Benkel v East-West German Real Estate Holding & Ors

A claimant must prove the positive case advanced, even where the opposing case is rejected. An asset-concealment structure may be established without identifying assets already transferred into it, where the evidence shows that the structure was created to receive assets whose beneficial ownership would remain hidden. The court may draw an adverse inference from a party’s failure to call a material witness where there is a case to answer, the absence is inadequately explained, and the inference is appropriate in all the circumstances. On the facts, a nominee arrangement could be traced through a nominee shareholder to the bankrupt’s beneficial ownership, requiring transfer of the nominee’s rights and interests to the trustee in bankruptcy.

The claimant, an Israeli trustee in bankruptcy, sought declarations and transfers concerning an English company, its German subsidiary and related interests. The case alleged that the corporate structure had been created to conceal assets beneficially owned by the bankrupt. The defendants contended that the structure belonged beneficially to the third defendant and had been created for a property business. The issues included the purpose of the transaction, the reliability of the principal witnesses, the significance of uncalled witnesses, and whether the claimant had proved a nominee relationship connecting the defendants with the bankrupt. The claim was tried after the third defendant was joined during the trial.

1. Claim succeeded. The claimant proved that the transaction was entered into for concealment. The court rejected the third defendant’s case that the structure had been created for his own property business.
2. The claimant had to establish his own case; rejection of the defendants’ case was insufficient by itself. The evidence showed that the structure was deliberately opaque, that the transaction was commercially abnormal, and that the third defendant was paid to participate in it.
3. The absence of identified assets already transferred into the structure did not prevent the court from finding that concealment was the intended purpose. The evidence supported the conclusion that the structure was created so that assets could later be transferred into it while their beneficial ownership remained hidden.
4. In assessing the absence of material witnesses, the court applied the principles summarised in Wiszniewski v Central Manchester Health Authority [1998] PIQR 324. There had to be some evidence giving rise to a case to answer, the explanation for the witness’s absence had to be considered, and the court retained a discretion whether to draw the inference. The defendants’ failure to call Mr Rese, Mr Kreider and Mr Katz justified the inference that truthful evidence from them would not have supported the defendants’ case.
5. The evidence established that Ms Helbet was a nominee for the third defendant and that he held the relevant interests as nominee for the bankrupt. On bankruptcy, those interests vested in the trustee. The court ordered Ms Helbet to transfer all her powers, rights and interests in East-West UK to the claimant, who would thereby control that company and its shares in East-West Germany. No relief was granted concerning the third defendant’s limited-partnership interest in JURAG because that relief was not pleaded.