THE CIVIL STANDARD OF PROOF AND ALLEGATIONS OF DISHONESTY: AVOIDING HINDSIGHT

In Group Seven Ltd & Anor v Nasir & Ors [2017] EWHC 2466 (Ch) Mr Justice Morgan considered issues relating to the standard of proof when there are allegations of dishonesty and fraud.  Part of the judgment also deals with the dangers of looking at witness evidence with the benefit of hindsight. Part of this judgment provides a “cut out and keep” guide to the burden of proof when making allegations of dishonesty and of the caution a judge must exercise when looking at a case with the benefit of hindsight.

“The correct position in relation to the standard of proof is as follows. The standard of proof is the civil standard, that is the allegations require to be proved on the balance of probabilities. It must be proved that the fact which is in issue more probably occurred than it did not occur. While it is obviously right to consider the inherent probability, or the inherent improbability, of an event in considering whether it has been proved on the balance of probabilities, there is no necessary connection between seriousness and inherent improbability.”

“An allegation that a person has been dishonest has a substantial subjective element. Therefore, the court has to make findings about a person’s state of mind at some time in the past. If the individual gives evidence to the effect that he did not have that state of mind at the relevant time then, if he is a credible witness and if there is no contemporaneous document to contradict his evidence, it may be inappropriate to reject his evidence. Even if the court feels that the witness ought to have appreciated something at the relevant time, if he says that he did not appreciate it, perhaps because he was inexperienced or just naïve or he was deceived by a fraudster, it may be inappropriate to reject his evidence.”

THE CLAIM

The claimant had been persuaded to part with a €100 million by a group of fraudsters. Eventually some €88 million were returned to Allseas.  Several actions had been brought to recover the balance due. In this action the credibility of some of the defendants’ witnesses was a key issue.

THE JUDGE’S OBSERVATIONS ON THE BURDEN OF PROOF AND ALLEGATIONS OF DISHONESTY

“Mr Landman, Mr Meduri and Mr Louanjli: general remarks

1. 1. It is of critical importance in this case for me to assess the credibility, and the honesty, of Mr Landman, Mr Meduri and Mr Louanjli. Group Seven alleged that Mr Landman, Mr Meduri and Mr Louanjli were dishonest. Mr Louanjli and LLB joined with Group Seven in contending that Mr Landman and Mr Meduri were dishonest. The Notable Defendants joined with Group Seven in contending that Mr Louanjli was dishonest. It was also submitted that Mr Landman, Mr Meduri and Mr Louanjli lied in their evidence to the court.

   2. The allegations against Mr Landman, Mr Meduri and Mr Louanjli are serious. The fact that the allegations are serious led some of the Defendants to submit that the more serious the allegation the more cogent must be the evidence relied upon. Counsel for Mr Louanjli also submitted that because the consequences for Mr Louanjli of a finding of dishonesty would be very grave, the stronger must be the evidence before a court could hold that the allegation had been proved. These submissions were said to be based on the speech of Lord Nicholls in Re H (minors) [1996] AC 563, in particular at 586. However, that passage in the speech of Lord Nicholls has been discussed on a number of later occasions where it has been pointed out that it has been misunderstood: see re B (Children) [2009] AC 11 at [5]-[15] and at [62]-[73], re S-B (Children) [2010] 1 AC 678 at [10]-[13] and re J (Children) [2013] 1 AC 680 at [35]-[36]. It is clear from those decisions that the nostrum “the more serious the allegation, the more cogent the evidence needed to prove it” is wrong: see re B (Children) at [64] per Lady Hale of Richmond. These authorities were reviewed in Otkritie International Investments Management Ltd v Urumov [2014] EWHC 191 (Comm) at [84]-[91] and see also I T Human Resources plc v Land[2016] FSR 10 at [113].

   3. The correct position in relation to the standard of proof is as follows. The standard of proof is the civil standard, that is the allegations require to be proved on the balance of probabilities. It must be proved that the fact which is in issue more probably occurred than it did not occur. While it is obviously right to consider the inherent probability, or the inherent improbability, of an event in considering whether it has been proved on the balance of probabilities, there is no necessary connection between seriousness and inherent improbability.

   4. This description of the standard of proof does not allow me to say that the more serious the consequences of a finding, the more cogent must be the evidence in support of it, as submitted by counsel for Mr Louanjli. However, if the consequences of an adverse finding are very serious for a witness, that may mean that witness will find giving evidence a very stressful experience and I can plainly take that matter into account when assessing his evidence.

   5. It is important that I form my assessment of the honesty of witnesses by reference to what was known by them at the relevant time. Today, a large number of matters are clear. It is clear that Mr Nobre was a fraudster and a money launderer. It is clear that Mr Nobre groomed Notable in order to use them to assist him with his money laundering. It is clear that Notable did in fact provide considerable assistance to Mr Nobre. Nonetheless, it is obvious that hindsight must be avoided and I must take particular care in that regard.

   6. At the trial, the court was given evidence as to a large number of matters but it was clear that not all of those matters were known to all of the Defendants at the relevant time. When I make my findings as to the involvement of Mr Yi together with Mr Sultana, Mr Rejniak, Mr Nasir and others it must be remembered that the actions of those persons in defrauding Group Seven were not known to the Notable Defendants nor to Mr Louanjli. Similarly, I need to consider separately the information which Mr Nobre gave to the Notable Defendants from my consideration of the information which Mr Nobre gave to Mr Louanjli. For this reason, in this judgment, I will set out the facts for the purpose of the separate claims in separate sections. I will deal with the facts which are relevant to the claim against Mr Yi separately from the facts relevant to the claim against the Notable Defendants which, in turn, will be separate from the facts relevant to the claim against Mr Louanjli.

   7. Much of the cross-examination of Mr Landman and Mr Meduri and many of the submissions focussed on the grounds for suspicion in relation to what Mr Nobre was asking Notable to do. Again, the extent to which matters were suspicious must be judged by reference to the knowledge available to Notable at the relevant time and not by reference to the matters which are now known. There is a fundamental difference between a finding that a person ought to have appreciated something and a finding that he did appreciate something. It is permissible to make a submission that because a person ought to have appreciated something that he must have appreciated, and therefore did appreciate, that thing. However, even in a case where the court is satisfied that a person ought to have appreciated something, the court has to consider separately whether the particular individual did appreciate that thing. The same comment applies to the cross-examination of Mr Louanjli and the suggestion that, because of the existence of grounds for suspicion of Mr Nobre, Mr Louanjli must have appreciated that Mr Nobre was a money launderer.

   8. In this context, I will mention the fraud that was practised on Group Seven by Mr Sultana and Mr Rejniak and others. On the information which is available to the court today, it is obvious that Group Seven was being defrauded. Even on the information which Group Seven had at the relevant time, the proposed investment and the circumstances surrounding it looked suspicious in the extreme. It is still very difficult to understand how Group Seven did not realise that it was being defrauded. Nonetheless, it is absolutely clear that Group Seven were deceived. Counsel for the Notable Defendants and for Mr Louanjli referred to the way in which Group Seven was deceived by fraudsters in order to support their contention that something similar happened when Mr Nobre persuaded the Notable Defendants and Mr Louanjli to help him with money laundering. They stressed that Mr Nobre was an extremely skilful fraudster and they were as much victims who were misled by him as Group Seven were victims of Mr Rejniak and Mr Sultana.

   9. Group Seven’s experience does show that skilful fraudsters can persuade innocent people of many surprising things. I bear that experience in mind in warning myself to avoid hindsight and to pay close attention to the facts and the evidence of the witnesses as to what actually happened and their actual state of mind at the relevant time.

   10. There has been an eight week trial. Individual documents have been put under a microscope. Great care and effort and time has been spent in assessing their contents and their possible implications. However, what I am concerned with is what happened at the time when the documents came into existence and were shown to others who had to decide what reaction, if any, to make to their contents.

   11. An allegation that a person has been dishonest has a substantial subjective element. Therefore, the court has to make findings about a person’s state of mind at some time in the past. If the individual gives evidence to the effect that he did not have that state of mind at the relevant time then, if he is a credible witness and if there is no contemporaneous document to contradict his evidence, it may be inappropriate to reject his evidence. Even if the court feels that the witness ought to have appreciated something at the relevant time, if he says that he did not appreciate it, perhaps because he was inexperienced or just naïve or he was deceived by a fraudster, it may be inappropriate to reject his evidence.

   12. Moreover, if a person accused of dishonesty tells lies in the course of his evidence on some of the issues in the case, the court still needs to ask itself whether it is appropriate to find that he was dishonest in relation to other issues in the case. The fact that a witness tells lies on one topic does not mean that all of his evidence is untruthful. The witness may be telling lies for a reason which does not necessarily indicate that he was dishonest in the way alleged.

Mr Landman

1. 1. In relation to Mr Landman, I have to determine whether he was dishonest in his dealings with Mr Nobre and in relation to the payments made by Notable at the request of Mr Nobre. His case was that he and his colleagues acting on behalf of Notable were satisfied about the source of the €100 million and did not suspect anything untoward in relation to the payments from the Notable client account. It is important for me to form a view as to Mr Landman’s credibility.

   2. Mr Landman was cross-examined in detail as to the many issues of fact in this case. However, there was one issue of fact, in particular, on which he was cross-examined thoroughly and which is of considerable importance for the purpose of my assessment of his credibility. This issue concerned a payment of £170,000 to a Panamanian company called Nisroy Investments Inc (“Nisroy”). The allegation against Mr Landman in relation to this payment was a serious one. It was said that Mr Landman had asked Mr Nobre to make a personal payment to him in return for Mr Landman acting on Mr Nobre’s instructions in various respects. It was said that Mr Nobre agreed to pay Mr Landman £170,000 for this reason. It is said that Mr Landman then produced an invoice from Nisroy for £170,000 and that sum was paid out of the Notable client account. At the meeting on 15 November 2011, in order to obtain authorisation to make this payment, Mr Landman told Mr Meduri that the payment was a fee for Mr Haddu-Levi for his introduction of certain investments to Mr Nobre. The money was duly paid to Nisroy who then paid it to Mr Landman or on his instructions.

   3. It is clear to me that the allegations against Mr Landman in relation to this payment of £170,000 have been established. I do not make any specific findings as to the precise nature of Mr Landman’s historic involvement with Nisroy nor as to whether he was the beneficial owner of that company nor whether it was a vehicle which was available for him to process payments on his instructions. However, it is clear that he had a long-standing association with Nisroy and that in all respects relevant to this case it acted on his instructions.

   4. On 7 November 2011, after the money had arrived in the Notable client account, Mr Landman emailed Mr Binda of Unifida asking him to prepare an invoice from Nisroy for £170,000. He instructed Mr Binda to backdate the invoice to 1 November 2011 which was before the money had arrived in the Notable client account. He instructed Mr Binda to state that the invoice was for “services in connection with Fairfax and introduction to vendor”. Mr Binda did as he was instructed and produced the requested invoice.

   5. On 15 November 2011, Mr Landman approved the payment to Nisroy of £170,000 out of the Notable client account. Mr Meduri had no reason to think on 15 November 2011 that this was a payment, whether directly or indirectly, to Mr Landman himself. £170,000 was duly paid from the Notable client account to Nisroy. On 18 November 2011, Mr Landman instructed Mr Binda of Unifida to pay £25,000 to Colombo Fiduciaria SA. Mr Landman had earlier borrowed £25,000 from Mr Colombo of that company and the payment to that company was a repayment by Mr Landman of the money which he owed. This payment was duly made. Also on 18 November 2011, Mr Landman instructed Mr Binda to transfer £32,700 to Bell Investments Ltd. The precise link between Mr Landman and Bell Investments Ltd was not properly explained but the evidence points to this payment being made from monies which were at Mr Landman’s disposal. This payment was also duly made. Also on 18 November 2011, Mr Landman instructed Mr Binda to send the balance of the £170,000 to his personal bank account in Israel and that was done. On 25 November 2011, in connection with the payment to the account in Israel, Mr Landman asked Ms Chantal of Unifida to confirm to the Israeli bank that he was the beneficial owner of Nisroy and it appears that she did so.

   6. The evidence before me as to the Nisroy invoice and the payments by Nisroy to Mr Landman was very clear. However, Mr Landman denied that the Nisroy invoice involved in any way a personal payment to him. To help him to sustain this denial, he came up with two explanations. The first was as to why Nisroy invoiced Larn for £170,000. The second was as to why Mr Landman was instructing Nisroy to pay £170,000 to himself or at his direction.

   7. The first explanation was as to why Nisroy invoiced Larn for £170,000. It was said that that was for a fee due to Mr Haddu-Levi. The story went as follows. Mr Landman knew Mr Haddu-Levi and had introduced him to Unifida. Mr Haddu-Levi had introduced Mr Nobre to potential investments in Fairfax and to Maybourne. Mr Landman had negotiated a fee for Mr Haddu-Levi in return for these introductions. Accordingly, Mr Landman on behalf of Mr Haddu-Levi had asked Nisroy to invoice Larn. It was then alleged that, about a year later, Nisroy had paid to Mr Haddu-Levi £160,000, being the £170,000 which had come from the Notable client account less £10,000 for fees to Unifida or Nisroy. Mr Landman produced a witness statement signed by Mr Haddu-Levi in support of this explanation. I was told that Mr Haddu-Levi would give oral evidence at the trial. However, after Mr Landman was cross-examined about this explanation, when it became abundantly clear that his evidence was false, I was told that Mr Haddu-Levi would not, after all, give oral evidence.

   8. As to the second explanation put forward by Mr Landman, in summary, he said that the payment by Nisroy to his Israeli bank account had nothing to do with Notable or Mr Nobre. The explanation was that he had various arrangements with Unifida and others involving the payment of “retrocessions” to him and various profit sharing arrangements. The monies totalling £170,000 which he instructed Nisroy to pay to him or at his direction were connected with those arrangements. It was a complete coincidence that the sums involved came to £170,000 which was the same as the amount of money paid to Nisroy from the Notable client account. Mr Landman said that the sums payable to Colombo Fiduciaria and to Bell Investments were sums genuinely payable to those companies and not to him.

   9. The two explanations put forward by Mr Landman were false. Mr Landman knew that they were false. Nonetheless, he gave sworn evidence that these explanations were true. He was cross-examined for many hours about his explanations and he persisted in lying to the court about them. He persuaded Mr Haddu-Levi to sign an untrue witness statement. Mr Landman also lied to his partner Mr Meduri about the Nisroy invoice. Mr Landman’s false evidence in these respects is a very serious matter. It is clear that Mr Landman is prepared to tell lies wholesale to the court and to attempt to sustain the lies throughout lengthy cross-examination.

   10. In view of Mr Landman’s lies in relation to Nisroy, I do not feel that I can accept anything he says to me unless it is supported by some other reliable evidence or, perhaps, is inherently probable. In a case where Mr Landman is facing serious allegations of dishonesty, his lies in relation to Nisroy place him at a considerable disadvantage. If he had not been called to give evidence to face these allegations, I would no doubt have been asked to draw an adverse inference from the fact that he had not been called. In the present circumstances, his position is even worse than if he had not been called. When he was called, he persisted in lying to the court on a matter of some importance. He thereby demonstrated that he was in that respect at least dishonest.

   11. The fact that Mr Landman persisted in his lies about the payment to Nisroy does not mean that he is necessarily lying in relation to other matters. In relation to other matters, where the Claimants allege that Mr Landman was dishonest, the burden remains on the Claimants to establish what they allege. However, Mr Landman cannot expect me to attach much weight to his explanations in defence of such allegations unless his explanation is supported by other reliable evidence or is inherently probable. Further, I am entitled to take into account the fact that Mr Landman’s persistent lying at this trial shows he has a propensity for dishonesty.

Mr Meduri

1. 1. Mr Meduri’s position is quite different from that of Mr Landman. Mr Meduri was cross-examined in great detail with a view to showing that he knew certain matters at the relevant time and that he had been seriously dishonest. I will make my specific findings in relation to these matters in due course in this judgment but at this stage I will record my overall assessment of Mr Meduri’s evidence. On the whole, I accept his evidence as to what occurred and as to his state of mind. I consider that he gave his evidence reasonably fairly and I do not accept the various criticisms which were made as to how he answered questions and how he explained himself. Conversely, I do not accept everything which he said. In the course of his cross-examination, it was put to him at length that he had been dishonest and that he was not telling the truth. It was not surprising to find that, when he rejected those suggestions, he explained why he did not accept them. The suggestions made to him were often in the nature of putting arguments as to why he should agree that he had been dishonest. It is difficult for a witness to answer such a suggestion without putting forward the contrary arguments. It would not be fair to say that such a witness is being unhelpful because he is “argumentative”. It is also entirely understandable that a witness will emphasise the arguments which show him in the best possible light. In the present case, it was obvious that Mr Meduri had considered in detail the evidence as to what had happened and he sought to justify his conduct. The process of a witness reviewing the evidence of what happened and then justifying his conduct will inevitably involve a witness in some element of reconstruction as well as pure recollection. It was contended that Mr Meduri had sought advice from other solicitors, and the Law Society, in relation to what was needed to guard against money laundering not because he really wanted to know and not because he really wanted to follow their advice but for the purpose of “papering the file”, that is, creating documents which would give the false impression that he had made the correct enquiries and followed the correct procedures. That suggestion was always improbable and having heard the evidence I do not accept it.

Mr Louanjli

1. Mr Louanjli gave evidence which he knew to be untrue in relation to a number of key matters. I do not accept his evidence about the conversation with Mr Meduri on 3 November 2011 nor about the conversation he had with Mr Landman just before Mr Louanjli sent the email of 14 November 2011. I also do not accept his evidence about the money which his company, Bridge Ltd, received from Renaissance Limited. I find that I am not able to rely on his evidence on any issue unless his evidence is supported by the documents or is inherently likely or consists of an admission against his own interest.”