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Wirecard Bank Ag & Anor v Scott & Ors
Factual and Procedural Background
The Claimants, a bank based in Munich and its subsidiary, entered into a contract in November 2007 with Company A for credit card processing services. Company A, incorporated in 2006, sold tickets for sports and entertainment events on the secondary market, including purported sales of tickets for the 2008 Beijing Olympic Games, none of which were delivered. Customers paid by credit card and subsequently sought refunds, which the Claimants reimbursed, leading to claims against Company A for repayment. Company A became insolvent in September 2008.
The First Defendant held most shares and was the sole director for most of Company A's existence until liquidation. The Second Defendant was briefly a director and later Company Secretary. The Third Defendant was described by the Claimants as the driving force behind Company A.
The Claimants brought claims against the Defendants alleging deceit, conspiracy to injure by unlawful means, and liability under the Company Directors Disqualification Act 1986 (CDDA) s.15 for involvement in management while disqualified. The First Defendant's defence was struck out. The Second Defendant claimed limited administrative involvement and reliance on others' representations. The Third Defendant denied management involvement and conspiracy.
The trial concerns liability only, with quantum reserved. The procedural history includes freezing orders, applications to add Defendants, arrests by the Serious Fraud Office, and multiple hearings interrupted by judicial unavailability and re-hearings.
Legal Issues Presented
- Whether the Defendants made fraudulent misrepresentations inducing the Claimants to enter into the contract with Company A.
- Whether the Defendants conspired to injure the Claimants by unlawful means, including deceit, breach of contract, fiduciary duties, and breaches of the CDDA.
- Whether the Defendants are personally liable under CDDA s.15 for Company A's debts incurred while involved in management during disqualification or acting on instructions from a disqualified person.
Arguments of the Parties
Claimants' Arguments
- The Defendants fraudulently induced the Claimants to provide credit card processing facilities by misrepresenting the legitimacy and honesty of Company A's business and its entitlement to tickets from main sponsors of the Olympics.
- The Defendants conspired to defraud the Claimants by unlawful means, including breaches of contract and fiduciary duties, and breaches of the CDDA.
- Under CDDA s.15, the Defendants were involved in management while disqualified or acted on instructions from a disqualified person, making them personally liable for Company A's debts.
First Defendant's Arguments
- The Defence was struck out and he did not participate in the trial.
Second Defendant's Arguments
- He was only an administrative employee not involved in management decisions.
- He reasonably relied on information from the First and Third Defendants and was not party to any conspiracy or unlawful acts.
- The representations made did not amount to misrepresentations, nor did the Claimants rely on them or suffer loss as a result.
- No debts were incurred for which he could be liable under CDDA s.15.
Third Defendant's Arguments
- He was not involved in management; the First Defendant was solely responsible for management including ticket acquisition.
- He believed in the truth of representations made to the Claimants.
- He was not party to any conspiracy or unlawful acts.
- The representations did not amount to misrepresentations and the Claimants did not rely on them or suffer loss.
- No debts were incurred for which he could be liable under CDDA s.15.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| OFT v Lloyd's TSB [2007] QB 1 | Explanation of the four-party model of credit card processing relevant to determining when debts were incurred under CDDA s.15. | The court referred to this case to understand the credit card processing arrangements and their relevance to the timing of debts incurred by Company A. |
| R v Campbell [1984] BCLC 83 (CA) | Definition of involvement in management under CDDA s.15(4), including indirect participation. | The court applied this precedent to conclude that the Third Defendant was involved in management despite not being a director. |
| Hawkins v Bank of China (1992) 10 ACLC 588; (1992) 26 NSWLR 562 | When a debt is incurred for purposes of liability under company law. | The court considered this Australian authority in submissions on when liabilities arose under CDDA s.15 but did not make a definitive ruling, noting differences in law and contract jurisdiction. |
| Russell Halpern Nominees Pty Ltd v Martin (1986) 4 ACLC 393 | Related to the timing of incurring debts under company law. | Considered alongside Hawkins; the court noted the lack of direct UK authority and deferred detailed consideration. |
| Neste Oy v Lloyds Bank plc [1983] 2 Lloyd's Rep 658 | Inference of a constructive trust from the time money is received. | Referenced in submissions relating to timing of liabilities under the conspiracy claim. |
| Re Farepak Food Gifts Ltd (in administration) [2007] 2 BCLC 1 | Similar principle on constructive trust and timing. | Referenced in submissions but not determinative in the court's decision. |
| Hill v Secretary of State for the Environment Food and Rural Affairs [2005] EWHC 696 (Ch) | Additional authority considered post-hearing but not altering judgment. | The court read but did not find it necessary to alter the draft judgment based on this authority. |
Court's Reasoning and Analysis
The court found that Company A never intended to supply tickets for the 2008 Olympics, and that the Defendants conspired to defraud the Claimants. The First Defendant was not managing the business; rather, the Third Defendant controlled Company A with the Second Defendant playing a subsidiary managerial role. The court rejected the Defendants' attempt to attribute responsibility to a fictitious individual and entity purportedly supplying tickets, finding these to be fabrications designed to deceive creditors and the liquidator.
The court accepted that the Second Defendant was involved in management responsibilities consistent with a director, including financial transactions and dealings with the Claimants. The Third Defendant was found to be the controlling mind behind Company A, with experience and knowledge in the ticketing industry, and had been disqualified from acting as a director during the relevant period.
The court concluded that the Defendants made fraudulent misrepresentations, specifically in an email dated 14 November 2007, that Company A was engaged in a legitimate and honest business and was entitled to obtain tickets from main sponsors. The representations were false and made recklessly or knowingly. The Claimants relied on these representations to their detriment.
Regarding CDDA s.15, the court found that the Third Defendant was involved in management while disqualified, satisfying s.15(1)(a). The Second Defendant was involved in management and acted on instructions from the disqualified Third Defendant without court leave, satisfying s.15(1)(b). The court applied the presumption under s.15(5) that the Second Defendant was willing to act on such instructions from the date he knew of the disqualification.
The court discussed the timing of debts incurred under the contract and the relevance to CDDA liability, noting conflicting submissions and lack of direct UK authority. It held that liabilities arose at least when the Claimants made payments to Company A under the contract, which occurred during the period of management involvement by the Defendants. The court refrained from detailed ruling on the precise timing due to the foreign law governing the contract and ongoing proceedings elsewhere.
The court found the Defendants' evidence lacking in candour and credibility, particularly the Third Defendant's evasiveness and the Second Defendant's inconsistent and evasive testimony. It rejected the Defendants' defences and accepted the Claimants' case on conspiracy, deceit, and CDDA liability.
Holding and Implications
The court's final decision is to enter judgment against all three Defendants on the claims of conspiracy, deceit, and liability under s.15 of the Company Directors Disqualification Act 1986.
Holding: Judgment is entered in favour of the Claimants against all Defendants on liability.
Implications: The decision holds the Defendants personally liable for Company A's debts incurred during their management involvement, including while the Third Defendant was disqualified. The findings of fraudulent misrepresentation and conspiracy establish the basis for the Claimants' entitlement to damages. No broader new legal precedent is set, but the judgment clarifies the application of CDDA s.15 in the context of management involvement and disqualification, and confirms the court's approach to assessing management control and liability in complex corporate fraud cases.
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