The dark art of sham litigation

Fraudulent litigation ... Bodgy debts to circumvent real creditors ... Defamation actions to wash money ... Moldovan courts to the rescue of Russian gangsters ... Italian divorces in Maidenhead 

Voitin: track workDODGY litigation conducted for ulterior purposes has not had the publicity it deserves. 

We'll try and redress this shortcoming with a few examples and welcome any further insights from devoted readers. 

In Melbourne, there have been long-running investigations into an alleged scheme conducted by lawyers John Voitin and Simon Nixon.  

The process that sought to shield clients from creditors is not terribly brilliant: 

• The client would enter an arrangement with an offshore company, usually one controlled by Voitin's wife, Clare Sowersby. 

• The client company would agree to raise a large amount of funds for Sowersby's company. 

• The client would fail to fulfil the contract and is then sued in the Vic Supremes for the money allegedly owing. 

• The judgment debt would then be used to control creditors' meetings and manage the demands of others who are owed money by the clients. 

Five claims, worth up to $35 million, appear to have been obtained in the Yarraside Supremes. 

At various times the Legal Services Commissioner, ASIC and the Financial Security Authority have poked their noses into the Voitin-Nixon scheme. 

The courts have been told that such contracts were, "improbable ...  uncommercial ... and unsupported by any contemporaneous independent material".  

The scam unravelled after one of the insolvency arrangements was unwound in the Federal Court in proceedings brought by an unhappy creditor, David Cross.  

Justice Jennifer Davies set aside a personal insolvency agreement between Ms Sowersby's Hong Kong company, Athena Commodities and Trading, and a client Joseph Rollo.  

The orchestrated insolvency agreement had provided a return to creditors, including Mr Cross, of three cents in the dollar. 

Rullo's trustee endorsed the proposal to creditors at the time of the meeting, because it seemed more favourable than a bankruptcy. 

That was before the trustee saw Rullo's contract with Athena, which "did not appear to have any commercial sense".   

In setting aside the agreement, Davies found that there were "serious questions" as to the validity of Athena's judgment debt. 

That's not the end of it. Cross followed-up with an application to the Yarraside Supremes seeking costs from Clare Sowersby (aka Mrs Voitin) and Simon Nixon, saying they breached their obligations to the court.  

In the meantime, John Voitin pleaded guilty to 57 charges of professional misconduct relating to the intermingling of trust money with his various business ventures, which include investments in livestock, training racehorses, raising calves and mortgage lending.

VCAT reprimanded him and placed conditions on his ticket - namely that he not receive trust money for six months. 

Reputational refund

George Alex: defamatorium

Defamation actions have been a time-honoured method of washing money. 

Last year the Federal Court heard that building industry employment contractor and underworld figure George Alex, together with a now deceased standover man Joseph Antoun, were the beneficiaries of arrangements worth more than $12 million, including $6 million from a defamation settlement. 

Alex went bankrupt with claims from the ATO of more than $1.2 million. Justice Bernard Murphy in the Federal Court has heard an application from Alex's trustee wanting to unstitch the funds transferred to Alex, among other things claiming that the defamation settlement was a sham. 

The $6 million allegedly is payment for the sale of Alex's business interests and was disguised as a defamation settlement in order to avoid the clutches of the bankruptcy trustee. 

All will be clear when Murphy delivers his judgment.

Six million dollars does seems like a hugely generous defamation settlement. At this stage it is not clear who defamed Mr Alex, even if he is capable of being defamed, and what beastly things were said to lower his reputation in the eyes of right thinking people. 

Names like Jim Byrnes and Kevin McHugh have been mentioned in dispatches concerning Alex's business arrangements. At one point Ian (Tubby) Callinan conducted a mediation concerning a troublesome deed. 

That is not to say that Alex hasn't been busy with other defamation actions, even though he lost one against the ABC in May last year.   

The Moldovan laundry 

Russian criminals engaged in a large scale scam using Moldovan courts to wash their dirty money.

In 2014 European investigators discovered that $20 billion of crooked money had been made to look legitimate by having it processed through Moldova, a tiny East European country whose judicial system lacks robustness.  

Criminals created companies in the UK, who then sued each other on defaulted loans in the Moldovan courts. 

Moldovan citizens were used as patsy guarantors in the sham transactions in order to give the courts jurisdiction. The courts then reliably ruled in favour of the claimants. 

The cash to meet the judgment debts came from Russian criminals and other black sources, and was then put into the UK companies' accounts in Moldova, before being transferred to a Latvian bank - a process that gave the money legitimacy. 

The scam ran for four years and involved the use of 19 UK-based front companies. It was shut down in May 2014. 

Graphic from The IndependentDivorce Italian style

Using courts for illegitimate purposes is not confined to backdoor commercial arrangements.  

That's what Sir James Munby, president of the family division of the High Court of England and Wales, discovered in Re 180 Irregular Divorces, a case decided in 2014.  

One hundred and eighty applications for divorce were made throughout the UK on a fraudulent basis. In more than half, a decree absolute had been given.

In each case, an Italian petitioner asked for a divorce. The English courts were said to have jurisdiction based on the fact that one of the parties had lived in England. 

Curiously, in 179 of the 180 cases the party lived at Flat 201, 5 High Street, Maidenhead. 

As it turned out, Flat 201 was not a flat, but a mail box, where, "not even a single individual, however small, could possibly reside".  

Munby: centre of the Italian divorce storm

Lord Justice Munby found that in each case the English courts had been induced by fraud to accept that they had jurisdiction to entertain the petition. 

The scheme - which he described as "conspiracy to pervert the course of justice on an almost industrial scale" - was devised by someone calling herself Dr Frederica Russo, who charged clients £4,000 for her services and who carried on the racket for two years. 

The petitions originated in a wide variety of county courts so that no one would notice they all had a common Berkshire address. These "Maidenhead" divorces were far quicker than the grindingly slow process in Italy. 

Ultimately, the decrees were declared void - even in cases where parties had remarried and the new union had resulted in children. 

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These examples show us that lawyers are the "brains" behind these relatively unsophisticated rackets, ably assisted by less than alert court registries and judges. 

So far no one has been run out of town by the sheriff.