A3/2003/0076, 0077, 0307
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (STEEL J)
London, WC2A 2LL
B e f o r e :
LORD JUSTICE POTTER
LORD JUSTICE TUCKEY
| MOTOROLA CREDIT CORPORATION
|- and -
|CEM CENGIZ UZAN
MURAT HAKAN UZAN
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Nicholas Strauss QC, Mr Richard Gordon QC and Mr Alain Choo Choy (instructed by Messrs Weil Gotshal & Manges) for the appellants
Mr Kenneth MacLean QC (instructed by Messrs Weil Gotshal & Manges) for the fourth appellant
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Potter:
The Factual Background
i) By means of Telsim shareholder actions issued to Standart Telekom Unikasyon Bilgisayar Hizmetleri A.S. ("Standart Telekom"), a company also controlled by the defendants, new shares in Telsim, thus reducing from 66% to 22% the percentage of the share capital of Telsim previously pledged to the claimant as security for its loans to Telsim by Rumeli Telefon Systemleri A.S. ("Rumeli Telefon"), which company was the majority shareholder in Telsim and was in turn controlled by D1-D3.
ii) By means of Telsim shareholder actions on 4 January 2002, relegated the shares covered by the pledge to a new and subordinate class, whereby Telsim were permitted to participate in and potentially transfer its assets to a "foundation" which is not subject to Turkish company law; and
iii) Diverted monies loaned to Telsim by the claimant for the specific purpose of purchasing equipment.
" here we have the unusual case where every preliminary indication is that the defendants, behind a faηade of legitimacy, engaged in repeated acts of fraud and chicanery, and thereby perpetrated and continue to perpetrate a rather massive swindle."
"At least $1billion of the $2.7billion loaned to Telsim by plaintiffs is unaccounted for, with some of it admittedly used for purposes other than those specified in the loan documents and much of it seemingly diverted by defendants to the benefit of Uzan Association Enterprise."
"The plaintiffs have clearly demonstrated that they are substantially likely to succeed on the merits of their claims, and have further demonstrated that very serious damage is likely to result if the requested relief is not granted."
"At the hearing on the instant motion the plaintiff established, virtually without contradiction, that this Uzan controlled business empire [functions as an] ongoing enterprise with its own structures and hierarchy antedating and independent of the racketeering activities here alleged.
Each Sunday night, key members of the Uzan family would sit down to a dinner meeting at which the key business decisions were made with respect to the entire enterprise, with individual members of the family, including the individual defendants here, then delegated to carry out the decisions At the same time, even those individual members of the family who functioned as chief executive officers of particular business entities within the enterprise could not make major decisions without checking, not with their respective boards of directors (although those were also Uzan-controlled), but with the family hierarchy.
Each of the defendants here is associated with the enterprise, and in the case of the individual defendants played a dominant role; but the enterprise itself was considerably greater than, and distinct from, any or all of the defendants. By virtue of their respective roles, however, the defendants were in a position to conduct the affairs of the enterprise, as the evidence here showed, that conduct sometimes consisted of racketeering activities."
i) Appeals by the D1-D3 (2002/1648) and by D4 (2002/1647) against the refusal of Steel J on 22 July 2002 to discharge the worldwide freezing orders granted by Moore-Bick J on 30 May 2002 pursuant to permission to appeal given by Rix LJ on 22 December 2002 ("the worldwide appeals").
ii) An appeal (2002/2346) by D2 and D3 against the order of Steel J dated 18 October 2002 that they attend court to be cross-examined pursuant to permission given by Rix LJ on 22 December 2002.
iii) An application for permission to appeal (2002/1824) by D1 and D4 against the order of Steel J that they attend to be cross-examined, those applications having been adjourned by this court on 27 January 2003 to be heard by this court.
iv) An application by D1 and D4 for permission to appeal (2003/0077) against the order of Gross J dated 29 November 2002 refusing to vary or set aside the orders of Steel J requiring them to attend for cross-examination.
v) An appeal (2003/0076) by D1 and D4 against their committal for contempt of court, for which permission to appeal is not required: see s.13(1) and (2) of the Administration of Justice Act 1960 ("the 1960 Act").
vi) An appeal (2003/0307) by D2 and D3 against their committal for contempt of court.
Should the defendants' appeals/applications be heard?
" a strong thing only to be justified by grave considerations of public policy. It is a step which a court will only take when the contempt itself impedes the course of justice and there is no other effective means of securing his compliance."
see per Denning LJ in Hadkinson v Hadkinson  p.285 at 298 as approved by Lord Bridge of Harwich in X Ltd v Morgan Grampian  AC 1 at 46, Lord Bridge adding by way of clarification that:
"Certainly in a case where a contemnor not only fails wilfully and contumaciously to comply with an order of the court but makes it clear that he will continue to defy the court's authority if the order should be affirmed on appeal, the court must, in my opinion, have a discretion to decline to entertain his appeal against the order."
"From those speeches it is, I think, clear that it is wrong to take as a starting point the proposition that the court will not hear a party in contempt but then to ask if the instant case falls within an exception to that general rule. It is preferable to ask whether, in the circumstances of an individual case, the interests of justice are best served by hearing a party in contempt or by refusing to do so, always bearing in mind the paramount importance which the court must attach to the prompt and unquestioning observance of court orders."
" that, while the general rule is that a Court will not hear an application for his own benefit by a person in contempt unless and until he has first purged his contempt, there is an established exception to that general rule where the purpose of the application is to appeal against, or have set aside, on whatever ground or grounds, the very order disobedience of which has put the person concerned in contempt."
"One can, of course, envisage, as he [Denning LJ] did in that case [Hadkinson v Hadkinson], circumstances in which the court would be unlikely to exercise its discretion in favour of hearing a contemnor he instanced the case of an abuse of the process or of disobedience to the order impeding the course of justice but I would not be in favour of laying down rules for the exercise of discretion, though it can do no harm to give examples which may serve as guidelines. For instance, where the appeal is grounded on an alleged lack of jurisdiction to make the order at all, it seemed, in general, right that the contemnor should be heard."
"The courts need powers of punishment with which to enforce their orders. The ones they have at present are adequate. They do not need a power which deprives the litigant of his right to litigate. Indeed it seems to me that were the courts to refuse to allow those in contempt access to the courts simply on the grounds that they are in contempt, they could well be acting in breach of the provisions of Article 6.1 of the European Convention on Human Rights which entitles everyone to the determination of his civil rights by means of a fair and public hearing before an independent and impartial tribunal. The "everyone" in that Article is not subject to an exception in respect of people who are guilty of serious offences or contempt of court."
The Worldwide Freezing Orders
i) an application by D1 to discharge the domestic injunction granted against him by Cresswell J, on the grounds that risk of dissipation had not been demonstrated.
ii) an application by D1-D3 to discharge the worldwide injunctions granted against them by Moore-Bick J, on the grounds that it was inexpedient for the court to exercise its jurisdiction under s.25 of the CJJA.
iii) an application by D4 to discharge the worldwide injunction against her, principally upon the ground that the claimant had failed to show a good arguable case against her.
The Law as to Jurisdiction
"It is the ancillary or subordinate nature of the jurisdiction rather than its source which is material, and the test is one of expediency. The structure of sub-sections (1) and (2) and the way in which their scope has been progressively widened indicate an intention on the part of Parliament that the English courts should in principle be willing to grant appropriate interim relief in support of substantive proceedings taking place elsewhere, and that it should not be deterred from doing so by the fact that its role is only an ancillary one unless the circumstances of the particular case make the grant of such relief inexpedient.": per Millett LJ in Credit Suisse Trust v Cuoghi  QB 818 at 826 A-C.
"It seems to me that the Convention requires each contracting state to make available, in aid of the court of another contracting state, such provisional and protective measures as its own domestic law would afford if its courts were trying the substantive action. That would be harmonisation of jurisdiction, although not of remedies." (212E)
"But the [Republic], when it launched the English proceedings did not know where the assets were located. One of its objects was to find out. The proceedings were started here because it was here that the information was available."
"It is beyond question that the injunction granted by Knox J, and upheld by Leggatt J, was a most unusual measure, such as should very rarely be granted. But this case is most unusual. It is not the nature or strength of the republic's cause of action which puts it in that category. What to my mind is determinative is the plain and admitted intention of the defendants to move their assets out of the reach of the courts of law, coupled with the resources they have obtained and the skill they have hitherto shown in doing that, and the vast amount of money involved. This case demands international co-operation between all nations. As the judge said, 'If ever there was a case for the exercise of the court's powers, this must be it'."
"For an English court to enjoin a person properly subject to its jurisdiction from disposing of assets abroad cannot in this sense be regarded as exorbitant. Perhaps Republic of Haiti v Duvalier goes to the very edge of what is permissible. For the sole connection of England with that case was the presence in England of solicitors with access to the foreign assets. The exercise of jurisdiction can be justified on the basis that the solicitors could be treated as agents of the defendants and the relevant information was located in England."
"It is a strong thing to restrain a defendant who is not resident within the jurisdiction from disposing of assets outside the jurisdiction. But where the defendant is domiciled within the jurisdiction such an order cannot be regarded as exorbitant or as going beyond what is internationally acceptable. To treat it as such merely because the substantive proceedings are pending in another country would be contrary to the policy which informs both Article 24 and section 25.
Where a defendant and his assets are located outside the jurisdiction of the court seized of the substantive proceedings, it is in my opinion most appropriate that protective measures should be granted by those courts best able to make their orders effective. In relation to orders taking direct effect against the assets, this means the courts of the state where the assets are located; and in relation to orders in personam, including orders for disclosure, this means the courts of the state where the person enjoined resides."
"I recognise that an ancillary jurisdiction ought to be exercised with caution, and that care should be taken not to make orders which conflict with those of the court seized with substantive proceedings. But I do not accept that interim relief should be limited to that which would be available in the court trying the substantive dispute; or that by going further we would be seeking to remedy defects in the laws of other countries. The principle which underlies Article 24 is that each contracting state should be willing to assist the courts of another contracting state by providing such interim relief as would be available if its own courts were seized of the substantive proceedings; see Alltrans Inc v Interdom Holdings Ltd  4 All ER 458, 468 per Leggatt LJ. By going further than the Swiss courts were prepared to go in relation to a defendant resident outside Switzerland, we would not be seeking to remedy any perceived deficiency in Swiss law, but rather to supplement the jurisdiction of the Swiss courts in accordance with Article 24 and principles which are internationally accepted.
In other areas of law such as cross-border insolvency, commercial necessity has encouraged national courts to provide assistance to each other without waiting for such co-operation to be sanctioned by international convention. International fraud requires a similar response. It is becoming widely accepted that comity between the courts of different countries requires mutual respect for the territorial integrity of each other's jurisdiction, but that this should not inhibit a court in one jurisdiction from rendering whatever assistance it properly can to a court in another in respect of assets located or persons resident within the territory of the former."
"It did not conflict with any order the Swiss court had made. It was made on terms which obviated any risk of conflict with any order made by any other court. It was made in personam against a defendant domiciled and resident here, and amenable to the enforcement of the order. It did not seek to assert jurisdiction over any person or any asset outside the territorial jurisdiction of the court. It gave rise to no jurisdictional disharmony or confusion. It promoted an object which might reasonably be assumed to find favour with the Swiss court by seeking to preserve funds which, if C.F.S.T.'s claim is well founded, Mr Cuoghi had dishonestly misappropriated and which would be needed to satisfy the judgment of the Swiss court."
" in so far as the court discouraged the grant of ancillary relief where such grant would obstruct or hamper the management of the case by the primary court or give rise to a risk of conflicting, inconsistent or overlapping orders in other courts, I have no doubt that it was right to do so."
"I accept entirely that, as stated by the Lord Chief Justice in Cuoghi, at p.882 D, it would obviously weigh heavily and probably conclusively against the grant of interim relief if such grant would obstruct or hamper the management of the case by the primary court or give rise to a risk of conflicting, inconsistent or overlapping orders in other courts. However, in this case there is the unusual circumstance that Her Honour Judge Conlon in proceedings before her in Illinois clearly demonstrated lack of any concern that the exercise of the English courts' powers to grant interim relief would impinge in any way upon the Illinois proceedings. In such a case, that is to say one where there is positive reason for the English court to proceed on the basis that the primary Court is well content that the application for ancillary relief should proceed in England and be determined by the English Court according to English principles, it does not seem to me that the consideration highlighted by the Lord Chief Justice need inhibit the English Court from granting relief if satisfied that it is otherwise appropriate and expedient to make an order."
"The English Court was not asked to exercise a long-arm jurisdiction but to grant relief against a defendant resident in England. Moreover, it was asked to grant relief which the court seized of the main proceedings had no jurisdiction to grant against non-residents but would have granted if the defendant had been resident within its jurisdiction. In the present case this court is asked to grant relief which the court seized of the substantive proceedings would have refused to grant even if the defendants were resident within its jurisdiction and had assets located there. To my mind this latter feature is a very significant factor
On any application under s.25 this court must recognise that its role is subordinate to and must be supportive of that of the primary Court. For my part, I cannot see any significance in the distinction between a case where application has been made to the primary Court and has been refused and a case where this Court is satisfied that application to the primary Court would be pointless because it would inevitably be refused. That was not in my opinion the distinction intended to be drawn in Cuoghi. It is the ground on which the application, whether actual or contemplated, would be refused which is relevant.
The jurisdiction of national courts is primarily territorial, being ordinarily dependent on the presence of persons or assets within their jurisdiction. Commercial necessity resulting from the increasing globalisation of trade has encouraged the adoption of measures to enable national Courts to provide assistance to one another, thereby overcoming difficulties occasioned by the territorial limits of their respective jurisdictions. But judicial comity requires restraint, based on mutual respect not only for the integrity of one another's process, but also for one another's procedural and substantive laws. The test is an objective one. It does not depend upon the personal attitude of the Judge of the foreign Court or on whether the individual Judge would find our assistance objectionable. Comity involves respect for the foreign courts' jurisdiction and process, not respect for the foreign Judges' feelings. A court which is invited to exercise its ancillary jurisdiction to provide assistance to the court seized of the substantive proceedings need feel no reluctance in supplying a want of territorial jurisdiction but for which the other court would have acted. But it should be very slow to grant relief which the primary Court would not have granted even against persons present within its own jurisdiction and having assets there. Assisting a foreign Court by supplying a want of territorial jurisdiction is plainly within the policy of the Act; assisting plaintiffs by offering them a lower standard of proof is not obviously within the legislative policy. I recognise, however, that the dividing line may sometimes be hard to draw, and that the distinction is not by any means necessarily decisive. I do not wish to be understood to be circumscribing a valuable jurisdiction, but rather to be indicating matters relevant to be taken into account when the court is invited to exercise it."
The decision of Mr Justice Steel
" it may be thought to weigh in favour of granting such relief that a defendant is present in this country and so liable to effective enforcement of an order made in personam, always provided that by granting such relief this court does not tread on the toes of the primary court or any other court involved in the case."
"What then are the considerations here? Firstly, one defendant (D4) is resident within the jurisdiction with a substantial property here. The second defendant also has substantial property within the jurisdiction. More importantly, perhaps, all four were involved in fraudulent business together. All were directors. All were shareholders. All were engaged in the family meetings held on Sundays. I accept the submission made by Mr Leggatt that it is artificial to treat them other than as a unit.
Taken together, these establish, in my judgment, significant connecting factors with the jurisdiction and certainly there is no other jurisdiction having significant connecting factors, at least on the information presently available other than the United States and Turkey. Furthermore, as I have already sought to elaborate, these defendants have jointly demonstrated a tenacious determination to keep their assets, including the Telsim shares from Motorola and/or the grasp of the New York courts. In addition, the New York judge has made a very strong finding on the strength of the claimant's case on dishonesty.
Viewed as a whole, it seems to me that the facts of this case are even stronger than Duvalier in crying out for some form of international co-operation. It is not even suggested, either by the defendants or, for what it is worth, the United States court, that the relief that has been sought and obtained in this jurisdiction in some way cuts across the US court. On the face of it, it is clearly and usefully supplementary.
Accordingly, for all those reasons, I dismiss these applications."
The appellants' arguments
Good arguable case against D4
" a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not It is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances."
i) The US court was the natural forum for determining the strength of the case against the defendants as the substantive proceedings were taking place in the US and the case against them was based on US law.
ii) The US court had made its findings following an inter partes hearing lasting six days in which each party had had an opportunity to adduce such oral and written evidence as it saw fit.
iii) The proposition advanced by D4 before him that she was not properly impleaded at all in the US action or, in the alternative, that she was as a matter of fact simply a housewife who was the unwitting tool of her brothers, was open but had not been argued in the US court.
iv) If her suggestion were true that some of the evidence adduced by the plaintiffs at the preliminary injunction hearing in New York took her by surprise, it was open to her under US law to file a motion to reconsider; no such motion had been filed.
v) The whole purpose of attempting to relitigate the 'no arguable case' issue in England was to establish and maintain inconsistent decisions between the English court and the US court. This was evident because in the defendants' appeal lodged from Judge Rakoff's decision to the US Second Circuit Court of Appeals, the case which D4 was seeking to make in the English court had not been raised on the appeal.
" there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive."
"This public interest [that there should be finality in litigation] is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole." (per Lord Bingham at 31B.)
"Only if there is doubt about whether the order will be obeyed and if, should that occur, no real sanction would exist the court should refrain from making an order which the justice of the case requires." (per Lord Donaldson MR at 81B-C)
" the granting of provisional or protective measures on the basis of Article 24 is conditional on, inter alia, the existence of a real connecting link between the subject matter of the measures sought and the territorial jurisdiction of the contracting state of the court before which those measures are sought." see (Van Uden Maritime B.V. v Kommanditgesellschaft In Firma Deco-Line  2 WLR 1181 at 1210 para 40).
Further, in so far as 'police' action is concerned, policing is only practicable and therefore expedient if the court acting in that role has power to enforce its powers if disobeyed. In that respect the principle in Derby v Weldon already quoted plainly has application and is apt to be applied in cases of this kind.
Two new grounds for discharging the freezing orders
would not have been regarded by the domestic law of the foreign court as a submission to the jurisdiction ought not . to be so regarded here, notwithstanding that if they had been steps taken in an English Court they might have constituted a submission.
This therefore takes us back to the procedural law of the U.S. Court, as to the effect of which there is a clear conflict which it is not possible for this court to resolve. D4 must bear the consequences of this. Mr MacLean submits that there was no argument before Moore-Bick J, or evidence placed before Steel J, to establish that the New York court was a competent forum as a matter of English law. However, as already indicated, no such objection was raised or point taken before Steel J. If the point had been raised, the issue of U.S. law could have been properly defined and resolved if necessary, bearing in mind that the respondents had only to show a good arguable case that D4 had submitted to the jurisdiction of the U.S. Court. On the uncontentious material which is before us we have no doubt that such a case is made out.
"means a judgment for an amount doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favour the judgment has been given."
The Orders for Cross-examination
"If the total unencumbered value of the defendant's assets in England and Wales does not exceed $200m. the defendant must not remove any of those assets from England and Wales and must not dispose of or deal with any of them. If the defendant has other assets outside England and Wales he may dispose of or deal with those assets outside England and Wales so long as the total unencumbered value of all those assets whether in or outside England and Wales remains above $200m."
Paragraph 10 of the orders required disclosure of all assets worldwide exceeding £10,000 in value.
"the test is simply whether in all the circumstances it is just and convenient to make such an order."
There are therefore no hard and fast rules and there is certainly no rule which precludes an order for cross-examination where a defendant discloses assets in excess of the amount frozen by the order. The Australian case does not compel such a conclusion. That decision is readily understandable as an exercise of discretion in circumstances where the defendant had disclosed sufficient verifiable assets within the jurisdiction which had been effectively frozen.
The findings of contempt and the committal orders
"It was agreed by those appearing before the court that the principles of English law which should be taken into account in this case, distinguished between acts of a magistrates court which were within its jurisdiction and those which were in excess of jurisdiction. The former were valid and effective unless or until they were overturned by a superior court, whereas the latter were null and void from the outset.
It was further submitted that the appropriate test under English law for deciding whether or not magistrates acted within their jurisdiction was that laid down by the House of Lords in McC v Mullan. The third limb of that test was relevant to the instant case, namely that magistrates exceeded their jurisdiction when they made an order which had no foundation in law because of a failure to observe a statutory condition precedent."
It should be noted that the court proceeded on the basis that English law was to be applied to decide whether the court was acting in excess of jurisdiction. The first part of the paragraph supports what we have already said. Mr Gordon however submitted, as we understood it, that section 6 was a statutory condition precedent to the exercise of any jurisdiction by the court and so any order which violated a person's human rights which should not have been made was in excess of jurisdiction. We do not agree. The statutory condition precedent in the case of McC v Mullan  AC 528, referred to in Benham above, was one which precluded magistrates from making the order they did unless a juvenile offender who was not legally represented had been refused legal aid, or had been informed of his right to apply for it but had refused or neglected to do so. These conditions had not been met and so the magistrates had no power to make the order. In other words the conditions directly affected the jurisdiction to make the order. We do not consider that section 6 is properly to be characterised as a statutory condition precedent of this kind.
i) The appeals of D2 and D3 against the orders of Steel J dated 22 July 2002 (2002/1648) and 18 October 2002 (2002/2346) will be allowed.
ii) The appeals of D2 and D3 (2003/0307) against their committal for contempt will be allowed to the extent that the orders for their imprisonment will be set aside. However the findings of contempt will stand and the question of any penalty to be substituted will be deferred for further submissions.
iii) The appeals of D1 and D4 (2002/1647, 2002/1648, 2003/0076) will be dismissed. Their applications for permission to appeal (2002/1824 and 2003/0077) will be allowed, but their appeals will be dismissed.