Legal Business

Financial Regulatory and Disputes Summit: Stranger than fiction

Even amid a stellar agenda at Legal Business’ Financial Regulatory and Disputes Summit 2023 last November, CMS’ session – Shams and charades: Lessons learned from abusive litigation against banks – made shockwaves around the auditorium of the Queen Elizabeth II Centre in London’s Westminster.

Indeed, it’s not often that a panel discussion elicits gasps of astonishment from delegates, but that’s exactly what happened when CMS’ finance disputes partners Tom Dane and Vanessa Whitman (pictured) sat down with Neil Kitchener KC of One Essex Court to discuss their experience representing Allied Irish Banks in the curious case of Kallakis v AIB.

The trio discussed getting to grips with best practice procedures when handling abusive litigation, dealing with litigants in person and the realities of facing Britain’s biggest mortgage fraudster in court.

The CMS team worked on the case for five years from 2018 to 2023, with the matter culminating in a five-week commercial court trial in July 2023. The claim was bought by Michalis Kallakis (Kallakis junior), son of Achilleas Kallakis (Kallakis senior), a former customer of AIB who in 2013 was convicted of defrauding the bank (and another) as part of Britain’s largest ever mortgage fraud. CMS’ Whitman was a junior associate when the fraud first came to light in 2008.

In September 2023, Mr Justice Andrew Baker found Kallakis junior’s claim to be an abuse of process, instigated and controlled by Kallakis senior. His judgment found that the trust through which Kallakis junior brought the claim was a ‘sham device’ created to hide his father’s beneficial ownership of assets.

On this panel, the sensational story unfolds.

Tom Dane, CMS: The bank’s view from the beginning was that the claim was without merit. So, what were your initial steps on receipt of these claims and exchange of pleadings?

Vanessa Whitman, CMS: One of the first things you do when you think you’ve been served with an unmeritorious claim is look at whether you can strike it out or deal with it on a summary judgment basis. You want to deal with it as soon as possible, preventing too much money being spent on the case. With my personal history with Kallakis senior I was convinced from the off that it didn’t smell right but the problem was we just didn’t have enough evidence at that time to be able to prove that it was abusive. So, we had to look purely at the heads of claims that were being asserted against the bank to see whether we could achieve strikeout or summary judgment on that basis.

We made an application for strikeout or summary judgment in the alternative. The upshot of that was a partial success. We managed to head off several claims that were being asserted against the bank but, frustratingly, we were unable to have the entire claim dismissed. A big part of that was that Kallakis junior was a litigant in person, and he played a bit of a blinder on that. It would have been easier to get this struck out had he been represented. This left us in the position where we were continuing along the claimant strategy of pursuing this high-value claim against the defendant, when the claimant knew the defendant wouldn’t want to be dragged into long, painful, public litigation, where some of the stories that came up through the criminal trials would be pulled up again by the media. However, there was not much we could do about that. There were also some procedural and limitation issues that were present from the off, but we were very conscious not to try to lead with those at the strikeout stage because, again, particularly with a litigant in person on the other side, we were convinced that these wouldn’t land very well with the judge. We did flag them up, but we didn’t lead with it.

‘Hanging over the case from the beginning was the fact that Kallakis senior was using the case as a vehicle to make a claim for himself via his son.’
Tom Dane, CMS

Tom Dane: Generally speaking, what’s your view on the court’s appetite for dealing with cases on a strikeout basis or summarily?

Neil Kitchener KC, One Essex Court: We can apportion some blame to the court system as a whole here, because a judge can make a mistake, but you expect where issues of law are concerned that the Court of Appeal is going to provide you with a reasonable backstop. A general problem with the appellate process in our jurisdiction is that we’ve lost the ability to make oral applications, which used to be a very good vehicle for explaining to the judge very quickly, in 20 minutes, why you need permission to appeal.

The court is far too timid in striking out cases on the facts and the law. Frequently, you will see cases where judges will say: ‘This is a difficult issue of law and I don’t want to decide it without finding the facts.’ This strikes me as a cop-out. Why not make a decision? You know what the alleged facts are, and you can say, based on these facts, there is or is not a tenable claim. The court should be tougher, and it should encourage strikeout applications. The way of doing that is via how the court deals with costs. Currently, there’s one huge disincentive to apply to strike out a claim, even though in your bones, you think the claim is a load of absolute rubbish. If you lose, you’re going to end up paying the costs.

In the old days, before the Woolf reforms, you’d get a cost order against you, but you wouldn’t have to pay anything until the end of the case. So, if you won your trial in the end, effectively you’d never have to put your hand in your pocket. It’s a real issue when you have to say to a client, take a chance on striking out this claim, it’s complete rubbish, and you’re going to win at the end of the day but there will be upfront costs. I think the court should be sympathetic to that and should say, ‘Well if you make a strikeout application and it fails but we can see that it had some merit, and we can see that you’re likely to win, we won’t make an immediate order for payment.’ There are structural things the court needs to look at in terms of strikeouts because you do get a lot of unscrupulous claims. There should be some kind of facility to do something about that.

Vanessa Whitman: In this case, even as a litigant in person, costs were awarded against the bank in that strikeout application. That’s still a sore point. It was a small number because he [Kallakis junior] didn’t have any legal costs. However, he was able to give himself an hourly rate so there were a few thousands that went his way. That was a painful cheque to write, not because of the amount but because of the circumstances.

Tom Dane: Hanging over the case from the beginning was the fact that Kallakis senior was using the case as a vehicle to make a claim for himself via his son. This wasn’t an available argument at the strikeout stage, so how did that abuse of process element come into play during the proceedings themselves?

Vanessa Whitman: From the off, we were convinced about what was going on here. There were some very odd circumstances. The claim was issued just a couple of months after Kallakis senior was released from prison. The structure of it was odd, with the son apparently suing the father. Incidentally, they both had the same service address at the beginning. While we could make this high-level allegation in our pleading from the beginning, we knew that we needed some more evidence to be able to succeed on that argument later on at trial. Throughout the life of the proceedings, we were on high alert, looking for every possible opportunity to be able to prove that. There were some quite spectacular moments throughout the life of these proceedings, where we thought, yes, we will bank this one for trial. For example, Kallakis junior’s expert witness at trial admitted that he was first approached by Kallakis senior. That’s odd if you’ve been approached by a defendant in a matter, and then you end up acting for the claimant. One of my favourite moments from the history of this case was when we received an email in response to an email we had sent to Kallakis junior. It was a particularly aggressive email response, signed off from Kallakis junior, but sent from Kallakis senior’s email address. We were very careful not to point that out to him until Neil’s expert cross-examination.

‘A lot of institutions would have said: “What can we do to make this go away?”, but the bank was absolutely resolute.’
Neil Kitchener KC, One Essex Court

Although the strikeout application was not entirely successful, it did produce one of the most important pieces of evidence that this was an abusive claim. Some text messages were disclosed as part of the misguided application by Kallakis junior at the strikeout to adduce some evidence from a former bank employee. The disclosed text messages were from Kallakis senior to the former bank employee, where he [Kallakis senior] was describing himself as the claimant. Another moment was when the McKenzie friend representing Kallakis junior at the strikeout hearing confessed that he was a non-practising barrister. He said he was non-practising because he has some health problems, but we found out during the trial that this barrister had met Kallakis senior in prison. There was of course also this rather ridiculous situation where if Kallakis senior was a true defendant, he would have been throwing his weight behind everything the bank, his co-defendant, was saying about this case, because if we had managed to defend the claim successfully, there would be no claim to assert against him. But he was doing the complete opposite. He was taking every opportunity to support what his son, the claimant, was saying as long as it was pointing at the bank.

Tom Dane: Neil, as some of the factors relied on in relation to abuse of process only came out during the trial itself, in the lead up to the trial, how confident were you based on the evidence we had of proving abuse of process?

Neil Kitchener KC: I was pretty confident. One of the things we can give the bank credit for is that it said from the start it was not paying this guy. A lot of institutions would have said: ‘What can we do to make this go away?’, but the bank was absolutely resolute. You’ve got to remember what the facts are in terms of abuse. This obviously didn’t fall within any of the normal categories of abuse, and it was a one-off case, but it was insane. The facts were just completely mad. You had the son, suing as the purported beneficiary of this invented Hermitage Syndicated Trust trying to give a story because we raised the abuse of process point. One of the real advantages of raising the abuse of process point was that he had to explain the circumstances in which he had come to sue the bank and the explanation that he gave in his witness statement just didn’t make any sense at all. He talked about how his dad would come home for day release from prison and he had brought these proceedings to vindicate his father against the evil bank who had conspired to put him in prison. But then the most bizarre thing was that he sued his father as well, so he had to try and explain that. The claim against his father was practically unintelligible. The reality of course was that he’d sued his father, at his father’s urging, because otherwise his father couldn’t have attended the trial, and he wouldn’t have had any role to play.

So why did we run the abuse point? Part of the advantage was to get Kallakis junior to tie himself up in knots. The second part was that it allowed us to pursue Kallakis senior for costs because we said he was the éminence grise behind the claim. We argued that it was all his doing, and he should pay our costs as a result. The third unspoken reason for running the argument was that it gave us an excuse to emphasise that this case was being run by a convicted fraudster who had defrauded us and was using his son to bring the claim. That as a narrative for a defendant is about as powerful as you can come across.

Tom Dane: What were the practical issues that arose from dealing with a litigant in person?

Vanessa Whitman: One thing we did to alleviate the challenges was encourage representation throughout. Encouraging representation should be one of the first things you do when you’re dealing with a significant claim run by a litigant in person. It is also important to bear in mind your professional obligations. It can be quite challenging walking the line. Your first duty as a lawyer is to the court, and that encompasses providing a level of assistance to a litigant in person even when they are your opponent. That can be challenging on a practical level, particularly when you’re explaining to your own client, to whom you obviously owe a significant duty, second only to your duty to the court, that there are certain things it is going to have to do to assist the litigant in person on the other side. Other practical points include using plain English, giving more reminders of deadlines and pointers about what’s coming up next than you would if you were dealing with a represented party. You also have to be aware that litigants in person are particularly vulnerable to making mistakes on things like privilege. We had multiple occasions where we had witness statements served on us which contained privileged information that we had to point out to the other side. In the end we had to put in place a separate case team at CMS, unrelated to our team to review things coming in from the other side first to protect against the case team seeing any potentially privileged material.

‘We had multiple occasions where we had witness statements served on us which contained privileged information that we had to point out to the other side.’
Vanessa Whitman, CMS

Tom Dane: How did you make the most out of the shams and charades presented in this matter at the trial?

Neil Kitchener KC: We were lucky. You don’t often get an opponent, where you type his name into Wikipedia, and it comes up flashing that he is Britain’s biggest fraudster. That’s always a good start. We were also quite lucky that it was one of the Serious Fraud Office’s success stories, so we had a criminal conviction that we could play around with. We had access to a lot of the material that the prosecutor had accumulated from its worldwide investigations that we would never have got hold of ourselves. Some of the stuff you could just not make up. One of the big things that you must get your head around as a civil fraud litigator is how astonishingly and consistently dishonest some professional fraudsters can be. We had one episode where the bank said it wanted to meet a representative of the Hong Kong company that was apparently behind these transactions. Kallakis said one of them was coming to his office in Mayfair and suggested the bank come along and meet him. The bank spent half an hour or so talking to him about the underlying transaction, and it turned out that this guy didn’t exist, he was an actor. You just wouldn’t guess that this sort of thing would happen, but obviously when it does, you know you’re going to win at trial. LB

holly.mckechnie@legalease.co.uk

Photographer: Dean O’Brien from Miranda Parry

This year’s Financial Regulatory and Disputes Summit will be held on Thursday 14 November 2024 at Queen Elizabeth II Centre, Broad Sanctuary, London, SW1P 3EE. Click for more information, or to register.