ROYAL COURT
(Samedi Division)
31 March 1999
Before: FC Hamon Esq Deputy Bailiff, and
Jurats Rumfitt and Bullen
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 Limited
(5) Deutsche Morgan Grenfell (CI) Ltd
(6) Abacus Nominees LtdParties Cited
Application by the fifth and sixth defendants to raise injunctions
Advocate NMCS Costa for the plaintiffs
Advocate MPG Lewis for the defendants
JUDGMENT
THE DEPUTY BAILIFF: This is an application by the fifth and sixth defendants to this action to lift injunctions obtained against them on grounds of material non disclosure and misrepresentation.
We have an Order of Justice served in Jersey and an action in wider terms but based on the same set of facts running in the USA.
It will be appropriate to set out the relevant law that will guide us to reach a decision.
THE LAW
The question of innocent non-disclosure is explained in Gee: Mareva Injunctions and Anton Piller Relief (2nd Ed'n) at pp.90-91 in this way:-
"Where the non-disclosure was 'innocent' in the sense used above, the court will take into account the degree of culpability of the applicant and his advisers in relation to the non-disclosure in question. Hence it is considered that if the court concludes on the evidence that the applicant had genuinely forgotten the relevant information, this would be an important factor in favour of not setting aside the order.
The discretion either to maintain the order or to allow a new application for relief in the same terms as the original order is one to be exercised 'sparingly'. In Yardley v Higson [1984] FSR 305 an ex parte injunction had been granted in a passing off action for a period of three weeks. At the end of this period the plaintiffs applied to renew their injunction and brought to the attention of the court that there had been non-disclosure of material matters at the ex parte application. The judge granted a modified injunction on the inter partes application and his decision of the Court of Appeal in Eastglen International Corporation v Monpare SA (1987) 137 NLJ 56, in which an application for an injunction was also granted notwithstanding earlier non-disclosure, show how important it may be, on an application to grant a renewed injunction, that a plaintiff, who has been guilty of non-disclosure, at the ex parte stage, puts matters fully and frankly to the court at the inter partes application concerning the earlier non-disclosure. In both of these cases the plaintiff adopted this course.
The principle should not be carried to extreme lengths, and it is important that the court should have in consideration the practical realities of the case, and not allow the principle to be used as a refuge of last resort for litigants when the substantial merits of the case and the balance of convenience strongly favour maintaining the relief which has been granted, and when the likely consequences of setting aside the order could be very severe for the plaintiff Such litigants should not be encouraged to search ingeniously for facts which might be viewed as relevant in order to mount an application to discharge the order for non-disclosure."
All these principles have been favourably considered in cases which have come before this Court such as de Guelle's Home Bakery Ltd. -v- Le Nosh Limited (7 March 1990) Jersey Unreported.
The applicants claim that there was a material non disclosure in the affidavit of Brian Cooper made on 5 August 1998. Mr Lewis referred us particularly to the matters contained in paragraphs 21-24. There is mentioned "a secret agreement". Mr Atkins was the chief financial officer of Armco.
The secret meeting apparently took place in the bar of the Waldorf Astoria in New York and it was drawn up between Mr Stinson, Mr Rossi and Mr Atkins. Mr Rossi and Mr Stinson were the executives responsible on behalf of Armco for negotiating the terms of the management buy down with Mr Donohue and Mr Atkins. What the allegation boils down to is that the company executives authorized and entrusted to negotiate the sale were in fact undisclosed partners of the buyers.
Painting the canvas with a very wide brush indeed, the plaintiffs will have to establish that Messrs. Donohue, Rossi, Stinson and Atkins entered into a covert agreement to make Mr Rossi and Mr Stinson equal owners of Wingfield after the sale of CISHL to Wingfield. They will also have to prove that Mr Rossi and Mr Stinson were negotiators on behalf of Armco with sole control over the sale of CISHL and there was a substantial overpayment which was well in excess of need and which was not known to the Board of Armco. They will have to prove that Messrs. Donohue, Rossi, Stinson and Atkins unlawfully withdrew monies from CISHL for their own benefit. The claim is further that the Escrow Agreement negotiated by Mr Stinson and Mr Atkins on Armcos behalf was not restrictive enough; it prejudiced the plaintiff and benefited the defendants. There is another allegation of fraud made in the US complaint.
These are all triable issues and certainly not matters which this Court can entertain at this interlocutory stage.
The first complaint of material non disclosure is that Mr Cooper in his affidavit failed to inform the Court that Mr Atkins had a previous signed statement dated 15 April 1997. In that signed statement, there is no mention of the covert agreement. Mr Cooper also failed to inform the Court that Armco considered Mr Atkins to be unreliable and a liar.
On 22 March 1999 Advocate Martin swore an affidavit. She appended to it a statement. She deposed that all the matters written in the statement were passed to the Deputy Bailiff and read by him when the ex parte injunction was obtained. Advocate Martin corrected a date error which is self evident. Mr Coopers affidavit was dated 5 August 1998.
This Court accepts without question the affidavit of Advocate Martin. We also have a signed statement of Mr Atkins dated 7 September 1998.
His explanation is this:-
"45.Following meetings I had with Mr Cooper between March 10 1997 and early April 1997, he produced a witness statement recording what I had told him ("the First Statement"). On April 15 1997 I signed a copy of the First Statement (a copy of which is attached hereto as Exhibit 1). This statement was prepared without the benefit of my reviewing my diary and other personal records, which have since refreshed my recollection as to certain events.
Following the production of the First Statement, I had a number of further meetings with Mr Cooper, during which I was able to review additional records. Based on what I had told him at these meetings, he produced a further version of my witness statement ("the Second Statement"). The most recent draft of that Second Statement I have seen is dated June 26 1997."
Advocate Martins enclosure to her affidavit is as follows:-
"MAREVA APPLICATION
Points to be made in oral submission.
1.There are two points deliberately omitted from the first Affidavit of Brian Cooper dated 29 July 1998 ("the Cooper Affidavit") which we should draw to the Court's attention in order to discharge the duty of full and frank disclosure. We also draw to the Court's attention the fact that equivalent disclosures to those set out below are also being made in Singapore, Jersey (and Hong Kong].
Discussions with Mr Atkins
2.At paragraph [22] of the Cooper Affidavit, there is reference to the conversations with Mr Atkins and Mr Cooper which took place between 10 March and 26 June 1997.
3.There is also reference to the fact that these conversations were reflected in a draft witness statement (exhibited to the Cooper Affidavit at page 77).
4.What was omitted from the Cooper Affidavit was the fact that Mr Cooper tape recorded approximately three quarters of his conversations with Mr Atkins. Mr Cooper did not tell Mr Atkins that he had recorded those conversations.
5.Mr Cooper took this step only after taking advice from Freshfields, who in turn consulted the Professional Conduct Division of the Law Society on his behalf. The reason for doing so was simple: a concern that in any subsequent litigation involving Mr Atkins, he would either simply deny that he had previously told Mr Cooper or accuse Mr Cooper of distorting what he (Mr Atkins) had said. In either event, it was clearly very important to have an accurate record of what was discussed.
6.The concern in this regard is exacerbated by the fact that Mr Atkins has told Mr Cooper many deliberate lies in the past. Two of many examples which could be given are as follows:
(i)in September 1991, Mr Atkins (who was quite unprompted) told Mr Cooper that one of the good things about the management buy-out of the North Atlantic Group was the (sic] he (Mr Atkins) would never have to have any dealings with Mr Rossi again. This was clearly completely untrue, as is clear from the events outlined in the Cooper Affidavit;
(ii)much more recently, at one of the meetings with Mr Atkins in 1997, he initially told Mr Cooper about the secret arrangement between the individuals who participated in the fraud (ie Messrs Donohue, Stinson, Rossi and Atkins himself). Then at the next meeting, Mr Atkins denied there had even been such an agreement; then at the meeting after that he was happy to discuss the agreement with Mr Cooper once more.
Criminal Investigation
7.As noted at paragraph 23 of the Cooper Affidavit, the Plaintiffs discovered the dishonest conduct of the Defendant in May/June 1997. The most important reason for the delay in bringing civil proceedings against the Defendant is that the Plaintiffs have been asked by the United States Attorneys Office ("USAO") not to bring civil proceedings pending the outcome of a criminal investigation in the United States.
8.The background facts relating to the criminal investigation are as follows:
(i)In June 1997, Shearman & Sterling were retained to advise on various matters relating to the insolvency of the North Atlantic Group. They ware (sic] subsequently instructed to expand their brief to consider the fraud perpetrated on the Plaintiffs and to approach the federal criminal authorities in the southern district of New York.
(ii)Sherman & Sterling did so and in December 1997 gave a presentation to those criminal authorities which explained the background to the fraud. This presentation was attended by a representative of the USAO and the Federal Bureau of Investigation.
(iii)The USAO said they would like to investigate the position and said they expected to do so promptly. In the meantime, they specifically requested that no member of the Armco Group either bring civil proceedings (which might prejudice the criminal investigation) or disclose to any party the ongoing investigation.
(iv)Mr Atkins has been interviewed as part of the criminal investigation.
(v)the investigation, which has been going on since January 1998, has in fact taken longer than Armco initially expected. Shearman & Sterling have been in regular contact with the USAO since January 1998. The USAO have been at pains to emphasis (sic] the importance of keeping the investigation confidential.
9.The current position is that the USAO has not yet made a final decision about to (sic] whether to prosecute or not. Even though the request that the investigation be kept confidential remains in force, on 17 July 1998 Shearman & Sterling informed the USAO that the Plaintiffs had been advised that they could no longer delay in bringing the Rico complaint and the various applications for ancillary relief.
10.In response to a request by the USAO, Shearman & Sterling agreed (on behalf of the Plaintiffs) to make every effort to avoid publicising the criminal investigation. It is for this reason that these submissions are made to the court orally than in Affidavit form."
We remain unconvinced that there was, in the light of those oral submissions, such a material misrepresentation as would lead us to set aside the injunctions.
The Mareva injunctions in Jersey, Guernsey, Hong Kong and Singapore all stand or fall on the New York Proceedings.
We have a further Affidavit from Mr Atkins, sworn in England on 19 October 1998.
He explains that he approved and signed the 7 September statement after taking independent legal advice from his English solicitors.
There is simple confirmation as to why the previous statement was not signed.
Advocate Lewis went on at some length to show how in his view Mr Cooper had misrepresented the way that negotiations had been carried out.
He says that Mr Cooper failed to inform the Court that Armco had much to gain from the transaction. Mr Stinson sets it out very succinctly in his third affidavit. He accuses Mr Cooper of "seriously misleading the Royal Court as to the true nature of the transaction."
We found Advocate Lewis very detailed arguments on this point interesting but whether this was a commercial arms length transaction overseen by senior officers of Armco and where Armco had much to gain by reducing its gross liabilities by US$ 380M or whether it was a fraudulent transaction is not for this Court to decide today. A flavour of the argument is contained in the affidavit of Mr Larry Stinson a defendant and a director of Wingfield and CISHL;
".... those liabilities arose out of its support for British National Insurance Company thus providing it with flexibility to deal with the problem of its insolvent insurance subsidiary Universal Reinsurance corporation, and was relieved of another US $95 million approximately in guarantee and inter company loan obligations. Armcos US tax loss was maximized at approximately US $ 132 million. All these advantages were gained without impact on the company's profit and loss account.
The present proceedings have been taken in my view to deflect attention from or delay the many actions which Armco and its subsidiaries face from the provisional liquidators of NAIC and from policyholders on the Bellefonte UK branch business. These proceedings brought by Armco are completely unfounded."
There are affidavits and counter affidavits but our view is that the facts will not and cannot be decided in an interlocutory stage. Mr Atkins has now apparently agreed his part in the alleged conspiracy. He has made a formal statement and judgment has been given against him. There is still some $1M held by the injunctions in this jurisdiction and, in our view, there is a need to preserve the assets until the New York proceedings have come to some form of decision. If we compare the affidavits of Mr Cooper with the affidavit of Mr Stinson, we cannot see that there has been such a material non-disclosure sufficient to warrant striking out the injunctions.
When we resumed this hearing after a considerable delay (from 1 December of last year) Mr Lewis returned to a point that he had touched on briefly. The actions in New York are RICO actions. Such actions may not be enforceable in this jurisdiction. As is stated in the United States Bankruptcy Court action, Armco Inc et al -v- North Atlantic Insurance Company Limited et al (98-8931-A (TLB) (USBC; SDNY); 98 Civ. 6804 (AGS) (USDC; SDNY)] "Plaintiffs RICO action is a unique cause of action created by the US Congress to protect US citizens."
In Dicey and Morris on the Conflict of Laws (12th Ed'n) page 546 there is a valuable commentary on what we have to decide:
"Rule 52 - No judgment given in a court of a country outside the United Kingdom will be enforced under any of Rules 35, 46 or 47 if it is
(a)a judgment for multiple damages, or
(b)a judgment based on a provision or rule of law specified by the secretary of State as concerned with the prohibition of restrictive trade practices.
COMMENT
this Rule is based upon section 5 of the Protection of Trading Interests Act 1980, which prohibits the enforcement under the common law, and under the 1920 and 1933 Acts, of foreign judgments for multiple damages and other foreign judgments specified by statutory instrument as concerned with restrictive trade practices. It was enacted in order to counteract what was perceived by the United Kingdom to be an excessive exercise of jurisdiction by United States courts in anti-trust actions. Similar legislation has been enacted in Australia, Canada, and South Africa.
A judgment for multiple damages is defined as a judgment from an amount arrived at by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the judgment creditor. The scope of judgments whose enforcement is prohibited may be extended by the Secretary of State to any judgment based on a provision or rule of law which appears to him to be concerned with the prohibition or regulation of agreements, arrangements or practices designed to restrain, distort or restrict competition in the carrying on of business of any description or to be otherwise concerned with the promotion of such competition.
The judgments most likely to be affected by the Act are judgments in United States anti-trust actions, but the Act applies to judgments of all overseas countries whether rendered before or after the passage of the Act. Judgments caught by section 5 are wholly unenforceable and not merely as regards that part of the judgment which exceeds the damages actually suffered by the judgment creditor."
The Protection of Trading Interests Act 1980 (Jersey) Order 1983 came into operation on 21 April 1983.
The relevant passages are:-
"5.-(1)A judgment to which this section applies shall not be registered under Part II of the Judgments (Reciprocal Enforcement)(Jersey) Law, 1960 or Part 1 of the Foreign Judgments (Reciprocal Enforcement) Act, 1933 and no court in Jersey shall entertain proceedings at common law for the recovery of any sum payable under such a judgment.
(2)This section applies to any judgment given by a court of an overseas country, being -
(a)a judgment for multiple damages within the meaning of subsection (3) below;
(b)a judgment based on a provision or rule of law specified or described in an order under subsection (4) below and given after the coming into force of the order; or
(c)a judgment on a claim for contribution in respect of damages awarded by a judgment falling within paragraph 9a) or (b) above.
(3)In subsection (2)(a) above a judgment for multiple damages means a judgment for an amount arrived at by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favour the judgment is given."
In the Jury demand (or prayer) in the American Proceedings the plaintiffs ask that the Court will:-
"a.Declare that the benefit acquired by each of the Defendants Rossi, Stinson, Atkins, Donohue, CISHL, NAIC, NPV and Wingfield as a result of Rossi's and Stinsons breaches of fiduciary duty are held in constructive trust for the benefit of Plaintiffs;
b.Declare that the sum of $16.9 million transferred on or about April 1997 by CISHL to an entity established by the Provisional Liquidators of NAIC for the benefit of NAIC is held in constructive trust for the benefit of Plaintiffs;
c.Order that the Defendants pay to the Plaintiffs such sums as are declared to be held in constructive trust for the benefit of Plaintiffs as aforesaid;
d.Award Plaintiffs such monetary damages as Plaintiffs may prove at trial, including prejudgment interest;
e.Award Plaintiffs treble damages of their actual money damages pursuant to 18 USC @ 1964;
f.Award Plaintiffs the amount by which Defendants have been unjustly enriched;
g.Award Plaintiffs full reimbursement for all costs of this action, including attorneys' fees;
h.Award Plaintiffs punitive and exemplary damages;
i.Award Plaintiffs such other and further relief as this Court may deem just and proper."
Violations of the Federal Racketeer Influenced and Corrupt Organisation Act (RICO) are alleged against some (but not all) of the defendants in the US action on four of the seventeen counts. We remain unconvinced that if the New York Court found on a constructive trust, then the judgment, if successful in its entirety, would not allow of that finding of fact to be used in this Court where the treble damages judgment would not be enforceable.
Much criticism was made by Counsel of the lack of particularisation in the US proceedings. On that point we only need to remind ourselves of what Lord Diplock said in British Airways -v- Laker Airways (1984) 3 All ER 39 at 44:-
"My Lords, one of the characteristics of the rules of civil procedure in the federal courts of the United States (as well as in most state courts) which seems to any English lawyer strange and, indeed, oppressive on defendants, is that a 'complaint' the document by which an action is begun, while it alleges that the complainant has a cause of action against the defendant or defendants, does not disclose, or discloses only in a most exiguous form, the facts which the plaintiff will eventually rely on at the trial as giving rise to that cause of action. Instead, the complaint is accompanied, or immediately followed, by a request to the defendants for pre-trial discovery which bears little resemblance to the kind of discovery that is available in English civil actions. Its breadth, the variety of methods, oral and written, that it makes available for a wide-roving search for any information that might be helpful to the case of the party seeking discovery, in which it may involve parties from whom discovery is sought, and its potentiality for oppressive use by plaintiffs, particularly in anti-trust actions, received sufficient mention in the various speeches in this House in Rio Tinto Zinc Corp v. Re Westinghouse Electric Corp [1978] 1 All ER 434 [1978] AC 547."
The claim of Armco is a claim for a proprietary sum. Counsel are agreed that there is no intention of proceeding in this jurisdiction while the US proceedings are in train. That must be so. Indeed the Court settlement made between Mr Atkins and the Armco companies is entirely governed by the laws of the State of New York.
The Order of Justice is pellucid. It claims a proprietary right to the monies held in Jersey which, in the light of the total claim, are relatively modest. The main thrust of the plaintiff's claim is that the US$ 42.5M which they allege has been misappropriated is held upon constructive trust. A finding of fact by the Court which is seized of the action would no doubt resolve the matter in those jurisdictions where monies have been enjoined.
Mr Lewis speaks of "ambushing" and "bully boy tactics" by a large American conglomerate. We cannot involve ourselves in that argument. It is for the Court of trial.
If we had felt constrained to dissolve the injunctions in the Order of Justice ordered on 6 August 1998 and amended on 13 August 1998 on the ground that they had been improperly obtained we would, in the exercise of our inherent jurisdiction, have imposed new and identical injunctions. We do not do that because we are satisfied, having read all the affidavits supplied to us, that the interim injunctions should continue until further order of the Court, or trial of the action, and thereafter until final judgment.
Authorities
RSC (1997 Ed'n) O.29
Wood -v- Establishment Committee (1989) JLR 213
Solvalub -v- Match Investments (13 December 1996) Jersey Unreported CofA; (1996) JLR 361 CofA.
Crédit Suisse Fides Trust -v- Cuoghi (1997) 3 WLR
Showlag -v- Mansour (1992) JLR 219 CofA
de Guelles Home Bakery -v- Le Nosh Ltd (7 March 1990) Jersey Unreported
Commercial Bank of Near East -v- P & Ors [1988] NLJ 645
4 Halsbury 24: para. 871: p818
Armco Inc et al -v- North Atlantic Insurance Co Ltd et al [98-8931-A (TLB) (USBC; SDNY) 98 Civ 6804 (AGS) (USDC; SDNY)]
Protection of Trading Interests Act 1980 (Jersey) Order 1983
Dicey & Morris: Conflict of Laws (12th Ed'n) pp.461-71; 547-9
British Airways -v- Laker Airways (1984) 3 All ER 39
Gee: "Mareva Injunctions & Anton Piller Relief" (2nd Ed'n) at pp90-1