England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Lord Justice Mance)

		Royal Courts of Justice Strand London WC2 Monday 30th July, 2001

1. LORD JUSTICE ROBERT WALKER: I will ask Lord Justice Tuckey to give judgment.
2. LORD JUSTICE TUCKEY: This hearing has been concerned with unfinished business following a reserved judgment of this court handed down on 2nd November 2000 and an order (perfected on 1st December 2000) giving effect to that judgment. The order contemplated that further argument might be necessary if the parties could not agree, and in the event the parties have not been able to agree.
3. This court's order (and the House of Lords' refusal on or about 1st December 2000 of a petition for permission to appeal) marked the end of protracted, hard-fought and expensive litigation in which the claimants were a Spanish company, Grupo Torras SA ("GT") and its wholly-owned English subsidiary, Torras Hostench London Ltd ("THL"). These companies were owned and controlled (through other holding companies in the Netherlands Antilles) by the Kuwait Investment Authority ("KIA"), an official body established in Kuwait in 1982. The KIA has since 1982 controlled the Kuwait Investment Office ("KIO") in London. The KIO is in effect a branch of the KIA and is not a separate legal entity.
4. During the 1980s the KIO became interested in investment opportunities in Spain. GT was acquired (firstly as a partly-owned venture) and THL was formed for those purposes. The individuals involved in their control and management included a Spanish banker, Mr Francisco de la Rosa, a Spanish lawyer, Mr Juan Folchi and (based mostly in London) Sheikh Fahad (who was chairman of the KIO from 1984 until 1992), Mr Fouad Jaffar (the deputy chairman and general manager from 1984 to 1990) and Sheikh Fahad's distant relative and protegé Sheikh Khaled (who was educated in England and became deputy general manager in 1989).
5. Sheikh Fahad, Mr Jaffar, Mr de la Rosa and Mr Folchi were respectively the first, third, fifth and ninth defendants in proceedings which GT and THL commenced in 1993 in consequence of a series of massive frauds. Sheikh Khaled was later joined as the 53rd defendant. There were in all 56 defendants, although many of them dropped out of the proceedings or played little active part.
6. The series of frauds were carried out between 1988 and 1992. The various fraudulent transactions were referred to at trial as Croesus (May 1988), Oakthorn 1 (July 1989), Oakthorn 2 (June 1990), Pincinco (October 1990) and Wardbase (May 1992). Pincinco occurred during the period of the Iraqi invasion and occupation of Kuwait (the invasion took place on 2nd August 1990 and Kuwait was not liberated until the end of February 1991).
7. The central claim in the action was a claim for damages for conspiracy. The chief conspirators were alleged to be Sheikh Fahad, Mr Jaffar and Mr de la Rosa. Mr Folchi and Sheikh Khaled also faced claims for conspiracy, dishonest assistance, knowing receipt and breach of duty as a director. In Sheikh Khaled's case the claims were limited to a single transaction, Pincinco.
8. In the course of the litigation there were many interlocutory hearings and some interlocutory appeals. These included freezing orders, and undertakings given in connection with freezing orders, which it will be necessary to come back to, as they constitute a major part of the unfinished business. Eventually the trial took place before Mance J, who handed down a long reserved judgment on 24th June 1999.
9. Mance J found conspiracy proved to the requisite high standard, against Sheikh Fahad, Mr Jaffar and Mr de la Rosa. He also found Sheikh Khaled liable (in respect of Pincinco) for conspiracy, dishonest assistance, breach of director's duty and knowing receipt of $20 million. He was ordered to pay sums (denominated in various currencies) totalling well over $300 million, with interest and indemnity costs.
10. Mr Folchi and Sheikh Khaled appealed from Mance J's orders. On 2nd November 2000 this court (consisting of Lord Justice Robert Walker LJ, myself and Sir Murray Stuart-Smith) dismissed Mr Folchi's appeal but allowed Sheikh Khaled's appeal. We held that the serious allegations against Sheikh Khaled (amounting not merely to the gravest dishonesty but also to treachery, since they took place during the Iraqi occupation of Kuwait) had not been proved to the requisite high standard. The judge's orders against Sheikh Khaled were set aside as regards both damages, costs and various freezing and ancillary orders which it will be necessary to come back to in detail. In relation to these orders this court's order provided:

"The form of order in relation to the consequences of the discharge of these orders (including any continuing or restored undertakings by the Claimants and for liberty to apply for an inquiry) be deferred for agreement by the parties or, if no agreement can be reached, further application to the Court of Appeal."

11. It also gave Sheikh Khaled a general liberty to apply to this court.
12. Mr Laurence Cartier, Sheikh Khaled's solicitor, has made a witness statement dated 13th July 2001 in support of his application. It exhibits draft minutes of order which have since been amended. These raise nine different issues. These are (1) the continuation or reinstatement of the claimants' cross-undertakings as to damages given in connection with freezing orders; (2) a similar issue as to the undertakings to pay third party costs; (3) a similar issue as to ancillary undertakings in relation to bank guarantees; (4) a similar issue as to undertakings as to proceedings in other jurisdictions; (5) a similar issue as to undertakings about confidentiality in connection with information disclosed by Sheikh Khaled under compulsion; (6) a similar issue as to providing information that the freezing orders have ceased to have effect; (7) whether there should be an order for a further interim payment on account of costs in this court and at first instance (the claimants have already paid £1.5 million); (8) liberty for Sheikh Khaled to apply for a costs order against KIA; and (9) liberty for Sheikh Khaled to apply for an order for an inquiry as to damages pursuant to the cross-undertaking.
13. Not all these matters are of equal weight. As regards the two applications for liberty to apply, the position taken by Mr Andrew Popplewell QC (appearing with Mr Paul Wright for GT and THL) is not that those courses of action are in any way barred, but that it is unnecessary or misconceived to make any application to this court in relation to them. The right course, he has correctly observed, is to make an application to the Commercial Court. That is so. But in the rather unusual of circumstances of this case and subject to one proviso there is no objection in principle, and there may be some small advantage in terms of clarifying the position, if this court's further order contains paragraphs on the lines of paragraphs 5 and 6 of the draft order, but referring specifically to the Commercial Court. The proviso is that it must be clearly understood (as it will be from a transcript of this judgment) that we are expressing no view at all on any relevant issue of law or as to how the Commercial Court should exercise its discretion on either matter.
14. That leaves seven issues which need to be addressed in more detail. Six of those issues relate to the undertakings and we will deal with those first. We have still to hear argument about the costs issue.
15. In considering the undertakings, as a preliminary it is necessary to refer to the somewhat complicated history in which they were given. This history is well summarised in the GT's skeleton argument, prepared by Mr Popplewell:

"7. On 3 March 1985 Mance Lj granted a worldwide freezing injunction against Sheikh Khaled's assets (`the 1995 Order'). At Schedule 1 the order contained the usual undertakings. In particular:

(1) By undertaking (1) the Respondents gave a cross undertaking in damages to Sheikh Khaled.

(2) By undertaking (2) the Respondents undertook to (a) pay the reasonable costs of anyone other than Sheikh Khaled incurred in complying with the order and (b) meet any order for compensation awarded to any such person because of loss suffered as a result of the order.

(3) By undertaking (3) the Respondents undertook to put up security for undertakings (1) and (2) in the form of a bank guarantee in the sum of £500,000.

(4) by undertaking (4) the Respondents undertook `not without the leave of the court to begin proceedings against [Sheikh Khaled] in respect of the same subject matter as this action in any other jurisdiction. Nor will they use information obtained as a result of this order for the purpose of civil or criminal proceedings in any other jurisdiction.'

8. On 7 October 1997 Mance LJ granted the Respondents a worldwide freezing injunction against, amongst others, Sheikh Khaled in respect of assets held by trusts connected with Sheikh Khaled, as defined in paragraph 1 of the Order, (`the Trusts Order'). The Respondents gave, amongst others, the following undertakings:

(1) by undertaking 1 the Respondents gave a cross undertaking in damages.

(2) By undertaking 2 the Respondents undertook to put up security for undertaking 1 in the form of a bank guarantee in the sum of £100,000.

(3) By undertaking 5 the Respondents undertook to (a) pay the reasonable costs of third parties incurred in complying with the order and (b) meet any order for compensation awarded to any such person because of loss suffered as a result of the injunction.

(4) By undertaking 6 the Respondents undertook that `if for any reason this Order ceases to have effect ..., the Plaintiffs will forthwith take all reasonable steps to inform, in writing, any person or company to whom he has given notice of this Order, or who has reasonable grounds for supposing may act upon this order, that it has ceased to have effect'.

(5) By undertaking 7 the Respondents undertook `not without the leave of the court to begin proceedings against the Defendant in respect of the same subject matter as this action in any other jurisdiction. Nor will they use information obtained as a result of this order for the purpose of civil or criminal proceedings in any other jurisdiction.'

(6) By undertaking 8 the Respondents undertook not `without leave of the court seek to enforce this Order in any country outside England and Wales or seek an order of a similar nature including orders conferring a charge or other security against the Defendant of the Defendant's assets...'"

16. What Sheikh Khaled proposes in the amended draft order is that the undertakings in the 1995 Order and the Trusts Order should be "preserved or reinstated or ordered" in the forms set out in Schedule A and Schedule B and that they shall "continue to apply". Schedule A relates to the 1995 Order. Schedule B to the Trusts Order. It is convenient to deal with the issues which arise on the undertakings one by one.

The cross-undertakings in damages (Schedule A1 and B1)

17. Mr Popplewell concedes that the original undertakings given when the 1995 Order and the Trusts Order were obtained cover the whole of the period before this court discharged those orders and continue to be enforceable to this day. Nevertheless, Mr Lyndon-Stanford QC (who appears with Mr Barker today on behalf of Sheikh Khaled) says that GT and THL should be required to give fresh undertakings because the original orders have been discharged. In the circumstances, Mr Popplewell says that this is unnecessary. I agree.

The undertakings to pay third party costs (Schedule A2 and B3)

18. Exactly the same considerations apply to these undertakings. No fresh undertakings are required.

Security in support of the undertakings (Schedule A3 and B2

19. After giving judgment against Sheikh Khaled, Mance LJ by his consent order of 27th July 1999 discharged GT and THL from their undertaking to put up £500,000 as security for the undertakings given in the 1995 Order. But for some reason (possibly oversight) no similar order was made in respect of the £100,000 put up when the Trusts Order was made. Mr Lyndon-Stanford says that the earlier undertaking should be restored and the later should continue. Mr Popplewell submits that no such security should be required and that they should be discharged from the continuing undertaking in respect of the £100,000. Firstly, he says Sheikh Khaled has produced no evidence that he has suffered any financial loss as a result of the injunctions and it is unlikely that he will be able to do so. Secondly, he says the guarantees were given at a time when GT was involved in a form of insolvency procedure in Spain. That is no longer the case, and the evidence produced for the purposes of this application shows that GT is solvent and has substantial assets. In any event, he argues the court cannot compel GT and THL to reinstate the guarantee by putting up security of £500,000.
20. I think it is unnecessary to decide the last point in relation to this undertaking because I am persuaded by Mr Popplewell's first two arguments that it would not be right to require GT to continue to provide security and that they should be discharged from their continuing undertaking in respect of the other order. I do not attempt to prejudge whether Sheikh Khaled will able to show loss. All I can say is that on the information before us there is little evidence that he has. Secondly, GT's latest accounts do, I think, show that it is solvent with net assets of more than £185 million (301 million Euros) of which £45 million (74 million Euros) are readily realisable. Mr Lyndon-Stanford referred us to notes to the accounts which he said showed contingent liabilities of 180 million Euros and a post-balance sheet event giving rise to a liability of 48 million Euros which, he submits, cast considerable doubt on, at least, the amount of GT's realisable assets.
21. I am not persuaded by these arguments. The balance sheet, certified by Ernst & Young, shows that substantial provisions have been made. There is no reason to think that the matters relied on by Mr Lyndon-Stanford have not adequately been taken into account. The undertakings are joint and several, so THL's position does not matter, although the evidence is that it has £11.1 million in cash, of which £6 million has been specifically earmarked for any liability it has for costs or claims under undertakings given in these and related proceedings. The evidence shows that they have in fact paid from this money half of the £1.5 million to which I referred earlier.

Proceedings against Sheikh Khaled in other jurisdictions (Schedule A5(1) and B5(1) and (3)

22. By his orders of 27th July 1999 to which I have referred and a further order of 29th July 1999, Mance LJ discharged GT and THL from these undertakings. In his statement Mr Cartier says that if they will not reinstate these undertakings GT and THL should be restrained by injunctions in the same terms. Mr Popplewell says that neither course is appropriate. There is no evidence that GT or THL intend to bring any proceedings against Sheikh Khaled, so no call for the undertaking and no basis for making what is in effect an anti-suit injunction. There is, he says, no juridical basis for making such an order. GT and THL, he says, have simply been put back into the same position as if they had lost the action.
23. Mr Lyndon-Stanford relies on the fact that there are continuing ancillary proceedings in Jersey and the Bahamas. There is an ongoing criminal investigation in Spain which involves, among others, Sheikh Khaled and an outstanding criminal prosecution against Sheikh Khaled in Kuwait where his assets have been frozen, which the KIA could (but have not) caused to be withdrawn. Sheikh Khaled fears that GT and THL and those who control them from Kuwait have not accepted this court's decision. It was they who originally chose the English courts as the forum to try this dispute, successfully fighting off all jurisdictional challenges in the process, and they obtained the worldwide freezing orders against Sheikh Khaled on this basis.
24. I think the court does have jurisdiction to make an order of the kind which Mr Lyndon-Stanford asks for in the absence of any offer of an undertaking. The undertakings offered by GT and THL were the quid pro quo for the grant of the worldwide freezing orders. Those undertakings once offered took effect as if they were injunctions against GT and THL. If the court has wrongly discharged them when making its finding of liability against Sheikh Khaled, the Court of Appeal must be able to ask for them to be reinstated if it thinks it right to do so or (if that offer is not taken up) to make the order as an injunction. GT and THL are back in the same position as if they had lost the proceedings, but in the course of those proceedings they obtained relief from the court on certain terms. They should be required to honour those terms if the court considers it appropriate for them to do so.
25. GT and THL will not, apparently, offer undertakings in the original form. The statement from Mr Keltie, their solicitor, says:

"... GT and THL are not prepared to give a fresh undertaking in relation to the commencement of further proceedings against Sheikh Khaled and do not consider it appropriate to give a blanket undertaking in light of the myriad of circumstances that might subsequently arise. For example, further evidence as to Sheikh Khaled's involvement in the frauds perpetrated on GT and THL might become available in the Spanish criminal proceedings relating to the frauds on GT. ... It is possible that Mr de la Rosa ... may provide information in relation to Sheikh Khaled's involvement."

26. This statement and the fact that there are these other proceedings to which I have referred persuade me that it would be right to make such an order in this case. It is important to note that it is not in the terms of an outright anti-suit injunction, but merely prevents proceedings elsewhere without leave of the court. As their chosen forum I think it would be right for the English courts to retain control over whether GT and THL should be allowed to proceed against Sheikh Khaled elsewhere.
27. We have had some debate about the precise form of the order or undertaking if it is offered. Looking at the form proposed by Mr Lyndon-Stanford I would delete the introductory words, that is to say the words "Including by instructing, encouraging or assisting otherwise", but otherwise leave those words as they are, adding between the words "the" and "Court" the word "Commercial". I would make the order as in 5(1) so as to include the words "begin or continue", but on the understanding that the words "or continue" relate only to proceedings (if any because we are told that none have been started) which have been started between the time when the orders were discharged and today. No doubt the wording can be amended to reflect this.
28. Finally, in relation to the Trusts Order, Mr Lyndon-Stanford sought a further order, sub-paragraph (3), which was designed, as I understand it, to prevent further applications for freezing orders anywhere else in the world. I do not think it is necessary to have any specific provision to cover that, since the terms of that part of the order which I think should be made are wide enough to cover such an application.

Use of information obtained under the 1995 and Trusts Orders (Schedule A5(2) and Schedule B5(2))

29. By his July 1999 orders Mance LJ varied the undertakings in the 1995 Trusts Orders, so that they now read:

"Save to the extent that any such information is in the public domain, the Plaintiffs will not without leave of the Court use information obtained as a result of an Order of the Court in this jurisdiction for the purposes of civil or criminal proceedings in any other jurisdiction save for the purposes of (i) proceedings in this or any other jurisdiction to enforce the provisions of this Order, (ii) proceedings in this or any other jurisdiction to enforce the judgment in this action and (iii) for the purposes of proceedings in this or any other jurisdiction to trace and recover monies and/or identify wrongdoers in respect of the same subject matter as this action."

30. Mr Popplewell accepts that this undertaking continues and - subject to some debate about whether (i) was necessary - that it should continue in its present form, containing in particular provisos (ii) and (iii) which I have read out. Those provisos permit the claimants to use the information which they obtained under the orders to enforce their judgment against other defendants and to trace and recover their monies and/or identify other wrongdoers. He submits that they would be entitled to use information obtained in this way if it had been obtained from anyone under the Norwich Pharmacal/Bankers Trust jurisdiction.
31. Mr Lyndon-Stanford argues that (ii) and (iii) are inappropriate because the information was obtained from Sheikh Khaled as an alleged wrongdoer and not under the Norwich Pharmacal jurisdiction.
32. I think Mr Popplewell is right about this. The extensive orders for disclosure made against Sheikh Khaled would have been appropriate orders to make against him whether or not he was party to wrongdoing, so the use to which GT and THL can put the information is not premised upon the judge's finding of liability. We have had some debate as to whether proviso (i) is necessary. It is arguably necessary and so I would not alter the terms of the undertaking to delete this proviso.

Providing information that the 1995 and Trust Orders have ceased to have effect (Schedule A4 and B4)

33. The undertaking asked for is that "the claimants will forthwith take all reasonable steps to inform in writing any person or company to whom they have given notice of (the appropriate order) or whom he has reasonable grounds for supposing may act upon (the order), that they have ceased to have effect." Such an undertaking was only given when the Trusts Order was obtained, but Mr Popplewell takes no point about that. He says that the requirement to inform "any person who they have reasonable grounds for supposing" is too vague. They would be prepared to undertake to notify anyone identified by Sheikh Khaled.
34. I think it is reasonable to expect GT and THL to do what Sheikh Khaled asks. They obtained the orders which have now been discharged. They were prepared to give the undertaking in the form requested as a condition of getting the Trusts Order, and I do not think it is open to them to turn round now and say its terms are too vague. So I think that they should be required to give the undertaking in the form which I have read out in respect of both orders.
35. LORD JUSTICE ROBERT WALKER: I agree with the form of order proposed by my Lord, Lord Justice Tuckey, and I agree with all his reasons for proposing it.
(Further argument on the costs point)
36. LORD JUSTICE ROBERT WALKER: I will ask Lord Justice Tuckey to give the judgment.
37. LORD JUSTICE TUCKEY: As I said in my judgment given earlier this afternoon, we still have to deal with the issue of costs. At that stage I had thought - and I was not alone in this - that there was in fact only one issue for us to decide. But it emerged deep into the afternoon that in fact there are two. The first of those arises from an amendment which was made to the draft minute of order very shortly before this hearing in which Mr Lyndon-Stanford on behalf of Sheikh Khaled asked for an order in the following terms: "The claimants pay to the 53rd defendant interest on any of his assessed costs paid prior to the judgment of Mance LJ on 30th July 1999 from the date of payment down to 30th July 1999 at base rate plus 2% and therefore at the judgment rate, and interest on any of his costs paid upon or after 30th July 1999 at the judgment rate."
38. This application is based on the provision in CPR 44.3(6)(g) which does give the power to the court to award interest on costs from a certain date, including a date before judgment. Neither of the skeleton arguments filed on behalf of Sheikh Khaled dealt with this point in terms. The evidence does not deal with it and Mr Popplewell took objection to our dealing with it for those reasons. His submission was that either we should adjourn it or, preferably, that we should dismiss the application on the basis that this application should have been made at the time this court made its costs order last year on the disposal of the appeal.
39. We agree with Mr Popplewell's latter submission. If an order of this kind is to be made it should be sought at the right time. It is now too late to do so, particularly in the way it has been done at this hearing.
40. So I turn to the costs issue which we did anticipate, which is an application for a substantial interim payment on account of costs. The application is complicated because in the course of the proceedings three different solicitors have acted for Sheikh Khaled. The amounts involved are set out in Mr Cartier's affidavit and they are as follows (and I talk in round figures): to Kingsley Napley (the first solicitors who acted until about 1997) £695,000; to Morgan Lewis & Bockius (who acted from 1997 until some time after the trial) £3.964 million, plus unbilled costs of £101,000, and a further amount in respect of unbilled costs and disbursements of £200,000; to Cartier & Co (who have acted for Sheikh Khaled from July 2000 until the present time) £448,000. Those figures, together with interest from dates last year to the present time, produce a total of about £5,950,000.
41. GT and THL have, as I have already said, recently paid £1.5 million which they say is all that is recoverable. The comparison between the sum claimed and the sum paid shows that a detailed assessment of costs in this case is inevitable.
42. On behalf of Sheikh Khaled Mr Lyndon-Stanford submits that 85% of the fees and interest to which I have referred are likely to be recovered on a detailed assessment on the standard basis. So that reduces the total to about £5 million. He suggests that the appropriate amount to order by way of interim payment is 80% of that sum. So that brings down the total to about £4 million, from which one would then need to deduct the £1.5 million already paid. So he is looking for something in the order of £2,500,000 as I understand the figures.
43. Mr Popplewell says, as I have already recorded, that no such payment should be ordered. A number of points of detail are made which it is not necessary to rehearse. The principal attack is on Morgan Lewis & Bockius' costs, whose profit costs are described as "breathtakingly large". They show that 25 fee earners worked on the case. Counsel and special counsel who did not appear at the trial were paid nearly £275,000, accountants ran up a bill of nearly £200,000 in two months and unspecified disbursements of £238,000 are claimed. All this, Mr Popplewell submits, points to the fact that this court should exercise considerable caution in making any interim award.
44. Mr Lyndon-Stanford says that GT and THL obviously spared no expense in their conduct of this litigation, and in particular their pursuit of Sheikh Khaled. So it is not surprising that his costs are large. His solicitors' costs were monitored by GT and THL's solicitors as one of the terms of the freezing orders and no objection was taken to them at that time. So one should be cautious about accepting any argument now that these costs are excessive.
45. We were referred by Mr Lyndon-Stanford to cases where courts have ordered interim payments for costs. There is no issue about the court's jurisdiction to make such an order and I do not think this is a case to examine and discuss the principles which are at play, particularly at this time of day in an extempore judgment. This is on any view an exceptional case. The question we have to decide is whether any payment should be made, and if so how much. That is difficult enough without having to debate the philosophy behind the rules.
46. This was heavy litigation, where the costs on both sides could be expected to be very large. The amounts at stake were enormous. Sheikh Khaled has been successful and in principle it would be unfair to keep him out of money which he will inevitably recover at the end of a lengthy detailed assessment. The difficulty is in knowing what if anything more he will inevitably recover.
47. I am persuaded, looking at the matter in the round, that he is bound to recover more than he has been paid. But I do not think he will inevitably recover anything like the amount Mr Lyndon-Stanford asks for. There are a number of difficulties, not least the fact that three different firms of solicitors were involved which might well persuade the costs judge that there has been duplication of costs for which GT and THL should not have to pay.
48. In the circumstances and doing the best I can I think GT and THL should now have to make a further interim payment of £1 million.
49. LORD JUSTICE ROBERT WALKER: I agree.
ORDER: As per judgment; no order as to the costs of the application; counsel to draft a minute of order. (Order not form of approved judgment)