ROYAL COURT
(Samedi Division)
27 August 1998
Before: FC Hamon, Esq., Deputy Bailiff, and
Jurats Le Ruez and Tibbo
Between:(1) Armco Inc
(2) Armco Financial Services Corporation
(3) Armco Financial Services International
Limited
(4) Armco Pacific Limited
(5) Northwestern National Insurance
CompanyPlaintiffs
And:(1) Roger Thomas Donohue
(2) Patrick Henry Rossi
(3) Larry Loyd Stinson
(4) David Wilmot Atkins
(5) Wingfield Limited
(6) CI Services Holdings Limited
(7) NPV LimitedDefendants
And:(1) Paul Anthony Brereton Evans
and Colin Graham Bird
(2) Rothschild Asset Management (Jersey)
Limited
(3) Abacus Secretaries (Jersey)
Limited
(4) Landau LimitedParties Cited
Applications by the fifth and sixth Defendants for:
(1)for an extension of 14 days to comply with the terms of a disclosure order made by the Bailiff on 13 August 1998, and set out in the amended Order of Justice; and
(2)for a variation of the said order to permit payment of the said Defendants legal fees and disbursements.
(The Plaintiffs did not oppose the application in paragraph (1) above; but did oppose that in paragraph (2)].
Advocate MPG Lewis for the fifth and sixth Defendants
Advocate J Martin for the Plaintiffs
JUDGMENT
THE DEPUTY BAILIFF: On 6 August 1998, the Plaintiff Corporations, incorporated in America in the States of Ohio and Delaware and in Singapore, obtained Mareva injunctions in an Order of Justice which named seven Defendants and four Parties Cited. Of those seven Defendants only two have been served at this time; they are the fifth and sixth Defendants. Wide ranging disclosure orders were obtained all to be fulfilled within seven days of service.
On 13 August, the Plaintiffs obtained an amended Order of Justice which, amongst other matters, changed to some extent the identity of the Parties Cited.
On 21 August a fourteen day extension was sought for disclosure under the Order of Justice. The Court ordered compliance within seven days.
On 27 August (that is yesterday) the fifth and sixth Defendants - still the only parties served in this action - applied at extraordinarily short notice to summons the Plaintiff to show why an extension of time of a further fourteen days should not be granted and also applying for an order that the Mareva injunctions freezing the assets, such as they may be, on the fifth and sixth Defendants be varied to permit the payment of the Defendants legal fees.
A trial of the substantive action has been applied for in the United States Bankruptcy Court, the southern district of New York, and a jury trial has been demanded. We know nothing of the procedures of the American Courts but we were told that proceedings have also been instigated in England, Singapore, Hong Kong and Guernsey. We need only to note that the first sentence of the American substantive action begins with these words:
"This action concerns an international financial fraud of immense proportions".
After discussion between counsel it was agreed that a further extension of fourteen days should be given and we make that consent order accordingly.
Advocate Lewis told us that he had only recently obtained the affidavit of Brian Douglas Hamilton Cooper who acts for the five Plaintiffs and who swore his affidavit on their behalf on 5 August 1998. His affidavit, with its accompanying exhibits, runs to 189 pages. Advocate Lewis told us that when he had assimilated the material contained in that documentation he might - he did not say that he would - apply to discharge the injunctions altogether. That is not a matter that can concern us today. What does concern us is that Mr Lewis asked us to understand, in the request for payment by the fifth and sixth Defendants, that the legal fees and now disbursements extended beyond the ambit of this present application and ran to fees for considering the discharge of the injunctions now in place.
In United Mizrahi Bank -v- Doherty & Ors. (1998) 2 All ER 230 at 234 the Court said this:
"There have been two further decisions which I should mention. First, there is the important decision of Sundt Wrigley & Co Ltd -v- Wrigley [1993] CA Transcript 685, in which Bingham MR gave a detailed judgment, with which Mann and Peter Gibson LJJ agreed, considering a first instance decision in which very careful consideration had been given to a number of questions, including the question of whether a litigant should be driven from the judgment seat by not having legal representation on the one hand, or whether the fund should be expended on the other. He concluded that it was only in an exceptional case, where the merits could be gone into for the purpose of satisfying a court that the proprietary claim was so strong that it could be demonstrated that such proprietary claim was well founded at an interlocutory stage, that a defendant should not be free to draw on enjoined funds to finance his defence".
He went on to say:
"A careful and anxious judgment has to be made in a case where a proprietary claim is advanced by the plaintiff as to whether the injustice of permitting the use of the funds by the defendant is outweighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may turn out to be a successful defence".
It is probably important to note at this stage that there is no tracing claim against either the fifth or sixth Defendants. We must also note that it appears to us, without in any way becoming involved in the details of this case or, at any event, taking a stand on its merits, that much of the evidence in this case will turn on whether or not there was what was called a secret agreement between some of the Defendants. We have some affidavit evidence to say that there was; we have some other affidavit evidence to say that there was not. There is no doubt that the preparation of these documents within fourteen days will require some research and, indeed, Mr Lewis spoke to us of an accountant having to be drawn in to assist him.
These Defendants applied to have money released to pay the costs of the exercise invoking, we have no doubt, the principle in Iraqi Ministry of Defence -v- Arcepey Shipping Co SA, ‘The Angel Bell’ [1980] 1 All ER 480, [1980] 2 WLR 488, but as was said by Robert Goff J (as he then was) in A -v- C (No.2) [1981] QB 961; [1981] 2 All ER 126 at 127:
"In the present case, I have had to consider the position where the defendant has, or may have, other assets from which the relevant payment may be made. I have still to apply the basic principle, ie that I can only permit a qualification to the injunction if the defendant satisfies the court that the money is required for a purpose which does not conflict with the policy underlying the Mareva jurisdiction. I do not consider that in normal circumstances a defendant can discharge that burden of proof simply by saying, ‘I owe somebody some money’."
Miss Martin asked us to follow the decision in Atlas Maritime Ltd SA -v- Avalon Maritime Ltd, ‘The Coral Rose’ (No 3) (24 June, 1991) "The Times" which we would say in passing can be compared with the well-known decision in Z Ltd -v- AZ & LL [1982] QB 558 where the Court looked behind the corporate veil and determined that legal expenses could be met by a parent company and so refused to release assets which had been frozen. However, in the present case, as we see it, there is some difficulty. We do not have information regarding the Defendants sufficient to make any form of reasoned judgment.
For some reason which we do not begin to understand the affidavit of DW Atkins where he summarises the way that the secret agreement came into being is an annexe to the affidavit of Mr Cooper and is still unsworn. The affidavit of LL Stinson, the yet unserved third Defendant, contains a paragraph where the very existence of this secret agreement is denied on oath. Mr Stinson deposes further that he is a director of the fifth and sixth Defendants authorised by them to swear the affidavit. That, in our view, is not sufficient to say that Mr Stinson is therefore able to fund the two companies in this disclosure matter. We do not even know where he is resident. His original affidavit is not before us. A poor photocopy does not identify where the notary public who notarised it is established. We assume that it is America and probably New York, but he does depose that none of the directors of the fifth and sixth Defendants are resident in Jersey.
These Plaintiffs, on the face of it, have a proprietary claim to a substantial sum of money. We were informed that the sixth Defendant has no assets at all. From the correspondence disclosed to us it may be that the fifth Defendant does have assets and those assets may be substantial.
In the circumstances of this case we are going to make an order that either the fifth or sixth Defendants, or both of them, shall be entitled to apply up to £10,000 of their assets for the sole purpose of complying with the fourteen day disclosure that has been ordered by this Court. If at any time in the future it becomes clear beyond peradventure that the monies from which the £10,000 was drawn is in fact the property of the Plaintiffs then an appropriate application can be made for the return of those monies but we are not prepared to go further than that at this stage.
Authorities
4 Halsbury 24: para. 871
A -v- C (No. 2) [1981] QB 961; [1981] 2 All ER 126
United Mizrahi Bank -v- Doherty & Ors. (1998) 2 All ER 230
Wilkins & Ors. -v- Headrick & Ors. (23 August 1996) Jersey Unreported
Baptiste Building Supplies -v- Smith & Ors (1 August 1995) Jersey Unreported
RSC (1997 Ed’n) Vol 1: Part 1: 0.29: r.1
Gee: Mareva Injunctions & Anton Piller Relief (4th Ed’n): pp.318-326
Barclays Bank -v- Thorpe & Anor. (1995) JLR 184
PCW (Underwriting Agencies) Ltd -v- Dixon & Anor [1983] 2 All ER 158
Fitzgerald & Ors. -v- Williams & Ors. [1996] QB 657 CA
Iraqi Ministry of Defence -v- Arcepey Shipping Co SA, ‘The Angel Bell’ [1980] 1 All ER 480; [1980] 2 WLR 488.
Atlas Maritime Ltd SA -v- Avalon Maritime Ltd, ‘The Coral Rose’ (No. 3) (24 June 1991) "The Times".
Z Ltd -v- AZ & LL [1982] QB 558