This was a claim for an account and associated enquiries and for equitable compensation brought by Jeffrey and Peter Barnett (the claimants) against their former solicitor Stuart Creggy (Mr Creggy). The claimants were entrepreneurs in the restaurant business. Mr Creggy’s practice consisted of establishing offshore companies for clients and providing services to those clients in respect of depositing, investing and withdrawing funds held in those companies. Mr Creggy ceased to be a solicitor in 1998, but continued to provide those services until 2002.
The claimants were clients of Mr Creggy from the mid-1970s until 2002. Mr Creggy established offshore companies of behalf of Jeffrey and Peter (Pound and Glacier respectively). These companies were incorporated in Liberia, had directors in Gibraltar and accounts with a number of banks in Switzerland. The shares in those companies were held in bearer form, and the claimants were the beneficial owners of the companies. The prime motivation behind these arrangements was tax avoidance.
Mr Creggy was a signatory on the bank accounts in Switzerland. He controlled funds once they were inside the corporate structures. Substantial sums were paid by the claimants into these offshore structures, paid for the most part by companies under the claimants’ control. Very substantial sums were paid out of these structures on the instructions of the claimants.
In July 1998 Mr Creggy transferred funds totalling c.US$1.2m from the offshore companies to a Maltese lawyer, Dr Spiteri. When this was discovered, it led to a breakdown of relations between Mr Creggy and the claimants, and ultimately the present proceedings, which were issued in 2012. The claimants claimed that substantial sums were unaccounted for.
- 1) The claimants were correct in their contention that the transfers to Dr Spiteri were unauthorised and a breach of duty on the part of Mr Creggy.
- 2) There was no restriction on the jurisdiction to order an account that required the claimants to show they were the legal or beneficial owners of the funds paid to the accounting party.
- 3) The funds provided to Mr Creggy were not (save that they passed through the client account) held by Mr Creggy as trustee for the claimants. However, he owed fiduciary duties in respect of the exercise of his powers as a signatory and would be liable for any misuse of those powers. He was in a similar position to a director of a company.
- 4) An account is an appropriate remedy against those who hold funds, not against those who hold powers of disposal of funds vested in their principal. Although directors and others in similar positions may be compelled to provide information as to their dealings, an order for an account, imposing on the trustee the burden of establishing that any disposition of funds held by him were proper, is not available. Accordingly, the remedy of an account was not available against Mr Creggy as regards the funds held in the bank accounts of the offshore companies.
- 5) In any event, even if an order for an account could be made against Mr Creggy as regards funds held in the offshore companies, in the circumstances of this case it would not be appropriate to make an order for an account.
- 6) The claimants were entitled to an order for an account in respect of funds received by or to the order of Mr Creggy after July 1998. There was no evidence to suggest that any of these funds were paid to offshore companies owned by the claimants, and certain sums were unaccounted for.
- 7) Limitation did not provide a defence to a claim for an account; s23 of the Limitation Act 1980 did not apply to a beneficiary’s claim against a trustee for an account in equity, as it is a free-standing remedy which is not based on any other claim. However, a trustee cannot be deprived of a limitation defence otherwise available to him merely because the beneficiary seeks an account. If it is clear that all claims against the trustee would be time-barred, and an account would serve no other useful purpose, the court will not order an account. Some of the sums remain unaccounted for, and it was entirely possible that Mr Creggy had retained some of these funds or converted them to his use. No limitation period would apply to a claim to recover such sums from Mr Creggy.
- 8) The amounts paid to Dr Spiteri were established and the claimants would be entitled to orders against Mr Creggy for compensation in these amounts, unless either the ‘reflective loss’ principle applies or the limitation defence is well founded.
- 9) The submissions on the reflective loss principle, which were made on behalf of Mr Creggy after the trial, raised new issues of fact which were not explored at trial. There could be no question of reopening the trial for the purpose of investigating this issue of fact which could have been raised before the trial. It would be contrary to all fairness to hold that the reflective loss principle applied in view of the incomplete state of evidence.
- 10) The right of action against Mr Creggy accrued on the payment to Dr Spiteri in mid-1998. Letters signed by Mr Creggy had acknowledged the payment to Dr Spiteri in respect of Jeffrey Barnett. The last such letter was dated 21 July 2006. These constituted an acknowledgement with s29(5) of the Limitation Act 1980. Therefore Mr Creggy’s defence based on limitation failed.
- 11) In respect of interest, the general approach of the courts has been to determine the rate of interest by reference to the rate at which the recipient could have borrowed the funds of which he has been deprived, on a short-term and unsecured basis. The power to award interest is discretionary and if the result would be clearly unjust the court will adjust the interest rate accordingly. In the present case, the right approach was to start with a borrowing cost. The appropriate base rate was a linked to US$ LIBOR rather than US Prime Rate. The six-month LIBOR rather than three-month LIBOR should be adopted in view of the long period involved in this case. A rate of 3% above the six-month US$ LIBOR rate would be appropriate.
12) This was not an appropriate case to award compound interest. It was not alleged that Mr Creggy was guilty of a fraudulent breach of duty, nor had he retained any of the funds