Case No: 2010 FOLIO 481
Neutral Citation Number: [2013] EWHC 1865 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/07/2013

Before:

THE HONOURABLE MR JUSTICE FLAUX
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Between:

	ODL SECURITIES LIMITED	Claimant	
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	(1)	ADRIAN MARTIN McGRATH
(2)	LUCY CLARE BOSTICK
(3)	ANTHONY PAUL CLEMENTS	Defendants	

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Mr Thomas Croxford and Mr Tom Cleaver (instructed by SJ Berwin LLP) for the Claimant
The First Defendant in person
Hearing dates: 8, 11-15 February, 8 April 2013
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Judgment
The Honourable Mr justice Flaux: 
Introduction and background
1.	The claimant company, to which I will refer as “ODL”, was established in the 1990s as a specialist options broker, but from 2004 began a foreign exchange broking activity which became its principal business. This enabled clients of ODL to deal on their own account in foreign exchange, derivatives, equities and commodities. ODL also operated a separate corporate finance business through the third defendant Tony Clements who was a specialist in that field. That business should not have involved any downside risk for ODL.
2.	Given the settlement of the dispute between ODL and Mr Clements in the period between the conclusion of the evidence at trial and closing speeches, this judgment relates exclusively to the claim against the first defendant, Mr McGrath, who was head of risk at ODL from 2005 until his dismissal in 2010. The claim concerns the granting by Mr McGrath of unsecured loans of in excess of US$5 million to A1 Holdings Limited, a British Virgin Islands company, the principal driving force behind which was Mr Tony Teixeira and which was part of a group of companies concerned with running the A1 Grand Prix. For a period of time between some time in 2005 until the companies in the A1 group failed in 2009 and 2010, A1 ran grand prix motor racing events which were essentially in competition with Formula One run by Bernie Ecclestone. The loans were sought from Mr McGrath of ODL by Mr Teixeira and encouraged by Mr Clements, who had a personal interest in the success of the A1 venture.  Mr Clements was a 45% shareholder in the British franchisee of the A1 grand prix, A1 GP (UK) Limited and a 22.5% shareholder in the Canadian franchisee. Certainly, by the time of the second series of loans in early 2009, Mr Clements had also invested some $680,000 in A1 Holdings itself and was a major creditor of A1 GP (UK) Limited. At the time it went into administration shortly after the 2009 loans were made, he was owed in excess of £3 million by that company.  
3.	ODL’s case is that, as Mr McGrath well knew at all material times, it was never in the business of granting commercial loans and the loans which he made ostensibly on behalf of ODL were unauthorised. ODL contends that the loans were never brought to the attention of or approved by the board of directors of ODL, who only became aware of the loans when they discovered a large hole in the company’s accounts during the due diligence exercise for the sale of ODL’s business to FXCM in March 2010. ODL claims against Mr McGrath damages and/or equitable compensation for breach of contractual and/or fiduciary duties which he owed the company. ODL goes so far as to say that those breaches of duty were dishonest.   
4.	In August 2009, Mr McGrath diverted some £578,000 of ODL funds which he debited to a trust account for certain of the directors and transferred those funds to his solicitors to pay the balance of the purchase price of a house he purchased with Miss Bostick, the second defendant and his fiancée. In his Defence served at a time when he was legally represented, Mr McGrath admitted that he was liable to account to ODL for those monies and on that basis, ODL obtained judgment on admissions against him by Order of David Steel J on 8 April 2011 in respect of the funds transferred. No further claim has been pursued against Miss Bostick. However, despite the fact that ODL already has judgment in respect of those funds, Mr McGrath’s actions in diverting those monies, to which he was not entitled, remain of relevance to the remainder of the claim against him, since if, as ODL contend, he acted dishonestly in transferring the £578,000, that has an inevitable impact on the court’s assessment of his veracity and credibility generally. I will consider this transfer in more detail later in the judgment when I make specific findings, but should say at the outset that, despite his attempt to justify his conduct in cross-examination by saying that he expected funds to come in from A1, I have no doubt that Mr McGrath acted dishonestly in making that transfer.  
5.	At the trial ODL also claimed against Mr Clements damages and/or equitable compensation for breach of contractual and/or fiduciary duties he owed the company. In contrast to the claim against Mr McGrath, no allegation of fraud was made against Mr Clements. He had a counterclaim in relation to various sums which he contended were due to him from ODL. Although Mr McGrath represented himself at trial, Mr Clements was represented by solicitors and counsel, Mr Adam Tolley. Mr McGrath had the benefit of the fact that Mr Tolley cross-examined the ODL witnesses first and, to the extent that it was consistent with his client’s case, Mr Tolley ventilated with those witnesses many of the points which Mr McGrath wished to make in support of his case, which was essentially that the loans had not been unauthorised or contrary to the interests of ODL. Accordingly, Mr McGrath was at less of a disadvantage in acting for himself than many litigants in person. I should add that his own cross-examination of witnesses and his submissions were measured and sensible throughout.
6.	The dispute between ODL and Mr Clements was settled following the conclusion of six days of evidence on 15 February 2013 and before written closing submissions were due in March 2013. The settlement has remained confidential, although it may be necessary to establish what if any sum Mr Clements paid ODL (or is to be taken to have paid after any credit for his counterclaim) in order to arrive at the correct figure for any damages and/or equitable compensation due from Mr McGrath, a matter to which I return later in this judgment. In consequence of the settlement it is neither necessary nor appropriate to make any findings in relation to the case against Mr Clements, save to the limited extent that it is strictly necessary to do so in considering the case against Mr McGrath. 
7.	At the outset of the judgment I should make it clear that I accept entirely ODL’s case that it was not in the business of making commercial loans. The true position was put very clearly in evidence by Mr Giles Elliott, a non-executive director at the time of the loan but the chief executive from October 2009 with primary responsibility for the conduct of the litigation on behalf of ODL, who was an impressive, fair and straightforward witness:
“The point I was trying to make was that ODL has never been in the lending business, never wanted to be in the lending business and never had the balance sheet to be in the lending business.  And so for us to be in the lending business, we just weren't.  So, you know, if we had had a full blooded lending business then I think we would have had the appropriate regulatory permissions commensurate with being a lending company.  Maybe we would have been a licensed deposit taker.  Maybe we would have, you know, sought a banking licence, but we didn't.”
8.	I should also say at the outset that the suggestion that the directors sanctioned the loans either at the time they were made or by some form of ratification, because they found out about them later is wholly without merit. Not only was it the firm evidence of the directors who gave evidence, Mr Elliott, Mr Lorenzo Naldini and Mr Graham Wellesley, all of whom were patently honest witnesses, that they had not known about the loans or sanctioned them, but that is borne out by the contemporary documents, which, where available, are inconsistent with the directors having known about or approved the loans. I say “where available”, because with the sale of the company and consequent upheaval, it is clear a number of documents (specifically minutes of board meetings and of meetings of the Credit, Risk and New Business Committees of ODL) have gone missing.  Mr McGrath complained that the absence of these documents had hampered his case, although he did not go so far as to suggest that the loans had ever been discussed and approved at a board meeting or committee meeting and, since he kept the minutes as de facto company secretary, he would no doubt have recalled if that had been the case.  I am quite satisfied that there is no question of any deliberate suppression of documents: it is sometimes the case that documents go missing in a company sale or takeover.
9.	Furthermore, I doubt very much whether the missing documents would have assisted Mr McGrath as he suggested. As Mr Croxford pointed out, one category of documents which had not gone missing was the transcripts of telephone conversations between Mr McGrath, Mr Clements and the latter’s assistant Greg Kallinikos before and at the time of the 2009 loans. Those transcripts were very damaging to both Mr McGrath and Mr Clements. It will be necessary to look at some of those conversations in more detail later in the judgment but what emerges very clearly indeed, so far as Mr McGrath is concerned, is that he was well aware that both the earlier loans in 2006 and the loans he was being urged by Mr Clements to make in 2009 were unauthorised and that, in making them, he was acting in breach of his duties to ODL. This all suggests that the documents which are missing are far more likely to have assisted ODL’s case than Mr McGrath’s case.
Mr McGrath’s role and his duties to ODL
10.	Mr McGrath first worked for ODL as a consultant in 2004. Early in 2005, he was offered a job as Director of Finance, Risk. He was briefly appointed a director of the company, but this was blocked by the FSA, by whom he had been admonished, together with others, in respect of certain irregularities whilst at his previous employers Kyte, where he was finance director. In August 2005, he was given the title Project Manager by ODL, then in about April 2006 he became Head of Risk. Despite the various changes of title, his job throughout was essentially to monitor clients’ trading positions, to guard against the risk to ODL that they might default and, in the event of a negative balance on an account, either close the client’s position or require more collateral or security or enforce against such collateral or security as appropriate. His role was a back office one, not client facing and did not include introducing business. In cross-examination, he accepted that as Head of Risk, his job was the management and reduction of risk and it was for others in the company to create risk, which is a damning admission given that, on any view, these loans increased the risk which ODL faced. 
11.	Despite his assertion to the contrary in his closing submissions, Mr McGrath’s role did not authorise him to grant credit lines to trading clients so that, a fortiori, he was not authorised to grant loans or advances to non-trading clients. Nonetheless, no doubt because the more junior staff at ODL regarded him as having a position akin to being a director, they seem to have followed his instructions as regards transfers of funds. In his evidence, Mr McGrath sought to contend that the signatures of two directors or of himself and a director were required for any payment over £5,000, suggesting that he could not have made the loans without the knowledge of at least one director. However, the evidence of Mr Naldini and Mr Elliott, which I prefer, was that whilst there were such restrictions in relation to payment out of ODL’s own bank account or its corporate funds, there were no such restrictions on the movement of client money. Mr McGrath was able to make the loans without seeking the agreement of a director because they all ostensibly involved the movement of client funds. 
12.	Mr McGrath’s contract of employment imposed a number of express duties upon him: 
“Clause 3.1	You are required to devote your whole time and attention to the Company’s business during normal hours of work. During your employment you are not expected to undertake any other paid employment outside working hours, nor are you permitted to have any interest in any business or undertaking or engage in any other activities which might interfere in the performance of your duties or cause a conflict of interest or otherwise.
Clause 3.2 	If you should wish to be engaged in any other employment or have any outside business interest whether financial or otherwise, you must first seek the written permission of the Managing Director/Chairman which will not be unreasonably withheld provided that it is clear that such other interests will not interfere with your ability to perform your employment with the Company…..
Clause 11.1 	Where any losses are sustained in relation to the property or monies of the Company, client, customer, visitor, or other employee during the course of your employment provided to be caused through your gross negligence or recklessness or through breach of the Company’s rules or any dishonesty on your party the Company reserves the right to require you to repay any of the said losses, either by deduction from your salary or any other method acceptable to the Company.”
13.	Paragraph 11.7 of the Staff Handbook, which was clearly incorporated into his contract of employment, provided: 
“You may not, during your employment, without having disclosed full details to the Company and obtained the prior written consent of a Director, be directly or indirectly engaged, concerned or interested in any capacity in any trade, business or occupation, other than the business of the Company or the Group.”
14.	In addition, there were two implied terms of the contract of employment, which are uncontroversial and admitted by Mr McGrath in his Defence: that Mr McGrath would use reasonable skill and care in the provision of his services under his employment contract and that he would act in good faith and with fidelity towards ODL.  I accept Mr Croxford’s submission that the extent of the implied term of good faith and fidelity is as formulated by Greer LJ in Wessex Dairies Ltd v Smith [1935] KB 80, an obligation that: “during the continuance of his employment [the employee] will act in his employers’ interests and not use the time for which he is paid by the employers in furthering his own interests.” That may, depending on the employee’s position in the company, require him to disclose relevant matters such as the misconduct of fellow employees: Swain v West (Butchers) Limited [1936] 3 All ER 261 applied in Sybron Corp v Rochem Ltd [1984] Ch 112 at 126-127. I also accept Mr Croxford’s submission that that extension to the implied term must apply to someone in a senior position in the company such as Mr McGrath occupied as Head of Risk.
15.	ODL also contends that Mr McGrath owed it fiduciary duties as follows: (a) to act in good faith and in the best interests of ODL, (b) not to act so as to place himself in a position in which his personal interests did or might conflict with the interests of ODL, and (c) to inform ODL of all matters which he considered in good faith to be matters of which ODL would wish to be informed.  In his Defence, Mr McGrath admits the first two fiduciary duties but not the third. However, I agree with Mr Croxford that the third duty is merely an aspect of the first. Mr McGrath was clearly in a senior position at ODL and was trusted implicitly both by those above him in the organisation, as was confirmed by the evidence of the directors, and by those below him. As he said in evidence: “for most people in the company, including some of the directors, I was, in effect, a director”. The other employees were clearly accustomed to following his instructions, specifically in relation to payments or transfers from client accounts. Indeed his own case, as set out in his witness statement, was that he was essentially running the business. That situation of vulnerability for the company is precisely the situation in which such fiduciary duties will be imposed: see Helmet Integrated Systems Ltd v Tunnard [2006] EWCA Civ 1735; [2007] FSR 16 at [45] per Moses LJ. 
16.	The nature of the fiduciary duties owed by company directors was recently summarised by Lord Neuberger MR in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347; [2012] Ch 453 at [34-36]:
“34 Although company directors are not strictly speaking trustees, they are in a closely analogous position because of the fiduciary duties which they owe to the company…. In particular they are treated as trustees as respects the assets of the company which come into their hands or under their control…. Similarly a person entrusted with another person's money for a specific purpose has fiduciary duties to the other person in respect of the use to which those moneys are put.
35 The distinguishing obligation of a fiduciary is the obligation of loyalty which has several features: (i) a fiduciary must act in good faith; (ii) he must not make an unauthorised profit out of his trust; (iii) he must not place himself in a position where his duty and his interest may conflict; (iv) he may not act for his own benefit or the benefit of a third person without the informed consent of his principal….”
36 In accordance with feature (i), it is a breach of fiduciary duty for directors of a company to exercise their powers of management and control otherwise than in good faith and in a way which they believe is in the best interests of the company…. In accordance with features (ii) and (iii), if a director of a company makes an unauthorised profit by the use of his position as a director, he is liable to account for that profit to the company, whether or not he acted in good faith….”
17.	Although not a director of ODL, Mr McGrath was in a closely analogous position and, as such, in my judgment owed the same fiduciary duties as he would if he had been a director. These duties encompass a duty to disclose matters which it was in the interests of ODL to know, including where appropriate (as it was in this case) his own misconduct: see per Arden LJ in Item Software v Fassihi [2004] EWCA Civ 1244; [2005] ICR 450 at [41-44]. I agree with Mr Croxford that there is nothing in the decision of the Court of Appeal in Ranson v Customer Systems plc [2012] EWCA Civ 841; [2012] IRLR 769 which would justify resiling from the imposition in the present case of the fiduciary duties I have outlined.
Factual analysis and findings
18.	During the course of 2005, Sheikh Maktoum, the nephew of the Crown Prince of Dubai promised funding of US$180 million to A1 Holdings, but on 12 December 2005 he announced he would not provide any financial support at all. This placed A1 Holdings in a parlous financial position. One creditor, Aon South Africa commenced proceedings against the company which were settled by an Acknowledgment of Debt from A1 Holdings dated 3 February 2006 under which the company agreed to repay the debt owed by instalments, the first two of which for US$1 million each were due on 14 February 2006 and 10 March 2006. By the beginning of February 2006, other creditors were demanding repayment. Mr Clements accepted in evidence that, if a race had had to be cancelled because of a shortage of funds, the effect would have been disastrous. In those circumstances, A1 Holdings was in desperate need of cash in the short term to stave off its creditors. Without the loans made by Mr McGrath, the reality is that A1 Holdings would have been insolvent, in the sense that it could not repay its debts as they fell due. 
19.	As Mr Croxford submitted in his closing submissions, exactly what happened in relation to the loans remains shrouded in mystery, not least because the loans are undocumented and neither Mr McGrath nor Mr Clements was open and truthful in evidence about what was going on. However, essentially I accept Mr Croxford’s analysis of the sequence of events, which is consistent with the contemporaneous documents available.
20.	In mid February 2006, Mr Clements and Mr Teixeira discussed sources of urgent funding and identified Mr Wade Cherwayko who was willing to lend US$1.5 million, which was sufficient to pay the creditors making demands, including the first instalment to Aon South Africa, in fact US$500,000. The initial proposal put forward by Mr McGrath was that ODL would lend the US$1.5 million to Caldwell Associates, a company connected with Mr Cherwayko, secured against 800,000 shares Caldwell held in Equator Exploration Ltd (of which Mr Cherwayko was CEO), an AIM listed company which was involved in speculative oil exploration in Africa. At the time those shares were valued at £3.49 each, although the volatility of such a company meant they could drop in value (which they duly did), so taking the shares (then worth £2.8 million) as security would involve a “haircut” of 75% in terms of the amount Mr McGrath was proposing to lend against them. 
21.	At some point in the week commencing 13 February 2006, Mr McGrath received a draft loan agreement between ODL and Caldwell from Mr Anthony Foulston, a junior employee in the compliance department of ODL who was apparently a qualified solicitor. Before any such loan agreement was finalised, on Friday 17 February 2006, Mr McGrath received from Tracey Strydom (who, as Mr McGrath knew, worked for Energem one of Mr Teixeira’s companies) a “payment schedule” of contact details for various creditors of A1 Holdings to whom payments were to be sent by Swift. The amount to be paid out totalled US$1.5 million. The same day, Mr McGrath and Mr Clements sent a series of letters to those creditors promising that they would be paid on Monday 20 February 2006. Mr McGrath agreed in evidence that he knew these were urgent payments. 
22.	On 20 February 2006, he explained to Mr Foulston the principle of applying the 75% “haircut” and said that the loan was short term, for only one or two weeks or a lesser period if Caldwell could sell the shares sooner. On 21 February 2006, Mr McGrath sent Wendy Lavenne at Caldwell a draft of the loan agreement asking for her urgent comments, but in the event no loan agreement was finalised. In fact, the same day, wire transfers totalling US$1.5 million were made to the various creditors of A1 Holdings on the payment schedule. Those payments were made from Caldwell’s account number AC022 with ODL. Accordingly, that amount was advanced without any supporting loan documentation whatsoever and without security having been put in place. 
23.	The US$1.5 million proved insufficient and by 23 February 2006 it was proposed that Mr Cherwayko would lend US$3 million in all to A1 Holdings, which he would borrow from ODL. Mr McGrath was now proposing that the collateral would not be the shares but a contract for difference (“CFD”) in respect of the shares. What was proposed was that the shares would be sold and ODL would then buy a CFD in respect of them from Goldman Sachs or Dresdner and then sell a CFD to Caldwell. This would enable Mr Cherwayko to use the value of the shares to raise cash without selling them outright with ODL charging a margin of 20%. The original intention was that he would buy the shares back within a fortnight.  
24.	As Mr McGrath was constrained to accept in cross-examination, this arrangement committed ODL to lending US$3 million to a new client with a margin of only 20% as opposed to the original 75% he had viewed as appropriate if the shares were pledged to ODL. He also accepted that he did not discuss this arrangement with either the Credit Committee or the Risk Committee of ODL or carry out any due diligence. In the event, the shares were sold and the CFD purchased by Caldwell on 23 February 2006 leaving a credit of £2,772,380 on the Caldwell account. US$1.5 million was then paid out of that account on 2 March 2006 to Lyndhurst Limited a company closely connected with Mr Teixeira and A1.
25.	Just pausing there in the sequence of events, in fact the value of shares in Equator fell dramatically and over the ensuing months Caldwell paid a series of margin calls before the CFD was sold at 65 pence per share in December 2006. This led to the crediting of some US$3.2 million to the Caldwell account which meant that ODL did not in fact suffer any loss in relation to the sums advanced to Mr Cherwayko and Caldwell. Nonetheless, those loans were not authorised by the directors of ODL nor raised by Mr McGrath with any of the Committees, so that, in granting those loans, he was clearly in breach of duty, albeit that breach caused no loss. I will expand on this conclusion in the section of the judgment dealing with breach of duty. 
26.	By early March 2006, it was clear that the US$3 million was insufficient to meet A1 Holdings’ need for funds and Mr Clements and Mr Teixeira approached Mr McGrath to obtain further funds from ODL direct. On 2 or 3 March 2006, Mr Clements came to Mr McGrath’s office to effect an introduction to Mr Teixeira, whom Mr McGrath had not met before. Mr Clements made a proposal that ODL should provide short term funding pending the receipt by A1 of an investment from RAB Capital, at the time a successful and aggressive hedge fund. Mr Teixeira then came to see Mr McGrath about an hour after Mr Clements. Mr McGrath was being asked to lend A1 Holdings US$2.5 million pending the subscription by RAB Capital of US$5 million of shares the following week.
27.	On Friday 3 March 2006, Mr Clements emailed Mr Crawshaw at RAB Capital asking him to confirm this subscription to Mr McGrath. Mr Crawshaw emailed Mr McGrath the same day saying: “I am writing to confirm on behalf of Anthony Clements from A1 Holdings that RAB Special Solutions has undertaken to subscribe for US$5,000,000 shares in A1GP next week…subject to all legal agreements and documents being completed to our satisfaction”. Following that email, on 7 March 2006, Mr McGrath arranged the transfer of a further US$2.5 million to Lyndhurst Limited (another of Mr Teixeira’s companies) from the Caldwell account AC022. I deal with the significance of the use of the Caldwell account by Mr McGrath below. As Mr McGrath accepted, that additional direct loan was made by ODL in circumstances where there was no contractual commitment from RAB Capital, as they could have come back and said the following week that they had looked at the documentation and were not satisfied. Mr McGrath accepted that, in those circumstances, there was no collateral or security for the loan.
28.	In evidence, Mr McGrath sought to contend that the payment from the Caldwell account was an error on the part of someone at ODL and the payment should have been posted to the A1 account. This was patent nonsense since the A1 account was not set up until more than three weeks later on 30 March 2006. Mr McGrath did not take any steps once that account was opened to transfer the debit from one account to the other, although he clearly knew the loan had been debited to the Caldwell account. Indeed even when Caldwell queried the debit in 2008 (see below) he did not immediately transfer it to the A1 account, but only did so when he absolutely had to, because Caldwell had begun complaining to the compliance department of ODL, so that what Mr McGrath had been doing was likely to come out. I find that it was Mr McGrath who posted the loan to the Caldwell account and, despite his denial in evidence, he did so quite deliberately in order to hide the debit balance in an account on which there was some activity and collateral (in relation to the CFD), rather than opening an account in the name of A1 Holdings and paying the loan out from there, because in the latter circumstances, it would have been obvious to anyone at ODL who enquired that this was an unsecured loan.   
29.	At a quarter past midnight on the following Thursday 9 March 2006, Mr McGrath emailed Mr Clements asking when he could expect to see funds from RAB, thereby revealing a concern as to what he had agreed to do. Notwithstanding that concern, when Mr Kirkwood, a CFD trader at ODL, raised a query with Mr McGrath  later that day about the fact that the payment out of the Caldwell account had put it in negative equity, Mr McGrath said he knew about that and that US$5 million was coming in that day. In fact there was no basis for that statement, as RAB’s solicitors had only sent Energem a due diligence questionnaire the previous day and Energem did not respond until the Friday 10 March 2006. 
30.	On 30 March 2006 the A1 Grand Prix account with ODL was opened and Mr McGrath immediately arranged for US$180,000 to be debited to the account and paid out to an account of A1 Grand Prix Operations saying to Mr Mortimer in the accounts department that they would be receiving £75,000 from A1 plus US$5 million “due Friday [31 March] confirmed by RAB Capital”. Although those funds were not received by the Friday, as Mr Mortimer pointed out on 4 April 2006, that demonstrates that the investment from RAB took some time to put in place, no doubt because even an aggressive hedge fund was not prepared to invest a substantial sum without proper due diligence, in contrast to Mr McGrath’s willingness to lend $2.5 million with no due diligence at all. In due course RAB did invest in A1 Holdings, in fact for considerably more than US$5 million since ultimately they had a 52 or 53% shareholding. However, it striking that that investment, whenever it took place did not lead to ODL immediately being repaid the US$2.5 million loan, which was ostensibly the basis upon which Mr McGrath had lent in the first place. So far as the US$180,000 is concerned, that in fact represented commission due to Mr Clements, so was effectively the amount he was in a position to lend to A1 Holdings at the time.
31.	On 14 August 2006 Mr Kirkwood emailed Mr McGrath to tell him that the Caldwell account was on margin call for US$1.4 million. Mr McGrath responded: “He has sent $2.5 million today”, which was simply untrue. The following day, another ODL employee asked if any money had been received from Caldwell. Mr McGrath responded that US$500,000 had been received the previous day and more would be received that day then on 16 August 2006 reiterated: “500k received 2 million on way”. Mr McGrath insisted that $500,000 was received but turned away by the treasury department of ODL because of money laundering concerns, since it was from Lyndhurst which did not have an account with ODL. All that was ever in fact repaid by A1 and received by ODL was $1 million. I reject Mr McGrath’s suggestion that this $500,000 was in fact repaid to ODL and then posted in error to some suspense account and somehow “lost” by ODL, although I accept Mr McGrath may have believed an additional $500,000 had been received, hence his subsequent references in the context of the 2009 loans to US$1 million outstanding from 2006 for which he was personally liable.
32.	As already noted above, on 1 December 2006 Caldwell closed its CFD position and netted off the dollar and sterling balances on its account, reducing the dollar debit balance to some $2,645,000, essentially representing the loan of US$2.5 million Mr McGrath had made to A1 Holdings plus interest. On 7 December 2006, Mr McGrath sent Wendy Lavenne at Caldwell a spreadsheet purporting to show the Caldwell account in credit by some US$10,544.71 which was untrue and hid from her the fact that the further loan to A1 Holdings had been debited to the Caldwell account. 
33.	The US$1 million of the 2006 loan which was repaid to ODL appears to have been repaid from a sum of US$10 million paid to ODL by Owen Trust for onward transmission to Energem in January 2007 after deductions. Later in 2007, by which time RAB Capital had subscribed to shares in A1 Holdings, there was a proposal dealt with by Mr Clements that A1 Holdings issue ODL with one million shares and Mr Clements with a slightly larger number of shares by way of commission for introducing A1 Holdings to RAB Capital. On 26 June 2007, Jemima Fearnside, a solicitor at Nabarro, acting for A1 Holdings, sent Mr Clements a draft share subscription letter asking him to arrange for it to be printed on ODL notepaper, signed and returned to her. Mr McGrath and Mr Clements discussed the draft and, in particular, the provision that said the allotment of shares was in full and final settlement of all liabilities. This required amendment to reflect the outstanding balance of the loan. 
34.	In due course on 17 July 2007, Ms Fearnside sent an amended draft letter to Mr Clements which contained a provision headed “Outstanding loan account” reading: 
“1. On or around April 2006 we provided the sum of US$2,500,000 to the Company by way of loan for working capital purposes.
2.	As at the date of this letter, an amount of US$1,500,000 has been repaid and US$1,000,000 remains outstanding...”
35.	Ms Fearnside asked for the letter and the corresponding letter addressed to Mr Clements personally to be executed and returned urgently as there was due to be a board meeting of A1 Holdings two days later. For whatever reason the letters were not executed and sent back and she chased on 6 August 2007. From the disclosure in the case has emerged a copy of the draft amended letter she sent, which ostensibly bears the signature of Mr Wellesley as a director of ODL, but which is neither executed on ODL letterhead nor properly dated, simply bearing the date “July 2007” which Ms Fearnside had put on the draft. In his defence, Mr McGrath relies upon Mr Wellesley having signed this letter as evidence that he was aware of the 2006 loan.
36.	I say that the letter  ostensibly bears his signature because although it was the evidence of Mr Greg Kallinikos, Mr Clements’ assistant, that he took the letter to Mr Wellesley for his signature, Mr Wellesley was adamant in cross-examination that he “couldn’t be more certain” that he did not sign the letter. I found Mr Wellesley an impressive and straightforward witness and, even if he is mistaken and did sign the letter, I am quite satisfied that he did not notice the reference to the loan, because if he had he would surely have raised an immediate objection, as the directors did when they in fact found out about the loans in March 2010. 
37.	In those circumstances, Mr McGrath’s reliance on the letter as demonstrating the directors’ knowledge of the 2006 loan is misplaced. It is not strictly necessary to decide whether Mr Wellesley did sign the letter or whether Mr Kallinikos is mistaken and is referring to another letter or whether he or someone else appended the signature electronically. Nonetheless, I was unimpressed by Mr Kallinikos as a witness. He was evasive and long-winded in many of his answers in cross-examination. It seems inherently unlikely given that he sought to make much of Mr Wellesley being intimidating as a director, that Mr Kallinikos would have acted so sloppily as to take to him for signature a draft letter which was not on ODL letterhead and not properly dated. It is clear from other evidence that Mr Kallinikos did have access to electronic signatures including apparently that of Mr Teixeira. Furthermore there is the oddity that neither Nabarro nor their clients were able to produce the original of the letter.  Whilst it is unnecessary to make a specific finding, on balance I do not consider that Mr Wellesley ever signed the letter.
38.	On 13 March 2008 Wendy Lavenne of Caldwell asked Mr McGrath why she had received an online statement indicating a negative balance of over US$2.8 million. The following day, Mr McGrath told Philip Caldwell that it had been linked to the wrong account because “Wade was doing something with A1 Grand Prix”. The truth, as Mr McGrath well knew, was that he had booked the loan to the Caldwell account quite deliberately himself. Wendy Lavenne then emailed several times again about the negative balance on the account and on 16 June 2008, Mr McGrath told her the error had been fixed, which was not true. On 18 July 2008, she emailed again to say it had not. Caldwell escalated the matter to the compliance department of ODL on 22 July 2008, at which point Mr McGrath was unable to hide the position any longer and asked Mr Mortimer to transfer the debit balance from the Caldwell account to the A1 account. US$2,834,534.43 was debited to the A1 account on 23 July 2008. 
39.	In support of his case that the directors had known about the loan or found out about it and somehow authorised it, Mr McGrath sought to make much of an entry in respect of the negative balance on the A1 account in a list of segregated and non-segregated balances sent by Mr Steve Reeves (who had become finance director of ODL in May 2008) to Mr Naldini on 27 October 2008. That entry showed a negative balance of over £1.9 million and a zero in the column for “approved collateral”. However, that entry was one of hundreds if not thousands in a spreadsheet running to some 220 pages and, as Mr Reeves explained in evidence, the purpose was to verify that client monies were correctly segregated rather than a review of debit balances, which would just have had the debit balances and would not have run to 220 pages. The directors did not and could not reasonably have been expected to review the spreadsheet in full and, in any event, it is quite clear that none of the directors picked up the existence of this debit balance or that it was unsecured. 
40.	Mr Reeves said in evidence that he was aware of the loans made to A1 Holdings but was told by Mr McGrath that there was security in the form of a US$10 million guarantee. He took this assurance (which was in fact untrue) at face value and it was not his job, but Mr McGrath’s, to check any guarantees. He simply assumed the loans had board approval. I find that there never was any bank guarantee or otherwise satisfactory security in place in respect of the 2006 loan (or indeed in due course the 2009 loan) and any assertion by Mr McGrath to the contrary in evidence or suggestion that the guarantee documentation has been lost is pure fabrication.
41.	At some stage in the second half of 2008, Mr Clements presented a proposal to the New Business Committee for US$100 million pre-IPO financing for A1 Holdings through the issue of 125 million new shares. The written proposal refers to a corporate powerpoint presentation said to be attached. That presentation identifies ODL as a 0.03% shareholder in A1 Holdings. When asked about that presentation, Mr Naldini did not recall seeing it. It was not suggested to any of the directors who gave evidence that they had been taken through the presentation or that they were made aware of any shareholding in A1 Holdings. Perhaps more significantly, as Mr McGrath and Mr Clements accepted in evidence, neither the written proposal nor the powerpoint presentation refers to the fact that ODL had made a loan of US$2.5 million to A1 Holdings of which either US$1.5 million or US$1 million remained outstanding. 
42.	By January 2009 A1 Holdings remained in a perilous financial condition. Although Mr Teixeira sought to downplay the extent of the problems the company faced, he accepted in cross-examination that A1 Holdings was unable to pay its debts as they fell due for most of 2009, in other words the company was insolvent. There was no question of any further assistance from RAB Capital, which had been seriously damaged financially by the collapse of Northern Rock.
43.	The one possible salvation was a proposal of funding from Parkalgar, a Portuguese public authority, on the basis that A1 Holdings would move its centre of operations to the Algarve and use a state of the art racing circuit outside Portimao. However, as at January 2009, no funds had been advanced by Parkalgar and A1 Holdings was desperate for short term funding. To that end, Mr Clements asked Mr McGrath about the possibility of a further US$10 million loan in advance of the sums expected from Parkalgar, in return for a guarantee of €12 million from a top Portuguese bank. Mr McGrath’s response was: “Not sure ODL can lend that amount as would leave us very tight. However if they provide a guarantee then we may be able to get a bank to lend against it for short term.” He accepted in cross-examination that what was being proposed, that ODL should lend that amount, was irrational. This casts in a stark light what he eventually agreed to do, which was to lend about US$1 million and £2.3 million without any security whatsoever.
44.	Mr Clements and Mr Teixeira persisted in trying to get Mr McGrath to provide a short term loan from ODL. In a telephone conversation on 3 February 2009, Mr Clements and Mr Kallinikos discussed the documents that would be necessary to satisfy Mr McGrath and Mr Clements said: “but all I wanted to do is go to Adrian or is tell Adrian, we then have to get the new products committee involved, but they won’t be able to see all this so I don’t want them to see all this….” In cross-examination about this, Mr Clements was frankly very evasive, saying this was all to do with the pricing structure for the Multipro computer game which was confidential and which he had undertaken not to disclose, none of which explains why he was proposing to disclose it to Mr McGrath. Although he was reluctant to admit it, what this comment really revealed is that he knew that, if the directors were aware of the proposed loan, they would not agree it. 
45.	Also on 3 February 2009, Mr Teixeira wrote to Mr McGrath to “appeal to you to make this short term loan available of GBP2.3 million in order for us to be able to keep our commitments at A1GP until such time as our cash becomes available through Parkalgar and the Portugal relocation”. He went on to refer to attached documentation as including “a confirmation by the Parkalgar CEO that they would pay you directly on AI GP’s behalf on 12 February 2009 the current loan of £2.3 million and the long overdue loan of US$1 million”. The attached documentation appears to have done nothing of the sort. Mr McGrath agreed in cross-examination that, as in the case of the 2006 loan, he was being asked to lend money pending completion of a deal which might generate cash. The point here obviously is that, unless and until a binding contractual commitment was in place, the proposed deal might equally fall through.  
46.	On 4 February 2009, Mr Clements asked Mr Kallinikos to chase around the office for Mr McGrath. In the afternoon Mr McGrath had a doctor’s appointment, he said in evidence in relation to a stent in his heart. When Mr Kallinikos told Mr Clements on the telephone that Mr McGrath was away at the doctor’s, Mr Clements’ reaction was: “Oh fuck….I mean they need the money now”. Mr Clements chased Mr McGrath and even spoke to him at the doctor’s, when Mr McGrath agreed they would speak that evening.
47.	Shortly afterwards, on a call with Mr Teixeira, Mr Clements suggested that Mr McGrath’s heart problems were “probably stress brought on [by] a worry over the loan”. Mr Clements and Mr Teixeira agreed that Mr Clements would speak to a representative of Parkalgar and claim to be from the Treasury Department at ODL, in order to obtain verification of the sums expected from Parkalgar. He and Mr Kallinikos spoke to a Parkalgar representative, and learned that Parkalgar was only prepared to provide €25 million over five years, with at most €5 million in the first year. In fact what emerges, as Mr Clements was constrained to accept in cross-examination, is that Parkalgar would pay the sanction fees over five years, backed by a guarantee from the Portuguese government, but required a cross-guarantee from A1 to repay the fees if the A1 Grand Prix project failed. 
48.	As Mr Croxford pointed out to Mr Clements, a bank or insurer would not have been anxious to put up such a cross-guarantee unless A1 provided funds up front by way of collateral. Mr Clements accepted that, with hindsight, this proposal was pretty unlikely to be achieved, because of the difficulty of finding anyone to put up the cross-guarantee. In my judgment, that is something he and Mr McGrath could and should have appreciated at the time, if any proper due diligence in relation to this proposal had been conducted. 
49.	At 15:36 Mr Clements and Mr Kallinikos spoke again to Mr Teixeira, who said: “I mean it’s so so so urgent now that I might ask ODL to make all the payments, do you know what I mean, because it’s been about, fuck I don’t know, 12 payments, 14 payments, 12 payments. I’m talking crucial shit that we are way way way overdue and I should have paid by yesterday. Now everybody understood there was snow in London on Monday and the bankers didn’t work. So that bought the Tuesday. Now everyone’s saying fuck you, everyone’s back to work in London; no more snow, so that’s where I am.” Mr Clements responded: “OK. I just hope when we go all through this we don’t bring on a fucking heart attack for Adrian.” Mr Teixeira then said: “At this stage I cannot see a fucking Grand Prix, but anyway hour by hour.” This conversation is a graphic demonstration that A1 was on the brink of insolvency. 
50.	The following day, 5 February 2009, Mr Kallinikos and Mr Clements spoke at 12:26, Mr Kallinikos saying “I just feel bad about Adrian and what he had to go through…” and expressing doubt as to whether (in light of what they had learned from the Parkalgar representative) Mr Teixeira would be able to release enough money from Parkalgar to be able to meet A1 Holdings’obligations. The two of them then spoke to Mr McGrath who was clearly angry at the pressure being put upon him to grant this further loan, saying: “one of the things that pisses me off is…is like the last time… ‘oh, you’re just gonna get it for the 12th’. That’s what you said yesterday, and now it’s ‘well it might be the end of the month’”.
51.	During that conversation, Mr McGrath also referred to having had to put up US$1 million of his own cash. After he had left the call, Mr Kallinikos explained to Mr Clements that Mr McGrath had mentioned some months earlier that he had his own funds tied up “because there was no way of justifying that hole in our accounts”. This was a reference to the fact that, during these discussions, Mr McGrath repeatedly referred to having had to bear the outstanding US$1 million from the 2006 loan personally. In evidence, Mr McGrath said this was not true, but was just said to put pressure on Mr Clements and Mr Teixeira. Whether that is correct or not, the fact that he said it at all is an implicit recognition on his part that the original loan had been unauthorised and that he would be personally liable for the outstanding monies, if the directors ever discovered about the loan. Equally, the fact that Mr Clements never expressed any surprise or disbelief that Mr McGrath was or would be personally liable for the outstanding monies demonstrates that he too knew these loans were unauthorised. 
52.	Mr Clements, Mr Kallinikos and Mr McGrath spoke again at 13.36 when Mr Clements said that it was “absolutely critical” and “desperately needed” that some US$500,000 to US$700,000 was paid that day. Mr McGrath’s reaction was to say: “they are treating us like we are a fucking private bank…. Teixeira seems to think I’ll just take him on his word. I took him at his word once before and it’s two and a half years fucking later”. This exchange demonstrates that when Mr Clements told him about the funds desperately needed, Mr McGrath, who is a qualified accountant, knew that A1 Holdings was on the verge of bankruptcy and was well aware that the outstanding loan had not been repaid, despite Mr Teixeira’s promises. After Mr McGrath left the call, Mr Clements and Mr Kallinikos learned from Mr Craig Rawlings of A1 Holdings that proceedings would be commenced by a creditor if $500,000 were not paid that day, Mr Rawlings saying dramatically: “I’ve got exactly 15 minutes”. Mr Clements and Mr Kallinikos agreed to draft a letter to the creditor’s solicitors promising payment pending Mr McGrath’s confirmation. 
53.	Mr Clements and Mr Kallinikos spoke to Mr McGrath again at 14.37 that day. Mr McGrath expressed concern that Mr Teixeira wanted £2.3 million for up to three weeks with no security against it. He said: “you really are asking me to take a flyer here” and Mr Clements agreed he was asking Mr McGrath to take a flyer because Mr McGrath would get his million back, a reference to the outstanding loan. Mr Clements went on to say:
“..we get the fucking deals and, well, they’re gonna be big financings. I mean that’s the carrot that’s been dangled for me so what can I do to sweeten it for you? I can sweeten it with a piece of our commission or whatever to make up for whatever you will have lost.”
54.	In my judgment, although when Mr McGrath was cross-examined about this conversation he denied that he had any personal financial interest in the loan and, in his closing submissions, sought to suggest that he thought the “sweetener” was for the company, as was in fact plain to Mr McGrath at the time, this is the clearest possible offer of a personal “sweetener” or bribe to Mr McGrath, in return for making a loan which both he and Mr Clements well knew he was not authorised to make and which, if the directors of ODL had been asked to approve, they would have expressly prohibited him from making. As Mr McGrath accepted in cross-examination the loan he was being asked to make could only increase the risk for ODL. 
55.	Later in cross-examination, Mr McGrath admitted that he had thought he was going to receive US$1 million from A1 Holdings personally. He denied that it was in relation to the loan, claiming that it was for helping A1 with “various structures and things”. Bluntly, that is complete nonsense and the reality, however unpalatable it is now for Mr McGrath to accept it, is that he was told he would be receiving US$1 million and that this was as Mr Croxford put it a “bung” or bribe for granting a loan which was wholly uncommercial and disadvantageous to ODL. In cross-examination, Mr Clements accepted, albeit somewhat reluctantly, that whether the “sweetener” was in money or money’s worth (he asserting it was going to be in the form of shares) it was going to Mr McGrath personally.
56.	After the conversation about the sweetener on 5 February 2009, Mr Craig Rawlings joined the conference call. It then emerged that the amount of money A1 required was more than Mr McGrath had thought, being £2.2 million on top of restructuring of the outstanding loan. Mr Rawlings said he needed that sum straight away. Mr McGrath commented: “it’s a lot of money to go on a wing and a prayer at 24 hours’ notice…I’ve got 3 pieces of paper and that’s it”. Mr McGrath then asked for a letter from the directors of A1 Holdings confirming that the money would be repaid by 12 February irrespective of whether or not the Portuguese paid. Mr Rawlings told Mr Clements that the directors of A1 Holdings could not write such a letter without the consent of RAB Capital who were of course majority shareholders. Nonetheless, Mr Teixeira  instructed Mr Rawlings to draft a letter anyway, which undertook that if Parkalgar did not pay A1 on 12 February, A1 would repay ODL on 19 February. 
57.	In a call later that afternoon, Mr McGrath proposed stringent terms for lending about £1.6 million net, which Mr Clements baulked at, provoking the comment from Mr Kallinikos: “on the other hand Adrian is providing a loan with no security and with some really bad history i.e. the three years wait”. Mr Clements suggested a counteroffer of 8% compound interest with no arrangement fee. When the suggestion that he should modify his terms was put to Mr McGrath, it elicited an angry reaction: “the guy is taking the complete piss…. Anything that isn’t paid I’ve gotta fucking pay it….I think he’s being a complete cunt ‘cause we have stood there and bailed him out three times…I personally would have to pay that….It’s me he’s screwing, not the company”.
58.	Later on 5 February 2009 at 16.55, Mr Kallinikos emailed Mr McGrath the letter signed by Mr Teixeira as Chairman of A1 Holdings referring to a proposed loan of £2.2 million and the outstanding loan of US$1 million and confirming that these amounts would be settled in full on or before 19 February 2009. It is clear from a telephone conversation earlier that afternoon between Mr Clements and Mr Teixeira that the approval of RAB Capital had not been sought to that letter, Mr Teixeira remarking pejoratively: “the least we involve those fucking monkeys the better”.
59.	Mr Kallinikos’ email also attached a workings spreadsheet. Mr McGrath replied: “Ok have they sent the details of where they want the funds sent to?” and was then given details for one payment, to be made to Octagon Worldwide Ltd, which Mr Kallinikos described as the main creditor that needed to be satisfied. The following morning, Friday 6 February 2009, at 09.43, a wire transfer of USS500,000 was made to Octagon and debited to the A1 account AG016. At 14.05, Tracey Strydom of Energem sent Mr Kallinikos an email about urgent transfers which acknowledged that transfer had already been made and asked for further transfers to be made. It appears that all these (totalling US$976,000 including the Octagon payment) were approved by Mr McGrath and wire transfers made that day and debited to the A1 account, with the exception of a proposed payment to A1 Grand Prix Operations Ltd of £1.325 million. 
60.	Also on 6 February 2009, Mr Teixeira sent Mr McGrath a letter in somewhat different terms to that attached to Mr Kallinikos’ email the previous evening. This was headed “A1GP advance loan against discountable guarantee” and referred to ODL agreeing to remit £2,617,642.65 to A1 and stated that they undertook to repay £4 million to ODL on or before 19 February 2009. Commenting on this letter to Mr Clements, Mr Kallinikos said: “it’s signed by, yeah it is TT but as we have found out in the past, you know, TT can sign one thing and then the Board can say another thing…. He is giving out another loan without security so I think both parties should be happy to be honest Tony”. The substance of the letter appears to have been the subject of a telephone conversation between Mr Teixeira and Mr McGrath in which Mr Teixeira said he needed to increase the gross loan to repay the interest Mr McGrath was charging and Mr McGrath agreed, on the basis that A1 would repay £4 million by 19 February. 
61.	At 11.30 that morning Mr Clements and Mr Kallinikos spoke again. Mr Clements said “I hope now we do get the whole fucking 3 mill back”. Mr Kallinikos replied “Well, I don’t even mention that, I don’t even think about that. I hope that this is a definitive thing because, ah, I want to be working for ODL come April for example, or come March”. Although Mr Kallinikos was evasive in cross-examination about what this meant, I agree with Mr Croxford that it was a clear recognition that the loan was both unauthorised and risky.
62.	On the Monday 9 February 2009, Mr Kallinikos reported to Mr Clements that Mr McGrath was in a foul mood shouting and swearing at everyone in the office.  It was apparent that Mr McGrath was not going to pay out swiftly the remainder of the proposed loan (which amounted to about another US$2.5 million on top of the US$976,000 paid out on the Friday) and Mr Kallinikos suggested that since Mr McGrath was doing this as a personal favour to Mr Clements, maybe Mr Clements needed to give him a gentle nudge. Mr Clements then proposed the artifice, by way of explanation to Mr Teixeira as to why the balance of the loan had not been paid, that Mr McGrath’s hands were tied because Mr Naldini and Mr Wellesley had found out about the loan and had requested full verification.  This is what Mr Clements then told Mr Teixeira later that day. It was of course untrue, but it demonstrates, if any demonstration were needed, that Mr Clements knew that this proposed loan was unauthorised and had not been approved by the directors. 
63.	This is confirmed by a further conversation he and Mr Kallinikos had later that day in which Mr Clements expressed nervousness that Mr Wellesley had “sort of nailed Adrian” and about questions that Mr Naldini was asking Mr Kallinikos, an evident concern that the directors had discovered about the loan, since when Mr Kallinikos said he did not want to get into it, Mr Clements said: “No, no, fuck… No don’t let anybody else get involved otherwise it would have to go to the committees and god knows what.”
64.	That night at 22.28, Mr McGrath emailed Mr Clements complaining about the lack of a letter from A1 directors that the loan would be repaid. He continued: “to be honest I am tired of the shifting goal posts and if am truthful the lies for the past 2 years. I was told on Friday I would get that letter and that they were speaking to RAB. Then as usual it all changed again on Friday. Get me the letter and it will be done first thing in the morning. I am going way out on a limb on this and it has already cost me 250k for which I have no hope of getting anything back. But will do it if I get the letter as at least the company does not suffer.” Despite his denials in evidence, the reference to going out on a limb was a clear recognition by Mr McGrath that what he was doing was unauthorised. 
65.	Mr Clements responded stating (which was not correct): “we have a letter signed by… the three directors of A1 which says we will be paid direct by Parkalgar.” He continued: “I know you have gone out on a limb-it is much appreciated. RAB’s approval needed if A1 itself has to make payments-but this reimbursement is from Parkalgar.” Mr McGrath replied: “OK. Sorry just cheesed off with whole situation. Will speak in the morning”.  In fact the following morning, without seeing any alleged letter from the A1 directors or conducting any due diligence or getting any security, Mr McGrath authorised the transfer to an account of Grand Prix Operations Limited of £1,638,105 which is shown being wire transferred and debited to the A1 account on 10 February 2009. 
66.	On 19 February 2009 Mr Clements assured Mr McGrath that he had been told by Mr Jimmy Kanakakis, one of Mr Teixeira’s right hand men, that the £4 million would be repaid either that day or the following day. However, on 20 February 2009, Mr McGrath received a letter from Mr Teixeira apologising for the delay in payment, which he claimed was due to the city council of Portimao changing banks to get a more favourable discount rate. Mr Teixeira said he was short £600,000 in relation to an event to take place that day in South Africa and asked for Mr McGrath’s further assistance. Following receipt of that letter Mr McGrath had an extremely irate telephone conversation with Mr Clements in which he said: “I personally am in a fucking hole for one point odd million…I’ve physically put the fucking cash into the company to stop the auditors going fucking ballistic…. Tony I personally have to find that money. I can’t ask the company to pay it.” This was further recognition that, since the loans were unauthorised, he would be personally liable, although it was not true that he had actually put cash into the company to pacify the auditors. In fact, far from drawing a line under these unauthorised loans which made no commercial sense and merely exposed ODL to further risk, Mr McGrath agreed later on 20 February 2009 to arrange the further payment of £600,000 to A1 Grand Prix operations Limited which Mr Teixeira had requested.
67.	In April 2009 ODL’s auditors, Ernst & Young identified the debit balance on the A1 account. Mr McGrath’s response was to forward an email from Mr Clements enclosing a document which Mr Clements described as the HSBC guarantee to Bank Santander which was “the back up arrangement for Park Algarve/Portuguese government money which has still not been received but expected shortly”. In his email to Kieran Price Mr McGrath described this as “doc from banc Santander”. Mr Price then forwarded this to the auditors.
68.	In his evidence Mr McGrath sought to maintain that the HSBC document in Portuguese which he produced in April 2009 was a bank guarantee benefitting ODL or at least that that was what he believed. Frankly, this was nonsensical. Even if one could not read Portuguese it is quite obvious that it is in fact in favour of Santander and, in any event, it is not signed. Mr McGrath eventually accepted in answer to a question from me that this was not a guarantee enforceable by ODL. It is perhaps surprising that the auditors did not pick up that up when it was forwarded to them, but clearly they did not, since no query was raised by them with the directors. 
69.	Despite Mr Clements’ assurances, the investment from the Portuguese government does not seem to have materialised and none of the outstanding monies were repaid by A1 Holdings. On 3 July 2009, Maryke Faulkner in ODL’s finance department picked up that there were debit balances on the A1 account of £2,278,360.15 and $4,120,476.67. She emailed Mr Kallinikos asking for some details of what this was, to which he responded: “I understand this is covered by bank guarantee(s)-Adrian is aware of it all”. She then emailed Mr McGrath asking for details of the collateral. He responded: “A1 have just received a bank guarantee from citi bank for 50mn usd which replaces the one from banca populare and a commitment to pay all exposure by the end of next week plus a penalty.”
70.	In evidence Mr McGrath sought to maintain that there was a guarantee from Citibank which was one of the documents lost and so not disclosed, but I simply do not accept that evidence. The only document even remotely identified as a bank guarantee was the HSBC document which he accepted was not enforceable by ODL. What he had said to Maryke Faulkner was simply a lie to give the impression sufficient collateral to cover the debit balance was in place. 
71.	On 21 August 2009 at 11.53, Mr McGrath informed Sophie Martyn and Darren Lewis in ODL’s Treasury that he was expecting some US$6 million in from Lyndhurst, owners of A1 GP and asked them to make urgent payments out of the A1 account, including one of £62,000 to the firm of solicitors acting on behalf of Mr McGrath and Miss Bostick in relation to their purchase of a house in Theydon Bois, Essex. In fact an hour later Mr Kallinikos told Mr McGrath that Mr Teixeira had told him that no payment would be made that day to anyone, so it is difficult to see how Mr McGrath could have legitimately been expecting $6 million to come in, or even if he had, as he insisted in evidence, why he did not correct the false impression he had given Treasury. 
72.	Then on 26 August 2009, without having had any assurance from A1 that repayment was imminent, Mr McGrath instructed Treasury to pay £578,000 from the account IF003 of IFX Group Trust, a trust of which the beneficiaries were Mr Naldini and Mr Wellesley, again to the account of his solicitors, to pay the balance of the purchase price for the house. It is clear from what he said in evidence that Mr McGrath regarded the £640,000 which he effectively stole from ODL as the sterling equivalent of the US$1 million which he considered he was entitled to be paid by A1, he claimed as reward for helping them with various structures and things, but in reality, as he well knew, a bribe for providing the 2009 loan. 
73.	By January 2010, none of the outstanding loans had been repaid and there was no prospect of their being repaid. Mr McGrath must have felt the net closing in. In two versions of a spreadsheet showing client debit balances which he sent to Mr Reeves on 10 January and 4 February 2010, there were entries next to AG016, the A1 account stating “Bank Guarantee Credit Suisse” and “Bank guarantee from BBVA 50m Euros” respectively. Neither statement was true. At around the same time, on 26 January 2010, Mr McGrath asked Treasury to open a new account for IFX Trust because he had to move stuff for the trustees and had the debit balance of £578,000 moved to that new account IFX Group Trust No. 5. After some fencing in answer to me in cross-examination, he admitted that what he had said about having to move stuff for the trustees was a lie and that it was he who wanted the new account opened. It seems clear, despite his denial in evidence, that he did so to keep the debit balances hidden from ODL and its auditors for as long as possible. 
74.	In March 2010 during the course of due diligence for the purposes of the sale of the business to FXCM, the substantial unsecured debit balances on the A1 account and the IFX Group Trust account emerged. Mr Reeves described in his evidence how shocked the directors were when they learnt of the loans, (which was borne out by the evidence of the three directors themselves), from which it was clear they were not previously aware of them. On 26 March 2010, Mr McGrath was suspended on the basis of allegations of gross misconduct and on 31 March 2010, Ernst & Young were instructed to investigate amongst other things the apparently unauthorised loans. They produced a draft Report on 6 May 2010 which concluded that ODL had suffered losses in excess of £7 million as a consequence of the unauthorised loans and the irregular payments made by Mr McGrath for his own benefit.
Summary of ODL’s case 
75.	ODL’s case is that the 2006 and 2009 loans or advances were all unauthorised and contrary to the interests of ODL and that in permitting and making those advances and not disclosing to the company what he was doing, Mr McGrath was in breach of the express and implied terms of his contract of employment set out at [12-14] above and of the fiduciary duties he owed the company set out at [15-16] above. ODL contends that his breaches of duty were dishonest or fraudulent. I will consider the appropriate legal test on that latter issue in my conclusions on breach of duty below.
Mr McGrath’s defence
76.	To a considerable extent I have indicated the nature of Mr McGrath’s defence and the reasons why it is unmeritorious in the findings I have made earlier in the judgment. In this section of the judgment I will summarise the principal lines of defence and my reasons for rejecting them.
77.	As already indicated earlier in the judgment, at the heart of Mr McGrath’s defence is the contention that the loans were not unauthorised. In his pleaded Defence served at a time when he was legally represented, it is denied that the granting of loans was not part of the ordinary business of ODL because ODL did from time to time grant credit facilities to clients. In my judgment this point fails to draw the obvious distinction between the granting of credit facilities (with consequent debit balances) to trading clients of ODL as an aspect of that trading (all of which was within its ordinary business) and the granting of commercial loans (whether to existing trading clients or others, and A1 Holdings was not an existing trading client) for purposes which were unrelated to trading with ODL, which was not within its ordinary business.
78.	So far as the former situation, allowing debit balances on trading accounts is concerned, there might be a number of reasons for this happening. First, a client might have a debit balance on, say, a sterling account but a credit balance on a dollar account, so that there was an overall positive balance across the client’s accounts. Equally a trading account might show a negative cash balance but be supported by adequate margin or collateral.
79.	Second, a client might hold a trading position that turned rapidly against them, so that the margin requirement might exceed the available collateral before a margin call could be made and met or the position liquidated. In such cases, a client might be granted a few days to bring the net position back into credit. An extreme example of the market turning rapidly against a client was that of Vovos. This was a Greek real estate company which had a trading account with ODL. Mr McGrath relied upon the fact that credit was extended to Vovos in late 2008 as demonstrating that the company was in the business of making commercial loans. However, in my judgment, that contention is hopeless. Vovos went into debit when an adverse trading position arose on its account as a result of market movements, so that its losses exceeded the amount of collateral or margin. The board of directors of ODL decided not to liquidate the positions straight away but to negotiate a gradual repayment. This is entirely different from the granting of a commercial loan unrelated to trading with ODL. It was clearly credit ancillary to trading and what occurred demonstrates that, even in such a case, the granting of credit was not in one person’s discretion, let alone in the discretion of Mr McGrath. It was a matter for the board of directors and was considered by them at length. 
80.	The third example of a debit balance was the case where credit might be extended to a client for trading purposes. However, this was an exceptional facility only granted to financial institutions with a dealing history with ODL or a high credit rating from a rating agency or to a client who had a relationship of trust with a director. All such credit limits would be considered by the Credit Committee (of which Mr McGrath was a member) and a written agreement would be entered. A1 Holdings was a very long way from falling into this exceptional category.
81.	Outside such debit balances being permitted as an adjunct to trading with ODL, ODL was clearly not in the business of granting commercial loans. Not only was that the emphatic evidence of all three directors who gave evidence, Mr Naldini, Mr Wellesley and Mr Elliott, which I accept, but it is borne out by the published accounts of the company. The 2006 accounts stated: “Credit risk in the company arises due to a counterparty’s loss on margin trading, as the company does not engage in normal lending activities.”  The 2009 accounts had a more extensive description of the company’s business but still made no mention of lending being part of that business. They stated: “The market place in which the Company operates is centred on giving clients leverage to trade products. The Company grants credit to a very small number of clients to allow them to trade without depositing the entire initial margin, and additionally, the clients are not called for running losses until the amount due exceeds the credit limit, which means their losses can come up to the credit line limit without resulting in a margin call.” 
82.	The Internal Capital Adequacy Assessment Process document of ODL, the original of which Mr McGrath helped to draft, identified the credit risks the company faced by reference to market counterparties’ losses and a client who could not make good a deficit on his account caused by trading losses, but made no mention of the credit risk of commercial lending, an omission which would be inexplicable if, in truth, the company was engaged in the business of making commercial loans.
83.	ODL had neither the cash reserves nor the capital to operate a lending business. At the end of 2006 the cash in hand and at the bank was £1,218,269 and at the end of 2009 it was £14,815,251, that subject to a subordinated loan of £6.5 million from its parent company. Any significant loan might well have affected the capital adequacy requirements imposed on ODL by FSA regulations. Mr Wellesley gave very stark and clear evidence about the effect these outstanding loans would have had on ODL’s business in the context of those minimum capital adequacy requirements, had it not been for the sale to FXCM: 
“But, most importantly, in the middle of this transaction we had a minimum capital requirement to be in business at ODL.  By taking this loss we were below that.  Our doors were shut and 210 people lost their job that day. So, in fact, with the proposed takeover merger of FXCM, thank God they were there.  And it was a real possibility that we were going to sell them our firm for GBP 1 just to stop that happening and for the firm not to go into liquidation.  That's the significance of this debt. There's no grey area.  Door shut.  Everyone gone.”
84.	It follows that Mr McGrath’s assertion at the end of his written closing submissions that: “the company often made loans. But again they have lost the documentation” is unsustainable. The company did not “often” make loans; it did not make them at all, apart from these loans which were unauthorised. I have already dealt with Mr McGrath’s efforts to rely upon the absence of documentation as supporting his case at [8-9] above. I do not accept that any of the missing documentation would have assisted his case.
85.	In any event, even if, exceptionally, ODL had wished to make a commercial loan, it would have been dealt with formally. From some time in 2005 the company had a New Business Committee on which either Mr Naldini or Mr Wellesley sat. That committee would consider any new business outside the core foreign exchange business. Thus, for example, any new corporate finance deal Mr Clements proposed had to be brought to the committee. The granting of loans would have been entirely new business to be considered by the committee. To the extent that the loans or at least the 2009 loans were granted in the hope that they might facilitate future corporate finance transactions with A1 or related entities, the proposals would have required close scrutiny by the committee, particularly since the corporate finance function of the company was supposed to be risk free. 
86.	In fact, since these loans were a substantial departure from ODL’s core business and potentially had a serious impact on capital, they would have required board approval and I accept the evidence of Mr Elliott and Mr Naldini to that effect. It is clear from their evidence and Mr Wellesley’s that any proposal to grant a commercial loan would have been unlikely to receive support from the board.   I have already quoted Mr Elliott’s clear evidence about not wanting to grant loans at [7] above. 
87.	Furthermore, even if, exceptionally, a loan had been granted, it would have had to be supported by adequate security with an appropriate “haircut”. If this was a bank guarantee, it would have to be one governed by English law, which was the unchallenged evidence of the directors. The only document in existence which is even suggested by Mr McGrath to be a guarantee is the unsigned Portuguese document from HSBC. None of the directors saw it at the time and both Mr Naldini and Mr Elliott said they did not see it until the unauthorised debit balances were discovered in 2010 and, when they did see it, it was obvious to them that it was inadequate. 
88.	In the circumstances, these loans were not within the ordinary business of ODL and required the express approval and authorisation of the new business committee and the board of directors, which they did not receive. Mr McGrath’s suggestion in his pleaded Defence and his closing submissions that the loans were somehow within his discretion to allow clients credit (which, contrary to his case, was a discretion he did not in fact have) is wholly without merit. 
89.	Another aspect of Mr McGrath’s case that the loans must have been authorised is the argument that had they not been, the debit balances would have been noticed by ODL and something done about them. In large measure I have addressed this case in my findings of fact earlier in the judgment but, in summary, the position is as follows. Debit balances were indeed routinely monitored by the finance department and the particular debit balances were noticed by them and questions asked of Mr McGrath. As set out in the section of the judgment dealing with the findings of fact, whenever another ODL employee raised a query, Mr McGrath had an answer, either that there was money on the way or that there were adequate bank guarantees in place. It is clear that, until the directors discovered the loans in March 2010, both the directors and other employees trusted Mr McGrath. Mr Naldini spoke in evidence about having 100% trust in him. Other employees clearly regarded him as having a senior position akin to that of a director and clearly did not query what they were being told by him. The fact that in hindsight they should have done is no answer. The position is that, prior to March 2010, no-one in the company appreciated that there were loans which were unauthorised.  
90.	Furthermore, whenever the directors raised the general issue of debit balances or outstanding debt at board meetings, they received assurances from Mr McGrath, which they accepted, as they all said in evidence. Mr Elliott’s evidence on this was: 
“…at almost every Board meeting I attended I asked Mr McGrath specifically what our bad debt experience had been. And I was consistently given the answer that we had a very low level of bad debts, because we took action when accounts went into debit to enforce our collateral position.”
91.	It is also no answer for Mr McGrath to say that if the loans had been unauthorised, they would have been picked up by the auditors. The fact is that the auditors did not appreciate that these debit balances related to unauthorised loans. Whether they should have done is neither here nor there. In the audit being conducted in April 2009, as set out at [66-67] above, the auditors did query the debit balance on the A1 account and Mr McGrath provided a copy of the HSBC “guarantee”. This must have satisfied the auditors as they did not raise a further query. Again, it is neither here nor there that they should not have been satisfied by that document. What is absolutely clear is that they did not appreciate that Mr McGrath was making unauthorised loans. Had they done so, they would have been bound to have raised that matter with the directors, which they did not. 
92.	An aspect of Mr McGrath’s defence which is related to the point about the debit balances is the suggestion that the directors knew about the loans. I said at the outset of the judgment that I accepted the clear evidence of all three directors that they did not know about the loans either at the time they were made or at any time prior to March 2010, all of which is borne out by Mr Reeves’ evidence as to their shock when they did discover them. Mr McGrath does not suggest that the loans were ever put forward for approval at board meetings before they were made, as they should have been and, were he to do so, such an allegation would be hopeless.
93.	To the extent that what is being said by Mr McGrath is that the directors found out about the loans at some point prior to March 2010 and somehow approved or ratified them, I have really addressed that case in my findings of fact. In summary, the position is as follows. 
94.	Although the ODL logo was displayed on the British A1 Grand Prix car, ODL never paid a sponsorship fee to A1 GP. Mr Naldini’s evidence was that this was done to assist Mr Clements in demonstrating someone was willing to put a logo on the car, but he did not believe ODL had provided any benefits or remuneration to A1 in return. There is no suggestion any of the directors understood this was all in return for a loan. 
95.	The letter dated July 2007 ostensibly signed by Mr Wellesley was in all probability not signed by him at all, but even if it was, he clearly did not pick up the reference to an outstanding loan. The powerpoint presentation referred to in the proposal to the New Business Committee in 2008 may have referred to ODL having a 0.03% shareholding, but it is not suggested any of the directors were actually taken through the presentation or appreciated there was a shareholding (if there was, which remains unclear). Critically the proposal did not refer to the outstanding loan to A1, as it should have done if Mr Clements and Mr McGrath had been being frank and honest with the board, given its obvious relevance to assessing the financial viability of A1.
96.	The suggestion the directors either did pick up or should have picked up that there was an unauthorised and unsecured debit balance on the A1 account, from the 220 page spreadsheet relating to segregated and non-segregated balances, produced for another purpose than checking credit balances, is completely hopeless.
97.	Finally, there is nothing to be made by Mr McGrath of any suggestion that, even if the directors did not in fact pick up that these unauthorised had been made, they should have done. That would be no answer as a matter of law to the claims for breach of contractual and/or fiduciary duties, a fortiori if Mr McGrath acted dishonestly. Furthermore, any such suggestion would lie ill in his mouth since, contrary to a theme which runs through his written closing submissions, that he did not seek to hide anything, the truth is that from the outset he took steps to conceal the true position from the directors and from other employees of ODL. 
98.	In particular, he quite deliberately hid the debit balance in respect of the direct 2006 loan to A1 in the Caldwell account, where there was some activity in relation to the CFD, and did not transfer it to the A1 account until the complaints of Caldwell were coming to the attention of the compliance department of ODL. Whenever any issue about the debit balance on the A1 account was raised by other employees of ODL he lied to them, either stating that monies were on their way or that there were bank guarantee(s) securing the debit balance. Neither he nor Mr Clements disclosed the existence of the outstanding loan to the board at the time of the New Product Proposal for pre-IPO financing of A1 in late 2008, notwithstanding, as I said above, its obvious relevance to the financial viability of A1.
99.	In all the circumstances, it is clear that the loans were unauthorised and that the directors were not aware of them until the due diligence at the time of the sale to FXCM in March 2010. Each of the lines of defence which Mr McGrath seeks to raise to the contrary fails. To the extent that he raises other points in his pleaded Defence or his closing submissions, they are not relevant to this central issue and can be dealt with shortly. 
100.	First is the suggested reliance on the assurances of Mr Clements who had greater knowledge of A1 Holdings than he did, particularly in relation to the making of the second loan and the associated complaint, in his oral closing submissions, that Mr Clements had lied to him about the loans being repaid. I agree with Mr Croxford that cannot absolve Mr McGrath from his duties to ODL. Indeed, quite the contrary. Mr McGrath knew that Mr Clements had a personal interest in A1 Holdings and in the whole A1 venture surviving and therefore faced a conflict of interest. All the more reason for not taking what Mr Clements said at face value and for not making the 2009 loans or, at the very least, not doing so without seeking the approval of the directors.
101.	 The answer to the point about the loans being made to ensure the company survived to make corporate finance deals which would generate commissions is the same. That was not only a situation where both Mr Clements and Mr McGrath faced a conflict of interest, but was an area of the business, corporate finance, where Mr McGrath knew that any new deals had to be approved by the New Business Committee. 
102.	The fact that Mr McGrath claims that he is impecunious and that he questions ODL’s motive for pursuing this claim against him to judgment, having settled with Mr Clements, is not capable of amounting to a defence and is of no relevance to ODL’s entitlement to pursue the claim against Mr McGrath. It may well be that the claim has been pursued to judgment with a view to other claims against third party professional advisers with professional indemnity insurers, as Mr McGrath seemed to be suggesting. I know not, but even if correct, that is not a defence, let alone a bar to continued pursuit of the proceedings.  
Mr McGrath’s breaches of duty
103.	There is no doubt that in making the 2006 and the 2009 loans, Mr McGrath was in breach of the contractual and fiduciary duties he owed ODL. So far as the initial “Wade Cherwayko” loans through Caldwell are concerned, the first US$1.5 million was paid out without a loan agreement being signed and with only the proposal of the Equator shares as collateral. As Mr Naldini explained such AIM shares would never have been acceptable to ODL as they carried too much risk and were illiquid, a point really demonstrated by the fall in value in the ensuing months. So far as the second US$1.5 million is concerned, the only collateral was a CFD which was not authorised by the Credit Committee, as it should have been, and which Mr McGrath therefore had no right or discretion to authorise and in relation which there was a wholly inadequate margin given the volatility of the shares. These loans were not authorised and exposed ODL to increased risk. Although ultimately these loans were repaid, so that ODL has not suffered a loss in respect of them, in granting the loans, Mr McGrath was in breach of the implied terms of his contract of employment and of the fiduciary duties to act in the best interests of the company and to inform ODL of the making of the loans.
104.	The direct loan to A1 Holdings on 7 March 2006 of US$2.5 million was made to a company with which ODL had no relationship, run by a man whom Mr McGrath had only just met, briefly. There was no security at all for the loan and, as Mr McGrath accepted in cross-examination, he was agreeing to pay a substantial sum of money out before there was any binding contractual commitment by RAB Capital to invest. He conducted no investigation into the creditworthiness of A1 Holdings or other due diligence and he knew, from the urgency of the payments that had to be made to creditors on 21 February 2006 that the company at the very least had short term financial difficulties. 
105.	The loan was not authorised and there was simply no basis for any belief on his part that it was or that to make it was in any sense in the interests of ODL and I find specifically that he held no such belief. As he accepted in relation to these loans, they increased the risk to ODL. I deal below with the issue of dishonesty. In the circumstances, in making the loan Mr McGrath was in breach of the implied terms of his contract of employment and of his fiduciary duty to act in good faith towards ODL and in its best interests. 
106.	Furthermore, it was apparent within a relatively short time that a substantial proportion of the loans, some US$1.5 million, had not been repaid within the time agreed by A1 Holdings and, despite repeated promises, continued not to be repaid. Mr McGrath was in breach of his fiduciary duty to inform ODL of his own misconduct in making unauthorised loans in the first place, and specifically, to inform the directors that there was a substantial amount outstanding, which it was in the best interests of ODL to know, as it could then have taken steps to ensure that Mr McGrath was not in a position to make any such disadvantageous loans in the future, in which case the 2009 loans would never have been made.
107.	So far as the 2009 loans are concerned, if that is possible, they were an even worse risk for ODL. No-one in Mr McGrath’s position as Head of Risk, acting honestly, could have even begun to think that these loans were in the interests of ODL. They clearly were not as Mr McGrath knew. As he accepted in cross-examination, he was being asked yet again to make loans pending completion of a deal for which there was no binding contractual commitment. He did so knowing that A1 Holdings was on the brink of insolvency and that it had not repaid the outstanding loan. Even when he had been misled into thinking that the original sums advanced on 6 and 10 February 2009 would be repaid on 19 February and they were not, he advanced another £600,000.
108.	Mr McGrath acted with a complete disregard for the interests of his employers in lending the monies lent in 2009. He had agreed a bribe in return for advancing the monies and he knew that he would be personally liable for the outstanding unauthorised 2006 loan, so that to the extent that the agreement with Mr Teixeira on the 2009 loans involved repayment of the 2006 loan, this was a desperate throw of the dice to procure repayment of that loan. In those circumstances, Mr McGrath faced an acute conflict of interest which at the very least he should have brought to the attention of the directors. In all the circumstances, in making the 2009 loans and concealing them from the directors, Mr McGrath was in breach of his contractual and fiduciary duties, including the duties to act in good faith and in the best interests of ODL, not to put himself into a position of conflict of interest and to inform the directors of his misconduct.  
Dishonesty and fraud
109.	ODL contends that Mr McGrath’s breaches of duty were dishonest or fraudulent and having considered carefully all the evidence and submissions I am satisfied that contention is correct.    
110.	The appropriate test for determining whether the breaches of fiduciary duty by Mr McGrath were dishonest or fraudulent is that developed particularly in the context of claims for dishonest assistance in breach of trust, that someone is dishonest if he fails to act as an honest person in his position would have acted, regardless of whether he honestly believed that he was honest. The test is thus an objective one: see the decision of the Privy Council in Barlow Clowes International v Eurotrust International [2006] 1 WLR 1476. Snell’s Equity 32nd edition [30-078] citing Arden LJ in Abou-Rahmah v Abacha [2006] EWCA Civ 1492; [2007] 1 Lloyd’s Rep 115 at [68-69] considers that the approach adopted in Barlow Clowes is to be preferred to that of some of the earlier cases, specifically the speeches in the House of Lords in Twinsectra Ltd v Yardley [2002] 2 AC 164, in other words that the defendant need not take a view on the propriety of his own conduct. 
111.	In any event, it is neither necessary nor appropriate to seek to resolve any inconsistency between the approach of the Privy Council and that of the House of Lords, since in my judgment, despite Mr McGrath’s assertions in his evidence and written closing submissions that he honestly believes he was entitled to do what he did and that he was honest, I do not accept that he had any such belief. In my judgment he knew and knows that what he was doing was dishonest, both in relation to the 2006 and the 2009 loans. In this context the passage in the speech of Lord Herschell in Derry v Peek (1889) 14 App Cas 337 at 375-376 cited by Mr Croxford is particularly apt: 
“I can conceive many cases where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince a Court that it was not really entertained….”
112.	There are a number of pieces of evidence which demonstrate that Mr McGrath knew when he made the loans that he was not authorised to do so and that he was acting dishonestly. I have already mentioned them in my detailed findings earlier, but they can be usefully summarised as follows:
(1)	Mr McGrath used the Caldwell account on which there was trading activity to hide the fact that he had made a US$2.5 million loan to A1 Holdings. If he had thought for one minute that it was authorised or if he had been acting honestly, he would simply have opened the A1 account when the loan was made and debited that sum to the account.
(2)	He lied subsequently to Wendy Lavenne of Caldwell both about what the balance on the Caldwell account was and about why the debit balance was on that account.
(3)	He lied to ODL staff in informing them that the debit balances were about to be repaid and also lied to Mr Reeves and other ODL staff in telling them the loans were secured by bank guarantees. 
(4)	He considered that he was entitled to a US$1 million “sweetener” or bribe, not, as he asserted unconvincingly for “arranging various structures and things” but, as he well knew, for agreeing to advance the 2009 loans to a company which he knew was on the brink of insolvency, loans which in those circumstances he equally well knew were completely against the interests of ODL. 
(5)	When he did not receive the US$1 million sweetener to which he considered he was entitled from A1, he stole the sterling equivalent from ODL to buy a house and tried to hide that he had done so by creating a new IFX Trust account to which the debit balance was transferred. There is no basis whatsoever for the asserted belief on his part that, at the time he diverted those funds, he believed that monies were about to come in from A1. All the indications were to the contrary, but, even if funds had been about to be received, Mr McGrath was still dishonest since, by diverting those funds to himself, he effectively preferred his own interests in obtaining the bribe over the interests of ODL in being repaid. 
(6)	The statements he made to Mr Clements and Mr Teixeira about being personally liable for the US$1 million outstanding on the 2006 loan are only explicable as pressure by him upon them if all three of them recognised that he would be personally liable because these loans were unauthorised. 
113.	Taking all these matters and the detailed findings I made above into account, I agree with Mr Croxford that there is compelling evidence that Mr McGrath acted dishonestly and fraudulently in making these unauthorised loans and in concealing them from the directors of ODL. 
The quantum of loss
114.	It follows from my conclusions above that ODL is entitled to damages or equitable compensation in respect of the breaches of duty committed by Mr McGrath. The entitlement to equitable compensation in a case such as this is well established: see Gwembe Valley Development Co Ltd v Koshy [2003] EWCA Civ 1048; [2004] 1 BCLC 131 at [142-147] per Mummery LJ giving the judgment of the Court of Appeal. The amounts of the outstanding loans are said by Mr Croxford to be £2,398,676.37 and US$2,859,541.10. Credit will have to be given for any sums recovered in respect of the outstanding loans from Mr Clements pursuant to the settlement agreement with him (or conceivably for any amount debited against his counterclaim which represents such a recovery in respect of the outstanding loans). If this cannot be agreed, there may have to be a further hearing to resolve any difficulties which arise. 
115.	In a case such as this, where the court has found that there was dishonest breach of fiduciary duty, the claimant would normally also be entitled to recover compound interest on the principal sums awarded. Here, for the sake of simplicity, ODL seeks only simple interest, albeit at the judgment rate. It seems to me that this probably reflects overall what would be the consequence of compounding, so I will award interest on that basis, in each case from the date the respective unauthorised loans were advanced by Mr McGrath. He will also be liable for ODL’s costs of the action, to be assessed if not agreed.