Ivanishvili, Bidzina and others v Credit Suisse Trust L td [2023] SGHC(I) 9

Introduction

Bidzina Ivanishvili (“the plaintiff”) had a long and for many years trusting relationship with Credit Suisse Trust Limited in Singapore (“the defendant”). That relationship commenced in 2004 when an officer of Credit Suisse AG Geneva Branch (“the Bank”), the private investment banking arm of the Credit Suisse Group (“CS Group” or “Credit Suisse”) approached the plaintiff and offered to assist him with wealth management services.

The plaintiff was advised by the defendant and the Bank to use a structure pursuant to which he deposited over US$1.1 billion into the custody of the defendant to be placed on trust in “The Mandalay Trust” (or “the Trust”) with the objective of “Inheritance Planning and Asset Holding”. The responsible corporate vehicles of the Trust were Meadowsweet Assets Limited (“Meadowsweet”), Soothsayer Limited (“Soothsayer”) and Lynden Management Ltd (“Lynden”).

Unfortunately, the Bank had within its ranks a fraudster, Mr Patrice Lescaudron (“Mr Lescaudron”), who was appointed as the Trust’s Relationship Manager (“RM”) and over the next 9 years misappropriated many millions of dollars from the Trust. His scheming and fraudulent conduct was not halted until 2015 when market forces intervened, with the inevitable consequences of his arrest and subsequent imprisonment.

The Swiss Correctional Court (the “Swiss Court”) found that Mr Lescaudron had: embezzled large amounts of money; purchased securities above market price causing damage to the plaintiff and to the Trust; and operated a scheme pursuant to which he opened various accounts and transferred moneys without the knowledge of either the plaintiff or the defendant for the purpose of covering losses in other clients’ accounts which he had caused.

The Swiss Court also recorded Mr Lescaudron’s admission that he had forged orders by cutting and pasting the plaintiff’s signature on documents. The Swiss Court described some of Mr Lescaudron’s activities as follows:

Mr Lescaudron presented statements to the plaintiff which “did not reflect reality”. He moved money around to cover up the transfers made to other clients and to also cover the actual losses that were incurred by various clients of the Bank. His method of operation was at times apparently rather frantic and the money misappropriated from the Trust’s accounts was for “covering the losses generated by the trading operations that he had performed” in other clients’ accounts without their agreement. He utilised hidden sub-accounts and transferred funds into “side-pockets” in a web of fraudulent transactions.

The plaintiff, his wife, Ekaterina Ivanishvili, and three of their children (together “the plaintiffs”), sue the defendant in respect of alleged breaches of trust and losses in respect of which they claim damages of approximately US$1.2 billion.

The plaintiffs claim that the defendant breached its obligations as trustee in failing to properly administer the Trust and failing to keep the Trust assets safe.

The defendant took a very robust approach to the plaintiffs’ claims from the outset of the proceedings in 2017. Until August 2022, it put the plaintiffs to strict proof of the fraud perpetrated by Mr Lescaudron notwithstanding that Mr Lescaudron had pleaded guilty and had been convicted and imprisoned for the fraud.

Until a few weeks before the commencement of the trial on 5 September 2022, the defendant had denied that it had a duty to “[s]afeguard the Trust Assets by having measures in place to detect and prevent fraud and misappropriation on the Trust Accounts from taking place and by acting on any relevant information obtained through those measures”.

On 5 September 2022, at the commencement of the trial, the defendant accepted it was “under a duty to protect the Trust Assets if it had actual knowledge that those assets were not being managed properly” . However, it maintained that it “played a very limited role” in the facts which led to the fraud and on “the basis of its role, and what it was told, it could not have prevented the fraud or brought it to an end”.

On 16 September 2022 the defendant admitted “that it was required to take reasonable steps to protect and safeguard the Trust Assets from being misappropriated”.

The parties

The plaintiff

The plaintiff was born in Georgia and grew up in Chorvila, a small rural town in Georgia. He was educated in Georgia and graduated with Honours in Engineering and Economics from the State University in Tbilisi. At 25 years of age he moved to Moscow to study for a post-graduate degree in Economics at the Scientific Research Institute for Labour and Social Affairs. He holds a PhD in Economic Science.

During the 1980s the plaintiff established and operated a business in partnership with a business associate, Mr Vitaly Malkin (“Mr Malkin”), importing cheap telephones and computers from Asia for sale in the USSR. This business was funded by loans from family and friends. It was a very successful business, the profits from which were used by the plaintiff and Mr Malkin to establish Rossiyskiy Kredit, one of the first privately owned banks in Russia.

In 1989 the plaintiff met his wife, and they were married in 1994. They have four children, three of whom are plaintiffs and the fourth is now a resident of France.

In 1993–1994, the plaintiff established the Cartu Group. The Cartu Group was established with the aim of attracting investment to Georgia and developing banking businesses in Georgia. In 1995, the plaintiff and his wife established the Cartu International Charity Foundation for the promotion of charitable causes in Georgia.

The plaintiff and Mr Malkin were part owners of a metallurgical complex in Russia, known as Mikhailovsky, which was part of a group of metallurgical businesses under the brand name “Metalloinvest”. In 2004 the plaintiff and Mr Malkin sold that business for approximately USD 1.6bn. In 2006, Rossiyskiy Kredit sold its retail bank, Impexbank, to Raiffeisen Bank for USD 550m. These sales produced significant profits for the plaintiff and Mr Malkin.

The plaintiff returned to live in Georgia in 2005. He has had a very successful business life and has also been successful in politics, having served as the Prime Minister of Georgia from 2012 to 2013.

The plaintiff’s communication with the defendant and the Bank during the relevant period of their relationship was sometimes direct in face-to-face meetings with representatives of each entity and sometimes by e-mail directly to him. However, in the later years, the relationship was also conducted through the plaintiff’s personal assistants/advisers who would deal directly with the representatives of the defendant and the Bank, consult with the plaintiff, and then respond to the defendant and/or the Bank. Those assistants were Mr Irakli Garibashvili (“Mr Garibashvili”) until about late 2010, Mr Zviad Khukhunashvili (“Mr Khukhunashvili”) from about late 2010 until 2012, and Mr George Bachiashvili (“Mr Bachiashvili”) from 2012.

The defendant

The defendant, Credit Suisse Trust Limited, incorporated in Singapore, is a wholly owned subsidiary of Credit Suisse Trust AG (“CS Trust AG”), a Swiss company. CS Trust AG has other subsidiaries in other countries around the world. CS Trust AG and its subsidiaries will be referred to as the “CST Group”. The defendant was described as “well embedded into the [CST Group] Structure” which at the relevant times had around 350 employees working in 5 sub-departments.

CS Trust AG is a subsidiary of the CS Group. The Bank is also a part of the CS Group. The Bank has various branches around the world, including in Geneva and in Singapore. The Singapore branch of the Bank will be referred to as “the Singapore Bank”. Credit Suisse Life (Bermuda) Limited (“CS Life”) is a subsidiary of CS Bank.

There were three main departments in the defendant: (i) Trust & Estate Advisory; (ii) Trust Management; and (iii) Legal & Compliance. In the Trust Management department, there were four Trust Management teams and one Finance/Trust Accounting team. These teams reported to the head of Trust Management.

Each of the defendant’s heads of department had a “line manager” (a superior to which they reported) working in CS Trust AG which acted as the headquarters for the CST Group. The defendant’s head of Trust & Estate Advisory reported to the global head of Trust & Estate Advisory at CS Trust AG. The defendant’s head of Trust Management reported to the global head of International Trust Management, who in turn reported to the global head of Trust & Insurance Management at CS Trust AG. The defendant’s head of Legal & Compliance reported to a member of the Legal & Compliance team at CS Trust AG, who in turn reported to the global head of that department. The global heads of Trust & Estate Advisory, Trust & Insurance Management and Legal & Compliance at CS Trust AG reported to the CEO of the CST Group.

The CEO of the CST Group reported directly to the head of Investment Services & Products, who was part of the private banking division of the CS Group.

The defendant offered services as a professional trustee with the ability to utilise the investment banking arm of the CS Group for the investment of trust assets.

The trial

The witnesses

Evidence in the trial was given over 14 days between 5 September 2022 and 22 September 2022 with some preliminary oral submissions from the parties on 23 September 2022. The parties then provided written closing submissions and written submissions in reply by the end of January 2023. Final oral submissions were made on 16 and 17 February 2023 when judgment was reserved.

The factual witnesses who gave oral evidence in the plaintiffs’ cases were: the plaintiff who gave evidence on 5, 6, 7 and 8 September 2022; and Mr Bachiashvili who gave evidence on 8 and 9 September 2022.

The factual witnesses who gave oral evidence in the defendant’s case were: Mr Dominik Iwan Birri (“Mr Birri”), the defendant’s Head of Trust Management and Overall Centre Head and Executive Director from 2011 until 2015, who gave evidence on 9, 12 and 13 September 2022; Ms Josephine Novoa Sampaoli (“Ms Sampaoli”), an employee of the Trust and Agency Team in the Geneva Office of CS Trust AG who gave evidence on 13, 14 and 15 September 2022; Ms Sim I-May Joni (“Ms Sim”) a Trust Manager with the defendant who gave evidence on 15 and 16 September 2022; Ms Lau Chew Lui (“Ms Lau”), a Trust Manager with the defendant from June 2011 until July 2016, who gave evidence on 16, 19 and 20 September 2022; and Ms Peh Bee Geok (“Ms Peh”), a Trust Accountant and later Trust Manager with the defendant from June 2003 until June 2021, who gave evidence on 20 September 2022.

There were two other witnesses called by the defendant in respect of documentary searches and disclosure. They were Ms Luna Christie (“Ms Christie”) a Senior Trust Manager with the defendant, and Mr Martin Eichmann (“Mr Eichmann”), the CEO of the defendant. They both gave evidence on the voir dire on 14 September 2022 (which subsequently became evidence in the trial).

To deal with the issue of quantification of loss, parties called two expert witnesses each. The expert forensic accounting expert witnesses, Mr William Howell Wyndham Davies (“Mr Davies”) for the plaintiffs and Mr James Nicholson (“Mr Nicholson”) for the defendant, gave evidence concurrently on 21 September 2022. The expert wealth management witnesses, Mr David Morrey (“Mr Morrey”) for the plaintiffs and Ms Esther Mayr (“Ms Mayr”) for the defendant, gave evidence concurrently on 22 September 2022. The experts’ reports were admitted into evidence without objection. The forensic accounting experts filed a joint statement on 16 September 2022 (“the FA Joint Statement”), and the wealth management experts filed a joint statement on 5 September 2022 (“the WM Joint Statement”).

The admission

On the tenth day of the trial, Friday 16 September 2022, the defendant advised that it wished to make a “concession” to the Court and the plaintiffs admitting “that it had acted in breach of its trustee’s duties by 31 December 2008”. That concession was in the following terms:

On Saturday 17 September 2022 the defendant’s solicitors, Allen & Gledhill LLP, wrote to the Court and the plaintiffs’ solicitors in terms that included the following:

On the eleventh day of the trial, Monday 19 September 2022, instructed Senior Counsel for the defendant, Mr Lee Eng Beng (“Mr Lee”) explained:

The defendant made clear that its concession should not be understood as an admission or concession that it had a duty to review or monitor the wisdom of the investments of the Trust assets. Rather, its concession is expressly limited to a breach of its duty to keep the Trust assets safe.

At the time it made the admission, the defendant accepted that it followed from its breach of duty to keep the Trust assets safe that the plaintiffs would be entitled to some damages or compensation. However that position changed by reason of a settlement that was reached between the Bank and the plaintiffs on 1 December 2022 (“the Settlement”). The defendant now contends that any losses suffered by the plaintiffs by reason of the breach of its duties as a trustee have been fully compensated in accordance with the Settlement.

The plaintiffs contend that the defendant’s choice of 31 December 2008 as the date of the admitted breach of its obligation as trustee was “tactical”. They claim that the defendant knew that the Trust assets had been depleted by the effects of the Global Financial Crisis (“GFC”) of October 2008 by that date and that this “tactic”, if accepted, would keep the assessment of damages lower than otherwise if the breach had occurred before the GFC.

The plaintiffs submitted that both as a matter of evidence and logic, the defendant’s selection of 31 December 2008 as the date of breach is unsustainable.

The plaintiffs contend that the defendant was in breach of its obligation as Trustee earlier than 31 December 2008. In support of this contention, the plaintiffs rely upon the defendant’s conduct in failing to deal with unauthorised payments out of the Trust accounts (“unauthorised payments away” or “UPAs”) during 2006 and 2007 when many millions of dollars were transferred out of the Trust accounts by Mr Lescaudron without the identification of the recipient of the funds and/or without the prior approval of the defendant.

A forensic decision

The defendant had served other affidavits which, as late as 15 September 2022, the ninth day of trial, the plaintiffs anticipated would be read at trial. However, the defendant’s solicitors advised the Court in the letter of 17 September 2022 referred to at [32] above that, in the light of its admission on 16 September 2022, it had made the decision not to read those affidavits. This is a forensic decision that might appear uncontroversial. However, one of those proposed witnesses was Mr Patrick Guldimann (“Mr Guldimann”), a trust accountant, who was brought from Switzerland to the defendant’s Singapore office in 2015, following the discovery of Mr Lescaudron’s fraud, to review the financial statements of the Trust. Mr Guldimann produced restated accounts for the whole of the period 2006 to 2014. He had sworn two affidavits, the first on 18 April 2022 and the second on 29 August 2022.

Mr Guldimann’s first affidavit was the subject of a report by Mr Davies of 28 July 2022. Mr Davies was instructed to identify the “differences” between the originally approved financial statements for the Mandalay Trust and the restated financial statements for the same period “as exhibited” to Mr Guldimann’s first affidavit (the “Restated Financial Statements”). Mr Davies’ report refers not only to the restated financial statements exhibited to Mr Guldimann’s first affidavit but he also extracts parts of and refers to other parts of Mr Guldimann’s first affidavit.

Mr Nicholson’s report of 3 June 2022 referred in numerous paragraphs to having been “instructed” in respect of certain matters. The plaintiffs’ lawyers requested details of those instructions. Mr Guldimann’s second affidavit was filed “to address” Mr Davies report of 28 July 2022 and “the instructions” given to Mr Nicholson in respect of his report of 3 June 2022.

Mr Guldimann’s affidavits were relied on by Mr Davies and Mr Nicholson in reaching some of the conclusions in their joint report and were discussed in their evidence. His second affidavit was referred to in the FA Joint Statement.

Ms Lau was cross examined about Mr Guldimann’s role in reviewing the Trust’s accounts including in respect of e-mails written by him at the time of his work for the defendant. Ms Lau was also taken to the exhibits to Mr Guldimann’s first affidavit.

Mr Guldimann’s role was also referred to by the parties in their written closing submissions on the apparent understanding that the Court would have access to the contents of the affidavits. In fact, the defendant referred to a specific paragraph of Mr Guldimann’s first affidavit in support of its contention in respect of the nature of the “restatement exercise”.

In final oral submissions, the parties were asked to address the issue of how the Court should deal with the “status” of Mr Guldimann’s affidavits. The plaintiffs tendered the affidavits not for the purpose of proving the truth of their contents but for the purpose of understanding the unchallenged evidence that has been given in relation to their contents including by the experts and Ms Lau. The defendant objected to the tender on the basis of its lateness and the fact that the affidavits had not been read in Court submitting that such a step is “irregular”. The defendant could not point to any real prejudice other than suggesting that there is “uncertainty” about the scope of reliance on the contents of the affidavits.

There are numerous aspects to the steps that Mr Guldimann took in restating the accounts that are already in evidence without objection. In all the circumstances and having regard to the reference by the parties to the affidavits in their submissions and the evidence of the experts and Ms Lau referred to above, it is appropriate that the affidavits be received into evidence as an exhibit.

Settlement with the Bank – 1 December 2022

On 30 December 2022 the defendant’s solicitors notified the Court that the Bank had reached an agreement with the plaintiff dated 1 December 2022 in respect of the payment of certain amounts that are claimed by the plaintiffs in these proceedings (the “Settlement”). These amounts related to misappropriations from the Meadowsweet accounts that were itemised in the first instance judgment of the Geneva Criminal Court dated 9 February 2018. The Settlement was expressly “confirmed not to impact in any way” the plaintiffs’ “other claims” in these proceedings.

The Settlement expressly preserves the plaintiffs’ claims for “any other consequential losses from the failure” of the Bank and/or the defendant “to identify and/or take action” in respect of the transfers, the payment of which were the subject of the Settlement.

The Settlement also includes an agreement that if the Court finds that damages are to be awarded to the plaintiffs in these proceedings on a particular basis then it is agreed that such basis will, by consent, be adjusted to exclude both the transactions and the amounts paid under the Settlement from such assessment.

The amount the Bank agreed to pay Meadowsweet, the plaintiff and the plaintiff’s company Wellminstone SA in accordance with the Settlement was USD 79,430,773.

Some litigious history

In the present proceedings the plaintiffs originally sued both the defendant and the Bank. The defendant and the Bank were successful at first instance in opposing the proceedings going forward in Singapore on the basis that the convenient forum was Switzerland. On appeal, after the plaintiffs discontinued the proceedings against the Bank and reshaped the proceedings seeking relief only from the defendant, the Court of Appeal allowed the proceedings as reconstituted to continue in this Court (see Ivanishvili, Bidzina and others v Credit Suisse Trust Ltd [2020] 2 SLR 638).

Although this is a matter of history, it is mentioned because the defendant contends that many of the plaintiffs’ claims are more appropriately characterised as claims against the Bank for which it contends the defendant cannot and should not be held liable. The defendant also contends that the consequence of the arrangements reached in the Settlement is that the plaintiffs have been fully compensated for any loss suffered not only by reason of Mr Lescaudron’s fraud but also by reason of the admitted breach of duty by the defendant in failing to keep the Trust assets safe.

This contention is based in part on the nature of the arrangements under the Mandalay Trust. The defendant claims that because the plaintiff was appointed as the “Investment Manager” of the Trust it has no liability for the losses the plaintiffs claim over and above the amounts that were misappropriated by Mr Lescaudron for which it submits the plaintiffs have been fully compensated by the Settlement.

Events after 31 December 2008

The defendant also contends that events after 31 December 2008 are no longer relevant to the issues for determination because it has admitted that it was in breach of its duty as at that date and that this was a continuing breach. However, it has dealt with the events post 31 December 2008 in its submissions on the basis that the Court may take a different view.

The plaintiffs rely on events after that date as they contend they are relevant in reviewing the parties’ relationships and to the determination of the nature, extent and date or dates of the various breaches of duty they allege were committed by the defendant. It was submitted that it is also important to the determination of whether, if the Court finds there are breaches other than or in addition to the breach admitted by the defendant, the defendant is entitled to relief under s 60 of the Trustees Act 1967 (2020 Rev Ed) (the “Trustees Act”).

In the circumstances it will be necessary to consider the matter in far more detail than simply focussing on the parties’ relationship and relevant events up to 31 December 2008.

The Trust

The setup of the Trust

The parties meet – 30 November 2004

It was in 2004 after the plaintiff and Mr Malkin sold Mikhailovsky that the Bank approached him with a proposal that he place his funds with the defendant. The Bank officer who approached the plaintiff with this proposal was Ms Daria Mihaesco Krassiakov (“Ms Mihaesco”), a Senior RM with the Bank.

On 30 November 2004 a meeting took place in Zurich attended by the plaintiff, Mr Malkin, Ms Mihaesco and two representatives of the Singapore private banking arm of the CS Group, Mr Beat Stamm (“Mr Stamm”) and Mr J.M. Toffoletto.

In an internal e-mail dated 3 December 2004 between the defendant and representatives of the Bank purporting to summarise the discussions at this meeting the following was recorded by Mr Stamm:

The reference “BO” was to “beneficial owner” and “B.I.” was a reference to the plaintiff. The summary also referred to discussion about the possible use of corporate vehicles in the British Virgin Islands (“BVI”), a Cyprus trust and accounts in Switzerland, with the conclusion that the plaintiff and Mr Malkin “rather prefer to have a full ‘Singapore solution’ in place immediately, not involving Cyprus, nor Switzerland, and therefore requested [the defendant] to prepare two Singapore Trusts (based on the submitted information about the Cyprus Trusts) with two underlying companies (e.g. Bahamas or BVI) in due time”.

The summary also recorded the following:

Based on the above, it was suggested to the plaintiff that he put forward “guidelines” for the investment of his assets at the meeting. The plaintiff claimed that rather than him giving any “advice” to the defendant or Credit Suisse generally, he went to Credit Suisse because he understood it was a “reliable” and “famous bank”. His purpose in going to the meeting was to obtain advice as to how to invest his money so that it was “protected” and if anything were to happen to him, for it to be transferred to his family.

The plaintiff was “quite surprised” to hear mention of Singapore (and the defendant) at this meeting and he claimed he was advised that his capital would be better protected with the laws and diversification in Singapore. The plaintiff was adamant that he did not dictate the structure for the investments and said that all “offers” including the reference to “AAA” came from the Credit Suisse representatives. His evidence included the following:

Paris Meeting – 9 March 2005

Following the execution of the trust documentation (discussed in detail in the next section), on 9 March 2005, the plaintiff met with Ms Mihaesco, Mr Stamm and Mr Massimo Hiber of the Singapore Bank at the Hotel George V in Paris. Mr Malkin also joined the meeting a short while after it commenced.

The Credit Suisse representatives were discussing the plaintiff’s wishes or instructions concurrently with those of Mr Malkin. Mr Stamm “confirmed that all major documentation was in place” and the Singapore trusts with the underlying company had become “operational”. He “summarised the prepared investment proposal based on” the plaintiff’s “input” in November 2004 “consisting of non-discretionary fixed income-, as well as opportunistic-, partly discretionary elements”. A note of this meeting recorded that the plaintiff had been influenced by Mr Malkin in considering the “similar solution” of a special discretionary mandate. The note also recorded that:

The Trust structure

The Trust has three underlying companies, Meadowsweet, Soothsayer and Lynden, that are held by nominees, Seletar Limited and Serangoon Limited, ultimately owned by the defendant.

The structure of the Trust is as follows:

The defendant owns the shares of Meadowsweet and Soothsayer in its capacity as trustee of the Trust. The corporate directors, Bukit Merah Limited and Tanah Merah Limited, and the company secretary of both corporate directors, Clementi Limited (“Clementi”), are wholly owned by the defendant. The individual directors of the corporate directors include persons who are also directors of the defendant.

Soothsayer held accounts with the Singapore Bank and Meadowsweet held accounts with the Bank. Lynden held a substantial collection of artworks.

On about 22 March 2005, the plaintiff arranged for USD 1.1bn to be transferred into the Meadowsweet accounts. On about 23 March 2005, USD 550m was transferred from the Meadowsweet accounts into the Soothsayer accounts.

On or around 29 March 2005, Meadowsweet entered into discretionary portfolio management agreements with the Bank, under which the Bank was given a mandate to manage the assets within two accounts. On or around 1 April 2005, Soothsayer entered into similar discretionary portfolio management agreements with the Singapore Bank for two accounts.

Trust documentation

The various documents establishing and associated with the Trust and setting up the various accounts with the Bank and the Singapore Bank were drafted in Singapore and Geneva. They were sent to Ms Mihaesco to facilitate their execution by the plaintiff.

On 9 December 2004, Mr Michael Low (“Mr Low”), Head of Trust Administration of the defendant, advised Mr Mark Jackman (“Mr Jackman”), the defendant’s Managing Director, and others that it was intended to try and complete the trust documentation and have the account up and running by the close of December 2004. He also advised that he would send the Acceptance Documentation (see [76] below) “filled up with whatever details” that he could glean from the material with which he had been provided. Mr Low also advised Mr Jackman that he would go ahead with account opening in Singapore because the intention was to close down the Geneva accounts (which had been opened in the name of the Cyprus trusts and underlying companies) “once the Singapore solution is up and running, and thus transfer the full USD1.8b into the trust structure”.

On 10 December 2004, Mr Low forwarded the “first tranche of the trust documents” to Mr Stamm for “onward transmission to” the plaintiff. Mr Low advised that he had noticed that Mr Stamm had indicated that the plaintiff and Mr Malkin were to “act as authorised signatories of the companies” which he took “to mean that they are intended to be appointed as investment managers with limited powers of attorney”. Mr Low advised that if this was so, Mr Stamm should have the plaintiff “also sign the attached form for appointment of investment manager” to be accompanied by the standard limited power of attorney (“LPOA”) form.

At this stage, the structure of the Trust was for the two companies, Meadowsweet and Soothsayer, to manage the Trust assets in Geneva and Singapore respectively. Lynden was brought into the structure at a later time to hold the works of art collected by the plaintiff.

Acceptance Documentation – 28 February 2005

On 28 February 2005, the plaintiff signed a document in Geneva that was entitled “Credit Suisse Trust in Singapore. Acceptance Documentation, Trust/Company” (“the Acceptance Documentation”).

On the first page was a joint message from Mr Jackman and Mr Ethan Chue, the Assistant Vice-President of the defendant, in the following terms:

The first section of the Acceptance Documentation, “Section A. Personal Information about the Proposer(s)” recorded the plaintiff as the “Proposer”. It included a question: “In the normal course of events, is correspondence/open contact with the Proposer permitted?” to which the answer “No” was typed. In consequence of that answer, it was necessary to complete the “restricted contact details” of the person with whom the defendant could communicate, with the suggestion that it could be a “professional advisor of the Proposer(s)”. Ms Mihaesco was identified as that person and details of her address and telephone numbers were recorded.

A question as to whether copies of account advices, statements and general banking correspondence should also be retained at the “Credit Suisse branch in accordance with Credit Suisse regulations and remuneration” was answered “Yes” in handwriting. A question as to whether the defendant “could only accept advice/recommendations from the Proposer” was answered “Yes” in handwriting.

In “Section B. Trust and Company Formation/Acceptance” the name of the Trust was recorded as “The Mandalay Trust” with the proper law of the Trust recorded as Singapore and the type of trust instrument as “CST Declaration of Trust”. This section included an instruction that “Each page of the draft deed chosen by the Proposer(s) must be initialled by him/them and be included with this Acceptance Documentation”. It also recorded that “CST will need to review the deed and take appropriate advice prior to accepting the Trust”.

The Acceptance Documentation recorded that Soothsayer would be a “direct subsidiary of the Trust”. The objectives of the Trust/Company were recorded as “Inheritance Planning and Asset Holding”.

In the section entitled “Auditors and Accounts” it was recorded (with typed text) that “short form accounting” rather than “full detailed accounts” was preferred. It was noted that:

“Section C. Banking and Asset Details” included the following:

In the section headed “Portfolio/Account Investment Manager”, next to the heading “Family Name/Company Name”, a handwritten entry recorded “Proposer - as per letter of appointment” with an initial and date which appears to be “3/3/05”.

“Section D. Due Diligence” included a description of the “financial and business background, the overall net worth, and the social position of the Proposer(s)”. It recorded that the plaintiff had a PhD in Economic Science; was a Director of Impex Bank Moscow; had personal income of “USD 2m p.a from investments salary and bonus”; had an overall net worth of “USD 1.3bn bankable assets (+ real estate and business holdings)”; had no “significant association” with any “politically connected person over the last five years”; and had “sale of mining business and salary” as the source/origin of his assets, which had accumulated since 1992 when he “acquired his stake in the business now sold”. The description of the assets and value to be transferred to the Trust/Company was “Bankable assets up to USD 600m”. This section also included the following:

The Acceptance Documentation was signed by the plaintiff in Geneva on 28 February 2005. The signature page contained a request that the defendant proceed with “the formation of the Trust/Company as appropriate”; a confirmation that the plaintiff was the beneficial owner of the assets to be transferred; and a confirmation that “the undertakings and comments given” in the Acceptance Documentation to the defendant “shall be irrevocable and remain valid” until the defendant “terminates its involvement with the Trust/Company”.

The Trust Deed – 7 March 2005

The declaration of trust establishing The Mandalay Trust was made by the defendant on 7 March 2005 (“the Trust Deed”). It was established under the proper law of Singapore which governed the operation of the Trust. The “Initial Settled Property” of USD 100 was vested in the defendant as Trustee. The “Trust Fund” was defined as: (i) the Initial Settled Property; (ii) all money, investments and property paid or transferred to and accepted by the Trustees as additions to the Trust Fund; and (iii) the investments and property from time to time representing such money, investments and additions or any part thereof.

“Trustees” was defined to include the defendant and any other trustees for the time being. The defendant stood possessed of the Trust Fund upon trust for the benefit of the plaintiffs and to accumulate the income of the Trust Fund and add accumulations to the capital of the Trust Fund for the beneficiaries.

The defendant had wide discretionary powers including powers to appoint such new or other trust powers for the benefit of the plaintiffs. It also had wide discretionary powers to delegate to other persons any of its powers and discretions in this regard which expressly survived any rule restricting the delegation of a power or discretion.

The defendant had the power to exclude or add beneficiaries and to make payments for the benefit of minors. It also had the power to vary by deed “all or any of the trust powers and provisions” of the Trust Deed so long as such variations benefited only the beneficiaries.

Clause 10 provided as follows:

The defendant had power to give up, restrict or release any of the powers conferred on it by the Trust Deed so long as it did not conflict with the beneficial provisions of the Trust Deed. It also had the power to appoint new and additional Trustees with provision made for a trustee’s withdrawal. The only other relevant express limitations on the defendant’s exercise of its very broad powers was to prevent such exercise if it were to infringe the rule against perpetuities.

Clause 13 provided as follows:

Clause 16 provided as follows:

Clause 19 of the Trust Deed provided that the defendant or “Trustees” had “absolute and uncontrolled discretion” to vary all or any of the trust powers and provisions “if they considered the same to be in the interests of the beneficiaries or one or more of them”. As the parties are at issue as to whether the Deed of Amendment and Restatement executed in July 2013 and referred to at [121] below is valid, it is convenient to extract the whole of the clause in relation to the defendant’s power in this regard. It was in the following terms:

The Fourth Schedule to the Trust Deed referred to as the “Administrative Powers” in Clause 13 of the Trust Deed included the following:

The Fourth Schedule also provided the power for the trustees to employ agents and to delegate “by deed” the execution or exercise of all or any trust powers and discretions. The power to employ agents included the power to appoint “banks trust companies or any other agent whatsoever whether associated or connected in any way with the Trustees or not”. In circumstances where the defendant appointed an agent “associated or connected with” it, the Fourth Schedule provided that the defendant would not be responsible to account for any default of the agent if employed in good faith to transact any business or to do any act required to be done in the execution of the trusts.

The Fourth Schedule also included the following:

Although the heading to this clause refers to “investment advisor or manager” the only expression used in the body of the clause is “investment advisor”. The expression “investment manager or investment advisor” is used in the body of Clause 10(b) (see [91] above). The Trust Deed does not define “investment manager” nor “investment advisor”.

Memorandum of Wishes – 7 March 2005

The defendant signed a document entitled “Memorandum of Wishes Concerning The Mandalay Trust” declared on 7 March 2005 (the “Memorandum of Wishes”). The Memorandum of Wishes recorded that its “purpose” was to “record information to assist in the administration of the trust and the exercise of any discretion and powers pursuant to the trust deed”. It identified the plaintiff as “the principal beneficiary” and recorded that:

The plaintiff’s signature appears above a line which records “Copy received by the principal beneficiary”.

The “Letter of Appointment” – 7 March 2005

A letter bearing the handwritten date 7 March 2005 addressed to the defendant and signed by the plaintiff (the “2005 Letter of Appointment”) was in the following terms:

This letter appears to be what Mr Low described as the “form for appointment of investment manager” which he had asked Mr Stamm to have the plaintiff sign if he intended that the plaintiff was to act as an authorised signatory of the companies (see [74] above). Notwithstanding Mr Low’s anticipation of Mr Stamm’s intention, the plaintiff was not an authorised signatory of the respective trust companies.

This is the letter, together with letters in later years, on which the defendant relies to contend that the nature of the Trust is a “reserved powers trust” of which the plaintiff was the “investment manager” and that its liability is limited by anti-Bartlett clauses (so named after the decision in Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515) in the Trust Deed.

Limited power of attorney for asset manager – 7 March 2005

The plaintiff also signed a document entitled “Limited power of attorney for asset manager” (“the 2005 LPOA”) addressed to the Singapore Bank. Soothsayer, as principal and holder of accounts with the Singapore Bank, appointed the plaintiff with effect from 7 March 2005 as its agent “to do and perform any transaction(s) relating to the management of the assets” in the accounts.

The 2005 LPOA recorded that the plaintiff, as attorney, was the “asset manager” and “investment advisor” of Soothsayer and that Soothsayer acknowledged that the plaintiff had no authority to bind the Singapore Bank in any transaction, give any advice or recommendation, or make any representation on behalf of the Singapore Bank, or receive any payment or collect assets on the Singapore Bank’s behalf. It was also acknowledged that the Singapore Bank would rely on the continuous validity, capacity and authority of the plaintiff to manage the assets until receipt of notice of revocation of the 2005 LPOA.

The 2005 LPOA also provided that the plaintiff was “not empowered to withdraw, either in whole or in part, securities or other assets” in the accounts with the Singapore Bank. It also expressly provided that the Singapore Bank “may (but shall not be required to) act on instructions signed purportedly by [the plaintiff]”.

Trust Committee Minute – 7 March 2005

A minute of the defendant’s Trust Committee chaired by Mr Jackman and dated 7 March 2005 recorded resolutions which included: (a) a resolution accepting the trusteeship of The Mandalay Trust; and (b) a resolution that the plaintiff “be appointed as Investment Manager to The Mandalay Trust pursuant to the terms of the said trust”.

Other letters – 7 March 2005

In addition to the 2005 Letter of Appointment referred to above, the plaintiff signed other letters addressed to the defendant which bear the handwritten date 7 March 2005. These included: a letter requesting the defendant to open an account for “the Mandalay Trust/Soothsayer Limited” ; and a letter advising the defendant that the plaintiff understood that it was the defendant’s usual practice to obtain confirmation that a proposed client had taken legal advice on “legal and tax matters in connection with the declaration” of trust and that he “had not found it necessary” to do so. The latter letter recorded that the plaintiff did not “regard the defendant or its affiliates as responsible for any adverse legal or tax consequences which might arise or affect” the plaintiff or his family “as a consequence of having proposed/settled [the Trust]”.

Although the letters referred to above bear the handwritten date 7 March 2005, it is apparent from communications between Mr Low and Ms Mihaesco that they were not signed by the plaintiff on the dates they bear.

On 3 March 2005 Mr Low wrote by e-mail to Ms Mihaesco advising that he had received the documents for the Mandalay Trust accounts and asking her to confirm “the date and place of signing” by the plaintiff. Mr Low advised that “other than that” he believed the documents were “in order” and he was processing them “for formal acceptance”.

Ms Mihaesco responded on 8 March 2005 advising that the documents for the plaintiff “have to be filled” and that they were signed in Geneva on 28 February, “as it is the day when we received them in Geneva and that he did not fill in anything”.

Soothsayer acquired – 7 March 2005

On 7 March 2005 the defendant’s Trust Committee resolved that “The Mandalay Trust acquires Soothsayer Limited, as an underlying company registered in the Bahamas by subscribing for 2 ordinary shares of USD1.00 each”.

It was also resolved that “all assets that will be received in the account of Soothsayer Limited be accepted as additional settled assets of the Mandalay Trust”. It was also resolved that the defendant “acting as Trustee of the Mandalay Trust” granted “unsecured, interest-free loans” to Soothsayer “based on the value of the additional settled assets that will be received” in Soothsayer’s account, such loans to be repayable “on demand”.

Meadowsweet acquired – 10 March 2005

On 10 March 2005 the defendant’s Trust Committee resolved that “The Mandalay Trust acquires Meadowsweet Assets Limited, as an underlying company registered in the British Virgin Islands by subscribing for 2 ordinary shares of USD1.00 each”.

It was also resolved that “all assets that will be received in the account of Meadowsweet Assets Limited be accepted as additional settled assets of the Mandalay Trust”. It was also resolved that the defendant “acting as Trustee of the Mandalay Trust” granted “unsecured, interest-free loans” to Meadowsweet “based on the value of the additional settled assets that will be received” in Meadowsweet’s account, such loans to be repayable “on demand”.

Limited Power of Attorney – Pierre Grotz 12 April 2005

In a LPOA dated 12 April 2005 (“the Grotz LPOA”), a Mr Pierre Grotz (“Mr Grotz”) is named as “Attorney” to Meadowsweet as principal in respect of account number 75-5 with the Bank (“account 75-5”). Mr Malkin introduced Mr Grotz to the plaintiff, the Bank and the defendant. Mr Grotz’ relationship with Meadowsweet was described in the Grotz LPOA as “Advisor”.

The Grotz LPOA appears to have remained in place until 24 April 2007 when a discretionary portfolio management agreement was put in place in respect of account 75-5. Under this agreement, Meadowsweet appointed the Bank to “manage” the securities in account 75-5 based on the Bank’s “investment policy and in compliance with the investment profile” chosen by Meadowsweet and any investment instructions Meadowsweet may give. This agreement probably would have superseded the Grotz LPOA but there was no formal revocation on or around April 2007. On 31 March 2011, a letter was sent to the defendant, bearing the plaintiff’s signature, requesting the removal of Mr Grotz as attorney and the appointment of the plaintiff as attorney instead.

Limited Power of Attorney – 8 April 2011

Meadowsweet granted an LPOA to the plaintiff on 8 April 2013 in respect of a life policy that was taken out in 2011 (see [328]–[333] below) (“the CS Life LPOA”). The grant was in general terms with restrictions similar to those in the Meadowsweet LPOA referred to below.

Limited Power of Attorney – 27 May 2013

Meadowsweet granted a LPOA to the plaintiff generally relating to “safekeeping account(s) and assets in accounts”, and without limitation to any specified accounts (“the Meadowsweet LPOA”). The plaintiff was precluded from withdrawing, pledging or transferring all or part of the assets held in the Bank’s accounts, or securities or valuables deposited with the Bank. He was also precluded from contracting loans or signing the acknowledgement of any balance form.

Deed of Amendment and Restatement – 5 July 2013

A Deed of Amendment and Restatement for the Trust Deed (“the Deed of Amendment and Restatement”) was executed 5 July 2013. Its genesis as discussed later (see [399]–[414] below) was in the defendant’s desire to limit its liability in respect of the artworks collected by the plaintiff and over which the defendant was concerned it did not have custody or control.

The recitals to the Deed of Amendment and Restatement recorded that it was “supplemental to” the Trust Deed and that the defendant proposed to exercise its powers to vary the Trust Deed pursuant to Clause 19 of the Trust Deed (see [95] above). The recitals also recorded that the defendant was satisfied that the conditions in Clause 19 had been satisfied. The “Appointer” was defined as the plaintiff, or such person named by him. The other amendments to the Trust Deed were the inclusion of clauses 9 “Investment Manager” and 9A “Special Investment Manager”.

Clause 9 “Investment Manager” included the following:

Clause 9A “Special Investment Manager” provided for the Appointor to declare any company in which the trustees held any interest to be a Special Nominated Company. The company that was nominated was Lynden.

Clause 9A also provided that the Special Investment Manager would be “responsible for all investment and asset management functions relating to the works of art and the other assets held by the Special Nominated Company”. This included responsibility for the “management, maintenance and safe custody of the works of art”, and for “maximising returns whether by auction or private sale” when purchasing or selling works of art.

The defendant’s powers set out in the Fourth Schedule of the Trust Deed were only exercisable in respect of assets held by a Special Nominated Company if there was no Special Investment Manager and no Investment Manager “acting”. If there was a Special Investment Manager or Investment Manager, those powers and discretions were exercisable in respect of a Special Nominated Company’s assets only with the written consent of the Special Investment Manager or Investment Manager. The clause also provided that the defendant, the Special Nominated Company, and its officers: did not have any “responsibility, duty or liability in relation to the works of art”; “shall not be liable in any manner for the failure of the Special Investment Manager (or the Investment Manager as the case may be) to fulfil his obligations or in implementing any direction of the Special Investment Manager (or the Investment Manager as the case may be)”; shall not have any duty to “monitor the actions of the Special Investment Manager”; and shall not have any duty to “consider whether any direction given to the [defendant] is appropriate”. The defendant and Special Nominated Company were obliged to “follow any and all Investment Directions and other directions as set out in this clause” other than in exceptional circumstances, such as where it would be contrary to regulations to do so.

Deed of Appointment – 19 December 2013

On 19 December 2013 the plaintiff signed a deed as “Appointer”, witnessed by Mr Bachiashvili, described as supplemental to the “Settlement” (“the Deed of Appointment”). The “Settlement” was defined as the Trust Deed and the Deed of Amendment and Restatement. The Deed of Appointment recited that the plaintiff had the power “pursuant to clause 9(a) of the Settlement” to “appoint an additional Investment Manager”.

The Deed of Appointment recorded that in exercising the power conferred under Clause 9(a) the plaintiff declared Mr Bachiashvili “to be Investment Manager (acting singly)” with effect from 19 December 2013.

Limited Powers of Attorney – 27 February 2014

Meadowsweet granted two LPOAs to Mr Bachiashvili, one in respect of its accounts with the Bank and one in respect of its accounts with CS Life. The LPOAs were generally in the same terms as those LPOAs that were granted to the plaintiff (see [120] above).

The parties at issue in respect of trust

The parties are at issue in respect of the nature of the Trust, the plaintiff’s status in respect of the operation of the Trust and the defendant’s obligations and liabilities under the Trust Deed. There is also a challenge to the validity of the Deed of Amendment and Restatement.

The defendant claims that the Trust is a reserved powers trust, the provisions of which exclude it from liability to the plaintiffs for any of the losses that the Trust may have suffered other than those losses that are the subject of the Settlement with the Bank and for which the defendant claims the plaintiffs have been fully compensated.

The plaintiffs claim that the defendant has misunderstood the effect of the provisions of the Trust Deed and surrounding relevant documents and submitted that the defendant is liable for the losses suffered by the Trust that exceed the scope of the Settlement.

It will be necessary to consider the provisions of the Trust Deed and other documentation and the parties claims in detail later in this judgment.

The Trust bank accounts and portfolios

Bank Account signatories – 10 March 2005

On 10 March 2005, the board of Meadowsweet appointed Clementi as the sole authorised signatory of the Meadowsweet accounts with the Bank, with capacity to use an Authorised Signatories List for the account in the future. Such List included Bukit Merah Limited and Tanah Merah Limited. The plaintiff was not an authorised signatory nor was he on the Authorised Signatories List.

Meadowsweet account and mailing instruction to the Bank – 10 March 2005

On 10 March 2005, Bukit Merah Limited entered into a contract for the opening of an account and/or safekeeping account between Meadowsweet “as depositor” and the Bank. That contract included provisions in respect of correspondence which were cross-referenced to a letter of 10 March 2005 from Meadowsweet to the Bank. Meadowsweet’s address was recorded as “Nerine Chamber” with a PO Box in Tortola in the BVI. That letter required the Bank to send the “Original transaction, advices, month-end investment portfolio statements, current account statements and bank correspondences” by mail to “c/o” of the defendant’s address in Singapore. It also requested duplicate copies of these same documents to be “retained and released, only upon request”.

On 10 March 2005, Bukit Merah Limited also signed an “Order regarding the retaining of correspondence” on Meadowsweet’s behalf instructing the Bank to retain "all the correspondence and documents pertaining to the account and safekeeping account”. Meadowsweet had the authority to collect the correspondence and documents, however the order directed the Bank that if they were not collected or forwarded on the instructions to Meadowsweet, they were to be sent to the defendant at its Singapore address “REGULARLY” and the Bank was to “retain one duplicate copy”.

Meadowsweet discretionary portfolio management agreements with the Bank – 5 April 2005

On 23 March 2005 Ms Mihaesco forwarded two discretionary portfolio management agreements (“the Meadowsweet Discretionary Agreements”) together with two Investment Profiles (“the Meadowsweet Profiles”) to Mr Low. The Meadowsweet Discretionary Agreements were for two safekeeping accounts referred to for convenience as account 75-1 and account 75-4 with the Bank. In her covering e-mail, Ms Mihaesco advised that the term “plus” meant “opportunistic (return oriented)”, and the term “core” referred to a “conventional mixed portfolio”.

Clementi, for Meadowsweet, as “Client”, signed the two Meadowsweet Discretionary Agreements with the Bank on 29 March 2005. The Bank signed the Agreements on 5 April 2005.

Each Meadowsweet Discretionary Agreement defined the “Portfolio” as the “safekeeping account and transaction accounts”. Meadowsweet mandated and authorised the Bank to manage the Portfolio “independently and without special instructions, except the standing special instructions agreed upon, on a fully discretionary basis in accordance with the agreed investment profile”.

Each Meadowsweet Discretionary Agreement provided that Meadowsweet was not to give any instructions to the Bank for the purchase, holding or sale of investments in respect of the Portfolio. However, it also provided that if Meadowsweet did give such instructions, the Bank was “neither obliged to monitor and assess as to whether the resulting composition of the portfolio after execution of such special instruction is still in accordance with the agreed investment profile or to effect transactions for adjustment purposes”. Each Meadowsweet Discretionary Agreement recorded that Meadowsweet especially understood and agreed that “special instructions might not be carried out if the portfolio is invested in direct investment (e.g. investment funds, instruments of collective investments)”.

Each of the Meadowsweet Profiles was for a “Mixed Portfolio” defined to have “an average risk exposure through the acceptance of the fluctuation of assets and value; long-term capital growth aimed at through steady income, capital and currency gain”.

They each recorded that when “managing the portfolio” the Bank would invest the assets in accordance with the “Asset allocation” in minimum, maximum and neutral percentages in four categories: (i) Liquidity; (ii) Bonds; (iii) Equities; and (iv) Alternative Investments. The allocation in respect of Liquidity and Bonds was identical in each Meadowsweet Profile but differed in relation to Equities and Alternative Investments. For account 75-1 the maximum allocation for Equities was 25% with the minimum and neutral allocations at 0%; and for account 75-4 the maximum allocation for Equities was 50%, with minimum at 10% and neutral 30%. The maximum allocation for Alternative Investments for account 75-1 was 50%, with minimum at 10% and neutral at 30%; and for account 75-4 the maximum was 25%, with minimum 0% and neutral 0%.

The Meadowsweet Profile for account 75-1 recorded the Bank’s disclosure that when it was “managing the portfolio” it would take the investment portfolio chosen by Meadowsweet into account “and the respective risk tolerance” and “decide on the allocation of the assets and the single investments to be made in order to reach and comply with the investment goals” of Meadowsweet “on an overall basis”. It also included the following:

Meadowsweet discretionary portfolio management agreement – 23 April 2007

As mentioned above at [117], the Grotz LPOA covered account 75-5 and no discretionary portfolio management agreement was entered in respect of this account until one was put in place on 23 April 2007. The terms of this agreement were similar to the other Meadowsweet Discretionary Agreements. The accompanying profile was also described as “Mixed Portfolio”, with an investment objective of “real-term capital preservation and long-term capital growth” and a risk assessment of “asset fluctuation and average level of risk”. The investment parameters of the profile were: liquidity of 0% to 45% with neutral of 0%; bonds of 40% to 90% with neutral of 70%; and equities of 15% to 40% with neutral of 30%.

Soothsayer discretionary portfolio management agreements – 1 April 2005

On 1 April 2005 a meeting of directors of Soothsayer resolved that the company would establish two discretionary portfolio accounts with the Singapore Bank, referred to for convenience as account 80 and account 81, in US dollars in accordance with a relevant investment portfolio. They authorised Clementi to sign and accept the Singapore Bank’s discretionary portfolio management agreements and investment profiles on Soothsayer’s behalf. On 1 April 2005, Clementi signed a discretionary portfolio management agreement (the “Soothsayer Discretionary Agreements”) and a “Portfolio Mandate” (“the Soothsayer Portfolio Mandates”) for each Soothsayer account with the Singapore Bank.

The Soothsayer Discretionary Agreements authorised the Singapore Bank to “manage” Soothsayer’s accounts “from time to time” as agreed between Soothsayer and the Singapore Bank, subject to discretionary management by the Singapore Bank. They provided that the Singapore Bank would manage the accounts “in accordance with investment guidelines stipulated by” Soothsayer. Soothsayer was authorised to make additions to or withdrawals from the accounts “upon request” to the Singapore Bank provided it gave the Singapore Bank timely notice. Subject to those guidelines, the Singapore Bank had “complete discretion with regard to the management of the Discretionary Account”. It was agreed that the Singapore Bank’s “sole responsibility” in relation to the accounts was to “perform its duties and to make investment decisions in good faith”.

Each of the Soothsayer Discretionary Agreements included the following:

Each Soothsayer Portfolio Mandate recorded that the account would be held with the Singapore Bank “with management advice from Credit Suisse, Singapore, Portfolio Management Asia-Pacific (the “Portfolio Managers”)”. The objectives were described as follows:

The Soothsayer Portfolio Mandate for account 80 was entitled “Global Income-Oriented Asian Core Portfolio” in US dollars. As referred to at [137] earlier, Ms Mihaesco had advised in her covering e-mail in relation to the Meadowsweet accounts that “Core” meant a “conventional mixed portfolio”. The “Benchmark Composite” for account 80 was: 15% FTSE World Index; 15% MSCI Far East Ex-Japan Index; and 70% Citigroup Eurodollar Bond AA- or Better 3-5 year Index.

The investment parameters or “bandwidth” for account 80 were mandated as Equities 10%-- to 50% with a neutral of 30%; Fixed income securities 34% to 90% with a neutral of 70%; and Alternative Investments and cash at 0% to 25% with a neutral at 0%. The maximum exposure to Asian Fixed Income and Equities was limited to 50% of the respective portfolio allocation for each asset class. Asian Equities were listed as neutral at 15% and Asian Fixed Income Securities were listed as neutral at 35%.

Soothsayer directed the Singapore Bank to send it “monthly portfolio statements with performance” to its stated mailing address and that the “relationship manager and/or the “portfolio managers” would arrange and conduct periodic meetings with Soothsayer to review past performance as well as to present future investment strategies.

The Soothsayer Portfolio Mandate for account 81 identified the portfolio as “Global Income-Oriented Asian Opportunity/Plus Portfolio” in US dollars. As mentioned at [137] earlier, Ms Mihaesco had advised that “Plus” meant an “opportunistic (return-oriented) portfolio”.

The “Benchmark Composite” for this mandate was: 70% Citigroup Eurodollar Bond AA- or Better 1-3 year Index; and 30% HFR Global Hedge Fund Index.

The investment parameters for the account 81 mandate were: Equities between 0% and 25% with 0% neutral; Fixed Income Securities 35% to 90% with neutral at 70%; Alternative Investments 10% to 50% with neutral at 30%; and cash at 0% to 55% with neutral at 0%. Once again, Soothsayer directed the Singapore Bank to provide it with relevant information in the portfolio via fax, post or e-mail and to send it monthly portfolio statements with performance of the portfolio.

Soothsayer discretionary portfolio mandates – 25 February 2009

On 25 February 2009, two new portfolio mandates (“the New Soothsayer Portfolio Mandates”) were put in place for the Soothsayer accounts pursuant to the Soothsayer Discretionary Agreements. For account 80, the New Soothsayer Portfolio Mandate was described as “Core Asian”. Its investment objective was “long-term capital growth” and its risk assessment was “increased value fluctuation, above average level of risk”. It provided the following framework of asset allocation: liquidity between 0% and 50% with a neutral of 5%; bonds between 0% and 50% with a neutral of 15%; equities between 20% and 80% with a neutral of 50%; and alternative investments between 5% and 50% with a neutral of 30%. It was recorded that:

The second New Soothsayer Portfolio Mandate covered account 82, for which there was no prior discretionary mandate. This portfolio mandate was described as “Plus Global”. Its investment objective was “capital preservation and long-term capital growth” with “moderate value fluctuation, average level of risk”. Its asset allocation framework was: liquidity between 0% and 50% with neutral of 5%; bonds between 0% and 50% with neutral of 25%; equities between 20% and 70% with neutral of 40%; and alternative investments between 5% and 50% with neutral of 30%.

Relevant events

The parties’ relationship prior to the commencement of the proceedings spanned 13 years. There were many aspects and complexities to that relationship, particularly with the overlay of Mr Lescaudron’s fraudulent conduct. In this section of the judgment, it is intended to deal only with those events that the parties have addressed as relevant to the issues for determination, rather than embarking upon a detailed analysis of every aspect of that relationship.

Gazprom investment – February 2006

In February 2006, Ms Mihaesco was dealing directly with the plaintiff in relation to various matters including in respect of the purchase of Gazprom ADRs. Ms Mihaesco’s notes of 2 February 2006 include the following:

Ms Mihaesco’s notes for 6 February 2006 include the following:

The reference to “confirmed in writing” in the first line of this note is probably a reference to a typed document purportedly signed and dated 3 February 2006 by the plaintiff in the following terms:

Although the plaintiff was initially sceptical in his evidence that he would have owned or purchased USD 400m worth of Gazprom shares, and although he did not have a recollection of the communications recorded in Ms Mihaesco’s notes, he said that because so much time had passed he “theoretically … cannot exclude” that this occurred. He could not recall owning such a large holding of Gazprom shares but emphasised that this was during a period, 2006 to 2008, when he was trading Russian shares and co-ordinating the process himself. A large proportion of these trades were Gazprom and Lukoil shares. Ultimately, the plaintiff’s evidence was that he did not exclude the possibility that the value of Russian shares might have even been several hundred millions of dollars in the period from 2005 to 2008.

As the plaintiff admitted, this was during a period in which he was “actively trading in Russian shares and was coordinating the process [himself]”. It is probable that Ms Mihaesco’s notes are an accurate record of her communications with the plaintiff at this time and are instructive of the nature of the plaintiff’s involvement in the management of this part of the Trust assets in February 2006.

Mr Lescaudron becomes RM – June 2006

Ms Mihaesco left her employment with the Bank in June 2006. The plaintiff was disappointed because he had a good working relationship with Ms Mihaesco, particularly because he was able to converse comfortably with her in Russian.

It was at this time that Mr Lescaudron became the RM in respect of the Meadowsweet accounts held with the Bank.

Unauthorised Payments Away

It was not long after Mr Lescaudron took over as the RM that the defendant’s officers became aware that he was making Unauthorised Payments Away from the Trust assets in the Meadowsweet bank accounts with the Bank.

A UPA is “a payment from a structure under CS Trust, for which CS Trust’s prior approval was not obtained”. Credit Suisse’s Best Practice Guidelines (“the Guidelines”) in place during the relevant period which applied to all of CS Group locations worldwide, expressly recognised that UPAs “may present elevated legal, regulatory and reputational risks to CST Group should they not be reduced to a minimum”. The Guidelines defined UPAs as follows:

The Guidelines required the responsible Trust Manager to initiate the “rectification” of the UPAs within five working days of receiving notice and to “possibly” finalise the rectification after another five working days. The Guidelines also required the Trust Manager to retroactively obtain adequate documentation on which the transaction was based and executed. They also set up a monitoring and reporting regime and the steps to be taken to “escalate” the rectification of the UPAs in cases in which RMs created UPAs “in spite of adequate information and training”.

UPAs were to be identified by comparing and/or matching payment instructions by the defendant to “Debit Advices” from the Bank. Debit Advices were documents delivered to the defendant by the RM reflecting a transaction that had been effected. The Debit Advice form included a section in which it was intended that the recipient of any payment or distribution from the trust fund was identified. That section included the words “In favour of” next to which it was intended that the recipient’s name(s) would be inserted. There was also a section for “Payment reason” where it was intended that the reason for and/or nature of the transaction would be recorded.

If there were no payment instructions in respect of a particular Debit Advice, that transaction would be identified as a “possible” UPA and followed up on by the Trust Manager. This “follow-up” involved the Trust Manager contacting the relevant RM to obtain details in relation to the particular transaction and documentation “evidencing the beneficiary’s approval to ratify a distribution or payment that had been made”.

UPAs were recognised as having been “clearly” forbidden by a “Compliance Alert” issued by the Credit Suisse Legal & Compliance Department in 2003.

Immediate action required in relation to UPAs - December 2006

On 5 December 2006, Ms Sim, who was the Trust Manager of the Trust at the time, wrote to Mr Lescaudron’s assistant, Ms Suzanne Raschle (“Ms Raschle”), with a copy to Mr Lescaudron, Mr Low and Ms Lina Teng (“Ms Teng”), a compliance officer working in “Business Risk Management/Compliance” of the defendant, advising that “6 debit advices for Meadowsweet” had been received but that she could not recall “giving authorisation for these payments” or receiving the relevant invoices. Ms Sim requested clarification and receipt of the invoices “duly signed” by the plaintiff.

Ms Raschle responded by e-mail on 6 December 2006 in which she advised Ms Sim that an invoice had been sent on 4 December 2006. After further questioning by Ms Sim on 12 December 2006, Ms Raschle admitted that the invoice had already been paid whilst “waiting” for the defendant’s “signed confirmation”. This prompted Ms Sim to write to Ms Raschle on 12 December 2006, with copies to Mr Lescaudron, Mr Low and Ms Teng, in terms that included the following:

In an e-mail just moments later, Mr Low congratulated Ms Sim writing: “Well done, that’s telling her. I’m not sure that it will make much difference, but we try ….”. In a further e-mail twenty minutes later, Mr Low wrote directly to Mr Lescaudron, with copies to Ms Teng, Ms Sim and Ms Raschle in the following terms:

Also on 12 December 2006, Ms Teng provided her report on “Unauthorised Payments – November 2006 (CST Singapore)” to various recipients including Mr Jackman, Mr Low, Ms Sim, Mr Kevin Clerey of CS Trust AG (“Mr Clerey”) and Mr Thomas Ditrich, the Head of Compliance at CS Trust AG (“Mr Ditrich”).

At about this time Ms Teng also had a telephone conversation with Mr Ditrich about the continuation of UPAs with “many instances … from CS Switzerland branches”. She wrote separately to him on 12 December 2006 referring to that conversation and in terms that included the following:

On the following day, 13 December 2006, Mr Ditrich wrote by e-mail to Mr Clerey with the Subject Line “Your attention is required – Unauthorised Payments – November 2006 (CST Singapore)” with a copy to Ms Teng. Mr Ditrich forwarded Ms Teng’s e-mail of 12 December to him and wrote in terms that included the following:

The Legal & Compliance Alert attached to Mr Ditrich’s e-mail recorded that “often” settlors/founders or beneficiaries were not aware “that, upon establishment of a trust, the power of disposal over the transferred funds is passed to the trustee or the directors respectively” and the Bank was “not entitled to carry out requests submitted by a beneficiary without the prior approval of the trustee”.

On 22 December 2006 the defendant became aware that Mr Lescaudron had transferred USD 60m out of another client’s account on 8 December 2006, without the defendant’s authorisation. Ms Sim wrote to Mr Lescaudron on 22 December 2006 advising that he was to “refrain from making payments out of the account prior to receiving authorisation” from the defendant. On the same day Mr Low wrote to Ms Sim with copies to Mr Jackman and Ms Teng observing that he was “amazed that a banker is able to move USD60m without even getting signed instructions from the client (ie us!). So much for Swiss banking…”.

On 22 December 2006 Mr Jackman received an e-mail from Mr Michael Vlahovic (“Mr Vlahovic”), Mr Lescaudron’s superior at the Bank, referring to the UPAs and advising that “this will not happen again”. However, Mr Vlahovic suggested that Mr Lescaudron had done a “tremendous job under huge pressure” dealing with the plaintiff and the other client in a “dynamic” situation caused by Ms Mihaesco’s departure. Mr Vlahovic advised that he appreciated the “seriousness” of not advising the defendant “for a full 2 weeks” of the transfer and committed to providing the defendant with “whatever support you require in order to put this behind us”. He suggested the situation arose not because of Swiss banking practice but rather by reason of the “extraordinary rearguard action” that the Bank had been fighting for the large part of the year.

Mr Jackman’s take on this explanation was that there were “[o]bviously some fairly select choices in Zurich when it comes to applications of rules”.

Although by November 2006 Mr Lescaudron had only been the RM for about 6 months, he made six UPAs totalling USD 35.412m between 10 and 23 November 2006.

UPAs continue

The defendant received a number of Debit Advices in March 2008 relating to transactions that had been effected by Mr Lescaudron in which the identity of the recipient or beneficiary of the funds was not identified. These Debit Advices were addressed to the defendant and were for varying amounts. The “customer adviser” was recorded as Mr Lescaudron.

Seven of the Debit Advices were dated 14 March 2008 in the amounts of: EUR 3.252m, USD 1.32m, USD 180,000, USD 1.32m, USD 1.881m, USD 3.03m, and EUR 3.2m. A further two Debit Advices were dated 18 March 2008 in the amounts of: EUR 2.15m, and EUR 1.67m.

Those amounts totalled EUR 10.272m and USD 7.731m.

Each of the Debit Advices simply recorded “AS PER ORDER OF 14 [or 18] MAR 08” and in the section for recording the identity of the recipient all that was recorded was: “BENEFICIARY: ACCORDING TO THE INSTRUCTIONS RECEIVED”.

In November 2008 the defendant received a further bundle of Debit Advices in respect of transactions effected by Mr Lescaudron. Once again, all but one of the Debit Advices failed to identify the recipient of the transferred amounts and simply recorded: “In favour of: ACCORDING TO THE INSTRUCTIONS RECEIVED”.

The “Payment reason” was recorded in the following various ways: “AS REQUESTED ON 27.11.2008” or “AS PER CLIENT’S REQUEST DD 27.11.08” or “AS REQUESTED BY CLIENT DD 27.11.08” or “AS PER CLIENT’S INSTRUCTIONS DD 27.11.08”.

There were twelve Debit Advices dated 28 November 2008 for debits totalling EUR 5.729m and USD 4.396m.

These transactions in March 2008 and November 2008 are reasonably described as UPAs to which the Guidelines applied. Far from complying with the Guidelines to have the matter initiated and finalised possibly within ten business days of notification, nothing or very little appears to have been done until the following year in relation to these very large amounts of money being paid out of the Trust accounts without authorisation.

Ms Sim prepared a draft e-mail to Mr Low in which she recorded that she thought that she should highlight “the disturbing UPA trend for Meadowsweet”. This draft e-mail included advice that Ms Sim’s Trust Accountant, Ms Peh, had passed her “yet another stack” of Debit Advices, the ones dated 28 November 2008, for which the defendant had not authorised payment. Ms Sim made the observation that most of them “run into the millions” and that the major other payment dates were 17 October 2008. Ms Sim identified those Debit Advices as problematic because “they were not authorised by the trustee”.

On 19 February 2009, Ms Sim wrote to Mr Lescaudron and Ms Raschle, advising that she could not “reconcile” these “Unmatched payments out from Meadowsweet”. A request was made for documents including invoices or bills that the plaintiff had signed to indicate his requests for the payments.

On 11 March 2009 Ms Sim sent a reminder e-mail to Ms Raschle and Mr Lescaudron requesting the documentation. On this occasion, Ms Sim copied other officers of the defendant into the e-mail.

Rather incredibly, nothing further was done until 3 November 2009 when Ms Sim wrote to Mr Lescaudron’s colleague Ms Raschle again as a “Follow Up” recording “Just a reminder to send us the documentation signed by [the plaintiff]”.

Almost a year later, on 3 February 2010, Ms Sim wrote to Mr Lescaudron and Ms Raschle recording that she had not heard from them in relation to the e-mail of 19 February 2009 and advised that she would appreciate their “urgent response”. There is no evidence that Mr Lescaudron responded to any of these e-mails and Ms Sim’s evidence in relation to that failure was as follows:

Ms Sim also gave the following evidence in relation to all the UPAs that took place up to December 2009:

Ms Sim’s evidence-in-chief in her affidavit of 18 April 2022 included the following:

Ms Sim’s affidavit evidence conveyed the distinct impression that UPAs in respect of the Mandalay Trust were not a problem until 2010 and even then, there was no reason to regard them as suspicious. This is in stark contrast to her evidence in which she accepted that waiting a year and not knowing the identity or location of the recipient of millions of dollars paid out of the Trust fund concerned her deeply. Clearly, Ms Sim was well aware of the highly unsatisfactory trend of UPAs in which millions of dollars were transferred out of the Trust accounts without authorisation by the defendant and without the defendant having any knowledge of the recipient well before 2010.

On 25 November 2010 Ms Sim wrote to Mr Lescaudron advising that the defendant was “conducting a thorough review of the Trust and its companies” and noting that there were several outstanding matters to conclude. Ms Sim asked for Mr Lescaudron’s assistance in respect of a number of matters. They included the following:

On the same day Mr Lescaudron advised Ms Sim by e-mail that he would not be back until the following day from a business trip and would review her e-mail “in priority”.

On 29 November 2010 Mr Lescaudron wrote to Ms Sim only in relation to Mr Grotz and in an exquisite display of hypocrisy asked her to “please remove immediately his POA as this person is subject to legal suits in different countries and he is highly indesirable [sic] for our bank (and for the client)”. Mr Lescaudron did not deal with the other matters that Ms Sim had raised in her e-mail. Ms Sim wrote again to Mr Lescaudron on 9 December 2010 and 15 December 2010 asking for him to attend to her requests and some additional matters that she raised “as a matter of urgency”.

On 21 December 2010 Mr Lescaudron delayed the matter further by suggesting that he had to deal with the situation in a “one-to-one conversation” with the plaintiff which was to take place no earlier than February 2011. Ms Sim acceded to the delay but asked for him to advise the date of the meeting.

In January 2011 Ms Sim wrote to Ms Sampaoli advising her of the list of “pendings”. This included questions about payments that had been made which did not, as Ms Sim saw it, fit in with “the purpose of the Trust” which was identified as “inheritance-planning”. One matter that Ms Sim raised with Ms Sampaoli was the “many Unauthorised Payments outstanding” and asked whether she could assist because there were a lot of Debit Advices for which she was “pending information from [Mr Lescaudron]” so that the payments could be ratified.

In early 2012, when the defendant was considering sending a letter to the Bank seeking an explanation of the transfers of funds without the defendant’s authorisation, Ms Sampaoli wrote to Ms Sim and Ms Lau advising as follows:

To emphasise the importance of Mr Lescaudron’s opinion, Ms Sampaoli noted that the estimate of the potential 2012/2013 further business with the plaintiff was “USD 1.5 Billion” and stated “the bank wants to grow this relationship and, therefore, we should support it”.

On 23 May 2012 Mr Marc Ribes of Compliance International Zurich from the Bank wrote: “Even though these payments might have been post-approved by CST, I think that disciplinary measures are inevitable.”

In July 2012, Ms Valerie Voltas, Ms Sampaoli’s assistant, suggested that Mr Lescaudron and his line manager would soon receive an escalation e-mail. In response, Mr Birri asked for the issues to be solved immediately and suggested “Let’s not have an escalation here. Many thanks! Please come by in case you need help.”

Things did not change. On 27 August 2012, Ms Sim wrote to Ms Sampaoli and others seeking assistance “to remind Patrice and his team to make payment only upon receipt of proper authorisation (even with the ‘standing’ request letters in place, proper authorisation is required)”.

On 4 September 2012 Mr Babak Dastmaltschi (“Mr Dastmaltschi”), head of the Bank’s Ultra High Net Worth Individuals Western and Emerging Europe Group, wrote to the compliance section and to Mr Lescaudron’s then direct superior Mr Philippe Vitse (“Mr Vitse”) in relation to the UPAs that Mr Lescaudron had effected. That communication included the following:

Mr Dastmaltschi’s observations were unfortunately prescient. This was in the context of the risk management department advising Mr Vitse that cases which all related to Mr Lescaudron and needed to be looked into had been sent to those operating the ORIS system which was “apparently designed to detect potential fraud”.

In November 2012 Ms Sampaoli continued to assist Mr Lescaudron by requesting some assistance from her colleagues in this regard, noting that Mr Lescaudron “is very important to me”.

The drive for business, commissions and profit appears to have lulled so many into a false sense of comfort about Mr Lescaudron’s manipulative and fraudulent conduct.

Other transactions – 2007/2008

On 11 May 2007 there were three recorded payments to a “Third Party”. The first was for USD 2.939m; the second was for USD 10.496m; and the third was for USD 33.224m. The first two of those payments were not reconciled until 22 May 2007. The third was apparently not reconciled until 25 June 2007. However, the point made by the plaintiffs is that during that period Mr Lescaudron made unauthorised payments totalling USD 46.6m, notwithstanding that Mr Vlahovic had assured Mr Jackman that this would not happen again (see [179] above).

In June 2007 Mr Lescaudron began investing in shares on Meadowsweet account 75, in respect of which there was no discretionary portfolio management agreement.

The first investment that was made by Mr Lescaudron was in Carpathian Resources Ltd (“Carpathian”).

The plaintiff gave evidence that he knew nothing about the Carpathian purchase or trading. He was asked about an e-mail purportedly sent to him on 30 July 2009 in which Mr Lescaudron advised him that he had received “free” Carpathian shares and that those shares were still in his portfolio but were valued at zero because they were not listed on the stock exchange. The e-mail also referred to a current share exchange that was to be completed between 1 August 2009 and 30 November 2009 with the suggestion that an escrow account had been opened at the Bank in the name of “Highmoor Business Corp” (“Highmoor”). The e-mail included advice that after the transfer of the securities to Highmoor, they would remain the plaintiff’s property and by 1 December 2009 (at the latest) the plaintiff would receive new securities that would be listed on the stock exchange, suggested to be worth around USD 350,000. This e-mail suggested that because the old securities were obtained “for free”, the transaction was “very advantageous”.

The plaintiff was quite adamant that he knew nothing of the contents of this e-mail, nor was he aware of the trading in Carpathian shares on the Meadowsweet account. A similar investment was made by Mr Lescaudron in Copernic Global Fund Ltd in which Mr Lescaudron was the “investment manager”. There is no evidence that the plaintiff had requested the purchase of Copernic shares or that he knew about the transactions.

New accounts opened and further trading

On 12 July 2007 Mr Lescaudron set up a new safekeeping account 75-8 for Meadowsweet. He also established two new cash accounts connected to account 75-8 being accounts 72-27 and 72-28.

On 24 July 2007 Mr Lescaudron transferred USD 100m from Meadowsweet’s cash account 72 to the new account 72-28.

It is not in issue that Mr Lescaudron immediately began to use the Meadowsweet account 75-8 for trading, the level of which was described as potentially “churning” and more consistent with a “day-trader”. As the wealth management expert, Mr Morrey, explained, Mr Lescaudron invested against prevailing market sentiment and in volatile industries, in particular mining and pharmaceutical stocks with numerous transactions during a single day or week.

The plaintiffs emphasised that the defendant did not take any action to investigate the opening of these new accounts which it had not authorised. The plaintiffs also emphasised that the defendant did not check the transfer of funds, nor require the production of any proper records for the accounts which the plaintiffs claimed facilitated Mr Lescaudron’s fraud.

In the period August to October 2007 Mr Lescaudron misappropriated Trust assets by transferring funds from Meadowsweet and transferring securities to Meadowsweet in exchange at a price above the market value of the securities (“Overvalue Misappropriations”). Mr Lescaudron admitted that these transfers were fraudulent and he was convicted of fraud in respect of them.

The first Overvalue Misappropriation involved the transfer of EUR 3m from the Meadowsweet account 72-27 to the account of another client of the Bank and a transfer of 300,000 shares in Meinl International Power Ltd (“Meinl”) to Meadowsweet account 75-8. Ms Raschle advised Ms Sim that this was an “error”, explaining that the 300,000 Meinl shares were not really for Meadowsweet but for another client. Ms Sim advised that the shares should “now be transferred to Meadowsweet” because the plaintiff had agreed to subscribe to the shares. Ms Raschle asked Ms Sim whether the plaintiff would have to sign a document to effect this transaction.

In response Ms Sim advised that the plaintiff did not have to sign any particular document because he had the power to trade freely on the account and would only need the defendant’s approval for withdrawals of funds from the account. Ms Sim gave evidence that at the time of this transaction she did not realise that it was an off-market trade and did not take any steps to check with the plaintiff whether he was agreeable to purchasing the shares. She admitted that if she had appreciated the nature of the transaction as an off-market trade, she certainly should have and would have checked with the plaintiff.

In the circumstances, the defendant did not take any steps to enquire into the details of the transaction or the identity of the recipient of the moneys that were paid out of the Meadowsweet account. Nor did the defendant have any information or evidence that the plaintiff knew of or approved the transaction.

Mr Lescaudron proceeded with further transactions. On 15 October 2007 he transferred a total of EUR 15.5m from the Meadowsweet account 72-27 to the account of Top Matrix Holdings Ltd (“Top Matrix”) and another individual, and a transfer of 1.55 million shares in Meinl was made to Meadowsweet’s account 75-8.

These Overvalue Misappropriations continued with transfers out of the Meadowsweet accounts on 14 March 2008 in the amounts of USD 7.731m and EUR 10.272m. These figures correspond to the UPAs discussed at [183] above. In respect of the first transfer, a total of 11,910,920 Carpathian shares were transferred into the Meadowsweet accounts. In respect of the second transfer, a total of 975,200 Meinl shares were transferred into the Meadowsweet accounts. Mr Lescaudron was convicted of fraud in respect of these transactions.

On 13 October 2008, Mr Lescaudron made further Overvalue Misappropriations. He transferred EUR 15,607,214 from the Meadowsweet accounts to the account of Top Matrix. In return, a total of 2,340,374 shares in Atrium European Real Estate Ltd were transferred to the Meadowsweet accounts, causing an immediate loss of EUR 3,928,747, the market value of the shares being EUR 11,678,467 at the time.

Mr Lescaudron also transferred a total of USD 7,693,648 from the Meadowsweet accounts to the Top Matrix account. He then transferred a total of 96,839 shares in Parts-B-Lyxor International Asset Management Lyxor ETF to the Meadowsweet accounts, causing an immediate loss of USD 5,272,673, the market price being USD 2,420,975 at the time.

The defendant authorised these transactions on the basis of a forged letter of instruction without being informed of the securities for which the payment was purportedly made. The defendant did not request the original letter of instruction to verify the signature on the letter, nor did it request any documentary evidence to substantiate the Bank’s claim that the recipient of the funds was a “business partner of Meadowsweet”.

The plaintiffs contended that the defendant was alerted to these transactions when it received the large number of Debit Advices relating to the UPAs on the Meadowsweet accounts (see [182] above). Ms Sim accepted that she did not know where or to whom the funds were transferred at the relevant time.

Audit reports

On 16 February 2006 the Credit Suisse Group Internal Audit (“Internal Audit”) produced a report that the defendant did not systematically track the resolution of deficiencies arising from Annual Fiduciary Reviews (“AFRs”) and that in the result, there were a number of deficiencies which had not been resolved. These deficiencies remained unresolved for some years and Internal Audit warned that the arrangement in which annual accounts were not independently distributed to clients but delivered to the RM at the client’s request “increases the risk that inappropriate or potentially fraudulent activity may not be identified and investigated in a timely manner”.

In an audit report of 5 June 2008 it was recognised that management controls were ineffective and there was a lack of proper management supervision. The report recorded that Mr Vlahovic accepted the need for immediate action if there was to be improvement in the quality of certain key tasks as well as overall supervisory controls. Mr Vlahovic identified the “urgent priority” of the implementation of changes required to exemplify “Best Practice”. He reported that he had introduced several measures and initiatives that were designed to support the “clean-up of existing business” and to ensure improved supervisory performance in the future.

Although Mr Vlahovic had indicated his desire to achieve “Best Practice”, the rating that was applied to the relevant market group of which Mr Lescaudron was a member was “D”, defined as including “issues that could expose the Audit Unit to a significant level of operational, financial or reputational risks”.

Instructions to close Mandates

On 7 October 2008 Ms Raschle wrote by e-mail to Ms Sim with a copy to Mr Lescaudron advising that the plaintiff wanted to “close the three mandat[e]s he has with CS Geneva. He confirmed today by telephone with Patrice Lescaudron”. It appears that Ms Raschle attached a letter dated 6 October 2008 purportedly signed by the plaintiff and asked Ms Sim “to send us your confirmation”.

That letter was in the French language. The English translation of it records “Name of recipient” (which was left blank) with the heading “Instruction”. The body of the letter was in the following terms: “Please close my three mandates Core USD, Plus USD and Core EUR and transfer the corresponding funds to my Meadowsweet PRIVAT account in reimbursement of the outstanding credits”.

The plaintiff did not recall signing the letter in question but accepted that the signature on it appeared to look like his. There is also a fax footer purportedly emanating from “Chorvila”, the rural town where the plaintiff lived, on 7 October 2008 at 3.22pm.

On 9 October 2008 Ms Sim asked Ms Raschle to provide the translation of the letter into the English language and to provide the “full names” of the three mandates and “advise where the balances in these mandates will be transferred to” so that she could “draft the instruction correctly”.

On 8 October 2008 Mr Stamm wrote by e-mail to numerous colleagues on the subject “Update: Big Georgian Client (B.I.): SG CIF 140208 (affected by market turmoil)”. He reported that he had been “updated” the previous evening “about an emergency meeting” with the plaintiff. The “update” that Mr Stamm passed on to his colleagues on 8 October 2008 was in the following terms:

Mr Stamm decided later that evening to transfer only USD 100m to Geneva at that time and to decide in November 2008 if the additional USD 50m would be needed. It was planned to “rebalance the two portfolios” and “gradually raise cash again”.

On 13 October 2008 Mr Stamm asked Ms Sim to urgently prepare transfer instructions for USD 100m to Meadowsweet at the Bank. Ms Sim complied with those instructions and asked Mr Lescaudron and Ms Raschle to arrange for the plaintiff to sign the relevant letters and to return them to her. The evidence does not disclose that the plaintiff signed the documents or that he instructed the transaction. The plaintiffs claim that the defendant took no steps to verify that the plaintiff had in fact instructed the transfer.

On 24 October 2008 Mr Lescaudron advised Mr Stamm and Ms Lena Teoh (“Ms Teoh”) that following their conference call he had contacted the plaintiff and informed him about their “comments and recommendations”. Mr Lescaudron advised that the plaintiff “mostly agreed on our proposals”. Those proposals related to the Soothsayer Core portfolio and the Soothsayer Plus portfolio. Mr Lescaudron advised that the plaintiff had agreed to a reduction of equities from the current level of 19% to 10% in the Soothsayer Core portfolio; and an increase of gold up to 10% of the mandate with the proceeds from equities and the rest in cash. Mr Lescaudron also advised that the plaintiff had agreed to the transformation of the Soothsayer Plus portfolio in EUR “but not as fast as we said”. He advised that the plaintiff had asked “to do it progressively, to start now, up to 20% of the value of the mandate” and then to stop and to see the level of EUR in order to decide to go further.

On 28 October 2008 Ms Teoh advised Mr Low of the discussion with Mr Lescaudron and that the client had decided “on some fundamental changes to the portfolio’s investment profile moving forward”. Ms Teoh advised that she would be drafting some changes to the guidelines and expected some communication from the client for the Trust to follow up on.

The plaintiff gave evidence that he regarded it as “unimaginable” that he would ever ask the defendant or the Bank to “stop managing [his] accounts”. He accepted that he could not remember what he signed in 2008, but thought it was impossible that he would instruct the closure of the mandates. However, he said that it was “possible” that he signed the document because it was presented to him and he did not read or understand it. The plaintiff was shown additional documents that were produced during the trial consisting of a number of e-mails to and from Ms Raschle. However, he said that after looking at those e-mails he could not recall whether he signed those documents asking for the cancellation of the mandates. He did accept that it was “possible” that he signed them without knowing or understanding them.

Irrespective of this evidence, it was submitted on the plaintiffs’ behalf that it should have been apparent to the defendant that the letter of instruction was “manifestly inadequate” and could not be relied upon as an instruction from the plaintiff to cancel the discretionary mandates. Ms Sim confirmed during her evidence that she did not give instructions for the cancellation of the mandates and that any cancellation was therefore unauthorised.

In any event, the discretionary mandates for the Meadowsweet account 75-1, 75-4 and 75-5 appear to have been cancelled in October 2008. The investments held on those accounts were sold progressively from October 2008 and the accounts were closed on 10 August 2009, 14 August 2009 and 29 January 2009 respectively.

The plaintiffs submitted that the most likely explanation for these transactions is that it was Mr Lescaudron who procured the cancellation of the discretionary mandates and the transfer of funds from Soothsayer to Meadowsweet so that he could use the funds to cover the losses incurred by other clients and continue with the risky leveraged trading strategy to recover the amounts that he had lost. He had to avoid the money cycle running out (see Perry, Tamar and Another v Esculier, Jacques Henry Georges and another [2023] SGCA(I) 2 at [1]).

Ms Sim gave the following evidence:

Investment Strategy Advice

Mr Lescaudron provided the plaintiff with a document entitled “Investment Strategy” for the portfolio structure recorded as being “currently as follows (21/02/2009)” in which he advised that there were different proposals for the portfolio which could “obtain even better profitability with minimal risk”. There is an issue as to whether the reference to “(21/02/2009)” was a typographical error which is discussed later at [474].

The structure of the portfolio was described as “Mandate” at 288; “Advisor” at 118; and “Private” at 566. Mr Lescaudron suggested that the “Biordana Foundation” with “145 (Lukoil only)” should be added to the “Private” section of the portfolio. These numbers were stated not to include the Singapore assets.

The “Mandate” section of the portfolio was described as the “central part” of the investment ensuring “a good level of profitability, higher than the benchmark with high security” which Mr Lescaudron advised gave the plaintiff significant credit opportunity and should not be changed.

The “Advisor” section of the portfolio was described as having “more active trading” which was “a more risky part than the Mandate part but with a higher expectation of annual profitability”. Mr Lescaudron advised that there would be more transactions on this part of the portfolio but with the “goal of achieving gains more rapidly”.

The “Private” section of the portfolio was described as comprising “Russian securities (Gazprom and Lukoil) and a few securities in the metals sector”. Mr Lescaudron recommended that the plaintiff keep the Russian securities because the Bank, as well as most other banks, was very positive about these securities. He also advised selling the remaining metal positions so the proceeds could be added to the Mandate part of the portfolio.

Mr Lescaudron proposed three options for the plaintiff: (i) to build a diversified fund portfolio without leverage and without capital protection; (ii) to build a diversified portfolio with leverage and without capital protection; and (iii) to build a diversified portfolio with capital protection and moderate leverage. He advised that the first option was the “simplest and most flexible solution” for the plaintiff.

IPPRs – 2008 onwards

One of the Group Directives issued by Credit Suisse in about 2007 related to Investment Portfolio Performance Reviews (“IPPRs”). There is no issue that this directive applied to the operations of the defendant. It required a “monitoring” in the “centre of administration” of “investment portfolio performance” in all discretionary portfolios that were held by Credit Suisse and all portfolios where the “client acts as investment manager” with a limited power of attorney being granted.

The directive recorded that Credit Suisse Asset Management would provide benchmarks of the investment profiles to be used when monitoring the portfolios with a “tolerance spread” for each investment profile in general at +30% and -15% referred to as the “default tolerance spread”. It directed that that the IPPR was to be prepared by the Trust Accountant and completed by the Trust Manager. The monitoring period was for 12 months and it was expected that IPPRs would be completed to monitor the previous 12 months.

The directive included some guidance in relation to remedial actions that could be taken in the event that underperformance was discovered. It suggested that the reviewer (the Trust Accountant and/or the Trust Manager) would: see if trends existed and look at other portfolios managed by the same manager; consult with principals/beneficiaries to alert them to the underperformance of the portfolio and to take soundings on their wishes for future action; set a timeframe for improvement in investment performance; if performance remained unsatisfactory, consider any options other than replacing the investment manager; and/or replace the investment manager and consider circumstances where it may be appropriate to terminate the mandate.

The directive also required the reviewer to analyse and clarify any reasons for the portfolio exceeding tolerances with the possibility that the mandate could be placed on a “watch list” to be reviewed in the next period.

Clearly the defendant had a system and procedures in place which required it to monitor the performance of the portfolios in the Meadowsweet and Soothsayer Trust accounts. The defendant contended that these reviews were not meant to involve supervision or assessment of decisions as to how the Trust Assets had been invested or managed. It submitted that, at best, it was an internal high-level check which was not reported or even known to the beneficiaries of the Trust and could not be “regarded as an assumption of responsibility for supervising investments.

It is not in issue that the defendant was “frequently tardy” in preparing IPPRs and that it did not complete IPPRs in certain years. The IPPR for the Meadowsweet accounts for the year ended 31 December 2008 was only prepared in April 2010. It records that Ms Peh prepared it on 29 April 2010 and recorded a portfolio value at year end of USD 65,860,689. It, along with all other IPPRs that were prepared, identified the “portfolio manager” as “CS”. This IPPR recorded a performance on the previous year’s comparison at -51.12% compared to Credit Suisse’s benchmark of -33.03%. It recorded “under performance” of -25.09%. The action that was proposed in the IPPR was to “review again next year”. This was hardly meaningful as that “next year” (2009) had already passed by the time this IPPR was prepared.

The reasons for the -25.09% underperformance in this IPPR were recorded as “mainly due to the downfall” of the economy in the last quarter of 2008. It recorded that the stock price and bond value had also fallen “tremendously”. There was no explanation in this IPPR for the underperformance compared to the benchmark generated by Credit Suisse of -33.03% which more probably than not had already taken into account the decline in the economy at the time.

Notwithstanding the defendant’s description of the IPPR as an internal high-level check with no assumption of responsibility for supervising investments, its Trust Manager of 20 years’ experience, Ms Sim, gave compelling evidence about the IPPR and the need to investigate the underperformance or, as it was described in evidence, the “big drop”. Ms Sim was referred to the difference between the value at 31 December 2008 of USD 65,860,689 and the value as at 28 February 2007 of USD 944,687,401. She gave the following evidence:

The plaintiffs claim that the defendant failed to exercise reasonable diligence when conducting its IPPRs throughout the years. This much is quite clear from the candid evidence of Ms Sim in which she accepted that she did not take the process “seriously”, nor did she investigate and analyse the reasons for underperformance as mandated by the directive.

There was more than one example where the remedial action of putting a portfolio on the watch list for the next period was deployed when it would serve no purpose. The IPPR for the year ended 31 December 2011 was not completed until 1 November 2013, almost two years after the period under review. Even the defendant’s own officers observed that placing the portfolio on the watch list for the next period could hardly be considered “meaningful remedial action”.

In June 2014 one of the defendant’s officers, Ms Lau, received pre-populated draft review reports which recorded a performance of -2707% and -646% for the Meadowsweet accounts 75-8 and 75 respectively. The benchmarks generated by CS were around 7% for both accounts. Ms Lau agreed that she knew immediately that something was wrong and she needed to investigate it. Rather than following the directive to escalate the matter to the Centre Head, Ms Lau sought an explanation from Mr Lescaudron, notwithstanding that he was the person responsible for the underperformance.

Ms Lau wrote to Mr Lescaudron’s superior officer, Mr Castella, advising that she had noted the difference between the two figures and asked for the reasons resulting in “the significant under-performance” and whether there were any mitigation measures taken or to be taken. She also asked for a short rationale in case no remedial action was to be taken.

Mr Lescaudron responded to Ms Lau’s questions and advised that the profit made by the “client” in the previous year on all of the investments with Credit Suisse amounted to USD 153m which was “17% of performance”. He stated that, as a result, no measures were being taken.

What Ms Lau did was to simply rephrase the explanations provided by Mr Lescaudron and insert them into the IPPR for both accounts. One being a discretionary account, the other being the advisory account. Ms Lau did not take any steps to verify the figures or the information that Mr Lescaudron had provided. She accepted that she did not “fully” satisfy the requirements of the directive. She gave the following evidence:

The Art Collection

On 27 April 2006 the plaintiff wrote to the defendant advising that he would be “grateful if the trustee could consider” his request to acquire a BVI company, Lynden, under the Trust for the purpose of placing a bid at an auction held by Sotheby’s of New York for a Picasso painting the price of which was expected to be in the region of USD 50m. The plaintiff also suggested that if the defendant acceded to this request, it would be necessary to grant a power of attorney to an individual to act on behalf of the company together with various other machinery provisions to enable the bid to be made at the auction. The defendant acceded to the plaintiff’s request. Lynden was acquired and added to the Trust structure. A power of attorney was issued and numerous paintings were purchased at various auctions over time.

By August 2007 officers within Credit Suisse Head Office in Zurich were concerned about exposure in relation to the artworks that the plaintiff had collected which were apparently then worth approximately USD 350m. There was concern that Credit Suisse was not sure of the location of the artworks, whether they were kept in good condition and/or whether they were insured. One of the matters that was identified as a “Risk” was that “Unauthorized payments in substantial amounts are made by the bank’s RM from time to time in connection with the art collection”.

Mr Daniel Strazzer (“Mr Strazzer”), the Head of Legal and Compliance in CS Trust AG in Zurich, prepared a Memorandum dated 2 August 2007 with three options outlining possible ways “forward”. The three options proposed by Mr Strazzer were: (i) to stop any involvement of the defendant with the art collection; (ii) to stop any involvement of the defendant as trustee with the art collection but still provide services to the holding company Lynden; and (iii) for the defendant to stay involved as trustee with the art collection but try to reduce its current risk as trustee. Mr Strazzer suggested that the client would be “maybe unhappy” with the first option, “maybe happy” with the second option and “probably happy” with the third option.

In relation to the third option, Mr Strazzer suggested that a separate trust should be set up into which the holding company of the artwork could be transferred; or alternatively, there should be a transfer of the artworks out of Lynden to the new structure. He also identified what he described as “Risk mitigating measures” and suggested the following:

In identifying the risk mitigating measures in respect of the third option, Mr Strazzer also noted that the risk of “unauthorized payments” would not be avoided.

Mr Strazzer forwarded his memorandum to several colleagues, including Mr Jackman, referring back to a previous discussion in which the colleagues had identified the fact that the activities relating to the management of the art collection were something with which the defendant was “not totally comfortable”. He asked Mr Jackman to review the memorandum and await some “feedback” in relation to the “client’s reaction” to the proposals and alternatives.

As at 15 April 2008, the value of the paintings held by Lynden on the basis of their purchase prices was USD 573,416,441. These paintings were by various artists including Picasso, Chagall, Monet, Matisse, Kandinsky, Van Gogh, Cézanne, Renoir and Modigliani.

In April 2008, Mr Ditrich conducted a Compliance On Site Visit at the defendant’s premises in Singapore. He reviewed the structure in relation to the purchase of artworks by the plaintiff and noted that for each purchase of artwork the “client” would sign off the invoices issued by Sotheby’s or Christies and send them to the RM to arrange for payment from the Meadowsweet account. He also noted that in some instances the RM carried out the settlement directly without having received a payment instruction by the defendant representing Meadowsweet as account holder. Mr Ditrich observed that this led to UPAs which the defendant would subsequently investigate and having received a plausible explanation with corresponding documentation would authorise the settlement.

Mr Ditrich also observed that between April 2006 and April 2008, 245 pieces of artwork had been purchased but were not physically delivered to the defendant as trustee so that it was not able to “exercise the required control over the trust assets”. He also observed that it was not possible for the defendant to “trace whether artworks have meanwhile been sold”. However, he noted that if the paintings had been delivered to the defendant as trustee there would have been problems with safekeeping. Mr Ditrich regarded these arrangements as “unsatisfactory” and recorded that the situation of the trustee of the Mandalay Trust not having control over a substantial part of the trust assets had been brought to the attention of CST Group’s senior management by the defendant’s local senior management. Although the proposals to solve this situation had been evaluated in Mr Strazzer’s memorandum and submitted to the head of Credit Suisse Moscow in August 2007, this issue had not been resolved by the time Mr Ditrich made his site visit to Singapore in April 2008.

Mr Ditrich came up with the idea that because the plaintiff’s letter of 27 April 2006 did not “explicitly” indicate an intention to contribute the artworks into the Mandalay Trust to be held on behalf the beneficiaries, the artworks “would not be considered to form part of the trust assets”. Additionally, Mr Ditrich suggested that the payments out of the Meadowsweet account “could be regarded as distributions to the primary beneficiary. He noted that this “point of view” would need to be formally fixed in a letter of consent/understanding and submitted to the plaintiff for “sign off”.

On 13 August 2008 Ms Sim wrote to Mr Lescaudron, with copies to Ms Raschle and Mr Low advising that she was following up on the artwork owned by Lynden for which the defendant had from time to time made payments from the Meadowsweet account. Ms Sim advised Mr Lescaudron that the defendant had been informed in 2007 that the artwork would eventually be housed either in a purpose-built or business centre in Tbilisi, Georgia but that the defendant was not aware of the location of the artwork as the plaintiff had merely said that it was in “a safe place”. After drawing attention to the “less than favourable” political situation in Georgia at the time, Ms Sim advised that the defendant was gravely concerned about the safety of the artwork and asked Mr Lescaudron for an update.

Mr Lescaudron responded to Ms Sim two weeks later advising that he had spoken to the plaintiff only on 28 August 2008 because prior to that the plaintiff had been “unreachable”. Mr Lescaudron informed Ms Sim that the plaintiff had informed him that 50% of the collection was in Tbilisi in a special exposition centre which the plaintiff built and which was not open to the public, and 50% was still in the plaintiff’s house, 200km from Tbilisi and in “a safe area”.

Although the defendant and CS Trust AG had expressed concerns about their exposure in respect of the artworks that had been purchased by the plaintiff as early as 2006 and 2007/2008, it was not until 29 November 2012 that Ms Sim wrote to Ms Sampaoli with copies to others including Mr Birri in relation to “The Mandalay Trust – artwork”.

Ms Sim advised that after consulting both Singapore and BVI counsel, “Singapore counsel has recommended to re-state the trust deed to include investment provisions specific to the artwork”. Ms Sim asked Ms Sampaoli to arrange for the plaintiff to review and sign a number of documents including: a letter to the defendant in relation to the restatement of the Trust Deed, the Deed of Amendment and Restatement, a Deed of Appointment of Special Nominated Company and a Deed of Appointment of Special Investment Manager. Ms Sim advised Ms Sampaoli that the “major change” that had been effected by the Deed of Amendment and Restatement was “the addition of clause 9 and clause 9A” to the original Trust Deed (see [123]–[126] above).

The defendant had some difficulty in obtaining the plaintiff’s signature on these documents and in April 2013 they wrote to Mr Bachiashvili seeking his “assistance” to have the documents signed by the plaintiff and returned to the defendant “as soon as possible”.

The Deed of Amendment and Restatement is dated 5 July 2013.

Raptor shares

In an e-mail dated 25 October 2010, Mr Lescaudron recommended to the plaintiff that he sell two positions from his European stock and, if agreed, buy certain shares including “an American pharmaceutical company called RAPTOR PHARMACEUTICAL, whose current stock price is USD 3.45 and which we think may rise to USD 7 in 12 months”.

The plaintiff’s affidavit evidence was that in 2011 Mr Lescaudron had told him about Raptor being a “very good investment opportunity” and he “knew the company well”. He claimed that Mr Lescaudron informed him that he was limited as to how much stock he could purchase on the Credit Suisse accounts and therefore recommended that the plaintiff purchase additional Raptor stock using his accounts with other banks.

The plaintiff followed Mr Lescaudron’s recommendation and purchased Raptor stock in accounts with two other banks, Coutts Bank and Cartu Bank. On 14 June 2011, Coutts Bank confirmed that it had completed an order for the plaintiff by purchasing 74,755 shares at USD 6.2852 totalling USD 469,850.13.

After Mr Bachiashvili took over as the plaintiff’s personal assistant, he had communications with Mr Lescaudron about Raptor shares. On 8 August 2013 Mr Lescaudron wrote to Mr Bachiashvili informing him that he had advised the plaintiff eighteen months ago to buy Raptor shares “because I expected a sharp rise in the stock price for the next 3 years”. He advised him that the shares were purchased at around USD 5.50 and that he knew that the plaintiff had purchased stock in other banks. He also advised Mr Bachiashvili that this was “a bit confidential” and that was why he was writing to him from his “personal email”. Mr Lescaudron noted that as he had expected (or predicted) the stock had risen significantly to the then current price of USD 10.16 and advised as follows:

In response to Mr Bachiashvili’s request for more information on the stock Mr Lescaudron advised that the stock should continue to grow and probably peak at USD 35/40 in 2015/2016 but “could drop of course, in case global markets become very bad”. However, he highly recommended keeping the stock and “to ‘play’ the different news that will come during the next 15/18 months”, which could propel the stock “much much higher”. Mr Bachiashvili responded by observing that this was “very interesting” and that he would “include the info in the update to the [plaintiff]”.

Mr Bachiashvili gave evidence that he believed that he spoke to the plaintiff and informed him that he had received an e-mail from Mr Lescaudron about the investment and that it was “doing pretty well”.

As Raptor was a United States company, it was necessary to file relevant documents with the United States Securities and Exchange Commission (“SEC”) under the Securities Exchange Act 1934. The plaintiff and Mr Bachiashvili signed one of these documents for the year 2013 which identified the plaintiff as beneficially owning 3,619,987 Raptor shares or 5.8% of the company. It also identified Mr Bachiashvili as holding 3,052,250 shares or 4.89% of the company. Others who were identified in the SEC document as owning shares were Soothsayer (567,737 shares or 0.91% of the company); Meadowsweet (3,052,250 shares or 4.89% of the company); and the defendant (3,619,987 shares or 5.8% of the company) “in its capacity as trustee of the Trust” and disclaiming beneficial ownership of the ordinary shares. That document recorded Mr Bachiashvili as the “investment manager of the Trust”.

In a similar document that was filed with the SEC for the following year, the plaintiff, Mr Bachiashvili, Meadowsweet and the defendant were all identified as beneficial owners of 3,445,000 shares, or 5.51% of Raptor, each. Once again, the document identified the defendant as holding the shares as trustee of the Mandalay Trust and not as the beneficial owner of the shares.

When Mr Bachiashvili was asked about these documents in cross-examination, he said that he did not hold the shares as beneficial owner but as the “investment manager of the Trust”. He said that he understood what the document was about and he signed it.

There is no issue that from around May 2010 onwards Mr Lescaudron began purchasing shares in Raptor using Trust moneys without authorisation. By December 2012, 16.95% of the Trust assets were invested directly (through direct purchases of shares or options) or indirectly (through funds which invested solely or predominantly in Raptor). That figure increased to 56.52% in November 2013 and remained above 40% until September 2015, with highs of 76.24% in June 2015 and 78.91% in August 2015.

From around October 2011, Internal Audit conducted an investigation, the report of which included the observation that seven of Mr Lescaudron’s clients were investing in companies, including Raptor, despite the fact that they were “non-advised” investments. It also reported that Mr Lescaudron’s clients owned 24% of the shares in Raptor, notwithstanding that they were not in the Bank’s “product buffet”.

In February 2012 Internal Audit noted that Raptor was being traded in very high volumes by Mr Lescaudron and that he was placing “bulk orders”. It was concluded that he was taking some investment initiatives without orders being documented and he was managing some of the accounts “on a semi-discretionary basis”.

There were further investigations into Mr Lescaudron’s trading activity in Raptor. It was noted that Mr Lescaudron started buying shares in Raptor on his personal account on 30 April 2010 after which a few of his “important clients” started to buy significant amounts of the shares on 28 July 2010. It was also noted that Mr Lescaudron sold his position on Raptor with a gain over a period of one year while his customers were still “massively buying” resulting in those clients together owning 19% of the company. Mr Lescaudron purchased Raptor shares on his personal account again on 17 May 2012.

Internal Audit noted that the Raptor share was “quite illiquid” and that the customers who had purchased the shares appeared not to know each other. It concluded that Mr Lescaudron had “misused inside/sensitive information” to generate a gain for himself and that he should not be trading those shares for himself.

These matters were escalated to the compliance team of Credit Suisse on 22 June 2012. As a result of these investigations, it was decided in November 2012 that “disciplinary measures” would be taken against Mr Lescaudron which included a written warning, “ring-fencing” and the removal of his direct supervisor.

On 22 November 2013 an officer of CS Life, who confirmed that CS Life had been informed that it held a significant position in Raptor, asked Ms Sampaoli to inform Mr Lescaudron that “no further investments” linked to CS Life were allowed until explicit pre-approval from it was obtained. Ms Sampaoli forwarded that request on to Mr Lescaudron. However, Mr Lescaudron advised her that the position would be gradually reduced to less than 5% from 25 November 2013, which would probably take two to three months.

This did not satisfy CS Life and Mr Lescaudron gave the excuse that he thought it was only the initial position purchased that was to be reduced. At the end of January 2014 Mr Lescaudron said that he understood that the whole position was to be reduced and he agreed to do so on a “monthly basis”. Ms Sampaoli advised that the reason for Mr Lescaudron’s conduct was due to a good trading opportunity for the client and it would “not happen again”.

The problem continued into August 2014 when Mr Lescaudron was advised once again to urgently reduce the position after CS Life had been informed that it then held 11.07% of the shares in Raptor.

The problem continued. Ms Sampaoli was asked on a number of occasions to advise Mr Lescaudron to reduce the position and not to purchase any further Raptor shares. Ms Sampaoli agreed that she knew that this was an issue that was causing concern within Credit Suisse, but when asked whether she knew it was a serious issue, she said she did not see it that way. She sought to explain it on the basis that she thought that CS Life was merely trying to avoid a threshold so they did not have to make a report. She accepted that CS Life wanted Mr Lescaudron to reduce the position and gave the following evidence:

The Raptor trading and the shortfalls in the various accounts converged in September 2015. The 10% threshold was once again reached in the CS Life accounts and the price of Raptor shares collapsed. The consequence of this was that margin calls were triggered on the Trust accounts.

Bonus payments

It is not in issue that the plaintiff paid Mr Lescaudron what have been described as “bonus payments” over a period of some years. The plaintiff had thought it was “accepted practice” until Mr Bachiashvili became his assistant and advised him otherwise after which the payments ceased in 2012. The defendant submitted that it is rather striking that there is no allegation that the plaintiff has been defrauded of the bonus payments that he gave to Mr Lescaudron. It submitted that the plaintiff was remunerating Mr Lescaudron for something “of value” which the plaintiff genuinely believed that Mr Lescaudron provided to him: the management of the assets in the Mandalay Trust and advice on investment matters. It was submitted that this is why he considered it appropriate to privately remunerate Mr Lescaudron and this may be an explanation for why the plaintiff chose not to monitor and manage the Trust assets closely.

A proposed change

On 11 August 2011 Mr Lescaudron purportedly wrote by e-mail to the plaintiff referring to their conversation of the previous day and advising as follows:

On 15 August 2011, the plaintiff’s then assistant, Mr Khukhunashvili, wrote by e-mail to Mr Lescaudron in the following terms (in which “Boris” is a reference to the plaintiff):

The plaintiff was asked whether he requested his assistant Mr Khukhunashvili to write this e-mail. His evidence on this topic included that it was “a very strange letter” and one it was “unimaginable” that he would have asked to be sent to Mr Lescaudron, because of the suggestion that he was managing Geneva assets.

The plaintiff’s evidence was relevantly:

On 3 October 2011 Mr Khukhunashvili wrote by e-mail to the plaintiff on the topic of “hedge funds” advising that Mr Lescaudron agreed that “risky assets have already reached, or nearly reached, the bottom” and that “now may be the best time to invest in hedge funds”. The evidence establishes that this was an error as Mr Lescaudron had advised that “now is not the best timing to invest”. Mr Khukhunashvili observed that the “Swiss portfolio” was “100% invested in stocks, most of which are Russian stocks that have already fallen by 30-50%” and that “[u]nder the right conditions Russian stocks may grow by 30% in several weeks”.

It was suggested to the plaintiff in cross-examination that this communication demonstrates that his evidence that he stopped managing the Russian stocks in 2008 and gave instructions that they be sold cannot be accepted. However, the plaintiff reiterated that evidence, noting that he had not had any real contact with the Russian market since he stopped managing the stock in 2008. He observed that Mr Lescaudron had contacts in and visited Russia regularly and suggested that he and the defendant were not constrained by him from purchasing Russian stocks.

The plaintiff agreed that discussions with Mr Lescaudron did occur in relation to the establishment of a hedge fund and that such a proposal was subsequently implemented. However, he remained staunch in his denial that he was managing the Geneva assets as described in Mr Khukhunashvili’s e-mail.

In 2011, the plaintiff was busy. He was involved in politics, campaigning for the political party that he had established, Georgia Dream. He was successful at the election and was elected Prime Minister of Georgia in 2012 with an arrangement that he would serve as Prime Minister for one year.

Georgian Cooperation Fund

In March or April 2013, the plaintiff advised Mr Bachiashvili that he wanted to use the Cartu Group (which he had established) to boost foreign investment in Georgia for the benefit of the economy generally. They decided that the Georgian Cooperation Fund (“GCF”) be set up and used for this purpose. Work was started on this proposal and in September 2013 the GCF was established. Mr Bachiashvili was and is the 100% beneficial owner of the GCF through a holding company and the plaintiff is the investor.

On 11 April 2014 a letter apparently signed by the plaintiff as “Investment Manager” was sent to the defendant. It was headed “Letter of Recommendation in relation to the investment in GCF LP”.

The opening paragraph of the letter recorded: “I am writing to you as the Investment Manager of the Mandalay Trust having been appointed on 7 March 2005 pursuant to clause 9(d) of the Trust Deed”. There is an ambiguity to this statement. It might be read as the plaintiff claiming that he was appointed on 7 March 2005 pursuant to clause 9(d) of the Trust Deed. Alternatively, it might be read as the plaintiff claiming that he had been appointed on that date and was writing the letter pursuant to clause 9(d) of the Trust Deed.

An assessment of whether it was the former rather than the latter reading that was intended would consider the next sentence in the letter which was in the following terms:

The Trust Deed that was in force on 7 March 2005 did not have a clause 9(d). The Deed of Amendment and Restatement, however, did have a clause 9(d). Clause 9(d) of The Deed of Amendment and Restatement is not a clause by which the Investment Manager is appointed but rather a clause authorising the Investment Manager to give to the Trustees “directions’ to execute the Investment Manager’s investment and asset management decisions.

The plaintiff was not appointed as Investment Manager pursuant to clause 9(d) of either the Trust Deed or the Deed of Amendment and Restatement. The only document purporting to appoint the plaintiff as “Investment Manager to the Mandalay Trust” is the minute of the defendant’s Trust Committee of 7 March 2005 recording the resolution to so appoint him (see [113] above).

In any event, the letter records that “Pursuant to the powers under the Trust Deed” the plaintiff “would like to recommend” that Meadowsweet make a USD 100m investment in GCF with a subscription date of 14 April 2014. It also included the following:

The letter concluded with the plaintiff undertaking to indemnify Meadowsweet, its directors and employees in relation to the investment.

The investment was made and any profits that were made were reinvested into the GCF.

This letter is relied upon by the defendant in support of its claims that it did not have any investment powers and the plaintiff was managing the investment of the Trust Assets.

Loan to shareholders of TBC Bank

On 7 April 2014 Mr Bachiashvili wrote by e-mail to Mr Lescaudron referring to an earlier communication two weeks previously in which he advised that the plaintiff was “looking at lending up to $100M to the shareholders” of Georgia’s second largest bank, TBC Bank. This e-mail was headed “100Mn USD loan facility”.

Mr Bachiashvili advised that TBC Bank was “going to IPO” and the shareholders wished to purchase shares at IPO. He advised that the transfer would be made directly to the shareholders’ brokerage account one or two days before the IPO so that the broker could guarantee that the amount “will be used irrevocably to purchase shares at IPO “which will be pledged right away”.

Mr Bachiashvili asked that the “CS team” draft two agreements (one between borrower and lender and the other with the broker regarding the pledge) or a three-way agreement between borrower, lender and broker. He requested that this should occur “right away, as we have a tight timetable before IPO”.

This communication made no mention of the source of funds for the loan, whether from the Trust Fund or the plaintiff’s personal accounts. However, the plaintiff’s evidence was somewhat equivocal as to whether it was through the Trust.

CS Life Meadowsweet Policies

On 31 March 2011 at a meeting with the plaintiff in Georgia, attended by Ms Sampaoli, Mr Lescaudron, Mr Felipe Godard (Mr Lescaudron’s then superior) and Mr Gharibashvili (the plaintiff’s then assistant), Ms Sampaoli proposed that the plaintiff take out an insurance policy with CS Life (the “CS Life Meadowsweet Policy”) by investing an insurance premium through the Bank which would provide benefits such as life insurance and savings on stamp duty. CS Life had calculated that the plaintiff could save significant sums on stamp duty by investing in the CS Life Meadowsweet Policy.

It was suggested to the plaintiff that while the assets would take the form of an insurance premium to be held in an account with the Bank, it could be managed by the plaintiff or any person chosen by him.

On 2 April 2011, the plaintiff signed a letter of wishes which included that: Meadowsweet sign the CS Life Meadowsweet Policy application form; the policyholder should be Meadowsweet; the insured person should be the plaintiff; the beneficiary should be Meadowsweet; and once CS Life opened its account with the Bank, all assets then held by Meadowsweet in the Bank were to be transferred to that new account. Finally, the letter recorded that the plaintiff wished to be appointed the investment manager for the CS Life Meadowsweet Policy.

On 8 April 2011 the plaintiff signed the application form which recorded that the CS Life Meadowsweet Policy was to be held in the name of Meadowsweet with the plaintiff as the insured person and Meadowsweet as the beneficiary. There was to be a single premium of USD 363m. On the same day a LPOA was signed by CS Life, appointing Meadowsweet as its attorney to deal with the Bank in relation to investments under the CS Life Meadowsweet Policy. Another document was also signed on that date, sub-delegating Meadowsweet’s power under the LPOA to the plaintiff. Although there is no real issue that the plaintiff signed this document, his evidence was that he did not remember signing it.

On 7 November 2011, the CS Life Meadowsweet Policy was issued with a commencement date of 25 October 2011. The single premium was USD 480,267,313 paid from Meadowsweet’s accounts with the Bank.

In addition to the CS Life Meadowsweet Policy, the plaintiff held another life insurance policy with CS Life (the “CS Life Sandcay Policy”). The single premium payment for the CS Life Sandcay Policy was USD 275,075,927.

The plaintiffs commenced proceedings in the Supreme Court of Bermuda against CS Life in respect of losses from the two CS Life Policies claiming that the Bank became aware of Mr Lescaudron’s wrongdoings as early as 2011 but failed to take any steps to stop him or investigate his conduct properly (the “Bermuda Proceedings”). The plaintiffs’ primary claim was for damages of USD 553.86m.

Chief Justice Hargun found that CS Life did not take adequate action to prevent Mr Lescaudron’s fraudulent mismanagement of the plaintiffs’ assets under the two CS Life Policies. CS Life was held to be in breach of its contractual obligations and fiduciary duties owed to the plaintiffs and that the plaintiffs were entitled to damages amounting to the difference between the value of the CS Life Policies and the value that would have been achieved if those assets had been invested in a medium risk portfolio from inception. An appeal is pending.

The fraud is discovered

It is not in issue that in 2015 after margin calls were made in consequence of the collapse in the value of the Raptor shares, the defendant discovered that Mr Lescaudron had been involved in fraudulent activities involving the Mandalay Trust. It is also not in issue that the defendant did not notify the plaintiff of this discovery at that time.

On 15 September 2015 Mr Bachiashvili wrote to the Bank and the defendant confirming information that had been provided to him that day which included that: there was a margin call of USD 4m because “of the sudden drop of share price of Raptor”; there were roughly 14.2m shares which represented 18% of the total share capital of Raptor; the initial purchase of the shares and the total amount was explicitly agreed and approved by the plaintiff; and there was buy and sell activity on the accounts for the Raptor shares in the past 24 months. He also confirmed that the Bank had suggested that: USD 10m worth of other shares should be sold; the sale proceeds should be transferred to cover the margin call; and two of the hedge fund investments should be moved in order to replenish funds elsewhere.

Mr Bachiashvili asked for information so that he and the plaintiff could have a “more thorough analysis” which included the following: (i) historic buying and selling activity for Raptor shares for all accounts and structures; (ii) documentation orders signed by the plaintiff or the managers regarding the shares; (iii) the direct contact details of the analyst in Credit Suisse covering Raptor so that he could talk to them; (iv) the latest research notes on Raptor; (v) the investment thesis of why the position was in the portfolio, why it was attributed its current weighting and when it was last rebalanced; (vi) the details of the availability of any bulk buy orders; (vii) information for out of the money put protection in the market, availability and duration; (viii) an estimate of time for a program sell with no market impact to liquidate half of the position (in days); and (ix) a list of the top 20 shareholders in Raptor.

Mr Bachiashvili informed the Bank and the defendant that he had a “20 minute call” with the plaintiff and had given him the information recorded in the confirmatory e-mail. He advised that his reaction was “very negative” and listed “the main points” that the plaintiff had raised. Those points are important as they are relied upon by the defendant to suggest that they demonstrate that the plaintiff was managing the assets in the Mandalay Trust. Those points as recorded by Mr Bachiashvili were as follows:

By this time, Mr Lescaudron had been removed from his position as RM for the plaintiff.

On 22 September 2015 Ms Sampaoli received a copy of an e-mail on the subject “LPI restructuring to PLF for Georgian client”. That e-mail noted that the plaintiff urgently needed liquidity “due to poor performance of some illiquid investments and a margin call on leverage granted against securities that lost 40% in value”. This was a reference to the Raptor shares. The e-mail noted that Ms Sampaoli had emphasised that “the LPI structure” would “need to be exited in any case ASAP”.

On 24 September 2015 Ms Sampaoli wrote to Ms Lau and Mr Birri in the following terms:

On 25 September 2015 Ms Lau responded to Ms Sampaoli with a copy to Mr Birri informing Ms Sampaoli that she was really “sorry to hear of Patrice being unwell” and observing that he is “instrumental” in the client relationship. Ms Lau asked Ms Sampaoli to let her know if there was anything with which she could assist.

Ms Sampaoli gave the following evidence in respect of these events and communications:

Ms Sampaoli was asked about her e-mail to Ms Lau, and in particular the reference to Mr Lescaudron being “sick lately”. It was suggested that she was not being candid with the defendant and gave the following evidence:

On 1 October 2015 Mr Bachiashvili wrote to Ms Sampaoli referring to a telephone conversation with her earlier that day. That e-mail included the following:

Mr Bachiashvili referred to Ms Sampaoli’s confirmation that “Credit Suisse Trust is representing our interests and will be acting in our best interests when protecting our assets (even if against Credit Suisse Bank)”. He requested documentation including correspondence in “Retained Mail” and asked Ms Sampaoli to copy him in on any correspondence between the defendant and the Bank.

In response, Ms Sampaoli advised Mr Bachiashvili that she had forwarded his message to the “Legal Department” and would revert to him as soon as possible, at the latest early the following week. Ms Sampaoli then wrote: “In the meantime, I confirm that we will perform our fiduciary duties as Trustees”.

At this point Ms Sampaoli knew that the Retained Mail had been destroyed but did not inform Mr Bachiashvili of this fact. She agreed that she informed Mr Bachiashvili that she had no idea about the fraud and questioned how it could have happened. She gave the following evidence:

Ms Sampaoli accepted that but for the Legal Department’s involvement she would certainly have informed the plaintiff and his family of the problems that had arisen.

It was about this time in October 2015 that Mr Guldimann commenced the process for the restatement of the financial statements. Ms Lau agreed that this was done very discreetly and that the plaintiffs were not informed that the original financial statements were being reviewed, even though they should have been informed of that process.

Mr Guldimann created spreadsheets which tabulated the contributions and the distributions for Meadowsweet and Soothsayer. He also prepared spreadsheets to reconcile the original financial statements and the Restated Financial Statements. It is not in issue that the contribution and distribution spreadsheets identified moneys coming into and going out of the Mandalay Trust. This spreadsheet listed many transactions in which the recipient of and the supporting documents for the purported distribution were not identified. Ms Lau gave evidence in respect of these transactions which included the following:

After reviewing further (ultimately unread) evidence of Mr Guldimann and Ms Dawna Wright that was filed by the defendant, Mr Davies expressed the opinion that the 2017 restated accounts were “wrong” in several areas, one of which was that they treated the unauthorised transactions as loans or movements in loans, whereas they should have been treated as a charge to the profit and loss account. If they had been treated as a charge to the profit and loss account, the accounts should faithfully represent and explain the nature of the adjustments so that the readers of the accounts can understand them. However, no such explanations were given in those accounts.

Mr Davies explained that treating the unauthorised payments as repayment of the shareholder effectively brought them to account as a distribution to the beneficiaries.

The plaintiffs submitted that the “tactical” decision made by the defendant at the last moment not to call Mr Guldimann, notwithstanding that he had filed two AEICs the contents of which had been the subject of evidence in the trial, leads to the irresistible conclusion that his evidence would have been very damaging to the defendant’s case.

As discussed earlier at [40], Mr Davies was instructed to provide a report identifying the differences between the originally approved financial statements for the Mandalay Trust, Meadowsweet and Soothsayer for the years 2006–2014 and the Restated Financial Statements for the same period prepared by Mr Guldimann.

Mr Davies concluded that the two main areas of changes that were consistently made in the Restated Financial Statements were the contributions and distributions in the Trust financial statements and the presentation of the value of the assets and liabilities held with the Bank in the Meadowsweet and Soothsayer financial statements.

The changes that Mr Davies identified led him to the conclusion that the Restated Financial Statements were “substantially unrecognisable by comparison” to the original financial statements.

The Trust capital account balance (which would allow a user to establish the net balance of cash and securities that were held on trust at the period end) was markedly different in the years 31 December 2013 and 31 December 2014, being a difference of 23.7% and 24.4% respectively. It is, accordingly, significant that such changes were made.

The net assets balance, a key metric to a user of the Meadowsweet financial statements because it would allow the user to determine the level of assets or liabilities held at the period end, also had marked differences between the original financial statements and the Restated Financial Statements. To year end 28 February 2007 there was a difference of 20.1%. The original financial statements recorded USD 198,110,466, whereas the Restated Financial Statements recorded USD 158,224,556.

Significantly, as at 31 December 2009, the original financial statements recorded a deficit at USD 3,565,120 compared to the Restated Financial Statements of a deficit of USD 6,651,746, an 86.6% difference. The greatest differences were in the period ending 31 December 2013 and 31 December 2014 recording differences of 1547.9% and 367.8% respectively. Similarly, the differences in the Meadowsweet profit/loss balances show differences ranging from 22.3% to 503.3%.

Mr Davies was also asked whether it was possible to identify the contributions and distributions that were incorrectly valued, not booked, or wrongly classified as contributions/distributions. Although Mr Davies was able to identify the differences between the original financial statements and the Restated Financial Statements in respect of contributions and distributions, such movements described as “substantial”, he concluded that there was no clear correlation between the respective contribution and distribution differences. In other words, Mr Davies concluded that they did not balance out.

Ultimately, Mr Davies could not answer the question because the documents that were provided to him did not permit the necessary analysis. One point of significance made by Mr Davies was that the beauty of accounting, and specifically double-entry book-keeping, is that if proper books and records have been maintained, every item in a set of financial statements should be supported by a transaction or series of transactions.

However, in the present case, it appears that this was not the case. The documents were incomplete. Some contribution and distribution listings did not cover the same period as the Restated Financial Statements. Some documents contained details of the entity in which cash transactions occurred while others did not. There were instances where the value of a group of transactions did not appear to aggregate to the subtotal which was displayed beneath them. It was also unclear why those instances occurred and whether they should be taken into account in any analysis. Mr Davies also concluded that there were comments within some of the listings of contributions and distributions which introduced uncertainty as to their validity and many of the documents included a covering e-mail that did not include any background as to what the listing contained or the original purpose of the listing.

As discussed earlier, Mr Guldimann did not commence his work until 2015. By this time, Mr Lescaudron had been engaging in fraudulent activity for at least 8 years. Obviously, the records that were kept by the Trust and/or on behalf of the Trust needed rectification by the very reason of Mr Guldimann’s production of the Restated Financial Statements. The motivation for that exercise is in issue.

The work that Mr Guldimann did from 2015 onwards is work that, if done in 2008 or even 2009, would have alerted the defendant at the very least, to the need to rectify its records that were obviously wanting.

The mechanisms or tools that are used by a trustee to safeguard the trust assets are obviously a matter for the trustee within the confines of the trust arrangement and obligations to the beneficiaries. However, an integral part of that mechanism is accurate financial statements and the capacity to check the accuracy of those statements. It would seem on the evidence produced by Mr Davies in reliance upon Mr Guldimann’s work that such a mechanism was not properly in place to enable the defendant to make the proper assessment for the purposes of safeguarding the plaintiffs’ Trust assets.

The plaintiffs submitted that apart from breaching its duties to the plaintiffs, the defendant sought to conceal the fraud on the trust accounts. It was submitted that not only did it not provide proper accounting to the plaintiffs, but it also positively sought to cover up the unauthorised payments by categorising them as proper distributions.

The plaintiffs submitted that the defendant’s opportunistic and dishonest conduct in using the account restatement exercise to reclassify payments to unknown third parties as distributions to the beneficiaries amounted not just to a breach of the defendant’s duties as trustee to account to the plaintiffs, but also a breach of the defendant trustee’s irreducible core duties to act honestly and in good faith.

The defendant’s attitude

One matter of some significance is the defendant’s attitude to moneys leaving the Trust without: (a) its authorisation; (b) knowledge of the settlor’s/beneficiaries’ wishes; (c) knowledge of the reason for the payment; or (d) the identity of the recipient of the funds.

The intricacies of effecting business transactions and trust transactions in different time zones in the international or global structure of the operations of the CS Group caused it to recognise that there may be delays in achieving some necessary steps in such transactions.

It was in 2010 that the CST Group published the Guideline in respect of UPAs. Although that Guideline refers to these unauthorised payments presenting “elevated legal, regulatory and reputational risks” for the CST Group and notes that they “seriously jeopardise” the “due diligence framework”, there is no express statement of recognition that such payments will or could cause a serious breach of a trustee’s obligation to safeguard the Trust assets. Indeed, the defendant’s Head of Trust Management and overall Centre Head and Executive Director from 2011 until 2015, Mr Birri, described UPAs as “a breach of administrative and formality procedures” and “procedural lapses” rather than any indication of the possibility of fraudulent activity. Although he did accept in cross-examination that one would not know if UPAs were merely procedural lapses unless the transactions were investigated.

Mr Birri was the only senior officer of director status of the defendant who was called to give evidence in the proceedings. He left the defendant’s employ in 2015. He was brought into the defendant’s operations to replace Mr Peter Leppard in October or November 2011 because of “negative reports” on the defendant.

A Credit Suisse Best Practice Guideline of 10 April 2007 entitled “Duties and Responsibilities of Trustees, Foundation Councils and Company Directors” dealt with numerous matters including the verification of assets as follows:

The guideline recorded that it was necessary to “always review the investments regularly and record/minute the results of that review”. It provided a checklist for various aspects of the defendant’s operation. Where the function of investment management was to be delegated, the checklist included that the defendant should ensure that the investment manager was reputable and competent. Some of the questions that needed to be asked and answered were whether the individual was: a professional investment manager; related to the principal; possessed an investment management qualification with a track record in investment management; or experienced in investment management. The checklist also included the following:

Mr Birri gave the following evidence in relation to assets being held by a nominee company or a company controlled by the defendant:

When Mr Birri took up his role in the defendant’s operations in Singapore, the UPAs were a continuing issue. In February 2012, the Global Head of Trust Management advised him that action was required to stop UPAs. It was decided that a letter would be sent to the Bank seeking an explanation for the transfer of funds without the defendant’s authorisation in an attempt to stop the UPAs on the Mandalay Trust accounts (this is the letter referred to at [203] above). Mr Birri agreed that there was no reason why such letters could not have been sent earlier.

As mentioned above, Ms Sampaoli entered the debate about the letters and suggested that: “CS estimates the potential for 2012-2013 with this client to USD 1.5 billion. The Bank wants to grow this relationship and, therefore, we should support it”. Mr Birri accepted that Mr Sampaoli’s e-mail conveyed the message that he should not “rock the boat” or Credit Suisse would lose out. Although Mr Birri claimed he could not remember what had happened, it is quite clear that after Ms Sampaoli’s “don’t rock the boat” message, the letter was not sent. Mr Birri finally accepted that “it could be” that the letters were “never sent”.

Mr Birri was pressed further in cross-examination and was taken to Ms Sampaoli’s explanation that Mr Lescaudron felt there was no need to send the letters because the “cases have been solved”. Ms Sampaoli also reported that Mr Lescaudron was “aware of the UPAs” and that he “will try to involve us immediately in future in order to avoid any future problems”.

When it was suggested to Mr Birri that he should have sent the letter irrespective of Ms Sampaoli’s e-mail, he resorted to what appeared to be an excuse for not sending the letters. He said that UPAs were “quite common” and that “many” RMs in Singapore produced UPAs for the defendant. Indeed, he described them as “hundreds of UPAs”.

Mr Birri went on to try to explain that when they wanted to please the client, RMs went ahead with the transaction before authorisation was sought or given and they saw it as an administrative matter. His evidence continued:

Mr Birri accepted that in April 2012 he knew that the strategy of dealing with UPAs, by escalation to more superior officers/departments, was not working. He gave the following evidence:

Mr Birri was asked further questions about UPAs throughout 2012 and accepted that even if there were some UPAs that were resolved, he knew that it was necessary to get to the bottom of why the UPAs had happened. He gave the following evidence:

Mr Birri’s role with the defendant in Singapore was the first time that he had personal experience as a trustee. He gave the following evidence:

In other evidence Mr Birri agreed that the defendant did not prepare the accounts in respect of the trust accounts in a timely fashion. There were 622 delinquent accounts for 2010 that had only been reduced to 523 the following year. He said that he inherited the problem of these hundreds of outstanding accounts from his predecessor. Obviously if the accounts are not available to the trustee the duty to safeguard the assets may be compromised. Although one of Mr Birri’s tasks was to “reduce those late financial statements”, he knew that the defendant did not have enough resources to accomplish it. The defendant resorted to hiring of temporary staff to clear the backlog but even then it was not enough and the number of delinquent accounts increased.

Mr Birri gave evidence prior to the defendant making its admission on the tenth day of the trial. His evidence exposed the huge deficiencies in the defendant’s processes and attitudes at the time that he was the head and executive director of the defendant. Mr Birri was policy-focused and appeared to be unable to see the true nature of an UPA. He did not appear to appreciate that every time millions of dollars went out of the Trust without authorisation the defendant’s duty to protect the Trust assets was compromised.

Mr Birri’s explanation that UPAs were not uncommon and that there were hundreds of them was, as Senior Counsel for the plaintiff put it rather neutrally, a “very unattractive” statement. Any attempt to justify inactivity or a lack of appropriate activity on the basis that there were a lot of UPAs is a most dangerous attribute in a trustee. As soon as a payment out of the trust funds is made without the trustee’s authority, steps should have been taken to stop it and if it did not cease, then the person who was guilty of such conduct irrespective of whether they were within the Bank and/or the defendant should have been prevented from having access to the Trust funds.

It is also wrong-headed to suggest that this would have been difficult because Mr Lescaudron was in the Bank’s employ rather than the defendant’s employ. This was not a staffing arrangement matter. This was about access to assets in a Trust that was fully controlled by the defendant and it on its own and with and through its underlying companies were the appropriate decision makers as to who could have access to Trust assets.

Consideration

There is now no issue that by 31 December 2008 the defendant breached its duty to the plaintiffs to safeguard the Trust assets. However, notwithstanding the defendant’s admission that it did “not dispute causation in this regard”, its position at the conclusion of the trial was that it was only liable to the plaintiffs for those funds that were misappropriated by Mr Lescaudron for which it claims the plaintiffs have been fully compensated by the Settlement with the Bank. The defendant argues that any other losses suffered by the plaintiffs fall outside the scope of its duty and are hence not recoverable.

The plaintiffs claimed that the defendant’s admission included an acceptance that one alternative, in respect of which the defendant did not dispute causation, was that the whole portfolio would have been removed from the defendant’s custody and placed with another institution. They claimed that the defendant is liable to compensate the plaintiffs for the difference between what the portfolio would have achieved in the hands of that other institution and what was actually achieved, giving credit for what was paid in the Settlement.

At this juncture it is appropriate to identify the relevant issues for determination. It is necessary to determine that nature of the Mandalay Trust, the context in which the defendant was providing its services to the plaintiffs and the extent of its duties to the plaintiffs in that context.

It is necessary to determine whether the defendant was in breach of its duty to safeguard the Trust Assets earlier than the admitted date, 31 December 2008.

It is also necessary to determine whether the plaintiff was managing any of the Trust assets and if so, the consequences of such management.

It is also necessary to determine the defendant’s claim of contributory negligence and its claim to be excused in respect of any breach of duty earlier than its admitted breach.

It will be necessary to consider the numerous issues dealt with in the expert evidence in respect of the quantification of the plaintiffs’ loss by reason of the defendant’s admitted breach of duty and any earlier breach of duty.

Nature of the trust

In determining the nature of the Mandalay Trust, it will be necessary to consider the trust instruments and surrounding documents together with the operation of the Trust.

Validity of Deed of Amendment and Restatement

It is appropriate at this point to deal with the status of the Deed of Amendment and Restatement.

The plaintiffs submitted that there is little relevance to the Deed of Amendment and Restatement having regard to the fact that it was executed some five years after the defendant’s admitted breach. That submission has force. However, for completeness it is appropriate to consider the parties’ contentions in respect of its validity and/or enforceability.

The plaintiffs submitted that the plaintiff did not give his informed consent to the amendments. His unchallenged evidence was that he did not and would not have agreed to the amendments in the Deed of Amendment and Restatement had he known their true legal effect. He also gave evidence that the Deed of Amendment and Restatement was not explained to him.

One of the letters that Ms Sim asked Mr Sampaoli to have the plaintiff sign was a letter addressed to the defendant in relation to the Deed of Amendment and Restatement that was in the following terms:

Ms Sim gave evidence that she knew that the defendant’s solicitors, Baker McKenzie, were advising on amendments that were “not just for the artwork” but that they would also “impact the bankable assets”. Ms Sim accepted that this should have been conveyed to the client.

The plaintiffs submitted that even if the defendant declared the Deed of Amendment and Restatement on the plaintiff’s instructions, it amounted to an exercise of a power on the purported instruction of only one beneficiary without giving independent consideration to the proper exercise of the power, in breach of the trustee’s duties to all the beneficiaries, and thus rendered the exercise of the power void.

The plaintiffs also submitted that the amendments went much further than was reasonably necessary to accommodate the artwork held by the Mandalay Trust. The plaintiffs also emphasised that the Deed of Amendment and Restatement was executed only on 5 July 2013, long after the time that the defendant now admits it should have communicated with the plaintiff in respect of Mr Lescaudron’s conduct, in consequence of which Mr Lescaudron would have been removed.

It is not in issue that discretionary power conferred on a trustee must not be exercised for an improper purpose: British Airways plc v Airways, Pension Scheme Trustee Ltd [2018] EWCA Civ 1533. Nor is it in issue that an exercise of power that amounts to fraud on a power is void: Lewin on Trusts (20th ed, Sweet & Maxwell 2020) (“Lewin on Trusts”) at para 30-067.

The plaintiffs emphasised that the wording of Clause 19 of the Trust Deed, on which the defendant relies for its power to amend the Trust Deed, allowed the defendant to make amendments for the benefit only of the plaintiffs (if it considers the same to be in the interests of the beneficiaries) and not for the benefit of any other person (see [95] above).

The defendant contended that it had the power to amend the Trust Deed without requiring the approval of all beneficiaries “so long as” (as it claimed is the case here) “no interest or benefit is conferred on any person(s) other than the beneficiaries”. The plaintiffs claimed that the contemporaneous documents demonstrate that the defendant failed to consider the beneficiaries’ interests and that it declared the Deed of Amendment and Restatement for the improper purpose of protecting itself, thus conferring a benefit on itself.

In this regard, the plaintiffs relied on the documents referred to in which Mr Birri asked Ms Sim to instruct Baker McKenzie to review the Trust Deed, with advice that the “aim is to reduce the risk of the trustee in regard to the holding of artworks”. Mr Birri confirmed that this was the purpose of amending the Trust Deed in the following evidence:

The plaintiffs submitted that the defendant declared the Deed of Amendment and Restatement solely for its own benefit to remove the risks it faced in holding the artwork, and not for the benefit or in the interests of the beneficiaries.

The plaintiffs also submitted that Clause 19 of the Trust Deed did not confer any power on the defendant to “restate”, as opposed to “vary”, the Trust Deed. It was submitted that by restating the Trust Deed, it was intended to revoke the Trust Deed and resettle the Mandalay Trust. This was therefore ultra vires and is void. In support of this contention the plaintiffs relied on the preamble to the Deed of Amendment and Restatement which recorded that it was the defendant’s wishes to amend and restate the original Trust Deed “in its entirety”.

The communications both oral and written over the years 2007/2008 to 2012 referred to at [270]–[281] earlier support the finding that the defendant was concerned that the documentation in place at the time (the Trust Deed and various minutes and letters) did not make clear that it was not liable for losses that may be incurred by reason of the loss or damage to the very valuable artworks that had been purchased by the plaintiff and over which it did not have physical custody.

If there was already protection for the defendant from such liability in Clause 10(b) of the Trust Deed because the plaintiff had managed this investment and the defendant did not have full control of the investment, then the Deed of Amendment and Restatement may not have conferred a benefit on the defendant that it did not already enjoy. However, as discussed earlier, Lynden was established well after the acquisition of Meadowsweet and Soothsayer and there was no imposition of any restrictions or conditions on the defendant when the artworks were purchased and transferred into the Trust by the plaintiff. The defendant was therefore concerned to specify in detail, as it did in the Deed of Amendment and Restatement, that the defendant had no investment or asset management functions in respect of the artwork. However, it went further to provide that it had no investment or asset management functions generally.

The whole focus of the correspondence at the time of the drafting of the Deed of Amendment and Restatement was on the defendant’s exposure in respect of the artworks and the need to protect it from any liability in respect of the loss or damage to the artworks. The letter that the defendant drafted for the plaintiff to sign at the time referred to at [400] above recorded relevantly that the plaintiff (alone rather than all the beneficiaries) was “agreeable” to the Deed of Amendment and Restatement “to expressly accommodate the inherent investment needs of this unique asset class (ie. artwork)”. It is obvious that the expression inherent investment “needs” was a euphemism for the inherent investment “risks” from which that the defendant wished to be protected.

Even if it could be argued that the Deed of Amendment and Restatement conferred a benefit on one or more of the beneficiaries in respect of investment “needs”, the defendant could not exercise the power to vary the Trust Deed if it conferred a benefit on itself. This is clear from the wording of Clause 19 and the defendant does not suggest otherwise.

Mr Birri’s candid evidence that the Trust Deed was amended to reduce the defendant’s risk in respect of the artwork is compelling support for the conclusion that it was to confer and did confer a benefit on the defendant. It is also compelling support for the proposition that the exercise of the power to vary the Trust Deed in Clause 19 of the Trust Deed was for that ulterior purpose rather than the permitted purpose of benefiting only the beneficiaries.

Although in the circumstances of the defendant’s admission it is probably unnecessary to determine this issue, if it had been necessary, the justifiable conclusion is that the Deed of Amendment and Restatement is void and/or unenforceable.

Reserved power trust

A mechanism that may be utilised to achieve a principal’s/settlor’s retention of control over the assets in a trust is the appointment of a beneficiary/settlor as an investment manager or investment advisor. This mechanism has been referred to as a reserved powers trust, the validity of which is not in issue. Section 90(5) of the Trustees Act provides: “No trust or settlement of any property on trust is invalid by reason only of the person creating the trust or making the settlement reserving to the person all or any powers of investment or asset management functions under the trust or settlement.”

The defendant claims that the Mandalay Trust operated as a reserved powers trust in which the plaintiff reserved to himself the power of investment of the Trust assets to the exclusion of the defendant.

The parties’ submissions focused significantly on clauses 10 and 16 and paragraphs 4 and 5 of Schedule 4 of the Trust Deed. These provisions are the so-called “anti-Bartlett” clauses named after the judgment in Barlett v Barclays Bank Trust Co Ltd [1980] Ch 515.

It is usual in a reserved powers trust for the Trust Deed to include anti-Bartlett provisions to provide the trustee with protection from liability where the settlor has control of the investments. This has been the subject of commentary in respect of a structure which includes underlying companies similar to that found in the present case, including relevantly in Lewin on Trusts as follows (at para 34-059):

The decision referred to in the second paragraph extracted above is the judgment of the Hong Kong Court of Final Appeal in Zhang Hon Li and Ors v DBS Bank (Hong Kong) Ltd and Ors [2019] HKCFA 45 (“Zhang”).

In Zhang the settlors were husband and wife who were customers of DBS Bank (Hong Kong) Ltd: at [9]. Before the trust was established, the settlors set up a BVI investment company, Wise Lords Ltd (“Wise Lords”) of which the wife was the sole director and shareholder: at [10]. After the Trust was established, the sole share in Wise Lords belonging to the wife was transferred to DBS Trustee HK (Jersey) Ltd and the wife was replaced as sole director of Wise Lords by DHJ Management Ltd, part of DBS Corporate Services (Hong Kong) Ltd: at [12]. DBS Corporate Services provided a nominee director for Wise Lords as well as company secretary services, a correspondence address and bank-authorised signatories. The wife was appointed Wise Lords’ investment advisor and authorised by Wise Lords to give investment instructions on its behalf: at [12].

The Court of Final Appeal was considering anti-Bartlett clauses that were relevantly identical to the clauses in the present case and described them as follows at [64]:

The Court also referred to the “irreducible core of obligations” fundamental to the concept of a trust that was recognised by Millett LJ in Armitage v Nurse [1998] Ch 241 (“Armitage v Nurse”) as the duty of trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries and which did not include the duties of “skill and care, prudence and diligence”. Importantly, the Court said that those core obligations do not “operate to override express terms of a trust” but rather “provide a touchstone for deciding whether the minimum requirements for constituting a trust have been met”: at [65].

In the present case, there was the 2005 Letter of Appointment dated 7 March 2005 and the subsequent resolution by the defendant’s Trust Committee to appoint the plaintiff as the investment manager to the Mandalay Trust (see [102] and [108] above). In the 2005 Letter of Appointment, the plaintiff reserved the “right” to choose the investment manager who was recorded as being “responsible for making decisions as to the assets of the trust” and the “investment” of those assets.

The purpose of the Memorandum of Wishes, also dated 7 March 2005, was “to assist in the administration of the trust and the exercise of any discretion and powers pursuant to the trust deed” (see [100] above). That memorandum recorded that during the plaintiff’s lifetime, the defendant “may have regard to his recommendations in respect of the investment of the Trust Fund, the beneficiaries of the Trust and any distributions to the beneficiaries”.

In Zhang, one of the beneficiaries/settlors of the trust, the wife, was appointed as investment adviser and a Letter of Wishes was executed. That Letter of Wishes was in different terms to the Memorandum of Wishes in the present case. That Letter used mandatory rather than permissive language recording that during the beneficiary’s/settlor’s lifetime the trustee “should always consult her in the first place with regards to all matters and her recommendation should be final”: at [12].

A trustee who is permitted to have regard to a beneficiary’s recommendations free of any direction that such be accepted as final is in a different position from a trustee who should, ought to or even must have regard to the beneficiary’s recommendation with the stipulation that it be treated as final. On one view, the former accommodates the prospect of the retention of control or some control of the investments in the trustee whilst the latter does not, except perhaps in exceptional circumstances.

In any event, in the present case, where there is a reservation of control and the beneficiary/settlor exercises that control over the investment of assets in the Trust Fund, Clause 10(b) of the Trust Deed provides protection for the defendant from liability for loss caused by any action or inaction by the trustee by reason of its inability to exercise control over the subject assets (see [91] above).

The defendant submitted that a reserved powers trust draws a very clear line between the duties of a trustee to safeguard trust assets and the duty of a trustee to review and monitor investment activity, which is excluded from the trustee’s obligations in such circumstances. The defendant submitted that it did not delegate the investment powers but rather such powers were “never vested” in the defendant.

In Sim Poh Ping v Winsta Holding Pte Ltd and Anor [2020] 1 SLR 1199 (“Sim Poh Ping”), the Court of Appeal considered the “important distinction” between the trustee’s “custodial stewardship duty” and “management stewardship duty” as follows (at [100]):

In Appleby Corporate Services (BVI) Ltd v Sitco Trustees (BVI) Ltd 17 ITELR 413 (“Appleby”), the investment manager of the trust appointed pursuant to an investment management agreement was to have complete discretion in investment decisions subject to a certain trading authority which set out how the fund was to be allocated. The trustee relied on an understanding that the settlor would monitor the asset allocation on a monthly basis. Although the trustee made enquiry with the investment manager on certain matters, it did not engage in systematic review of the portfolio to ensure that it complied with relevant guidelines.

The Court held that even if the settlor had agreed to monitor the asset allocation monthly, it would not relieve the trustee of its “duty of care” to the beneficiaries of the trust: at [16]. It was held that had the trustee reviewed the conduct of the account regularly, it would have seen that the investment guidelines were not being complied with and unless it could rely on some exonerating provisions of the relevant statute or a trust document, it was liable to the trust for whatever damage had occurred because of its negligence in failing to keep the management of the fund under review: at [41], [42] and [55]. The plaintiffs relied on this decision in support of their contention that the defendant failed to keep the Trust assets under proper review.

The defendant submitted that the decision in Appleby is distinguishable because the trustee had powers of investment and exercised those powers. It submitted that Appleby does not support any proposition in a reserved powers trust that somehow the duty to safeguard the assets “creeps into a duty to monitor and review investments”.

Although the defendant continued to make submissions that it was not obliged to monitor the wisdom of the Trust investments, it is certainly no part of the plaintiffs’ case that the defendant was in breach of such a duty. The plaintiffs do not complain about the defendant’s failure to monitor the wisdom of the investments. Rather it is the defendant’s failure to properly monitor the Trust so as to enable it to know whether the Trust assets were safe that is the subject of complaint.

The nature of a reserved powers trust that the defendant propounds is an ‘all or nothing’ concept. In that concept, if a settlor/beneficiary reserves powers of investment to himself or herself, then the trustee would have no powers of investment and no liability in respect of any loss resulting from the investment of the Trust assets. There is no room in that concept for the sharing of investment responsibilities between the trustee and the settlor/beneficiary. Such a restriction is not a prerequisite to the existence of such a trust. A trust arrangement is developed to fit the requirements of each beneficiary. The label is not the driver for the structure. The needs of the beneficiaries and the willingness of the trustee to take on the trustee responsibilities should be the drivers of the structure.

In Singapore, the concept of a shared arrangement with the settlor/beneficiary having investment powers over only parts of the Trust assets leaving the trustee with the investment powers over the residuum is recognised in the governing statute. Section 90(5) of the Trustees Act discussed earlier refers to the reservation of “all or any powers of investment or asset management” [emphasis added].

The caution gleaned from the Court’s observation in Zhang not to introduce “amorphous and ill-defined” arrangements that may expose the trustees “to unanticipated risks of liability” and sow “confusion as to the extent of their duties” can be accommodated if care is taken to transparently set the parameters of the parties’ obligations and duties at the outset of the relationship.

The Mandalay Trust

The Trust documentation that was put in place in the present case did not define or explain the ambit of the role of Investment Manager to the Mandalay Trust. The relevant internal CST Group Directive published some four years after the establishment of the Trust recorded the need to delegate the management of trust assets to a person with “special expertise” which had to occur by a “formal delegation” as an LPOA was not by itself a delegation. It also recorded that where a settlor/beneficiary acts as an “investment advisor” it was necessary to take “appropriate measures” such as clauses in the trust deed “to exclude or limit” the trustee’s liability.

The only part of the Trust Deed dealing with the appointment of the Investment Advisor or Manager was clause 8 of the Fourth Schedule. However, the defendant eschewed the application of this provision in respect of the appointment of the plaintiff as investment manager and contended that “when a proposer reserves to himself the power of investment and to choose the investment manager, clause 10(b) is the operative provision then that basically prevents the trustee from having any investment powers or duties”.

Clause 10(b) does not “prevent” the defendant from exercising investment powers per se. Rather it provides protection for the defendant from liability if it does not have “full control of the investment” of an asset the subject of any claim against it. The responsibility for the management and or investment of the assets must be assessed by considering the Trust documentation and all the relevant circumstances of the operation of the Trust.

The 2005 Letter of Appointment reserves to the plaintiff “the right to choose” the investment of the Trust Assets. The Meadowsweet Discretionary Agreements and Soothsayer Discretionary Agreements did not include any such reservation, nor did they include any reference to the plaintiff as the “Investment Manager”. Rather, as discussed earlier, they appointed the Bank and the Singapore Bank respectively to manage the investment of the Trust assets.

The defendant’s very broad powers in relation to the Trust assets under the Trust Deed were exercisable at its “absolute uncontrolled discretion” except in circumstances where the plaintiff was entitled to and did impose restrictions upon it. One such circumstance was if “when transferring assets to the Trust Fund”, the plaintiff imposed any restrictions on the defendant “with regard to (i) the choice of investment manager or investment advisor or (ii) the investment” of the transferred assets.

The defendant claimed that such restrictions were imposed upon it by the plaintiff by the terms of the 2005 Letter of Appointment and by which it was bound by reason of clause 10(b) of the Trust Deed. It also contended that by reason of the provisions of the 2005 Letter of Appointment and Clause 10(b) of the Trust Deed it was restricted from exercising any investment powers as they had been reserved to the plaintiff.

The 2005 Letter of Appointment did not use the language of the imposition of “restrictions” on the defendant as found in Clause 10(b) of the Trust Deed. Rather the letter imposed a “condition” on the transfer of the Trust assets to the defendant. It was a reservation to the plaintiff of “the right to choose” the investment manager or advisor (on a continuing basis) “and/or” “the right to choose” the investment of the Trust Assets. The 2005 Letter of Appointment also included additional words not found in the Trust Deed. It recorded that the investment manager or advisor “shall be responsible for making decisions as to the assets of the trust”. As discussed earlier, the Trust Deed does not define the term “investment manager or investment advisor” (see [99] and [438]).

The 2005 Letter of Appointment also recorded the plaintiff’s “wish” for the defendant to appoint him as “the initial investment manager to the trust”.

Clause 10(b) of the Trust Deed provides protection for the defendant from liability for losses resulting from the defendant’s action or inaction by reason of its inability “to have full control of the investment of those assets” the subject of any restrictions imposed on it. It also provided protection from liability for any action or inaction by reason of the defendant “following the advice of any such investment advisor”.

It is the former of these protections that the defendant relies upon. It submitted that it could not have full control of the investment of the assets because it was the plaintiff who was exercising such control. The defendant submitted that the powers of investment in clause 2 of the Fourth Schedule of the Trust Deed were never vested in the defendant.

The only mention of “investment manager or advisor” other than separately referred to in Clause 10(b) of the Trust Deed is found in Clause 8 of the Fourth Schedule. That clause was the source of the defendant’s specific power to “engage the services of such investment advisor or advisors” from time to time as it thought fit to advise it “in respect of the investment and re-investment of the Trust Fund”. It was also a source of power to “delegate to the investment advisor discretion to manage all or any part of the Trust Fund within the limits and for the period stipulated” by the defendant.

At its meeting on 7 March 2005, the Trust Committee of the defendant resolved that the plaintiff be appointed as “Investment Manager to the Mandalay Trust pursuant to the terms of the said trust”. There was no identification of which “terms of the said trust” pursuant to which the Committee was purporting to appoint the plaintiff. There was no identification of whether the plaintiff was to manage or was delegated to manage all or any part or parts of the Trust Fund nor was there any indication of any limits stipulated by the defendant. There is no evidence that the plaintiff was ever informed of the resolution. Indeed, as the plaintiff said in evidence, if he had been informed that it was his responsibility, rather than the defendant’s responsibility, to manage all the investments, it would have been the end of his relationship with the defendant and the Bank (see [456] below).

It is probable that the 2005 Letter of Appointment was drafted by Mr Low or one of his assistants and the only basis that Mr Low stipulated to Mr Stamm for the plaintiff having to sign it was if it was intended that the plaintiff was to be an authorised signatory of the Trust companies.

On 29 March 2005, approximately three weeks after the Committee’s resolution on 7 March 2005 purporting to appoint the plaintiff as Investment Manager, the defendant through Meadowsweet expressly mandated and authorised the Bank to manage those parts of the Trust assets identified in the Meadowsweet Discretionary Agreements referred to earlier (at [137]–[143]). It was in these documents that the clear “limits” were set for the management of the Trust assets. A few days later, on 1 April 2005, Soothsayer gave “complete discretion” to the Singapore Bank to manage the Trust Assets transferred to it (see [145] above).

Plaintiff’s status and management of Trust Assets

The Acceptance Documentation that the plaintiff signed in Geneva on 28 February 2005 included as a condition of transferring assets to the Trust/Company “which is to be/has been in established” a reservation of the right to choose the investment manager or advisor who was to be responsible for making decisions as to the assets of the Trust and the investment of those assets. At that stage, the Trust/Company had not yet been established.

There is no doubt that the plaintiff signed the 2005 Letter of Appointment in which he expressly reserved as a condition of transferring his assets to the Trust, “the right to choose (on a continuing basis) the investment manager or advisor who shall be responsible for making decisions as to the assets of the trust” and “the investment” of those assets. He also expressed the wish to be appointed as the “initial investment manager to the trust”. The plaintiffs submitted that this “is merely a letter of request” signed by the plaintiff on 28 February 2005 prior to the establishment of the Mandalay Trust and “if” the plaintiff was appointed as investment manager, this was by the defendant’s Trust Committee’s resolution on 7 March 2005.

The plaintiff agreed that, generally, when he signed a document, he was indicating that he was agreeable to what was stated in the document. He did not ask for translation of any documents that he signed with the defendant and signed “whatever they have offered me”.

When he was asked about the section in the Acceptance Documentation in relation to the reservation of his right to choose the investment manager, he said that he would “not imagine” that it would have been discussed with him. He said he “never got interested enough to learn about it” and understood “there might be somebody who would be manager” but only understood it as “some kind of mistake” when they “started pointing at me”. This was in the context of the claim that he was the investment manager having been made in the Bermuda Proceedings.

When the plaintiff was shown the 2005 Letter of Appointment his evidence was:

The defendant did not call any evidence from any officer of the defendant, Meadowsweet, Soothsayer, the Bank or the Singapore Bank suggesting that there had been discussions with the plaintiff at this time about the role of Investment Manager, the plaintiff’s willingness to take on such a role and/or the consequences of taking on such a role as it affected the defendant’s liability and/or duty to the plaintiffs. None of the witnesses that the defendant did call gave any evidence about these matters.

There is no evidence as to what the defendant expected of the plaintiff in such a role. Nor is there any evidence of any process that was proposed to the plaintiff by which the plaintiff’s relationship with the defendant, Meadowsweet and/or Soothsayer would operate or how he would or should manage the investment of the Trust assets.

The best that can be gleaned from the evidence about any such process is by implication from the Memorandum of Wishes pursuant to which the plaintiff might make recommendations about the investment of the Trust assets and the defendant, Meadowsweet and/or Soothsayer “may have regard to his recommendations”.

On the first day of his cross-examination the plaintiff gave the following evidence:

The plaintiff accepted that from 2005 to 2008 he was managing the Russian shares and precious metal investments and that the consequences of the management of these investments was his responsibility.

On the second day of his cross-examination, it was suggested to the plaintiff that there were “various occasions” when he was “giving instructions on what investments the trust should undertake outside of Russian shares and precious metals”. The plaintiff accepted that he gave such “instructions” in respect of Raptor shares. He also accepted that such “instructions” related to the Grotz LPOA. However he emphasised that he did not “interfere into these investments”.

He also accepted that he gave instructions in relation to the investment in the GCF. He gave the following evidence:

The plaintiff was cross-examined in relation to the letter to the defendant apparently signed by him and dated 11 April 2014 in relation to the GCF.

As discussed earlier, by the time of the letter of 11 April 2014, the plaintiff and Mr Bachiashvili had decided to establish the GCF to facilitate investment in Georgia for, amongst other things, the development of infrastructure. When asked whether he had signed this letter, the plaintiff said that he “could have signed it” but that it would have been written by either Mr Lescaudron or another manager. He gave the following evidence:

The plaintiff described his “responsibility” in relation to the GCF and the Russian shares as follows:

The plaintiff reiterated that the capital was initially his own and that he brought the entirety of the money into the Trust and gave the following evidence:

In later evidence the plaintiff dealt with his decision to lend USD 100m to the shareholders of TBC Bank. He said that it was his idea and “I should have mentioned in the beginning, I forgot to mention it, that this was the outline of how this 100 million were to be lent”. He was then asked whether it was “carried out ultimately through” the Trust. He said that he did not know “the technicalities” and that “it might have been through” the Trust but “how exactly it has been done, I do not know”.

In further evidence, the plaintiff returned to his original position to “stress that apart from trade in Russian shares, I was not managing anything”. However, he gave the following evidence a little later:

Although the plaintiff admitted that he was responsible for the management and consequences of the management of the Russian shares and precious metals up to 2008, he denied that he managed Russian shares or investments after 2008.

The defendant relied upon the “Investment Strategy” document referred to earlier at [248] to contend that the plaintiff continued to manage the investment of Russian assets after that date. As discussed earlier, that document refers to a portfolio structure with the date “(21/02/2009)”. The defendant suggests that it was sent by Mr Lescaudron to the plaintiff in early 2009 and is supportive of a conclusion that the plaintiff was managing Russian shares and precious metals after 2008 and at least as at 21 February 2009.

The defendant submitted that there was no reason for Mr Lescaudron to give a recommendation to the plaintiff to hold on to certain shares if the plaintiff was not making decisions on these investments after 2008.

It is appropriate to make two observations about this submission. The first is that the plaintiff could well have been giving his recommendations or views on investments without excluding the defendant from managing the investments and/or from having full control of the investments. The second is that this process in the Investment Strategy document was occurring either in 2007, or very early in 2009, at a time when there is no issue that the plaintiff was managing the investments in Russian shares and precious metals up to the end of 2008.

The Investment Strategy document was discovered/disclosed by the plaintiff in the proceedings together with an e-mail from Mr Lescaudron dated 20 February 2007. The handwritten notes on the Investment Strategy document suggest that it was received by the plaintiff in February 2007. Indeed, the content of the document with reference to the plaintiff purchasing at “low prices” the previous year is in the paragraph referring to what occurred in “May 2006”. One conclusion to be drawn from these circumstances is that it is more probable that the Investment Strategy document was forwarded to the plaintiff by Mr Lescaudron in February 2007 and that the reference “21/02/2009” was a typographical error. However, even if was sent on 21 February 2009 it is only a very short time after the date the plaintiff claims he ceased the management of the Russian shares.

The plaintiffs submitted that in any event the document does not record any instructions originating from the plaintiff to make investments in Russian securities. Nor does it refer to Russian shares or securities being part of the Mandalay Trust. It was also submitted that the tenor of the document is consistent with the plaintiff’s uncontradicted or unchallenged evidence that he had high-level meetings with the defendant where proposals and recommendations were given to him.

The plaintiffs submitted that the fact that the plaintiff agreed with the defendant’s proposals or recommendations and/or the Bank’s proposals or recommendations does not mean that he was managing the investments. Rather, it was submitted, it demonstrates that it was the defendant who was making those decisions with the arrangement between Meadowsweet and the Bank and at times discussing some of them with the plaintiff. Of course, there was a great deal that was not discussed with or disclosed to the plaintiff as Mr Lescaudron pursued his fraudulent activities covering them up with false reports and a tissue of lies and moving money as he pleased to fill the gaps in his trading activity.

On balance, the Investment Strategy document does not detract from the plaintiff’s evidence that he managed the investment in the Russian shares and precious metals up to 2008 and not beyond that date.

Determination

It is clear from the plaintiff’s evidence that he regarded himself as being in control of the investment of the Russian shares and precious metal investments up to the end of 2008. In the circumstances a finding is made that the plaintiff managed and was in control of the investment of the Russian shares and precious metal investments from 2005 up to the end of 2008.

A finding is also made that the other Trust assets over which the plaintiff had control of the investment were the USD 100m for the GCF and USD 100m loan to the directors of the TBC Bank.

The plaintiff identified the art collection as a matter over which he had control. This appears to be a non-contentious admission because it does not relate to any assessment that was carried out by the experts in assisting the Court in respect of the process for assessing any quantification of damages. The same position pertains to the GCF and TBC Bank ‘investments’. The artworks were purchased by the plaintiff, and he did not depend upon the defendant to give advice or indeed to have physical control of those Trust assets.

The Raptor shares were clearly managed by Mr Lescaudron. His fraudulent activity with forged communications purporting to have been approved by the plaintiff were obviously calculated to ensure that he was able to continue with his activity earning millions of dollars in commissions.

The fact that there was concurrent management of the Trust assets, part by the plaintiff and part by the defendant through Meadowsweet and Soothsayer with the Bank and the Singapore Bank is consistent with the plaintiff’s 2005 Letter of Appointment. He exercised his right to choose the investment in Russian shares and precious metals between 2005 and 2008. He also exercised his right in respect of the art collection, the GCF and the loan to the shareholders of TBC Bank.

The plaintiff managed the investments of these Trust assets whilst the defendant through its underlying companies managed the investment of other Trust assets.

The plaintiff accepted in evidence, that he (and not the defendant) was responsible for any losses suffered on those investments that he managed in that period.

This does not detract from the ability to apply the label of a reserved powers trust to the arrangement between the parties. It is necessary to determine in each case the extent of the reservation and the consequences of that reservation. The protection in clause 10(b) of the Trust Deed applied to those assets that were managed by the plaintiff.

Breach of duty

The plaintiffs claimed that during the administration of the Trust, the defendant committed repeated and flagrant breaches of its duties. They claimed that the defendant was informed of relevant transactions in respect of which it had an obligation to act and in respect of which it failed to do so. The plaintiffs claim that this commenced in 2007 and over the next 8 years a “catalogue of failures” occurred including: permitting misappropriation of the Trust assets; failing to detect Mr Lescaudron’s forgeries; permitting the Trust assets to be managed by an unauthorised individual; failing to monitor the performance of the Trust assets; failing to keep proper records; failing to accurately account to the beneficiaries; and dishonestly concealing the fraud on the Trust accounts.

In light of the defendant’s admission, the parties’ focus was on the defendant’s breach of duty to safeguard the Trust assets.

Duties not in issue

The defendant admitted that it had a duty to protect and safeguard the Trust assets from being misappropriated.

It admitted that it had a duty to distribute the Trust assets in accordance with the Trust Deed, the Deed of Amendment and Restatement and related documents. It also admitted that it was required to refrain from acting on any wishes and/or requests communicated to it or on the basis of information provided by employees of other entities of CS Group, if it had actual knowledge that such wishes and/or requests did not originate from the plaintiff and/or any representative of the plaintiff or that the information provided was not accurate.

The defendant also admitted that it was required not to act solely at the direction of other parties and to give its own consideration to the exercise of its powers and discretions, in accordance with the Trust Deed, the Deed of Amendment and Restatement and related documents. It admitted that it was required to keep proper records and account to the beneficiaries of the Mandalay Trust in accordance with those deeds and related documents.

The defendant also accepted that it had a concurrent duty to account to the beneficiaries which required it to know: (i) the nature of the assets comprising the Trust; (ii) the location of the assets; (iii) the identity of the custodian of the assets; and (iv) who was managing the assets.

The duty to safeguard the Trust assets

The defendant deployed a new expression during its final oral submissions. It relates to both the defendant’s duties as trustee and the extent of the defendant’s admission made on the tenth day of the trial. The expression deployed was that as trustee the defendant had an obligation to “police the perimeter” of the Trust. That expression is not taken from any authority and the defendant candidly indicated that it is its own creation.

The defendant submitted that its duty to safeguard the Trust assets is not one of strict liability but one in which it is required to take reasonable care to “police the perimeter” of the Trust.

It is inappropriate to adopt the defendant’s nomenclature in respect of its duty to the plaintiffs as “policing the perimeter of the trust” because (in the language of the Court of Final Appeal in Zhang) it would introduce an “amorphous and ill-defined” concept which has the capacity to undermine a “legitimate arrangement consciously adopted by the parties”.

It is not in issue that for the defendant to comply with its duty to safeguard the Trust assets it had to ensure that no monies left the Trust without its authorisation and/or without it knowing the identity of the recipient of those Trust assets.

The breadth of the defendant’s admission is significant. It admitted that by 31 December 2008, when it saw the perimeter of the Trust being breached by unauthorised payments away, it should have notified the beneficiaries, or at least notified the plaintiff. Its admission included the very important step of “directly contacting” the plaintiff/beneficiary to verify the payments in question.

The obligations recognised in the terms of the defendant’s admission sit within the irreducible core of obligations described by Millett LJ in Armitage v Nurse at 253–254. This is what the defendant had to do to meet the obligation to perform the trust honestly and in good faith for the benefit of the plaintiffs. It knew that millions and millions of dollars and euros were leaving its custody of the Trust without its authorisation, and to discharge its core obligations it was required at the very least to inform the plaintiffs of that position.

It is not enough to sit by and observe the Trust at its edge or perimeter. Once the events alert a trustee that something is amiss inside the perimeter, as the defendant accepts occurred in the present case by 31 December 2008, the trustee was required to act honestly and in good faith and advise the beneficiaries.

This does not run counter to the finding in Zhang at [51] that there were no “high level supervisory duties” imposed on the trustee in that case. Rather this analysis and conclusion flows from the defendant’s admission of breach. In any event, there is an important distinction between a high-level supervisory duty over the wisdom of investments and a high-level supervisory duty over the safety of the trust assets. In Zhang, the Court firmly rejected the existence of the former and the latter duty was not in issue.

The date of breach of duty to safeguard the Trust assets

Although the defendant admitted that it breached its duty to safeguard the Trust assets by 31 December 2008, it does not accept that it was in breach of its duty prior to that date. It accepts that the admitted breach as at 31 December 2008 was continuing and caused loss and damage to the plaintiffs.

The plaintiffs contended that the defendant was in breach of its duty to safeguard the Mandalay Trust assets earlier than 31 December 2008. It was submitted that as early as December 2006 the defendant had identified the real risk of employee fraud from Mr Lescaudron’s conduct. The plaintiffs contended that the defendant was in breach of its duty to safeguard the Mandalay Trust Assets as early as 2007, and certainly no later than March 2008.

As the defendant’s only admission of breach is that it failed in its duty to safeguard the Mandalay Trust assets as at 31 December 2008, it will be necessary to determine whether the defendant was in breach of such duty earlier than the admitted date.

The plaintiffs claimed that by the end of 2006, the defendant knew that Mr Lescaudron’s conduct was a fraud risk and that it needed to take immediate action in response. The defendant submitted that there is no basis for this claim. It referred to the e-mail from Ms Sim of 12 December 2006 (see [172] above) and emphasised that the words “this would gravely affect the integrity” of the plaintiff’s “trust structure” suggest Ms Sim’s concern was to uphold the integrity of the Trust rather than demonstrating any concern about a “potential fraud”.

In a similar vein, the defendant emphasised the statements made by Mr Low in the correspondence at about this time in which he said that such conduct “would be extremely severe for us all as a bank”. The defendant contended that this demonstrates that Mr Low was concerned about upholding the integrity of the Trust and not the risk of potential fraud.

Similarly, the defendant relied on the words in Ms Teng’s correspondence referring to the “validity” of the Trust structure becoming “questionable”. It submitted that this demonstrates a concern quite different from a concern about a potential fraud risk.

The defendant also submitted that Mr Ditrich’s correspondence in December 2006 is demonstrative of a primary focus on “considerable regulatory and legal risks” which it claimed mirrors Ms Teng’s concerns of upholding “the integrity of the Trust”.

The defendant’s analysis of Mr Ditrich’s correspondence, including the Legal and Compliance Alert attached to it, downplays Mr Ditrich’s obvious concern in respect of Mr Lescaudron’s conduct. The Alert referred to the danger of causing “invalidity of the Trust as a whole” and thus making it impossible for the Trust to achieve the purpose for which it was created. It is certainly true that there was no express statement within the Alert that UPAs were “red flags of fraud”. However, it is obvious that when Mr Ditrich referred to an RM organising UPAs with the consequence of benefiting anybody including himself with a risk of employee fraud in the extreme case, Mr Ditrich was clearly concerned about the prospect of fraud and was wishing to avoid a fraud.

The irresistible conclusion from the correspondence is that Mr Ditrich’s concerns and the concerns of others involved in the communications were certainly not limited to maintaining the integrity of the structure. A very senior officer of Credit Suisse referring to the prospect of employee fraud in open communications to his colleagues in this fashion is a most serious matter and one that suggests that, as early as 2006, there was a concern that what was happening might, albeit in the extreme case, amount to a fraud.

The defendant also submitted that because UPAs were “not uncommon,” they were not seen as a “red flag of fraud”.

The plaintiffs relied upon Ms Sim’s evidence that at the time of Mr Ditrich’s correspondence referring to the risk of employee’s fraud she understood that this was one of the dangers and the possible things that could happen “coming out of a UPA”. Ms Sim also agreed that this was why UPAs were “strictly forbidden”. However, the defendant emphasised Ms Sim’s evidence that she did not know or suspect that Mr Lescaudron was in fact misappropriating Trust assets.

Notwithstanding the correspondence in December 2006 in which Mr Ditrich advised his colleagues that the instance of the UPAs required “immediate action”, the defendant submitted that UPAs were viewed as “administrative breaches of procedures that were not inherently suspicious or automatic red flags of fraud”.

The plaintiffs submitted that the defendant did not conduct any proper investigations into the UPAs in 2006. The defendant submitted that if it had pressed Mr Lescaudron to give an explanation at that time, he would have been able to produce legitimate documentation to support the payments. It is therefore submitted that there is simply no basis for the contention that by the end of 2006 the defendant knew that Mr Lescaudron’s conduct was a fraud risk and that it needed to take action in response.

There is no issue that on 14 and 18 March 2008 millions of dollars and millions of euros left the Trust without the defendant’s authorisation and without it knowing the reason for the payment or the destination of the payment or the identity of the recipient of those millions of dollars and millions of euros (“the March 2008 transactions”) (see [183] above).

It is also not in issue that the same thing occurred on 28 November 2008 (“the November 2008 transactions”) (see [186] above).

The defendant explains that the date of its admitted breach, “by 31 December 2008”, was chosen because the November 2008 transactions were a “sea-change in UPA activity” and a “tipping point” that should have caused it to take action resulting in Mr Lescaudron’s activities being terminated.

The expression “sea change” in this context is reasonably understood to mean “a profound or notable transformation”. The expression “tipping point” in the same context is reasonably understood to mean “a time at which a change or an effect cannot be stopped”. Both these descriptions are indicative of some extraordinary event having occurred. However, extraordinary events had occurred and accumulated well before 31 December 2008.

As discussed earlier at [172]–[173], Mr Low wrote directly to Mr Lescaudron and Ms Sim wrote directly to Ms Raschle in December 2006 with instructions that could not have been clearer. They included that payments should not be made without Clementi’s signature approving the transaction. Notwithstanding these clear directions, Mr Lescaudron embarked on a spree using the Trust assets clearly unconstrained and apparently unburdened by the defendant’s directions paying out over USD 46.6m in one day on 11 May 2007 (see [212] above).

In July 2007, Mr Lescaudron opened the new accounts for Meadowsweet without authorisation and embarked on the share trade churn whilst at the same time effecting the Overvalue Misappropriations for which more than ten years later, he would be convicted and imprisoned.

The defendant submitted rather extraordinarily that the evidence of its own witness, Ms Sim, that Mr Lescaudron should have been precluded from dealing with the Trust assets “as early as 2007” should not be given weight. It was a significant concession by Ms Sim and is to be taken into consideration with all the other evidence relevant to the issues for determination. Although in the plaintiffs’ written submissions it was contended that this should have happened “no later than 2007”, this was not the language deployed by Ms Sim.

Although the defendant suggested that it was the November 2008 transactions that were the sea change and the tipping point, the March 2008 transactions were just as extraordinary and in some respects even more extraordinary than the November 2008 transactions. The March 2008 transactions occurred over two days close to each other, seven transactions on the first day and two on the second day. The twelve relevant November 2008 transactions occurred on the one day. The March 2008 transactions totalled EUR 10.72m and USD 7.731m whereas the November 2008 transactions totalled EUR 5.729m and USD 4.396m.

The March 2008 transactions were not surrounded by market turmoil and the GFC whereas the November 2008 transactions occurred in close proximity to these events.

The March 2008 transactions were much closer in time to the defendant’s direction to Mr Lescaudron of how the Trust arrangement and transactions should be conducted.

Although the defendant’s witness, Ms Sim, made the concession that Mr Lescaudron should have been precluded from having access to the Trust assets as early as 2007, that was a response in cross-examination which should be taken into account with the further analysis above to decide the date upon which the defendant was in breach of its duty to safeguard the Trust assets.

Breach of duty 30 March 2008

In all the circumstances and having regard to the events between late 2006 and March 2008 it is clear that by no later than March 2008, any individual or professional trustee, acting honestly and in good faith in compliance with its duty to safeguard the Trust Assets, would have had no justification for continuing to allow Mr Lescaudron to have access to the Trust assets. The failure to preclude such access by no later than 30 March 2008 (allowing for notice of the payments out without authority) was a breach of the defendant’s duty to the plaintiffs to safeguard the Trust assets.

Liability for consequences of breach

The defendant contended that if there is a finding of breach earlier than the admitted breach then it is entitled to the protection from liability for any damages suffered in respect of assets over which it did not have full control.

The starting point in this consideration is clause 10(b) of the Trust Deed extracted again here for context:

The plaintiffs contended that the defendant is unable to claim the protection of the anti-Bartlett clauses because it has not remained “aloof” from Meadowsweet and Soothsayer as the operative investment companies.

The defendant submitted that although the trustee in Zhang was not completely “aloof” from the investment company, the Court did not see this as an impediment to giving effect to the anti-Bartlett clauses. As discussed earlier the Trust arrangements in Zhang were different from those in the Mandalay Trust. The trustee’s obligations in Zhang to treat the investment adviser’s recommendations as “final” were different from the position in the Mandalay Trust.

The defendant submitted that in a reserved powers trust it is unexceptional for the trustee to provide administrative services to facilitate the running of the business under the trust. It is also submitted that as long as the trustee does not manage the business itself, there is no inconsistency between the trustee being the owner and director of the investment company and clauses in the trust documentation excluding the trustee’s power and duty to manage and invest the trust assets.

The defendant contended that this was the case with Meadowsweet. There is no dispute that the defendant owned the shares in Meadowsweet and appointed Meadowsweet’s directors. There is also no dispute that the directors were the signatories of Meadowsweet’s bank account with the Bank. It was submitted that these directors did not participate in the investment or management of the funds in those bank accounts. Rather, this was carried out by Mr Lescaudron and, as the defendant claimed, under the direction of the plaintiff and Mr Bachiashvili as the appointed investment managers of the Mandalay Trust. The defendant emphasised the plaintiff’s evidence that he looked to the Bank, and not to the defendant, to manage the investments of the Trust assets.

The defendant submitted that in all the circumstances of this case, there is no basis on which the anti-Bartlett clauses would not apply and protect it from liability for the loss suffered by the plaintiffs by reason of its breach of duty.

The plaintiffs contended that the defendant exercised complete control over the investment companies and, therefore, the anti-Bartlett clauses are simply inapplicable. They submitted that even if the defendant had no duty to involve itself in the management of the companies, it was not relieved of the duty to satisfy itself that nothing untoward was affecting the Trust assets.

The plaintiffs submitted that Zhang is distinguishable from the present circumstances. It was submitted that in Zhang the Court held that the anti-Bartlett clause excluded any supervisory duty for the trustee to keep itself informed about the affairs of the holding company because of the very specific circumstance that the subject investments had been made at the instigation of one of the plaintiffs. It was submitted that the distinguishing feature to the present case is that there was a very close interconnection between the Bank and the defendant, and the investments were made through the Bank’s employees, including Mr Lescaudron, and employees of the defendant. It was submitted that although the defendant pleaded a case and tried to suggest it was effectively and functionally independent of the Bank, this was resoundingly exposed through the trial to be false.

The plaintiffs submitted that there is justified academic criticism that Zhang “went too far”. It was submitted that a trustee who ignores a significant fall in profits and then relies on an exemption clause to refuse to enquire about such a fall should lose the protection of the exemption clause: Underhill & Hayton, Law of Trusts and Trustees (20th ed, LexisNexis 2022) at para 51.55.

The plaintiffs also submitted that if anti-Bartlett clauses can displace many, if not all, of the defendant’s obligations, then the nature of the trust fails to have any resonance. However, the plaintiffs point out that if, as admitted, the defendant has an irreducible core duty to safeguard trust assets from being misappropriated, it must follow that the defendant has an irreducible core duty to account which must necessarily involve reviewing and monitoring the Trust assets. Otherwise, the defendant would not be able to safeguard the assets from being misappropriated and to account for them to the beneficiaries.

The plaintiffs submitted that there is clear evidence that the defendant regarded itself as owing fiduciary duties to the plaintiffs and that it regarded the duty to review and monitor the Trust assets as a facet of those duties.

The plaintiff managed some of the investments of the Trust assets and the defendant managed the other investments of the Trust assets. The anti-Bartlett clauses protect the defendant from liability for any losses suffered in respect of the assets the investment of which the plaintiff was managing. They do not protect the defendant from liability for losses suffered in respect of the assets the investment of which the defendant was managing through Meadowsweet and/or Soothsayer.

The defendant accepted that one of the alternative consequences of its admitted breach of duty as at 31 December 2008 was that the whole portfolio would have been removed from the defendant and placed with another trustee. However, the defendant does not accept that this was an alternative consequence of any breach that the Court may find occurred earlier than 31 December 2008. The defendant submitted that this is not a probable consequence because Mr Lescaudron would have been able to give a plausible explanation for his conduct.

The defendant’s submission focuses more on Mr Lescaudron’s capacity to deceive the defendant (and others) rather than the nature of the disclosure that should properly have been made to the plaintiffs by no later than 30 March 2008 in respect of the defendant’s duty to safeguard the Trust assets.

The disclosure to the plaintiffs in March 2008 should have been made with the appropriate candour and transparency expected of a trustee acting honestly and in good faith in the best interests of the beneficiaries. That disclosure would include the detail of the unsuccessful efforts since December 2006 to rein Mr Lescaudron in to prevent him from paying millions of dollars and millions of euros out of the Trust accounts without authority. This would then have exposed the desultory nature of the defendant’s efforts in this regard.

The plaintiff’s evidence, which is accepted, that had he known that he was supposed to manage the investment of all the Trust assets, he would have ended his relationship with the Bank and the defendant, makes it more probable than not that had he known in March 2008: (a) that Mr Lescaudron had been paying away millions of dollars and millions of euros of Trust monies without authorisation; and (b) of the desultory efforts of the defendant to stop Mr Lescaudron from doing so, he would have ended the relationship with the defendant.

In support of its contention that it is not responsible for any losses beyond the funds that were misappropriated by Mr Lescaudron, the defendant submitted that any such losses were outside the scope of its duty to the plaintiffs. It submitted that just because it admitted that if it had performed its duty to safeguard the Trust assets Mr Lescaudron would have been removed from having access to the Trust assets by 31 December 2008, that did not mean that the investment losses beyond the misappropriations can be “pegged” to the breach of duty to safeguard the assets.

The defendant relied upon several authorities for the proposition that in awarding equitable compensation, the Court must assess the nature of the duty, the scope of the duty that has been breached and the loss that flows from that breach (see South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 at 211H and 213E; Manchester Building Society v Grant Thornton UK LLP [2021] 3 WLR 81; Main v Giambrone & Law (a firm) [2017] EWCA Civ 1193; LIV Bridging Finance Ltd v EAD Solicitors LLP [2020] EWHC 1590 (Ch)). The defendant claimed that the losses alleged by the plaintiffs did not fall within its “scope of duty” or did not flow from the breach of its duty to safeguard the Trust assets.

The losses that flowed from the defendant’s breach of trust are not limited to the funds that were stolen by Mr Lescaudron. The Trust assets, as a whole, were vulnerable to Mr Lescaudron’s fraudulent manipulation in support of the deceitful scheme that he had constructed and implemented. This manipulation included not only outright theft of funds but also the movement of funds into and out of investments to enable Mr Lescaudron to cover his tracks and losses to keep his scheme afloat and to earn him millions of dollars and/or euros in commissions. These so called ‘investments’ were the vehicles he used to achieve his fraudulent goals. These investments were sometimes unsuitable and at other times overconcentrated. However, but for those that were managed by the plaintiff, they were all part of Mr Lescaudron’s scheme. The fact that he was permitted to continue in his role was causative of the losses beyond the misappropriations suffered by the plaintiffs.

The defendant’s submission that is not responsible for any losses beyond the funds that were misappropriated by Mr Lescaudron because such losses were outside the scope of its duty to the plaintiffs to safeguard the Trust assets is not accepted.

If the defendant had advised the plaintiff directly on 30 March 2008 of the conduct by Mr Lescaudron in making the unauthorised payments away, as it was its duty to do so, not only would Mr Lescaudron’s access to the Trust assets been removed but it is more probable than not that the whole portfolio would have been removed to another professional trustee.

The consequence of the breach by the defendant in failing to safeguard the Trust assets as at 30 March 2008 is that it is liable to the plaintiffs for the difference between the value of the portfolio that was not affected by fraud and would have been managed by a professional, competent trustee and the value of the portfolio managed by the defendant, subject to the matters dealt with below relating to the quantification of the plaintiffs’ loss.

Contributory negligence

The defendant submitted that any damages awarded to the plaintiffs for the breach of its duty to safeguard the Trust assets should be reduced by reason of the plaintiff’s contributory negligence in failing to monitor and manage the investment of the Trust assets.

The defendant submitted that both the plaintiff and Mr Bachiashvili failed in their obligations as Investment Managers to ensure that they were regularly updated about the status of investments of the Trust assets and to act upon information they received. In this regard the defendant relied upon the plaintiff’s evidence that “there was no obligation on the part of Mr Lescaudron to update me on trust accounts, and therefore I was not receiving any updates from him on that”. The plaintiff gave evidence that he “would never look inside what was in the structure or whatever was going on inside”. He was only interested in the “bottom line figure” as reported by Mr Lescaudron through Mr Bachiashvili.

The plaintiff did not believe that he had responsibility for managing the Trust assets other than those identified earlier. As already discussed, his purpose in retaining the defendant was so that it could manage the Trust assets and that had he known that he was supposed to be managing the Trust assets, he would have ended his relationship with the Bank and the defendant (see [456] above). In those circumstances he did not instruct Mr Bachiashvili to monitor and manage the investment of the Trust assets.

The defendant also submitted that instead of relying on official Bank statements, the plaintiff and Mr Bachiashvili placed undue reliance on information in Excel reports from Mr Lescaudron. On two occasions early in 2013, Mr Lescaudron sent Mr Bachiashvili official Bank statements along with a spreadsheet that he had prepared. Mr Lescaudron then stopped sending the Bank statements. Mr Bachiashvili explained that “it was clear – to him and to me that the Excel was more convenient way to report” because he “was also not interested in the particular composition of the portfolios”. Mr Bachiashvili took Mr Lescaudron’s reports “at face value” in reporting the bottom-line figure to the plaintiff.

The defendant also contended that the relationship that developed between the plaintiff and Mr Lescaudron and later also with Mr Bachiashvili was an effective delegation to Mr Lescaudron of the management and monitoring of the investments of the Trust assets. It was submitted that this gave Mr Lescaudron the opportunity to defraud the Mandalay Trust and that the plaintiff and Mr Bachiashvili should have foreseen this. It was submitted that as a sophisticated investor and businessman, the plaintiff must have known that there was minimal supervision of Mr Lescaudron and that this created the opportunity for Mr Lescaudron to take advantage of his position.

The defendant also relied upon the plaintiff’s failure to inform the defendant and/or the Bank that he had made bonus payments to Mr Lescaudron. It was submitted that had the plaintiff informed the defendant or the Bank about these payments, they would have insisted on the removal of Mr Lescaudron from involvement with any of the Trust assets.

It was submitted that in all the circumstances the plaintiff must be held partially responsible for any investment-related losses to the Mandalay Trust which it claims should be allocated as to 60% to the plaintiff and 40% to the defendant.

The plaintiffs and the defendant are at issue in respect of the nature of a trustee’s duty to safeguard the Trust assets. The plaintiffs contended that it is an equitable duty whereas the defendant contended that it is a common law duty of care.

In this case the defendant’s core and equitable duty to the plaintiffs was to safeguard the Trust assets, a breach of which was a breach of trust. This was not a matter of a failure of skill and care, prudence and diligence (see Armitage v Nurse; Sim Poh Ping at [99]–[103]).

However, the defendant contended that even if the duty is equitable a defence of contributory negligence is available. In this regard it relied upon the absence from the definition of “fault” in ss 2 and 3(1) of the Contributory Negligence and Personal Injuries Act 1953 (2020 Rev Ed) (the “Contributory Negligence Act”) of any stipulation as to whether a defence of contributory negligence is available to a defendant against claims for breaches of fiduciary and/or equitable duties to suggest that in line with the decision in Kidd v Paull and Williamsons LLP [2018] SC 193 (“Kidd”) it is an available defence.

In Kidd the Court was dealing in part with an admitted breach of fiduciary duty in which there were various contentious issues including whether contributory negligence was available as a defence to an action for such a breach. Lord Tyre observed at [39] and [40] that “Scots law” had never adopted the “English dichotomy between law and equity” and was “untroubled by historic distinctions between law and equity”. His Lordship found ( at [66]) the observations of Lord Hoffmann and Lord Rodger in Standard Chartered Bank v Pakistan National Shipping Corp (Nos 2 and 4) [2002] 3 WLR 1547, that there was no contributory negligence defence to a claim of fraudulent misrepresentation, as a “highly persuasive” basis to conclude that the same position should pertain under Scots law. However his Lordship concluded at [69] that “at least in cases where the breach of fiduciary duty is found to have been unintentional, a defence of contributory fault may be available to the defender”.

In the present case the defendant claimed that its admitted breach, and it follows the breach as found on 30 March 2008, were unintentional and therefore the defence of contributory negligence is available.

The plaintiffs submitted that the defence of contributory negligence is not available to the defendant in respect of the breach of its equitable duty to safeguard the Trust assets. In support of this submission the plaintiffs relied on Pilmer v Duke Group Ltd (in liq) (2001) 180 ALR 249 (“Pilmer v Duke”).

In Pilmer v Duke the High Court of Australia at [71] referred to McLachlin J’s (as her Honour then was) analysis of the “distinct character of the fiduciary obligation” contrasting its ambit with that of contract and tort in Norberg v Wynrib [1992] 2 SCR 226 at 272, referring also to her earlier statement of principle to similar effect in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 542–545. In contract and tort “the parties are taken to be independent and equal actors, concerned primarily with their own self-interest”. In contrast the fiduciary relationship is where “one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other”.

In contrast to the Scots law as explained in Kidd there was recognition in Pilmer v Duke that in Australia “the substantive rules of equity have retained their identity as part of a separate and coherent body of principles” (at [173]). Reference was made to the High Court’s various judgments establishing that “losses sustained by reason of a breach of duty by a trustee or other fiduciary is determined by equitable principles” and that there were “severe conceptual difficulties in the path of acceptance of notions of contributory negligence as applicable to diminish awards of equitable compensation for breach of fiduciary duty” (at [85]–[86]).

The defendant rightly pointed out that some of these observations were obiter however it is inconsistent with the trustee’s core obligation to keep the Trust assets safe that a beneficiary should be bound to protect himself or herself against a trustee breaching such a profoundly important obligation.

The defendant’s contention that the breach of its duty is simply a breach of its duty of care in tort is not accepted.

When a trustee fails to safeguard trust assets it is in breach of an equitable duty to the beneficiaries: Sim Poh Ping at [100]. The admitted breach and the breach found to have been committed as at 30 March 2008 are breaches of an equitable duty, not a duty of care in tort. A defence of contributory negligence is not available to the breach as found.

Notwithstanding this finding it is for completeness appropriate to deal with the plaintiffs’ responses to the defendant’s contentions. The plaintiffs submitted that it is simply not open to the defendant to advance a defence of contributory negligence which is both unpleaded and unsupported by the evidence.

The plaintiffs contended that the plaintiff was only appointed Investment Manager because the defendant needed time to execute the discretionary mandates with the Bank. Mr Bachiashvili was only appointed for the sole purpose of signing off on OTC trade confirmations after they were made. It was submitted that the contemporaneous documents demonstrated that no one expected either the plaintiff of Mr Bachiashvili to manage the investment of all the Trust assets.

Further, the plaintiffs submitted that any failure by the plaintiff or Mr Bachiashvili to ensure that they were regularly updated about the investment of Trust assets cannot have caused the plaintiffs’ losses. This is because any information that they would have received would only have been through the fraudster, Mr Lescaudron, who was the designated point of contact. It is also submitted that the defendant and other Credit Suisse entities withheld important information from the plaintiff and Mr Bachiashvili, not least the millions of dollars and millions of euros of unauthorised payments from the Trust accounts from 2006 onwards.

The plaintiffs emphasised that the bonus payments to Mr Lescaudron ceased in 2012. Mr Lescaudron’s unauthorised dealing with the Trust assets continued until September 2015. It was submitted that the plaintiff did not confer or delegate any investment powers to Mr Lescaudron. It was also submitted that the best that the defendant could do was to point to Mr Lescaudron’s so-called investment advice in relation to the Raptor shares which does not demonstrate investment advice in relation to the Trust accounts. In any event, it was submitted that the plaintiff’s evidence was that he did not pay Mr Lescaudron in exchange for so-called advice to invest in Raptor. His evidence was that he paid the bonuses for Mr Lescaudron’s services as an employee of the Bank and expressed regret that he was not attentive enough to the technical details as to the way such bonuses had been paid until of course Mr Bachiashvili advised him of the correct position.

Section 3(1) of the Contributory Negligence Act provides that damages “be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage”. In determining what is just and equitable, regard may be had to the relative causative potency of the parties’ conduct and the relative moral blameworthiness of the parties’ conduct: Asnah bte Ab Rahman v Li Jianlin [2016] 2 SLR 944 at [118]. The defendant’s conduct from 2006 as discussed in detail earlier in this judgment, was both causatively potent and morally blameworthy such that it would not be fair, just and equitable to attribute any proportion to the plaintiff let alone the plaintiffs.

Should the defendant be excused

The defendant argues that it is entitled to be relieved of any liability for breach of duty prior to 31 December 2008 pursuant to s 60 of the Trustees Act.

Section 60 of the Trustees Act provides as follows:

The defendant submitted that it acted honestly and reasonably prior to 31 December 2008. It claimed that it entrusted the Trust assets to the Bank because it believed that this was what the plaintiff wanted. It also claimed it did not know that Mr Lescaudron, rather than the plaintiff, was the one actually managing the investments and contended that it is fanciful to suggest that it should have identified unsuitable or overconcentrated investments.

The plaintiffs submitted that the defendant: allowed unauthorised payments of millions of dollars of Trust funds in many instances without asking for evidence of instructions from the plaintiff; allowed trading to take place on certain Trust accounts for which the defendant’s documentation indicated there was no one authorised to conduct trading; and concealed unauthorised payments and Mr Lescaudron’s fraud from the plaintiffs.

Any trustee acting honestly and in good faith in compliance with its duty to safeguard the Trust assets, would have had no justification for continuing to allow Mr Lescaudron to have access to the Trust assets from 30 March 2008. By that time, the UPAs of significant sums had occurred in the Trust accounts and the defendant was very well aware of this.

It is not accepted that the defendant’s conduct was reasonable. It preferred the “importance” of Mr Lescaudron in retaining the “big client” (the plaintiff) with the Credit Suisse organisation to the compliance with its core obligation of keeping the Trust assets safe. It knew that Mr Lescaudron was in breach of its directions that had been established for the purpose of avoiding employee fraud and in some instances waited for up to two years for a response from him when he was questioned about his flagrant breaches. Its tolerance of these flagrant breaches was not in good faith and was unreasonable. It would certainly not be fair to excuse the defendant for its breach of trust.

In these circumstances, the defendant it is not entitled to be relieved of liability under s 60 of the Trustees Act.

Adverse inferences

The plaintiffs alleged that the defendant was resistant to providing proper discovery throughout the proceedings and submitted that adverse inferences should be drawn against it.

The plaintiffs complained of the piecemeal fashion in which the defendant provided them with relevant documents prior to the commencement of trial. Many of the documents disclosed were heavily redacted, with the redactions only lifted for some of the documents in the midst of trial after the Court observed that it would be helpful for that to be done. During trial, the defendant continued to disclose further documents. Many of these documents were obtained from the Bank, at the defendant’s request. The plaintiffs submitted that this demonstrated that the defendant could obtain documents from the Bank “at the drop of a hat”, despite its position taken throughout proceedings that it was difficult to obtain documents from the Bank. It was submitted that the defendant’s attempt to foist large numbers of documents on the plaintiffs during the plaintiff’s cross-examination was highly inappropriate. It was also submitted that the defendant’s disclosure of e-mails involving its witnesses after the conclusion of their evidence was prejudicial to the plaintiffs.

On 12 September 2022, along with a further list of documents, the defendant filed two affidavits: one sworn by Ms Christie and one sworn by Mr Eichmann. Ms Christie’s affidavit elaborated on an earlier affidavit, which had been filed at the Court’s request to explain when the defendant had received certain documents. Mr Eichmann explained in his affidavit why further documents had been filed after his confirmation in an affidavit verifying lists of documents that there were no more relevant documents in the defendant’s possession custody or power.

It was on these affidavits that Ms Christie and Mr Eichmann were cross-examined on the voir dire on 14 September 2022.

The plaintiffs submitted that the defendant’s conduct deprived it of a reasonable opportunity to consider the new documents and their impact on the plaintiffs’ cases. It was submitted that the defendant should not be allowed to benefit from its improper conduct and deficient discovery.

The plaintiffs submitted that the Court should draw the following adverse inferences: that the defendant deliberately withheld documents because these documents would harm its case and support the plaintiffs’ cases; that the defendant was able, but refused to, obtain relevant documents from the Bank because these documents would be damaging to its case and support the plaintiffs’ cases; that the defendant did not recall Mr Birri and Ms Sim to give direct evidence on e-mails to which they were party that were disclosed after the conclusion of their evidence because their evidence would be harmful to the defendant’s case; that the defendant refused to call Mr Guldimann to give evidence in relation to his restatement exercise because it would show that the defendant acted dishonestly to conceal the fraud; and that the defendant refused to call any witnesses from its compliance team because they worked closely with the Bank’s compliance team, which had actual knowledge of Mr Lescaudron’s fraud.

It is appropriate to take into account the pressures and complexities of the preparation for and conduct of the trial, including the numerous amendments to the pleadings. Notwithstanding these considerations, the process of ongoing discovery/disclosure by the defendant during the trial was at times rather chaotic. There certainly appeared to be a lack of a disciplined approach to compliance with its discovery/disclosure obligations with the need for the plaintiffs to persist in their applications for proper compliance by the defendant. Numerous affidavits had to be filed by the defendant correcting earlier affidavits in relation to the defendant’s list of documents and the plaintiffs had to deal with all of this whilst running the trial.

However, I am not satisfied that adverse inferences should be drawn that the defendant deliberately withheld documents or that it refused to seek documents from the Bank. Rather the defendant’s conduct in respect of its discovery/disclosure referred to above was consistent with its desultory efforts to rein in Mr Lescaudron demonstrating a lack of proper and disciplined commitment to its legal obligations.

The plaintiffs could have sought leave to further cross-examine either or both Mr Birri and Ms Sim after the production of the subject e-mails but chose not to do so. The defendant’s failure to recall them itself for further evidence-in-chief is not a basis for the adverse inference sought by the plaintiffs not least for the reason that it is unnecessary in light of the conclusions that the defendant is not entitled to be excused under section 60 of the Trustees Act.

The absence of Mr Guldimann from the witness box is in a different category. Certainly, there were matters in respect of the restatement exercise that required explanation with the reasonable expectation that the defendant would have called Mr Guldimann to provide that explanation. It is appropriate in the circumstances to infer that the defendant chose not to call him because his evidence would not have assisted its case and supported the plaintiffs’ claims. It is appropriate to infer adversely to the defendant that its failure to call Mr Guldimann supports the finding that the restatement of the accounts did not accurately reflect the reality of the transactions effected by Mr Lescaudron and is further support for the finding that the defendant did not act in good faith when it failed to disclose Mr Lescaudron’s fraud to the plaintiffs in a timely fashion.

The absence of members of the compliance team from the witness box is not a basis for a further inference adverse to the defendant. The witnesses who were called made appropriate admissions during their cross-examination that the defendant should have prevented Mr Lescaudron from having access to the Trust assets from as early as 2007 (see [195] above).

Expert issues

The issue for determination which arises from the defendant’s breach of its duty to the plaintiffs is what would have happened if the Trust assets had not been affected by fraud and had been placed with a competent and professional portfolio manager as at the date of breach.

To assist the Court in determining this and related issues, the parties have relied on experts in wealth management and forensic accounting.

As discussed earlier, the forensic accounting experts who assisted the Court in this regard were Mr Davies, whose affidavits and reports were read by the plaintiffs, and Mr Nicholson, whose affidavits and reports were read by the defendant. The wealth management/investment management experts who assisted the Court were Mr Morrey, whose affidavit and reports were read by the plaintiffs, and Ms Mayr, whose affidavits and reports were read by the defendant.

There is no issue that each of the experts who assisted the Court is suitably and relevantly qualified and expert in their respective fields as described in their written evidence. Their tasks were clearly vast, and it is obvious that the experts applied themselves diligently, professionally and honestly to those tasks. The system of expert assistance to the Court is integral to the proper administration of justice and it is appropriate to recognise that invaluable service in this matter.

The experts were required to construct alternative medium-risk portfolios for each of the Meadowsweet accounts, the Soothsayer accounts, and the CS Life Meadowsweet accounts. These portfolios were referred to as “Benchmark Portfolios”.

The Benchmark Portfolios were constructed by the wealth management experts and the forensic accounting experts used the Benchmark Portfolios to calculate what the returns would have been if the Trust assets had been invested in accordance with those Benchmark Portfolios.

Forensic accounting expert evidence

The forensic accounting experts, Mr Nicholson and Mr Davies, gave evidence concurrently on 21 September 2022.

In their initial presentations to the Court, Mr Davies described the various “Models” for quantification of damages and Mr Nicholson described the accounts and the quantification of loss.

The Models

The Models that have been constructed by the experts can be separated into two broad categories: the Whole Portfolio Model (Models 1A and Model 1B); and the Specific Transaction Model (Models 2, 3 and 4) dealing with misappropriation, unsuitable transactions, and overconcentration respectively.

The Whole Portfolio Model 1A represents the position in which all assets are withdrawn from the Trust at the relevant date of breach and invested in a Benchmark Portfolio, the result of which investment at the end of the relevant period is compared with the portfolio in the defendant’s custody. The difference between those outcomes calculated by the experts is the loss allegedly suffered by the plaintiffs as a result of the defendant’s breach of duty.

Model 1B was described by Mr Davies as Model 1A “with a twist”. This Model differs from Model 1A in that it excludes transactions/trading on Meadowsweet’s account 75 for the plaintiff’s trading in Russian shares and precious metals up to 31 December 2008. Model 1B therefore starts the quantification of loss from 31 December 2008 for this account.

The Specific Transaction Model calculates the total of the various improper transactions into the relevant Benchmark Portfolios. This Model is based on the approach that but for the defendant’s breach, these transactions would not have happened, and these sums would have appreciated in accordance with the relevant Benchmark Portfolios.

Model 2 assembles all the unauthorised transactions, netting off payment that had been received as at the date of the trial in September 2022, and then investing that amount in the Benchmark Portfolio (excluding the trading in Carpathian shares). Unauthorised transactions comprise misappropriations and transactions at an overvalue.

Model 3 identifies the objectionable alleged unsuitable positions identified by the wealth management experts and places them in the Benchmark Portfolio.

Model 4 identifies the alleged overconcentration transactions and places them in the Benchmark Portfolio in what Mr Davies described as a very complicated and multifaceted exercise. Overconcentration occurs where the value of a certain security exceeds a threshold identified by the wealth management experts.

In Models 2, 3 and 4 the experts were dealing with the disputed transactional position one by one and applying the Benchmark Portfolio to each of those transactions whether they were in an account or a sub-account. This required some weighting of the average of the sub-account albeit it did not have “much of an impact”.

The Accounts

Monies went from The Mandalay Trust into Meadowsweet and Soothsayer. In March 2005 Soothsayer was opened with an initial investment of USD 550m. Soothsayer had three sub-accounts which had discretionary mandates which were closed in 2009 and 2013.

A Meadowsweet account was opened in 2005 with an initial investment of USD 550m. There were three sub-accounts with discretionary mandates closed in January and August 2009.

Meadowsweet also invested in the CS Life Meadowsweet accounts opened in September 2011 with approximately USD 100m of initial investment in cash and USD 350.48m of value injected into that account.

Approaches to quantification of Loss

Mr Davies and Mr Nicholson reached agreements in respect of the list of trades, capital movements and the performance of the trust accounts based on three sets of documents. Those documents were: (i) investment reports that describe assets and liabilities for each account and which show the balances on particular dates; (ii) statements of safekeeping with details for all accounts at particular dates; and (iii) statements of account which show the cash transactions for cash accounts associated with each trust account typically covering quarterly or biannual periods.

For the Specific Transaction Models, the three broad classes of items that were considered by the experts were: (i) the unsuitable positions; (ii) the overconcentrated positions; and (iii) the unauthorised transfers which contain both misappropriations and transactions at an overvalue.

The differences between the experts in respect of the calculation of loss on the unsuitable positions arises by reason of their respective applications of the different conclusions reached by Mr Morrey or Ms Mayr. Mr Morrey and Ms Mayr had different methods for determining whether a position was unsuitable.

Overconcentrated positions were those in which there was too much of a particular investment in the fund. Mr Davies and Mr Nicholson assessed what was necessary to reduce those overconcentrated positions to acceptable levels within the fund, took the money that would have been realised by selling down those positions and reinvested it in Benchmark Portfolios.

Some investments were both overconcentrated and unsuitable. Where this occurred Mr Nicholson and Mr Davies adjusted that overlap and translated that into the figures as calculated.

One difference between these experts is how they dealt with the complicated and esoteric circumstance “where the counterfactual goes negative”. This is seen most obviously in Model 4, overconcentration. Mr Davies dealt with this by allowing it to go “negative” in the exercise. Whereas Mr Nicholson took the money out with the result that it does not benefit from the multiplier either positively or negatively.

There were some differences between the experts in relation to the transactions at an overvalue in Model 2. For certain transactions, they agreed that the losses would be calculated assuming that in the “but for” position, the transfers would still have taken place, but at market value instead of at an overvalue. For the others, Mr Davies’ calculations assumed that the transfers would not have taken place at all. The total difference in quantification arising from the differing approaches is USD 2.94m (4%).

Following Mr Morrey and Ms Mayr’s differing approaches to options, Mr Nicholson and Mr Davies dealt with options differently when constructing Model 3. They also approached the profits from the sale of the Raptor shares differently. Ultimately, the difference between them as to quantum arising from the Raptor share issue was approximately USD 0.1m.

In dealing with Model 4, Mr Nicholson and Mr Davies implemented the respective conclusions of Mr Morrey and Ms Mayr. Differences arose in their calculations due to the different ways they treated options when calculating overconcentration. They also disagreed about how “lost profits” from overconcentrated investments should be brought to account.

There was a difference between Mr Nicholson and Mr Davies in respect of the Carpathian shares. Mr Davies took the view that the Carpathian investment should have been invested into the Benchmark Portfolio, whereas Mr Nicholson took the view that it should not. The difference between them probably stemmed from the difference in relation to their instructions, specifically in respect of whether that investment was unauthorised. Ultimately that difference in quantification is approximately USD 1.7m.

There was a difference between Mr Nicholson and Mr Davies in respect of the transfer of monies from Soothsayer to Meadowsweet in 2014. Mr Davies took the balance in Soothsayer at 31 December 2007 and modelled it as if the amount remained in Soothsayer until the date of trial. Mr Nicholson took the transfer out of Soothsayer to Meadowsweet into account to decide what would have happened. The consequential use of a different rate of return between those two accounts is a difference of USD 2m between Mr Nicholson and Mr Davies.

Calculation of Loss

(1) Whole Portfolio Model

Mr Davies calculated the loss based on Model 1A of the Whole Portfolio Model and in reliance on Mr Morrey’s conclusions as USD 1.291bn. On the same basis, Mr Nicholson calculated it as USD 1.287bn. The net difference between them resulting from their different forensic accounting approaches is therefore approximately USD 4m.

When Mr Nicholson relied on Ms Mayr’s conclusions he calculated the loss as USD 846.3m.

Mr Davies calculated the loss based on Model 1B of the Whole Portfolio Model and in reliance on Mr Morrey’s conclusions as USD 926m. On the same basis Mr Nicholson calculated it as USD 921.7m. When Mr Nicholson relied on Ms Mayr’s conclusions he calculated the loss as USD 567.3m.

(2) Specific Transactions Model

Mr Davies calculated the loss under Model 2 as between USD 71m and USD 73.9m. Mr Nicholson’s calculation was USD 69.3m in reliance on Mr Morrey’s conclusions and USD 53.2m in reliance on Ms Mayr’s conclusions.

Mr Davies calculated the loss under Model 3 as USD 557.4m. Mr Nicholson’s calculation was USD 529.2m in reliance on Mr Morrey’s conclusions and USD 339.9m in reliance on Ms Mayr’s conclusions.

Mr Davies calculated the loss under Model 4 as USD 106.5m. Mr Nicholson’s calculation was USD 153.1m in reliance on Mr Morrey’s conclusions and USD 73m in reliance on Ms Mayr’s conclusions.

Wealth management expert evidence

The wealth management experts Mr Morrey and Ms Mayr, gave evidence concurrently on 22 September 2022. Each provided an oral presentation in the form of an overview with supporting documents and were then questioned by Senior Counsel for the parties and by the Court at the conclusion of which they had the opportunity to make any final comments.

Mr Morrey and Ms Mayr agreed that the intended purpose of the Trust accounts was “to achieve long-term capital growth, but with a medium level of risk”. They agreed that the purpose was to achieve a return in the long-term that beats inflation and does not have positions that are subject to volatility with a high probability of severe loss in the portfolio. They also agreed that it would be a balanced portfolio.

Their primary task was to construct Benchmark Portfolios to achieve investment returns that would or should have been achieved had they been managed by a competent, professional investment manager where the trust fund was not affected by fraud. The three key similarities in their approaches were: (i) they shared the same view of the intended purpose of long-term capital growth in a medium risk portfolio: (ii) their Benchmark Portfolios were “static” staying the same throughout the life of the trust accounts, with one exception; and (iii) they would use contemporaneous documents to guide the construction of the Benchmark Portfolios.

For the purposes of the Specific Transactions Model, these experts also had the task of looking at certain positions in the Trust accounts to see if they were unsuitable because of overconcentration or otherwise. Mr Morrey identified 32 that were unsuitable, 20 of which Ms Mayr agreed and 6 of which she partially agreed. Mr Morrey identified 42 positions which were overconcentrated and Ms Mayr identified 58 positions.

The three ‘big differences” in their approaches were that: (i) Ms Mayr chose price-only indices to model performance, whereas Mr Morrey chose total return indices; (ii) they used different asset allocations with different mixes of equities, bonds and alternatives; and (iii) the modelling of the individual asset classes was different by reason of the selection of different performance benchmarks.

One account or sub-accounts

Mr Morrey constructed his Benchmark Portfolios on a trust account basis whereas Ms Mayr constructed her Benchmark Portfolios at a sub-account level. This meant that Mr Morrey had one Benchmark Portfolio for Meadowsweet, one for Soothsayer, and one for CS Life Meadowsweet. Ms Mayr, on the other hand, had one Benchmark Portfolio for each sub-account within Meadowsweet, Soothsayer and CS Life Meadowsweet. For each sub-account, Ms Mayr built a Benchmark Portfolio reflective of the discretionary mandates that were available. Where there was no discretionary mandate available for a sub-account, Ms Mayr used an average of those that were available from the other sub-accounts of the relevant Trust account.

There were assumptions that had to be made in both approaches because there were instances where there were no applicable mandates.

Ms Mayr’s evidence was that the construction of the Benchmark Portfolios based on the sub-accounts is relevant only to the Specific Transaction Models, Models 2, 3 and 4, because Mr Davies and Mr Nicholson were able to ascertain the individual sub-accounts in which each specific transaction took place.

Mr Davies and Mr Nicholson used one Benchmark Portfolio for each Trust account for the Whole Portfolio Model, because there was insufficient information about transfers between sub-accounts. It is not in issue that the sub-accounts method does not affect the Whole Portfolio Model.

Compound annual growth rate

It is necessary to determine whether the plaintiffs’ Benchmark Portfolio for the Meadowsweet accounts from December 2007, with a compound annual growth rate (“CAGR”) of 4.3%, or the defendant’s Benchmark Portfolio for the same account which has a CAGR of 2.5%, is appropriate in all the circumstances. It is also necessary to determine whether, for the Meadowsweet accounts from December 2008, the plaintiffs’ CAGR of 5.4% or the defendant’s CAGR of 3.5% is appropriate. The separate CAGRs from December 2007 and from December 2008 arise from the need to deal with account 75 differently in Model 1B.

It is also necessary to determine whether the plaintiffs’ Benchmark Portfolio for the Soothsayer account with a CAGR of 5.7%, or the defendant’s Benchmark Portfolio for the same account with a CAGR of 3.7%, is appropriate in all the circumstances.

It is also necessary to determine whether the plaintiffs’ Benchmark Portfolio for the CS Life Meadowsweet accounts with a CAGR of 8.2%, or the defendant’s Benchmark Portfolio for the same accounts with a CAGR of 4.2%, from September 2011 when the accounts were opened, is appropriate in all the circumstances.

Notwithstanding that the CAGRs that Mr Morrey’s Benchmark Portfolios achieved were higher than the CAGRs for Ms Mayr’s Benchmark Portfolios, Mr Morrey described them as “pretty pedestrian” and “relatively easy to achieve” for a “solid portfolio manager”.

Choice of index

The difference between the respective CAGRs is accounted for, in part, in the choice made by Ms Mayr of a price-only benchmark or index on equities, and a total return benchmark or index chosen by Mr Morrey. It is therefore necessary to decide which of those two indices should apply. The total return index reflects investment performance which will have had dividends and other distributions retained and reinvested; whereas the price-only index reflects capital growth without taking account of the reinvestment of dividends.

Both Mr Morrey and Ms Mayr used the total return index for bonds and alternatives. The difference between them is in the allocation of the index to equities.

Mr Morrey explained the differences as follows:

The defendant submitted that Mr Morrey was not able to give a satisfactory basis for his choice of the total return index. Mr Morrey’s evidence was as follows:

Ms Mayr rejected Mr Morrey’s proposition that the “dividends vanish into thin air”. Her evidence in response was that she was not saying that the underlying dividends of the invested shares could not be produced and reinvested. Rather her evidence was that the “target”, or benchmark, could not include the dividends.

Ms Mayr’s evidence was that a portfolio manager who uses a total return index for equities would “set themselves a target that is not achievable” because “all dividends” that are paid out cannot be split across the asset classes but must be reinvested only in equities to “achieve the performance that a total return index sets”. Ms Mayr concluded that this results in equities becoming “more and more overweight as time goes on” which means that the portfolio manager cannot achieve the target because discretionary mandates specify ranges of asset allocation and “they have to split it” (meaning the dividend) “across the different asset classes”. Ms Mayr accepted that the portfolio manager may still be able to maintain a balanced portfolio depending upon the performance in the other asset classes. However on her analysis, bonds would not be producing enough interest to cover reinvestment in liquidity and alternatives to “make up the gap to the equities”.

Mr Morrey took issue with the suggestion that the use of the total return index sets a target that is unachievable. He agreed that the reinvestment of the dividends into equities may swell the equities, but pointed out that the same would be true if all the share prices go up significantly. Thus, he referred to the “reality” in which the portfolio manager would have to rebalance the portfolio for movements in the share price and for the dividends received, regardless of whether a price only or total return index is used.

Ms Mayr accepted that a portfolio manager would rebalance the portfolio on a regular basis but made the distinction between the reality of the underlying portfolio and the portfolio in the benchmark construct. In the former, with the example of a portfolio with 40% allocated to equities, an investment of $40 in equities with a 10% dividend becomes $44. The total return index assumes the full $4 dividend is reinvested in equities whereas what the portfolio manager in the underlying portfolio would do is reinvest only $1.60 being 40% of $4. Ms Mayr said that this is why it makes it more difficult to hit the target, although she had said earlier that the target was not able to be achieved.

Mr Morrey gave evidence that the application of the total return index includes reinvestment of dividends and compound growth for equities, achieving a higher rate compounded over time. He emphasised that this is “what happens in the real world”; the investor would benefit from the payment of dividends and from the compound growth.

Ms Mayr then explained that a benchmark is simply a tool that an investment manager sets to calibrate the risk of investments and assess performance. The investment manager does not necessarily purchase the exact same assets that make up the benchmark index. Instead, other assets are purchased with a similar risk level to those that make up the benchmark index and the benchmark index is used as the target rate of return. Ms Mayr accepted that the difference between the two benchmarks was that the total return index was a more “aggressive” target while the price return index was “safer”.

Asset allocation

The choices that were made in the various mandates were between allocations in the four categories: liquidity, bonds, equities and alternative investments. “Alternative investments” has been described as a “catch-all phrase for everything else” including hedge funds and gold.

The experts differed on the asset allocations particularly in respect of the Benchmark Portfolio for CS Life Meadowsweet. Although there were contemporaneous documents to assist with the construction of the Benchmark Portfolios for the Meadowsweet and Soothsayer portfolios with the Bank and the Singapore Bank respectively (see [137]–[156] above), there was no such assistance available for the construction of the CS Life Meadowsweet Benchmark Portfolio.

Ms Mayr’s asset allocation of 32.5% equities for the CS Life Meadowsweet Benchmark Portfolio was based on the average of the asset allocation for the Soothsayer and Meadowsweet portfolios.

Ms Mayr claimed that her use of the “actual available discretionary mandates” allowed her to avoid bias and the use of hindsight and also allowed her to ensure that the “actual intended level of risk” was accurately reflected in the Benchmark Portfolios.

Mr Morrey suggested that Ms Mayr’s approach to the allocation of 32.5% equities was a “problem” because it takes a 2005 investment solution (the Soothsayer portfolio) for long-term medium risk capital growth and applies it to a portfolio that was created in 2011. Mr Morrey was “confident” that in 2011 an investment manager would not have regarded that 2005 solution as “appropriate for achieving the investment purpose” and it would not have been “the optimum portfolio construction”. This is particularly in the context of interest rates plummeting by 2008 such that bond rates would not beat inflation and the “remarkable bull run” in equities from 2009 onwards.

In all those circumstances Mr Morrey’s asset allocation was a “much more equity-rich alternative portfolio” with 60% equities.

Mr Morrey expressed the opinion that by reason of the carrying across of the asset allocations in the Soothsayer and Meadowsweet mandates with tweaks into the CS Life Meadowsweet Benchmark Portfolio, Ms Mayr created a low risk rather than a medium risk portfolio.

Overall CAGRs

The experts’ CAGRs on each of the Portfolios from 2007 to 2021 were: 2.5% (Ms Mayr) and 4.3% (Mr Morrey) for Meadowsweet from December 2007; 3.5% (Ms Mayr) and 5.4% (Mr Morrey) for Meadowsweet from December 2008; 4.2% (Ms Mayr) and 8.2% (Mr Morrey) for CS Life Meadowsweet from September 2011; and 3.7% (Ms Mayr) and 5.7% (Mr Morrey) for Soothsayer from December 2007.

Ms Mayr did not agree that a 2.5% or 3.5% return on an investment of USD 1.1bn from an ultra-high net worth investor over 13 or 14 years was “incredibly low”. Ms Mayr cautioned that the figures need to be viewed in the context of the risk that the investor was willing to take and the asset allocation that reflects that risk. Ms Mayr would not accept that these figures were “simply too low” for such an investment over that period in a medium risk portfolio.

Ms Mayr suggested that a low-risk range would be 2% to 3% and a high-risk range would be 8% to 12%. It follows that a medium-risk range on Ms Mayr’s evidence would be 3.1% to 7.9%.

Mr Morrey described the low-risk portfolio seeking “capital preservation” but with a return that keeps ahead of inflation with the range at 2.5% to 3.5%. The high-risk would be “just over 10%. It follows that a medium-risk range on Mr Morrey’s evidence would be from 3.6% to 9.9%.

Unsuitability

The experts’ positions in respect of the various investments that were regarded as “unsuitable” are efficiently captured and set out in Ms Mayr’s presentation to the Court.

Mr Morrey found that all the 32 investments alleged by the plaintiffs to be unsuitable were indeed unsuitable, and unsuitable for the full period that they were held in the Trust. Ms Mayr took the stance that: (i) higher risk positions that are held at a very low concentration could be suitable for a medium risk portfolio; and (ii) positions that are unsuitable only because of a particular breach are suitable prior to the event but not after the event.

If the Specific Transaction Model were to be applied, it would be necessary to determine which of the two approaches should be adopted in respect of each of the investments on which there is disagreement between the experts.

Overconcentration

The issue of the appropriate concentration thresholds in the portfolio was a little more controversial. The experts agreed that the discretionary mandates for two of the accounts (the Meadowsweet account 75-1 and Soothsayer account 81) included a concentration requirement of 5% with +1% tolerance. Overconcentration occurred when the holding of a single asset exceeded that threshold relative to the value of the assets in the account.

Mr Morrey applied the above concentration threshold to all the Trust accounts. On the other hand, Ms Mayr did not apply the concentration threshold as fixed on those two accounts across the other accounts. That was because of her view that those two accounts had characteristics not shared by the other accounts. Ms Mayr explained the various concentration thresholds that she applied after reviewing the regulatory standards for the investment in mutual funds by retail investors. Ms Mayr applied a 10% concentration limit with 1% tolerance on other Soothsayer accounts; and the “5/10/40 Rule” with 1% tolerance for the other Meadowsweet and CS Life Meadowsweet accounts.

Mr Morrey and Ms Mayr debated the appropriate application of the 5/10/40 Rule to assist the Court. Mr Morrey’s exposition was as follows:

If it were necessary to apply this Model, choices would have to made in respect of the appropriate concentration thresholds to be applied to the Benchmark Portfolios.

Fees

There was a difference between Ms Mayr and Mr Morrey in respect of the appropriate level of fees to be charged in respect of the Benchmark Portfolios. While they agreed that 0.8% was an appropriate level of fees for the Soothsayer accounts, Ms Mayr assumed a rate of 0.7% and Mr Morrey assumed a rate of 0.5% for the Meadowsweet and CS Life Meadowsweet accounts.

Ms Mayr had assumed the slightly higher fees for the Soothsayer accounts based on a perceived need for management in the Asia focus of the Soothsayer discretionary mandates, and therefore applied a 0.1% reduction to obtain the 0.7% figure.

The fees at 0.5% are in line with the actual fees charged and should be applied.

Date of change in Soothsayer Mandates

Ms Mayr and Mr Morrey also differed on the dates from which the new Soothsayer Mandates should apply. Ms Mayr took the date from 1 February 2009 which was the date from which the Mandate applied albeit that the instructions were not given until 25 February 2009 when the Mandate was signed. Mr Morrey took the date from 25 February 2009 as that was the date on which there was authority to alter the profile of the account.

Although the Mandate was to apply from 1 February 2009 the reality was that the relevant transactions were not effected in accordance with the change until after the instructions were received on 25 February 2009. The latter date is the appropriate date from which to apply the change.

Quantification

The plaintiffs’ case is that the quantum of loss should be calculated in accordance with the Whole Portfolio Model from the end of 2007 referable to the Benchmark Portfolios referred to as Model 1A or in accordance with Model 1B to accommodate the plaintiff’s management of the Russian stocks and precious metals up to the end of 2008.

If the Whole Portfolio Model is applicable to the quantification of loss, it is unnecessary to then consider the alternative proposed portfolios Models 2 to 4 involving unauthorised transfers, or unsuitable or overconcentrated investments.

Applicable Model

The defendant accepted by its admission that by no later than 31 December 2008 one alternative consequence was that the whole portfolio would not have been affected by fraud and would have been removed to a different financial institution placing it in the hands of a competent and professional portfolio manager.

Mr Nicholson expressed the view that the Whole Portfolio Model assumes that all investment positions in the Trust accounts should be “reversed”, which implies that all investments made by the Trust accounts were “inappropriate”. He added that whether this assumption was correct was ultimately a matter for the Court to determine.

One challenge that was presented to the forensic accountants was the problem of dealing with the consequences of the actions of “someone who is seeking to deceive and divert”. Mr Davies observed that “different types of mischief” carried out by Mr Lescaudron had been identified and it was “very likely” that other yet undiscovered mischief had occurred. The experts did not know what the trading policy was or indeed whether there was a trading policy behind the investments that took place within the Trust. There were “scores of challenges”, but the experts accepted those limitations and challenges and were able to reach agreement on most matters.

Although Mr Nicholson gave evidence that he was not aware of “red flags in the data itself”, he accepted that when one is dealing with a lengthy history of a fraudster who went to some lengths to secrete what was behind the façade, he would have a concern that there may be red flags. Mr Nicholson said that he had not finished thinking about this because prior to giving evidence, it had not been discussed with Mr Davies but he thought it was “a pretty small part of the overall space”.

In making the assessment of how best to calculate compensation for the loss suffered by the plaintiffs by reason of the defendant’s breach of duty, it is necessary to recognise that the investments, even those that have been opined upon by the experts as “suitable”, were sitting within a portfolio the management of which was infected by fraud either directly or indirectly and maintaining parts or sections of the portfolio may be, to use Mr Nicholson’s terminology, “inappropriate”.

Mr Nicholson claimed that adopting the Whole Portfolio Model significantly increases losses. This opinion was based on the comparison of the amount calculated on the Whole Portfolio Model with the amounts in the other Models. The fact that the amount is greater under the Whole Portfolio Model is not a basis for rejecting it. Rather, it is necessary to decide as a matter of principle, irrespective of the total figures, whether the application of a particular Model to calculate compensation is just and fair in the circumstances of the plaintiffs’ loss suffered by reason of the defendant’s breach.

The defendant contended that if the Whole Portfolio Model is to be adopted, then the Court should prefer the evidence of Ms Mayr to that of Mr Morrey and also exclude the following investments from the assessment: (i) investments made under the discretionary mandates or by Mr Grotz; (ii) investments made in Russian securities beyond 2008; (iii) investments made in precious metals; (iv) investments made up to 5% of the ordinary share capital of Raptor; and (v) investments in hedge funds.

The plaintiffs complained that it was after the conclusion of the trial that the defendant claimed that the plaintiff was responsible for certain categories of investment and that this claim is both unpleaded and unparticularised. The plaintiffs also claimed that there is no evidence that instructions in relation to these investments came from the plaintiff.

The defendant did plead that the investment managers appointed by the plaintiff, which included himself and Mr Bachiashvili, were responsible for and exercised powers of investment management to the exclusion of the defendant. Indeed, the defendant cross-examined the plaintiff in line with this defence which evidence is extracted earlier at [460]–[470].

The defendant submitted that if its submission to exclude these investments is accepted, “the Court’s ruling in this regard will have to be supplemented if necessary and preferably by agreement of the parties, by the particulars of the investments which fall under each of the categories”.

In response, the plaintiffs submitted that such a proposal is in fact a “damning admission” that the defendant is not able to substantiate its case on the specific investments that should be excluded. Rather, it was submitted that if the defendant had done so there would be no need for the parties to try to agree on the particulars of such investments.

The defendant submitted that applying the Whole Portfolio Model would require it to compensate the plaintiffs for the shortfall between the actual performance versus the target (or benchmarks) in relation to non-impugned transactions or investments. It submitted that the plaintiffs’ submission that if Mr Lescaudron’s fraud had been uncovered the plaintiffs would have moved their funds away to a medium risk portfolio does not address the point that medium risk portfolios do not always hit their targets. It submitted that the position is different for impugned transactions for which it accepts it may be justified to give the plaintiffs the full benefit of the target. However, it was submitted there is no basis for awarding the plaintiffs a guaranteed return on transactions which are not pleaded and are not impugned.

In response, the plaintiffs submitted that they expressly pleaded that they were seeking to recover the difference between the value of the Trust Fund and the value that a competent, non-fraudulent trustee would have achieved had there been no breach.

There is no issue between the parties that the objective of the quantification is to put the plaintiffs in the position they would have been but for the relevant breach of trust.

The plaintiffs emphasised that they do not seek to be compensated for poor investment performance but rather the difference in performance between a fraudulently managed portfolio and a properly managed portfolio not affected by fraud.

The defendant admitted that had it not breached its duty, one of the alternatives that would probably have occurred was that the whole portfolio would have been removed to another institution to be managed by a prudent and professional portfolio manager. The Whole Portfolio Model is consistent with that alternative. It does not guarantee that “targets” are hit or positive returns are made. It simply places the whole portfolio in the constructed medium-risk portfolio with the indicia as identified to determine what would have been achieved but for the defendant’s breach. The purpose of the evidence from the wealth management experts was to determine the rate of return that an investment in a medium-risk portfolio would likely have achieved.

The Whole Portfolio Model does not rest on the premise that all the investments in the Trust accounts were “inappropriate”. Rather, it rests on the premise that it is possible to determine, with the assistance of expert evidence, the likely rate of return on a medium-risk portfolio in the relevant time period.

Conclusions

The defendant breached its duty to the plaintiffs in failing to safeguard the Trust Assets as at 30 March 2008 by failing to prevent Mr Lescaudron from having any further access to the Trust assets. The probable consequence is that but for that breach the whole Trust portfolio would have been removed to another institution for management.

In the circumstances and having regard to the plaintiffs’ management of the investment of Russian shares and precious metals up to 2008, the Whole Portfolio Model 1B is the appropriate mechanism to be utilised for the quantification of the plaintiffs’ loss suffered by reason of the defendant’s breach.

The evidence of all the experts was cogent and clear. As discussed, the evidence of and calculation by the forensic accountants, Mr Nicholson and Mr Davies, depended upon the conclusions reached by Ms Mayr and Mr Morrey.

Ms Mayr’s careful approach to ensure an absence of relevant bias and ensuring commitment to the ‘client’s’ instructions in the construction of the Benchmark Portfolios are matters of significance. However, it is important to ensure that the reality of achieving appropriate investment returns in a portfolio as defined for the purpose of creating the “counterfactual” or the “parallel universe” in the quantification of loss is not constrained by timidity caused by these creations, but rather is undertaken with them in mind in a robust and careful analysis. The exclusion of bias and ensuring the loyal performance of the task of assisting the Court were essential features of the evidence of both Ms Mayr and Mr Morrey. On balance I found Mr Morrey’s approach compelling and preferred it to that of Ms Mayr.

The approaches adopted by Mr Morrey to each of the matters in issue should be adopted for the relevant calculations by the forensic accountants.

It is necessary to recognise the concessions made by the plaintiffs that the other two investments, the GCF and the TBC Loan were his responsibility and not the responsibility of the defendant. He also accepted that the art collection investment was his responsibility. These investments were not included in the quantification under Whole Portfolio Model 1B because they were treated as capital payments out of the Trust.

It is appropriate at this juncture to determine whether the additional investments identified by the defendant should be excluded from the quantification in accordance with of the Whole Portfolio Model 1B.

Investments managed under discretionary mandates or by Mr Grotz

The defendant asserted that it was not alleged by the plaintiffs that Mr Lescaudron interfered in the investments that were made in the Meadowsweet accounts and the Soothsayer accounts when they were managed under discretionary mandates. The plaintiffs submitted that, contrary to the defendant’s assertions, they had pleaded that in June 2007 Mr Lescaudron started carrying out investments on the Trust accounts without instructions or authority and did so until September 2015. The plaintiffs also point out that they pleaded that from July 2007 Mr Lescaudron was making investment decisions on the Meadowsweet accounts.

In October 2008 Mr Lescaudron gave instructions to the Singapore Bank in which he claimed that the plaintiff wanted to increase gold up to 10% of the mandate, being “definitely not in physical”. The plaintiffs submitted that there is no evidence that this was a genuine instruction from the plaintiff and that shortly afterwards, investments were made in SPDR Gold Trust at a level that the experts agree was overconcentrated.

The plaintiffs also referred to Mr Lescaudron’s instructions to the Singapore Bank in October 2010 (described as “speculative” with “high volatility”) on the discretionary mandate accounts. In addition, the investments in Raptor and Tethys Petroleum Ltd were made on Soothsayer Accounts No 80 and No 81, discretionary mandate accounts. The plaintiffs emphasised that these instructions from Mr Lescaudron were given to the Singapore Bank before any mention of the Raptor shares was made to the plaintiff. Mr Lescaudron also directed and requested transfers of funds from Soothsayer to Meadowsweet. The plaintiffs contended that this was for the purpose of plugging holes caused by his unauthorised trading between 2011 to 2015.

Some of the documents that are relied upon in the defendant’s case in relation to the instructions provided by Mr Lescaudron include the plaintiff’s signature that is either barely visible or certainly not capable of being verified as genuine.

It was submitted that Mr Lescaudron’s decisions and instructions in respect of the liquidation of investments for the purpose of covering his own tracks affected the performance of the discretionary accounts.

Accordingly, the plaintiffs submitted that the defendant’s contention that the discretionary mandates were outside the influence of Mr Lescaudron is unsustainable.

The plaintiffs contended that had the discretionary mandates been left in place, rather than closed by Mr Lescaudron without instructions, and had the recovery from the financial crash been left in the hands of experts, the performance of the accounts would probably have been very different. In any event, the plaintiffs submitted that the discretionary mandates were only in operation for a small portion of the relevant period. In all the circumstances, they submitted there is no basis to exclude the investments made under the discretionary mandates from the Whole Portfolio Model.

Mr Lescaudron was involved with the assets being managed under the discretionary mandates. The true extent of that involvement in light of his fraudulent and deceptive conduct will always be tinged with some uncertainty. However, that is not a basis for the exclusion of this category of investment from the application of the Whole Portfolio Model 1B.

The plaintiffs also claimed that it is unnecessary to exclude any investments made by Mr Grotz under the LPOA in respect of Meadowsweet Account 75-5 because this was replaced by a discretionary mandate over the accounts on 23 April 2007. Ms Sim’s evidence was that the discretionary mandate meant that it was the Bank that was responsible for the management of the assets in that account rather than Mr Grotz. As the Whole Portfolio Model calculated loss from 31 December 2007 and/or 31 December 2008, it was submitted that any exclusion in relation to Mr Grotz is irrelevant. These submissions have force.

The investments under the discretionary mandates and any investments managed by Mr Grotz will not be excluded from the quantification in accordance with Whole Portfolio Model 1B.

Investment in Russian shares after 2008

Having regard to the analysis of the evidence earlier in this judgment at [470]–[478], it is not appropriate to exclude investments in Russian securities after December 2008. Although the portfolio was structured such that at times 100% of those investments were in Russian stock, it is not accepted that the plaintiff had management involvement in that stock after December 2008.

The investment in Russian shares after 2008 will not be excluded from the quantification in accordance with Whole Portfolio Model 1B.

Investments in precious metals

The investments in precious metals prior to the end of 2008 are already excluded from the Whole Portfolio Model 1B. Any such investments thereafter will remain in the portfolio for quantification under the Model.

5% investment in Raptor

The defendant contended that an investment of up to 5% in Raptor shares should be excluded from the Whole Portfolio Model.

The plaintiffs contended that there is every reason to believe that a properly managed portfolio, one without Mr Lescaudron’s interference, would not have invested in Raptor. They submitted that the investment in Raptor was a fundamental facet of Mr Lescaudron’s fraud, beginning in 2010 without authorisation and without informing the plaintiff of the investment. It is quite clear that Mr Lescaudron built up large indirect investments in Raptor to fraudulently earn commissions for himself.

The plaintiffs submitted that to justify the exclusion of 5% investment in Raptor from the Whole Portfolio Model, the defendant would have to establish that the plaintiff would have directed such an investment even if in 2008 Mr Lescaudron had been precluded from having access to the Trust assets. The plaintiffs submitted that having regard to the fact that the investment in Raptor was entirely Mr Lescaudron’s idea, it is “fanciful” to suggest that the plaintiff would have independently requested such an investment.

The plaintiffs also submitted that a properly managed, non-fraudulent, medium risk investment portfolio would not include an investment in Raptor, even at 5%. Such an investment would be unsuitable and was on the list of restricted stocks of at least Credit Suisse.

The plaintiffs emphasised that the plaintiff cannot be said to be bound by the approval given to purchase Raptor shares given that material facts and matters were concealed from him by Mr Lescaudron. They submitted that had Mr Lescaudron been precluded from having access to the Trust assets, none of the investments in Raptor would have been made.

Although the plaintiff agreed in evidence that he accepted Mr Lescaudron’s advice to invest in Raptor, it is clear that the plaintiff was deceptively manipulated to make the investment to enable Mr Lescaudron to continue his scheme by giving this part of it verisimilitude as he continued to earn the kickbacks from the company for his own benefit.

The defendant was not excluded from the “full control” of this investment. As the evidence discloses, numerous directions were given to Mr Lescaudron for the investment to be reduced, some of which he acted upon albeit very tardily. The defendant did not communicate with the plaintiffs about this investment notwithstanding that it was giving those directions to Mr Lescaudron.

It is not appropriate to exclude this investment from the quantification under the Whole Portfolio Model 1B. On the balance of probabilities, this investment would not have occurred where the Trust assets were moved to a different institution after 30 March 2008.

Investments in hedge funds

The plaintiffs submitted that the defendant’s suggestion that investments in hedge funds should be excluded from the Whole Portfolio Model is misconceived. It was submitted that, realistically, it could not be said that the plaintiff was responsible for any investments in hedge funds which were part of Mr Lescaudron’s fraud. Therefore, the plaintiffs submitted that without identifying the specific hedge funds that the defendant seeks to exclude, it is impossible to ascertain whether they are investments which would have been carried out under a properly managed investment portfolio, or whether they were part and parcel of Mr Lescaudron’s fraud.

It is also important to identify what has been regarded as a typographical error in Mr Khukhunashvili’s e-mail of 3 October 2011 in which he says that Mr Lescaudron agreed that “now” may be the best time to invest in hedge funds. Whereas Mr Lescaudron’s e-mail a few days earlier on 27 September 2011 recorded that Mr Khukhunashvili was “perfectly right” that “now is not the best timing to invest” in hedge funds.

The plaintiffs submitted that what was happening in these communications was that Mr Lescaudron was advising that if a decision was eventually made to invest in hedge funds, this should be done progressively.

The plaintiffs also pointed out that the communications made no mention of the Trust Fund or Trust assets being invested in hedge funds. Indeed, the plaintiffs highlighted the fact that in his cross-examination the plaintiff was asked about investments either through the trust accounts or his “personal accounts”.

The plaintiffs’ submissions in respect of the paucity of evidence in respect of the nature of the hedge funds is compelling. Although as discussed earlier there were detailed communications between Mr Bachiashvili and Mr Lescaudron in respect of investment the hedge funds, the evidence does not disclose the detail of the subsequent investment. The plaintiff agreed that there was a subsequent investment but did not provide the detail of that investment. The plaintiffs submitted that although there were investments in hedge funds held on Credit Suisse accounts, such investments were not investments of funds in the Mandalay Trust but rather of a separate trust, the Green Vals Trust.

The defendant has taken a broad-brush approach to this claim for exclusion which is not made out. The defendant does not even go as far as to identify a specific investment in a hedge fund that was allegedly made on the plaintiff’s instruction. Its point is that the plaintiff “approved of investments in hedge funds generally” and “on that basis, it should be excluded”. Even if this proposition were to be accepted, it is unclear what bearing it could have on the assessment of loss given that the defendant has not identified any relevant transactions.

In any event, Mr Davies clarified that if an investment was indeed made in a hedge fund using Trust assets, it would be treated as a capital payment out, like with the GCF investment (see [696] above). There would therefore be no need to exclude such an investment from the Whole Portfolio Model 1B. From the point the investment was made, that sum would have left the Model and not accumulated benchmark growth. Mr Nicholson’s qualification was that investments in hedge funds could be included in the Whole Portfolio Model 1B if they were “treated as purchases of assets within the fund”.

In all the circumstances it is not appropriate to exclude such investments from the quantification under the Whole Portfolio Model 1B.

Conclusions

It is noted that the defendant has admitted that it was in breach of its duty to the plaintiffs to safeguard the Trust assets by 31 December 2008.

The plaintiffs have established that the defendant breached its duty to the plaintiffs to safeguard the Trust assets as at 30 March 2008. The plaintiffs are entitled to a declaration and orders to that effect. The loss suffered by the plaintiffs is the difference between what would have been achieved if the whole portfolio had been removed and managed by a competent, professional trustee and the Trust assets were not affected by fraud, and what was actually achieved.

The appropriate, just and fair method to be applied in calculating compensation for the loss is in accordance with the Whole Portfolio Method 1B utilising the approach adopted by Mr Davies in reliance upon Mr Morrey’s conclusions as discussed earlier. That amount as presently calculated to the date of trial is USD 926 million.

The defendant is liable to compensate the plaintiffs for their loss in the amount calculated in accordance with Model 1B from 30 March 2008 to the date of this judgment. As a result of the Settlement, this sum should be reduced by USD 79,430,773. Further, the parties will ensure that any sum recovered in the Bermuda Proceedings will be adjusted so as to ensure there is no double recovery.

The experts indicated their willingness to assist the Court further by adjusting any of their calculations in accordance with the Court’s findings. The experts are requested to assist the Court by updating the Model 1B calculations to commence from the date of breach, 30 March 2008, to the date of this judgment.

The amount of compensation in accordance with Model 1B once updated by the experts is, as agreed by the parties, to restore the Trust to the amount that it would have achieved but for the defendant’s breach. In the circumstances because the plaintiffs have experienced difficulties in extracting the balance of the Trust funds from the defendant, it is appropriate that compensation be payable by the defendant into a Trust Fund, the identity and location of which the plaintiffs are to notify the defendant forthwith. The defendant is to make payment of the amount of compensation into the Trust Fund as directed by the plaintiffs or their Trustee.