Harvey Rands examines what happens when solicitors advise a Defendant to plead a false Defence.

Background

In an extraordinary turn of events in the surreal case of Orb v Ruhan, Mr Ruhan’s former solicitors first advised him to deny a beneficial interest in a business empire valued between £150m and £200m which they administered on his behalf and then, relying on the denial, transferred the assets to the Claimants, for no monetary consideration in return for a release from potential suit.

The Claimants, run by twice convicted fraudster, Dr Gerald Smith, assert that Mr Ruhan holds 40% of his business empire on trust for them as a result of an oral joint venture agreement.  Orb alleges that Mr Ruhan sought to put those assets beyond their reach by means of schemes involving an offshore trust and companies set up and administered by his solicitors, Simon Cooper and Simon McNally.  In preparation of Mr Ruhan’s Defence, Messrs. Cooper and McNally said that Mr Ruhan had ceased to be a potential beneficiary of the offshore trust and had no interest in it.

Following secret negotiations, a series of agreements were made transferring ownership to the Claimants’ nominees and purporting to record that the businesses belonged solely to Messrs. Cooper and McNally and that Mr Ruhan had no interest.

Memery Crystal advised Mr Ruhan to come clean to the Court in an application for permission to correct his Defence, and to bring a Counterclaim against the Claimants, Messrs. Cooper and McNally, Dr Smith, his former wife and their nominee company.

Abuse of Process

All parties opposed Mr Ruhan’s application stating that it would be an abuse of process for Mr Ruhan to change his plea regarding ownership of the business empire that he had built up over more than 15 years.  In contradictory submissions, the Claimants said that the business empire belongs to Mr Ruhan (and that they were entitled to 40%) and at the same time argued that they are entitled to keep 100% of the assets because they had acquired them from Messrs. Cooper and McNally who were the sole beneficial owners!

The Court found that Mr Ruhan’s Defence was deliberately misleading, but granted Mr Ruhan’s application as his Defence had come about as a result of Messrs. Cooper and McNally.  Evidence from Messrs. Cooper and McNally that the business empire had not been built up by Mr Ruhan was rejected as implausible.  Mr Ruhan has a strongly arguable case of misappropriation of his assets. 

The Court has powers to deal with abuse of process under CPR 3.4(2) and the inherent jurisdiction of the Court, but the Judge decided, in accordance with the Supreme Court case of Summer v Fairclough Homes, that justice requires that Mr Ruhan should be allowed to pursue his claim.

Privilege

Mr Ruhan asserted privilege in respect of communications with his former solicitors, but accepted that he should, and indeed did, disclose and rely on evidence of his communications with Messrs. Cooper and McNally, in respect of the subject matter of his claims against them.

The Future

The extraordinary and troubling facts of this case will come on for trial in 2016 when the Court will examine the use of discretionary trusts, nominee directors and nominee shareholders to ascertain the true ownership of assets intended to be shielded from UK tax.

Salutary lessons will no doubt be learned in respect of the hazards of putting assets in the control of untrustworthy individuals in tax havens.

Harvey RandsAnne McMahonNikola Lowry-LeeNick West and Edward Williams represented by Mr Ruhan.

A link to the full Judgment is at:http://www.bailii.org/ew/cases/EWHC/Comm/2015/262.html