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25-05-2017

Supreme Court of Gibraltar – Lavarello and Hyde v Jyske Bank Gibraltar Limited
The Supreme Court of Gibraltar has determined that Jyske Bank, a large Danish Bank operating also in Gibraltar, dishonestly assisted in the fraud perpetrated by the partners of Marrache & Co, a well known law firm upon its clients, where over £28milion was stolen.

The judgment considers at length the principles of dishonest assistance and the duty of banks to not merely wave through transactions in solicitors’ client accounts.

Moon Beever, together with the Gibraltar firm of Triay Stagnetto Neish, acted for Edgar Lavarello and Adrian Hyde, the successful Claimants and the trial lasted 4 weeks. Counsel was David Alexander QC of South Square and Daniel Lewis of 3 Hare Court.

The Facts 
Over a period of at least 7 years until 2010, the Marrache brothers through their law firm, Marrache & Co (“the Firm”) in Gibraltar defrauded their clients of at least £28million. In 2014 they were sentenced to lengthy prison sentences following the longest criminal trial in the history of Gibraltar.

My Hyde and Mr Lavarello are the liquidators of the Firm and Mr Lavarello is also the trustee in bankruptcy of the 3 brothers. This claim was however brought by them as trustees for certain of the clients who had been defrauded and whose money had gone through the Firm’s accounts at Jyske Bank. The Claim was brought as there is no statutory compensation scheme in Gibraltar to assist defrauded clients as there is in UK.

The Claimants alleged that the bank was dishonest in assisting the brothers in their breach of trust by defrauding the clients. It was not enough to show they assisted, the bank had to be dishonest.

It was a very hard fought case over 3 years, culminating in a trial before Mr Justice Jack in the Supreme Court of Gibraltar. Over 3.5million documents were disclosed and the evidence put before the Court was extremely lengthy and complex.

The Court applied the law on dishonest assistance as recently set out by Rose J in Singularis. The Claimants needed to prove that Jyske and the relevant bank employee were either actually dishonest, in that they authorised payments knowing that the money was being misappropriated; or that the individual had suspicions but made a conscious decision not to make enquires - so-called Blind eye or Nelsonian dishonesty.

A substantial dispute also arose concerning the duties of banks and the applicability of Section 85 Solicitors Act 1974 and whether that section gave the bank an almost complete defence in such claims. The general duties of a bank with trust accounts is set out in Rowlandson v Natwest. In that case, it was noted that a bank must consider the interest of the people beneficially entitled to the money and also the right of its customer to have cheques honoured. It could not for example just on an instruction from the customer transfer trust monies to wipe out or reduce an overdraft on a private account.

Section 85 however says that where a solicitor keeps an account with a bank then that bank is not under any duty nor will incur any liability or be deemed to have any knowledge of any person to any money paid out or credited to the account which it would not have had where that person held the account absolutely. Thus a bank, in theory, has no need to look at the client account and consider whose money it was and could not be liable for any losses from it.

However what the section does not do is release a bank from liability where it has dishonestly assisted, whether with actual or blind eye, knowledge of the fraud. It did, however, create a strong presumption upon which the bank could rely, that solicitors’ client accounts were conducted in a proper manner. It was this presumption that the Claimants had to overturn.

This was done with very detailed forensic analysis of the Firm’s bank accounts and where money was paid to and when, what was the firm’s overall financial position and considering what events took place that should have flagged to Jyske that money was being stolen.

There were hundreds of examples that the Claimants alleged were such flags. These included transferring millions of pounds to companies controlled by the Marraches; the client account going into overdraft:- how can you have a minus amount of client money?; huge sums paid to the personal accounts of the brothers and to pay personal credit card bills; millions transferred from the Firm’s office account to the client account, almost always to prevent that account going overdrawn - why would the firm be using its own “office” money to, in effect, pay to or on behalf of clients unless the clients’ money was gone?; Huge sums were transferred in round sums from client account to office account, very often to ensure that the Firm kept within its borrowing limits. All of these things were permitted by Jyske.

The Account manager was cross-examined for a considerable period. The Judge found he was not a witness who could be trusted on key issues, lied to the Court and his evidence was not credible. The Judge concluded further that the account manager, and through him, Jyske, not only had blind eye knowledge of the fraud but actual knowledge that money was stolen and knowingly assisted in its theft.

The judge concluded that, as a result, Jyske was liable to all of the clients for dishonest assistance.

This is not the end of the matter. There will now be a further substantial hearing to calculate the precise sums lost by the clients but it runs into many millions.

This case as well as being one of considerable public interest especially in Gibraltar as it arises from the most notorious crime there in recent years, is also of considerable legal interest in what it says about banks and dishonest assistance, their state of knowledge and their duties concerning trust money going through their accounts.

If you wish to discuss anything arising from this interesting case please contact Richard Saunders at rsaunders@moonbeever.com or Frances Coulson at fcoulson@moonbeever.com.

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained.

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