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Cite as: [2000] 1 WLR 2150, [2000] EMLR 873, [2000] 4 All ER 41, [2000] 2 All ER (Comm) 1, [2000] EWCA Civ 185, [2000] Po LR 210, [2000] WLR 2150

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Case No: QBENI 99/1131/A2

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(Mr Justice Eady)
Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday 8th June 2000

B e f o r e :
LORD JUSTICE BROOKE
LORD JUSTICE MANTELL
and
LORD JUSTICE LAWS

	PATRICK MAHON ANDREW LESLIE KENT	Claimants/ Respondents
	- and -
	DR CHRISTIAN RAHN HANS-JAKOB BIEDERMANN MARTIN HAAB-BIEDERMANN FRANK BODMER RAHN & BODMER (A PARTNERSHIP)	Appellants/ Defendants

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Patrick Moloney QC (instructed by Bircham & Co for the Appellants)
Alun Jones QC & Victoria Sharp (instructed by Sheridans for the Respondents)
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Judgment
As Approved by the Court
Crown Copyright ©

LORD JUSTICE BROOKE

This is an appeal by the defendants against an order of Eady J on 1st July 1999 when he determined as a preliminary issue that the letter to the Securities' Association ("TSA") of which complaint is made in this action was not published on an occasion of absolute privilege. The defendants also appeal against the judge's dismissal of their application for summary dismissal of the claimants' claim for malicious prosecution and against his dismissal of their appeal against the refusal by Master Hodgson on 25th March 1999 to give them permission to add paragraphs 6A(3A) and (3B) to their plea of justification.

In order to understand the issues which arise on this appeal it is necessary to set out the background to the case in some detail.

The first four defendants are the partners in Rahn & Bodmer, the fifth defendants ("the bank"), which is a private bank based in Zurich. Five representatives of the bank feature in this story. First, there is Mr Markus Kaiser. He was the senior officer of the bank who conducted the bank's dealings with Mr Malcolm Johnson and with the London stockbroking firm called TC Coombs ("TCC"). He resigned in January 1990 when the events which are the subject-matter of these proceedings came to light. He shared an office with another officer of the bank called Martin Dunki, and he had an assistant called Rolf Ernst. The first defendant Dr Christian Rahn is the son of one of the former partners in the bank, in which he is now a partner himself. He conducted inquiries into what came to be called the Coastline transaction when it came to the attention of Mr Kaiser's superior officers early in 1989. Finally, there is Dr Edgar Paltzer, who practises law in Zurich and who acted at all material times for the bank as its Swiss lawyer. He was the author of the two documents around which the claimants' complaints in these proceedings are centred. The first is a Working Paper which was given by Dr Rahn and Dr Paltzer to Mr Lee and Mr Dickson, members of the staff of the Serious Fraud Office ("SFO"), at a meeting held at the SFO's offices in London on 9th August 1990. I will call this document "the Working Paper". The second is a seven-page letter written by Dr Paltzer to Mrs Wright of the TSA on 20th December 1990, which I will call "the TSA letter". Dr Paltzer sent a copy of the TSA letter to the SFO on the same day.

Mr Malcolm Johnson was an Australian financier who obtained a reputation for fraudulent conduct. He had an assistant called Paul Main, and he retained as his English solicitor Mr Lynne Brooke, of the firm called Brooke Blain and Russell. Mr Johnson appears to have conducted business through a large number of companies, and he had had dealings with Mr Kaiser before August 1988 when he conducted the business deal which is at the heart of these proceedings. That deal was concerned with the sale of shares in a Canadian company called Coastline, of which a Canadian businessman called Brian Mountford was President.

In 1988 Mr Johnson owed a very large sum of money to TCC. This was a firm of London stockbrokers which had been set up in the early 1980s. Mr Patrick Mahon, the first claimant, was TCC's managing director and Mr Andrew Kent, the second claimant, was its corporate development manager.

The Financial Services Act 1986 came into force just before the events with which we are concerned in this action, and TCC and Mr Kent in turn faced difficulties in obtaining from their new regulator, TSA, the requisite authorisations they needed in order to be able to conduct investment business within the meaning of that Act. On 25th November 1987 TSA gave TCC interim authorisation, but five months later its new capital adequacy rules came into force and TCC's auditors expressed concern about the volume of bad debts TCC was owed by Johnson companies, and in particular by a company called Safeguard. On 29th July 1988 the Stock Exchange required TCC to show £3 million extra capital by 5th August 1988. In the event it did so, and during the second half of that year TCC was successful in beating off a challenge by TSA to the effect that it did not comply with the new capital adequacy rules.

TSA also came in due course to consider that Mr Kent was not a fit and proper person to conduct investment business under the Act. Indeed, in December 1990, when the TSA letter was written, Mr Kent was appealing to TSA's authorisation tribunal against a ruling to that effect by a TSA committee.

It is common ground that on 4th August 1988 as a consequence of events which are in issue between the parties, Mr Kaiser sent a telex to Mr Mahon in London, following a telephone conversation with him, in which he placed an order for 3,125,000 Coastline shares at a price of C$1.60 per share for the bank's account for settlement within 90 days. Mr Mahon acknowledged the order and issued a contract note the same day showing a sale of these shares to the bank at a price of C$1.60 per share for a total consideration of C$5,000,000.

One issue which divides the parties is whether, as the claimants suggest, the contract note evidences accurately all that was agreed that day or whether, as the defendants suggest, the truth was very different. Their primary case is that the true agreed price of the Coastline shares was C$3 million, but that Mr Kent prevailed upon Mr Kaiser to co-operate in producing documents which purported to show a sale at a price of C$5 million against Mr Kent's promise that TCC would pay the bank the balance of C$2 million before the agreed settlement date.

In this summary it is sufficient merely to say that on 15th November 1988 the bank paid TCC C$3 million, and that on 10th April 1989 TCC demanded a further C$2 million, a claim which the bank refuted a fortnight later. During 1989 Dr Rahn inquired into what had taken place, and on 9th January 1990 Mr Kaiser resigned. Dr Rahn later described Mr Kaiser to Mr Lee as "naive and therefore unreliable".

By this time the SFO had instituted criminal proceedings for fraud against Mr Johnson, and on 2nd March 1990 it obtained a restraint order against him with worldwide effect pursuant to Section 77(1) of the Criminal Justice Act 1988. The order also imposed similar restraints against a large number of companies whose names appear in a list attached to the order. These include companies called Establissement Kola, Grona AG and Roses Investment. It appears that a copy of this order was sent to the defendant bank.

The defendants have exhibited in support of their present application a number of documents produced by their London solicitor Mr Millar. It appears that Mr Millar first contacted the SFO on his clients' behalf on 11th June, and that he had a preliminary meeting with Mr Lee on 12th June during which he told him about the bank's dealings with Mr Johnson and was told something about the current state of the SFO's inquiries.

There followed some negotiations between Mr Millar and the SFO about the basis on which the defendants would be willing to provide evidence to the SFO at a meeting arranged for 9th August 1990. This led to written assurances by the SFO to the effect that it would not disclose to any other party the fact that the bank had been the source of any oral and/or written information it might provide at the meeting, and also that no information the bank might disclose to the SFO would be shown to third parties without the bank's consent. The SFO also said that it would consider that the meeting and the information disclosed at it would be subject to the provisions of Section 2(8) of the Criminal Justice Act 1987. Needless to say, the SFO reserved the right to use, as necessary, the material provided to it by the bank in any prosecution which it undertook. It gave a further assurance that it did not intend to prosecute either the bank or any of its present employees, officers, directors or partners.

It was in those circumstances that Dr Rahn and Dr Paltzer, accompanied by their English solicitor Mr Duncan, met Mr Lee and Mr Dickson at the SFO's offices on 9th August. Most of this meeting was concerned with Mr Johnson and his companies. Dr Rahn and Dr Paltzer described the bank's dealings with them and the results of the inquiries the bank subsequently made.

During the course of the meeting Dr Paltzer gave the SFO's representatives a copy of the Working Paper he had prepared. It is headed "TC Coombs - Coastline Resources NPV Transaction", and it set out the bank's version of events, together with 14 supporting documents. The 3-page Working Paper ends in these terms:

"10. Rahn & Bodmer comes to the following assumptions:
It is possible that Safeguard might have a claim against TC Coombs for not having paid Can$ 3 mio or 5 mio. (Can$ 2 mio have certainly not been paid, otherwise TC Coombs would have claimed interest on that amount from Rahn and Bodmer)
It is possible that Safeguard promised to pay Mr Kent Can$ 2 mio into the bank account with Rahn & Bodmer but now might have paid to a bank account of Mr Kent somewhere else
It is also possible that Mr Kent just assisted in a fraud of Mr Johnson by setting up the structure as mentioned in the above outlines.
11. Rahn & Bodmer would be interested in obtaining documents out of the files of TC Coombs with respect to the following issues:

that TC Coombs was aware of the circular character of the transaction
that TC Coombs was aware of the fact that Mr Kent promised to finance this circular transaction with Can$ 2 mio in order to enhance its standing with the local securities association
that Mr Kent owns TC Coombs or, at least, owned TC Coombs during the period August - November 1988
that TC Coombs never paid Safeguard the purchase of Can$ 3 mio, or Can$ 5 mio.
whatever evidence which might be useful to show that the transaction was illegal under British law or that the transaction was fictitious and whatever evidence may confirm the assumptions made under para 10 hereinbefore."

Mr Lee told his visitors that TSA might be interested in the information contained in the Working Paper.

On 29th August 1990 Mr Dickson told Dr Paltzer in a letter that a Companies Act search had revealed that TCC used the sale of the Coastline shares to the bank for C$5 million to enable TCC to borrow that sum from Bryanston Insurance Company ("Bryanston"), and that this seemed a more compelling explanation for their deceit of the bank than a desire to "ramp" the shares for presentation purposes.

A manuscript note produced by Dr Paltzer shows that two weeks later Mr Lee told him over the telephone that TSA was conducting proceedings against Mr Kent, and there would be a hearing to resolve whether he should remain a member of TSA. In this context TSA would like to include documents the bank could provide. Mr Lee said that he would contact TSA. He gave Dr Paltzer the name of Mrs Rose Wright at TSA and told him that she worked for TSA's Director of Enforcement, Mr King.

Mrs Wright telephoned Dr Paltzer the same day. She said that the hearing was delayed and would probably not take place before Christmas. There was therefore no urgency about the matter, and she would come to Zurich to meet Dr Paltzer and the bank. She told him that TSA were after Mr Kent, and not TCC particularly. She gave Dr Paltzer the impression that she did not have much information to give to the bank.

On 17th September Mr Lee told Dr Paltzer over the telephone that a meeting arranged with Mr Kent had been postponed until the following week. He told him about a point on which Mr Kent knew that Mr Lee would be questioning him again, but he said that Mr Kent would not know that the bank was behind it.

On the same day Dr Paltzer sent Mrs Wright a memorandum the bank had recently received from Mr Mountford. In it Mr Mountford said that on 2nd September 1998 a representative of the British Columbia Securities Commission had told his office that TCC had received 52% of Coastline stock in August 1998 in return for a debt, and that he wanted trading in Coastline shares halted, which was duly done. Mr Mountford went to London 10 days later, and the following day he learned that TCC had taken the shares as collateral from a company called Safeguard and had sold them through the bank at C$1.60 per share. When he made inquiries of Mr Ernst at the end of September he had been told that the bank were brokers, not buyers, and that it did not know who was buying the shares, but that the same people were behind both buyers and sellers.

Dr Paltzer told Mrs Wright that the bank was still very interested in obtaining whatever documents or information TSA could release to it concerning TCC's Coastline transaction with the bank in August-November 1998. On 20th September Mr King (TSA) responded to a question Dr Paltzer had asked, and the following day Dr Paltzer replied, repeating the bank's request for information.

On 25th September 1990 Mrs Wright wrote to Dr Paltzer explaining the difficulties the TSA faced in responding to his request, because of the restrictions on disclosure contained in its rules. She canvassed the idea of a meeting with him and Dr Rahn in late October, either in Zurich or London.

On 2nd October she wrote formally to Dr Rahn in these terms:

"As you know, Dr Paltzer has spoken to me about the matters of concern to your bank regarding the Coastline share transaction, in which Rahn & Bodmer and our member firm, T C Coombs & Co, were concerned in 1988. We, too, are troubled by aspects of this transaction and we would be greatly assisted by your own account, supported by any documentation in your possession which you could let us have, of exactly what happened between Rahn & Bodmer and T C Coombs & Co and persons acting on their behalf, so that we can fully investigate the matter, as we have a statutory duty to do as T C Coombs's regulator."

No meeting in fact took place, apparently because Dr Rahn was away on military service. Dr Paltzer has produced notes of telephone conversation in October with Mrs Wright and Mr Lee. On 23rd November 1990 the SFO obtained a search warrant in relation to TCC's premises, which it executed on 26th November. On 27th November Mrs Wright wrote to Dr Paltzer again. She said:

"I wonder if Dr Rahn, who I imagine has now completed his period of military service, may now have the time to respond to my earlier request. This would be extremely valuable for my on-going enquiries into the activities of T C Coombs & Co as well as individual members of that firm. You may have read in the press (I attach cuttings from this morning's and the weekend's papers) that the Serious Fraud Office has stepped up its investigations into the Coastline transaction. All assistance that you can give to us, T C Coombs' regulator, will be greatly appreciated."

On 3rd December 1990 Dr Paltzer acknowledged her letter, and told her:

"We are very pleased to see that the Serious Fraud Office has stepped up its investigations into the Coastline transaction. We are, however, concerned about the reports mentioning our client as having lodged a complaint. As you know, our client's assistance was and is subject to complete confidentiality. Please be kind enough to confirm that the TSA will be treating our client's co-operation in an entirely confidential manner. We will then, within the guide-lines of the Swiss bank secrecy law, proceed to assist you with your inquiries in the activities of T C Coombs & Co."

Mrs Wright replied immediately. She assured Dr Paltzer that TSA was not the source of the information in the press cuttings to the effect that his clients had lodged a complaint. Her letter continued:

"I can also reassure you and your client that TSA's investigations and tribunal proceedings are completely confidential. The public and the press are excluded from our tribunals and the names of complainants and witnesses are never publicly disclosed. Any information you or your client are able to let us have will be treated in the strictest confidence. Obviously, if we need to make use, in proceedings before our tribunals, of a witness statement made by your client, a copy of that statement would have to be disclosed to the other party in the proceedings, whether it be Mr Kent or T C Coombs & Co. I can assure you that we would not make use of such a statement in proceedings without your prior permission.
It would be possible for us to make use in our proceedings of documents provided to us by third parties, such as your clients, without the need to disclose the source from which we received such documents. Such documents, in themselves, could be very helpful to us in our proceedings. Our adjourned case in relation to Mr Kent will be heard in the fortnight commencing January 8th 1991. I should be delighted if you could send me any information and documentation which could be of help in these proceedings or in relation to our inquiries into T C Coombs & Co as soon as possible."

Dr Paltzer replied on 11th December:

"I have taken note and appreciate your assurance of complete confidentiality with respect to the above matter and the involvement of our client.
I understand that the hearing in your case is set for January 8 1991. Although we have a substantial amount of year-end work, we will try to accommodate you with useful information and documentation as soon as possible."

These, then, were the circumstances in which Dr Paltzer wrote the TSA letter to Mrs Wright on 20th December. He started his letter by saying by saying that it was difficult for his clients to piece together the relevant facts with any certainty because their employee who was responsible for the TC Coombs - Coastline transaction (Mr Kaiser) was not with the bank any more.

He said that the outline set out in his letter was to a large extent based on presumptions and retrospective assessments of documents and information obtained by the bank, which did not warrant its accuracy and completeness. They hoped, however, that the information and the documents they were providing would be helpful to TSA in their proceedings.

The story he set out in his letter was along the following lines. In August 1988 Mr Johnson had approached Mr Kaiser with a new transaction. He attended the bank's offices in Zurich on 4th August, accompanied by his assistant Mr Main and by Mr Kent (TCC). Mr Kaiser was told that three named companies and a business associate of Mr Johnson called Mr Mountford were willing to buy 3,125,000 shares in a company called Coastline Resources NV ("Coastline") for a total price of C$3 million. They all wanted the bank to act as their agent in this transaction, and they would open accounts with the bank and ask it to place the order to buy the 3,125,000 shares for their account.

Mr Johnson and Mr Kent told Mr Kaiser that TCC would be able to procure the 3,125,000 shares. It was agreed that the bank, acting as agents for its four clients, would place a purchase order with TCC for these shares at the total purchase price of C$3 million.

Before proceeding with the placement of the purchase order, Mr Kent told Mr Kaiser that he wished to expand this transaction by showing a larger transaction than the one actually agreed. He therefore proposed that the bank should pay TCC C$5 million, not C$3 million, for the shares. He said he would provide, on TCC's behalf, the extra C$2 million that would be needed. Mr Kaiser arranged for Mr Kent to open an account with the bank for this purpose, and Mr Kent promised to pay C$2 million to this account.

Mr Kaiser then sent TCC the same day the purchase order for 3,125,000 Coastline shares at the total price of C$5 million, and TCC issued a contract note to the bank in respect of this purchase for settlement prior to 4th November 1988. Mr Kent's initials appeared on the contract note as the person responsible for the transaction.

Dr Paltzer enclosed with his letter a copy of Mr Kent's application for a new account and his passport, the exchange of telexes dated 4th August 1988, and the contract note issued on the same day.

The bank did not receive the C$2 million from Mr Kent, as agreed, and negotiations were then conducted in November 1988 to settle the contract note as originally planned (ie without the mark-up). A telex of 9th November from Mr Mahon to Mr Kaiser (enclosed with Dr Paltzer's letter) announced his intention to come to Zurich the following day to discuss the Coastline transaction.

It was agreed in these negotiations that TCC would deliver the 3,125,000 shares against payment of C$3 million and that the bank would pay the balance if and when funds were made available to the bank as arranged by TCC. A telex dated 11th November from Mr Kaiser to Mr Long of Bryanston (also enclosed) contained the bank's undertaking to pay C$3 million against delivery of the shares as part payment on their purchase for C$5 million made through TCC in August, and explained that the balance of C$2 million would be paid as soon as funds were available as arranged by TCC.

The Coastline shares were then delivered to the bank against payment of C$3 million, and the bank credited them to the accounts of their four new customers (including 800,000 for Mr Mountford) in accordance with instructions received from Mr Mahon and from Mr Butler (of Brooke Blain and Russell). Dr Paltzer produced copies of contemporaneous documents evidencing these instructions.

None of the four customers had paid the bank any part of the purchase price of the shares. Instead, they initially received a loan for the outstanding price against a pledge of their shares to the bank as security for the loans. When the bank subsequently asked for repayment of these loans, it discovered that all four debtors were unwilling or unable to pay. Dr Paltzer said that they all still had debit balances in their accounts for the amount of the purchase price with accrued interest.

Although the entire transaction had been settled in November 1988 by exchanging the 3,125,000 shares against payment of C$3 million, TCC approached the bank on 10th April 1989 requesting payment of the purported balance of C$2 million, a demand which the bank rejected by referring to the actual arrangements that had been made. The exchange of letters was enclosed with Dr Paltzer's letter. Mr Mahon signed TCC's letter of demand (dated 10th April), and Dr Rahn signed the bank's reply (dated 29th April).

During the subsequent discussions TCC claimed that they had actually paid C$3 million plus C$2 million to the seller of the 3,125,000 shares, and that they had therefore suffered damage.

On 15th July 1990 TCC's Swiss attorney sent the bank a copy of a contract note dated 4th August 1988 which showed a company called Safeguard to be the seller of the 3,125,000 shares. TCC claimed that Safeguard was an arm's length party to whom they had paid C$4,968,650 in cash. A copy of the relevant contract note was produced.

Safeguard's statement of account with TCC (which was produced) evidenced this transaction. However, it also showed that on 7th September 1988 Safeguard received this quantity of shares free of charge from unknown sources. Dr Paltzer said that it followed that Safeguard did not own the shares on 4th August and that it did not acquire them for consideration.

Dr Paltzer then described the results of other inquiries the bank had made into the provenance of the Coastline shares. It had discovered that there had been a private placement of 3,700,000 of these shares in October 1987 in which nominees for three identified companies had received 2,520,000 shares. The numbers of their share certificates were identical with the numbers mentioned in a letter from TCC dated 14th November 1988. The bank had no clear indication where the balance of 605,000 shares had come from.

The bank had reason to believe that these three companies, together with the three companies it accepted as customers and purchasers of the shares on 4th August, were all beneficially owned or controlled by Mr Johnson, and that this was a circular transaction arranged by Mr Johnson, together with Mr Mahon and Mr Kent. Dr Paltzer said that TCC must have been aware of the background of the transaction. Otherwise they would not have booked the 3,125,000 shares at no cost in the account of Safeguard on 7th September 1988.

The bank had also come to the conclusion that the transaction involved virtually worthless securities. The prices were artificially inflated by arranging the circular transaction, and the shares were then pledged to the bank in order to obtain a loan from it. Dr Paltzer said that it appeared that from the very beginning no intention existed to repay the loans to the bank.

On 27th December Mrs Wright acknowledged his letter and told him they were in the process of studying the documents he had enclosed. She added, however, that the TSA tribunal proceedings involving Mr Kent, which had been due to recommence on 7th January 1991, had been adjourned pending the outcome of the SFO's enquiries.

On 21st January 1991 Mr Lee and another member of the staff of the SFO interviewed Mr Main, who had been present at the meeting in Zurich on 4th August 1988. We have been furnished with extracts from three transcripts of this two-hour interview. Mr Main told them about the origins of Coastline and about Mr Mountford's involvement in it. More significantly, he also told them that he heard Mr Kent tell Mr Kaiser at the Zurich meeting that although the contract for the bank's purchase of the Coastline shares was to be for five million dollars, Mr Kent would provide two million dollars and the bank would provide three. Mr Main said he had confirmed this account in a fax he had sent to Mr Kaiser on 24th April 1989 when Mr Kaiser was getting very concerned about the transaction. A little later Mr Main described Mr Kaiser as a very nice man who did not understand what he was doing.

On Friday 1st February 1991 Mr Mahon and Mr Kent were arrested at the behest of the SFO and taken to Bishopsgate Police Station. They were both charged with conspiracy to defraud TSA by dishonestly representing that a debt in the amount of C$5 million owed by Rahn and Bodmer to TCC was a true debt. They were detained in custody overnight and released on conditional bail the following morning. Mrs Garlick, who appeared for the SFO, told the magistrates' court that the SFO had been undertaking an investigation of TCC and of the roles of Mr Mahon and Mr Kent in that business. She said that a search warrant had been served at TCC's offices and both their homes on 26th November 1990, and their investigations were continuing. The present charge formed only one aspect of the investigations, and the SFO expected to be able to prove a systematic deception on TSA. She said that the debt of C$5 million had been created in fraudulent circumstances to deceive TSA, as it was wrongfully held out to be part of TCC's qualifying capital. If TSA had been aware of the true situation, TCC would have been suspended at that time.

She added that the charge was being brought that day because TSA had now caused TCC to cease trading. TCC was likely to pass into receivership and possibly liquidation, and there was a real risk that Mr Kent and Mr Mahon would leave the jurisdiction of the court. The SFO had therefore moved more swiftly than would otherwise have been the case. She went on to explain that proper charges would be brought on a proper consideration of the evidence. This would take several months, and would be brought before the Crown Court.

On 5th February 1991 Dr Rahn and his English solicitor Mr Duncan attended at the SFO's offices between 9.30am and 4.30pm. They were told that the SFO had no present plans to prosecute Mr Kaiser and that it did not appear that any suspicion attached to Mr Dunki.

Mr Duncan's brief attendance note includes the following passage:

"We discussed the fact that any statement of Dr Rahn made was confidential but would in due course be served on the defendants to any prosecution and that there was the possibility of it being leaked but it was felt that there was no great purpose in so doing. Mr Lee said that Dr Rahn's evidence was presently fundamental but they considered that with further investigation there was a high likelihood of further charges being laid against Mr Kent and Mr Mahon. The copy of the charge was handed over and Miss Garlick indicated that the further charges might well involve other matters than capital adequacy."

Dr Rahn said that he did not wish it to appear publicly that the bank had made any formal complaint, and Mr Lee replied that he already had information before he heard from Dr Rahn and did not see it in this way. Dr Rahn indicated a preference not to appear in court. A statement was taken from him during the course of the day.

There followed a discussion about the way in which the debt had been assigned to Bryanston. The SFO thought it had then been assigned back to Oxnard (a Panamanian company believed to be owned or controlled by Mr Kent and Mr Mahon), whereas Dr Rahn and Dr Paltzer thought it had been assigned back to TCC. Mrs Garlick asked Dr Rahn to make enquiries with regard to the assignment documents, and also with regard to a letter from TCC inviting Mr Kaiser to make a specific reply which would assist it in duping its auditors.

Finally, the SFO indicated that it shared the bank's view that it had been a circuitous transaction. Mr Lee indicated broadly what he knew of the various relationships and the movement of money and shares that had been organised by Mr Johnson and TCC.

At the hearing before the judge, the following documents, which related to the later stages of the criminal proceedings, were put in evidence:

For present purposes, it is sufficient to refer to the judge's ruling and to the fact that although Mr Mahon and Mr Kent originally faced three joint charges and Mr Mahon faced a fourth charge against him alone, the first of these charges was dropped at the start of the trial, and it appeared to be common ground that the main charge against them was the conspiracy charge on which they had originally been arrested.

On 23rd August 1993 Judge Albert Clark gave his reasons for ruling that there was no case to answer. He started by upholding the Crown's argument that as a matter of law TSA and its tribunals were discharging public duties, so that a charge for conspiracy to defraud could lie against the defendants although no public loss had been sustained.

He then turned to consider the evidence the jury had heard. He said that there was no direct evidence of an agreement between Mr Mahon and Mr Kent - there seldom was in conspiracy cases - and he had to ask himself whether there were logical, reasonable and safe inferences that could be drawn from the witnesses' evidence or whether there was nothing more than mere speculation which was essentially neither logical or safe.

He was then critical of what he called the unsatisfactory or dubious nature of the evidence of some of the witnesses like Paul Main, Lynne Brooke, Mr Dunki, Mr Ernst and Dr Rahn. Of Dr Rahn the judge said:

"[He], one has to remember, had no direct personal involvement in or knowledge of the events at that meeting of 4th August but relies upon the inferences which he chooses to draw from his `so called investigation'. I say `so called investigation' because one notes no statements of any witnesses were taken, no records or diary entries were kept, no records of the [provenance] of documents and his mind conditioned, no doubt, by the realisation of a possible civil action. One cannot help noting that he was insistent that Kaiser was essentially an honest man. For Dr Rahn to say otherwise would torpedo the bank's chances in any civil action since Kaiser was acting for the bank in that year, representing them."

He then said, in effect, that there was no documentary evidence which unequivocally corroborated or supported those witnesses in their assertions.

The flavour of the judge's ruling can be obtained simply by reference to the way he dealt with the renumbered Count 3 against Mr Mahon alone. He said:

"Count 3, before the jury could start to convict on this count they [would] have to feel sure that the agreement reached on 4th August in Zurich was not a straight $5m deal and the only persons present at those negotiations seemed to have been Kent, Johnson, Main, Kaiser, Dunki, for part -- the offer to purchase and the contract note referred to the $5m deal. The suggestion that there was a split deal and there were at the time three different persons there only starts to emerge after Mahon makes a demand for the balance of $2m. It is noticeable that there is no contemporaneous documentary evidence anywhere showing us a split deal; that may have arisen later. If this was a split deal it seems very unbelievable that in a Swiss bank, and a deal of this magnitude, it would not be properly documented and signed, at least for the bank's own satisfaction. One notes that all of the evidence of a split deal was made from the purported recollections of witnesses, recollections made after Main's note was issued.
The evaluation of witness reliability as witnesses of truth is essentially a matter for the jury, but having regard to the complete absence of Kaiser from the witness-box, and seemingly he could have been made available, Dr Rahn's evidence, which seems to be sheer speculation on his part after his unrecorded investigations, Main's somewhat unattractive role in supplying the first alternative version of 4th August deal -- which seems to then become the guideline for other Rahn and Bodmer witnesses, Brooke's dubious attendance note of the subsequent meeting of 28th October and the other matters, like Dunki's sudden recollection of what the deal was all about, which only came to him when he was in the witness-box here; these are such, that acting on the authority of that second limb of the case R v Galbraith I am driven to the conclusion, taking the prosecution evidence as its highest, that no sensible jury, however properly directed, could possibly come to a conclusion that they were sure that this was other than a straight $5m deal, although they subsequently varied the terms of payment. I, therefore, propose to stop the case on that count. So, that is Count 3."

He then went on to stop the trial on the two conspiracy counts (the renumbered Counts 1 and 2) in similar terms. In relation to one of the misrepresentations alleged under Count 1 he said:

"As to the third alleged misrepresentation that there had been an approach by Rahn and Bodmer of $1.60 per share, one notes that the contract note from the bank and the fax show that this was a $5m deal and no documentary evidence controverts it with any conclusiveness."

Finally, at the end of this ruling the judge said:

"Having said [this,] there are two observations I would like to make; first of all, my decision represents no criticism whatsoever of the Serious Fraud Office, any prosecutor can only act and take action on the material which is supplied to him in the shape of witnesses and documents. He can investigate that and on the face of it if appears valid he makes his decision. But, I cannot help feeling if the Serious Fraud Office knew as much then as they do now it may well be that they would to have launched this prosecution in the first place, so much of the real nitty gritty of what was going on only came out from the witness-box as a result of cross-examination of those witnesses.
The second thing I would like to say is purely a personal view, I cannot help thinking that this sort of enquiry in a case where there has been no financial loss to any individual would be far better left to the regulatory jurisdiction of the appropriate bodies rather than a full blown criminal trial which takes up the time of the jury, the regulatory bodies have powers to conduct proper enquiries and they have sanctions which they can impose which in this sort of situation I would have thought would have [been] far more appropriate than a criminal trial, but that, as I say, is only a personal view of the matter."

After their acquittal on the direction of the judge in August 1993 the claimants issued their writ in this action in December of that year. In the action as originally constituted they claimed damages, including aggravated damages, for libel. By their original defence, served in February 1996, the defendants denied that the words were defamatory, pleaded that they were written on an occasion which attracted qualified privilege, and also pleaded matters in mitigation of damages. This defence also contained a plea that the claim was vexatious and an abuse of process because the letter had been written in the strictest confidence to TSA in order to assist it in discharging its public function. The defendants relied on the fact that it was only disclosed to the claimants under compulsion of law in the context of the criminal proceedings against them. Sitting as a judge of first instance, I upheld that plea in June 1996 and directed that the action be struck out. I was subsequently overruled by the Court of Appeal: see Mahon v Rahn [1998] QB 424. The defendants did not appeal to the House of Lords (although they were given permission to do so) but in a later case called Taylor v Serious Fraud Office [1998] 2 AC 177 the House of Lords held that I was correct and the Court of Appeal was wrong in relation to the main issue we had had to decide. At all events, the relevant paragraph of the defence in this action was struck out by the Court of Appeal in May 1997.

Certain dicta of Otton and Staughton LJJ in the Court of Appeal and the decision of the House of Lords in Martin v Watson [1996] AC 74 then triggered off a whole new round of pleading. In May 1998 the claimants amended their statement of claim to include a claim for damages for malicious prosecution on the basis that the defendants had been actively instrumental in setting the law in motion against them and had been actuated by malice in so doing. In June 1998 the defendants joined issue with this plea. They also amended their defence to add a plea that they were immune from suit in respect of the publication complained of, alternatively that it was made on an occasion which attracted absolute privilege. The amended defence also included a plea of justification, supported by 17 paragraphs of particulars. In August 1998 the claimants served a 15-page reply. This included a plea of express malice in response to the plea of qualified privilege. It also contained a large number of assertions of fact in response to the plea of justification.

In order to understand the issues we have to decide on the second and third parts of this appeal it is necessary now to consider the detail of the defendants' plea of justification and the claimants' reply to it, and the further assertions which the defendants now wish to add to their pleaded case. It appears that the parties agreed to the terms of a consent order dated 27th April 1998 which sanctioned the round of amended pleadings, but when the defendants came to serve their amended defence in June 1998 in purported reliance on this consent order they expanded paragraph (3) of the particulars of justification to include matters not contained in the amended pleading to which the claimants had consented. The claimants therefore declined to plead to these matters in their reply, and on the summons for directions the defendants sought leave to serve an amended defence to include the expanded paragraph (3). When the matter came before Master Hodgson on 26th March 1999 the paragraphs containing new material were numbered (3A) and (3B). In the description of the pleadings which follows I will omit reference to those two paragraphs (whose desired inclusion in the pleadings forms the subject-matter of the third appeal) until their appropriate place in the history of this action.

As I have said, the defendants amended their defence to include a plea of justification. The Lucas-Box meanings they have adopted are to the effect that in their natural and ordinary meaning Mr Kent was party to a conspiracy to defraud the bank by:

The defendants add that if contrary to their primary case the words referred to Mr Mahon at all, they meant that he was guilty of the same or similar misconduct.

It will be noted that the thrust of the first part of this plea did not relate to the difference between a C$3 million and a C$5 million transaction. It was to the effect that the Coastline shares were virtually worthless, and that the claimants knew this.

In the form in which Master Hodgson granted permission for this amendment to be made, this plea was followed by 16 paragraphs of particulars, coupled with an averment that so far as necessary the defendants would rely on Section 5 of the Defamation Act 1952. The gist of this plea can be obtained from reading paragraph (16), which follows the detailed assertions of fact to which I will turn in a moment. In essence the defendants maintain that:

The first two paragraphs of the particulars of justification contain uncontroversial background averments about the identity and roles of TCC, Mr Mahon and Mr Kent. I will now summarise the effect of what follows, retaining the same paragraph numbering for convenience, together with the effect of the claimants' reply on each point.

Defence (3). Before 4th August 1988 TCC had acted as broker in relation to numerous transactions arranged by Mr Johnson on behalf of companies owned or controlled by him or by a family trust of which he was the settlor, or companies in which he had a significant interest ("the Johnson Companies");

Reply The claimants admit that TCC had acted as broker prior to 4th August in relation to a number of transactions arranged by Mr Johnson. It always acted at arms' length from Mr Johnson and the Johnson companies and the claimants deny that TCC colluded with them or were otherwise "improperly closely involved" with them.

Defence (4) Prior to 4th August 1988 TCC claimed that as a result of these dealings Johnson companies owed it about A$8 million. During 1988 TCC was pressing Mr Johnson to ensure that these sums were paid. In particular it required payment of about A$5 million urgently in order that it could satisfy TSA about its financial position and maintain its authorisation to carry on investment business.

Reply The sum owed was about A$10 million. It was the worst bad debt the firm had ever had. At this time TCC had about 20,000 clients, yet the total level of its bad debt (even after the stock market crash of October 1987) was only £500,000.

Except for their positive case, which I set out below, the claimants then deny the matters alleged by the defendants in paragraphs (5) to (10). They maintain the simple assertion that on 4th August TCC agreed to sell to the bank 3,125,000 shares in Coastline at a price of C$1.60 per share, amounting to C$5 million in total, settlement to be on or before 4th November 1988. After an initial description of matters relating to the previous relationship between the bank on the one hand and Mr Johnson and his companies on the other hand, they set out some positive assertions in relation to the matters relied on by the defendants under paragraph (5) to (8).

They say, first, that the bank had acted as the banker to Mr Johnson and his company from about February 1986. They then give a number of examples of circumstances in which the bank so acted of which items (b)(ii) and (c) are transactions on which the defendants also wish to rely in their additional pleadings. In particular:

Defence (5) On 12th June 1987 a Johnson company called Grona obtained a controlling interest of 655,800 shares in Coastline at an average price of C$0.21 per share. During July 1987 TCC acted as brokers in connection with an issue of 3,700,000 shares in Coastline at a price of C$0.34 to certain institutions as exempt placees. TCC knew that 2,520,000 of these shares were intended to be and were held by the exempt placees as nominees for Johnson companies or sold on to Johnson companies prior to August 1988 at the same price.

Reply The June 1987 transaction is admitted. The claimants deny that TCC acted as brokers in relation to the issue of the Coastline shares in July 1997, but admit that TCC assisted with the issue by identifying exempt institutional investors interested in acquiring these shares. They say that at the time it was a common practice for such institutions to acquire shares in these circumstances, since it facilitated trading in the shares thereafter. They deny that the institutional investors held the shares as nominees for any Johnson companies but admit that a subsequent sale of the shares to Johnson companies was contemplated (although not at the same price).

Defence (6) Immediately before 4th August 1988 3,125,000 Coastline shares ("the shares"), most of which had been issued in the July 1987 private placement, were pledged to TCC to secure the debts owed to it by Johnson companies. It is said that TCC knew that Coastline was a shell company whose only significant assets were a sum in cash of less than C$900,000, representing the unspent balance of the proceeds raised by means of the private placement. On the basis of shareholders' funds of C$900,000, the total of 5,824,250 shares in Coastline then in issue were worth no more than C$0.15 per share.

Reply The claimants admit what is said about the pledging of the shares as security for the debts TCC was owed, but otherwise they deny these assertions. They say that prior to 4th August 1988 TCC believed that Coastline had an option to acquire valuable gold mining interests in Crickle Creek, in Canada, and that this was why it regarded the pledge of the shares as valuable security.

Defence (7) Shortly before 4th August 1988, or on that day, Mr Johnson and TCC (acting by Mr Kent) in the absence of any representative of the bank, discussed a transaction which they agreed in principle. It had two essential elements. The first was that the shares would be sold to Johnson companies or other entities Mr Johnson would identify at a total price of about A$5 million, with a deferred settlement date. The second was that the bank would be asked to buy the shares from TCC at that price on the basis that it would act merely as broker or nominee for the real purchasers, whose identity would be provided to the bank by Mr Johnson or TCC or Mr Kent.

TCC (acting by Mr Kent) and Mr Johnson had two intentions. The first was that the existence of a contract showing the bank as the ostensible purchaser of the shares would immediately improve TCC's position with TSA and/or would enable it to obtain bridging finance. The second was that the sum paid for the shares on the settlement date would repay part of the debt owed to TCC by Johnson companies. TCC knew that the price of about C$1.60 at which the shares would be stated to be sold was fixed by reference to the sum needed to repay the required amount of the debt owed by Johnson companies to TCC, and bore no relation to any realistic value of the shares.

Reply The claimants admit that prior to 4th August 1988 they had discussions with Mr Johnson and Mr Main about the possibility of one or other of two Johnson companies buying shares including the Coastline shares for a total price of about C$5 million in order to realise their value and to pay off at least part of the indebtedness to TCC. They deny that there was any discussion about any involvement of the bank in the transaction, and there was certainly no discussion or agreement that the bank should buy the shares as broker or nominee for any third party using funds provided by any third party. In the event the discussions about the shares being purchased by one of the two Johnson companies came to nothing.

The claimants also deny what is said about their intention and their knowledge at this time.

Defence (8) In pursuance of the agreement they had made, Mr Kent and Mr Johnson met Mr Kaiser on 4th August 1988 in order to persuade him to agree on behalf of the bank to documentation which showed the bank as ostensible purchaser of the shares. Mr Kent agreed on TCC's behalf that in the event of the bank entering into a contract to buy the shares from TCC for C$5 million for settlement within 90 days, completion of the purchase would not be required until the necessary funds had been made available by Mr Johnson or TCC or Mr Kent, and the bank had been given the names of those who were in fact buying the shares.

Reply The claimants deny what is said under (8). Their case is that the bank approached TCC with a bid of C$1.60 per share for the shares in the telephone conversation between Mr Mahon and Mr Kaiser. They rely on Mr Kaiser's use of the expression "Following our conversation..." in his telex and the fact that the bank did not disagree with the statement in a letter from TSA dated 26th September 1988 to the effect that it (the bank) approached TCC with a bid of C$1.60 per share.

Defence (9) As a result of the agreement on which the defendants rely under (7) above, the purported sale of the shares by TCC to the bank at a price of C$1.60 per share (amounting in total to C$5 million) with settlement on or before 4th November 1988 was documented by the exchange of telexes between Mr Mahon and Mr Kaiser on 4th August 1988.

Reply The claimants say that the sale was not "purported" or a sham. After the telephone conversation and the exchange of telexes, TCC bought as principal 3.125 million shares in Coastline at C$1.59 per share from Safeguard which they then sold as principal to the bank at C$1.60 per share and duly sent the bank a contract note dated 4th August 1988 relating to this sale.

Defence (10) The defendants say that it was therefore in effect agreed that the bank would not be obliged to complete the contract unless provided with the full amount of the funds with which to do so, and would then do so on behalf of the purchasers to be notified by Mr Johnson.

Reply The claimants deny that there was any agreement, in effect or otherwise, that the bank would not be obliged to complete the purchase unless provided with the funds to do so.

The claimants go on to rely on the following four further matters to support the contentions they make in paragraph 4(5)(q) of their reply which I summarise in paragraph 94 below.

"As you are aware [Meridien] is raising approximately A$16 million in a one for one rights issue ...
I confirm the placing of 3.125m shares of [Coastline] from TCC for C$5m with settlement in 90 days. As Meridien intends to place the shares over the 90 days with other companies we would wish you not to disclose the name of your client ...
... we authorise you to disclose to Arthur Andersen and Company that you are acting for a client that has the ability to pay and is in no way connected or associated with [TCC]."

"We are acting on behalf of undisclosed clients. The transaction is not subject to put or call option and is in no way connected or associated with TCC."

"... we understand and agree with the terms of the transaction as expressed in the [TCC] contract note which requires unconditional full settlement of 3,120,000 [Coastline shares] by Rahn and Bodmer on or before 4th November for the sum of [C$5 million].
Additionally, the transaction has no repurchase arrangement or other linked transaction or put or call option involving [TCC], its shareholders, directors or employees."

In these circumstances the claimants make eight points in paragraph 4(5)(q) which they say flow from the matters they have pleaded:

The claimants go on to make two further sets of factual averments. The first relates to the destination of the Coastline shares, and the second to their assertion that the transaction was financed by the bank.

As to the first, on 14th November 1988 Mr Main instructed the bank as to the placement of the shares which were to be split between Mr Mountford (1.4 million), Kola (875,000) and Grona (850,000). The last two companies were Johnson companies. In order to avoid triggering a full take-over bid, on 25th November 1988 Brooke Blain Russell (acting for the bank, Mr Johnson and his companies) informed Coastline and the bank that 600,000 of the shares destined for Mr Mountford were to be transferred to another Johnson company called Roses. A week later the same firm instructed the bank to transfer to another Johnson company called Valentina the shares previously destined for Grona.

As to the second, the claimants deal separately with the financing of the purchase by the four eventual transferees. So far as Kola (875,000) and Roses (600,000) are concerned, the facts relied upon are simple. Kola's account was debited with C$ 843,738.50 (which looks like a purchase price of C$0.96 per share), a sum together with interest which was still owed to the bank as at February 1991, whereas the bank was seeking payment of the previous month of a sum equivalent to C$1.50 for each of the 600,000 shares booked to Roses.

With Mr Mountford and Grona/Valentina the history is more complicated. A price of C$0.96 seems to have been originally adopted, both when Grona's account was originally debited on 18th November 1988 for the 850,000 shares booked to it and when on 2nd December 1988 Valentina asked the bank to acquire for it the same number of shares at that price. With effect from 30th November 1988, however, 660,800, not 850,000, shares were re-booked by the bank into Valentina's account for a nil consideration, but at a stated value of C$1.45 per share, but Grona's account was not credited with C$958,160 or any sum. As at January 1991 the bank was seeking payment of a sum equivalent to C$1.50 for the 850,000 shares booked to Grona.

The history of Mr Mountford's holding is set out along these lines. On 1st November 1988 Mr Butler (of Brooke Blain Russell) told him that the bank would be lending him C$2.1 million for the purchase of his 1.4 million shares at C$1.50 each. On 18th November 1988 1.4 million shares were added to his account (having been booked at C$0.96 per share) which was debited with borrowing of C$1,348,746. At the same time the bank transferred 600,000 shares to Roses for no consideration. The borrowing on Mr Mountford's account was not adjusted when his shareholding was reduced to 800,000 shares, so that the acquisition cost was C$1.686 per share. As at February 1991 the bank was continuing to press Mr Mountford for payment on the basis of this borrowing to which interest had been added. It made a margin call on him in the sum of C$1.2 million, which was equivalent to a price of C$ 1.50 per share.

Defence (11) On 24th August 1988 the debt allegedly owed by the bank under this agreement was assigned to Bryanston for £2 million (which Bryanston paid to TCC) by what is called a "purported assignment". The bank was told that there had been an assignment both by a letter of that day from TCC and Bryanston which was sent to it by registered post on 31st August and again by fax on 3rd November 1998.

Reply The claimants dispute the appropriateness of the words "allegedly" and "purported", but otherwise admit this paragraph. They say that Bryanston paid TCC £2 million as a consideration for this assignment.

Defence (12) On 3rd November 1988 Susan McLaughlin, of the firm of solicitors acting for Bryanston, sent a telex to the bank stating that C$5 million was due the next day, and asked Mr Kaiser to contact her so that she could arrange for the transfer of the shares to the bank. The following day Mr Ernst told her in a telephone conversation that Mr Kaiser had told him that the bank had not been put in funds to acquire the shares. The purchase could therefore not be completed.

Reply The first sentence in this paragraph is admitted. The second is denied, and is said to be irrelevant and inadmissible. The claimants say that Mr Kaiser's explanation as to why the purchase could not be completed was that it was not administratively possible at that stage to pay for the shares.

Defence (13) On 11th November 1988 the bank sent a telex to Bryanston stating that it would pay C$3 million against delivery of the shares and that "the balance of C$2 million will be paid as funds are available as arranged by [TCC]". This telex had been preceded by a meeting between Mr Kaiser and Mr Mahon on 10th November. The bank received no objection from either Bryanston or TCC to the terms of this telex.

It is then explained how the shares were delivered for the bank's account in two tranches (one against payment of C$3 million, the other free of charge) between 14th and 18th November 1988. Thereafter the bank booked the shares into the accounts of the purchasers notified to it by Mr Main (acting for Mr Johnson) at a price of C$0.96 per share, which corresponded to a total purchase price of C$3 million.

There is a further plea to the effect that if the bank had indeed been obliged to pay C$5 million for the shares, TCC's acceptance of C$3 million, with Bryanston's knowledge and consent, in exchange for delivery of the shares to the bank on the terms set out in the telex dated 11th November 1988 gave rise to an agreement between the bank on the one hand and Bryanston and TCC on the other to the effect that the bank would not be obliged to pay the balance of the purchase price (namely C$2 million) unless and until TCC arranged for this sum to be available to it.

Reply The claimants make detailed averments about the telex of 11th November 1988 and respond more briefly to the remainder of this paragraph. So far as the terms of the telex are concerned they say that Mr Kaiser and Mr Mahon at their meeting agreed the terms of their telex, but that after the meeting the bank took instructions from Mr Johnson who altered the terms and effect of the telex, and the telex as sent to Bryanston was in the changed wording. It contained the words "as arranged by TCC" which were not in the agreed text. The bank did not send to TCC, or at any rate TCC did not receive, a copy of the telex containing the changed wording, and TCC did not have the opportunity to object to the changed wording of which it was not aware.

As to the remainder of paragraph (13), the claimants say that if the bank decided to and did book the shares into the accounts of its clients at a price other than that at which it had purchased, that could not and did not alter the terms of the contract made as between the bank and TCC (which was not a party to that decision). They add that TCC did not accept the sum of C$3 million in exchange for the delivery of the shares on the terms of the changed wording. It was not a party to, and was not bound, by the agreement which the defendants assert, and whose existence the claimants deny.

Defence (14) On 18th November TCC received a further sum of C$2 million, which was intended to be paid and received as payment for the shares, and this receipt therefore extinguished any entitlement of TCC or Bryanston under the purported sale. Four matters are relied on:

Defence (15) Oxnard has started proceedings in the Chancery Division against the bank in respect of an alleged debt of C$2 million owed by the bank to TCC. Oxnard claims that on 30th December 1988 Bryanston re-assigned that alleged debt to TCC, who then assigned it to Oxnard.

The defendants say that if, which they deny, these transactions took place, they constituted a further fraudulent or sham transaction by TCC, and by Mr Mahon and Mr Kent in particular.

Reply The claimants say that between 14th and 18th November 1988 the shares were delivered to the offices of the Swiss Banking Corporation in London and Toronto for the account of the bank which paid TCC C$ 3 million in part payment for the shares. During the same period three further events occurred:

The claimants say that by assignments each dated 30th December 1988 Bryanston re-assigned the debt to TCC and TCC assigned the debt to Oxnard. Notice of this assignment was given by an undated letter from TCC's solicitors to the bank sent in late January 1989. The claimants therefore maintain that the bank is liable to pay this debt to Oxnard as the outstanding balance of C$2 million due under the contract. Since it has failed to do so, Oxnard's proceedings are justified. The transactions and assignments which took place were neither fraudulent or sham.

The claimants otherwise make a general denial of the facts asserted in paragraphs (13) to (15). They also say, of paragraphs (11) to (15), that the words of which they complain in these proceedings are not capable of bearing the second meaning relied on in the defendants' plea of justification and that this meaning and the particulars set out in those paragraphs should be struck out. They did not, however, seek orders to that effect on the summons for directions or otherwise.

The pleadings were supplemented from time to time by further and better particulars. As I have said, at the hearing of the summons for directions before Master Hodgson on 24th-25th March 1999 the defendants sought and were refused permission to re-amend their defence to add the new allegations to their plea of justification. Master Hodgson directed that witness statements of fact be exchanged by 11th January 2000 and that expert accountants' statements should be served somewhat earlier. He also made a large number of ancillary directions, including a direction that the trial should be heard by judge alone, with an estimated length of 20 days, and that it should not begin before 13th March 2000.

The two paragraphs which Master Hodgson refused to allow the defendants to add to their pleadings purported to set out examples of four occasions prior to 4th August 1988 when TCC had acted as broker in relation to transactions arranged by Mr Johnson on behalf of Johnson companies.

Paragraph (3A) contains particulars of two transactions in which TCC had purported to sell shares to the bank when it knew that the bank was intending to act not as principal but on behalf of Mr Johnson or a Johnson company and when it was instrumental in arranging the provision of funds to the bank with which to complete the purchase of the shares on behalf of Mr Johnson or a Johnson company. The defendants then set out the history of these two transactions.

(a) The Epoch shares

(b) The Kulim shares

Paragraph (3B), for its part, asserted that TCC had acted as broker in relation to at least two transactions carried out on behalf of Mr Johnson which were "back to back", in the sense that TCC purported to sell shares to the bank and at the same time, and as part of the same transactions or series of transactions, it purported to sell the same shares on the bank's behalf to a third party.

(d) The NAR shares

On 2nd June 1999 the defendants' solicitors issued a judge's summons, returnable for a two-day fixture on 24th-25th June 1999, in which they sought the relief which the judge was to refuse them, and in respect of which they now appeal. They had earlier appealed on 26th March 1999 against that part of Master Hodgson's order which refused to grant them permission to re-amend the defence as they had requested and against the ancillary order he had made in relation to costs consequent on that order.

On 1st July 1999 the judge handed down a written reserved judgment. For reasons to which I will refer later in this judgment he dismissed the defendants' application for summary judgment on the claimants' plea of malicious prosecution (made on the basis that it had no real prospect of succeeding at the trial) and struck out their plea of absolute privilege in relation to the TSA letter. He then considered their proposed amendments to the plea of justification. He summarised their effect as rehearsing earlier transactions carried out by the bank with Mr Johnson that were wholly distinct from the Coastline purchase in 1988.

He said that the primary question he had to decide was whether they would form a legitimate part of the plea of justification. He had little doubt that if the factual allegations were to be contested, the amendments would lead to a significant prolongation of the process of disclosing documents and, ultimately, also of the trial itself. He said that one would always have asked, on such an application, whether the particulars were relevant to and capable of supporting the truth of the Lucas-Box meanings.

He then directed himself, both by reference to pre-CPR cases and to the CPR decision of this court in McPhilemy v Times Newspapers Limited (now reported at [1999] 3 All ER 775). He derived from these authorities, correctly, the proposition that a party cannot be prevented from putting forward an allegation that was central to his or her defence. He continued:

"Applying that test of centrality, I do not regard these proposed amendments as permissible. Prior to the new dispensation I would have asked the (virtually identical) question whether these transactions could be said to form part of the `essential' issues rather than being merely `peripheral': see Rechem International v Express Newspapers [1992] TLR 302 per Neill LJ. I would have come to the same conclusion.
Mr Moloney really put his argument on the basis that these earlier dealings, in connection with Mr Johnson's affairs, might be of value to his clients at the trial in helping to refute any suggestion to the effect that the characteristics of the 1988 transaction were such that they should have been put on enquiry. I could envisage circumstances in which questions were being asked in cross-examination, and there was a challenge to credit, such that it might be relevant to refer to a past pattern of dealing. It is not for me to rule in advance, or hypothetically, so as to try to bind the hands of the trial judge on issues of relevance or admissibility should such circumstances arise in fact. This is one of the areas in which the parties may well be able to agree in advance of the trial some facts, expressed in general terms, so that there would be no need for a detailed examination of other transactions. That is certainly to be encouraged. What is, however, clear for present purposes is that these draft sub-paragraphs have no place in the particulars of justification.
Accordingly, I disallow the amendments."

There are three issues before us on the appeal:

It will be convenient to deal with the third of these issues first. Although this is what is called a "second tier appeal" (the master and the judge having both refused the defendants' application to add to their plea of justification), this court has granted permission to appeal. In the circumstances we have to determine, as I have said, whether the judge was clearly wrong in declining to allow the amendment sought. I remind myself that this is an appeal from a judge of vast experience in defamation practice, with whose interlocutory decisions we should be extremely slow to interfere.

In McPhilemy v Times Newspapers Ltd May LJ distinguished at p 791 the exclusion of "all peripheral material which is not essential to the just determination of the real issues between the parties, and whose examination would be disproportionate to its importance to those issues" as compared with the exclusion of "potentially important evidence which is central to a legitimate substantial defence".

In my judgment, contrary to the view expressed by the judge, the matters which the defendants wish to introduce fall fairly and squarely into the second category. There is an absolutely central dispute as to whether the defendants are correct when they say that the claimants were party to a conspiracy to defraud the bank by selling to it (or causing it to hold as a valuable security) the Coastline shares which they knew to be virtually worthless (see paragraphs 68-69 and 71 above), or whether the claimants are correct when they say that they always acted at arms' length from Mr Johnson and his companies and were not "improperly closely involved with them" (see paragraph 74 above). There is an equally central dispute as to whether the bank would not be obliged to complete the purchase of the shares under the 4th August contract until they had been put in funds by Mr Johnson or TCC or Mr Kent (see paragraph 87 above) or whether this was a straightforward commercial deal which the bank was obliged to complete on or before the settlement day (see paragraphs 88, 90 and 92 above).

The bank wish to rely on the new material in support of their case that in the course of their dealings with Mr Johnson and his companies TCC had not always acted at arms' length and that the pattern of dealings on this occasion was in many respects similar to what had happened on four previous occasions (on two of which the claimants also rely in their reply, as I have already observed). On the third and fourth occasion shares were being sold by one Johnson company to TCC, by TCC to the bank and by the bank to another Johnson company, with TCC making itself responsible for the eventual purchasers' payment to the bank. On the first two occasions there is no evidence of the identity of the original seller of the shares to TCC, but otherwise the transactions have a number of common features. We have been shown the comparatively small number of documents in the bank's possession which relate to these transactions, but it may be that the claimants would have more to disclose.

It is clear from the events at the criminal trial and from the parties' exchanges in relation to paragraphs (11)-(15) of the plea of justification that there are unusual features in both sides' cases in relation to the events from 4th August 1988 onwards. This case, however, is not simply concerned with what has been called "the 3-2 split". It is also concerned with the truth or falsity of the bank's contention, contained in the TSA letter, that the transaction involved virtually worthless securities (see paragraphs 46 and 68(1) above) and that the claimants knew it. In my judgment, even though the inclusion of this evidence will prolong the trial, it would be a denial of justice to the defendants to refuse to allow them to adduce evidence of these four earlier transactions.

The only question is how they should be permitted to do it. Under former pleading practice they would have been permitted to plead a rejoinder to the reply in answer to the claimants' contentions which they seek to rebut with this material. Under the CPR prolix pleadings are no longer encouraged, and in his judgment in McPhilemy Lord Woolf MR made it clear that material which formerly appeared in particulars of pleadings may now appear in witness statements, parts of which can always be struck out if they are prolix, irrelevant or embarrassing. He said at pp 792j -793b:

"The need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party's witness statements, will make the details of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise. This does not mean that pleadings are now superfluous. Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader. This is true both under the old rules and the new rules. The Practice Direction to r 16 para 9.3 (Practice Direction - Statements of Case CPR Pt 16) requires, in defamation proceedings, the facts on which a defendant relies to be given. No more than a concise statement of those facts is required."

It is clear from the pleadings as they stand already that the parties have joined issue on the nature of the claimants' previous relationship with Mr Johnson and his companies. What Lord Woolf is saying is that it is no longer necessary to say in further and better particulars what will be said again in a witness statement so long as a concise statment of the facts relied on by a party is contained in the pleadings.

While differing from the judge on the importance of this material I would agree with him that these paragraphs do not form an appropriate part of the plea of justification in the defence. Reference should be made to these earlier transactions, as Lord Woolf suggests, in the defendants' witness statements, with the relevant documents exhibited, if the defendants wish to rely on them, and as at present advised I can see no grounds on which they could be reasonably struck out since they form part of the defendants' answer to the claimants' reply to their plea of justification.

For these reasons I would dismiss the appeal, while differing from the approach adopted by the judge.

I turn now to the issues embraced in the defendant's application dated 2nd June 1999. They placed in evidence in support of their applications a witness statement by Dr Paltzer and an affidavit sworn by Mrs Garlick, and the claimants responded with an affidavit sworn by their solicitor Mr Daniel. On the first of these issues (absolute privilege) the defendants also exhibited recent correspondence between their solicitors and TSA's successor, the Securities and Futures Authority ("SFA") in which SFA expressed its views in these terms:

"SFA does consider that, at the least, information properly relating to firms and individuals which it regulates enjoys a qualified privilege. As you are aware, SFA considers that it has a duty under statute to investigate alleged wrong-doing on the part of any firm which it regulates or which is applying for authorisation (as did TSA). Allegations of wrong-doing and information to support those allegations are therefore matters of legitimate interest to SFA. However, given that SFA's interest must be in receiving material which is known, or is at least honestly believed, by the informant to be true, SFA does not see any additional benefit in seeking to argue the absolute immunity point when the defence of qualified privilege should, in SFA's view, be available to its informants."

In his witness statement Dr Paltzer said that he was advised that the question whether absolute privilege attached to communications between TSA and its informants was an issue of law, depending primarily on interpretation of TSA's statutory functions and its rules and practices, and not on the particular circumstances of the defendants' case. He wished, however, to make five points.

The first was that he believed that TSA's rules demonstrated that it was a quasi-judicial body exercising important statutory powers in the investment business as regulator, both in surveillance of its members and enforcement of its rules. Next, he referred to the views recently expressed by SFA. He went on to make the following further points:

"(c) But, I believe the SFA has ignored the potential informant's viewpoint. Speaking for the bank, as one such informant, I can testify with force that I would not have given in to the multiple requests of TSA in 1990 for information, had I known that the Defendants would risk being harassed by litigation, whatever the interests of the regulator and the wider public in the free flow of information to the regulator may be.
(d) Our case is a very clear illustration. We were told by the SFO at the outset and throughout 1990 of allegations of massive fraud involving millions of dollars resulting from stock exchange manipulations, of TSA's own investigation into the capital inadequacy of TCC and an impending hearing regarding the Second Claimant. I myself had to make extra time available to finish drafting the letter before the Christmas holiday so as to accommodate TSA. In the first paragraph of the letter I went into exact language in order to make it clear that the bank did not warrant its accuracy or completeness and that it was solely meant to be `helpful in your proceedings'.
(e) We would never have laid any information before TSA if we had thought that it might expose us to litigation, particularly a case of this nature. The idea that there was a material distinction for this purpose between TSA and the SFO (which introduced us to TSA, and with which the SFO was fully co-operating) at that time did not cross our minds. I very much doubt whether, if this case goes to trial, anyone (including, as in this case, an institution such as a Swiss bank) would voluntarily help a British regulator, despite the evident desire of such co-operation in the modern commercial world, as illustrated by TSA's own requests in 1990."

Mr Daniel, too, accepted that this issue was primarily a matter for submissions to the court. He observed, however, that it was misleading to suggest that the bank was simply approached by TSA. He said that it was apparent from the documents that the bank approached the SFO with information, the SFO told TSA about that information, and only then was there any contact about a transaction which had taken place previously. Until stimulated to do so by the defendants, TSA was not conducting an investigation in the Coastline transaction.

As Dr Paltzer's evidence suggests, the resolution of the first issue we have to decide turns primarily on an interpretation of TSA's statutory functions, and its rules and practices, to which I will turn in due course. Before I do so, I must say something about the law as it currently stands, in order to identify the matters that have to be noticed when I come to consider TSA's rules and practices.

It is well known that statements made in the course of judicial proceedings attract absolute privilege. In Royal Aquarium and Summer and Winter Garden Society v Parkinson [1892] 1 QB 431 Lopes LJ stated the general rule in these terms at p 451:

"The authorities establish beyond all question this ... that no action of libel or slander lies, whether against judges, counsel, witnesses or parties, for words written or spoken in the course of any proceedings before any Court recognised by law, and this though the words written or spoken were written or spoken maliciously, without any justification or excuse, and from personal ill-will and anger against the person defamed."

In the Royal Aquarium case Fry LJ suggested in his judgment at p 447 that absolute privilege applied only to proceedings in courts of law. This suggested restriction has not withstood the tests of time, but an earlier dictum of Fry LJ, in which he explained the policy reasons for the rule, still underlies the retention of the rule today.

In Munster v Lamb [1883] 11 QBD 588 he said at p 607:

"The rule of law exists, not because the conduct of those persons ought not of itself to be actionable, but because if their conduct was actionable, actions would be brought against judges and witnesses in cases in which they had not spoken with malice, in which they had not spoken with falsehood. It is not a desire to prevent actions being brought in cases where they ought to be maintained that has led to the adoption of the present rule of law; but it is the fear that if the rule were otherwise, numerous actions would be brought against persons who were merely discharging their duty. It must always be borne in mind that it is not intended to protect malicious and untruthful persons, but that it is intended to protect persons acting bona fide, who under a different rule would be liable, not perhaps to verdicts and judgments against them, but to the vexation of defending actions."

During the course of the next hundred years the protection of absolute privilege has been extended to "tribunals exercising functions equivalent to those of an established court of justice" (see O'Connor v Waldron [1935] AC 76 per Lord Atkin at p 81). The specialist text books give examples of cases which fall on either side of the line. Most notably, absolute privilege has been found to attach to the proceedings of disciplinary tribunals established by professional bodies (see Addis v Crocker [1961] 1 QB 11 (solicitors) and Lincoln v Daniels [1962] 1 QB 237 (barristers)). In Trapp v Mackie [1979] 1 WLR 377 the House of Lords took the opportunity of identifying the criteria which must be applied when determining whether the proceedings of a tribunal are protected by absolute privilege.

Lord Diplock, with whose speech the other members of the House agreed, suggested the following four matters which fell to be considered in this context at p 379G:

On the facts of that case, which related to proceedings at a local inquiry held before a commissioner appointed by the Secretary of State to inquire into the dismissal of a school headmaster, Lord Diplock identified at p 383C-H ten characteristics which the proceedings before that tribunal shared with courts of justice. He made it clear that he was not suggesting that the presence of any one of these characteristics, taken in isolation, would suffice to attract absolute privilege or that the absence of any one of them would be fatal to the existence of such privilege. He contented himself by saying at p 384B that "the cumulative effect of the ten characteristics he had listed were more than enough to justify" the respondent's entitlement to absolute privilege before that tribunal.

Whether the privilege extends beyond the preparation of witness statements to the initial complaint which triggers off the proceedings in question is a different question to which I must turn in due course. It is now appropriate, however, to consider the function of TSA and its rules and practices at the time of the events with which this action is concerned.

Part I of the Financial Services Act 1986 introduced new statutory arrangements for the regulation of investment business (for which expression see Section 1(2) and Schedule 1 to the Act). So far as is material to this action, Section 3 provides that no person shall carry on, or purport to carry on, investment business in the United Kingdom unless he is an authorised person under Chapter III of the Act, and Section 4 creates offences and prescribes criminal sanctions for contraventions of Section 3.

In this action we are concerned with the part of Chapter III of the Act (ss 7-14) which is concerned with the manner in which someone may become an authorised person for the purposes of the Act through membership of a recognised self-regulating organisation ("SRO"). So far as is material, a member of a recognised SRO is an authorised person by virtue of his membership of that organisation (s 7(1)). The expression "SRO" means a body which regulates the carrying on of investment business of any kind by enforcing rules which are binding on persons carrying on business of that kind either because they are members of that body or because they are otherwise subject to its control (s 8(1)). In the Act references to the rules of a SRO are references to the rules which the organisation has power to enforce in relation to the carrying on of the business in question or which relate to the admission and expulsion of members of the organisation or otherwise to its constitution. Sections 9 and 10 of the Act are concerned with the arrangements by which a SRO may become recognised for the purposes of the Act. The submission of the applicant SRO's rules to the Secretary of State is, not surprisingly, an integral part of an application for recognition (s 9(6)). Before the Secretary of State makes a recognition order it must appear to him, among other things, that the requirements of Schedule 2 of the Act are satisfied as respects the SRO in question.

Schedule 2 provides, so far as is material:

"1. (1) The rules and practices of the organisation must be such as to secure that its members are fit and proper persons to carry on investment business of the kind with which the organisation is concerned.
....
2. The rules and practices of the organisation relating to -
(a) the admission and expulsion of members; and
(b) the discipline it exercises over its members,
must be fair and reasonable and include adequate provision for appeals."

This case is concerned with the process of obtaining authorisation from TSA. Rule 160.02 of TSA's rules provided that it was for the applicant for authorisation to satisfy the Authorisation Committee that it or he was a fit and proper person. That committee might grant the application unconditionally or subject to conditions, or declare that it intended to refuse it. If it took the last of these courses, it had to serve on the applicant a Refusal Warning Notice, which specified in what respect he or it was not a fit and proper person and contain a statement of the matters it relied on in so concluding (Rule 160.03).

The applicant was then allowed 10 business days in which to serve a Response on TSA, which had to set out the grounds for his or its case for authorisation (Rule 160.04). When the Response was served, the case was referred to the Authorisation Tribunal ("the tribunal"). The burden of proof (as to whether he or it was a fit or proper person) remained on the applicant (Rule 160.05).

I interject here to say that Mr Moloney QC distinguished between the proceedings of the Authorisation Committee and the proceedings of the tribunal. He contended that the latter, but not the former, "exercised functions equivalent to those of an established court of justice" so as to attract absolute privilege.

Rule 20.01 prescribed who might be appointed chairman of one of TSA's tribunals. The last three of the four categories of qualified persons set out in this rule embraced those who held or who had held high judicial office or were barristers or solicitors of at least ten years' call or ten years admission. We were told that retired judges or civil service lawyers of great distinction were appointed chairmen of TSA appeals tribunals (a level higher than the Authorisation Tribunal) and that QCs or retired circuit judges of considerable experience formed the type of person who would be appointed to an Authorisation Tribunal.

Rules 160.5 - 160.15 were the main procedural rules governing the proceedings before the tribunal. To anyone familiar with the rules of domestic tribunals of this kind which were drafted 10-15 years ago, these rules followed the usual pattern, and it is not necessary to write them all into this judgment. As one might expect, they aimed at providing for procedural fairness without the excessive expense and delay which disfigured the conduct of much civil litigation at that time.

Before I examine the particular rules to which Mr Alun Jones QC relied in support of his case that absolute privilege should not attach to the proceedings of this tribunal, it is convenient now to say that I am satisfied that three of the four tests proposed by Lord Diplock in Trapp v Mackie are satisfied, viz:

So far as the tribunal's procedure was concerned, Mr Jones relied principally on the absence of discovery and the fact that the proceedings of the tribunal were conducted in private as disqualifying factors. He also mentioned the fact that evidence was not taken on oath, so that a prosecution for perjury was not available as a sanction for giving false evidence.

Mr Jones also submitted that we ought to be willing to consider the jurisprudence of the European Court of Human Rights when deciding whether the proceedings before the tribunal should be equated to the proceedings before a court for the purpose of conferring absolute privilege to them.

Rule 160.10 contained the rules relating to disclosure of documents. In short, if either party wished to rely on any document at the hearing, they were obliged to mention it in a list of documents to be served on the other party and also on the tribunal's secretariat at least 10 business days before the hearing. The rule then provided for inspection of the other side's documents, and placed an obligation on the parties to use their best endeavours to prepare an agreed, paginated and indexed bundle for the hearing. Rule 160.10(e) provided that:

"For the purposes of the Tribunal hearing neither party shall at any time be entitled as against the other to disclosure of any documents save as set out above."

The rigidity of that rule was mitigated, however, by the powers given to the Preliminary Hearings Officer (whose rulings were subject to appeal to a tribunal chairman) who performed an interlocutory role similar to that of a master or a district judge in civil proceedings conducted in the courts. Rule 160.07(d) provided that:

"The Preliminary Hearings Officer shall give such instructions as may be appropriate for the just and expeditious determination of the application. In particular, the Preliminary Hearings Officer may give such instructions and such permissions as are necessary relating to disclosure of documents, notices to admit facts, representation and attendance of witnesses, and may in any particular case give instructions departing from these Rules." (Emphasis added).

So far as the right to discovery is concerned Mr Jones relied on the decision of the European Court of Human Rights in De Haes v Belgium (1997) 25 EHRR 1. That, however, was a dispute relating to the outright rejection by a Belgian court of an application for specific discovery which put the applicants at a substantial disadvantage viz a viz the respondents, thereby breaching the principle of equality of arms (see the judgment of the court at p 58, para 58). There might therefore have been ground for complaint along these lines if a preliminary hearings officer declined to order discovery of specific undisclosed documents of a vital nature in any given case. Mr Jones's complaint, however, is based on the absence of any general rules compelling automatic disclosure of documents in a party's possession along the lines of what is now required under standard disclosure under CPR 31.6, or under the statutory scheme now prevailing in criminal courts. He suggested that we should ask ourselves whether the omitted procedure would be regarded as fundamental to the fairness of the judicial process or would amount to a violation of the rights of the party aggrieved by its omission under the European Convention on Human Rights.

Given the power of the preliminary hearings officer to direct that a hearing should be in public, if a request is made to that effect, I do not consider that the general rule that proceedings should be in private should disentitle its proceedings from attracting absolute privilege if they would otherwise qualify for it. Even Article 6(1) of the European Convention of Human Rights allows for private hearings in appropriate circumstances, and there appear to be good reasons why an authorisation appeal should be conducted in private, if only to protect the reputation of an appellant who was seeking to argue, against evidence to contrary effect deployed by TSA, that he or it was a fit and proper person to conduct investment business. In Addis v Crocker [1961] 1 QB 11 this court considered and rejected a similar argument in relation to the private proceedings of the disciplinary committee of the Law Society (see Hodson LJ at pp 23-26, Pearce LJ at p 29 and Upjohn LJ at pp 29-31).

In Lincoln v Daniels [1962] 1 QB 237 the central issue related to the question whether disciplinary proceedings against barristers, which were at that time conducted by Benchers of their Inn, attracted absolute privilege. Devlin LJ said at p 255:

"I appreciate that the Bench of the Inner Temple (and I dare say those of the other Inns) conducts its proceedings with less formality than in a court of law. There are no pleadings or discovery; witnesses cannot be subpoenaed and do not give evidence on oath. These are factors to be taken into account, but I think that in any case of doubt the overriding factor is whether there will emerge from the proceedings a determination the truth and justice of which is a matter of public concern, for it is public policy that justifies absolute privilege."

Sellers LJ at p 250 did not regard matters of the type mentioned by Devlin LJ as "vital to the present issue". Danckwerts LJ, for his part, said at p 269:

"I do not think that the absence of a statutory foundation or of some of these features such as the taking of evidence on oath need be fatal to the recognition of a tribunal as a judicial body to which it is necessary in the interests of a proper and complete hearing to attach the protection of absolute privilege. It seems to me that in the case of proceedings which may result in the deprivation of a barrister of the right to practise his profession, it is desirable that a judicial determination of the matters by the Benchers of his Inn should be as free from harassing consequences as that of a military court of inquiry or the proceedings before the Disciplinary Committee of the Law Society."

I can see nothing in the speeches of Lord Diplock and Lord Fraser of Tullybolton in Trapp v Mackie which casts any doubt on the correctness of the decisions in Addis v Crocker or Lincoln v Daniels. Indeed, as Lord Fraser reminded us ([1979] 1 WLR 376 at p 386), in Dawkins v Lord Rokeby (1873) LR 8 QB 255 (affirmed by the House of Lords in (1875) LR 7 HL 744) the military court of inquiry had no power to administer an oath and sat in private, (and almost certainly had no procedure equivalent to discovery in a civil action), and its proceedings were nevertheless held to attract absolute privilege.

A question arose during the course of argument whether the High Court had power to compel the attendance of witnesses or the production of documents before a TSA tribunal. In Currie v Chief Constable of Surrey [1982] 1 WLR 215 McNeill J has described the origins of this common law power at p 217. It was conceded before McNeill J, in effect, that if the inferior tribunal was one recognised by law, though not necessarily established by statute (like the Benchers of the Inns of Court in 1962), such a power did exist. It appears to me that an argument based on this point is somewhat circuitous. If we considered that the proceedings of a TSA tribunal were so properly comparable with those of a court of justice as to attract absolute privilege, then the High Court would have power to compel witnesses to attend; if not, not.

I am completely satisfied that the proceedings before a TSA Authorisation Tribunal were such as to attract absolute privilege. I have already explained why I consider that they satisfy three of Lord Diplock's four tests in Trapp v Mackie. In the light of the power of the Preliminary Hearings Officer to override the rules if he considered it just to do so I can see nothing in its procedure to disqualify it from attracting absolute privilege. Those who drafted its rules clearly intended them to be as close to the rules of a court of justice as was compatible with the need to provide a procedure which was reasonably swift and which was not overburdened with costly pre-hearing processes. The rule-makers were at pains to balance the requirements of justice (hence the creation of the overriding power) with the need to establish procedures which avoided the well-known problems which beset civil litigation in relation to the discovery process.

I did not derive much assistance from the examples Mr Moloney showed us of rulings by chairmen of SFA tribunals on disclosure issues on the one hand or from Mrs Wright's confidence, on the other, that a tribunal would not order disclosure of her correspondence with Dr Paltzer. It is sufficient, in my judgment, that the "override" power existed, and that it was available to all appellants to seek to invoke it if occasion arose.

The judge came to a contrary conclusion for two reasons. First, he regarded the TSA hearing as a hearing relating to a "licensing" function with no obvious lis inter partes. This is certainly an appropriate way of considering the proceedings before the TSA Authorisation Committee, but for the reasons I have given I do not consider this is the correct description of the tribunal proceedings, to whose procedural rules the judge did not pay specific attention (although he mentioned their existence in his judgment). The judge also accepted Mr Jones's arguments based on the absence of discovery, private proceedings, the absence of an oath and so on. Again, he did not mention the particular features of the rules (and in particular the "override" powers of the Preliminary Hearings Officer) which were drawn to our attention by Mr Moloney. Nor did he refer to the earlier decisions of this court on these issues to which I have made reference.

I now turn to the question whether the absolute privilege which I would accord to the proceedings themselves also attaches to a communication like the TSA letter.

There could probably never be a case which illustrated more vividly the competing considerations of public policy which the court is required to resolve in a situation like this.

Mr Kent and Mr Mahon say that it is complete nonsense that Mr Kaiser ever agreed to split up the C$5 million consideration for the Coastline shares in the way the defendants are now suggesting. There are no contemporary documents which give any hint that such an unusual arrangement was reached, and they say that the bank invented this story when it was being pressed by TCC the following year for the remaining C$2 million it had agreed to pay. When the restraint order against Mr Johnson came to its attention in 1990, it seized the opportunity to tell this cock and bull story to the SFO and TSA as a way of embarrassing Mr Kent and Mr Mahon and their firm and making it much less likely they would ever be required to pay the remaining C$2 million.

The defendants on the other hand reject out of hand the charge (which cannot be resolved until the trial of this action) that they have dishonestly invented anything. They maintain that Mr Kaiser did agree to pay C$3 million for the shares and that he was only prevailed upon to allow C$5 million to be stated as the purchase consideration after Mr Kent had undertaken that TCC would pay the bank the balance of C$2 million before the settlement day arrived. They also contend that in any event the shares were worthless as the claimants knew quite well. A Swiss bank is bound by very strict rules of confidentiality, and it can only reveal anything about a customer's affairs if it has been the victim of fraud.

This was the reason why it first approached the SFO, under promises of complete confidentiality, and why it was willing to pass information to TSA, at TSA's request, under similar promises of confidentiality. Confidentiality involves trust, and I have described how Dr Paltzer believes that if this case goes to trial he doubts if anyone will voluntarily help a British regulator in future if there is a risk of exposing themselves to litigation of this kind.

Until quite recently problems like this seldom troubled the English courts. There was a long-established rule that an informer was only protected by qualified privilege (see Shufflebottom v Allday (1857) 28 LTOS 292), but it would be likely to be a rare case in which an aggrieved defendant would be able to adduce the evidence he or she needed in order to sue an informer for defamation. In R v Lewes Justices ex p Secretary of State for the Home Department [1973] AC 388 and D v NSPCC [1978] AC 171 the House of Lords powerfully reaffirmed the rule recognised by this court in Marks v Beyfus (1890) 25 QBD 494 to the effect that sources of police information should be protected from disclosure, and extended the rule to cover information furnished in confidence to the Gaming Board and the NSPCC. In the latter case Lord Simon of Glaisdale said at p 233:

"I cannot leave this particular class of relevant evidence withheld from the court without noting, in view of an argument for the respondent, that the rule can operate to the advantage of the untruthful or malicious or revengeful or self-interested or even demented police informant as much as of one who brings information from a high-minded sense of civic duty. Experience seems to have shown that though the resulting immunity from disclosure can be abused, the balance of public advantage lies in generally respecting it."

It has always been recognised that in an exceptional case a judge at a criminal trial might direct disclosure of a source of police information if this was necessary to assist a defendant to establish his innocence in a criminal trial. During the last ten years the prosecution's obligation to disclose and list all the documents in its possession was greatly widened (see R v Ward (Judith) [1993] 1 WLR 610 and R v Keene [1994] 1 WLR 746 and see also R v Brown (Winston) [1994] 1 WLR 1599; [1998] AC 367) until Parliament intervened by introducing the new statutory code governing prosecution disclosure which is contained in Sections 1 to 21 of the Criminal Procedure and Investigations Act 1996.

In this new climate of openness and concern about potential miscarriages of justice, judges would often overrule claims to public interest immunity in favour of ensuring justice to a defendant in a criminal case. In R v Chief Constable of West Midlands ex p Wiley [1995] 1 AC 274 Lord Woolf made it clear at p297 that documents in respect of which public interest immunity could be claimed on a class basis could be disclosed if the decision was taken sufficiently high up within the police service. As a result of these developments many confidential communications both to and within a criminal investigation came to see the light of day because the interests of justice in relation to a particular defendant in a particular case demanded their disclosure.

This development led, inevitably, to even greater tensions between the two competing public interests. These tensions are vividly illuminated in the conflicting decisions of two divisions of this court handed down within two months of each other in 1997.

In Mahon v Rahn [1998] QB 424 Staughton, Otton and Schiemann LJJ overruled my decision at first instance when I had held that disclosure of documents by the prosecution in criminal proceedings carried with it an implied undertaking by those to whom the documents were disclosed that they would not use them for any other purpose without the leave of the court. Otton LJ said at p 450:

"...I am of the view that there is no compelling reason for the implied undertaking on the ground that its absence will deter informants from coming forward. The honest have nothing to fear. The anonymity of those in peril can be protected. It is in the interests of justice that the dishonest should be deterred from disseminating calumny and perverting the course of justice. Thus, in practice, there is only a small risk to informants and it is hardly a floodgates situation. Moreover as a matter of public policy a person who is the victim of malicious false statements to regulatory bodies who wish `to put the record straight' should not be met by blanket protection of the kind advocated by the defendants. Qualified privilege is sufficient protection, leaving the victim plaintiff to prove malice."

In Taylor v SFO [1999] 2 AC 177 Kennedy and Millett LJJ and Sir Brian Neill felt obliged to follow that decision, although their discomfort in doing so is evident from their judgments: see, in particular, the powerful judgment of Millett LJ at pp 197-199 which contains this passage at p 198H-199A:

" I have not found the reasoning in [Mahon v Rahn] persuasive. In the first place, I cannot accept the proposition that persons who take part in the administration of justice are sufficiently protected by qualified privilege. This would be contrary to a long line of authority. It is the policy of the law to protect such persons against baseless allegations of malice, and this requires nothing less than absolute immunity from suit. In the second place, a very narrow view was taken of the scope of privacy, and no regard seems to have been paid to the fact that it is the privacy of the individual witness or investigator, not the prosecution, which is invaded when his material is supplied to the accused ..."

When Taylor v SFO reached the House of Lords (also reported at [1999] 2 AC 177) the approach adopted by Millett LJ in the Court of Appeal prevailed. In that case the plaintiffs had brought an action for defamation arising out of the contents of certain documents which were disclosed in the course of the prosecution of two other people for fraud. The first plaintiff was a solicitor practising in the Isle of Man and the second plaintiff a company he controlled. The defendants were the Director of the SFO and an employee of that office, and the Law Society and one of its employees. The documents sued upon were a letter and a file note which both suggested that the first plaintiff had been a party to the alleged fraud: the file note also recorded the view of the fourth defendant (on behalf of the third defendant) that the first plaintiff ought to be struck off as a solicitor. After these documents had been disclosed as unused material to the solicitors acting for the defendants in the criminal proceedings, they were shown to the first plaintiff when he was invited to give evidence for the defence of one of them.

The House of Lords considered the matter from two perspectives. They unanimously held that the prosecution's compliance with its obligation to disclose to the defence all unused material which came into existence as a result of a criminal investigation generated an implied undertaking not to use the material for any purpose other than the conduct of the defence. They also held by a majority of 4-1 (Lord Lloyd of Berwick dissenting) that the absolute immunity from suit which applied to judges, advocates and witnesses in respect of statements made in court extended also to out of court statements which could fairly be said to be part of the process of investigating a crime or a possible crime with a view to a prosecution.

We are not on this appeal concerned with the first of these protections. It appears from the judgment of Otton LJ at pp 429-30 that the SFO had claimed public interest immunity in respect of Dr Paltzer's correspondence with the SFO and the judge made a general ruling that documents in this class ought to be disclosed to the defence. He said that they might prove of some value in helping the defence in seeking to ascertain the true attitudes and influences exerting themselves on the decisions and requirements of [TSA]. He said that there might be instances where a document disclosed particularly sensitive sources, in which case he might have to modify his decision in relation to that document, if the parties could not reach agreement about it.

In these circumstances it appears that the SFO must have considered that it could not continue to assert a claim for immunity, and the TSA letter was produced by it as part of an exhibit to a witness statement two days prior to the pre-trial review, no doubt in response to a line of defence which had been disclosed at an interlocutory stage. The letter was then discussed in court during the trial. Although I ruled at first instance that its publication in court made no difference, the Court of Appeal expressly overruled me as a free-standing ground of its decision (see Otton LJ, with whom Schiemann LJ agreed, at p 451). The House of Lords in Taylor did not advert to this particular point, although Lord Hoffmann's observations at p 212E-G indicated which way his sympathies would lie in connection with the use of disclosed material in open court, as in this case, before the 1996 Act was passed. If the defendants wish to pursue this aspect of the case, which they cannot on the present interlocutory appeal, they would need a further ruling of the House of Lords on this specific point.

Since Lord Hope of Craighead said in Taylor at p 220A that he saw the two solutions as complementary to each other, I have found it a little artificial to have to decide this appeal on the absolute privilege point without also considering the "implied undertaking" point afresh in the light of the House of Lords' decision in Taylor. We heard no argument on it, however, and we are in any event bound by this court's earlier ruling in this very case. I turn therefore to consider the effect of the Taylor decision on the defendants' claim for absolute privilege for the TSA letter in the circumstances in which it was written.

In Taylor the House of Lords was concerned with a criminal investigation, not with a response to a financial regulator who wanted more evidence to bolster its case on appeal that an appellant was a fit and proper person to carry on investment business. It follows, of course, from my earlier conclusion that if witness statements had been prepared for the bank's witnesses in connection with the appeal, that process would have attracted absolute privilege, falling as it did into Devlin LJ's second category in Lincoln v Daniels [1962] 1 QB 237, 257.

In the context of a criminal investigation Lord Hope was heavily influenced by the existence of the growing tendency towards disclosure by the prosecution of confidential documents in criminal cases. He said at p 217H:

"In my opinion it is necessary here, as in many matters affecting the criminal law, to balance the public interest in the administration of justice against the interests of the individual. The history of the evolution of the disclosure rules shows that the balance has swung a long way towards the interests of the individual who is being prosecuted. This is in recognition of the fact that the defendant in criminal proceedings has the right to insist on a fair trial. Fairness to the defendant demands the widest possible disclosure. In practice, to avoid the risk of unfairness and because the prosecutor does not have the time or the resources to edit out every item which need not be disclosed, disclosure under the modern rules tends to provide the defence with more material than is strictly necessary.
But the administration of justice is not all about fairness to the defendant. It is also about the interests of those individuals who may be affected by dissemination of the material. There is a public interest also, in the detection and punishment of crime. If that interest is put at risk because of the consequences of the disclosure rules, the balance between the public interest and the interests of the individual is disturbed. It needs to be adjusted in favour of the public interest. This cannot be done by reducing the scope of the disclosure rules. That would prejudice the right of the defendant to a fair trial, which is always paramount. What can be done is to increase the protection to those who may be affected by the disclosure rules against the collateral use of such material - that is to say, against its use for purposes other than to ensure that the defendant has a fair trial."

These considerations dictated his conclusion at p 219E-F that there was a requirement to extend to informants, investigators and prosecutors whose statements were revealed by the operation of the disclosure rules the benefit of the absolute privilege in respect of the statements made which was already accorded to witnesses and potential witnesses, and that this absolute immunity should be extended to actions for conspiracy or for negligence based on disclosed material.

Lord Hutton was strongly of the same opinion. He did not consider that qualified privilege would give adequate protection to investigators and those who spoke to them because he thought that there would be a real risk that an unfounded allegation of malice made by a plaintiff bringing an action for defamation would subject an investigator or informant to harassment to which he should not be subjected. Even if the charge of malice was a true bill (as the claimants assert in the present case) Lord Hutton relied on Lord Simon of Glaisdale's dictum in D v NSPCC as justifying the firm line he took. He ended his speech by saying at p 222B:

"In this case, whilst the immunity may on occasions benefit a malicious investigator or informant, I consider that the balance of public advantage lies in allowing it to the defendants."

Lord Hoffmann, with whose speech Lord Goff of Chieveley agreed, said at p 214E that he found it impossible to identify any rational principle which would confine the immunity for out of court statements to persons who were subsequently called as witnesses in a criminal case, and he considered that the same degree of necessity applied to investigators. Three members of the House of Lords (including Lord Hutton) expressly approved the test proposed by Drake J in Evans v London Hospital Medical College (University of London) [1981] 1 WLR 184 when he said at p 192:

"The protection exists only where the statement or conduct is such that it can fairly be said to be part of the process of investigating a crime or a possible crime with a view to a prosecution or a possible prosecution in respect of the matter being investigated."

Important though the investigation of crime undoubtedly is, I have not found it possible to make a logical distinction between the situation in which a criminal investigator seeks evidence to support a criminal charge and a situation in which a financial regulator seeks evidence to put before a tribunal to the effect that someone is not a fit and proper person to conduct investment business. It appears to me - and I did not really need Dr Paltzer's evidence to confirm it - that the flow of information to financial regulators might be seriously impeded if its informants feared that they might be harassed by libel proceedings, and if it was impeded in this way the purposes of Part I of the Financial Services Act, of protecting the public from unfit investment advisers, would be put at risk. For these reasons I would allow the defendants' appeal on the first issue and hold that the TSA letter was published on an occasion which attracted absolute privilege.

I must make it clear that I am not addressing the case, which the SFA probably had in mind, in which some malicious informant spontaneously proffers to an SRO information about an investment adviser which is untrue and defamatory, and the claimant can prove his case in a libel action without the need to rely on documents disclosed in civil or criminal proceedings. Whether any extension of absolute privilege needs to be made in such a case will have to be decided on some other occasion.

I turn now to consider the second issue which arises on this appeal. The claimants' case against the bank for malicious prosecution runs along the following lines.

They refer first to their prosecution on three counts of fraud at the Middlesex Guildhall in the trial which started in June 1993 and describe how the judge had stopped the case on 28th August by ruling that there was no case to answer.

They say that from the time the bank made its complaint to the SFO on 9th August 1990, it was actively instrumental in putting the law in motion against them and directly responsible for the initiation of the prosecution against them.

It is common ground that on 9th August the bank told the SFO that it was the victim of an attempted fraud perpetrated on them by TCC. The claimants say that the bank made its complaint in circumstances in which it knew that the SFO was dependent on it for details of the relevant transactions and documents. In summary the bank was making four assertions:

The claimants also rely on four other matters in support of this part of their case. The first is that prior to August 1990 the SFO had been conducting an investigation into Mr Johnson's business affairs, but no question had arisen during the course of that investigation of any prosecutions being mounted against the claimants in respect of the matters with which they were eventually charged.

Next they say that it was the information provided by the bank to the SFO, both in the Working Paper and in the TSA letter (which it copied to the SFO) which had caused their prosecution on the charges which formed Counts 1, 2 and 4 of the eventual indictment against them: they say that Count 3 (conspiracy to defraud TSA) was a secondary allegation which would not have proceeded in the absence of the other counts. They add that Dr Rahn, acting for all the defendants, had copied the TSA letter to the SFO and that it was properly to be inferred that he did so in order to further stimulate (sic) the SFO into prosecuting them.

Finally, they rely on the fact that Mrs Helen Garlick, who was the SFO's case controller, said at their trial that the SFO had relied on its belief that it had been given all relevant documents by the bank in 1991, and that it would not have prosecuted unless she had believed that the bank's witnesses at the trial would be truthful. They also rely on the following exchange during her cross-examination:

"Q But this case is the Rahn and Bodmer show is it not, Mrs Garlick? Instituted by Rahn by a complaint in 1990 that they had been defrauded?
A To that extent I suppose you could call it the Rahn and Bodmer show."

Pressed for particulars of the defendants' alleged responsibility for their prosecution, the claimants replied that in the particular circumstances of the case, the SFO were in practical terms obliged to act on apparently reliable and damning evidence and information supplied to them by the defendants. They said that when they were first arrested, charged and brought to court on 2nd February 1991, the only real information the SFO had was that provided by the defendants in the Working Paper and in the TSA letter.

They say that the defendants should be regarded as the prosecutor for two reasons. The first is that it was they who put the SFO in possession of apparently reliable and damning evidence and information. The second is that they deliberately deceived the SFO by supplying false, one-sided and misleading information in the absence of which the SFO would not have prosecuted. They complain that the defendants did not truthfully report all the facts to the SFO and then leave the SFO to determine whether or not such facts warranted prosecution. Thus, they say, an intelligent exercise of the SFO's discretion became impossible.

In paragraph 12 of the amended statement of claim the claimants aver that at all material times, as the defendants knew, there was no reasonable or probable cause for their complaint. Paragraph 13 contains the plea of malice.

In short the claimants contend in this plea that the defendants put forward a dishonest and partial account of the transaction in which they maliciously and deceitfully withheld crucial documents from TSA and the SFO in 1990 in order to support their own complaint against the claimants. Under this head they rely on a number of documents which were not annexed to the Working Paper or to the TSA letter but were disclosed during the course of the criminal proceedings, most notably as attachments to Dr Rahn's witness statment which was made three months before the trial began. Their motive was not only to avoid their own outstanding liability for C$2 million but also because they were concerned that Mr Kaiser might be a possible defendant to proceedings by the SFO against Mr Johnson. The claimants assert that by presenting themselves as the victims of fraud, the defendants were able to avert the strict confidentiality requirements of Swiss banking law and thus give self-serving details of the transaction to TSA and the SFO.

In paragraphs (d) to (j) of the particulars served under paragraph 13 the claimants make a number of further detailed allegations of malice, derived from the matters and documents which came to light during the criminal proceedings. For the purposes of his clients' challenge in these interlocutory proceedings Mr Moloney does not contend that the issue of malice is not fit for evidence and argument at the trial. The defendants' challenge is made because they believe that on the evidence the claimants have no real prospect of succeeding on the issue whether the defendants can be properly regarded as the prosecutors (see CPR 24.2(a)(i)).

Dr Paltzer's evidence on this issue was to the effect that Mr Millar's initial meeting with Mr Lee on 12th June 1990 was for the purpose of discussing variations of the SFO's restraint order in the bank's favour, and that it was during the course of this discussion that Mr Lee invited the bank to assist the SFO by providing it (subject to Swiss banking confidentiality) with any complaints it might have of losses suffered at the hands of Mr Johnson and his companies. It was in response to this SFO invitation that the bank reviewed the bank accounts of Mr Johnson's companies and associates, and specifically the Coastline transaction, and that it went on to arrange the meeting with the SFO in London on 9th August, and to prepare the Working Paper as an outline of its questions regarding Mr Johnson, TCC and Mr Kent. (It appears, incidentally, from Mrs Garlick's evidence at the criminal trial (transcript p 11) that following the initial meeting with Mr Millar Mr Lee told the bank's solicitors in July that a number of companies specified in the schedule to the restraint order had now been released from the terms of the order.)

Dr Paltzer said that it was apparent at the meeting on 9th August that the SFO had already been investigating a wide number of transactions, including the Coastline transaction and its surrounding circumstances. Mr Lee told them at this meeting that the SFO had already seen TCC. He also told them that TSA had already investigated the TCC/Johnson/Coastline transaction in 1988 and that it wanted to see the bank's information. Dr Paltzer added that at no stage did he or Dr Rahn represent, nor could the SFO have believed, that what they had given to them was a complete set of all documents on the transaction or that what they were telling them was firm evidence which the SFO should uncritically accept. Mr Lee had told them at the meeting that he was a partner of Price Waterhouse on secondment to the SFO and was very experienced in fraud matters. Dr Paltzer maintained that the Working Paper made it clear that the defendants primarily had questions which would require sight of TCC's own documents to answer.

In the next eight pages of his witness statement Dr Paltzer made a number of detailed points, taken from the history of events, to show why the defendants should not be regarded as the prosecutors. For the purposes of this analysis I will ignore any events which took place after the claimants were charged in early February 1991 because the claimants' case could not be disposed of at an interlocutory stage if they could show that there was a realistic prospect of proving that the defendants should be treated as prosecutors up to that moment. Among the points Dr Paltzer made in relation to the August 1990 - February 1991 period were these:

In her short affidavit which was before the judge, Mrs Garlick said that between 5th November 1990 and 30th November 1992 she was the case controller at the SFO responsible for the investigation and prosecution of the claimants. In this context she produced a copy of her witness statement in the criminal proceedings and the transcript of the evidence she had given at the trial. She confirmed, as she said in her witness statement, that the claimants first came to the notice of the SFO as a result of its separate investigation into Mr Johnson's affairs, and that the investigation into TCC's affairs was authorised on 15th November 1990.

In this affidavit Mrs Garlick did not make any specific distinction between the events that occurred in the course of the SFO's investigations before and after the time when the claimants were first charged. When asked about her description of the case at the trial as "the Rahn and Bodmer show", she said that she said she was answering a point made by counsel to the effect that the case had been "instituted" by the bank by a complaint in 1990. She added that it was certainly correct that the evidence and the documents supplied by Dr Rahn and by other officials of the bank was of extreme importance to the prosecution of the claimants, but she now said she should perhaps have queried counsel's use of the word "instituted". To the best of her knowledge, contact between the SFO and the bank had been instituted by the bank's solicitor as a result of the restraint order obtained by the SFO in Mr Johnson's case against certain clients of the bank.

Her witness statement in the criminal proceedings added nothing in relation to the events prior to February 1991. In her evidence at the trial she said that she had obtained the search warrant from justices which authorised the search of TCC's premises and the claimants' homes on 26th November, and that a mixed team of about 20 accountants and policemen had gone to TCC's premises to effect the search (transcript p 6). In cross-examination she was asked about the circumstances in which the bank wished to have the restraint order further varied in February 1991. She replied that the restraint order against Mr Johnson, which named nearly 100 people and institutions, some of whom were entirely innocent, was one of the largest and most far-reaching orders that the SFO had ever obtained. She shared the view which was apparently expressed by a judge when another party objected to the order, that the SFO should never in future obtain an order covering so many parties. She added that the fall-out from this order was really quite considerable, and that many other firms of solicitors acting for people who had been adversely affected by the restraint order were also asking for the SFO's assistance regarding the effect of the order (transcript, pp 21-22).

In re-examination Mrs Garlick said that TSA had had no say in the decisions as to how the SFO's investigation should progress or be conducted. They had also had no say in the decision to charge the defendants. They were not consulted by the SFO or informed about that decision.

As I have already said, there was also before the judge a copy of Mr Lee's witness statement and a transcript of his evidence at the criminal trial. He said he had been one of the assistant directors at the SFO at the relevant time, and that from the autumn of 1989 he was looking after the accounting aspects of the investigation of the affairs of Mr Johnson and a large number of his companies around the world.

In his witness statement Mr Lee said that he was first contacted by Mr Millar in June 1990 because his clients, the bank, were concerned with debts due by Johnson companies and the effects of the restraint order. He said that in mid-1990 the SFO had in mind that Mr Kaiser might be a defendant in any proceedings against Mr Johnson. There was never any question that any other employee or officer of the bank might be prosecuted.

He said that from their investigation work on the Johnson case the SFO was aware of dealings in Coastline shares and complicated transactions in August 1988 involving TCC and the bank, among others. The bank was concerned with the Coastline transactions which appeared to have resulted in a fraud on it, and it was prepared to submit a complaint to the SFO. Mr Lee added that it was also apparent that the Coastline transactions had been designed to assist TCC to comply with capital adequacy requirements of TSA who had tried to question these dealings in the past. By October 1990, investigation work had progressed to the point that it was decided to vet the TCC situation as a potential case on its own, separate from the Johnson case. Mr Lee therefore prepared a vetting paper for the consideration of the SFO's vetting lawyer, the Director and the Deputy Director and the police. In November 1990 it was decided that the TCC case should be investigated, and search warrants were executed on 26th November 1990 at TCC's premises.

He described in his evidence at the trial how he had attended TCC's premises on 24th January 1990. He met Mr Mahon there, and showed him a notice under Section 2 of the Criminal Justice Act 1997 addressed to Mr Kent. He wished to inspect Mr Kent's records relating to 20 or 30 companies listed in the notice, but Mr Mahon told him that Mr Kent was not in the office and that he did not know when he would be back. He had added that Mr Kent did not keep any files and did not have an office there, and said that there were records on computer which could be made available at a later date.

During this visit Mr Mahon had told Mr Lee that he was owed about £2 million by one of Mr Johnson's companies called Safeguard, and that he was pursuing this debt from both Mr Johnson and Safeguard. He said he knew both Mr Johnson and his solicitor Mr Lynne Brooke (transcript pp 6-8).

In cross-examination by counsel for Mr Kent, Mr Lee said he had been required to submit to the Director of the SFO a vetting note containing such information as he had in relation to a number of matters concerning TCC and the Johnson case. He said that in the search on 26th November the search team was looking for a large number of documents concerning the affairs of a number of companies and a lot of share dealing. He had first become aware of allegations that TSA had been misled as to TCC's capital requirements at some point between January 1990 and October-November 1990 when he wrote the vetting note. He had been having conversations with TSA during 1990 and he had some understanding of the TSA/TCC capital problem (transcript pp 9-10). He was later shown the August 1990 working paper. He said it was not a document that he had prepared, and that he had a great deal of information when he wrote the vetting paper, about which he could not be specific.

In his evidence in response Mr Daniel referred to a large number of documents relating to the criminal proceedings, most of which have been listed earlier in this judgment. He maintained that it was plain from these documents that contrary to what Dr Paltzer had asserted, the defendants were the prosecutors of the claimants.

He observed that at the outset of the SFO's contact with the defendants, the SFO was investigating Mr Johnson for fraud, and that there was no mention of TCC or the claimants in the restraint order dated 2nd March 1990. It appeared from the documents on which Dr Paltzer relied was that the first mention of any fraud against the bank was at the meeting on 9th August 1990, and that it was Dr Rahn, Dr Paltzer and Mr Duncan who implicated Mr Kent as being party to a serious fraud.

Mr Daniel referred to an attendance note written by Mr Millar on 30th July 1990 which indicated the bank's concern that it might be implicated in Mr Johnson's suspected criminal activities. He maintained that in September 1990 the SFO was not investigating the affairs of Coastline or the claimants, as was apparent from the terms of a Section 2 notice served in September 1990. Mr Daniel also asserted, correctly, that the law was set in motion against the claimants on 2nd February 1991 when they were arrested and subsequently charged by the custody officer at Bishopsgate police station.

After summarising the arguments and referring quite briefly to the relevant law, to which I will turn in due course, the judge said that he was unable to say that the "manipulation", or "string-pulling" argument as to the defendants' role in the initiation of criminal proceedings was bound to fail (in the words of the Practice Direction to CPR Part 24 before its recent amendment) or even that it had no realistic prospect of success. The summary justice contemplated in Part 24 was no doubt to be administered in the light of the overriding objective of doing justice generally. One should not lightly therefore prejudge the credibility of witnesses or pre-empt the outcome of document disclosure and cross-examination. There would be a need for special care when the facts in issue were complicated, as for example in this case, where the motivation was said to have derived from the defendants' involvement in an intricate fraud.

Although Mrs Garlick had deposed to the proposition that the SFO conducted an extremely thorough, independent and wide ranging investigation into the case, and although this almost certainly represented her opinion as to what took place, the judge bore in mind that it was an expression of opinion only, and that since Mrs Garlick was personally involved with the conduct of the matter she was bound to see things from a rather less than objective standpoint.

The judge referred to Mrs Garlick's evidence about the Rahn and Bodmer show and also to some of the remarks made by the trial judge which I have quoted earlier in this judgment. He concluded:

"... to make those strong comments underlines how inappropriate it would now be for me to hold that there is truly nothing in the claimants' current contentions about the manipulative role they say the defendants played in 1990 and 1991. It might have been the case, perhaps, in the years following Judge Clark's remarks, that a new angle on the evidence emerged, so as to reveal that he had misunderstood the true position and that his comments were thus no longer valid. As I have observed, however, no such fresh light has been shed; or at least none sufficient for me now to conclude with certainty that those comments can be set aside as of no further relevance."

On the hearing of the appeal the defendants sought permission to adduce four categories of further evidence. I have already dealt with the fourth, which related to to the pleading issue. The first three were, respectively, nearly 200 pages of extracts from the Crown Statement of Evidence served in March 1992, nearly 50 pages of extracts from the Opening Note of Michael Birnbaum QC at the criminal trial in June 1993, and a further witness statement of Mrs Garlick dated 23rd February 2000.

In my judgment we should not admit the extracts from the Statement of Evidence or the extracts from counsel's opening note. They cast no light at all on the state of the evidence available to the SFO in early 1991 when it decided that the claimants should be arrested and charged, and there is already in evidence prosecuting counsel's skeleton argument at the end of the trial from which it is clear that the prosecution by then was in possession of a great deal of unfavourable evidence relating to the claimants' and TCC's conduct before and after the meeting in Zurich on 4th August 1988 to which Judge Clark did not refer in his ruling (see for example paragraphs 11.1, 12.1, 14.1 - 14.11, 15.1 - 15.5, 16 - 16.2, 17.1 - 17.7 etc).

Mrs Garlick's new affidavit falls into a different category. She was concerned to respond to the suggestion made by the judge that she had only been expressing her own opinion about the thoroughness of the SFO's investigation and that she was bound to see things from a rather less than objective standpoint.

She says in her affidavit that in the light of the judge's remarks the SFO prepared a chronology of the investigation which she duly exhibited. This chronology had been prepared under her supervision by a paralegal assistant who had no previous involvement in the case and who was initially retained by the SFO for this specific purpose. The chronology attempted to show, as a matter of record, some of the significant steps taken in the investigation and the dates on which those steps were taken. Mrs Garlick says that she had attempted to ensure that the chronology was restricted only to matters of incontrovertible fact, in order that the court might see the basis on which she felt able to express the opinion that the SFO investigation had been an extremely thorough, independent and far-ranging one.

This is not an appeal from a summary judgment (for which see Langdale v Danby [1982] 1 WLR 1123), and the court on this interlocutory appeal has a general discretion to admit fresh evidence if it considers it just to do so. I hope I am not doing a discourtesy to Mr Jones's written submissions, which he supplemented briefly at the hearing, when I say quite shortly that I do consider it just to admit this further evidence, so far as it relates to the history of the SFO's investigations prior to 1st February 1991 when the two claimants were arrested and charged. The claimants did not respond expressly with any evidence in answer to Mrs Garlick's first affidavit in such a way as to put in issue what she said about the thoroughness and independence of the SFO's work, and in my judgment justice entitles the defendants to adduce this limited amount of further evidence on this appeal in view of what the judge said about Mrs Garlick. I bear in mind Mr Jones's comment that unless we have other evidence about these matters we do not know what was said at the case conferences mentioned in the chronology or the relative quality and importance of the steps mentioned in it.

The chronology shows that between 26th April 1989 and 1st February 1991 the SFO interviewed the following people:

Case conferences were held on 30th April, 28th September, 27th November, 29th November, 7th December 1990 and 1st February 1991. A vetting conference was held on 15th November 1990. Although the first two case conferences related to the investigation into Mr Johnson's affairs which was known as Duralite, the possible deception of TSA by TCC and Mr Johnson was discussed at the first, and there was a discussion about the Coastline transaction and the role of TCC at the second. Mrs Wright of TSA was present at the case conference on 29th November 1990. The chronology records that case conferences are held at regular intervals throughout an SFO investigation, usually attended by counsel, in order to monitor progress and decide on a course of action. There is express reference to the presence of counsel at the first two of these case conferences and at the last, when Mr Birnbaum and Mr John Spokes QC attended, as did the Director of the SFO (Barbara Mills QC) who had also been present at the vetting meeting. The chronology records that TCC was ordered by TSA to cease carrying on investment business from 2.40pm on the day of that final case conference in this series, and that Mr King (TSA) informed the SFO of this development by telephone. The news which led to the claimants' arrest soon afterwards.

The chronology also shows that following the service of a notice to produce documents Mr Mahon delivered to the SFO on 16th October 1990 two boxes of documents. These comprised 19 of 20 files containing statements, reports, diaries, correspondence with auditors, TSA tribunal papers, correspondence with TSA, audit files, Coastline correspondence with Eastern Capital, Bryanston Insurance correspondence, stock cards, new client forms and general correspondence. The Rahn and Bodmer file (item 19) was missing. Mr Mahon suggested to the SFO that these documents might be subject to legal privilege due to legal proceedings against the bank. On 19th October 1990 the SFO wrote to TCC's solicitors reiterating the request for documents to be delivered to the SFO office immediately.

Finally, the chronology refers to a note on TCC prepared by Mr Lee on 24th October 1990 which set out the SFO's then current state of knowledge about the alleged TCC fraud. Mr Lee stated early in the document that the SFO's knowledge was derived principally from work carried out in the Malcolm Johnson case. He drew attention to the background of the Coastline transaction, namely TCC's problems in meeting TSA's capital adequacy requirement. He said that TSA at the time made every effort to investigate the Coastline transaction to try to prove it was a sham but was unable to. He added that during 1990 the SFO approached the bank in the hope that it would co-operate in the Johnson investigation in view of the fact that it had probably been defrauded.

On the totality of the evidence which is now before the court it is clear that the SFO was by 1st February 1991 in possession of a great deal of evidence about different features of the August 1988 dealings in Coastline shares which it had obtained quite independently of the evidence which the bank supplied. It is clear from the prosecution skeleton argument at the end of the trial that rightly or wrongly the Crown considered that this was a completely bogus transaction in worthless shares, with Johnson companies on both sides of the deal, and that both Mr Mahon and Mr Kent knew this. It is not, in my judgment, legitimate to regard 15th November 1990 as a cut-off point, as Mr Jones suggested, because a great deal of relevant information was obtained during the SFO's investigation into Mr Johnson's affairs. All the evidence that relates to Mr Lee and his activities in 1990 shows that he and his team were carefully pursuing different lines of inquiry on their own account, and by the end of November they had the benefit of access to all the documents Mr Mahon delivered in mid-October and such additional documents as became available during the search. They also had the benefit of all the interviews they had conducted, although it must be borne in mind that it is part of the claimants' case that Mr Main and Mr Brooke were combining with the bank to put forward an untrue story about the C$5 million purchase consideration.

It is also clear, in my judgment, from Mr Lee's evidence in the criminal proceedings, that the bank's initial approach to the SFO in June 1990 stemmed from its concern about the width of the restrain order, and that it was at that first meeting with Mr Millar on 12th June that Mr Lee explored the possibility of the bank furnishing them with the information he sought. While it is correct that the bank was anxious to see if it could receive information in return and that it also sought promises about immunity from prosecution, the contemporary documentary evidence, and Mr Lee's evidence at the trial, coupled with Mrs Garlick's chronology, all support Dr Paltzer's account of the sequence of events in 1990 which he has given in his witness statement.

I now turn from this review of the facts to consider the present state of the law in relation to the tort of malicious prosecution, and particularly in relation to the question who should be treated as the prosecutor for the purposes of this tort.

In Martin v Watson [1996] AC 74 the facts were relatively simple. Mr Martin and Mrs Watson lived next door to each other in Orpington. Relations between them (and their respective spouses) had been acrimonious for many years. On 12th July 1988 Mrs Watson called the police to her home. She said that Mr Martin had indecently exposed himself to her, standing on a ladder in his garden. After discussing the matter with the police, she decided not to give them a formal statement. On 20th July 1989 she called the police again and made a similar complaint. Another officer saw her the following day and took a full witness statement from her. She said she was prepared to attend court and give evidence about the contents of her statement. On 27th July a police officer obtained a warrant for Mr Martin's arrest. On 7th August Mrs Watson called in the police again and made a further complaint. This time the police arrested Mr Martin and took him to the police station where he was interviewed and bailed to attend court the next day on a charge related to the events of 20th July 1989. He duly did so, but the Crown Prosecution Service ("CPS") offered no evidence, and he was discharged. History does not relate why the CPS took this course.

In due course Mr Martin sued Mrs Watson for damages for malicious prosecution. It appears that at the trial of this action Mrs Watson told the judge that after the incident in July 1988 Mr Martin had acted in a similar fashion on a number of subsequent occasions. The judge clearly did not believe her. In July 1992 he awarded Mr Martin £3,500 as damages for malicious prosecution. The Court of Appeal, by a 2-1 majority, set aside this judgment on the ground that Mrs Watson did not prosecute him in the sense of setting the law in motion against him on a criminal charge. The majority of the court relied on the fact that it was a police officer and not Mrs Watson who had signed the charge sheet in the police station.

The House of Lords restored the original judgment. Lord Keith of Kinkel, with whom the other members of the House agreed, acknowledged that there was no English authority on the topic. I will consider in due course the effect of the four overseas common law authorities on which he relied, together with a passage from the American Law's Institute's 1977 restatement of the law of torts.

For the purposes of the decision in that case Lord Keith stated the applicable law in these terms at p 86G - 87A:

"Where an individual falsely and maliciously gives a police officer information indicating that some person is guilty of a criminal offence and states that he is willing to give evidence in court of the matters in question, it is properly to be inferred that he desires and intends that the person he names should be prosecuted. Where the circumstances are such that the facts relating to the alleged offence can be within the knowledge only of the complainant, as was the position here, then it becomes virtually impossible for the police officer to exercise any independent discretion or judgment, and if a prosecution is instituted by the police officer the proper view of the matter is that the prosecution has been procured by the complainant."

He then quoted a passage of the judgment of the trial judge which was, so far as is material, in these terms:

"...[In] the light of the defendant's further untruthful accusations about the plaintiff made to Police Constable McKiernan on 7 August and to another officer about an alleged incident on 9 August, when nothing seemed to be happening about executing the warrant, as well as her other wholly unfounded accusations to the police about earlier alleged incidents and her evidence generally, I consider that she was clearly determined that action should be taken and I am prepared to infer that that must have made such an impression on Detective Constable Haynes as to result in him applying for the warrant, notwithstanding the fact that the case depended on her word alone: and of course, as I have said, she was quite willing to give evidence and to accompany Detective Constable Haynes to the magistrates' court on 27 July to assist him in obtaining the warrant.
In the circumstances of this particular case, therefore, I find that the defendant was indeed actively instrumental in setting the law in motion against the plaintiff. To hold otherwise would, I consider, be an affront to a proper sense of justice. She wanted the plaintiff to be arrested and dealt with from the start, and that is what she achieved in causing Detective Constable Haynes to obtain the warrant from the magistrate. She was, as I say, the only person who could testify about the alleged indecent exposure. I therefore find that the defendant is to be regarded as a prosecutor in setting the law in motion against the plaintiff."

Lord Keith commented that in his opinion the trial judge reached the right conclusion for the right reasons.

He then considered the argument that a decision in favour of the plaintiff would tend to discourage members of the public from bringing criminal activities to the notice of the police, for fear of being harassed by action of malicious prosecution. He said that the logical result of the acceptance of this argument would be the complete stultification of the tort of malicious prosecution, since the rationale would apply not only to the original lay informant but also to those who signed the charge sheet and/or laid the relevant information.

The passage in his judgment which follows suggest that in his new exposition of the law Lord Keith was concentrating on a very simple case like Martin v Watson (or perhaps a simple case in which a limited number of malicious lay informants are acting in concert), because he said at p 88A:

"It is said that victims of sexual assaults would be particularly discouraged from complaining. This, however, could not be so where the alleged perpetrator was a stranger to the complainant, and where the parties are known to each other a prosecution is unlikely to follow unless there is some evidence other than that of the complainant herself." (Emphasis added)

He then went on at p 88B-C to dismiss the suggestion that adequate remedies for false accusations were available in the criminal law on the ground that none of them afforded any compensation to a person who might have been arrested and imprisoned and perhaps subjected to the ordeal of a trial.

Finally, Lord Keith emphasised that the essential feature of malicious prosecution was an abuse of the process of the court. In this context he relied on passages from the speeches of Lord Morris of Borth-y-Gest and Lord Wilberforce in Roy v Prior [1971] AC 470, at pp 477-8 and 480. In that case the fact that a solicitor had given evidence in court for the purpose of procuring he issue of a bench warrant afforded him no cast-iron defence to an action for malicious prosecution. Lord Wilberforce, in particular, said at p 480 with reference to ex parte evidence given in support of an application for a bench warrant:

"To deny a person whose liberty has been interfered with any opportunity of showing that it was ill-founded and malicious does not in the least correspond with, and is a far more serious denial than, the traditional denial of the right to attack a witness to an issue which has been tested and passed upon after a trial. Immunities conferred by the law in respect of legal proceedings need always to be checked against a broad view of the public interest. So checked, the present case provides no justification for protecting absolutely what the solicitor said in court."

Lord Keith commented at p 89D:

"Similar considerations apply to statements made to the police under circumstances where the maker falls to be regarded as having in substance procured the prosecution. There is no way of testing the truthfulness of such statements before the prosecution is brought. To deny any remedy to a person whose liberty has been interfered with as a result of unfounded and malicious accusations in such circumstances would constitute a serious denial of justice."

Mr Jones recognised that he would not be able to succeed in the present case on the comparatively narrow statement of the law propounded by Lord Keith at p 86G - 87A. He relied strongly, however, on Lord Keith's statement at p 84H to the effect that the principles to be derived from the four Commonwealth decisions and the American restatement should be accepted as valid in English law. Since he did not specifically identify the principles to which he was referring (other than by citing passages from each of the authorities he mentioned) I will therefore turn to them now.

The first was the opinion of the Judicial Committee of the Privy Council, given by Sir Andrew Scobie, in Pandit Gaya Parshad Tewari v Sardar Bhagat Singh (1908) 24 TLR 884. There had been a dispute between officials in two neighbouring estates in Oudh, and the manager of one of them had been charged with taking part in a riot connected with the dispute. The magistrate dismissed the charge, holding that there had been no riot at all and saying that two officials of the other estate had been responsible for concocting the charges. There was a difference of opinion in the courts in Oudh as to whether these two officials should be regarded as the prosecutors, or whether the prosecutor was the Crown which had acted on their complaints. In granting leave to appeal to the Privy Council, the Judicial Commissioners in Oudh said that it was difficult to overestimate the importance of the question raised in the case in view of the immense number of false charges made perhaps daily in every district in India.

Sir Andrew Scobie distinguished at p 884 [RHC] a case in which a complainant did not go beyond what he believed to be correct information to the police (who subsequently thought fit to prosecute) and a case where the charge he made was false to his knowledge. In the latter case, Sir Andrew said:

"...[If] he misled the police by bringing suborned witnesses to support it, if he influenced the police to assist him in sending an innocent man for trial before the magistrate, it would be equally improper to allow him to escape liability because the prosecution had not technically been conducted by him. The question in all cases of this kind must be - Who was the prosecutor? And the answer must depend upon the whole circumstances of the case."

When he turned to the facts of the case at p 885 [LHC] Sir Andrew said that the first defendant had told the sub-inspector of police that the plaintiff (whose name had been left out of an initial list) was the chief cause of the riot, and that this made it clear that he was directly responsible for any charge at all being made against the plaintiff. The other defendant had made the original report on which the prosecution for riot was ultimately based, and the two defendants appeared to have acted together during the subsequent proceedings. They had taken the principal part in the conduct of the case both before the police and in the magistrate's court, and prosecuting counsel told the magistrate that they had instructed him that the plaintiff had joined the riot. In those circumstances, Sir Andrew said, "the charge was a false one to the knowledge of the respondents, and they must abide the consequences of their misconduct". A little later he added that in the opinion of their lordships it would be a scandal if the remedy provided by an action for malicious prosecution was not available to innocent persons aggrieved by such unfounded charges.

In Commonwealth Life Assurance Society Ltd v Brain [1935] 53 CLR 343 the High Court of Australia was concerned with a case in which a criminal prosecution for conspiracy to defraud had been conducted by a company which had agreed to pay all the costs, charges and expenses of the prosecution. Although an officer of police had laid the charge, the secretary of the company had supplied the police with the information which had led to the making of the charge. When the plaintiff was committed for trial the Attorney-General declined to file an indictment. A civil jury in due course made a finding of fact that the company had instigated the prosecution of the plaintiff.

The High Court held that this was a proper issue to put to the jury on the facts of the case. Dixon J sought to set out the governing principle in these terms at p 379:

"This rule appears to be that those who counsel and persuade the actual prosecutor to institute proceedings or procure him to do so by dishonestly prejudicing his judgment are vicariously responsible for the proceedings."

The third case mentioned by Lord Keith in Martin v Watson was Watters v Pacific Delivery Service Ltd (1963) 42 DLR (2d) 661, a decision of a judge at first instance (Munroe J) in British Columbia. In that case a defendant had chosen to use the criminal courts as a collection agency for an extremely small civil debt, and told a police officer falsely about a "bad" cheque the plaintiff had given him. The police officer made no adequate inquiries himself and charged the plaintiff. The judge held as a fact that both the defendant and the police officer had instigated the prosecution. He said at p 669 that this was not a case of a person truthfully reporting the facts to a police office and leaving the latter to determine whether or not such facts warranted prosecution. The bad faith of the defendant in deliberately deceiving the police officer distinguished this case from other cases cited to the court by counsel.

The fourth case considered by Lord Keith was the decision of the New Zealand Court of Appeal in Commercial Union Assurance Co of NZ Ltd v Lamont [1989] 3 NZLR 187. In that case the plaintiff had been acquitted of a charge of attempting to obtain money from an insurance company by false pretences. He then brought an action against the company claiming damages for malicious prosecution. He had made a claim in respect of fire damage to a building and its contents, and the police had become involved after a fire safety officer had prepared a report suggesting that the fire had been lit deliberately. During the course of the police inquiries the company sent to the police various parts of its file, and these papers were eventually used in the prosecution which followed.

The court unanimously agreed that the trial judge had misdirected the jury in the trial of the civil action, but two of its three members considered that while on paper the plaintiff's case was not strong, there was some evidence which, if accepted by a properly directed jury, could lead to a finding that the company was liable for the institution of the criminal proceedings against the plaintiff.

After a wide-ranging review of New Zealand and other common law authorities, Richardson J accepted at p 198 a view recently expressed by a writer in a learned journal to the effect that judicial interpretations of the requirements of the tort had been much influenced by social conditions and community attitudes in particular jurisdictions, a conclusion he found not particularly surprising given the need to balance public policy considerations. The writer had suggested that public policy in certain jurisdictions (and he instanced two modern West African countries as well as India in 1908) required that people should be discouraged from making lying charges of crime and from using the criminal courts for settling civil disputes or simply as places where old scores were settled.

In the modern New Zealand context Richardson J gave particular weight to two considerations. The first was that the police had the training and experience to investigate a possible offence impartially and with skill and in that process to assess whether the evidence justified the invoking of the criminal process. The police had the professionalism to critically weigh and test the reliability of complaints and information which might be affected by self-interest or ill-will. To proceed on the premises that wherever it emerged that false information had been given to the police the intelligent exercise of the discretion to prosecute was impossible did not reflect the ordinary performance by the New Zealand police of their important responsibilities.

The second consideration was the need to protect members of the community who provided information to the police (the consideration which was to weigh so heavily with the members of the House of Lords in Taylor v SFO). They should be secure in the knowledge that in providing the police with information they were not exposing themselves to an allegation of malicious prosecution. The circumstances in which they were to be regarded as having instigated a prosecution should be rare and exceptional.

Richardson J said at p199 that it did not follow that there was any call for modifying the test previously developed by the New Zealand Court of Appeal. What was required was a cautious application of that test where the police had conducted an investigation and decided to prosecute:

"The core requirement is that the defendant actually procured the use of the power of the State to hurt the plaintiff. One should never assume that tainted evidence persuaded the police to prosecute. In some very special cases, however, the prosecutor may in practical terms have been obliged to act on apparently reliable and damning evidence supplied to the police. The onus properly rests on the plaintiff to establish that it was the false evidence tendered by a third party which led the police to prosecute before that party may be characterised as having procured the prosecution."

McMullin J, for his part, said at pp 207-208:

"As a general rule a prosecution will be considered to be brought when the information is laid and by the person who lays it. In the result, in prosecutions under the Crimes Act 1961, as was Mr Lamont's, the police will generally be treated as the prosecutor and no action for malicious prosecution will lie against the person on whose information the police have acted. But in some cases the person who supplied the information to the police may be regarded as the prosecutor even though the information was not laid by him. A person may be regarded as the prosecutor if, inter alia, he puts the police in possession of information which virtually compels an officer to lay an information; if he deliberately deceives the police by supplying false information in the absence of which the police would not have proceeded; or if he withholds information in the knowledge of which the police would not prosecute. The matter was put in the following way by Isaacs ACJ in Davis v Gell [(1924) 35 CLR 275] at p 282:
`For the purposes of this form of action the law looks beyond theory and regards the person in fact instrumental in prosecuting the accused as the real prosecutor. It enables the person innocently accused to treat his virtual accuser as party to the criminal charge, a circumstance bearing directly on the question of the effect in the civil action of the judicial termination of the criminal proceedings. The substance and not the legal form must in all cases govern, and while, on the one hand, a person giving information to the police is not necessarily the prosecutor yet, on the other, the mere fact that the police conduct the prosecution does not exclude him from that position.'"

The reason why Richardson and Barker JJ considered that there was just sufficient evidence to go to a jury on a retrial was that the plaintiff had not been charged with arson but with attempted false pretences in relation to chattels insured by the company. The company had told the police that the plaintiff had sought to withdraw his insurance claim, and this could reasonably be taken as an allegation that the claim was bogus all along. Although a detective's evidence, if accepted by the jury, would point to an independent exercise of judgment by the police not tainted by misrepresentations or misconduct by employees of the company, there was enough evidence to go to the jury on the issue.

As Barker J put it at p 211, the first jury's finding that an officer of the company deliberately supplied false information to the police could provide scope for a finding (in the words of Dixon J in the Commonwealth Life case) that the appellant procured the prosecution by dishonestly prejudicing the judgment of the police.

Lord Keith also relied on the American Law Institute, Restatement of the Law, Torts, 2d (1977), section 653, which deals with the matter in this way:

"When a private person gives to a prosecuting officer information that he believes to be true, and the officer in the exercise of his uncontrolled discretion initiates criminal proceedings based upon that information, the informer is not liable under the rule stated in this section even though the information proves to be false and his belief was one that a reasonable man would not entertain. The exercise of the officer's discretion makes the initiation of the prosecution his own and protects from liability the person whose information or accusation has led the officer to initiate the proceedings. If, however, the information is known by the giver to be false, an intelligent exercise of the officer's discretion becomes impossible, and a prosecution based upon it is procured by the person giving false information. In order to charge a private person with responsibility for the initiation of proceedings by a public official, it must therefore appear that his desire to have the proceedings initiated, expressed by direction, request or pressure of any kind, was the determining factor in the official's decision to commence the prosecution, or that the information furnished by him upon which the official acted was known to be false."

It appears to me, in the light of these authorities, that it would be unwise to be over-prescriptive in setting out the circumstances in which a lay informant may properly be regarded as the prosecutor, or as one of the prosecutors, for the purposes of the tort of malicious prosecution.

A distinction must be drawn between a simple case like Martin v Watson and a more complex case in which a prosecuting authority such as the SFO or the Crown Prosecution Service is in receipt of evidence from a variety of sources and has to decide in the exercise of its discretion whether it is in possession of sufficient evidence to justify setting the law in motion against the defendant.

In a simple case it may be possible to determine the issue quite easily by asking these questions:

In the more complex case it is likely to be more difficult to apply these tests, but I would adopt the approach suggested by Richardson J in Commercial Union Assurance Co of NZ Ltd v Lamont when he said that the tests should be the same when the police had conducted an investigation and decided to prosecute, but that they should be cautiously applied. The reason, of course, is, as he also took into account, that prosecuting authorities are trained and accustomed to consider the evidence placed before them with an appropriately critical eye. Crown prosecutors, for instance, have to be satisfied that there is enough evidence to provide a realistic prospect of conviction, and Section 5 of the current Code for Crown Prosecutors describes in clear terms the tests they have to apply before they can allow themselves to be so satisfied.

In the present case the Director of the SFO herself was personally involved in the policy decisions first to investigate the claimants and then to charge them with serious fraud, although it was the City of London police which effected the arrests and technically laid the charges. By Section 1(3) of the Criminal Justice Act 1987 she could not have embarked on the investigation in mid-November 1990 unless there was a suspected offence which appeared to her on reasonable grounds to involve serious or complex fraud. For this purpose she had the benefit of the advice of an assistant director who was a partner in Price Waterhouse who had conducted detailed investigations of the dealings in Coastline shares independently of any information given to him by the defendants. Before the decision was made to charge the claimants she had also received the advice of independent leading counsel, and Mrs Garlick, an SFO employed barrister of considerable experience in fraud cases (as acknowledged by both defence counsel at the criminal trial) had been engaged as case controller on this case for two and a half months before the decision to charge the claimants was made.

For the purposes of this interlocutory appeal I have to assume that the claimants will succeed in establishing at the trial that the defendants knew that Mr Kaiser agreed to buy the Coastline shares for C$5 million and were dishonestly putting forward a story that he only agreed to buy them for C$3 million, withholding evidence which would have pointed the SFO the other way in order to secure their prosecution and to avoid liability for paying the further C$2 million.

In Swain v Hillman (The Times, 4 November 1999) Lord Woolf MR explained that the object of CPR Part 24 is to enable cases to be disposed of summarily where there is no real prospect of success either way, in the sense that if it is a defendant's application he must show that the claimant has no real prospect of success. He explained why the courts must apply the language of this rule, as opposed to the misleading practice direction in its original form, and that the use of the word "real" directed the court to the need to see whether there was a realistic, as opposed to a fanciful, prospect of success.

In my judgment the claimants have no real prospect of proving at the trial that the defendants are properly to be regarded as the prosecutors. Even if one was to ignore the evidence that they did not spontaneously approach the SFO with its account of the history of events (as the claimants maintain) as opposed to contacting them because of the difficulties the wide scope of the restraint order was causing to them (a fact which seems to be accepted in Mr Jones's skeleton argument at paragraph 58(a)), it remains the case that the SFO acquired a substantial volume of evidence independently of the defendants. For example Mrs Wright of TSA was present at the case conference on 29th November 1990, three days after the search warrants were executed, and Mr Lee told the criminal court that he was having conversations with TSA in 1990 and had some understanding of the TSA/TCC capital problem.

Dr Paltzer's notes of his first meeting with Mr Lee on 9th August 1990 shows one reference to "sale of worthless shares" as a characteristic of Mr Johnson's fraudulent activities. Mr Duncan's note of the meeting shows that although Mr Mountford (the president of Coastline) said that there was gold in Cripple Creek, Colorado, Mr Lee said that there was no gold there. On 16th August he told Mr Rahn that the SFO would endeavour to examine the Cripple Creek property in some more detail and that enquiries were being progressed in the United States, Canada and Australia. Cripple Creek was also mentioned in a telephone conversation between Mr Lee and Dr Paltzer on 18th October, although Dr Paltzer's note would have to be explored at a trial to ascertain exactly what was said. It is sufficient for present purposes to comment that Mr Lee was clearly continuing his investigations into the underlying asset value of the Coastline shares.

The prosecution skeleton argument at the end of the trial showed the prosecution to be in control of a mass of very detailed evidence, obtained independently of the defendants, which cast grave doubt on the bona fides of a sale of Coastline shares at a price of C$1.60. Mr Birnbaum QC was contending, with reference to contemporary documents, that the changes of price and quality of Coastline shares were powerful evidence that the deal on 4th August 1988 was a rigged transaction arranged purely for capital adequacy purposes rather than for any genuine commercial purpose (CB2, p 475). He maintained that the evidence showed that Coastline's asset value was about C$0.15 and the latest price only C$0.70, and he said that Mr Mountford had told the jury that the company had no prospects without very substantial funding (in the millions of $) and that he could not understand a price of C$1.60. The prosecution also adduced evidence showing Mr Kent's and Mr Mahon's involvement in meetings concerned with the moving price of the Coastline shares, particularly in July 1988.

It does not matter for present purposes whether the prosecution was correct in its beliefs about the underlying worthlessness of the Coastline shares or about the claimants' state of knowledge of Mr Johnson's affairs at material times. What does matter is that by the time the SFO took the (rushed) decision to embark on the prosecution on 1st February 1991 (for the rush, see paragraph 50 above), its investigators had conducted their own painstaking inquiries into Coastline and had also taken substantial steps to investigate the claimants' involvement in Mr Johnson's affairs. As late as 31st January 1991 they interviewed a Mr Relph who is said to have found "the Coastline shell" for Mr Johnson (CB2, p 472).

The transcript of Mr Lee's interview with Mr Main on 21st January 1991 is also significant, not because of anything Mr Main said - he was on associate of Mr Johnson who, the claimants say, was putting forward a false account of matters to support the bank's story - but because it shows Mr Lee at work extracting detailed evidence which he could then weigh against all the other detailed evidence he was receiving. It shows that Mr Lee was particularly interested in the history of Coastline (CB2, pp 342-348). He also wanted to hear Mr Main's account of the 4th August meeting (CB2, pp 355-360, 368-370) and about Mr Main's opinion of Mr Kaiser (CB2, pp 367-8).

It is also noteworthy that the original charge did not relate explicitly to what came to be known as the 3-2 split. The claimants were charged with dishonestly representing to TSA that a C$5 million debt owed by the defendants to TCC was a true debt. The following day Mrs Garlick simply told the magistrates' court that this debt was created in fraudulent circumstances to deceive TSA as the debt was wrongfully held out to be part of the qualifying capital: if TSA had been aware of the true situation TCC would have been suspended then.

On the totality of the evidence I consider that the claimants have no real prospect of showing that anyone other than the SFO was the prosecutor. It was conducting wide investigations and exercising its own independent discretion as a skilled organisation set up to handle prosecutions involving serious fraud. This is not a case in which it would be reasonable to let the matter go forward, as the judge suggested, through the processes of discovery and oral evidence at a trial, because there is already before the court ample evidence of the SFO's role in the matter. It has not been suggested that the claimants themselves would be able to adduce any further evidence in relation to the internal workings of the SFO in connection with this investigation. For these reasons I would allow the defendants' appeal on this point.

Because I have held that the defendants are entitled to succeed on their plea of absolute privilege in response to the defamation claim and that the claimants have no real prospect of showing that the defendants or any of them were the prosecutors for the purposes of the malicious prosecution claim, I would dismiss this action.

LORD JUSTICE MANTELL:

I agree.

LORD JUSTICE LAWS:

I also agree.

Order: Appeal allowed; action dismissed; appellant to have costs of interlocatory proceedings here and below and costs of the action insofar as they have not been dealt with otherwise; application for permission to appeal to House of Lords refused.
(Order does not form part of the approved judgment)