England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE Pro Forma

CHANCERY DIVISION

Royal Courts of Justice

Strand

London WC2

Monday, 28th April 1997

B e f o r e :

LORD JUSTICE NOURSE

LORD JUSTICE MILLETT

LORD JUSTICE WARD

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THE CANADA TRUST COMPANY

and Others Plaintiffs

-v-

WOLFGANG OTTO STOLZENBERG

and Others Defendants

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Handed Down Transcript of

Smith Bernal Reporting Limited

180 Fleet Street London EC4A 2HD

Tel: 0171 831 3183 Fax: 0171 831 8838

(Official Shorthand Writers to the Court)

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MR C CARR QC and MR P MARSHALL (instructed by Messrs Denton Hall) appeared on behalf of the Plaintiffs.

MR A HOCHHAUSER QC and MR M GRIFFITHS (instructed by Messrs Richards Butler) appeared on behalf of the Gambazzi Defendants.

MR T IVORY (instructed by Messrs Rakissons) appeared on behalf of the Fourth Defendant.

MR J SMOUHA (Miss P Hopkins 28.04.97) (instructed by Messrs Baker & McKenzie) appeared on behalf of the Eleventh Defendant.

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(JUDGMENT)

(As approved by the Court)

©Crown Copyright

LORD JUSTICE NOURSE: In view of the shortage of time it has not been possible to hand down the reasons for the decision we gave on Thursday in the usual way, but Millett LJ's leading judgment has been reduced to a typescript and it will be available for the parties at the end of this hearing for their use in the further proceedings before the Judge. I emphasise that it is an unrevised transcript for the use of the parties, so Millett LJ's judgment will be treated as having been delivered orally.

LORD JUSTICE MILLETT:

The question in this appeal is whether it is a proper exercise of discretion to refuse to make an order for the production of documents at an interlocutory hearing on the sole ground that they are wanted in order to establish the jurisdiction of the Court.

The appeal is brought by the Plaintiffs from an Order of Rattee J which he made last Tuesday 22nd. April 1997. The Plaintiffs applied for Orders under RSC Order 38 Rule 13 against third parties for the production of documents at a hearing which is to take place today Monday 28th. April. The Judge is then due to hear an application by the Defendants under Order 12 Rule 12 (8)(1)(a) for the service of the Writ on them to be set aside for want of jurisdiction. The Judge dismissed the Plaintiffs' application and refused leave to appeal. We heard the appeal as a matter of urgency last Thursday 24th. April. We granted leave to appeal and at 5.00 pm, at the conclusion of argument, we announced that we would allow the appeal. We set aside the Judge's Order dismissing the Plaintiffs' application and directed that it be restored for hearing by the Judge today. We indicated that we would give our reasons this morning. I now give my reasons.

The Plaintiffs are the Canadian trustees of a number of Canadian pension funds. They claim that they have been the victims of a series of massive and complex international frauds perpetrated over many years by the First Defendant. The numerous transactions by which the alleged frauds were carried out took place in several different jurisdictions which included the United Kingdom. In order to recover the proceeds of the frauds the Plaintiffs have brought proceedings not only against the First Defendant but also against 36 other parties in various jurisdictions. Four of them are individuals. The Plaintiffs allege that they were parties to the frauds. The others are companies and anstalts. The Plaintiffs allege that some of them were parties to the frauds and that others received the traceable proceeds of the frauds or assisted in their misdirection.

There is no single natural forum (except perhaps Canada) for the conduct of such litigation. The Plaintiffs decided to bring the main proceedings in England, basing the jurisdiction on the alleged residence of the First Defendant in the United Kingdom and claiming that the other Defendants were necessary or proper parties to the proceedings. It is common ground that the Court's jurisdiction in respect of all the Defendants stands or falls by its jurisdiction in respect of the First Defendant, and that this in turn depends on whether or not he was domiciled in the United Kingdom within the meaning of the Civil Jurisdiction and Judgments Act 1982 (which broadly corresponds with the English concepts of residence and substantial connection) at the relevant date. The Plaintiffs contend that the relevant date for this purpose is the date on which the Writ was issued; the Defendants contend that it is the date on which it was served on the First Defendant.

On 15th. May 1996 the Plaintiffs made an ex parte application to Rimer J for interlocutory relief against all the Defendants. The Plaintiffs say that at that time they had good reason to believe that the First Defendant was domiciled in the United Kingdom within the meaning of the 1982 Act. He owned a house in Chester Square London SW1 which he occupied and which he had given as his place of residence for at least the past seven years, and he appeared to have a substantial connection with the United Kingdom. He was believed also to have other places of residence in Canada, France and Germany. The Plaintiffs told Rimer J. what they knew and evidently satisfied him that the First Defendant was arguably resident in and had a substantial connection with the United Kingdom, although he was probably also resident elsewhere both within and outside Convention countries.

The evidence in support of the Plaintiffs' application for protective relief was extensive. The hearing before Rimer J was not continuous. It occupied 9 days in Court and there were many days when the Judge read the papers in his room. The hearing was not concluded until 31st. July 1996, when the Judge granted extensive relief including world-wide Mareva injunctions; and further references were made to the Judge from time to time thereafter. The Writ was issued on 1st. August 1996.

It was considered essential for the Plaintiffs' protection that the proceedings should not come to the attention of any of the Defendants until protective orders were in place against them not only in England but also in the other jurisdictions where the funds were held. Accordingly, the Judge dispensed with the usual undertaking to serve the Writ forthwith. He agreed to the Plaintiffs' proposal to serve the proceedings at the same time as or immediately after service of all the protective orders which were obtained here and abroad. He gave leave to serve out of the jurisdiction and for substituted service in six different jurisdictions. These included Panama, Liechtenstein, Switzerland and Netherlands Antilles.

In the event it became necessary for the Writ to be renewed and for the Judge to make fresh Orders which he did on 26th. February 1997. The Plaintiffs were successful in obtaining protective orders in the overseas jurisdictions but the process proved to be cumbersome and time-consuming (particularly in Switzerland). The Writ was indorsed with a certificate in the form required by Order 6 Rule 7 (1)(b) and was eventually served together with the various protective orders on all the Defendants on 11th. March 1997. It was served on the First Defendant at the house in Chester Square.

In the meantime, in July 1996, the Plaintiffs learned that the First Defendant was in the process of selling his house in Chester Square. Contracts were exchanged on 22nd. July 1996 and completion took place in mid-August. The First Defendant's furniture was put into temporary storage in North London. The Plaintiffs sensibly abstained from making enquiries of the purchasers or their solicitors for the time being because of the risk that this would prematurely alert the Defendants to the existence of the proceedings. They did, however, tell the Judge of the sale of the house. The Plaintiffs' private investigators reported that the First Defendant was frequently to be found in England, but they were unable to discover a current address for him. In accordance with their continuing duty to the Court the Plaintiffs kept the Judge informed of developments as they occurred.

Once the proceedings were served, the Plaintiffs' solicitors contacted the solicitors who had acted in the purchase of the house at Chester Square with a view to obtaining evidence of the First Defendant's current whereabouts. They learned that the First Defendant had told the purchasers at the time of the sale that "he was moving to Paris." The Plaintiffs' solicitors promptly reported this to Rimer J.

By 25th. March the Plaintiffs knew that some of the Defendants were likely to challenge the jurisdiction of the Court. They did so by serving a Notice of Motion under Order 12 Rule 8 on 14th. April. The hearing was fixed for today 28th. April. The Defendants' evidence in support of their application made it clear that they did not know whether the First Defendant was resident in England at the relevant date. The Defendants' case was that the evidence assembled by the Plaintiffs (the substance of which the Plaintiffs' solicitors had conveyed to them) was insufficient to establish the First Defendant's residence in England at the relevant date. Moreover they did not accept that the First Defendant had been properly served in accordance with Order 10 Rule 1(2) (service on a defendant at his last known address). Whether such service was good service within the Rules depends on whether the First Defendant was present within the jurisdiction when the Writ was delivered to the house at Chester Square. The Plaintiffs claim to have evidence that he was.

The Plaintiffs intend primarily to rely on the evidence of the First Defendant's past residence in and substantial connection with the United Kingdom together with the evidence of his continuing presence here. But the Defendants do not accept that this is enough. Accordingly, the Plaintiffs applied under Order 38 Rule 13 for orders directed against a number of banks and other bodies with whom the First Defendant is known to have maintained accounts or to have corresponded requiring them to produce copies of the documents in their possession which are likely to furnish evidence of the First Defendant's address at the relevant date. Because of their obligations of confidence it was reasonable to assume that they would be unwilling to provide such information to the Plaintiffs without a Court order. The application was opposed by the Defendants and Rattee J dismissed it.

As the transcript of the hearing shows, the Judge was troubled whether he had jurisdiction to make the order sought (or if he had a theoretical jurisdiction whether it was one which it would ever be appropriate to exercise) where the documents the production of which was sought were required in order to establish the jurisdiction of the Court. He asked whether there was any precedent for the making of such an order. He was told correctly that there was not, though he was referred to Rome v Punjab National Bank [1989] 2 All ER 136 where Hirst J. held that the Court had power to order discovery of documents on a defendant's application to set aside a writ for irregularity of service but would do so only very rarely and only where it was necessary for the fair disposal of the application. Hirst J. relied on Order 12 Rule 8(5) (power to give directions) for the power to order discovery, but in the event he dismissed the application on the ground that the documents were not necessary for the fair disposal of the application.

Speaking for myself, I have some doubt whether Order 12 Rule 8(5) alone provides a sufficient basis for an order for discovery. But it certainly cannot be relied upon to justify an order against non-parties. The Plaintiffs do not rely upon it. They rely exclusively on Order 38 Rule 13.

The Judge's reasons appear from the following passages taken from an unrevised transcript of his extempore judgment.

"...I accept the submission of the Defendants that the orders sought by the Plaintiffs would be an inappropriate use of the Court's power to order the production of documents by third parties conferred by Order 38 Rule 13. Mr. Hochhauser, on behalf of the majority of the Defendants applying to set aside the service of the Writ on them, as he put it, this is really an attempt by the Plaintiffs to lift the proceedings [against] his clients off the ground by their own bootlaces ( sic).

"In my judgment it is for the Plaintiffs to adduce evidence to prove proper service on the relevant Defendants. Either they can adduce evidence to establish a prima facie case for the First Defendant's domicile in the United Kingdom at the relevant time or they cannot. If they can then they will succeed in resisting the Defendants' application to set aside service because the affidavit filed by the Defendants on their application to set aside service contained no positive evidence to rebut the Plaintiffs' evidence on such domicile. It consists largely of comments on the Plaintiffs' evidence. Thus, if the evidence available to the Plaintiffs at the time of the issue of the Writ or its service, whichever is held to be relevant, was sufficient to justify service on the relevant Defendants on the footing that the First Defendant was domiciled in the United Kingdom, such service is proper and the Defendants' application to set it aside would fail. If such evidence was insufficient for that purpose then the Writ should not have been certified as appropriate for service on the relevant Defendants without the leave of the Court under Order 11 of the Rules of the Supreme Court. If the latter is the case, it cannot, in my judgment, be right that the Defendants should be purportedly served ex hypothesi improperly and then such improper service used by the Plaintiffs as a means of obtaining, by orders of the Court, evidence of third parties in the hope of improving the Plaintiffs' case as to the First Defendant's domicile so as to justify the service on the Defendants retrospectively . It follows in my judgment that the orders sought by the Plaintiffs would represent an inappropriate exercise of the Court's discretion under Order 38 Rule 13 and I dismiss the application... " (my emphasis).

This passage was criticised by the Plaintiffs as suggesting that they should have had sufficient evidence in their possession at the relevant date to justify the indorsement on the Writ or the service of the Writ as the case might be, and that after acquired evidence should not be entertained. But the Defendants' submissions have never gone to this length, and I do not think that the Judge intended this. The distinction which he had in mind was not between evidence which the Plaintiffs had assembled at the relevant date and evidence which they obtained later, but between evidence which they were able to obtain by their own efforts and evidence which they needed the assistance of the Court to obtain. In saying that

"...it is for the Plaintiffs to adduce evidence to prove proper service on the relevant Defendants"

the Judge was not saying that they had to do it at the date of service, but that they had to do it without the aid of the Court's process. The Plaintiffs acknowledged that it would be an abuse of process to initiate proceedings without having reasonable grounds for believing that the Court had jurisdiction, and that in such a case the Court might properly refuse its assistance to enable them to justify the proceedings ex post facto . But that is not this case.

The Judge did not treat the matter as one of discretion. He treated it as one of principle. He refused the application on the ground that, where the issue is one of jurisdiction, the Court will not lend its process to a Plaintiff to enable him to establish jurisdiction. This is the "bootstrap" argument. The Court cannot assume that it has jurisdiction, for that is the very question to be decided. Yet unless the Court assumes that it has jurisdiction, how can it make the Orders sought?

With all respect to the Judge, I think that this reasoning confuses two different jurisdictions. One is the jurisdiction to try the issues in the Action. That is disputed. It derives from the Brussels Convention and the 1982 Act. It depends on whether the First Defendant was domiciled in the United Kingdom at the relevant date. The other is the jurisdiction to decide whether it has jurisdiction to try the issues in the Action. This is an inherent jurisdiction. It does not derive from the Brussels Convention or the 1982 Act. Its existence is beyond dispute.

The High Court is a Court of unlimited jurisdiction. This does not mean that its jurisdiction is universal and unrestricted. It means that, unlike inferior courts and tribunals, it has jurisdiction to decide the existence and limits of its own jurisdiction. It has an indisputable jurisdiction (of the second kind) to decide whether or not it has jurisdiction (of the first kind) to entertain substantive proceedings. If it decides that it has no jurisdiction (of the first kind) to entertain them, its decision is nevertheless one made within its jurisdiction (of the second kind). If it makes a mistake and erroneously assumes a jurisdiction (of the first kind) to entertain substantive proceedings which it does not truly possess, it makes an error of fact or law, but it is not one which goes to its own jurisdiction (of the second kind). It is inherent in the rule of law itself that somewhere in any judicial system there must be a court which possesses jurisdiction to determine the limits of its own jurisdiction.

In my judgment, therefore, the process of the Court is not confined to the case where jurisdiction (of the first kind) has already been established. By acceding to the Plaintiffs' application to order the production of documents at the hearing of the Defendants' application to set aside service of the Writ the Court will not be making any assumption that it has jurisdiction to try the Action. It will not be exercising that disputed jurisdiction, but a very different jurisdiction, that is to say its undoubted jurisdiction to determine its own jurisdiction by hearing and deciding the Defendants' application.

It follows that the Judge's reasons for dismissing the Plaintiffs' application cannot be supported. The Defendants attempted to support his decision on other grounds. They submitted that the documents were not necessary for the fair disposal of their own application to set aside service of the Writ, since the Plaintiffs could rely on the evidence already before the Court. But it is not necessary for a party seeking orders for the production of documents to concede that without them his case must fail. It is sufficient that it may do so. Seeing that the Defendants are strenuously contending that it will, it hardly lies in their mouths to claim that the documents are not "necessary" on this ground.

Counsel for the Fourth Defendant relied on the terms of Order 38 Rule 13(2) (which provides that no person shall be compelled to produce any document at a proceeding in a cause or matter which he could not be compelled to produce at the trial of that cause or matter). He pointed out that the First Defendant's domicile will not be in issue at the trial of the Action. Accordingly, he submitted, the third parties could not be compelled to produce the documents in question at trial since they would not be relevant to any issue at trial.

I do not accept this. The history and object of the predecessor of Order 39 Rule 13 were explained by Lindley LJ in Elder v Carter (1890) 25 QBD 194. Its object was to remove the difficulties which existed at Common Law in compelling production of documents except at the trial of an Action. It did so by conferring a similar power to order documents to be produced for the purpose of interlocutory proceedings in an Action. It was not intended to give parties rights to the production of documents which they did not possess before, but merely to advance the time at which they could require their production. It follows, in my view, that the relevance of the documents must be tested by reference to the issues in the proceedings for which they are required. Given the history and purpose of the Rule, the concluding words of Order 38 Rule 13(2) must in my judgment be read as meaning "which he could not be compelled to produce if the proceeding were the trial of the cause or matter."

Accordingly, I am of opinion that the appeal should be allowed and the Judge's decision should be set aside. We do not, however, consider that it is appropriate for us to exercise the discretion ourselves. Accordingly, we directed that the Plaintiffs' application be restored for hearing by the Judge. He will have to consider the competing considerations which the parties will urge upon him, weigh up the consequences of making the Orders sought as against the possible consequences of refusing them, and decide where the greater risk of injustice lies. He will also no doubt bear in mind the statement which Hirst J. made in Rome v Punjab Bank (supra) that

"the court will only exercise its powers under this heading very rarely, and will require the clearest possible demonstration from the party seeking discovery that it is necessary for the fair disposal of the Action...it would be most undesirable, and productive of extra delay and unnecessary expense, if applications for discovery were to become a common feature [of applications to set aside leave granted under Order 11 Rule 1]."

Interlocutory hearings to establish the right to bring an Action should not be turned into mini-trials of the Action itself. There is a particular danger of this where reliance is placed on certain of the paragraphs of Order 11 Rule 1. There is perhaps less danger in a case of the present kind. Even so, the Court must be conscious of the need to avoid a major trial at the early stage, though not at the risk of doing injustice.

The Judge may also wish to consider the extent to which this can be regarded as an exceptional case. I do not refer to the scale and complexity of the Plaintiffs' claim, nor to the serious risk of the disappearance of the funds which are the subject-matter of the proceedings if the Action is dismissed before protective measures are put in place elsewhere, though such matters will be relevant for the Judge to consider. I refer rather to the fact that the nature of the dealings in which the Defendants are alleged to have participated and the need to protect the Plaintiffs (which Rimer J accepted) made it necessary to delay service of the Writ for an unusually long period during which there may have been changes in the circumstances on which the Court's jurisdiction depends. This is highly unusual. It is also, however, the factor which has given rise to the present difficulties in which the Plaintiffs find themselves.

I cannot part with this case without expressing my personal disquiet at a rule ( which as I understand it does not derive from the Convention or from any decision of the European Court of Justice but is said to be a rule of our own domestic law) which makes the jurisdiction of the Court depend on circumstances prevailing long after what, on any realistic appraisal of the position, was the commencement of the proceedings. In my experience, and as the present case demonstrates, such a rule is capable of working serious injustice. It may need to be reconsidered at the highest level. In the meantime, it is at least arguably incumbent on the Court not to compound the possible injustice by withholding the assistance which it can properly give to parties seeking to establish its jurisdiction at the relevant date.

LORD JUSTICE WARD: I agree.

LORD JUSTICE NOURSE: I also agree. Yes, Mr Marshall?

MR MARSHALL: I take it that will be something we will receive in due course.

LORD JUSTICE NOURSE: It will be distributed immediately after this hearing.

MR MARSHALL: I am very grateful. So we can take it that the judgment has been delivered effectively already.

LORD JUSTICE NOURSE: Certainly.

MR MARSHALL: I am very grateful. So the only question that arises now is as to the costs of the hearings that have taken place before you. I would ask for the costs of the appeal to be granted in our favour since we are dealing effectively with a point of principle, but for the costs below to be reserved to the Judge who has still to deal with the matter as a matter of discretion presumably later on today or in due course, as thought appropriate.

LORD JUSTICE NOURSE: The correct order would appear provisionally to be that the costs of the hearing below should be costs in the rehearing rather than reserved.

MR MARSHALL: I respectfully accept your Lordship's suggestion that that would be the appropriate course.

LORD JUSTICE NOURSE: Shall we see what the defendants say?

MR HOCHHAUSER: My Lord, certainly so far as the costs below are concerned, they should be costs in the rehearing. So far as the costs of the appeal are concerned, I would ask that they be the plaintiffs' costs in the motion on this ground. In the event that the plaintiffs are ultimately unsuccessful then this would have been a completely fruitless exercise and in those circumstances I would respectfully submit that the defendants should not have to pay the plaintiffs' costs of having to come before your Lordships. If, on the other hand, they obtain the relief that they seek in whole or in part it would be appropriate for them to have the costs of the appeal and the plaintiffs' costs in the motion would reflect the equity of the situation.

LORD JUSTICE NOURSE: Any of the other defendants? Mr. Ivory?

MR IVORY: I would adopt those submissions, my Lord.

MISS HOPKINS: I would also adopt those submissions, my Lord.

LORD JUSTICE NOURSE: Thank you. Do you want to say anything, Mr Marshall?

MR MARSHALL: All I would say is that we would not have to be here at all had this point of principle been adopted by the defendants in the hearing below. It is simply because of that we have had to appeal. If the matter of discretion was dealt with and only that then no doubt there would have been no need for an appeal and it would have been dealt with by the learned Judge.

(Their Lordships confer)

LORD JUSTICE NOURSE: We think you are entitled to the costs of the appeal, Mr Marshall. So we will make that order and we will make the other order already accepted in relation to the costs of the hearing below.

MR MARSHALL: I am very grateful, my Lord. I believe that is all. Thank you very much indeed for delivering your Lordships' judgment so quickly and for hearing us so quickly. I am very grateful.

MR HOCHHAUSER: I would adopt that submission.

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