CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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(1) Sohail Masood (2) Newport Financial Holding Ltd (incorporated in Nevada) (3) Newport West Financial Inc (4) Mohammad Ali |
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Claimants |
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(1) Mohammad Zahoor (2) Metalsukraine Corporation Ltd (3) International Steel and Tube Industries Ltd (4) Azot Ltd (5) Waseem Mehboob (6) Parveen Saleemi |
Defendants |
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Mr A Trace QC and Mr J Aldridge (instructed by Hogan & Hartson) for the First to Fifth Defendants
Mr C Harris (instructed by Stephenson Harwood) for the Sixth Defendant
Hearing dates: 12, 13, 14, 15, 18, 19, 20, 21, 22, 25, 26, 27, 28, 29 February and 4, 5, 6, 7, 11, 12 March 2008
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Crown Copyright ©
INTRODUCTION
ATTENDANCE OF WITNESSES
THE CLAIMS
i) The original High Court Proceedings (action no HC04C01331) comprising claims:-a) By C1, C2 and C3 against D2 and D3 for remuneration under contracts for services rendered to D2 and D3;b) By C1 against D3 for unpaid salary;c) By C1 against D1 for damages for malicious falsehood.ii) Proceedings in the Royal Court of Guernsey pending trial in this action which include a claim by C1, C2 and C4 against D1, ISTIL Group Inc (the predecessor of D2) and D3-D6 to title to 8% of the issued share capital in D3 ("ISTIL Guernsey") and rectification of its share register or compensation.
iii) In addition related proceedings were to be heard at the same time or immediately after the action;-
a) Proceedings in this Court under action number HC02C0711 in which ISTIL Group Inc and D2 were Claimants and D1 and Reventox Consulting Ltd (incorporated in Cyprus) were Defendants ("The Reventox action"). D1 is the Part 20 Claimant and obtained a joinder of C1 for the purpose of making him liable pursuant to Section 51 Supreme Court Act 1981 for about 80% of the costs unpaid to D1 and Reventox by D3.b) D3 claims against C1 a declaration under action number HC07C01878 that C1 was validly removed from the board of D3 at an EGM held on 31st March 2003 ("the EGM action"). Action for this relief was brought in Guernsey and has similarly been stayed on the basis that the proceedings should be brought by D3 in England. In the event that action was not fully developed before me. The parties agreed that there will be no determination on that aspect of the many disputes between the parties and it could be restored depending on what my findings were.
OVERVIEW
SM'S CLAIM TO SHARES
"67. As I have said, the evidence leads me to conclude that this fax [interpolation the fax that SM said he had received] and that of 17 October 1996 are simply not authentic. Not only can these faxes not be relied upon to support SEAM's case on the Counterclaim but more fundamentally, they raise serious questions about the credibility of the evidence of Mr Asad Ali and [SM]."
APPROACH TO THE EARLIER JUDGMENTS
PARTICULAR CLAIMS IN DETAIL
CONTRACTUAL CLAIMS
i) A public offering of the shares in Metalsrussiaii) The sale of an Electric Arc Furnace at the time part of DMZ to be spun off from DMZ.
DISPOSITION OF YINNIE SHARES
i) Azot and MZ would only control the 49% of the shares and would not induce outside shareholders to vote against Thaiwin nor at anytime claim these shares as part of Azot or MZ.ii) "the 10.1% (sic) shares are purchased by the shareholders dividend, therefore in the years to come when these shares are going to be sold, other than ones given to Newport West Financial/[SM] for compensation. The rest of the shares will be sold to outsiders and the cash will be distributed 51% to Thaiwin and 49% to Azot.
SUBSEQUENT CORRESPONDENCE CONCERNING COMPENSATION BONUS
"This sum represents full payment of the services of Newport West Financial, but does not include reimbursement of the out of pocket expenditure".
"You agree on behalf of NWF [i.e. C2 and C3] that in substitution for any earlier arrangement in relation to fees and remuneration (whether in cash or kind) which existed between Metalsrussia and NWF in respect of the Project the above terms shall apply".
i) The proposed floatation of Metalsrussia Group Ltd; andii) In relation to the privatisation of the Donetsk Metalurgical Plant Open Stock Company ("DMZ") the demerger of DMZ's Electric Arc Furnace assets into Metalsukraine Ltd ("MUK") from DMZ and Metalsrussia Corporation Ltd and the acquisition of its interest in MUK.
iii) And that such letters superseded any previous written or oral agreements with respect to fees and remuneration (whether in cash or kind) between any Metalsrussia Company and NWF.
THE SHARES AGREEMENT
i) My signature is forged…..ii) Address is wrong
iii) Date was specially selected to prove I was in the US at the time
iv) If it was an original document why would have [SM] spend so many months asking…[indecipherable]
v) …why should I give my shares [SM] without any consideration when I could sell the shares to MZ for [illegible]"
EVENTS AFTER JUDGMENT RESERVED
"On 23 January 2008 the hearing in this appeal was concluded. On Friday 4 April 2008, after the members of the Appellate Committee had prepared drafts of the speeches which they proposed to deliver, the solicitors to the parties were notified that judgment would be given on 9 April. In accordance with the practice of the House, copies of the draft speeches were provided in confidence with a request that counsel check them for "error and ambiguity". On Monday 7 April the appellant's solicitors notified the Judicial Office that they proposed to submit a memorandum pointing out errors in the judgments but that it could not be submitted until the following morning. Judgment therefore had to be postponed until 16 April. The memorandum when it arrived, consisted of 27 paragraphs of closely typed submissions referring to three directives which had not been mentioned in the appellant's lengthy submissions to the House and repeating other arguments which had already been considered. It contains nothing which causes me to wish to change the views expressed in my draft speech. In my opinion the submission of such a memorandum is an abuse of process of the procedure of the House. The purpose of the disclosure of the draft speeches to counsel is to obtain their help in correcting misprints, inadvertent errors of fact or ambiguities of expression. It is not to enable them to reargue the case"
THE REVENTOX ACTION
MALICIOUS FALSEHOOD
EVIDENCE
FORGERY AND PERJURY
LEGAL CONSEQUENCES OF FORGERY/PERJURY
"The appeal against the judge's refusal to strike out on the second application
42. The acts or omissions on the part of the Blackledge respondents on which the petitioners rely as conduct of the company's affairs in a manner which is unfairly prejudicial to their interests are to be found in the amended para 8 of the petition. The paragraph is introduced by an allegation in three parts: that 'in causing or procuring matters hereunder complained of' the respondents have acted (i) contrary to the 1994 agreement, (ii) contrary to the legitimate expectations of the parties, and (iii) 'in any event' unfairly in the conduct of the company's affairs so as to prejudice the petitioners. It is alleged, further, that Graham and Margaret Blackledge are 'in breach of the fiduciary duty of directors'.
43. The judge held that there was a substantial risk that there could not be a fair trial in so far as the complaints of unfair conduct were based on (i) or (ii) – acting contrary to the 1994 agreement or to the petitioners' legitimate expectations. He did so on the basis that the admitted forgeries, coupled with his finding that Nigel Tobias had continued to lie on oath as to the extent of his fraudulent activity in relation to documents, made it impossible to have confidence in any documents produced by the petitioners unless those documents were corroborated by some other evidence. Further, and this is an important element in his approach, that the existence of the forged documents and the diaries was likely to have infected evidence contained in affidavits and witness statements prepared in reliance on those documents and diaries.
44. The judge's conclusion as to the extent and effect of Nigel Tobias' fraudulent conduct is challenged by a respondents' notice served by the petitioners. But, to my mind, that challenge must fail. There was ample material before the judge to justify his conclusion that Nigel Tobias had continued to lie on oath as to the extent of his fraudulent activity in relation to documents. The judge had the advantage, which this court did not have, of hearing and seeing Nigel Tobias give oral evidence at the trial under cross-examination. There is no basis on which this court could interfere with the judge's finding of fact. Nor can it be said that the judge was wrong to take the view that the existence of forged documentary material is likely to infect the oral evidence. In a case of this nature it is inevitable that documents will provide the basis for recollection. It is likely to be very difficult for a witness – even for a witness doing his or her best to tell the truth under oath – to accept that what the witness now thinks that he or she recalls from memory may, in truth, be based on a document which has been shown to be false, or in relation to which there is suspicion. The effect of forged documentary material on a trial is pernicious, because witnesses who have, at one stage in the process of preparing for trial, believed that documentary evidence to be genuine are unlikely to be able to evaluate, objectively, the effect which it has had on their recall of the events to which it relates"
"53. In those circumstances I take the view that it was wrong for the judge to allow the petition to proceed once he had reached the conclusion that there was a substantial risk that the allegations in relation to the disputed terms of the 1994 agreement were incapable of a fair trial. He recognised, correctly, that a claim to relief based on allegations of abuse by the Blackledge respondents of their powers as directors and shareholder after 1997 would not require an investigation into what had or had not been agreed in 1994. But, as it seems to me, he failed to appreciate that, on a true analysis, the allegations made in the petition were allegations of oppressive conduct by Blackledge plc as supplier or as lender; and were not allegations of oppressive conduct by Blackledge plc as majority shareholder. In so far as there were general allegations of breach of duty by Graham and Margaret Blackledge as directors, those allegations were not supported by any evidence which the judge identified; and are contradicted by the material which was put before this court. In my view the judge ought to have reached the conclusion that, once the allegations in respect of which there was a substantial risk that Nigel Tobias' fraudulent conduct had made a fair trial impossible were put on one side and left out of account, there was no case for relief which remained to be tried.
54. It would be open to this court to allow the appeal against the judge's refusal to strike out the petition on that ground alone. But, for my part, I would allow that appeal on a second, and additional, ground. I adopt, as a general principle, the observations of Millett J in Logicrose Ltd v Southend United Football Club Ltd (1988) Times, 5 March, that the object of the rules as to discovery is to secure the fair trial of the action in accordance with the due process of the court; and that, accordingly, a party is not to be deprived of his right to a proper trial as a penalty for disobedience of those rules, even if such disobedience amounts to contempt for or defiance of the court, if that object is ultimately secured, by (for example) the late production of a document which has been withheld. But where a litigant's conduct puts the fairness of the trial in jeopardy, where it is such that any judgment in favour of the litigant would have to be regarded as unsafe, or where it amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice, the court is entitled, indeed, I would hold bound, to refuse to allow that litigant to take further part in the proceedings and (where appropriate) to determine the proceedings against him. The reason, as it seems to me, is that it is no part of the court's function to proceed to trial if to do so would give rise to a substantial risk of injustice. The function of the court is to do justice between the parties; not to allow its process to be used as a means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.
55. Further, in this context, a fair trial is a trial which is conducted without an undue expenditure of time and money; and with a proper regard to the demands of other litigants upon the finite resources of the court. The court does not do justice to the other parties to the proceedings in question if it allows its process to be abused so that the real point in issue becomes subordinated to an investigation into the effect which the admittedly fraudulent conduct of one party in connection with the process of litigation has had on the fairness of the trial itself. That, as it seems to me, is what happened in the present case. The trial was 'hijacked' by the need to investigate what documents were false and what documents had been destroyed. The need to do that arose from the facts (i) that the petitioners had sought to rely on documents which Nigel Tobias had forged with the object of frustrating a fair trial and (ii) that, as the judge found, Nigel Tobias was unwilling to make a frank disclosure of the extent of his fraudulent conduct, but persisted in his attempts to deceive. The result was that the petitioners' case occupied far more of the court's time than was necessary for the purpose of deciding the real points in issue on the petition. That was unfair to the Blackledge respondents; and it was unfair to other litigants who needed to have their disputes tried by the court.
56. In my view, having heard and disbelieved the evidence of Nigel Tobias as to the extent of his fraudulent conduct, and having reached the conclusion (as he did) that Nigel Tobias was persisting in his object of frustrating a fair trial, the judge ought to have considered whether it was fair to the respondents, and in the interests of the administration of justice generally, to allow the trial to continue. If he had considered that question, then, as it seems to me, he should have come to the conclusion that it must be answered in the negative. A decision to stop the trial in those circumstances is not based on the court's desire (or any perceived need) to punish the party concerned; rather, it is a proper and necessary response where a party has shown that his object is not to have the fair trial which it is the court's function to conduct, but to have a trial the fairness of which he has attempted (and continues to attempt) to compromise".
"73. The attempted perversion of justice is the very antithesis of parties coming before the court on an equal footing. The matter has become hugely more expensive (to an extent we did not appreciate until we were told when application was made for a freezing order that the amount of the appellants' costs overall and on a solicitor and own client basis may be in the region of £1.5m). The judge commented at the beginning of his judgment that the hearing had run for 29 days greatly exceeding the parties' estimate. The original estimate was three weeks and we were told another week to ten days would be required to conclude the matter even on the limited basis that the judge would still permit. The judge did not, however, treat cost and time as elements of the overriding objective. He did not appear to allot to the case an appropriate share of the court's resources while taking into account the need to allot resources to other cases. In this day and age they are elements of case management which must not only be seen to have been placed in the scales but also given due and proper weight when assessing how justice is to be done to the parties and to other litigants. The balance must be struck so that the case is dealt with in a way which is proportionate to the amount of money involved in the case, its importance and complexity and the financial position of the parties. Mr Tobias stood to gain much had his fraud gone undetected. He was seeking on behalf of the minority shareholders to wrest control of the company from the majority and he persisted in that claim even to the point of his cross-appeal. He bolstered his claim by what the judge found to be a campaign of forgery and, more importantly, the judge was not satisfied with the explanation given for it. He found:
'In his evidence Nigel sought to give the impression that his forgeries came about as a result of an impulsive moment of madness flowing from his disappointment that his case was not adequately supported by the documents. In my judgment, so far from that being the case, it is apparent that the process of forgery, which Nigel admitted to, was sophisticated and must have taken some time to complete including the special manufacture of headed note paper of the defunct Tobias family company. But for the slip up with relation to the telephone number shown on the headings it would, in all probability, not have been discovered.'
Any notion that this was a petitioner coming to the Court of Equity with clean hands is utterly dispelled by the devastating conclusion in para 44:
'I am not satisfied that I have received from Nigel a truthful picture of the circumstances of the forgeries which he admits.'
74. This was, therefore, a flagrant and continuing affront to the court. Striking out is not a disproportionate remedy for such an abuse, even when the petitioners lose so much of the fruits of their labour".
KEY FORGED DOCUMENTS
DOCUMENTS FORGED BY SM
KS SHARE TRANSFER 10TH NOVEMBER 1997
i) A template to the STF was faxed to SM from MZ's machine at 2140 as indicated on the TT at the top of the stock form on 16th October 1997. SM instructed his secretary whose name he does not recall to make multiple copies of the same document. (The experts agree that is impossible).ii) Second it is said one of those was filled in and executed by KS and placed in a safe deposit in Oregon held in the name of Tracy Brophy on the same date. Two days later on 12th November 1997 SM required a copy of the transfer but neither he nor his secretary retained a copy. They therefore concluded it was more convenient to execute another copy rather than recover from the first original from the safe deposit box. The second document was hand written by SM's secretary and signed again by KS.
iii) This duplicated original STF was then faxed to MZ on 12th November 1997.
"Mr Justice Peter Smith: I think you ought to think very carefully about your answers that you have given this afternoon and read over the transcript. Because I don't think you do yourself justice at the moment"
FORGERY OF DOCUMENTS BY MZ
"I believe that I am the owner of the shares but my ownership has always been subject to an agreement with [MZ] to act in accordance with his wishes in relation to the shares. I believe I acquired the shares from my mother on the same terms she held them there is no doubt in my mind that she always considered she held them subject to a loan agreement to act in accordance with MZ's wishes in respect of them".
PS'S PLEADED STANCE
PS'S WITNESS STATEMENT
MZ'S CASE
"The shares held by [KS] and [Maboob] were held on the terms of the Loan Deeds referred to in paragraph 45 above and as such were not to be sold or transferred except for the consideration of $3 per share or more".
What is missing is any suggestion that KS and Mehboob held the shares subject to any kind of obligation to MZ. Indeed that plea is abandoned (as appears from the removal of the contention that KS and Mehboob sold the shares "to the direction of [MZ]".
"[Nominees] ….. are the real beneficiaries of the shares. They are not holding them on trust for me, nor, as far as I am aware, for anyone else, and they are theirs to do with whatever they wish and they are at liberty to sell the shares whenever they so choose. When, or if, they sell the shares, they can retain any profit that is made upon them – all that I have asked is that they return my initial capital outlay. While they hold the shares they have given me a power of attorney which gives me voting rights".
"Q. Now, strictly speaking, under the various documents we have looked at, your mother owned the shares absolutely, i.e. to do with them as she wished; but would you agree with me that this is right, that you, indeed your mother, had to do with those shares whatever [MZ] wanted. That is right, isn't it?
A. Yes
Q. So is this right, that if he had said to you, "I would like you to give these shares back", would you have done so?
A. Certainly.
Q. Would your mother have done so?
Q. Even if he had said, "well, the shares are worth $10, but I would like them back", for whatever reason, you would still have given them to him. That is right isn't it?
A. Yes.
Q. And so would your mother?
A. Yes…."
PARTICIPATION IN FORGED DOCUMENTS
AGREEMENT 19TH SEPTEMBER 2002
MZ hereby undertakes not to seek to recover the loan from [KS] subject to due performance by [PS] of the terms of this Agreement".
"The vendor shall do all things reasonably requested by MZ to give full effect to this Agreement in the transaction contemplated by this Agreement".
FORGED DOCUMENTS
CONTRACTUAL CLAIMS
COSTS IN THE REVENTOX ACTION
EMPLOYMENT CLAIMS
THE MALICIOUS FALSEHOOD CLAIM