The international confectionary group Ferrero has successfully defended fraud claims brought against it by Bank of Tokyo-Mitsubishi, UFJ and KBC Bank NV.

Ferrero - the world’s largest purchaser of hazelnuts - was alleged to have conspired in a €23 million fraud perpetrated in 2001 and 2002 by a Turkish operation, Baskan Gida, which was at that time the world’s largest hazelnut supplier. 

Proceedings started in 2003 and the trial ran in the High Court for some six months, concluding in April 2009. As Mr Justice Briggs noted, the trial was one of “spectacularly large proportions”, with some 56 days of oral evidence, 30 days of submissions and trial bundles running to more than 190 files.

The central theme of the banks’ case was that Ferrero participated in a fraud whereby Baskan Gida drew down on a facility from the banks using false invoices.  Those false invoices suggested that Ferrero would pay the banks direct for all hazelnuts received whereas, in fact, Baskan Gida instructed Ferrero to make payments elsewhere. Baskan Gida later transferred its hazelnut business to alleged front companies, beyond the reach of the banks, in order to further the fraud.  

Ferrero was also said to have made various dishonest representations to the banks which they said induced them to embark on the facility and advance funds to Baskan Gida.

The banks’ claims involved an examination of the parties’ dealings in two hazelnut crop seasons in “minute detail”, and the recreation of the entirety of Ferrero’s hazelnut purchasing programmes for two years in order to test allegations of suspicious trends. Wide-ranging claims were made against four Ferrero companies in conspiracy, deceit, knowing receipt, conversion, and negligent misrepresentation.

On 11 June 2009, Mr Justice Briggs, in a 272-page judgment, ruled that all of the banks’ claims against Ferrero failed.   

Andrew Howell of Barlow Lyde & Gilbert LLP (“BLG”), advising Ferrero, said: “Ferrero is very pleased that the claims against it have finally been dismissed.  It is unfortunate that so much time and costs have been wasted on a legal action which Ferrero considers has always been misconceived.”

BLG represented Ferrero. The BLG team was led by commercial litigation partner Andrew Howell, with associate director Dan Smith. The team included associates Sarah Crowther, Niya Phiri, Liz Vannelli and Rowena Lewis. BLG instructed Nicholas Strauss QC, James Goldsmith, and Alex Polley of One Essex Court.  BLG worked with Daniele de Benedetti of Italian law firm Studio Benessia Maccagno.

Forsters LLP advised the banks, instructing John Wardell QC, Clare Stanley and Alex Winter.

-ENDS-

Notes to editors:

1 Case background:

1.1 Between December 2001 and February 2002, the banks lent €22,821,566 to Baskan Gida on the strength of false invoices and other documents. They believed that the funds would be used to finance the purchase of hazelnuts for processing and onward delivery to Ferrero.

1.2 Baskan Gida sent different invoices to Ferrero for its deliveries, instructing Ferrero to pay only €1,402,023 to the banks and make all other payments to Baskan Gida’s Turkish banks. Baskan Gida also forged Ferrero documents which gave the impression that Ferrero had committed to paying the banks.

1.3 Baskan Gida never repaid the banks. It ceased trading in February 2002, having become insolvent. It transferred its hazelnut business to another Turkish company Aksu Gida whose majority shareholder was an English company Indo Mediterranean Commodities Limited (“Indo Med”). In May 2002, Aksu Gida transferred the business to a third Turkish company Baskan Yuksel. Both Aksu Gida and Baskan Yuksel supplied Ferrero with hazelnuts, for which Ferrero paid in full.

1.4 The banks became aware of the fraud during 2002. They succeeded in recovering assets from Baskan Gida worth under $800,000.

1.5 In June 2003, the banks issued proceedings in the Chancery Division of the High Court against Baskan Gida, its management (all of whom were members of the Baskan family), Aksu Gida, Indo Med, and Ferrero.  They later added Mr Shabbir Abidali, the owner of Indo Med.    None of the Baskan defendants nor Aksu Gida played an active part in the proceedings.

1.6 The banks alleged that Baskan Gida had defrauded them, and that Aksu Gida and Baskan Yuksel were fronts for Baskan Gida / the Baskan family. 

1.7 The banks also alleged that Ferrero personnel assisted in perpetrating the fraud. The banks alleged they did this by placing orders for which Ferrero had no need, by paying Baskan Gida for those orders knowing they ought to pay the banks, and by purchasing hazelnuts from Aksu Gida and Baskan Yuksel knowing them to be fronts.  The banks claimed in contract, conspiracy to injure by unlawful means, misrepresentation, conversion, and knowing receipt. 

1.8 The banks claimed that Ferrero was motivated to participate in the fraud by receiving cheap hazelnuts, and that its personnel were corrupted by bribery. Ferrero denied all of these claims.

1.9 Ferrero denied all these claims. Ferrero defended them all in the High Court, save for the contractual claims which were stayed because they were the subject of prior proceedings in the Italian Courts.

1.10 The case proceeded to trial on 20 October 2008 before Mr Justice Briggs, and continued for 84 days until 7 April 2009.  Steptoe & Johnson LLP represented Mr Abidali.

1.11 All the banks’ claims against Ferrero failed. He found that “the “cheap nuts” motive fails, both on the facts, and as a matter of analysis”, and that “as for the supposed private corrupt motive on the part of [the Ferrero personnel], the banks have, quite simply, failed to unearth any evidence for this at all, despite strenuous efforts”.

1.12 Their claims succeeded against Mr Abidali but only in respect of part of the banks’ loss.