Swiss bar on Castor director’s funds leaves Daimler in the cold

Mammoth 12-year international fraud case sees Swiss and UK courts at odds. By Brendan Malkin

In a little-known scandal which rivals the Maxwell pension fraud in scale, DaimlerChrysler Canada more than $1bn (£520m) from its pension fund in 1992 after it was defrauded by bankrupt Canadian investment company the Castor Group.

The US car giant has spent the last 12 years trying to recover damages from some of the former directors of Castor and other parties associated with the defunct company which DaimlerChrysler alleges were complicit in the fraud.

In 1998, the UK High Court agreed with DaimlerChrysler and ruled that some of the Castor directors – including MarcoGambazzi, the name partner of Lugano-based Swiss law firm Gambazzi & Berra – owed damages of $400m (£207.4m) to DaimlerChrysler.

Gambazzi himself is still disputing the damages award. He told The Lawyer: “All the accusations of fraud are wrong. There’s no proof to support them.”

The saga, which has taken DaimlerChrysler’s lawyers through scores of actions in several countries, reflects the difficulties in managing fraud litigation and criminal investigations across many borders. Commentators say that if the global litigation had been handled in England it would have been done and dusted years ago.

The most recent chapter of the saga centres on a decision last month by Switzerland’s highest court, which barred forever DaimlerChrysler from access to Gambazzi’s Swiss assets.

DaimlerChrysler is represented by a group of litigators which is led by James Irvine. Originally instructed in 1995, he has moved firms twice, from Denton Wilde Sapte to Arnander Irvine & Zietman (now Shook Hardy & Bacon), and then to Howrey Simon Arnold & White 18 months ago.

In 1992 it emerged that Castor, far from being the successful high-yield investment fund it was portrayed as, had siphoned off money from a variety of clients. Daimler-Chrysler’s Canada Trust, now renamed the CIBC Mellon Trust Company, was just one of several victims.

In 1996, Chrysler Canada brought proceedings in the High Court in London against Castor’s directors and corporate companies owned or controlled by Castor. Two years later the High Court ruled that Wolfgang Stolzenberg, Castor’s former president, chief executive officer and chairman, Gambazzi, director Karsten von Wersebe, Edwin Banziger, who managed Castor’s subsidiaries, as well as some 46 other corporate defendants, were liable for either fraudulent misrepresentation, conspiracy to defraud, or both.

To date, Irvine has had the UK judgment enforced in Germany (although that judgment is being appealed), France, Switzerland, several states in the US and various provinces in Canada.

However, the key Swiss case against Gambazzi ground to a halt last month.

Heard by Switzerland’s Federal Court, which is the country’s highest court, the case was an appeal from a February 2004 decision by the Court of Appeal in the Canton of Lugano, in which the Swiss court held that the London High Court decision on Gambazzi was a breach of process.

The High Court would not allow Gambazzi to represent himself. Gambazzi said: “I was debarred from appearing in the English High Court action because I didn’t obey all the orders for disclosure. I obeyed some [disclosure orders], but not all, such as the request to produce the names of my [legal] clients – something which I’d never do because of client confidentiality.”

He added that, “unusually”, he was found liable for $300m (£155.6m) by the High Court in London before his application for dismissal of the case on jurisdictional grounds had been heard. The House of Lords dismissed the jurisdiction appeal in 2000.

However, Howrey partner Charles Pugh, who is working alongside Irvine on DaimlerChrysler’s case, claims the decision not to let Gambazzi appear was part of the normal process of litigation.

The same point was heard by the Swiss Federal Court on appeal from the Court of Appeal in the Swiss Canton of Zug in relation to an enforcement action brought against Banziger. In this case, the Federal Court ruled that the procedural point was not an issue.

The court will not hand down its reasoning on Gambazzi until next year, but Irvine contends: “It’s disturbing that the highest court in Switzerland is prepared to rule in our favour in one case and not the other. This leads to inconsistency and arbitrariness.”

An arrest warrant was issued for former Castor president Wolfgang Stolzen-burg by the Royal Canadian Mounted Police (RCMP) in 2000 to hear 42 counts of fraud and conspiracy. The reason cited for this is that Stolzenberg is living in Germany, which has no extradition treaty with Canada. Also, Irvine says that no one – including the German authorities – has any idea where he is.

And now the Howrey partners face a new challenge. Gambazzi has hit back, claiming he is preparing civil proceedings against DaimlerChrysler in the Civil Court of Lucano. “I’m trying to ascertain a negative decision of the existence of my debt,” he said.

His claim, he added, which is about to be lodged, will include a $500,000 (£259,300) compensation claim for DaimlerChrysler to cover the cost of his legal fees.

Stolzenberg, Banziger and Wersebe could not be contacted.