England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/12/2015

Mrs Justice McGowan:

1. The Claimant, Superior Composite Structures LLC ("SCS") is an American company now based in South Dakota. It secured judgment against the Defendant in the District Court of South Dakota on 5 August 2013. The Claimant seeks to enforce that judgment in this jurisdiction.
2. The Claimant says judgment should be enforced in the usual way because;

i) It is final and conclusive, as all appeals are now out of time;

ii) It is the judgment of a court;

iii) It is for a fixed sum;

iv) It is not, directly or indirectly, for tax or any form of public penalty and

v) The Defendant has submitted himself to the jurisdiction of the District Court of South Dakota.

In general terms the Claimant submits that the Defendant fails on the central issue of resistance as it cannot be shown that the judgment was obtained by fraud. Further that the decision reached was one open to the court and one that the court was entitled to reach. Accordingly there has been no breach of natural justice. It argues that it is not for this court to re-litigate the matter and that, even if it is shown that the Claimant did not serve all its evidence in the undefended hearing that does not offend the requirements of natural justice. It would not therefore be either contrary to public policy or a breach of the Defendant's Convention rights to enforce the judgment.

3. The Defendant says judgment should not be enforced because;

i) It was procured by fraud; and/or

ii) It was given contrary to the rules of natural justice and/or in contravention of the European Convention and/or contrary to public policy.

In general terms the Defendant argues that the judgment was procured by fraudulent misrepresentations made by the Claimant. He also submits that the US court failed to carry out an objective assessment and acted contrary to the rules of natural justice. He further submits that the award is so manifestly excessive that to enforce would be contrary to public policy. There has been a breach of his Convention rights and this court should not grant the claim to enforce.

THE LAW

4. The enforcement of a foreign judgment is a matter of common law in the absence of any treaty agreement. There is no such treaty with the United States of America. A foreign judgment for a definite sum, which is final and conclusive on the merits, is enforceable by claim and is unimpeachable (as to the matters adjudicated on) for error of law or fact. This is subject to four material exceptions. It may be impeached for fraud; if the proceedings leading to the judgment were contrary to natural justice; if its enforcement would be contrary to public policy and if it relates to a tax, fine or other penalty. It is agreed that the fourth exception has no application in this case. It may be that a fifth exception, breach of a Convention right, is to be added to the list.

The exceptions and their application were carefully considered by Simon J in JSC VTB Bank v Skurikhin and others [2014] EWHC 271 Comm. The history of the authorities on the point is set out with clarity.

(1) FRAUD

5. The common law principle is set out in Dicey, Morris & Collins, The Conflict of Laws, 15^th edition at rule 50,

"A foreign judgment relied upon as such in proceedings in England, is impeachable for fraud. Such fraud may be either (1) fraud on the part of the party in whose favour the judgment is given; or (2) fraud on the part of the court pronouncing the judgment."

The law will not condone or endorse fraud and a party is not entitled to enforce a judgment if it has been obtained by their fraud. Further, it is necessary that such fraud was operative in the obtaining of the judgment. In other words the judgment would not have been obtained without such fraud: Gelley v Shepherd [2013] EWCA Civ 1172.

The principles have been set out in Royal Bank of Scotland v Highland Financial Partners LP and others [2013] EWCA Civ 328 in the judgment of Aikens LJ at [106].

"The principles are briefly: first, there has to be a 'conscious and deliberate dishonesty' in relation to the relevant evidence given, or action taken, statement made or matter concealed, which is relevant to the judgment now sought to be impugned. Secondly, the relevant evidence, action, statement or concealment (performed with conscious and deliberate dishonesty) must be 'material'. 'Material' means that the fresh evidence that is adduced after the first judgment has been given is such that it demonstrates that the previous relevant evidence, action, statement or concealment was an operative cause of the court's decision to give the judgment in the way in which it did. Put another way, it must be shown that the fresh evidence would have entirely changed the way in which the first court approached and came to its decision. Thus the relevant conscious and deliberate dishonesty must be causative of the impugned judgment being obtained in the terms it was. Thirdly, the question of materiality of the fresh evidence is to be assessed by reference to its impact on what decision might be made if the claim were to be retried on honest evidence."

It is right that the RBS case, related to the setting aside of a domestic judgment obtained by fraud. The Defendant argues, rightly, that a foreign judgment could be impeached for fraud, even if no new evidence has been adduced, Owens Bank v Bracco [1192] a AC 443.

(2) NATURAL JUSTICE

Dicey rule 52 applies,

"A foreign judgment may be impeached if the proceedings in which the judgment was obtained were opposed to natural justice."

The principle in Pemberton v Hughes [1899] 1 Ch 781 stands unaltered.

"English courts never investigate the propriety of the proceedings in the foreign court, unless they offend against English views of substantial justice."

As it is clear that this court should not impugn the judgment based on its own view of the overall merits of the claim, it is likely that this exception will apply only to the conduct of the proceedings. As Simon J observed in JSC VTB Bank v Skurikhin (supra) at [36] the right to a fair trial under Article 6 of the ECHR will play a part in the court's consideration of whether the proceedings were conducted within the rules of natural justice. The fair conduct of the proceedings, particularly in the assessment of damages, is a live issue in this case.

(3) PUBLIC POLICY

Dicey rule 51 applies,

"A foreign judgment is impeachable on the ground that its enforcement or, as the case may be, recognition, would be contrary to public policy."

Public policy is that which governs the conduct of proceedings at the time of the proceedings. It is therefore mutable. It must include the protection of inviting a court to refuse to recognize or enforce a judgment, the enforcement of which would "offend universal principles of morality".

Again a failure to abide by the "universal principles of morality" is almost certain to cause the proceedings, and their enforcement, to be contrary to the rules of natural justice and in breach of Article 6. The drawing of a precise line between the exceptions based on natural justice, public policy and Convention rights, even if possible, is unnecessary in this case.

(4) ECHR.

Convention rights are said to provide a "free standing objection" above and beyond those categorised by Dicey, Aeroflot Russian Airlines v Berezovsky [2012] EWHC 3017 Ch On the facts of this case, it is clear that the finding of any or all of the exceptions above, save fraud, would mean that the Defendant had been denied a fair trial. If he fails to prove the application of any of the more established exceptions then it will be necessary to consider if the enforcement sought would offend Article 6 in a manner falling outside the Venn diagram of considerations enumerated by Dicey.

6. This is not a re-trial or an appeal. The Defendant must establish the case he sets out to prove on the evidence and on submissions. The Court should not determine all points, simply those properly raised as part of the forensic task the Defendant has set himself.

THE BACKGROUND

7. The following summary is taken and modified from an agreed chronology. It is essential to bear in mind that the action is not being re-heard in the current proceedings and it is not therefore necessary to determine all of the factual issues.

i) 1994. Mr Parrish invented and began the development of the Ambiente Housing System, ("AHS"). This was a process of producing houses out of re-cycled glass. A number of investors in the US thought that the housing would be an ideal product for development for sale to Native American peoples.

ii) 29 Sep 2004. A company called Abersham was incorporated in England and became the licence holder for AHS. This was the vehicle used by Mr Parrish.

iii) 2007. A group called the Aledo Group started to try to raise funds to build an AHS factory in Aledo Illinois. At the time Lee Celske was mayor of Aledo, he was later to become part of SCS.

iv) March 2007. Abersham enters into an agreement with Ambiente Homes Midwest LLC, owned by Mike Klumb, to design and build an AHS factory in Brookfield, Wisconsin.

v) July 2007. Lee Celske and Rick Ostergaard form Superior Composite Structures LLC in Illinois.

vi) There are a number of drafts of an agreement in principle circulated between the parties. Different forms of the document are signed by one but not by both parties.

vii) 12 August 2008. A final form of the agreement is signed by both the Claimant and the Defendant.

viii) 13 August 2008. $250,000 was transferred to Mr Parrish.

ix) Late 2008. SCS told its investors "that sheeting and panels lines are now fully operational" at the Brookfield factory.

x) 2009-2010. SCS had funding problems. Certain aspects of the operation of the original scheme were varied.

xi) The factory, under the Defendant's supervision never ran a fully functioning production line.

xii) 14 June 2010. The Claimant issued proceedings in the US Federal District Court in South Dakota against Mr Parrish.

xiii) 5 May 2011. The Claimant obtained default judgment against Abersham in the Federal District Court.

xiv) 11 July 2011. Hearing to assess damages payable by Abersham

xv) 13 July 2011. Judgment entered against Abersham for $849,895.98.

xvi) 19^th October 2012. The Federal District Court granted the Claimant's motion for sanctions and ordered that Mr Parrish respond to the interrogatories and requests for production of documents.

xvii) 19 November 2012. Mr Parrish filed a Response to Order.

xviii) 12 June 2013. The Claimant obtained default judgment against the Defendant in US.

xix) 2 August 2013. Hearing to determine damages payable by the Defendant.

xx) 5 August 2013 Judgment entered against Mr Parrish in the sum of $2,058,861.

xxi) 18 March 2014 Claimant issued proceedings in the High Court to enforce the judgment.

DISCUSSION

8. The cases in the South Dakota court were based on the Defendant's fraudulent misrepresentations as to the viability of the business, the state of progress in the factory and to what use payments made to him by the Claimant had been put. In these proceedings it is argued that the Claimant was dishonest in the evidence adduced in support of those claims. It must be remembered that this is not a re-hearing or an appeal and the Defendant has to establish the case he raises.

i) Payment of $250,000

In the course of negotiations between the Claimant and the Defendant a number of forms of the agreement in principle were discussed and sent back and forth. On at least one occasion one was signed but only ever by one of the parties. These early versions referred to payment for a feasibility study. In fact the document signed by both parties on 12 August 2008 made no reference to a feasibility study, rather it spoke of an initial payment which was to be credited against the total purchase price. The Defendant contends nonetheless that the agreement was that the payment was made to him to carry out a feasibility study. He cannot point to any such study, although he says there were reports and plan drawings. He says that the reports are with the liquidators. There are no covering documents or any email trail to support his contention. The Claimant is clear that whatever the early discussions, the final agreement did not allow for payment for a feasibility study and, in fact, they never received such a study.

On the evidence, both oral and documentary, it is clear that, whatever the earlier negotiations, the final agreement made no mention of a feasibility study. There is no documentary or electronic evidence that any study was produced and in any event the final agreement refers to this payment in the following terms,

"The initial payment in the amount of $250,000 shall be credited against the total project price of $9m."

The contention that this was a fraudulent representation and contributed to the fraud upon which the judgment was obtained is not supported by the Defendant's unreliable evidence on this point.

ii) Funding

It is said that the Claimant dishonestly misled the US court about the existence of funding. Its representatives, particularly, Lee Celske, gave evidence on this point. It was clear from his evidence, and the documentary support, that whatever interest by potential investors or backers the company had inspired was defeated when they were unable to produce actual proof that the factory could produce what was promised. It was a time in which the markets were badly hit by a series of financial crises but the fact that the eventual product was to be sold to the American Tribes and would be financed by guaranteed Government funding would clearly have given this investment a measure of security which others lacked. There is no support for the Defendant's proposition that the Claimant had no funding and would not have been able to find any irrespective of the strength of the evidence of the workings of the factory.

iii) Representations about work at the factory.

The Claimant, through Lee Celske and Rick Ostergaard, repeated the evidence which had formed part of the US proceedings, namely that the Defendant had misled them about the capacity for work to be done and the state of work actually being done at the factory. The Claimant relied on what they were being told by Mr. Parrish in making representations to their existing investors, to would-be investors and to potential lenders.

The Defendant gave vague evidence saying; at times that he was not able to tell them of the true state of affairs because of a duty of confidentiality owed to Mike Klumb. He also said that Mike Klumb, who was involved with him in the factory supposedly producing the product, was refusing to employ enough staff of sufficient skill to run the plant. He could not explain why Mr Klumb would sabotage his own investment. His evidence on this point was simply incredible.

Again the Defendant's own evidence, even supported to the very limited extent it was by his son, does not establish the proposition that the Claimant had caused the US court to accept their case by fraud.

9. Natural Justice, Public Policy and Article 6

The conduct of the proceedings and the quality of the judgment is the subject of strong criticism by the Defendant. He did not continue to participate in the proceedings due to cost. Likewise he did not appeal or challenge any of the orders in the US court.

i) Reasoning.

The Defendant argues that the decision arises from the dishonest nature of the claim by the Claimant and the flawed conduct of the proceedings by the Judge. The proceedings were conducted before the same Judge and ran for years. The same Judge dealt with the parties, including the Defendant for as long as he participated in those proceedings. She received depositions, heard oral evidence and submissions. Not every point raised in the evidence is dealt with by the Judge but she does review the position and give reasons as to her conclusions as to sanctions in her 28 page judgment of 19 October 2012 on the first hearing and an 11 page judgment of 12 June 2013. On the material before the Judge it is difficult to see how she could have reached any conclusion other than the one she did. It is said that the Claimant withheld material evidence from the court. That claim is not supported. The full transcripts of the hearings show that all relevant matters were litigated.

ii) Lost Profits and Wasted Costs

The Claimant sought an award to represent wasted costs and lost profits. The Defendant alleges fraud and says that there was double counting because the costs would have had to be spent in order to generate the profits and therefore should not have been claimed or awarded in addition. The Claimant answers that the profits claimed are net profits and would, if the business had succeeded, been earned over and above the costs of earning them. It is not for this court to assess the damages or to conduct any form of actuarial exercise. This award might well have been appealed successfully. No appeal was brought. There is no basis upon which to argue that the court was misled. Nor can the underlying proposition that these are punitive damages be made out. The Claimant sought punitive damages but did not succeed in that part of the claim. That the Claimant obtained a better settlement than might otherwise have been the case is not enough to support the propositions made by the Defendant.

iii) General

There was general criticism of the honesty and reliability of the Claimant witnesses. By way of illustration they were challenged on the process by which SCS had moved from Illinois to South Dakota. There was no evidence as to state or federal tax law or the formation of companies in one state and their subsequent transfer to another. Whatever the legal position there was nothing demonstrated in the assertion that they had been and still were conducting themselves fraudulently.

CONCLUSION

10. The Defendant has not demonstrated himself to be a credible or reliable witness. Where there is a conflict of the oral evidence between him and the Claimant witnesses theirs is to be preferred. His account, even when supported by his son, does not reach a standard close to that required to find fraud in the obtaining of the judgment on the part of the Claimant. Nor is there valid criticism of the court process of the judgment sufficiently compelling to lead to the conclusion that to enforce its terms would amount to a breach of public policy or the rules of natural justice or give rise to a breach of the Defendant's Convention rights.
11. It may be that the Defendant was unlucky and differently conducted on a different day in front of a different Judge he might have not faced such a heavy award against him. That is not the test to be applied in this case. There is no evidence or submission which sufficiently supports the case that the enforcement of this judgment should be prevented. Accordingly the Claim succeeds.