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
CHANCERY DIVISION
(MR JUSTICE LEWISON)

		Royal Courts of Justice Strand London, WC2
		Thursday, 13 May 2004

1. LORD JUSTICE DYSON: This is an application by Mr Simms for permission to appeal the order of Mr Justice Lewison of 13 February 2004 whereby a worldwide freezing injunction was continued against him and, I think, the second, third and fourth defendants. Only Mr Simms at the moment is seeking to challenge that decision.
2. The background is complex. I do not propose to go into it in great detail. The following is a sufficient brief summary. (I shall refer to the first claimant as DGI.) Mr Simms and the second defendant are both directors of DGI. Mr Simms was, until February 2004, a solicitor in private practice but in February he was struck off, although he tells me that the decision to strike him off is under appeal. He was also a director and chairman of Charlton Corporation Plc ("Charlton").
3. In September 1997 DGI, which is a US registered company, entered into an agreement with Charlton whereby it granted Charlton an option to acquire various assets and know-how to create a production line for the manufacture of, amongst other things, hospital beds. In March 1998 Charlton gave notice of the exercise of that option. The goods in question were to be delivered by September 1998. In fact, the option agreement was terminated by DGI on the grounds that Charlton had allegedly repudiated the agreement by failing to open a letter of credit.
4. Charlton started proceedings in the State of New York claiming $160 million in damages from DGI. DGI served a defence and counterclaim. The district judge in New York State granted Charlton's motion to compel an arbitration in England. Those arbitration proceedings took place between 2000 and 2002. The basis of DGI's counterclaim was that Charlton had repudiated the option agreement and that by the first and second defendants to the present action - that is Mr Simms and Mr Rahman - Charlton had fraudulently misrepresented to DGI that they each owned major shareholdings in Charlton and that Charlton was a sound and credit-worthy company. The second and third claimants were also parties to the arbitration but Mr Simms and Mr Rahman were not.
5. The arbitrator dismissed Charlton's claim, but, in respect of DGI's counterclaim, awarded damages and costs totalling approximately $5 million for breach of contract and fraudulent misrepresentations made by both Mr Simms and Mr Rahman. That $5 million figure was calculated up to January 2004. No part of that award has yet been met by Charlton. Interest on the principal sum awarded by way of damages accordingly continues to run.
6. Having failed to obtain satisfaction from Charlton, DGI issued the present proceedings against the individual defendants on the basis that the first four defendants were bound by the arbitration award. The primary way in which they put their case, which is based on res judicata or issue estoppel, is set out at paragraph 7 of the particulars of claim. DGI relies on the fact that the subject matter of the current proceedings and of the arbitration, namely the making of the alleged misrepresentations, was identical, that at all material times Mr Simms and Mr Rahman were the agents of Charlton for the purpose of making those representations, that they both gave evidence in the arbitration on Charlton's behalf, that Mr Simms conducted Charlton's case in the arbitration and that Charlton and the first four defendants were joint tortfeasors.
7. Relying on those matters, as well as certain other matters, DGI contends that the findings of the arbitrator in relation to the misrepresentations as well as in relation to the first to fourth defendants' involvement in Charlton are binding on the first to fourth defendants as well as on Charlton. Alternatively, they say, there is a sufficient degree of identification between Charlton and the first to fourth defendants by reason of the matters to which I have referred to make it just that they should be so bound. Their alternative case, which does not depend in any way on the arbitration award, is to plead the misrepresentations which were relied upon in the arbitration as a matter of fact.
8. On 30 January 2004 DGI applied for a worldwide freezing order to be imposed on Mr Simms and the second, third and fourth defendants up to $5.5 million, taking account of further interest accruing since January and the costs of the current proceedings. That application was granted by Mr Justice Lindsay following a without notice hearing on 3 February. On the same day the claimants applied for an order that the injunction continue until the trial or further order. That application came before Mr Justice Lewison on 13 February and he continued the order.
9. The principal material on the basis of which the DGI persuaded both judges that they had a good and arguable claim was the arbitration award itself. As Mr Justice Lewison said at paragraph 5 of his judgment:

"Apart from the award itself, there is little evidence in support of the claimants' claim. It seems to me, therefore, that for the purposes of this application the claimants are particularly dependent on the arbitrator's findings."

10. Mr Simms' first point is that neither judge was entitled to have regard to the arbitrator's award because it was inadmissible in the current proceedings and, in any event, not binding on the first, second, third or fourth defendants. Mr Simms relies on the well established principle that arbitrations and documents arising in and as a result of arbitrations are confidential to the parties to those arbitrations. Since he was not a party to the arbitration, the arbitration award and all documents in the arbitration cannot be used as against him, because so to do would breach the confidence enjoyed by, amongst others, Charlton and the other parties to the arbitration, but not himself. He has referred me to a number of authorities.
11. The way in which the judge was persuaded to avoid the consequences of that well established principle of law was to hold that Mr Simms was in fact privy to the arbitration. His position was no different, therefore, so far as confidentiality was concerned, from that of Charlton. He also relied on the passage in the judgment of Lord Justice Potter in Ali Shipping Corporation v Shipyard "Trogir" [1999] 1 WLR 314, 326-7, where Lord Justice Potter identified a number of exceptions to the general principle that documents in an arbitration are impressed with confidentiality and cannot be used outside the arbitration. The fourth exception he identified was -

"(iv) disclosure when, and to the extent to which, it is reasonably necessary for the protection of the legitimate interests of an arbitrating party. In this context, that means reasonably necessary for the establishment or protection of an arbitrating party's legal rights vis-a-vis a third party in order to found a cause of action against that third party or to defend a claim (or counterclaim) brought by the third party .... "

Mr Simms submits that this exception should be construed narrowly. It is true that it permits a party to an arbitration to disclose an arbitrator's award if that is necessary in order to found a claim or a defence. But he points out that the present claim is not founded on the arbitrator's award. It is founded on the alleged misrepresentations.

12. The judge was satisfied that there was an arguable case that the first four defendants in the present litigation were bound by the arbitration award or privy to the arbitration.
13. The question of what amounts to being "privy to an arbitration" if one is not an actual party to the arbitration, it seems to me, is one of some considerable difficulty. Mr Simms referred me to Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510. In that case the Vice-Chancellor cited from a decision of Mr Justice Buckley in Carl Zeiss Stiftung v Rayner & Keeler (No 3) [1970] Ch 506, saying:

"' ..... no authority which indicates at all clearly what kind of interest in earlier litigation relied upon as constituting a res judicata is sufficient to render someone, who was not a party and is not a successor in title to a party to that litigation, privy to a party for the purposes of the doctrine. 'Privity' for this purpose is not established merely by having some interest in the outcome of litigation.'"

It seems to me that this is a difficult area of the law in which there is some uncertainty.

14. The factors relied upon by DGI (paragraph 7 of its particulars of claim) indicate that there was a very close connection between Mr Simms and the arbitration. Not only did he represent Charlton in the arbitration, but the heart of the subject matter of the arbitration was identical with the heart of the subject matter in the present case. It seems to me that this case is a very, very far cry from the Gibraltar case, to which Mr Simms drew my attention.
15. It is not necessary to decide whether Mr Simms was privy to the arbitration.
16. I am satisfied that the judge was correct in saying that there is a good arguable case that Mr Simms, in the very unusual circumstances of this case, together with the other three defendants, was privy to the arbitration. It follows that, in my judgment, the judge was right to say that he and Mr Justice Lindsay were entitled to have regard to the arbitration award in deciding whether or not to grant a worldwide freezing order. That is the critical question here, and on that critical question I am satisfied that the judge was correct.
17. Mr Simms has one or two subsidiary points, but he frankly concedes that they are subsidiary. He contends that the judge should not have been satisfied that there was a real risk of dissipation of assets unless the order was made. I have read the affidavit of Mr Clarke at page 165 of the main bundle. What he says there is reinforced by the fact that the Law Society has now upheld some of these very serious allegations against Mr Simms of dishonesty, and struck him off the Solicitors Roll. The allegations that were found proved by the arbitrator, together with those matters, are more than enough to justify a conclusion that there is a real risk of dissipation in this case. The final point was not developed by Mr Simms in argument, but I think he contends the figure should be $5 million rather than $5.5 million. But the additional element was intended to provide for interest which is continuing to run, and costs. In my judgment, both judges were fully entitled to do that.
18. For all these reasons therefore, I would dismiss this application.

Order: Application dismissed