England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE LTA 97/7444 CMS3

IN THE COURT OF APPEAL (CIVIL DIVISION )

Royal Courts of Justice

Strand

London W2A 2LL

Monday, 6th April 1998

B e f o r e

LORD JUSTICE SIMON BROWN

SIR PATRICK RUSSELL

FORMOSA PLASTICS CORPORATION USA

Respondent

v.

CHAUHAN AND OTHERS

Applicants

(Computer Aided Transcription of the Stenograph Notes of

Smith Bernal Reporting Limited, 180 Fleet Street

London EC4A 2HD

Tel: 0171 404 1424

Official Shorthand Writers to the Court)

MR B DOCTOR (instructed by Messrs Llewelyn Zietman, DX 36634 Finsbury) appeared on behalf of the Applicants.

MR R DAVIES (instructed by Messrs Rakisons, DX 206 London) appeared on behalf of the Respondent.

J U D G M E N T

(As approved by the Court )

©Crown Copyright

LORD JUSTICE SIMON BROWN: This is an application by the defendants for leave to appeal against the order of Ferris J dated 24th October 1997, giving summary judgment against the first defendant in the sum of US$ 21,527,117.26 plus interest of some $4 million and giving directions for the hearing of proceedings brought under section 423 of the Insolvency Act 1986 in respect of properties owned in this country by the second, third and fourth defendants.

On the material presently before the court, Mr Doctor, on behalf of the defendants, recognises, subject to one minor proviso to which I will return, that the application for leave to appeal must fail. No arguable defence to the plaintiff's claim has yet been advanced on the documents. For that very reason it was adjourned last Monday for a week at the defendants' urgent request. In effect the defendants are today seeking a further, and no doubt longer, adjournment. The reason for that I shall shortly indicate.

In refusing the application for an adjournment and with it the application for leave to appeal, as unhesitatingly I would do, I am of course conscious that our decision is final and that it exposes the first defendant to a very large judgment which may be, indeed, we are told, already is, the basis for enforcement proceedings in other countries too, notably in India, the defendants' home country. It is therefore appropriate to indicate something of the history of the proceedings, and this I propose to do, although as briefly as may be.

The claim against the defendant in this country is founded on an unsatisfied judgment for the capital sum of $21 and a half million-odd on a guarantee for the price of goods sold and delivered. By that guarantee, dated 19th October 1993, Mr Chauhan guaranteed the obligations of his company, Kunstoplast, to the plaintiffs in the United States. Final summary judgment was given by a district court in Texas on 30th November 1995 in proceedings in which Mr Chauhan had participated and indeed counterclaimed. The suit against him in Texas had been filed as long ago as 20th February 1995.

On 12th February 1996 Mr Chauhan moved for a new trial, but that motion was rejected in Texas, following an oral hearing. On 21st October 1996 the plaintiffs issued their writ and served their statement of claim here. The claim against the first defendant was to enforce the foreign judgment. The claim against the second, third and fourth defendants (respectively Mr Chauhan's wife, son and brother and the registered owners of three London properties) was, as indicated, under section 423 of the 1986 Act. It was a claim essentially on the basis that these properties belonged beneficially to Mr Chauhan but had been acquired or encumbered by transactions at an undervalue fraudulently in order to frustrate his creditors.

On 2nd June 1997 the defendants served a defence. As originally pleaded it afforded no arguable defence whatever to the claim on the foreign judgment. The plaintiffs accordingly issued Order 14 proceedings. Those came initially on 11th July 1997 before Master Winegarten. The defendants were then represented by solicitors, the third firm of solicitors instructed in this country, who indicated that they wished to contend that the foreign judgment had been obtained contrary to natural justice, one of the few grounds available upon which to challenge a final judgment of a foreign court, such as this was. That defence of natural justice was not at the time pleaded, and the master accordingly adjourned the summons to enable the defendants to put in evidence.

An affidavit was sworn on 1st August 1997, and that raised the natural justice point and also gave the first hint of a contention that the foreign judgment ought not to have been obtained because the goods had been sold and delivered not by the plaintiffs, in whose favour the guarantee lay, but rather by associate companies who did not have the benefit of the guarantee.

The adjourned hearing before Master Winegarten took place on 14th August 1997. The defendants were at that stage represented by leading counsel. The hearing overran, and the master chose therefore to refer the application directly to the judge.

On 10th September 1997 the defendants amended their defence to plead the natural justice point. Not a whisper of fraud was pleaded. The very same day, 10th September 1997, the first defendant's appeal against the Texas judgment was heard by the Houston Court of Appeal. The court's decision is still awaited, although it is said now to be imminent.

The referred hearing of the plaintiffs' Order 14 application came before Ferris J on 24th October 1997. The third defendant appeared in person on behalf of the defendants. Mr Rhodri Davies for the plaintiffs, as one would expect, did his best to indicate the matters that were then being contended. The judge dealt in particular with the natural justice argument, which he rejected on various grounds, all of which, to my mind, are compelling. The suggestion was that the Texas judgment had been entered without an oral hearing. The fact is, however, that an oral hearing was available had either side requested it. The defendants here did not. Even if that failure was the result of negligence on the part of their lawyers (and in fact there is nothing to suggest that), such an argument would not avail the defendants. Al-Mehdawi v Secretary of State for the Home Department [1990] 1 AC 876 is clear House of Lords' authority to that effect. It is, to my mind, unsurprising that Mr Doctor, although not instructed today to abandon the natural justice point, has not himself seen fit to pursue it.

In the result on 24th October 1997 Ferris J gave summary judgment as indicated, albeit he ordered that that was not to be enforced unless and until Mr Chauhan's appeal in Texas had been dismissed. On 21st November 1997 Ferris J refused leave to appeal. The application to this court came before Morritt LJ on 27th February 1998. He directed an inter partes hearing and stayed the judgment meantime. Thus it was that the matter came before this court last Monday with the result I have indicated. Mr Doctor, I should note, had not been instructed for that hearing until late the previous Thursday afternoon, 26th March. Before the court that day was Mr Chauhan's affidavit of 29th March. That said really no more and no less than that the goods were sold and delivered not by the plaintiffs but by associate companies who did not have the benefit of a guarantee and that the plaintiffs' claim on the footing that they were themselves the sellers was accordingly to be regarded as false. As Mr Doctor's first skeleton argument put it, the case that they wished to contemplate advancing was that:

"... the summary judgment obtained in Texas against the First Defendant under the guarantee was obtained by the Plaintiff by fraud not putting the correct facts regarding the difference between Formosa Plastics Corporation USA and Formosa Plastics Corporation Texas and Formosa Plastics Corporation Louisiana."

The skeleton expressly and rightly went on to recognise that:

"The Defendants undoubtedly face difficulties in advancing this contention ..."

But urged that:

"... there is sufficient material before this Court to justify the Defendants being allowed to raise the issue of fraud, and that leave to appeal should be granted to enable the Defendants to amend their Defence (for which leave should be given) within a given period to raise such issue. If the Defendants succeed only on this ground, it can be ordered that the appeal be confined to the issue whether the Amended Defence, when served, raises a triable issue of fraud. If no amendment is forthcoming the appeal will be dismissed."

No amended defence raising a plea of fraud is before us today. Mr Doctor recognises that as counsel he could not properly put his signature to such a pleading. What then is said on the renewed application today? In urging the court to grant yet more time Mr Doctor relies upon the following considerations in particular. First, he submits that the plaintiffs will not be seriously prejudiced by further delay. The judgment cannot, he points out, in any event be enforced without leave of the court pending the decision of the Texas Court of Appeal, and, furthermore, the section 423 issue of fraudulent transfer must necessarily go to trial. Secondly, he emphasises that this is a very large judgment. If we do not grant leave to appeal then it is in this country too a final judgment. It is moreover in this country a final judgment which, as indicated, may then be invoked for enforcement proceedings abroad. Thirdly, he submits that a serious possibility is raised that it may become possible to plead a case in fraud. He can demonstrate on the documents that the plaintiffs themselves are but a holding company, and indeed, as their own documents show, that the relevant supplies here were made by subsidiary companies, two of which I have already mentioned: Formosa Plastics Corporation Texas and Formosa Plastics Corporation Louisiana, neither of whom have the benefit of the first defendant's guarantee.

There are, however, as Mr Doctor rightly acknowledges, considerations going the other way too. As he recognises, the defendants "have left all this very very late. They are asking for an indulgence on the part of the court." As he also recognises, they never raised this point at all until the affidavit of 1st August 1997 but, on the contrary, swore affidavits in the United States' proceedings stating that the contracts were indeed concluded between Kunstoplast and the plaintiffs. They now wish to resile from that. Mr Doctor furthermore acknowledges as a possibility which cannot be excluded that even assuming the plaintiffs to be a non-trading company, they may well have entered into the contracts as agents on behalf of their subsidiaries as undisclosed principals.

In my judgment it would be wholly wrong to grant the defendants any further indulgence in these proceedings. In the first place, I see nothing in the documents shown to us which begins to suggest fraud. It would put the case altogether too high to say even that it is in a large degree speculative. There are not, in my judgment, the beginnings of a case in fraud made out here. Small wonder counsel has found it impossible to put his signature to it. The first defendant after all should have known as well as anyone by whom these goods had been sold and delivered. They were after all sold and delivered to his companies. Secondly, it is absurdly late to start casting around for evidence to support what is no more than the barest suggestion of a possible case in fraud. The defendants in reality are in something of a dilemma insofar as they look back to the glimmerings of a suggested case in fraud in the affidavit of 1st August 1987. That is now eight months ago and makes it all the more inexcusable that they have not sought to crystallize the allegation since. In so far as they rely upon material more recently discovered, that again emphasises the enormous delay given that all these same investigations were no less relevant and could as readily have been undertaken in connection with the American claim three years ago in 1995.

Justice in this country must be administered not merely to defendants against whom substantial judgments have been entered, but also to plaintiffs who have the benefit of such judgments. In my judgment, justice requires here that these defendants' long filibuster be brought to a final end. I would dismiss their application for leave to appeal.

SIR PATRICK RUSSELL: I agree and there is nothing I can usefully add.

ORDER: Application dismissed with costs.