England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF MR JUSTICE MOORE-BICK
(High Court of Justice Queen's Bench Division
Commercial Court)

		Royal Courts of Justice Strand London WC2
		29th July 1999

LORD JUSTICE WALLER:

Introduction

On 20 April 1990 Citoma Trading Limited "Citoma", one of a number of companies alleging that sums were due from Instituto Brasileiro Do Cafe ("IBC"), entered a judgment in default of any notice of intention to defend against IBC for "£19,381,504.42, damages and interest to be assessed and costs to be taxed." By order dated 22 December 1998 (some seven and a half years later) Moore-Bick J gave leave for the Federative Republic of Brazil ("The Republic") to intervene in the action and be substituted for IBC, and set aside the default judgment. He did so on terms extensively spelled out in the order designed to take account of the efforts made by Citoma to enforce the default judgment. He furthermore then stayed the action on the basis that Brazil was an available forum which was clearly and distinctly more appropriate than England for the determination of the disputes between the parties. His reasons are contained in two judgments; the first handed down in draft on 6 March 1998, and the second, after further evidence had been put in on behalf of Citoma and after further argument, delivered on 21 December 1998. Citoma appeal against the order setting aside the default judgment by leave of Clarke LJ. If they were to fail on that aspect, they do not challenge the judge's ruling to stay the action so as to allow the disputes to be decided on their merits in Brazil.

The above represents the very bare bones of the background to this appeal. It is necessary just to flesh out the history a little further.

The History

During September 1986 IBC entered into "contracts" with eighteen coffee companies ("the coffee companies") for the purchase of coffee pursuant to an operation called Operation Patricia, the purpose of which was to manipulate the coffee market and protect the coffee export business of Brazil Amongst those coffee companies were Citoma, ED & F Man (Coffee) Ltd ("Man"), Inter-Continental de Cafè (International) S.A. ("Inter-Continental"), Tristao de Comercio Exterio, (who with Exportadora Princess do Sul and Rio Doce Cafè) brought the "Tristao action", and Bourbon Instant Coffee Corporation ("Bourbon"). IBC failed to make payments under those contracts.

After some years of pressure from the coffee companies and indeed following certain part payments, matters came to a head with the issue of proceedings in England. The Citoma writ was issued on 18 October 1989; others at different dates between 27 September 1989 (the Man writ) and 24 April 1991 (the Bourbon writ). The writs were served on IBC in London and in all cases IBC acknowledged service through Paisners & Co and issued summonses pursuant to Order 12 rule 8 challenging service and thus challenging the jurisdiction of the English court.

The summonses under Order 12 rule 8 in the Man, Inter-Continental and Citoma actions were due for hearing on 19 March 1990. [The Tristao actions and the Bourbon actions were still uncommenced at this time.]

On 15 March 1990 Provisional Measure 151 was issued in Brazil by President Collor which placed the status of IBC in serious doubt. Indeed those representing IBC in England feared that it had been extinguished. That turned out not to be so.

On 19 March 1990 a request was made to Saville J, by those representing IBC, on the basis of the doubts as to IBC's status to adjourn the summonses, but he refused and he dismissed them.

On 20 March 1990 Citoma obtained an order pursuant to Order 29 rule 4 allowing them to sell certain coffee. That order ultimately realised £4,851,271.

On 21 March 1990 Simmons & Simmons, solicitors for Man, warned Paisners of their intention to enter judgment in default, and on 26 March 1990 Man entered a judgment in default with damages to be assessed. By letter dated 29 March 1990 Clyde & Co, acting for Citoma, warned Paisners of their intention to enter a default judgment. On 20 April 1990 Citoma entered their default judgment for £19,381,504.42. On that same day (20 April), Simmons & Simmons for Man gave notice to Paisners of the date of the hearing for the assessment of damages in the Man case. That date was to be 8 May 1990. Paisners at that stage took themselves off the record in the Man action.

Paisners however continued to act for IBC in the Citoma action. Thus they sought confirmation by letter dated 5 June 1990 in the following terms:-

"Please confirm that credit will be given against the judgment entered by Citoma . . . for the net proceeds of sale received following the sale of the coffee by [Rayner]."

Confirmation was indeed given by Clyde & Co. Paisners also continued to act for IBC in other actions e.g. in the Tristao action, between 22 April 1990 and 27 November 1990, and in the Bourbon action between April and May 1991.

By this time, Cesar Augusto de Aguiar Gomes had been appointed Inventariante of IBC on 7 May 1990. The precise role of an Inventariante is not easy to identify. He would not appear to be simply a "stock taker" or to be the equivalent of a liquidator that the English system would recognise. He seems to have given instructions to Paisners. We were referred to an attendance note at Bundle P2 page 502 which refers to the taking of instructions by Paisners from Mr Gomes. He seems also to have been under the control of Dr Cunha. Dr Cunha was the National Assistant Secretary for Economic Affairs of the Republic. In minutes dated 20 July 1990 at page 112 of Mr Hirst QC's core bundle it is said:-

"On the subject of the IBC proposal put forward to Government. Dr Cunha mentioned that [Mr Gomes] works for him. He felt that this proposal is no longer relevant and we should work together to find a solution."

A record of a meeting of 30 May 1990 (see page 102 of Mr Hirst's core bundle) states:-

"Dr . . . Cunha opened the meeting, indicating the Federal Government interest in reaching an agreement with the exporting companies who took part in the London Terminal Operation, so that the IBC's debt may be settled."

From November 1990 the Court of Appeal in Trieste began to recognise the English default judgments. On 14 January 1991, for example, it recognised Citoma's judgment. That led to the arrest of coffee stocks in Trieste in February/March 1991. The Trieste order of 14 January 1991 authorising enforcement of the English judgment was served on IBC on 10 September 1991. The arrest was converted into attachment in November 1991 leading, as I understand it, ultimately to Citoma recovering a further £2.2m. Other coffee companies recovered similar proportions of their claims.

The above however had exhausted enforcement in Europe. So on 23 December 1991 Man, Citoma, and Inter-Continental, with another thirteen coffee companies, commenced three separate actions in Brazil against IBC and the Republic.

On 27 February 1992 IBC was finally dissolved. The Republic assumed the rights and liabilities of IBC. In October 1992 the Republic sought to intervene and oppose enforcement against the coffee stocks in Trieste.

On 13 March 1996 Federal Judge Valeria du Albuquerque dismissed Man's case in Brazil. Man lodged an appeal on 22 April 1996.

On 18 April 1997 a summons was issued in the English action by Citoma seeking substitution of the Republic for IBC, and for leave to execute Citoma's judgment on the Republic. Service of the summons was ultimately effected on the Republic on 25 July 1997.

In the meanwhile, on 10 June 1997 the Senate in Brazil, by Resolution Number 51 of 1997, resolved to issue foreign bonds (described as "funds being used to replace internal security debt with external debt with lower costs and longer terms"). Citoma, Inter-Continental and Man in June and July 1997 served conservative seizures ("sequestro conservativos") pursuant to Article 39 of the Brussels Convention 1968 on financial institutions in Italy in an attempt to seize proceeds of the anticipated bond issue. It is important to emphasise that these seizures were not issued with the authority of a court order but were issued by Citoma, Inter-Continental and Man directly relying on Article 39.

On 12 November 1997 the Republic issued summonses in the Citoma, Inter-Continental and Man proceedings in England seeking, amongst other things, an order for the default judgments to be set aside and the proceedings to be stayed on the grounds of forum non conveniens.

On 9 December 1997 judgment was given in the Sixth Federal Court in Brasilia in the Inter-Continental case in favour of Inter-Continental. That judgment too is the subject of an appeal.

Thus it seems that the applications made to substitute the Republic for IBC together with the threat of execution against the proceeds of a bond issue, stirred the Republic into action in seeking to set aside the default judgments.

Issues on the appeal

Mr Jonathan Hirst QC who had not appeared before Moore-Bick J before the handing down of the judge's first judgment, and appeared only for the more limited argument giving rise to the second judgment, opened the appeal with an immediate recognition that under attack was the exercise of the judge's discretion. He accepted thus that he would have to establish that the judge was plainly wrong or that the conclusion he reached was "outside the generous ambit within which a reasonable disagreement is possible" see G v G [1985] 1 WLR 647 H.L.

His attack on the judge's judgments he put under six heads.

He submitted that the judge had found (as indeed he did, see page 17 of his first judgment), that the decision to allow judgment to be entered in default was not deliberate, and that that finding very much influenced the judge. Mr Hirst submitted that he could demonstrate on the evidence that the decision taken in 1990 was deliberate, and was taken on the advice of the solicitors then acting for IBC, Paisners, and that factor would or should have caused the judge to take a different view as to whether the default judgment should be set aside;

He submitted that the judge did not give enough weight to the fact that IBC or the Republic were now performing a volte face.

He submitted that even if he could not establish the first two submissions, the judge was simply wrong because the delay of seven and a half years was just too great.

He submitted that the judge failed to recognise that the defence of IBC, and thus their successor the Republic, was technical and only thought up in or about April 1992 when they were forced to put in a defence to proceedings commenced by Citoma in Brazil.

He submitted that the judge failed to give sufficient weight to the certainty that ought to exist so far as commercial men are concerned. Citoma had enforced the judgment and obtained money in part satisfaction of the judgment. It was to destroy that certainty to allow a defendant to come and set aside that judgment and obtain repayment of money taken in part execution.

He submitted that the judge was wrong to discount the enforcement proceedings taken in Milan; wrong as I understood the submission in treating execution simply as an inevitable consequence of setting aside a judgment (see page 126j of second judgment), and thus not something to be taken into account at the setting aside stage, as opposed to being taken into account in relation to the provision of security; alternatively wrong not to take it into account in relation to the provision of security even on the basis that the execution rights were of value; and wrong in fact in concluding that the execution rights were of no value.

By the conclusion of the appeal it seemed to me that certain points had become clear which I can place under four heads.

Defence on the merits

However technical the defence (and I am not absolutely sure what that term means in the context of a case such as this where the Republic has succeeded on its defence in one case in Brazil), the judge was right to conclude that the Republic had a defence on the merits which carried "some degree of conviction" (see The Saudi Eagle [1986]

2 Lloyd's Rep 221 at 223). So much was rightly conceded by Mr Hirst. In those circumstances it also seems to me that the court gains very little from admissions which may be said to be inconsistent with having a defence, and very little from an examination of the prospects of success in so far as they may or may not be much in excess of the test of "carrying some degree of conviction".

Passage of time alone

It does not seem to me right that the passage of time alone should preclude a defendant having a judgment in default set aside. There are examples in the authorities of judgments being set aside after relatively long periods, e.g. Oilike Ltd v Reid (unreported C.A. 1 September 1986). In that case the Court of Appeal held that the defendant had shown two lines of defence on the merits, and despite not being inclined to accept the defendant's explanations about being unaware of the proceedings, and despite a delay of 5 years, set aside the default judgment. Thus a submission that 7 years is just too long without more is not one I am prepared to accept.

Submission 6 and Article 39

As regards submission 6, there is in my view a short answer. If Article 39 of the Brussels Convention did not empower Citoma to issue the conservative seizure, then the seizure, issued without any authorisation from the court in Milan, is invalid. There was no dispute between the parties that Article 39 can be utilised by a party in a Member State for the purpose of taking "protective measures" even if the ability to take such protective measures was not provided for by the national law. But what was in issue was whether that power is available to a party outside the time limit for appealing referred to in the first paragraph of Article 39. Although before the judge Mr Hirst had run an argument that in some way the time limit for appealing had not expired, that was not an argument pursued before us. Thus it can be assumed that what Citoma were seeking to do was to use the power under Article 39 to take "protective measures" outside that period.

Article 39 provides as follows:-

"During the time specified for an appeal pursuant to Article 36 and until any such appeal has been determined, no measures of enforcement may be taken other than protective measures taken against the property of the party against whom enforcement is sought.

The decision authorizing enforcement shall carry with it the power to proceed to any such protective measures."

In my view Article 39 did not empower Citoma to take protective measures outside the period of appeal for the reasons given by the judge. The judge treated the statements he had from Professor Dr Peter Schlosser (D3 - 2065) and Professor Riccardo Luzzatto (P3 - 1101) as part of the submissions of counsel on the basis that what he was concerned to do was to interpret an article of the convention which must have the same effect in all convention countries. He clearly preferred the argument of Professor Schlosser, and it seems to me that he was right so to do.

On the plain language of Article 39, the second paragraph having to be read in the context of the first, the power is limited to the period of appeal. There is in any event good reason why it should be. What is being sought to be achieved is the "free movement of judgments " between Member States. To produce that free movement, a procedure is devised for the enforcement of one Member State's judgment in another Member State which contains an appeal procedure during which a restriction on full enforcement is imposed. To alleviate that restriction the second paragraph of Article 39 allows for "protective measures". Once however the period of appeal has elapsed, there is no reason why a judgment from another Member State should be given any special status in a Member State as compared to the judgments of the court of that Member State. Citoma were accordingly free, once the period for appealing had expired, to use all the powers that existed for the purpose of full enforcement of a domestic judgment in accordance with Italian law. Why, one asks rhetorically, should they have more than that when they are seeking to enforce the judgment in that particular Member State? In my view it simply cannot have been the intention of Article 39 to give parties something more, and the language of the Article supports that conclusion.

The judge spells out the arguments and the different considerations in much greater detail, and I would support his conclusions and the reasons he gives.

As to the criticism of the judge in relation to his pointing out that the loss of the right to execute is an inevitable consequence of setting a default judgment aside, and his approach to his exercise of discretion on that basis, the comment seems to me to be accurate and I cannot see any fault in the judge's approach on the basis of the same.

Attitude of the court once defence shown

The authorities to which we were referred demonstrated that if the court concluded that there was a defence on the merits which carried some degree of conviction, it is the very strong inclination of the court to allow a default judgment to be set aside even if strong criticism could be made of the defendant's conduct. Indeed, Mr Hirst's and his junior's researches had not discovered an authority where if that was the view of the court, the court nevertheless refused to set aside the judgment. Perhaps the most striking illustrations which demonstrate the attitude of the courts are the unreported decision of the Court of Appeal in Vann v Awford (18 April 1986), and a further decision of the Court of Appeal in The Saudi Eagle (supra) in which Vann v Awford was followed and applied.

In The Saudi Eagle Sir Roger Ormrod summarised Vann v Awford in the following way:-

"In Vann v. Awford the plaintiffs, who were building owners, sued a firm of architects and the builder, Blunden. Blunden, though properly served, did not give notice of intention to defend. The plaintiffs signed judgment in default and later obtained an assessment of damages in the sum of £53,783 plus interest and costs. Blunden still did nothing. But when the plaintiffs took garnishee proceedings and obtained charging orders on Blunden's property, he reacted and applied for the assessment of damages and the default judgment to be set aside. He put forward a wholly dishonest explanation for his failure to give notice of intention to defend. The Judge refused to set aside either the assessment or the judgment on the ground that it was too late and that no extension of time should be granted unless the defendant put forward a reasonable explanation, which he had failed to do. This Court held that this was a misdirection and that the Judge had fettered his discretion by adopting a rigid rule which was directly contrary to the principle laid down in Evans v. Bartlam. This Court then reviewed the circumstances and found that, as was to be expected in a building dispute, there were a great many items in dispute, and there was an arguable defence. The appeal was therefore allowed and the judgment set aside."

I would simply add to that summary what Dillon LJ said in Vann v Awford. Having held that the defendant's explanation was a lie, he went on:-

"He had known of the proceedings, at any rate from an early stage. . . . There is thus no satisfactory evidence of any good reason -- except his own deliberate choice, if that be a good reason -- for the second defendant's failure to defend the proceedings or to appear at the assessment of damages."

Later he said "Even for lying and attempting to deceive the court, a judgment for £53,000 plus is an excessive penalty if there are arguable defences on the merits."

Nicholls LJ said in the same vein "The court is concerned to do justice between the parties with regard to the plaintiffs' claim, not to punish the defaulting defendant inexcusable though his conduct may have been."

In the Saudi Eagle it was common ground that the defendant had deliberately allowed judgment to be entered against it because it was a company without assets. It had overlooked the fact that the plaintiffs had by previously arresting a vessel in Amsterdam obtained security for its claim. It was on an appreciation of that fact that the defendant sought to set aside the judgment. At first instance Staughton J had thought that there was some defence on the merits, albeit not a meritorious defence, since it involved the possibility that the plaintiffs had sued the wrong member of a group of companies, and refused to set aside a judgment in default. Sir Roger Ormrod describes the judge's ruling in the following way:-

"The Judge dismissed the application. He directed himself on the lines laid down in Evans v. Bartlam, carefully avoiding any rigid rules or fetters, but in the course of his extempore judgment he gave two reasons for refusing to exercise his discretion in favour of the defendants. He said that the proposed defence was -- . . .

not by any means a meritorious one although technically it has merits . . . I can see it is an arguable point that the plaintiffs should have sued Saudi Ambassador Shipping Co. Ltd. or Saudi International Shipping Co. And not Saudi Eagle Shipping Co. Ltd.

He then turned to the reasons given for the default and concluded that the defendants had deliberately allowed the plaintiffs' claim to go by default, believing that all they could get would be a barren judgment, until they remembered about the security. This the Judge described as "insouciance" and said that the defendants had treated the Court -

. . . with contempt and therefore, the defendants are not deserving of the Court's exercise of its discretion in their favour.

With great respect to the learned Judge, and making full allowance for the difficulty of putting into words, particularly extempore, the reasons for making a discretionary decision, we do not think that his decision can be supported on these grounds although, as will appear, we are in agreement with him, though for different reasons, that the defendants' application for an order setting aside the judgment should be dismissed. His reasons seem to be a two-pronged moral judgment on the behaviour of the defendants to the Court rather than an assessment of the justice of the case as between the parties. Consequently, we must review the circumstances of the case and exercise our own discretion."

In the result the Court of Appeal went on to consider whether there was any defence on the merits which carried "some degree of conviction", and concluded that there was not.

The nub of the appeal

In my view the result of this appeal really revolves round one question. Is this a case which contains some feature in relation to the circumstances in which judgment in default was entered and allowed to remain in being over the years, where, despite the Republic demonstrating that they have a defence on the merits with some significant chance, the default judgment ought not to be set aside? If so, did the judge fail to identify that feature so as to invalidate the exercise of his discretion? If so, should this court by reference to that feature hold that the default judgment should not be set aside?

I put the matter this way because (as already indicated) the Court of Appeal have in so many cases found misconduct or deliberate decisions taken by defendants leading to default judgments being entered, but, where there is a defence shown on the merits, still set judgments in default aside. Thus it seems to me that once a defence on the merits to the requisite standard is identified it must take some very special feature for the court to conclude that still the default judgment should not be set aside. The court may impose terms, and even stringent terms, but it will normally set aside the judgment.

In this international piece of litigation, allowing the English judgment in default to remain on which Citoma should be allowed to execute could seem more extraordinary than in the more straightforward case. In the straightforward domestic context the effect of setting aside or not is either to terminate the litigation between the parties or to allow proceedings to continue in this country. But in this litigation, certain of the coffee companies, including Citoma, have commenced proceedings in Brazil. Those proceedings have been pursued and in one case have led to a judgment in the Republic's favour. In another judgment has been given in favour of the coffee company. Citoma intend to pursue the action it has brought in Brazil even if the court refused to set aside the default judgment in this country unless execution of the English judgment somewhere brought final and full recovery. Furthermore, two of the coffee companies (Inter-Continental and Man) in relation to their English actions resisted the setting aside of default judgments in their favour at the same time as Citoma before Moore-Bick J, but in effect accepted the decision of the judge as handed down in his draft judgment on 6 March 1998 . There are thus (a) decisions in relation to two coffee companies and the Republic on the merits which go both ways and are the subject of appeals in Brazil; (b) proceedings still to be tried in Brazil on the merits between Citoma and the Republic; and (c) further proceedings between other coffee companies and the Republic still to be tried in Brazil. In all those proceedings the defence of the Republic is the same. It follows that if the judgment in default is not set aside, there would be a risk that the Republic could succeed on the merits in Brazil so far as all the coffee companies are concerned including Citoma, but still face enforcement proceedings on Citoma's default judgment. Is there some feature which should preclude the Republic setting aside the default judgment despite those consequences?

Mr Hirst, in order to identify that feature, ultimately put his primary submission rather higher than he had at first done, and accepted that he was putting it in a way that had not been put to the judge. He was however, he submitted, entitled to make the submission because he was not going outside the material that was before the judge.

He submitted that he could demonstrate on the material before the court that the only inference to be drawn was that IBC or those representing IBC took a deliberate tactical decision not to apply to set aside the default judgment on the grounds that if they had done so IBC would have been bound to fight the action in England, or at the very least place themselves at risk of submitting to the jurisdiction thus rendering enforcement proceedings easier for Citoma and other coffee company plaintiffs. By taking that decision they knew that they would force Citoma to come and sue in Brazil where, so the argument would run, IBC or the Republic would hope to have a better chance of succeeding on the merits. If, submits Mr Hirst, a defendant does deliberately allow judgment in default to remain, appreciating the risks of enforcement but being prepared to take that risk in order to achieve a fight on the merits in his home court, then there is no reason to allow that defendant to go back on that deliberate tactical decision.

If Mr Hirst could establish the above, prima facie there would seem to be force in the submission despite the consequences to which I have already referred.

That there might be force in that sort of submission was clearly appreciated by those advising the Republic in relation to the setting aside of the default judgment. Mr Archer in his second affidavit addresses the circumstances in which there was no application to set the default judgment aside in some paragraphs to which I will return. His summary of what he said that he had discovered is worth quoting at this stage:-

"In the circumstances, although it has not been possible conclusively to determine why no appeal against the Orders of Mr Justice Saville and an application to set the default judgments aside was made (or indeed why Crispo & Co were not provided with information as to the background of the English proceedings), it seems likely that the general state of confusion surrounding IBC and the enormity of the problems faced by Mr Gomes in the period following the entering of those judgments may have played an important role. I wish to make it plain that during all of the inquiries that have been made by my firm (in this and other jurisdictions), not only of Mr Gomes and Paisner & Co but also of present and former employees of the Republic, no evidence has ever come to light to suggest that an appeal and/or set aside application was not brought because of a perception that to do so would be tactically disadvantageous to IBC (or, for that matter and for the avoidance of any doubt, to the Republic)."

The judge also seemed at least to have in mind the possibility that a deliberate tactical decision might make a difference. He concluded as follows:-

"Nonetheless, in the absence of any positive indication in the evidence that there was a deliberate decision to allow the judgments to stand, I accept that the failure to take action sooner is to be attributed to muddle and incompetence and perhaps some failure of communication between Mr Cueva and the Republic's English and Italian lawyers rather than to a tactical decision on its part."

One question is whether Mr Hirst can, or indeed should, be entitled to disturb that conclusion by an attack which he accepts was not put as highly below.

Mr Scott intervened at a stage when Mr Hirst was seeking to persuade the court to draw inferences from the paragraphs to which I am about to turn to protest that no attack was made in the court below of the kind then being made. He protested as vigorously when Mr Hirst in his reply returned to the attack and in addition to material already referred to sought to place emphasis on a point relating to the way that Paisners had acted in this litigation in contrast to the way they had acted in the Man litigation. What Mr Hirst pointed out was that Paisners came off the record in the Man litigation once Man sought to have damages assessed, so as, Mr Hirst submitted, not to have to appear at that assessment and thus provide a basis for arguing that IBC had submitted to the jurisdiction. That was to be contrasted with staying on the record in the Citoma litigation where no application was made to assess damages. Mr Scott submitted that if the attack had been made in the court below then he would have been able to take further instructions and/or consider whether privilege should be fully waived so far as the advice being received by IBC from Paisners was concerned.

The paragraphs on which Mr Hirst focused in Mr Archer's second affidavit were in the following terms:-

"32. I turn now to address the period between the entering of the default judgments and the extinction of IBC. From inquiries which have been made by my firm, the Republic accepts that shortly after the default judgments were entered, IBC (in particular, Mr Gomes) became aware not only that the plaintiffs had entered those judgments, but that it was open to IBC (assuming that it still existed) to seek to appeal the Orders made by Mr Justice Saville (by which he had dismissed the RSC Order 12 rule 8 applications) and, if successful, to apply thereafter to have the default judgments set aside. The Republic further accepts that strictly speaking, having accepted that it is the successor to IBC in these proceedings, it can be in no better position than IBC with regard to when knowledge of these matters was acquired.

33. Despite inquiries which my firm has made of Mr Gomes, Paisner & Co, and a number of persons who worked for the Republic in the aftermath of MP No. 151 and the subsequent extinction of IBC, it has not been possible to identify with absolute certainty why no appeals or applications to set the default judgments aside were ever made.

34. However, what has clearly emerged (not only from Mr Gomes, but also from Paisner & Co) is that instructions were never given to appeal because no decision in this regard was ever taken, one way or the other. Mr Gomes has confirmed that he did not take or communicate any decision not to appeal, nor (for the avoidance of doubt) is he aware of any other person taking any such decision."

Those paragraphs indicated, submitted Mr Hirst, that careful consideration was given as to whether to appeal the order of Saville J, and that the deliberate decision was taken that only if that appeal would succeed thus setting service on IBC aside, would an application to set aside the judgment in default be made. He emphasised the fact that it was being sworn that an application was only going to be made to set aside the default judgment if an appeal from Saville J's order was successful. He further pointed out that it was instructions relating to that appeal to which reference was being made in paragraph 34. He submitted that Mr Gomes, or someone in Brazil, must have been instructing Paisners to act. In support of the fact that it was Mr Gomes, he referred to Bundle P2 page 502, an attendance note which refers to the taking of instructions by Paisners from Mr Gomes. In support of the fact that Paisners were clearly acting under instruction and to achieve a tactical advantage he relied on the distinction between their behaviour in this litigation as compared to the Man litigation, and also to the conduct of other cases concerned with the coffee companies. From April 1990 to November 1990 they were issuing summonses in the Tristao case, and from April 1991 to July 1991 where they were acting in the Bourbon case, including again the issuing of summonses. In both cases they were attempting to act in a way that would not be construed as a submission to the jurisdiction.

Mr Hirst also pointed to two documents of his core bundle at page 102 and page 112. I have already quoted from a record of a meeting dated 30 May 1990 (page 102) relating to Operation Patricia.

The record continues:-

[Dr Cunho] advised that the Federal Government had already defined its attitude on the matter, by taking the political decision of settling the operation as quickly as possible.

. . . .

He noticed that those legal actions have brought some constraints in Brazil, although the Government does not recognise the London courts as the competent jurisdiction."

Dr Cunha is recorded as saying at a meeting in July 1990 (page 112) as follows:-

"On the subject of the legal proceedings, the Brazilian Government does not recognise the foreign Courts' attempt to solve the problem. The contracts with the participants were made and signed in Brazil by the President of the IBC. The contract should have been performed in Brazil by a Brazilian entity. There is no justification for foreign Courts involving themselves in the matter."

Mr Hirst finally pointed out that Mr Archer had made clear in his affidavit that he was not waiving privilege, and he suggested that it was legitimate in those circumstances to draw adverse inferences against the Republic.

These are powerful submissions from Mr Hirst.

Should he be entitled to make them for the first time in the Court of Appeal? I have had considerable anxiety about whether he should or not. I have also had considerable anxiety about whether the court should draw the adverse inferences suggested because privilege is claimed when a partner in a firm of solicitors has gone on oath, as Mr Archer has done, stating that he could find no evidence that a deliberate tactical decision was taken. I have concluded that he should be entitled to raise them in the Court of Appeal, but the court should take account of the possibility that if they had been raised earlier something more might have been produced by those representing the Republic. It is also right to take account of the fact that experienced counsel for Citoma before Moore-Bick J did not seek to persuade the judge of the inferences now said by Mr Hirst to be the appropriate ones to draw, and even Mr Hirst did not start as high as he ended. As regards the waiver of privilege there are two points. First, it must have been arguable, as Mr Scott conceded, that in going as far as he did Mr Archer actually waived privilege, but no application was made for disclosure of the advice given by Paisners in 1990. Second, it is very doubtful whether it could be right to draw adverse inferences against a person claiming legal professional privilege. That would undermine the ability to claim such a privilege.

As I have said, Mr Hirst's submissions are very powerful ones. In commercial litigation of the kind the subject of this appeal, it is quite difficult to contemplate that a defendant in the position of IBC through whomever was representing it in Brazil, did not consider with its legal advisers in Brazil and in England the advantages and disadvantages of allowing a judgment in default to remain unchallenged. But the circumstances of this case are peculiar in the sense that IBC was being destroyed just at the time that decisions were needed to be made. It is just possible that Mr Gomes, with persons representing the Republic in those days, were not making deliberate and calculated decisions as opposed to decisions which were simply decisions to do nothing.

I have ultimately come to the conclusion that it would be wrong for this court to find that the level of deliberate calculation of IBC or those then representing its interests was in a category very much less favourable to the Republic than the judge found.

In addition, despite the force of Mr Hirst's submissions that if a tactical decision was taken that IBC or the Republic should just have to live with the consequences, I am not sure that that is right. In litigation of the size and complexity of this litigation, if a more deliberate decision was taken than that suggested by the judge, that can only have been taken in the expectation that enforcement would not be possible beyond the seizure of coffee which took place in London and Trieste, coffee which had in fact been purchased (as we were informed) in the main pursuant to Operation Patricia and which remained unpaid for. What has caused the Republic to take action would seem to be the application to substitute the Republic for IBC in the proceedings brought by the coffee companies in England and the contemplation that enforcement to secure repayment of the full £19m odd might be levied against the Republic by virtue of proceedings such as the Milan proceedings. If one switches the context from the rather minor sums and the relatively simple facts of Vann v. Awford and other authorities, to the enormous sums, the highly complex facts, and to the international nature of this litigation, the distinction between the cases where the court set the default judgments aside in Vann v Awford and Oilike v Reid and this case seems to me in fact very small. The major consideration is whether there is a defence on the merits.

Mr Hirst, in a rather throw-away line, suggested that even if this court were not persuaded to reverse the judge in relation to the setting aside of the judgment, it should impose different conditions, including payment into court of the full sum claimed, as a condition of setting aside. There was no sign of such a point in the Notice of Appeal or in Citoma's skeleton argument before this court. The setting of conditions is peculiarly a matter for the discretion of the judge. It would be wrong in those circumstances to contemplate interfering with that aspect of the judge's order.

I would dismiss the appeal.

LORD JUSTICE CHADWICK: I agree.

LORD JUSTICE PETER GIBSON: I also agree.

Order: Appeal dismissed. Agreed minute to be lodged by counsel