CL-2020-000117 - [2025] EWHC 1620 (Comm)

As I have said, the applicable law is Maltese law. By Art. 1031 in Chapter 16 of the Laws of Malta (the “Civil Code”) “Every person, however, shall be liable for the damage which occurs through his fault.” Fault in this context means a person in acting in the manner alleged “… does not use the prudence, diligence, and attention of a bonus paterfamilias.” To succeed in a claim for breach of Art 1031, a claimant must prove “ … (a) the ‘faulty’ conduct of the defendant, comprising unjust/illicit acts and/or omissions; (b) that this was committed with culpa or dolus; (c) this faulty conduct must have been the 'direct and immediate cause' of damage inflicted upon the claimant.” – see para. 5.5 of the report of Professor Zammit, the claimant’s expert witness on Maltese law. There is also a requirement to establish that the person concerned is legally responsible for his or her acts or omissions but that does not arise as an issue because all the defendants are of age and are mentally competent. The concept of “dolus” is a requirement that the defendant has intentionally carried out the act or omission in circumstances where it was foreseeable to a reasonable person in the position of the defendant that damage would be caused by the conduct complained of – see Zammit 1, para. 5.9. In relation to causation, Maltese law recognises that there may be more than one person liable in respect of the same loss with the result that the loss claimed may be caused by more than one direct and immediate cause with the ultimate test in relation to each defendant being whether the loss concerned would have been incurred but for the defendant’s actionable act or omission. The claimant’s claim against each defendant is advanced by reference to these provisions.

Aside from the tortious claims so far considered, the claimant claims against Mr Serwin for breach of fiduciary duty. Fiduciary obligations are expressly regulated by Articles 1124A to 1124J of the Civil Code. The claimant’s case is that Falcon owed fiduciary duties to the claimant pursuant to Art. 1124A(1), which provides:

“Fiduciary obligations arise in virtue of law, contract, quasi- contract, unilateral declarations including wills, trusts, assumption of office or behaviour whenever a person (the "fiduciary") - (a) owes a duty to protect the interests of another person and it shall be presumed that such an obligation where a fiduciary acts in or occupies a position of trust is in favour of another person; or (b) has registered in his name, holds, exercises control or powers of disposition over property for the benefit of other persons, including when he is vested with ownership of such property for such purpose; ... ”

I accept that is so because by subscribing for shares in Falcon it entrusted its investment to Falcon and Falcon designated TAM as its management company. TAM was required to act and manage the sub-funds in the best interest of investors – see Art. 13(1)(b) of the Undertakings for Collective Investment in Transferable Securities Directive 2009/65/EU (“Directive”). TAM was required to act “… honestly and fairly in conducting its business activities in the best interests of the UCITS it manages and the integrity of the market…” – see Directive, Art 14(1)(a); “… with due skill, care and diligence, in the best interests of the UCITS it manages and the integrity of the market…” – see Directive, Art 14(1)(b); and “… tries to avoid conflicts of interests and, when they cannot be avoided, ensures that the UCITS it manages are fairly treated” – see Directive, Art 14(1)(d). In these circumstances and applying Art. 1124A(1), I accept the claimant’s submission that both Falcon and TAM owed fiduciary duties to the claimant.

Article 1124A(2) of the Civil Code provides that “(a) person who is delegated any function by a fiduciary and is aware, or should, from the circumstances, be aware, of the fiduciary obligations shall also be treated to be subject to fiduciary obligations.” This not merely renders TAM a fiduciary by reason of its appointment by Falcon but it also results in Mr Serwin owing fiduciary duties to the claimant to the extent that Falcon delegated its functions to him. On the claimant’s case, he is also liable for breach of fiduciary duty by operation of Art. 1124(A)(3) of the Civil Code, which provides that “(f)iduciary obligations arise from behaviour when a person (a) without being entitled, appropriates or makes use of property or information belonging to another, whether for his benefit or otherwise; or … (b) being a third party, acts, being aware, or where he reasonably ought to be aware from the circumstances, of the breach of fiduciary obligations by a fiduciary, and receives or otherwise acquires property or makes other gains from or through the acts of the fiduciary ....” The claimant relies on this provision as against all the other defendants, necessarily submitting that the knowledge of the individuals is to be attributed to the companies they controlled.

The content of the fiduciary duty is set out in Art 1124A(4) of the Civil Code, which provides:

“Without prejudice to the duty of a fiduciary to carry out his obligations with utmost good faith and to act honestly in all cases, a fiduciary is bound, subject to express provision of law or express terms of any instrument in writing excluding or modifying such duty, as the case may be –

(a)

to exercise the diligence of a bonus pater familias in the performance of his fiduciary obligations;

(b)

to avoid any conflict of interest or any conflict of trust or fiduciary obligations; (c) not to receive undisclosed or unauthorised profit from his position or functions nor permit any other person to do so, nor enter into any transaction related to the property, directly or indirectly, unless authorised to do so by the instrument creating the fiduciary obligation or permitted by a person or authority empowered to approve such dealings under the instrument or applicable law or as otherwise authorised by the Court: ...”

Thus and unsurprisingly, the irreducible minimum content of a fiduciary duty is to act with utmost good faith and honestly. The remedies available against a person who acts in breach of fiduciary duty are not only a personal remedy of damages but also the proprietary remedy set out in Art 1124A(5), which provides that “In addition to any other remedy available under law, a person subject to a fiduciary obligation who acts in breach of such obligation shall be bound to return any property together with all other benefits derived by him, whether directly or indirectly, to the person to whom the duty is owed.”

In light of the findings made earlier in this judgment, I conclude that Falcon was established by Mr Serwin as a vehicle for what was from the outset a fraudulent investment scheme. He devised the Falcon structure and then took steps to disguise his connection with it from the SPA amongst others. He caused Falcon to be held out as being a legitimate UCITS Fund when to a highly material degree it was not. He procured the investment of pension assets in entities in which he was either directly or indirectly interested, in combination with Mr Bishop and Mr Gergeo, using corporate vehicles that they controlled either jointly or individually including but not limited to SVC (which Mr Serwin controlled jointly with Mr Gergeo until 7 October 2015 when it became solely controlled by Mr Gergeo until 6 October 2018), the 12^th and 13^th defendants (Mr Gergeo) and Energy Everything Investments plc (Mr Bishop). He was the individual who formed Werel and then financed it initially. It was the share dealing in that entity that facilitated the transfer of wealth from Falcon to Mr Serwin amongst others by the ostensible dealing in its shares described above at values that could not and did not have any objective justification.

Turning to Mr Ӧkten, although he is not mentioned as often in the factual findings set out above, he was central to the fraudulent scheme because it enabled Mr Serwin to distance himself from the day to day management of Falcon and its sub funds and provided what is sometimes described as the “window dressing” – that is the document trail that ostensibly suggests that what is being undertaken is a legitimate business activity. The investments set out above could not have been undertaken by Falcon or (in the case of the three public exchange investments referred to above) undertaken in the way they were without TAM acting by Mr Ӧkten providing the ostensible assessments and advice to purchase. That he was put in place by Mr Serwin essentially for this purpose is supported inferentially by the circumstances of his appointment set out above. In particular it is supported by the line in the email from Mr Serwin to Mr Bishop of 22 January 2015, in which he described an attempt not to appoint Mr Ӧkten as something that “… could jeopardise the hole business” – that is the business of Falcon and how it was intended by Mr Serwin and his immediate associates Mr Bishop and Mr Gergeo to be operated. As I have found he received commissions in relation to at least the last three transactions I have made findings about. There could be no justification whatsoever in Mr Ӧkten receiving a commission in the manner described in relation to investments he was meant to be independently vetting in the sole interests of the Falcon sub-funds and the claimant as its investment shareholder. He was an experienced investment manager who could not conceivably have thought that it was appropriate to accept commissions in such circumstances, much less ones based on commissions paid to SVC that as he must have known were grossly in excess of anything that could be justified commercially. Inferentially, the sums paid to Mr Ӧkten were paid because he knew what Mr Serwin was doing, what he was receiving and that it could not be achieved without his willing assistance. Those sums were accepted by Mr Ӧkten on that basis. Without his involvement (or someone ready willing and able to provide the cover that was needed if the fraud was to be carried on as it was) the fraudulent scheme would have collapsed or perhaps never commenced just as Mr Serwin foresaw in the email of 22 January 2015. It was once he was in place that the fraudulent activity could start in earnest.

Aside from the “other investments” the total sum claimed by the claimant is €60.7m. In my judgment Mr Serwin is liable to the claimant for the whole of that sum as a tortfeasor as a matter of Maltese law applying the principles set out above. In common with others but also individually as architect of the Falcon scheme his were the illicit acts and omissions that led to the losses suffered by the claimant. He committed those acts and omissions knowing full well they would cause loss to the claimant that in the result eventuated and it was foreseeable to any reasonable person in the position of Mr Serwin that such losses would be caused by his conduct as I have found it to be. In relation to the “other investments” all the conditions for tortious liability have been made good as well to the extent that the commissions he received were commissions he should not have been receiving. The commissions were secret commissions which are to be treated as having inflated the cost of the investments by at least the amount of the commissions and he is liable tortiously for the whole of the sum so received.

In relation to Mr Ӧkten the position is potentially more complex. Firstly, in relation the secret commissions paid to SVC, I consider that he is liable tortiously jointly and severally with Mr Serwin for the whole of the sum lost. Those transactions were only able to take place because he approved them in his role as investments manager of the Falcon sub-funds. Secondly, I do not consider that Mr Ӧkten should be found liable in respect of the losses attributable to the Reditum Bond because it has not been proved that either TAM or he was involved in that transaction. Finally entirely properly the claimant has drawn my attention to the fact that Mr Ӧkten ceased to be TAM’s portfolio manager on 28 May 2016 whereas the Median and Viceroy bonds were issued on 31 May 2016 and acquired by Falcon thereafter. There were TAM documents prepared relevant to those acquisitions but they were not signed by Mr Ӧkten. In my judgment it would not be sound to infer responsibility by Mr Ӧkten for these transactions in those circumstances. They should not form part of his liability for damages.

In relation to the corporate defendants, the 9^th defendant is alleged to have received €5.8m from the WSV Pro Mittelstand ETI. This receipt is proved by Mr Holt’s evidence at paragraph 8.2 and 8.14 – 8.16 of his first report and the contemporaneous documents there referred to. This company was controlled by Mr Bishop, whose knowledge of the fraud is to be attributed to the 9^th defendant. For that reason the conditions for tortious liability have been satisfied in relation to the receipt by the 9^th defendant of this sum and the claimant is entitled to judgment as sought in the claim against it.

The claimant seeks judgment against the 10^th defendant in the sum of €5m, received from NPI in respect of the Nordic Power ETI. This receipt has been provided by Mr Holt’s analysis at paragraph 10.16 and 10.24 of his first report and the contemporaneous documents he there refers to. This company was controlled by Mr Bishop, whose knowledge of the fraud is to be attributed to the 10^th defendant. For that reason the conditions for tortious liability have been satisfied in relation to the receipt by the 10^th defendant of this sum and the claimant is entitled to judgment as sought in the claim against it.

The claimant seeks judgment against the 12^th defendant in the sum of €19.54m, which was the amount which Gergeo Holding received as a result of the sale of Werel shares. As pleaded this allegation is that “… Gergeo Holding received (it is believed) at least €19.54m as a result of the sale of Werel shares to AIU III, EEI, Larmag EG and DB8 Opportunity Fund (“DB8”).” The evidence available proves that:

By my calculation this adds up to more than the sum claimed. However, the sum claimed has been confined to the sum pleaded and I am prepared to proceed on that basis since it benefits the 12^th defendant. This entity was controlled by Mr Gergeo at all material times because between 11 May 2015 and 22 March 2017 he was its sole director and its sole shareholder until 14 September 2017. Thus his knowledge of the fraud is to be attributed to the 12^th defendant. That being so, he knew that the value of the shares was much less than was being paid for them (indeed may have been close to valueless for the reasons explained earlier in this judgment) and that the sums that the 12^th defendant were receiving as set out above were derived from Falcon and thus from the claimant. In those circumstances, the conditions for tortious liability have been satisfied in relation to the receipt by the 12^th defendant of this sum and the claimant is entitled to judgment as sought in the claim against it.

Finally as against the 13^th defendant judgment is sought in the sum of €1.5m. I am not satisfied that the claimant is entitled to judgment in this sum. Whilst there is ample evidence to show that the shares in Werel were repeatedly ostensibly bought and sold in order to facilitate the fraudulent scheme described above, there is no evidence that the sums paid out by Werel were the proceeds of the fraudulent scheme.

I have so far addressed all the claims as a matter of Maltese tort law. I am satisfied that the same sums are recoverable for breach of fiduciary duty applying the principles summarised above against each of the defendants to the extent set out above.

So far as interest is concerned, I am satisfied that Maltese law should determine the interest issue that arises. This is so because the Maltese law in this area is intended to secure full compensation for victims. That being so, I apply the principles identified by Professor Zammit in para. 8.7 and following of his first report. The applicable default rate is 8% apparently irrespective of the currency concerned – see Art. 1047(1) of the Civil Code. Generally, interest is calculated to run from the date of judgment – see Zammit 1, para. 8.7. However, as I read that and the following paragraphs the Maltese courts have discretion to vary the date when interest starts to run applying Art. 1047(3). To my mind this is one of those cases where that discretion should be exercised in favour of the claimant because the claimant has not merely been deprived of its money by fraud but it has been deprived of any growth in the sums it thought has been invested for future growth. In my provisional judgment the correct balance is to be struck (particularly having regard to the quite high rate that is to be imposed as a matter of Maltese law) by directing that interest should run from the date the Claim Form was issued. I leave it to the claimant to calculate the relevant interest in relation to each defendant applying these principles. If the claimant considers that interest in excess of that sum should be recovered then further submissions on that issue can be made at the hand down of this judgment.

I continue the WFO against those defendants with whom this judgment is concerned.