England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENI 98/0338/1

(MR MARK STRACHAN QC

sitting as a Deputy Judge of the High Court )

Royal Courts of Justice

The Strand

London WC2

Friday 30th October, 1998

B e f o r e:

LORD JUSTICE EVANS

LORD JUSTICE MORRITT

LORD JUSTICE CHADWICK

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HALLEGERE MURTHY

MYETRAIE MURTHY

Respondents

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GNANATHEEVAM SIVASJOTHI

Appellant

AND OTHERS

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(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HG

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR N STEWART QC and MR J CLARGO (Instructed by Messrs Needleman Treon, London W1H 8EP) appeared on behalf of the Appellant

MR S AULD (Instructed by Messrs Theodore Goddard, London EC1A 4EJ) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court )

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Friday 30th October, 1998

JUDGMENT

LORD JUSTICE EVANS: This is an appeal by the first defendant (whom I shall call simply "the defendant") against an order made by Mr Mark Strachan QC sitting as a deputy judge of the High Court on 23rd February 1998. By the order he gave summary judgment in favour of the two plaintiffs in a sum of $928,173.90 together with interest. The claim was based upon two judgments given by the District Court of Dale County in Florida in the United States of America.

The first plaintiff is a successful doctor who qualified in India and in London and who has practised in London, Canada and latterly in the United States. Since the early 1980s, he has been living with his wife and family of two children at Miami in Florida. His wife is the second plaintiff. Her interests for present purposes are identical with his and I shall refer to them both as "the plaintiffs". They became leading figures in the local community and in particular at the Hindu Temple, the Shevasishni Temple of South Florida. There they met the defendant, who presented himself as a wealthy man, an accountant and a venture capitalist. They became friends and the defendant became a frequent visitor at their home. Unknown to them, he had been declared bankrupt in the United Kingdom in 1991 before moving to Florida.

The plaintiffs had substantial cash savings. Between February 1995 and March 1996 they paid sums in excess of $575,000 to the defendant or to his order, making a large number of individual payments during that period. They were induced to do so by, as they allege, representations that the defendant would establish trust funds for the benefit of their two children, and in particular that the funds would be used to pay for the children's education. The comparatively small sum of $26,000 was so paid for their university fees, but no more was paid, no trust fund was established and nothing was repaid to the plaintiffs except possibly one payment of $5,000. The plaintiffs allege that they were duped, that the defendant's representations were false and that the money was used for the defendant's own purposes. They claimed in the United States proceedings, as they claim in the present proceedings, in the alternative, what is equivalent to compensation for the sums they paid or damages for fraud.

The defendant admits that the payments were made. He says that the plaintiffs were willing and anxious to invest the money in his various business ventures, so that it would earn a high rate of interest of the order of three per cent per month. He says that such a high rate of interest necessarily indicated that the investments involved a degree of risk. He says that the arrangement was that the children's school or university fees were to be paid out of the sums becoming due as interest, as happened on the two occasions already mentioned. The story of a trust fund he says simply is untrue. This was a high risk investment which went wrong and the money was lost, so that the defendant found himself unable to make further payments or to refund any part of it.

The plaintiffs obtained the judgment in the United States Court in the circumstances described below. In this action they claim, first, the amount of the defendant's liability under the United States judgment, and alternatively, damages in respect of what are called "the underlying claims". The learned judge entered summary judgment in their favour and stayed the action in respect of the underlying claims, though he indicated in his judgment that he would have been prepared to give conditional leave to defend if those claims had remained active. The defendant now appeals against the summary judgment. The issue is whether the plaintiff is entitled to enforce the United States judgment by action in the English courts. Whether they are so entitled depends upon the English rules of private international law. Put colloquially: "Does English law recognise the United States judgments as ones which the plaintiff can enforce by action here"?

The rules are summarised in Dicey & Morris, Conflict of Laws, 12th ed. as Rule 36 at page 472. Rule 36 reads as follows:

"Subject to Rules 37 to 39, a court of a foreign country outside the United Kingdom has jurisdiction to give a judgment in personam capable of enforcement or recognition in the following cases.

First case -- If the judgment debtor was, at the time the proceedings were instituted, present in the foreign country.

................

Third case -- If the judgment debtor, being a defendant in the foreign court, submitted to the jurisdiction of that court by voluntarily appearing in the proceedings."

For reasons which will become clear, the sole issue raised by this appeal is what Dicey & Morris describe as the third case, that is submission to the jurisdiction of the foreign court. The learned judge also dealt with the first case, that is to say presence or residence in the foreign country. We have not heard submissions on that matter and I need say no more about it.

It follows that the relevant facts are the history of the United States proceedings. The second plaintiff was the legal owner of two pieces of real property, one residential and the other commercial (described as an office property), which she held on behalf of herself and the first plaintiff as tenants in common. In November 1995 the defendant told them that he needed to raise $400,000 urgently, in order to finance his business commitments. He asked whether he could provide the plaintiffs' real property as collateral for such a loan. The plaintiffs agreed and it was the second plaintiff, as the legal owner, who signed various documents which were prepared by the defendant and his attorney, she believing them to be what is called "loan documentation" - I would add whatever that may mean. In fact the documents conveyed the properties to one of the defendant's companies and authorised payment of the proceeds of that supposed sale to yet another of the defendant's companies. The properties it seems were then mortgaged by the defendant to a Mr Gorden as security for an advance of a relatively small amount, less than $100,000, which was made by him. The total value of the properties is said to be $320,000. The prices stated in the conveyances were $290,000. Those figures were never discussed with or agreed by the plaintiffs. In fact no payments or repayments were made by the defendant or his companies to the lender and mortgagee, Mr Gorden. On 13th May 1996 Mr Gorden foreclosed on both properties issuing proceedings in the Circuit Court, the 11th Judicial Circuit of Dale County in Florida. His claim in those proceedings was against the relevant company Geenet Systems Inc, the defendant and against "unknown tenants in possession" at the properties in question.

The basis on which the claim was brought against those defendants was put as follows:

"11. The defendants, UNKNOWN TENANTS IN POSSESSION, may have some interest in said mortgaged property by virtue of possession, whether by tenancy from the record title holder or mere possession only.

12. Plaintiff's Mortgage is a lien superior in right title, dignity or interest to any interest of the Defendants, or their successors in interest, in this cause."

Those proceedings were followed, quite promptly, by what was presented as an agreed settlement between the plaintiff, Mr Gorden, and the defendant company, Geenet Systems Inc, and the defendant personally. They subscribed to a document entitled "Stipulation for Settlement", by which the defendants agreed the plaintiff's right to foreclose, they being in default under the alleged mortgage. They agreed to pay small monthly instalments and to repay the entire amount due, as I have said somewhat less than $100,000, by 31st October 1996, failing which the plaintiff should be entitled to the immediate entry of a summary judgment of foreclosure ex parte upon application to the court. The document was a formal one which included the following:

"5. This Stipulation for Settlement shall be filed with the Court and the parties request that the Court retain jurisdiction to enforce the terms of this Stipulation as an Order of the Court."

It bears the date 10th June 1996.

The plaintiffs in the present action, as defendants or co-defendants in the United States proceedings, issued a "motion to set aside stipulation for settlement" on 9th July 1996. They later amended their claim in a document which is described as "amended affirmative defences, verified amended counterclaim and cross-claim and third party complaint", dated 9th August 1996. Those are lengthy documents and they can be summarised as follows. They claimed, first, that the mortgage agreement under which Mr Gorden claimed foreclosure was invalid and void; that they were the true owners of the properties; they claimed under various heads financial restitution or compensation for what they alleged was a conspiracy to defraud them; and they claimed damages and compensation also for what were called the "trust fund frauds" which I have already described. The plaintiffs claim that the amended claim was served on the defendant, not in Florida but in Ontario on 20th August 1996, but that alleged service is not relevant for present purposes. Suffice it to say that subsequently the plaintiffs, as counter-plaintiffs in the United States proceedings, obtained default judgments against the defendant. The first, dated 5th February 1997, was in respect of the liquidated amount of what was called the trust fund claim. The second, following further procedures, was for unliquidated damages in respect of the properties concerned. That judgment is dated 7th September 1997. It is upon those two judgments that the plaintiffs bring this action.

It seems, although the facts are far from clear, that the United States proceedings were resolved on the basis that the office property was sold (and maybe the residential property also), and the plaintiffs were left with their liquidated and unliquidated damages claims converted into the default judgments to which I have referred.

The learned judge heard submissions and received a body of evidence over a period of several days. He gave a careful and, if I may say so, impressive reserved judgment on 15th December 1997. He said this, so as to define the relevant issue (page 16B):

"The first question is did the first defendant submit to the jurisdiction of the Florida Court by voluntarily appearing in the proceedings? The question here is whether the undoubted submission by the first defendant to the jurisdiction of what the Florida Court in connection with the claims made by Mr Gorden on 13th May 1996, involved a submission to the court's jurisdiction also, for the purpose of the claims which were duly made against the first defendant by the plaintiffs, the Murthys and which resulted in the judgment that the plaintiffs now seek to enforce. There is little assistance in the authorities on this point."

Having considered the matter, the learned judge expressed his conclusion as follows (page 17F):

"It is often said that if a party to proceedings submits to the jurisdiction of the court he does so once and for all. In this case I am of the view that when the first defendant submitted to the jurisdiction of the Florida Court, that constituted submission to the jurisdiction of that court in respect of claims duly made by co-defendants, particularly where such co-defendants' claims were connected with the subject matter of the original claim made by Mr Gorden against all the defendants in the action. Thus I am of the view that the plaintiffs' claim for enforcement of the foreign judgment against the first defendant falls within Dicey & Morris's third case under Rule 36, and that the plaintiffs have established that the foreign court was a court of competent jurisdiction over the first defendant for the purpose of English conflict of law rules."

Mr Nicholas Stewart QC, who has appeared for the defendant before us as he did below, accepts that the "stipulation for settlement" which the defendant, together with Mr Gorden, filed with the Florida court was a submission to the jurisdiction of the Florida court by the defendant in relation to Gorden's claims against him. He contends, however, that it was not a submission by the defendant to the jurisdiction of that court in relation to the cross-claims in respect of which the present plaintiffs obtained default judgments against him, and which they now seek to enforce by action in these proceedings. There is, as the judge pointed out, no authority directly in point. But Mr Stewart refers us to the discussion in relation to Rule 36 in Dicey & Morris and in particular to the following passage on page 482:

"The defendant, by an appearance which is voluntary in the sense explained, renders himself subject to the jurisdiction of the foreign court with respect not only to the original claim but also to such further claims as the court allows to be added by the plaintiff. But this does not mean that he subjects himself also to claims by new plaintiffs."

There is a footnote referring to certain United States authorities to which I shall come.

Mr Stewart submits that just as there is no submission to claims by other plaintiffs, so there is none to claims by other parties; for example by co-defendants as the present plaintiffs were here. His primary contention is that there was no submission to any such claims. Alternatively, and as a fall back position, he recognises that there might be a distinction between claims directly relating to the same subject matter, for example a claim by a co-defendant for an indemnity against or contribution towards his liability, if any, to the plaintiffs in the action and other claims involving a different subject matter, which one co-defendant may be permitted to bring against another under the rules of procedure of the foreign court. The latter he submits are different claims from the one made by the plaintiffs, which the defendant agreed to submit to the jurisdiction of the foreign court.

The authorities referred to in Dicey & Morris include passages from the American Restatement and a United States judgment reported as ex parte Indiana Transportation Co (1917) 244 US 456.

The situation there was described in the judgment of Holmes J. Proceedings had been served in relation to the death of a person named Dawson caused by the capsizing of a steamer on the Chicago River for which the defendants were alleged to be liable. Following service of those proceedings and an entry of appearance by the defendant:

"On July 24th, 1916, leave was granted ´to certain parties' to intervene as libellants and a citation to respondents not served was ordered, returnable the first Monday in September. At this time the petitioner was not subject to service in the district and was not served with process. The ´certain parties' mentioned in the order seem to have been 373 other [claimants] each alleging a distinct cause of action for death due to the same accident."

The petitioner referred to was the defendant. The judgment continued:

"The foundation of jurisdiction is physical power. If a defendant's body were in custody by arrest or a vessel were held by proceedings in rem , it well might be that new claims would be entertained against the person or against the ship, in addition to those upon which the arrest was made ... But appearance in answer to a citation does not bring a defendant under the general physical power of the court."

Having observed that jurisdiction continues after the original appearance, Holmes J continued:

"That, however, is the limit of the court's authority. Not having any power in fact over the defendant unless it can seize him again, it cannot introduce new claims of new claimants into an existing suit simply because the defendant has appeared in that suit. The new claimants are strangers and must begin their action by service just as if no one had sued the defendant before."

He then cited a dictum in a previous United States authority:

"Persons by becoming suitors do not place themselves for all purposes under the control of the court."

The Restatement has relevant provisions in two chapters dealing with Judgments (2d) and Conflicts of Laws (2d) respectively. This reflects the juris prudential distinction between rules governing the extent of the court's own jurisdiction and its judgments, and the municipal rules of private international law which permit the court to recognise and enforce a judgment given in another Sovereign State or, as in the United States and Canada, in another federal state; that is, rules of the conflict of laws. In relation to judgments, the Restatement includes Section 9:

"Jurisdiction over litigants concerning other claims.

A court may exercise jurisdiction over a person who is a party to a pending action in that or another court of the state in which the court is located when the claim involved arose out of the transaction that is the subject of the pending action or is one that may in fairness be determined concurrently with that action."

The commentary includes the following, under the heading "c. Relationship between claims":

"When the original claim and the claim sought to be interjected into a controversy arise out of a single transaction, that relationship is ordinarily sufficient to sustain jurisdiction of the additional claim. In other instances, the additional claim may be only secondarily related to the transaction sued on in the original action. Whether the connection between them is sufficient to justify assuming jurisdiction of the additional claim is necessarily a question of degree and circumstance. The question is properly resolved by reference to the considerations stated in section 24(2):

´whether the facts are related in time, space, origin or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.'"

The commentary also includes:

"If the newly inserted claim is neither related to the transaction that was the subject of the original suit nor one that ought to be heard as an offset, the court may not properly exercise jurisdiction over the new claim simply because the person against whom it is asserted is a party to the action."

That second extract is followed by an illustration clearly taken from the judgment of the New York Court of Appeal in Re: The Estate of Einstoss decd. 257 NE 2d 637 in 1970. There the mortgagee of property in Alaska instituted a foreclosure proceeding in the Territorial Court. The Territory had filed a lien on the property for unpaid franchise taxes on the operation of a cannery and it was named as a defendant in the foreclosure proceeding. At the time Einstoss was in Seattle, Washington, and was therefore not subject to the in personam jurisdiction of the Alaskan court. Nevertheless, upon the express representation of the mortgagee that she would satisfy any judgment solely out of the mortgaged property, Einstoss entered an "appearance" and

admitted his liability for the amount outstanding on the mortgage note, $11,000 plus interest. The court noted "at the outset" that the underlying claim for unpaid taxes could not give rise to a judgment which could be enforced outside Alaska (that is page 639 paragraphs 1-3). It then considered the matter as one of principle. The court held:

"Relying on the doctrine of continuing jurisdiction, the claimant asserts that, once Einstoss had appeared in response to the initial claim by the mortgagee, the court retained jurisdiction over him for all further proceedings in the action, including its cross claim for taxes. Although this is the general rule, the doctrine has its limits, and where a party appears but takes no further action in a case, a court's jurisdiction does not go beyond the general subject matter of the suit in which he appeared."

Authorities are cited and then:

"Thus, in the present case, Einstoss' appearance in an action to foreclose a mortgage, did not, in itself, render him subject to the Territory's unrelated cross claim for taxes." (pages 639-640)

The court also said this:

"The action in which Einstoss appeared was a proceeding to foreclose a mortgage ... but the judgment which eventually resulted was based on an entirely different obligation, his liability to the Territory for taxes, and amounted to nearly $100,000. The mere fact that the Federal Rules permitted this claim to be asserted in a cross complaint does not alter the requirement that the court must obtain jurisdiction over the defendant anew before it may entertain a new and entirely unrelated claim against him."

Authority is cited including an "authoritative commentator", that is Leflar, who said a party may not:

"Under the guise of continuing jurisdiction be subjected to what is essentially a new suit."

Unsurprisingly the same authority is clearly the basis for an illustration given in the commentary to Section 33 in the chapter dealing with conflict of laws. This section reads:

"Appearance as Defendant.

A state has power to exercise judicial jurisdiction over an individual who enters an appearance as defendant in an action with respect to a claim that arose out of the transaction which is the subject of the action or is one that may in fairness be determined concurrently with that action."

The commentary reads as follows:

"A defendant's appearance in an action may also subject him to the judicial jurisdiction of the state with respect to other claims. The scope of a state's judicial jurisdiction has been broadened by modern authorities. The emphasis now is upon procedural fairness and convenience. The relevant question is not simply whether the defendant has submitted to the judicial jurisdiction of the state. It is also whether the additional claim is so related to the original controversy that it can fairly and conveniently be entertained at the same time. When applicable procedure permits the additional claim to be asserted in the original action, for example, thorough a third party's intervention, the pending action is enlarged."

Section 26 in the Conflict of Laws chapter reads as follows:

"Continuation of Jurisdiction.

If a state obtains judicial jurisdiction over a party to an action, the jurisdiction continues throughout all subsequent proceedings which arise out of the original claim. Reasonable notice and reasonable opportunity to be heard must be given the party at each new step in the proceeding."

Mr Stewart relies in particular upon the commentary in this section, including the following passage at page 28:

"Jurisdiction as to additional plaintiffs. If a plaintiff brings an action against a defendant who is subjected to the judicial jurisdiction of the state on one or more of the bases set forth in sections 27-52 and thereafter other persons with claims against the defendant are added as parties plaintiff, the state may not assert judicial jurisdiction to render through its courts a judgment in favour of the new plaintiffs against the defendant, unless the defendant is again served with process or is otherwise subjected to the judicial jurisdiction of the state as to these claims."

The authority cited is the Indiana Transportation case.

The commentary also includes the following at page 26:

"Different alignment of parties. The rule of this Section is not limited to proceedings between the original plaintiff and the original defendant. It may be applied to other proceedings which arise out of the original claim, as actions for contribution or indemnity bought by one co-defendant against another."

These passages, it may be noted, distinguish between on the one hand actions for contribution and indemnity brought by one defendant against another and, on the other hand, what were regarded as unrelated claims. They do not refer specifically to a third intermediate category, namely claims which although "different", in that they are not directly concerned with the same subject matter as the original claim, nevertheless are related to it. In such a case there is every reason why they should be dealt with in the same proceedings as the original claim and, unless there are special circumstances, no unfairness to the parties in doing so.

We must remind ourselves that these United States authorities are cited to us as persuasive authority, showing what the English common law is likely to be. There is nothing in them, in my judgment, which precludes or contradicts a common law rule to the effect that when a person submits to the jurisdiction of a foreign court in respect of a claim made against him by the plaintiff or claimant in those proceedings, then he can also be taken to have submitted to its jurisdiction in respect of, first, claims concerning the same subject matter and, secondly, related claims in the sense described above. This is provided, of course, that such claims may properly be bought against him under the rules of procedure in the foreign court, either by the original claimant or by others who are parties to the proceedings there at the time when he makes the submission.

I would go further and hold that the United States authorities support the existence of such a rule. It is further supported by the valuable analysis of the English common law position by the Supreme Court of Canada in Morguard Investments Ltd v De Savoye [1990] SCR 1077. I return therefore to the English authorities.

The underlying principle is that a foreign judgment gives rise to an obligation in the defendant to pay the amount due to the plaintiff and that this obligation is enforced by the English court ( Adam v Cape Industries Plc [1990] Ch. 433).

Although derived from the comity of nations, the rule is not based on reciprocity in any strict sense. The English court does not have to enquire whether the foreign court in question would enforce an English judgment if the court's positions were reversed. (See generally Halsbury's Laws Volume 8(1) at paragraph 1005.) Nor does the fact that the English courts assert what has been called an exorbitant because extra-territorial jurisdiction mean that they recognise judgments given by a foreign court on a similar extra-territorial basis. But when the defendant has submitted to the jurisdiction of the foreign court, then he cannot be heard to say that the court has no jurisdiction to decide the issues raised by the proceedings in which the submission was made. The remaining question is what the scope of those issues was. Accepting, as Mr Stewart invites us to do, that the permitted scope should not be unfair to the defendant, it is easy to see why different and unrelated claims should not be taken to be within the scope of the submission. But equally, in my judgment, it is impossible to say that claims which are directly concerned with same subject matter should not. Nor should such claims be excluded because they are made, or properly may be made, by a party to the proceedings other than the original plaintiff or claimant. A contribution or indemnity claim by a co-defendant is a good example. By accepting the court's jurisdiction in relation to the original claim, in proceedings where the potential for a contribution or indemnity claim exists, the defendant clearly has accepted its jurisdiction in relation to those other consequential claims also. It is not unfair to him to hold that he has done so.

The same approach holds good, in my judgment, where the co-defendant makes a related claim in the sense discussed in the United States authorities and reflected in our own Rules of the Supreme Court, Order 16 Rule 8(1)(c):

"... any question or issue relating to or connected with the original subject matter of the action ..."

Whether a particular claim should be regarded as related in this sense must always be a question of fact and degree. It may not be enough that its joinder is permitted by the rules of procedure in the foreign court and, as stated above, I am willing to accept Mr Stewart's submission that the English court's rules should not be unfair to the defendant. But I do not see that it can possibly be unfair to the appellant to hold that claims which resulted in the judgment, which the plaintiffs now seek to enforce against him, were related to the claims made against him by Mr Gorden and in respect of which he accepted the jurisdiction of the Florida court.

In summary, the claim was by a mortgagee for foreclosure on the properties concerned. The plaintiffs were made defendants because of their interest or possible interest in those properties. They contended as defendants that the mortgage was void and the other matters already referred to. They also contended that the defendant and the plaintiff, Mr Gorden, had fraudulently conspired to deprive them of their properties. Moreover, they allege that the property transactions were part of a fraudulent course of conduct which had deprived them, first of their savings, what was called the trust fund claim, and then of their property also. This was made clear in the following passage from their amended claim as counter-plaintiffs (paragraph 53):

"Under the threat of saving their funds in the amount close to $550,000 previously turned over to Siva, the Murthys agreed to allow him to use the house and office property as collateral so that he could borrow funds from his ´friends' with the specific understanding that the loan would be paid back within three months."

Applying even the most rigorous definition of "related claims", it seems to me that the plaintiffs' claims fall within it. They were parties to proceedings where the defendant submitted to the jurisdiction of the Florida court. I would hold that the defendant's submission embraced their claims or potential claims also and that the appeal should be dismissed.

LORD JUSTICE MORRITT: I agree.

LORD JUSTICE CHADWICK: I also agree.

ORDER: Appeal dismissed with costs.

(Order not part of approved judgment)

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