The Kingdom of Sweden v Max Emil Serwin (formerly known as Emil Amir Ingmanson) & Ors

In an unopposed merits trial, a claimant seeking recovery for fraud must prove liability and quantum against each non-participating defendant to the civil standard. For non-contractual claims, the applicable law is determined under Rome II. Financial loss occurs where the victim’s money is irreversibly paid away. Fiduciary obligations and directors’ duties may be governed by the law of incorporation where the claim concerns the company relationship. A defendant relying on reflective loss must plead and prove the principle as an exclusionary rule. Under Maltese law, tortious liability requires faulty conduct, culpa or dolus, and direct and immediate causation. Secret commissions received by an investment manager may establish both tortious liability and breach of fiduciary duty. A proprietary remedy may be available for property and benefits obtained in breach of fiduciary duty.

The claimant, the Kingdom of Sweden, brought claims concerning the alleged misappropriation of Swedish pension savings through the Optimus and Falcon investment schemes. By the trial, most claims had settled or been discontinued. The remaining claims concerned Mr Serwin, Mr Ökten and four corporate defendants.

The court proceeded to a reasoned merits judgment rather than default judgment because the defendants had notice of the proceedings and the claimant had legitimate enforcement reasons. The principal issues were the applicable law, liability, quantum, interest, reflective loss and proprietary relief. The court also resolved the outstanding interest issue arising from the earlier Optimus judgment, [2020] EWHC 486 (Comm).

1. Procedure and standard. The claimant was entitled to a reasoned merits judgment against defendants who had been served and had notice but did not participate. It had to prove liability and quantum against each remaining defendant to the civil standard, while drawing attention to points potentially benefiting unrepresented defendants. Witness attendances were dispensed with by applying Clarke v Lighting & Lamps UK Ltd [2016] EWCA Civ 5 and Lakatamia Shipping Company Ltd v Tseng [2023] EWHC 3023 (Comm).
2. Interest and applicable law. Interest on the Optimus claim was substantive because it was intertwined with the assessment of damages. Swedish law therefore governed the rate and accrual date, applying Nicholls v Mapfre España Cia de Seguros y Reaseguros SA [2024] EWCA Civ 718. The Falcon claims were governed by Maltese law. The fiduciary claims were connected with Falcon’s incorporation in Malta, and the direct financial loss occurred in Malta when funds were paid out of Falcon’s accounts.
3. Reflective loss. The defendants had neither pleaded nor proved that Maltese law’s reflective-loss principle applied. In any event, the evidence established that the claimant’s losses were not merely reflective, that Falcon could not practically pursue the claims, and that the fraud exception embodied in fraus omnia corrumpit prevented the principle from defeating the claims.
4. Liability. Under Art. 1031 of the Civil Code, liability required faulty conduct, culpa or dolus, and direct and immediate causation. Mr Serwin was liable for the Falcon losses. Mr Ökten was jointly and severally liable for the losses caused by the secret commissions and approved investments, but not for the Reditum, Median or Viceroy transactions which were not proved to involve him. The ninth, tenth and twelfth defendants were liable for sums received with the controlling individuals’ knowledge attributed to the companies. The claim against the thirteenth defendant was not proved.
5. Fiduciary duties and relief. Falcon and TAM owed fiduciary duties to the claimant under Arts. 1124A(1) and the applicable UCITS provisions. Mr Serwin and other persons involved could also owe duties under Art. 1124A(2) and (3). The defendants’ receipt of undisclosed commissions breached the duties of utmost good faith, honesty and avoidance of conflicts. The claimant was entitled in principle to a proprietary remedy under Art. 1124A(5).
6. Orders. The freezing order was continued. Judgment was entered or to be entered for the claimant against the defendants to the extent identified in the judgment. The claim against the thirteenth defendant failed. Interest, costs and the precise declarations were left for consequential determination.