QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL | ||
B e f o r e :
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DUBAI ALUMINIUM COMPANY LIMITED | Claimants | |
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(1) DELOITTE HASKINS AND SELLS (2) COOPERS & LYBRAND DELOITTE (3) FOX & GIBBONS | Defendants |
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Mr I. Milligan QC and Mr G. Philipps (instructed by Messrs Linklaters & Alliance for the 1st and 2nd Defendants)
Mr M. Lomas (instructed by Messrs Ince & Co for the 3rd Defendants)
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Crown Copyright ©
Mr Justice Langley:
In these proceedings, the Claimant to which I will refer as Dubal, makes claims against the 1st and 2nd Defendants, whom it alleges were its auditors in the years 1983 to 1991, and its former solicitors, the 3rd Defendants, whom it alleges were given a special brief in July 1985. The claims are for negligence. The underlying events are that Dubal says it was the victim of a massive fraud carried out by its Chief Executive and others over the years 1978 to 1992 involving contracts and commercial arrangements whereby funds were diverted both to the Chief Executive himself and others which caused losses to Dubal running into several hundred million pounds. The present claim is for US $344m plus interest. The negligence alleged is a failure to report on the activities of the Chief Executive to the Chairman of Dubal. Dubal's case being that had such reports been made some at least of the losses would not have occurred.
The auditors deny negligence and causation and allege that the claims are statute-barred by UAE law and English law. The Third Defendants, or Mr Gibbons, deny negligence, allege that the firm's retainer was terminated in December 1985, and also deny causation and rely on limitation. The other partners in the firm deny that they were partners at the material time. It is important to note that the limitation period in Dubai Law for certain claims, and Dubal says for these claims, is 15 years.
The present applications arise in the following circumstances. Dubal issued the proceedings on 9 April 1998. The auditor defendants served Defences in November 1998 and issued Third Party proceedings against the Chairman of Dubal. Mr Gibbons also served his defence in November. The solicitor partners served Defences at the end of January 1999. Points of Reply to the auditor defendants were served on 11 February 1999. Particulars were sought by Dubal of the third party claim in February 1999 and responded to on 23 April 1999. Mr Gibbons provided particulars of his defence on 11 May 1999. The auditor Defendants also sought security for their costs in correspondence which took place between January and August 1999 by which time the form of a guarantee had been agreed but the parties were at issue as to the amount of the security to be provided. Dubal had offered £750,000 but the auditors were seeking £1.25m. The auditors also sought particulars of the Reply in May 1999 which were provided at the beginning of December. In December particulars were sought of the partnership issues raised by the defences of the individual solicitor defendants and these were provided at the end of January 2000.
The last exchanges between the then solicitors for Dubal and the solicitors for the auditors prior to April 2000 were letters from Dubal's solicitors dated 20 August and 30 November responding at considerable length to requests for further details of the claim and its calculation and a reply from the auditors' solicitors dated 22 December referring to this further information and stating that "we shall revert to you on all these matters in due course". In fact they did not do so or had not done so by the time the present issue arose.
In summary, therefore, even for such substantial litigation at a somewhat leisurely pace, the parties had pleaded their cases and corresponded about the details of them and security between April 1998 and the end of 1999.
Under the RSC, within one month of the date when pleadings had closed Dubal ought to have issued a summons for directions: RSC Order 25 rule 1. As regards the auditors, that should therefore have been done within one month of 25 February 1999. The CPR came into force on 26 April 1999. CPR 51 PD 19 provides that:
(1) If any existing proceedings have not come before a judge, at a hearing or on paper, between 26 April 1999 and 25 April 2000, those proceedings shall be stayed.
(2) Any party to those proceedings may apply for the stay to be lifted.
The Admiralty and Commercial Court Registry issued a circular in March 2000 in relation to the operation of this mandatory stay. The circular included the suggestion that "the parties to all those cases vulnerable to the automatic stay but who believe that a stay would be inappropriate should write jointly to the court" setting out the history of the action and certain other information and proposals for the future conduct of the proceedings, adding that:
such a letter will be treated as bringing the proceedings before the court. The court will either approve the proposals or order that there should be a CMC by a certain date (or make such other order as seems fit).
On 6 April 2000 Dubal's then solicitors wrote to the solicitors for both the auditors and the solicitor defendants referring to the circular and stating that they considered it appropriate to write jointly to the court in accordance with its provisions. The letter included a proposed explanation as to why the proceedings had not come before a judge since April 1999, namely that the parties had been actively engaged in exploring and clarifying pleadings and relevant issues and had not required the assistance of the court, and stated that the next step was disclosure and the parties should "now exchange correspondence" about disclosure and should be "ready for the CMC in October this year."
The auditor's solicitors replied on 14 April. They said they did not agree to write a joint letter and believed it was appropriate for the proceedings to be subject to the automatic stay. The letter referred in particular to the delay in bringing the proceedings and the lapse of 2 years since they were brought. The letter suggested that Dubal had no wish to pursue the claim. The reply from the solicitor defendants was that they were seeking instructions.
On 17 April Dubal's then solicitors wrote to the Judge in Charge of the Commercial List referring to the automatic stay and enclosing the correspondence upon it to which I have referred. The letter continued:
The purpose of this letter is to seek guidance from the Court as to the next step and if appropriate to ensure that a Case Management Conference can be fixed. We want to ensure that we have complied with our obligations to the Court under part 51 of the CPR and that an automatic stay will not be applied.
This letter was placed before Morison J who wrote on it on April 19:
I see no reason why the case should not be stayed. It is stale and barely advanced.
The Registry notified Dubal's solicitors of this by a letter dated May 3.
On May 24 Dubal issued an Application Notice applying for the stay to be lifted "because the Claimant is ready willing and able to proceed with this Claim". The Application was supported by a Witness Statement from Mr Cranston of Dubal's then solicitors. On 9 June Dubal issued a further and protective Claim Form for the same relief against the same Defendants as the original claim. On July 17 the auditor Defendants issued an Application Notice seeking an Order that the Writ and Points of Claim in the original claim be struck out pursuant to CPR 3.4(2)(c) (failure to comply with a rule or practice direction) and/or CPR 3.1(2)(m) (the general power for the court to manage cases and further the overriding objective to deal with cases justly) because Dubal had failed to issue a summons for directions, or to initiate a case management Conference under paragraph D7 of the Commercial Court Guide or to take any other step to bring the proceedings before a judge between 26 April 1999 and 25 April 2000. In early October both the auditor and solicitor Defendants also issued Application Notices seeking orders that the protective claim be struck out pursuant to CPR 3.4(2)(b) (abuse of process) and/or 3.1(2)(m). It has also sensibly been agreed that the solicitor Defendants should be treated as if they too had made an application to strike out the original claim.
Mr Jarvis for Dubal submitted, first, that the claim had not, despite the parties' assumption to the contrary, become stayed by operation of CPR 51 PD 19(1). That he submitted was the consequence of the 17 April letter being placed before and dealt with by Morison J on 19 April. Mr Milligan, for the auditors, and Mr Lomas, for the solicitors, both submitted that on a proper construction of paragraph 19(1) those events did not constitute the proceedings coming before a judge on paper.
If I was against him on this submission, Mr Jarvis submitted that the stay should be lifted substantially because the consequence of not lifting it (which it was agreed was that the claim would be struck out) was out of all proportion to any default committed by Dubal or its then solicitors which consisted only of failures to issue a summons for directions and to convene a Case Management Conference but at a time when, even if at a somewhat leisurely pace, the claim was being progressed by exchange of information and could not have been thought to have been other than one which Dubal intended to pursue. He submitted (as did the Defendants) that the principles to be applied were those to be found in the various sub-paragraphs (a) to (i) of CPR Part 3.9(1).
Mr Milligan submitted that it was to be inferred from the delay in making the claim, the dilatory way in which it had then been pursued, and, as he submitted, the lack of any explanation for those matters, together with the lack of merit or obvious weaknesses of the claim, that Dubal had no faith in nor real intention of pursuing the claim to trial and had deliberately failed to comply with the Rules and practice direction. In the alternative he submitted that both justice and the prejudice suffered by the auditors required that the stay not be lifted and the claim be struck out. The major prejudice relied upon is the "untimely and unexpected" death of Mr Brewer in early April 2000. Mr Brewer was the partner who was responsible in 1983 for agreeing the original terms of the auditors' retainer. Whilst the evidence is that he had been interviewed for the purposes of preparing a statement by the time of his death, he had not signed or finalised any proposed statement.
Mr Lomas' submissions were to much the same effect, save that the prejudice to the solicitor defendants relied upon was that a number of issues depended on the recollection of unrecorded and un-noted meetings which had taken place many years ago so that the cumulative effect of delay was to prejudice the prospect of a fair trial. Mr Lomas also referred to real difficulties in addressing the partnership issues but did not suggest that they had been affected by such delay as had occurred since the commencement of the proceedings.
Both Mr Milligan and Mr Lomas referred to the size of the claim, the exposure of individual partners because of the level of insurance cover, and what they submitted were obvious and overwhelming weaknesses in the merits of the claim.
The short question is whether the proceedings are properly to be described as ones which had "come before" Morison J "at a hearing or on paper" simply by reason of the fact that the letter of 17 April was placed before him prior to 26 April 2000.
In my judgment they are not. I think Paragraph 19(1) of the Practice Direction is referring to a "paper hearing" in the sense which is recognised for example in CPR part 23.8 (Applications which may be dealt with without a hearing). That was the approach taken in the circular. A consent letter would be treated, as the circular said, as bringing the proceedings before the court. The construction of paragraph 19 which Mr Jarvis advances would have the consequence, as he acknowledged, that any letter from one party which referred to proceedings and was addressed to and seen by a judge would have the effect of avoiding the automatic stay. Plainly that was not the intention of the Practice Direction but would have been a charter for further delay on the part of a party in default. In my judgment Paragraph 19(1) required the proceedings to come before a judge in a manner recognised by the CPR for that purpose if the stay was not to apply. That did not occur.
I would add that Morison J must, I think, have been of the same view. I agree with Mr Jarvis that he was not seeking to impose an original stay by exercising his powers under CPR Part 3.1(2)(f). His annotation on the letter indicates that he considered the stay under paragraph 19(1) would apply not that his consideration of the letter precluded it from doing so. In my judgment that was right.
I am wholly unimpressed with the Defendants' submissions that the conduct of Dubal is to be characterised either as "a wholesale disregard of the rules" or as "deliberate default". Those were expressions used in Arbuthnot Latham Bank v Trafalgar Holdings [1998] 2 AER 181 and Axa Insurance v Swive Fraser (1999, 9 December CA unreported) to characterise failures as an abuse of process. Quite apart from the Witness Statement of Mr Panchuk (who was responsible at Dubal for the proceedings), which I think puts the matter beyond any doubt, I see nothing in the chronology or evidence to justify any inference that Dubal had no intention of pursuing the claim or that Dubal or its solicitors were acting in abuse of the court. The delay in commencing proceedings can in part be explained by the pursuit of other claims which have led to substantial recoveries and the existence of (if it applies) the 15 year limitation period. The failure to issue a Summons for Directions can be criticised but, as Mr Jarvis submitted, was far from unusual at least in cases of this magnitude in which particulars are being exchanged and matters such as security for costs are being debated in correspondence.
The failure to convene a Case Management Conference is also open to criticism, albeit the defendants were in a position to act themselves, but, again, in the light of the exchanges and correspondence to which I have referred, in my judgment it is understandable if not wholly excusable. The very fact that Dubal's solicitors wrote as they did seeking consent to the mandatory stay not applying demonstrates I think how they saw the matter. Nor is it suggested that the Defendants believed that the claim was not to be pursued.
I turn therefore to consider the provisions of the sub-paragraphs to Part 3.9(1):
(a) The interests of the administration of justice do not seem to me to be seriously engaged in the sense of the efficiency of the court or the interests of other litigants. The claim must for present purposes be considered to have been properly (if belatedly) brought. It has so far occupied very little court time. I do not think if a trial date were now to be fixed (the provisional estimate for a full trial is a 3 month hearing) it would be that much later than if a date had been fixed before April of this year nor is there any reason to suppose that other litigants will be inconvenienced or affected by such a date in any way other than would arise in any event from the trial of such substantial litigation.
(b) Although it was submitted that the present application for relief was not made promptly I cannot accept that. It was made within 3 weeks of Morison J's note coming to the attention of Dubal.
(c) As I have already indicated I do not think the failure to issue a summons for directions or to convene a Case Management Conference can fairly be described as "intentional".
(d) Although Mr Milligan submitted no explanation had been offered for the failure, that also is not correct in my judgment. I see no reason to doubt Mr Cranston's statement that he thought the parties were engaged in clarifying the pleadings and had not required the assistance of the court. Rightly or wrongly, in seeking consent to the stay not applying in his letter of 6 April I do not doubt that he thought it might be forthcoming for this reason.
(e) No other rules are material. The pleadings had been prepared within agreed times and letters exchanged on all matters raised in correspondence. In a sense the ball was in the auditors' court on both security for costs and the exchanges of further information.
(f) The failure to progress the claim by issuing a summons for directions or convening a Case Management Conference was a failure of Dubal's solicitors not Dubal in the sense that I am satisfied that Dubal's instructions were to pursue the claim and Dubal had no reason to believe that any rules had not been complied with.
(g) There is no trial date. If the stay is lifted, as I have said, I doubt whether any likely trial date will be significantly different from one which would have been achieved in any event. Certainly the court has ample powers to see that Dubal meets a tight timescale for the further steps which need to be taken by it and, provided it involves no unfairness to the Defendants, to ensure an early trial of the case or at least of some of the issues which might be dispositive of it.
(h) It is under this sub-paragraph ("the effect which the failure to comply had on each party") that questions of prejudice most readily fall to be considered.
Whilst I accept that the court should look at any delay in the context of the overall delay in the proceedings, I think it remains relevant that in my judgment the period of delay involved in the breaches of the rules in this case has in fact been taken up with exchanges about security and further information which were inevitable in any event and would, whatever orders a court might have been likely to make had the matter been brought before it, always have taken some considerable time to resolve. Thus, as it seems to me, insofar as oral evidence is material to the issues I doubt whether in the overall context any further delay of real significance has occurred. The sad position of Mr Brewer is a specific case in point. As no signed statement had been procured from him by the time of his "unexpected" death in early April 2000 I very much doubt that had a summons for directions been issued timeously there would have been any reason to do so before he in fact died. Preliminary issues were always probable and in any event such a statement might well await further refinement of the issues. Further, Mr Brewer was interviewed by the auditor's solicitors. That interview must have covered the retainer (which is also documented) and areas where it was known his evidence could be material. There are means whereby the contents of the interview could be available at a trial. The contents were not such as to lead the auditor Defendants to rely on any oral discussions about their retainer in their pleaded case.
I also accept that it is a serious matter for any personal Defendant to face a claim of the size of this one and to do so when he is not fully insured against it. That said, it is not an unusual situation and it is one which in any event had to be faced when these proceedings were issued against a timescale for their likely resolution which, as I say, I do not think has been substantially prejudiced.
(i) "The effect which the granting of relief would have on each party". Although (rightly) not the way it was dealt with in argument I would comment here on the submissions by the Defendants that Dubal's claim is one conspicuously lacking in merit or realistic prospects of success. Both defendants (also rightly) expressed the relevance of the point as a limited one going to the submission that Dubal had no faith in its claim and so had no intention of complying with the rules. I have already considered and rejected that submission; otherwise I would only comment that if the claim is as described then whatever rights are available to the Defendants as a result will remain available to them if the claim is to proceed.
In summary I accept Mr Jarvis' submissions that Dubal has not been guilty of any conduct which even approaches an abuse of process, and that such delay as has occurred has not damaged the prospect of a fair trial of the issues. It is right to record, as Mr Jarvis submitted, that if Dubal is correct that the 15 year limitation period provided for by Dubai law applies to the claims, then it does so because the Defendants chose to do business in a country in which that was the law or to contract to provide professional services by a contract governed by that law. In my judgment it would be out of all proportion to the failures which can be placed at Dubal's door to visit them with the draconian sanction of, in effect, striking out the claim: see Biguzzi v Rank Leisure [1999] 1 WLR 1926. The right course, I think, is to lift the stay and proceed to give directions for the management of the case. Those directions can of course include directions intended to ensure that matters now proceed to a trial and indeed that any lost time is so far as just and practicable recovered.
It also follows, as Mr Jarvis acknowledges, that the second protective Claim must be struck out as it simply duplicates the original proceedings which will now proceed.
I will hear the parties on any consequential orders they may seek and also on how the proceedings should now be managed and taken forward.