Mr. Justice MANCE:
1 INTRODUCTION
These are applications by all but one of 22 defendants to set aside or
stay the proceedings under R.S.C., O. 12, r. 8 or pursuant to the inherent
jurisdiction. The writ was issued on Apr. 14, 1993 indorsed with points
of claim. The plaintiffs are a Spanish company and its English subsidiary
who I shall identify respectively as GT and THL. They claim damages
for conspiracy or conspiracies, moneys allegedly due under constructive
trusts and damages for breaches of directors' duties relating to four
transactions. These transactions are identified as Croesus, Oakthorn,
Pincinco and Wardbase. Some defendants are said to have been involved
in all, others in only some or one of such transactions.
The applications have proved lengthy and complex. This judgment is
divided into sections as follows: (1) This introduction. (2) Dramatis
personae. (3) The four transactions. (4) Merits. (5) Loss. (6) The
(Brussels/San Sebastian) Convention, with sub-heads concerning arts.
1(2), 16(2), 21/22 and 27. (7) Order 11. (8) Arbitration. (9) Conclusion.
The central question is where GT's and THL's claims should be tried.
Courts have discouraged the tendency for such interlocutory applications
to become lengthy and expensive trials: See most recently I. P. Metal
Ltd. v. Ruote O.Z. S.p.A., [1994] 2 Lloyd's Rep. 560 where Lord Justice
Saville echoed in the context of the Brussels Convention words said by
Lord Templeman in Spiliada Maritime Corporation v. Cansulex Ltd., [1987]
1 Lloyd's Rep. 1 at p. 3; [1987] A.C. 460 at p. 465 in the context of O.
11. The present applications raise both Convention and O. 11 points.
fBoth prior to and during the main hearing, I referred to the effect of Lord
Templeman's remarks and the limited scope for enquiry into the merits
of the plaintiffs' claims. The desideratum of a short and simple disposal
of the present applications has not been realized. The applications have
raised novel and complicated issues under the Brussels Convention as
amended by the San Sebastian Convention (which together I shall call
"the Convention"); and these issues and the merits have been elaborately
investigated and argued. The underlying explanation for this elaboration is
no doubt, as in Societé Commerciale de Reassurance v. Eras International
Ltd. ("The Eras EIL actions"), [1992] 1 Lloyd's Rep. 570 at p. 575, the
size of the sums involved, nearly half a billion dollars before interest,
and the seriousness of the charges of conspiracy to defraud. Some of the
transactions are also of extraordinary complexity. Four sets of Counsel
appeared before me for different defendants falling into three categories
(broadly English domiciled defendants, defendants domiciled in other
Convention States and defendants domiciled elsewhere). The points of
claim endorsed on the writ extend to 140 pages. The parties' skeletons
before the hearing extended to over 140 pages. The documentation
consisted of over 20 thick lever arch files, which include six of material
derived from various Spanish proceedings and five of expert evidence
(four from Spanish lawyers and one from reporting accountants). During
the hearing this material was supplemented by three files of Spanish
legal texts (with many problematic translations) and seven files of English
authorities.
Two particular aspects call for further comment. The first relates to the
cross-examination of Spanish legal experts which, exceptionally and
reluctantly, I permitted. Counsel for the major groups of defendants and
for the plaintiffs were agreed among themselves on the need for cross-
examination of Spanish lawyers. They submitted, with I think justification,
that the Convention is an agreement *379 between Contracting States
enacted as part of English law to which the English Court is bound to give
effect; and that, when objection is made that another Contracting State
has exclusive jurisdiction under art. 16 or is first seised of effectively the
same proceedings or a related action in circumstances falling within arts.
21-22 of the Convention, the Court must have a higher level of assurance
about the basis and appropriateness of its exercise of jurisdiction than
could be required in other contexts: c.f. I. P. Metal Ltd. v. Ruote O.Z.
S.p.A., [1993] 2 Lloyd's Rep. 60 (aff'd. without deciding this point, C.A.
[1994] 2 Lloyd's Rep. 560. The application of arts. 21 and 22 in particular
can and in this case does involve examining and understanding foreign
law and legal procedure (in this case Spanish). I therefore allowed cross-
examination, after Counsel had reduced to writing a list of issues to which
cross-examination was to relate. Counsel assured me that they intended
economy in cross-examination and were confident that cross-examination
of the three Spanish witnesses could be completed within four days. In
the event their cross-examination extended over 10 days. Perhaps, if
Counsel had taken up my suggestion of provisional time-limits for cross-
examination, time might have been saved. However it is true that the
Spanish legal material put before the Court was particularly intractable
and that oral explanation was of importance to its understanding and
evaluation.
The second aspect is the detailed analysis which was undertaken on
behalf of certain defendants regarding the detail of the plaintiffs' claims
and their supposed lack of "merits" or, per Lord Goff in Seaconsar Far East
Ltd. v. Bank Markazi Jomhouri Iran, [1994] 1 Lloyd's Rep. 1; [1993] 3
W.L.R. 756 (H.L.), "seriousness". This exercise was conducted with skill as
well as thoroughness, but in my judgment it passed well beyond realistic
or acceptable bounds. My reasons for saying this will appear as I deal with
the points (probably at too great length myself, although in the hope that
they will not have to be further explored on these applications) in sections
4 and 5 of this judgment.
For jurisdictional purposes the defendants fall into various different
categories:
(A) Those domiciled and served within the jurisdiction, in accordance (on
the plaintiffs' case) with art. 2 of the Convention scheduled to the Civil
Jurisdiction and Judgments Act, 1982 as amended by inter alia the Civil
Jurisdiction and Judgments Act, 1982 (Amendment) Order, 1990 (S.I.
1990 No. 2591). This applies to the second, third, fourth, 11th and 15th
defendants (Mr. Robinson, Mr. Jaffar, Mr. Moukarzel, Coll & Co. Ltd. - "Coll
& Co" - and Wardbase Ltd. - "Wardbase"), all served on Apr. 15, 1993.
The plaintiffs now wish to assert that the first defendant ("Sheikh Fahad"),
though served with leave under R.S.C., O. 11 in the Bahamas on May 31,
1993, was in reality domiciled within the jurisdiction; they seek to uphold
English jurisdiction against him on this ground also.
(B) Those domiciled in other Contracting States party to the Convention.
This applies to the fifth to 10th and the 12th defendants (Mr. de la Rosa,
Mr. Soler, Mr. Nu¤ez, Mr. de Mir, Mr. Folchi, Mr. Coll and Mr. Pique) who
are domiciled in Spain and to the 21st and 22nd defendants (Coggia 1
B.V. - "Coggia" - and Riquel B.V. - "Riquel") who are domiciled in Holland.
Service on all these defendants was purportedly effected pursuant to O.
11, r. 1(2)(a) on various dates ranging from June 15 and 8 (in the case
of the last two) to dates between June 21 and Oct. 1, 1993 in the case
of the others. This was on the footing that the action constitutes a civil
matter to which the Convention applies (which is in issue) and falls within
arts. 5(3) and/or 6(1). These two articles allow jurisdiction:
...in matters relating to tort, delict or quasi-delict, in the courts of the
place where the harmful event occurred [and] where [a person domiciled
in a Contracting State] is one of a number of defendants, in the courts of
the place where any one of them is domiciled.
(C) Those domiciled outside the jurisdiction of any Contracting State ("the
O. 11 defendants"). This embraces the 13th defendant (Mr. Russell) who
lives in Jersey, the 14th defendant (Russell Limebeer), a Jersey firm of
accountants of which he is partner, and the 16th defendant (Oakthorn Ltd.
- "Oakthorn"), a Jersey company, the 17th and 18th defendants (Westow
Ltd. - "Westow" - and Anslow Ltd. - "Anslow") both Isle of Man companies
and the 19th and 20th defendants (Croesus International Ltd. - "Croesus"
- and Wantley Developments Ltd. - "Wantley") both Gibraltar companies.
Sheikh Fahad was, as I have stated, served in the Bahamas on the basis
that he was located there, with a reservation in the affidavit seeking leave
in case he should prove to be domiciled in England. Leave for service out
of the jurisdiction on all these defendants was sought and obtained under
O. 11, r. 1(1)(c) on Apr. 29, 1993 on the basis that they were necessary
and proper parties to the claims which by then had been brought and
served on Apr. 15, 1993 on the defendants identified in category A above.
Leave was also sought and obtained under O. 11, r. 1(1)(f) against all but
Russell Limebeer (against whom the only claim is in constructive trust) in
relation to such part of the claims as is founded in tort, on the basis that
the damage was sustained, or resulted from an act committed within the
jurisdiction. *380
No challenge is made by Mr. Moukarzel to the English Court's jurisdiction
or its exercise of jurisdiction over him in respect of the matters
complained of in the writ. However, should I conclude that the present
action falls within art. 21 or 22 of the Convention, then, consistently with
the language of those articles, I would have to consider whether I should
"of my own motion" decline jurisdiction or stay the action.
One submission advanced by all the other defendants is that this case
falls wholly outside the Convention by virtue of art. 1(2). On that footing
these defendants submit that, even as regards those of them domiciled
in Convention States (i.e. those within categories A and B above), the
English Court can and should exercise its common law power to stay
proceedings according to the principles established by Spiliada Maritime
Corporation v. Cansulex Ltd., [1987] 1 Lloyd's Rep. 1; [1987] A.C. 460,
on the basis that there is -
...some other available forum, having competent jurisdiction, which is the
appropriate forum for the trial of the action, i.e. in which the case may
be tried more suitably for the interests of all the parties and the ends of
justice.
That forum is said to be Spain. If this route to Spain is wrong, and the
Convention governs jurisdiction as against defendants within categories
A and B, the defendants submit that it also leads to a conclusion that the
whole action should be determined in Spain.
There are various routes by which the Convention is said to lead to the
present English proceedings being set aside or stayed in favour of Spain.
The first is that the Spanish Courts have exclusive jurisdiction under
art. 16(2), on the basis that the proceedings have "as their object" the
decisions (or the validity of decisions) of organs of GT, and must therefore
be determined in Spain. If this is not so, then there are said to be pending
in Spain proceedings of which the Spanish Courts were first seised. It
is submitted that the English Courts should either decline or stay the
present proceedings under art. 21 of the Convention. That failing, it is
submitted that art. 22 applies to like effect. The final objection taken was
described as the "art. 27" point, but manifests itself as an independent
point only in the form of an appeal to an inherent jurisdiction to stay or
decline jurisdiction in the light of art. 27 even if jurisdiction otherwise
exists under the Convention. In its other form it has an adjectival role as
part of the argument in favour of the exercise of any discretion under art.
22 (and also under O. 11).
Mr. Onions, on behalf of certain defendants within all three categories,
also submits that the plaintiffs have failed to plead, or by their evidence
to establish, any sufficiently "serious issue to be tried" to justify
proceedings either under arts. 5(3) and 6(1) of the Convention (so
far as applicable) in accordance with principles considered in Tesam
Distribution Ltd. v. Schuh Mode Team G.m.b.H., [1990] I.L.Pr. 149 (C.A.)
and Mölnycke A.B. v. Procter & Gamble Ltd., [1992] 1 W.L.R. 1112 (C.A.)
- he expressly disclaimed in this context any suggestion that the test
should be expressed more rigorously - or under O. 11 in accordance with
the principles recently reformulated in Seaconsar. Mr. Onions puts this
submission on three bases: firstly, neither of the plaintiffs has established
any serious case that it had suffered any loss recoverable, whether in
damages or pursuant to any constructive trust; this submission was
adopted by Lord Irvine and Mr. McCaughran for various other defendants.
Secondly, there is no serious case of conspiracy by anyone - at least,
Mr. Onions said in his final speech, as against the plaintiffs; and, thirdly,
there is in any event no serious case of any conspiracy to which any of
his clients were party. Mr. Onions also suggested that, as against any
defendants over whom jurisdiction could only be exercised if at all under
O. 11, the plaintiffs were required by O. 11, r. 1(1)(c) to show a "good
arguable case" as against defendants duly served within the jurisdiction,
as well as a good arguable case of "damage sustained, or [which] resulted
from an act committed within the jurisdiction" under O. 11, r. 1(1)(f).
The former aspect of this submission (relating to O. 11, r. 1(1)(c)) is
contrary to Lord Goff's approach in Seaconsar (c.f. pp. 8, col. 2 and
9, col. 1; pp. 765E and 766E), although whichever test applies would
make no difference on the present facts. He further submitted that the
plaintiffs have failed to justify their choice of the English forum as "clearly
more appropriate" than the Spanish jurisdiction for the resolution of
any such issue (c.f. Spiliada per Lord Templeman at p. 3, col. 2- p. 4,
col. 1; pp. 464H-465A and Lord Goff at p. 13, col. 2- p. 14, col. 1; pp.
480G-482A, referring back to the principles at pp. 476C-478E), or to
satisfy the requirement that it should "sufficiently appear to the Court that
the case is a proper one for service out of the jurisdiction": R.S.C., O. 11,
r. 4(2) (see per Lord Goff at p. 13, col. 2; pp. 480H-481B). As regards the
defendants within category C, it is also said that the leave given to serve
out should be set aside for non-disclosure in the affidavit of Nicholas Paul
Pearson sworn on Apr. 20, 1993 by which O. 11 leave was obtained.
Coll & Co., Mr. Coll and Wardbase further object to or seek a stay under s.
1 of the Arbitration Act, 1975 in respect of the present English action on
the basis of arbitration clauses in contracts which, they contend, embrace
the present claims. It is common ground that the dispute between GT
and Coll & Co. *381 falls within an arbitration clause in a contract for
consultancy services dated Nov. 6, 1989, but there is an issue whether
the clause can apply to THL's claim against Coll & Co. There is also
an issue whether it can avail Mr. Coll in respect of the claims made by
either plaintiff. As regards Wardbase, there was an arbitration clause in a
contract purported to be made between Torraspapel S.A. ("Torraspapel"
- a paper-making subsidiary of the first plaintiff) and Wardbase, and the
issue is whether that clause can apply to either plaintiffs' claim against
Wardbase.
During the hearing, in response to points made by Mr. Onions, the
plaintiffs formulated amended points of claim to which they purported to
give effect without leave under R.S.C., O. 20, r. 3. They then purported to
reserve the reissued and amended writ endorsed with the amended points
of claim on the defendants' solicitors whose business addresses had
been nominated for service in the acknowledgements of service lodged
under O. 12, r. 3. The defendants characterized such amendments and
service as irregular both under the rules and for alleged infringement of
the principles in Parker v. Schuller, (1901) 17 T.L.R. 299 (C.A.). Sensibly,
the parties agreed that I should decide on the propriety of the purported
amendment and its service as if applications to set them aside were
before me and without any suggestion that the defendants would thereby
have submitted to the jurisdiction. I understand the defendants to be
prepared to issue applications on this agreed basis.
2 DRAMATIS PERSONAE
The Kuwait Investment Office ("KIO") is a branch of the Kuwait
Investment Authority established in Kuwait by, it seems, Emiri Decree
(Law No. 47 of 1982) and having the function of managing the investment
of funds of the government of Kuwait. The KIO is based physically in St.
Vedast House, 150 Cheapside, EC2 in the City of London, but its offices
there are treated as part of the Kuwaiti Embassy and subject to diplomatic
immunity.
The KIO has a number of subsidiary companies in various parts of the
world. Through two Netherlands Antilles companies (Haningend Holdings
N.V. and Clachard Holdings N.V.) it wholly owned two Netherlands
companies called Koolmees Holdings B.V. ("Koolmees") and Kokmeeuw
Holdings B.V. ("Kokmeeuw"), who in turn owned shares in GT.
GT (known until June, 1989 as Torras Hostench S.A.) is incorporated
in Spain and indirectly controlled by the KIO. It was and is the parent
of a group operating in many sectors of the Spanish economy, with
paper, food, chemicals and services as well as financial and stock market
interests. Since Dec. 10, 1992 GT has been in a state of suspension of
payments pursuant to an order of the Spanish Courts under the Spanish
Ley de Suspensión de Pagos de 26 Julio de 1922.
Until December, 1989 the KIO owned (through subsidiaries) a little over
50 per cent. of GT's shares. In February, 1990 the holding increased
to 70 per cent. In July, 1990, as part of a process of delisting from the
Spanish Stock Exchange, GT issued a public share offer to buy its own
shares with a view to cancellation and as a result acquired further shares.
By September, 1990 the KIO held 76 per cent. of GT. In July, 1991, GT
compulsorily bought out the sole remaining small outside shareholders
at a price equivalent to that applicable under the public share offer; their
shareholdings totalling some 2.76 per cent. of GT's capital were written
off against reserves. KIO thus became owner of nearly 80 per cent. of
GT's capital, through Koolmees and Kokmeeuw. The remaining 20 per
cent. shares were held indirectly by Mr. de la Rosa and Mr de Mir through
various companies. These included Folma S.A. ("Folma"), Philby S.A.
("Philby"), Management Investment Research Associates ("MIRA") and
Coordinación Asesoramiento y Orientación de Servicios ("CAOS"). On May
26, 1992 there were significant changes to the composition of the board
of GT, which appear to have marked the effective end of the management
of GT by Mr. de la Rosa, Mr. Soler, Mr. Nuñez and Mr. de Mir.
THL is an English company which has been since incorporation a
wholly owned subsidiary of GT, and whose affairs were on the evidence
substantially managed from Spain by GT, in particular after the death in
August, 1989 of Mr. Vasconcellos, a director of THL who lived in London.
Sheikh Fahad, represented by Mr. McCaughran, was until it seems Apr.
8, 1992 chairman of the KIO. He was also chairman of Koolmees and
Kokmeeuw and until May 26, 1992, a director and president of GT. His
primary role, as Mr. Onions put it, was as chairman of the KIO.
Messrs. de la Rosa, Soler, Nu¤ez, de Mir and Pique were represented by
Lord Irvine. The first four were at the material times key personnel in GT.
Mr. de la Rosa was until May 26, 1992 a director and vice-president of GT.
Mr. Soler was director of finance and is alleged in the points of claim to
have been -
...in practice, the most senior and active individual concerned in directing
and controlling GT and THL's business.
He was also a director of THL. Mr. Nuñez was the managing director of
GT until May 26, 1992. He was also president of Torraspapel. Mr. de Mir
was a director of GT, alleged in the points of claim to *382 have "worked
closely" with Mr. de la Rosa. Lastly, Mr. Pique is a lawyer who was GT's
company secretary until May 26, 1992 though never a director. All these
gentlemen were and are domiciled in Spain for Convention purposes.
Mr. Robinson, Mr. Jaffar and Mr. Moukarzel were and are domiciled at
all material times in England. Mr. Robinson, represented by Mr. Silber,
Q.C., is an accountant who was senior investment adviser at the KIO
until Mar. 20, 1989. His evidence is that on that date he was summarily
dismissed in circumstances which led him to consult lawyers and pursue
a claim against KIO which led eventually to a settlement in March, 1990.
According to the points of claim he was also a director of GT until Apr. 13,
1989. Mr. Jaffar was deputy chairman and general manager of the KIO
until Apr. 20, 1990, a director of Koolmees and Kokmeeuw until about
Mar. 15, 1990 and at the material times vice-president and a director
of GT. He was represented by Mr. Mowschenson on the first day of the
hearing, but content thereafter to rely on the submissions made by other
defendants. Mr. Moukarzel was at the material times a director of THL.
Mr. Onions represents Mr. Folchi, Mr. Coll, Coll & Co., Mr. Russell, Russell
Limebeer, Wardbase, Oakthorn, Westow, Anslow, Croesus, Wantley,
Coggia and Riquel - identified for convenience as "the Lawrence Graham
defendants" after the name of their solicitors. Mr. Folchi, Mr. Coll and Mr.
Russell are professional advisers. Mr. Folchi was and is a Spanish lawyer
who appears to have had a very intimate involvement in transactions with
which this case is concerned. He is alleged to have been a director of THL
and a signatory to its bank accounts from about Oct. 1, 1990, as well as
a director of Torraspapel. He also became secretary to the board of GT
from about May 1, 1992. Mr. Coll is an accountant of British nationality
but Spanish residence, and Mr. Russell is also an accountant, practising
in Jersey as a partner. Coll & Co. and Russell Limebeer are companies
through which Mr. Coll and Mr. Russell allegedly made their services
available. The rest are companies which feature in the four transactions:
Croesus and Wantley were apparently supplied by Mr. Coll, Coggia and
Riquel by Mr. Folchi's office and Russell Limebeer, Wardbase, Oakthorn,
Westow and Anslow are associated with Mr. Russell. Croesus, Wantley, Mr.
Russell and the companies with which he is associated make up, together
with Sheikh Fahad, the O. 11 defendants.
3 THE FOUR TRANSACTIONS
The four transactions are pleaded in the points of claim as follows.
3.1 Croesus
In or about May, 1988 Mr. de la Rosa by an undated letter countersigned
by Mr. Jaffar requested the KIO to transfer the sum of U.S.$27.4 m. to
GT (par. 25). In conformity with such request, Mr. Robinson arranged for
transfers to take place by KIO to its subsidiary Clachard, from Clachard to
Kokmeeuw and then to the Republic National Bank of New York "for the
account of Merrill Lynch Bank Suisse number 608103179 (sub account
261319)" (par. 26). The evidence shows that the accounts used by
Clachard and Kokmeeuw for these transfers were in London. The payment
to Republic National Bank represents the first "black hole" into which
money is alleged to have disappeared, without in this particular instance
subsequent trace. The pleading alleges that the payment to Republic
National Bank was not made for the benefit of the plaintiffs or either of
them (par. 27).
Some 16 months later, in September, 1989, Banco Santander, on the
evidence through its London branch, transferred U.S.$25 m. on behalf
of THL to Kokmeeuw in what is pleaded as "partial repayment" of the
transfer of U.S.$27.4 m. by Kokmeeuw to Republic National Bank.
Paragraph 29 then pleads "the Croesus Operation", said to consist of
concealment of this payment, the preparation of sham documentation
and transactions, notably a sham loan agreement by THL to Croesus and
extensions, and a guarantee of the "load" signed by Mr. Nuñez on behalf
of GT in order "to lend verisimilitude to the sham Croesus loan". Finally
the "loan" was accounted for by way of inter-company set-off between GT
and THL, and then written off in GT 1990 profit and loss account.
A further U.S.$2,576,707 m. is said to have been paid and/or funded by
THL in November, 1989 by way of partial repayment of the transfer of
U.S.$27.4 m. "plus interest to 12th October 1989" calculated as set out
in a telex dated Oct. 10, 1989 from a Mr. Black of KIO to Mr. de Mir. This
payment is said to have been reimbursed by GT before the end of 1989.
It is also alleged to have been concealed by a sham invoice from Wantley
to THL dated Jan. 31, 1990 claiming for payment for advice relating to
the Torras group which Wantley never provided, never intended to provide
and was never capable of providing.
The points of claim claim the loss and damage on Croesus as follows:
(1) GT suffered a loss by: (a) incurring a liability to Kokmeeuw to repay
the US$27.4 million plus interest; (b) giving THL credit for US$25 million
plus interest on the Croesus loan on the inter-company set off for the
purposes of *383 the 1990 accounts, and then writing-off the US$25
million against its profit and loss account in its 1990 accounts; (c)
reimbursing the payments of US$2,576,707 by THL as more particularly
set out at paragraph 32 above.
(2) THL suffered a loss by: (a) incurring a liability with Banco Santander
for US$25 million as more particularly set out at paragraph 28 above; (b)
paying US$2,576,707 as more particularly set out at paragraphs 32(2)
and 32(3) above.
The reference to interest on the loan of U.S.$27.4 m. is unparticularized.
During the course of the hearing, it became apparent from the
documentation that in addition to the payments of U.S.$25 m. and
U.S.$2.576 m. a further sum of U.S.$3 m. was on Sept. 18, 1989 paid
to Kokmeeuw on account of the loan to GT. It also became clear from
documentation obtained as a result of separate proceedings (with which
I was not involved) relating to certain banks that the source of this U.S.
$3 m. was moneys received as a result of the first part of the Oakthorn
transaction.
3.2 Oakthorn
This transaction is concerned with payments of, respectively, U.S.$55 m.
in July, 1989 and U.S.$50 m. in June, 1990.
3.2.1 The U.S.$55 million payment in June, 1989
On July 21, 1989 Mr. de la Rosa on behalf of GT purported to confirm
that THL would "lend" Ptas. 5 billion (c. U.S.$55 m.) to Oakthorn in
connection with Oakthorn's recent appointment to place shares on GT's
behalf. The "loan" was stated to be repayable to THL only on payment
of corresponding commission by GT to Oakthorn. Mr. Russell on July
26, 1989 wrote to THL to accept the "loan". THL funded its payment
by borrowing U.S.$55 m. from Banco Santander, depositing as security
certain notes guaranteed by banks which THL had purchased from
Koolmees. Banco Santander on THL's behalf then transferred the U.S.
$55 m. to Oakthorn's account with Royal Bank of Scotland in London.
Paragraphs 59 and 60 plead that the "loan" was not in truth a loan, it was
not intended to be repaid and it was not made for the benefit of GT or
THL. It represents the first aspect of the second black hole.
Sham documents are alleged to have been prepared and sham
transactions to have been entered into to conceal the fact that the
payment was never intended to be repaid, including (a) letters dated
July 21 and 26, 1989 written by Mr. de la Rosa and Mr. Russell, (b) an
agreement signed by Mr. de la Rosa for GT and Mr. Russell for Wardbase
whereby Wardbase acting as agent for Oakthorn was purportedly
appointed as GT's agent for the purpose of placing shares for GT, (c)
various extensions of the "loan" signed by Mr. Moukarzel for THL and
Mr. Russell for Oakthorn in early and mid 1990 and early 1991 and,
(d) a guarantee of repayment to THL signed by Mr. Nuñez for GT on or
about June 14, 1990 and provided to THL's auditors, Touche Ross, by Mr.
Coll by letter dated June 25, 1990 in order, so it is again said, "to lend
verisimilitude to the sham Oakthorn loans".
3.2.2 The U.S.$50 m. payment in June, 1990
By an undated letter Mr. Moukarzel for THL purported to agree that THL
would "lend" Ptas. 5.285 billion to Oakthorn from June 12, 1990 to the
end of that year. This "loan" was made, and/or THL and/or GT funded the
same, by a transfer by GT of Ptas. 5.3 billion from an account in its name
to another in THL's name at a Barcelona bank, by THL converting the
sum thus received into dollars, transferring U.S.$50 m. to Barclays Bank,
Piccadilly branch, and then transferring it to an account in Oakthorn's
name in Jersey. Paragraphs 65 and 66 plead that the "loan" was not in
truth a loan, it was not intended to be repaid and it was not made for the
benefit of GT or THL. It represents the second aspect of the second black
hole.
Again there is a pattern of sham documents and transactions alleged
including a sham marketing agreement signed by Mr. de la Rosa for GT
and Mr. Russell for Oakthorn dated July 9, 1990 purporting to provide for
Oakthorn to assist market GT's interests in companies called Ertoil S.A.
and Erkimia S.A.
3.2.3 Loss
The pleading avers that GT gave credit to THL in their respective accounts
for 1990 "by way of inter-company account set-off" and that GT in
its 1990 accounts also wrote off the "loans" against its profit and loss
account and transferred the loss to its share premium account.
Two heads of loss and damage are claimed: GT is alleged to have suffered
a loss by crediting THL with U.S.$105 m. on the inter-company set-off
and then writing it off, and/or by funding the payment of U.S.$50 m. to
Oakthorn (by providing the Ptas. 5.3 billion in Barcelona); THL is alleged
to have suffered a loss by incurring a liability with Banco Santander for
the U.S.$55 m. and a further loss by paying the U.S.$50 m., to Oakthorn.
3.2.4 Disposition of the U.S.$55 m. and the U.S.$50 m.
By the separate proceedings taken in relation to certain banks, the
plaintiffs obtained information which it is convenient to mention here.
Amongst various unexplained dispersals out of the U.S.$55 m., U.S.
$7.5 m. went to Privat Bank, Zurich with *384 the reference "Fairview".
Although "Fairview" is the name of Sheikh Fahad's house at Lyford Cay
in the Bahamas, information supplied in January, 1994 by Mr. Jaffar's
former secretary at the KIO and by a computer disk located through her
indicates account "Fairview" to have been a private account of Mr. Jaffar,
later closed with the contents being transferred to another Zurich bank,
Rud Blass & Cie A.G., in January, 1990. Other payments made out of
Oakthorn's Jersey account were U.S.$15,000 to Sierra Trust, a company
associated with Mr. Russell, U.S.$50,000 to Oakthorn itself, U.S.$78,000
to Westow, U.S.$200,000 to Wardbase, and U.S.$3 m. to Kokmeeuw in
respect of the Croesus transaction.
As to the U.S.$50 m., the evidence obtained indicates the following
payments made by Oakthorn on the authority of Mr. Russell and one
other: (i) U.S.$10 m. to the account in the name of Mr. Jaffar now at Rud
Blass Bank, Zurich; (ii) U.S.$22.5 m. to the personal account of Sheikh
Fahad at Chemical Bank in London; (iii) U.S.$15.49 m. to an account in
the name of Allsports Promotions Ltd. in Jersey, for whom Mr. Russell and
various others were signatories and whose address was the same as that
of Russell Limebeer.
From Sheikh Fahad's account referred to in (ii), the evidence is that there
were subsequent transfers as follows: (a) U.S.$10 m. to another account
of Sheikh Fahad in Singapore, (b) U.S.$3 m. to Maynard & Co., a firm of
Bahamian lawyers, (c) U.S.$3.4 m. to an account in Kuwait, and (d) £4
m. to an account in the name of Abacus (Nominees) Ltd. in Jersey, where
the moneys were held for the Esteem Settlement, established by Sheikh
Fahad under which his wife and members of his family (and possibly
the Sheikh himself - the affidavit evidence is ambiguously phrased) are
beneficiaries. In April, 1992 £3.15 m. of such moneys were remitted to
Stephenson Harwood to pay for the purchase by a company called Esteem
Ltd. of 52 Cadogan Place from St. Martin's Property Corporation (owned
by the KIO). Stephenson Harwood were at that time solicitors both to the
KIO and to the Sheikh personally.
3.3 Pincinco
Under a fiduciary agreement dated Oct. 2, 1990, THL through Banco
Santander (Suiza) S.A. deposited U.S.$300 m. with Bankers Trust A.G.,
Geneva and the latter agreed for a fee/commission of U.S.$2.1 m. to
make, and did on Oct. 3, 1990 make, a loan of U.S.$300 m. to Pincinco
at THL's risk and expense. Pincinco is a Jersey company now in liquidation
of which Mr. Russell was company secretary and is now liquidator. The
U.S.$300 m. was funded by an agreement dated Oct. 1, 1990 between
Mr. Folchi for Koolmees and Mr. de la Rosa for GT, pursuant to which
Koolmees agreed to lend, and on Oct. 4, 1990 did advance, Ptas. 40
billion to GT. This advance was capitalized in July, 1991. GT was thus able
to transfer some U.S.$410 m. to Banco Santander (Suiza) S.A. for value
date Oct. 5, 1991, out of which the U.S.$300 m. was paid to Pincinco. As
to the remainder U.S.$107 m. was returned to GT on Oct. 24, 1990. The
U.S.$300 m. was not intended to be repaid by Pincinco from its own funds
and was not paid to Pincinco for the benefit of GT or THL. It represents
the third black hole.
An extremely complex "cover up scheme" is pleaded in pars. 92-94
as implemented between June, 1991 and June, 1992. Any summary
compromises the complexity which, on the plaintiffs' case, is one of its
telling features. The points of claim outline the scheme in par. 93. The
first stage consisted in a series of payments or entries of a circular nature
which had the effect of replacing the loan by THL made to Pincinco via
Bankers Trust (on which interest totalling some U.S.$19 m. was by now
due) with a loan of U.S.$319 m. by THL to Coggia, who in turn made a
loan to Pincinco of U.S.$319 m. THL paid U.S.$75,000 to Bankers Trust by
way of early repayment fee, of which U.S.$38,173.32 was reimbursed by
Pincinco.
This still left THL out of pocket, and the next stage involved the sale
by Coggia to THL of sufficient shares in GT at a price of Ptas. 17,000
per share with the price being set off against the loan. For this purpose
Coggia needed to acquire GT shares at no cost. This in turn was arranged,
broadly speaking, by GT issuing new shares at par (at that date Ptas.
1000) to Riquel. THL (with moneys received for the purpose from GT)
funded the cost (Ptas. 2.375 billion) to Riquel/Coggia of acquiring the
shares. Riquel then made available equivalent shares to Coggia. To
disguise the true nature and purpose of the transaction, so it is pleaded,
the new shares issued by GT were in fact "swapped" by Riquel for
approximately the same number of old shares in GT held by Mira, Folma
and Philby. Having acquired the old shares from Coggia at Ptas. 17,000 a
share, making some Ptas. 37.333 billion which was set off in discharge of
Coggia's indebtedness to THL, THL transferred the old shares back to GT
at the same price, which GT set off against capital.
In the course of this cover up scheme, Coggia entered into four loan
agreements with THL: (i) one dated July 16, 1991 covering the original
unsecured loan for U.S.$319 m.; (ii) a second dated July 18, 1991
covering the further loan of Ptas. 2.375 billion to fund the purchase of
the new shares; and (iii) two further loans in July, 1991 for sums of
about U.S.$4 m. and U.S.$2 m. to fund the scheme, which were *385
disbursed to an account in Wantley's name (save for some U.S.$20,000).
In August, 1991 THL (through Mr. Soler) and Coggia agreed in writing
that the total due under all four agreements was Ptas. 37.213 billion,
which was the indebtedness set off on THL's purchase of the old shares
from Coggia. Under an agreement dated Dec. 30, 1991 THL agreed to pay
the difference of Ptas. 119,895, 616 to Coggia on July 31, 1992. Also as
part of the scheme, THL allegedly paid U.S.$38,123 to Russell Limebeer
in April, 1992, Ptas. 62 m. to Coggia in May, 1992 and, by six transfers
in the period March to June, 1992, a total of some Ptas. 83.8 m. to an
account in the name of Zymo Ltd. in Monaco.
The loss and damage claimed in respect of this transaction is pleaded
as follows: 119. By reason of the matters aforesaid the Plaintiffs have
suffered loss and damage.
PARTICULARS (1) The US£300 million transferred by THL to Bankers Trust
and by Bankers Trust to Pincinco and by Pincinco to other third parties as
more particularly set out in paragraphs 89(3) and 89(4) above; and/or
(2) The US$2.1 million fees taken by Bankers Trust...;
(3) The US$75,000 fee taken by Bankers Trust for early repayment of the
loan...;
(4)-(7) [The sums of US$319 million, Ptas. 2.375 million, US$4 million
and US$2 million transferred by THL to Coggia;]
(8)-(13) [The further sums transferred by THL in the period March to June
1992, namely US$38,123 to Russell Limebeer, Ptas. 62 million to Coggia
and the six transfers totalling some Ptas. 83.8 million to Zymo Limited].
3.4 Wardbase
On May 26, 1992 Ptas. 2 billion was transferred by GT to THL in Barcelona
and then by THL to an account in the name of Wardbase in London. On
the same day Wardbase transferred Ptas. 1.96 billion (on the evidence
via Oakthorn) to Anslow in the Isle of Man. This constitutes the fourth
black hole. The payment of Ptas. 2 billion is said not to have been for the
benefit of THL or GT. It is said to have been made pursuant to a purported
invoice from Wardbase to Torraspapel dated Apr. 24, 1992 referring to
a purported agreement of Sept. 4, 1989, both of which are said to have
been sham. The plaintiffs are alleged as a result to have suffered loss of
Ptas. 2 billion.
4 MERITS
The defendants' submissions that there is no serious issue for trial
proceed at various levels. Firstly, it is said that the matters pleaded in
the points of claim would, even if established, fail to demonstrate any
such issue, and that GT and THL are tied to the points of claim and unable
to amend to remedy any deficiency whatever. Secondly, the defendants
deploy substantial evidence with a view to showing that any case which is
sufficiently pleaded is so devoid of prospects that the Court should reject
or disregard it for the purposes of the Convention and O. 11. Mr. Onions'
submissions that there is no serious case against his clients of conspiracy
against GT or THL inter-relate with his submission that there is no serious
case against any defendant that loss was sustained by GT or THL which is
recoverable either in damages or on the basis of constructive trust. I shall
take the claims for conspiracy and breach of director's duties together,
and leave the position in constructive trust until later. The submissions
made require analysis of each transaction, of the position of each plaintiff
and of the position of each of the defendants represented by Mr. Onions.
4.1 Conspiracy to defraud or injure GT and THL
At its barest Mr. Onions' submission was that there was no adequate plea
in the points of claim of any conspiracy to defraud or injure GT or THL.
The pleading asserts transactions whereby payments (totalling over U.S.
$450 m.) were made to third parties which were not made for the benefit
of either of GT and THL (and later asserts that loss was suffered thereby
by GT and/or THL). Mr. Onions suggests that there is not implicit any
plea of any intention to cause loss; and that the matters pleaded cannot
therefore raise any prima facie case of conspiracy. I disagree. The plea is
not merely that various defendants were knowingly party to transactions
whereby huge sums disappeared to no benefit of those funding their
payment. That by itself would suffice. The payment and disappearance
were in each case covered up by sham documentation and transactions,
whose only intelligible purpose must have been to hide from enquiring
minds the payments and their disappearance. The evidence which has
come to light during the hearing as to the actual disposition of the funds
emphasizes the lack of merit of this particular submission, and would no
doubt have been pleaded if available prior to these proceedings.
A variant on this submission was a suggestion that the Court must look
at the pleaded transactions, by reference to which the allegations of
conspiracy are made, as a whole: Thus, if at the end of any transaction
it appeared that steps had been taken to transfer the loss to the KIO
or to a particular *386 plaintiff, then it would be impossible to infer a
conspiracy by any defendant against anyone other than the KIO or that
particular plaintiff. This was a proposition accompanied by painstaking
analysis of the incidence of loss on each transaction, but it has its most
extreme impact in relation to the capitalization of GT by Koolmees which
took place in July, 1991. By that stage, according to Mr. Onions, if anyone
had suffered any loss, it was GT; and the capitalization, he submits, was
intended to (and he also submits did) pass the whole of any loss to the
KIO. Ergo, he submits, there can never have been any intent to defraud
or injure anyone save the KIO. This is in my view obviously fallacious.
In making his submission, Mr. Onions was again relying, at least in part,
on the precise formulation adopted by the plaintiffs in their pleading. In
relation to each transaction, the plaintiffs have pleaded a conspiracy by
various named defendants -
...with each other and/or with other persons unknown to defraud the
Plaintiffs and/or each of them in their business by unlawful means in
the manner set out in paragraphs...above [referring in each case to the
paragraphs setting out the whole of the relevant transaction as I have
already summarized it].
Mr. Onions' submission is that the Court must regard each transaction as
the object of a single unaltered scheme from beginning to end. This is a
highly literal reading of the points of claim. If one looks at the pleaded
account of each transaction, there is nothing which says that every step
was necessarily conceived at its outset, nor on reading the account of the
transactions pleaded does this even appear likely to be what happened.
The point can be tested by looking at the transactions more closely.
Starting with Croesus, the first payment into a black hole occurred in
May, 1988 when Kokmeeuw, using moneys emanating originally from
the KIO, paid U.S.$27.4 m. to a numbered New York account following
GT's request (pars. 25-27). The first repayment to Kokmeeuw was by
THL in September, 1989, and was followed by further payments in (as is
now known) September and about November, 1989, accompanied then
and thereafter by various sham documents and transactions by which,
it is pleaded, such payments were designed to be concealed. In March,
1990 there was a purported roll-over of the Croesus loan. Then in June,
1990 Mr. Nuñez signed a guarantee on GT's behalf in favour of THL and
this was sent to THL's auditors. Still later credit was purportedly given by
GT to THL on the inter-company set-off, the sum was written off in GT's
1990 accounts and the capitalization took place in July, 1991. The various
stages bear the hallmarks of expediency rather than of some single
coherent plan unaltered from May, 1988 to July, 1991. There is, clearly, a
serious case for saying that, if the other requirements of conspiracy are
present, then the conspiracy started its life directed against Kokmeeuw
and/or GT, that it later became directed against THL (as a result of the
U.S.$25 m. payment and the Croesus "loan") and GT (as a result of the
U.S.$2,576,707 payment funded by GT) and that it may still later have
become re-directed towards GT when the U.S.$25 m. was set off in the
inter-company account. The last point will receive closer examination in
the context of loss. If one were to accept the defendants' analysis that the
Koolmees capitalization compensated GT for any loss, then at that stage
any conspiracy would also embrace or re-embrace Koolmees or the KIO.
There is in my view unreality about the whole of the submission that there
can have been no conspiracy to injure or defraud GT or THL. An intention
to injure or defraud need not be a defendant's primary or predominant
purpose. It may not uncommonly be ancillary to some other ulterior
purpose. People who wish to disperse huge sums of others' moneys for
their personal purposes will not be overconcerned who makes or bears the
payments, so long as they can be covered up. It is unlikely to be difficult
in this situation to infer an intention to injure or defraud any company
which in fact suffered loss. There is on any view a serious case to that
effect.
The Oakthorn transaction leads to a similar conclusion. The first U.S.
$55 m. "loan" by THL to Oakthorn occurred in July, 1989. There were
various extensions. In June, 1990 Mr. Nu¤ez's guarantee on behalf of GT
was created and provided to THL's auditors. At about the same time the
second U.S.$50 m. "loan" was made pursuant to sham documentation.
Still later credit for these loans was purportedly given by GT to THL on
the inter-company set-off, the sum was written off in GT's 1990 accounts
and the capitalization took place in July, 1991. There is a serious case
for saying that the conspiracy started off (at least in respect of the first
U.S.$55 m.) aimed at THL, that it embraced GT from June, 1990 and,
on the defendants' view of the capitalization, that it still later embraced
Koolmees or the KIO.
The Pincinco transaction also justifies the same conclusion. The first stage
involved the transfer to Pincinco in October, 1990 of U.S.$300 m. by THL
(which was funded out of the U.S.$410 m. advance by GT which was in
turn funded by Koolmees' Ptas. 40 billion loan to GT), while the cover up
is pleaded as occurring from July, 1991 onwards. I shall return in another
context to the evidence when and by whom the cover up was actually
devised. *387 Analysis of the targets of any conspiracy is complex. There
is a serious case for regarding THL as at least an initial victim, since it
borrowed money from GT which the disbursement to Pincinco meant
that THL could not realistically repay. The introduction of Coggia did
nothing to alleviate THL's position. But the issue by GT of shares at par
and the consequent provision to THL of equivalent shares for sale back
to GT at full value raises a serious case for saying that GT became an
intended target of any conspiracy. If GT did not in fact pay THL in full for
the shares, then THL remained a victim. If THL remained a victim of an
earlier conspiracy aimed at it, it avails nothing to say, as Mr. Onions did
at one point, that this was not part of the cover scheme and that there
is "a very significant causation point". There will undoubtedly be very
large numbers of issues at trial, but I am not here to determine them
now. Indeed it is impossible to say with certainty at this stage what those
involved in setting up the scheme may have intended. It is a matter for
trial. Further, on any view, THL continued to make further payments, as
part of the original alleged scheme, during 1992, to Zymo and others.
In each of these cases, therefore, there is no inference that the whole
scheme was conceived as a seamless web, by which the KIO was intended
to be sewn up from the outset. Common sense makes it just as likely that
the transactions, and in particular those aspects pleaded as concealments
or cover-ups, developed over time and in response to other events and
needs. Indeed if the supposed scheme was that it was the KIO and only
the KIO which should be affected, the question may legitimately arise why
GT and/or THL should have been involved at all.
Only in relation to the Wardbase transaction is it clear that the loss was
from the outset felt by only one of the two plaintiffs, that is GT. All the
indications are that THL was used as a mere conduit to make a payment
for GT which was covered up by an invoice directed to GT's subsidiary,
Torraspapel, pursuant to a purported agreement between Wardbase and
Torraspapel. I accept Mr. Onions' submission that there is no serious case
for saying that there was any conspiracy against THL.
4.2 The Koolmees capitalization of GT
I must now give more detailed attention to the capitalization of GT by
Koolmees in July, 1991, on which all the defendants place particular
weight in their submissions on loss and on which Mr. Onions relies in the
present context as negativing any conspiracy to defraud or injure GT or
THL. The capitalization was approved at the second of two extraordinary
shareholders' meetings of GT which took place on July 5 and 8, 1991.
Instructions to vote, as representative of Kokmeeuw and Koolmees,
for the decisions and resolutions at both extraordinary shareholders'
meetings were given by letter dated June 20, 1991 by Sheikh Fahad
to Mr. Folchi. As at July, 1991 GT owed Koolmees Ptas. 162.9 billion,
consisting of (a) Ptas. 47.5 billion payable in respect of the cession to GT
of Spanish Treasury bills in June, 1990 and (b) loans of Ptas. 80 billion
and Ptas. 40 billion made by Koolmees to GT under loan agreements
dated Sept. 20 and Oct. 1, 1990 (of which some Ptas. 115.4 billion
remained outstanding after a partial repayment in January, 1991). The
ostensible reason for which GT sought these last two loans (mentioned in
a letter written by Mr. de la Rosa in February, 1991 and a memorandum
by Sheikh Fahad, based on a draft by Mr. Folchi, in November, 1991)
was the adverse effects on GT's credit of Iraq's invasion of Kuwait. The
Ptas. 40 billion advance had been used for the Pincinco transaction. The
capitalization took place immediately after an increase in the par value
of GT's shares from Ptas. 100 to Ptas. 1000, and it involved converting
GT's debt into share capital by issuing to Koolmees shares valued at Ptas.
17,000 per share.
The defendants say that the capitalization made good to GT any losses on
the Croesus, Oakthorn and Pincinco transactions and put GT in funds to
cover the later Wardbase transaction. The meetings that approved these
arrangements in July, 1991 also approved the 1990 accounts of GT, in
which note 11(d) shows the Ptas. 115.4 billion outstanding in respect of
loans as "contributions to future capital increase" in anticipation of the
July capitalization. Note 23 states:
Of the total amount of loan to be offset, 14,472,629,000 pesetas will be
used to cover a [debt] due to a subsidiary from third part[ies] (see note
11(b)) 1.
It is clear that the third parties referred to are Croesus and Oakthorn,
whose ostensible "debts" equalled the figure given in pesetas. In the
accounts this indebtedness was written off against the share premium
account by an entry appearing on the same line as the Ptas. 115.4
billion "contribution to future capital increase". Thus, the defendants
submit, Koolmees made good any loss to GT arising from the Croesus
and Oakthorn transactions, and also made good any loss on the Pincinco
transaction by the capitalization of the Ptas. 40 billion loan by which that
transaction had been funded.
As to the Wardbase transaction, the defendants accept that there is
no direct documentary link with the capitalization; and the payment of
Ptas. 2 billion *388 was not made until 10 months later. It is true that
Wardbase's invoice to Torraspapel dated Apr. 24, 1992 referred to a
purported agreement of Sept. 4, 1989. But the plaintiffs' case is that
both these documents are shams, and they make no admissions as to the
actual date when the latter was prepared. Paragraph 57(8) of the sixth
affidavit sworn Nov. 12, 1993 by Mr. K. E. Oliver, solicitor, on behalf of Mr.
de la Rosa, Mr. Soler and Mr. de Mir says this:
The Oakthorn and Croesus "operations" had been approved in previous
Board meetings and were included in the 1990 accounts. The Wardbase
"operation" could not be "approved" as such because at the time of
the capitalization the payments were not due. However, an agreement
entered into by Sheikh Fahad subsisted whereby the payments were
intended to be covered by the capitalization.
In par. 2 Mr. Oliver identifies the means of his knowledge for making
such statements as consisting of "information supplied me by [Mr. de la
Rosa, Mr. Soler and Mr. de Mir]", to which he adds that his "silence on
other matters connotes no admission on those Defendants' behalf". He
does not identify the precise source of the reference to "an agreement
by Sheikh Fahad." More importantly, his affidavit gives no particulars at
all, even as to when, how and with whom the alleged "agreement" was
made. Mr. Onions said that there is no evidence which contradicts Mr.
Oliver's statements. That pre-supposes that the statements are sufficient
to negative any serious case to the contrary; and that the plaintiffs could
be expected to adduce evidence to contradict them. The statements are
in my view deficient, in content and context, to the point where neither
pre-supposition can apply. The three defendants, on whose behalf Mr.
Oliver made his affidavit, have not chosen to give any explanation as
to their knowledge or understanding of the Croesus, Oakthorn, Pincinco
and Wardbase transactions. There is nothing to put the reference to an
agreement by Sheikh Fahad in any context. The question is in any event
whether there is a serious case for trial for saying that there was no link
between the capitalization when it was made and the Wardbase payment.
There clearly is.
Mr. Onions submitted that the capitalization was conceived at the outset
of each of the first three transactions and that there cannot have been
any intention to injure GT and/or THL. The earliest date on any document
referring to any proposed capitalization is on a letter dated Dec. 20, 1990
(which in an interview on Nov. 25, 1992 Mr. Coll said that he drafted)
purporting to have been sent by Sheikh Fahad to Mr. de la Rosa. The
plaintiffs challenge the authenticity of this letter. They refer to documents
dating from the first half of 1991 which treat the loans as intended to be
repaid, e.g. a letter from Mr. de la Rosa to Sheikh Fahad dated Feb. 13,
1991 and also notes made by representatives of the KIO in respect of a
meeting with Mr. de la Rosa in May, 1991 at which a question was raised
about a reference to Ptas. 153.7 billion as "due to K (to be capitalized)"
in GT's undated management accounts showing its position as at the
end of 1990. The idea of capitalization must have been developed some
time in advance of the July meetings. It does not assist the defendants
to show that it was mooted at any time earlier in 1991, since it would
then postdate all the payments in respect of Croesus, Oakthorn and
Pincinco. The documentation available demonstrates a serious basis
for saying that the idea only developed at the earliest in the first few
months of 1991. At some stage, possibly as early as February, 1991,
an undated memorandum was undoubtedly prepared by Mr. Coll which
proposed a capitalization along the lines which took place in July, 1991.
It is capable of being read as proposing such a capitalization for the first
time. Paragraphs 40-41 of Mr. Richards' third affidavit state that a Mr.
Puig, GT's general controller at the time, understood in the first quarter
of 1991 that capitalization was intended. Mr. Folchi's memorandum
dated Nov. 29, 1992 to the Attorney-General of Kuwait, although not on
affidavit, states in relation to all three transactions (Croesus, Oakthorn
and Pincinco) that the capitalization was conceived by Mr. Folchi and Mr.
Coll after the death of Mr. Trevor Ball of the KIO in January, 1991.
Paragraph 48 of Mr. Oliver's sixth affidavit states: I should also outline
very briefly the circumstances leading to the capitalisation. In or about
August 1990 (at the time of Iraq's invasion of Kuwait) Grupo Torras
required an input of funds from its ultimate shareholder, the KIO. Due
to problems in dealing with assets owned by the Government of Kuwait,
it was inevitable that the contribution required would have to be found
by way of an increase in capital, and this was what was agreed between
Sheikh Fahad, the Chairman of the KIO, and Grupo Torras. However it was
thought that it was not an appropriate time to show new investments in
the accounts of the KIO, and, therefore, the KIO continued to regard the
contributions as loans. There was clearly a difference in the way in which
the sums had been treated within the KIO, and within Grupo Torras. To
support the accounting in KIO, Grupo Torras was asked to pay interest
until 31st December 1990 (although it was agreed that this payment
would be treated as a deduction from the sums outstanding which were
to be capitalized when hostilities ceased: they were thus accounted for
in Grupo Torras), and to present a repayment *389 plan. This was what
prompted Mr. de la Rosa's letter dated February 1991.
The absence of particularity about the alleged agreements is open to
similar comment to that which I have already made on par. 57(8) of
Mr. Oliver's affidavit. On its face the alleged agreement is inconsistent
with Mr. de la Rosa's letter dated Feb. 13, 1991, while the reference
to a difference in accounting between the KIO and GT is mysterious. I
conclude on the material before me that the plaintiffs have a serious case
for trial, to the effect that the capitalization was only conceived at a time
well after any losses on the Croesus, Oakthorn and Pincinco transactions
had arisen. So far as Mr. Onions relies on the capitalization to suggest
that there is no serious case of any conspiracy to defraud and/or injure GT
and/or THL, I do not accept his submission.
4.3 The Lawrence Graham defendants - general
Mr. Onions next submits that, if there is a serious case for trial of
conspiracy to defraud or injure GT and/or THL, it does not concern his
clients. Again this submission is made at different levels, firstly on the
pleadings and secondly on the evidential material before the Court. At
each level, it necessitates analysis of the position of each defendant
represented by Mr. Onions. It ties into the question whether, irrespective
of the capitalization, either GT or THL can be said to have suffered loss in
any transaction, in view of Mr. Onions' submissions that the incidence of
any loss points closely to the identity of any intended victim.
I start with general considerations. Mr. Onions submits that any
professional man advising or acting in relation to GT or THL would be
entitled to rely on the authority and good faith of Sheikh Fahad as well
as any approvals of the relevant transactions by the boards of GT or THL.
He deploys a number of documents (the authenticity of some being in
issue) evidencing, he submits, authorization and approval in more or
less specific terms - for example, letters from Sheikh Fahad to Mr. de la
Rosa dated in late 1990; purported minutes of board meetings of GT and
THL on Dec. 13, 1989 and Mar. 21, 1991; the letter dated June 20, 1991
from Sheikh Fahad instructing Mr. Folchi how to vote; GT's 1990 accounts
which are said to have "included" transactions complained of and which
were audited by Coopers & Lybrand who remained GT's auditors until
1993 and who audited GT's 1991 and 1992 accounts; and a ratification
and approval of the whole of the conduct and approval of GT's affairs at
a board meeting of GT on May 26, 1992. Mr. Onions says that, assuming
that these authorizations and approvals were all part of or induced by
some scheme of fraud, there is no reason to assume that his clients were
aware of the scheme of fraud; the plaintiffs themselves assert that their
new management and advisers only discovered any such scheme in late
1992.
The onus is on the plaintiffs to plead facts which on the evidence give
rise to a serious case of involvement by each of Mr. Onions' clients in a
conspiracy. In evidence, Mr. Onions' clients assert through their solicitor,
Mr. Richards, that -
...they have always acted on the basis that Sheikh Fahad has had actual
or at least ostensible [sic] authority to give instructions on behalf of
KIO...and that they were perfectly entitled to act on those instructions.
However they have not provided any detailed explanation on affidavit
as to their roles in or understanding of the relevant transactions as
they took place. Paragraph 34 et seq. of Mr. Richards' third affidavit
(under the heading "Did GT and/or THL suffer a loss?") deal with the
capitalization in terms which acknowledge the "confidentiality" of the
Pincinco payment and which assert on behalf of Mr. Coll that Mr. Coll's
undated memorandum was designed -
...to produce a structure which would enable the payment of U.S.$300
million to Pincinco to remain confidential.
Some of Mr. Onion's clients have also provided information informally
on parts of which the plaintiffs positively rely. Inter alia, Mr. Russell
attended a meeting on Oct. 8, 1992, while Mr. Coll attended an interview
on Nov. 25, 1992. Mr Folchi also attended interviews on Nov. 13 and
15, 1992 and produced his memorandum dated Nov. 19, 1992 for the
attention of the Attorney-General of Kuwait, upon which reliance is
placed by the plaintiffs as showing a serious case against Mr. Folchi and
Mr. Coll. The memorandum acknowledges the entirely bogus nature of
documentation and operations by which the payments in respect of the
four transactions were covered up. In it Mr. Folchi justifies his conduct
on the basis of instructions received to make unexplained payments
which were either "confidential" or, in the case of certain of the Oakthorn
payments, "complementary" and related to certain take-over or merger
projects in which GT engaged. The plaintiffs say to this that it does not
lie well in the mouth of a professional adviser to suggest that he has
properly served any company on behalf of which he acts by concocting
false documentation and transactions to cover up reality. Mr. Folchi's
duties and his assertion that he was entitled to act on instructions have
also to be viewed in the light of the fact that he was a director of THL
from Oct. 1, 1990, in other words during the Pincinco and Wardbase
transactions. The transactions were of breath-taking size, on the present
evidence of no discernible benefit to GT or THL, conducted with *390
secrecy and concealed by sham documentation and manipulations of
intricate complexity. The submission that no conspiracy or no intention to
defraud or injure is sufficiently established must be viewed in this context.
The Court is only concerned with the interlocutory question whether there
is a properly pleaded case which on the evidence raises a sufficient issue
for trial.
Mr. Clarke cited a passage of Mr. Justice Millett (as he then was) in Agip
(Africa) Ltd. v. Jackson, [1990] 1 Ch. 265 at pp. 294-295. Though said
in the context of a trial and of an issue of constructive trust, it is worth
recalling here:
Mr. Jackson and Mr. Griffin are professional men. They obviously knew
that they were laundering money. They were consciously helping their
clients to make arrangements designed for the purpose of concealment
from, inter alios, the plaintiffs. It must have been obvious to them that
their clients could not afford their activities to see the light of day. Secrecy
is the badge of fraud. They must have realized at least that their clients
might be involved in a fraud on the plaintiffs.
What did Mr. Jackson and Mr. Griffin think was going on? There is some
evidence of this in the minutes of the first meeting of the directors...,
and it would be wrong of me to ignore it. It suggests that they thought
that their clients were engaged in evading Tunisian exchange control,
possibly with the connivance of the plaintiffs and on their behalf - though
the minutes do not say so. In my judgment, however, it is no answer
for a man charged with having knowingly assisted in a fraudulent and
dishonest scheme to say that he thought that it was "only" a breach of
exchange control or "only" a case of tax evasion. It is not necessary that
he should have been aware of the precise nature of the fraud or even
of the identity of its victim. A man who consciously assists others by
making arrangements which he knows are calculated to conceal what is
happening from a third party, takes the risk that they are part of a fraud
practised on that party.
Mr. Justice Millett found that it was unnecessary to rest his judgment on
this point, because the possibility of fraud had been specifically drawn to
the defendants' attention by a letter, yet they had not made any inquiries
of the plaintiffs "because they thought it was none of their business".
He inferred that they were at best indifferent to the possibility of fraud;
"that was not honest behaviour" and was quite enough to make them
answerable as constructive trustees. In relation to the present plaintiffs'
claims for conspiracy, breach of duty as directors and constructive trust,
the passage cited demonstrates why it cannot at this interlocutory stage
be said that there is not even a properly pleaded and serious issue for
trial.
4.4 The Lawrence Graham defendants - detailed analysis
I now consider the involvement of Mr. Onions' clients in each transaction.
4.4.1 Croesus
For reasons which will to a large extent already be apparent, I consider
that there is a properly pleaded and serious case for trial against Mr.
Folchi and Mr. Coll in respect of Croesus. The memorandum relied
on against both Mr. Folchi and Mr. Coll asserts that in the middle of
September, 1989 Mr. Coll and he -...were informed that THL intended to
make a confidential payment which could not be recorded in its books
[and that Mr. Coll] proposed to use the same scheme as had previously
been used with OAKTHORN, i.e. by the granting of a loan to an off-shore
company, but in this case under his control.
Mr. Folchi goes on that:
...since on this occasion there was to be no real movement of funds
through CROESUS there were no complimentary instructions given to us
in respect of the destination of the funds.
The points of claim allege that Mr. Folchi was also party to or aware of
the sham Wantley invoice by which the payment away of a further U.S.
$2,576,707 was concealed; they refer to Mr. Folchi's role in mid-1991
in fulfilling Sheikh Fahad's instructions to write off the Croesus and
Oakthorn "loans" against reserves in the accounts of GT. Mr. Coll owned
and provided Croesus and Wantley for the purposes of the bogus
documentation and the operations in which these companies were
involved. The pleading also states that, on Mr. Soler's instructions and
after clearing the wording with Mr. de Mir, Mr. Coll arranged for the
issue of the Wantley's invoice for U.S.$2,576,707 in January, 1990;
that in June, 1990 he provided the auditors of THL with a copy of the
guarantee signed for GT by Mr. Nuñez covering both the Croesus and
(first) Oakthorn loans; and that in January, 1991 he attended a meeting
with Coopers & Lybrand at which the scheme for the writing off of the
Croesus loan was discussed. Mr. Onions relied on Mr. Coll's involvement
with auditors as a badge of honesty. On present information I cannot
attach any weight to this submission. The plea is that Mr. Coll sent THL's
auditors a purported guarantee and discussed with GT's auditors a write
off of the Croesus loan. There is no plea or evidence that Mr. Coll told
either set of auditors the real position, nor does this seem likely. The
pleaded scheme was on its face designed to keep the real *391 position
from the eyes of any outside party. Mr. Coll's knowledge is attributed to
Croesus and Wantley for the purposes of the claim against these two
companies; it is also relied on in the claim against Coll & Co. which is
pleaded to be "the vehicle through which [Mr.] Coll provided Mr. Coll's
economic and accounting advisory services" to GT and THL.
4.4.2 Oakthorn
Mr. Folchi has again positively asserted his involvement in the creation of
sham documentation and transactions to cover up confidential and, in this
case, some allegedly "complementary" payments, and maintains that his -
...actions in this operation corresponded entirely with the normal conduct
of a professional acting under properly given instructions.
There is a serious case for trial to the contrary. As part of his involvement
the documentation available shows Mr. Folchi on July 20, 1989 faxing a
description of the first part of the proposed operation to Mr. Vasconcellos,
a director of THL (who died shortly thereafter); the U.S.$55 m. is shown
moving to Oakthorn under whose name appears the terse phrase:
"disposes of the funds". The next page outlines the cover up by means
of the payment of commission by GT to Wardbase under which appear
the words "(Contract replacement of shares) (DGTE approval)". The
memorandum dated Nov. 19, 1992 asserts that the second part of
the Oakthorn operation used the same structure as the first part. The
agreement appointing Wardbase as GT's agent in July, 1989 and the
agreement appointing Oakthorn as marketing agent in July, 1990 are both
alleged to have been prepared in Mr. Folchi's office and he witnessed the
signature on the latter. Again he voted for the writing off of the Oakthorn
loans in July, 1991.
As to Mr. Coll and his company, the pleading relies on involvement in
the covering up in 1990 of the payment made in July, 1989, and in the
scheme for writing off and capitalization implemented in mid-1991.
Particular reliance is placed on the sending of the guarantee to THL's
auditors in June, 1990 in respect of the U.S.$55 m.; the drafting of
the letter dated Dec. 20, 1990 purporting to state that the loans were
advanced in accordance with the KIO's instructions and contemplating
their write-off against GT's share premium account; the discussion with
GT's auditors about writing off in January, 1991; and a statement in
interview by Mr. Coll that he had devised the scheme for writing off.
Involvement in concealing payments by bogus documentation raises a
prima facie case against Mr. Coll and his company in respect of the whole
transaction. I have sufficiently covered the submis- sion that Mr. Coll's
honesty is unchallengeable because of his communications with auditors.
Turning to Mr. Russell, he was intimately involved as director and
controller of Oakthorn, and actually signed various critical documents
such as letters of acceptance of the U.S.$55 m. and U.S.$50 m. loans, the
Wardbase agency agreement and the Oakthorn marketing agreement. I
need not repeat all the matters relied on in par. 81 of the pleading. He is
also said to have described the Wardbase agency agreement as "window
dressing" or a "conduit" or "means of getting money out". As is now
known and as doubtless would have been pleaded if known before, he
also authorized payments, out of the U.S.$50 m. received by Oakthorn, of
U.S.$10 m. to an account of Mr. Jaffar in Zurich and U.S.$22.5 m. to the
personal account of Sheikh Fahad in London. Other relatively small sums
were disbursed to other of his companies, Wardbase and Westow.
4.4.3 Pincinco
Mr. Folchi, by now a director of THL, actually signed the fiduciary
agreement with Bankers Trust and arranged the transfer of U.S.$300 m.
by that means to Pincinco. That payment (which Mr. Folchi acknowledges
as a "confidential" payment in his memorandum of Nov. 19, 1992) never
in substance returned, despite the formal circular transaction which Mr.
Folchi also instructed in July, 1991 whereby Bankers Trust was replaced by
Coggia. Coggia and Riquel were shelf companies provided by Mr. Folchi.
Mr. Folchi is alleged to have given instructions to Mr. Russell for payments
to third parties from Pincinco's account. In July, 1991 Mr. Folchi and his
office are alleged to have been at the centre of the cover up scheme: c.f.
par. 102(4)-(12). Mr. Folchi's memorandum acknowledges his role in the
original payment and its covering up, while asserting that he -
...has no empirical evidence of the identity of any of the ultimate
beneficiaries of any of the $300 million.
Turning to Mr. Coll and Coll & Co., the case again rests on Mr. Coll's
participation in the cover up. He was the author of the undated
memorandum (F4/3/108) by which the July capitalization was outlined
at a date in the first part of 1991. The pleading is that this was not
for the benefit of GT or THL. It may be on this pleading that Mr. Coll's
participation was limited to this stage of the cover up. But, at least so
far as the cover up involved GT or THL in loss, the plea in my view raises
a serious issue to be tried. Moreover another of Mr. Coll's companies,
Wantley of Gibraltar, also received some U.S.$6 m. from Coggia (which in
turn obtained it from THL) in the course of the cover up. *392
Mr. Russell is the company secretary of Pincinco and controlled its affairs,
disposing of the U.S.$300 m. in some unspecified way on Mr. Folchi's
instructions. In relation to the cover up operation, his firm in April, 1992
received U.S.$38,132 from THL. Wardbase, his company also rendered to
GT an invoice dated Nov. 8, 1991 for Ptas. 130 million (c. U.S.$1.3 m.)
allegedly due (though not apparently ever paid) for technical services in
the granting by Koolmees to GT of the Ptas. 40 billion loan (which had
occurred as long ago as October, 1990).
4.4.4 Wardbase
Mr. Folchi's participation in preparing the necessary "structure" for this
"loan" was acknowledged in interview and in his memorandum. The date
when the agreement dated Sept. 4, 1989 between Torraspapel (of which
Mr. Folchi was a director) and Wardbase was entered into cannot be
resolved at this stage. On any view it appears as a cover for a payment
made to unknown third parties (it seems via a Geneva bank) which is
alleged not to have been for the benefit of GT or THL. Mr. Russell signed
the agreement for Oakthorn, arranged for the Ptas. 2 billion to be paid
to his company Wardbase (owned beneficially by Oakthorn and Westow).
From Wardbase he arranged for Ptas. 1.9 billion to be passed to another
company associated with him, Anslow. His knowledge is attributed in the
pleading to all these companies.
5 LOSS
5.1 Introduction
I come to the incidence of loss in relation to each transaction. Mr. Onions
says that it is not open to the plaintiffs to amend their points of claim at
this stage to alter their pleaded loss. He went so far as to suggest that
since damage is the gist of a cause of action in conspiracy, each item
of loss constitutes a separate cause of action. Despite this, Mr. Onions
did not suggest that, if one particular item of loss pleaded by one of the
plaintiffs was unsustainable, I should strike out that item. However he
said that each plaintiff's position must be viewed separately in relation
to each transaction. With this I agree. But I reject his further suggestion
that, because damage is the gist of conspiracy, therefore each item of
damage pleaded constitutes a separate cause of action. Damage is the
gist of the cause of action, but when and in what form it arises is a matter
of particularization so long as the basic conspiracy remains the same.
5.2 Amendment of the points of claim
I come to the defendants' submissions (i) that no amendments whatever
may be made at the present stage of the proceedings; or alternatively (ii)
that, if any amendments may be made, then personal service must be
re-effected on the defendants because the amendments affect a pleading
which has been endorsed on the writ. The background appears at the
end of section 1 of this judgment. The plaintiffs' purported amendment
and reservice of their points of claim endorsed on the writ took place in
order to respond to, or attempt to meet, certain objections raised during
the course of the hearing in relation to their originally pleaded case. The
defendants did not ultimately suggest that, if the proposed amendments
could properly be made at this stage of the action, they would suffer
any evidential prejudice which should cause me to refuse or disallow the
amendments.
The question is whether it is open to a plaintiff who has served
proceedings, to which a jurisdictional objection is then taken under
R.S.C., O. 12, r. 8, to make any amendment until such objection has
been determined. The present amendment was (purportedly) made
without leave under O. 20, r. 3. But, as the defendants accepted, the
same question could arise under O. 20, r. 5 on an application for leave
to amend, or under O. 20, r. 8 if a Court had to consider whether
that rule could be used to order an amendment. The defendants
submit that it is implicit in the scheme of O. 12, r. 8 and O. 20 that no
amendments can be made before any jurisdictional challenge is resolved.
A contrary conclusion would, they submit, enable a party by making an
amendment to benefit from and sustain proceedings which, apart from
the amendment, were irregular and should not have been begun in the
first place. The plaintiffs accept, as they must, that it is not open to a
plaintiff, during the course of a challenge to the jurisdiction in proceedings
served with leave out of the jurisdiction, to make any amendment which
would involve a new cause of action: Parker v. Schuller, (1901) 17 T.L.R.
299; Walton Insurance Co. Ltd. v. Deutsche Rück (U.K.) Reinsurance Co.
Ltd. (unrep'd C.A. Nov. 20, 1990.) Even after such a challenge has been
rejected and a fresh acknowledgement of service has been entered, the
Court will not allow an amendment to occur or to stand which introduces
a new cause of action for which leave to serve out could not initially
have been obtained; Holland v. Leslie, [1894] 2 Q.B. 346 at pp. 450-452
(C.A.). The plaintiffs maintain that these are the limits to the bar on
amendment.
There is nothing in O. 20 which expressly excludes the power to make
amendments under O. 20, rr. 3, 5 or 8 while a jurisdictional challenge
is on foot under O. 12, r. 8. I do not consider that any such implied
limitation exists. The logical counterpart to the rule that no new cause
of action may be relied on during a challenge to the jurisdiction in
proceedings served outside the jurisdiction is in my view that the Court
may if it thinks fit make other amendments. If the plaintiffs had issued
a generally *393 endorsed writ and obtained leave to serve out on the
basis of an affidavit exhibiting draft points of claim, there would have
been nothing to stop them altering their draft in the course of their
resistance to an O. 12, r. 8 application, so long as they did not introduce
any new cause of action. While such a challenge is on foot the Court
has a certain limited jurisdiction over the defendants, for example in
relation to discovery and preventive measures: Grupo Torras S.A. v.
Sheikh Fahad Mohammed Al-Sabah, (unrep'd, C.A., Feb. 16, 1994). There
is no incongruity in recognizing that it may by its rules or by leave allow
ancillary amendments to pleadings which do not introduce a new cause of
action. Amendments going beyond this will not be allowed or will be set
aside: c.f. Holland v. Leslie, [1894] 2 Q.B. 346.
The defendants sought to find in the words of O. 20, r. 1(3) a threshold
to the operation of O. 20, rr. 3, 5 and 8. They submitted that the word
"service" at the end of O. 20, r. 1(3) must be read as meaning "valid
service" so that O. 20, r. 1 would apply until valid service had been
effected and, they submitted, by implication O. 20, rr. 3, 5 and 8 would
not apply. This construction also reads into O. 20, r. 1 a qualification
which is not there and which could introduce much practical uncertainty
into that rule's operation. Further the present problem cannot be confined
to statements (or points) of claim endorsed on a writ; the plaintiffs might
under O. 18, r. 1 have served separate points of claim along with or
immediately after the writ, in which case O. 20, r. 1 would not apply at all.
The only question which could then have arisen would have been as to the
application of O. 20, r. 3.
There is no authority precisely in point. The defendants relied on Trafalgar
Tours Ltd. v. Henry, [1990] 2 Lloyd's Rep. 298 (C.A.). In my judgment
this case does not support them, and has been interpreted in too wide
a sense both by the headnote writer and by the editors of the Supreme
Court Practice in note 11/4/9 in the revised form which that note has
taken since that case. The facts were that the plaintiffs, having obtained
leave to serve a writ out of the jurisdiction in one form, purported
before serving it to make amendments under O. 20, r. 1 which were "not
insubstantial" (p. 300, col. 2) and which appear clearly to have been
regarded as adding a new cause of action (p. 307, col. 1). The plaintiffs
evidently sought to uphold such amendments on the basis of general
statements in the former note 11/4/9 to the effect that such a writ could
be amended to add a new cause of action provided that it was one in
respect of which there was power to allow service out of the jurisdiction.
Not surprisingly, Mr. Justice Pain rejected this argument and the Court of
Appeal upheld him. The reasoning of Lord Justice Purchas (p. 307, col.
1) emphasizes that the case was concerned with an amendment falling
within O. 20, r. 1(3). It is this sub-rule which he said:
...provides an important fetter on the broadly based power to amend
without leave under O. 20, r. 1...
Since O. 20, r. 1(3) contemplates that any amendment to add a new
cause of action without leave can only be made before service and since
O. 11, r. 1 requires leave to be obtained for service out of the jurisdiction,
it is clear, as Lord Justice Purchas pointed out, that amendments falling
within O. 20, r. 1(3) cannot have been contemplated in relation to writs
requiring leave to serve out under O. 11, r. 1. Although Lord Justice
Purchas went on to say in apparently general terms that:
The reference in the note [11/4/9 in its then form] to the rules as to
amendment of the writ and statement of claim is misleading if it is
intended to embrace O. 20, r. 1...
his reasoning is focused on circumstances falling within O. 20, r. 1(3). This
is also confirmed by his immediately following reliance on the principle in
Parker v. Schuller, (1901) 17 T.L.R. 299. I do not consider that Trafalgar
Tours justifies the conclusion that no amendment before service may ever
be made under O. 20, r. 1 in the case of a writ for which leave to serve
out of the jurisdiction has been obtained. Moreover, even if this is so, it
can only apply to amendments to such a writ before service; and it says
nothing about the application of O. 20, rr. 3, 5 and 8 to pleadings whether
or not endorsed on such a writ.
The defendants' second main objection to the plaintiffs' purported
amendment concerns the manner of its service. The defendants submit
that, if any amendment could validly be made to the writ, then the writ
should have been re-served personally on the defendants instead of on
the addresses for service given in the acknowledgements of service which
they lodged as a necessary preliminary to challenging the jurisdiction.
They challenge the correctness of the first paragraph of the notes in
the Supreme Court Practice at 20/3-4/2 in so far as this indicates that,
once the writ has been served, personal service is no longer necessary
following an amendment of a pleading endorsed on the writ. In my
judgment the note is correct, in that it is dealing with amendments
to the pleading (and to the writ in its capacity as a pleading) rather
than with the writ in its capacity as a document initiating process. The
defendants sought to gain support from the second paragraph of the
same note, where there is reference to a practice of requiring a writ to
be re-served "if necessary personally" in the case of amendments of
more than merely formal character. However this passage is referring to
situations *394 where, although the writ has been served, there has been
no acknowledgement of service; this may be seen from a comparison
with the third paragraph of the note and also with the note at 20/1/7.
It would be highly inconvenient, time-consuming and costly if, following
an amendment of a pleading endorsed on a writ under O. 20, r. 3, the
writ had to be personally re-served (presumably after fresh leave, where
necessary). In my judgment the notes to the Supreme Court Practice are
correct in indicating that this is not required.
It follows that the plaintiffs were in principle entitled to amend in the
manner in which they have purported, provided always that they have
thereby introduced no new cause of action. None of the amendments in
my view does this. My reasons for saying this will appear as I go through
the transactions in section 5.3. I therefore uphold the amendments made.
5.3 The four transactions
I shall focus on the incidence of loss apart from the capitalization, and
then on the submission that the capitalization compensated GT for any
loss otherwise sustained.
5.3.1 Croesus Under the Croesus transaction, taking the pleaded heads of
loss in turn, the plaintiffs allege firstly that GT suffered loss by incurring
liability to Kokmeeuw to repay the U.S.$27.4 m. plus interest. Mr. Onions
submitted that this was an illegitimate plea since there was no allegation
of any loan or obligation to repay in pars. 25-26. I reject the submission.
Paragraph 55 to my mind indicates that what is alleged in pars. 25-26 is a
transaction under which the money which GT requested to be transferred
to it was repayable by it to the subsidiary through which the KIO fulfilled
the request. The prima facie inference from any such request as pleaded
in par. 25 is that the money was repayable. Indeed, if reference is made
to the letter expressly referred to in par. 25, Mr. de la Rosa asked for an
advance repayable in instalments over 12 months in view of "momentary
lack of ready cash" adding that "we commit ourselves to giving the
strongest possible guarantees as to its repayment". Finally, the plaintiffs
have by their amendments under O. 20, r. 3 in my view validly added to
par. 26(c) of the points of claim the following words:
For the avoidance of doubt the payment of US$27.4 million by Kokmeeuw
was treated, as between GT and Kokmeeuw, as a loan repayable with
interest by GT to Kokmeeuw.
In the event, THL met the bulk of the liability (U.S.$25 m.) in September,
1989 by borrowing from Banco Santander. A further £2,576,707 was also
paid by THL but out of funds provided by GT in respect of which no loan
is suggested. This last payment alone is sufficient to demonstrate that
(always leaving aside the capitalization) GT has a serious claim to have
suffered recoverable loss. The plaintiffs during the hearing relied on par.
55(1)(a) as sufficient to entitle them to prove that a further U.S.$3 m.
interest was outstanding from GT to Kokmeeuw in November, 1989. On
inspection however this proves to have been a sum which was paid to
Kokmeeuw in September, 1989 out of the first Oakthorn payment of U.S.
$55 m. and not therefore a loss to either GT or THL. So the amendment
to par. 55(1)(a) under O. 20, r. 3 which I consider otherwise valid (with
the re-amendment which I allow of September for November) does not
establish a loss on GT's part under this head.
Whether THL can be said to have suffered a loss on the Croesus
transaction depends on whether it was reimbursed in respect of the U.S.
$25 m. payment which it made to Kokmeeuw via Banco Santander. The
alleged reimbursement derives from credit given by GT to THL on an
inter-company set-off. Paragraphs 30-31 deal with this as follows:
30. The Croesus "loan" was accounted for between GT and THL for the
purposes of their respective 1990 accounts by GT giving credit to THL for
the amount of the "loan" by way of inter-company set-off.
31. The Croesus "loan" was then written-off to the profit and loss account
in the 1990 accounts of GT and then transferred to its share premium
account.
Against various of the individual defendants, allegations are made that
they knew "that the Croesus documentation and operation and/or the
intercompany set-off and/or the writing off of the Croesus 'loan' were not
genuine" and/or knew that they "were not properly for the benefit of GT
or THL". There are alternative allegations of recklessness in this regard.
It is convenient to mention, in parenthesis, that similar pleas appear in
the original points of claim in relation to the Oakthorn loans, viz:
The loans of US$55 million and US$50 million were written off in the
following way:
(i) the "loans" were accounted for between GT and THL for the purposes
of their respective 1990 accounts by GT giving credit to THL for the
amount of the "loans" by way of inter-company set-off;
(ii) the "loans" were written off in the 1990 accounts of GT against the
profit and loss account and transferred to the share account.
Here too, as against various of the individual defendants, allegations are
made that they knew *395 "that the 'loans' to Oakthorn and/or the inter-
company set-off and/or the writing off of the 'loans' were not genuine"
and/or knew that they "were not properly for the benefit of GT or THL".
Again there are alternative allegations of recklessness.
In respect of both the Croesus and the Oakthorn transactions the loss
claimed by GT includes loss allegedly suffered by giving THL credit on the
inter-company set-off and then writing off the sum in question. In each
case THL also claims the same sum despite the pleaded credit and inter-
company set-off.
Mr. Onions submits that the original pleading is clear; its only sensible
meaning is that GT gave THL a benefit equivalent to the amount of the
sum credited; the reason why certain defendants knew or were reckless
as to the "genuineness" of the set-off was not that there was any doubt
about the value given by GT to THL, but that there was no counter-
value given by THL to GT, since the Croesus and Oakthorn "loans" and
GT's guarantee in respect of them were not genuine. Mr. Clarke on the
other hand says that, whatever may have been in the pleader's mind,
the pleading which he formulated was wide enough without amendment
to allow the plaintiffs either to argue that "fraud unravels all" (and so
disregard the inter-company set-off) or to adduce evidence at trial that
GT did not in fact give value to THL on the purported inter-company set-
off, so that THL has not in fact been fully reimbursed by GT in respect of
the U.S.$25 m. outlay on the Croesus transaction and its U.S.$105 m.
outlay on the Oakthorn transaction.
The argument that fraud unravels any inter-company set-off did not
feature large before me, and it might be difficult to know in relation to
the present transactions where the unravelling would start or stop. Mr.
Clarke responds that there is at any rate no difficulty as between GT and
THL in relation to the inter-company set-off. However the argument is in
my view still outside the pleading which treats the actual movements of
moneys and assets as effective, however fraudulently or recklessly they
may have been conceived, and does not record or reflect any attempt
by GT to reverse them. Indeed their writing off against reserves in GT's
accounts might make such reversal problematic.
I also have considerable doubt whether Mr. Clarke is correct in his other
submission about the scope of the original pleading. If the pleading was
to be capable of raising an issue whether GT gave value on the pleaded
inter-company set-off, it should and would have taken a different form.
The original pleading in my view implies the contrary. However, one of the
plaintiffs' amendments deals with this point by the simple expedient of
adding the phrase "but not value" after the pleas that GT gave credit to
THL in pars. 30 and 68, and by qualifying the pleading of GT's losses in
pars. 55 and 88 so that they only apply to the extent that GT gave value
by or pursuant to the set-off. I see no reason why these amendments
are not valid. They do not add a new cause of action, they merely affect
already pleaded claims to have suffered loss by GT and THL.
The matter does not end there, since Mr. Onions submits that there is no
serious case on the facts for suggesting that THL did not get value from
GT on the inter-company set-off equivalent to the nominal value of the
Croesus and Oakthorn "loans"; and both Lord Irvine and Mr. Onions also
submit, as I understand it (based on par. 307 of the Pannell Kerr Forster
- "PKF" - report), that the accounting credits in favour of THL constitute
value even if THL got nothing in return at the time.
The latter submission is in my view very debatable, particularly now
that GT is in a state of suspension of payments; it is made more so by
the possibility, to which I will come, that the credit was only given in
circumstances where apparent cross-indebtedness was artificially created
against which the credit could then be set. The former submission was a
subject of debate in the expert accountants' reports submitted by KPMG
Peat Marwick for the plaintiffs and PKF for Mr. Onions' clients. It involved
examination in detail of complex and obscure financial transactions.
According to par. 3.1.3 of the KPMG report, THL prepared a schedule
which explained the inter-company set-off as comprising, on the one
side, amounts "owed" by GT to THL consisting of the Croesus and
Oakthorn debts totalling some Ptas. 14,473,000 plus two payments of
interest made by THL on GT's behalf, making a grand total of some Ptas.
21,250,000 which was set off against, on the other side, two amounts
allegedly owned by THL to GT, viz:
(a)
Payment by GT to Santander:
Ptas. 4,500,000
(b)
Part of promissory note transaction;
Ptas. 16,750,000
Ptas.21,250,000
The reference to "part" of a promissory note transaction is because the
total face value of the promissory notes treated as set-off was some
Ptas. 22,523,000 and THL received and accounted for the additional
Ptas. 5,273,000 as an "exceptional profit" - in effect a gift from its parent
company.
I will take the second of these amounts first. The facts and the issue
appear in s. 3.3 of KPMG's report and pars. 316-319 of the PKF report.
The payment by GT to (Banco) Santander referred to in *396 the
schedule apparently related to a guarantee provided and the bank's
financial support in respect of the public offer made by GT to buy its
own shares in 1990. In other words on its face it had nothing to do
with THL. But on Dec. 20, 1990 GT issued a "note of charge" to THL for
Ptas. 4.5 billion in connection with a separate transaction, namely THL's
acquisition of 2,460,000 shares of a company called Prima Immobiliaria
S.A. ("Prima") in February, 1990. The genuineness of this charge is open
to question for a number of reasons, not least that the Prima acquisition
was funded by a Ptas. 23 billion multicurrency loan from Sumitomo, the
Spanish Stock Exchange documentation shows a total consideration of
Ptas. 22.674 billion, the stock market value of Prima in early February,
1990 was some Ptas. 20.4 billion and (although a premium may be
paid for control) an independent valuation had put a value on Prima of
Ptas. 24.6 billion. Above all there is the lateness of the charge, dated
just before THL's and GT's end of year accounting dates. Coopers &
Lybrand Deloitte as auditors apparently accepted the charge as part of
an investment put at Ptas. 27.174 billion in THL's audited 1990 accounts,
but that is incapable of meaning that there is no serious issue about the
genuineness of the Ptas. 4.5 billion debt said to be owed by THL to GT.
It is still necessary to consider the genuineness of the other indebtedness
by THL to GT which was set off, since the Ptas. 4.5 billion would not by
itself eliminate the exceptional profit which THL showed in its accounts
as a result of the set-off. This aspect is discussed in section 3.2 of the
KPMG report and pars. 312-315 of the PKF report. It is complicated by
the fact that the two firms of accountants give two different explanations
of the underlying transactions and by a lack of original documentation,
at least before me, against which one might seek to clarify the position.
To enable THL to give security to Banco Santander for the U.S.$25 m.
payment to Kokmeeuw which THL made in September, 1989, THL bought
from Koolmees Ptas. 37.2 billion of loan notes guaranteed by various
banks and gave Koolmees in return Ptas. 42.6 billion of unsecured loan
notes which THL issued for the purpose (cf points of claim par. 36(2)).
On Dec. 31, 1991 on Sheikh Fahad's instructions Koolmees purportedly
sold to GT Ptas. 35.9 billion of these loan notes in return for a promissory
note from GT of only Ptas. 1.9 billion. The remaining Ptas. 6.7 billion of
loan notes were sold to THL and so effectively surrendered in return for
a promissory note from THL of only Ptas. 700 m. If that were all, the
transaction would have the hall-marks of a purely artificial move to create
purported indebtedness on the part of THL to GT which could then be set
off in the end of year accounts. All that the plaintiffs have to establish is
a serious case for saying that no genuine value was given and a serious
question-mark about the reality of the loan note sale would satisfy this.
The position is complicated by an assertion that at some unspecified date
GT had in fact "acquired" or taken over from THL some Ptas. 35.9 billion
of THL's liability to Koolmees on the THL loan notes. This suggestion
(which is undocumented) only appears in KPMG's report - ironically,
since it was relied on by Mr. Onions in support of an argument that GT
owed THL Ptas. 35.9 billion as a result of the earlier acquisition of the
loan notes, not as a result of the Dec. 31, 1991 manoeuvre. Argument
took place whether GT bought the loan notes or simply agreed to be
responsible on them in return for an indemnity from THL. In the latter
case, after Dec. 31, 1991 sale, GT's rights against THL to an indemnity
would be limited to Ptas. 1.9 billion. The problems in understanding this
transaction to my mind simply demonstrate that there are serious matters
for trial.
For these reasons THL has in my judgment a serious case for claiming
that it has suffered loss on the Croesus transaction, and also, I would add,
on the Oakthorn transaction.
5.3.2 Oakthorn
It is clear that GT has a serious claim for saying that it has suffered loss
as a result of crediting THL on the inter-company account in respect of the
U.S.$55 m. and reimbursing THL for the U.S.$50 m. payments. It follows
from the uncertain genuineness of or value given by the inter-company
set-off, with which I have just dealt under the head of Croesus, that THL,
also has a serious case for saying that it has suffered loss.
5.3.3 Pincinco
Mr. Onions submitted that par. 119 of the original points of claim should
be read as averring that the only plaintiff suffering any loss was THL. But
the plea is in terms that "the Plaintiffs have suffered loss and damage".
Mr. Onions argues that this is in effect limited by the particulars which on
analysis, he says, do not assert any loss which could be attributed to GT.
The matter can be viewed the other way around. On its face, the plea,
and the later prayer, are of loss by both plaintiffs. Where the pleading
refers to only one plaintiff it does so in the singular, as in pars. 1.1 and
1.2, or by using the abbreviation THL or GT. The pleader may not have
made specific the route by which the plaintiffs intend to show that they
have both suffered loss, but he did in my judgment plead that they have.
In these circumstances, the plaintiffs were entitled to amend under O.
20, r. 3 to add the new particulars (17) and (18) to par. 119 to clarify or
state the case regarding GT's loss. Even apart from this, I would *397
accept Mr. Clarke's submission that particular (1) in the unamended par.
119 embraces an arguable claim by GT to have suffered loss. GT can,
by the cover up scheme pleaded in earlier paragraphs, be said to have
taken on themselves loss arising from the original transfer of U.S.$300
m. to the black hole of Pincinco. The particular aspect of the cover up
scheme having this effect is pleaded in pars. 93(4) and (5) and 94(8) and
involved GT in buying back their own shares from THL at full value having
previously issued equivalent shares at par. I note that in the course of
his submissions Mr. Onions (at S12/84-85) emphasized the value of the
shares which GT indirectly made available to THL, and that the PKF report
at par. 402 recognizes what I regard as the obviously arguable case for
saying that a company which issues shares at par and then in effect buys
them back at market value suffers a loss. In any event as I have said this
is now specifically pleaded in the new particulars (17) and (18) to par.
119.
THL also has a serious case for saying that it suffered and continues to
suffer loss in respect of the original U.S.$300 m. payment which it made
into the Pincinco black hole. The circular manoeuvre which introduced
Coggia did not affect the substance of this loss. THL also has a serious
claim in respect of the additional sums of U.S.$4,120,000 and U.S.
$2,024,000 paid to Coggia and passed on to Wantley, in addition to half
of the minor fee of U.S.$75,000 which THL paid to Bankers Trust. (It is
now common ground that the U.S.$2.1 m. paid to Bankers Trust was paid
not by THL but by Pincinco out of the U.S.$300 m., and that the further
sum of Ptas. 2.375 billion paid to Coggia/Riquel to pay for the GT shares
originated from GT not THL.) If GT paid THL the price of the shares which
were sold by THL to GT as part of the cover up, then to that extent THL
may be said to have been compensated for these losses. Indeed on the
defendants' case THL actually benefited from the Pincinco transaction,
even taking into all related disbursements in that, by dint of receiving
the U.S.$300 m. from GT (on which there is no indication that it had
to pay GT interest), it actually received a notional credit for some U.S.
$19 m. interest when the circular movement of funds introduced Coggia,
which matured into an actual benefit when THL as part of the December,
1991 cover up received from Coggia shares worth about Ptas. 37.33
billion which it onsold to GT at the same price. But the plaintiffs maintain
that there is a serious case for saying that the equivalent of some £64
m. of the price of the shares sold to GT remains unpaid to THL. They
base this on a corresponding provision in THL's 1991 accounts, and they
have now (in my judgment properly, since it involves no new cause of
action) pleaded this as a new particular (par. 119(16)) of loss suffered
by THL. Mr. Onions on the other hand points out that GT's 1992 accounts
credit this sum against larger sums due to them from THL. The debate
has a familiar ring. GT's 1992 accounts are heavily qualified by their
auditors. They include such items allegedly due from THL as the balance
of the Ptas. 35.9 billion in respect of the THL promissory notes acquired
from Koolmees on Dec. 31, 1991. There are, I understand, no THL 1992
accounts. There is a serious issue whether THL has received or will
receive value in respect of £64 m. worth of the price of the shares sold in
the last stage of the Pincinco cover up. There may well be arguments of
causation, but they are for trial. That GT was already in a parlous financial
state to the knowledge of many of the alleged conspirators in December,
1991 is clear.
Finally THL has a serious claim for saying that it suffered loss in 1992
by making the miscellaneous payments to Zymo, Russell Limebeer and
Coggia set out in par. 119(8)-(15) of the points of claim. Again this is in
my view so, assuming that THL did not receive the overall benefit from
the Pincinco transaction that Mr. Onions suggests.
5.3.4 Wardbase
Lastly, there is the Wardbase transaction. The loss as pleaded and
according to the evidence fell from the outset on GT. THL acted as a mere
conduit. I do not consider that THL has any serious case for saying that it
suffered loss. Leave to serve out should in that respect be set aside.
5.3.5 The effect of the Koolmees capitalization on any loss
For reasons already indicated this question only arises at this stage
in relation to the first three transactions. As regards the Wardbase
transaction, the essential factual link the capitalization in July, 1991
and GT's loss in May, 1992 is not established. As regards the first three
transactions, the argument of all the defendants goes that a clear
link is established between the decision to capitalize the outstanding
loans and any losses which had arisen in GT on these transactions,
and that the link is such that the Court must at this stage conclude
that GT can no longer have any serious claim. However interesting
conceptually some of the points which arise are, I have once again no
doubt that the Court must reject this attempt to draw it into decisions on
potentially difficult points. It is enough that the plaintiffs have a serious
case for saying that the capitalization has not, or even may not, have
compensated GT. The argument rests on the legal difference between
moneys outstanding on loan (however long-standing or deferred) and
share capital. The defendants submitted that share capital *398 gives no
more than a right in a winding-up to share in any assets remaining after
meeting all liabilities. Even this does not appear entirely accurate. Share
capital appears on the liabilities side of a balance sheet, at par (along
with premium and reserves), although it ranks last for payment. The
defendants in any event recognized that they could not simply say that a
company which had to be recapitalized as a result of losses had ceased to
suffer any loss. That would be a tortfeasor's charter, as fallacious as the
argument that a company which is forced into liquidation by a breach of
duty suffers no loss beyond the dividend which it can pay its creditors.
So the defendants in their submissions focused on the alleged unity of
the transactions, including the capitalization. I have already indicated
that there is considerable reason to believe that the capitalization was
an idea which came late onto the scene. But, the defendants counter by
submitting that it does not matter in this context when the capitalization
became part of the conspirators' plans for concealing and dealing with
any losses; it is sufficient that it became part of the conspirators' plans
at some stage; and any benefits to which it gave rise must then be taken
into account.
This argument would not work if there were minority shareholders
and, as here, the capitalization was by one majority shareholder. (Both
sides' submissions on capitalization treated the KIO as the effective
shareholder of both the holdings of Koolmees and Kokmeeuw.) To treat
the company as suffering no loss, and to recognize a claim only in the
majority shareholder, would deprive the minority shareholder of any
means of compensation and overcompensate the majority shareholder. In
the present case the outside minority shareholders were bought out at the
time of the capitalization at a price which represented the value of their
shares before recognition of any losses. So they would not be prejudiced.
But it remains the fact that until March, 1992 there were other "inside"
minority shareholders in the form of Folma, Philby, MIRA and CAOS (all
owned and controlled by Mr. de la Rosa and Mr. de Mir). It suits them for
the purposes of the present argument to assert their effective identity
with the KIO, but at trial I was informed that there will be a strong denial
of any participation in any conspiracy coupled, there is little doubt, with a
positive case of bona fide reliance on the authority and honesty of Sheikh
Fahad to act and give instructions on behalf of the KIO. The plaintiffs'
case is pleaded in pars. 35, 69, 95 and 126 of the points of claim in terms
which embrace the possibility that one or other or both of Mr. de la Rosa
and Mr. de Mir were not party to any conspiracy.
Apart from this point, I confess to resistance to the proposition that
conspirators, by extending their conspiracy to a capitalization of
outstanding loans, can eliminate any loss in or claim by the company
capitalized. Mr. Clarke drew upon the authority of Parry v. Cleaver, [1970]
A.C. 1 dealing with damages and with the effect of collateral payments
such as pension or insurance moneys. One theme there identified is that
a third party's payment will not diminish recovery in damages unless paid
in ease of, or to relieve, the tortfeasor. That will not readily be inferred
where the victim has himself paid in order to provide for the benefit, as is
the case with certain pensions and with insurance. In the present context,
there is no certainty about the identity of the person or persons whose
intention is relevant in judging whether the capitalization was in ease of
conspirators against whom GT would otherwise have had a claim. The
defendants must in effect say that it is the conspirators' own intention
(imputed to the KIO and/or to GT) to relieve themselves of their own
alleged breach of duty to GT which is relevant. Apart from the lack of
attraction in a proposition that conspirators can exonerate themselves in
this way, the argument depends at the least upon factual identification
of the conspirators and a factual conclusion that they were the only
effective decision-makers on behalf of the KIO and/or GT in relation to the
capitalization. These are all in my view matters for trial, however much it
may seem probable that Sheikh Fahad was the most dominant personality
in the KIO in July, 1991.
I would add that it seems to me that GT did, at least prima facie, "pay"
for the injection of moneys achieved by capitalization, in so far as it gave
shares in return. In normal circumstances, it could be no answer to a
claim by a company for damages for, say, misrepresentation to show
that its only outlay consisted in the issue of its own shares. Shares are a
means of raising money or of acquiring assets and are rightly regarded as
having a value. This point may come back to the significance of 100 per
cent. shareholder participation in a conspiracy or conspiracies embracing
the capitalization. Again even that cannot be assumed at this stage.
I conclude that there is a serious case for saying that the capitalization
does not mean that the only institution suffering loss is the KIO or
Koolmees.
5.4 Constructive trust
The claims for constructive trust relate to GT's and THL's moneys
allegedly paid away to third parties. So they relate, in the case of the
Croesus transaction, to the U.S.$27.4 m. paid away to the black hole
account at Republic National Bank, the U.S.$25 m. paid to Kokmeeuw and
the U.S.$2,576,707 paid away in further repayment of the Kokmeeuw
loan; in the case of Oakthorn, to the *399 U.S.$105 m. which Oakthorn
received; in the case of Pincinco, to all the movements of money relied
in the damages plea; and, in the case of Wardbase, to the movements
whereby Wardbase received Ptas. 2 billion and Anslow received, out of
that, Ptas. 1.96 billion. The constructive trust claims represent separate
causes of action from the conspiracy and breach of director's duty
claims. It is common ground that they operate in personam on the
conscience and assets of any particular defendant. The Court will be able
to adjudicate upon them as against any particular defendant to the extent
that he is properly subject to the Court's jurisdiction, through service here
or, abroad, under the Convention or under O. 11: El Ajou v. Land Dollar
Holdings plc, [1993] 3 All. E.R. 717 at pp. 736-737.
Certain of the claims are "knowing receipt" claims - adopting the
terminology recognized in Agip (Africa) Ltd. v. Jackson, [1990] 1 Ch. 265
at p. 291. This is the case with the claims against Oakthorn for the U.S.
$105 m., against Wantley for the U.S.$6 m. and against Coggia for the
U.S.$319 m. received in Pincinco, and against Wardbase for the U.S.$2 m.
and Anslow for the U.S.$1.9 m. in the Wardbase transaction. Otherwise
it is in issue what type of constructive trust the plaintiffs are asserting.
Mr. Onions argues that they must be taken to be asserting a "remedial"
constructive trust, ancillary to their pleas of conspiracy. He bases this on
the fact that a "knowing assistance" trust would depend upon a plea of
knowledge of a pre-existing trust or fiduciary duty and knowledge that
the trustees or persons under such duty were acting in breach of trust or
duty: Barnes v. Addy, (1874) 9 Ch. App. 244; Agip (Africa) Ltd. v. Jackson
sup. at p. 292. He relies upon the fact that the points of claim plead and
rely on the alleged schemes in support of the pleas of constructive trust,
and only thereafter introduce, last and separately, claims for breach of
fiduciary duties as directors. In my judgment the plaintiffs are by their
pleading asserting a "knowing assistance" trust, even if they have not set
out all the ingredients fully or in the logical order. Allegations of breach of
fiduciary duties do appear in the pleading, and there can be little doubt
that the alleged schemes must have involved breaches of this nature.
The possible significance of the difference between remedial constructive
trust and knowing assistance trust is this. The former, being ancillary
to conspiracy, is said to give rise to claims for amounts measured by
reference to the damages recoverable in conspiracy. The latter would
not give rise to a damages claim, strictu senso, at all. The measure of
recovery would be restitutionary and may give different results: Underhill,
Law of Trusts p. 731 et seq.; Halsbury, Law of England (4th ed.) vol. 48
Trusts, par. 951. In particular, the principles of causation and remoteness
which govern the assessment of damages are not so readily applicable in
a restitutionary context: Target Holdings Ltd. v. Redferns, [1994] 1 W.L.R.
1089 (C.A.). The majority decision in that case (which I was told may be
under appeal) was that solicitors who in breach of trust paid away money
for a property, without having first obtained a contract of purchase, or
transfers or mortgages of the property, were liable to restore the property
even though the contract, transfers and mortgage had subsequently
been entered into. The loss in these circumstances had presumably
arisen from some defect in the original value of the property or some
market fall, so the result can be seen to be a strict one, and Lord Justice
Ralph Gibson dissented. Mr. Clarke relies on this authority as showing
that there is a serious case for saying that any wrongful payment of the
money belonging to either plaintiff gives that plaintiff a right of action
in constructive trust even if the payment was funded or immediately
made good by the other plaintiff, The Ptas. 2 billion payment by THL to
Wardbase highlights the point. It was then paid THL's money. It makes
no difference according to Mr. Clarke that this had been given to THL by
GT. It seems to me that this proposition goes too far, even on the basis
of the decision in Target Holdings. At p. 1104 Lord Justice Peter Gibson,
one of the majority, said:...Redferns are liable to replace all the moneys
paid away in breach of trust, subject only to Target giving credit for any
moneys recovered on the realisation by it of its security. The elastic
remedies of equity are sufficiently flexible to require that a beneficiary
who subsequent to the loss receives a benefit from the trustee's actions
[d]o give credit for that benefit. That a trustee or other fiduciary comes
under an immediate duty to make restitution seems to me supported by
two recent authorities.
Mr. Clarke submitted that the words which I have italicized could
only refer to legitimate actions of the trustee. This is not so, as is
demonstrated by Bartlett v. Barclays Bank Trust Co. Ltd., [1980] 1
Ch. 515, where the defaulting trustee had wrongfully allowed a policy
of property speculation which let to the acquiring of two sites; the
development of one led to a disastrous loss while the other, by sheer
luck, was resold at a profit. Justice was held to require the profit to be set
against the loss: see per Mr. Justice Brightman at p. 538.
In the present case the words which I have italicized indicate that any
benefit received from the constructive trustee's actions at the time of the
original breach of trust or subsequently as part of the same transaction
should be brought into account. Thus I do not think on the material
before me that THL can be said to have any serious claim *400 for loss
in respect of the Wardbase transaction in constructive trust, any more
than it does for damages in conspiracy or for breach of director's duties.
However in respect of the other transactions, the question still arises
whether THL has overall suffered loss; for reasons which I have already
given THL has in my judgment a serious case for saying that it has.
6 THE CONVENTION
6.1 Article 1(2)
The defendants suggest, perhaps a little faintly, that the present
proceedings fall outside the Convention by virtue of art. 1(2) as:
...proceedings relating to the winding-up of insolvent companies or
other legal persons, judicial arrangements, compositions and analogous
proceedings...
This submission is clearly wrong. It seeks support in the suspension of
payments proceedings to which GT has been subject in Spain since Dec.
10, 1992; and in the possibility that those proceedings will, if and when
GT's definite insolvency is declared at some future date, enter a new
phase under art. 20 of the Ley de Suspensión de Pagos de 26 Julio de
1922 during which civil responsibilities would or might be investigated.
But the proceedings under the law of 26 Julio de 1922 in Spain cannot
determine the nature of the present English proceedings. The argument
that both sets of proceedings are a "post mortem" on the reasons for GT's
financial collapse is wrong in relation to the present action, and paints
with far too broad a brush. The present English action is, as pleaded
and in substance, based on conspiracy, breach of directors' duties and
constructive trust. It is in the Commercial not the Companies Court. It
does not relate to the winding-up of insolvent companies or other legal
persons, judicial arrangements, compositions or analogous proceedings;
it is purely collateral that GT is in a state of suspension of payments. It
is even less relevant that at some future stage the Spanish proceedings
may move into a new phase where civil liabilities may be investigated.
The present action lies irrespective of such matters.
The conclusion is amply supported by the European Court's decision
in Gourdain v. Nadler, [1979] E.C.R. 733; [1979] 3 C.M.L.R. 180. That
authority establishes, firstly that art. 1(2) is an independent, European
concept (judgment par. 3); and, secondly, that:
...it is necessary, if decisions relating to bankruptcy and winding-up are
to be excluded from the scope of the Convention, that they must derive
directly from the bankruptcy or winding-up and be closely connected with
the proceedings for the liquidation des biens or the règlement judiciare...
(par. 4).
Paragraph 5 of the judgment sets out the large number of features which
meant that the proceedings under review were intimately and peculiarly
associated with the winding up of the French company of which Mr.
Gourdain was syndic [liquidator or trustee for the creditors], and of which
Mr. Nadler had been the former manager; they consisted in an application
made by Mr. Gourdain on behalf of and in the interest of the general
body of creditors against Mr. Nadler under s. 99 of the French Act 67-753
of July 13, 1967 on règlement judiciare, liquidation des biens, faillite
personnelle and banqueroutes. It was only the syndic (or the Court of its
own motion) who could make such an application. The Court pointed out
that:
In this application, which derogates from the general rules of the law of
liability, the de jure or de facto managers of the company are presumed
to be liable and they can only discharge their liability by proving that they
managed the affairs of the company with all the requisite energy and
diligence.
The application had various other special features, e.g. in relation to
limitation. There are no parallel features in the present case, and art. 1(2)
does not apply to the present English proceedings.
It is unnecessary to reach any conclusion as to the extent to which the
Spanish Court dealing with the suspension of payments proceedings can
or may if the insolvency becomes definite, either act, or investigate issues
of civil responsibility of (in particular) former officers of GT, under art.
20, or as to the extent to which it would in practice be likely to do this.
If there were to be any such activity, it would take place in the context
of the suspension of payments proceedings, and so still lie outside the
Convention. Despite a contrary submission by Lord Irvine, it could not be
relevant therefore for the purposes of either of arts. 21 and 22.
6.2 Article 16(2)
This article provides:
The following courts shall have exclusive jurisdiction, regardless of
domicile: 1....2. In proceedings which have as their object the validity of
the constitution, the nullity or the dissolution of companies or other legal
persons or associations of natural or legal persons, or the decisions of
their organs, the courts of the Contracting State in which the company,
legal person or association has its seat.
The submission that the present action falls within its scope was at the
forefront of the defendants' *401 case on the Convention. It raises both
questions of interpretation of the Convention and questions of analysis
and judgment as to the nature of the present proceedings.
The English text of the Convention is one of the authentic texts. Before
the United Kingdom became party to the Convention, there were under
art. 68 of the Brussels Convention four authentic texts (Dutch, French,
German and Italian). Article 41 of the 1978 Convention on the Accession
of Denmark, Ireland and the United Kingdom added Danish, English and
Irish as authentic languages and referred to "all seven texts being equally
authentic". The languages of other countries subsequently acceding (first
Greece and more recently Spain and Portugal) have also been recognised
as authentic under the same conditions as the other texts by the statutory
instruments giving effect to their accession.
Mr. Clarke submitted that, in case of apparent differences between texts,
especial respect might still be due to the originally authentic texts; and
that, if this meant that some texts were more equal than others, so be
it. But even the literally Napoleonic origin of this phrase in "Animal Farm"
does not recommend it as a doctrine to apply to the Convention.
The words "proceedings which have as their object..." in the English text
are to be interpreted as "proceedings which are principally concerned
with...": Newtherapeutics Ltd. v. Katz, [1991] Ch. 226 at pp. 243-244.
Mr. Justice Knox pointed out that the words "have as their object" in art.
16(2) and the words "concerned with" are in the French represented by
the single phrase "en matière de". He held that they required the Court
to form an overall judgment, on the information before it, as to what it
was that the proceedings were principally concerned with: pp. 248-249.
To assist formation of such a judgment in that case, he said at p. 249D
that:
The issue upon which the defendants are, so far as the court can tell,
the more likely to lose is likely to be the principal one because they only
have to lose one to lose the action. The other issue, on which they are
more likely to win, is going to be irrelevant unless of course the forecast is
wrong.
The English text throws up a problem concerning the scope of
the remainder of art. 16(2) which Mr. Justice Knox identified in
Newtherapeutics at p. 244B: It is this: is the phrase "the decision of their
organs" governed only by the initial phrase "in proceedings which have as
their object" or is it governed by the longer phrase "in proceedings which
have as their object the validity of"? English grammar would suggest that
the former is the correct interpretation. That interpretation is, in principle
at least, capable of being significantly wider than the alternative one.
Mr. Justice Knox resolved this problem by recourse to the French and
German texts, which indicate clearly, by use of a plural in the French
and a genitive in the German introducing the reference to "decisions of
their organs", that this phrase is pendant to the earlier phrase "validity,
nullity or dissolution [of]". Mr. Justice Knox commented that "perhaps
fortunately" he had not been referred to any other language. I note
that at p. 243F in Newtherapeutics only art. 68 of the 1968 Convention
(referring to the four original texts) appears. It is not appropriate to
interpret art. 16(2) by a linguistic head count, particularly when there
are now 10 texts and more may come. But the expectation must be that
all texts have the same essential significance. This was common ground
before me - just as the European Court has held in respect of art. 16(1):
Reichert v. Dresdner Bank, [1990] E.C.R. 1-27. The European Court will
one day identify this significance even if national Courts do not. The
French and German texts are as equally authentic as the English. They
yield a clear meaning, which the draughtsmen must on their face have
intended. The English text can, without much difficulty, be read in the
same sense as the French and German texts. Unless other texts point as
clearly in an opposite direction to the French and German, the latter texts
may legitimately be regarded as at least one pointer towards the single
intended European meaning of art. 16(2).
As to other texts, the material put before me extended beyond that
before Mr. Justice Knox, though still by no means exhaustive. The Italian
text is literally to the same effect as the French and German:
...in materia di validita, nullita o scioglimento delle societa or persone
giuridiche, aventi la sede nel territorio di uno Stato contraente, o delle
decisioni dei rispettive organi, i giudice di detto Stato; (emphasis added).
However the defendants produced an opinion from an Italian lawyer
doubting the strict grammatical construction, on the ground that the word
"scioglimento" (dissolution) could not apply to "decisions of organs" as
well as on broader grounds of purposive construction. Lord Irvine pointed
to the Dutch text which reads:
...ten aanzien van de geldigheid, de nietigheid of de ontbinding van
vennootschappen of rechtspersonen met plaats van vestiging in een
verdragsluitende Staat, dan wel ten aanazien van de besluiten van hun
organen, de gerechten van die Staat... *402
In translation this is literally:
... as regards the validity, the nullity or the dissolution of companies or
legal entities which have their seat in a Contracting State, or as regards
the decisions of their organs, the Courts of such State...
Thus this text points in an opposite direction to the French and German.
In this context however the plaintiffs were able to refer me to a recent
Dutch work - Rechtspersonen (Legal Entities) (published 1993 in a series
on private international law) by Professor Vlas of the Free University of
Amsterdam, an expert in the field. He expressly limits the effect of the
final phrase in art. 16(2) to cases concerning "the validity or nullity of
decisions of their organs".
The Spanish text appears to fall within the same category as the English:
en materia de validez, nulidad o disolución de sociedades y personas
juridicas que tuvieran su domicilio en un Estado contratante, o de
decisiones de sus órganos, los tribunales de dicho Estado...
Finally, Professor Jenard, in par. A1.158 of his authoritative commentary
quoted in Newtherapeutics at p. 245D-E, considers art. 16(2) in
consecutive sentences, the first of which favours the defendants' and
the second the plaintiffs' construction. As Mr. Justice Knox points out,
Professor Jenard's commentary is not therefore of much assistance,
although it is perhaps worth noting that the first sentence is merely
describing, while the second sentence is stating the rationale, of art.
16(2).
Thus far, it may be said that the predominance of texts and views favours
the interpretation which Mr. Justice Knox adopted. But it is right that I
should look at the matter more broadly. Lord Irvine submitted that a
purposive construction should be adopted. With this I concur. He went
on that the Court should therefore adopt a conclusion which enables all
proceedings concerned with the activities of the organs of a particular
company to be heard in the country of that company's seat. In my view
this tends to assume what it has to prove. The question is whether art.
16(2) reflects so wide a purpose.
A more appropriate starting point when interpreting art. 16(2) is its
place in the Convention as a whole. It is one of a number of instances
of exclusive jurisdiction granted, by way of exception, to the basic
jurisdictional rules established by the Convention. The European Court has
indicated that their scope must for this reason be limited to that which
is required by their objective. Thus in Sanders v. van der Putte, [1977]
E.C.R. 2383 at p. 2390, the Court said in the context of art. 16(1):
Furthermore, the assignment, in the interests of the proper administration
of justice, of exclusive jurisdiction to the courts of one contracting state
in accordance with article 16 of the Convention results in depriving the
parties of their choice of the forum which would otherwise be theirs and,
in certain cases, results in their being brought before a court which is
not that of either of the domicile of any of them. Having regard to that
consideration the provisions of article 16 must now be given a wider
interpretation than is required by their objective.
This was followed and applied in another case under art. 16(1), Reichert
v. Dresdner Bank, [1990] E.C.R. I-27, at p. I-41: par. 9. The same
consideration clearly applies with respect to art. 16(2). The raison d'être
of art. 16(1) was explained in Rösler v. Rottwinkel, [1985] E.C.R. 99 as
being:
the fact that tenancies are closely bound up with the law of immovable
property and with the provisions, generally of a mandatory nature,
governing its use, such as legislation controlling the level of rents and
protecting the rights of tenants, including tenant farmers.
Article 16(1) seeks to ensure a rational allocation of jurisdiction by
opting for a solution whereby the court having jurisdiction is determined
on the basis of its proximity to the property since that court is in a
better position to obtain first-hand knowledge of the facts relating to the
creation of tenancies and to the performance of the terms thereof...
This too was followed in Reichert v. Dresdner, where the European Court
said at p. I-41, par. 10:
...the essential reason for conferring exclusive jurisdiction...is that the
courts of the locus rei sitae are the best placed, for reasons of proximity,
to ascertain the facts satisfactorily and to apply the rules and practices
which are generally those of the State in which the property is situated.
In these circumstances, Article 16(1) must be interpreted as meaning that
the exclusive jurisdiction of the Contracting State in which the property
is does not encompass all actions concerning rights in rem in immovable
property but only those which both come within the scope of the Brussels
Convention and are actions which seek to determine the extent, content,
ownership or possession of immovable property or the existence of other
rights in rem therein and to provide the holders of those rights with the
protection of the powers which attach to their interest. *403
An action paulienne by a creditor seeking to set aside a debtor's
disposition of land on the ground that it was made in fraud of the
creditor's rights thus fell outside art. 16(1).
A measure of common ground developed before me, namely that art.
16(1) is dealing with special cases of disputes turning on the peculiar
internal legal framework of a company, which can best be decided by
a Court with knowledge of local company law and practice. Proximity
of connection with the subject-matter of dispute is not a general basis
of jurisdiction under the Convention. This highlights the exceptional
nature of the exclusive jurisdiction provided by art. 16. In art. 16(2),
the first category of dispute covered is on any view limited to disputes
principally concerned with the validity, nullity or dissolution of companies
or legal persons or associations. Exclusive jurisdiction was not granted
merely on the basis that the proceedings are principally concerned
with the companies or their constitutions. Similarly, art. 16(3) and (4)
are concerned with the validity of entries in public registers and with
the registration and validity of patents. Finally, art. 16(5) deals with
enforcement of judgments, which depends on their validity and binding
nature as between the parties in the eyes of the state in which they are
to be enforced. Viewed in this light, an interpretation of art. 16(2) which
extends it to all proceedings principally concerned with the decisions of
the organs of companies would appear, on its face, surprisingly wide.
It would literally cover any dispute arising from a decision by the board
of a company to terminate a contract. Lord Irvine rejected so literal an
interpretation as an Aunt Sally, on the basis that the apparently wide
words must be given the appropriate purposive limitation. Nonetheless it
would seem surprising that the Convention should have been expressed
as openly as Lord Irvine's construction postulates. Taken overall, art.
16 points towards the narrower interpretation of art. 16(2); it suggests
that the last phrase of art. 16(2) should be read as applying only to
proceedings which are principally concerned with the validity of the
decisions of organs.
Mr. Justice Knox pointed out in Newtherapeutics and Lord Irvine's
submissions also illustrate that the difference between the wider and
narrower interpretation of art. 16(2) may not be as great in practice as
in appearance. Indeed both parties submit that it does not on the facts
of this case matter which interpretation is correct - although they arrive
at opposite answers. I shall consider the application of art. 16(2) on the
basis of both the narrow interpretation which I prefer and the defendants'
wider interpretation.
Article 16(2) calls for an exercise in overall classification. No submission
was made that under art. 16 the various claims made by the plaintiffs
(or indeed each plaintiff) against the defendants might constitute
separate proceedings. All parties proceeded on the basis that the present
multipartite action constitutes a single set of proceedings for the purposes
of deciding whether there is any assignment of exclusive jurisdiction
under art. 16. In this respect, as will appear, there was a significant
contrast with certain submissions addressed under arts. 21 and 22. A
Court would I think be reluctant to conclude that multipartite proceedings
which are otherwise appropriately constituted in accordance with the
beneficial provisions of arts. 5(3) and 6(1) of the Convention must be
analysed as distinct sets of proceedings, and if necessary split between
different jurisdictions. I therefore approach art. 16 on the basis that the
present action constitutes a single set of proceedings for the purpose
of art. 16, despite the large numbers of parties, the four different
transactions in issue and the different heads and bases of claim against
different defendants. But these factors exacerbate the problem of overall
classification, which in a case of the present complexity appears to me
an even less happy one than it did to Mr. Justice Knox on the facts of
Newtherapeutics.
The correct test or tests to apply when classifying the present action
is also problematic. I have some difficulty, at least in this context, in
accepting as a dominant criterion a test which requires the Court to seek
at this stage to identify the issue upon which, so far as the Court can
tell, the claim is more likely to succeed. Where there are two plaintiffs,
four transactions, various different items of loss, three broad heads of
claim in respect of each transaction and, above all 22 defendants (many
held responsible in respect of only one or some of the transactions),
the possible permutation of results to this litigation would require a
computer programme. How can the Court at this stage sensibly evaluate
the relative worth of different claims against different defendants in
different amounts? There might appear at this stage to be a strong claim
against say Sheikh Fahad for U.S.$22.5 m. (or even U.S.$105 m.) in
respect of the Oakthorn transactions; how is that to be balanced against
the prospects of a successful claim against say the Spanish defendants
for U.S.$300 m., about the destination of which there is no information,
in respect of Pincinco? The exercise envisaged by art. 16 only really works
if the Court bears in mind the underlying rationale of the article and
(viewing the litigation overall) attempts to assess whether it is likely to
be so closely connected with matters of local company law and internal
corporate decision-making in respect of one particular company that
it should not be tried anywhere but in the Courts of the State of that
company's seat. In the resolution of *404 that issue, all aspects of the
litigation can and must be taken into account. At the end of the day, the
Court must form an overall judgment. It is not enough that there will be
evidence, even considerable evidence, about Spanish company law and
practice; it is only if the whole proceedings viewed overall can be said to
be principally concerned with such matters that art. 16(2) applies.
The very early stage at which the proceedings have, necessarily, to
be classified for the purposes of art. 16 involves another problem.
There is, obviously, some risk that parties will seek to shape the Court's
view of the proceedings for jurisdictional purposes by, consciously or
unconsciously, displaying part of their hand and underplaying other
elements. In the present case the plaintiffs have had to disclose very
fully the nature and basis of their case in their points of claim as well as
in the affidavit evidence filed on the application for leave to serve out of
the jurisdiction. But there have been no pleadings from the defendants,
although there are various statements on affidavit and documents from
which indications of their attitudes on certain aspects may be gathered.
The rival contentions under art. 16 may be summarized as follows. The
plaintiffs say that this case is about an (alleged) fraud and conspiracy
directed at GT and also at THL. The Court will firstly be concerned with
understanding the nature and effect of the four transactions, including in
particular the destinations to which and purposes for which the moneys
were paid away, and the extent to which loss resulted therefrom to either
plaintiff. Secondly, the persons authorizing and those involved in the
transactions will have to be identified and their states of knowledge and
mind will have to be ascertained. Questions of board or other internal
approval will not feature prominently according to the plaintiffs' analysis,
since informed approval is unlikely to exist, or if it exists, to be relevant if
the payments were and were known to be improper. Likewise, suggestions
of ratification are unlikely to give rise to serious issue since informed
ratification of improper payments is inherently improbable and not
supported by such evidence as there is. A reading of the points of claim
and of the detailed particulars of conspiracy relied on against each of
the defendants and such further information as there is about the actual
location of the parties involved and movements of money presents a
picture of joint enterprise between different movers at different levels and
stages in different countries. Spain is not the exclusive arena.
The defendants on the other hand maintain that this case is essentially
about the conduct of the affairs of GT by officers of GT pursuant to and/
or ratified by decisions of (i) the board of GT and/or (ii) GT's main and,
ultimately, only real share- holder, the KIO (through its subsidiaries).
They also say that the claim by THL must be regarded as a make-weight
or at any rate a light-weight in this particular legal encounter, existing
only to the extent that THL can show that it has not received value
from the inter-company set-off in the case of Croesus and Oakthorn
and from the share sale to GT in the case of Pincinco. In his skeleton
and opening Lord Irvine submitted that the whole focus of the case was
on Spain and that the inclusion of English defendants merely deflected
attention from the fact that the dispute turns on what happened to the
assets of a Spanish company. However both Lord Irvine's and Mr. Onions'
submissions also stressed a different aspect of their clients' response to
the claims of conspiracy and damage against them. This is that Sheikh
Fahad on behalf of the KIO authorized both the transactions complained
of and the capitalization of GT which allegedly ensured that no loss
was sustained. In a powerful passage in his closing speech Lord Irvine
emphasized the extent to which it was his clients' case that the KIO's
conduct authorized or ratified, or by way of the capitalization indemnified,
GT and THL in respect of any loss resulting from the transactions. The
submission that this case is wholly focused on Spain does not fit easily
with the submission that the answer to it lies in authorization, ratification
or indemnification coming from the KIO in London.
THL was involved as an English company in various steps in the
transactions taking place in or from England. It made payments in or
from London to reimburse the bulk of Kokmeeuw's outlay in respect of
Croesus, it funded the first Oakthorn payment with moneys borrowed
in London on the strength of notes purchased from Koolmees and it
disbursed each of the Oakthorn payments to Oakthorn. It also lent the
U.S.$300 m. (via Bankers Trust) to Pincinco and later to Coggia, and was
the channel through which GT disbursed the Ptas. 2 billion to Wardbase in
the Wardbase transaction. I have concluded in section 5 of this judgment
that THL has itself certain arguable claims to have suffered loss. However,
the evidence indicates that in these transactions, at all events after the
death of Mr. Vasconcellos in August, 1989, THL acted through agreements
made or as a result of decisions taken by one or other of the Spanish
defendants in Spain. In terms of the whole action, Mr. Moukarzel does not
appear to have been a prime motivator, although he executed a number
of documents and has acknowledged service and indicated his intention to
defend the claims made against him here. By contrast, Mr. Soler and Mr.
Folchi who were also directors of THL but resident in Spain appear to have
had a much closer involvement and understanding of the overall form of
the transactions. It does not follow and on the evidence before me I am
*405 not prepared to conclude that THL should be treated as if it lacked
separate corporate identity. Indeed, a large part of the rationale of THL's
existence appears to have been that, as an English company, it could
borrow and enter into transactions in a way not open to GT at the time,
whether in its own name or vicariously. Nor can THL simply be regarded
as acting in all circumstances as an agent for GT, although elements of
agency can I think be detected in the Croesus transaction (where however
they are confused by the creation of the Croesus "loan") and in the two
parts of the Oakthorn transaction. I shall nevertheless put aside THL's
involvement for the meanwhile and look at the overall position between
GT and the defendants in various categories.
Principal officers of the KIO and GT based in London
From whichever viewpoint the case is inspected, Sheikh Fahad based in
the KIO in London appears as central among the defendants in relation
to all the transactions. There has been no evidence from Sheikh Fahad,
save his and his solicitor's evidence on the question on his domicile. He
has not sought at this stage to indicate his case with regard to the nature,
effect or motivation of the four transactions. They will be critical matters
for the determination of this litigation. It now appears that the Sheikh
himself received some U.S.$22.5 m. from the second part of the Oakthorn
transaction, for which he has again given no explanation. Mr. Jaffar, the
KIO's deputy chairman and general manager in London until Apr. 20, 1990
and at the material times vice-president and a director of GT, was also at
the heart of the Croesus and Oakthorn transactions, and is now known to
have received U.S.$7.5 m. from the first part of the Oakthorn transaction
and U.S.$10 m. from the second part. Again there is no evidence from
him as to the circumstances in which or purposes for which the Oakthorn
transaction was arranged and he received these sums.
The pivotal role played by Sheikh Fahad (and by Mr. Jaffar in relation
to the first two transactions) is confirmed by the pleaded particulars
of conspiracy. Sheikh Fahad gave his personal endorsement to the
Croesus and Oakthorn operations, and authorized the writing off of
the corresponding "loans" in GT's 1990 accounts. Mr. Jaffar was a
counter-signatory to Mr. de la Rosa's request for a loan which led to the
payment in which Mr. Robinson is also alleged to have been involved
by Kokmeeuw, a KIO subsidiary, of U.S.$27.4 m. into the first black
hole at the outset of the Croesus transaction. Sheikh Fahad was party
to the arrangements leading to THL's "repayment" of U.S.$25 m. to
Kokmeeuw. Sheikh Fahad and Mr. Jaffar received large sums from the
Oakthorn transaction. Mr. Jaffar is said to have given final approval for
the U.S.$55 m. loan by THL which Mr. de la Rosa approved. Sheikh Fahad
authorized the "writing off" of the Croesus and Oakthorn "loans" in GT's
1990 accounts. Sheikh Fahad's approvals are said to have shown to Mr.
Folchi in London for the transfer of U.S.$300 m. to Pincinco, and he is
said to have given instructions to Mr. Folchi for the disbursements from
Pincinco's account which created the black hole in this transaction. He
also authorized the repayment of THL by GT's issue of shares at par for
effective repurchase at Ptas. 17,000 per share. He is also said to have
authorized the capitalization of GT. Finally, in respect of the Wardbase
transaction, Sheikh Fahad is said to have confirmed that payment should
be made to Wardbase.
The question whether Sheikh Fahad, Mr. Jaffar and others were engaged
in the fraudulent extraction (whether for their own benefit or for the
benefit of others) of large sums of money from the KIO or its subsidiaries
does not appear apt to raise sensitive issues of corporate law or practice.
It raises straightforward issues of motivation and honesty. Further, in
so far as the answer to this question turns on the bona fides of their
conduct in relation to the KIO, that could at most raise questions under
the Kuwaiti law which governs the KIO's internal affairs. In so far as this
litigation raises questions as to the bona fides of the Sheikh's conduct
in the interests of GT, they will not be likely to turn on any peculiar
rule of Spanish corporate law or practice governing GT. They will turn
on a common-sense understanding of the effects of what the Sheikh
authorized and his motivation in authorizing it.
Spanish officers of GT
Turning to other key figures, such as Mr. de la Rosa, Mr. Nuñez (managing
director of GT) and Mr. de Mir (Mr. de la Rosa's associate in the companies
owning minority shareholdings until March, 1992), they have (through
Lord Irvine and through affidavits filed on their behalf) made clear that
they wholly deny any participation in any conspiracy and that they will
maintain that they, and in particular Mr. de la Rosa, at all times:
...dealt with and relied on Sheikh Fahad on the basis that, as chairman of
the KIO, he had full authority to give directions in relation to the affairs of
Grupo Torras [affidavit of Mr. Oliver, par. 61(a)].
But they have not given any detailed account to throw real light on
the nature and extent of their involvement in and knowledge of the
transactions or on the purposes of the transactions if and so far as they
were aware of them. It seems somewhat *406 unlikely that they will
suggest that they simply did blind whatever Sheikh Fahad desired or
required.
The affidavits of Mr. Toda and Mr. Oliver mention, in support of these
defendants' case that Sheikh Fahad had, or appeared to have, effectively
unlimited authority on behalf of the KIO, a number of factors such as his
membership of the Al-Sabah family, his long-standing chairmanship of
the KIO, his appointment as chairman of GT and two letters signed by
the Minister of Finance of the Government of Kuwait dated Aug. 2 and 24,
1990 (in the immediate aftermath of the Iraqi invasion) confirming his
possession of the broadest authority. They invoke letters which Sheikh
Fahad as chairman of and on behalf of the KIO wrote to Mr. de la Rosa
dated Oct. 15, 1990 and Dec. 20, 1990 (the authenticity of the latter
being challenged by the plaintiffs). They further invoke a note in the 1990
accounts of GT as reflecting (as on its face it appears to) agreement by
the KIO to take responsibility for loans granted to third parties totalling
some Ptas. 14.4 billion (viz. the Croesus and Oakthorn loans). In the
letter dated Oct. 15, 1990 Sheikh Fahad confirmed his full approval
of the Croesus and Oakthorn "operations" referring to loans granted
and rolled over. In the letter dated Dec. 20, 1990 Sheikh Fahad states
that these loans were advanced "in accordance with our instructions".
The defendants further refer to minutes of certain board meetings of
GT, in particular on Dec. 13, 1989 and Mar. 21, 1991, the July, 1991
capitalization, and the extraordinary general meeting of May 26, 1992 as
evidence that the transactions were known and authorized and that they
were entitled to rely on their propriety.
I repeat that the real issue as regards Sheikh Fahad does not appear to
be likely to be whether the Sheikh had adequate authority, but whether
he exercised his authority bona fide and properly in the interests of the
KIO and its subsidiaries including GT and so far as material THL, or for
his own personal motives (and possibly gain). If he did, there would be
great force in the other defendants' case that they could not be criticized
for doing what the Sheikh required. It is true that the KIO did not become
the sole shareholder of GT until March, 1992 (although the only other
interests after July, 1991 were the de la Rosa and de Mir companies). But
Sheikh Fahad caused the KIO at an extraordinary general meeting on May
26, 1992 to purport to ratify all that had happened, and if the transactions
were bona fide undertaken in the interests of the KIO then Lord Irvine
makes a persuasive case for saying that GT cannot thereafter complain.
But I do not think that this litigation is going to turn on abstruse questions
as to the extent to which a controlling or sole shareholder may use
the assets of its subsidiary as it pleases. The evidence before me does
not in any event suggest any material difference of principle in this
area between English and Spanish law, and the argument has been
conducted with reference to English authority such as Multinational Gas
and Petrochemical Co. v. Multinational Gas and Petrochemical Services
Ltd., [1983] 1 Ch. 258.
If Sheikh Fahad did not exercise his authority bona fide in the interests
of the KIO and its subsidiaries, then the real issue is likely to be whether
Mr. de la Rosa and others were party to his misuse of authority or knew of
it. Sheikh Fahad's unlimited authority will assist Mr. de la Rosa and others
as a matter of fact in any argument that they were themselves acting
bona fide. But if and when a factual conclusion is reached that they were
actually party to or knew of his abuse of authority to the detriment of the
KIO and/or GT, reliance on his authority cannot be an answer to a claim
against them as co-conspirators. In my judgment the case against Mr. de
la Rosa and other officer defendants will centre on the consequences and
purposes of the transactions, and the individual states of knowledge and
mind of, firstly, Sheikh Fahad and Mr. Jaffar, and, secondly, Mr. de la Rosa
and such other defendants.
Taking the letter dated Oct. 15, 1990 and the alleged letter dated Dec.
20, 1990, if these were written bona fide in the interests of the KIO and
its subsidiaries, then once again the defendants, including the Sheikh
himself, may well have a strong defence. But the real question will be
not whether there is a strong defence in such a situation, but whether
the letters were written bona fide at all. It is apparent that the letters
cannot be taken at face value, because the Sheikh and Mr. de la Rosa
must have known that the "loans" were not genuine, but were part of an
apparent cover up scheme which had carefully been put into place. The
essential question is: why was a cover up scheme apparently required?
Was it for some unknown purpose of the KIO or GT that such matters
were to be kept from the world at large, including the auditors of GT? Or
was it for some private reason of Sheikh Fahad, and if so did the other
defendants participate in or know of this? Similar considerations apply to
the note in GT's 1990 accounts, referring to the KIO taking responsibility
for the amount of the Croesus and Oakthorn loans (and indeed to the
capitalization of GT in July, 1991 which accompanied the approval of the
1990 accounts of GT). On the plaintiffs' case the writing off of the "loans"
against reserves in GT's accounts was all part of the cover up. On the
defendants' case, it was all part of an exercise which, however unusual in
its structure and accounting implications, took place (or so they say they
were entitled to assume) in the proper course *407 of Sheikh Fahad's
stewardship of the affairs of the KIO. Which analysis is correct is not
going to turn on complicated questions of Spanish company law, or on
matters peculiar to the internal affairs or decision-making processes of
GT. Once one or other analysis is adopted, it seems unlikely that any
company law point is going to be significant in shaping the final outcome
of the case.
As to the board minutes of GT on which reliance is placed, the first is
dated Dec. 13, 1989, purporting to record a resolution to extend the
Croesus and Oakthorn "loans" until the end of 1991. It is signed by Mr.
de la Rosa, but its authenticity is challenged, in that the draft on which
it would be expected to be based records no such resolution. The other
board minute relied on is dated Mar. 21, 1991 and simply purports to
approve the write-off against reserves of loans of Ptas. 14.4 billion.
Again there is a question over its authenticity. However the questions of
the genuineness of these minutes do not raise issues of company law,
but issues regarding their dating and preparation. Neither resolution,
genuine or not, is in any way decisive on the central question whether
Sheikh Fahad, Mr. de la Rosa and others were or were not covering up a
dishonest fraud. Neither resolution can of course be taken at face value,
because it seems clear that the Croesus and Oakthorn "loans" were no
such thing, and were designed to cover up other unexplained dispositions
of moneys. The capitalization raises the same problem: what was the
reason for the hole which had to be filled by capitalization? Again this is
not a specialist issue of company law but a question of understanding the
motivation and bona fides of the Sheikh and anyone else who was in the
picture. The separate issue, where any loss arising from the transactions
falls as between the KIO and GT in the light of the capitalization, itself
does not raise any peculiarly company law issues which require to be tried
in Spain, still less any which go to decision-making activities of GT within
even the broader interpretation of art. 16(2).
Then there is the approval "without any reserve" by the extraordinary
general meeting of GT on May 26, 1992 of - and the vote of thanks
for - the management undertaken during the tenure of the directors
resigning on that day. Four of the seven persons attending that meeting
are defendants, that is Mr. de la Rosa, Mr. de Mir, Mr. Nuñez and Mr.
Folchi. The shareholders voting were represented by a Mr. Al-Mudafi in the
case of Kokmeeuw and Koolmees and by Mr. Folchi voting for the other
minor shareholders by then owned by the KIO. The signatories for Grupo
Torras were Mr. de la Rosa, Mr. de Mir, Mr. Nu¤ez, Mr. Al-Nouri, Mr. Guasch
and Mr. Folchi representing Mr. Betts. There is no record in the minutes of
any disclosure of or discussion about the circumstances or effects of any
of the four transactions, despite the fact that the Wardbase transaction
was being completed on that very day. The defendants suggest in their
evidence that the KIO had had the opportunity to examine, investigate
and raise questions about the management of GT in the months since
December, 1991. If there was a conspiracy, I find it extremely unlikely
that this exercise involved its revelation to persons outside the scope of
the alleged conspiracy, or to informed approval on May 26, 1992 of the
old management's involvement in the four transactions. The plaintiffs'
evidence indicates that investigations into potential financial irregularities
within GT did not actually begin until July, 1992. At the meeting itself, the
majority of those present were on the plaintiffs' case implicated in the
conspiracy and any approval given on May 26, 1992 by anyone who was
not implicated in the conspiracy was uninformed and irrelevant. Again the
resolution of these issues does not appear to me to raise any intricate
point of company law. If there was a conspiracy, and the conspirators
attended a meeting at which a vote was taken to their knowledge by
persons who knew nothing of the conspiracy, purporting to approve
in blanket terms all that has happened previously, that could not in
common-sense exonerate them; there is no evidence that Spanish law is
any different from English on this. Further, to the extent that this aspect
of the case does raise issues as to the validity of the decisions of GT, it
will not in my view lie at the core of the issues to be decided at trial, still
less be decisive of the outcome. The essential questions in the case will
relate to the effect and purposes of the transactions, and the involvement,
knowledge and good faith of the individual defendants.
Other officers of the KIO, GT and THL
The case against other defendants who were officers of the KIO, GT or
THL will raise similar questions as to their involvement and knowledge
in respect of the relevant transactions. That applies for example to Mr.
Moukarzel, a director of THL who was party to various sham documents
in relation to the Croesus and Oakthorn transaction and is also sued in
respect of the Pincinco transaction; he has given an interview in which
he disclaims any substantive involvement in or understanding of events,
and the evidence suggests that he was not on any view a prime-mover; I
am told that he has issued a summons to strike out the case against him,
although I know nothing further about that. Similar issues of involvement
and knowledge will arise in respect of Mr. Robinson, the accountant who
was senior investment adviser at the KIO until Mar. 20, 1989 and is sued
in respect of the Croesus and Wardbase transactions. *408
Advisers and corporate vehicles
I come lastly to other defendants, and in particular to the individual
advisers, Mr. Folchi, Mr. Coll and Mr. Russell, and to the corporate vehicles
through which they acted and which they supplied in order to put the
various schemes which they devised into effect. Again the starting
point is likely to be whether Sheikh Fahad was acting bona fide in the
interests of the KIO and its subsidiaries. There will also have to be a
determination whether other key defendants such as Mr. de la Rosa were
acting bona fide in relying on the Sheikh or whether they were in cahoots
with him if he was dishonest. Then, the advisers' positions will have to be
individually assessed, looking at the particular involvement and state of
awareness and understanding of each. Again, they have in the evidence
vouchsaved little by way of detailed explanation of their roles, knowledge
and understanding of the four transactions. But the affidavits of their
solicitor, Mr. Richards, and a reading of the notes of interviews and of Mr.
Folchi's memorandum dated Nov. 19, 1992, indicate the probable nature
of the issues. The advisers were involved in setting up the transactions
or the cover up operations by which the various movements of cash were
hidden. Thus, Mr. Folchi accepts involvement in all four transactions, and
Mr. Russell was involved in Oakthorn, Pincinco and Wardbase, while Mr.
Coll was involved in Croesus, in the Pincinco cover up and, it appears that
he will say, only in later accounting aspects of Oakthorn. But they will
all say that they were following and were entitled to follow instructions
- coming from Sheikh Fahad, Mr. Trevor Ball (since deceased), Mr. Jaffar
(in the case of Croesus and Oakthorn) and Mr. Robinson (in respect of
Croesus and the setting up of the Wardbase transaction) at the KIO and
from Mr. de la Rosa and others at GT; and that they believed that such
instructions were given in good faith in the interests of the KIO and/or
GT (and/or THL). Mr. Folchi has made certain broad statements about his
understanding of the purposes of various of the payments (although the
explanations he gives for the Oakthorn payments do not, for whatever
reason, match the actual use of the moneys: for example the U.S.
$22.5 m. payment from the second part of the Oakthorn transaction,
which is now known to have gone to Sheikh Fahad and been used or
kept by him, is described by Mr. Folchi as a complementary or black
payment; and the U.S.$7.5 m. which went to Mr. Jaffar's account from
the first part of the Oakthorn transaction is described by Mr. Folchi as a
payment in connection with an operation in Kuwait). These defendants
will submit that the schemes and cover ups which they evidently devised
were not, in those circumstances, part of any conspiracy against GT or
THL, whatever their effect on the truth and fairness of GT's and THL's
accounts. They will submit that they fulfilled the role of professional
advisers; this raises issues as to the role of professional men, the area
touched on by Mr. Justice Millett in Agip (Africa) Ltd. v. Jackson, rather
than issues of Spanish company law or of internal corporate activity.
Mr. Folchi will further submit that he was not in breach of any duty as
a director of GT. All the advisers will probably submit that there was no
knowing involvement such as to justify treating them as constructive
trustees. Similar questions as to the advisers' knowledge and bona fides
are likely to arise in respect of the claims against the advisers' corporate
vehicles, including the vehicles which they supplied for the purposes of
the schemes which they devised.
Conclusion
In my judgment these proceedings are not principally concerned with
either the validity of decisions of organs of GT or, if it be the test, with
decisions of organs of GT within the meaning of art. 16(2). I would
reach this overall conclusion taking the claims made by GT either along
(i.e. ignoring the presence of THL, with its in my view arguable claims)
or in conjunction with such claims as THL may have. As to liability,
the proceedings will focus on the effects and purposes of the four
transactions and on the individual involvement, knowledge and motivation
of the defendants. That will shape the Court's decision on the claims of
conspiracy, breach of duty and constructive trust. As to the incidence
and quantum of loss, the Court will have to analyse the transactions to
determine whether GT and/or THL suffered the loss claimed. As between
GT and THL there will be issues about the incidence of loss and the extent
to which credit was received, and about the effect of the capitalization
of GT. But I do not think that these issues turn on any point of company
law or practice or on any problem associated with the decision-making
activities of GT, save in the limited and irrelevant sense that the
capitalization was authorized by a decision of GT. The capitalization
raises a problem of general principle, but it is not suggested that there
is any difference between Spanish law or accounting and English law.
Even if this issue were itself within art. 16(2), it would not affect my
judgment that the proceedings as a whole are principally concerned with
individual responsibility for alleged misdeeds of a character and with
consequences which do not depend on special considerations of company
law or practice, or of internal decision-making within GT. They are not
therefore within art. 16(2). *409
6.3 Articles 21 and 22
These articles provide as follows: Article 21
Where proceedings involving the same cause of action and between the
same parties are brought in the courts of different Contracting States,
any court other than the court first seised shall of its own motion stay its
proceedings until such time as the jurisdiction of the court first seized is
established.
Where the jurisdiction of the court first seised is established, any court
other than the court first seized shall decline jurisdiction in favour of that
court.
Article 22
Where related actions are brought in the courts of different Contracting
States, any court other than the court first seised may, while the actions
are pending at first instances, stay its proceedings.
A court other than the court first seised may also, on the application of
one of the parties, decline jurisdiction if the law of that court permits the
consolidation of related actions and the court first seised has jurisdiction
over both actions.
For the purposes of this Article, actions are deemed to be related where
they are so closely connected that it is expedient to hear and determine
them together to avoid the risk of irreconcilable judgments resulting from
separate proceedings.
The context to the submissions based on these articles consists in (a)
Spanish criminal proceedings commenced by querella filed on Jan. 8,
1993 and (b) proceedings commenced in the first instance by Quail Espa
¤a, S.A. ("Quail") against GT on June 9, 1992. The latter proceedings
(which I shall call the "Quail proceedings") were amended on May 18,
1993 by adding as co-plaintiffs Mr. de la Rosa, Mr. de Mir, Mr. Nu¤ez, Mr.
Folchi and Mr. Soler. The present English proceedings were commenced on
Apr. 14, 1993 and were served on Mr. Jaffar, Mr. Robinson, Mr. Moukarzel,
Coll & Co. and Wardbase, all English domiciled defendants, on Apr.
15, 1993. The amendment to the Quail proceedings was a riposte to
the commencement of the English action. The defendants submit that
the English Court must decline jurisdiction or stay the present English
action under art. 21 or, if not, that it should do so under art. 22. These
submissions raise acute problems as to the scope of arts. 21 and 22, and
the concept of "definitive pendency" in relation to Spanish proceedings.
6.3.1 The Spanish criminal proceedings - introduction
The querella commencing the Spanish criminal proceedings was, as it
states, prepared and lodged by a Spanish attorney acting for and on
behalf of GT 2. The defendants were and are identified as Mr. de la Rosa,
Mr. de Mir, Mr. Nu¤ez, Mr. Folchi, Mr. Soler, Sheikh Fahad, Mr. Jaffar and-
...any other persons who may be considered to be criminally liable for the
acts which are the object of this complaint, according to the results of the
investigation carried out by the Instructor [investigating judge] during the
course of the proceedings.
In a general sense the querella asserts "fraudulent administration" of
GT by the defendants, but this is not an offence presently known to
Spanish law. The querella accordingly assigns various specific offences,
namely (a) misappropriation contrary to art. 535 (possibly constituting a
continuing offence under art. 69) of the Criminal Code, (b) fraud contrary
to arts. 528, 529.7 and 529.8 of the same Code, (c) misrepresentation
in commercial and public documents contrary to art. 302.4, as well as
possibly (d) "machinations to alter the price of things" [probably better
translated "conspiracy to rig prices"] contrary to art. 540 and finally
(although not alleged to have caused direct damage to GT) tax offences
contrary to art. 349 (c.f. pp. 1 and 96-97 of the translation of the querella
and the judgment of the Audiencia National, Sala de lo Penal of Feb. 11,
1994).
The querella acknowledges that Spanish law requires the assignment
and proof of specific offences. It asserts that the defendants' generally
fraudulent conduct caused GT loss in excess of Ptas. 100 billion.
But it also says that only nine specific instances of criminal conduct
can presently be identified, giving rise to losses put (apparently
inconsistently) at Ptas. 50 billion and Ptas. 30 billion on respectively pp.
4 and 12 of both the Spanish original and the English translation. The
Spanish legal system, in common with many civil law systems, provides
for civil actions within the scope of criminal proceedings, and the querella
accordingly includes the following paragraph:
CLAIM FOR COMPENSATION By this complaint, in addition to the criminal
action for the punishment of the guilty parties, the civil action for
compensation ex delicto is brought so that they may be ordered by way of
civil liability to compensate the complainant in the sum which we initially
estimate at [Ptas. 1 *410 billion] without prejudice to the fact that other
fraudulent losses with the enrichment of the defendants may come to
light in the course of the investigations carried out by the [investigating
judge] and be added to that figure.
None of the nine specific instances of criminal conduct identified in the
querella is the same as or overlaps with any of the four transactions the
subject of the present English proceedings. However the wholly general
assertions of fraudulent conduct made in the Spanish proceedings and of
additional loss in excess of Ptas. 70 billion are in terms which would be
wide enough to embrace the four transactions, though whether or what
those responsible for the querella actually knew about those transactions
at the end of 1992 is unclear. I shall have to return to the scope of the
querella at a later stage.
Prior to admission it does not appear that a querella is formally brought
to the attention of the defendants. But considerable publicity was given
by GT to the filing of this particular querella. In these circumstances Mr.
de la Rosa on Jan. 15, 1993 filed a lengthy document applying to enter an
appearance as a party and to have sight of the documents and submitting
that the querella should not be admitted, on the grounds inter alia that
it did not disclose a criminal offence and that its subject-matter was
already under investigation in the context of the suspension of payments
proceedings. This application bore initial fruit in a decision of His Honour
Judge Miguel Moreiras Caballero dated Jan. 26, 1993 refusing to admit
the criminal querella, confirmed by him on Feb. 16, 1993, and (after a
decision of the Audiencia Nacional on June 21, 1993 declaring invalid the
basis on which the first instance Court had resolved to handle the matter
on and with effect from Jan. 8, 1993, and a revised resolution by Judge
Moreiras on July 5, 1993) a further decision by Judge Moreiras refusing
admission on July 9, 1993 confirmed by him on July 27, 1993. However,
by its decision on Feb. 11, 1994 (against which no further appeal lies) the
Audiencia National allowed an appeal by GT and Mr. Montane against the
decisions of July 9 and 27, 1993 refusing admission, and decided that the
action be admitted. The Court said of the offences asserted:
All the above acts are sufficiently documented, with indication of the
persons, dates, places, and amounts misappropriated, estimated initially
at a total of over [Ptas. 100 billion]. Not only are these actions correctly
described, all of them with "indicatory but objective proof" given, but
sufficient information is provided so that, following the corresponding
investigation, the possible responsibility can be determined.
I shall have to analyse the querella and the scope of the criminal
proceedings more precisely at a later stage. The present defendants
submit that: (a) the Spanish criminal proceedings already embrace the
four transactions the subject of the English proceedings, because of the
breadth of the general assertions of fraud and loss in the querella, (b)
the Spanish criminal Court is seised of civil proceedings involving GT and
leading defendants in the English action relating to the four transactions,
(c) the Spanish criminal Court was, by comparison with the English Court,
"first seised" - in that the civil proceedings in Spain are to be regarded as
"definitively pending" (despite the procedural vicissitudes to which they
have been subject) since the filing of the querella on Jan. 8, 1993.
It will be necessary to consider the relevance of an undertaking offered by
GT to make a "reservation" taking out of the Spanish criminal proceedings
(if otherwise within their scope) any complaint relative to the four
transactions. GT further submit that I should if necessary, before finalizing
my judgment, allow them the opportunity to effect such a reservation.
6.3.2 The Quail proceedings - introduction
Quail, owned and controlled by Mr. de la Rosa and Mr. de Mir, had
entered into a contract for management services dated June 3, 1987
and renewed on Feb. 9, 1990 with GT (signing through Mr. Nuñez). This
contract gave Quail broad powers in respect of GT on apparently generous
terms (including a right to terminate the contract in the event of any
change in composition of GT's board and a right, in the event of any
such termination, to agreed compensation of U.S.$50 m.). The entry into
and operation of the Quail contract is one of the nine specific heads of
complaint in the criminal querella. Following the re-organization of GT's
management on May 26, 1992, Mr. de la Rosa on behalf of Quail wrote
claiming the compensation of U.S.$50 m. by letter addressed to Mr. Nuñez
dated May 27, 1992. Mr Nuñez in reply on May 28, 1992 wrote agreeing
the claim and enclosing an irrevocable order to sell over 2.6 m. Ebro
shares owned by GT to meet the claim. But on June 8, 1992 GT evidently
wrote rejecting Quail's claim on the grounds inter alia that it constituted a
misuse of rights and that Quail's consultancy and management on behalf
of GT had been prejudicial to GT. The Quail proceedings were begun by
Quail on June 9, 1992. They were in form a jactitation action based on
slander of title and injurious falsehood pursuant to the Ley de Partidas
of Alfonso the Wise (King of Leon and Castile 1252-1284), but they were
in substance a claim by Quail for a declaration that the conduct of Quail
and of Mr. de la Rosa, Mr. de Mir and Mr. Nuñez within the scope of the
Quail *411 contract had been proper and in accordance with the contract
and the law. Irregularities or insufficiencies in the documents lodged with
the Spanish Court were not cured by Quail until May 7, 1993. The Quail
proceedings were thus only admitted on May 12, 1993. An application
was then made and granted on May 18, 1993 to amend them by adding
as co-plaintiffs Mr. de la Rosa, Mr. de Mir, Mr. Nu¤ez, Mr. Folchi and Mr.
Soler. This was made with reference to three Spanish newspaper reports
recording the commencement of the present English proceedings relating
to the four transactions. The amended Quail claim seeks a declaration as
to the regularity of "the overall management carried out by my clients
in relation to [GT] and subsidiaries with consolidated accounts and in
particular the specific operations called 'Croesus', 'Oakthorn', 'Pincinco'
and 'Wardbase' ". It gives no details of such transactions. The Quail
proceedings were not served in either their original or their amended
form until a date treated before me as being Oct. 1, 1993; there is some
uncertainty whether this was the precise date. However it is the nearest
date that I have. By order dated Apr. 29, 1994 Judge Foncillas stayed the
Quail proceedings pending resolution of the criminal proceedings. I am
told that this order is not being appealed by the Quail co-plaintiffs, who
opposed it.
The present defendants submit that: (a) the Quail proceedings either
as originally constituted or at all events in their amended form embrace
the four transactions the subject of the English proceedings, because of
the breadth of the Quail management contract and of the declarations
as to regularity sought in the Quail proceedings, (b) the Spanish civil
Court is seised of proceedings to which GT and five of the leading
defendants in the English proceedings are parties and which embrace the
four transactions, (c) the Spanish civil Court was, by comparison with
the English Court, "first seised" - in that proceedings embracing these
five leading defendants and the four transactions are to be regarded
as "definitively pending" either since the filing of the original Quail
proceedings on June 9, 1992, or retrospectively since that date by virtue
of the amendment of May 18, 1993 or in any event from May 18, 1993.
6.3.3 Chronology
The problems are, on certain hypotheses, complicated by the sequence
in which and period over which the English defendants were served. This
was not due to dilatoriness; not only did leave have to be obtained for
service out of the jurisdiction in some cases, but considerable difficulties
were met in serving certain of the Spanish defendants. The sequence of
events is best illustrated by a chronology.
DATE
EVENT
9/6/92
Original Quail proceedings filed
10/12/92
Suspension of payments order
8/1/93
Criminal proceedings filed
15/1/93
de la Rosa files response in criminal proceedings, opposing non-admission
26/1/93
Judge Moreiras makes order of non-admission
29/1/93
GT petitions for amendment alternatively appeal against Order of Jan. 26,
1993
3/2/93
Sheikh Fahad also appears in the criminal proceedings, opposing
admission
5/2/93
Jaffar appears and opposes admission
19/2/93
Judge Moreiras rejects petition of Jan. 29 1993
14/4/93
English writ issued
15/4/93
English writ served within jurisdiction on Jaffar, Robinson, Moukarzel, Coll
& Co. and Wardbase
29/4/93
Order giving leave to serve English proceedings out of the jurisdiction on
non-Convention defendants
7/5/93
Missing documentation lodged by Quail in Quail proceedings
12/5/93
Jaffar, Robinson, Coll & Co. and Wardbase issue O.12, r.8 summons
12/5/93
Quail proceedings admitted
17/5/93
English writ served on Anslow, Westow, Croesus and Wantley
18/5/93
English writ served on Russell Limebeer and Oakthorn
18/5/93
Quail proceedings amended by adding de la Rosa, de Mir, Nuxez, Folchi
and Soler
21/5/93
English writ served on Russell
31/5/93
English writ served on Sheikh Fahad in the Bahamas
8/6/93
English writ served on Riquel
15/6/93
English writ served on Coggia
18/6/93
Amended Quail proceedings admitted
21/6/93
English writ served on de la Rosa, de Mir, Soler, Coll and Folchi
1/7/93
Sheikh Fahad, de la Rosa, de Mir amd Soler issue O.12, r.8 summonses
9/7/93
Criminal proceedings again not admitted
*412
DATE
EVENT
27/7/93
Petition to amend July 9, 1993 decision rejected
30/7/93
GT lodge appeal against July 27, 1993 rejection
1/10/93
Quail proceedings served on GT
1/10/93
English writ served on Pique
15/11/93
English writ served on Nunez
11/2/94
Audiencia National orders criminal proceedings to be admitted
29/4/94
Order of Judge Foncillas staying the Quail proceedings pending the
resolution of the criminal proceedings
Thus, depending on a variety of factors, either the Quail proceedings or
the English action, or if sub-division is correct different parts of each, may
be first seised.
6.3.4 General principles
It is necessary to consider a number of points of general principle. These
include how arts. 21 and 22 should operate in relation to multi-partite
litigation, according to what principles should it be determined when the
English Court is first seised in a case where there are multiple defendants
served at different times, at what time should seisure be judged (or,
putting the matter differently, whether a Court may be first seised by
virtue of an act such as amendment which might otherwise be regarded
as having retrospective effect) and the interplay between the Convention
and national law and procedure. I am in the undesirable position of having
to consider these points although the English Court of Appeal considered
it necessary on June 5 and July 23, 1992 to refer issues directly bearing
on some of them to the European Court for its decision: The Maciej Rataj,
[1992] 2 Lloyd's Rep. 552. That option is not open to me, and I am told
that the European Court's judgment is not expected for some time (see
[1995] 1 Lloyd's Rep. 302). The problem is highlighted by the submissions
of the United Kingdom to the European Court in The Maciej Rataj, in
which I note that the United Kingdom argues strongly for the view that
the phrase "cause of action" in art. 21 does not embrace actions for
declarations of no liability. No such submission was made before me, and
so I proceed on the basis that the principle in Gubisch v. Palumbo, (Case
144/86) [1989] E.C.R. 420 does extend to this situation, despite the
potential for forum shopping which such an interpretation may introduce.
6.3.5 Definitively pending
The significance of certain aspects of arts. 21 and 22 has been explained
in the European Court's decisions in Zelger v. Salinitri, (Case 129/83)
[1984] E.C.R. 2397 and Gubisch v. Palumbo and in the Court of Appeal's
decisions in Dresser U.K. Ltd. v. Falcongate Freight Management Ltd.,
[1991] 2 Lloyd's Rep. 557; [1992] 1 Q.B. 502 and Neste Chemicals S.A. v.
DK Line S.A., [1994] 2 Lloyd's Rep. 6. In Zelger the European Court held
that:
...the court "first seised" is the one before which the requirements
for proceedings to become definitively pending are first fulfilled, such
requirements to be determined in accordance with the national law of
each of the courts concerned.
The reasoning was based on the absence of any indication in art. 21 of
the nature of the procedural formalities which must be taken into account
for the purposes of considering whether or not to recognize the existence
of such an effect, and the fact that the object of the Convention is not
to unify those formalities, which are closely linked to the organization of
judicial procedure in the various States [pars. 14 and 15].
In Gubisch v. Palumbo the European Court distinguished Zelger's case,
saying that -
...it cannot prejudge the interpretation of the substantive scope of the
conditions of lis pendens laid down in Article 21 [par. 12].
The Court held that the substantive criteria of "same cause of action"
and "same parties" were thus autonomous (European) concepts [par.
11]. In the light of other language versions, it interpreted "same cause of
action" as involving two aspects: firstly, the "cause of action" in the sense
of the legal (in that case contractual) relationship must be the same;
and, secondly, the "subject-matter", in the sense it seems of the basic
issue, must be the same. Thus the Court held that a claim to enforce a
contract concerned the same cause of action as a claim for its rescission
or discharge.
The defendants submit that these cases establish a clear position. The
first question, to be decided by European law at (they submit) the date
of my judgment is whether the substantive criteria are met. The second
question, to be decided quite separately and according to purely national
criteria, is when the relevant proceedings became "pending". At least
under Spanish law, they say, the word "definitively" means nothing or
nothing presently relevant; and it is open to any national law to adopt
whatever date of pendency it pleases, even if that leads to a conclusion
(i) that proceedings are definitively pending at a date arrived at on a
fundamentally different basis to that which any other national Court would
adopt or (ii) that certain proceedings were definitively pending at and
from a date when the substantive criteria of "same cause of *413 action"
and "same parties" were not under the autonomous European criteria
established.
On this aspect I regard Dresser's case as providing crucial assistance.
The Court of Appeal had to consider for the purposes of English law
when English proceedings may be said to become definitively pending. It
concluded that:
In the ordinary, straightforward case service of proceedings will be the
time when the English court becomes seised [per Lord Justice Bingham at
p. 569, col. 2; p. 523F].
Lord Justice Bingham continued (obiter):
I would, however, stress the qualification, because that is not an
invariable rule. The most obvious exception is where an actual exercise of
jurisdiction (as by the granting of a Mareva injunction or the making of an
Anton Piller order or the arrest of a vessel) precedes service; plainly the
court is seised when it makes an interlocutory order of that kind. Further
exceptions and qualifications may well arise in practice, but they do not
fall for consideration in this case.
This qualification has now been disapproved by Neste Chemicals S.A. v.
DK Line S.A. [1994] 2 Lloyd's Rep. 6 in which the Court of Appeal held
that the English Court was not seised of an action merely because the
Admiralty Registrar had in his discretion granted leave to serve the writ
out of the jurisdiction and the writ had been so served. The Court agreed
with the general thrust of Dresser which it regarded as both correct and
binding, but disagreed that there were any genuine exceptions to the rule
that the date of service marked the time when an English Court became
definitively seised of the proceedings. Lord Justice Steyn said:
That rule is a simple and practical rule which will be readily understood in
England and in other jurisdictions which had to grapple with the question
when an English court is seised of the proceedings.
The issue in Neste Chemicals was whether the granting of leave to issue
and serve out of the jurisdiction a writ rendered the Court definitively
seised. The Court held not. But it supported this conclusion with reasoning
which rejected the view that the granting of provisional or preventive
relief could constitute definitive seisure. Citing Grupo Torras S.A. v. Sheikh
Fahad Mohammed Al-Sabah (C.A., Feb. 16, 1994 unreported), Lord
Justice Steyn said that, just as provisional measures might be granted on
an assumption of fact or law, the Court might grant provisional measures
on an unresolved and untested assumption that it had jurisdiction over
the proceedings. In parenthesis, I do not however understand this last
concept to have been intended to negative definitive pendency in a
case such as the present where after service there has been an as yet
unresolved application to challenge the jurisdiction under O. 12, r. 8.
While it is for national Courts to identify the rule which best matches
the Convention, Dresser interprets Zelger, in a manner binding on me,
as giving important guidance to the correct approach to this exercise by
means of the phrase "definitively pending". The guidance given by Zelger
must have the same general significance throughout Contracting States,
and I proceed on the basis that the Spanish Courts will also recognize its
significance, when fashioning their own rule for the purposes of arts. 21
and 22. Certain passages from the judgment of Lord Justice Bingham, to
which I have added underlining, demonstrate the point. At p. 563, col. 2;
p. 514C Lord Justice Bingham described the purpose of arts. 21-23 of the
Convention:
Articles 21 to 23 provide a code for resolving contests of jurisdiction
between the courts of different contracting states where both the Courts
or all the Courts involved are prima facie bound or entitled to accept
or exercise jurisdiction under the Convention. Some tie-break rule was
necessary, and that adopted by the Convention was a simple test of
chronological priority.
In relation to Zelger he said:
The Court declined to impose on contracting states a uniform procedural
rule which was not found in the Convention. Instead, it defined "first
seised" and wisely left it to national states to apply that definition to their
own procedure. This distinction between definition and application is
important. Lord Justice Bingham went on:
Until the United Kingdom acceded to the Brussels Convention in 1987,
no English court had ever had to consider when it was "first seised" of
proceedings nor when proceedings were "definitively pending" before
it. These are not terms of art, nor terms with any established meaning,
in English law. But Articles 21 to 23 of the Convention are now part
of English law and s. 3(1) of the Civil Jurisdiction and Judgments Act
1982 requires us to apply the Convention in accordance with principles
laid down by the European Court of Justice. We must therefore decide
when, under English law, the requirements for the present proceedings
to become definitively pending were first fulfilled. Since this question
never arose, and never could have arisen, before 1987 one could not
expect earlier authority to yield a simple, readymade answer. We must
be wary of adopting and applying any rule developed for a different
purpose in different circumstances. In determining the effect of national
law for purposes of the Convention we must, I think, have regard to the
international *414 purpose which the Convention was made to achieve.
The last sentence is also of particular importance. The key to the
reasoning is however at p. 567, col. 1; p. 519G, where Lord Justice
Bingham said:
Even if an action is pending on issue of proceedings, it is necessary to
consider if it is "definitively" pending. The European Court did not in
my opinion use this adverb, defined by the Oxford English Dictionary
to mean "so as to decide or settle the matter; decisively, conclusively,
finally, definitely" by way of mere rhetoric. The Commission submitted to
the Court in Zelger v Salinitri (Case 129/83) [1984] E.C.R. 2397, at pp.
2403-2404:
Since the bringing of an action often extends over a certain period of time
(the lodging of the document initiating the proceedings at the registry
of the court and the subsequent service thereof on the defendant) the
question also arises whether art. 21 of the Convention refers to the
definitive institution of proceedings or to some earlier stage, for example
the time when the document is lodged with the court.... It would seem to
be justified to displace jurisdiction which exists by virtue of the provisions
of the Convention only if proceedings have already been instituted before
the Court of another contracting state and have resulted in that Court's
being seised thereof definitively. As long as that Court is not seised
definitively it is not clear whether those proceedings will actually take
their course. Thus, for example in German procedural law an application
may simply be withdrawn before service on the defendant without that
amounting to a formal discontinuance of the proceedings. Furthermore,
it must not be forgotten that the defendant does not, as a general rule,
have any knowledge of the fact that proceedings have been instituted
against him before the document initiating them is served upon him
and that in those circumstances he cannot yet raise the plea of lis alibi
pendens. For that reason the moment at which the proceedings are
definitively instituted must be retained as the deciding factor for the
purposes of art. 21 of the Convention.
It seems likely to me that the Court had these submissions in mind when
it formulated its judgment as it did...(underlining added)
At p. 569, col. 1; p. 522G the following passage appears with respect to
other countries' practice:
...We are concerned to analyse and apply English procedure, and we will
review that of other countries only when an issue under the Convention
falls to be decided. We must then accept their interpretation of their
procedural law. It may, however, be that in other countries as well as this
procedural rules will call for reconsideration in the light of the Convention.
Lord Justice Bingham made seven points in support of a conclusion that
service should be taken as the moment of definitive seisure under English
law: It is in my judgment artificial, far fetched and wrong to hold that the
English Court is seised of proceedings, or that proceedings are decisively,
conclusively, finally or definitively pending before it, upon mere issue of
proceedings, when at that stage (1) the Court's involvement has been
confined to a ministerial act by a relatively junior administrative officer;
(2) the plaintiff has an unfettered choice whether to pursue the action and
serve the proceedings or not, being in breach of no rule or obligation if
he chooses to let the writ expire unserved; (3) the plaintiff's claim may
be framed in terms of the utmost generality; (4) the defendant is usually
unaware of the issue of proceedings and, if unaware, is unable to call on
the plaintiff to serve the writ or discontinue the action and unable to rely
on the commencement of the action as a lis alibi pendens if proceedings
are begun elsewhere; (5) the defendant is not obliged to respond to the
plaintiff's claim in any way, and not entitled to do so save by calling on
the plaintiff to serve or discontinue; (6) The Court cannot exercise any
powers which, on appropriate facts, it could not have exercised before
issue; (7) The defendant has not become subject to the jurisdiction of the
Court. (underlining added)
Lord Justice Ralph Gibson agreed with Lord Justice Bingham's reasoning,
adding that Zelger:
...acknowledges that this court has both the right and the obligation
to decide that question having regard to the proper construction of the
Convention in the light of its purposes in accordance with the proper
understanding of our own procedural law.
Dresser's case is binding authority that there is a European purpose - one
could say a hard European core - at the centre of any relevant concept
of pendency under arts. 21 and 22. It is a purpose which any national
Court is expected to recognize in selecting the procedural criteria most
appropriate to give rise to definitive pendency: see per Lord Justice
Bingham at p. 569, col. 1; p. 522G 3. It led the Court in Dresser to
conclude under English law that it would be positively "wrong" to adopt
any criterion other than that which they did. It was referred to by the
Court in Neste Chemicals as a general proposition and as guidance which
the *415 European Court had offered to national Courts. Although the
precise procedural formalities which truly reflect the European purpose
or core will depend on national law, and be selected by the national
Court, they must reflect and respect the general concept of a "decisive,
conclusive, final or definitive" litigational relationship between the Court
and the litigants (c.f. per Lord Justice Bingham at p. 567, col. 1 and p.
569, cols. 1 and 2; pp. 519G and 523A). The nature of the issues and
evidence before me on any view highlights the need to recognize the
European purpose or core within the concept of definitive pendency.
6.3.6 Multi-partite litigation
The problem is how arts. 21 and 22 apply to multi-partite litigation,
in particular where there are multiple defendants. At first blush the
reasoning in Dresser suggests that, as between the two plaintiffs and
each defendant, it is necessary to have regard to the moment of service
of the writ, as against that particular defendant. That indeed was the
defendants' submission to me, although it was, at least initially, coupled
with a submission that, in comparing English and foreign multi-partite
litigation for the purposes of arts. 21 and 22, the comparison should
be made overall. I do not see how arts. 21 and 22 can at one and the
same time require an overall comparison of multi-partite litigation and
require the question which Court was first seised to be determined on a
defendant by defendant basis. An overall comparison necessarily assumes
one date of definitive pendency for the whole of each piece of multi-
partite litigation. A defendant by defendant approach treats each piece
of multi-partite litigation as involving as many sets of proceedings for
the purposes of art. 21 or 22 as there are defendants, and so in this
case 22; indeed the logic of this approach might suggest that where, as
here, there are two plaintiffs each must be regarded as bringing separate
proceedings, since it might well happen, as indeed here, that only one of
them is party to the foreign proceedings; on that basis the English action
would constitute 44 separate sets of proceedings 4.
In Dresser there were several defendants, but all were served on the
same day. The present problem did not arise. This is emphasized by
the discussion of Dresser in Neste Chemicals where the Court said that
issue of the writ would have yielded a readily comprehensible point of
time when the Court becomes seized, but that the context of a definitive
bringing of the matter before the Court made service the better solution.
The choice made was between two points of time, not between a single
point of time and a test which could lead to numerous different points of
time in one piece of litigation. Lord Irvine submits that a defendant by
defendant approach is implicit in both Dresser and Neste Chemicals. It
is clear however that neither Court was in any way addressing itself to
or considering the problems of multiple defendant cases; it would in my
view be an unsatisfactory use of precedent to treat either as resolving it.
In particular the statement by Lord Justice Steyn in Neste Chemicals that
it would be somewhat anomalous if a Court were not seised in respect of
an unserved defendant within the jurisdiction but seised in respect of an
unserved defendant within the jurisdiction was not made in the context of
consideration of a single set of proceedings involving multiple defendants.
More important for any Court faced, as I am, with a new problem and a
choice of solutions, are words of Lord Justice Steyn underlining -
...the importance of competing policy considerations, and the need to
adopt an interpretation which best matches the context and purpose of
this Convention.
I have come to the conclusion, as an essential starting point to the
resolution of the present problem, that arts. 21 and 22 require the Court
to compare each of the two (or more) pieces of competing litigation
overall. Thus viewed either the parties (and causes of action) are the
same in which case art. 21 applies, or the issue arises whether they are
so closely connected as to be related actions within the meaning of art.
22. This approach is also implicit in the reasoning and the questions
posed to the European Court by the Court of Appeal in The Maciej Rataj.
In that case proceedings had been brought in Rotterdam on Nov. 18,
1988 by shipowners and their P. & I. Club claiming a declaration that
the shipowners were not liable for the contamination of soya bean
oil delivered to Comexas, Daehn & Hamann ("CDH") for the account
of four cargo-owners (called in the judgment the "Group 3" cargo-
owners). The proceedings were against CDH and three of the four cargo-
owners, the fourth (Phibro) not being party. Later all four cargo-owners
commenced English proceedings (Folio 2006) against the shipowners. The
argument raised before me, that it is necessary to look at each defendant
separately, does not appear to have been raised at all in The Maciej
Rataj. The Court clearly thought it right to make some form of overall
comparison between the different proceedings in order to decide whether
art. 21 applied. The questions referred to the European Court went to
the precise nature of the similarity which was necessary for art. 21 to
apply, upon an overall comparison. In *416 addition, as I have noted, the
submissions before me assumed that the exercise required by art. 16 is
one of overall categorization of the present action. Any other approach
under art. 16 could sub-divide an action otherwise properly constituted
under art. 6(1) or 5(3).
The present facts provide something of a test-bed for examination of the
viability and coherence of a defendant by defendant approach:
(a) The English Court was first seised of proceedings against Mr. Jaffar, Mr.
Robinson, Mr. Moukarzel, Coll & Co. and Wardbase, because of service of
the English writ on them on Apr. 15, 1993.
(b) The Spanish Court was first seised of proceedings by Mr. de la Rosa,
Mr. de Mir, Mr. Nu¤ez, Mr. Folchi and Mr. Soler against GT, on admission of
the amended Quail proceedings on June 18, 1993 5.
(c) (If the two English plaintiffs are viewed separately) the English Court
is the only Court seised of proceedings by THL against Mr. de la Rosa, Mr.
de Mir, Mr. Nu¤ez, Mr. Folchi and Mr. Soler, by virtue of their being served
on June 21, 1993 or, in the case of Mr. Nu¤ez, in November, 1993.
(d) The English Court is the only Court seised of proceedings against
the other defendants to the English writ, including (i) Anslow, Westow,
Croesus and Wantley served on May 17, 1993, (ii) Russell Limebeer and
Oakthorn served on May 18, 1993, (iii) Mr. Russell served on May 21,
1993, Sheikh Fahad served on May 31, 1993, and Riquel and Coggia
served on June 8 and 15, 1993.
Viewing the matter through the prism of art. 21 alone, the English Court
would have automatic priority in respect of the proceedings identified in
(a), and the Spanish Court automatic priority in respect of those identified
in (b). A defendant by defendant approach would thus split proceedings
which ought rationally to be tried together in one forum. If I were to
accept Lord Irvine's submission that art. 22 is only applicable in practice
where there is a risk of two directly conflicting judgments by reason
of foreign litigation involving at least one of the same parties or their
privies on each side, then art. 22 could not apply to the relationship
between (a) - or indeed (d) - on the one hand and (b) on the other
hand, at all. For reasons which I will state later, I do not accept that
submission. In my view art. 22 can apply where only one party (plaintiff
or defendant) in the different proceedings is the same or even though
(albeit in rare circumstances) there is no common party at all. If so, then
on a defendant by defendant approach: (i) it is difficult if not impossible
to find any rational way of applying art. 22 to the relationship between
the proceedings against the 10 defendents in (d) and the related English
and Spanish proceedings against five other defendants in (b) and (c);
(ii) assuming that some way can be found of overcoming this difficulty,
the relationship between (a) and (b) calls for further examination. The
proceedings in (a) and (b) must potentially be related actions. Prior to
June 21, 1993, the proceedings in (c) can be ignored since the English
Court is not on a defendant by defendant approach definitively seised of
them. So there are at that stage no proceedings capable on a defendant
by defendant approach of falling within art. 21 at all. Until June 21,
1993, the English Court would be first seised of the potentially related
proceedings in (a) - and an application could on that basis be made to
the Spanish Court to stay the proceedings in (b) under art. 22. After June
21, 1993, the mandatory provisions of art. 21 require the proceedings in
(c) to be stayed in favour of the proceedings in (b); but there remains
no basis on which the proceedings in (a) and (d)(i) and (ii) can be
stayed, and no basis on which all the proceedings can be resolved in one
jurisdiction, unless a party in GT's position were able to obtain a stay
under art. 22 of the proceedings in (b) on the basis that the English Court
was first seised of the proceedings in (a) and (d)(i) and (ii). If such a stay
were obtained, the whole proceedings could then fall for resolution in
England despite the priority of (b) over (c) under art. 21.
I find the complexities of a defendant by defendant approach difficult to
reconcile with the rational aims of the Convention.
6.3.7 Articles 21 and 22 - scope and relationship
The concept of "first seisure" was adopted as a "simple test of
chronological priority" in cases of contests of jurisdiction between Courts
of different Contracting States: Dresser per Lord Justice Bingham at p.
563, col. 2; p. 514C. The object of arts. 21 and 22 is that the Court first
seised should hear, firstly, proceedings which are effectively identical and,
secondly (subject to the Court second seised's discretion) related actions.
The aim of these articles is to avoid the risk of irreconcilable judgments.
In Gubisch there was a direct risk of conflicting judgments if one national
Court considered a claim to enforce and another a claim to rescind or
discharge the same contract. This led to an expanded interpretation of
the concept of "cause of action" in art. 21. In the case of art. 22, the third
paragraph provides that:
...actions are deemed to be related where they are so closely connected
that it is expedient to hear and determine them together to avoid the
*417 risk of irreconcilable judgments resulting from separate proceedings.
Lord Irvine's submission was that art. 22 can in practice only apply in
cases where competing litigation might give rise to directly conflicting
judgments between the same parties or their privies and that the word
"irreconcilable" in art. 22 is not to be construed as having a wider effect
than in art. 27(4). This submission (which is contrary to the analysis of
Professor Kaye in Civil Jurisdiction and Enforcement of Foreign Judgments
at pp. 1234/1235) raises another point referred to the European Court in
The Maciej Rataj: see p. 560.
Although the Court of Appeal in The Maciej Rataj expressed no view on
the point, in my judgment Lord Irvine's submissions confine the scope
or application of art. 22 too narrowly. Some confirmation that art. 22
is not limited to situations where the same parties or their privies are
litigating in different Contracting States is indeed provided by the second
paragraph of art. 22. Consolidation of related actions (which cannot be
read in a narrow English sense) is more apt in a case where the parties
are, at least to some extent, different than in a case where they are
effectively identical. Sound policy also points strongly against Lord Irvine's
submissions. I will take four cases to show why. The first is a case where
A has sold goods to B who has on-sold them to C on similar terms, and
the goods are defective. B sues A for breach of contract in one country
and later finds himself sued by C in another. Sensibly interpreted, art. 22
in my judgment recognizes the two actions as related and empowers the
Court in the second action to stay its proceedings or decline jurisdiction.
My second example is litigation by an injured third party against an
insured person in a country other than the insured's domicile. The insured
wishes if necessary to recover from his liability insurer (c.f. art. 10 of
the Convention). Suppose however that the liability insurer commences
proceedings first for a declaration of non-liability in a different country
to that in which the insured is already being sued. Article 22 in my view
empowers the second Court to stay its proceedings or decline jurisdiction,
ensuring the sensible joinder envisaged by art. 10. A third example is an
action by an insured person against his insurers in one country which is
met by a defence of avoidance which leads to the insured person bringing
a separate action in another country against his insurance brokers for
negligence. The brokers could in my view say that the actions were
related under art. 22 and should be resolved in the one Court to avoid
the risk of inconsistent judgments. Finally, to take a fourth case based
on the present, suppose that the English defendants had not included
the Quail co-plaintiffs (Mr. de la Rosa, Mr. de Mir, Mr. Nu¤ez, Mr. Soler
and Mr. Folchi), but the points of claim were in all other respects in the
same terms and referred expressly to the Quail co-plaintiffs (although
not made parties) as alleged co-conspirators. The present action and the
amended Quail proceedings should then be regarded as related. I would
not therefore tie the application of irreconcilability to the limits of art.
27(3) where it is expressly confined to irreconcilable judgments between
the same parties.
This leads to consideration of the precise border line between arts. 21
and 22. The first question is how far art. 21 requires precise identity
of parties. The decision in Gubisch that two claims could involve the
same subject-matter although not "entirely identical" (c.f. par. 17 in the
European Court's judgment) does not supply the answer: the reasoning
was that the subject-matter in issue was the same. The meaning of
"between the same parties" is the object of further questions which the
Court of Appeal addressed to the European Court in The Maciej Rataj in
relation to the actions in Rotterdam and London involving the Group 3
cargo-owners. It was not suggested that the parties were not the same
because of the additional parties in Holland (the club and CDH). But
it was suggested that the addition of Phibro in England made art. 21
inapplicable. The arguments in this area reflect submissions which Lord
Irvine raised before me: c.f. the judgment of Lord Justice Neill at pp.
559-560 where he concluded:
There appear to me to be three possible interpretations of the words "the
same parties" in art. 21: (1) it could mean a situation where there is
an exact correspondence of parties; (2) it could mean a situation where
at least one party is common to both actions; or (3) it could mean a
situation where the parties in the two actions are substantially the same.
It is not decisive in the conclusions at which I have arrived whether
the test is one of exact or substantial correspondence. I would myself
favour the view that the reference to the same parties requires an exact
correspondence. I have no difficulty in seeing that this extends to privies.
I also understand why it may be right to ignore parties who are present in
the foreign litigation but not in the domestic litigation. But I have difficulty
in seeing how the parties can be the same if there are other differences.
Article 21 is not to be read as if it is the only article dealing with lis alibi
pendens. Article 22 is its essential partner. If the domestic proceedings
involve parties not present in the foreign proceedings, then the Court
should have the opportunity to assess the significance of the difference in
the light of the underlying policy of the articles, before deciding whether
or not (and, possibly, to what extent) the second proceedings should be
stayed. If the test under art. 21 were whether *418 there was at least
one common party to each action, art. 21 could lead to an automatic stay
of proceedings which could be wholly inappropriate, since art. 21 has
none of the flexibility provided by the first and third paragraph of art. 22.
If the test were whether the parties in each action were "substantially"
the same (as Lord Irvine advocated), this would require under art. 21 an
assessment of the nature and significance of such claims as may be made
by or against different parties in the context of the two pieces of litigation
as a whole. Not only does art. 21 not say this, but such an assessment
would be likely to overlap with the judgment required under the third
paragraph of art. 22.
I therefore consider that art. 21 was intended to be a straightforward
provision covering the basic situation of identity of parties and subject-
matter, while more complex cases (such as the present) were left to
be regulated by the more general and appropriately flexible provisions
of art. 22. In this connection I also proceed on the basis (which was I
think common ground before me) that the third paragraph constitutes
a definition of (rather than one specific case within) the phrase "related
actions". It nevertheless allows a broad consideration of closeness of
connection, expediency and the risk of irreconcilable judgments. The
first paragraph provides for a discretion. Satisfaction of the criteria for
related actions set out in the third paragraph is by itself likely to create
a prima facie case for a stay. But it was common ground before me that
considerations of forum conveniens enter into the question whether a
stay should actually be granted under the discretion provided by the first
paragraph of art. 22. It is unnecessary to consider whether the test of
expediency in the third paragraph might anyway have brought them into
account. Thus the Court second seised may consider matters such as the
extent of the relatedness, the stage reached in each set of proceedings
and the proximity of each Court to the subject-matter of the case: c.f.
the opinion of Mr. Advocate General Lenz delivered on Sept. 16, 1993 in
Owens Bank Ltd. v. Fulvio Bracco, [1994] Q.B. 508 which concluded with
words reminiscent of The Spiliada:
Finally, it goes without saying that in the exercise of such discretion
regard may be had to the question of which court is in the best position to
decide a given question.
There may appear to be an element of circularity about a discretion
which takes into account the "extent" of the relatedness, which must
ex hypothesi already exist to an extent making it expedient to hear
and determine the two actions together. The explanation is I think that
the discretion under the first paragraph involves a reassessment of the
significance of the relatedness in the light of any considerations not
explicitly embraced by the third paragraph.
There is however one important factor which must in my view be borne
in mind whenever the discretion in the first paragraph arises for exercise.
It is that, because the foreign Court is first seised, there is ex hypothesi
no possibility that it may decline jurisdiction on grounds of forum non
conveniens. This is so, even though the second seised domestic Court
may regard itself as the appropriate forum. Any decision to refuse a stay
under the discretion in art. 22 has therefore the unpalatable implication
that there is bound to be concurrent litigation, unless the foreign litigation
before the Court first seised is voluntarily abandoned. This is a powerful
consideration which must inevitably make for caution before concluding
that there are other factors in existence which overall justify a refusal of
the stay towards which satisfaction of the third paragraph of art. 22 will
by itself already point.
6.3.8 The relevant date
Another point raised by the submissions before me concerned the date
by reference to which the issue of "first seisure" should be resolved.
The Court has to consider (a) whether there are proceedings in different
Contracting States involving the same cause of action and between the
same parties, or whether there are related actions. It also has to consider
(b) in which Contracting State was the Court first seised. As to (a), the
Court must in my judgment have regard to the position at the date when
it gives its judgment. It would be inappropriate to ask whether there
existed identical litigation or a risk of irreconcilable judgments at any
earlier point in time, such as the issue of the writ or the date when one
or other of the competing Courts became first seised. The competing
litigation might in the meantime have been abandoned or terminated in
whole or part, in such a way as to make the application of arts. 21 and 22
irrelevant or quite different. But when it comes to (b), the Court must in
my view also ask itself since when such proceedings have been pending
in each Contracting State in order to identify which Court first became
seised. Definitive pendency is only relevant under art. 21 if it is definitive
pendency in respect of proceedings involving the same cause of action
between the same parties.
The defendants' submission was that it is open to any national Court to
apply any national rule of pendency which it chooses, including a rule
creating retrospective pendency. Thus, in the defendants' submission,
if the Quail proceedings in their original form were (at best) only
related proceedings in relation to the present English proceedings, their
amendment on May 18, 1993 meant that they *419 became proceedings
within art. 21 which were under Spanish law to be regarded as having
been pending from June 9, 1992. Alternatively, if they remained no
more than related actions, they were under Spanish law related actions
which fell to be treated as pending in their amended form since June 9,
1992. Such submissions do not marry with a "simple test of chronological
priority". It is difficult to think that the Convention contemplates
retrospective satisfaction of the criteria of art. 21 requiring "the same
cause of action" and "the same parties". Indeed, if the submission were
right, it would mean that it was open to the Quail co-plaintiffs to join in
the Quail proceedings retrospectively by amendment at any time up until
the day of any judgment given in any English action involving them, and
by so doing to put themselves in a position to assert under art. 21 or
22 that the Spanish Court was first seised. On the other hand, certain
amendments with retrospective effect are recognized by the English and
it seems the Spanish legal systems. If, by the time a Court comes to hear
an application under art. 22, there have been amendments not affecting
the cause of action or parties, it may well be that a Court would be able to
assess the closeness of connexity under art. 22 by comparing the two sets
of proceedings without reference to the date(s) when various allegations
had been introduced. This is a difficult area, and the possibility that
amendments not affecting the cause of action or parties might convert an
action which would not otherwise have fallen to be regarded as related
into a related action within art. 22 appears to me to be both remote and
one which is better left until it arises in a concrete case.
6.3.9 The date of definitive pendency in cases of multiple defendants
I come back to the critical issue of definitive pendency under arts. 21 and
22 in multi-partite litigation. In my judgment these articles postulate a
single date of first seisure in relation to each piece of litigation. Firstly, I
consider that this is very strongly indicated by my conclusion, consistent
with the reasoning and the questions put to the European Court by the
Court of Appeal in The Maciej Rataj, that the articles require an overall
comparison between competing or related proceedings in different
States. I do not exclude the possibility that an action might in exceptional
circumstances fall to be regarded as containing separate proceedings
- this is indeed one view which might be taken with regard to the
original and Quail proceedings (see below); or that nominally separate
proceedings might in some circumstances fall to be regarded as if they
were a single set of proceedings: c.f. The Maciej Rataj at p. 560 where
Lord Justice Neill was satisfied that the actions in Folios 2006 and 2007
had to be looked at together for the purposes of art. 22. But no such
considerations arise in respect of the present English action.
Secondly, I attach weight to the undesirable practical implications of any
other view in tending to split up litigation between different States and
causing inappropriate complexity. The test-bed example which I have
examined in s. 6.3.6 illustrates this.
Thirdly, although the Court in Dresser emphasized the positive litigational
relationship created by service, the relationship between Court and
litigant passes through a number of phases. The Court in Dresser
identified the relationship deriving from naming on a writ issued by the
Court as insufficient, but thought that the relationship created by an
application for interlocutory relief would suffice. On the latter aspect the
Court in Neste Chemicals disagreed. On the other hand, neither Court
evidently considered that a challenge to the jurisdiction under O. 12, r.
8 after service would prevent the English Court being definitively seised,
and this is certainly a premise on which the present applications have
been argued. It is interesting to note that, when in Neste Chemicals Lord
Justice Steyn explained why "the better solution" was to treat seizure as
occurring "when the defendant has been served, that is, made aware of
the proceedings", he added:
...After all, until service the plaintiff may change his mind about bringing
the proceedings.
Lord Justice Peter Gibson referred to the date of issue of the writ as:
...too preliminary a step, being one which would have no consequences
whatever if the plaintiff chooses not to serve the writ.
Such reasoning could be applied rigidly on a defendant by defendant
basis. But the reality is that, once one defendant has been served, the
proceedings have entered a new phase. The plaintiff thereafter no longer
disposes, either in practical terms or in law, of complete freedom of
action. It is most unlikely that he will wish to serve one defendant in one
jurisdiction and bring separate proceedings against another in a second. If
he does try to, then under art. 22 the second defendant sued abroad will
be able to assert that the two sets of proceedings are related and should
be tried together. Service on the first defendant served, whether domestic
or foreign, does in a clear sense mark a Rubicon.
Fourthly and fundamentally, the scheme of arts. 21 and 22 cannot
work on any other basis. In a case where the parties in the different
proceedings are identical the proceedings can, however undesirably,
be assigned to different countries according to *420 a precise ranking
of the dates of seisure as between each pair of litigants. But it is easy
to envisage situations where (as here) domestic proceedings involve
one or more additional defendants not party to the foreign proceedings.
Assuming that the two sets of proceedings are viewed overall as related,
on what date are the foreign proceedings to be taken as pendent in
relation to the additional parties in the domestic proceedings? This
problem can only be met by taking a single date of pendency for each
related action, domestic or foreign. The defendants sought to meet it
by suggesting as an alternative that English proceedings are definitively
pendent when service is effected on the first defendant to them who is
also a party or privy to the foreign proceedings. This they said concurred
with the moment when the practical risk of irreconcilable judgments
arose. It is however a test which introduces a relativistic element
into the concept of definitive pendency. Further it does not meet the
possibility that actions may be "related actions" for the purposes of art.
22 although the only common party is the plaintiff in each action or (albeit
infrequently) there is no common party at all.
Various other possibilities were canvassed but not supported by any
party, for example that definitive pendency might depend on service in
the English proceedings of the first defendant not domiciled in England
or on service on the first defendant domiciled in another Contracting
State or on service on all the defendants. None of them has any logical
attraction and all are open to the practical objection that they might on
certain hypotheses never occur at all, so that the English Courts might
never become definitively seised even though the English action was well
advanced against one or some of the defendants.
The choice thus remains between adopting a defendant by defendant
approach or an overall approach which takes a single date of definitive
pendency in respect of a single set of proceedings. For the reasons given,
I consider it necessary to adopt an approach leading to a single date of
definitive pendency. I acknowledge the difficulty of matching this with
some of the reasons given in Dresser for adopting a date of service
approach, if those reasons are applied remorselessly to multi-partite
litigation with which neither Dresser nor Neste Chemicals was dealing.
There comes a point at which the date of service rule is itself susceptible
to Mr. Adrian Briggs' incisive comment adopted by Lord Justice Peter
Gibson in a different context in Neste Chemicals 6: "Far better a clear and
workable rule than an opaque, if doctrinally purer rule". The interpretation
"which best matches the context and purpose of the Convention" is in my
judgment one which give a single date of definitive pendency for each
action by taking the date of first service on any defendant in a case of
multiple defendants.
It was objected that this solution itself opens a way to abuse, since
plaintiffs would seek to join a defendant (probably domiciled in England)
upon whom they could be sure of effecting early service in order to
secure definitive pendency in the English forum. I do not think that the
Convention falls to be construed on the basis of an assumption that
parties will abuse its procedures. National Courts must be assumed
to be capable of dealing with abuse. The European Court in Kafelis v.
Schröder, (Case289/77) [1988] E.C.R. 5565 was careful to limit the right
to join additional defendants under art. 6(1) to circumstances where
there existed a sufficient connection between the claims against different
defendants and a sufficient risk of irreconcilable judgments if separate
proceedings were to take place. The decision of the Supreme Court of
the Republic of Ireland in Gannon v. B & I Steam Packet and Others
(261/92; unrep'd, C.A., Finlay C.J., O'Flaherty and Egan JJ., Nov. 5,
1992) provides a practical example of a common law Court identifying
the joinder of a local defendant as an artificial and abusive attempt to
establish Irish jurisdiction in preference to English, and disregarding the
joinder accordingly. The possibility that plaintiffs might be more ready
to sue and serve properly joined defendants in order to consolidate local
jurisdiction reflects a fact of life not an abuse. There is a variety of ways
in which parties can legitimately seek to improve their jurisdictional or
litigational positions. The Court should in construing the Convention
seek to interpret its provisions in a way which appears best suited to its
general aim of promoting sensible dispute resolution as well as avoiding
potentially inconsistent litigation. Sensible dispute resolution includes
the simplest and speediest resolution of any issue where the substantive
trial should occur. The position under consideration is one where, ex
hypothesi, an English action has been begun and the first defendant in it
has been served at a time when the foreign proceedings have not become
definitively pending, and may not even have been issued. Until the service
of the first defendant in any English action the action will commonly be
unknown to all the defendants. If a defendant by defendant approach
to definitive pendency is adopted, defendants, immediately after the
first service of any defendant in proceedings in a State in which they
do not wish to litigate, will have the opportunity of commencing and (if
necessary) serving counter-proceedings in their home country or some
other country in which they prefer to litigate. This is precisely what five
of the Spanish defendants sought to do in the present *421 case when
the Quail proceedings were revived and then amended in the light of the
commencement and service on the English domiciled defendants. When
considering the practical advantages and disadvantages of adopting the
date of first service on any defendant as the date of definitive seisure, the
undesirable implications of a defendant by defendant approach seem to
me to outweigh any possibility of "abuse" in the selection and service of
individual defendants.
6.3.10 The Spanish proceedings
These proceedings were the subject of extensive expert evidence both
written and oral, given for the defendants by Professor Rifa who dealt
with the criminal proceedings and by Dr. Carreras who dealt with the Quail
proceedings (as well as with GT's suspension of payments) and for the
plaintiffs by Professor Ramos who dealt with all the Spanish proceedings
7. The oral evidence of all three Spanish lawyers was of assistance to a
better understanding of the issues and differences between their views.
A number of the differences existed or arose because of diversities or
uncertainties of jurisprudence or doctrine in Spanish law. All the expert
lawyers gave genuine assistance. The uncertainties and differences
cannot be resolved by reference to any general preference for one expert
compared to another. There were points on which I preferred the evidence
of one to another, and vice versa, but the preference derived from an
analysis of the particular point and the applicable principles and the
cogency of the explanation advanced on that point rather than from any
general preference for any witness over another. The only qualification
that I would make about the oral evidence in this connection is that,
making I hope all due allowances for Professor Rifa's conviction about
what he was saying, I felt that his evidence in particular suffered in
parts from an adversarial tendency, which detracted a little, I am sure
unconsciously, from its objectivity in these parts.
6.3.11 The criminal proceedings - analysis under arts. 21 and 22
I now consider the Spanish criminal proceedings and the civil proceedings
which the defendants say are inherent in them, in order to determine
the potential application of arts. 21 and 22. I summarize at the outset
my conclusions: (i) civil proceedings are pending within the scope of
the Spanish criminal proceedings; (ii) they were not definitively pending
before their admission on Feb. 11, 1994; (iii) it follows from conclusion
(ii) that there is no basis for applying art. 21 or 22 since the present
action was the first action definitively pending; (iv) the Spanish civil
proceedings are not between the same parties (or, if this be the test,
between substantially the same parties) as the present English action
within the meaning of art. 21 - this follows from my general conclusion
that the two sets of proceedings should be compared overall; (v) (a)
the Spanish civil proceedings do not involve the same (or substantially
the same) cause of action as the present English action; (b) if they had
done, I would have been prepared to allow GT to make a reservation in
respect of the four transactions in the Spanish criminal proceedings; (vi)
apart from conclusion (ii), conclusions (iii) and (iv) would still make art.
21 inapplicable. Article 22 would remain for consideration, but would be
unlikely to lead to a stay, whether complete or partial, because of my
conclusion that the querella does not address the four transactions (and
if necessary also because of my conclusion that, even if it does embrace
them in any sense which could make them pending in Spain, GT can give
effect to its undertaking to reserve the four transactions from its scope).
I turn to the reasons for these conclusions.
(i) "Proceedings" or "related actions" brought in the Courts of different
Contracting States
The first question is whether the Spanish criminal proceedings have at
any relevant date involved any civil or commercial proceedings, within
the scope of the Convention, at all. Spanish law provides for a civil action
("acción") to be brought as part of criminal proceedings. Such an acción
may in due course lead to a civil judgment, although (subject to a few
exceptions) only in the event of a conviction. The establishing of civil
liability in criminal proceedings is facilitated by art. 19 of the Spanish
Criminal Code whereby:
Every person criminally responsible for a crime or misdemeanour is also
civilly responsible.
Article 100 of the Spanish Procedural Law states:
All offences and misdemeanours engender a criminal action [ acción ]
for the punishment of the culprit and may also engender a civil action
[ acción ] for restitution and compensation for damages arising from the
punishable act.
There was much discussion in the evidence before me as to the precise
point at which, under Spanish law, firstly criminal proceedings and
secondly any civil proceedings within their scope fell to be regarded as
brought. At times the debate involved jurisprudential differences about
the true nature of Spanish proceedings, about the role of the Court, the
public prosecutor and the private litigant and about concepts such as
"jurisdicción", "proceso" and "acción". *422
Criminal proceedings may be commenced in Spain in three different ways:
(i) by querella or complaint, in which case the complainant, whether he
be the public prosecutor or, as here, a private person, is a party, (ii) by
denuncia or denunciation to the Court in which case the person making
the denunciation is not a party and need play no further part - it appears
that such proceedings will be pursued by the public prosecutor who
may go on to prepare a querella - and, (iii), though in practice rarely,
by a Court of its own motion. Both the first two methods are subject
to the "filter" of admission (admisión a tr mite): c.f. Gimeno Sendra,
The Querella. A requirement of admission applies in civil proceedings
as well as in proceedings begun by querella. In the context of criminal
proceedings, it involves the Spanish Court considering not only the formal
regularity of the proceedings but also whether the facts stated in the
querella constitute an offence known to law. If (and only if) admitted, the
proceedings go ahead with the investigatory stage under the authority of
the investigating Judge. The investigating Judge has a file in which one
section is for matters relating to civil responsibility. The facts investigated
may be relevant to both the criminal and civil liability. The investigating
Judge is not limited in his investigations to any facts set out, or indeed to
any accused identified, in the querella. The investigatory stage concludes
when the investigating Judge takes a decision whether the facts disclose
any potential criminal offences against any particular individual which
should go to trial. If the investigating Judge decides that there are
matters justifying a criminal trial, the file passes to a different Judge and
the matter enters a new phase, in which the first step is the preparation
of a provisional qualification (calificación provisional) (or in lesser cases
an escrito de acusación) in which the parties set out, provisionally,
the charges for trial. Oral evidence is then taken, leading to a final
qualification which states the charges finally and without departing
substantially from those mentioned in the provisional qualification unless
there are exceptional circumstances. Thereafter the trial Judge gives his
verdict.
The evidence on Spanish law concerned firstly the date when criminal
proceedings may be said to initiate, secondly when a criminal acción
exists within their scope and thirdly when a civil acción exists within
their scope. The evidence indicated that different Spanish jurists adopt
different conceptual analyses on these points. In the case of criminal
proceedings resulting (like the present) from the filing of a querella,
attention focused on (i) the filing of the querella, (ii) its admission and
(iii) the provisional qualification. Professor Rifa's view was simple. He took
the date of filing as the commencement of the criminal proceedings, of a
criminal acción and of a civil acción. He regarded any delay in admission
or any refusal to admit the querella as irrelevant, unless and until it led to
a final rejection not subject to further appeal, when nothing could remain.
Professor Ramos' evidence was more complex. He accepted that the
filing of a querella opened a criminal process. But he referred to various
views expressed on the question when a criminal acción could be said to
have been exercised; one body of juristic opinion favours the moment
of admission, while another favours the date of provisional qualification.
Professor Ramos himself preferred the date of filing, subject to the caveat
that any decision refusing admission constituted in his view a rejection
of any acción which thereupon ceased, even though the decision was
still subject to appeal. As to the civil aspect, Professor Ramos' view was
that no civil acción could properly be said to exist before a provisional
qualification 8.
Judge Moreiras held on Nov. 3, 1993 that the inadmission of the querella
did not preclude persons identified in it as defendants from appearing
to resist any appeal against the refusal of admission: there was he said
no "procedural void" ("nada procesal"). Over the last year there has on
any view been a hard fought proceso (or process) in the Spanish Courts
relating to the question of admission. Professor Rifa drew no distinction
in the present context between "proceso" and "acción". Professor Ramos
considered that a criminal proceso existed, but no criminal acción. In
some circumstances this may clearly occur. For example where criminal
proceedings are started ex officio by the Court (and possibly also where
they are started by denuncia if no querella is subsequently filed), no
acción exists. However these situations are not directly relevant to the
present case.
The word "acción" is employed in the Spanish Criminal Code in relation to
both the criminal and conjoined civil proceedings. It is a concept "charged
with procedural history" - as Professor Ramos has himself written - with a
jurisprudential flavour not I think imparted by the English word "action".
It has been described as a right to the Court's jurisdiction or a right to
have the Court's procedural activity set in motion (c.f. Gomez Colomber,
Jurisdictional Law (1993), p. 98; de la Oliva, Criminal Procedural Law
(1993) p. 178). Professor de la Oliva in his Law on Civil Procedure (1992)
(cited by Professor Rifa) points out that the *423 original theory of
"acción" as a concrete right derives from civil law, and suggests that in
the criminal context it should be regarded as an abstract power to invoke
the jurisdiction. Professor Ramos defined "acción" in his evidence as every
part of a complainant's activity in proceedings directed to obtaining relief
whether civil or criminal. He agreed that such activity included the filing
by a private complainant of a querella, insofar as the complainant invoked
the criminal jurisdiction. If and insofar as the querella adumbrated a civil
claim, he regarded this as no more than a statement of the complainant's
intention to institute a civil acción at the appropriate time, in his view
in the calificación provisional. However Professor Ramos maintained
that, if the querella was not admitted, the criminal acción ceased, even
though the decision refusing admission was subject to appeal. Professor
Rifa disagreed with Professor Ramos on these points maintaining that
a civil acción is inherent in all criminal proceedings ab initio, and also
maintaining that neither acción could cease to exist unless and until
admission was finally refused at the conclusion of any appeal process.
Now that the querella has been admitted, the disagreement between
the experts on this last point is not directly relevant as it was during the
hearing. Some of the differences between Professors Ramos and Rifa and
between their respective views and those of other commentators and
authorities are evidently differences in the terminology used to describe
certain legal phenomena. Professor Gomez de Liano in the two pp.
98-99 which I was given from his work El Proceso Penal is helpful in this
respect. According to his analysis the word acción has two dimensions:
the first, that mentioned by Professor Ramos consisting of a right (or
power) to initiate a criminal process, and the second, the right to make
an accusation (calificación provisional or escrito de accusación) and go to
trial on the basis of it. Professor Gomez (after referring to the Preamble to
the Criminal Procedural Law to which I refer below) says that there would
be no problem in speaking of acción in the first case and of pretensión
penal in the second, although (as pointed out above) there could on
this basis be proceedings (e.g. started by denuncia) where there was
no acción at all and only a pretensión penal. One conclusion which I
derive from the Spanish material before me is that it may not be very
productive to try to identify something which may or may not correctly be
described as an acción penal in Spanish criminal jurisprudence in order to
deduce from its existence that there is also an acción civil or, thereafter,
to deduce from that the presence of a pending civil action within the
meaning of arts. 21 and 22 of the Convention.
The concept of litispendence finds expression in a criminal context under
Spanish law. But this is on a different and broader basis than in a purely
civil context. Articles 111 and 114 give criminal proceedings priority over
separate civil proceedings on the same factual subject-matter:
111. Actions arising from an offence or misdemeanour may be brought
jointly or separately; but whilst the criminal action is pending the civil
action shall not be brought separately until the former has been ruled on
by firm sentence, save always for the provisions of article 4, 5 and 6 of
this Code.
114. If a criminal proceeding has been brought for investigation of an
offence or violation, [a civil suit] cannot be pursued on the same fact;
suspending the same, if any, at the stage at which it were in, until such
time as a firm sentence is brought in the criminal case.
It shall not be necessary for bringing a criminal action for it to be
preceded by a civil action arising from the same offence or violation.
The provisions of this article are to be understood as without prejudice to
the provisions of chapter II, heading I, of this book, relative to prejudicial
questions.
These articles deal with acciones begun before and after the
commencement of criminal proceedings. There are other provisions
reflecting the same general attitude in art. 362 of the Civil Procedure
Code and arts. 10.2 and 44 of the Judicial Powers Act, cited in Judge
Foncillas' decision dated Apr. 29, 1994 staying the Quail proceedings.
The scope of these articles is demonstrated by a decision of the Supreme
Court dated Sept. 30, 1993 as well as by Judge Foncillas' decision. The
Supreme Court was concerned with the effect of art. 114 on the running
of the limitation period. It identified as the key to the operation of arts.
111 and 114 a coincidence of facts (rather than any identity of parties)
between the criminal and civil jurisdictions. It thus held, in relation to a
civil claim against a bank by the drawee of a cheque, that the limitation
period for bringing such a claim had been postponed or interrupted by
prior criminal proceedings brought by the drawee against the drawer
for drawing the cheque without having sufficient funds (although the
drawee's claim still failed, it seems, for failure to join the drawer). Such
criminal proceedings had been begun by denuncia which had it seems
been admitted and the drawee had subsequently joined as a party to
them. They had later been discontinued by Court order for reasons not
apparent. One factor in the Supreme Court's conclusion that the criminal
proceedings against the drawer suspended the limitation period for civil
proceedings against the bank was the possibility of a civil responsibility,
albeit *424 subsidiary, on the part of the bank "which enters into the
scope of the probabilities which could...[derive] from such (criminal)
proceedings". The reasoning does not analyse in any detail the precise
effect of art. 111 or 114 on the running of limitation. The fourth and
fifth reasons given suggest if anything that the limitation period only
ran from the final disposal of the criminal proceedings, viz. from the
procedural act (diligencia) after which the civil action could be exercised.
The decision does not therefore assist on the question when Spanish
criminal proceedings commence, or on whether the operation of arts. 111
and 114 depends upon admission of the criminal proceedings. Professors
Rifa and Ramos were agreed that the effect of these articles depends in
practice almost entirely on an application for a stay being made by the
defendant to the separate civil proceedings. In theory and occasionally
in practice (as suggested by Judge Foncillas' own raising of the point at
a hearing of the Quail proceedings on Mar. 8, 1994), the Court might
raise the matter of its own motion. In theory the language of the articles
is also sufficiently wide to give criminal proceedings priority from their
commencement. But the reality is, as Professor Ramos indicated and
I accept, that no civil Court would stay its proceedings by reference to
criminal proceedings unless and until they had been admitted, the reason
being that until then it is not clear whether the criminal proceedings will
actually take their course.
I turn to the civil aspect of criminal proceedings. It is common ground
that a civil acción may (unless expressly reserved by the injured party
so as to be exercised separately) be exercised and be pending at some
stage under criminal proceedings in Spanish law. The issue is when.
Professor Ramos' opinion was that, whether or not expressly adumbrated
in the querella or in any other way at an early stage, a civil acción only
exists if and when a calificación provisional is prepared at the start of
the trial stage. Under Spanish law it is then alone that it can be said for
certain that there will be a trial, and what it will concern. The calificación
provisional is the first document in which a civil claim must be included
if it is to be dealt with at the trial or in any judgment. Professor Rifa on
the other hand said that the civil acción was exercised from the outset
of the proceedings not only when expressly invoked in the querella,
but implicitly in every case. Indeed, he said that such a claim must be
taken as existing from the outset against anyone and in respect of any
transactions to whom or which the investigating Judge might later turn his
attention.
The legislative background is to be found in various articles of the Spanish
Criminal Code and Criminal Procedural Law. I set out arts. 108-110 and
116 of the Criminal Code (having already set out arts. 111 and 114): 108.
The civil action must be brought in conjunction with the criminal action
by the Attorney General's Office, be there or not a private accuser in the
proceedings; but if the offended party were to expressly waive its right to
restitution, compensation or indemnity, the Attorney General's Office shall
be limited to requesting punishment of the culprits.
109. At the time of receiving the declaration from the offended party
having the necessary legal capacity, it shall be instructed of the right
which it has to present itself in the process (para mostrarse parte en el
proceso) and to waive or not to the restitution of the property, reparation
of the damage and indemnity for damages caused by the punishable act.
In the event of not having legal capacity, like formalities shall be practised
with its representative.
Notwithstanding the provision of the two previous paragraphs, no
notification to the interested parties in civil or criminal actions shall be
made whatsoever which may extend or detain the course of the case.
This shall not prevent the Judge from attempting to instruct the absent
offended party of that right.
110. The parties damaged by an offence or misdemeanour who have not
waived their rights, may be a party in the cause, (causa), if they do so
prior to qualification of the offence, and may bring the pertinent civil and
criminal actions, or only one or the other, as it suits them, without this
meaning having to go back in the course of the proceeding.
Even when the prejudiced parties do not present themselves as party in
the cause, it should not be understood by this that they waive the right
to restitution, compensation or indemnity which in their favour may be
granted in the firm sentence, it being necessary that a waiver of this right
in the event be made in an express and categorical manner.
112. Having only brought the criminal action, it is also understood that
the civil action has been used, unless the damaged or prejudiced party
were to waive it or expressly reserve it for bringing at a later date after
the ending of the criminal proceedings, in the event a case were to exist.
If only the civil action were to be brought which arises from an offence
which can only be pursued by virtue of a private claim, the criminal action
shall of course be considered as extinguished. *425
116. The extinction of the criminal action does not carry with it that of
the civil action, unless the extinction proceeds from a declaration by final
sentence that the act giving rise to the civil action did not exist.
In the remainder of cases, the person to whom the civil action may
correspond may bring the same, before the jurisdiction and through the
corresponding civil procedure, against whomsoever may be obliged for
the restitution of the property, reparation of the damage or indemnity for
damages suffered.
Articles 320 and 615 are also relevant:
320. The intervention of the civil actor in the summary stage shall be
limited to obtaining the practice of those judicial activities that may
provide for the most successful outcome of their action (al mejor existo
de su acción), which are reviewed at the discretion of the [Investigating]
Judge.
615. When civil liability attributable to a third party appears during the
investigation conducted in the committal proceedings...the [Investigating]
Judge, upon the request of the civil complainant (actor civil) shall order
that a bond be required of the person against whom the liability is
attributed or otherwise shall attach those properties as are necessary...
Professor Ramos said that these articles were not concerned with the
precise moment at which a civil acción came into existence and became
pending. Articles 109 and 110 talk of the injured person becoming
party to the process, and doing so at a stage prior to the calificación
provisional. Professor Ramos treated this as meaning party only to the
criminal process until the calificación provisional. But art. 110 suggests
to me the contrary, referring to the injured party bringing one or other
of the pertinent civil and criminal actions as it suits him. The provision in
art. 110 that the joinder of an injured party does not mean "having to go
back in the course of the proceedings", or in other words having to repeat
everything that has already been done, reinforces the impression that the
injured party is, once joined, a civil party. Article 320 indicates that his
participation is subject to the Judge's discretion and limited to measures
promoting a successful outcome to his civil acción. But he will be able to
participate in the search for evidence at the investigatory stage, and to
take preventive measures (which Professor Ramos accepted in a general
sense as constituting civil procedural activity) to protect his civil claim.
Professor Ramos supported his belief that no civil acción was properly
afoot until the calificación provisional by reference to the Exposición de
Motivos (or Preamble) of the Criminal Procedural Law of 1882 and two
commentators. The Preamble contains the following explanation of the
effect of the new procedures being introduced by the Law:
...from today the investigation of the investigating judge will be nothing
more than a simple preparation of the trial. The true trial only starts with
the provisional qualification and the opening of the proceedings before
the Court which, [not having taken part in] the investigation, will judge
with impartiality in favour of those parties who have reason and justice on
their side. The legal and provisional qualification of the facts to be decided
and of the identity of the offender, made by the accuser and accuser
once the investigation phase is concluded, is in criminal proceedings the
same as the demanda (civil claim) and its answer, the acción and the
excepciones, in civil proceedings.
This statement applies to the criminal proceedings as a whole. It thus
differs from both Professor Rifa's and Professor Ramos's common analysis
of the criminal aspect of the proceedings. However Professor Ramos' view
that the statement is correct if confined to the civil aspect of criminal
proceedings finds some support in the work which he cited by Professor
Font Serra, La Acción Civil en el Proceso Penal (1991), at footnote 198.
Professor Font Serra also says that civil proceedings only "properly"
commence with the calificación provisional when they "always" (siempre)
commence. Another commentator cited by Professor Ramos was Professor
Monton Redondo in his work Derecho Jurisdiccional (1991). He speaks
of the pretensión auténtica (authentic claim) being made at the time
of the calificación provisional, whilst recognizing that the intention to
exact civil responsibilities may actually be manifested in the querella.
Professor Ramos understood pretensión here as meaning the same
as acción. Professor Rifa, dealing with these authorities, relied heavily
on the text of arts. 108-114 of the Criminal Code, and asserted that
Professor Font Serra and Professor Monton Redondo were just two authors
among many and not the majority. Unsatisfactorily he did not produce
or identify specific contrary examples. Once again much of the problem
lies in different dimensions and usages of the word acción to which
Professor Gomez de Liano drew attention in his El Proceso Penal (1989)
in a criminal context. Pretensión and acción can be used synonymously,
but it also appears from Professor Gomez de Liano that they can be
used in contradistinction to each other. In particular, pretensión can be
used specifically to refer to the second stage of criminal proceedings
before the trial Judge (and seems to have been used in this sense in
the recent decision of the Audiencia Nacional dated Feb. 11, 1994 at p.
6 in the Spanish), while acción may then be used to refer to the *426
earlier stage. The differences between Professor Rifa and Professor
Ramos as to whether an acción can properly be said to exist prior to the
calificación provisional do not appear to have practical significance in
relation to matters such as prescription. Articles 111 and 114 apply during
the investigatory stage to bar civil proceedings on any matter arising
directly on the facts being investigated; and any limitation period for the
commencement of separate civil proceedings will likewise be postponed
or suspended. So far as it is relevant to decide whether a civil acción can
exist prior to the provisional qualification, I answer the point affirmatively,
based on the provisions of arts. 108-116 and Professor Ramos' own
general concept of acción as procedural activity directed to obtaining relief
whether civil or criminal. Even the mere filing by a civil complainant of a
querella prior to its admission may it seems to me properly on this basis
be regarded as the initiation of a civil acción; once it is admitted the civil
complainant who files a querella has various procedural rights as a civil
party and has an even stronger claim to be regarded as having brought a
civil acción. It does not affect these conclusions that the matter enters a
more definite phase if and when the civil claim is set out in the calificación
provisional.
I do not however accept Professor Rifa's view that a civil acción is in
existence, even if there is no querella or nothing is said in any querella,
merely because the right to civil relief remains unless waived or reserved
(art. 110) or because, where a criminal acción alone is exercised, a civil
acción is understood to have been utilized unless waived or reserved
(art. 112). Where the injured party has not filed any querella (but, for
example, the public prosecutor does so), I am not satisfied that there
is any civil acción at all as between the injured party and the accused.
I say this, despite the duty imposed on the public prosecutor under art.
108 to request payment of compensation for the benefit of the injured
party, unless the injured party has waived or reserved his right to such
compensation. The fact that the public prosecutor may or should in that
case introduce a civil claim into the calificación provisional does not mean
that he is, even then, acting as agent for the injured party or mean that
the injured party is even then to be treated as a party to the criminal
proceedings (as opposed to someone who may benefit from a judgment
which may be made in their course).
Further, taking a case where the injured party files the querella but makes
no express civil claim, I do not consider that art. 112 has the effect of
deeming into existence a civil acción which has not been mentioned.
The acción may not have been waived or reserved, but it has not been
brought in any meaningful sense. I see force in the observa- tion, made
by Professor Font Serra and cited by Professor Ramos, that to read art.
112 in so wide a sense would be inconsistent with basic principles of
justice. It would also expand the concept of acción far beyond Professor
Ramos' concept of procedural activity taken to obtain relief. I find myself
further unable to accept that Professor Rifa can be right, at least in any
sense which is meaningful in the present context, in saying that there
is from the outset of criminal proceedings in existence an acción civil
against in effect everyone and in respect of every transaction who or
which the investigating Judge may thereafter, or indeed hereafter, think fit
to investigate.
I conclude therefore that a civil acción within the criminal proceedings
can properly be said to exist under Spanish law when, as here, the
querella is filed by the civil claimant and expressly purports to make
a civil claim. I note, although it was not directly relevant to any issue
which then arose, that Judge Moreiras, in the seventh legal ground in his
judgment dated Feb. 16, 1993, spoke of GT in its querella making use
of the acción civil for indemnification ex delictu in addition to the acción
penal for the punishment of the culprits. It is true that Judge Moreiras
was in this respect doing no more than reproduce the language adopted
in the querella but I consider that both it and he were reflecting the legal
position. I also think that an acción brought in this sense may constitute a
relevant action for the purposes of arts. 21 and 22 of the Convention. In
the final analysis that is what matters. The debate under Spanish law is
perhaps only of significance as background to an independent European
point, namely what is a civil or commercial action within the scope of
arts. 21 and 22. As to this I conclude that, once a complainant has filed
a querella properly identifying a civil claim, a civil action within those
articles has been brought in respect of that claim.
(ii) "Definitively pending"
I come therefore to the question whether and when any civil action
brought within the framework of the criminal proceedings can be regarded
as "definitively pending" for the purposes of arts. 21 and 22. Professor
Ramos said in his report:
In the final analysis, it would have to be concluded that the criminal
process..., although initiated, has not reached the stage of lis pendens
required by the jurisprudence which has interpreted art. 21 of the
Brussels Convention.
It is clear that he was here referring to the European Court rather than to
any Spanish authority on art. 21 or 22, of which (it is common ground)
there is none. Professor Rifa maintained that the question whether
and when any civil action brought within the criminal proceedings was
definitively pending was *427 no different from the question whether
under Spanish law a civil acción may properly be said to have been
brought by the issue of the querella (subject to defeasance in the event
of non-admission). For him there was no distinction between the bringing
of such an acción, its pendency and its definitive pendency. When at
one point Mr. Clarke suggested in cross-examination that the Spanish
Courts might distinguish between actions brought and definitively
pending, Professor Rifa said that the questions being brought up would
be unthinkable in Spain. I do not find it possible to accept either this or
Professor Rifa's further view that -
...no Spanish court needs to pronounce itself on [the meaning of "first
seised"] because the answer is very clear.
The fact that such questions have simply not been addressed judicially
or by any commentator does not mean that they will not have to be
addressed in a Spanish context, as the English Courts had to in an English
context in Dresser. Professor Rifa's evidence reveals that the problem
of addressing them will be bedevilled in a Spanish context by a further
problem of terminology. In Spanish legal terms, " definitive " means
"going to the substantive merits" 9. The word was clearly not used
in this sense by the European Court in Zelger. Dr. Carreras confirmed
that the phrase "definitively pending" is not known to Spanish law; he
assumed, realistically I am confident, that when the Spanish Courts have
to consider it they are likely to be referred to international as well as
Spanish jurisprudence.
The problem is to give effect to the European purpose and intention of
the words "definitively pending" as explained, in a manner which binds
me, by the Court of Appeal in Dresser. The Spanish Courts will no doubt
seek to do this when selecting the moment under Spanish law when
civil proceedings brought within the framework of criminal proceedings
became "definitively pending". Viewing the matter in this way, I consider
that, whatever the position regarding the existence or pendency of a civil
acción under Spanish law, Spanish civil proceedings cannot be regarded
as definitively pending within the scope of criminal proceedings until
admission of the latter, and then only for the future. Admission involves
a check that the matter is in order for progressing not just procedurally
but also substantively; the Court considers and decides whether the
facts stated make out a sufficient case in law for proceedings to be
permitted. As evidenced by the history of the criminal (and indeed the
Quail) proceedings, unless and until proceedings are admitted, nothing
can happen either to progress them or on their substance. The Court will
not even arrange service. By its nature and effects it provides a clear-
cut moment before which a Spanish Court cannot in my view be said to
have become "decisively, conclusively, finally [or] definitely" seised of the
proceedings. The act of admission is the Court's act in deciding to seise
itself of the proceedings begun by querella. Prior to admission all that has
occurred is simply the unilateral act of the party filing the querella. It is
consistent with this conclusion that arts. 111 and 114 only have any real
impact on the bringing of separate civil proceedings after admission of
criminal proceedings. The writings of the jurists referred to by Professor
Ramos in par. 2.5 of his additional points to the opinion dated Dec. 2,
1993 also demonstrate the significance of admission as the key which
unlocks the way to progress into the subject-matter of the proceedings.
The requirement of admission has no direct parallel in English procedure.
It represents an automatic Court-operated filter at the very outset of
Spanish proceedings. It works on a quite different basis from a party's
unilateral right in English proceedings to apply after service to set
aside service for jurisdictional or procedural reasons or to strike out as
disclosing no cause of action. The fact that there is, prior to admission,
a criminal proceso or activity which may properly be described as the
exercise by a party of a criminal or civil acción does not detract from
these conclusions. That provisional activity may occur before a Court
without that Court being definitively seised is demonstrated in terms
of English procedure by Neste Chemicals. Under Spanish procedure
the conclusion I reach is that the Spanish Court was not definitively
seised until admission, despite all the provisional activity conducted by
the parties in the meantime with a view to achieving or avoiding such
admission. I add that such activity was evidently exceptional. Normally
no doubt the decision whether to admit or refuse admission is envisaged
under Spanish law as a short process involving relatively little loss of
time. In the present case, this expectation was not fulfilled. In the
criminal proceedings this was because the process of admission itself
generated such exceptional legal activity. In the Quail proceedings it was
because of Quail's failure to remedy a documentary deficiency. It is no
response to these points to say that proceedings were still in existence,
awaiting the final determination of the appeal in the one case or awaiting
the filing of the relevant documents in the other. The question is not
whether proceedings had come definitively to an end, it is whether they
had become definitively pending. *428
I have been focusing on the point of admission. Since the Spanish
criminal proceedings were admitted as recently as Feb. 11, 1994, it is
not decisive whether their "definitive pendency" might be yet further
postponed. I shall however have to address arguments linking definitive
pendency with service (both under Spanish law and under arts. 21 and
22) in the context of the Quail civil proceedings.
I conclude that for the purposes of arts. 21 and 22 of the Convention
any civil action within the present criminal proceedings only became
"definitively pending" on Feb. 11, 1994. Where there is a condition to
definitive pendency such as admission there is nothing in the Convention
which can contemplate that, upon satisfaction of that condition, definitive
pendency should be viewed as existing retrospectively from the date
of filing, whatever may be the position under Spanish law. Any such
concept of retrospective definitive pendency would expose parties to great
uncertainty and potential waste of costs. Therefore I consider that the
Spanish Court can only be said to have been definitively seised on and as
from Feb. 11, 1994.
(iii) First seised
On any view Feb. 11, 1994 postdates the date on which the English Court
became definitively seised of the present English action, whether one
takes the plaintiffs' or either of the defendants' alternative approaches
to the application of that concept to cases of multiple defendants.
Accordingly neither of arts. 21 and 22 in my view requires or calls for
the English Court to consider staying or declining jurisdiction in favour of
any civil action which may exist within the scope of the Spanish criminal
proceedings. I shall nevertheless examine the other criteria for the
application of those articles, in case a different view be taken of the order
of definitive seisure.
(iv) Between the same parties
This phrase makes art. 21 in my view inapplicable to the present English
proceedings. On an overall comparison, any civil proceedings within the
Spanish criminal proceedings are not between the same parties as the
English action. Even if the test were (contrary to my view) whether the
two parties in the two sets of proceedings are "substantially" the same, I
consider that they are not. Clearly there is a material overlap and leading
personalities among the alleged conspirators are all involved in the
Spanish proceedings. However there is also a very material discrepancy,
with some 15 extra defendants involved as alleged conspirators and
others in the English proceedings.
If any civil proceedings within the criminal proceedings constitute
an action related to the present within art. 22, that would lead back
to consideration of the date of definitive pendency of any such civil
proceedings, already considered.
(v)(a) Involving the same cause of action
This element involves in accordance with Gubisch v. Palumbo two
subsidiary aspects: (a) cause of action, in the sense of legal relationship
and (b) subject-matter in the sense of basic issue. I have already
identified the various criminal offences alleged in the querella. Mr. Clarke
compares the description of the Spanish claims with the claims based
on conspiracy, breach of directors' duties and constructive trust in the
present English proceedings. Whatever the precise legal categorization
of the claims in the Spanish and English proceedings, if the matters
relied on (including the states of knowledge and intention assigned to
the defendants and the loss in issue) are effectively the same in both
proceedings, there would be a strong case for applying art. 21 between
the same parties, whatever the description of the offences.
I must therefore consider whether the matters in issue in the Spanish
criminal proceedings include the four transactions the subject of the
present English action. In my view they do not, because the Spanish
criminal proceedings do not extend to the four transactions the subject
of the present English action at all. For a querella to be admitted it must
state facts from which a criminal offence can be seen. This is clear from
the evidence and commentaries before me. It was one basis on which the
accused in the Spanish proceedings sought to have those proceedings
set aside. Both Judge Moreiras and the Audiencia Nacional stressed
that the criminal proceedings could not be viewed as a general case of
fraudulent management. No such offence currently exists under Spanish
law. The criminal proceedings were admitted by the Audiencia Nacional
on the basis that the facts stated showed a sufficient case in respect of
the various individual offences stated in the Criminal Code which I have
already set out. I have quoted the relevant passage from the Audiencia
Nacional's reasoning in s. 6.3.1 above.
The querella does not contain particulars which could satisfy the criteria
for admission of any complaints relating to the four transactions the
subject of the English proceedings. It asserts nine specific and quite
distinct matters on which reliance is placed to justify the commencement
of criminal proceedings. These nine matters are introduced in the
following terms:
We shall now proceed with the examination of the operations in which, in
the judgment of the complainant, elements will be detected which make
it possible to aver the existence of criminal acts by the defendants and
which we shall list for the sake of good order:... *429
In parenthesis, I note that, in the submissions which Mr. de la Rosa made
to the Spanish criminal Court with a view to persuading it not to admit the
querella, he treated these nine matters as the only matters with which he
had to deal.
The defendants rely on general statements in the querella. Thus the
complainant is introduced as -
[GT] which has been fraudulently dispossessed, by the acts which are
the object of this complaint and others which will become known through
investigations to be carried out in due course by the [investigating Judge],
of funds which in aggregate, as we shall analyse later, exceed, [one
hundred million pesetas].
The list of defendants ends with -
...any other persons who may be considered to be criminally liable for the
acts which are the object of this complaint, according to the results of the
investigation carried out by the [investigating Judge] during the course of
the proceedings.
The text says that:
Among those losses we must concentrate on an item of over [100 billion
pesetas] representing the loss occurring through numerous operations
performed by the group of the defendants and former directors of
the Group Companies, in which one may clearly appreciate, in the
judgment of the complainant, the criminal acts which are the object of
this complaint.
It then refers to:
...the operations which we shall examine later at greater length [having]
certain common features which allow us to identify a scheme common to
all of them...
It draws attention to the use in the cases to be examined of offshore
companies in tax havens as the basis of the allegations of tax evasion.
Professor Rifa sought, tenuously in my view, to link this to the appearance
of offshore companies in the present four transactions. It is true that
the companies referred to do include companies among the present
defendants. However it does not follow that the querella extends to the
four transactions.
There is an element of inconsistency in the querella in so far as its
language suggests that it identifies specific operations which support
a claim for Ptas. 100 billion. Despite the generality of some of the
statements in the querella, it raises as concrete criminal activities (hechos
concretos as the index describes them) only the nine specific operations.
This was also the effect of Professor Ramos's evidence which I prefer on
this point to Professor Rifa's view that all matters actually or potentially
arising for investigation have at all times been the subject of pending
criminal and civil proceedings. But for the facts specified in relation to
the nine operations the querella would not have been admitted. The
general invitations which it contains to extend investigations beyond
those matters derive from the investigatory nature of the first phase of
Spanish criminal proceedings. They do not mean that there is an existing
civil complaint made, still less an action definitively pending in respect
of whatever might prove to come out of such investigations or whatever
might at a later stage be introduced into a calificación provisional. I
therefore conclude that, even after the admission of the querella which
took place on Feb. 11, 1994, no civil action can be said to be definitively
pending, within the Spanish criminal proceedings brought by GT, in
respect of the four transactions the subject of the present English action.
The stay of the Quail proceedings on Apr. 29, 1994 does not bear on these
conclusions. Articles 111 and 114 of the Criminal Procedure Code operate
on a broader basis than arts. 21 and 22 of the Convention, although they
share a general aim of avoiding competing jurisdictions. GT's submissions
to Judge Foncillas dated Apr. 8, 1994, after highlighting the general
allegation of fraudulent management in the querella, referred to the
particular operations relied on and singled out the ninth matter ("Quail
Espa¤a S.A."). The fact that both the criminal and the Quail proceedings
allege fraudulent management in a sense satisfying art. 114 does not
determine the relationship of the Spanish criminal proceedings to this
English action under arts. 21 and 22.
If the querella had extended to the four transactions, a question would
have arisen as to the extent to which it could embrace all their aspects.
The jurisdiction of a Spanish Court in criminal matters extends to crimes
committed on Spanish territory, vessels or airplanes and under certain
conditions to acts, constituting crimes under Spanish law as well as under
the law of the place of their commission, committed outside Spanish
territory by Spanish nationals (Jurisdictional Law, art. 23(1) and (2)).
It also extends under art. 23(3)(i) to crimes committed by Spanish
nationals or foreigners outside Spanish territory relative to exchange
control. Professor Rifa agreed that no criminal or civil action could be
said to be pending in respect of any acts not within the Spanish Courts'
criminal jurisdiction. Professor Rifa expressed the view that the Spanish
Courts would treat the whole subject-matter of the four transactions as
within their criminal jurisdiction. If the matters pleaded in the English
proceedings had been included in GT's querella, they would have shown
elements of connection with a number of countries. Undoubtedly Spain
would have been *430 highly significant. There is no very helpful evidence
how the Spanish Courts would interpret the concept of crimes committed
within Spanish territory. Viewing the matter generally, it seems to me not
unlikely that they would regard as within their jurisdiction alleged crimes
deriving from the same facts as constitute the basis for the allegations
that Mr. de la Rosa, Mr. de Mir, Mr. Nuñez, Mr. Folchi, Mr. Soler, Sheikh
Fahad and Mr. Jaffar conspired or committed breaches of duty as directors
or became trustees of GT's moneys as against GT (the sole complainant in
the querella).
(v)(b) Reservation under art. 112
This subject only arises, if (contrary to my conclusion) civil proceedings
are definitively pending within the Spanish criminal proceedings which
embrace the four transactions. In his first opinion Professor Ramos stated
the following proposition:
In the event that any doubt were to exist as to whether the civil actions
brought in London could be affected by the criminal proceedings pursued
in Madrid, GT may at any time make a declaration reserving to itself the
said civil actions. This declaration would exclude them definitively from
the complaint and from the criminal proceedings, without the Court being
able to examine them.
This refers to the provisions of art. 112. In his short two paragraph
commentary Professor Ramos expressly stated that such a reservation
would be done by the presentation of a document reserving "all or
some" of such claims as would otherwise be brought within criminal
proceedings. In his report in reply, Professor Rifa agreed expressly
with the quoted proposition and took no issue with the passage in the
commentary adverting to the possibility of partial reservations. In cross-
examination however Professor Rifa developed various reasons why a
partial reservation would not be possible or at all events simple in the
circumstances of the present case. I did not ultimately understand him
to be suggesting that a partial reservation of a discrete cause of action
would be impermissible, and this was also not suggested to Professor
Ramos when he came to be cross-examined. Contrary to Lord Irvine's
submission I find that it is possible under Spanish law to make such a
reservation and so to exclude a discrete cause of action from a civil action
brought within Spanish criminal proceedings. The difference between the
parties on this point may to some extent be attributable to differences of
analysis of the querella. If (contrary to my view and that of the Audiencia
Nacional) it were to be viewed as asserting only one general offence, then
one can see that there might be difficulty in reserving from it the civil
aspects of four parts of a single offence. However that is not the present
case. The querella alleges a large number of different offences giving rise
to an equal number of civil causes of action, and the four transactions
each constitute a separate cause of action.
The most substantial of the reasons developed by Professor Rifa (one
on which Professor Ramos was cross-examined when he came to give
evidence) was that it would amount to an abuse of Spanish procedure to
attempt to reserve out of the Spanish criminal proceedings civil claims in
respect of the four transactions with the intention of pursuing such claims
in the English Courts while the Spanish criminal proceedings were afoot.
This reason was put forward with reference to arts. 111, 112, 114 and
116 of the Criminal Code, and to the general prohibition of fraud of law
recognized in art. 6(4) of the Spanish Civil Code:
Acts carried out in consideration of the text of a regulation which pursue
a result prohibited by the legal system, or contrary to the same, will be
considered to have been enacted in fraud of law and will not prevent the
due application of the regulation which it is sought to abscond.
Reference was also made by Professor Rifa to art. 12(4) as containing the
equivalent provision in respect of "international matters" but I find it to be
concerned with a conflict of laws point and to be unhelpful in the present
context.
The defendants rely on (a) the prohibition in art. 114 of any new civil
action (and the suspension of any existing action) while Spanish criminal
proceedings are in progress, (b) the purpose for which a reservation is
contemplated by art. 112 which is in terms to enable civil claims to be
pursued separately in Spain after the conclusion of any Spanish criminal
proceedings, and so (the defendants say) not to bring such claims abroad
while such criminal proceedings were in progress, and (c) the effect of
any reservation which they categorize as being to "evade" these articles
and arts. 21 and 22 of the Convention by bringing proceedings in England
which would otherwise be prohibited in Spain and England.
Even as a matter of Spanish law, there is nothing in art. 111 or 114
which can or does prohibit foreign proceedings brought outside Spain.
Article 112 is worded in terms which match art. 114, but this does not
necessarily mean that a reservation for the purpose of either bringing or
preventing conflict with existing foreign proceedings would be regarded
as ineffective. There would be no need for any reservation at all in a case
where a querella was from the outset limited either so as to exclude all
civil claims or to exclude any civil claim in respect of separate causes of
action which it was desired to pursue abroad. There would be nothing
then which could be categorized as "evading" art. 21 or 22. So *431
a reservation would be achieving what could by a differently framed
querella have been achieved from the outset. Further, if the plaintiffs are
in a position where they are strictly party to rival sets of civil proceedings
in Spain and England embracing the four transactions, it seems clear that
this is not by design. I would expect that Spanish Court to take this into
account in considering whether it is now open to GT to make a reservation
in respect of such transactions. Accordingly, if (contrary to my conclusion)
the four transactions are at present embraced in the civil action brought
within the present criminal proceedings, I am not satisfied that Professor
Rifa's doubts about the possibility of reserving them would be realized.
In general terms of course it is not desirable that a party should bring a
civil claim in one country and then change his mind and seek to pursue it
elsewhere. An English Court may where just only allow discontinuance on
terms prohibiting any subsequent action. But the present circumstances
are I think unusual. Had I taken the view (a) that the four transactions
were presently included in a Spanish civil action within the criminal
proceedings and (b) that the effect of art. 21 was otherwise to require
me to stay the present action, then I would have been sympathetic to the
plaintiffs' request that I allow time before finalizing my judgment in the
matter to enable them to make a corresponding reservation in respect of
the four transactions. As it is however, the point does not arise.
(vi) Related actions
This subject only arises on the hypothesis (also contrary to my
previous conclusion) that a civil action became definitively pending
within the Spanish criminal proceedings before the present English
action became definitively pending. In that situation, because of the
conclusions expressed in this section in pars. (iv) and (v)(a), art. 21
is inapplicable. The same conclusions (in particular the conclusion that
the civil proceedings within the criminal proceedings do not extend to
the four transactions) also lead to the conclusion that the two sets of
civil proceedings are not related actions. Had I concluded that there are,
within the present Spanish criminal proceedings, civil actions embracing
the four transactions, the question would have been whether the Court
should stay or decline jurisdiction, in respect of the whole of the English
action or, assuming this to be permissible under art. 22, in respect of
such part of it as involves those persons expressly accused in the criminal
proceedings. A general declinature of jurisdiction would be inappropriate
since, although the investigating Judge may choose to investigate
whoever and whatever he considers appropriate, there is no procedure
by virtue of which GT (still less THL) can insist on purely civil claims
against other defendants to the English proceedings being tried together
with the civil proceedings which are included in the present criminal
action. As yet no criminal case has been made in Spain against any of the
present defendants other than those already party to the existing criminal
proceedings. More generally any declinature whatever would in my view
be inappropriate because there is no certainty as to the future course and
outcome of the criminal proceedings. That leaves the possibility of a stay.
This would present problems because of the claims in the English action
against defendants not party to the Spanish criminal proceedings. But
if the plaintiffs reserve the four transactions out of any such civil action,
that would effectively reduce the risk of any irreconcilable judgments to
a point where the actions ceased to be related and where art. 22 ceased
to apply to any of the defendants. The plaintiffs undertook to make such
a reservation and on such undertaking it seems to me that the problems
would not arise. It is unnecessary to seek to resolve the problems which
would arise with regard to the exercise of discretion and the scope of any
stay in the event of continuing related proceedings.
6.3.12 The Quail proceedings - analysis under Articles 21 and 22
It is necessary to consider the position by reference to the Quail
proceedings in both their original and their amended form. I have reached
the following conclusions:
(i) the original and amended Quail proceedings fall to be regarded as
separate proceedings for the purposes of arts. 21 and 22; (ii) the original
Quail proceedings became definitively pending upon their admission
on May 12, 1993; the amended Quail proceedings became definitively
pending when admitted on June 18, 1993; (iii) both such dates post-
date the English Court's definitive seizure of the present action on Apr.
15, 1993, applying the view which I take of definitive seizure under
English law; (iv) neither the original nor the amended Quail proceedings
is between the same (or substantially the same) parties as the present
action - again this follows from my conclusion that the two sets of
proceedings fall to be compared overall; (v) on an overall comparison
of the amended Quail proceedings and the present action, there is no
identity of causes of action, but, if (contrary to my view), this were the
relevant test, the causes of action involved in each could I think be said
to be "substantially" the same. Further, if it were right to look solely at
the position as between GT and the co-plaintiffs to the amended Quail
proceedings, the amended Quail proceedings would in this respect involve
the same cause of action as the English *432 action between the same
parties; (vi)(a) assuming that it is right to adopt a single date of definitive
pendency in a case of multiple defendants, but wrong for any reason to
conclude that the English Court was first seised, then the question would
arise whether the English action should be stayed (and possibly to what
extent) in the light of the Quail proceedings. I would refuse any such
stay by reference to the original Quail proceedings, but express no view
as to the amended Quail proceedings; there are certain considerations
which could still militate against a stay; (b) if it is wrong to adopt a
single date of definitive seisure in a case of multiple defendants served
on different dates, and the English Court is first seised as against some
defendants and the Spanish Court first seised against others, problems of
very considerable complexity arise, to which I will revert at a later stage.
(i) One action or separate proceedings?
Lord Irvine submitted that the amended Quail proceedings were for
present purposes to be viewed as having commenced on June 9, 1992.
Consistently with his general approach to arts. 21 and 22 he said that
the bare question when the Quail proceedings were first brought and
pending should be decided by Spanish law, while the question whether
there (now) exists the necessary identity of parties and of cause of action
should be decided in accordance with the autonomous criteria of arts. 21
and 22. It was thus irrelevant to consider whether the Quail proceedings
in their original or amended form might as a matter of Spanish law be
regarded as involving the same parties and same cause of action as each
other or as the English proceedings. Further, if the necessary identity of
parties and cause of action existed now under arts. 21 and 22, then it was
irrelevant under the Convention to consider when it first arose; all that
mattered was the date when Spanish law viewed the Quail proceedings
(whoever the parties and whatever the cause of action) as having first
been brought and become pending.
Lord Irvine identified as the decisive factor that the Spanish Court had
allowed the Quail amendments on May 18, 1993 and had on Nov. 23,
1993 upheld their validity in the face of a challenge by GT; and he relied
on evidence by Professor Ramos in cross-examination that a proper
amendment has under Spanish law the same pendency date as the
original claim. Ergo, he said, the amended Quail proceedings were to be
treated for all purposes including arts. 21 and 22 as pendent with effect
from June 9, 1992.
In my opinion the matter is not so simple, under either Spanish law
or the Convention. Professor Ramos when giving evidence was faced
with the difficulty that he disagreed with the Spanish Court's decision
to allow and uphold joinder. His agreement with the proposition that a
proper amendment attracts a pendency coincident with the pendency
of the original proceedings related, as I understood his evidence, to
amendments of existing claims and not to claims which were in his
view new claims. Making the assumption, which he had difficulty in
doing, that the joinder of the new claimants on May 18, 1993 was valid,
he regarded the question of pendency of the proceedings by the new
claimants as a novel point, to resolve which he sought assistance (not I
think very fruitfully) in authority on counterclaims. His evidence remained
that the difference in parties and in his view also in the petitum (the
matter claimed), the titulo (legal relationship) and causa de pedir (which
Professor Ramos associated with the main facts grounding the claim)
meant that the amended Quail claim should be regarded as a new claim
for the purposes of pendency.
Both sides placed reliance on the decision of Judge Foncillas on Nov. 23,
1993 upholding the joinder of the new plaintiffs by the amendment dated
May 18, 1993. The first and foremost reason given for this decision was
that the challenge to the amendment was made out of time. But the
Judge went on to give further reasons, referring as reason (b) to art. 156
of the Code of Civil Procedure (LEC), which reads:
[The] actions [acciones], which one person may be bringing against
various individuals or vice versa, may be joined and exercised
simultaneously, provided that they arise from the same titulo (legal
relationship) or are based on the same causa de pedir (cause of action).
Judge Foncillas said in reason (b) that:
Article 156 allows accumulation of proceedings brought by various
plaintiffs against one single defendant, which is the case here, the only
grounds for such accumulation being held to be inadmissible...being
[incompatible proceedings by virtue of Article 154 and after entry of
defence by virtue of Article 157 ].
He said in reason (c) that GT's submission that the correct method would
have been an application to intervene or to commence fresh proceedings
and to apply for joinder would involve no practical difference and simply
expend time and money. He concluded in reason (d):
Lastly, the allegation that the extension is not based on the original
matter (titulo) nor corresponds to the same cause of action (causa
de pedir) cannot be upheld, since upon examination of the petitions
contained in the [original and extended] demanda, sufficient
concomitance and connection are observed [to] serve as grounds for *433
accumulation, and it must also be pointed out that, as is mentioned in
paragraph b) above, that for accumulation to be admissible, the same
requisites of absolute identity of acciones as are applied in lis pendens or
res judicata cannot be required.
Judge Foncillas' decision binds the parties to accept the regularity of
the amendment and of the joinder of the new claimants in the Quail
proceedings. Both art. 156 and Judge Foncillas' reasoning relate in terms
to situations where two acciones are being joined. Neither is directed to
the date of pendency of the proceedings so joined. Judge Foncillas was, I
understand, asked by the claimants to address the question of pendency
with a view to using the answer in the present action, but did not do so.
Further, although Judge Foncillas made reference to art. 156, and that
article on its face includes a requirement of identity of either titulo or
causa de pedir, it does not appear that Judge Foncillas identified which
(if either) of these requirements may have been fulfilled and he anyway
appears to have viewed them in a more relaxed sense than that in which
they are used in the context of lis pendens and res judicata.
Dr. Carreras in his evidence addressed the possibility that the parties
to the original and amended Quail proceedings might be regarded as
effectively the same, on the grounds that they were bound by bonds of
"legal solidarity" within the meaning of art. 1252 of the Civil Code. The
essential question in this respect is whether the outcome of the amended
Quail proceedings would necessarily be the same as the outcome of the
original proceedings. I do not consider that the original and amended
Quail proceedings involve legal solidarity in this sense. Leaving aside any
possible development of subject-matter, the amended Quail proceedings
involve new parties, two of whom (Mr. Folchi and Mr. Soler) had not even
been mentioned in the original writ; further it seems entirely conceivable
that different claimants in the amended Quail proceedings might be in
different positions viz-à-viz each other and Quail, some of them being
thus able to obtain a declaration as to the propriety of their conduct and
others unable to do so in respect of one, some or all of such transactions.
In agreement with Professor Ramos on this point, I regard the amended
Quail proceedings as effectively new proceedings so far as concerns the
new claimants who were joined, and as commencing under Spanish law
with effect from a date not earlier than May 18, 1993.
This leaves open the question whether there was also identity of petitum
and causa de pedir as between the original and amended claims. I have
indicated that I do not think that Judge Foncillas' decision provides the
answer, although it proceeds on the basis, which is incontrovertible,
that there were connections between the claims which made joinder
appropriate. Dr. Carreras considered that there could also be said
to be absolute identity between the two, whereas Professor Ramos
thought the contrary. I would prefer the view that there was substantial
but not absolute identity. The original proceedings were of course
motivated by a relatively limited dispute arising from the termination
of Quail's management; nevertheless, in view of a general criticism
of the consultancy and management under the contract allegedly
made by GT and the wide language of the original prayer, the original
Quail proceedings raised in terms the propriety of the whole of Quail's
performance of the Quail contract. The amended proceedings sought
a declaration in respect of the propriety of the overall management
of the new claimants in relation to GT, in particular in relation to the
four transactions the subject of the present English proceedings. There
appears to be nothing to limit this claim to management or other activities
carried out in the context of the Quail contract. There is no such limitation
to the pleas of conspiracy, breach of directors' duties and constructive
trust in the present English action, to negative which the amended Quail
proceedings were expressly directed. It seems to me that the amended
Quail proceedings do go beyond even the widest view of the scope of the
original Quail proceedings.
I conclude that, so far as it is material, the Quail proceedings as amended
are, although validly joined to the original Quail proceedings, nonetheless
to be regarded as new proceedings brought on May 18, 1993, both under
Spanish law and under the Convention.
(ii) "Definitively pending"
As respects the amended Quail proceedings the conclusion that they
constitute new proceedings means that they were not pending before
May 18, 1993. By that date some 11 of the defendants to the present
action had been served, even though they included none of the Quail co-
plaintiffs. The English action was, by comparison with the amended Quail
proceedings, first seised based on the date of service of the first of these
English defendants. The question remains when the Quail proceedings in
their unamended form became definitively pending.
Litispendence is recognized in Spanish civil litigation and has several
aspects. In one sense it describes when and how proceedings are brought
for the purposes of determining whether they are within any relevant
limitation period; it also determines the date at which the essential facts
relied on in support of the claim must exist and after which *434 no
facts, at any rate going to the essence of the case, may be relied on
(apparently by either side). In another sense it is the doctrine whereby
a defendant may apply by exceptio litispendencia for a stay on the basis
that there are earlier proceedings between the same parties, concerning
the same petitum, titulo and causa de pedir. In the first sense, it was
common ground that litispendence existed once the demanda had been
filed and admitted, but did so then with effect from filing. As regards
its latter sense, there was an issue between Dr. Carreras and Professor
Ramos whether the Supreme Court would determine priority according
to the respective dates of filing (assuming both claims to have been
admitted) or according to the respective dates of service. They were on
common ground that an exceptio litispendencia could not be relied on
without service of the allegedly earlier proceedings. Dr. Carreras' view
was that, once there had been such service, the order of filing would
govern. Professor Ramos' personal view was the same, but he believed
that Supreme Court jurisprudence made it sufficiently clear that it would
adopt the date of service in such a case. The potentially significant dates
are thus filing, admission and service. Filing by itself does not achieve the
effects of litispendence. Supreme Court decisions of June 26, 1975, Feb.
25, 1983 and Feb. 3, 1990 all state that it is only if and when a claim is
admitted that litispendence can then be regarded as existing with effect
from filing. The decision of Feb. 25, 1983 distinguishes two previous
cases where apparently the claims had not been admitted and the Court
considered questions going to its competence extempore "before the
judicial context arose". Dr. Carreras put the position as follows:
The writers and the Supreme Court itself consider that the effect of lis
pendens in each action is produced when the claim is brought and when it
is admitted to the proceedings. The expression is clear that the admission
itself does not produce the effects, but rather the effects of the claim
admitted are retroactive to the moment of filing.
The plaintiffs' primary submission was however that it is service that
matters for present purposes. Supreme Court decisions do identify a
clear strand of legal thought according to which it is only service that
creates a real "juridical-procedural" relationship between the Court and
the defendant. This view was clearly adopted in the Supreme Court
decision of Feb. 3, 1968. It is also mentioned as a possible approach with
references to earlier Supreme Court decisions in a decision of Feb. 16,
1974, although Professor Ramos regarded this as of no value for other
reasons; and it was referred to as a feature of an unsuccessful argument
in a decision of Oct. 14, 1992. More specifically the decision of Feb. 3,
1968 refers to service as:
...an act which makes public the contents of the claims brought and which
makes them known to the other litigants,...for which reason it has been
classified in our historic law as "the root and commencement of any [civil]
action [a further reference to the Ley de Partidas].
The Court held that, without service of the first filed action, there was
no basis to raise the defence (exceptio) of lis pendens in a second filed
action, saying:
Because, if the other argument were to prevail, there would be left to the
discretion of the contender who managed to conceal the existence of a
claim submitted by him, the power to paralyse a future dispute in which
he would hold the status of defendant or that of impeding, when he saw
fit, the utilization of this plea on his adversary's part, which not only had
to be rejected as leading to absurdity, but is openly opposed to the legal
maxim "Aequitas in judiciia inter litigantes servanda est".
Since service is effected automatically by the Court once a claim has
been admitted, this reasoning creates some difficulty, but, to the extent
that it is adopted, it seems as applicable to a case where service of the
first proceedings is delayed until just before the raising of the defence of
lis pendens in the second proceedings as to a case (like that of Feb. 3,
1968 itself) where there is no service of the former proceedings at all.
The only difference (which may be important) is that once service has
been effected then the defendant can at least counterclaim and insist on
resolution of the dispute in the first filed proceedings even if he cannot
proceed with the second.
A later Supreme Court decision (Feb. 25, 1983) concerns the question
what facts may be taken into account when adjudicating upon a claim.
It distinguishes the earlier decision as turning on the existence of a
requirement of service of the first proceedings before the defence of
lis pendens can be raised. Professor Ramos evidently overlooked this
authority in the fifth edition of his work on Civil Procedural Law. When
writing his long report he simply quoted from this work, again without
referring to the authority of Feb. 25, 1983, even though it had been
referred to in the report of Dr. Carreras which he had received a month
before. He was taxed with this embarrassing course of events by Lord
Irvine in cross-examination. I am sure that he was in his report neither
deliberately ignoring nor seeking in any way to suppress the authority
upon which Dr. Carreras had already indicated he was going to rely.
Indeed his report shows that he would have *435 regarded the decision
as consistent with his personal view of pendency (although he pointed
out rightly in evidence that its ratio, that the Court could not look at
critical facts occurring after presentation of the claim, was on any view
uncontroversial). This whole area only moved to centre stage in the
hearing before me on Dec. 6, 1993 after the plaintiffs made it clear
that despite Professor Ramos' personal opinion they would contend that
the Spanish Courts would reach a different conclusion. I do not draw
conclusions adverse to Professor Ramos' frankness, or indeed generally
adverse to his reliability, from his oversight or from a degree of confusion
when under cross-examination about it by Lord Irvine.
After the hearing before me commenced, Professor Ramos himself
discovered and by note dated Dec. 6, 1993 drew attention to four yet
further authorities which neither he nor Dr. Carreras had previously
identified. One of these was that dated Oct. 14, 1992 which proved to
throw light on the significance of service in the context of the defence of
lis pendens. It is a case where the action first filed was the action second
served. Between the time of filing (July 20, 1987) and service (Jan. 26,
1988) of the first filed action, the second action was both filed (date
unknown) and served (Dec. 29, 1987). The argument was raised that a
"procedural legal relationship" was (first) constituted by the service which
took place on Dec. 29, 1987. But the exceptio litispendencia failed on the
ground that:
...the claim in this [the present] case was filed for distribution on 20th
July 1987, that is before the other proceedings were initiated, although
it was answered (contestada) afterwards on account of the procedural
factors [incidencias] which are detailed in the records.
This case indicates that, even in the context of the defence of lis pendens,
the date of filing for distribution will prevail once there has been service of
the earlier filed proceedings. There was no detailed reasoning or citation
of authority. The reference to "filing for distribution" is perhaps of note in
so far as it is a precondition to service that the action as filed should be
capable of being and be admitted.
The doctrine of precedent under Spanish law is considerably weaker
than under English law, and considerable significance attaches to the
"doctrine" of legal writers as well as to Court decisions. Unless there
are at least two Supreme Court decisions in the same sense, a decision
has no precedential value, and even where there are such decisions it
appears that they are not absolutely binding. The Supreme Court may
well therefore revisit the present area. Nevertheless, the combination of
Professor Ramos' own opinion, the explana- tion of the decision of Feb. 3,
1968 in the decision of Feb. 25, 1983 and the decision of Oct. 14, 1992
lead me to accept the last decision as representing current Spanish law.
Thus under Spanish law the priority of two sets of civil proceedings will be
determined by their dates of filing, assuming both to have been not only
admitted but also served when the exceptio litispendencia is raised.
But this conclusion does not determine the moment of "definitive
pendency" for the purposes of arts. 21 and 22 of the Convention. Dr.
Carreras, while asserting at points that litispendence under internal
Spanish law and "definitive pendency" under arts. 21 and 22 of the
Convention must be regarded as indistinguishable, also acknowledged
that the problem of international litispendence was based on other criteria
"to which one cannot impose the problems of internal law". His conclusion
was that the Spanish requirement of service of the first filed proceedings
as a pre-condition to raising an exceptio litispendencia should be
disregarded when applying arts. 21 and 22. One alternative, representing
the plaintiffs' primary position, is that, unless and until the moment of
service, Spanish civil proceedings are not definitively pending, and, since
arts. 21 and 22 contemplate a simple chronological test, that they are
then only definitively pending from service. Neither approach can or does
mirror under arts. 21 and 22 the position under Spanish internal law. Like
the English Courts in Dresser, the Spanish Courts will have to formulate
their own approach to "definitive pendency" in order to provide a simple
chronological test. It may be that they will be attracted to service as a
clear-cut date, which has been adopted in other European jurisdictions
and which already has some significance as a pre-condition to the raising
of the exceptio litispendencia. However it seems to me that the moment
of admission provides a still more likely and equally clear-cut date.
"Definitive pendency" was used by the European Court in explanation of
the phrase "the court first seised". As in the criminal context, the decision
by a Spanish civil Court whether or not to admit represents the process
by which the Court determines whether it will seise itself proceedings
which up to that point have merely been the subject of a claim formulated
and filed by a claimant. Admission is the key to pursuit of the matter. It
involves the Spanish Court taking a positive view as to the regularity of
the proceedings both procedurally and substantively. After admission the
Court automatically effects service. Although it is true that the defendants
will not (necessarily) receive notice or copies of the claim until service,
the procedural position is thus materially different from that applicable in
England. Applying the general guidance to be found in Zelger as explained
in Dresser to the particular *436 Spanish context, a Spanish Court is in
my view to be regarded as "definitively seised" of the matter upon and
as from admission. Accordingly the Spanish Court became definitively
seised of the original Quail proceedings on May 12, 1993 when they were
admitted and of the amended Quail proceedings on June 18, 1993.
(iii) First seized
Whichever of these dates is taken, the defendants have not established
that the Spanish Court became first seised before the date (Apr. 15,
1993) when I have held that the English Court became definitively seised
of the present action. Accordingly neither of arts. 21 and 22 in my view
requires or calls for the English Court to consider staying or declining
jurisdiction in favour of the Quail proceedings.
I turn to the other criteria for the application of those articles, in case a
different view is taken of the order of definitive seisure.
(iv) Between the same parties
The question here is whether the English action is between the same
parties as the Quail proceedings in their original or amended form. Taking
an overall view of the two sets of proceedings, the answer is that it is not.
(v) Involving the same cause of action
On an overall comparison of the two actions, the scope of the English
action is wider because of causes of action involving additional parties
(THL as plaintiff and 17 defendants against whom there are various
allegations of breach of duty as directors and constructive trust which
cannot be regarded as identical to allegations raised against the Quail co-
plaintiffs). If relevant, the causes of action in the two actions could by
themselves be regarded as substantially the same. And, if it were relevant
simply to focus on the position between GT and Mr. de la Rosa, Mr. de Mir,
Mr. Nu¤ez, Mr. Soler and Mr. Folchi, the amended Quail proceedings would
involve the same cause of action as the English action in this respect.
(vi) Related actions
This subject does not arise for decision in view of my conclusions (i) that
the present action and the amended Quail proceedings each constitute
a single action for the purposes of arts. 21 and 22, (ii) that each should
be assigned a single date of definitive pendency and (iii) that the English
Court was the first Court definitively seised. I will nevertheless consider
some matters argued before me making an assumption that (i) and
(ii) remain correct, but that (iii) is incorrect - so the Spanish Court is
regarded as having been definitively seised of the original and/or the
amended Quail proceedings before the English Court became definitively
seised of the present action. On this hypothesis questions of closeness of
connection, expediency, risk of irreconcilable judgments and discretion
arise in respect of firstly the original and secondly the amended Quail
proceedings.
The position with respect to the original proceedings would in my view be
reasonably clear. Any connection between the original (unamended) Quail
proceedings and the present English action would be insufficient to justify
a stay or declinature of jurisdiction under art. 22. The following factors
would lead to this conclusion: (a) the fact that only Quail was a party to
the original Quail proceedings; (b) the origin of the original proceedings,
despite their literal width, in a dispute about the compensation payable
on early termination of the Quail management contract; (c) the fact that
Quail was content to allow the original proceedings to lie untended and
unpursued for 11 months until stimulated into activity in early May, 1993
by the news of the present English action; (d) the negative nature of the
relief claimed by Quail; (e) the limited significance in this litigation, as I
perceive it despite submissions to the contrary, of the Quail management
contract; (f) the more advanced stage to which the present action has
proceeded, even taking into account only the points of claim (all the
more so if the state of knowledge and preparedness evidenced by the
submissions before me on the merits is considered, although it may be
preferable to ignore such matters arising out of the present application);
and (g) the concentration of the present English action, as regards both
parties and subject-matter, on all aspects of the four transactions which
makes it a more appropriate vehicle for the resolution of the issues of
conspiracy to defraud, breach of duty and constructive trust which arise
than the Quail proceedings.
Some of these factors may go more to the question whether it is
expedient to hear the English action and the Quail proceedings together
to avoid the risk of irreconcilable judgments than to closeness of
connection. They would also go to the exercise of discretion under the
first sentence of art. 22, if the third paragraph were satisfied. All of the
defendants who appeared before me have said that they would submit
to the Spanish forum. Coll & Co. and Wardbase have indicated that they
forego their rights to arbitration if the claims are tried in that forum. So
GT and THL could commence fresh Spanish proceedings against all of
the present defendants; and such proceedings could on the evidence
probably be tried together with the original Quail proceedings. But I
would not regard it as either expedient or appropriate to allow the original
and limited Quail proceedings to dictate *437 affairs in this way merely
because they happened to be first in time.
I turn to the amended Quail proceedings, making the same assumption
that they were first in time. They expressly raise the four transactions
for consideration in Spain. On this basis the defendants in the present
action are on much stronger ground in contending that the two actions
are so closely connected that it is expedient to hear and determine them
together to avoid the risk of irreconcilable judgments. Against this the
present action has a considerably wider scope as regards both parties
and subject-matter than the amended Quail proceedings. However the
defendants say that this indicates that GT and THL should transpose the
whole of the present litigation to Spain where all the defendants (save
Mr. Moukarzel) have undertaken to appear. This submission would raise
for consideration various matters which arise either under the head of
expediency or on any view as a matter of general discretion.
The first such matter relates to the circumstances in which the Quail
proceedings were amended to include the Quail co-plaintiffs. The
amendment was a riposte to the news of the present action. The
amended claim is striking. It attaches a series of Spanish newspaper
articles reporting the issue and content of the English writ endorsed with
points of claim and categorizes the situation as one of -
...public defamations which the defendant [GT] is carrying out in London
with circulation in Spain, in regard to four specific deals called by the
former "Croesus", "Oakthorn", "Pincinco" and "Wardbase".
The Convention can hardly envisage that potential defendants to an action
commenced in one Contracting State will seek to invoke jurisdiction in
another by asserting that the allegations made in the first proceedings
constitute public defamations. However I acknowledge (i) that the
Convention as presently interpreted appears to recognize the possibility
of pre-emption of jurisdiction by commencement of proceedings for
negative declaratory relief, and (ii) that, unappealing though the basis
may be on which the amended Quail proceedings address the present
action, the five new Quail claimants were and are entitled to take all steps
legitimately open to them to assert and secure Spanish jurisdiction in a
matter which they regard as Spanish. The amendment as formulated is
still no more than a bare riposte to the English proceedings. The names of
the four transactions have simply been picked up by the five co-plaintiffs.
There is no suggestion of any positive claim or case that the co-plaintiffs
actually wish to advance. The impetus for litigation in respect of the four
transactions comes from GT and THL, and normally a plaintiff is allowed
to select his jurisdiction under the Convention, within the limits prescribed
by the Convention: c.f. Sanders v. van der Putter, [1977] E.C.R. 2383 at
p. 2390 cited above.
The circumstances in which the Quail proceedings were amended and
expanded may be more properly relevant at the stage of discretion
than at the earlier stage of consideration of expediency under the third
paragraph of art. 22. At the stage of discretion other matters also
come into account, in particular the closeness of connection between
the subject-matter of the action and the competing forums and the
appropriateness of each forum for the resolution of the disputes as well
as the stay of the Quail proceedings ordered by Judge Foncillas pending
the resolution of the criminal proceedings. In the case of those defendants
served out of the jurisdiction with leave under O. 11, an exercise in
discretion taking into account such factors is also required, with an
onus on the plaintiffs to justify the English jurisdiction as clearly more
appropriate. For reasons which will appear I consider that London is at
least an appropriate forum for resolution of the whole dispute. But if the
present action were second seised and the amended Quail proceedings
were proceeding in any event, it would be open to doubt whether the
circumstances in which the Quail action was amended and gained priority
and the factors making London otherwise appropriate suffice to outweigh
the desirability of having the whole action (or even the whole action apart
from the claim against Mr. Moukarzel) resolved in Spain. Where as now
the Quail proceedings have been stayed pending the resolution of criminal
proceedings which (as I have found) do not presently involve the four
transactions and may never do so, the balance may shift. I do not need to
reach any conclusions on these points.
There are yet more complicated scenarios which can readily be envisaged
if a different view is taken from mine with respect to the scope and inter-
relationship of arts. 21 and 22 and the dates of definitive seisure. A
defendant by defendant approach to arts. 21 and 22 could lead to the
English Court having priority over the defendants served in England
before the amendment of the Quail proceedings on May 18, 1993 (Jaffar,
Robinson, Moukarzel, Coll & Co. as regards THL's claim and Wardbase)
and to the Spanish Court having priority as respects the Quail co-plaintiffs
(de la Rosa, de Mir, Nuñez, Folchi and Solar) 10. The English Court would
be the only Court definitively seised of proceedings involving Anslow,
Westow, Croesus and Wantley (on May 17, 1993) and *438 Russell
Limebeer and Oakthorn on May 18, 1993, and would in each case fall to
be treated as so seised before the amendment of the Quail proceedings
on May 18, 1993. But the continuation of English proceedings against
these defendants would depend on the O. 11 leave standing against
them. The English Court would be the only Court definitively seised of
proceedings involving Russell, Sheikh Fahad, Riquel, Coggia, Coll and
Pique, but would have become so seised after the Spanish Court became
definitively seised of the amended Quail proceedings. Article 22 would
thus arise for consideration. The continuation of English proceedings
against Russell and, unless the plaintiffs can treat him as domiciled in
a Contracting State, Sheikh Fahad would also depend on O. 11 leave
standing against them.
On this scenario the Court would have to consider (a) whether O. 11
leave should be upheld in respect of Anslow, Westow, Croesus, Wantley,
Russell Limebeer, Oakthorn, Russell and (unless treated as domiciled
in England) Sheikh Fahad and (b) whether there should be a stay or
declinature of jurisdiction under art. 22 in respect of Mr. Russell, Sheikh
Fahad, Riquel, Coggia, Mr. Coll and Mr. Pique. In substance the choice
would be between allowing the proceedings against some or all of these
defendants to continue in conjunction with the English proceedings
against Mr. Jaffar, Mr. Robinson, Mr. Moukarzel, Coll & Co. (as regards
THL's claim) and Wardbase, or remitting them in whole or part to Spain
to be tried together with the amended Quail proceedings brought by the
Quail co-plaintiffs. Fortunately it is not necessary for me to choose a
solution to this hypothetical problem, although I can see some force in the
plaintiffs' submissions that the rest of the English action should be allowed
to proceed. In case it becomes hereafter material, I will deal with certain
factors which would appear relevant.
Firstly, the only reason why there are any competing proceedings in Spain
at all is the Quail co-plaintiffs' riposte to the present proceedings, which
I regard as contrary on any view to the spirit of the Convention. If, as
a result of such conduct, there are bound to be two sets of proceedings
in different Contracting States, a Court would in my view be justified in
refusing to attach a premium to the conduct by allowing it to attract to
Spain other proceedings if they are otherwise appropriately begun in
England. While it is no doubt true in the abstract that the proceedings
against Anslow, Westow, Croesus, Wantley, Russell Limebeer, Oakthorn,
Mr. Russell, Sheikh Fahad, Riquel, Coggia, Mr. Coll and Mr. Pique ought to
be tried together with the amended Quail proceedings, it is equally true in
the abstract that they ought to be tried together with the English action
against Mr. Jaffar, Mr. Robinson, Mr. Moukarzel, Coll & Co. (as regards
THL's claim) and Wardbase. The fact that the proceedings against Mr.
Russell, Sheikh Fahad, Riquel, Coggia, Mr. Coll and Mr. Pique may be
second served by comparison with the related proceedings in Spain may
in such circumstances be outweighed by (a) the fact that the English
proceedings against Mr. Jaffar, Mr. Robinson, Mr. Moukarzel, Coll & Co.
(as regards THL's claim) and Wardbase were served before any other
proceedings and (b) the circumstances and nature of the amended Quail
proceedings.
Secondly, I would not accept the defendants' submission that England
is an inappropriate jurisdiction for the resolution of the present action.
I have already indicated that I would regard it as an appropriate forum
viewing the action as a whole. Of course if the action were anyway
going to be split between England and Spain, the different domiciles
or connections of different defendants might suggest that some of the
O. 11 defendants should be allowed to sue here and others remitted to
Spain. This possibility is apparent if one considers the different positions
of Sheikh Fahad (in respect of whom it would seem obviously appropriate
that there should be English proceedings, if there are also proceedings
against Mr. Jaffar, Mr. Robinson and Mr. Moukarzel) and Mr. Pique (who on
the face of it has very little to do with England).
Viewing the action generally, the major issues are whether there was an
international conspiracy between individuals in a number of countries.
These issues have a very substantial connection with London as well
as with Spain. I refer to the account of the four transactions given in
section 3 of this judgment and to the reasons given in section 6.2 of this
judgment for rejecting the submission that art. 16(2) of the Convention
applies to this action. The nature and effect of the transactions will involve
evidence from a number of different countries, although many elements
may by trial be common ground. The case appears likely to turn on
identification of the person authorizing the transactions and their states
of knowledge and mind. The conduct and motivation of Sheikh Fahad
(and Mr. Jaffar in the case of Croesus and Oakthorn) is evidently central.
Other defendants including the Spanish defendants and Mr. Russell (who
relied on Mr. Folchi) say that they directly or indirectly relied on Sheikh
Fahad or the KIO through Sheikh Fahad. I assume at this stage that
each of the personal defendants will wish to give evidence as to his
conduct and understanding. Undoubtedly there will be considerable scope
for evidence about matters occurring in Spain. Numerically there is a
preponderance of personal defendants in Spain, where GT's directors and
officers (Mr. de la Rosa, Mr. Soler, Mr. Nu¤ez, Mr. de Mir and Mr. Pique)
and *439 advisers (Mr. Folchi and Mr. Coll) are domiciled and in the main
acted. This compares with Sheikh Fahad, Mr. Jaffar, Mr. Robinson and Mr.
Moukarzel domiciled or based in England at the material times and Mr.
Russell domiciled in Jersey. The focus given by the majority of the Spanish
defendants to the position of Sheikh Fahad and the KIO in London acts as
a counterbalance to this numerical preponderance.
If there are anyway bound to be proceedings in England and Spain, then,
as I have indicated, an overall analysis cannot be decisive. It is probably
necessary then to look at the position of each defendant separately. I
have already dealt fully with Sheikh Fahad's role in other parts of this
judgment. I deal in detail in section 6.5 with his connection with the
United Kingdom. On any view it was very close; for reasons which will
appear I also consider that he was in Convention terms domiciled in
England at all material times. As to other O. 11 parties, I take first Mr.
Russell, who represented Oakthorn, Pincinco, Wardbase, Anslow and
Westow in their respective transactions. In a broad sense he and the
defendant companies which he represents and used in the Channel
Islands and Isle of Man may be said to have a closer connection with
England than with Spain. His understanding and motivation with respect
to the transactions will arise for consideration in any proceedings in
relation to all of such companies. Against this however, the indications are
that he acted on instructions coming from Mr. Folchi in Spain, rather than
in direct contact with the KIO or anyone in London.
Croesus and Wantley were Gibraltar companies supplied by Mr. Coll, who
is I understand Spanish by nationality, but took a degree in economics at
University of Wales, Aberystwyth and trained as a chartered accountant
with Touche Ross & Co. in London. He has therefore a considerable
English connection, and his company Coll & Co. is also English. But
throughout the period of his involvement in the four transactions (during
which he is said to have devised the scheme whereby THL's losses arising
from the Croesus and Oakthorn transactions were to be written off by GT,
and the Pincinco cover up scheme involving the issue by GT of its own
shares at par and their effective repurchase at Ptas. 17,000 a share) he
was domiciled and worked in Spain.
For reasons which appear from section 6.2 of this judgment, I proceed on
the basis that THL's involvement does not represent any very substantial
connection with England as opposed to Spain, deriving as it did largely
from decisions made on its behalf in Spain.
Any trial of this action will involve consideration of the incidence of loss,
as is apparent from sections 4 and 5 of this judgment. It will be in issue
whether the inter-company set-off between THL and GT and/or the
writing off in GT's 1990 accounts was effective to eliminate THL's loss.
This raises a number of points connected with Spain rather than England.
But it also seems likely that Sheikh Fahad's conduct and motivation
in authorizing the exchanges of loan notes on Dec. 31, 1991 will be
important. Moreover, both sides at the hearing before me deployed expert
evidence on these matters from London accountants. The plaintiffs'
accountants, KPMG Peat Marwick, were accountants engaged to make a
lengthy investigation into the affairs of the plaintiffs prior to this action.
The fact that English accountants were used is not surprising bearing
in mind the extent and significance of the KIO's or Sheikh Fahad's
involvement in the four transactions. I would not therefore disregard the
use of English accountants as a voluntary act, as the defendants invite. As
to the capitalization, an understanding of its nature, purpose and effect
appears likely to direct attention both to Spain where Mr. Folchi and Mr.
Coll devised the idea and to London where Sheikh Fahad approved and
authorized it for implementation on his instructions at GT's extraordinary
meetings in July, 1991.
I have expressed the view that this case will not turn on technical points
of or differences between Spanish and English law. Nor does it appear
likely to turn on differences if any in accounting rules or Conventions
in different countries. So far as concerns documentation, it is evident
that there are substantial numbers of documents in both Spanish and
English, so that translation will be necessary in whichever country the
action is tried. I note that the querella in the criminal proceedings was
accompanied by a large number of the documents written in English, and
with this explanation:
The relations between the defendants and the complainant, and
particularly owing to the latter's shareholders, have taken place in the
English language, and for this reason we understand that there will be no
lack of proper defence of the same defendants.
The evidence indicates that more of the potential witnesses will be able
to express themselves in and understand English than Spanish. As to the
defendants, Sheikh Fahad, Mr. Jaffar and Mr. Moukarzel speak English and
no Spanish, whereas only Mr. Pique appears to speak no English. English
is Mr. Russell's first language, and Mr. Coll speaks perfect English. Mr.
Folchi is said by the plaintiffs to speak good English, an assessment which
seems preferable, in the light of his interviews and memorandum to the
Attorney-General of Kuwait, to the defendants' statement that he speaks
"some" English. There is an issue whether Mr. de la Rosa speaks *440
good or only some English and Mr. Soler, Mr. Nuñez, and Mr. de Mir speak
some English.
The plaintiffs say that they have identified a substantial number of
"potential witnesses", the majority of whom live in England and whose
evidence will relate to inter alia the issues "surrounding the activities of
the KIO in London and the transfer of funds between various banks in
London and elsewhere in Europe". The activities of the KIO in London
will be a focal area of the case. I would expect that matters like actual
transfers of moneys between banks by trial to have become largely
common ground. The early stage of the case makes it impracticable to be
at all precise about the actual nature or number of witnesses who might
ultimately require to be called from any particular country. The defendants
take general issue with the plaintiffs' assessment but their evidence gives
no real insight into their perception of the likely number or nature of
witnesses. I accept for present purposes that the plaintiffs are likely to
wish to call a number of witnesses from England and other countries.
Overall it does not appear that England would as regards convenience of
witnesses be any less appropriate than Spain. But, once again, an overall
comparison is not directly relevant on a hypothesis that there are going to
be two sets of different proceedings involving different defendants in the
two countries in any event.
Thirdly, I would regard the stay of the Quail proceedings ordered by
Judge Foncillas as a factor favouring continuation of English proceedings
against defendants not involved as co-plaintiffs in the Quail proceedings.
This marries with my conclusion that the criminal proceedings do not
involve the four transactions, with the uncertainty whether they will ever
consider any aspect of such transactions and with the fact that it may well
therefore be many years before the Quail proceedings ever proceed and
the four transactions ever receive attention in Spain.
A fourth factor is a submission by the defendants that an English forum
is inappropriate, because of a strong risk that the Spanish Courts
would refuse to enforce any English judgment under art. 27(1) of the
Convention as having been obtained by or in "fraud or (Spanish) law".
Again the relevance of this submission is most apparent on an overall
comparison of the appropriateness of English and Spanish proceedings.
Otherwise it would seem to be confined to the Spanish defendants. But
it was the subject of evidence from the Spanish experts and I will state
my findings on it. The arguments covered much of the ground considered
in relation to the feasibility of GT's proposed reservation under art. 112.
The premise of the defendants' argument was that the Spanish criminal
proceedings embrace a civil claim in respect of the four transactions,
and that art. 114 would apply if the present English action had been
separately commenced in Spain, although the recent stay of the Quail
proceedings suggests that the latter proposition might not in fact depend
on the former.
Assuming that art. 114 would apply to the present action had it been
begun in Spain, the issue under Spanish law is whether the Spanish
Courts would regard a judgment in the present English action as being
obtained in "fraud of law" and would refuse to enforce it. Article 27(1)
reads:
A judgment shall not be recognized:
1. if such priority is contrary to public policy in the State in which
recognition is sought;...
Article 28 also contains this general principle:
Subject to the provisions of the first paragraph [not presently relevant],
the jurisdiction of the court of the State of origin may not be reviewed;
the test of public policy referred to in point 1 or Article 27 shall not be
applied to the rules relating to jurisdiction. It is common ground that no
challenge to the English Court's jurisdiction could be mounted before the
Spanish Court on the ground that its exercise was contrary to Spanish
public policy. But the defendants submitted that the Spanish Court could
and would refuse enforcement of an English judgment, because the
English action constituted evasion of art. 114 of the Spanish Criminal
Code and (it was said) arts. 21 and 22 of the Convention coupled,
in the event of a reservation, with a misuse of that procedure. The
borderline between an objection to enforcement and an objection to the
foreign Court's exercise of jurisdiction properly assigned to it under the
Convention is uncharted. According to the plaintiffs, the points raised
by the defendants would amount to no more than challenges to civil
jurisdiction assigned to the English Court by the Convention.
Lord Irvine placed considerable weight on GT's alleged need to effect
a reservation in the present case. In the absence of any such need, an
argument treating English proceedings as in fraud of Spanish law, simply
because of the provisions of art. 114, is inherently weaker. I have already
pointed out that no such need would have existed if GT had made it clear
that they raised no civil claim at all in the criminal proceedings. Professor
Rifa expressed the opinion that it was a fraud of law to commence
any foreign civil action after the commencement of Spanish criminal
proceedings on the same facts; his view was that a judgment in any
such foreign proceedings would be regarded as unenforceable, even
if the criminal proceedings had in the meantime come to an end and
there was no inconsistency between their outcome and the foreign
judgment. He distinguished the case of a judgment obtained in *441
foreign civil proceedings commenced before, albeit continued after, the
commencement of Spanish criminal proceedings on the same facts; his
view was that there would then be no fraud of law, merely a need to
consider whether the foreign judgment was inconsistent with any Spanish
verdict. Professor Ramos viewed the problem as one of enforcement to be
determined in the light of the circumstances at the time for enforcement;
if the criminal proceedings were then at an end, enforcement would
be possible so long as there was no inconsistency; if they were not yet
ended, enforcement proceedings might have to wait. Neither expert was
able to find any authority directly in point. One case in the Audiencia
Nacional (Sept. 19, 1991) concerned the activities of the so-called "anti-
terrorist liberation groups" (activities against supposed Basque separatists
living in France). French civil proceedings had been brought and possibly
even concluded before the bringing of Spanish criminal proceedings, and
the Spanish criminal Court took as the measure of civil liability the sums
fixed by the French Court. Professor Rifa distinguished that case as special
and was not concerned with foreign proceedings begun after Spanish
criminal proceedings. Faced with a choice between two different expert
views and with little other assistance, I prefer Professor Ramos' view. I
did not find Professor Rifa's evidence or the distinctions he drew in this
area to be persuasive.
More importantly, the whole issue of fraud of law only arises on an
assumption that the present action is to be viewed, and viewed in effect
only, as a preliminary to enforcement in Spain. While the plaintiffs no
doubt hope and wish to have a judgment enforceable in inter alia Spain,
nothing in the nature of any judgment which they might obtain will
so define or restrict it. Further, the purpose and likely significance of
any such judgment obtained does not appear likely to be restricted
to, or even focused predominantly on, enforcement in Spain. The four
transactions involved the movement of moneys on an international scale.
Such information as is to hand suggests that such moneys went and are
likely to remain largely outside Spain. Many of the defendants are outside
Spain. If it comes to enforcement, all the assets of any defendant (if any)
against whom judgment is given would be available for execution up
to the amount of the judgment against that defendant. Of course there
might be arguments under art. 27(1) if and in so far as enforcement were
sought in Spain. But that appears a matter of much less significance in
the picture than the defendants suggested.
6.4 Article 27
The defendants suggest that the Court has and should exercise an
inherent jurisdiction to stay or decline jurisdiction having regard to the
risk that the English action or any judgment given in it may be regarded
in Spain as inconsistent with the pursuit or outcome of any Spanish
proceedings and as unenforceable under art. 27(1) of the Convention.
Section 49 of the Civil Jurisdiction and Judgments Act, 1982 provides:
Nothing in this Act shall prevent any court in the United Kingdom from
staying, sisting, striking out or dismissing any proceedings before it, on
the ground of forum non conveniens or otherwise, where to do so is not
inconsistent with the 1968 Convention.
Lord Irvine submitted that the English Court retains, despite the
Convention, the common law power recognized by the House of Lords
in The Abidin Daver, [1984] 1 Lloyd's Rep. 339; [1984] A.C. 398 to stay
English proceedings commenced in the face of foreign proceedings, in
order to avoid "an ugly rush to judgment". But The Abidin Daver was
no more than a precursor in a particular field of the Spiliada (c.f. In re
Harrods (Buenos Aires) Ltd., [1992] Ch. 72 at p. 96 per Lord Justice
Dillon). The problem which those cases address at common law is under
the Convention addressed, in the case of competing litigation in different
Contracting States, by arts. 21-23 of the Convention. In this connection
those articles apply regardless of the parties' domicile: Overseas Union
Insurance Ltd. v. New Hampshire Insurance Co., [1992] 1 Lloyd's Rep.
204; [1992] 1 Q.B. 434 (E.C.J.). They constitute a comprehensive code:
In re Harrods (Buenos Aires) Ltd., sup., per Lord Justice Bingham at p.
101D. The one situation into which considerations of forum conveniens
then enter is where the discretion granted by the first paragraph of art.
22 falls to be exercised by the Court second seized. However the position
of defendants not domiciled in any Contracting State differs, in that each
Contracting State may exercise or refrain from exercising jurisdiction
in accordance with its own rules: art. 4 of the Convention. Accordingly,
under English law, considerations of forum conveniens and Spiliada
principles still arise in respect of such defendants.
Lord Templeman's precise words in The Abidin Daver were:
An ugly rush to get one action decided ahead of the other is not to be
replaced by an ugly rush to issue proceedings in one country before the
issue of proceedings in another.
Articles 21 and 22 do raise the spectre of "an ugly rush" to issue (or
secure the definitive pendency of) proceedings in one country before they
become definitively pendent in another. This is particularly so if they are
interpreted to allow jurisdiction to be selected or pre-empted by claims
for negative declaratory relief. It is to be hoped that the length *442 and
complexity of jurisdictional issues to which they have given rise in the
present case is exceptional and attributable to the teething period of what
in legal terms may still perhaps be described as their infancy. But on any
view, I consider, the English Court no longer has power to exercise the
general discretionary jurisdiction which the Convention defendants invited
me to exercise.
I add that, for reasons which I have already given, I am not satisfied
either that any real risk exists of the Spanish Court refusing to recognize
an English judgment in the present action on grounds of public policy, or
that the present action should be viewed purely or mainly as a means of
attempting to secure a judgment enforceable under the Convention in
Spain.
6.5 Sheikh Fahad's domicile
The plaintiffs submit that the service on the first defendant - although
effected in the Bahamas on May 31, 1993 with leave under R.S.C., O. 11,
r. 1(1)(c) and (f) - can and should be supported, if necessary, on the basis
that he was at the material time domiciled in England. On the conclusions
which I have reached, that the present action and the Quail actions should
be compared overall, that this action is first seised and that service on
Sheikh Fahad was validly effected under O. 11, r. 1(1)(c) and (f), it is
unnecessary for me to decide whether it is open to the plaintiffs, on the
present application under O. 12, r. 8, to rely on Sheikh Fahad's supposed
domicile in England. Even on a defendant by defendant approach to
definitive seisure, the significance of any such domicile would only be to
limit the objection to English jurisdiction to grounds under art. 22, which
on the provisional view which I have expressed in s. 6.3.12(vi) of this
judgment, would still make no difference to the result. I therefore do no
more than identify the problem and some considerations which might
appear relevant to its resolution if it arose. Since this was the subject
of full evidence and argument before me, I also state my conclusion
that Sheikh Fahad was domiciled for Convention purposes in England as
well as the Bahamas at the material times and give my reasons for this
conclusion.
The writ was issued on Apr. 14, 1993. It identified Sheikh Fahad by
reference to his address at Fairview, Lyford Cay in the Bahamas. It
contained a certificate under R.S.C., O. 6, r. 7(1) in the following form:
We certify that the High Court of England and Wales has power under
the Civil Jurisdiction and Judgments Act 1991 to hear and determine
this claim against the defendants whom it is sought to serve without
leave and no proceedings are pending between the parties in Scotland,
Northern Ireland or other Convention territory of any Contracting State
as defined by section 1(3) of the Civil Jurisdiction and Judgments Act
1982 as amended by the Civil Jurisdiction and Judgments Act 1991.
After service had been effected on the defendants served within the
jurisdiction, an affidavit was sworn on Apr. 20, 1993 by Mr. Pearson of
the plaintiffs' solicitors by which leave was sought to issue and serve a
concurrent writ on Sheikh Fahad, Mr. Russell, Russell Limebeer, Oakthorn,
Westow, Anslow, Croesus and Wantley out of the jurisdiction under R.S.C.,
O. 11, r. 1(1)(c) and (f). As regards Sheikh Fahad, the affidavit said:
15. I should mention, in respect of Sheikh Fahad, that this application
for leave to serve him in the Bahamas is made without prejudice to
the Plaintiffs' right to content that he is domiciled in England. On the
present state of the Plaintiffs' investigations, they are not in a position
to say, with certainty, whether Sheikh Fahad is domiciled in England or
not. Accordingly, for the purposes of this application, Sheikh Fahad is
described as a Non-Convention defendant, but the Plaintiffs reserve their
position to argue that he is domiciled in England, should the need arise.
After service upon him, Sheikh Fahad on July 1, 1993 duly issued a
summons for leave to set aside the service under R.S.C., O. 12, r. 8. The
grounds on which he relied were that the claim did not fall within O. 11, r.
1(1) and/or that it was not a proper case for service out of the jurisdiction
as required by O. 11, r. 4(2) and/or that there was no good arguable case
against him. (The grounds were subsequently expanded to take in arts.
16, 21 and 22 of the Convention, which do not depend on domicile in a
Contracting State.) He supported his application by affirmation on Sept.
23, 1993. It would seem that his legal advisers had not at that stage
identified the objection that it was not open to the plaintiffs to assert that
Sheikh Fahad was not domiciled in England, because he set about seeking
to demonstrate that he was not, by addressing what is (as will appear)
the central issue of residence in the following terms:
I am advised that it will be material for this Honourable Court, in deciding
whether it has jurisdiction over me in respect of the subject matter of
this action, to determine whether or not I am resident in England. In the
circumstances which I have described..., I respectfully submit that I am
not.
The circumstances consisted in his account of his intentions in the spring
of 1992 and of the periods which he had spent in the Bahamas, England
and elsewhere in 1993. During the hearing however Mr. McCaughran on
behalf of the Sheikh made it clear *443 that he was submitting that it was
not open to the plaintiffs even to assert that the Sheikh was domiciled
within the jurisdiction.
When they issued their writ, the plaintiffs did not have sufficient
information to enable them to assert that Sheikh Fahad was domiciled
within the jurisdiction. They did not therefore consider that they could, as
against him, either issue the writ for service out of the jurisdiction under
O. 6, r. 7, or serve it out of the jurisdiction without leave under O. 11,
r. 1(2). Nor on seeking leave did they attempt to invoke O. 11, r. 1(1)
(a) (domicile within the jurisdiction). Instead they sought and obtained
leave for both issue and service under O. 11, r. 1(1)(c) and (f). The leave
obtained could only be upheld on the ground of domicile, if it is open
to the plaintiffs to rely (or to rely in addition) on O. 11, r. 1(1)(a), or to
contend that leave was unnecessary. Mr. McCaughran replies that either
would be a change of the basis for service out and the latter is precluded
by the absence of any relevant certificate under O. 6, r. 7(1)(b).
One of Mr. Clarke's responses was that the solution lay in the Court's
power to uphold proceedings despite a failure to comply with the rules.
But there was no such failure. The plaintiffs simply lacked the information,
if they are right about Sheikh Fahad's domicile, to take advantage of
that, and so of all the jurisdictional grounds and procedural routes on
and by which it now appears that Sheikh Fahad might have been sued
here. No-one suggests that the present action leads to a result which is in
conflict with art. 2 of the Convention, or prevents a subsequent attempt
(if necessary) to invoke the jurisdiction on grounds of domicile, and the
grounds on which leave was actually sought under O. 11, r. 1(1)(c) and
(f) are effectively identical with Convention grounds.
In Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc., [1990]
1 Q.B. 391, the Court of Appeal said at p. 436: In our judgment, if the
draughtsman of a pleading intended to be served out of the jurisdiction
under Ord. 11 r. 1(1)(f) (or indeed under any other sub-paragraph) can
be reasonably understood as presenting a particular head of claim on one
specific legal basis only, the plaintiff cannot thereafter, for the purpose
of justifying his application under Ord. 11 r. 1(1)(f), be permitted to
contend that that head of claim can also be justified on another legal
basis (unless, perhaps, the alternative basis has been specifically referred
to in his affidavit evidence, which it was not in the present case). With
this possible exception, if he specifically states in his pleading the legal
result of what he has pleaded, he is in our judgment limited to what he
has pleaded, for the purposes of an Order 11 application. To permit him to
take a different course would be to encourage circumvention of the Order
11 procedure, which is designed to ensure that both the court is fully and
clearly apprised as to the nature of the legal claim with which it is invited
to deal on an ex parte application, and the defendant is likewise apprised
as to the nature of the claim which he has to meet, if and when he seeks
to discharge an order for service out of the jurisdiction.
However in Walton Insurance Co. Ltd. v. Deutsche Rück (U.K.)
Reinsurance Co. Ltd. (unreported C.A. Nov. 20, 1990) the Court of Appeal
concluded after examination of this and other recent Court of Appeal
authorities that:
... each has applied, while none has extended the principle in Parker v.
Schuller itself. The principle is that, where to serve out is obtained in
respect of a claim based on one cause of action, it cannot be treated as
leave in respect of a claim based on some other cause of action.
The Court upheld Mr. Justice Steyn's refusal to extend the principle to
cover a case where the plaintiff reinsurers wished to substitute one reason
for another for saying that a second defendant broker was a necessary
or proper party to proceedings against the first defendant insurers. Lord
Justice Nourse said this:
In my view Mr. Justice Steyn was entirely correct in holding that the
principle of Parker v. Schuller ought not to be extended to cover this case
and, on that footing, to allow the service of the writ to stand. It is not the
function of this court to restrict the ambit of a discretion which is left to
the judge at first instance unless it can perceive some good reason for
doing so. The facts of the present case well demonstrate that there may
in many other cases be good reasons for allowing the leave to stand and
not insisting on the application of some stricter principle.
The present problem does not seem to have been addressed in any
previous case, although it appears to have been assumed in In re Harrods
(Buenos Aires) Ltd. that, if O. 11 was inapplicable to applications under
ss. 459 and 461 of the Companies Act, 1985, then a plaintiff who had
unnecessarily sought leave to serve out which he had obtained by an
affidavit defective for lack of frank disclosure could uphold the service on
the basis that no leave was necessary. In that case however there would
have been no requirement for the writ to be endorsed with a statement
under O. 6, r. 7(1). The present writ read with the affidavit does not
comply with O. 6, r. 7. The plaintiffs cannot therefore simply disclaim any
need for leave under O. 11, r. 1. *444
The Convention prescribes by art. 2 that "persons domiciled in a
Contracting State shall, whatever their nationality, be sued in the courts
of that State", and goes on to recognize various qualifications. The
Convention must contemplate compliance with appropriate national
procedures for invoking jurisdiction. In general terms it is inappropriate
that plaintiffs who have chosen to assert one basis of jurisdiction should
later seek to uphold jurisdiction by a quite different route. On the other
hand there appears (rather surprisingly) to be no authority on the
question whether it is open to a Court to uphold leave on a different
ground to that mentioned when leave was sought, and there is certainly
none which touches the present situation where it can hardly be said that
the Court is concerned with an "exorbitant jurisdiction" since it is simply
being asked to uphold service on the principal basis of domicile recognized
under the Convention. The issue, as it presently seems to me, is whether
the Court has, in any circumstances, discretion to uphold on grounds of
domicile in this country service obtained under O. 11. As I have indicated,
it is unnecessary to decide this issue; it could only be material to do so on
the basis of other conclusions to those at which I have elsewhere arrived.
I therefore merely mention certain special features which, if there is such
a discretion, appear to me to favour its exercise: (a) the plaintiffs did not
have sufficient material to assert domicile when they issued and sought
leave to serve the present writ, but they did appreciate the possibility that
Sheikh Fahad was domiciled in England and mentioned it expressly, and
sought to reserve their right to rely on it, in their affidavit seeking leave;
(b) Sheikh Fahad himself in his affidavit seeking to set aside the leave felt
it necessary and appropriate to address the critical question of residence;
(c) the plaintiffs now have the information (most of it put forward by
Sheikh Fahad himself) on the basis of which they are able to assert that
Sheikh Fahad was domiciled here at the material time; (d) that issue has
been fully addressed by evidence and argument before me, and as will
appear I have reached the conclusion that Sheikh Fahad was domiciled in
this country at the material times for Convention purposes; (e) if Sheikh
Fahad can confine the plaintiffs to their O. 11 ground, then the Court must
exercise its discretion under O. 11 when it has, after hearing evidence
and argument, concluded that this action, properly viewed, falls within
the basic jurisdictional provisions of art. 2 (and not within art. 4) of the
Convention; (f) if Sheikh Fahad can confine the plaintiffs to their O. 11
ground, the plaintiffs could still, if material, invoke his domicile to sue
and serve him, but in view of the lapse of time would seem likely to
have to do this by fresh writ. That would involve a separate action. This
would, on a defendant by defendant approach to the application of arts.
21 and 22, be second served by comparison with the Quail proceedings,
but so also on a defendant by defendant approach is the existing claim
against Sheikh Fahad. Thus it would ex facie be no more than a waste of
time and money to require separate proceedings, even if a defendant by
defendant approach were adopted. I do not prejudge any actual exercise
of discretion, if it exists, since I cannot predict the precise context and
circumstances of its exercise.
I now give my reasons for concluding that Sheikh Fahad was domiciled in
England. Article 52 of the Convention provides:
In order to determine whether a party is domiciled in the Contracting
State whose courts are seized of a matter, the Court shall apply its
internal law.
Section 41 of the 1982 Act accordingly introduces various rules for
determining such domicile. In particular by s. 41(2):
An individual is domiciled in the United Kingdom if and only if -
(a) he is resident in the United Kingdom; and
(b) the nature and circumstances of his residence indicate that he has a
substantial connection with the United Kingdom.
The question arises when domicile is to be determined. The choice of
dates is between the commencement of the action, in the sense of issue
of the writ on Apr. 14, as Mr. Clarke eventually advocated, and the date
of definitive seisure (in this case upon service on Apr. 15, 1993 on the
first defendants to be served or, if each defendant must be regarded
separately, then May 31, 1993, the date of service on the Sheikh). As
I consider that definitive seisure occurred once and for all on Apr. 15,
1993, the choice between commencement and definitive seisure would
not matter in this case. But if there was only definitive seisure as regards
the Sheikh upon his service on May 31, 1993, the correct approach could
possibly be of significance.
The Convention in ss. 2, 3 and 4 (arts. 2 to 15) deals with the State(s)
in which a person "may be sued" or in which proceedings "may be
brought". At least in the English text, arts. 21 and 22 recognize a
potential distinction between the time when proceedings are brought and
the time when the Court becomes definitively seised. This distinction is
not so apparent in art. 52, but seisure in that article is not necessarily
to be equated with definitive seisure. The only practical interpretation of
the Convention is, in my view, one which looks to domicile at the date of
commencement of proceedings, irrespective of the moment of definitive
seisure. Rules prescribing jurisdiction must relate to *445 the moment
when a litigant first invokes the jurisdiction. Otherwise, he may be
shooting at a moving target. Cases may arise where defendants on first
wind of litigation evade service and even seek to abandon their country of
residence. Domicile may also change for quite innocent reasons. Definitive
pendency raises different considerations. Therefore, I consider that the
relevant date to judge Sheikh Fahad's domicile is Apr. 14, 1993.
The facts are as follows. Sheikh Fahad worked for the KIO in London for
some 27 years, until April, 1992. He started as administrative manager,
became acting general manager, then general manager and, from 1982,
he was chairman. In all these posts he enjoyed diplomatic status. He had
a home in London. He did not spend all his time in the United Kingdom,
but spent a considerable period of time away, in particular "a number of
months each year in the State of Kuwait and, especially in latter years,
the summer months in the Bahamas". At some point he acquired a further
home in the Bahamas, at Fairview in Lyford Cay.
According to his affirmation of Sept. 23, 1993 and his solicitor's fourth
affidavit sworn Jan. 19, 1994, Sheikh Fahad's intention following his
retirement from the KIO was (and remains) to spend substantial periods
of time - the majority of his time - in the Bahamas, "although naturally
from time to time he intends to visit the United Kingdom, the United
States and elsewhere". The Bahamas is -
...the place which he considers to be home, particularly since, because
of the present political situation in Kuwait, he is unlikely to be welcome
there.
On his evidence, Sheikh Fahad in 1992 spent 138 days in the United
Kingdom, 128 days in the Bahamas and 100 days elsewhere, while in
1993 up to Sept. 23 he spent 86 days in the United Kingdom, 16 in the
Bahamas and 161 elsewhere. 87 of the 138 days spent in the United
Kingdom in 1992 fell into the six months June to November, 1992, during
which he only spent 16 days in the Bahamas. He then spent almost
the whole of the winter months December, 1992 to March, 1993 in the
Bahamas, before returning to the United Kingdom where he spent 30
days in April and 23 days in May, 1993. Apart from a further nine days
in June and five days in July, 1993 in the United Kingdom and three days
elsewhere, he spent June, July and August, 1993 in the Bahamas. He was
back in the United Kingdom for 17 out of the first 23 days of September,
1993, the occasion on which he made his affirmation.
To Sheikh Fahad's affirmation and his solicitor's fourth affidavit must be
added the information which came to light during the hearing, as a result
of the separate proceedings with which I was not involved, showing that
in April, 1992 (just before leaving the KIO) Sheikh Fahad had used £3.15
m. of the moneys paid out in the first part of the Oakthorn transaction for
the purchase of 52 Cadogan Place from St. Martin's Property Corporation
(owned by the KIO) by Esteem Ltd. (owned by a discretionary trust of
which the Sheikh is one of the beneficiaries). Not unnaturally Mr. Clarke
assumed that 52 Cadogan Place must be the United Kingdom "home"
referred to in Sheikh Fahad's affirmation. It proved not so. On Feb. 3,
1994 Mr. McCaughran explained, as he said on instructions, that the
home was in Dulwich Village, while 52 Cadogan Place was an office of
which Sheikh Fahad had the use, although no mention had been made
of it in the previous evidence on the subject of residence. Then through
his solicitor's sixth affidavit sworn Feb. 7, 1994 Sheikh Fahad gave the
information that 52 Cadogan Place was a large house made available to
Sheikh Fahad by the KIO in his last years in London, which in turn was
often occupied by his mother and two sisters during visits from Kuwait as
well as by refugees during the Iraqi invasion. The affidavit went on:
Following his retirement, Sheikh Fahad no longer has any need for an
office in London. However, when in London and when the house is not
being used by his mother, he has used the reception rooms at 52 Cadogan
Place as a convenient meeting place in central London. For example,
he met Stephenson Harwood and KPMG Peat Marwick at 52 Cadogan
Place when they wished to interview him in October 1992. He has also
met Edward Sparrow and myself there. The house in Dulwich, of which
the Plaintiffs are aware, is not convenient for these purposes since it is
some way from the centre of London. In addition, Sheikh Fahad has a
secretary who looks after certain of the personal affairs of himself and
other members of his family and operates from a separate office over the
garage at the back of the house. It is to his secretary there that Sheikh
Fahad's mail was redirected after he left the KIO. Sheikh Fahad does not
carry on any business from 52 Cadogan Place. He has never lived there
and the premises could not in any sense be described as his home or
personal residence.
The secretary's office at the back of the house referred, I was told, to 52
Cadogan Place not the Dulwich Village house.
The way in which this evidence developed was unsatisfactory. Whatever
the KIO's knowledge may or may not have been through any of its
personnel at any stage in relation to 52 Cadogan Place, Sheikh Fahad
set out to give evidence as to the factors relevant to the issue of his
residence. The indirect acquisition of 52 Cadogan Place is of significance.
*446 It is no answer to the initial failure to mention it that it is accepted
that Sheikh Fahad retains a substantial connection with England, and that
the issue is whether he is resident here.
Only one case was cited (by Mr. McCaughran) on the concept of
"residence", Daniel v. Foster, (1989) S.L.T. (Sh. Ct.) 90 a case under s.
41(3) of the 1982 Act which contains a full review of authority from other
areas and useful discussion. In that case there had been a pattern of very
frequent visits to and stays at a Scottish rest home which the defender
(whose family home was on the south coast of England) had acquired as
a business interest in Scotland. The visits lasted for between two/three
days and seven/10 days with fortnightly gaps between, over a period
exceeding three months before the proceedings. While his main residence
was in England it was held that the defendant had acquired a second
residence in Scotland:
On the defender's own evidence the pattern continues. Thus we have a
voluntary arrangement, for settled purposes as part of the regular order
of life for the time being. There is thus a measure of continuity. There is
no hint of casual or occasional occupation or for that matter temporary
accommodation. It is a continuous arrangement.
The Sheriff also found that the use of the Scottish property was for a
settled purpose, citing Lord Scarman's words in Shah v. Barnet L.B.C.,
[1983] 1 All E.R. 226 at p. 235 (a case on the meaning of "ordinarily
resident" in the Education Act, 1962):
And there must be a degree of settled purpose. The purpose may be one
or there may be several. It may be specific or general. All the law requires
is that there is a settled purpose. This is not to say that the [person]
intends to stay where he is indefinitely; indeed his purpose, while
settled, may be for a limited period. Education, business or profession,
employment, health, family, or merely love of the place spring to mind as
common reasons for a choice of regular abode. and there may be many
others. All that is necessary is that the purpose of living where one does
has a sufficient degree of continuity to be properly described as settled.
It is indisputable that Sheikh Fahad was resident in England when he was
chairman of the KIO, diplomatic status notwithstanding. Mr. McCaughran
submitted that the position had changed when or after he ceased to be
chairman, and that the most that might be said was that he was resident
here when he was actually here. The House of Lords in Levene v. I.R.C.,
[1928] A.C. 217 referred to the possibility that a Member of Parliament
might in those days be ordinarily resident in London while Parliament sat
and in the country during the recess. If I were to reach such a conclusion
with regard to Sheikh Fahad, then he would have been resident and
domiciled in this country on what I regard as the critical date, Apr. 14,
1993, since he was here for the whole of April, 1993. His evidence is that
he spent time consulting with solicitors and giving them instructions in
late April and May, 1993 "when I was aware of these proceedings and
anticipated that they would be served on me". But this does not touch on
the fact that he was already here before the proceedings were issued on
Apr. 14 and served on other defendants on Apr. 15, 1993.
Mr. McCaughran submits that the correct date is May 31, 1993 on which
date the Sheikh was back in the Bahamas (after spending 23 days of that
month in the United Kingdom) and was served. He submits that Sheikh
Fahad was not on that date resident in the United Kingdom. I disagree.
On the evidence I consider that Sheikh Fahad falls to be regarded as a
resident of both the United Kingdom and the Bahamas at all the material
times. The background of his years of residence here, his retention of his
Dulwich Village home and his indirect acquisition shortly before ceasing
to be chairman and subsequent retention of 52 Cadogan Place (which
on any view he uses for some purposes) are very significant factors. His
movements between Lyford Cay and London have not been as frequent
as those of the defender in Daniel v. Foster, but this is hardly surprising
in view of the greater distance - as well as, perhaps, different seasonal
attractions. I cannot isolate, in the way which Mr. McCaughran invited, the
quality and closeness of Sheikh Fahad's connection with London from the
issue whether he is also to be regarded as permanently resident here. On
a grander scale than the defender in Daniel v. Foster Sheikh Fahad was in
my view a resident of both countries at all material times, including the
whole of April and May, 1993.
7 ORDER 11
7.1 Non-disclosure
The first submission under this head is that there was material
misstatement or non-disclosure in the affidavit of Mr. Pearson sworn Apr.
14, 1993, by which leave was obtained to serve Sheikh Fahad, Mr. Russell,
Russell Limebeer, Oakthorn, Westow, Anslow, Croesus and Wantley out
of the jurisdiction under R.S.C., O. 11, r. 1(1)(c) and (f). Five aspects
are identified. The first is that an impression was given of an overall
umbrella conspiracy, whereas the writ in fact alleged four separate and
distinct conspiracies. In fact the affidavit speaks of "a conspiracy or
conspiracies" between the defendants. It also says that "the web of frauds
in part overlap, but can conveniently be considered, and *447 have been
pleaded, under four transaction headings". The affidavit and the points of
claim which it exhibited make clear that there was a substantial overlap in
the persons allegedly involved in the four transactions, but that different
defendants were or were not also involved depending on the transaction.
The affidavit correctly says that the case had been pleaded under four
transaction headings. Its introductory reference to "a conspiracy or
conspiracies" puts the matter slightly differently from the points of claim,
but I am wholly unable to regard the difference as material in the light of
the later comments and the points of claim exhibited to the affidavit. If
there was any misstatement at all, it is also inconceivable to my mind that
it was influential in any decision to grant leave.
The affidavit also made it clear that the writ had only been served on
the defendants resident in England, i.e. Mr. Robinson, Mr. Jaffar, Mr.
Moukarzel, Coll & Co. and Wardbase, but pointed out correctly that steps
were being taken to serve the Convention defendants under O. 11, r.
1(2). It relied on O. 11, r. 1(1)(c). It is said that par. 8 of the affidavit
took too broad brush an approach to r. 1(1)(c), when it referred to
the issues against the O. 11 defendants as substantially the same as
those "which arise against the other fourteen who participated in the
conspiracies and their execution". However the affidavit and points of
claim had already made clear that there were four transactions in not all
of which all the defendants had any role. Although no weight can be put
on GT's claim against Coll & Co. in view of the arbitration clause in Coll
& Co.'s contract with GT, the defendants who had already been served
included defendants allegedly involved in each transaction, as follows:
Croesus: Robinson, Jaffar, Moukarzel [and Coll & Co.]
Oakthorn: Jaffar, Moukarzel, Wardbase [and Coll & Co.]
Pincinco: Moukarzel, Wardbase [and Coll & Co.]
Wardbase: Robinson and Wardbase
It was also significant that further Convention defendants were in the
process of being served in respect of all four transactions. In my opinion
the broad approach in the affidavit was not misleading, and certainly not
so as to justify setting aside the leave.
Then it is said that the affidavit misstated the position regarding the
tort claims put forward under O. 11, r. 11(1)(f) against all the O. 11
defendants save Russell Limebeer. Order 11, r. 1(1)(f) now applies -
...if the claim is founded on a tort and the damage was sustained, or
resulted from an act committed, within the jurisdiction.
As to "damage sustained within the jurisdiction", it is said that THL's
position was materially misdescribed. Paragraph 10 of the affidavit
asserted that -
...substantial loss has been suffered by THL, a company incorporated
under the laws of England and Wales, within the jurisdiction as a
consequence of the torts of the Defendants.
It then sets out a number of items of alleged loss, without geographical
details. This paragraph was criticized for assuming that it suffices to
establish loss within the jurisdiction that the company sustaining the loss
is an English company and carries on its business from here. That is not
sufficient, the particular loss must have arisen within the jurisdiction:
Societé Commerciale de Reassurance v. Eras International Ltd. ("The Eras
EIL actions"), [1992] 1 Lloyd's Rep. 570 (C.A.) at pp. 589-591. In fact
the paragraph goes on to identify the heads of loss allegedly suffered
by THL in terms which leave it unclear where precisely they might have
arisen. The points of claim do not assist. Taking the individual items, the
position (as it appears in fact from documents exhibited to Mr. Pearson's
first affidavit) is as follows:
(a) " THL suffered a loss by incurring a liability with Banco Santander
SA for US$25 million." The Banco Santander bank account in question
was in London, but the allegation has been substituted by an allegation
of loss "by paying the US$25 million" borrowed from Banco Santander
to Kokmeeuw. Again the payment was made out of THL's bank account
with Banco Santander in London. But it is said that the affidavit ignores
the apparent indemnification of THL by GT, although I have allowed an
amendment to enable the plaintiffs to assert that the indemnification
was more apparent than real. (b) "THL suffered a loss by paying and/
or funding US$2,576,707." This was paid out of THL's Barclays Piccadilly
Circus branch account. But, as the points of claim go on to say, GT
reimbursed THL.
(c) "THL suffered a loss by incurring a liability with Banco Santander SA
for US$55 million and a further loss of US$50 million by paying and/
or funding such sums." This refers to the two parts of the Oakthorn
transaction, the first of which was funded from THL's London account
with Banco Santander and the second (as indeed pleaded in par. 64 of
the points of claim) from THL's Barclays Piccadilly Circus branch account.
In each case the original pleading then in view negatives any loss, by
averring that it was made good by GT, but I have allowed amendments to
raise the issue that the credit given by GT was not a real indemnification.
The amendment now substitutes the allegation of *448 loss by incurring
a liability to Banco Santander with an allegation of loss by paying the U.S.
$55 m. out of the Banco Santander account in London.
(d) "In respect of the Pincinco transaction, THL suffered the loss of US
$300 million transferred to Bankers Trust and/or the US$319,445,312.50
transferred to [Coggia] as more particularly set out in the Points of
Claim." These monetary movements took place in or from Switzerland, in
October, 1990 when Banco Santander Suiza S.A., Geneva transferred U.S.
$300 m. to Bankers Trust A.G., Geneva as security for the Pincinco loan,
and in July, 1991 when Bankers Trust with THL's authority released U.S.
$19 m. to Coggia.
(e) "In respect of the Wardbase transactions, THL suffered a loss of 2
billion pesetas." The payment made by THL was in fact to Wardbase in
London from an account in Barcelona, but I have concluded that it was
made by THL as a mere conduit, and that THL has no arguable claim to
have sustained loss.
This analysis of par. 10 of Mr. Pearson's first affidavit demonstrates that
the defendants have been able to demolish most of the points made in
support of the original application for leave, and force the plaintiffs to
replead or abandon them correspondingly. But the fact that painstaking
analysis leads to this conclusion does not justify my setting aside the
whole leave, or even the whole of such part of the leave as relates to O.
11, r. 1(1)(f). The leave given to THL under O. 11, r. 1(1)(f) in respect
of Wardbase cannot be supported, but that is because there is now no
case left for saying that THL sustained loss in respect of Wardbase. The
leave given to THL under O. 11, r. 1(1)(f) in respect of Pincinco cannot
be supported on the basis given that THL sustained loss here, but must
still be considered on the alternative basis that THL sustained loss as
a result of an act committed here. The leave given to THL in respect of
the Croesus and Oakthorn transactions stands, although the claims are
now, as a result of the amendments which I allowed, formulated in a way
different to that described in the affidavit.
The next aspect of complaint about the affidavit relates to the other basis
on which leave was granted to both GT and THL under O. 11, r. 1(1)(f);
that is by reference to Mr. Pearson's evidence that damage was suffered
by the plaintiffs resulting from "substantial and efficacious acts" of the O.
11 defendants committed within the jurisdiction. He gave as particulars
references in pars. 36, 70, 96 and 127. All of these on inspection are acts
of Sheikh Fahad. There is force in the point that the affidavit on its face
suggests that more than one defendant was involved in acts within the
jurisdic- tion. But a reading of the references would show the contrary.
Further, the acts of Sheikh Fahad alone would by themselves appear to
suffice to ground a charge of conspiracy committed within the jurisdiction
against all persons against whom there was any sufficient pleaded case
that they were party to the conspiracy. On the face of the affidavit and
points of claim, Sheikh Fahad's acts are likely to have been central to any
conspiracy. Indeed it is a major part of the defendants' case that all that
occurred was done at the behest of Sheikh Fahad and at the wish of the
KIO. I do not think that the leave given under O. 11, r. 1(1)(f) should be
set aside on the ground that it referred to "defendants" in the plural.
Then it is said that Sheikh Fahad's acts are not properly to be viewed as
committed within the jurisdiction, because he was a diplomat working in
offices of the KIO at St. Vedast House, 150 Cheapside, London EC2, which
are treated as part of the Kuwait Embassy and inviolable accordingly
under art. 21 of the Vienna Convention on Diplomatic Relations as given
effect by the Diplomatic Privileges Act, 1964. Mr. Onions sought to
deduce that the premises of the KIO were outside the jurisdiction and
that the acts of persons within those premises also occurred outside the
jurisdiction for the purposes of O. 11. The short answer to this point
is that it is a repetition of a popular myth which was, or should have
been, dispelled in Radwan v. Radwan, [1973] Fam. 24. The issue there
was whether a talaq divorce within the Egyptian Embassy in London
was outside the British Isles for the purpose of recognition under the
Recognition of Divorce and Legal Separations Act, 1971. In concluding
that it was not, Mr. Justice Cumming-Bruce (as he was) cited and adopted
observations of Professor Lauterpacht and Sir (Mr. as he then was) James
Fawcett. The latter in The Law of Nations at p. 64 said this:
But there are two popular myths about diplomats and their immunities
which we must clear away; one is that an embassy is foreign territory,
and the other is that a diplomat can incur no legal liabilities in the country
in which he is serving. The first is a confusion between territory or
property and jurisdiction over it, and it is important to clarify it for it has
sometimes arisen over ships and aircraft. The building occupied by a
foreign embassy and the land on which it stands are part of the territory
of what we call the receiving state; it is therefore under the jurisdiction
of that state. But the members of the mission and their activities in the
embassy are primarily under the control and jurisdiction of the sending
state. International law avoids conflict between these jurisdictions by
laying down rules to cover the whole field of diplomatic relations. These
*449 rules have been embodied in the Vienna Convention 1961, which
may be taken as reflecting existing law and practice. This convention, and
that of consular relations drawn up in 1963, are among the first steps -
we shall meet others on the law of the sea - in the successful codification
of international law. The premises of a mission are inviolable, and the
local authorities may enter them only with the consent of the head of the
mission. But this does not make the premises foreign territory or take
them out of the reach of the local law for many purposes: for example, a
commercial transaction in an embassy may be governed by the local law,
particularly tax law; marriages may be celebrated there only if conditions
laid down by the local law are met; and a child born in it will unless his
father has diplomatic status, acquire the local nationality.
Mr. Onions submitted that, even if St. Vedast House was within the
jurisdiction for O. 11 purposes, still its status as part of the Embassy
ought to have been mentioned. I see no reason why; even if it should
have been, I do not see how the omission could justify the setting aside of
the leave.
Lastly, Mr. Onions submitted that Mr. Pearson's first affidavit was
misleading in its reference to the criminal proceedings. It disclosed those
proceedings and said:
The criminal complaint does have a civil claim annexed to it, but, as
referred to below, the claims made in Spain are entirely distinct and
unrelated to the causes of action in these proceedings.
It then identified the various offences alleged in Spain and said that:
the allegations relate to transactions involving a number of companies
and entities, none of which have any involvement or connection with the
causes of action in these proceedings...
before reiterating that -
...the Spanish proceedings are totally unrelated to any of the causes of
action in the present proceedings.
The defendants' case on this aspect depends on the conclusion that what
was said was materially inaccurate. For reasons which I have given in
relation to arts. 21 and 22 of the Convention, I consider that it was on the
contrary basically correct. Even if I had come to a contrary conclusion,
it would have been very material to a decision whether to set aside the
proceedings that Mr. Pearson in his third affidavit attests that it was
the clear view of the plaintiffs when commencing the proceedings that
the civil claims were distinct and unrelated to the criminal proceedings,
and that Professor Ramos has given evidence to similar effect. More
generally, I would say this. The importance of full and fair disclosure
is obvious. But the present case is one of considerable complexity, the
matters complained of represent at worst innocent failures in analysis or
evaluation, and I would not be over-ready to set aside the proceedings
unless satisfied either that the Court had been significantly misled
or that setting aside was necessary to ensure proper standards of
disclosure. Setting aside the proceedings as against the O. 11 defendants
would leave the proceedings against the defendants served within the
jurisdiction and in other Convention States unaffected. It would cause a
very considerable waste of money if I were satisfied that the proceedings
could and would simply be reconstituted, and it would delay the whole of
the proceedings even more than they have already been delayed. Now
that the whole matter has been investigated in the course of the present
applications, I am confident that setting aside for any misstatement
or non-disclosure which may have crept into the affidavit would not be
required or serve any useful purpose.
7.2 Order 11, r. 1(1)(c)
The next ground raised by each of the O. 11 defendants is that he was
not a necessary or proper party to any claim brought against any of the
five defendants duly served within the jurisdiction on Apr. 15, 1993. One
of such defendants, Coll & Co. may also be left out of account, at least as
regards GT, in view of the arbitration clause between Coll & Co. and GT. (I
consider below whether THL is also subject to this clause.) I have touched
on O. 11, r. 1(1)(c) in the context of disclosure. The O. 11 defendants
did not insist on their objection to its application in the event that the
Court considered that it had and should exercise jurisdiction over all the
other defendants, but submitted that, if claims against the parties to
the Spanish criminal or Quail proceedings were remitted to Spain, then
the Court should also refuse jurisdiction under O. 11. I have already
expressed a provisional inclination to the contrary in the context of the
Quail proceedings in section 6.3.12(vi), and this applies even if the Court
has a discretion as against the Convention defendants under art. 22 as
well as against the O. 11 defendants under common law principles of
forum non conveniens. Leaving aside GT's claim against Coll & Co. which
was subject to arbitration, I reject any suggestion, if any remained by the
end of the hearing, that there was no serious case (or if this be, contrary
to my view, the test, no good arguable case) against the defendants
served within the jurisdiction.
7.3 Order 11, r. 1(1)(f)
In section 7.1 (disclosure) above, I concluded that the affidavit was not
materially misleading in *450 seeking leave on the basis that both GT
and THL were the victims of conspiracies committed by substantial and
efficacious acts within the jurisdiction wherever they may have sustained
any loss which resulted. I identified the central nature of Sheikh Fahad's
instructions and participation in each of the four alleged conspiracies both
there and in sections 6.2 (art. 16(1)) and 6.3.12(vi) (Related party under
art. 22). Mr. Onions submitted that the acts pleaded as occurring within
the jurisdiction are "a few relatively minor acts". In my view this gives
far too narrow a significance to the acts pleaded and particularized as
occurring within the jurisdiction in support of the claim against Sheikh
Fahad. In my view the case made justifies a conclusion that substantial
and efficacious acts took place in London, although other such acts are
no doubt also likely to have taken place abroad. That is sufficient to
uphold the leave given to serve out of the jurisdiction to GT and (save in
respect of Wardbase) THL: Metall und Rohstoff A.G. v. Donaldson Lufkin &
Jenrette Inc.., [1990] 1 Q.B. 391 at p. 437E-G.
7.4 Serious issue to be tried
I reject the O. 11 defendants' suggestion that there is no serious case
against them on the merits of conspiracy or loss for reasons set out in ss.
4 and 5 above, save so far as concerns THL's claim to have suffered loss
in the Wardbase transaction.
7.5 Forum non conveniens
The O. 11 defendants accept that the forum conveniens effectively
depends on the outcome of submissions with respect to the Convention.
My conclusions that arts. 1(2) and 16(2) of the Convention do not apply,
that there are no civil proceedings concerning the four transactions
within the Spanish criminal proceedings and that the English Court is first
seised in relation to the Quail proceedings and if material the criminal
proceedings leave no real room for doubt that England is the forum
conveniens as regards the O. 11 defendants. Section 6.3.12(vi) deals
with the position if the English action were regarded as, wholly or partly,
second seised in relation to the Quail proceedings.
8 ARBITRATION
8.1 Coll & Co. and Coll
The questions here are, firstly, whether Coll & Co. can invoke the
arbitration clause in its contract with GT in response not only to GT's
claims (as it is common ground that it can) but also in response to THL's
claims, and, secondly, whether Mr. Coll can invoke the clause in relation
to both GT's and THL's claims. The claims in each case are in respect of
the Croesus, Oakthorn and Pincinco transactions. The only ostensible
parties to the contract were Coll & Co. and GT, although Coll & Co. were
represented by Mr. Coll in the execution of the contract. By the arbitration
clause it was agreed:
For the resolution of any dispute arising from the present contract,
the parties submit themselves to [the specified arbitration court in
Barcelona], the parties hereby committing themselves to the fulfilment of
the arbitrator's decision.
Two bases for a stay are relied on by Coll & Co. and Mr. Coll - one relying
on English law and the other Spanish law. The two may interlink. Under
English law it is said that the claims of THL are claims by a person
claiming "through or under" GT and that the claims against Mr. Coll
are claims against a party to the agreement or a person "claiming
through or under" such a party, in each case within the meaning of s. 1
of the Arbitration Act, 1975. That section (subject to certain immaterial
exceptions) prescribes a stay:
...[if] any party to an [international] arbitration agreement..., or any
person claiming through or under him, commences any legal proceedings
in any court against any other party to the agreement, or any person
claiming through or under him, in respect of any matter agreed to be
referred...
It is submitted in reliance on the decision of Mr. Justice Graham in
Roussel-Uclaf v. G. D. Searle & Co. Ltd. [1978] 1 Lloyd's Rep. 225 that
a plaintiff or defendant may be said to be a person claiming through
or under a party to an arbitration agreement, even though he is not
himself privy to the agreement by virtue of agency, operation of law,
assignment or novation. In that case the plaintiffs were exclusive patent
licensees of the second defendants under an agreement covering the base
compound SE7031 and containing an arbitration clause submitting to
arbitration "any claim or controversy between the parties in connection
with this...agreement". The first defendants were a wholly owned
subsidiary of the second defendants and performed the function of
selling and distributing the second defendants' products throughout the
United Kingdom. The plaintiffs contended that their licence extended
to a derivative product SC13957 ("Norspace") and brought the action
against both defendants to restrain infringement of their patent licence.
Both defendants applied for a stay pending arbitration, which Mr. Justice
Graham granted. Mustill & Boyd on Commercial Arbitration (2nd ed.)
p. 132 footnote 2 suggests that the stay can perhaps be explained on
the basis of agency, but that was not the basis of the Judge's reasoning.
He took the view that the first defendants, although not a party to
the agreement, could enforce the clause as persons "claiming through
or *451 under" their parent company. They were he said not "an
entirely independent third party" but "for all practical purposes [their
parent company] in the United Kingdom and in fact the selling agent
of the latter". I do not find it easy to extract any principle from the
reasoning, and the Judge said that the argument did "not admit of much
elaboration".
The possibility that English law may recognize binding agreements
regarding jurisdiction or presumably arbitration outside the categories of
agency, operation of law, assignment or novation appears to receive some
support from a judgment of the Privy Council in The K. H. Enterprise,
[1994] 1 Lloyd's Rep. 593, (unrep'd). That judgment recognizes that a
sub-bailee can invoke the terms of the sub-bailment, and in particular
in that case the terms of an exclusive jurisdiction clause, as against
a goodsowner, provided that they are terms which the goodsowner
expressly or impliedly, or even ostensibly, authorized. The case concerns
the special area of bailment of goods, In passing their Lordships
questioned how long a strict principle of privity of contract supported and
enhanced by a doctrine of consideration would continue to be maintained,
but I do not think that it is for me to give the answer.
In the present case Coll & Co.'s contract with GT provided for Coll & Co. to
render at the request of GT services to GT "and its group of companies".
THL is not on the face of it party to the contract. I see no coherent
principle which submits to arbitration any tortious claim which THL
may have as a result of Coll & Co.'s conduct. I have equal difficulty
under English law with respect to any tortious claims which GT or THL
may have against Mr. Coll. In any event Roussel-Uclaf appears to me
distinguishable. There, the licence agreement was central to the issues
against both defendants, and the first defendants' position depended on
the entitlement of its parent under the licence agreement. Here, THL's
claims against Coll & Co. and both plaintiffs' claims against Mr. Coll rely
and depend on the personal knowledge of Mr. Coll, who was not party
to any arbitration agreement. The fact that Coll & Co. was the "vehicle"
through which Mr. Coll made available his services to GT means in fact
that the case differs from, rather than is parallel to Roussel-Uclaf. If
it is open to GT and THL to assert a tortious claim against Mr. Coll for
conspiracy to defraud distinct from any claim which GT may have against
Coll & Co. arising out of the services contract, then I see no basis for
saying that one clause of the contract, namely the arbitration agreement,
should govern that claim.
The contract between GT and Coll & Co. and the arbitration clause in
it are however governed by Spanish law; and Coll & Co. and Mr. Coll
submit, on the basis of written evidence of Professor Diez- Picazo and
cross-examination of Professor Ramos, that under Spanish law it would
be regarded as bad faith for THL to resist arbitration of its claim against
Coll & Co. or for either GT or THL to resist arbitration of their claims
against Mr. Coll. If this were so, then I can see force in a submission
that at any rate Mr. Coll should be regarded as against GT as a person
"claiming through or under" Coll & Co. so as to be able to invoke s. 2 of
the Arbitration Act. THL's position presents greater difficulty since they
were not party to the contract.
Professor Ramos accepted as a general principle the following statement
of Professor Diez-Picazo:
...the Spanish courts apply the concept of good faith very broadly, as
all behaviour which is contrary to the rules of correct behaviour which
persons may expect from each other in business. As has been correctly
said what the principle of good faith enshrined in Art. 7 of the Civil Code
aspires to achieve:
is that the legal relationships, the exercise of rights and the fulfilment
of obligations, take place in accordance with a series of principles which
the judicial conscience considers necessary although they have not been
formulated by the legislator nor established by custom or by contract;
principles which are implicit, or should be, by positive regulation, which
has a general character, but which need a different solution in each
specific case.
Professor Ramos also said that any conclusion that there had been an
abuse of legal personality or that the corporate veil should be lifted must
depend on looking at the particular situation and all the circumstances.
A Court or tribunal could do this during the course of a trial, but the
principle could not be extended to an arbitration clause. His reasoning was
that Spanish law views such a clause as an autonomous agreement, that
the parties and the Court or tribunal have to know for certain from the
outset to whom and in what circumstances such an agreement applies,
and that it could not be bad faith to insist on ordinary legal process
through the Courts. Professor Diez-Picazo on the other hand considered
that the principle applied also to arbitration clauses, and that it must
apply here. His conclusion was that:
As to the arbitral agreement...[the Spanish courts] would not allow,
describing it as an inadmissible abuse of legal personality, [GT] to make
the said arbitral agreement inoperative, to convert it unilaterally into
something useless to COLL & CO., through the simple subterfuge of using
as a joint Plaintiff a subsidiary of which it holds all the shares, [THL], to
exercise against COLL & CO. exactly the same claims as [GT], based on
exactly the same facts, and undoubtedly *452 belonging to the objective
scope of the aforesaid arbitration agreement. Or through the equally
simply subterfuge of jointly suing, exactly in the same terms as COLL
& CO., Mr....Coll...; it being clearly and perfectly known by [GT], at all
relevant times, that COLL & CO. was no more than the legal instrument
used by Plinio Coll, with a limitation of liability and perhaps advantages
of a fiscal nature to provide his services, those precisely because of the
providing of which [GT] has filed the action against him.
Neither expert could point to any directly relevant decision. Spanish
arbitration law has been quite recently completely revised, and there is
very little if any Supreme Court authority on the whole subject. I was
not convinced by Professor Ramos' opinion that in no circumstances
whatsoever would a Spanish Court treat a refusal to arbitrate as contrary
to good faith, even if, for example, it was clear that the corporate veil
should be lifted to allow an apparent outsider to enforce other parts
of the contract. However bad faith in refusing to arbitrate would in my
view require to be clearly established by circumstances demonstrated
to the Court's satisfaction - for similar reasons to those which Professor
Ramos stressed, namely that certainty is important to enable persons to
know where they stand, that someone who is not in terms a party to an
arbitration clause is prima facie entitled to litigate and that it is unlikely
to involve ultimate injustice to the other party if a case is litigated rather
than arbitrated.
I also have difficulty with the trenchant views of Professor Diez-Picazo
which I have just quoted. They beg a large number of questions as to
the nature and motivation of the present claims. In particular, I do not
think it right to categorize either THL's claim against Coll & Co. or either
company's claim against Mr. Coll as a "subterfuge". Indeed, if the contract
between GT and Coll & Co. or the "limitation of liability" involved in Coll
& Co.'s corporate status justified such a conclusion, then the logic of
Professor Diez-Picazo's view seems to be that the whole claim against Mr.
Coll should be regarded as a breach of good faith. No-one has suggested
under either legal system that the contract prevents Mr. Coll being liable
for any conspiracy to defraud GT or THL. I do not know whether under
Spanish law GT or THL could despite the contract hold Mr. Coll liable in the
event of ordinary negligence by him in the conduct of contracted services.
It is common ground that as between GT and Coll & Co. the present
claims for conspiracy, breach of director's duties and constructive trust
are within the arbitration clause. But, despite the scope of the contractual
arbitration clause between the contracting parties and despite Professor
Diez-Picazo's view that it is "precisely because of the providing of [his]
services" under the contract that the present action is brought, neither
GT nor Mr. Coll can, I assume, have had claims of the present nature in
the front of their minds when the contract was agreed. I do not share
Professor Diez-Picazo's view that it is axiomatically bad faith, now that
such claims have arisen, to refuse to pursue them under the arbitration
clause. They are claims of an extremely serious nature, which GT as
against Mr. Coll and THL as against both Mr. Coll and Coll & Co. might, it
seems to me, legitimately prefer to litigate. I am not satisfied that the
Spanish Courts would regard it as an act in bad faith to seek to litigate
rather than arbitrate them.
8.2 Wardbase
The agreement here was dated Sept. 4, 1989 and made between
Torraspapel through Mr. Nuñez and Wardbase through Mr. Russell. It was
ostensibly for the provision of know-how by Wardbase with respect to
the construction and putting into operation of a paper plant by the end
of 1992, and it provided for the payment of Ptas. 1 billion by Torraspapel
to Wardbase if that was achieved, with bonuses to make a total not
exceeding Ptas. 2 billion payable if that date was bettered. If it was
not achieved Wardbase was to pay Torraspapel Ptas. 1 billion. It was
therefore on its face a remarkable contract and it is categorized in the
points of claim as a "sham", it being said inter alia that it was at all times
expected that the plant would be completed by June, 1992 at the latest
(completion in fact appears to have occurred on Apr. 23, 1992). The
agreement is expressed to be subject to Spanish law and contains an
arbitration clause covering "any litigation, controversy or claim resulting
from this contract, act or juridical relationship, or relating to the same,
its interpretation or execution, its non compliance, resolution or nullity".
It is common ground that under Spanish law, the question whether the
agreement was a sham would fall within the scope of this arbitration
clause. The question is whether the clause applies to the claims pursued
by both GT and THL (although I have already concluded that THL has no
claim) against Wardbase for the Ptas. 2 billion received in respect of the
Wardbase transaction. Similar arguments arise under both English and
Spanish law to those considered in the context of the contract between
Coll & Co. and GT.
On Apr. 24, 1992 Wardbase invoiced Torraspapel for the Ptas. 2 billion,
and followed it up with a lawyer's letter on May 4, 1992. On May 7, 1992
Mr. Nuñez for Torraspapel wrote to Mr. de la Rosa referring to this letter,
and requesting GT to support Torraspapel by "assuming" the payment.
This Mr. de la Rosa agreed on May 13, 1992 to do, and did *453 by
making payment to Wardbase through the conduit of THL on May 26,
1992. GT did not become party to the agreement between Torraspapel
and Wardbase. It simply funded a payment to Wardbase at Torraspapel's
instigation. If the scheme was a conspiracy to defraud, it would be
remarkable if GT as the victim of such a conspiracy must be regarded
as either a person "claiming through or under" Torraspapel or as acting
in bad faith in refusing to submit to an arbitration clause included in a
contract which was devised or used as part of the conspiracy. Professor
Diez-Picazo in his contrary opinion under Spanish law appears to proceed
on the basis that the contract must be treated as having "reality and
validity" and as "entered into in [GT's] own and direct interest", referring
to the points of claim 11 to show that it was GT which undertook the
construction of the plant for a Belgian company, and adding -
...for the carrying out of which, the services of Wardbase were hired
formally by Torraspapel, through the contract of 4 September 1989 in
which the arbitration clause with which we are concerned was inserted.
Again this seems to me to beg a number of questions, apart from the
fact that Wardbase did not purport to contract to construct the plant. If
there was a conspiracy, then persons other than GT were acting against
GT's interest. However much the named parties to the contract may still
be bound under Spanish law to arbitrate any issue arising between them
as to whether there was any conspiracy, no principle of Spanish law has
been established which persuades me that a Spanish Court would allow
one alleged conspirator, Wardbase, to force the victim of the alleged
conspiracy to submit to an arbitration clause in an agreement to which it
was not a party and which had allegedly been entered into as part of the
conspiracy.
9 CONCLUSION
I therefore order a stay under s. 1 of the Arbitration Act, 1979 in respect
of GT's claims in this action against Coll & Co. THL has no arguable claim
to have been the victim of a conspiracy or to have suffered loss in respect
of the Wardbase transaction, and I set aside the proceedings brought
by THL to that very limited extent. In all other respects I dismiss the
applications made by the defendants under O. 12, r. 8 and under the
Arbitration Act, 1979 as against GT and THL.