheikh Khaled’s conduct subsequent to the Pincinco transaction lends significant support to the plaintiffs’ case that he was dishonestly involved. First, I have recounted in section II.7 how, after the KIO first made general allegations of misappropriations (though before they embraced any monies flowing to Sheikh Khaled), Sheikh Khaled was in December 1992/January 1993 prepared to fund Mr de la Rosa and Mr Folchi with $2 million each, against Sheikh Fahad’s guarantee of repayment. He told his family and received their agreement on the basis that these were loans to “business partners” underwritten by Sheikh Fahad. Chronologically, these loans followed the meeting of September 1992 at Mr Jaffars’ house between Sheikhs Fahad and Khaled, Mr Jaffar and Mr Folchi, although no direct request for monies appears at that point to have been addressed to Sheikh Khaled at all, and he appears to have lent the monies he did at Mr de la Rosa’s insistence. The disbursement of $4m, merely because Mr Folchi and/or Mr de la Rosa were incurring legal costs in respect of the plaintiffs’ investigations and because Sheikh Fahad thought it a good idea, would be a substantial act of generosity, although I take into account that, on Sheikh Khaled’s case, he would presumably have felt obliged to Mr de la Rosa for putting him in way of the remarkable business deal which had yielded $20m two years previously and, further, that the $4m was paid by way of loans guaranteed by Sheikh Fahad and/or Mr de la Rosa, although never in the event repaid. I also allow for the fact that, when Sheikh Khaled left the KIO in January 1993, Sheikh Fahad assisted him with the expenses of setting up an office at Love Lane, so that there is that element of mutual generosity.

Then there is the conversation which Sheikh Khaled told me he had with Mr de la Rosa after the present action began in April 1993. He asked Mr de la Rosa whether he was involved in “this deal”, and Mr de la Rosa’s dismissal of the idea, coupled with the fact that he had not been sued, gave him “a sense of confidence, because I had a belief, I am not into such deals”. This was curious evidence. Sheikh Khaled must have known whether or not he was involved in such deals. Further, it is unclear why Sheikh Khaled should even ask whether he was involved, if he received the $20 million from Mr de la Rosa in the circumstances which he recounted in evidence.

Later in the first part of 1995, Sheikh Khaled says that, as an entirely innocent recipient of $20 million, he agreed to pay and paid to Mr Oberson - again out of family money - an extra $2 million, plus an extra $500,000 out of his own funds. This payment was made in the hope of obtaining the withdrawal of the plaintiffs’ claim against Mr Oberson and preventing the plaintiffs discovering about his own receipt of the $20 million. The history starts with my order dated 19th December 1994 joining Mr. Oberson as a defendant and making a proprietary tracing injunction and disclosure order with which he had to comply by 11th January 1995 (later extended until 24th February 1995 on successive requests of Herbert Smith, solicitors he instructed). At this stage, the plaintiffs were unaware that Sheikh Khaled had received any monies originating from the Pincinco operation. They knew only (from the Pincinco bank statements) that Mr Oberson had received $2m, and they were suing Mr Oberson accordingly.

Sheikh Khaled’s evidence was that, in about December 1994, Mr Paul Dawson gave him the news that Baker & McKenzie were asking Mr Oberson about a $2 million “hole” in the KIO’s assets said to represent monies which had gone into Mr Oberson’s bank account, and that Mr Dawson told Sheikh Khaled that this was “part of the US$20 million” in fact received from Mr de la Rosa. (Sheikh Khaled said that Mr Dawson did not actually know that the source of the $20 million was Mr de la Rosa.)  Sheikh Khaled’s witness statement said that he was “horrified and panic stricken” to hear this, that Mr Paul Dawson then suggested that, if he were to fill the missing hole and pay Mr Oberson an additional $500,000 for all the work he had been doing and the legal fees he had incurred in London, it would keep Sheikh Khaled out of the present action, and that, desperate not to be involved, he made available from his own funds $500,000 and, from his family’s Jersey trusts with his family’s consent, another $2 million.

The idea, which Mr Paul Dawson thus developed and which Sheikh Khaled intended to facilitate by these payments, was that Mr Oberson should return $2 million to the plaintiffs as the monies he had received, so that the plaintiffs would look no further. The extra $500,000 was to cover Mr Oberson’s costs. Mr Oberson in fact received advice from Herbert Smith which aborted this particular scheme, on the grounds that it could mislead the English court, and monies were eventually returned by Mr Oberson to Mr Paul Dawson. But, by letter dated 9th January 1995 Herbert Smith advised the plaintiffs that Mr Oberson had paid away the two payments totalling $2m shortly after receipt, and by letter dated 23rd January 1995 they maintained that there was no jurisdictional or substantive basis for the English proceedings or disclosure order against Mr Oberson, since he no longer had the funds in question. Further, on 28th February 1995 they issued summonses seeking to set aside the English proceedings and the disclosure order against Mr Oberson.

These applications were, in the event, overtaken by other developments, since on 16th February 1995 the plaintiffs’ solicitors were told by Allen & Overy, solicitors to Abacus Nominees, that Abacus Nominees was responsible not only for Sheikh Fahad’s previously disclosed Jersey trusts, but also for various Jersey trusts and companies of Sheikh Khaled, and that they had in relation to the latter sought of their own motion (following, it appears, some contact made with them by Mr Oberson on 7th February 1995) an order of the Royal Court of Jersey dated 13th February 1995 in order to “ensure that the interests of any person who may have a legitimate claim to assets which have been in our clients’ possession or which are administered by our clients, are not thwarted, so far as our client is able so to do”. Allen & Overy’s letter dated 16th February 1995 disclosing this order also revealed to the plaintiffs that, in addition to the $2m about they already knew, Mr Oberson’s client account had received the further $18m from Pincinco on behalf of Paul Dawson, of which $9m had gone to the Abacus Nominees account held for Sheikh Khaled, with the balance going to Simul, Simill and Alice’s Restaurant.

Sheikh Khaled’s explanation in evidence for his conduct in paying Mr Oberson the $2.5m, including $2m of family monies, was that Mr Dawson had suggested this scheme and that, being “desperate” to avoid involvement in any litigation, he took up the suggestion. As to the $500,000 claimed for costs and expenses, he said that he could not really understand how Mr Oberson could charge so much but paid this too because his main aim was to avoid being involved in proceedings. I accept that Sheikh Khaled may well be generally nervous about privacy and about involvement in litigation. All the same, I find this a most unlikely explanation for the voluntary payment of $2.5m, if Sheikh Khaled is being truthful about the circumstances in which he originally received the $20m.

Sheikh Khaled’s evidence was marked by vagueness and some inconsistency in areas such as the location of and arrangements and responsibility regarding family monies, the duration and period of the transaction he discussed with Mr de la Rosa, and the extent to which he would or would not, in the midst of all his other activity, consciously have appreciated or focused on the size of the financial support which he by his signatures in fact authorised to be provided by the KIO to its Spanish interests in August 1990. As I have already indicated, I do not accept that, even in the extraordinary conditions following the Iraqi invasion, the size of such support can or would have escaped Sheikh Khaled’s attention.

Neither prior to trial nor in evidence has Sheikh Khaled been prepared squarely to address the likelihood that monies of the KIO, GT or THL were misappropriated, and that he has benefitted by $20 million of them. Further, it was not until his witness statement at the beginning of this year that he first gave any real account of the receipt of the $20 million. His two affidavit accounts in March/April 1995 were long on promises and short on substance. The suggestion of underwriting fees in the first affidavit is not only very general, it is also difficult to reconcile with the current account of a share of the profits in respect of a successful purchase and resale. In his evidence, Sheikh Khaled attributed the phrase to his solicitors, although in his second affidavit I note that he said that this was how he himself viewed the monies in his mind. The second affidavit can, in vague terms, be said to encompass the detailed explanation proffered in the witness statement, and distances itself from the phrase “underwriting fees”.  One can still question why Sheikh Khaled - as the honest servant of the State of Kuwait which he presents himself as being and as a business-man who, however secretive his character, had (on his account) had no more or less than the luck to make an honest if remarkable profit - did not volunteer at that stage the actual facts regarding Mr de la Rosa’s proposal and its fortunate outcome. This is so, even though his solicitors may then have been investigating and seeking to identify an actual transaction in Spain.  Sheikh Khaled’s witness statement also evinces a degree of - as it appears to me, unjustified -  animosity towards those like Mr Al-Haroon whose activities led to the investigation of the KIO’s affairs and to Mr Al-Bader whose advent led to the supersession of Sheikh Khaled’s authority within the KIO. It is true that from early 1993 Sheikh Khaled was the subject of investigation in Kuwait. But, whatever Sheikh Khaled’s resentment or fears regarding the KIO’s attitude, I think that one could have expected a more forthcoming response.

Finally, so far as concerns the impression which Sheikh Khaled made in the witness box, this is not a case where it can be said that Sheikh Khaled collapsed, or was lost for answers on critical points, or was clearly demonstrated under cross-examination to be a liar. On the other hand, I did not regard either the way he gave his evidence or its content as lending a real patina of conviction, innocence or truthfulness to an inherently improbable account, or to subsequent conduct which fits more consistently with the plaintiffs’ case than Sheikh Khaled’s. It is however, of course, for the plaintiffs to prove the serious charge which they make.
 
Viewing the whole range of the material before me and the overall probabilities in the manner mentioned by Robert Goff L.J. in The “Ocean Frost”, I reject without real hesitation Sheikh Khaled’s account of the basis upon which he received $20 million out of the Pincinco transaction. I accept that he is unlikely to have been a prime initiator, and that the actual assistance which he lent in signing authorisations and instructions was limited. But there were reasons why those who were prime movers would have been quite likely to wish to involve Sheikh Khaled, not simply in order to ensure that such authorisations and instructions went unquestioned, but also to secure their positions generally and, in the case of Sheikh Fahad, very possibly also to benefit Sheikh Khaled as a junior family member. However that may be, in my judgment, Sheikh Khaled received the $20m not on the basis he has described, but as the price of his agreement to and, so far as required, involvement in and silence about the transaction.

IV.3(e) Mr Soler
Mr Soler’s qualifications and positions are indicated in section I.3. His principal expertise related to banking facilities. In the present transactions the only banking facility which he actually negotiated (as distinct from executed, in the case of Croesus) was that used for Oakthorn 2.

The plaintiffs’ general case against Mr Soler is that he must have known that each of the transactions was for the benefit of persons other than THL and GT, or must at least have suspected this and turned a blind eye. They refer to his experience as a businessman, his role as treasurer in the checking of GT’s accounts and transactions, and his salary and other receipts. They buttress this with points on the particular transactions which I examine in due course. Mr Soler complains that the plaintiffs’ case has changed since opening. As to certain detailed points upon which the plaintiffs seek to rely, this is so. On the other hand, these points were raised without objection during the trial and put in cross-examination. Had objections been made in pleading terms at the time, any necessary further particulars would, I have little doubt, have been added. I do not consider that any injustice will have occurred if such points are taken into consideration.

Mr Soler held a relatively senior position of responsibility in a major group. He received an annual salary of Ptas.15m plus unidentified further remuneration, which he was reluctant to disclose and which the plaintiffs did not ask me to order him to disclose. The plaintiffs seek now to infer participation in conspiracy from his refusal to answer. But that does not follow. The most his refusal shows is that Mr Soler was, like others in this case, willing and probably anxious to receive remuneration in ways avoiding, or enabling him to avoid, Spanish taxation.

The extent and circumstances of Mr Soler’s remuneration are different matters, which involve two companies (which were forty-ninth and forty-fourth defendants), an Isle of Man company Wentland Ltd. (“Wentland”) set up by Mr Russell’s firm, and a Spanish company called Llotasa S.A.(“Llotasa”). Mr Soler was from September 1991 until 1994 in charge of the affairs of Wentland. Wentland in September 1991 re-acquired from GT the shares in Llotasa. According to Mr Soler, the beneficial owner of Wentland was his father-in-law, who assumed personal control in 1994, and Wentland’s only asset was its Llotasa shares. Llotasa was used to buy shares in Gran Tibidado, with which Mr de la Rosa was involved. Despite Wentland’s only asset being Llotasa, the plaintiffs point out that Wentland received Ptas.25m from Lombard Odier & Cie., Geneva on 29th April 1992. Mr Soler said in cross-examination that he could not explain this. The payment advice also identifies Banco Central Hispano Americano S.A. Madrid “ref. Hiammad-Estn”, though any significance which this may have was not explored before me. On 5th August 1992 Wentland received a further payment of just under Ptas.10m from Banco Central Hispano Americano S.A. Madrid, this time with the reference “Centmad-Estn” and the further reference “IPC Andorra”. This payment was forwarded on the next day by Wentland to Llotasa at an account at Caixa de Pension, Barcelona. I have little doubt that Mr Soler as the person running Wentland at the relevant time must be able to explain these payments. He became noticeably quiet when the subject of Wentland’s funding was put in cross-examination, In his final submissions, without making any admission, he addressed these payments on a hypothesis that they were extra remuneration of some sort or other. That seems likely. The plaintiffs seek to infer that the first payment was, in effect, a payment for co-operation in relation to the Wardbase transaction. I shall return to this. They seek to tie the second payment into monies paid out of Wardbase’s account to a Caixa de Pension account in Andorra on or about 21st August 1992. That connection does not seem to me justified on the material before me. The payment to Wentland (and by Wentland to Llotasa) preceded Wardbase’s payment to Andorra by some two weeks. There is no evidence that Llotasa had any Andorran account with Caixa de Pension (and the Barcelona account which it did have with this large bank also appears to have been effectively dormant). There seems also to be force in Mr Soler’s point that no reason appears for remitting monies for Llotasa to Andorra, and then via Wentland to Spain.

In 1992 or 1993 Mr Soler received from Mr de la Rosa shares in Gran Tibidado worth (then) Ptas.50m for a study (occupying a few months work) on a theme park. During the proceedings Mr de la Rosa has also funded some (but not all) of Mr Soler’s costs. For reasons given by Mr Soler in his final submissions, neither of these points seems to me a sound basis for inferring guilty participation with Mr de la Rosa in any of the relevant transactions. The most that can be said is that Mr de la Rosa was evidently ready to treat Mr Soler handsomely after he ceased employment.

The plaintiffs submit that Mr Soler was so handsomely remunerated by Mr de la Rosa during and after his time with GT as to encourage or facilitate a conclusion, in the light of other material, that he was a guilty participant in dishonest behaviour. Mr Soler admitted that he was well paid; his remuneration was “adequate and a good sum”; he defended his worth by reference to his qualifications, experience, position and responsibilities in respect of GT’s payments and accounts and its very large banking facilities. At other points, however, he was at pains to emphasise that he (in common with Mr Betts as treasurer of the KIO) did not regard it as part of his instructions to check their rationale, and only had oversight of GT’s bank accounts and payments in Spain.

Mr Soler was not a decision-maker or a leader. He was and is intelligent and no doubt capable within his particular sphere of expertise. He stressed before me Mr de la Rosa’s good reputation and charismatic personality at the relevant times. The picture I form of Mr Soler’s personality is that of an amiable, but somewhat weak and compliant character. Mr Soler presented himself in his final submissions as “mid way between a businessman and an intellectual as is evidenced by his condition of professor”. However that may be, he was, to say the least, also characteristically prone to blinker himself from reality and to concur in and defend specious documentation. The general level of his remuneration remains, as I have said, vague. It was evidently - and especially so if one assumes that it included the Ptas.25m paid to Wentland on 29th April 1992 - generous. But it would be unsurprising that Mr de la Rosa and Mr de Mir should pay generously to obtain compliant and unquestioning services. It does not follow that Mr Soler was necessarily aware that he was involved in dishonesty. From the viewpoint of Mr de la Rosa and his co-conspirators, it would no doubt be preferable if others did not have to become party to or aware of any dishonesty.

Mr Soler’s employment contract dated 8th September 1988 contained in clause 10 a provision that, on any termination other than by Mr Soler, GT would pay him Ptas.500m, increasing yearly in line with Mr Soler’s salary. Similar clauses were contained in the management contract with Quail, and also in Mr Nunez’s and Mr Sot’s employment contracts (the last two providing for termination payments of, respectively, Ptas.1b and 200m). The plaintiffs question the contemporaneity of the employment contracts, and suggest that they were probably back-dated in 1992. A letter ostensibly signed by Mr Jaffar dated 2nd September 1988 acknowledging and authorising them can be seen to be a forgery, using KIO letter paper with the “071” dialling code which only came into use in May 1990. Mr Soler said that, although he signed his contract in 1988, he was only given a copy in 1990 just after the Iraqi invasion. I do not consider that it is either necessary, or that I have the material, to determine when the contracts may have been executed. What is clear is that clause 10 cannot relate to any possible loss which Mr Soler might suffer through termination. Mr Soler explained it as a “golden parachute” provision designed to protect against the KIO changing the management of GT. With a marked lack of realism and some vanity, he also made the faint suggestion, by reference to the yearly salary of the chairman of an investment bank, that his role in GT might justify such a termination payment. More importantly, however, Mr de la Rosa (for Quail), Mr Nunez, Mr Sot and Mr Soler, immediately after the meeting of 16th May 1992, all transferred huge amounts of shares or money to their own accounts, purportedly pursuant to clause 10 or its equivalent in their contracts. This was on its face most improper behaviour - taking the law into their own hands in a matter which they must have known would be highly contentious and in relation to a company of which they were supposedly the stewards. Mr Soler complained about the circumstances in which GT thereafter succeeded in recovering the sums he had appropriated, but that complaint is neither here nor there. The incident does Mr Soler no credit whatever, and is an example of his compliant willingness to go along with inappropriate action instigated, I have little doubt, by Mr de la Rosa and Mr Nunez.

Against this background, I come to the particular transactions. Mr Soler analysed these into three steps or stages: (i) their funding (save in the case of Wardbase) by monies advanced to GT by the KIO through Kokmeeuw or Koolmees;  (ii) the advancing of monies by GT to THL; and (iii) the paying away of monies by THL to shell companies and by shell companies to Swiss bank accounts. Mr Soler explained his involvement as limited to executing the second stage, in accordance with instructions which he received, and for purposes with which he was not concerned and about which he only received the most general indication. The instructions he received came usually from Mr Nunez or Mr de Mir. The evidence does not support the plaintiffs’ original case that Mr Soler “worked closely with Mr de la Rosa”. Quail’s offices where Mr de la Rosa worked were in fact some two miles from GT’s offices where Mr Soler worked. Prior to about June 1991 Mr Soler’s only contact with the KIO in London would be through Quail, thereafter he had direct contact.

Croesus
In respect of the Croesus operation, Mr Soler’s involvement began, he said in his witness statement, with Mr de Mir telling him that Kokmeeuw had made an advance to GT for confidential purposes related to the Cartera Central transaction, that GT was now going to repay this advance out of a loan arranged from Banco Santander’s Madrid branch, and that Mr Soler should (as he did) go to Madrid to execute the loan. According to Mr Soler, Mr de Mir also said that, since the original payment had been confidential, the repayment should be through an intermediary and that Mr Nunez said that GT or the KIO would later put the intermediary in funds to repay the loan. Mr Soler said that he understood the confidentiality to relate to the infringement of the then existing Spanish exchange control and to involve hiding the transaction from the auditors. I believe, although he did not accept this, that he must also have suspected that it was required by the recipients offshore to avoid Spanish tax.

Later in October 1989, Mr Soler said, Mr de Mir showed him the fax which Mr Black addressed to him dated 10th October 1989, identifying the amount of $2,576,707 as outstanding at 10th October 1989, asked him to send money to enable THL to pay this sum to Kokmeeuw and said that Mr Coll would provide a receipt. This, as it proved, was the Wantley invoice. Had Mr Soler seen the second page of the fax which set out the calculation, he could have observed that it referred, not merely to the $25m repayment on 15th September 1989 which he had organised through the Banco Santander loan, but also to the further repayment of $3m on 18th September 1989 (made in fact from Oakthorn 1 monies). He might then have been expected to ask, assuming that he did not know, about the source of this further repayment. But there is no evidence that he even saw the second page, and this aspect was not raised with him in evidence.

The plaintiffs criticised Mr Soler’s account as implausible. I am not persuaded by their suggestion that an advance to GT was inconsistent with Kokmeeuw paying away the original $25m to a third party at GT’s request (which was Mr Soler’s oral explanation of what he meant). Mr Soler is unlikely to have meant that GT had itself made the confidential payment away. But any idea that GT or, even more so, the KIO was going to put the intermediary in funds to enable the intermediary to repay GT for monies advanced to the intermediary to enable Kokmeeuw to be repaid is on its face very hard to comprehend. I regard as more than a little fanciful Mr Soler’s suggestions both that it was because the KIO might wish, for a period, to keep out of its accounts an item which it could not explain, and that he understood that the later writing off of the Croesus and Oakthorn loans in GT’s 1990 accounts was intended to be in lieu of repayment of the loans by the KIO.

Further, I have substantial doubt whether, in 1989, there was any suggestion of introducing any intermediary. The likelihood is that the whole idea of any intermediary, and of Croesus in particular, only developed in March 1990, and that all documents purporting to refer to Croesus in September/October 1989 were (as some very clearly are) either forged or back-dated. But this does not, necessarily, mean that Mr Soler is lying in claiming to recall a reference to an intermediary in 1989. His evidence has inevitably been subject to a process of reconstruction, in the light of documentation.

Whenever the idea of using an intermediary was conceived and implemented, Mr Soler was aware of it and involved. He was also involved by April 1990 in dealing with GT’s auditors in relation to GT’s 1989 year of account, signing a letter to them on 3rd April 1990 which stated that “All amounts receivable are valid items to be paid”. On the same day Mr de la Rosa produced his personal guarantee of the Croesus and Oakthorn loans, the obvious purpose of which was to avoid audit questions. Mr Soler did not accept that he necessarily understood this at the time, but I have no doubt that he did. Further, during the early months of 1990 the Wantley invoice dated 31st January 1990 was produced to account for the $2,576,707 paid in November 1989. Again, although Mr Soler did not fully accept this in evidence, and did not accept that he knew that Mr Coll had actually produced it, he must on any view have realised that Wantley had no role whatever in the payment or in any such services, and that the supposed invoice had been produced simply for accounting and above all audit purposes. His suggestion that it contained a reasonable account of a payment made in relation to the Cartera Central transaction is another instance of refusal to face reality. The reality is that Mr Soler must have realised that both the Croesus loan and the Wantley invoice were no more than devices to cover up in GT’s accounts a payment away which, for whatever reason, could not otherwise be explained. Despite his suggestion (which I have rejected) that he thought that Croesus would eventually be put in funds to repay by GT or the KIO, Mr Soler in his final submissions (paragraph 32(c) on page 18) also appears to accept this, at least as representing the short-term accounting position.

Despite this, Mr Soler, as a director of THL, sent the letter dated 4th June 1990 to Touche Ross as THL’s auditors from which I have quoted earlier in this judgment. The letter was drafted by Mr Coll, but Mr Soler signed it. Again, there was no justification for the presentation of the Croesus and Oakthorn loans on the apparently arms length basis suggested by this letter, and Mr Soler’s insistence that, by the phrase “I understand that you have been informed” he was not himself endorsing any suggestion that Croesus or Oakthorn had been involved in the strategic reorganisation of the group (so that, if the auditors had not in fact already been so informed, it was incumbent on them to raise questions) is an instance of Mr Soler’s inability, even now, to adhere to a recognisably appropriate standard of conduct. As to his insistence that the really important matter was his assurance that GT as THL’s parent had guaranteed the loans, that assurance itself was also inaccurate. It was only on 14th June 1992 that Mr Nunez signed such a guarantee (and only on 25th June 1992 that Mr Coll sent it to THL).

Mr Soler explained, in the context of Oakthorn 1, why he saw no reason to investigate the purpose of the transaction, where money had gone to and whether it was going to come back and how it was going to be recorded. His explanation was that it was the job of the auditors to do this and to investigate whether documents were correct and okay. That is an attitude which comes ill from an officer of GT, who knew that documents had been produced in order to hide matters from the auditors. However, I accept that, as far as instructions to make payments were concerned, Mr Soler’s role was, whatever his job description might imply, to implement transactions and payments as instructed.

The plaintiffs suggest that Mr Soler wrote an undated and unsigned memorandum, evidently created some time in 1991, which Mr Betts found in his file and believed had been given him probably by Mr Soler or Mr Coll, or possibly by Mr Folchi. The memorandum sets out to explain all the transactions, in the case of Croesus on the basis that it had been used to pay a premium to “Z. S.A.” for Ebro shares sold to GT under a public offer in April 1988. The material available does not justify any positive conclusion that Mr Soler had any involvement in this document.

In short, Mr Soler was clearly involved in conduct of an improper and highly unsatisfactory nature at the accounting and auditing stage of the Croesus operation. The issue remains, to which I will revert, whether it can and should be inferred that he was involved as co-conspirator or in any other way involving personal liability.

Oakthorn 1
Mr Soler’s witness statement said that he was told in September 1989 by Mr Nunez that a confidential payment had been made in connection with the Ebro takeover, that the mechanism was the Oakthorn loan and that this would be repaid by GT or the KIO. In his oral evidence he disclaimed real recollection of the date, and agreed that July 1989 might be more probable. At or very close to that time, he was given the promissory notes on which to raise money, and must have become aware that some of them had already been used to raise the Banco Santander loan of $55m which funded Oakthorn 1. Here too Mr Soler agreed that “confidential” would indicate a payment contrary to exchange control and also meant “not to be disclosed to the auditors”, and again it seems to me that evasion of tax by its recipients must have been in his mind. Yet, as I have stated, his attitude was that he had no reason to know much about or investigate the operation, since that was the job of the auditors. His letter dated 4th June 1990 to THL’s auditors is as misleading in respect of Oakthorn as in respect of Croesus.

The plaintiffs suggest (a) that Mr Soler cannot be believed when he says that Mr Nunez gave him or he believed any explanation about Ebro, and (b) that he cannot have been told or believed that Oakthorn would repay. As to (a), the Ebro public offer had been in April 1988, over a year previously. Mr Soler’s answer, in addition to saying that it was not for him to investigate, was that he tried to pose some questions but Mr Nunez did not himself know more. According to Mr Folchi,  the takeover was followed by legal proceedings, and delay in the making of complementary payments was not unfamiliar. There is some indication of such delay in the legal bills relating to the Cartera Central transaction which Mr Black was given in June 1989 for offshore payment (section IV.2(a) above).  Mr Soler was not to know of the unexplained urgency with which the Oakthorn 1 transaction was put through or any other details about it.  As to (b), for similar reasons to those given in respect of Croesus, I do not accept Mr Soler’s evidence that he was really told or believed this.

Oakthorn 2
The points arising are generally similar to Oakthorn 1, although here Mr Soler did raise $50m for GT to pass to THL, by discounting treasury bills with The Sumitomo Bank Ltd. and passing the proceeds to THL. 

Pincinco
According to his witness statement, first Mr Nunez and then on 3rd October 1990 Mr Folchi told him that funds were being sent by the KIO to GT, ostensibly as a loan, for war payments to be made on the KIO’s behalf. Mr Nunez mentioned $300m and Mr Folchi said that the Spanish authorities had authorised a transfer by GT to THL of Ptas.40b. This was a striking transaction. Mr Soler said that he probably had a number of conversations about it, and mentioned variously Mr de la Rosa and Mr de Mir. He said that it could have been in any one of these conversations that he learned about the operation. Vague and inconsistent though this is, I do not think that the conclusion can simply be drawn that Mr Soler is lying about the basis on which the operation was put to him. Later in 1991, when the transaction was explained to him, Mr Betts, who can to some extent be regarded as Mr Soler’s counterpart within the KIO, also accepted the explanation of war payments then given him. 

When the $400m arrived in GT, Mr Soler was responsible for their transfer to an account in THL’s name in Banco Santander (Suiza) S.A.  After that he had no further involvement with their movement. On 24th October 1990 the $107m was returned to GT from that account. Mr Soler said that his understanding of this extra $100m was that it was destined to repay Banco Santander in respect of the loans by which Croesus and Oakthorn 1 and 2 were funded; but that in fact these Banco Santander loans were repaid, using the same security, out of borrowings from Chase Manhattan. None of that seems to explain why the extra $100m was sent to THL in Switzerland. The plaintiffs suggest that Mr Soler must have realised that this was a manoeuvre to deceive. But that does not seem to me self-evident. 

The plaintiffs also suggest that Mr Soler must have associated loans for $40m made to THL in the name of Wantley in December 1990 with the Stuart account at Bankers Trust, Geneva into which Pincinco monies were paid. The $40m which was lent can now be seen to have come from the Stuart account. Wantley was just a Gibraltar facade provided by Mr Coll.  The Wantley-GT loans were signed by Mr Soler for THL and Mrs Parker for Wantley. Mr Soler said that GT had been short of money and he had pressed Mr de Mir, who had said that a Kuwaiti private investor with a Swiss account, by which Mr Soler understood Sheikh Fahad or Mr Jaffar, would lend money. He knew nothing of its coming from any Stuart account. The banking documents show that Mr de la Rosa and Mr de Mir gave the instructions to debit account Stuart, and that they were implemented by advice to THL simply showing monies coming from “one of our clients”. The accounting documentation regarding the repayment does not contain anything to controvert Mr Soler’s account. He addressed the repayment to the account of THL at Bankers Trust, attention Mr Yves Byrde, and Mr Byrde received unknown instructions to credit it to account Stuart. The episode of the Wantley loans is undoubtedly very curious. That Mr Soler sent the money to an account with Bankers Trust in THL’s name (though THL did have its $300m “deposit” with Bankers Trust) can also be viewed as odd. But there is no evidence that Mr Soler saw accounts for any THL account at Bankers Trust, and he must in any event have expected the monies to be going elsewhere. Nor is there evidence to indicate that Mr Soler knew that Pincinco had paid out monies to account Stuart.

The plaintiffs rely on Mr Soler’s treatment of the $300m deposit. On 31st July 1991 he approved THL’s 1990 accounts showing £159m (that is the $300m) as cash at bank and in hand. His answer was that the deposit existed and that it was unnecessary to show the pledge, because by the time he approved the accounts GT’s general meeting had already agreed to a scheme which would “compensate” the pledge by way of the issue of shares by GT at par. He also suggested that he did not know if the pledge had even been made in 1990 or 1991, and thought from BT’s papers (presumably its confirmation of the deposit) that it “could - would had been done during the invasion, that is during 1991”. The Iraqi invasion was however in August 1990. I cannot think that Mr Soler seriously believed that the $300m was still sitting entirely or largely unused in Switzerland at the end of 1990, if he was told in early October 1990 that it was for war payments. His actual concern appears from letters dated 19th and 20th August 1990 addressed (but never sent) to Mr Betts by Mr Catala and Mr Soler, which included specific paragraphs mentioning that the deposit of $300m appeared in cash at bank and in hand, and that “no disclosure is shown in the accounts regarding this deposit”. The fact that these letters were written but never sent is indicative of concern. An honest person would have disclosed to the auditors the real position regarding the deposit as at the end of 1990. The question remains whether this means that Mr Soler knew or suspected that the $300m had actually been used for purposes other than war payments. Although his suppression of the pledge gives considerable grounds for suspicion, I have come to the conclusion that it does not, in his case, tip the balance in that respect. Unlike Mr Folchi, he did not, so far as appears, have any direct knowledge where monies from Pincinco went.

In dealing with the scheme implemented in the second half of 1991, Mr Soler attempted to suggest that there might be more to the share swap of new issued shares for old shares than the concealment which Mr Coll conceded. But I do not think that this can or should necessarily be viewed as more than yet another aspect of Mr Soler’s proneness to adopt and pursue unrealistic points.

The plaintiffs point out that Mr Soler approved for payment Quail’s invoice dated 14th December 1990 for Ptas.1.2b expressed in terms to be for obtaining loans for a total of Ptas.120b, with a view to their later conversion into share capital.  Under the Quail management contract, Quail was for five years entitled to receive Ptas.30m p.a. plus a percentage “agreed in each case” by reference to the value of operations arranged by Quail with third parties. Mr Soler said that Quail had under the contract received other similar commissions which the auditors had reviewed and approved, and that Mr de la Rosa or Mr de Mir told him that Sheikh Fahad had approved this payment, that that was good enough for him and it was the auditors’ job to ask for a signed contract, if they wanted one. This displays a misconceived attitude. But weak and incompetent acquiescence is one thing, participation in conspiracy another.

Another point made by the plaintiffs concerns Mr Soler’s readiness in November 1991 to authorise payment offshore of a Ptas.130m invoice rendered in the name of Wardbase, but for Mr Folchi’s firm’s work and benefit, when Mr Folchi’s firm had in October 1991 just been paid within Spain a Ptas.20m invoice for precisely the same work. That Mr Soler, in common it appears with others, was ready to go along with offshore invoicing the only reason for which was to enable Mr Folchi to defraud the Spanish revenue seems clear, but on the evidence I have heard no indication of wider dishonesty. That Mr Folchi’s fees were so enormous as to be themselves suspect is not established on the material before me. Spanish law firms not infrequently charge on the basis of a percentage of the value involved, and this is not a system unknown elsewhere. Such a system can lead to extreme figures with a client involved in very high value transactions like GT. It appears also to be the case that Mr Folchi did not always charge for all work done

Wardbase
Mr Soler was responsible for  the payment by GT to THL and by THL to Wardbase. His witness statement suggested that his first involvement was when Mr Nunez came to him with Mr de la Rosa’s letter dated 13th May 1992 and asked him to make the payment. Mr Nunez explained Torras Papel’s liability to pay Wardbase, and it was on its face in GT’s interest (as owner of 93% of Torras Papel’s shares, with a call option to acquire the rest) to secure payment. Mr Soler knew that the CdA mill project had been successfully completed, and a celebration of this was due in July 1992.

In his evidence he said that he also now recalled a prior conversation when he asked for the letter to be produced - at a time when the invoice already existed, Torras Papel did not have money to pay it and Mr Nunez wanted GT to assume the payment. That indicates that Mr Soler was first approached before, at any rate, 7th May 1992 when Mr Nunez wrote to Mr de la Rosa. It also seems unlikely that, if it was after 4th May 1992, Mr Nunez would not have mentioned Arraut & Asociados’s letter of that date. That letter is most easily viewed as the first step in a course of correspondence constructed in response to Mr Soler’s wish for documentation justifying a payment by GT. However, Mr Nunez’s approach to Mr Soler must necessarily have been after 24th April 1992 when Mrs Parker wrote with Wardbase’s invoice.

The conversation between Mr Nunez and Mr Soler must therefore correspond very closely in time with the date when the unexplained payment of Ptas.25m. was paid to Wentland from Lombard Odier. The relevant Lombard Odier account has not been established. Further, the timing of this payment and its potential significance in the context of Mr Soler’s role in the Wardbase transaction were not explored in cross-examination. What was put was simply that the Ptas.25m was “part of your pay-off for your participation in these transactions”. The upshot is that there is a basis for suspecting some direct connection between this receipt and Mr Soler’s willingness to go along with the Wardbase transaction. But suspicion is not sufficient. In view of the way cross-examination went, I do not ultimately feel that the material available justifies me in drawing a direct link. The Ptas.25m confirms that Mr de la Rosa, Mr Nunez and Mr de Mir were prepared to overpay Mr Soler for smooth and compliant service, but does not establish impropriety on Mr Soler’s part.

Mr Soler denied that he was aware that the management of GT would change, even on 25th May 1992. Surprising though it may be that so major a change should be relatively unheralded, there is nothing to show the contrary, at least as regards Mr Soler. Mr Folchi said that Mr de la Rosa had not infrequently spoken of resigning, and Mr de la Rosa also indicated a wish to resign to Mr Al-Nouri at a meeting in early May 1992. But Mr Soler would not be necessarily have heard of this. The KIO delegation, which spent the week prior to 26th May in Spain on a fact-finding mission, tried deliberately to appear moderate and co-operative with existing management, and had numerous meetings with GT, its subsidiaries and Mr de la Rosa. At the meeting on 26th May 1992 Mr de la Rosa appears to have envisaged that he would simply be replaced by Mr de Mir, and it was this that proved contentious. Mr Folchi also said that it was only on 26th May 1992 that the KIO and Mr de la Rosa appeared in conflict.

Factual conclusions regarding Mr Soler
Having examined Mr Soler’s involvement in the relevant transactions, the primary question which I address at this stage is whether he knew of or was or became party to any scheme to misappropriate monies in any of the relevant transactions. In my judgment, this has not been established to the requisite standard.

As regards Croesus, Oakthorn 1 and 2, I have rejected aspects of Mr Soler’s evidence, and his conduct as GT’s finance manager and THL’s director was both unsatisfactory and improper in a number of respects. But this does not lead necessarily or probably to a conclusion that he knew of or joined in fraud. So far as concerns Pincinco, for reasons which largely appear in the discussion of this transaction above, despite the grounds which exist for suspicion, again I do not consider that the evidence establishes Mr Soler’s participation in the dishonest scheme to misappropriate monies. Mr Soler’s role in the Wardbase transaction is most open of all to suspicion. But again I do not feel able to conclude that the basic account which he gave is simply a fabrication. Putting aside the Ptas.25m payment for reasons which I have already indicated, Mr Soler was once again used by Mr de la Rosa and Mr Nunez to implement in his customarily unquestioning manner the instructions which were given him.

His unsatisfactory and improper conduct related primarily to the accounting aspects of transactions which, he said, he was told were for GT’s or the KIO’s benefit and was instructed to keep confidential, including from the auditors. On the view I take of Mr Soler, he believed that each of the transactions concerned payments to third parties which were in the interests of the companies making them. He understood, certainly in the case of Croesus and Oakthorn and very probably also Wardbase, that they were to be made offshore to evade Spanish exchange control and, at least from the recipients’ viewpoint in the case of Croesus and Oakthorn 1 and 2, to evade Spanish taxation. In respect of Croesus, he executed the $25m loan from Banco Santander, which others had arranged, to repay Kokmeeuw. In respect of Oakthorn 2 and Wardbase, he himself arranged the funding of the transactions with The Sumitomo Bank and from GT’s own resources. To such extent he may be said to have assisted in payments away which he believed to relate to transactions dishonestly structured for exchange control and/or tax reasons, but which were actually dishonest in much more fundamental respect. At the accounting and auditing stage of the Croesus, Oakthorn 1 and 2 and Pincinco operations, Mr Soler also collaborated in presenting misleading accounts and in misleading auditors.

In all these respects, Mr Soler was without appreciating it assisting in an overall scheme of which he was not aware, to misappropriate monies and, as and when required, to cover or dress up their disappearance. But I do not think it established, even in probability, that he either knew or intended this. It seems to me as, even if not more, probable that he thought that he was acting, not dishonestly towards the plaintiffs, but in their interests in concealing very sensitive transactions.

Sections V.1(d), V.2 and V.3 consider the legal aspects of the claims against Mr Soler.

IV.3(f) Mr Coll
Mr Coll is, as indicated in section I.3, well qualified, with a United Kingdom university education and professional accountancy qualifications in England and Spain. His practical experience had been almost exclusively in Spain. He emphasised the need to view his conduct in the Spanish business cultural context of the late 1980s and early 1990s.

It is obvious, having heard Mr Coll and seen his work-product, that he is an accountant of agile intelligence, inventiveness and enthusiasm. Making due allowance for cultural context, his accounting skills, intelligence and ingenuity were not matched with judgment or with ability to discriminate between fair and unfair presentation. Instead, they were all too often deployed with enthusiasm and determination to devise, promote and defend the essentially indefensible. Mr de la Rosa would have found all these useful characteristics. Mr Coll evidently also had a very high sense of his own financial worth, something for which Mr de la Rosa was at the time well able to cater, using others’ monies.
 
Mr Coll’s involvement varied from transaction to transaction. He had nothing to do with the structure which was set up urgently in July 1989 to channel the first Oakthorn payment of $55m to its ultimate destinations, or with the actual payment of $50m made in the Oakthorn 2 operation. The reason for his becoming involved in 1990 in respect of these two operations appears to have been to ensure that the auditors accepted them. From December 1990 he was involved both in respect of the two Oakthorn and the Pincinco transactions, to devise a scheme by which they might be finally accounted for to the auditors’ satisfaction in GT’s 1990 accounts and by the resolutions passed by GT in July 1991. By contrast, in respect of the payments to Kokmeeuw implemented at the second stage of the Croesus operation, he made available, at some point in or after September 1989, both the relevant shell companies. That is, Croesus, to which the $25m loan was recorded, and Wantley, which invoiced THL for $2,576,707.

Mr Coll said in evidence that, according to his recollection, in September 1989 Mr Soler asked him to speak to Mr de Mir, who told him in general terms that a very confidential payment was going shortly to be made in connection with reorganisation of the group or mergers, that Mr de Mir did not want to give more information because of the risk of price movements and that GT’s board would in due course approve it; and that, in these circumstances, Mr Coll agreed to make Croesus available as an intermediary and, if required, to channel the funds to the ultimate destination. The accounts department was to send him loan documentation in due course, but this only came in March 1990. The reasons for this were, he said, unconnected with any audit. He either remembered or speculated that the Barcelona accounts department and/or Mr Curton in THL, London only got round to it then. It was, he said, his understanding that funds would in due course be provided to enable repayment by the ultimate recipient of the loan. He also asked for and received the letter dated 14th September 1989 signed by Mr de la Rosa for GT to the effect that GT would ensure that Croesus would not be called upon to repay the loan except in so far as it was put in funds to do so. He said that it was not until December 1990 that he learned from Mr de Mir that the $25m loan was not actually going to be repaid.

Mr Coll’s explanation for the production of the Wantley invoice was that he was asked by Mr de Mir to provide an invoicing vehicle to cover a payment to a third party for services provided with Mr de la Rosa’s knowledge, that he did so on the basis that the third party who wanted to remain anonymous, and that he was not told and did not appreciate that it had anything to do with Croesus. Again, he said that this was not just to paper over a problem for audit purposes.

The plaintiffs challenge the accuracy and truthfulness of this account. In certain respects, I am unable to accept that Mr Coll’s account is likely to be accurate. I think it unlikely that any reference to Croesus and any approach to Mr Coll took place before about March 1990, and probable that the approach then made was in the context of the audit work under way in respect of THL’s 1989 year of account. It also seems to me unlikely that Mr Coll was told, at any time, that the ultimate recipient of the loan would in fact repay it. That feature did not appear in Mr Coll’s interview in November 1992 and was not stated or implied in Mr de la Rosa’s letter dated 14th September 1989.

If Croesus had been mentioned in September 1989, I do not believe that it would have taken until March 1990 to document the transaction. It is clear that Mr Moukarzel knew nothing of Croesus until 1990. No reference to any such loan appears in THL’s board minutes of 14th September 1989. These were, it appears, drafted by a Mr Assalit of Mr Folchi’s office and the board meeting which they purport to record in London between Mr Moukarzel and Mr Soler did not as such occur. The minutes authorised the Banco Santander borrowing of $25m, but went on simply to authorise Mr Soler to use the funds as he saw fit. On Mr Coll’s case, he was also told, at or about the time he first spoke to Mr de Mir, that GT would approve the Croesus loan. There is in existence a purported board minute dated 13th December 1989, point 12 of which purports to approve both the Croesus and Oakthorn operations for $25m and $55m respectively, and their extension to 31st December 1990, and goes on for good measure to say that

“It was also resolved to formalise, as soon as possible, the remaining operations agreed with Oakthorn Limited as a consequence of the transfer of promissory notes from the sale of Cartera Central for a further amount of $50m and this in accordance with the agreement contained in the letter of Javier de la Rosa dated June 9th.”

This has the hall-marks of later concoction (though I do not mean by Mr Coll), perhaps around mid-1990 when questions were being raised about Croesus and Oakthorn 1. There exist notes of the relevant December 1989 board meeting, which do not appear to reflect point 12, and another set of minutes in draft which conspicuously omit it. The idea that, already, in December 1989 the Oakthorn 2 conspiracy was being planned seems most improbable. Mr de la Rosa’s supposed letter dated 9th June 1989 to Mr Jaffar is another remarkable document, which must fairly obviously be ante-dated from at least mid-1990. It evidently purports to anticipate and account for all three transactions - that is Croesus, Oakthorn 1 and Oakthorn 2 (which did not occur until mid-1990) - in a total figure of $130m, which the letter suggests will be paid by GT to the KIO as “compensation and consideration” for the KIO’s financial support. The fact that the $130m is made up of $25m plus $55m plus $50m is also a strong pointer to ante-dating, since it cannot have been known before September 1989 that Kokmeeuw would be repaid in three separate tranches, of which it would be the most substantial $25m tranche which would, in mid-1990, attract most attention and require explanation.

In evidence Mr Coll accepted that the actual loan agreement had been backdated from March 1990, but said, nonetheless, that he had drafted and Mr de la Rosa signed the letter dated 14th September 1989. When Mr Coll was first asked about the Croesus loan in November 1992, the questions and answers proceeded on the basis that that both the loan and Mr de la Rosa’s letter dated 14th September 1989 were prepared on the dates they bore. Mr Coll’s points of defence contain no hint of any backdating of the loan or rollover agreements, on the contrary they expressly admit the plaintiffs’ then case (in ignorance of the actual position) that these documents were signed on or about the dates they bear. None of this suggests that Mr Coll can have any reliable recollection that he prepared or that Mr de la Rosa signed his letter dated 14th September 1989 in September 1989, as distinct from March 1990. Mr Coll referred to the language of the letter stating that “the full amount of the loan will be paid directly by us to a third party or you will be called upon to transfer the full amount to a third party”. This language does not persuade me that the letter was in fact drafted and signed in September 1989. It may just as well have been used after the event to suggest a real possibility that Croesus might play some actual role in the transaction and/or a developing transaction. It seems improbable that it was not known on (Thursday) 14th September 1989 how the $25m remittance to Kokmeeuw on (Monday) 18th September 1989 was going to be made. And if it had already been decided to have Croesus as nominal intermediary, one might have thought that it would have been used to make the payment. No difficulty was felt in arranging payment to Kokmeeuw of the $3m out of Oakthorn 1 on 18th September 1989 under a payment advice showing Morgan Grenfell, Jersey as ordering customer or payment of the $2,576,707 on 16th October 1989 out of the Stuart account as coming from “one of our clients”. Nor had there been any difficulty in arranging in July 1989 for the urgent interposition of Oakthorn to channel the first Oakthorn payment of $55m. If Croesus had already been identified in September 1989, I would have expected it to been more fully deployed then.

GT’s audit for 1989 was well under way by 3rd April 1990. Mr Coll would have known well that payments away of $55m (Oakthorn 1) and $25m in THL’s books would attract THL’s auditors’ attention, and would need documentary justification. The loan and roll-over documentation prepared in March 1990 for Oakthorn 1 and Croesus must be viewed in that light. Mr Coll had no compunction about backdating documentation. He says that this does no more than reflect “the effective date of the transaction”. But, on his own account, the money had gone to a destination, on a date and by a means about which he and Croesus knew nothing. He was prepared to put forward for accounting and audit purposes documentation recording a loan to a corporate vehicle which had no real involvement at all and was never itself intended to have to repay. He was prepared, as will appear, to issue the Wantley invoice in 1990 to cover a payment which had occurred in 1989 with which Wantley had nothing to do. I do not believe that he would have had any compunction about backdating the whole involvement of Croesus to the date when a supposed confidential payment had been made. Nor is there anything in Mr Curton’s evidence to make me think the contrary. He did not even join THL as a book-keeper until late 1989, being introduced by Mr Coll.  He asserted no real recollection why the loan agreement was backdated. If he had any understanding that it was to reflect an advance made to Croesus in 1989, he must have acquired it from Mr Coll, or possibly from Mr Puig or Mr Catala. When he first drafted the loan agreement, he would not appear even to have been aware of Croesus’s identity, since, when he taped over Oakthorn’s name on the copy of the Oakthorn rollover agreement that he used as a template, he did not write in Croesus’s name, and the first draft which he sent to Mr Coll on 6th March 1990 also left the identity of the lender blank.

Whether the Wantley invoice dated 31st January 1990 and Mr de la Rosa’s letter dated 17th February 1990 also involved an element of backdating from a still later date such as March 1990, as the plaintiffs suggested, need not detain me. The date of the Wantley invoice shows, on any view, that Mr de Rosa and Mr de Mir were, in the course of the Croesus operation, quite capable of making a payment and leaving until a later date any arrangements for its documenting and covering up. Further, I have no doubt that it was in the context of work on the 1989 accounts and their impending audit that this invoice was produced. Indeed, Mr Coll said as much when first interviewed on 25th November 1992. The transcript at pp.31-32 shows him volunteering as the probable context the problem which the prior payment presented when they were discussing accounting problems. The invoice “was subsequent to the payments, if I remember rightly”, which was why the payment was included in the 1989 accounts.

Mr Coll defended the Wantley invoice by reference to the Spanish (and he said Gibraltarian) business practice of making off-shore payments and/or covering them through invoices supplied by offshore companies. I accept that this practice diminishes the extent of any adverse inference which may be drawn against Mr Coll on the basis of his conduct in issuing the Wantley invoice. I do not however accept Mr Coll’s view that the invoice was other than a sham or that, applying any objective standard, Spanish or other, Mr Coll acted properly in issuing it. Wantley had absolutely no connection with any payment or any transaction pursuant to which any payment had been or was to be made. The Wantley invoice would make sense, if services had actually been provided in or under the name of Wantley. It could also make some sense if Wantley had genuinely been instructed by a provider of services to render the invoice on its behalf and had either received, or at least given directions for, payment under it. But to issue an invoice in the air without any actual agency or involvement is different. Where such a document is obviously to be used for accounting and audit purposes, it is self-evidently improper to issue it. Nothing I have seen or heard persuades me that Spanish (or Gibraltarian) standards of business, still less accounting, propriety lead to any other conclusion.

Mr Coll drafted the letter dated 4th June 1990 to Touche Ross as THL’s auditors which Mr Soler signed and sent. The auditors did not know and were not informed that Mr Coll was behind Croesus (or that Oakthorn was simply acting as a vehicle for GT). As a answer to the question why a loan had been made to Croesus, the letter lacked any frankness. A fair answer would have been that the loan was made to cover a confidential payment to an unidentified (and as far as the draftsman or signatory of the letter was concerned unknown) third party, that there was no real prospect of it being repaid, except in the unlikely event mentioned in Mr de la Rosa’s letter dated 14th September 1989, and that its worth therefore depended entirely either on Mr de la Rosa’s guarantee (which was not actually relied on in the letter and, if it had been, might, one would have thought, have roused the auditors to further thought) or on GT’s guarantee, which was relied on but (as it happens) not even in place by that date. It is difficult to think that Mr Coll did not realise or strongly suspect that Oakthorn had been deployed in a similar manner to Croesus.

More specifically, the suggestion in the letter that Croesus or Oakthorn had been involved in the strategic reorganisation of the group was clearly inaccurate, and was in the case of Croesus and was probably in the case of Oakthorn known by Mr Coll to be such. The inaccuracy was not diminished by the further bland assurance that “the reorganisation will not affect the company in any way”. Neither Croesus nor Oakthorn was in reality anything other than a dummy company. Neither had any involvement, or was involved with any company which had any involvement, in relation to any strategic reorganisation. Croesus had nothing whatever to do with any money payments, while the mere passing of money to unknown destinations by Oakthorn does not constitute relevant involvement. The auditors may already have known on 4th June 1990 that both companies had insubstantial share capital, but that is not the same as knowing that the picture presented in the letter dated 4th June 1990 was false.

The roll-over letters for the Croesus loan dated 20th March 1990 and 21st December 1990 were, as stated in section II.1, produced together as late as in May 1991. I am satisfied that they too were produced for audit purposes. The auditors did not actually sign off the accounts until 20th June 1991. Mr Coll sought to suggest that there would have been no point in producing the roll-over documents for the auditors, since GT took over the loans in its 1990 accounts and then wrote them off as at the end of 1990. But, if that were a good point, it is difficult to see why the trouble was taken to produce anything at all in May 1991, particularly the second roll-over of the Croesus loan for six months from 31st December 1990. It seems very likely that it was only in the process of writing up the accounts in the first half of 1991 that GT actually credited THL in respect of the Croesus and Oakthorn loans. However that may be, the auditors would have been expected to interest themselves in the reality of the loans which GT was taking over and writing off.

The plaintiffs assert that Mr Coll was also involved in false accounting in respect of the write-off of the Croesus and Oakthorn loans in GT’s and its group’s 1990 accounts. The auditors have in this connection been disciplined by the relevant Spanish body responsible for supervising auditing standards. But this disciplinary decision is subject to a pending appeal to the courts, and Mr Coll, who was not anyway party to the disciplinary process,  presented a spirited counter-attack in his cross-examination of the plaintiffs’ expert, Mrs Antolinez, and in his final submissions. The accounts of GT and its group deal with the write-off and the capitalisation in a way which is without question obscure and difficult to grasp. The write-off against share premium account recorded as at the end of 1990 assumes a capitalisation which only took place in July 1991. The accounts exemplify Mr Coll’s ingenuity and enthusiasm. Beyond that - and important though these accounts are in the different context of loss - I do not think that they afford real assistance in judging Mr Coll’s conduct and honesty.

I have not accepted the accuracy of Mr Coll’s account in significant respects. There is a question-mark over his honesty in those respects. And if he has lied in this connection, that throws doubt on his account of the explanations given him for the payments which the Croesus loan and the Wantley invoice were covering. During Mr Coll’s evidence, it was noticeable that he spoke frequently in terms of his recollection. The conclusion I have come to about Mr Coll’s honesty is that he may have persuaded himself that the first reference to Croesus was in September 1989. I cannot think however that he has really persuaded himself that the Croesus loan documentation prepared in March 1990 and the roll-over agreements prepared in May 1991 were not intimately connected with the audits under way at those dates. But, even assuming that Mr Coll has lied both in his account of the timing of Croesus’s introduction into the picture, and in his account of the context and purpose of the Croesus loan and roll-over documentation and the Wantley invoice, it does not necessarily follow that he has lied in his account of the explanations given him. Lies about the timing of Croesus’s introduction and about the context of the Croesus loan and roll-over documentation and the Wantley invoice can be seen in the context of an underlying awareness that his conduct in producing essentially sham documentation and backdating it fell below any acceptable standard for a professional accountant. Lies about the explanations given him must mean almost inevitably that Mr Coll was party to, or at least aware of, the misuse of company money which was in fact occurring. With some hesitation, I have come to the conclusion that, despite the thoroughly unsatisfactory position which exists in relation to his activities, it is not shown as a matter of probability that he was lying in relation to the explanations which were given him.

Mr Coll’s account of the explanations given him means that Mr de Mir not only lied to him about the actual purpose (which is unsurprising), but also gave him a different explanation to that which Mr Soler received. Mr Soler was made aware that the September 1989 payments were to repay Kokmeeuw in respect of a confidential payments previously made. Mr Coll was told that the September 1989 payment was to the third party. But Mr Soler and Mr Coll did not work together. Mr Soler would have to know that the monies were being repaid to Kokmeeuw, whereas Mr Coll was content to arrange covering documentation without concerning himself with actual money movements at all. The difference in what they were told does not undermine Mr Coll’s account, and is, it seems to me, even capable of lending some support to the view that Mr de Mir misled him by telling him as little as possible.

Pincinco
The main money payments took place in October 1990. Mr Coll had no involvement with Pincinco before December 1990. He was then asked to devise a scheme which could account for the Croesus, Oakthorn 1 and 2 and Pincinco operations. He soon conceived the germ of the scheme which was later implemented. In relation to the Croesus and Oakthorn 1 and 2 transactions, he drafted the two letters dated 20th December 1990 for signature by Sheikh Fahad for the KIO. He showed the drafts to GT’s auditors on 11th January 1990, telling them that Mr de la Rosa held signed originals. The purported signed originals which exist are forgeries, probably created or procured by Mr de la Rosa (see section IV.3(c) above). There is no reason to think that Mr Coll knew this. The auditors did not object to the proposed scheme, then or after giving it the further thought that they said they would. But they never had a fair picture of the Croesus and Oakthorn 1 loans, and it seems to me that, despite the KIO’s attitude and even though it was proposed that GT write these loans off, the auditors would still have been interested and concerned to have known the reality about them. 

In relation to the Pincinco transaction, the scheme was to cater for what Mr Coll says that Mr Folchi told him had been very sensitive war or political payments.

The scheme which Mr Coll designed was widely discussed, first in Spain with Mr de Mir and Mr de la Rosa and then by Mr Folchi and Mr Coll in London with Mr Betts. En route to London on 18th June 1991, Mr Folchi showed Mr Coll a copy of Mr de Prado’s letter to Sheikh Ali. This was an obviously compelling document, and Mr Coll had no reason to know or suspect that it was an audacious forgery. In London, to Mr Coll’s knowledge, Mr Folchi and Mr Betts discussed the scheme with Sheikh Fahad (who during the Iraqi invasion had had full power to deal with Kuwaiti assets), and Mr Folchi told Mr Coll that he had given Sheikh Fahad a copy of Mr de Prado’s letter. After their return to Spain, Sheikh Fahad wrote to Mr Betts the letter dated 20th June 1991, which Mr Betts’s evidence establishes to be genuine, instructing him to cast Koolmees’s and Kokmeeuw’s votes in favour of the resolutions by which the scheme was to be implemented.

Mr Coll not only admits but avers that the purpose of the scheme was to account for the $300m paid away in a manner which concealed it as far as possible. The embellishment whereby Riquel swapped the new issued shares for existing shares held by Philby, MIRA and Folma was simply to make it even more difficult to track what had happened. The difference between the plaintiffs and Mr Coll relates to the reason for concealment. Mr Coll says he understood, and devised the scheme on the basis, that it was concealment of war related payments from public eyes, particularly those of journalists and Iraqi agents, and that there was no secrecy as regards the KIO, as GT’s shareholders, or its officers, including the KIO’s chairman Sheikh Fahad and Mr Betts. The scheme  which Mr Coll devised was, for reasons considered in greater detail in the section of this judgment dealing with loss, wholly artificial. It was funded at every stage by GT, and its core concept depended on GT issuing shares at par and then buying back the same, or shares swapped for the same, shares at seventeen times par. With an inventor’s zeal, Mr Coll sought before me to defend the scheme’s concept, reality and effect, under which he said any loss fell on GT’s shareholders rather than on GT which had issued shares at one price only to buy them back at another.

The price which THL bought GT’s shares from Coggia and then sold them to GT covered not only the $319m outstanding under the loan which had replaced the lending to Bankers Trust and Pincinco, but also the sums totalling over $6.1m which had been lent by THL to Coggia under the excess agreements. These latter sums were passed on by Coggia to Wantley. They went as to $2.3m to Mr Folchi (who said that he had to pay other expenses so that his net share was only $900,000) and $3.8m to Mr Coll (who said that his expenses reduced this to a net $3.6m). According to Mr Coll, he and Mr Folchi discussed what to ask for in about June 1991 and agreed to ask for $7.3m, based to some degree on the fact that the Barcelona Bar Association scale fee for a transaction of this value would, if applied, yield $8m. Mr Folchi agreed the $6.1m with Mr de la Rosa. Mr Coll and Mr Folchi then negotiated between themselves the split mentioned above, based on Mr Coll’s role as scheme architect.

The plaintiffs submit that the fees charged and the way in which they were charged undermine Mr Coll’s bona fides. Mr Coll certainly appears to have been greedy, and both Mr Folchi and (not surprisingly in view of what is now known) Mr de la Rosa appear to have been accommodating. But the size of such fees for what Mr Coll, if he is honest, must understandably have understood as a unique transaction does not itself to my mind necessarily undermine his credibility. The manner in which they were paid, which meant that they would never appear in THL’s or GT’s books, and which also involved the interposition of both Coggia and Wantley shell companies does not seem to me so surprising bearing in mind that these were offshore fee payments which Mr Folchi and Mr Coll would on any view wish to keep secret. The plaintiffs suggest that Mr Coll sought to conceal the receipts he had made from the scheme. Mr Coll is I think right to say that, although he refused to give any details, his answers at page 56 in the transcript of his interview on 25th November 1992 do assert that he received extra (and authorised) remuneration through the loans to Coggia which were then covered by the price paid by GT and THL. He did not give discovery in respect of Wantley’s bank accounts, but he is also right that the plaintiffs’ solicitors did not respond to his solicitors’ question in March 1998 asking for its relevance or pursue the matter until about 17th November 1998 during the trial. When the plaintiffs amended their case to make clear the relevance, Mr Coll did not on 1st December 1998 (Day 24) resist the amendment or the principle of discovery, and eventually provided discovery on 11th December 1998. The size and manner of Mr Coll’s remuneration, which then fully emerged, would certainly be consistent with involvement on his part in a fraud on the plaintiffs, but they and Mr Coll’s reluctance to go into them do not exclude innocence either. I have little doubt that Mr Coll was as aware as anyone, from an early stage in the investigation and at trial, that their on the face of it excessive nature could after the event be used to suggest bad faith.

Mr Coll was cross-examined about a letter dated 15th January 1992, which he admitted having had prepared, addressed by Coggia to Mr Soler at THL, purporting to record that THL owed Coggia some Ptas.119m relating to the [GT] share purchase operation executed on December 23, 1991” and going on:

“In addition as agreed with you we shall be paying 29,887,994 pesetas of expenses relating to the operation on your behalf”.

In the letter, Coggia then asked THL to pay the total of nearly Ptas.150m in three directions, some Ptas.83.8m to Zymo, the Spanish notary’s vehicle, Ptas.62m to Coggia (which Mr Coll explained was for a payment to Mr Folchi’s firm unconnected with any of the present operations) and some Ptas.3.96m to Russell Limebeer. Mr Coll’s explanation of the letter was that Coggia had, due to exchange rate differences, ended up the Pincinco transaction being notionally owed Ptas.119m to which it had no right and that the letter was designed to rectify this by having Coggia pay certain sums for THL. On any view the letter is another example of Mr Coll’s facility for misleading explanation - on his own account the Ptas.29.8m were not “expenses relating to the operation”. More interesting, perhaps, is the fact that this letter only reached THL’s London office in September 1992 under cover of an envelope post-marked in Spain on 1st September 1992, addressed to the attention of Mr Curtar [sic] at THL and bearing Mr Coll’s name and address on the back in writing other than his. The letter came at once to the plaintiffs’ attention, because by that date their investigating accountants were ensconced in THL’s office. The plaintiffs suggest that the whole letter represents another example of Mr Coll seeking in some way to improve the documentary position after the event. It is not however clear what advantage Mr Coll could have gained through sending this letter. Further, if he was the sender, one might have expected him to know from Mr Curton that the plaintiffs’ accountants were already at THL’s offices and perhaps also to have given instructions which would have led to the correct spelling of Mr Curton’s name. I do not think that I can get much out of this mysterious episode.

The plaintiffs also rely on Mr Coll’s provision of Wantley for the $40m loans to GT in December 1990, where Mrs Parker signed the loan agreements for Wantley and Mr Soler for GT and where the actual origin of the monies lent was the Stuart account. Mr Coll was, he said, asked by Mr Soler to provide a dummy company and provided Wantley. This was, on any view, another example of Mr Coll’s client-serving readiness to produce false documentation, since no monies passed through Wantley and, on his own account, the whole point of the exercise was that Wantley had no connection whatever with the loans or monies. The explanation that Mr Coll says that he was given was that the (unknown) lender wished his identity to remain confidential. In cross-examination he conceded that the purpose of having Mrs Parker sign was probably so that his name did not appear, and that the auditors may not have known her name. It seems to me that, although this was an incoming loan, the auditors would have been surprised to see Mr Coll’s name appearing as lender to the company for which he was consultant, and that this is itself an explanation why Mr Coll would have been unlikely to wish to sign himself. But I am not persuaded that Mr Coll knew or suspected that the source of the actual loan monies, with which Wantley had nothing to do, was Mr de la Rosa or any account connected with him.

Factual conclusions in respect of Mr Coll
Viewing Mr Coll’s involvement overall, he is another defendant whose conduct in certain respects does him no credit and has, very understandably, given rise to the gravest suspicion. But, at the end of the day, and after hearing and considering his evidence, I do not consider that it is shown to the requisite standard that Mr Coll knew that the transactions in which he became engaged involved misappropriations.

Mr Coll rendered assistance in respect of each of the Croesus, Oakthorn 1 and 2 and Pincinco operations. He did so in the Croesus operation, by putting forward Croesus and Wantley as fronts to account for the payments away which had already been made. I do not think that he really thought that it was proper to do this, and, even if he did, it seems to me that no honest man would have shared his view. I put the matter in that way in the light of the test of dishonest assistance, which is set out in section V.3(a) below. Dishonesty depends on what a person actually knew, and is, for the most part but not in every respect, to be equated in this context with conscious impropriety. The law to that extent imposes an objective standard, which will involve those who proceed to lend assistance regardless of impropriety by others.

Likewise, the assurances which Mr Coll gave in mid-1990 regarding Croesus and Oakthorn (in relation to the Oakthorn 1 transaction) did not, even where they were strictly accurate, constitute a fair answer to the auditors’ question, and I do not think that Mr Coll can have thought they did. The same applies to the accuracy of the last paragraph of his letter dated 4th June 1990, dealing with the role of Croesus and Oakthorn (in Oakthorn 1). Even if he actually thought that the letter gave overall a fair answer or gave in its last paragraph an accurate answer, it was still objectively dishonest for him to write as he did regarding Croesus and probably also Oakthorn. An honest man would have recognised at once that it was deceptive. Its inaccuracy as regards the guarantee I am however prepared to accept was a slip, perhaps in the belief that GT’s guarantee had already been given. 

The Coll scheme which Mr Coll devised from December 1990 on provided the means by which the Croesus and Oakthorn 1 and 2 transactions (as well as the Pincinco transaction) could continue to be accounted for without attracting public attention. But it seems to me difficult to treat the scheme itself as involving any additional element of even objective dishonesty. The scheme was put forward to and discussed with GT’s auditors in January 1991 and with Mr Betts in June 1991. Neither objected to it as a scheme. The most that can be said is that Mr Coll did not disclose during such discussions that any involvement of Croesus and Oakthorn was artificial and to his knowledge in the case of Croesus backdated.

Like Mr Soler, I conclude that the matter must ultimately be approached on the basis that Mr Coll believed that the transactions as a whole, and the improprieties in which he involved himself in relation to them, related to movements of money being made in the commercial best interests of his clients. The cultural context in which he was operating tolerated evasion of exchange control and tax and the preparation of false accounting documentation for such purposes. Mr Coll devoted his considerable abilities to the enthusiastic gulling of professionals to whose ranks and standards he was supposed to adhere. He did not realise that he too was being gulled.

Pincinco
The situation following the Iraqi invasion of Kuwait was unique. It was credible that secret war payments should be made. Others believed this, including Mr Betts and, so far as appeared to Mr Coll, Mr Folchi. Sheikh Fahad, to whom the whole of the free resources of the State of Kuwait had effectively been entrusted, confirmed it. In so far as Mr Coll was party to any deception of auditors in respect of the Pincinco scheme, by failing to disclose the full position, it was limited. There is no basis for concluding that Mr Coll was objectively dishonest in respect of the misappropriation of the $300m. Further, the bulk of that money was already gone before December 1990 when Mr Coll heard for the first time of the Pincinco operation.

Sections V.1(d), V.3 and V.4 consider the legal aspects of the claims against Mr Coll.

IV.3(g) Mr Folchi
Mr Folchi is an energetic and intelligent business lawyer with an excellent grasp of affairs. He too has conducted his own defence in person both comprehensively and with composure and determination. His English has, he told me, improved since the relevant years, but he enjoyed the assistance of Mrs Parker whenever necessary at the material times in any event. The success of his firm was largely built on its connection with and business derived from the KIO and subsidiaries including GT. Mr Folchi personally worked closely with Mr de la Rosa at all material times. Their contacts and relationship are not illuminated by any surviving communications or internal notes. The instructions Mr Folchi received involved him not just in conceiving, advising on and putting in place appropriate schemes and structures to give effect to clients’ business wishes, but also providing administrative services in respect of their operation. Mr Folchi’s partners and other lawyers in his firm also worked on the affairs of the KIO, GT  and Mr de la Rosa. Mr Folchi’s case is that his firm’s and his involvement was always as lawyers, and that the basic duty of a lawyer under Spanish law was and is to accept and follow instructions.

On the evidence before the court, I do not consider that there is, in essence and for purposes relevant to this case, any real difference between the duties and responsibilities of a lawyer under Spanish and English law. The relationship under Spanish law sounds in contract. A lawyer will be liable for any loss caused by his dolus, fault or negligence in the performance of his instructions. The main submission which Mr Folchi makes is that a lawyer under Spanish law cannot be held responsible for following his instructions - the basis of the contractual engagement is confidence in his client, and he is entitled and obliged to act on that basis in the pursuit of his client’s instructions and the defence of his client’s interests, without investigating his client’s explanations or intentions. I accept that this can be viewed as the general position or starting point. But it seems clear on the evidence, and indeed in common sense, that it also puts the position in too unqualified a form. Mr Folchi himself acknowledged that a lawyer could not assist his client by producing false documents. Instructions would, in other words, be no basis for obviously deceitful conduct of this nature. Professor Ramos pointed out that there were limits, both in ethics and where a lawyer realised or considered that the client’s instructions were not fully correct, or involved some misapprehension, or were inappropriate as being against some general principles, in circumstances where their execution could involve a risk of inflicting damage on the client or a third party. Following instructions was not, in his phrase, “a blank order”; it was an answer to the extent that they did not involve any ethical conflict or inappropriate conduct. Professor Villaverde and Mr Diaz-Bastien in their briefer evidence in the same field contemplated similar qualifications. Further, there is no basis in the evidence for measuring a lawyer’s responsibility in this area purely by reference to any subjective confidence he might himself have in the client’s instructions. Mr Diaz-Bastien emphasised, in the context of director’s liability, where one director had relied on information provided by another, that what mattered was not subjective confidence, but whether the former director had conducted himself objectively like an orderly businessman. One director will normally be entitled to receive information from another, so that the position between directors does not in all respects equate with the position between a lawyer and his client. But, the question whether a lawyer can disclaim any responsibility because he followed his instructions must ultimately also involve asking whether, bearing in mind whatever information he does have, he was objectively entitled to follow such instructions. Further, prior to the Pincinco transaction, Mr Folchi became a director of THL and, in that capacity at least, could not longer claim to be viewed simply as a lawyer with an overriding duty to obey instructions.

Mr  Folchi in his pleading also invoked the Spanish law doctrine of los proprios actos. He relied generally on the knowledge of Sheikh Fahad, Mr Jaffar and others regarding the operations as well on particular documents, some of which, such as Sheikh Fahad’s supposed letters dated 15th October and 20th December 1990 have since proved to be forgeries. The doctrine does not however assist him. The doctrine means that a third party is generally entitled to treat the conduct or instructions of persons who act or give instructions on behalf of a company within their apparent powers as attributable to the company. But this does not apply in respect of acts which amount to crimes or are in breach of the law. On Mr Diaz-Bastien’s evidence, it also always depends on the circumstances whether a third party is entitled to assume that the person acting or instructing is acting within his power or for the benefit of the company. The doctrine cannot therefore assist a third party in respect of any order which is “openly and clearly” against the company’s reasonable interest. This brings one back to the question already considered, to what extent a professional or other third party can disclaim responsibility towards the company or another third party, on the simple ground that he was following instructions.

Mr Folchi asked rhetorically what motive he could possibly have had for deceiving the clients who had enabled his firm’s growth and success. That is a factor I bear in mind, but it is not entirely one way. Even a professional may not inconceivably turn a blind eye to, or be disinclined to consider the possibility of, misconduct by senior officers who represent in reality the key at a personal level to his firm’s successful relationship with their company. In common with Mr Coll and Mr Soler, Mr Folchi also stressed the Spanish business practice of making and taking offshore complementary payments. In relation to the fees which Mr Folchi himself took in one way or another, he relied heavily on the Barcelona Law Society’s scale as a guide, and pointed out that his firm did not either keep time sheets or bill systematically for every piece of work done. I return below to the question of scale fees.
 
Mr Folchi is accused of being or becoming party to the conspiracy in respect of Oakthorn 1 and 2, Pincinco and Wardbase operations, or at all events of having assisted dishonestly in respect of each. A pleaded case in respect of Croesus is no longer pursued. I take the operations again in turn. Again it is relevant to have in mind that the concept of dishonesty has the meaning summarised in relation to Mr Coll in section IV.3(f) and explained in detail in section V.3(a). It depends on what a person actually knew, and is for the most part, but not in every respect, to be equated in this context with conscious impropriety. The law to that extent imposes an objective standard, which may give rise to liability on the part of those who lend assistance regardless of impropriety by others.

Oakthorn 1
Mr Folchi was intimately involved in the setting up of the structure which was, in its ultimate form, used for both Oakthorn operations. Mr Folchi’s account of the origins of this structure has varied. His November 1992 memorandum seemed originally to place the instructions to set up this structure in early 1988 and in the context of complementary payments intended to be made in the then forthcoming public bid for Ebro. The purported letter dated 21st February 1988 from Mr Robinson to Mr de la Rosa also suggested that a premium of up to $90m was then envisaged on the Ebro transaction, although, as stated in section IV.2(c), the annexure of this to the memorandum was not explored before me. In his first witness statement, Mr Folchi also said “I was approached by Richard Robinson on behalf of the KIO/GT in 1988 .... in connection with a forthcoming transaction which turned out to be the acquisition of GT by EBRO”. Since the public bid for Ebro occurred in Spring 1988, this again indicates an approach in early 1988. In his supplemental witness statement, he said that “sometimes in 1988 J.R. [Mr de la Rosa] instructed me about the need of a structure which could allow GT to make payments legally outside Spain” and that this requirement was commented with Mr de la Rosa, Mr de Mir, Mr Robinson and “very probably at least in one occasion” with Mr Jaffar. However, in his oral evidence Mr Folchi said  that the need for the structure was originally put in the abstract, and that it was only in July 1989 that Ebro was mentioned to him. This leads to the question why complementary payments were being made (and why it can have been so urgent to make them) in July 1989, well over a year after the public bid for Ebro. Mr Folchi’s only answers were that the Ebro bid had given rise to some litigation and that he had not paid any special attention to these matters.

What was established prior to July 1989 was the Castle Trust, set up on 27th January 1989. Mrs Parker evidently introduced Mr Folchi to Mr Russell. Mrs Parker only opened her Barcelona language service in early 1988 and it took some time before her work for Mr Folchi extended beyond his English. She only joined his firm full time around the end of 1988. She must have introduced Mr Folchi to Mr Russell before 5th September 1988, since on that date she received Freshfields’ advice on the possible UK implications of her becoming a beneficiary in a Jersey trust. In his final submissions, Mr Folchi identified Mr Russell’s memorandum dated 1st February 1989 as containing “the answer of M Russell (Sierra Trust) to the consultation made by Carin Parker (following instructions from J.J. Folchi) in relation to this structure”. That does not fit, bearing in mind the dates of (first) Freshfields’ letter of 5th September 1988 and (secondly) the deed dated 27th January 1989 setting up the Sierra Trust. Why Mr Russell should have couched a letter to Mrs Parker on 1st February 1989 which appears to reflect advice for future action remains mysterious, since it seems improbable that Mrs Parker had, in addition to Mr Folchi, another similar connection interested in Jersey off-shore structures at this time. The letter contemplates a structure like the Sierra Trust to hold a Jersey company such as Oakthorn to receive income gross in Jersey “unless there were any withholding tax restrictions in the country of origin”.  On 13th June 1989 Mr Russell wrote to an English partner regarding “a new UK company” to be held by two companies belonging to a Jersey trust, its first (and no doubt nominal) purpose being to act as an estate agent between England and Spain and its “principal idea” being to receive monies without deduction of any withholding tax in the remitting country. This foreshadows the acquisition of (in the event) Wardbase held by Oakthorn and Westow.

Mr Folchi’s supplemental witness statement indicated that his firm was very busy on group business in July 1989, and that “it seems clear” that Mr Russell was working on the feasibility of the [Oakthorn 1] operation on and around 20th July 1989. It is also clear that Mr Folchi himself gave this matter considerable attention. Mr Russell’s file note dated 21st July 1989 records discussion “at length” with Mr Folchi and Mrs Parker regarding the structure for the deal, and the use of a new resident UK company “as a vehicle for avoiding Spanish Withholding tax”. After stating that “The original idea was that the group be set up in a controlled way” (very  likely a reference back to the time of the memorandum of 13th June 1989), it recorded that on 19th July 1989 Mrs Parker called from Barcelona to request that this structure be set up immediately as a transaction was in the pipeline which Oakthorn should pass down to a UK subsidiary to enable [GT] to remit the funds without the need for Spanish Withholding Tax to be deducted”. The note records that Messrs. Jordans were contacted with a view to the immediate purchase of Wardbase, to be owned by Oakthorn and Westow.

Mr Folchi evidently outlined the proposed transaction as involving a loan by THL to Oakthorn (using monies borrowed by THL on the security of the Koolmees promissory notes) which monies Oakthorn would then immediately be required to pay to two Swiss accounts, with full details being given by Mrs Parker. Oakthorn was not to be required to repay the loan, unless and until it had become entitled to a commission of Ptas.10-12b [sic] in connection with the introduction of a share purchaser for a block of GT shares which GT wished to place. The note went on “Carin Parker is confident that Oakthorn Limited will be able to find a purchaser and discussions along this line will take place in Barcelona next week”. Mrs Parker told me that she would have been passing on, as verbatim as possible, something that Mr Folchi would have told her to tell Mr Russell, and I accept this as likely. Mr Folchi suggested that all he would have expressed was confidence that Oakthorn could act properly as agent for GT in the transaction, and defended the agreement as normal and not a sham. What is normal depends of course on experience. But there was in reality nothing in the proposed “agency” agreements between GT and Oakthorn and Oakthorn and Wardbase except a desire to find some cloak to “repay” a “loan” from GT to Oakthorn which it was never contemplated could or would be repaid. Mr Folchi in effect acknowledged this, when he suggested that, since Oakthorn had  acted as agent (in paying away monies for GT), GT was anyway obliged to put it in funds to repay the “loan”. 

Wardbase was acquired and two of Mr Russell’s partners, as its directors, are recorded as holding board meetings on 20th and 21st July 1989, solemnly reciting Oakthorn’s proposed agency for GT and Wardbase’s for Oakthorn, and resolving to open a bank account. On 20th July 1989 Mr Folchi wrote to Mr Vasconcellos referring to the loan to be made by THL to Oakthorn on terms of an attached draft using the proceeds of the Koolmees promissory notes. This may well have been a draft used for the actual loan agreement dated 27th July 1989.

Mr Folchi was, I conclude, fully aware of all mechanical aspects of the operation and intimately involved in setting them up. The plaintiffs, with justification, categorise the operation as involving sham agreements, particularly the so-called agency agreements between GT and Oakthorn, Oakthorn and Wardbase and GT and Wardbase. Mr Russell and his companies were however as much involved in an elaborate charade as Mr Folchi, and were not deceived by it. Mr Folchi denied that there was any purpose of deceiving the Spanish tax authorities into thinking that Wardbase was acting as a principal, so that Spanish withholding tax would not be payable. The English tax authorities would accept Wardbase as acting as an agent (as it purported to be for Oakthorn), while the Spanish tax authorities would, he said, treat Wardbase as acting as a principal whether it was or not. Whether this on its face surprising result would really follow was not explored further and is not something I have to decide. It is clear, as Mr Folchi effectively acknowledged, that none of the agency agreements existed save as a device to cover “repayment” of the Oakthorn loan from GT. It seems difficult to think that any tax authority would, if it knew this, accept any payments made under them to Wardbase for any purposes. Nonetheless, the genesis and purpose of the scheme, as devised between Mr Folchi and Mr Russell, do not of themselves point towards any wider attempt to deceive, or towards any fraud on GT or THL. Mr Folchi’s vagueness and some inconsistency about the origins of the Sierra Trust and its context, particularly whether this was from the outset for complementary payments in the Ebro transaction or whether that transaction was only mentioned in July 1989, raise some questions. But I do not regard them as pointers of much real strength in the direction of either actual or objective dishonesty on Mr Folchi’s part.

I have set out in section IV.2(c) Mr Folchi’s account in his November 1992 memorandum of his understanding of the payments, based (he said) on information from Mr Ball. Mr Folchi went on:

“At no time did I ever receive, nor did I ever request information concerning the ultimate recipient of the payments apart from the information that I have already given during the meetings on November 13th and 15th.”

In his first witness statement Mr Folchi referred to his memorandum to explain how and from whom he received his instructions. 

As to external accounts, Mr Folchi indicated when seen on 17th September 1992 that he understood the KIO to have three private external accounts, controlled by Mr Ball and Mr Jaffar, and that he had been instrumental in obtaining trading status for the KIO in Spain as a private body, rather than a governmental agency. In his November 1992 memorandum to the Attorney General, he stated that he had no detailed knowledge of what the external accounts were, but that, at the time of his initial involvement with the KIO, Mr Ball had given him the explanation, which he had checked with Mr Jaffar, that the KIO managed both assets of the Future Generations Fund (“FGF”), which were publicly owned, as well as other private Kuwaiti funds. He suggested that the KIO had obtained significant fiscal benefits in the UK, which should not have been granted save in respect of the FGF, and had made investments in Spain which could be unlawful with “devastating implications” if it were to become known that the KIO only handled public funds. The purpose of saying this was to persuade the Kuwaiti authorities that Mr Folchi should not have to make further disclosures to the investigating team. In his supplemental witness statement Mr Folchi said that he “knew that the KIO was managing external accounts in Switzerland, and precisely through Lombard Odier and Privat Bank”, that his understanding was that “KIO was managing public and private funds and acting through tax havens in the Netherlands Antilles, Swiss banks and other instrumental companies”, and that it was very easy to accept that external accounts could have been involved in the Ebro takeover.

Asked in cross-examination what he thought was happening in relation to the payment of $37.5m to the Lombard Odier account, and whether he assumed that it had been paid into an account containing and operating private funds, he gave vague replies:

“I do not think that I devote so much attention to the issue, and I do not think I considered that myself was obliged or entitled even to make an assumption so detailed. I do not remember.”

and

“I did not know if just private funds or private and public funds. The way KIO conducted the investments in Spain was not clear, and I think I may say was far from transparent. It is not my fault. So my understanding about KIO was wrong in the essence. ....”

If the $37.5m was going into a private account, it would, he said, have been

“absolutely proper if, from this account, a complementary payment, for instance, had been made before, and you are now repaying this amount previously paid, and this is a possibility. I am not saying that I thought I contemplated specifically this possibility in 1989 ....”

After Juge Tappolet’s documents became available, Mr Folchi said in his supplemental witness statement that Mr de la Rosa had, prior to the November 1992 memorandum, told him that the Privat Bank money was for the account FAIRVIEW and that the $5m to Bankers Trust was “for account 101900 “Stuart” and [was] transferred to pay Ramon Hermosilla, a Madrid based lawyer involved in the Ebro takeover on behalf of [GT]”. Not only did Mr Folchi fail in his November 1992 memorandum to mention account Stuart and his awareness of Mr de la Rosa’s involvement in account Stuart, but the Swiss documents show Mr Folchi instructing Bankers Trust direct to credit the $5m to the Stuart account, so that Mr Folchi must in fact have been aware from the outset of that account’s involvement. As to why Mr Folchi did not mention Mr Hermosilla until his supplementary witness statement, Mr Folchi said that this was because that he had no evidence about Mr Hermosilla and because Mr Hermosilla was a colleague, whose private interests were affected. The former is unimpressive and the latter would not, particularly in the context of this case, have precluded some general reference. In fact, there is (cf section IV.2(c)), no evidence that Mr Hermosilla did receive the $5m at all. Further, why, if Mr Hermosilla was the recipient, the payment should need to be made first to Mr de la Rosa’s account is not explained by anything Mr de la Rosa is supposed to have said.

In his supplemental witness statement, Mr Folchi acknowledged that he had visited Bankers Trust in Geneva in July 1989 together with Mr de la Rosa. He said that Mr de la Rosa had asked him to cancel a prior Stuart account at Bank of America and to move to Bankers Trust where Mr de la Rosa also opened an account, “because that was convenient and KIO preferred to work with Bankers Trust”. Mr de la Rosa had suggested that it would be convenient for GT if Mr Folchi’s and others’ professional fees were paid outside Spain, and this, Mr Folchi said, was the purpose of his own Falcon account. His “assumption”, Mr Folchi said, was that Mr de la Rosa was

“involved in the management of KIO external accounts in Switzerland. He was presented by the Spanish media as associated with KIO. He confirmed to me that he was conducting investments together with KIO.”

This account too came only after Juge Tappolet’s documents had confirmed the beneficial connection, which the plaintiffs had previously suspected, between Mr Folchi and account Falcon. Previously, Mr Folchi had done all he could to keep secret his ownership of account Falcon. Despite his consent through his then English solicitors on 5th May 1998 to letters rogatory which I addressed to the Swiss courts in the context of the Pincinco operation, he took legal action through Swiss lawyers on 29th October 1998 to attempt to preserve the secrecy. He gave on 13th January 1999 (Day 35) the specious explanation that his Swiss lawyers had advised him he had a basis for objecting and that “for a lawyer law matters”. He agreed to withdraw his objection on 26th November 1998 (Day 23) only after the position had anyway been demonstrated by Juge Tappolet’s documents. Mr Folchi’s supplemental witness statement itself came at the very last moment, over three months into the trial, just before he was due to give evidence. It contained many matters which should have appeared in his pre-trial witness statement, served when he enjoyed and had for some years enjoyed direct legal representation. Mr Folchi said that he had deliberately kept his first statement to the minimum, thinking in a Spanish context and asking his lawyers: how small may a witness statement be? Since a witness statement must be “full and complete” and “the whole truth” (cf Supreme Court Practice 1999, note 38/2A/7), that seems an unsatisfactory explanation for matters such as the appearance for the first time in the supplemental witness statement of the explanation relating to legal fees of $5m and Mr Hermosilla. Nor do I find very convincing Mr Folchi’s explanation that he always knew that he would have to and intended to disclose the full position regarding account Falcon when he came to give oral evidence.

Juge Tappolet’s documents also give some insight into Mr Folchi’s relationship with the Stuart account. They contain an example of a letter dated 22nd May 1989 written by Mr Folchi informing Bank of America that the Stuart account would shortly be credited with Ptas.38m and saying “I would be grateful if you could effect upon immediate receipt of these funds, the following URGENT transfer ....”. The bank noted on the letter that it had on 24th May 1989 “confirmed with client OK”. Mr Folchi, while agreeing that the client must be Mr de la Rosa, suggested in evidence that he could not understand the rationale of asking him to write the letter, unless Mr de la Rosa was signalling to him that this was not his personal account. This was a strange and unconvincing piece of evidence. It falls to be considered in a context where Mr Folchi failed to disclose any knowledge of and involvement with the Stuart account until it was discovered by other means, and seeks now to put forward an explanation which  exonerates him for his participation and acquiescence in payments made to an account which he knew at all times was controlled by Mr de la Rosa. A more realistic position seems to be confirmed in paragraph 250(A) and (B) of Mr Folchi’s own final submissions, where he recounts Mr de la Rosa’s practice of using Mr Folchi to write to a bank, so that it had something in writing, after which Mr de la Rosa would complete the matter on the telephone. That indicates close co-operation in relation to the Stuart accounts.

Indeed, although this was not put to Mr Folchi and the conclusion expressed in the previous paragraph was reached without reference to it, the hand-written fax and Mr Byrde’s memorandum at bundle 2 pages 596-7 of the Swiss banking documents appear to show Mr Folchi as “the STUART lawyers” passing instructions to Bankers Trust for two payments to be made out of the Pincinco and three out of the Stuart accounts. Although this is not critical, they also suggest that Bankers Trust would act on instructions passed through Mr Folchi without further direct confirmation from Mr de la Rosa.
 
In 1990 three payments were on Mr Folchi’s instructions made to his Falcon account originating from monies left in Oakthorn’s account in Jersey. The first, for Ptas.14m, under an urgent instruction dated 5th June 1990 which could only be implemented as funds came off deposit on 12th June 1990, was for payment to a Banque Paribas, Geneva account of a Mrs Biosca Estela over which on 8th June 1990 she gave Mr Folchi (and another lawyer) powers of attorney, which Mr Folchi at least said he never  used. Mr Folchi said that she was an old friend of his who wanted cash in Switzerland, to which country she was moving, and had cash in Spain at a time when Mr de la Rosa wanted Ptas.25m cash there for GT operations.  So a swap had been agreed. This account, though strange in several respects including the dating of the power of attorney, is essentially unshaken - no subsequent use of her account by Mr Folchi is shown - and I therefore accept it. The second, for £50,000 under an instruction dated 28th June 1990, was, Mr Folchi explained, for services rendered to GT in respect of a put and call option entered into on 19th June 1990 by GT with Lombard Odier for Prima shares. Mr de la Rosa told him to use monies left in Oakthorn. Again, I accept this. The third, for $775,373 paid on 13th November 1990, was, Mr Folchi told me, fees agreed with Mr de la Rosa covering (a) Oakthorn 1 and 2, (b) Hammarstone, the Paribas loan contracts and associated put and call options and (c) a transaction involving the purchase of Urbas shares through Mr Russell. Mr Folchi said that he asked for $250,000 each for the two Oakthorn operations in (a), $250,000 for (b) and Ptas.3m (c.$30,000) for (c), a total of about $780,000. As to (c), Mr Russell was in mid-July 1990 instructed to transfer $900,000 from Oakthorn to another Russell company, Setsar Limited (the thirty-fourth defendant), and to pass it to Madrid stockbrokers to buy Urbas shares, which were sold at a profit in November 1990 with the proceeds being transferred to the account of Setsar which then paid out of them Mr Folchi’s fee and further fees which Mr Folchi suggests, in a letter dated 9th March 1999, went to a tax lawyer engaged on Oakthorn 1. Mr Folchi suggests that the standard fee for (b), based on the Barcelona Bar Association scale, would have been between $500,000 and $1m. But the scale fees were not compulsory, and their application depended ultimately on agreement and the circumstances. Mr Folchi said that they would be applied if no other fee was agreed. I do not accept that would realistically be so in the ordinary business context. The fact that Mr Folchi only asked for $250,000 in respect of (c), even allowing for the fact that the £50,000 paid in June 1990 appears to relate to part of the same transaction, itself suggests that the scale fees have a more limited significance.

Oakthorn 2
Mr Folchi’s November 1992 memorandum states that the Ebro-Agricolas merger was announced at a GT board meeting on 28th February 1990 (although, according to a recent amendment of the points of claim, it did not take effect until 29th December 1990). Mr Folchi also said that he was, at some point after the board meeting, informed that “other complementary payments would need to be made”; and that in June 1990 Mr Ball told him that the Oakthorn structure would again be used, and instructed him to make payments set out in Sierra Trust’s letter dated 7th October 1992, counter-signed by RBS and by Mr Folchi which he produced to Mr Fordham of Stephenson Harwood at their meeting on 13th November 1992. The memorandum went on: 

“Two transfers in the amount of US $22.5 million and $15.5 million respectively were applied to make complementary payments. A further two transfers for an amount of $10 million and $2 million respectively went to external accounts, according to information that I received from Mr Ball.

My actions in this operation corresponded entirely with the normal conduct of a professional acting under properly given instructions. I did not receive any further information concerning the ultimate beneficiary of the payments than that which I have disclosed. I did not have reason to think that any individual at KIO/GRUPO TORRAS would personally benefit as a consequence of the payments made.”

Mr Folchi’s supplemental witness statement stated that in May 1990 he learned first from Mr de la Rosa that the KIO was prepared to give further financial support to GT, and secondly from Mr Ball that four new payments were to be made outside Spain through the mechanism of a $50m loan by THL to Oakthorn in connection with the Ebro-Agricolas merger. Here, therefore, in apparent contrast with his November 1992 memorandum, Mr Folchi brackets the two complementary payments (to London and Jersey) and the two external account payments (to Zurich and, via New York, Geneva) together within the framework of that merger. Where the distinction drawn in the memorandum originates is unclear. Another feature is that, in a case where the offshore advantages for complementary payments of Switzerland and tax havens have been so underlined, the larger payment described by Mr Folchi as complementary was addressed to London.

It is clear that Mr Folchi must by 22nd May 1990 already have been instructed to make the $22.5m payment to the account in the name of F. M. Al-Sabah at Chemical Bank, The Strand, London. On 29th May 1990 Mr Russell for Oakthorn wrote to Chemical Bank referring to such instructions, and asking for account details to conclude the payment rapidly, once “some technical requirements” were fulfilled.

Sierra Trust’s letter dated 7th October 1992 fails conspicuously to give the names or, at least in the first two cases, any numbers of the accounts to which were addressed the $22.5m sent to Chemical Bank, London, for the attention of Kay Walsh, the $10m sent to Rud Blass Bank, Zurich, for the attention of Rudy Frei, and the $2m sent to Chemical Bank, New York in favour of C.I. 83536. By contrast, the letter showed the $15.49m sent to Morgan Grenfell, Jersey as being “for the account of Allsports”. Discovery by the Sierra Trust in this action shows that Mr Russell retained Mrs Parker’s fax instructions dated 12th June 1990 by Mr Folchi, for payment away by Allsports of the $15.49m which it received to Bankers Trust, Geneva, attention Yves Byrde, in two tranches, and Sierra Trust’s letter of the same date to Morgan Grenfell passing on these instructions.  It also includes undated internal summaries of Oakthorn’s bank account with RBS and of receipts and payments, showing Sheikh Fahad and Mr Jaffar as recipients of the $22.5m and $10m. I note that the discovery made does not include copies of Oakthorn’s letter to Chemical Bank dated 29th May 1990 (mentioned above) or of later letters dated 7th and 13th June 1990, all of which refer to Sheikh Fahad by name as recipient. But it does not follow, and I would not infer, that this is because those particular letters were not still available to Mr Russell in October 1992.

Mr Folchi was cross-examined about his statement in his memorandum of November 1992 that he “did not receive any further information concerning the ultimate beneficiary of the payments than that .... disclosed” and “did not have reason to think that any individual at KIO/GRUPO TORRAS would personally benefit as a consequence of the payments made”. His answers did not impress me. He said that he did not remember that the identity of the recipients had been part of the details he had received, that he had not reviewed his files, except to know whatever details were contained in the memorandum, that the memorandum had been prepared under great time pressure, doing what he felt he had to do for others not himself, and that he had checked it with the relevant people. The starting point is Mr Folchi’s statement that he had no recall of the identity of any recipients to whose accounts monies were directed. Making all due allowance for the volume of work done by Mr Folchi and his firm for GT and the KIO, the Oakthorn 2 transaction was on any view an extraordinary one, said to involve very large complementary or external payments. It is intrinsically unlikely that Mr Folchi would not have noted and remembered the use of personal accounts in that context. As to Mr Folchi’s evidence about the compilation of his memorandum, there is no reason to doubt Mr Folchi’s evidence about the short period which that actually took, but the fact is that Mr Folchi and Mr Russell had both been engaged during the last two months in a series of meetings described in section II.7 above. These meetings must have concentrated their attention on the operations, and have made it very clear that Mr Fordham and others were most interested in the recipients of the payments. Mr Russell had been encouraged in late September 1992 to “gather together the papers on the matters raised in the meeting” and to meet with Mr Folchi, and they had done this in Barcelona on 4th October 1992. It would be a striking coincidence if the one piece of information which neither recalled or had available was the identity of the two obviously critical recipients. This is so, whatever Mr de la Rosa may have said to Mr Folchi, and even if Mr de la Rosa is assumed to have misled Mr Folchi in other respects by providing misleading information (as Mr Folchi asserts) and/or forged documentation when Mr Folchi was preparing his November 1992 memorandum. The memorandum itself was Mr Folchi’s own work product. I was not impressed by Mr Folchi’s attempts to explain inaccurate passages in it which purported self-evidently to recount Mr Folchi’s own conduct, recollection and belief as deriving from inaccurate promptings by Mr de la Rosa and/or others. The coincidence is not made any less striking by Mr Folchi’s evidence that the “the relevant people” at the meeting (evidently that at Mr Jaffar’s house in September 1992) denied receipt of any money personally in these transactions. Indeed, if Mr Folchi did ask Sheikh Fahad and Mr Jaffar whether they had received money personally, he was focusing on precisely the relevant point - still on his evidence without having any recollection that he had actually directed these very large payments to them.

Mr Folchi was questioned more specifically about why he had not had available to him the fax instruction dated 12th June 1990 when making his memorandum. He said first that his filing system, being “done in the Spanish context”, would not keep correspondence with foreign banks and companies on his global file, and that he assumed that Oakthorn would be in the company files, and then a little later that it did not “necessarily” follow that he had this instruction in his files at all:

“It could be, but not necessarily. In general, correspondence with Swiss banks, or foreign instrumental companies or offshore companies were not kept in my files.”

I was left unconvinced by any of these explanations. I note also that, in respect of Oakthorn 1, Mrs Parker on 31st July 1989 wrote specially to Mr Russell asking for a copy of the payment instructions. She told me and I accept that this was because she was asked to do so. It seems unlikely that the purpose was simply to check it before destroying it. Even if it was, the checking suggests attention to payment instructions.

The position regarding the Allsports account is also significant. Allsports was a British Virgin Islands company specially acquired by Oakthorn on 13th June 1990 “in view of imminent international deals .... to act as agent for Oakthorn Limited” according to the relevant Oakthorn board minute. Here, the letter dated 7th October 1992 drafted by Mr Russell did identify the recipient as Allsports. But this was not illuminating. The on-payments by Allsports to the Stuart account were only discovered as a result of Norwich Pharmacal proceedings in Jersey, leading to the first affidavit sworn 12th January 1994 by Mr McSporran of Morgan Grenfell, Jersey. Mr Folchi disclaimed any real knowledge about or interest in Allsports. He said that he had been instructed by Mr de la Rosa to arrange the payment to the Stuart account through a different account in two tranches, and that he passed this on without concerning himself whether the different account was in the name of an existing or a new company. The matter actually proceeded in two stages, first, the acquisition of Allsports and the opening of a new account in its name on 12th/13th June 1990, and then Mrs Parker’s fax of 13th June 1990 signed by Mr Folchi instructing Mr Russell under the head ALL SPORTS PROMOTIONS to pay away in two tranches on 13th ($13m) and 18th ($2.49m) June 1990 to the Stuart account. Mr Folchi said that in cross-examination that, although Mrs Parker probably knew very well about Allsports, he gave no attention to the heading on the message dated 13th June 1990 which she prepared, and which he signed probably in her absence. Mr de la Rosa told him that the two tranches related to monies for different final destinations. None of this does any credit to Mr Folchi’s grasp or control of affairs, and I do not accept Mr Folchi’s account.. He must have realised at the time that Allsports was being used as a transit vehicle to channel and, on the face of it (since it is difficult to think of any other conceivable reason) to conceal payments to Mr de la Rosa’s Stuart account. I do not believe that he can have forgotten this in November 1992.

At the last minute, the instructions to Allsports were amended to pay only $2.4m to Stuart account 130900, value 19th June 1990. These instructions must also have reached Jersey from Mr Folchi, albeit maybe relayed through Mrs Parker. Upon its arrival in Stuart account 130900, $1.3m of the $2.4m was transferred to Mr Folchi’s account Falcon, value 20th June 1990. Then on 29th June 1990 instructions were given by two of Mr Russell’s partners, on behalf of Allsports, for transfer of the $90,000 remaining in Allsports’ account to Bankers Trust account 130900, attention of Mr Byrde, where the money arrived value 3rd July 1990. After a brief visit to Stuart account 130671, this money returned to Stuart account 130900 and was transferred, again anonymously, to Mr Folchi’s Falcon account 130650 on 17th July 1990.
 
Mr Folchi explains the $1.3m as a fee agreed with Mr de la Rosa for services rendered to Mr de la Rosa personally on his acquisition of Gran Tibidado S.A. in 1989-90. He says that he only heard of the credit by telephone from the bank and had no idea that it came from the Stuart account or from Oakthorn. He explains the $90,000 as fees agreed with Mr de la Rosa for professional services rendered to GT in relation to a put and call agreement with the Barrera family, relating to Ebro’s acquisition of Arrocerias Herba in an operation executed on 30th January 1989, and again says that he always thought it had been paid by GT. Mr Folchi’s receipts of the $1.3m and $90,000 were only revealed by Juge Tappolet’s documents. By mid-December 1998 Mr Folchi had received from the plaintiffs further draft amendments alleging that he acted dishonestly in the receipts. His supplemental witness statement, served only just before he gave his evidence, contained his responses. In the circumstances, he was not specifically cross-examined on the receipts. Juge Tappolet’s documents had revealed, for the first time, the information about the Falcon account which Mr Folchi had previously withheld, including a large number of potential receipts. The matter was left on the basis that the parties would attempt to agree as much about these receipts and their relevance as possible. No explanation for the present receipts was agreed, although the rival positions were sufficiently clear. There is room for suspicion that Mr Folchi must actually have known the source of his receipts of $1.3m and $90,000. On the other hand, and for whatever reason, the relevant sums were not simply transferred from Oakthorn to the Falcon account, as did happen contemporaneously with the £50,000 transferred out of Oakthorn 1 monies. Since it is not suggested that the $1.3m could properly have been paid by GT, Mr de la Rosa had a potential motive for trying to conceal its origin. Mr Folchi must nonetheless have appreciated that he was receiving anonymous transfers of monies from Mr de la Rosa (in one case only a day or two after he had been instructed to despatch Oakthorn 2 monies to Mr de la Rosa’s account Stuart, for onward remittance to an undisclosed final destination, and in the other case within a few weeks and in an identical sum to that remitted via Allsports). I would have expected at least the thought to have occurred to him, that Mr de la Rosa was using Oakthorn 2 monies to pay a large personal bill and a smaller fee due from GT, both unconnected with the Ebro-Agricolas merger. Whether or not it did occur, or should have done, is not however critical to my conclusions in this judgment. There are other more compelling considerations, which the course of events gave full opportunity to investigate with Mr Folchi  in evidence.

The conclusion to which I come is that Mr Folchi’s omission in November 1992 to mention Sheikh Fahad, Mr Jaffar and Mr de la Rosa as major recipients of Oakthorn 2 monies was deliberate. Mr Folchi suppressed his knowledge that the payments had been directed to these recipients. I do not accept for a moment Mr Folchi’s facile suggestion in cross-examination that he would not have done so as a lawyer in 1992 because he would have believed that further details could be obtained in “at least three quick ways”, viz. criminal proceedings in Kuwait or the countries of payment or letters rogatory from England. Mr Folchi’s position has been characterised by efforts to keep as much to himself as possible, for whatever reason. The memorandum itself, read as a whole, had a clear aim, in addition to that of giving information, of persuading or warning the KIO to take the matter no further - indeed, according to Mr Folchi’s supplemental witness statement, its “main function” was to warn the Government of Kuwait about suggested risks inherent in continuing with the investigation. I can well accept that Mr de la Rosa had encouraged Mr Folchi to adopt this line. But, even assuming that Mr Folchi did genuinely believe in the warnings that he gave, this cannot explain or justify his suppression of the identity of Sheikh Fahad, Mr Jaffar and Mr de la Rosa as recipients of Oakthorn 2 monies. That suppression suggests - at the lowest - consciousness that information about their identities would prejudice the position of himself and/or of those, Mr de la Rosa in particular, from whom he received immediate instructions. If he was prepared to suppress their identities for either reason, that is consistent with recognition of problems presented by the original making of such payments to those recipients. Of course, there is a risk of hindsight in this comment. But suppression of the identity of recipients in November 1992 is on any view telling confirmation that Mr Folchi was prepared to put his own and/or others’ (particularly Mr de la Rosa’s) interests, above those of his true principals.

So far as the purpose of the payments was concerned, Mr Folchi said that he simply accepted Mr Ball’s explanation, that it was very difficult for him to remember his state of mind in 1990, but that he thought that the KIO was following the usual path of buying shares through external accounts and instrumental companies, in parallel with the merger. In his supplemental witness statement, he said that the names of Sheikh Fahad and Mr Jaffar gave him “additional comfort”:

“I was sending the money to accounts controlled by KIO’s top executives as it was supposed to happen with external accounts.
It is fair to say that my assumption was that KIO was managing private funds through external accounts.”

In cross-examination he explained that he meant that, assuming that he did see the names, they would necessarily have comforted him. If that were so, one might expect him to remember the recipients.  There would be no good reason at all for not mentioning the account names if he did remember them in November 1992.

In reality, even on Mr Folchi’s own account he had no coherent understanding of what was going on, and did not take the slightest trouble to acquire any, at the time of the Oakthorn 2 transaction. His suppositions regarding the KIO’s role and regarding its management of private funds could be nothing more than speculation in the context of this operation. He had so far as appears no solid ground for thinking that private accounts were being held in Sheikh Fahad’s or Mr Jaffar’s or indeed Mr de la Rosa’s name but managed by the KIO, and nothing beyond speculation to suggest that monies had been expended out of such accounts for GT’s benefit. Why the KIO or GT should wish THL to borrow monies in London, have them remitted to Oakthorn in Jersey, only to be returned to a bank account in Sheikh Fahad’s name in London is not a matter which on his account he can ever have addressed. The gist of his evidence is, in effect, that he relied absolutely on the good faith of those running the KIO and GT. That he should do so is entirely understandable up to a point. But not even Mr Folchi’s position as a lawyer following instructions from people he trusted can in my judgment sanction or render readily understandable his attitude to this particular operation. His subsequent conduct, in withholding and on the conclusions I reach deliberately suppressing obviously relevant information, underline this. I consider below the conclusions to be drawn.

Pincinco
According to Mr Folchi, he learned from Mr de la Rosa at or near the end of September that the purpose was to make payments away connected with the efforts to recover Kuwait, and that a Swiss bank was to be used. His own idea was to use an offshore company in a manner used in the Oakthorn operations. Mr de la Rosa said that a Swiss bank was to be involved. Mr Folchi does not appear to have asked or ascertained the reason for this change of approach. But he became involved in considering how best the transaction might be structured, and, after taking advice, advised Mr de la Rosa that a fiduciary deposit with the bank coupled with a fiduciary loan given by the bank to a third company would be most cost-effective. The payments were to be funded by a Ptas.40b loan by Koolmees to GT. On 28th September 1990 Mr Folchi obtained Spanish exchange control permission for such a loan as “financing of productive investment”. On 1st October 1990 he signed the loan agreement on behalf of Koolmees together with instructions to Banco Santander to pay GT the loan amount of Ptas.40b. On the same day, he, rather than Mr de la Rosa as at first contemplated, became a director of THL, while in Jersey Pincinco held a board meeting approving the taking of a $300m facility from Bankers Trust, Geneva and gave Mr Russell a power of attorney. On 2nd October 1990, Mr Folchi travelled with Mrs Parker to Geneva, where he met Mr Russell and had meetings and signed documentation as set out earlier in this judgment. The fact that the effect of the operation was that THL received from GT $300m which it then disbursed in a manner making it impossible for it to repay GT does not appear to have troubled Mr Folchi in his capacity as a director of THL. His only justification for this attitude can be that he understood that both THL and GT were acting in the interests of the KIO, which would in one way or another stand behind them. But he did not seek or obtain any express assurance or protection for THL to this effect.

Mr Folchi told me that his and Mrs Parker’s visit was unconnected with the Pincinco transaction, until in Geneva he received a telephone call from Mr de la Rosa. If Mr Folchi and Mrs Parker were in Geneva by coincidence, just when the Pincinco operation and documentation required finalising, that is a considerable coincidence, particularly since Mr Russell was there for that purpose. However, whether there was a coincidence or not does not affect the substance of the matter. Mr Folchi himself accepted that, if he had not already been there, he would have had to go there in the next day or so any event. Whether Mr Moukarzel knew of any transaction in the offing or not, Mr Folchi’s appointment as a director of THL clearly came about for the very purpose of finalising the operation. So far as it matters, I think it unlikely that Mr Folchi was in Geneva by coincidence. I note that at 6.40 p.m. on 1st October 1990, immediately after his appointment as director of THL, Mr Folchi’s office faxed to Bankers Trust a copy of Form No.288 completed pursuant to s.288 of the UK Companies Act 1985 to notify his appointment. Mr Folchi said in evidence that he did not link his acceptance of his directorship with the Pincinco transaction. I think that in the circumstances difficult to accept.

Mr Folchi also said that, prior to 1st October 1990, he had seen no Bankers Trust documentation, and had no contact with Bankers Trust, in relation to the operation. Mr Schnell of Bankers Trust gave fluctuating evidence in his deposition as to whether he had contact with Mr Folchi prior to their meeting on 1st October 1990, and had forgotten that Mr Russell was present on 1st October 1990. It is also very likely that Mr de la Rosa would himself have been in direct contact with Mr Yves Byrde of Bankers Trust, Geneva, and I have no difficulty in accepting that Mr Folchi had seen no documentation prior to 2nd October 1990. But he had been engaged in the conception of the scheme, and whether or not he spoke to Mr Schnell (as he may have done) prior to 2nd October 1990 does not ultimately seem to me to matter. Mr Schnell, Mr Byrde and Mr Folchi had meetings on 2nd and 3rd October 1990 and spoke often by telephone thereafter. Mr Folchi may also have spoken to Mr Byrde in Geneva, whom of course he well knew from 13th July 1989 on.

Mr Schnell said in his deposition that “needless to say” Bankers Trust received from the clients particulars of the purpose of the transaction, and was advised that it was the financing of the acquisition in Spain by Mr de la Rosa, whether for Kuwaiti or other investors, of the whole of part of the Spanish company Ercros. According to Mr Schnell, an article confirming Mr de la Rosa’s intention appeared in an English newspaper around this time. No such article was put before me, and the position regarding Ercros was not explored, although exhibit 4 to Mr Folchi’s November 1992 memorandum suggests that GT held about one-third of the shares in Ercros, so that a full bid could have been plausible. There is no reason to doubt Mr Schnell’s memory about the purpose communicated to him, which would have been an important point for any bank. Mr Schnell also said that it came “from the most diversified quarters”, although he could not say whether from Mr de la Rosa, Mr Folchi or whom. Mr Folchi could not remember being involved in giving the bank any information about the purpose of the transaction at any stage, and speculated that the most he might have said was that the payments had a connection with the war effort in Kuwait. He said that he was not aware that the bank received a different explanation, although he viewed it as quite understandable if someone did give do this, in order not to disclose a real reason involving war payments. I am sceptical about the idea of Mr Folchi being closely involved in setting up and thereafter implementing the operation, with one view of the purpose, while the bank, from some other source, had another view. But I think it safer to say that the evidence does not give a sufficiently full or precise picture of the relationship and communications between the bank and its “clients” for it to be possible to reject Mr Folchi’s account on this point.

Mr Folchi confirmed and communicated instructions to the bank for payments out of Pincinco.  These included the payment of (1) $75m to Lombard Odier, attention Thierry Lombard, (2) $15m to Montrex (payee of $2m in the Oakthorn 2 operation), (3) $100m and Ptas.450m to account Stuart at Bankers Trust, attention Mr Byrde and (4) $4m to Rud Blass Bank, Zurich, attention Rudy Frei. The destination Lombard Odier, attention Thierry Lombard had featured in the Oakthorn 1 operation. Mr Folchi said that he thought that Montrex was a KIO external account (meaning on his evidence that it would or might be operated by the KIO for a private fundholder). He knew the Stuart account to be intimately associated with Mr de la Rosa. He also knew the Rud Blass account from the recent Oakthorn 2 operation. Mr Folchi said that he did not know that this was Mr Jaffar’s account, but I do not accept this answer or that he would in early October 1990 have forgotten this fact which he knew as recently as June 1990 in connection with another set of confidential payments. Why war payments should need to be made in this way, or to accounts of Mr de la Rosa and Mr Jaffar, is not a matter to which Mr Folchi appears to have given any attention.

Mr Folchi sought to draw comfort from the fact that interest of $16,677.78 was debited to Pincinco, apparently because the $75m went through the banking system a day later than instructed. In his submission, this lends support to a conclusion that neither he nor Mr Russell can have any reason to think there could be anything wrong with the $75m payment. But who instigated the claim and whether Mr Folchi even knew of it are unclear, and it is on any view a very small point. As to the payment to the Stuart account, that if Mr de la Rosa’s association with this account was in Mr Folchi’s eyes any sign of regularity and comfort, he would have been expected to disclose the association, when the payment to the Stuart account from Pincinco was first revealed in November 1992.

Subsequent instructions for payment were given by Mrs Parker to Mr Russell or direct to Mr Byrde. On 8th October 1990 Mr Russell gave Mrs Parker, no doubt for convenience, a power of attorney  to act for Pincinco. On Mr Folchi’s instructions, Mrs Parker had already told Mr Byrde to pay $1.3m from Pincinco’s account to Mr Folchi’s Falcon account on 6th October 1990, and she gave further like instructions for an amount of  $267,500 on 23rd October 1990. On 16th October 1990 Mr Byrde faxed Mrs Parker to inform her that, in respect of the $15m to go to Union Bank of Switzerland (as shown on the list which Mr Folchi had signed on 1st October 1990), he had first transferred only $2m and would be transferring $1m each Tuesday and Friday, until the $15m had been completed. This must again have reflected instructions passed through Mrs Parker.

The plaintiffs seek to infer dishonesty on Mr Folchi’s part from his levying and agreeing “such a grossly disproportionate fee”. Mr Folchi in his supplemental witness statement identified other professional fees which he had borne out of it, and in evidence sought faintly and not entirely consistently to suggest that the fact that his firm had not charged separately for plans drawn up, though never implemented, after the Iraqi invasion had some relevance. The documentation relating to other professional fees suggested to have paid out of the Falcon account has subsequently been examined, and appears at least consistent with what Mr Folchi told me in cross-examination. He said that the $267,500 paid into his account was intended by Mr de la Rosa for payment of the fees of Mr Hervas, who had been involved in obtaining DGTE and Bank of Spain permission for the initial part of the Pincinco operation, and that he duly remitted Ptas.25M to Mr Hervas. That leaves $1.3m received into his Falcon account, out of which he told me that he paid on Mr de la Rosa’s instructions various other fees, particularly $200,000 in mid-October 1990 to Mr Byrde, $150,000 in mid-November 1990 to an account Elixir at Lombard Odier, $400,000 in four instalments in December and January 1990 and March 1991 to Balkan Corporation for a Mr Guardia, for banking advice on the fiduciary deposit, Ptas.200m (or $262,000) in February 1991 to Mr Aguiar and Mr Huguet, supposedly for tax advice, and $470,000 on 29th January 1991 to an account L.A.I. at Darrier & Co., Geneva, for his partner, Mr Calderon, for work with Mr Coll (presumably at a very early stage) on the documentation which would be needed if the Coll scheme was implemented. After the trial, Mr Folchi invited me to look for information at various recent newspaper articles, apparently based on Juge Tappolet’s documentation and Mr Folchi’s statements to me. This suggests that Mr Aguiar’s and Mr Huguet’s roles as “tax advisers” may not have been unconnected with their posts in the Ministry of Finance, in Mr Aguiar’s case as Director General of Coordination with Territorial Inland Revenues. Save to cast further shadow, I am not sure how this assists.

Leaving aside the last payment of $470,000 which anticipates the Coll scheme, Mr Folchi’s $1.3m was therefore reduced on what he has said to less than $300,000. Far from being grossly disproportionate, this seems a very modest figure in the context of what else I have heard and seen of Spanish legal and professional fees, even at any lower rates which may apply when they are paid offshore. But on any view the net figure is another indication that the scale fees in the Barcelona Bar Association’s “guiding rules” have little if any real any relevance to this case. Mr Folchi told me that, treating all aspects of the Pincinco operation as a single transaction, the scale fee would have been 0.5% of $300m, i.e. $1.5m. It is clear that the scales of fees in the guiding rules cover only legal fees and exclude disbursements. The net figure which Mr Folchi says that he received is under one-third that which would result from applying the Barcelona Bar Association scale.

Mr Folchi told me that he first learnt of the Coll scheme from Mr Coll, but was then instructed by Mr de la Rosa and/or Mr de Mir to advise and collaborate with Mr Coll on its legal and fiscal implications. In June 1991 he visited London, where he discussed the matter with Sheikh Fahad, taking with him the forged de Prado letters and showing one to Mr Coll, as described in sections IV.2(g) and IV.6. In July 1991 he voted on behalf of Koolmees and Kokmeeuw in favour of the scheme on Sheikh Fahad’s instructions. He assisted implement the Coll scheme by giving instructions to Bankers Trust leading to the replacement of the monies deposited with Bankers Trust, which had in effect been paid away to Pincinco, with the loan to Coggia.

In June 1991 Mr Byrde of Bankers Trust was told by THL (it seems by Mr Curton) to expect and on about 24th July 1991 he was sent by THL’s auditors for completion an audit confirmation form relating to the fiduciary deposit as at 31st December 1990. It is clear that THL wanted the answer cleared before the bank returned any confirmation, and it is clear that Mr Byrde was accommodating. Mr Byrde was about to establish or at all events move to Gesfinance S.A., to which  THL intended to transfer the management of its account. So on 24th July 1991 Mr Byrde wrote to another Bankers Trust officer, Mr Ruckstuhl, enclosing firstly THL’s power of attorney, signed by Mr Folchi, and secondly the recent auditors’ request. He said:

“Would you please prepare as per our phone call of yesterday an audit request as discussed yesterday and sent it as soon as possible to
M. Juan Jose Folchi fax Nbr (00343) 2185950
or to my attention fax Nbr (022) 7388067
so that the formula can be checked for approval before [sending] it to auditors.”

On 30th July 1991 Bankers Trust, Zurich, sent the completed audit confirmation to THL’s auditors, confirming that as at 31st December 1990 THL had “claims emanating from fiduciary deposit” consisting of “$300m for the period 4th October 1990 to 4th October 1991 with  rate of interest of 8 3/16% p.a. in accordance with fiduciary deposit dated 2nd October 1991” (in the original French “selon contrat fiduciaire dat Octobre 2, 1990”). According to the statement of Mr Jeffreys of THL’s auditors, Coopers & Lybrand Deloitte, and whether wisely or not, this was regarded, as was no doubt intended, as sufficient confirmation of a genuine deposit under which THL had a claim for $300m against the bank (as Mr Curton had previously told them orally), and they therefore signed off on their audit of THL’s accounts on 31st July 1991.

Mr Folchi said that he was unaware of any contacts between the auditors and Bankers Trust and had never seen any audit confirmation form. I consider it most improbable that this is correct in fact. I also find it difficult to think that he really believed it when he told me it in evidence. He knew Mr Byrde well. He was at the relevant time closely in touch with Mr Byrde, not least because he signed and communicated to Mr Byrde in some unknown way the power of attorney. Mr Byrde was clearly very solicitous of THL’s position. Mr Folchi, however modest he may be about his accounting abilities (Day 35, p.56), was the obvious person to whom Mr Byrde would have mentioned the problem posed by Coopers & Lybrand’s audit request, namely how much if anything to say about the subsequent disposition of the monies, and would well have appreciated the implications of the request. Mr Byrde and Mr Folchi must have known full well both that the monies were effectively no longer there as at 31st December 1991, and that that fact would be of considerable interest to any auditor. Further, I cannot believe that Mr Byrde would have given Mr Folchi’s name as the person to whom Mr Ruckstuhl could send the proposed audit confirmation for checking, unless he had previously discussed the auditors’ request with Mr Folchi. I add for completeness that on this particular point there is no reason to doubt Mr Moukarzel’s evidence, that Mr Curton was, at the request of THL’s auditors, chasing for an audit confirmation in respect of the $300m and that Mr Moukarzel spoke to Mr Folchi and was told that this was on a one year deposit, information which Mr Curton also appears to have given to THL’s auditors. Mr Curton is, as stated, likely also to have been the officer of THL who spoke to Mr Byrde in June 1991. However that may be, I reject Mr Folchi’s evidence in respect of the audit confirmation. In this respect, he joins the ranks of others, like Mr Soler and Mr Coll, who were prepared and anxious to keep from an independent third party the real picture relating to the Pincinco operation. It is, here too, no answer to this to suggest that by then it was irrelevant what had happened to the $300m, since it had been resolved to implement the Coll scheme. THL’s auditors were interested, even though only in the context of THL’s 1990 accounts, and Mr Folchi, himself a director of THL, was not prepared to allow them to know or understand the real position.

The Swiss documents disclosed for the first time the receipt by Mr Coll and Mr Folchi of sums emanating from Pincinco and passing through accounts of two of Mr Coll’s companies, Wantley and Goshawk Holdings Limited (“Goshawk”). Mr Folchi’s explanation in his supplemental witness statement was that he had agreed with Mr de la Rosa a total of $7.3m fees for the Coll scheme to include all professionals and costs. This was prior to 11th/12th June 1991, when Mr de la Rosa mentioned this figures to Mr Betts as “expenses of BV”, i.e. of a company fulfilling the roles of Coggia/Riquel under the Coll scheme. The figure was reduced to a little over $6.1m when Mr de la Rosa decided to pay the fees of the notary separately. Mr Coll, as scheme architect, insisted $3.8m, to include the actual costs and tax liabilities of Coggia and Riquel and other companies. Mr Folchi agreed this. The $6.1m was, for unexplained reasons, paid to the Lloyds Bank, Gibraltar account of Mr Coll’s company, Wantley. Mr Folchi said that on 24th July 1991 Mr de la Rosa then told him there were other professionals to cover, According to Mr Folchi, Mr de la Rosa would not disclose their identities, but Mr Folchi was not surprised to find Mr de la Rosa working with parallel sets of professionals. Mr de la Rosa said that the amounts were $846,903 and $546,018 (a total of nearly $1.4m) and should be paid at bank accounts numbered respectively 83695 at Pictet Cie., Geneva, and 188961 at Credit Suisse, Zurich. According to Mr Coll, Mr Folchi then told him these payments were very urgent, and Mr Coll arranged for them to be met at once out of the Wantley account. On 13th August 1991 $3.1m was then transferred, again for unexplained reasons, to an account held by another of Mr Coll’s companies, Goshawk Holdings Limited, at Lloyds Bank, Geneva. On the next day Mr Folchi was paid $928,985, which he said was $2.3m less the sums totalling nearly $1.4m paid elsewhere at Mr de la Rosa’a request. Mr Folchi said that this was “still a very good fee, very efficient for the client, but a very good fee”. Once again it is clear on that basis that the Barcelona Bar Association scale fees can have no real relevance in the present situation (since Mr Folchi estimates in his final submissions that they would have led to a fee of Ptas.870m for the capitalisation alone). There does, however, remain a question mark over Mr Folchi’s account regarding the payments to Pictet Cie and Credit Suisse totalling nearly $1.4m. Why Mr Folchi should agree to bear these himself is unclear. His explanation that his main motivation in working was not money was not persuasive as a reason. However keen he may be on his legal or business work, I am sure that Mr Folchi is well capable of looking after his own financial interests. Why the Wantley and Goshawk accounts were used raises a further question mark. The obvious and likely reason is to obscure the origin of the monies. But that itself does not point unequivocally to more than desire to conceal them from any conceivable authorities. 

On 17th October  1991, Mr Folchi’s service firm, General Investment S.A. invoiced GT for Ptas.120m in respect of the purchase of minority shareholdings for cancellation as part of the Coll scheme implemented in July 1991. By an invoice dated 8th November 1991, Wardbase billed GT, on whose behalf Mr Soler authorised payment, for studies, advice and assistance in respect of the loans of Ptas.80b and 40b by Koolmees to GT dating from September/October 1990 and in respect of the cession of Treasury bills by the KIO to GT which financed the Oakthorn 2 transaction. Mr Folchi said that the Barcelona Bar Association scale fee would have been Ptas.600m, but that Mr de la Rosa refused to allow him to bill for this work until November 1991, and then only agreed the lesser sum because, being received offshore, it would be free of tax. Whatever tax advantage Mr Folchi would gain cannot account for the difference between the scale fee and the actual fee. But, although the Barcelona Bar Association scale fee does not set any relevant standard, Mr Folchi and his firm did overall receive about $5m gross in respect of the loans totalling Ptas.120b which funded the Pincinco operation. After disbursing about $1.6m, they received about $3.5m net.

Wardbase
The outline of this operation in section II.5 does not mention Mr Folchi as having any direct participation. But his long-standing links with Wardbase and Mr Russell and his employment and use for other operations of Mrs Parker raise an obvious possibility of involvement.

Mr Folchi’s accounts of the position have changed. His November 1992 memorandum suggested extensive involvement. In summary, he said:
-	that he had rendered legal services in respect of the very early stages of the CdA acquisition upon which GT resolved in October 1988;
-	that during the first months of 1989 he had been informed by Mr de la Rosa and Mr Robinson that they would need to make payments of up to $20m in order to ensure that the new factory was operational by the end of 1992;
-	that they asked him to then to prepare the necessary structure to allow such payment with minimum possible costs and taxes;
-	that they were at this time already thinking about a structure with the proposed name Wardbase, based in the UK to take advantage of the double taxation treaty between England and Spain;
-	that Wardbase was incorporated on 27th February 1989 subject to its clients' instructions and under the control of Sierra Trust;
-	that on 4th September 1989 the contract was signed between Torras Papel and Wardbase;
-	that he was aware that reductions in costs had been made on the CdA project and was informed by Mr Nunez in early 1992 that the new plant might come on line in Spring 1992, notably earlier than envisaged;
-	that Sheikh Fahad and Mr de la Rosa then confirmed to him that, since all the agreed conditions had been met, the $20m should be paid;
-	that "according to instructions" on 24th April 1992 Wardbase issued an invoice for this amount, and a total of Ptas.1.9b was transferred to Anslow and paid onwards to an account of which Mr de la Rosa gave him details but not the name of the ultimate beneficiary, while Ptas.1b was retained by Wardbase for costs and UK taxes;
-	that both Sheikh Fahad and Mr de la Rosa informed him that the transaction was extremely confidential; and
-	that his belief, in accordance with information he had been given, was that the payment would be the subject of State to State contacts, such as he had referred to when dealing with Pincinco.
He ended by attaching "the documentation concerning this operation". This included Mr Robinson's supposed memorandum of 15th January 1989 and the supposed contract dated 4th September 1989.

Mr Folchi's points of defence served 22nd December 1994 pleaded this:

"17.7	.... Folchi at all material times was and acted as a professional adviser to GT and/or the KIO and at no time was Folchi responsible for, nor did Folchi participate in, the taking of decisions in principle by GT and/or the KIO and/or THL..... Folchi's role was to advise on and implement decisions made by those with the authority to take such decisions and such decisions as Folchi took were concerned solely with the mechanics of carrying into effect decisions made by GT and/or the KIO in accordance with instructions received by Folchi from those authorised to give them.

21.1.1.	Russell was and has acted a professional adviser to Folchi's firm and clients including GT, and Folchi repeats paragraph 17.7 above, mutatis mutandis, in relation to Russell;
21.1.2.	in relation to the transactions the subject of these proceedings, Russell acted in accordance with instructions received, either directly or indirectly, from Folchi;

21.2.	For the avoidance of doubt, the reference to instructions from Folchi and acting in accordance with instructions is a reference either to specific instructions given by Folchi, directly or indirectly, as a result of which Russell took the steps required to carry out those instructions, or to general instructions pursuant to which Russell took decisions and/or steps on the basis of his professional expertise in order to carry out the instructions in circumstances where Folchi was content to rely upon Russell to take the decisions and/or the actions required to implement the instructions.

	....

25.3	At all material times in relation to the transactions the subject of these proceedings herein, Parker, as an employee of Folchi's Firm, has acted solely on the instructions of Folchi or other members [or] employees of Folchi's Firm and not otherwise."

In relation to the Wardbase operation, it was pleaded that Mr Folchi was informed early in 1989 of the need to pay an extra $20m conditional upon the factory being operational by the end of 1992, that he was instructed then to prepare the necessary structure for such payments and did so when he caused the Castle Trust, Oakthorn and Wardbase structure to be created to enable such payments in general and that the agreement of 4th September 1989 was entered into to enable the $20m to be paid when and if the condition was fulfilled. The pleading went on:

“152.1.	In about April 1992, Sheikh Fahad and de la Rosa confirmed to Folchi that, since the condition had been fulfilled, the payment of $20 million should be made.

152.2	Accordingly, Folchi gave instructions to Russell with the result that on 24th April 1992 Wardbase issued an invoice to Tp in the sum of US$20 million, and the invoice was paid by Tp on 26th May 1992 on the instructions of Soler.

152.3.	Thereafter, payments of 1.9 billion Pesetas were made in accordance with instructions received from Sheikh Fahad and de la Rosa by or on the instructions of Folchi, who was given the reference details of the payment, but not the details of the ultimate beneficiaries."

In his witness statement, Mr Folchi dealt with the Wardbase operation very briefly. He said that he had no reason to believe that it was other than a payment which GT considered properly payable, and asked that it be put in the context of the many other much larger transactions in which he had been involved for the KIO and its various subsidiaries over the past 6 years.

In his supplemental witness statement, Mr Folchi put the matter differently. He made it clear that by December 1988 his firm was, for reasons never explained to him, no longer instructed in the CdA matter. He said that he had not at the time seen Mr Robinson's memorandum of 15th January 1989, and that it had only been sent him as follows:

"Years later, in 1992, and during the process of preparing the Memorandum for the Kuwait Attorney General, DE LA ROSA sent me a copy of the Memorandum and it reminded me that in January 1989, DE LA ROSA, ROBINSON and myself had conversations about this matter. I thought then that DE LA ROSA'S memory was better than mine. I cannot recall at all a conversation at the beginning of 1989 such as the one described."

As to the contract, he said:

"I do not particularly remember the contract signed between TORRASPAPEL and WARDBASE on September 4th 1989.
In respect of the .... contract, I can state the following:

		*	I did not draft the agreement.
*	It is possible that it may have been drafted by one of the lawyers at my law firm. I cannot assure or deny this possibility.
*	A copy of the contract was in the files of my law firm.
*	I saw a copy of the contract during the process of preparing the Memorandum dated November 19th 1992."

As to Wardbase, he confirmed (correctly in fact) that it had not been incorporated or acquired for this transaction. The origin of Oakthorn, Castle Trust and Wardbase was, he said, linked with the search for an instrument to allow GT to make payments abroad. He said that he could not say when Wardbase became a part of this instrument, but that it was "operative some time prior to the 1989 summer". He said that both parties signing the agreement of 4th September 1989 must necessarily have known that Wardbase was not able to render the specified services, and that its role was "as an agent for [GT] and maybe for the persons who had to render the services" to "allow GT to pay for these services at a minimum fiscal cost and keep confidential the identity of the person or persons rendering the service".

As to his personal involvement, he said that Mr de la Rosa, Mr de Mir and Mr Nunez had spoken to him "at a moment which I cannot specify, but which had to be before March 30th 1992" informing him that the factory was ready and that GT was to pay $20m through Wardbase to an unidentified beneficiary who had rendered services to the group in Belgium. He said that the information was unfamiliar to him, and the operation was not one of which he remembered having had a previous knowledge.

On the same date, Mr Folchi said that he had a meeting with Mr de la Rosa alone in his office, when Mr de la Rosa telephoned Sheikh Fahad, and referred to the change in the KIO's top management and in the GT board. Mr Folchi said:

"He also talked about his wish to retire and referred to the payment of $20m in relation to the Belgium project. DE LA ROSA mentioned the name FAHAD on several occasions and informed that I was with him and that he was giving me instructions about the aforesaid payment."

Mr Folchi said that he did not remember how he circulated Mr de la Rosa's payment instructions to Wardbase, but said that probably he spoke to Mrs Parker and gave her the payment details. He did not personally draft and did not remember seeing the letter dated 30th March and the invoice dated 24th April 1992 which she signed and sent for Wardbase. He did not remember having another conversation about the Wardbase matter or the payment of $20m. He did not contact Arraut & Asociados or draft Mr Nunez's letter dated 7th May 1992 or Mr de la Rosa's reply dated 13th May 1992. He did not know about the intervention of Anslow or any of the movements of the money paid to Wardbase. He recalled Mrs Parker telling him that Mr de la Rosa was putting pressure on her in relation to the Wardbase payment. He assumed that Mrs Parker informed him that she had completed the transaction "because that was her usual way to work". 

When preparing his memorandum of November 1992, he said that he had no reason to mistrust and had relied on Mr de la Rosa, who had made comments about Mr Robinson's and Sheikh Fahad's involvement, as recounted, and had said that the payment had political implications and was enormously sensitive, to protect the identity of a lobby acting in Spain and Belgium. In late 1993 Mr de la Rosa identified Mr de Prado, whereupon Mr Folchi met Mr de Prado, who acknowledged receipt of the money, but denied any relation with GT or a Belgian lobby. Mr Folchi said that, because he had no reasons to doubt Mr de Prado's word, he did not make any reference to the political nature of the payment or its sensitivity in his first witness statement.

Mr Folchi’s explanation in cross-examination of the content of his November 1992 memorandum with respect to the Wardbase transaction was essentially that which I have previously set out and commented upon. It was, he said, not conceived in a court context or as a defence document. It had been prepared under pressure of time and the influence of others, particularly Mr de la Rosa. There had not been the detailed checking of files which he had been undertaken for his supplemental witness statement. As I have already indicated, I do not accept that this can explain inaccuracies in parts of the memorandum which set out clearly to recount Mr Folchi's personal involvement and knowledge. The memorandum was written in a context which had focused Mr Folchi’s mind on the relevant operations, on his involvement and on the plaintiffs’ wish for hard information for some two months. In November 1992, Mr Folchi would be expected to have a considerably better general recollection of then quite recent events relating to the Wardbase transaction than he has in 1999, even if in 1999 he has enjoyed the greater opportunity to refresh his detailed memory from other material. It is true that the November 1992 memorandum suggests that Mr Folchi had by then forgotten that Wardbase was acquired in late June 1989 for the Oakthorn 1 operation. That is a relatively minor and understandable failure in recollection relating to a matter going back three years. Mr Folchi’s account in the memorandum of a history for and knowledge of the Wardbase transaction going back to 1989 is extremely hard to explain in terms of mistaken recollection, reconstruction or false input of information by Mr de la Rosa.

Mr Folchi’s case now is that he first heard about the $20m payment to be made when, in his presence, Mr de la Rosa spoke to Sheikh Fahad about it by telephone, and that immediately after this conversation Mr de la Rosa gave him payment instructions. This must have been a striking conversation, since Mr Folchi knew - apparently already and certainly from the conversation itself -  that the KIO's top management was changing with Sheikh Fahad's departure (even if he was not informed of its precise date) and Mr de la Rosa mentioned that GT's board was to change. Mr Folchi dated the conversation as prior to 30th March 1992, the date of Mrs Parker's first letter on behalf of Wardbase. That would also accord with the probabilities. Mr Folchi accepted that Mrs Parker would not have acted on her own initiative, but on instructions. This is clear enough both as a matter of general probability and on Mrs Parker's own evidence.

Under cross-examination Mr Folchi repeated his denials that he had drafted the letter dated 30th March 1992 or instructed Mrs Parker to produce it, that he had anything to do with Arraut & Asociados's involvement or with Mrs Parker's letter and invoice dated 24th April 1992 and Mr Nunez's and Mr de la Rosa's subsequent letters. All he had done was pass on to Mrs Parker Mr de la Rosa's instructions regarding the bank account details to which the payment should be passed from Wardbase. Despite the opportunity for research and checking that he had before his supplemental witness statement, he could not say who had given any other instructions. All he could say was that Mr Arraut, when asked, had said that he was very busy at the relevant time and could himself only say that he thought he had been instructed by an English lawyer. In attachments to his final submissions, Mr Folchi now produces a letter sent in July 1998 by Mr Arraut to the Spanish investigating judge, in which Mr Arraut amplifies this information by saying that in April/May 1992 his law firm was requested by a lawyer, Mr Charles Copper, on behalf of Wardbase to send the letter dated 4th May 1992 "which was sent to us duly drawn-up and translated, as a prior step to the filing of the judicial claim". Arraut & Asociados acted in short as cyphers, and those behind their instructions can never seriously have contemplated judicial proceedings. Whether or not (as one may speculate) Mr Copper is a Jersey lawyer and was approached through Mr Russell, it seems probable that he also acted as a cypher, on the basis of instructions which appear to have included a draft in Spanish and must have emanated from Spain.

As regards Mrs Parker, Mr Folchi said that Mr de la Rosa, Mr de Mir and Mr Nunez all knew of Wardbase and Mr Russell and that any of them or Mr Russell himself could have instructed Mrs Parker either direct or through one of the other lawyers in his firm, such as Mr Calderon, Mr Jubert or perhaps Mr Pont, to act as she did. Mrs Parker denied that she received any instructions from Mr de la Rosa, although he had pressed her regarding the payment on 26th May 1992. Any suggestion that Mr Russell would himself have originated any instructions or action can in my view be rejected. Mr de Mir worked closely with Mr de la Rosa, but played no visible part in this operation. Mr Nunez was by contrast heavily involved, both according to Mr Soler's evidence and as signatory of the agreement dated 4th September 1989 and the letter to Mr de la Rosa dated 7th May 1989. Although Mr Nunez no doubt knew of Mrs Parker, it is inherently unlikely that he instructed her. Mrs Parker herself said in evidence, that her instructions to send the letter dated 30th March 1992 came from "somebody in the office, one of the lawyers", and, likewise, that she was presented with the invoice dated 24th April 1992 to send. She also said that she telephoned Mr Russell to check that it was all right to sign without a power of attorney (a matter difficult to follow since Wardbase had on 27th December 1991 granted her a general power of attorney for the first six months of 1992), and had also to ask him for Wardbase's account details for the invoice. Only on 25th May 1992 did she tell Mr Russell, again on instructions from a source which she said that she could not remember but which could have been one of the lawyers in her firm, that Ptas.1.9b should be on-paid from Wardbase to Oakthorn to Anslow to account Sogenal in Geneva. These are instructions which Mr Folchi says that Mr de la Rosa gave him when first mentioning the $20m some two months previously, and which Mr Folchi said in evidence that he passed to Mrs Parker in "the normal way" at least some weeks prior to 25th May 1992.

Mr Folchi acknowledged that the agreement dated 4th September 1989 is obviously drafted by a Spanish lawyer. In explaining why he could be confident that he did not draft it, Mr Folchi said that, if he had done, he would have retained its "general overview", and that 

".... the organisation of the office was done in a way in which I could have the responsibility of conducting the relationship with a client, get the information from the client, put in, say, an ordered way the information and requirements from the client, and then all that was committed - passed to another lawyer, who drafted the agreement".

Even taking this at face value, the question remains whether Mr Folchi instructed the drafting of the agreement of 4th September 1989.

Standing back from the detail, the overall probability is in my view that Mr Folchi had a far closer involvement and awareness regarding Mrs Parker's activities in relation to the Wardbase operation than he now suggests. He was the natural person through whom to arrange any operation involving Wardbase. It is clear that he worked very closely with Mrs Parker. Mr de la Rosa evidently spoke to Mr Folchi at the outset of the operation. Mrs Parker's letter dated 30th March 1992 followed. Mr Folchi’s November 1992 memorandum (which moved straight from the conversation with Mr de la Rosa to the invoice) said that "According to instructions" the invoice was issued. This itself suggests a direct connection between the conversation with Mr de la Rosa and the sending of this invoice. Mr Folchi was involved "at least" some weeks prior to 25th May 1992, in passing to Mrs Parker the account details, and he remembered her telling him on 26th May 1992 that Mr de la Rosa was pressing for payment. Bearing in mind the late stage at which Mrs Parker passed the bank account details to Mr Russell, there seems to me at least a possibility that she did not receive them until closer to 25th May 1992, but that does not appear important. No other lawyer in Mr Folchi's firm has been shown to have had any connection or reason for any connection with the operation or any instructions to Mrs Parker. I was sceptical about both Mr Folchi's and Mrs Parker's suggested inability to identify any other such person. I was also unimpressed by Mr Folchi's evidence that the agreement dated 4th September 1992 was simply found on his firm's file, that he cannot assist as to who within the firm might have drafted it and that it might not even have been drafted by anyone in his firm. When Wardbase was originally acquired in late July 1989, there was even a suggestion that Wardbase should only be used for the Oakthorn 1 operation. If Wardbase really had entered into another agreement within just over a month in early September 1989, Mr Folchi could have been expected to be involved and, in any event, aware and thereafter to have recalled the matter as an outstanding engagement. That is exactly what he was suggesting that was his position in his November 1992 memorandum, written at a time when he was putting forward both the 15th January 1989 and the 4th September 1989 documents as genuine. Yet, once it became clear that these documents are most unlikely to be genuine, Mr Folchi's account is that he had himself no involvement or recollection in respect either of these documents or of the operation, until early 1992. Further, he no longer suggests that he had instructions from Sheikh Fahad, and he distances himself from any instructions in the matter at all, save as to bank details. Mr Folchi’s account in evidence cannot in my view be accurate.

These conclusions do not depend on the passages set out above from Mr Folchi's pleading. My attention was not directed to such passages during the trial or during Mr Folchi's cross-examination (or indeed until after I had reached the conclusions which I have just expressed.) But, they are further confirmation of what I regard as the obvious reality of the situation. Mr Folchi was the person who in the ordinary course instructed Mr Russell, either directly or through Mrs Parker, and he is the person who, as pleaded and as a matter of clear probability, did precisely that in the Wardbase operation.

No fees were actually paid out of the Wardbase monies. But the deductions from the Ptas.2b are worthy of brief note. The Ptas.1b not remitted to account Sogenal was retained in Wardbase (Ptas.20m), Oakthorn (Ptas.20m) and Anslow (Ptas.60b). Although he was not questioned about this, Mr Folchi suggests in his memorandum of November 1992 that "an approximate amount of US$1 million was retained by WARDBASE in order to pay taxes in the U.K. and to cover costs associated with the operation", and in his final submissions that this would correspond with the 5% originally contemplated as Wardbase's retention to cover U.K. taxation in mid-1989. Oakthorn and Anslow are Jersey companies. Quite apart from their size, the actual deductions clearly have nothing to do with any U.K. tax liability (if any) on Wardbase's part, and it is difficult to think that anyone can ever have thought that they did. Nor were they returned to GT. In December 1992 Mr Russell's firm arranged to transfer the Ptas.60m balance on Anslow's account to an account of Greencopse and in May 1993 to an account of Roundabout Ltd., where this balance was by one route or another joined by the sums retained by Wardbase and Oakthorn. The Ptas.1b from the Wardbase operation and other sums remaining in Roundabout Ltd. were eventually frozen by the plaintiffs, who have since obtained judgment by consent against Roundabout Ltd. in respect of them. The plaintiffs allege that these sums were at Mr Folchi's disposal. No doubt they were subject to his instructions at least until some date after May 1993. What instructions Mr Folchi would have given and in what circumstances but for the present litigation is a different matter. There must be a strong likelihood that in one way or another Mr Folchi or his firm would at some point have taken fees out of them, but in what amount is speculation.

Following the meeting with of October 1992, mentioned early in this judgment, Mr Folchi received $4m from Sheikh Fahad and (although he did not know it) Sheikh Khaled on account of his legal costs, and in 1994 a further sum of about $2m from Mr Jaffar.

Factual conclusions as to Mr Folchi
The first question is whether, as a matter of fact, it has been shown that Mr Folchi was or became party to a scheme to misappropriate monies in any of the transactions relevant to his case. The transactions cannot be viewed entirely in isolation. The case against Mr Folchi in respect of any later transaction can take account of what he already knew from any prior transaction. Some general considerations are also capable of affecting any assessment of his participation in the transactions, such as the conclusions which I have reached regarding his accuracy and truthfulness in certain respects and the funding, at his request, of his legal fees by those who I have found to have been conspirators, that is Sheikh Fahad and Mr Jaffar and, although Mr Folchi did not know it, Sheikh Khaled. Mr Folchi's answer to the latter consideration has some force, from his viewpoint at least; an innocent legal adviser, caught up in issues involving his clients, could well look to his clients to reimburse him. Whether he would normally expect so generous and immediate a response is perhaps a different matter.

Taking the Oakthorn 1 operation, I bear very much in mind that (i) as a lawyer Mr Folchi was under no general duty to check or investigate his instructions or his client's intentions and (ii) the instructions he received were presented as confidential in a context where (a) his clients were known to use Swiss external accounts for reasons of business secrecy and where (b) offshore complementary payments were common and accepted. Further, I bear in mind Mr de la Rosa’s pre-eminence and good repute at the time. On the other hand, Mr Folchi was given explanations of the most vague nature, and had no real understanding of the external accounts or complementary payments which the operation was said to involve. His failure on his own case to give any real thought to what was going on is capable of giving rise to an adverse inference.

The transaction also contained one feature which was on its face obviously questionable, namely the payment of $5m to an account Stuart at Bankers Trust which Mr Folchi knew to have been opened by Mr de la Rosa just previously. Until after Juge Tappolet’s documents became available, Mr Folchi failed to disclose that this payment went to account Stuart (despite the instructions sent in his name for its crediting to that account) or to any account connected with Mr de la Rosa and failed, until his supplemental witness statement, to mention any explanation by Mr de la Rosa of it in terms of legal fees for Mr Hermosilla. In his November 1992 memorandum he referred to KIO external accounts controlled by Mr Ball and Mr Jaffar, but he did not mention any external account operated by Mr de la Rosa for either GT or the KIO, still less that he knew of the identity of the ultimate recipient. On the contrary, he stated in his memorandum that his only information was that the money went to Bankers Trust as a complementary payment for the takeover of Ebro. Yet in his supplementary statement Mr Folchi stated, with reference to the Stuart account which featured in Oakthorn 2, that “I could have established a link between this account and DE LA ROSA, but always in connection with KIO deals”. In point of fact, I find, this statement considerably understated Mr Folchi’s knowledge of Mr de la Rosa’s intimate connection with the Stuart account(s). He knew that Mr de la Rosa had opened it (or them), and he had been involved in giving instructions for the operation of the account(s). Further, I do not consider that either forgetfulness or the protection of "the private personal interests of an individual" was the reason why Mr Folchi made no reference to the Stuart account or to Mr de La Rosa’s involvement in the receipt of the $5m or, indeed, to the general nature of the payment (if indeed Mr de la Rosa had by then suggested that it was a legal fee). Rather, I consider that Mr Folchi was simply not prepared to be frank, and that this was because he was aware that disclosure of the full picture would - as it does - immediately raise questions as to how he came to instruct and go along with such a payment.

Mr Folchi’s understanding of the significance of the further payments of $37.5m and $7.5m made to the Lombard Odier and Privat Bank accounts was, as set out above, extremely vague. By itself, and in the context of the KIO’s use of external accounts at inter alia Lombard Odier, that would not mean that Mr Folchi knew or as an honest lawyer would have realised that there was anything to question about the transaction as a whole. But, in conjunction with the payment to Mr de la Rosa’s account of $5m, it should and would have become a matter for concern.

Viewing Mr Folchi's position in respect of Oakthorn 1 in this light, I consider that his conduct was objectively dishonest. As I have already explained, I put the matter in this way because of its relevance in the context of the plaintiffs’ claim for dishonest assistance (section V.3 below). No honest Spanish lawyer in his position with his experience and knowledge would have implemented the instructions he received and acted as he did without a fuller understanding and assurances as to the position. Mr Folchi’s activity in Oakthorn 1, as in subsequent transactions, was characterised by willingness to make and assist in arrangements of an obviously questionable nature, without at any stage raising any questions. This went beyond any ordinary trust in and compliance with client instructions.

Oakthorn 2 followed and falls to be approached in the light of Oakthorn 1. On this basis, Mr Folchi points out in his final submissions that, in the year since Oakthorn 1, there had also been no investigation, no hue and cry, so that this might lend him some comfort. But by itself that could not mean that all was necessarily in order, especially in the context of payments to the person effectively in charge of GT in Spain.

The instructions which Mr Folchi received in respect of Oakthorn 2 were, on any view, extraordinary. This is so, even if, contrary to my view, Mr Folchi was justified in viewing the instructions to pay $5m to Mr de la Rosa in Oakthorn 1 as an understandable and regular matter which he could implement. The payments in Oakthorn 2 were of a quite different order of magnitude. They were to go to accounts in the personal names of Sheikh Fahad, in his case in London, to Mr Jaffar in Switzerland, and, indirectly for the obvious purpose of obscuring the source or trail, to Mr de la Rosa's Stuart account. All that Mr Folchi had was a very general explanation that these were complementary payments relating to the Ebro/Agricolas merger. He had no coherent understanding what was going on, and took no step to seek any.

Mr Folchi points to the offices, stature and reputation of the known recipients and suggests that their names would have given comfort. But the idea that the KIO would for reasons of secrecy keep accounts in the names of its chief officers, especially a London account, is on its face remarkable, and the idea that these were simply reimbursements of previous payments away in GT's interests made by such officers has nothing to support it. Indeed, on Mr Folchi's own account he was told that the Oakthorn structure was to be used for other complementary payments. Why it should be necessary to use it to replenish other accounts which had made such payments, and why there should be secrecy about movements of money to such other accounts, are on Mr Folchi's own account matters which were wholly unexplained and about which he took no interest whatever.

Mr Folchi suppressed the names of all three destinations in his November 1992 memorandum. At the lowest, as I have said, he cannot then have viewed their names as sources of comfort, but as matters of concern and potential embarrassment if disclosed.

In my judgment, no honest lawyer would have implemented the instructions which Mr Folchi recounts in this transaction unquestioningly and uncomprehendingly in the manner which Mr Folchi did. There can be no question about Mr Folchi’s competence. An honest lawyer in his position would, to safeguard himself and his clients, have insisted on obtaining a proper understanding and assurances regarding the situation (quite possibly in writing despite the supposed confidentiality of what was occurring). If his clients would not give him this, he would have refused to become involved. I do not on the material before me conclude that Mr Folchi became knowingly party to the scheme to injure GT or THL. But I do conclude that Mr Folchi received and complied with instructions which conflicted, on their face and in the most obvious way, with the most fundamental of fiduciary duties, to keep private and corporate affairs and monies separate. Despite any confidence Mr Folchi may have had in his clients and the distinction of the officers whose accounts were in question and despite the prevalence of complementary payments, I cannot view it as honest conduct for any lawyer to facilitate indirect payments from one's client company's accounts to unknown accounts in the names of the client company's directors, without any clear understanding why this should be necessary or appropriate. Any other conclusion would be an invitation to fraud. Directors of previously impeccable reputation can succumb to the temptations of their stewardship.  Any lawyer in Mr Folchi’s position must be taken to be aware of this risk, and I have no doubt that Mr Folchi was as aware of it.

Although by this stage Mr Folchi would have been no longer instructed or involved in the Oakthorn 1 transaction, the unanswered questions raised by the Oakthorn 2 operation would also in my view have led an honest lawyer to think back to that operation and to consider the risk that similar problems existed about the payments then instructed, in particular the $37.5m sent to Lombard Odier, attention Thierry Lombard & Cie in Oakthorn 1.

I turn to Pincinco. The background to evaluation of Mr Folchi's activity in this regard includes the fact that an honest lawyer would not have executed the instructions which Mr Folchi received in respect of Oakthorn 2 (and indeed Oakthorn 1) without at least further understanding and assurances about their rationales and propriety, and the fact that Mr Folchi became a director of THL for this transaction. The Pincinco operation was accompanied by the different and more dramatic explanation of war or invasion related payments for the KIO. That this was not by itself an incredible explanation is indicated by Mr Betts' reaction when he was told of it in June 1991, although he was concerned about its proposed accounting treatment and insisted on seeing Sheikh Fahad about this. The Pincinco operation was also structured in a quite different, and even more opaque, manner compared to any previous operation, a change for which Mr Folchi appears to have received no explanation. After the Oakthorn 2 operation, and with knowledge of Mr de la Rosa's involvement in the Stuart accounts and of Mr Jaffar's account at Rud Blass, an honest lawyer in Mr Folchi's position, and all the more a responsible director of THL, would in my judgment have insisted on a better understanding and assurances regarding such an operation before becoming involved. Recollection that the Oakthorn 1 transaction had also involved an anonymous payment to Lombard Odier, attention Thierry Lombard, would have underlined the concern of an honest lawyer in this situation. Mr Folchi did not act in this way. That is not the only respect in which he did not act as I would have expected an honest lawyer and director of THL to act. As I have concluded above, he was in all probability responsible for approving and putting forward to THL's auditors the carefully drafted answer to their audit request, which confirmed the existence of the deposit as a claim, without disclosing the arrangements whereby it was pledged to meet Pincinco's indebtedness, although he must have known that these would be of great interest and concern to the auditors when considering how and with what qualifications the deposit should appear in THL's accounts. He was capable, in what he perceived as his clients’ interests, of acting to maintain supposed confidentiality in a way which no honest lawyer would objectively have acted. His prior conduct in collaborating in the setting up and implementation of the whole scheme is, I consider, vulnerable to similar criticism.

In so far as it is necessary to try to understand Mr Folchi's behaviour further, the explanation appears to be that, despite his obvious intelligence and perspicacity, he was much too dependent on and close to the major clients on whose business his whole firm and no doubt income had been built. It is not without possible interest that during the Oakthorn 2 operation Mr Folchi did recover substantial fees, on his account for work for Mr de la Rosa on Gran Tibidado, and during the Pincinco transaction he recovered substantial fees for both the Oakthorn operations and other matters, as well as his more modest fees (at least after subsequent payments out) for the first stage of the Pincinco operation. Those engaged on fraud are well advised to be generous with others not involved of whose practical assistance they have need. It may well be the case that Mr Folchi's lack of interest in what was occurring and his unthinking and automatic implementation of extraordinary instructions were conditioned by his dependence, in every sense, on Mr de la Rosa and the business he could yield.

I turn to Wardbase. For reasons which I have indicated, Mr Folchi's account of his involvement in this operation is changing and thoroughly unreliable. The conclusion I reach is that he was closely involved in the operation, and that the changes in his account and the inaccuracy - in my view to his knowledge - of his present account are all attributable to his desire to conceal the closeness of his involvement. Again, that does not mean that he was actually aware that the whole payment was dishonest, although it certainly raises suspicions in that direction. But it is on any view consistent with him recognising that the role he actually played is indefensible, however confidential he may have been told the transaction was in March/May 1992. The operation involved the creation of claims by Wardbase and by lawyers acting for Wardbase, followed by entirely artificial correspondence between Mr Nunez and Mr de la Rosa, the only purpose of which can have been to conceal the real position at some later stage. The intention must have been to present a false accounting position to auditors and anyone else who reviewed the documents, and Mr Folchi's involvement in it demonstrates a readiness to comply with clients' instructions in a manner paying no regard to truth or reality.

The November 1992 memorandum involved a false presentation of the history of the $20m payment and of the supposed conversation of early 1989 and agreement of 4th September 1989. I do not think that in November 1992 Mr Folchi can genuinely have thought (1) that he had, prior to about March 1992, ever heard of any agreement to make a confidential payment of $20m to anyone in respect of services to the CdA project or (2) that Wardbase had ever been party to any such agreement in September 1989. The genesis of the supposed agreement dated 4th September 1989 is potentially an even more significant matter, of great obscurity. This document was referred to at the outset by Mrs Parker in the letter dated 30th March 1992 which she sent. If, as I consider, she was then acting on Mr Folchi's instructions, Mr Folchi must have had and seen the supposed agreement that stage. There is a strong possibility that Mr Folchi also instructed its preparation. But, even assuming that he did not, it seems to me probable that, when he saw it, he would have known or suspected that it was manufactured for the purpose of the claim on Torras Papel, which was about to be made through Mrs Parker. He would have known, as I have said, that no such transaction had actually been agreed involving Wardbase in September 1989.

In respect of the Wardbase operation Mr Folchi did in my view act dishonestly both in the sense that no honest lawyer would have acted on whatever instructions he received, and in the sense that he appreciated, at the lowest, that he was being asked to lend his assistance to an operation, which was to be executed, on Mr Folchi's own account, by Mr de la Rosa (who was about to leave GT) in communication with Sheikh Fahad (who had already been removed as chairman of the KIO). Mr Folchi's changing accounts at subsequent stages reflect his wish to disassociate himself as far as possible from the operation, once the plaintiffs had discovered that the documents dating from 1989 were forgeries and shams. In due course, it is likely that Mr Folchi would have been paid substantial fees for this operation also, out of the Ptas.1b retained in the three Jersey companies within the Castle Trust. There is no indication of any other interest on Mr Folchi's part. The explanation of his conduct must, it seems to me, be found in a willingness to service the requirements of Mr de la Rosa, without apparent discrimination or limit. Once again, the evidence does not, I think, justify a positive conclusion that Mr Folchi became knowingly party to the dishonest scheme contrived by Mr de la Rosa and others in the Wardbase transaction, although it comes close to doing so. But Mr Folchi was prepared to and did assist Mr de la Rosa in it in a way which an honest lawyer in his position would not have done.

In short, Mr Folchi gained closer insight than anyone else outside the circle of conspirators into what was actually happening. He could see that payments were in fact being made to personal accounts. So far as appears, on his own account, he simply accepted or acquiesced in this without giving it any real thought. His response that it was impossible to conceive that instructions coming from and payments made to senior officers of GT and the KIO could be dishonest tends to begs the question whether those involved in the conspiracy appreciated that Mr Folchi was someone who could be relied upon to fulfil instructions without question (something which he has at points stressed that he would do). In any event, there must be limits to blind trust, and there are features of the transactions, such as the interposition of Allsports, which were themselves suggestive of a desire on Mr de la Rosa’s part to hide his receipt of monies from the original payers. Further, Mr Folchi’s conduct, as I find it to have been, indicates a considerable willingness on his part to assist himself and/or others by misleading statements and by suppression of relevant information. That applies in particular to his conduct (as I find it) in respect of the Pincinco deposit audit confirmation form in July 1991, his suppression of his knowledge about the destinations or recipients of relevant payments in November 1992, the interposition of Allsports at Mr de la Rosa’s request, his general suppression of his knowledge about and involvement with the Stuart and Falcon accounts and his changes of account regarding the Wardbase transaction. In the light of such conduct, Mr Folchi’s own reaction to the instructions which he received in the various transactions cannot be any reliable guide to honest conduct. In my view, despite the trust which Mr Folchi was entitled to take as the starting point of his relationship with others, such as Mr Ball and Mr de la Rosa, the instructions which he received were such that an honest person in his position would have insisted on understanding what was happening and on confirming their regularity before implementing them. It seems to me that the Oakthorn 2 and Wardbase transactions, taken individually, represent the two clearest instances of dishonest assistance in the transactions. The Pincinco transaction, if it had stood alone, might in the exceptional circumstances of the war have given greater cause for doubt than it does against the background of the prior transactions, and indeed in the light of what can be deduced from the whole history about Mr Folchi’s attitudes and conduct.

The consequences of these conclusions are considered in sections V.1(d), V.2 and V.3 below.

IV.3(h) Mrs Parker
Mrs Parker is a highly qualified and skilled linguist. She became drawn into the legal and business world as a "multi-lingual administrative assistant". She was described by Mr Folchi as an excellent individual, trustable, reliable and an excellent worker. I do not doubt that she was all of these things. Her assumption of an administrative role was, according to Mr Folchi, gradual and he suggested that she may not really have grasped the difference between translating documents dealing with enormous sums of money and passing instructions or signing documents dealing with such sums. There seems an element of truth in this. In one way or another, she became through Mr Folchi’s firm closely engaged in the relevant transactions. In the course of following instructions given to her, by Mr Folchi or on occasions others, she herself became involved, and in turn involved her husband, in some extraordinary conduct. She does not appear to have had sufficient experience or judgment to appreciate its extraordinary nature, or to seek any explanation or decline to co-operate. Like other persons involved in this litigation, the attractions of interesting and remunerative work (in her case paid tax-free offshore in Jersey into an account with Pirunico Nominees administered for her by Mr Russell) may also have outweighed any better judgment. The present litigation has obviously caused her much anxiety over a period of years, and she gave evidence courageously under evident stress despite a doctor's certificate advising her against this. Like Mr Coll, she has had assistance, though not representation, during the trial from solicitors, Messrs. Lawrence Graham.

Mrs Parker was able to introduce Mr Folchi to Mr Russell, because she had used the Chelmsford branch of Russell Limebeer in England. As the concept of the Castle Trust emerged, she was always contemplated as nominal beneficiary. She received advice dated 5th September 1988 from Messrs. Freshfields on the U.K. tax implications of her being a beneficiary. Although they saw no trust documents and were given no idea what the purpose of the trust or of her being a beneficiary might be, they advised that she would have no U.K. tax liability, on the basis that she would put nothing in and receive nothing out and not be involved in establishing or managing the trust. Support for Mrs Parker’s submission that she was entitled not to concern herself further with the purpose of the trust can be derived from this advice and from the fact that Mr Russell's Jersey firm proposed its establishment.

Croesus
In July 1989 Mrs Parker was involved in the urgent instructions given to Mr Russell to set up the structure for Oakthorn 1 operation, using Wardbase. In this respect she acted as the diligent and undiscriminating intermediary between Mr Folchi and Mr Russell. Likewise, in the communication of instructions for payments in both Oakthorn operations. She said that Mr Folchi's firm habitually dealt in huge sums. She knew that Mr Russell and his creature companies were in the accountancy and tax avoidance business. She could see that these sums were going through his companies. I would have expected her to realise that agreements were involved which were mere devices to enable "repayment" of such sums, for example the agreement referred to in Mr Russell's file note dated 21st July 1989 whereby Oakthorn was to "become entitled" to a huge commission by being "able to find a purchaser" of GT shares. But other professionals were responsible for proposing and developing the whole scheme, including these agreements, ostensibly in GT's interests. It would involve too stringent a view of Mrs Parker's position to conclude that, in going along with the scheme, she was acting as no honest person would. She may well have been unwise to allow herself to become involved, but not, even objectively dishonest.

As to the destinations of payments, unlike Mr Folchi, Mrs Parker is not shown to have known that account Stuart was operated by Mr de la Rosa. She said, at first, that, although it was very difficult to recall, she did not think she knew who Sheikh Fahad and Mr Jaffar, the named account-holder recipients in Oakthorn 2, were, and, later, that she could not recall but presumed that she would have known that they were important people in the KIO, for which she knew that Mr Folchi's firm was acting. The latter answer seems to me more likely. But, assuming that she did know, I do not think that she would, with her limited experience and role, necessarily have concerned herself, or that an honest person in her position would have felt it incumbent on herself to pursue the matter. It was a matter pre-eminently for Mr Folchi and his clients, and it is clear that Mr Folchi only gave her as much information as he felt she needed to fulfil his instructions. On 5th July 1990 she witnessed the asset marketing agreement between Wardbase and GT. But there is no reason to think that she would as a witness have even read the document, let alone have focused on its significance or unreality. 

Mrs Parker received two sums emanating from Oakthorn 1 monies, first an amount of £20,000 in November 1989 and, second, an amount of £20,915 in April 1990. She received in addition out of her Pirunico Nominees account other sums not so emanating, viz. £8000 on 7th August 1990 and $15,000 in January 1992. She was, she said, employed by Mr Folchi's firm on the basis that she would be paid in her Jersey account £25,000 plus any expenses plus, if the firm prospered, a bonus, which she thought would be in the region of 10%. She did not at that time have a resident's permit or work papers in Spain, and so could not open any bank account there.

Her explanation regarding the £20,000 which she received in November 1989 was that she had commitments to meet in respect of two English properties (one lived in by her dependant mother-in-law). She asked Mr Russell to arrange for her to have £20,000 in cash, of which she used (taking the figure from her solicitors’ letter dated 3rd March 1995) £5,600. The rest went into her building society, and was subsequently exchanged for pesetas and spent. The plaintiffs ask me to reject this account as incredible, but I do not see that it can be so regarded. By November 1989 Mrs Parker had been working for Mr Folchi for over a year, and would, on the face of it, have accumulated more than sufficient funds to cover such a withdrawal. Her Pirunico Nominees account details were not explored before me. She signed for cash in London. How and why Mr Russell paid her out of Oakthorn 1 monies is the most troubling question. Mr Russell usually (though not invariably) received his instructions from or through Mrs Parker. If that occurred here, she must have known that the monies came from Oakthorn. But there is no indication in the papers how or from whom Mr Russell got instructions in this instance, and the matter was not investigated in evidence. In the event, the plaintiffs' case against Mrs Parker on this point does not go beyond suspicion.

Mrs Parker said in evidence that the £20,915 was, as far as she was concerned, part of the proceeds of the sale in February 1990 of her house in England to Wardbase. But in her solicitors’ letter dated 3rd March 1995 (to the correctness of which she attested at the interlocutory stage) and in her pleading, she attributes it to the course of her employment with Mr Folchi’s firm. Why there was no mention at that stage of her house sale was not investigated before me. Wardbase did in fact buy the house (it seems to establish its credibility as an English trading company). It did so in late February 1990 at a market price of £89,000. But it used Oakthorn 1 monies. $200,000 (c.£117,000) was transferred from Oakthorn’s account to Wardbase’s account on about 7th February 1990. Out of this on or about 28th February 1990 Wardbase transferred (a) £52,515 to Pirunico Nominees’ account and (b) a further £36,484 to solicitors acting in the sale to enable them to discharge the mortgage. Together, those two sums fit well with the house sale price. The £20,915 received by Mrs Parker came out of (a), but to her it would have appeared as no more than a payment out of her Pirunico Nominees account. She was entitled to expect to receive the balance of the price after payment off of the mortgage, and she understood Mr Russell to be looking after this balance for her. From her solicitors’ letter dated 3rd March 1995, £13,815.25 of her receipt remains unspent in her building society account. Again, there are some oddities and uncertainties. How and from whom did Mr Russell get his instructions, particularly to use Oakthorn 1 monies to pay for Wardbase’s purchase of the house? What was the actual state of the Pirunico Nominees account held for Mrs Parker in Jersey? Why was Mrs Parker’s house sale not mentioned in March 1995? But on the material before me, the plaintiffs  clearly fail to establish any dishonesty on Mrs Parker’s part.

Mrs Parker is not therefore shown to have received either of the two receipts dishonestly.
 
Pincinco
I move to the Pincinco operation. Mrs Parker was present on the first, though not the second, day in Geneva when the scheme was set up at Bankers Trust. She knew the scale of the operation. She looked at the list of those due to receive the very substantial payments out of Pincinco. She herself passed instructions to Bankers Trust directly and in probability through Mr Russell for relatively minor payments or variations of payments out of Pincinco, and on 8th October 1990 she received a power of attorney formally enabling her to give such instructions on Pincinco's behalf. Such payments included Bankers Trust's own fee of $2.1m, expressly so described. It also included the payments of $1.3m and $267,500 to the Falcon account, which, she told me, she did not know to be connected with Mr Folchi. Apart from the bank's fee, she was not told and did not ask for what the transaction or any of the payments were.

Around the end of 1990 Mrs Parker became involved in signing for Wantley the contracts to lend GT $40m which in fact emanated from Mr de la Rosa's Stuart account and was part of the proceeds of the Pincinco operation. She said that she could not remember anything about the circumstances, save that she believed that Mr Coll, who she described as "an important person in the KIO", had asked - though not, she added, directly. The request, she thought, "more or less came through the lawyer in the office". She had not appreciated that there was any connection between Mr Coll and Wantley. This remarkable and unexplained request appears to have aroused no interest or concern on her part at all.

She and, through her, her husband then became involved in signing a number of contracts to give effect to the Coll scheme. They were the four agreements for loans by THL to Coggia, as follows: for $2,024,000 dated 4th July 1991; Ptas.319,445,312 dated 16th July 1991; for $4,120,000 dated 17th July 1991 and for Ptas.2,275,000,000 dated 18th July 1991 and a further exchange rate agreement dated 6th August 1991. All these were signed by Mr Pearson, Mrs Parker's husband, for Coggia and by Mr Soler for THL. On behalf of Riquel, she signed an agreement dated 7th November 1991 to buy the 2,196,056 old shares from Philby and other companies (represented by Mr de Mir) for a supposed price of Ptas.37,332,952 and further related agreements dated 20th, 23rd and 31st December 1991. By further agreement dated 20th December 1991 signed by Mrs Parker for Riquel and Mr Pearson for Coggia, Riquel sold to Coggia for a supposed price of Ptas.37.322b the 2,196,056 old shares acquired from Philby and others, and by a final agreement dated 23rd December 1991 signed by Mr Soler for THL and Mr Pearson for Coggia, Coggia sole to THL the same old shares at the same price.

These were in some cases complex contracts, although it must have been clear that they related to sales of shares in large numbers and for huge prices. Mrs Parker said that she had no idea they had anything to do with the Pincinco operation of the year before. She signed because Mr Coll had asked her to arrange, with the company directors of the two Dutch companies (Riquel and Coggia), for the issue of a power of attorney to two non-Spaniards. The directors of the Dutch companies asked what the power was for. Since she did not know, she arranged for them to issue something general. She asked Mr Folchi's partner, Mr Calderon, whether it was in order to sign. She involved her husband in the signing because she did not know any other foreigners well enough.

There appears in short to have been no limit to Mrs Parker's willingness and enthusiasm to participate in business and sign documents about the meaning of which neither she nor, it appears in the case of the Coll scheme, the nominal directors of Riquel and Coggia had any idea. She acted on the simple say-so of those for whom she worked. The plaintiffs ask me to view her somewhat bizarre and certainly misguided behaviour in terms of dishonesty. I think on the whole that it is better categorised as involving a lack of good sense, in permitting herself to become involved in matters which should have been the responsibility of others and were wholly outside her depth.

Even less do I see Mrs Parker's participation in the setting up and initial instructions for the Pincinco scheme as dishonest. At that stage she was working closely with Mr Folchi, who she had no reason to distrust, and her role in attending to assist him, if necessary, in Geneva and in passing on his instructions was a much more conventional one.

Wardbase
Finally, there is the Wardbase operation. Her too, Mrs Parker was involved in very curious conduct. She was responsible for presenting Wardbase's claim for payment dated 30th March 1992 to Torras Papel, which she must have appreciated was connected with GT, her firm's primary clients.  Her suggested inability to identify by name by whom she may have been instructed failed, as I have indicated, to impress me. One possibility is that an element of loyalty to Mr Folchi has played some part in her evidence. She also submitted to Torras Papel Wardbase's invoice dated 24th April 1992, after she had ascertained from Mr Russell the bank account to which it should refer. Her suggestion that she asked Mr Russell whether it was in order for her to act for Wardbase is less easy to accept, in view of the fact that she already had a power of attorney for Wardbase. Mr Russell would surely have known about this and pointed it out, if she had asked. It would (despite her denials) anyway seem surprising if she did not herself already know of its existence at the time. However, there is no reason to think that she ever saw, let alone knew of any back-dating of the supposed contract dated 4th September 1989, an important distinction between her and Mr Folchi's positions.

In late May 1992, she passed on to Mr Russell instructions for onward payment by Wardbase of the Ptas.2b which it was actually to receive from or via THL. These instructions involved a whole further chain of payments, from Wardbase to Oakthorn to Anslow to the account of Adnil at Sogenal, Geneva, to whom Mr de la Rosa evidently asked her to send confirmation of the payment. Why anyone should devise and introduce such a chain does not seem to have occurred to her to consider. Finally, Mr de la Rosa pressed Mrs Parker aggressively to achieve the payment on the day when it was being made.

Mrs Parker's explanation, is here, as at every point, that she acted on instructions. Again, it seems to me that this is, on the critical issue of her honesty, sufficient at the end of the day to establish her case. On my findings, her instructions came in probability from Mr Folchi, whom she still had no reason to distrust. She knew that Wardbase was some sort of vehicle for GT's operations. A wiser person might have asked what was going on, and why it was necessary to go through the charade of presenting claims by Wardbase and to have a chain of payments. She knew, however, that Wardbase and Oakthorn were part of a tax avoidance scheme to enable offshore payments, and artificial communications to justify a payment out of Spain may in that context be less surprising.

Factual conclusions in respect of Mrs Parker
It has not been shown that Mrs Parker was knowingly party to the dishonesty involved in the schemes in which she assisted. Nor in my view would it be right to view her conduct in assisting as conduct in which no honest person in her position would have engaged. The lack of experience, wisdom or thought which characterised her activity is not in my view to be equated with objective dishonesty.

Sections V.1(d), V.3 and V.4 consider the legal position relating to the claims against Mrs Parker.

IV.3(i) Mr Moukarzel
Mr Moukarzel was when he joined THL in 1988 a young man of 24. When Mr Vasconcellos's death led to his promotion to sole London director in August 1989, he was only 25. His career has been halted by the events giving rise to this case. His evidence was at many points, in my judgment, unimpressive and very unreliable.

His previous experience was as an investment analyst, and it was as such that he joined THL. He was attracted by what seemed a good and interesting job. When he joined THL, he was, for presentational reasons, made a director from 8th September 1988, alongside Mr Vasconcellos and Mr Soler. He told me, no doubt accurately, that he did not expect to be doing very much in that capacity. He was given a 23-month contract from 1st September 1988 with a salary of £50,000 p.a. This was a substantial increase over what he had been earning at MAM. The contract also included a £10,000 car allowance and other expenses and specified that a bonus would be paid if and in an amount THL considered appropriate. In his first year, he gave investment advice which yielded a profit and Mr de la Rosa agreed and he was paid a £40,000 bonus. In his oral evidence, Mr Moukarzel suggested that the salary he received was not necessarily more than he would have got had he stayed at MAM. That evidence was unconvincing. Mr Moukarzel evidently enjoyed the fruits of his position with THL. In an interview in January 1993 with Mr Donaldson of KPMG, he was sufficiently embarrassed to volunteer that he had paid back 90% of the expenses he had charged to THL, although suggesting that the fact that his expense account was so high could in some way be regarded as "a fault of the management in Spain". From 1st August 1990, Mr Moukarzel's basic salary increased to £75,000 p.a. According to his supplementary witness statement, Mr Moukarzel had at around the end of 1989 succeeded in enlisting the support of investors worth $25m in relation to the KIO's public offer for shares of GT, and in initiating discussions for a possible joint venture between Torras Papel and another paper company. Mr de la Rosa had suggested bonuses of $40,000 and, when agreeing Mr Moukarzel's salary increase in mid-1990, had agreed to pay these at the end of each year.

THL was at all material times controlled from Spain. Even the accounting by Mr Curton in London was undertaken in liaison with Spain, with Mr Soler and Mr Coll. The position was rather different while Mr Vasconcellos was alive. He was paid the astonishing annual salary of £900,000. Mr Moukarzel signed Mr Vasconcellos's employment contract for THL. He said however that Mr Vasconcellos did not want him to look at it "in detail", or, he said in cross-examination, "at all, except where I had to sign". He said that Mr Vasconcellos told him his salary was only £90,000, and that he did not discover the true figure until he read the contract after Mr Vasconcellos's death, He said that Mr de la Rosa then said was that was what Mr Vasconcellos had wanted. Mr Moukarzel said he had speculated that it represented what Mr Vasconcellos could have earned at MAM, and that he did not think that there was anything suspicious about the salary. All of this evidence was challenged by the plaintiffs. They suggest that Mr Moukarzel must have known Mr Vasconcellos's salary from the outset, and it must have indicated to him that the business was suspect. But I do not see any particular reason to conclude that Mr Moukarzel is lying when he says that Mr Vasconcellos successfully concealed his own salary. As to whether he would have inferred that the business was suspect, once he knew of its amount, its amount is astonishing. But it was an era of very high City salaries, Mr Vasconcellos was expressly designated as the senior director, and it is clear that he had a much more active executive role than Mr Moukarzel ever assumed. I think that I can and should accept Mr Moukarzel's evidence in this particular area, that he did not suspect this, despite the generally unimpressive and unpersuasive character of his evidence in other areas.

Mr Moukarzel had little active involvement with the early stages of the Croesus operation. The promissory note swap was approved by Mr Vasconcellos and Mr Moukarzel at a board meeting stated to have occurred on 21st July 1989. Mr Vasconcellos was given authority to effect the swap, the loan facility with Banco Santander "and any ancillary documents related thereto on substantially the terms described to the meeting and otherwise upon such terms as Mr Vasconcellos may see fit". Despite Mr Moukarzel’s interest in investments, all that Mr Vasconcellos explained about the purpose of the loan was, according to Mr Moukarzel, that it was to pass on to GT to finance the acquisition of companies, by which Mr Moukarzel said that he understood their future, rather than current, acquisition. There was no mention of Oakthorn or of any loan of $55m to THL. 

After Mr Vasconcellos's death, Mr Moukarzel found himself as THL's sole resident director. He presented the options to GT, namely that they close the office or recruit someone of seniority to take over Mr Vasconcellos's role, or that he "should simply carry on with their authority". GT decided on the last course, with Mr Soler taking on an active role, and Mr Moukarzel being expected to sign documents when required in England. Thereafter, in the main, Mr Moukarzel was in contact with and received any information from Mr Moreno, Mr Soler's assistant, and Mr Jubert, a lawyer in Mr Folchi's firm. Mr de la Rosa did not discuss financial matters with him.

Three minutes of THL board resolutions at a meeting or meetings of Mr Soler and Mr Moukarzel held in Barcelona on 31st August 1989 approved borrowings of Ptas.5000m, 15,000m and 3000m respectively from Midland Bank plc, First National Bank of Chicago and Banco di Roma SpA. and authorised Mr Soler to execute such loans "and any documents related thereto, and the way to use the funds, on substantially the terms described to the Meeting and otherwise upon such terms as Mr Soler may see fit". 

Further minutes purport to record a board meeting of THL attended in London by Mr Soler and Mr Moukarzel on 14th September 1989, at which it was resolved that THL should borrow $25m from Banco Santander, and gave Mr Soler like authority. In fact, no such meeting occurred on this occasion - Mr Moukarzel was simply sent a document from Spain, which he read and signed.

Mr Moukarzel gave vague and inconsistent evidence about what, if anything, he was told about the purpose of borrowing $25m from Banco Santander. In his witness statement, he said that he was told by Mr Soler and Mr Moreno that it was for use by GT. In evidence, he said that they had said this in relation to the previously resolved borrowings from Midland Bank plc, First National Bank of Chicago and Banco di Roma SpA., that he simply thought the borrowing from Banco Santander would be for the same purpose, and that the purpose was, alternatively or as he then said "probably", to refinance an existing investment, and that, if he had thought that it was to finance a new investment, he would have enquired what it was. This was unimpressive and in my judgment defensive evidence. The position is very likely that Mr Moukarzel was content to do what he was asked, with only the vaguest comfort, and had no real idea at all what was happening.

It is clear that no reference was at this stage made to Croesus. Nor did Mr Moukarzel have anything to do with Croesus's unsigned loan offer dated 15th September 1989 (which was anyway, I find, only prepared in March 1990, just before the time when Croesus's signed acceptance dated 14th September 1989 was prepared).

On 27th October 1989 a Mr Lewis of THL's then auditors noted a telephone conversation, in which Mr Moukarzel gave him some "information about the structure of the borrowing to be undertaken by THL and channelled through Spain". Mr Moukarzel evidently explained the 30% deposit required in Spain on foreign borrowings, and said

"The borrowed money has then been used to buy from Spain various shareholdings in subsidiaries of the Spanish company. Thereby transferring the money to Spain. The dividend income arising on the shareholding will not meet the interest payments on the loan. Therefore when an interest payment falls due THL will re-sell some of the shares to TH Spain thereby providing funds to meet the interest payments."

Mr Bailey relied on this as an important memorandum evidencing Mr Moukarzel's state of mind. But the account which it gives is not only more detailed than the general understanding which Mr Moukarzel claimed in evidence, but difficult to reconcile with that understanding or with the actual facts. The memorandum was not addressed in evidence, and the origin of what Mr Moukarzel apparently recounted remains uncertain.

In November 1989, Mr de la Rosa telephoned Mr Moukarzel to instruct him to make the two payments totalling $2,576,707, which went to Kokmeeuw in the Croesus operation. GT put THL in funds in respect of these payments, and Mr de la Rosa made a point of telling Mr Moukarzel that it was not his business to know their reason. THL was only acting as a conduit, and one can understand Mr Moukarzel giving the matter little attention at this stage.

In or about February 1990, Mr Curton presented Mr Moukarzel with the Wantley invoice, and told that it related to the two November 1989 payments. The invoice, addressed to THL, was "for the provision of strategic and general advice relating to the world wide development of the Torras Group". Mr Moukarzel told me that, while he knew no such services had been provided to THL, he "did not know what to believe" and "had no opinion" regarding GT. In his interview with Mr Donaldson, he said that THL's then auditors, Touche Ross, "had a fight" about this invoice, but he was not involved or questioned.  Mr Coll put to Mr Moukarzel, who accepted, that the two of them may well have had a conversation about the booking of the invoice in mid-1990, after Mr Coll and Mr Curton had talked with the auditors. The invoice may have been mentioned during the audit, but there is no sign in any of the auditors' comments of any "fight" about it. It seems quite likely that Mr Moukarzel's suggestion in January 1993 was designed to ward off any criticism, on the basis that if the auditors were satisfied he himself can have had no reason to be concerned. His attempted explanation in evidence that that he may have been trying to be helpful or have simply become fed up during the interview was singularly unconvincing.

On or about 2nd March 1990, I find, Mr Moukarzel signed a roll-over agreement dated 26th January 1990 in respect of THL's loan of $55m to Oakthorn in July 1989. Mr Moukarzel's evidence that he "imagined" that he would avoid any deliberate back-dating left me wholly unpersuaded. Mr de la Rosa’s letter dated 26th January 1990 referring to the roll-over from that date also appears to have been back-dated, since according to the copy of the Castle Trust files it was date-stamped as received on 5th March 1990, with a covering slip from Mrs Parker saying that “Albert Kirton [sic] will be sending you copy of loan agreement”. That fits precisely with Mr Curton’s letter of 2nd March 1990 (while suggesting that an Oakthorn board minute dated 14th February 1990 and signed by Mr Russell was itself probably also back-dated). According to Mr Moukarzel, at the same time he also called Mr Moreno to ask for more details about this loan, and was told that it was "kept confidential for insider trading reasons".
 
A board meeting purportedly held by Mr Moukarzel and Mr Soler in London on 15th March 1990 (but in fact conducted by telephone), resolved to roll-over the Banco Santander loan for $25m, without mentioning Croesus or any onward lending. Mr Moukarzel said that it was at about this time that he learned of the Croesus loan, when he signed the undated Croesus roll-over for six months from 21st March 1990. Despite Mr Moukarzel's statement that this was "rubbish”, the likelihood is that he only signed the Croesus roll-over in May 1991. But, although not focused on during the trial, there appears to be independent documentary confirmation suggesting that, in signing this roll-over, he was reflecting an extension that had been agreed in principle on or about 15th March 1990. That consists of a fax sent by Mr Max Martin of Touche Ross (THL’s then auditors) to Coopers & Lybrand (GT’s auditors) on 25th June 1990, recording that Mr Moukarzel had informed him “that the Croesus loan was rolled over and not repaid on 16th March 1990”.

Mr Moukarzel signed the agreement to lend Oakthorn $50m in the Oakthorn 2 operation, and gave instructions for the payment of this sum to Oakthorn once received from GT. He said in evidence that he did not read the agreement when he signed it and did not at first realise that a new loan was involved. I cannot accept that evidence as likely to be correct. Whenever he knew of the new loan, according to his evidence he asked Mr Jubert its purpose and was told that it was for the merger of Ebro and Agricolas. Not long before, he said, Mr Jubert had also told him that this was the purpose of the outstanding Oakthorn 1 loan. He did not specifically ask about the purpose of Croesus, but assumed, after his conversation with Mr Jubert and because of the involvement of Banco Santander with Croesus as well as Oakthorn, that this must also have been connected with the same merger. That too was to my mind unconvincing evidence. The fact that he did not specifically ask about Croesus would also be consistent with his not having even heard of Croesus at this stage. He said that he was unaware of any questions asked by the auditors about Croesus in Spring 1990. In fact Mr Max Martin’s fax to Coopers & Lybrand of 25th June 1990 indicates that Mr Moukarzel did have some, albeit limited, involvement with Touche Ross. THL's 1989 accounts which Mr Soler and he approved as directors on 16th July 1990 did not more than identify "other investments (unlisted)" to the value of £77,471,817, with the note that "guarantees have been received from [GT] to confirm the carrying value of these assets".

At some point after the Iraqi invasion of Kuwait, Mr de la Rosa told Mr Moukarzel that Kokmeeuw proposed to put $1.2b into GT, to take off the pressure from international banking community, to "save the day" in a very difficult situation. THL itself had outstanding bank borrowings from a number of banks. In September or October 1990 Mr Moreno visited London and told Mr Moukarzel that from these monies $400m was to be placed at THL's disposal, by implication to pay off bank indebtedness. Mr Moukarzel said that he was unaware of any connection between this and Mr Folchi's appointment as a director on 1st October 1990, a piece of evidence to which I return below.

It was only when THL's 1990 accounts were being prepared in early 1991 that Mr Curton told Mr Moukarzel that THL still had outstanding borrowings from a number of banks. According to his witness statement, Mr Moukarzel then spoke to Mr Moreno, who reminded him that they were concerned with the previous year's accounts, and said that (as at the end of 1990) THL still had on deposit $300m of the monies which it owed to banks, while the remaining $100m had been used to repay certain other bank borrowings. Mr Moukarzel also said that he remembered Mr Curton chasing for a bank confirmation of the $300m which was wanted by the auditors. Mr Moukarzel then spoke to Mr Folchi (cf section IV.3(g) of this judgment). Mr Curton subsequently showed Mr Moukarzel a bank statement showing such a deposit, which Mr Moukarzel understood was forwarded to the auditors. Mr Moukarzel assumed that THL's accounts showing the $300m as cash in hand did so correctly.

In cross-examination, Mr Moukarzel agreed that Mr Moreno's statement that $300m was still on deposit came as "an astonishing piece of news" and suggested, for the first time, that he had found this credible, because Mr Moreno had said that "It is being held on the instructions of the Kuwaiti Ministry". I do not accept that Mr Moreno said anything of the kind. Mr Moukarzel's explanation, that he had not previously thought it "necessary" to mention that Mr Moreno said this, was implausible as a reason for not mentioning it in his witness statement, in his January 1993 interview or at any other previous time.

On 5th and 31st October 1990 cheques were drawn on Mr Moukarzel's London bank account for £2500 and £8700 respectively. On 5th November 1990 the amount of £11,200 was, according to the relevant transfer advice, debited to Stuart account 130900 for payment to Mr Moukarzel with no mention of sender at his London bank account (which it actually reached as a credit of £11,186). On 14th March 1991 a cheque for £3000 was drawn on Mr Moukarzel's Guernsey account, and on 18th March 1991 the amount of £3000 was debited to Stuart account 130900 for payment to Mr Moukarzel with no mention of sender at that account (which it reached it as £2992). Mr Bailey accepts on behalf of Mr Moukarzel that the sums credited to Mr Moukarzel out of the Stuart account were in origin Pincinco monies.

These debits and credits were only raised with Mr Moukarzel when he gave evidence and were pleaded shortly thereafter. His London bankers no longer held copies or microfiches of the relevant cheques. Not surprisingly, Mr Moukarzel said that he held no stubs. His explanation was that Mr de la Rosa asked him to provide Mrs de la Rosa with shopping money on shopping trips. He said that, after the first two payments, which it can be seen nearly emptied his bank account, he spoke to Mrs de la Rosa's secretary seeking immediate reimbursement, and at the same time left a reminder for Mr de la Rosa that his bonus was due. Criticisms that Mr Moukarzel failed to call Mrs de la Rosa or her secretary or THL's chauffeur who drove her around do not impress. Mr Moukarzel mentioned as early as his January 1993 interview that he had advanced Mrs de la Rosa "up to £18,000 at one stage and he paid me back". The actual total was £14,200, but I attach no significance to that particular inaccuracy. The plaintiffs suggest that Mr Moukarzel had no reason to do Mr or Mrs de la Rosa a personal favour if innocent. That too is unpersuasive. He had every reason to accommodate Mr de la Rosa's request, to smooth the continuation of a happy position, from which he received a considerable salary, significant (indeed on his own account excessive) expenses plus bonus. I do not consider that this gives rise to any inference that he was party to any fraud, or knew that Mr de la Rosa was defrauding GT or THL or that the money with which Mr de la Rosa was reimbursing him came from the proceeds of any such fraud. The fact that he had previously bought a watch for Mr de la Rosa, using a THL cheque, only to find that Mr de la Rosa did not like it and the shop would not give cash back, so that he ended up auctioning it, is not sufficient to lead to any different conclusion. I also note from THL's management accounts for the year ended 31st August 1989 that at that date THL was owed £11,821 for "payments made on behalf of Mr and Mrs de la Rosa". I accept Mr Moukarzel's explanation of the position regarding the debits and credits totalling roughly £14,200.

On 15th November 1990 a payment of £15,000 was debited to Pincinco's own account at Bankers Trust, Geneva for the credit of Mr Moukarzel's London account (which it reached as £14,986). On 20th November 1990 a payment of £6,900 was debited to Stuart account 130900 at Bankers Trust, Geneva for the credit of Mr Moukarzel's London bank account (which it reached as a credit of £6,886). The Swiss banking documents show that at the actual rate of exchange then prevailing these two payments were equivalent to about $43,600. Mr Moukarzel's explanation in evidence was that they constituted, so far as he was concerned, the $40,000 bonus which he was due. The fact that the plaintiffs only claim the first payment (that from Pincinco's account) is presumably because the Stuart account was in substantial overdraft when the second payment was made out of it. The two payments must nonetheless be viewed together, when evaluating Mr Moukarzel's explanation. The difference in dollar figures between $40,000 and the total of about $43,600 actually paid was not identified in cross-examination, and is not of itself large enough to undermine the explanation. Mr Moukarzel could offer no explanation why the bonus should not have been paid in one. But, whatever the motive(s) behind these payments, it is unclear why Mr de la Rosa did not arrange for them to be paid out of the same account and at the same time.

Mr Moukarzel said that he had intended his bonus to be paid offshore, on the basis that "as a non-domicile he could save tax by having a payment paid abroad for work done abroad provided that the funds were not remitted to England", and had opened his Jersey account for this purpose. Mr de la Rosa's secretary had, however, used the London bank account details which he had provided for reimbursement of shopping expenses. She informed him of the first bonus payment, and he observed that it was too little and asked for the rest. Asked in cross-examination why he did not then change the account details, he could only say that it was too late and he did not want to complicate things. Whilst it is clear that Mr Moukarzel could have asked for the second tranche to go to Jersey, it is, I think, possible to understand his preference for keeping things simple. Having received an initial under-payment for unexplained reasons, his prime concern would have been to receive full payment. From the tax viewpoint, although Mr Moukarzel did not articulate this, one can also see a possible concern about the efficacy of receiving the balance out in England after receiving the first part within.

Lastly, Mr Moukarzel was cross-examined about the absence in THL's 1990 accounts of any reference to this bonus. That is a forceful point. Mr Moukarzel’s response was that an offshore payment from GT would not have to appear in the accounts. The actual payment was however onshore and, according to him, in respect of a liability of THL. Since there is no sign (or likelihood) of THL being expected to reimburse GT, its proper accounting treatment is open to some question. However that may be, I am quite unable to infer from THL's accounts that the payments were in truth a pay-off or inducement to co-operation or silence in respect of the Pincinco operation. Mr Moukarzel's lack of involvement, interest and grasp of THL's financial and accounting affairs seems to me a quite sufficient explanation for any inaccuracy, if there was any, in THL's accounts.

Factual conclusions in respect of Mr Moukarzel
In summary, Mr Moukarzel assisted in the Oakthorn 1 and 2 operations, In respect of Oakthorn 1, he delegated full power to Mr Vasconcellos to do whatever he decided with the monies borrowed from Banco Santander, and he later backdated roll-over documentation from March to January 1990. In respect of Oakthorn 2, he signed the original loan documentation and subsequent roll-over documentation. He had, on his own evidence, only the vaguest idea that operations were being undertaken which were in some way connected with GT's investment or financing purposes. Only in mid-1990 was he, on his own evidence, given the further very general explanation that they were connected with the Ebro-Agricolas merger. In early 1990 he accepted the Wantley invoice as appropriate documentation for disbursements made at GT's request in November 1989, with which Wantley had, both in fact and so far as he knew, nothing to do. He took no apparent interest in THL's 1989 accounts, although he approved and signed them. He appears to have had no idea of the detailed make-up of the "other investments (unlisted)" to the value of £77,471,817 included in THL's 1989 accounts, and the submission that he had no reason to concern himself because of GT's guarantee overlooks the fact that that guarantee was not obtained until the audit was near completion in mid-June 1990. Whenever he heard of the Croesus loan (probably some time between March and June 1990), he acquiesced in it, and in May 1991 signed back-dated roll-over agreements, on the mere assumption that the loan was for similar general purposes to that involved in the Oakthorn operations.

In respect of Pincinco, he was told that THL would be receiving $400m "to save the day" in September/October 1990, but he had no idea what was done with it, until told to his surprise in early 1991, that THL still had outstanding bank debt and, supposedly, $300m "on deposit" in Switzerland. He then took some steps to enquire into and resolve the accounting position, but did so essentially by relying on others (Mr Curton, Mr Moreno and Mr Folchi) to assure him that all was in order and to resolve the problem.

Mr Moukarzel's performance as an officer and director of THL was both improper (as regards the backdating) and inadequate (so far as concerns his lack of understanding or concern about its affairs). It would nevertheless be a considerable over-statement of Mr Moukarzel's importance in the scheme of things, even to consider him as a potential party to any scheme to misappropriate monies. I am satisfied that he was not. Nor do I think that he actually appreciated that anything untoward was occurring in any of the operations. He falls more easily within the category of well-paid stooge. His position had a certain Panglossian attraction. For considerable salary and expenses, he was expected to do and concern himself with very little as a director; and, to the extent that his work as an analyst produced results, he was, on his account, well rewarded with additional bonuses. There are other indications that it was Mr de la Rosa's practice to ensure that those working beneath him were amply rewarded, so as to encourage unquestioning allegiance. This, it seems to me, is the more likely explanation of Mr Moukarzel's activity and attitudes than the plaintiffs' case that he was either involved in, or aware of, fraud in the relevant operations. 

In respect of the backdatings in the Oakthorn 1 and Croesus operations, Mr Moukarzel provided assistance which was, at least objectively, dishonest. The backdated documents were clearly intended to mislead someone, presumably the auditors, into accepting them as relevant contemporary documentation recording the purpose of the loans. I accept that, when he signed and accepted these documents, Mr Moukarzel did so without any idea that they were part of a fraud towards GT or THL. He acted in the belief that he could safely follow any instructions given to him by others, particularly Mr Moreno and Mr Jubert and, through Mr Curton, Mr Coll regarding their signing. In so far as he thought about it, he believed that the ante-dated documents reflected actual transactions which had been entered into in GT's and THL's interests. Mr Max Martin’s fax in June 1990 underlines this point in relation to the backdating of the Croesus documentation to March 1990. Lax Mr Moukarzel certainly was, but I do not think that it would be right to categorise his activity in terms of even objective dishonesty.

As to the Wantley invoice, THL acted effectively as a paying agent for GT. Mr Moukarzel knew nothing of Wantley and can be criticised for simply accepting the invoice as relevant in respect of the payments. But, on the limited information which he had, Wantley might have rendered services to GT, which were being paid for through THL. Mr Moukarzel acted inadequately, but again not I think dishonestly, towards GT or THL in this respect.

Such assistance as Mr Moukarzel provided in respect of Oakthorn 2 and Pincinco is not shown to have been dishonest in any respect.

The plaintiffs submit that Mr Moukarzel acted as a mere nominee on instructions received from others in Spain, whose knowledge and states of mind should therefore be attributed to him: see Selangor United Rubber Estates Ltd. v. Cradock (No.3) [1968] 1 W.L.R. 1555, 1613-4; Gray v. Lewis (1873) 8 Ch.App.Cas.1035, 1055-6. Despite Mr Bailey's well-presented submissions to the contrary, there is a powerful case for regarding Mr Moukarzel as acting as no more than a nominee in respect of certain aspects of the Oakthorn and Croesus operations. But I do not think that this assists the plaintiffs. The first point which I would note is that the rationale of THL was to act as an offshore service company for GT, by which it was wholly owned. So long as there was no risk to THL's solvency or therefore ability to satisfy its third party creditors, Mr Moukarzel would be entitled to accept and act on instructions from THL's sole shareholder, GT. To this, it can be said that the sums involved in each of the Oakthorn and Croesus operations were large enough to imperil THL's solvency, at least so long as no formal guarantee from GT was in place. Secondly, however, assuming that Mr Moukarzel is attributed with the knowledge and states of mind of those in Spain responsible for instructing him, it is not shown that any of them had knowledge or a state of mind which would involve liability for conspiracy or dishonest assistance or on any other basis. The persons in question in respect of the Oakthorn and Pincinco operations are Mr Soler, directly or through Mr Moreno, Mr Jubert, probably also Mr Coll, through Mr Curton, and possibly also Mr Vasconcellos. On the conclusions which I have reached earlier in this judgment, the knowledge and states of mind of Mr Soler and Mr Coll do not assist the plaintiffs. The knowledge and state of mind of Mr Jubert was not directly addressed before me, and it is not shown that it could assist the plaintiffs. As to Mr Vasconcellos, he was a co-director. Mr Moukarzel might perhaps be regarded as acting as a nominee of others in Spain in granting him complete authority over the use of borrowed monies. But, essentially, what happened was that Mr Moukarzel had no reason to mistrust Mr Vasconcellos and delegated complete authority to him in that context. Mr Moukarzel may have failed in performance of his duty in not involving himself further, but he was not, in my view, acting as Mr Vasconcellos's nominee. I would add that it would be questionable how far his delegation to Mr Vasconcellos or failure to involve himself could be said to have caused any loss. Whatever enquiries he had made, Mr Moukarzel would in my view have been given sufficient comfort to enable the transaction to proceed as it did.

In respect of the Pincinco operation, Mr Moukarzel was barely involved at the outset, and the plaintiffs have not pleaded or developed any very clear case, save by reference to his later action in signing THL's 1990 accounts showing the $300m as cash at bank. On Mr Moukarzel's evidence, he was informed in September/October 1990 that THL was to receive $400m to pay off outstanding debt, and he appears then simply to have left it to others to arrange this. Who he thought was dealing with this and in what circumstances were matters not explored at trial. He was party to the board resolution of 1st October 1990 appointing Mr Folchi as additional director. It might have been suggested that he acted as nominee of others in Spain in appointing Mr Folchi and allowing him to act. His evidence was that he did not know that Mr Folchi's appointment had anything to do with the $400m to be received, and he thought it was simply to provide an additional Spanish signatory. This may not be the whole story. I note that in his supplemental witness statement Mr Folchi stated that it was Mr Moukarzel who approached him in connection with the original proposal to appoint Mr de la Rosa “as an additional director in relation to a very confidential transaction”. But I have some doubt whether Mr Moukarzel would really have been told that “a very confidential transaction” was in the offing. This part of Mr Folchi’s evidence was not in fact put to Mr Moukarzel. Whatever the precise events leading to Mr Folchi’s appointment, Mr Moukarzel presumably understood that Mr Folchi and/or Mr Soler might be signing or acting for the company without his knowledge, although it is not clear to me on what basis they would have had authority to do so, without specific authority or power of attorney. Mr Moukarzel also had no reason to mistrust Mr Folchi or Mr Soler. The situation after Mr Folchi's appointment appears to have been one of de facto delegation by Mr Moukarzel to Mr Folchi and/or Mr Soler as his co-directors, rather than of activity by Mr Moukarzel as a nominee for them. I do not see any basis in this context for imputing Mr Folchi's knowledge or state of mind to Mr Moukarzel for the purposes then of treating Mr Moukarzel as involved in dishonestly assisting Sheikh Fahad, Mr Jaffar and Mr de la Rosa to defraud GT and/or THL. Mr Moukarzel remains vulnerable to the criticism that he did not concern himself adequately with THL's affairs, and so breached his duty as a director, but it would in my view be unrealistic to treat any such breach as causally significant in relation to GT's and/or THL's loss of $300m in the Pincinco operation. The strong likelihood is that, however much diligence Mr Moukarzel had shown as a director, those determined to misappropriate such monies would have found a way of doing so. All these areas were barely, if at all, touched at trial, and I leave them there.

When Mr Moukarzel ascertained that THL still had bank loans outstanding, he did, however inadequately, attempt himself to clarify the position. Again, if he broke his duty as a director in not pursuing matters further, it cannot have had any causal relevance.

For reasons already indicated, I accept Mr Moukarzel's explanations for his receipt of monies out of the Pincinco operation. They were received by Mr Moukarzel in ignorance of their source and in good faith, in discharge of commitments owed to Mr Moukarzel.

The legal position relating to the claims made against Mr Moukarzel is considered further in sections V.1(d), V.3(a) and V.4 below.

V. THE CLAIMS
V.1. Conspiracy 
V.1(a) English law
Each of the transactions is alleged to have involved a conspiracy to do an unlawful act or use unlawful means. To establish liability for conspiracy under English law, a plaintiff must show that the relevant defendant combined or agreed with at least one other person to do an unlawful act or use unlawful means causing loss or damage to the plaintiffs. Where an unlawful act or unlawful means are shown, the plaintiff in an action for conspiracy need not show that the defendant had the predominant intention to injure the plaintiffs: see Lonhro v. Fayed [1992] 1 A.C. 448, 463-466. The plaintiffs’ first submission before me was that it is unnecessary for them to show “any specific intention to injure the Plaintiff - it was, they submitted, sufficient if there was a combination to do an act or use unlawful means which had the effect of injuring the Plaintiff.

In Lonrho v. Shell (C.A., 6th March 1981), in a passage quoted with approval in Lonhro v. Fayed [1992] A.C. 448, 467D-E and 468G, Lord Denning M.R. said this:

“I think that there is a cause of action when it is remembered that the tort is a conspiracy to injure. I would suggest that a conspiracy to do an unlawful act - when there is no intention to injure the plaintiff and it is not aimed or directed at him - is not actionable, even though he is damaged thereby. But if there is an intent to injure him then it is actionable. The intent to injure may not be the predominant motive. It may be mixed with other motives. In this context, when the agreement is to do an unlawful act, we do not get into the “quagmire of mixed motives”, as Lord Simon described them in the Crofters case at p.445. It is sufficient if the conspiracy is aimed or directed at the plaintiff, and it can reasonably be foreseen that it may injure him, and does in fact injure him.”

In Watson v. Dutton Forshaw Motor Group Ltd. (C.A., 22nd July 1998), Waller L.J. said:

“First, for a cause of action to exist at all there must be an intent to injure both in conspiracy and in unlawful interference. There is no cause of action in A if he happens to be injured by virtue of a conspiracy to injure B.”

Authority is therefore against the plaintiffs on their first submission. Their alternative submission is that it is unnecessary to show that there existed an intention at the outset to injure either plaintiff specifically - it suffices if there was an intention to injure whichever of the plaintiffs ended up bearing the loss. In that respect they rely upon words of mine when deciding the jurisdiction issues in this case at [1995] 1 Ll.R. 374, 385-7:

“People who wish to disperse huge sums of others’ monies for their personal purposes will not be over-concerned who makes or bears the payments, so long as they can be covered up. It is unlikely to be difficult in this situation to infer an intention to injure or defraud any company which in fact suffered loss.”

The plaintiffs can also invoke the weighty support of Lord Denning’s words, cited above and quoted with approval in the House of Lords:

“It is sufficient if the conspiracy is aimed or directed at the plaintiff, and it can reasonably be foreseen that it may injure him, and does in fact injure him.”

In my judgment, if it suffices that a conspiracy is “aimed or directed at” the plaintiff, in circumstances where it can only be said that “it can reasonably be foreseen that it may injure him”, then rigorous insistence on a need for specific intent to injure the particular plaintiff appears unjustified. I remain of the view which I expressed at the jurisdiction stage, that, in circumstances where persons combine to abstract monies from a group and then to cover up and account for the abstraction in any way they can, an intent to injure or defraud any company which, as a result of their operations, ends up bearing the loss, may readily be inferred.

I also note that, in the United States Court of Appeals case of Chemetron Corp. v. Business Funds, Inc. 682 F.2d 1149 (1982), the court treated it as axiomatic that

“Civil law principles do not require that [the defendant] have intended to defraud a specific party, only that he knowingly have joined the conspiracy intending to defraud its general targets.”

The “general targets” in that case were the investing public, who would be affected by the working out of the conspiracy. On the plaintiffs’ case before me, the general targets can be viewed as having been the KIO and the companies through which it held its Spanish investments, with whichever suffered loss being entitled to claim accordingly.

The plaintiffs assert that each transaction involved a separate conspiracy, to which different defendants may have become party at different times or for different periods. They refer to words of Fenton-Atkinson L.J. in R. v. Simmonds [1969] 1 Q.B. 685:

“Furthermore, it is well-established law that if A and B conspire together to carry on, for example, a course of fraudulent trading, C may join in (or in the older phraseology “adhere to”) the conspiracy at a later date and then A may drop out and be replaced by D.  But it all remains a single conspiracy as long as all of them are for the period of their participation acting in combination to achieve the same criminal objective.”

Like Moore-Bick J. in Kuwait Oil Tanker SAK v. Al Bader (Com. Ct. 16th November 1998), I view this passage as applicable to the tort - as it is to the crime - of conspiracy. Prima facie, participation in conspiracy makes all conspirators jointly liable for the loss caused thereby. Certain defendants before me submit that this cannot extend, in the case of a conspirator joining a conspiracy at a late stage to making him liable for (i) loss which can be shown already to have been caused by the conspiracy before he joined it, or even for (ii) loss which would have been caused whether or not he joined it.  The second proposition does not appear to me to have either support or merit. An after the event attempt to analyse the working of a conspiracy in order to allocate causative responsibility for particular loss between conspirators who were party to the conspiracy when the loss was caused could be a difficult, not to say incongruous, exercise. The position in respect of loss which can be shown to have occurred before a particular conspirator became involved in the conspiracy was touched on briefly in Kuwait Oil Tanker Co. SAK v. Al Bader (16.11.98, unreported). Moore-Bick J. there treated it as axiomatic that Capt. Stafford - who became party from September 1998 to what was viewed as a single conspiracy to misappropriate the plaintiffs’ assets in different ways on numerous different occasions - had no liability “for specific losses incurred by the plaintiffs before that date”. In the present case, the point might arise if any defendant were shown by the plaintiffs to have become party to a conspiracy at a relatively late stage, for example at what the plaintiffs have called its “cover up” stage. On my findings of fact, it is unlikely to be important.

Damage is of the gist of an action for conspiracy. The significance of this was pointed out in this passage from Salmon J’s decision in Marrinan v. Vibart [1963] 1 Q.B. 234, 238-9, quoted with approval by Oliver J. in Midland Bank v. Green (No. 3) [1979] 1 Ch. 483, 524:

“.... the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt act causing damage.  ... The tort of  conspiracy .... is complete only if the agreement is carried into effect so as to damage the plaintiff. Accordingly, the acts done in pursuance of the agreement are an integral part of the tort.”

Oliver J. himself described the tort of conspiracy as

“.... a concept which is concerned not with agreements - though no doubt some agreement express or implied lies at the root of any conspiracy - but with acts done in combination or concert and causing damage. Throughout the authorities it is upon the combined or concerted action that the emphasis is laid.”

 In the Court of Appeal [1982] 1 Ch.529, affirming Oliver J., Lord Denning M.R. said at p.539:

“It consists of concerted action taken by two or more persons pursuant to agreement between them with the dominant purpose of damaging another and actually damaging him.”

In Lonhro Ltd. v. Shell Petroleum Co. Ltd. (No.2) [1982] A.C. 173, 188 Lord Diplock said:

“The gist of the cause of action is damage to the plaintiff; so long as it remains unexecuted the agreement, which alone constitutes the crime of conspiracy, causes no damage; it is only acts done in execution of the agreement that are capable of doing that. So the tort, unlike the crime, consists not of agreement but of concerted action taken pursuant to agreement.”

In view of the importance of the incidence of loss to the issue whether there was actionable conspiracy under English law, I shall consider at this point where in the present case any loss fell.

V.1(b) The incidence of loss
The issue is whether GT or THL suffered any and if so what loss in and as a result of each transaction. It is convenient to approach this issue in two stages, considering at the second stage the capitalisation of Koolmees’s loans to GT which occurred in July 1991 and on which the defendants rely as transferring any loss to Koolmees or the KIO, neither of which has sued them. In final submissions, the plaintiffs made clear that their primary case is that GT rather than THL suffered all the relevant losses. 

Before taking each transaction in turn, I note once again the arguments advanced by Sheikh Fahad in letters dated 31st March and 20th April 1999, with which I have dealt in section III.5(e) above. There is nothing in any of the documents referred to by Sheikh Fahad which avoids the necessity for analysis of the relevant transactions to see where loss recoverable in law may have been sustained, and nothing indeed which I think has force on any other point which I have to decide during the trial of this action. I turn therefore to the relevant transactions.

V.1(b)(i). Croesus
The plaintiffs' case is that GT suffered a loss when it incurred liability to repay Kokmeeuw the $27.4m transferred in May 1988 to Republic National Bank of New York for account of Merrill Lynch Bank Suisse; alternatively when on 14th June 1988 it guaranteed repayment of the Croesus loan, in circumstances where Croesus could clearly not repay; or finally when it credited THL on the inter-company account with the amount of the Croesus loan, and/or then wrote off Croesus and Oakthorn loans in its 1990 accounts. As to interest totalling $2,576,707 paid to Kokmeeuw in respect of the $27.4m advance, GT allegedly suffered loss by reimbursing THL with the amount of the Wantley invoice produced to cover this payment.

The difficulty about accepting the plaintiffs' first contention regarding the $27.4m arises from my finding that Sheikh Fahad and Mr Jaffar combined to extract this money from Kokmeeuw by pretending that it was required for GT's purposes. If, immediately after the transfer to Bigley’s account at Merrill Lynch Bank Suisse, Kokmeuuw had sought to claim the sum back from GT, the fact that all three individuals knew that the sum had not been requested or paid for GT's purposes would, it seems to me, have precluded any such claim. The fact that other, innocent officers of the KIO or Kokmeeuw, such as Mr Betts and Mr Nigel Black, believed that the sum had been requested and paid for GT's purposes would probably not have sufficed to enable Kokmeeuw to succeed against GT.

But, assuming this to be so, the position is different, once THL paid to Kokmeeuw $25m and was in turn indemnified by GT. The plaintiffs might perhaps have been able to argue that GT was obliged to indemnify THL as soon as THL had, on 18th September 1989 and at GT’s request, paid Kokmeeuw $25m using the monies raised with Banco Santander. But the plaintiffs’ case puts GT’s obligation on the basis of GT’s "guarantee" on 14th June 1990 of the Croesus loan and/or GT’s later crediting of THL in account. GT also incurred loss, when in November 1989 THL reimbursed the payment of $2,576,707 to Kokmeeuw out of the Stuart account, receiving monies from GT accordingly. That there may previously have been no obligation to repay Kokmeeuw the $27.4m or any interest thereon is irrelevant. The guarantee and the disbursements of $25m and $2,576,707 came about as part of the conspiracy. Whether THL or GT might have had any claim to recover such sums at any time, once received bona fide by Mr Betts and others responsible for Kokmeeuw’s affairs, is speculative and irrelevant, particularly in the absence of any plea or plausible case of failure to mitigate. I note also, although the analogy is not exact, that, in re Anglo-Co-operative Society, ex p. Pelly (1882) 21 Ch.D. 492, the prospect that the debentures might, if the matter had been litigated, prove to be invalid was treated as irrelevant.

When the issues on jurisdiction were fought in 1993-94, the plaintiffs raised the argument that THL, rather than GT, might be said to have suffered loss - either because the set-off on inter-company account could be unravelled or because there remained an unsatisfied balance in THL's favour on that account: see [1995] 1 Ll.R. at p.395. At trial, the plaintiffs did not ultimately pursue either argument. Nor did any defendant interest himself in either. The defendants' efforts were devoted to showing that any loss were felt at, or had been transferred upwards through GT to the level of the KIO. In any event, the suggestion that there was any unsatisfied balance on the inter-company account was not substantiated on the evidence, rather the contrary. GT thus took upon itself the amount of the $25m repayment which THL had made to Kokmeuuw, as well as the amounts of two Oakthorn loans.

V.1(b)(ii). Oakthorn 1
THL suffered loss at the outset, in parting with money to a straw company which was not even to repay unless and until it “earned” equivalent “commission” from GT. By the same token, it was contemplated from the outset that GT would suffer loss, by being caused to pay unjustified “commission”. This device may later have seemed too artificial, even for Mr de la Rosa, to dare to present to GT's auditors. GT salvaged THL’s financial position by a different route. It guaranteed to meet Oakthorn's liability to repay on 14th June 1990. It met this guarantee by crediting THL in the inter-company account and writing off the amount of the loan in GT's 1990 accounts. As in relation to Croesus, the plaintiffs no longer suggest that loss was not thereby made good to THL.

V.1(b)(iii). Oakthorn 2
Here, GT on 11th June 1990 put THL directly in funds to make the $50m payment to Oakthorn. There is a case for saying that both THL and GT suffered some loss (sufficient at least to give each a cause of action) from the outset. THL suffered loss, through parting with money to a straw company, which GT agreed should only have to repay THL out of commissions or other monies to be provided by GT. GT suffered loss through being caused to part with its own funds for a fraudulent operation. That it did so under a loan to THL does not in my view affect that conclusion. In any event, $50m was beyond any capability which THL would have to repay, at least unless and until it could recover from any malefactors.

GT’s commission agreement with Oakthorn expressly referred to the loan as made by “GT through THL”. An alternative analysis to that in the previous paragraph might therefore be that, as between GT and THL, THL made the loan as GT’s agent. On that basis, GT would probably alone have suffered loss from the outset. But there seems to me insufficient material to justify a conclusion of agency.

However, it appears on any view to have been envisaged from the outset that the whole loss would in course of time be crystallised in GT. This took place by the same process as in Croesus and Oakthorn 1, viz. crediting THL on inter-company account and writing off the amount of the loan in GT's 1990 accounts. The funds which GT remitted to THL on 11th June 1990 were raised on Treasury bills which had been ceded to GT by the KIO on 7th June 1990. But there is nothing to indicate that at this stage GT was not to repay (or indeed could or would never repay) the KIO in respect of the Treasury bills so ceded.

V.1(b)(iv). Pincinco
The loan of Ptas.40b was received by GT from the KIO. The monies, converted into dollars, were transferred from GT to THL in Switzerland. The $300m which reached Banker's Trust was treated as a fiduciary deposit, pledged by THL to secure on-lending by Banker's Trust to Pincinco. Internally, the monies on fiduciary deposit were credited first to a Banker's Trust holding account (no. 29100.50) with its Zurich office (which, according to Mr Schnell, acted as Banker’s Trust’s “processing office” for Switzerland) and then credited by the Zurich office (chronological bundle p.1545A) to Pincinco's account. Mr Schnell states, and the overwhelming inference is, that the $300m credited to Pincinco came straight out of holding account 29100.50. After reaching Pincinco, the $300m was paid away as described in section II.4.

In my view, both GT and THL can be viewed as having suffered loss from the outset. Two companies may each suffer loss, although recovery by one may preclude or affect the extent of recovery by the other. THL’s deposit with Bankers Trust was effectively lost from the outset, since Pincinco was a straw company which could never repay Bankers Trust. THL had, however, a liability to repay GT. Any argument that THL did not suffer loss, because it could not repay GT, is circular and unacceptable. If THL was the victim of a fraudulent conspiracy, it should have the right to recover any amounts misappropriated from it, and any amounts recovered would, whenever they were recovered, become available for repayment of GT. Neither THL’s right to obtain judgment nor the quantum of any such judgment can depend on an attempt to predict in advance when such a judgment might be obtained or how far it might prove enforceable. But GT also in my view suffered loss from the outset. It was caused to part with $300m to THL, in circumstances where the dissipation of the monies would render THL unable to repay GT.

It must also have been envisaged from the outset that the burden imposed upon THL’s solvency by the Pincinco transaction would in some way or other later be lifted. But the means by which this might be achieved were only developed in and after December 1990 when the Coll scheme was conceived.

A further argument that the KIO was bound, in the circumstances created by the Pincinco transaction, to have to capitalise GT's borrowing of Ptas.40b, was not pursued by defendants to the point of suggesting that the only entity suffering any loss at the outset of the Pincinco transaction was the KIO (unless perhaps Sheikh Fahad’s very generalised assertions, mentioned above, should be understood as raising the argument). As a matter of fact, the evidence does not establish that capitalisation of the Ptas.40b loan was, as at October 1990, either inevitable or indeed specifically contemplated by anyone. GT had substantial assets and investments, which might have been realised. GT had also enjoyed substantial banking connections and facilities, prior to the invasion of Kuwait. Mr Betts understood and hoped that repayment would occur. But his role in relation to both the Ptas.80b and the Ptas.40b loans was essentially administrative. The decision to grant these loans was reached at a higher level, probably, as Mr Betts said, by Sheikh Fahad in discussion with others. Sheikh Fahad and others must have been planning to divert some Ptas.30b out of the Ptas.40b loan to their own uses. But GT was still bound to repay the loan monies in accordance with the agreements signed. And it is not shown that Sheikh Fahad and others contemplated from the outset that GT could not or would not do so. Only in December 1990 was attention directed to the problem created by GT’s loan indebtedness and the hole in its finances created in effect by the Pincinco operation. At the same time, any idea of raising monies from GT’s own sources became more remote as GT’s financial condition deteriorated further. It was the Coll scheme developed in and after December 1990 that led to the capitalisation of July 1991.

In the second half of 1991, the Pincinco indebtedness (on which THL's recovery of its deposit depended) was replaced by THL's loan to Coggia, and further loans totalling $6.144m were made to Coggia. To enable Coggia to "extinguish" these loans, Riquel was put in funds by GT to acquire 2,375,000 million shares at par. These shares were exchanged by Riquel for 2,196,056 existing shares, which passed through Coggia and THL and were then bought back by GT at Ptas.17,000 a share.  In short, GT issued its own shares at par, providing an advance to enable their purchase, and then purchased back effectively the equivalent shares at seventeen times the cost. The total cost to GT was Ptas.37,332,952,000. This artificial operation is pleaded by some defendants, e.g. Sheikh Fahad, as having extinguished any loss in respect of the Pincinco transaction. It did no such thing. As pointed out by Mr McGhee in his final submissions for Sheikh Khaled, it served to crystallise any loss in GT.

The upshot is that GT suffered loss both from the outset and at subsequent stages. In early October 1990 it disbursed $300m to THL which it never in reality recovered. The major part of the Ptas.37,332,152,000 which GT paid to re-acquire its own shares in the second half of 1992 went simply to cover this outstanding $300m plus bank deposit interest. In mid-July 1991 GT funded Riquel’s subscription for GT shares in the sum of Ptas.2,375,000,000 - set off against a further part of the Ptas.37,332,152,000, which GT provided. Also in July 1991 THL disbursed loans to Coggia totalling $6,144,000, which was later covered by, and set off against, the Ptas.37,332,152,000 provided by GT. Finally, at dates during the first half of 1992 THL disbursed Ptas.83,822,630 in total to Zymo, $38,123 to Russell Limebeer and Ptas.62,000,000 to Coggia, sums which it presently appears to me were not reimbursed by GT. I will however hear further argument on this point.
 
V.1(b)(v). Wardbase
The sole plaintiff is GT. Mr de la Rosa agreed to GT assuming responsibility for the pretended obligation of Torras Papel to pay Wardbase. THL was a mere conduit for GT to make a fraudulent disbursement to Wardbase. GT suffered the loss of Ptas.2b on 26th May 1992, the date its account was debited and the monies were paid away down the chain.

V.1(b)(vi).The capitalisation
The capitalisation received much attention before me. There are two aspects, one concerning the Croesus and Oakthorn loans and the other the Pincinco transaction. The Croesus and Oakthorn loans together amounted to some Ptas.14,472,629,000 at the end of 1990. I have already recorded how GT's own and its group consolidated accounts for 1990 dealt with this amount. They purported to write it off against GT's share premium account, making reference to a capitalisation which had not at that stage occurred, but was voted upon and took place in July 1991. The capitalisation which then occurred converted into equity on the basis of an assigned value of Ptas.17,000 a share: (a) the loan involved in Koolmees’s cession to GT on 7th June 1990 of the Treasury bills (used for Oakthorn 2) which stood, prior to capitalisation, at some Ptas.47.5b, and (b) the loans totalling Ptas.120b (ie. Ptas. 80b plus the further Ptas.40b, of which some Ptas.30b was used for the Pincinco transaction) made by Koolmees to GT in September and October 1990, which stood prior to capitalisation at some Ptas.115.4b. as a result of a repayment made in January 1991.

I had reports and heard expert accountancy evidence from Mrs Antolinez and Mr Aldous called by the plaintiffs and from Mr Baskerville called by Sheikh Khaled. The Court of Appeal refused leave to Sheikh Fahad to call Mr Lee of Lee & Allen. In written submissions, Sheikh Fahad asserts that the Court of Appeal was wrong and purports to incorporate and refer to Mr Lee's report. That assertion is inadmissible. Sheikh Fahad is bound by the Court of Appeal’s ruling. However, I think it most unlikely that any point or argument which Mr Lee might have raised has been missed in the elaborate evidence and arguments on accountancy which I have heard. The fact that I can deal with the capitalisation issue without extensive review of the accounting evidence is because the real issues are issues of law. The accountants in their reports and evidence deal with the accounting concepts of profit and loss and net value. Neither of these concepts is the test of loss recoverable in law from a wrongdoer. I accept the defendants' point that the accounting concepts of profit and loss are, to a significant extent, artificial concepts, which depend upon principles or rules established by practice and/or national or international accountancy bodies. But the concept of net value, to which Mr Baskerville spoke and on which the defendants rely, is also incapable of identifying which transactions giving rise to a company's net value at any particular time may or may not be relevant legally when considering what, if any, recoverable loss a company has suffered as a result of wrongdoing by its directors and/or third parties.

In respect of the Croesus and Oakthorn loans, the capitalisation argument faces the additional problem, that the loans were written off in GT's 1990 accounts, as at the end of 1990 and so some seven months before any capitalisation. Leaving that aside, however, the fundamental objection to the capitalisation argument in relation to the Croesus, Oakthorn and Pincinco transactions is that, however much capitalisation (and/or subsequent amortisation of shares, on which Mr Soler also relied) may improve a company's balance sheet, it cannot alter the fact that the company has sustained a loss. If the capitalisation occurs quite independently of the loss, it is self-evidently irrelevant. If it occurs as a result of the loss, it is, as the Court of Appeal said at the jurisdiction stage of the present case, "inherently absurd" to treat it as removing the company's claim against the wrongdoers for the very conduct which led to the capitalisation: [1996] 1 Ll.R. 1, 16.

On the facts, there is no doubt that the capitalisation of Koolmees's loans in July 1991 reduced GT's fixed loan liabilities by amounts equivalent to the (former) Croesus and Oakthorn loans (which had already been written of as at 31st December 1990) and equivalent to the Pincinco loans. Indeed, it is common ground between the experts that the overall effect of the whole Pincinco scheme and the capitalisation of Koolmees's loans on the deficiency in GT's assets arising from the payments away to and by Pincinco was to increase GT's net assets by Ptas.454,597,589 and THL's net assets by £190,713,031. Apart from the capitalisation, the effect of the original payment away to and by Pincinco and the implementation of the Coll scheme was, as I have indicated, to crystallise loss in GT. The capitalisation, by converting loan debt into share capital, improved GT's, and indeed THL's, balance sheets. Instead of a deficit in net assets, GT had now a small net surplus, and THL had a substantial net surplus.

However, it would, as I have said, be as wrong to equate net value with recoverable loss as it would be to treat accounting concepts of profit and loss as defining recoverable loss. This is obvious if one considers the case of a company which borrows from its principal or indeed sole shareholder $300m which is then immediately misappropriated by a director. The loss is detected and the director dismissed. The remaining honest directors consider what to do. They decide that, to enable the company to survive commercially (for example without breaching conditions in other borrowing agreements) they must recapitalise the company.  They do so by converting the loan of $300m into equity. The defendants’ case before me is that the directors thereby eliminate any loss on the company's part; and that the only person with any right to sue the fraudulent director is now the principal or sole shareholder. Mr McGhee would, as I understand, add the refinement that it is the old shares which alone give the shareholder such a right. This is a point of greater significance if one postulates a company with other significant shareholders. According to Mr McGhee’s argument, the new shares cannot give such a right, since either they have been issued for shares worth the amount of the loan (in which case the shareholder suffers no loss by receiving them) or they have been issued for shares worth less; in the latter case the shareholder exchanging his loan for such shares must be treated as having made a gift or must have made some private arrangement to cover himself. According to Mr McGhee, therefore, only shareholders in right of their pre-existing shares suffer a recoverable loss in such circumstances - suffering this (it would seem, although Mr McGhee’s submissions were not perhaps entirely clear on this) from the time when the loan stock was capitalised. It would seem to follow that a fresh cause of action would accrue to existing shareholders, upon any such capitalisation. Mr McGhee was at pains to emphasise that he was not suggesting that any right to sue wrongdoers disappeared. Any such right which GT had was, he suggested, merely replaced by a right which Koolmees or the KIO acquired on capitalisation. I doubt whether he would be so ready to accept, still less assert, this if Koolmees or the KIO was the only plaintiff. One might in such a case expect arguments from the defendants’ side that any conspiracy was only directed to THL and/or GT, and that the idea of capitalisation and any resulting loss borne by Koolmees or the KIO was outside the scope of any such conspiracy, so that they had no cause of action for their economic loss.

The defendants’ submissions are highly selective. So far as the company is concerned, they take full credit for the elimination of the loan stock liability. But they ignore the other side of the coin, that the company issued share capital in lieu of the loan stock. The release of the loan stock is treated as if it were a pure gift, and the issue of share capital is treated as of no significance - despite the potential value of shares on the market to which Mr McGhee drew attention in a submission to which I have already referred. Mr McGhee treats a loan stock holder, who receives shares in lieu of loan stock, as foregoing, at least in respect of those new shares, any interest in any claim against wrongdoers to which the company was, up to that point, entitled for the benefit of all its shareholders.

The defendants’ case may be examined in greater detail under two heads. First, even assuming that it is right to treat an exchange of loan stock for equity as in effect a gift, is such a gift of any assistance to a wrongdoer? Secondly, is it right to treat an exchange of loan stock as in effect a gift at all?

In some circumstances, a gift or its equivalent may eliminate a liability. One can take the case of a lender who voluntarily waives and foregoes part of his loan and so reduces his borrower's liability; or that of a third party who, seeing that one of the company's debtors cannot repay his indebtedness, voluntarily discharges the debt for him; or even, perhaps, that of a third party who, seeing that a wrong has been committed, voluntarily pays to the injured party the damage caused in express discharge of the wrongdoer's liability. But, in each of these cases the gift is expressly paid towards and in reduction of the liability.

The situation is clearly different where a third party pays the injured party an amount equivalent to the liability, but does not do so voluntarily in discharge of the liability and does not thereby transfer the “loss” to himself or acquire any claim in his own right. Much questioning of the accountants and many submissions before me proceeded on an assumption that, if a parent company gives a subsidiary $100m because the subsidiary has suffered a misappropriation in that sum, the subsidiary can thereafter no longer claim as against the wrongdoer that it has suffered any loss. Presumably, if that were so, the wrongdoer might also assert that the parent had suffered no recoverable loss, because it was under no obligation to make the payment! Such a case compares to that which I put to counsel in argument, of the kind aunt who, in view of an nephew's misfortune in suffering a theft, gives him the value of the goods stolen. In such a case the person entitled to recover remains the subsidiary or the nephew. The third party cannot be treated as paying "in ease of, or to relieve, the tortfeasor", to use the phrase which appears in my judgment on jurisdiction: [1995] 1 Ll.R. 374, 398, and the third party can have no claim against the wrongdoer. Another field in which this principle applies is insurance, although in that context the insured's payment of premium makes the result even more inevitable. Although the following well-known passage from Lord Mansfield in Mason v. Sainsbury (1782) 3 Doug. K.B. 61, 64 was not cited to me, it does no more than encapsulate the same underlying theme in language not inapposite to the KIO:

	"The office paid without suit, not in ease of the [defendant], and not as co-obligors, but without prejudice. It is, to all intents, as if it had not been paid .... I am satisfied that it is to be considered as if the insurers had not paid a farthing."

During their submissions, certain defendants sought to refine their case, in an effort to find some acceptable limit to the circumstances in which the wrongdoer could claim the benefit of a parent's capitalisation. Mr Coll suggested that what was critical was the intention or motivation of the parent in capitalising the loans. He referred for example to statements in the 1990 accounts, indicating that Koolmees or the KIO "assumed responsibility for" the Croesus and Oakthorn" loans. He also relied on the supposed inevitability of the capitalisation of an amount equivalent to the Pincinco loan. Mr McGhee drew attention to evidence by Mr Coll, Mr Soler and Mr Folchi that they were told or understood that the Coll scheme was to compensate GT for the  Croesus, Oakthorn and Pincinco operations or, in the case of Pincinco, to ensure that its cost was borne by the KIO. But any “compensation” or transfer of cost involved in restoring GT’s balance sheet is not to be equated with the elimination of loss suffered by wrongdoing or with the transfer of the right of suit against a wrongdoer.

Whatever the 1990 accounts stated, the Croesus and Oakthorn loans were not discharged by being repaid by anyone. They were written off in GT's accounts. Further, the capitalisation may have supplied GT with equivalent net assets, but, even assuming (as I presently am) that it can properly be viewed as a gift, it cannot be treated as having been intended to discharge or transfer the liability of any wrongdoers towards GT for causing the Pincinco loss. Wrongdoers no doubt had a hand in introducing and approving the Coll scheme. So too did a number of innocent parties. The facts of the misappropriation of THL's and GT's assets were not discovered or disclosed and cannot sensibly be treated as having been addressed by the scheme, even by those party to wrongdoing, let alone by those who were innocent. Indeed, an important aspect of the scheme from the viewpoint of wrongdoers was no doubt its opacity and the fact that it would conceal their wrongdoing. 

As to the supposed inevitability of the capitalisation, that is to put the factual position too high. However, it is right that the misappropriations of such large sums, particularly the Pincinco monies, always made recapitalisation likely and it did occur. Further, it occurred as part of a scheme in which at least a number of the wrongdoers had a hand. But why should either factor transfer the loss or any claim against the wrongdoers to the parent undertaking the recapitalisation? A wrongful abstraction of monies may necessitate or lead to recapitalisation at an earlier or later date, either before or after the wrongdoing was discovered. Whether such a recapitalisation takes place before or after the wrongdoing is discovered, it still cannot be treated as either intended or effective to discharge the wrongdoers or to transfer the loss suffered and the cause of action against them to the subscribers.

This brings me back to the first objection, which is to treating an exchange of loan liability for equity as involving a straight gift of the amount of the loan liability. So to treat it is, again, on its face incongruous. As the Court of Appeal said in this case, at [1996] 1 Ll.R. 1, 16:

	"The provision of loan capital and its conversion into share capital are self-contained commercial transactions in which the company gives and receives value. By themselves they are incapable of mitigating or avoiding the loss which the company sustained by the theft of its funds."

The Court of Appeal was concerned at the jurisdictional stage with an issue whether the plaintiffs had a sufficiently serious case to justify leave to serve out. It was not therefore suggested before me that this passage decides the present issue conclusively. The response given to it by Mr McGhee for Sheikh Khaled and of other defendants is, firstly, that, in the present case, the conversion of loan into share capital was a consequence of the original Pincinco loss of October 1990 and/or of the Coll scheme designed to fill the hole in GT's balance sheet left by that loss; secondly, that the issue of equity involves no liability and costs a company (as distinct maybe from its shareholders) nothing at all; and, thirdly, if the issue of equity can cost anything, it cost GT nothing on the facts of this case, or at least much less than the value assigned to the shares issued on the conversion of Koolmees's loan stock into equity.

One can accept the first proposition, although, as I have said, I do not accept that capitalisation was the inevitable or only method of dealing with the balance sheet problem presented by the Pincinco loss of October 1990. It was however always a likely method, and the one which was in fact adopted under the Coll scheme developed from December 1990 onwards. As to the second proposition, Mr McGhee submitted that share capital is not to be regarded as a liability. In English legal and accounting terms it is common, for some purposes but not always, to treat it as a kind of liability: compare section 264(2) with Schedule 4 Part 1 Section B of the Companies Act 1985. But analytically. Mr McGhee submitted, the position is as described by Harman J. in In re Scandinavian Bank Group plc [1988] 1 Ch. 87, 106:

	"I accept that although share capital appears on the left side of a balance sheet, yet it is not a true debit unlike borrowings by a company. A share represents a fraction of a company's net worth, as well as stating the nominal amount paid up on it, or for which the holder is liable to pay. But I reject the contention that a share has a value, in the sense of a monetary amount to which a shareholder is entitled, or upon which a creditor can truly look as a fixed sum in English pounds."

A shareholder's rights thus fall under three heads:

	"(1) to participate in the distributable profits of the company while it is a going concern; (2) rights to participate in the division of the assets of the company in a liquidation, and (3) rights to participate in any distribution to shareholders on an actual or notional reduction in capital." (Courtaulds Investments Ltd. v. Fleming [1969] 1 W.L.R. 1683, 1693 per Buckley J.)

These submissions were made with reference to English law. A correct analysis in respect of shares issued by GT is strictly a matter for Spanish law. I note that Mrs Antolinez described the Spanish position, without challenge, in her report as follows:

	"8. If nothing is specifically said to the contrary, funds received from the shareholders are ultimately repayable and, as such, as classified on the "Liabilities" side of the Balance Sheet. In the format prescribed by the Spanish General Chart of Accounts, liabilities are shown in decreasing order of preference, shareholders' funds being the more permanent funds and short-term liabilities being the less permanent. According to the Companies' Act ...., the shareholder is entitled to participate in the distribution of profits and in the results of the liquidation of the company in proportion to his shareholding."

This speaks unequivocally of equity as a liability. However, in what follows, I am ready to assume that there is no fundamental difference between the English and Spanish legal conceptions of share capital, and to take the analysis from the English cases.

On that basis, Mr McGhee argues that it costs a company nothing to issue equity, since it will only have to repay it if it has enough monies. But equity is ordinarily understood and treated as having a value. The value is realised by a company when it issues shares. Once shares have been issued, the company cannot immediately issue further shares at the same price, and the shares so issued represent a stake in the company which the subscriber (whether or not it is the sole shareholder) may realise for value. If a company loses part of its share capital, it cannot be said to suffer no “loss”, because it has no "liability" to repay share capital. The shareholders' entitlement to participate in any profits, division of assets on liquidation or distribution of capital implies that the company will carry on business, with a view to making profits and accumulating assets, for its shareholders' benefit. If the company has a claim against wrongdoers as a result of misappropriation of its assets, that is part of the value of the company to which a subscriber for its shares becomes, by way of its subscription, ultimately entitled. To treat the issue of equity as extinguishing such a claim or as transferring its benefit from the company to the subscriber itself ignores corporate identity and stands the conception of equity capital on its head. Title to sue undoubted wrongdoers could move, by ‘pass-the-parcel’ logic, from one company to its shareholders, perhaps years after the event - even during the course of litigation, in consequence of the internal recapitalisation of the companies in question necessitated by the original wrongdoing.

Mr Coll argues that the KIO must have suffered the loss, because on 1st October 1990 it had its shareholding in GT plus a right (inter alia) to recover its $300m loan from GT, whereas a year later it had only the GT shareholding. This is also circular, since the value of GT’s shareholding a year later (and now) includes whatever benefit GT may derive from the present litigation in terms of recoveries against the wrongdoers who misappropriated the Pincinco monies. That value cannot be precisely assessed, since it depends on post-judgment execution and costs. But title to sue cannot depend on the possibility that wrongdoers may not meet the liabilities to which the issue of title to sue relates.

Mr McGhee referred me to In re Anglo-French Co-operation Society, ex p. Pelly (1882) 21 Ch.D.292, relied on in the Court of Appeal at [1996] 1 Ll.R. 1, 16 as supporting the treatment of the conversion of loan into share capital as a self-contained and irrelevant transaction. Mr McGhee submitted that the case was distinguishable, as concerning debentures rather than share capital, and, if anything, supportive of his submissions. I would for my part agree that the case is not conclusive of the present issue. On the other hand the distinction which Mr McGhee draws between debentures and share capital appears to me to be distinctly double-edged from his view-point. As Mr McGhee points out, ex p. Pelly concerned debentures which involved a definite liability, as well as having a market value (see per Jessel M.R. at p.501 and Cotton L.J. at p.509). While the Koolmees loan stock remained outstanding, the defendants must accept that the claims against wrongdoers stood as an asset which could help GT meet its loan stock liabilities. The share capital which replaced the loan stock gave, as I have said, the residual right to share in any assets of the company, but the defendants’ case treats the company by the very issue of the share capital as divesting itself of its assets in the form of its claims against the wrongdoers.

The main question in ex p. Pelly was whether those who had wrongly caused the company to pay out £2,600 which was then used to subscribe for the debentures could claim that the company had been repaid, because it had a potential defence to any liability to repay on the debentures. Jessel M.R. treated the potential defence as uncertain and the argument as essentially circular: if the company recovered its prima facie loss, it would no longer be able to set up any defence on the debentures. But Brett L.J. made a point which appears to me to have some application to the defendants' argument before me, when he said at p.506:

	"Now it is true that the money has gone back into the hands of the company, but it has not gone back into the hands of the company as free in their hands as it was before it was paid out; because it was paid back to the company for debentures issued by them.

	Unless those debentures are given back to them, unless those debentures are given back to them free without any expense to them, so that they have the debentures in their hands and are free to tear them up, and can have the money in their hands, and be free to use it as they please; they have not the money back in their hands as free as it was before, because it is saddled with this, that they must take some means to get back the debentures.  Well it may be that they could get back the debentures, but are they bound to go to the expense of endeavouring to get them back?  It may be that they could not get them back; but even supposing that by some successful procedure they got the debentures back, if the persons from whom they recovered them were insolvent they would at least have to pay the costs of the proceedings.  They have not therefore the money free in their hands as they had it before, and therefore it seems to me the loss which was once £2600 remained the same loss at the time when a supposed action would be brought, that is, when these proceedings are taken under the 165th section. Even in that view therefore the decision of the Vice-Chancellor is right; ....”

Returning to the present case, I do not consider that the issue to Koolmees of share capital can be treated as having occurred for ‘free’ or can be ignored on that basis, any more than the issue of debentures could be in ex p. Pelly. Once they had concluded that the issue of the debentures had exposed the company to at least potential liability, Jessel M.R. and Brett L.J. treated the company as entitled to recover the full amount wrongfully disbursed without deduction. Here, the issue of the shares was not ‘free’.  It gave Koolmees as shareholders an entitlement to share in the profits and assets of the company, which would be undermined if the amount of any loss suffered by the company were treated as reduced on the basis that the shares had no value.

It is true that in In re Pelly some reference was made to the fact that the debentures there had a market value: see per Jessel M.R. at p.503 (an alternative argument), and Cotton L.J. at p. 509. But the actual decision clearly did not turn on this. And, even if it had done, the distinction between shares, entitling the shareholders to a share in the profits and residual assets, and debentures would still be relevant. In my judgment the conversion of loan stock into shares and the resulting improvement in a company's net balance sheet assets are matters incapable of mitigating, eliminating or transferring the cause of action which GT otherwise had to recover the Croesus, Oakthorn and Pincinco losses from the wrongdoers.

The third aspect of Mr McGhee's submissions does not therefore arise. Assuming that the diminution of liabilities arising from the extinction of the loan stock could be taken into account, but that the issue of shares also had to be taken into account, in that case, he submitted, GT's issue of shares to Koolmees had not cost GT anything or anything like their assigned value, because GT was either worthless or else worth much less than the premium assigned to the shares pre-supposed. The accounts and the limited evidence before me certainly suggest that the assigned value of the shares greatly exceeded any actual value which they would have had. If this point had had any materiality, which I have held that it does not, I would have acceded to Mr McGhee's alternative submission that I should order an enquiry into what, if any, precise market value the shares issue to Koolmees in exchange for the loan stock, had as at the time of such capitalisation in July 1991.

As it is, for the reasons I have given, I consider that the capitalisation is incapable of affecting the incidence of loss. As a result loss was either felt from the outset or was later transferred in respect of each of the transactions, as follows:

(1) Croesus: GT suffered loss in the sums of (i) $2,576,707 reimbursed to Mr de la Rosa’s Stuart account in November 1989, plus (ii) $25m which GT guaranteed in June 1990 to meet, and which was credited to THL in account and written off in GT’s 1990 accounts.

(2) Oakthorn 1: GT suffered loss when in June 1990 it guaranteed to THL the debt of $55m, which it later credited to THL in account and wrote off in GT’s 1990 accounts.

(3) Oakthorn 2: GT funded the transaction and suffered loss from its outset in June 1990. GT’s loss was crystallised through crediting THL in account and writing off in GT’s 1990 accounts.

(4) Pincinco: GT suffered loss both from the outset and at subsequent stages: (i) in early October 1990 in disbursing $300m to THL which it never in reality recovered; (ii) in mid-July 1991 in funding Riquel’s subscription for GT shares in the sum of Ptas.2,375,000,000: (iii) during the second half of 1991 in covering THL’s loans to Coggia totalling $6,144,000.

In addition, during the first half of 1992 THL disbursed Ptas.83,822,630 in total to Zymo, $38,123 to Russell Limebeer and Ptas.62,000,000 to Coggia, in respect of which, subject to hearing further argument, THL was not reimbursed by GT.

(5) Wardbase: GT suffered loss of Ptas.2b on 26th May 1992.

On this basis, save for certain relatively small sums in the Pincinco transaction, the loss fell on or was shifted onto GT.

V.1(c). Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Sheikh Khaled
(1) Was there an agreement or combination to do an unlawful act or use unlawful means?
(a) Agreement or combination: On the findings of fact which I have made, Sheikh Fahad, Mr Jaffar and Mr de la Rosa were parties to schemes to misappropriate others’ monies in the Croesus, Oakthorn 1 and 2 and Pincinco transactions, and in the Pincinco transaction Sheikh Khaled joined with them.  In the Wardbase transaction, only Mr de la Rosa among the defendants still before me is proved to have been knowingly party to the scheme to defraud GT. But I have little doubt that he acted with at least one other Spanish co-conspirator.

Each of the transactions save Wardbase went through different stages and developments over substantial periods of time. But the different stages and developments all followed from the original payment away. I have little doubt that those knowingly involved in the original misappropriation were also aware of the subsequent developments. Thus, Sheikh Fahad must have been aware that the Croesus and Oakthorn indebtedness had been assumed by GT, and was being written off in GT’s 1990 accounts. Likewise, he must have been aware of the broad outline of the Coll scheme. Mr Jaffar was an acute business-man and had worked closely with Sheikh Fahad and Mr de la Rosa. I have little doubt that he kept himself informed about what was going on in respect of these transactions after he left the KIO. Further, as I have said, he actually remained a director of GT, and approved and signed its 1990 accounts. Mr de la Rosa appears to have acted as day-to-day administrator of the transactions in Spain, using the services of experts like Mr Folchi and Mr Coll to develop ways in which they could be implemented and covered up, and issuing instructions to them and others either directly or through his close colleagues, particularly Mr de Mir and Mr Nunez. Sheikh Fahad and Mr Jaffar were no doubt content that Mr de la Rosa could and should handle matters in this way. As with most conspiracies, chapter and verse cannot be given for meetings, discussions or plans. Sheikh Fahad and Mr Jaffar were however based at all times in London, and went rarely to Spain. Mr de la Rosa visited London regularly. Matters were presumably discussed here on such occasions as well as by telephone between London and Spain. In Pincinco, Sheikh Khaled himself says that it was on visits to London that Mr de la Rosa spoke to him, although I do not accept Sheikh Khaled’s account of the content of their conversations.

(b) To do an unlawful act or use unlawful means: Mr Boswood relies on the straightforward proposition that fraud is always an unlawful act or means, citing a dictum of Lord Wright in Crofter Hand Woven Harris Tweed Co. v. Veitch [1942] A.C. 435, 462, to which reference is also made with other dicta in Clerk & Lindsell on Torts (17th ed.) para. 23-82.. Further unlawful acts or means existed, Mr Boswood submits, by way of breach of director’s duties, breach of duties as constructive trustees, false or fraudulent accounting, accessory liability in respect of all these and (in the Pincinco transaction) the provision by GT of financial assistance to Riquel for the purchase of GT’s own shares.

In the Kuwait Oil Tanker case, Moore-Bick J. heard a submission that the tort of conspiracy required an intention to cause injury to the plaintiff over and above the unlawful act or means relied upon to support the conspiracy. I agree with his rejection of any such submission, which was not repeated before me.

In the Wardbase transaction, no difficulty arises. This was throughout a straightforward case of abstraction of monies from GT, using THL as a mere conduit. It involved fraud on GT, and obvious breaches of duty by Mr de la Rosa as a director of GT.

In the Croesus transaction, loss of $2,576,707 fell from the outset on GT. Just as it was a fraud on Kokmeeuw to engineer the payment away of its money to Bigley under the disguise of a borrowing by GT, so it was a fraud on GT to use its money to repay Kokmeeuw. 

Likewise, in the Oakthorn 2 and Pincinco transactions, GT suffered loss both at the outset and subsequently when the Coll scheme was implemented. THL also suffered certain separate losses in the first half of 1992. That the quantum of GT’s (and THL’s) loss falls to be established by reference to subsequent events does not matter. The subsequent events were anyway in consequence and continuation of the conspiracy.

GT suffered further loss in the Croesus and Oakthorn 1 transactions, through reimbursing THL for loss which fell initially on THL. GT’s assets were used at a later stage to cover monies fraudulently abstracted from THL at earlier stages of these transactions. The use of GT’s assets for this purpose was again in consequence and continuation of the conspiracy. The situation is not comparable with an informed decision, by honest directors of a parent company knowing all relevant circumstances, to assume a subsidiary’s losses.

I conclude that the agreement or combination between Sheikh Fahad, Mr Jaffar, Mr de la Rosa and (in the case of Pincinco) Sheikh Khaled did in each transaction involve the doing of an unlawful act or use of unlawful means in respect of the company, causing loss to GT (and in Pincinco THL). 

The matter may be taken further in three respects. First, THL was at all material times wholly owned by and under the day-to-day control of GT. GT used THL as its offshore vehicle for foreign borrowing and other transactions such as the present. Sheikh Fahad, Mr Jaffar, Mr de la Rosa and (in Pincinco) Sheikh Khaled were, through Mr de la Rosa, able to use THL and its ability to raise assets, for the purposes of the present transactions and the payments away which they wished to make, without any real obstacle or objection. Explanations could be given to Mr Moukarzel and Mr Soler which meant that the conspirators’ wishes would be implemented. When it was wished to manipulate THL even more easily for the purposes of the Pincinco transaction, Mr Folchi, the loyal instrument of Mr de la Rosa’s instructions, was introduced as a third director, exercising - at least in practice - sole authority. Since GT was in practical control of THL and would suffer as sole shareholder if THL’s assets were misappropriated, there seems to me a case for treating directors of GT using such control to abstract monies from THL not simply as conspiring against THL but also as breaching and conspiring to breach their duties as directors of GT, even where GT did not at that stage fund or incur any liability to fund THL.

Secondly, Mr Boswood submits that an unlawful act or unlawful means towards THL would anyway suffice to enable GT to recover any resulting loss which it might suffer. This leads to a question whether a fraud or breach of duty can constitute an unlawful act or means for the purposes of conspiracy unless it is independently actionable - against at least one of the conspirators - at the suit of the particular plaintiff claiming as the victim of the conspiracy. In Yukong Line Ltd. v. Rendsburgh Investments Corp. of Liberia [1998] 1 W.L.R. 294, Toulson J. (following a dictum of Stewart-Smith L.J. in Generale Bank v. Export Credits Guarantee Dept. (C.A. Transcript No.1457 of 1997) Division, and interpreting a dictum of Lord Diplock in Lonhro Ltd. v. Shell Petroleum Co. Ltd. (No.2) [1982] A.C. 173, 189 in the same sense) held the cause of action for wrongful means conspiracy to be limited to circumstances where the wrongful means were themselves independently actionable by the plaintiff in the conspiracy action. In Watson v. Dutton Forshaw Motor Group Ltd (C.A. 22nd July 1998) Waller L.J., with whom the other members of the Court of Appeal agreed, said, obiter, that in his view the point was by no means clear in the light of Lonhro plc v. Fayed [1992] 1 A.C. 448 and that he was “at present unconvinced by the reasoning of Toulson J. in relation to that decision”. Lonhro v. Fayed was a case where the unlawful act or means alleged to have harmed Lonhro consisted of false and fraudulent representations about the Fayed brothers and their company, House of Fraser, inducing the Secretary of State not to refer their bid for Harrod’s to the Monopolies and Mergers Commission. Toulson J. explained the House of Lords’ decision allowing the conspiracy claim to continue on the basis that (a) Lonhro was also pursuing a claim for interfering with Lonhro’s business by unlawful means, and (b) the House of Lords had taken the view that at the interlocutory stage that the two claims must stand and fall together. But the view which the House of Lords took was expressly not that the pleaded conspiracy claim added nothing or raised no significantly different issues. The House of Lords considered that, if the claim to strike out for unlawful interference failed, the Fayeds could be in stronger position in relation to the claim for conspiracy. The reasoning in Lonhro v. Fayed does not therefore support the view that actionability of the conduct at the instance of the plaintiff in the absence of conspiracy is essential to actionability for conspiracy at his instance, rather in my view the contrary.

Clerk & Lindsell assists Mr Boswood’s submission at para. 23-82, where, after pointing out that the mere fact of breach of a penal statute or other impermissible act like a contempt, it continues:

“Fraud constitutes unlawful means, even fraud on a third party who suffers no loss.”

In support, Clerk & Lindsell cites dicta from the Court of Appeal’s reasoning in Lonhro v. Fayed [1990] 2 Q.B. 479, 489 and 492, rejecting the submission there made that, for a plaintiff to show unlawful act or means justifying an action for conspiracy, some other wrong must have been committed which was actionable if not at the suit of the plaintiff, then at least at the suit of a third party. Dillon and Ralph Gibson L.JJ. rejected this submission at pp. 489 and 492 on the basis that the tort could exist where a third party (the Secretary of State in that case) was deceived in a way causing the plaintiff alone loss. National Phonograph Co. v. Edison-Bell [1908] 1 Ch. 335, referred to by Dillon L.J. and in Clerk & Lindsell was, as explained by Oliver L.J. in R.C.A. Corp. v. Pollard [1983] 1 Ch. 135, 151, a case where the plaintiff could recover in conspiracy for loss arising from the defendants’ deception of third parties. Further, in so far as it may be said that the claim there was or could also be based on another tort such as interference with business by unlawful means, there is on the face of it attraction in the opening suggestion in para. 23-80 of Clerk & Lindsell that

“There is no good reason why the ambit of “unlawful means” in this type of conspiracy should not be coterminous with its scope in the other economic torts of intimidation, unlawful interference and indirect procurement of breach of, or interference with, contract”,.

I would therefore favour the view that an unlawful act or unlawful means towards THL could suffice to enable GT to recover, if and where the other elements of conspiracy are established.

Thirdly, GT submits that, in the Pincinco transaction, the Coll scheme involved the doing of an unlawful act or use of unlawful means, consisting (on the only basis which the plaintiffs ultimately pursued) of the provision by GT of financial assistance for the purchase by Riquel of GT’s own shares, contrary to article 81.1 of the Spanish Companies Act 1989, which reads:

“The company may not give funds, loans, guarantees or facilitate any kind of financial assistance for the purchase of its own shares or the shares of its parent company by a third party.”

Here, GT advanced monies to THL, which were in turn advanced by THL to Coggia and then further by Coggia to Riquel, all to enable Riquel to acquire the 2,375,000 new shares being issued in July 1991. Professor Villaverde was prepared to assimilate THL and GT, but Coggia in his view was in that case a person undertaking by agreement in its own name or on behalf of GT an operation (viz. the provision of assistance for the purchase by Riquel of GT’s shares) within article 88.1 and GT was through Coggia giving funds or facilitating the purchase of its own shares by Riquel.

Mr Diaz-Bastien’s first report said simply that THL’s loan to Coggia “was not specifically defined as an assistance to buy shares of GT” and that he could not see that Riquel’s purchase was made with monies advanced by GT or THL. His report dated 17th December 1998 treated the plaintiffs’ pleaded allegation of “the unlawful purchase by GT of its own shares and/or financial assistance for that purpose” as recognition that Riquel’s purchase of the new shares “was for GT and not by a third party”. But the plaintiffs do not pursue the first part of this allegation and it is a matter of legal analysis for whom Riquel was purchasing the shares. Since the whole object was to resell them via Coggia to THL and then GT for seventeen times the amount that Riquel paid, Mr Diaz-Bastien’s approach is unsustainable.

On the face of it, the Coll scheme clearly involved GT through Coggia giving funds or facilitating the purchase of its own shares by Riquel contrary to article 81.1. Mr Folchi developed an argument in cross-examination and submissions to the effect that, because GT was economically dependent on the KIO, therefore the true analysis is that the KIO was funding or facilitating the purchase of its subsidiary’s, GT’s shares, which would not be contrary to article 81.1. But that is too large an argument. The funds which THL, Coggia and then Riquel received from GT to enable Riquel to buy GT’s shares came from GT and were, before they were passed down to this line to Riquel, GT’s funds. They were not provided by the KIO to GT for this purpose. The fact that GT was and had been in receipt of general funding from the KIO then and for some time is irrelevant. One might as well argue that, if a company depended for its continued trading on its bankers, it would be incapable of funding or facilitating the purchase of its own shares contrary to article 81.1, because it would always be the bankers who were in reality doing that.

Article 81.1 is evidently a new provision in Spanish law, and Mr Folchi suggested to Mr Diaz-Bastien that it was in general a rule for the protection of creditors. But he had not considered this aspect, and his limited assent gives little if any support for any suggestion that the provision does not also embrace the protection of shareholders and the company itself. Its introduction was no doubt part of the process of adaptation of Spanish law to meet community norms (see Professor Villaverde’s report at p.47 in the English and article 23(1) of the Second Council Directive of 13th December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required of companies). Mr Folchi also pointed out that the prescribed sanction for breach of article 81.1 under Spanish law was not that Riquel’s purchase was invalid, but was to render the directors of GT liable to be fined by the Spanish Stock Exchange Commission. Professor Villaverde says however that directors would also be answerable for any damaging economic results of the operations, although the liability which he envisages in his report would appear to derive from a supposition (which does not appear accurate) that the directors, in obvious breach of their general duties as directors, allowed GT to pay twice for Riquel’s shares. It was not specifically argued before me that any breach of article 81.1 could not constitute an unlawful act or means for the purposes of a claim for conspiracy of that kind. This aspect might have benefited from further argument in the light of the House of Lords’ conclusion in Lonhro Ltd. v. Shell Petroleum Co. Ltd. (No.2) that a defendant’s breaches of penal provisions not designed to protect the plaintiff would not suffice for this kind of conspiracy. But a provision of the nature of article 81.1 appears on the face of it to fall on the other side of the line to that decision, and there is English Court of Appeal authority which, although it predates in Lonhro Ltd. v. Shell Petroleum Co. Ltd. (No.2), suggests that it should suffice for the purposes of conspiracy: see Belmont Finance Corp. v. Williams Furniture Ltd. (No. 2) [1980] 1 A.E.R. 393.

I therefore consider that the Pincinco transaction did involve the doing of an act or the use of means illegal under Spanish law, and that, if necessary, it may be relied upon by GT in that transaction as an unlawful act or means in relation to the conspiracy claim against Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Sheikh Khaled. If, contrary to my view, GT only suffered any loss at the stage when the Coll scheme was implemented in 1991, GT should be able on this basis to recover, as damages for conspiracy, loss transferred to it then under that scheme. No argument of causation was raised to the contrary.

Fourthly and finally, I have dealt with the topic of conspiracy under English law as it was presented to me, that is on the basis that the plaintiffs assert and seek to show conspiracy to do an unlawful act or use unlawful means causing GT (or alternatively THL) loss. But this is not a case where anyone involved in the relevant schemes with knowledge that they involved abstraction and covering up of abstraction of others’ monies could suggest that they were furthering their own legitimate interests. On that basis, even if one were to assume (a) that actionable conspiracy based on the doing of an unlawful act or use of unlawful means requires an unlawful act or means done or used towards GT, and (b) that there was none on the facts of this case, it seems to me at present at least possible, although I have not heard argument on it, that the case might be analysed as a case of conspiracy based on a simple intention on the part of the conspirators to injure GT. I say no more about this. In my view GT (and to a small extent THL) is entitled to succeed in conspiracy under English law on the basis of unlawful acts and means.

(3) Was such agreement or combination aimed or directed at GT, in circumstances where it would or could reasonably be foreseen as likely to injure GT and where it in fact did injure GT? 
My answer to this is that it was, in each transaction. Each transaction was aimed or directed at GT, either from the outset or at all events as it developed and by the time it caused loss to GT, and was either intended to or likely to cause GT loss and did so. That does not necessarily mean that it was aimed or directed exclusively at GT - a conspiracy may be aimed or directed at more than one victim, just as the ultimate loss may be shared between more than one victim. Both GT and THL can, as I have indicated, be regarded as targets or victims in the Pincinco transaction from the outset, and, so far as THL bore some loss in the Pincinco transaction, it can recover it.

Taking each transaction in turn, in the Croesus transaction the original payment away was requested and made on the pretext that it was a loan to GT. Even though GT was not liable in law to repay Kokmeeuw, the likelihood is that GT would be caused to and/or have to do so - as in fact happened. THL was used as a vehicle first in September 1989 to repay $25m and then in October 1989 to repay a further $2,576,707. THL was indemnified immediately in respect of the latter repayment. As to the $25m, on my findings nothing was done to account for this payment away until some six months later, when the Croesus loan was brought into existence. Since THL had, by the $25m payment, satisfied a debt owed ostensibly by GT, and since THL could not itself carry such a payment, it was in likelihood always envisaged that THL would in one way or another be reimbursed by GT. In any event, GT’s guarantee, crediting of THL in account and writing off in respect of the $25m all occurred in consequence and continuation of the conspiracy.

In both Oakthorn transactions, there were, from the outset, features demonstrating the intention that the whole loss should be borne by GT (under the sham commission and marketing agreements with Oakthorn and Wardbase). The intention was implemented in a different way, by GT’s guarantee, crediting of THL and writing off in respect of the debts.

The Pincinco transaction can also in my view be regarded as aimed at both GT and from the outset. The Coll scheme crystallised the loss incurred up to mid-1991 in GT, by the artificial mechanism of an issue of shares at one price and the repurchase of equivalent shares at seventeen times that price. The fact that the recapitalisation at the same time restored GT’s net asset position does not alter either the fact that GT continued in law to suffer recoverable loss or the legal conclusion that the transaction as developed by the Coll scheme was aimed or directed at GT in a way which in law both inevitably and foreseeably caused such loss. Further small losses were caused to fall on THL in the first half of 1992.

In Wardbase, the intention was that GT should bear the loss from the outset.

Viewing the matter more generally, and apart from THL’s small losses in Pincinco in 1992, in each transaction the loss either fell originally on GT or it was shifted onto GT in the course of steps taken to deal with or account for misappropriations actually effected from THL. Mr de la Rosa, Sheikh Fahad and Mr Jaffar and in Pincinco Sheikh Khaled were or must all have been aware, if only in general terms, of the steps being taken to deal with and account for the missing monies. Their original combination or agreement to misappropriate monies involved necessarily or in the ordinary course that some such steps would be taken. They had under their control a whole group of companies or concerns, from the KIO downwards. They manipulated the group and its affairs so as to misappropriate money and cover up the misappropriation as best they could. Their conduct was aimed or directed at any and every company in the group who as a result would and did end up bearing the loss. It was no doubt a matter of relative indifference to them, which company that was, so long as the loss was dealt with and accounted for in a way which avoided or diverted unwelcome attention. These last comments apply also to the small losses imposed on THL in the first half of 1992 in Pincinco.

I conclude that, applying English law principles, Mr de la Rosa, Sheikh Fahad and Mr Jaffar were all parties to conspiracies to injure GT in respect of the Croesus, Oakthorn 1 and 2 and Pincinco transactions, being joined by Sheikh Khaled in the Pincinco transaction, while Mr de la Rosa was also party to a conspiracy with others to injure GT in respect of the Wardbase transaction.

V.1(d). Other defendants
In section IV, I have concluded in respect of number of defendants that they were not knowingly party to any dishonest scheme to abstract monies of THL or GT. They produced false documentation and participated in other improper conduct, in what they believed to be transactions dishonestly structured for exchange control and/or tax reasons. The use of Croesus and Oakthorn 1 and 2 and the backdating of the relevant loan documents, the Wantley invoice, and the misleading of GT’s auditors in respect of Croesus, Oakthorn and Pincinco provide instances, in which Mr Soler, Mr Coll, Mr Folchi and Mr Moukarzel knowingly participated, to greater or lesser extents. The breach by the Coll scheme of article 81.1. of the Spanish Companies Act was a further unlawful act, however much Mr Coll who devised the scheme and others who put it into effect may have failed to appreciate this. None of them can have believed that the financial assistance given by GT to Riquel through THL and Coggia had any independent rationale or any basis at all, except to put Riquel in a position where it could purchase GT’s shares and resell equivalent shares to GT for seventeen times as much. It was not suggested that any mistake which they may have made as to the law should excuse them.

It may be suggested that defendants, who participated in dishonest and improper conduct of this nature, were on this basis alone party to conspiracy, and should answer for GT’s actual loss from the frauds practised on GT, even though, as far as such defendants knew, the transactions were in GT’s or its shareholders’ interests, and, so far as they crystallised loss in GT or transferred loss from THL to GT, related to prior expenditure legitimately made in the interests of GT or its shareholders the burden of which was anyway borne indirectly by GT as sole owner of THL.

However, it does not seem to me that any concerted action of this nature can be viewed as aimed or directed at GT or THL. Even assuming that it could be, there is a further objection of causation or remoteness to any attempt to establish liability against other defendants on such a basis. They were themselves deceived into thinking that what was occurring was in GT’s or its shareholders’ interests. They did not realise that the whole transactions involved fraud by Sheikh Fahad, Mr Jaffar, Mr de la Rosa and, in Pincinco, Sheikh Khaled on GT and THL. To the extent that the plaintiffs’ case seeks to hold other defendants liable on this basis therefore, I would reject it.

V.1(e). Conflict of laws
So far I have considered GT’s claim for conspiracy in terms purely of English law. The plaintiffs contend that that is appropriate. The defendants contend that any tort took place in Spain. On this basis, they submit, it is necessary to consider whether the facts relied on were also actionable in Spain. Alternatively, they submit that, even if it was not committed in Spain, any tort was so closely connected with Spain that the English courts must anyway apply Spanish law.

On my findings regarding Spanish law, the issue whether that law has any application does not affect the outcome. The facts relied upon in support of GT’s conspiracy claim are in my view anyway also actionable under Spanish law. I state why in the next section of this judgment. But first I will consider what if any role Spanish law has in respect of any transaction.
 
The relevant principles are, in view of age of this case, the common law principles applicable prior to the Private International Law (Miscellaneous Provisions) Act 1995. Rule 203 of Dicey & Morris’s Conflict of Laws (12th ed.) sets these out:

“(1) As a general rule, an act done in a foreign country is a tort and actionable as such in England, only if both
(a) actionable as a tort according to English law, or in other words is an act which, if done in England, would be a tort; and
(b) actionable according to the law of the foreign country where it was done.
(2) But a particular issue between the parties may be governed by the law of the country which, with respect to the issue, has the most significant relationship with the occurrence and the parties.”

The initial question is thus whether or not the act alleged to amount to a tort was one “done in a foreign country” at all. On the authority of Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc. [1990] 1 Q.B. 391, 443F and 446C-F, this is to be answered “by reference exclusively to English law”, and the test adopted to identify when foreign law should have a role in regulating the parties’ relations is whether the alleged tort was committed “in substance” in England or in some foreign country:

“.... our courts will look back over the series of events constituting it [the alleged tort] and ask themselves “Where in substance did this cause of action arise?” Secondly, in answering this question, the courts will apply exclusively English law.”

This test falls to be applied in relation to each transaction separately. Mr McGhee for Sheikh Khaled submitted that once a court concluded that any particular transaction involved a conspiracy, there would, applying the test, have to be one single place where the whole conspiracy could be regarded as having been committed “in substance”. I see the logical force of this submission, when by definition all concerned in any conspiracy must be taken as party to all aspects of the combination and to be responsible for all aspects of the concerted action involved and the resulting loss. 

The test “where in substance did this cause of action arise?” is simple to state, but difficult to apply in the case of conspiracies as complex and international and with as many different stages as the present. A test which involves identifying a single place, in order to invoke a single foreign legal system risks appearing arbitrary, although in special cases the principle in rule 203(2) of Dicey may alleviate this risk.  But taking the test of “substance” as it stands, the factors to be considered include the identity, importance and location of the conspirators, the place(s) of any agreement or combination, the nature and place(s) of the concerted action, the nature and place(s) of any unlawful act or means, the plaintiff’s location and the place(s) where he or it suffered loss. It is possible to cite passages from authorities which underline the importance of one factor or another. It would be wrong to attempt any general rule regarding their comparative importance, which must be considered from case to case. But I have had assistance from the general discussion in Dicey & Morris’s Conflict of Laws (12th ed.) pp.1507-1512 and, as the only case cited to me in which the application of the test to conspiracy was in issue, the Kuwait Oil Tanker case at transcript pp.92-95. In that case, Moore-Bick J. was concerned with what he analysed as a single tort of conspiracy involving various schemes of fraud. He concluded that this tort had been committed in Kuwait, for various reasons:

“In the first place, I have no doubt that the combination which is fundamental to the tort of conspiracy was formed in Kuwait, where [the conspirators] were all resident and where for the most part they carried out their duties in connection with the affairs of KOTC. Secondly, apart from a relatively short period between August 1990 and March 1991 the whole conspiracy was organised and run from Kuwait. Although Mr Al Bader, Mr Qabazard and Capt. Stafford all visited London on many occasions, they did not do so in order to organise the fraud, although they did make use of their presence in London for the practical purpose of collecting and disposing of some of the proceeds. Apart from the initial visit to Geneva to open the accounts at BMB, directions could be given from Kuwait by telephone and fax.”

The chartering which provided the occasion for fraud in ‘Scheme I’ in that case took place through Clarksons in London, but it was itself undertaken for good commercial reasons, and the fraud consisted in the insertion of back-to-back sub-charters which were produced in Kuwait at different hire rates, which led to the plaintiffs (KOTC) paying more than necessary under the real charters. The bulk of the funds generated at this stage passed through the BMB accounts in Switzerland. There was a change of emphasis in April 1988, when KOTC began to pay hire through Clarksons in London which Clarksons then paid away at the conspirators’ requests. Scheme IV likewise involved fraudulent transactions by which funds were withdrawn from KOTC’s Kuwaiti accounts. Under ‘Scheme II’ which involved genuine ship purchases, the fraud involved arrangements for substantial commissions which Clarksons paid as directed by the conspirators, but again, Moore-Bick J. concluded, since Clarksons were willing to act in this way, the real damage occurred when the gross payment left KOTC’s account. ‘Scheme III’ involved the interception on war risks premium rebates paid by KOTC’s London insurance brokers, and the damage was caused by the interception in London of funds which ought to have been transferred to Kuwait. But, as a manifestation of a single overall conspiracy, the weight to be attached to Scheme III was insufficient to tilt the balance in favour of a conclusion that the place of the tort was London. The fact that the object of the conspiracy was not just to steal from KOTC, but also to remove funds from Kuwait, mainly to London or Switzerland, did not seem to Moore-Bick J. of much importance, since he was “concerned with the place where the tort was committed rather than with its object”.

Returning to the present case, the Wardbase transaction yields an easy answer. Almost every aspect of the transaction occurred in Spain. The only identified conspirators are Spanish, the plan was so far as appears conceived in Spain, it was implemented there by instructions given and transfers of the Ptas.2b made from GT to THL and then from THL’s Barcelona account to Wardbase’s London account. Instructions came from Spain for the subsequent paying-away of money to Oakthorn, Anslow and finally to Mr de Prado’s account in Geneva. The movement of the money to London and its subsequent dispersal offshore are incapable of affecting the conclusion that the whole substance of this tort was committed in Spain.

The other transactions are more difficult to analyse. They must be viewed in the light of my conclusions (a) that Sheikh Fahad, Mr Jaffar and Mr de la Rosa were involved in misappropriation of others’ monies, and that they were joined in this by Sheikh Khaled in Pincinco and (b) that other defendants have not been shown to have been party to such frauds, but were themselves deceived into assisting in one way or another in their commission or covering-up.
 
Taking first Croesus, there must have been underlying agreement on the initial stage involving Kokmeeuw, reached between Sheikh Fahad and Mr Jaffar in England and Mr de la Rosa either in Spain or quite likely on one of his frequent visits to London. Kokmeuuw’s payment to Bigley’s Swiss account, ostensibly as a loan to GT, was both made and received outside Spain. When it came to repayment to Kokmeeuw in London, THL was used as the vehicle, on instructions channelled to it from Spain. $2,576,707 came from GT via THL. $25m came from THL itself which received the wherewithal by its swap of promissory notes with Koolmees and pledging the Conycon/Grucsya notes which it received to Banco Santander London. The swap must have been agreed by Sheikh Fahad, Mr Jaffar and Mr de la Rosa, all three being probably aware of its underlying purpose. The financing agreement between THL and Banco Santander London seems to have been arranged by Mr de la Rosa and was executed in Madrid. The covering-up of THL’s payments to Kokmeuuw involved both the Wantley invoice and the backdated Croesus loan agreements, both devised by Mr Coll on instructions received in Spain, Wantley and Croesus being Mr Coll’s Gibraltarian creatures. GT’s guarantee to THL in respect of the Croesus loan in June 1990, its crediting  of THL in inter-company account and its writing off of the loan in its 1990 accounts, which together had the effect of transferring THL’s loss to GT, all occurred in Spain.

Although even at its initial stage GT was involved as an ostensible borrower, the Croesus transaction started as a fraud on Kokmeeuw in London benefiting a Spanish citizen in Switzerland. Thus far it might be said that London predominated. But, from at least the time when THL was used as the vehicle to repay Kokmeeuw, the conspiracy appears to have been largely organised and run from and in Spain, rather than London. As to $2,576,707 it caused immediate loss to GT. The final stages of the conspiracy, whereby the further loss of $25m was transferred from THL to GT, occurred within Spain. It is true that Koolmees enabled THL to fund its disbursement of $25m by the promissory note swap between THL and Koolmees, but this was entered into in Spain in Spanish and involved providing THL with the Spanish Conycon/Grucsya promissory notes guaranteed by Spanish banks, which were then discounted with Banco Santander London under arrangements made in Spain. This conspiracy was committed in substance, I would hold, in Spain.

Turning to the Oakthorn transactions, the underlying agreement or combination must again have involved Sheikh Fahad and Mr Jaffar in London and Mr de la Rosa either in Spain or again quite probably when visiting London. But I have little doubt that London was its real centre. The fact that Sheikh Fahad and Mr Jaffar each received $22.5m out of the $55m extracted in Oakthorn 1, with Mr de la Rosa receiving only $5m and $3m going to repay Kokmeeuw in Croesus, speaks volumes about the driving forces behind this fraud, and  the likelihood is that it was conceived and agreed in London. A year later, by when Mr Jaffar had lost his formal position in the KIO, the split in Oakthorn 2 was once again $22.5m to Sheikh Fahad but only $10m to Mr Jaffar, and this time $15.49m to Mr de la Rosa, although $1.3m of this went on to Mr Folchi. Again, it may be concluded that the underlying agreement or combination was initiated and largely agreed in London.  Further, Mr Ball was directly in touch giving instructions to Mr Folchi in each transaction. On the other hand, Sheikh Fahad and Mr Jaffar appear to have entrusted to Mr de la Rosa important aspects of the mechanics of the frauds. His instructions led to the setting up through Mr Folchi and Mr Russell of the Oakthorn structure in Jersey. He corresponded and signed marketing and commission agreements with Oakthorn and Wardbase. In Oakthorn 1, he would appear to have arranged in Spain the funding agreement executed in Madrid between THL and Banco Santander London. Under that agreement THL used five of the Conycon/Grucsya promissory notes to raise $55m in London, which sum was then remitted to Oakthorn on instructions from Mr Vasconcellos in London. From whom Mr Vasconcellos received his instructions is not known.

In Oakthorn 2, the method of funding was conceived by Mr Folchi on Mr de la Rosa’s instructions in Spain. The KIO, apparently through Mr Ball, acquired Spanish Treasury bills to a total value of Ptas.54.43b for this and other purposes. An agreement was then signed in London between the KIO and GT by which the former ceded these bills to the latter. This was the agreement to which Sheikh Fahad required Mr Al-Haroon to add his name as a signatory. GT was thus enabled, amongst other things, to raise $50m in Spain. This sum was remitted to THL in London and Mr Moukarzel, on instructions from Mr Soler, passed it on to Oakthorn.

In both Oakthorn transactions, the instructions passed by Mr Folchi to Mr Russell for payments out of Oakthorn came from Mr Ball in London (although there were some supplementary instructions and discussions from and with Mr de la Rosa). At the outset of Oakthorn 1, in July 1989 THL suffered loss of $55m. In Oakthorn 2, both THL and GT can be regarded as suffering loss at the outset in June 1990. In both transactions it was envisaged that the whole loss should be passed to or crystallised in GT. This occurred in the event under GT’s guarantee of June 1990 and by means of the inter-company credit and write-off in GT’s 1990 accounts.

I do not find it easy to say where the “substance” of the alleged torts occurred in the Oakthorn transactions, or whether therefore the plaintiffs must show actionability under Spanish law. With some hesitation, I am persuaded that their closest connection and substance were English. That was where they were controlled and conceived. That was the place from which Mr de la Rosa’s instructions and Mr Ball’s instructions came. The vehicle used to commit the torts was THL, which suffered loss at the outset in each transaction. The crystallisation of the whole loss at a later stage in GT shifts the balance towards Spain. But the reality is that by then the money was gone. The substance of the alleged tort was, in that sense at least, by then complete. Causes of action had already arisen in both transactions in favour of THL in Oakthorn 1 and in favour of both THL and GT in Oakthorn 2. If at that stage the torts giving rise to those causes of action were, as I think they were, in substance committed in England, it seems to me difficult to treat the continuation of the conspiracy, so far as it involved or led to a shifting of loss between THL and GT, by GT’s guarantee of June 1990 and the subsequent inter-company accounting, as leading to a different result.

The Pincinco transaction presents a not dissimilar picture, as regards the making of the underlying agreement. Sheikh Fahad, Mr Jaffar and Sheikh Khaled must all have been party to this in London, and Sheikh Khaled’s evidence suggests that it was also discussed with Mr de la Rosa in London. Sheikh Fahad was a very major beneficiary ($75m), Sheikh Khaled received a significant sum of $20m and Mr Jaffar $12m. Mr de la Rosa was also a very major beneficiary, as was Mr de Prado. Others may well also have been involved. According to Mr Folchi, Mr Ball instructed him regarding the possibility of war payments at a meeting in London in or about September 1990 and also instructed him as to the destinations of payments, probably by telephone while he was in Geneva. Mr de la Rosa had here too an important administrative role, extending to the receipt and disposition of very major amounts. Mr de la Rosa consulted Mr Folchi in Spain, he arranged for Mr Folchi to be made a director of THL and Mr Folchi was thereafter on his instructions active in Geneva and in issuing instructions to Mr Russell and Bakers Trust.

To fund the transaction Koolmees transferred Ptas.40b from its Banco Santander Madrid account to GT’s account with the same bank. The instructions for this came from Mr Ball and Sheikh Khaled from London. But the monies were transferred on loan and were not at that stage lost. Instructions were given in Spain by GT for their onward remission to the account at Banco Santander Geneva in THL’s name for which Mr Folchi signed account opening forms on 3rd October 1990. This was an essential preliminary to the fraud. But the monies were only lost as a result of steps taken, instructions given and transfers made in or from Switzerland. First, THL’s funds were transferred to Bankers Trust Geneva, then under the arrangements made by Mr Folchi in Geneva they went to Pincinco’s account, and finally they were paid away on instructions received by Mr Folchi from Mr Ball and, according to Mr Folchi, received independently by Bankers Trust from some other source. Only as a result of these instructions and money movements in Switzerland was the $300m lost. At this stage, both THL and GT can, as I have said, be regarded as having suffered loss. 

At this stage, the ingredients of the English tort of conspiracy were all satisfied. If one attempts to identify a place where its substance of the tort occurred, there is a choice between England, Switzerland and Spain. On balance, I would again view this as occurring in Switzerland where the actual instructions were given and the actual misappropriation occurred. I acknowledge that a considerable case can be made for different conclusions. The underlying agreement was, as I have said, made in England, and instructions can be found emanating from both England and Spain. The monies came from Spain, and GT suffered loss in Spain, in it sent $300m from Spain to Geneva as a preliminary to the fraud, and such monies never returned to Spain. In any event also, the matter does not end at this stage, because of the implementation in the second half of the next year of the Coll cover up scheme, crystallising most of the loss in GT. This scheme was focused on Spain involving a series of complicated contracts and arrangements there. The Coll scheme was however addressing the consequences of an existing actionable tort. It is true that it involved some additional loss. But, if the existing tort was up to this stage committed in substance against THL and GT outside Spain, it seems to me that a cover up scheme within Spain, even though it crystallised loss and gave rise to increased loss in GT, is unlikely to lead to a conclusion that the substance of the tort was committed against GT in Spain.  The fact that some small losses were in continuation of the transaction also imposed on THL in early 1992 lends some slight further support to this conclusion. The court should, if possible, avoid a conclusion that any torts of conspiracy committed against THL and GT in the Pincinco transaction were committed in substance in different countries.

I have considered the applicable law in terms of rule 203(1) in Dicey. I see nothing in the circumstances of this case to invoke the exceptional provisions of rule 203(2).

V.1(f). Spanish law
To the extent that Spanish law is applicable in respect of the Croesus and Wardbase transactions (and, in case I am wrong in my conclusions that it is not applicable to the other transactions, in respect of those also), it is necessary, as stated in Dicey & Morris Rule 203, to consider whether the acts relied upon by GT to establish the English tort of conspiracy were civilly actionable according to the law of Spain at the relevant times. Spanish law is also, independently relevant, because, quite apart from their claims in conspiracy, the plaintiffs assert claims against the defendant directors of GT for breach of their duties as directors and against other defendants claims ex delicto or based on contractual or quasi-contractual (Aquilian) liability.

The requirement of actionability according to the law of the foreign country under Rule 203 in Dicey & Morris was considered by Moore-Bick J. in the Kuwait Oil Tanker case, at pp.97-100, where he identified the following relevant principles:  (1) there is no need in the first instance for a plaintiff to plead foreign law - he can rely on the presumption that it is the same as English law, unless and except in so far as the defendant pleads and calls evidence to the contrary; (2) the legal basis of actionability abroad need not be the same as that in England; and (3) even if, under the foreign law, the only basis on which any claim could be advanced positively excludes any other legal basis (for example where a foreign doctrine of cumul requires any claim to be pursued in contract, and excludes any parallel or supplementary tortious claim), that is irrelevant; and the claim will still be actionable as a tort in England, with the foreign contract claim satisfying the requirement of actionability abroad.

On the expert evidence which I have heard, the facts giving rise to the plaintiffs’ claims in conspiracy in this case would be actionable in Spain. Those defendants who were directors of GT would be potentially liable for breaches of the duties of directors recognised in the relevant Spanish companies legislation. Until the end of 1989, acts or omissions of directors of Spanish directors were regulated by the Companies Law Act 1951 (“the LSA 1951”). A director was under article 79 liable where he had caused damage to the company intentionally, through abuse of power or gross negligence. With effect from 1st January 1990, article 133 of the Companies Law Act 1989 introduced stricter liability, for acts contrary to the law, to the articles of association or undertaken without the diligence with which they should discharge their duties, more closely defined by article 127 as meaning “the diligence of an responsible businessman and a loyal representative”. Dishonest participation in a transaction by which a company’s monies were misappropriated involves liability under both schemes. Dishonest participation in a transaction by which a wholly owned subsidiary, such as THL, suffered loss initially and whereby that loss was later dealt with by being transferred to the parent would likewise involve such liability.

In the present case, there can be little doubt about the liability of Sheikh Fahad, Mr Jaffar and Mr de la Rosa in respect of the Croesus and Oakthorn 1 and 2 transactions as well as, together with Sheikh Khaled, in respect of the Pincinco transaction, nor of the further liability of Mr de la Rosa in respect of the Wardbase transaction. Such liability would arise under article 79 of the 1951 Act and article 133 of the 1989 Act as applicable. It was common ground that, if any director was party to a conspiracy such as the plaintiffs allege, in respect of any transaction, that would be actionable accordingly in Spain. If necessary, and in so far as monies were wrongfully abstracted from THL and loss fell initially on THL, I would, in this context also, treat the use by GT directors of GT’s and so their control over THL to abstract monies from THL as a breach of their duties as directors of GT. Further, arrangements made for the later transfer to GT of loss borne initially by THL, without disclosure of the full circumstances giving rise to the need, would itself involve breach of duty by GT’s directors of their duties to GT.

I also consider that each director party to any such conspiracy would be liable for the whole loss caused by the conspiracy. Even if one looks at his involvement and responsibility on an purely individual basis, that would in my view be so. If any such director had performed his personal duty, instead of participating, the whole conspiracy would have been prevented, and no loss would have been suffered.

A further issue of Spanish law arose as to the extent to which one director may, under the 1989 Act, be liable collectively for misconduct for which another director was primarily responsible. Its resolution may not matter in this case, but I consider it for completeness. Under the 1951 Act, the scheme of liability was individual, each being only liable for his own fault and its consequences. But article 133 of the 1989 Act provides as follows:

1.	The directors will be liable to the company, the shareholders and the company creditors for the damages they may cause through acts contrary to the Law, the Articles of Association or those undertaken without the diligence with which they should discharge their duties.

2.	All members of the administrative body [or ‘governing body’] that undertook the action or adopted the damaging resolution will be severally liable, except those who prove that they did not intervene in the adoption or implementation, or were unaware of its existence or, being aware, did everything possible to avoid the damages or, at least, expressly opposed it [the action or resolution].

3.	The fact that the damaging action or resolution has been adopted, authorised or ratified by the General Shareholders Meeting will on no account exonerate from liability.”

By article 141:

“When the articles of association of the company do not state otherwise, the board of directors may .... appoint from within its number an executive committee or one or more managing directors (Comision ejecutiva o uno o mas Consejeros delegados), notwithstanding the powers of attorney which it may confer upon any other person.”

The evidence of Professor Villaverde was that articles 133(1) and (2) created a joint and several or collective liability of all directors, executive or non-executive, for all loss caused by any director’s or directors’ misconduct or wrongful resolution, save as regards any director who on the particular facts could bring himself within the exception provided in article 133(2). Professor Villaverde, in his fully reasoned report, cited F. Sanchez Calero, Administradores, 133, in support of the proposition that 

“undertaking actions is ‘a different case altogether from the adoption of the resolution, not only because one is thinking about implementing the resolution, but also because it is possible for the directors to undertake damaging actions without there being a resolution’”.

In situations where the board had delegated powers under article 141, Professor Villaverde’s evidence was that those directors who were not delegates remained responsible collectively as members of the board, unless they could discharge the onus placed on them under article 133(2), as well as continuing to have potential individual responsibility under articles 127 and 133(1).

Professor Cortes suggested in his report that article 133(2) was only concerned with cases of board resolutions. I do not accept that. The true position is in my view set out in the quotation from Sanchez Calero above. Professor Cortes went on to say that, in cases of delegation by the board to an executive committee, the administrative or governing body (organo de administracion) must be understood for the purposes of article 133(2) as being the committee to whom such delegation was made. If so, the phrase organo de administracion does not on its face to fit very easily with the terminology of article 141 or the possibility provided by article 141 of delegation of powers to an individual managing director. Further, Professor Cortes in cross-examination did not adhere consistently to the view put forward in his report. He eventually accepted that ‘members of the administrative [or governing] body’ in article 133(2) referred to all members of the board, but said that a non-executive director could bring himself within the exception in article 133(2), simply by showing that he was a non-executive director and so had not intervened in the adoption or implementation of the act. In response to a series of propositions put to him then by Mr McGhee for Sheikh Khaled in order to retrieve the situation, Professor Cortes fluctuated between the view that article 133(3) no longer refers to the full board in any case of delegation, and the view that in principle all directors remain liable, but that any who had delegated their powers to others could quite easily bring themselves within the exception to article 133(2). Even on the former view, he accepted that individual directors must still owe on an individual the duty to exercise proper diligence, as defined by articles 133(1) and 127. On this basis, however, there would be no reversal of the onus of proof, as provided by article 133(2) and the specific causal link required would be between any particular want of diligence proved and the company’s loss.

Mr Diaz-Bastien’s report dated 22nd May 1998 appeared to contemplate a single system of responsibility along the lines advanced by Professor Villaverde, with a non-executive director being able in an appropriate case, by establishing “solid probatory elements”, to exonerate himself under article 133(2). In oral evidence, however, he advanced views similar to those put forward by Professor Cortes in his report.

On the evidence I have heard, I prefer the consistent view of Professor Villaverde that article 133(2) introduces prima facie collective liability for any act (whether or not involving any resolution) undertaken by the board of directors or by any member of the board to whom the board has delegated power. Further, the mere fact of delegation would not suffice to enable a non-executive director to bring himself within the exceptions in article 133(2). Those exceptions must be understood as dependent upon the non-executive having exercised proper diligence in respect of his non-intervention or unawareness just as he must, if aware, have “done everything possible to avoid the damages or, at least, expressly opposed” the action or resolution. The difference between the opposing views relating to the standard of responsibility for acts may still not be great in principle, since (i) delegation is permissible, and is on any view a factor of which account must be taken under article 133(2), and (ii) Professor Cortes and Mr Diaz-Bastien accept that a non-executive director has a potential personal liability for failure to supervise under articles 133(1) and 127. The more significant difference is probably that, on Professor Villaverde’s approach under article 133(2), the causal link need only exist between the action or resolution and the loss, whereas, on Professor Cortes’s and Mr Diaz-Bastien’s alternative approach under article 133(1), a causal link would have to be  proved between the particular failure to supervise and the loss. As I have indicated, I prefer Professor Villaverde’s approach.
 
I must however note at this point two specific defences relied on under Spanish law by one or other of Mr de la Rosa, Sheikh Fahad and Mr Jaffar. They are (i) ratification and/or la doctrine de los proprios actos (Sheikh Fahad and Mr de la Rosa) and (iii) limitation under article 949 of the Commercial Code.

Taking ratification and la doctrine de los proprios actos first, Sheikh Fahad pleads this aspect narrowly and Mr de la Rosa very widely. Sheikh Fahad relies on the resolution at the shareholders’ meeting on 26th May 1992 approving his management activities unreservedly. Mr de la Rosa relies not only on the equivalent approval of his activities at the same meeting, but also on a whole raft of assertions, which he has not given evidence to support, that the KIO and/or KIA knew of and approved his conduct. 

The general principle of Spanish law which both pleas invoke is that a person cannot go back on what he has done, and so cannot subsequently complain about what one has previously approved. Allied principles exist under English law. But it is clear that (like the English doctrines of ratification and affirmation) the Spanish principle can only assist in respect of approval given with full knowledge of the relevant facts. (Mr Diaz-Bastien said that authority for this was contained in a Supreme Court authority of 21st February 1997.) Mr Al-Mudhaf, Head of Direct Investments at the KIO and special adviser to the President of the KIO, also attended the meeting of 26th May 1992 and had no knowledge at all about the transactions the subject of the present case. It is obvious in fact that no-one at the KIO outside the ranks of the conspirators knew the relevant facts, or that these transactions involved frauds on THL and/or GT. The conspirators’ knowledge is equally obviously irrelevant. Reliance on ratification and/or on la doctrine de los proprios actos in respect of the resolutions of 26th May 1992 is misplaced.

Mr de la Rosa’s wider pleas are also misplaced. There is no evidence in support of them. They too depend on knowledge of the relevant facts, which it is clear that no-one, other than conspirators, had at any material times. The steps taken later in 1992 to investigate and to try to understand the relevant transactions speak for themselves. So far as Mr de la Rosa seeks to rely on approval given by co-conspirators such as Sheikh Fahad, this is self-evidently impossible, quite apart from the fact that certain aspects of the pleaded approval invoke letters (those of 15th October 1990 and 20th December 1990) which Mr de la Rosa himself probably forged in Sheikh Fahad’s name. 

Sheikh Fahad and Mr Jaffar each also contend that he has a defence of limitation in respect of action 1996 Folio No. 1206, begun on 24th May 1996. I have dealt with and rejected this defence in section III.4. It is, as there mentioned, anyway only of relevance on certain hypotheses which do not in my judgment apply.

It follows from these conclusions that the facts relied upon by GT in its conspiracy claims against Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Sheikh Khaled under English law were and are also actionable in accordance with Spanish law. GT has accordingly made good its conspiracy claims against these defendants relating to all transactions in respect of which it still pursues such claims.

In view of my previous conclusions, it is strictly unnecessary to consider the liability to GT under Spanish law of non-directors, since all those liable to GT for conspiracy in accordance with English law were GT directors. The point remains directly relevant to the limited extent that THL suffered loss in the Pincinco transaction not made good by GT. The position is in any event as follows. Spanish law recognises criminal offences of fraud and misappropriation. The plaintiffs rely on these as grounding ex delicto liability under article 1092 of the Civil Code against non-directors. (Presumably, if so, they could also be relied upon against directors as “acts contrary to the law” within article 133(1), but the directors’ liability would anyway be clear, as stated above.)

The advantage for the plaintiffs of establishing ex delicto liability under article 1092 is that each conspirator would, as under English law, be liable jointly and severally for all consequences of the conspiracy without consideration of the causal relevance of his particular role in the conspiracy. The defendants’ response is that no civil claim ex delicto could be brought in Spain save either in conjunction with criminal proceedings or, where criminal proceedings are on foot but the victim reserves his civil claim, then in a separate civil proceeding brought after the conclusion of the criminal proceedings. It is common ground that the criminal proceedings brought by GT (though not I understand THL) in Spain have become extended to cover the transactions in issue in the present litigation. The defendants therefore submit that no civil claim ex delicto is open, at least to GT, in England. This is, they submit, reinforced by the consideration that the relevant Spanish principle, although reflected in the Spanish Code of Civil Procedure, is an aspect of the fundamental principle of legality embodied in the Spanish Constitution.

It is common ground that in Spain any civil proceedings, if brought separately during the currency of criminal proceedings about the same matter, would have to be stayed pending the conclusion of the criminal proceedings, once their concurrence was brought to the attention of the civil judge. The stay would be under article 362 of the Code of Procedure, for reasons as Professor Ramos put it of economy and harmony, or to avoid pre-judging the outcome of criminal proceedings. Established exceptions exist, in cases where criminal proceedings cannot be brought to conclusion due to an amnesty or the defendant dying or absconding. There is a difference in the standard of proof in criminal and civil cases in Spain which mirrors the difference in England. It would seem to follow that, in those exceptional situations where a civil claim ex delicto can undoubtedly be pursued in Spain without any parallel criminal proceedings or verdict, the civil judge would be applying a different standard of proof to that applicable in criminal proceedings.

The defendants assert that, subject to such exceptions, no civil claim ex delicto can ever be brought before a civil court, and that any civil claim arising out of the same facts will have to be brought, not under article 1092, but under article 1902 (ex contractual or Aquilian liability, which involves a potentially different time limit and, at least generally, a causal link between the defendant’s own acts and the loss claimed). It seems to be common ground that this would be the case, if criminal proceedings were terminated on account of a time-bar. But Professor Ramos’s evidence shows it is very common in Spain for civil proceedings to be brought based on facts amounting to a crime in circumstances where no criminal proceedings are ever brought or contemplated. There appears to be a debate in Spain (said to be “interminable”) whether such proceedings can properly be described as ex delicto or must be based on article 1902. The practical significance of the answer is, as indicated, not great. The judge in a civil case would normally find it sufficient to focus on the facts without entering any such debate. But it would seem strange if, in the context of criminal proceedings, any civil liability was joint and several for all loss resulting from facts amounting to a conspiracy, but if, where civil proceedings were brought in lieu of any criminal proceedings, there was responsibility only for such loss as could be proved to result from the particular defendant’s liability. I would expect a Spanish civil judge to take the view that liability was joint and several in each situation. So far as I have to decide the point, I prefer the view that a separate civil claim ex delicto can lie, even in Spain, where no criminal proceedings are brought at all.

Whatever the answer on this point, the Spanish rules regarding concurrent proceedings and the Spanish prohibition of civil claims ex delicto are in my view to be classified as procedural rules or principles, however fundamental they may be in Spanish legal context. Although this is not conclusive, the basic principles are to be found in the Spanish Procedural Code, and principles or guarantees may be procedural in nature although enshrined in a constitution.

Even under domestic Spanish law, I prefer Professor Ramos’s view that the rule giving priority to criminal proceedings is a procedural principle, rather than Mr Diaz-Bastien’s very tentative view - accepting as he did the difficulty and existence of other views - so far as he suggested that the rule went beyond procedure to the substantive nature or merits of any claim ex delicto.

It follows that the concurrence in Spain of criminal proceedings about the relevant transactions in no way affects the civil actionability of such transactions ex delicto for the purposes of the principle in Rule 203(1)(b) in Dicey & Morris.

(4) Other heads of actionability under Spanish law which could have been material as against non-directors would have been contractual liability in the case of defendants such as Mr Soler, Mr Coll (in so far as he is equated with his company Coll & Company) and Mr Folchi or extra-contractual (or Aquilian) liability under article 1902 of the Civil Code in other cases. The elements of contractual liability are breach of contract, dolus, fault or negligence, and damage caused by the breach. The test of fault or negligence is expressed objectively in article 1104 as:

“omission of the degree of diligence required by the nature of the obligation and which corresponds to the circumstances of the persons, time and place”.

The elements of extra-contractual liability are essentially the same with the substitution of an illegitimate act or omission for a breach of contract and with the caveat that fault or negligence can no longer be measured by reference to any contractual obligation, but simply according to the circumstances, the minimum standard of due diligence being that of the prudent paterfamilias.

In this case, if any non-director became party to what under English law would amount to a conspiracy to injure by doing an unlawful act or using unlawful means, it seems inevitable that he would be liable under Spanish law either for breach of contract, if he had a contract, or extra-contractually. Mr Folchi relied, as I have said, heavily on a lawyers’ strong prima facie entitlement to rely upon the good faith of the individuals instructing him and follow their instructions. But, assuming a lawyer who becomes party with those instructing him to a conspiracy aimed or directed at and injuring his client by unlawful act or means, it is difficult to see any basis on which the lawyer could conceivably justify his conduct by reference to his instructions. The situation would axiomatically be one where his instructions were on their face illegitimate or it would be unethical and improper to implement them. So far as concerns causation, it is common ground that, in respect of contractual or extra-contractual liability, individual causal responsibility would have to be shown. Mr Folchi argues that all relevant acts occurred without his intervention and were done by GT directors of executives. That is difficult to follow. Mr Folchi was a lynch-pin of the arrangements which were made for and the instructions which were given in the Oakthorn 1 and 2 transactions, the Pincinco transaction and the Wardbase transaction. If he was party to or knew the facts making them conspiracies to injure GT by unlawful act or means, it was his obvious duty to stop them. Had he taken any steps to do so, their further implementation would have been impossible. Had I concluded that any non-director was a party to any of the conspiracies, I would have held on that basis that he too had individual responsibility under Spanish law for all the loss occasioned by that conspiracy.

V.2. Breach of directors’ duties
It follows from what I have already said under the heading of Spanish law that, in addition to the conspiracy claims on which GT is entitled to succeed against Sheikh Fahad, Mr Jaffar, Mr de la Rosa and (in respect of the Pincinco transaction) Sheikh Khaled, GT is also entitled to succeed against each for breach of his directors’ duties.

In the light of the facts found in sections IV.3(e) and IV.3(i), it would not be right in my view to attribute causative responsibility for the loss which THL suffered to any breach of duty by Mr Soler or Mr Moukarzel, although their conduct as directors of THL fell far short of that to be expected of an English company director.

Mr Folchi’s position is different. Having become a director of THL for the Pincinco transaction, he assisted in the implementation of that extraordinary transaction, which clearly imperilled THL’s solvency and to his knowledge involved the transfer of large sums to amongst others Mr de la Rosa and Mr Jaffar. Without his participation, the transaction would not have occurred as it did. In my judgment, his failure to address the obvious problems and implications in and of what was happening involved a breach of this duties as a director of THL, and makes him responsible on this basis also, although the measure of liability relates only to the sums disbursed by THL in respect of the transaction in the first half of 1992.

V.3. Dishonest assistance
As against Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Sheikh Khaled, this represents a further potential head of liability. As against other defendants, who have not been shown to be party to any conspiracy, dishonest assistance represents a possible alternative route to recovery. I start with English law.

V.3(a) English law 
The liability which the plaintiffs assert under this heading arises in equity. It does not depend upon participation by the relevant defendant in a conspiracy, or necessarily upon any conspiracy at all. The case-law establishes that it depends on proof of the following conditions: (i) A breach of trust or fiduciary duty by someone other than the defendant (ii) in which the defendant assisted (iii) dishonestly, together with (iv) resulting loss.

Taking these ingredients, if B, an officer or employee of company A, misappropriates company A’s money, B is in breach of fiduciary duty. A fiduciary duty may also arise at the very moment of misappropriation, as where money of A is paid to C by mistake and misappropriated by C: Chase Manhattan Bank Bank N.A. v. Israel-British Bank (London) Ltd. [1981] 1 Ch. 105.  If, in either of these situations, B or C (as the case may be) is assisted by D acting dishonestly, then D is himself liable in respect of resulting loss. The plaintiffs, referring to Lord Browne-Wilkinson’s words in Westdeutsche Landesbank Girozentrale v. Islington L. .C. [1996] A.C. 669, 715H-716D, would I think also submit that, if an outsider, C, simply misappropriates company B’s money, C is treated as holding company B’s money on constructive trust, and as being in breach of fiduciary duty in respect of it. If the Court of Appeal’s reasoning in F.C. Jones & Sons v. Jones [1997] Ch. 159, 164F to which I was not referred raises any doubt about this as a general proposition, it is not one which, on the facts of the present case, seems to me relevant. Here, the monies misappropriated were on any view misappropriated in breach of fiduciary by a number of directors. The liability of any others as dishonest assisters relates to that misappropriation. Further, insofar as Jones suggests that a stranger C who abstracts a third party’s (B’s) monies may not breach any fiduciary duty, but may become liable simply at common law, it seems most improbable that this could mean that a third party D who dishonestly assisted C could escape liability for dishonest assistance. Jones was not concerned with this situation, and indeed recognised (in a different context) that it would be absurd if the position where a person had no title offered lesser protection at common law than would exist in equity where there was a bare legal title and constructive trust. 
 
Mr McGhee for Sheikh Khaled submits that, to be relevant to a claim based on dishonest assistance, the breach of trust or fiduciary duty must have occurred in relation to the plaintiff. As a general submission, that seems logical in respect of liability which is essentially accessory: see in Royal Brunei Airlines Sdn Bhd v. Ming [1995] 2 A.C. 378 (P.C.), but the particular situation and relationship of THL and GT may require further consideration.

I add, for completeness (since it does not matter in this case), that ingredient (i) can be satisfied by an innocent, rather than fraudulent, breach of trust or fiduciary duty.

Ingredient (ii) includes the purely factual question, whether the defendant’s conduct did assist the breach of trust or fiduciary duty. It may also be confined to this factual question, but I will return to that.  In Brink’s Ltd. v. Abu-Saleh and Others [1996] CLC 133, the necessary factual assistance was absent, because the wife, in accompanying her husband on his couriering trips to Switzerland to bank monies pursuant to what they thought to be a tax evasion exercise, did so simply to keep him company and visit Switzerland on an expenses free basis and not to afford him ‘cover’.

Ingredient (iii) was considered in Royal Brunei Airlines Sdn Bhd v. Ming, where Lord Nicholls gave the advice of the Privy Council. The case establishes that dishonesty in the context of a knowing assistance claim is an objective standard: see p.389B-G. The individual is expected to attain the standard which would be observed by an honest person placed in the circumstances he was: p.390F. But those circumstances include subjective considerations like the defendant’s experience and intelligence and what he actually knew at the time: p.389D and 391B.

Since dishonesty has other connotations in other branches of the law, and indeed in ordinary language, I cite in full the following explanation by Lord Nicholls at p.389:

“Dishonesty 
 
Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts (see, for instance, Reg. v. Ghosh [1982] Q.B. 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour. 
In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless. However, in the situations now under consideration the position is not always so straightforward. ....”

Relying on obiter dicta of Rimer J. in Brink’s Ltd. v. Abu-Saleh and Others [1996] CLC 133, 149-151, Mr McGhee submits that a plaintiff asserting dishonest assistance must also show not only dishonesty, but also knowledge by the defendant of the existence of the trust or of the facts giving rise to the trust. Rimer J. referred to the statement by Lord Nicholls in the Royal Brunei case at p.387D, to the effect that the law had never gone so far as to give a remedy against an accessory who dealt with a trustee “without knowing, or having any reason to suspect, that he is a trustee” or, being aware that he was dealing with a trustee, had “no reason to know or suspect that their transaction is inconsistent with the terms of the trust”. For my part, I have difficulty in accepting that Lord Nicholls was here identifying a separate condition of liability for dishonest assistance. Lord Nicholls’s statements were in the context of the discussion leading up to his conclusion that dishonesty is a necessary and sufficient ingredient of accessory liability: see p.392F. "Knowingly", he added at p.392G, is “better avoided as a defining ingredient of the principle”. A defendant’s actual knowledge is still, of course, important - and it may in many cases be decisive - when considering whether the defendant acted dishonestly. The problem with which Rimer J. was concerned was the not uncommon problem that, if she had assisted at all, the defendant would plainly have been dishonest in a general sense, since it was clear that the whole purpose of the trips was dishonest tax evasion. But the answer to this problem seems to lie in recognising that, for dishonest assistance, the defendant’s dishonesty must have been towards the plaintiff in relation to property held or potentially held on trust or constructive trust, rather than in the introduction of a separate criterion of knowledge of any such trust.

That conclusion caters for Lord Nicholls’ reference to cases of a third party having “reason to suspect” that he was dealing with a trustee or with a transaction inconsistent with a trust. It is also, I think, consistent with the approach of Millett J. (as he was) in Agip (Africa) Ltd. v. Jackson [1990] Ch. 265. He said this at pp.294-5:

“Mr. Jackson and Mr. Griffin are professional men. They obviously knew that they were laundering money. They were consciously helping their clients to make arrangements designed for the purpose of concealment from, inter alios, the plaintiffs. It must have been obvious to them that their clients could not afford their activities to see the light of day. Secrecy is the badge of fraud. They must have realised at least that their clients might be involved in a fraud on the plaintiffs. 
Can Mr. Jackson and Mr. Griffin possibly have believed that their arrangements had an honest purpose? They pleaded no such belief. They have given no evidence. On their behalf it was submitted that they were entitled to be reassured by the fact that they were taking over arrangements which had been established for some years; that they were introduced to them by a partner in a well known and reputable firm of chartered accountants; and that, if there was any wrongdoing, it would surely have come to light long before. Had Mr. Jackson and Mr. Griffin given evidence to this effect, I might or might not have believed it. But I will not assume it when they do not tell me so. 
....
What did Mr. Jackson and Mr. Griffin think was going on? There is some evidence of this in the minutes of the first meeting of the directors of Keelward Ltd. on 22 March 1984, and it would be wrong of me to ignore it. It suggests that they thought that their clients were engaged in evading Tunisian exchange control, possibly with the connivance of the plaintiffs and on their behalf - though the minutes do not say so. In my judgment, however, it is no answer for a man charged with having knowingly assisted in a fraudulent and dishonest scheme to say that he thought that it was "only" a breach of exchange control or "only" a case of tax evasion. It is not necessary that he should have been aware of the precise nature of the fraud or even of the identity of its victim. A man who consciously assists others by making arrangements which he knows are calculated to conceal what is happening from a third party, takes the risk that they are part of a fraud practised on that party.”

The plaintiffs rely on this last paragraph as indicating a different approach to liability for dishonest assistance from that which I have suggested. But, as the first and last paragraphs cited show, Millett J. was speaking in a context where there was ample reason at least to suspect a fraud on the plaintiffs. Further, Millett J. went on immediately to say that it was not necessary to rest his decision on this ground, and the Court of Appeal in upholding him did not do so either: see [1991] Ch.547. The actual ground of Millett J’s decision, and effectively of the Court of Appeal’s, is found in this next passage:

“After Mr. Smyth's letter of 14 August 1984, the defendants cannot claim that the possibility of a fraud on the plaintiffs never crossed their minds; it was specifically drawn to their attention. Yet they never made any inquiries of the plaintiffs or took any steps to satisfy themselves that the arrangements had the plaintiffs' knowledge and approval. They comforted themselves with the fact that there was "no clear case of fraud under English law."

Ingredient (iv) raises a potentially important issue. The plaintiffs submit that, since dishonest assistance is a form of “accessory liability” a defendant who dishonestly assists in a breach of trust or fiduciary duty, is

“liable for the whole loss resulting from such breach of trust or duty, whether or not causally linked to his acts of specific assistance, since he is effectively a joint tortfeasor”.

Mr McGhee submits that a plaintiff must prove that the dishonest assistance has itself caused the loss suffered by the plaintiff. Otherwise, he submits, the plaintiff’s claim should fail for lack of causation or lack of any relevant assistance. The starting point in my view is that the requirement of dishonest assistance relates not to any loss or damage which may be suffered, but to the breach of trust or fiduciary duty. The relevant enquiry is in my view what loss or damage resulted from the breach of trust or fiduciary duty which has been dishonestly assisted. In this context, as in conspiracy, it is inappropriate to become involved in attempts to assess the precise causative significance of the dishonest assistance in respect of either the breach of trust or fiduciary duty or the resulting loss. To that extent the accessory nature of the liability presently under consideration distinguishes the present from the situation in Target Holdings Ltd. v Redferns [1996] 1 A.C. 421, where the House of Lords was concerned with a simple breach of trust. But it is necessary to identify what breach of trust or duty was assisted and what loss may be said to have resulted from that breach of trust or duty. An allegation of a single and continuing conspiracy to commit and cover up a misappropriation is one thing. But it may involve a series of breaches of trust or fiduciary duty. The actual loss may have resulted at the early stage of misappropriation, rather than from the cover up. Dishonest assistance confined to the cover up stage may not or not necessarily attract liability for such previous loss.

I must now consider whether the plaintiffs have shown that any other defendant dishonestly assisted Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Sheikh Khaled in accordance with English law principles governing this form of accessory liability. The Croesus, Oakthorn and Pincinco transactions all clearly involved breaches of fiduciary duty by Sheikh Fahad, Mr Jaffar and Mr de la Rosa, whether in their capacities as GT directors or simply as persons wrongfully misappropriating and misusing monies belonging to THL and/or GT. As a matter of fact, other defendants also rendered assistance in such breaches. The critical question is whether they did so dishonestly in the sense identified by Lord Nicholls. I take the other defendants in turn.

Mr Soler
I have identified in section IV.3(e) various acts of assistance by him. In respect of Croesus, he executed the $25m loan from Banco Santander, which others had arranged, to repay Kokmeeuw. In respect of Oakthorn 2 and Wardbase, he himself arranged the funding of the transactions with The Sumitomo Bank and from GT’s own resources. At the accounting and auditing stage of the Croesus and Oakthorn 1 and 2 operations, and, to a limited extent also and as regards THL’s 1990 accounts, the Pincinco operation, he collaborated in presenting misleading accounts and in misleading auditors.

I have concluded, when considering his position earlier in this judgment, that Mr Soler did render assistance in an overall conspiracy to which he was not party and which involved the misappropriation of monies and, as and when required, the covering or dressing up of their disappearance. But he neither knew nor intended this. He thought that he was acting, not dishonestly towards the plaintiffs, but in their interests in assisting them to make and then in concealing very sensitive payments in their best commercial interests. His dishonesty was not towards GT or THL or monies of either, but towards others, such as accountants and the public.

The question is whether, objectively, he must nonetheless be viewed as having assisted dishonestly in relation to the breaches of fiduciary duty, by directors in particular, towards the plaintiffs which these transactions actually involved. The plaintiffs submit that Mr Soler falls into the same category as the defendants in Agip v. Jackson, who suspected or took the risk of fraud on the plaintiffs. I do not consider that it would be right to say this of Mr Soler. Despite his apparently senior position with GT and his directorship of THL, he was not someone who was either expected to take, or did in practice take, decisions or pursue enquiries in relation to particular transactions. At the relevant times the senior management of GT had a reputation for entrepreneurial success, and the Spanish climate tolerated without compunction the type of dishonesty in relation to exchange control and tax which Mr Soler believed was in issue. In these circumstances, I would not treat Mr Soler as having acted dishonestly even in the objective sense which would constitute him a constructive trustee of the monies which were, unknown to him, actually being misappropriated.

A second reason reinforces this conclusion, at least so far as concerns Mr Soler’s assistance at the covering up stages of the transactions. By then the monies were effectively gone, at all events from the group. Mr Soler’s conduct at the accounting stage meant at most that this was not discovered, and that the loss was transferred to or crystallised in GT. No case is made that, but for such conduct by Mr Soler, monies would have been recovered which now are lost, or even that, but for such conduct, subsequent misappropriations would not have occurred.

In these circumstances, reprehensible though Mr Soler’s conduct was, I do not consider that it attracts accessory liability as a constructive trustee. I do not consider that dishonest accounting intended to cover up a transaction believed to have been in a company’s interests can or should axiomatically render a defendant liable if in reality the transaction involved a fraud on the company under which monies were misappropriated at an earlier stage.

Mr Coll
I have concluded in section IV.3(f) that he rendered assistance in the Croesus, Oakthorn and Pincinco transactions. But similar considerations apply in his case to Mr Soler’s. Mr Coll believed that the Croesus and Oakthorn transactions, and the improprieties in which he involved himself in relation to them, related to movements of money being made in the interests of his clients. He was not dishonest towards the plaintiffs in relation to their property, but towards others. His position with respect to the Pincinco transaction is still stronger. The Iraqi invasion of Kuwait represented a unique situation, lending credibility to the idea of secret war payments by GT in the interests of the KIO and the State of Kuwait. In devising his scheme to cater for what he understood to be such payments, Mr Coll should not, in my view, be regarded as having acted dishonestly in any sense towards GT or its assets.

Mr Folchi
Mr Folchi’s position has been considered at length earlier in section IV.7. On the basis of the facts there found, I consider that the assistance which Mr Folchi rendered in each of the Oakthorn 1 and 2, Pincinco and Wardbase transactions was rendered regardless of whatever may have been going on and was dishonest in the sense explained by Lord Nicholls in Royal Brunei.

Mrs Parker
For reasons which I have given earlier in this judgment, and taking into account the limitations of her background, status and role, I do not consider that the assistance which Mrs Parker afforded was even objectively dishonest.

Mr Moukarzel
Mr Moukarzel provided assistance in respect of the Croesus and Oakthorn 1 transactions. He also acted dishonestly in doing so, in particular by backdating loan documentation. His understanding and performance of his duties as a director of THL were very deficient. But, as with Mr Soler and Mr Coll, he is not shown to have acted dishonestly towards THL or GT. Even on the basis that he was content to act as a nominee on any instructions which came from Spain, it is not shown that those in Spain who actually instructed him were themselves dishonest, in any way which could make him a constructive trustee.

V.3(b). Conflict of laws and Spanish law
What principles decide whether and what foreign law is relevant to liability as a constructive trustee? I can start with the situation where the defendant is himself alleged to have misappropriated monies by misuse of the powers conferred on him. In The Arab Monetary Fund v. Hashim (unreported, 15th June 1994), Chadwick J. (as he was) treated Rule 201(1)(a) of Dicey & Morris’s Conflict of Laws (12th Ed.) as applicable, and on that basis regarded as relevant the law governing the pre-existing relationship between Dr Hashim and the Fund of which he was at material times President. He identified four relevant questions:

“(i) What is the proper law which governs the relationship between the defendant and the person for whose benefit those powers have been conferred, (ii) what, under that law, are the duties to which the defendant is subject in relation to those powers, (iii) is the nature of those duties such that they would be regarded by an English court as fiduciary duties and (iv) if so, is it unconscionable for the defendant to retain those assets.”

In the Kuwait Oil Tanker case, Moore-Bick J. had to consider the applicable law in a claim for dishonest receipt, on an assumption that there was no prior relationship and that the liability alleged as constructive trustee arose solely out of the dishonest receipt of another’s monies. He viewed the law of the place of enrichment as applicable, applying Rule 201(1)(c) of Dicey & Morris.

In The Arab Monetary Fund v. Hashim (unreported, 29th July 1994), Chadwick J considered the relevant law in the context of a claim by the plaintiffs to hold a bank (FNBC) liable as constructive trustee for dishonestly assisting Dr Hashim to misappropriate the plaintiffs’ monies. He said this (transcript p.42):

“The relevant question in the present context is whether and to what extent an English Court ought to recognise and enforce an equitable claim for monetary compensation based on fault where the fault alleged lies wholly in things done or not done in a foreign jurisdiction.”

Then, after referring to Boys v. Chaplin [1971] A.C. 356 and other cases, he went on at pp.45-47:

“In the application of this principle to the claim which the AMF brought against the FNBC defendants, the first requirement was that the AMF should have been able to establish a cause of action against the FNBC defendants which was recognised by English law.  For the reasons which I have already set out I am satisfied ... that, - in relation to FNBC, FNBC (CI) and FCTC (Cayman) - this requirement was fulfilled.

The second requirement, as it seems to me, was that the English Court must have satisfied itself that there was no rule of any relevant foreign law which - in the words of  Lord Pearson in Boys -v- Chaplin (supra, [1971] AC 356, 397) - would provide a defence to the AMF’s cause of action; or - as it might, perhaps, be put in the context of a Barnes -v- Addy constructive trust claim - would make it inequitable to hold that an FNBC defendant should be treated as if it were a trustee.  If, as the authorities show, the basis of such a claim is dishonesty or lack of probity on the part of the defendant, then it must be right to judge honesty or dishonesty in the light of all relevant circumstances; and those circumstances must include relevant provisions of local law.

It follows that I think the appropriate course, in the present case is to examine the evidence as to Swiss law not for the purpose of identifying any rule of that law which the English court would have been concerned to enforce, but rather for the purpose of deciding whether, having regard to the legal framework within which the FNBC and its affiliates were conducting the operation of the numbered accounts at its Geneva branch, there was such dishonesty or lack of probity as would have made it equitable for the English court to treat those defendants as if they were trustees.

Mr Ross-Munro submitted that it is not open to me to approach the matter in the way that I have just indicated.  He submitted that a Barnes -v- Addy constructive trust claim by the AMF against the FNBC defendants could not have succeeded in the English court unless it were established (at the least) that the conduct complained of would have been actionable as a civil wrong in the Swiss courts.

Mr Ross-Munro sought support for his submission in the speech of Lord Wilberforce in Boys -v- Chaplin (supra, [1971] AC 356).  Lord Wilberforce explained the reason for requiring actionablility in the foreign court in these terms (ibid, at page 389 D-G):

‘The broad principle should surely be that a person should not be permitted to claim in England in respect of a matter for which civil liability does not exist, or is excluded, under the law of the place where the wrong was committed.  This non-existence [or] exclusion may be for a variety of reasons and it would be unwise to attempt a generalisation relevant to the variety of possible wrongs.’

Lord Wilberforce was, of course, making those observations in the context of a claim for the recovery of damages for personal injury.  Although the observations in the passage cited are general in nature, I am not at all sure that Lord Wilberforce would have taken the view that conduct which was properly to be regarded as dishonest in the light of the relevant provisions of the local law - but, in respect of which the local law gave no civil remedy - ought not to be the subject of a successful Barnes -v- Addy constructive trust claim in England.  That was not a question which he can be taken to have had in mind.  It is reasonably clear that Lord Donovan and Lord Pearson would not have taken that view - see, ibid, at pages 383D and 405F.  Nevertheless, I am content to assume that Mr Ross-Munro is correct in his submission that the AMF would not have succeeded against the FNBC Defendants in the English court if it were established that the conduct complained of was not actionable as a civil wrong under Swiss law.  For the reasons which I shall explain I am satisfies that the conduct of FNBC in relation to the operation of the numbered accounts at its Geneva branch - and the conduct of FNBC (CI) and FCTC (Caymen) in relation to the disposal of monies in those accounts - would have been actionable as a civil wrong in the Swiss courts.  It is unnecessary, therefore, to decide whether that was a necessary requirement.”  

Chadwick J. expressly rejected as irrelevant to a dishonest assistance claim whether or not the relevant foreign law recognised the concept of proprietary rights under a trust: see p.42.  A dishonest assistance claim is based on fault, and is not a claim to enforce a proprietary interest against the holder of the fund.

The approach taken by Chadwick J. at pp.45-46 was adopted by Rix J. in Dubai Aluminium Co. Ltd. v. Salaam [1999] 1 Ll.R. 415, 452,3. The alternative approach, which Chadwick J. identified and evidently did not prefer (although, on the facts before him, he did not have to decide whether it was correct) would require full actionability under the relevant foreign law as well as under English law. I call this the full double actionability approach. I propose, sitting at first instance, simply to follow the view which Chadwick J. preferred and Rix J. adopted in these two previous first instance cases. But in this case also, it seems to me unlikely that the difference between that and the full double actionability approach would be decisive.

In judging whether there is any role at all for foreign law, it seems appropriate to apply a similar “substance” test to that applicable in tort. Mr Folchi’s assistance was in substance rendered in Spain, although his activity in Geneva on 2nd/3rd October 1990 was significant. Having regard to what I have said earlier in this judgment about his conduct, knowledge and attitude, the conclusion which I reach is his conduct would be regarded as displaying a lack of honesty or probity in Spain.

Further, so far as necessary, it sees to me clear that he could not claim to be protected as a professional from any action by GT on the basis either that he had followed instructions from directors of GT or officers of its shareholders or that his conduct was ratified or adopted by GT. As I have already indicated, a Spanish lawyer’s entitlement or duty to follow instructions is not limitless. It does not apply to matters which are on their face improper. The lawyer must remember that his client is the company, not its directors or officers. Here, Mr Folchi received instructions and participated in setting up transactions which on their face highly questionable. He was prepared simply to implement them, without, so far as appears on his evidence, giving them or their rationale another thought. His subsequent conduct in concealing what had occurred, in my view deliberately, demonstrates his consciousness that what occurred was wrong.

I conclude that Mr Folchi became responsible as a constructive trustee in respect of the sums in issue in the Oakthorn 1 and 2, the Pincinco and the Wardbase transactions.

V.4. Money had and received and/or knowing receipt
English law is still in development in these areas. The historical division between legal and equitable principles and their separate terminologies retain a major influence. A generalised conception of the law of restitution is itself only recent.

The common law remedy of money had and received is personal and restitutionary in nature, although its granting may depend on recognition of a continuing proprietary interest. It enables company A to recover money which B (e.g. A’s director) has wrongfully transferred to C.  Company A must be able to trace its monies or their proceeds to C at common law. It does not matter if C has mixed the monies with other monies. Nor does it matter if the monies pass through D en route to C (at least if D is a vehicle of B, and one may question whether this matters) or is converted into an ascertainable substitute. But if en route to C, A’s monies become mixed with other monies belonging to an innocent third party, the traditional view has been that common law tracing ceases to be possible. (That there may be scope for greater assimilation of common law and equitable principles governing tracing appears from Jones’s case, 169H-170B, per Millett L.J. as he was.) Liability is strict. A claimant does not have to show that the defendant received the monies with any particular knowledge or any state of mind at all, or that he still retains them. But it is a defence for a defendant to show that he received them as a bona fide purchaser who gave value, or that, having received them, he changed his position in a way which would make it inequitable for him to have to make restitution either in whole or at least as to part: Lipkin Gorman v. Karpnale Ltd. [1991] 2 A.C. 548, where restitution by C to A was confined to the gaming club’s net benefit (bets received less winnings paid out) from the monies abstracted by B from A and used for gaming with C.

Liability based on knowing receipt arises in equity. It too is personal rather than proprietary. In contrast to the action for money had and received, it is fault-based. But it does not depend on the commission of any wrong or give rise to any obligation to make good any loss other than by way of restitution. For present purposes, liability for knowing receipt arises where a person receives, for his own benefit, trust property or property in respect of which there has been a breach of fiduciary duty (or in either case its proceeds traceable in this context according to equitable principles) with a sufficient degree of knowledge that he is receiving property traceable to a breach of trust or fiduciary duty: see El Ajou v. Dollar Holdings plc [1994] 2 A.E.R. 685, 700; Dubai Aluminium Co. Ltd. v. Al Alawi, above, at p.451. In view of the element of fault involved in liability for knowing receipt, defences of bona fide purchase or change of position do not exist. 

Whether the same degree of knowledge is required in knowing receipt as Lord Nicholls held to be required for dishonest assistance is contentious. Two distinct lines of authority are conveniently analysed, reaching different conclusions as to the preferable answer, by Arden J. in Eagle Star v. SBC Securities [1996] a BCLC 121, 147-152 and by the Canadian Supreme Court in Citadel General Assurance Co. v. Lloyds Bank Canada (1997) 152 DLR 411. The debate is whether a person who actually receives monies for his own benefit should be treated as unjustly enriched if he has failed to act in a way which an honest and reasonable person would in the circumstances have done, or whether his liability should, as in a case of mere dishonest assistance without receipt, be conditioned upon actual knowledge of, or at least a turning of a blind eye to, the facts.

In the Dubai Aluminium case, Rix J. pointed out that the test of “commercially unacceptable conduct in the particular context involved” which Lord Nicholls in the Royal Brunei case cited from Knox J’s judgment in Cowan de Groot Properties Ltd. v. Eagle Trust Ltd. [1992] 4 A.E.R. 700, 761 and commended as capturing the flavour of the standard of liability for dishonest assistance was introduced by Knox J. to describe what he perceived as the essence of liability under all five heads (including the heads (iv) and (v) commonly referred to as heads of constructive knowledge) set out by Peter Gibson J. (as he was) in Baden v. Societe Generale [1993] 1 W.L.R. 509, 575-6. Knox J. (following Millett J in Agip (Africa) Ltd v Jackson [1992] 4 All ER 385 at 405, [1990] Ch 265, 293) also expressed a reservation about the over refinement of categories of knowledge.
 
I do not consider that it is necessary in this case further to examine this issue. So far as Sheikh Fahad, Mr Jaffar, Mr de la Rosa, Sheikh Khaled and Mr Folchi received THL’s or GT’s monies in these transactions, they did so in states of mind satisfying whatever may be the appropriate test for knowing receipt. Sheikh Khaled takes issue on the question whether THL’s or GT’s monies can be traced into his receipts, but, in the light of my conclusion that he is liable as a conspirator and in the absence of  any monies into which proprietary tracing is sought, I need not consider that issue.

It remains to consider the claims for money had and received and knowing receipt against Mr Coll (as regards the $3,569,000 which he received out of Pincinco), Mrs Parker (as regards her receipts of £20,000 and £20,915 out of Oakthorn 1) and Mr Moukarzel (as regards $22,144 and $29,832 out of Pincinco, being the dollar equivalents of the sums of about £14,200 and £15,000 sent to him as mentioned earlier in this judgment). No claim for knowing receipt or money had and received is pleaded against Mr Soler. I consider that the plaintiffs have failed to establish any liability against Mr Coll, Mrs Parker or Mr Moukarzel for money had and received or (whatever may be the correct test) for knowing receipt.

Mr Coll
As to the claim for money had and received, assuming that tracing is possible, Mr Coll received the sum under an agreement with Mr de la Rosa for payment of fees in that amount. While that agreement stands, it seems to me that Mr Coll must be regarded as a bone fide purchaser for value in respect of the sums received in discharge of his agreed fees, even though the consideration which he furnished was on its face worth less than the amount he received. The defence of bone fide purchase does not depend on a comparison between the values of the consideration and of the receipt.

As to knowing receipt, Mr Coll’s remuneration was remarkable in amount, but it is unconscionability in a different sense on which liability for knowing receipt depends. Mere greed in pursuance of an apparently legitimate claim to remuneration for a complex and ingenious scheme cannot make Mr Coll guilty in the relevant sense of “commercially unacceptable conduct in the particular context involved”. It is not shown that the amount was attributable on his part to anything more than greed, or that he ought to have realised it was or might only be being paid because the monies derived from some unsuspected breach of trust.

Mrs Parker
She received sums of £20,000 and £20,915, as set out in section IV.3(h).  The plaintiffs had on the face of it a common law right to trace these sums into her hands. But she received them in the bona fide belief that they satisfied liabilities which Mr Russell had to account to her in respect of (a) remuneration and (b) the balance on her account, after discharge of the mortgage, of the proceeds of sale of her and her husband’s house. I infer that the house sale proceeds were paid as such into Pirunico Nominees account for her benefit. She was in my view a bona fide purchaser in respect of her receipt. Had she not been, the question whether she had a defence of change of position defence as to £5,600 would have arisen.

As to the £20,000, it is not suggested that she received a second time any salary or bonus which she believed this to represent. Presumably, any account which Pirunico Nominees rendered and any subsequent payments made from it deducted this sum. It seems to me that Mrs Parker was a bona fide purchaser for value in respect of this receipt also, on the basis that she received it in discharge pro tanto of  Pirunico Nominees’ liability to her for remuneration remitted to her account. Had she not been, a potential change of position defence would have required consideration in respect of the whole £20,000.

I see no basis for concluding that Mrs Parker had any state of mind which could involve responsibility for dishonest receipt.

Mr Moukarzel
I have in section IV.3(i) accepted Mr Moukarzel’s explanations for his receipts of monies out of Pincinco, namely reimbursement of shopping expenses of Mrs de la Rosa and payment of his agreed bonus. As to the money had and  received claim, Mr Moukarzel’s receipts came direct from Pincinco, but in each case they were received in bona fide discharge of agreed liabilities, namely to reimburse him for the shopping loan and to pay him a bonus. On that basis, it seems to me that he has a defence at common law in respect of each payment. He received them in ignorance of their source and in bona fide satisfaction of his entitlement to repayment and to his bonus. I also see no basis for a knowing receipt claim. I see nothing unconscionable in his behaviour and nothing even to put him on notice that any fraud was involved in these payments.

The claims for knowing receipt and money had and received against Mr Coll, Mrs Parker and Mr Moukarzel therefore fail.

V.5.  Equitable tracing
The plaintiffs’ claim to establish proprietary tracing claims into (a) the monies standing to the credit of the Better Trust in the Bahamas, deriving from Sheikh Fahad’s abstractions of $22.5m in the Oakthorn 1 transaction and of $75m in the Pincinco transaction and (b) the proceeds of sale of Esteem Limited’s leasehold in Cadogan Square, acquired using part of the monies abstracted by Sheikh Fahad in the Oakthorn 2 transaction.

No difficulty exists about tracing the $22.5m abstracted in the Oakthorn 1 transaction and the $75m abstracted in the Pincinco transaction into the Better Trust, or about tracing monies abstracted in the Oakthorn 2 transaction into Esteem Limited’s leasehold and the proceeds of its sale. Neither the Better Trust nor Esteem Limited, nor any intermediary between the plaintiffs and the Better Trust and Esteem Limited, can claim to have provided value or rely on any change of position defence. Indeed, the Better Trust and Esteem Limited were and are no more than vehicles established or used by Sheikh Fahad to hold misappropriated assets.

The only complication arises from the separate corporate presences of THL and GT, and the shifting in the incidence of loss consequent upon the conspiracy. Taking Oakthorn 1, THL’s monies were initially abstracted, although it was contemplated that GT would incur the ultimate loss. That was achieved by GT’s guarantee and crediting of THL on the inter-company account. All this took place in the course of a continuing conspiracy. It is unacceptable to treat GT’s taking over of THL’s loss in such a context as discharging any claim which THL had to trace misappropriated assets into their proceeds. On no view can GT be regarded as a “volunteer” in taking over loss previously borne by THL. In my judgment, when GT was caused to take over the loss imposed upon THL, it became subrogated to THL’s restitutionary proprietary claims relating to that loss. Restitutionary subrogation is an equitable remedy which exists to prevent unjust enrichment, and does not depend on any actual or presumed intention: Banque Financire de la Cit v. Parc (Battersea) Limited [1999] 1 A.C. 221. It would, in the present circumstances, be a remarkable windfall and lead to wholly unjust enrichment if the Better Trust were able to resist a proprietary claim for the return of monies transferred to it (and their proceeds), simply because GT was caused (as always in fact contemplated) to take over the loss initially suffered by THL by the abstraction of  its assets.

In the Pincinco transaction, there is I think a possible argument for saying that GT not only suffered loss, but had from the outset a right to trace its assets through THL into account G772 and so on down the chain to the Better Trust. The basis for this would be that THL through Mr Folchi cannot be regarded as a bona fide purchaser, when it took the $300m on ostensible loan from GT. But even if this is wrong, for example because GT never rescinded the loan agreement with THL, still it is clear that GT must, as a result of the later crystallisation of loss in it under the Coll scheme, be subrogated to THL’s own tracing claim into account G772 and so down the chain into the Better Trust in respect of the $75m, in similar fashion to that in which GT was in relation to the $22.5m abstracted in the Oakthorn 1 transaction.

Likewise, in relation to the leasehold interest purchased by Esteem Limited and the proceeds of its sale, even if GT does not have any proprietary tracing claim arising from its original funding of the transaction through THL, still it must be subrogated to THL’s proprietary tracing claim as against Esteem Limited. Esteem Limited, or indirectly Sheikh Fahad, would otherwise be unjustly enriched to the detriment of GT which was caused to bear the loss arising from the transaction.

VI. CONCLUSIONS 
VI.1. Summary
At the end of this very lengthy judgment, it may be helpful to attempt a summary of some of the salient points decided, although, for a fuller and more precise representation of the findings and conclusions reached, it remains necessary to look at the preceding sections.
 
Article 134 of the Spanish Companies Act 1989 (section III.2)
(1) The objection by Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Sheikh Khaled as directors of GT, based on article 134(1), that no shareholders’ resolution was passed before the commencement on 14th April 1993 of the present English action 1993 Folio No. 624 fails because (a) English law allows the ratification of proceedings begun by solicitors without authority (b) article 134 would not and does not as a matter of Spanish law preclude such ratification or prevent the shareholders resolving upon it, even in relation to Spanish proceedings and in any event in relation to English proceedings (c) there was no need for the relevant shareholders’ resolution passed on 29th April 1996 to appear on the agenda.

(2) The resolution passed on 29th April 1996 was in any event in terms which constituted proper authorisation of the further, precautionary English action 1996 Folio No. 1206 begun on 24th May 1996 against (among others) the same GT directors.

(3) Defendants such as Mr Soler who were not directors of GT cannot invoke article 134 in any event.

Article 5(4) of the Spanish Law of Suspension of Payments (section III.3)
(4) Article 5(4), relied upon by defendants generally, did not require any more than a report (which took place) by the receivers to the judge supervising GT’s suspension of payments. 

(5) In any event, neither article 5(4) nor any non-compliance by the receivers with article 5(4) (if there had been any) would affect GT’s capacity and entitlement to bring and pursue the present proceedings.

(6) Further and again in any event, the termination of GT’s suspension of payments would have validated the present proceedings (if they would otherwise have been affected by any non-compliance with article 5(4)).

Limitation under article 949 of the Spanish Commercial Code (section III.4)
(7) A four year limitation period is provided under article 949 for claims against a company’s directors under Spanish law. Sheikh Fahad’s and Mr Jaffar’s reliance upon article 949 in respect of the alternative precautionary proceedings begun on 24th May 1996 is irrelevant in view of my conclusions (above) that action 1993 Folio No. 624 was properly begun.

(8) For completeness, however, limitation under article 949 runs from the date when a director of a company ceases to act or be involved as such, provided the loss has then arisen. It is not further postponed by the company’s ignorance of the facts giving rise to the claim. But the onus of proof is on a director to prove that he ceased to act as such more than four years before the commencement of the relevant proceedings, and, on the facts, neither Sheikh Fahad nor Mr Jaffar has established this.

Miscellaneous Objections (section III.5)
(9) Most of the miscellaneous objections raised in this section should have been raised (if at all) at the interlocutory stage and have no relevance at trial.

(10) In any event, however, there is no merit in any of them:
(10.1) The English courts have determined in a manner which binds all parties to the present proceedings that no civil claims whatever were “definitively pending” in the Spanish criminal proceedings for the purposes of the Brussels/Lugano Convention until at least 11th February 1994. That is after the English proceedings in action 1993 Folio No. 624 became definitively pending against all relevant defendants.  In any event, no civil claims became definitively pending in the Spanish criminal proceedings in respect of the same subject-matter as or related to the present English proceedings, until some date after 16th November 1996, long after the English court was seised of both actions now before it.
(10.2) Articles 5(3) and 5(4) of the Brussels/Lugano Convention are grounds of potential, not exclusionary jurisdiction. They are incapable of affecting the jurisdiction of the English courts which are (as stated above) first seised of the relevant civil matters.
(10.3) Articles 111-4 of the Spanish Criminal Procedural Law have no direct application on or bearing in the present proceedings, and any suggestion that the English court should at this very late stage of trial contemplate a stay of the present English proceedings pending resolution of the Spanish criminal proceedings is without any merit as a matter of discretion.
(10.4) Sheikh Fahad suggests that the English court must now decline jurisdiction, if necessary of its own motion under articles 16(2) and 19 of the Brussels/Lugano Convention. He seeks to support this by reference to his commencement in Spain on 31st January 1997 of civil proceedings against GT claiming to have declared invalid GT’s resolution of 29th April 1996 (which is relevant as indicated in paragraphs (1) and (2) above). The object of the English proceedings was exhaustively considered at their jurisdictional stage - see [1995] 1 Ll.R. at pp.400-8 and [1996] 1 Ll.R. at pp.16-17. Assuming, as I am prepared to, that the “object” of proceedings may change in their course, this has not occurred in this case. The object of the present proceedings was and is (in short) the plaintiffs’ claims for damages or other sums for frauds allegedly practised on them by ex-directors and others.  That is quite different from the object of the Spanish proceedings begun on 31st January 1997.
(10.5) So far as Sheikh Fahad seeks to have the present proceedings stayed or judgment in them postponed by reference to such Spanish proceedings, I reject that submission as a matter of discretion and for reasons also stated in my ruling by letter dated 14th June 1999, quite aside from the fact that Sheikh Fahad’s own refusal to comply with the court’s order would probably have debarred him from seeking any such stay.
(10.6) Sheikh Fahad’s suggestion that I should decline jurisdiction or stay the present proceedings, while criminal proceedings in Kuwait proceed, has no merit.
(10.7) Sheikh Fahad’s suggestion that the present proceedings are “based on forged documents and must be dismissed” or stayed pending criminal proceedings which he chose to begin in Spain on the day he withdrew from the present English trial (4th December 1998) is considered in section III.5(g). For the reasons there stated, no such relief is appropriate.
(10.8) Sheikh Fahad’s objections (since ceasing to be legally represented) to the use in evidence of documents provided by Juge Tappolet is without merit. The documents were properly obtained by the plaintiffs as partie civile in respect of Swiss criminal proceedings and immediately they were so obtained were provided to other parties in the present actions. In so far as the exercise of my discretion is required to enable their admission and use in the form and manner in which this has occurred, this is unhesitatingly granted.
(10.9) So far as Sheikh Fahad (for the first time in these long proceedings) suggests some immunity, it is far too late for any such point and it has not in any event the smallest support.

The Facts and the Claims (sections IV and V)

(11) The Croesus, Oakthorn 1, Oakthorn 2, Pincinco and Wardbase transactions each involved a separate conspiracy to injure, in respect of which GT (and to a small extent in the Pincinco transaction THL) suffered loss which they can claim against the conspirators (sections IV.2 and V.1(b) and (c)).

(12) Neither the writing off against share premium account nor the capitalisation of the Koolmees loans in GT’s 1990 accounts had any effect in extinguishing any such loss or claim (section V.1(b)).

(13) Sheikh Fahad, Mr Jaffar and Mr de la Rosa were parties to the conspiracy in each of the Croesus, Oakthorn 1, Oakthorn 2 and Pincinco transactions, with Sheikh Khaled as a co-conspirator in the Pincinco transaction. Mr de la Rosa was also party to a conspiracy to defraud GT in the Wardbase transaction. (section V.1(c)).

(14) The substance of the conspiracy was committed in Spain in the case of the Croesus and Wardbase transactions, but not in the other transactions (section V.1(e)). To the extent that the substance of a conspiracy was committed in Spain, it had, in order to be actionable in England, also to be actionable under Spanish law. The conspiracy was actionable under Spanish law in the case of the Croesus and Wardbase transactions (and if relevant in the case of the other transactions also) (section V.1(f)). Accordingly, it was actionable in England in the case of each transaction.

 (15) None of Mr Soler, Mr Coll, Mr Folchi, Mrs Parker and Mr Moukarzel is shown to have been party to any of the conspiracies. Each of Mr Soler, Mr Coll, Mr Folchi and Mr Moukarzel was knowingly party to misconduct in one respect or another, particularly in contriving schemes and documentation to conceal THL’s and/or GT’s operations from the eyes of the Spanish authorities and/or the public and/or to mislead THL’s or GT’s auditors. But they did this in the belief that the operations had been undertaken in the interests of THL and/or GT and/or the KIO, and they were not party to any conspiracy against THL or GT. The Coll scheme was also in breach of article 81.1 of the Spanish Companies Act, although Mr Coll and others did not appreciate this and did not thereby intend to injure GT. Mrs Parker also allowed herself unwisely to become involved in such schemes and documentation, but again was not party to any conspiracy against THL or GT.
 
(16) Sheikh Fahad, Mr Jaffar, Mr de la Rosa and (in the Pincinco transaction only) Sheikh Khaled would if necessary also be liable for breach of duties as directors of GT and dishonest assistance (sections V.2 and V.3).

(17) Mr Folchi is liable for breach of duty as a director of THL for the minor losses which THL suffered in the Pincinco transaction (section V.2). He is liable for rendering dishonest assistance for losses arising from the Oakthorn 1, Oakthorn 2, Pincinco and Wardbase transactions (section V.3).

(18) None of Mr Soler, Mr Coll, Mrs Parker and Mr Moukarzel is liable for dishonest assistance, or (so far as claims are made against them) for money had and received or knowing receipt.

(19) GT is entitled to be subrogated to THL’s claims to trace (in terms set out below) (i) into the Better Trust set up by Sheikh Fahad in the Bahamas, consequent upon Sheikh Fahad’s receipt of the sums of $22.5m and $75m in the Oakthorn 1 and Pincinco transactions and subsequent movement of such sums and proceeds thereof into the Better Trust in early 1993, and (ii) into the proceeds of sale of the leasehold interest in 52 Cadogan Place held by Esteem Limited, consequent upon the acquisition of such interest by use of £3,150,000 out of the sum of $22.5m received by Sheikh Fahad in the Oakthorn 2 transaction (section V.5).

VI.2. Orders
(1)	The first defendant, Sheikh Fahad:
(i)	GT is entitled to judgment against the first defendant for damages for conspiracy in respect of (a) the Croesus transaction, for $25m and $2,576,707; (b) the Oakthorn 1 transaction, for $55m; (c) the Oakthorn 2 transaction, for $50m; and (d) the Pincinco transaction, (i) $300m lost in October 1990, (ii) Ptas.2,375,000,000 lost in July 1991 and (iii) $6,144,000 lost in the second half of 1991; in addition, THL is, as it presently appears to me, but subject to hearing further argument on this one point, entitled to judgment for sums disbursed in the first half of 1992 and not made good by GT, consisting of Ptas.83,822,630 in total to Zymo, $38,123 to Russell Limebeer and Ptas.62,000,000 to Coggia.
 
(ii)	GT is entitled, as against the twenty-third defendant, Esteem Limited, to declarations as follows:

	(a) that the proceeds of sale of the leasehold interest in 52 Cadogan Place London currently held in an account in the name of Esteem Limited at Coutts and Co in London; and

	(b) any profits, investment income, growth or interest earned thereon or therewith whilst the proceeds of sale have been in the hands of Coutts & Co
are in equity its property, and GT is entitled to payment of the same.

(iii)(a) GT is entitled, as against the first defendant, to a declaration that, out of such part of the Fund (as defined in sub-paragraph (b) below) as remains in the hands of Pictet Bank and Trust Limited and/or Pictet Overseas Trust Corporation Limited:

(a) $97.5m together with any profits, investment income, growth or interest earned thereon whilst it was in account G772 at Lombard Odier & Cie, Geneva (or any sub-accounts thereof); and
(b) any profits, investment income, growth or interest earned thereon or therewith whilst the Fund has been in the hands of Pictet Bank and Trust Limited and/or Pictet Overseas Trust Corporation Limited

is in equity the property of GT, and GT is entitled to payment of the same.

(b) For the purposes of paragraph (a), “the Fund” comprises sums totalling $135,353,787.10 received into current account number 73936 held at Pictet Bank and Trust Limited in the name of Pictet Overseas Trust Corporation Limited as trustee of the Better Trust as follows, $50,003,645.83 on or about 15th January 1993, $80,006,111.11 on or about 20th January 1993 and $5,344,030.16 on or about 5th March 1993, together with the proceeds thereof and any assets representing the same or any part thereof.

(c) An account shall be taken before a Master of the Queen’s Bench Division as to any profits, investment income, growth or interest earned on or with the sums of $22.5m and $75m paid into account G772 at Lombard Odier & Cie., Geneva on 31st July 1989 and 4th October 1990 respectively (i) whilst such sums were in such account or any sub-accounts thereof and (ii) whilst the Fund has been in the hands of Pictet Bank and Trust Limited and/or Pictet Overseas Trust Corporation Limited

(iv) Any recoveries actually achieved by GT in respect of the proceeds of sale of the leasehold interest at 52 Cadogan Place and/or any such profits, investment income, growth or interest earned thereon or therewith, as referred to in paragraph (ii) above, shall, as and when such recoveries may actually be achieved and not before, be credited against any damages and interest recoverable from the first defendant by GT under paragraph (1)(i)(b).

(v) Any recoveries actually achieved by GT in respect of the sums of $22.5m and $75m relating to (respectively) the Oakthorn 1 and the Pincinco transactions and/or any such profits, investment income, growth or interest earned thereon or therewith, as referred to in paragraph (iii) above, shall, as and when such recoveries may actually be achieved and not before, be credited against any damages and interest recoverable from the first defendant by GT under (respectively) paragraph 1(i)(b) and paragraph (1)(i)(d), as the case may be.

(vi) I will hear counsel on interest (sought at a compounded rate), and on the question whether any further or other relief is appropriate in the light of this judgment.

(2)	The third defendant, Mr Jaffar:
(i) There will be judgment against the third defendant for damages for conspiracy in respect of (a) the Croesus transaction, for $25m and $2,576,707; (b) the Oakthorn 1 transaction, for $55m; (c) the Oakthorn 2 transaction, for $50m; and (d) the Pincinco transaction, (i) $300m lost in October 1990, (ii) Ptas.2,375,000,000 lost in July 1991 and (iii) $6,144,000 lost in the second half of 1991; in addition, THL is,. subject to hearing further argument, entitled to judgment for sums disbursed in the first half of 1992 and not made good by GT, consisting of Ptas.83,822,630 in total to Zymo, $38,123 to Russell Limebeer and Ptas.62,000,000 to Coggia.

(ii) Any recoveries actually achieved by GT in respect of the proceeds of sale of the leasehold interest at 52 Cadogan Place and/or any such profits, investment income, growth or interest earned thereon or therewith, as referred to in paragraph (1)(ii) above, shall, as and when such recoveries may actually be achieved and not before, be credited against any damages and interest recoverable from the third defendant by GT under paragraph (2)(i)(b).

(iii) Any recoveries actually achieved by GT in respect of the sums of $22.5m and $75m relating to (respectively) the Oakthorn 1 and the Pincinco transactions and/or any such profits, investment income, growth or interest earned thereon or therewith, as referred to in paragraph (1)(iii) above, shall, as and when such recoveries may actually be achieved and not before, be credited against any damages and interest recoverable from the third defendant by GT under (respectively) paragraphs 2(1)(b) and paragraph (2)(i)(d), as the case may be.

(iv) Again, I will hear counsel on interest, and on the question whether any further or other relief is appropriate in the light of this judgment.

(3)	The fifth defendant, Mr de la Rosa:
(i) There will be judgment against the fifth defendant for damages for conspiracy in respect of (a) the Croesus transaction, for $25m and $2,576,707; (b) the Oakthorn 1 transaction, for $55m; (c) the Wardbase transaction, for Ptas.2b. Interlocutory judgment has, as I mentioned at the start of this judgment, already been given against him in respect of the Oakthorn 2 transaction and the Pincinco transaction.

(ii) Any recoveries actually achieved by THL in respect of the proceeds of sale of the leasehold interest at 52 Cadogan Place and/or any such profits, investment income, growth or interest earned thereon or therewith, as referred to in paragraph (1)(ii) above, shall, as and when such recoveries may actually be achieved and not before, be credited against any damages and interest recoverable from the fifth defendant by GT under paragraph (3)(i)(b).

(iii) Again, I will hear counsel on interest, and on the question whether any further or other relief is appropriate in the light of this judgment.

(4)	The fifty-third defendant, Sheikh Khaled:
(i) There will be judgment against the fifty-third defendant for damages for conspiracy in respect of the Pincinco transaction, (i) $300m lost in October 1990, (ii) Ptas.2,375,000,000 lost in July 1991 and (iii) $6,144,000 lost in the second half of 1991; in addition, THL is, subject to hearing further argument, entitled to judgment for sums disbursed in the first half of 1992 and not made good by GT, that is Ptas.83,822,630 in total to Zymo, $38,123 to Russell Limebeer and Ptas.62,000,000 to Coggia.

(ii) Any recoveries actually achieved by GT in respect of the sums of $75m and/or any such profits, investment income, growth or interest earned thereon or therewith, as referred to in paragraph (1)(iii) above, shall, as and when such recoveries may actually be achieved and not before, be credited against any damages and interest recoverable from the fifty-third defendant by GT under paragraph (4)(i).

(iii) Again, I will hear counsel on interest, and on the question whether any further or other relief is appropriate in the light of this judgment.

(5)	The ninth defendant, Mr Folchi:
(i) 	GT is entitled, on the basis that the ninth defendant assisted dishonestly in respect of breaches of fiduciary duty by Mr de la Rosa and others (and to the extent of his receipts of $2.165m in respect of Oakthorn 1 and $5.567m in respect of Pincinco on the additional basis of knowing receipt), to treat the ninth defendant as a constructive trustee in respect of monies as follows:  in respect of (a) the Oakthorn 1 transaction $55m ;  (b) Oakthorn 2 transaction, $50m; (c) the Pincinco transaction, (i) $300m lost in October 1990, (ii) Ptas.2,375,000,000 lost in July 1991 and (iii) $6,144,000 lost in the second half of 1991; in addition, THL is, subject to hearing further argument, entitled to judgment for sums disbursed in the first half of 1992 and, subject to correction, not made good by GT, consisting of Ptas.83,822,630 in total to Zymo, $38,123 to Russell Limebeer and Ptas.62,000,000 to Coggia; and (d) the Wardbase transaction, Ptas.2b.

(ii)      Any recoveries actually achieved by GT in respect of the sums of $22.5m and $75 relating to (respectively) the Oakthorn 1 and the Pincinco transactions and/or any such profits, investment income, growth or interest earned thereon or therewith, as referred to in paragraph iii above, shall, as and when such recoveries may actually be achieved and not before, be credited against any damages and interest recoverable from the first defendant by GT under (respectively paragraphs (5)(i)(a) and (c) 

(iii)	The plaintiffs’ claims against the ninth defendant in respect of the Croesus  transaction were not ultimately pursued and are dismissed.

(iii) Again, I will hear counsel on interest, and on the question whether any further or other relief is appropriate in the light of this judgment.

(6)	The fourth defendant, Mr Moukarzel:
The plaintiffs’ claims fail and are dismissed.

(7)	The sixth defendant, Mr Soler:
The plaintiffs’ claims fail and are dismissed.

(8)	The tenth, eleventh and nineteenth to twenty-second defendants, Mr Coll and his companies:
The plaintiffs’ claims fail and are dismissed.

(9)	The twenty-fourth defendant, Mrs Parker:
The plaintiffs’ claims fail and are dismissed.

25 June, 1999