Factual and Procedural Background
This action arises from a claim by the Claimants concerning a transfer of 100 million by the First Claimant, Group Seven Limited (formerly Allseas Group SA, hereinafter "Allseas"), ultimately transferred into a client account of a firm of solicitors, Notable Services LLP ("Notable"), on 2 November 2011. The Second Claimant ("Rheingold") was joined by order following an assignment of causes of action from Group Seven Limited to Rheingold. The Defendants include Allied Investment Corporation Limited ("AIC"), Mr Rejniak, Mr Sultana, Larn Limited ("Larn"), and Mr Nobre. The claims against Larn and Mr Nobre were compromised, and the only active Defendant at trial was Mr Sultana. The Claimants allege that the 100 million was procured by fraudulent misrepresentations relating to an investment scheme involving trading in discounted Medium Term Notes ("MTNs") under the supposed auspices of the US Federal Reserve Board ("the Fed"). The money was transferred through several entities and accounts, ultimately ending in Notable's client account for the benefit of Larn. The Claimants contend that the entire scheme was a fraud and seek rescission of the loan agreements, damages, and tracing orders. The trial involved detailed factual findings concerning the nature of the scam, the roles of the parties, and the conduct leading to the loss of the funds.
Legal Issues Presented
- Whether the loan agreement between Allseas and AIC dated 15 October 2011 is null and void due to fraud under Maltese law.
- Whether the Defendants, including Mr Sultana, participated in fraudulent misrepresentations inducing Allseas to transfer the 100 million.
- The extent of liability of each Defendant, including personal liability of Mr Rejniak as director of AIC and Mr Sultana as a participant in the fraud.
- Whether the breach of Solicitors Account Rules by Notable breaks the chain of causation and affects liability.
- The applicability of contributory negligence by Allseas' representatives and its effect on damages payable by Mr Sultana.
Arguments of the Parties
Claimants' Arguments
- The 100 million was obtained through fraudulent misrepresentations concerning a non-existent investment scheme involving MTNs and the Fed.
- The loan agreements are null and void under Article 981 of the Maltese Civil Code due to fraud.
- The Defendants, including Mr Sultana, acted with bad faith and malicious intent to deprive Allseas of its funds.
- The breach of Solicitors Account Rules by Notable does not break the chain of causation.
- Allseas relied on the representations and was induced to transfer the funds.
Defendant Mr Sultana's Arguments
- Mr Sultana contended that he was deceived and was a mere conduit or cipher in the transactions.
- He denied personal involvement in the fraudulent scheme, attributing the fraud primarily to other Defendants.
- He accepted that the representations were untrue but denied that he was part of the fraud.
- He argued that the actions of Notable, including alleged breaches of money laundering regulations, broke the chain of causation.
- He sought to rely on contributory negligence by Allseas' representatives to reduce his liability.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574 |
Establishes reliance on misrepresentations in contract law. |
The court accepted that Allseas relied on fraudulent representations in entering the loan agreement. |
| Bugeja v. Muscat Court of Appeal 29 May 2009 |
Corporate veil can be lifted to hold directors personally liable for fraud. |
Applied to hold Mr Rejniak personally liable for fraud as director of AIC. |
| Standard Chartered Bank v Pakistan National Shipping Corp [2003] 1 AC 959 |
Deceitful defendants cannot rely on contributory negligence to reduce damages. |
The court considered this in relation to contributory negligence pleas under Maltese law. |
| Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5) [2002] 2 AC 883 |
Limits on public policy as a ground to refuse foreign law application. |
The court rejected disregarding Maltese law on contributory negligence on public policy grounds. |
| Attorney General of Zambia v. Meer Care and Desai [2007] EWHC 952 (Ch) |
Solicitors can be liable for dishonest assistance or gross negligence in money laundering cases. |
Referenced in relation to Notable's alleged breach of Solicitors Account Rules and duties. |
Court's Reasoning and Analysis
The court conducted a detailed factual analysis, finding that the entire investment scheme was a fraudulent scam from inception to conclusion. It concluded that Mr Sultana was not an innocent party but a knowing and willing participant in the fraud, actively facilitating and promoting the scheme to Allseas and other potential investors. The court found that the representations concerning the involvement of the Fed, the United Nations, and the Vatican were false and deliberately misleading.
The court examined the roles of other Defendants, particularly Mr Rejniak and Mr Nasir, and found them complicit in the fraud. The Claimants' representatives, Messrs Kooger and Visser, were found to be grossly negligent and naïve but not dishonest; they failed to exercise due diligence and were misled by the fraudulent parties.
Under Maltese law, the court applied Article 981 of the Civil Code to declare the loan agreement between Allseas and AIC null and void due to fraud. The court accepted expert evidence on Maltese law, noting differences from English law, including the lack of strict stare decisis and the possibility of contributory negligence claims even in fraud cases, though such claims would rarely reduce damages significantly.
The court rejected Mr Sultana's argument that alleged breaches by Notable, the solicitors holding the client account, broke the chain of causation relieving him of liability. It found that the negligent actions of Notable did not constitute a novus actus interveniens and did not absolve the fraudsters of responsibility for the loss.
The court held that Mr Sultana's extensive involvement, including drafting documents, arranging meetings, and persuading Allseas to invest, demonstrated his active participation rather than mere passive involvement. His conduct was fraudulent and caused damage to Allseas.
Contributory negligence by Allseas' representatives was acknowledged as a possible factor but was held to be insufficient to reduce Mr Sultana's liability meaningfully. The court exercised its discretion not to reduce damages payable by Mr Sultana despite the failings of Messrs Kooger and Visser.
Holding and Implications
The court's final decision is as follows:
1. The loan agreement between Allseas and AIC dated 15 October 2011 is declared null and void due to fraud.
2. AIC, Mr Rejniak, and Mr Sultana are liable to repay the 100 million plus interest and damages to Allseas.
3. Mr Rejniak is personally liable due to his role as director of AIC and involvement in the fraud.
4. Mr Sultana is held to have been a knowing and willing participant in the fraud and is liable for damages.
5. The breach of Solicitors Account Rules by Notable does not break the chain of causation and does not relieve the Defendants of liability.
6. No reduction of damages is made on the basis of contributory negligence by Allseas' representatives.
Implications: The decision restores Allseas to its pre-contractual position and holds the Defendants jointly and severally liable for the fraudulent loss. The judgment highlights the importance of due diligence in investment transactions and clarifies the application of Maltese law principles on fraud, rescission, and contributory negligence. No new precedent beyond the application of established Maltese law and principles is set.