United Kingdom House of Lords Decisions

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Cite as: 2008 SLT 33, 2008 SC (HL) 122, 2008 SCLR 142, [2007] UKHL 56, 2008 GWD 2-24

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Judgments - Clarke (Appellant) v Fennoscandia Limited and others (Respondents) (Scotland)

HOUSE OF LORDS

SESSION 2007-08

[2007] UKHL 56

on appeal from: [1999] EWCA Civ 591

OPINIONS

OF THE LORDS OF APPEAL

FOR JUDGMENT IN THE CAUSE

Clarke (Appellant) v Fennoscandia Limited and others (Respondents) (Scotland)

Appellate Committee

Lord Bingham of Cornhill

Lord Hope of Craighead

Lord Rodger of Earlsferry

Lord Walker of Gestingthorpe

Lord Neuberger of Abbotsbury

Counsel

Appellants:

Iain Mitchell QC

Pino Di Emidio

(Instructed by Anderson Strathern )

Respondents:

Richard Keen QC

Andrew Young

(Instructed by Dundas & Wilson LLP )

Hearing date:

19 & 20 NOVEMBER 2007

ON

WEDNESDAY 12 DECEMBER 2007

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Clarke (Appellant) v Fennoscandia Limited and others (Respondents) (Scotland)

[2007] UKHL 56

LORD BINGHAM OF CORNHILL

My Lords,

I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Rodger of Earlsferry and would, for the reasons he gives, dismiss this appeal.

LORD HOPE OF CRAIGHEAD

My Lords,

I have had the advantage of reading the speech of my noble and learned friend Lord Rodger of Earlsferry in draft. I agree with it, and for the reasons he gives I would dismiss the appeal.

LORD RODGER OF EARLSFERRY

My Lords,

The history of the various proceedings between the appellant ("Mr Clarke") and the defenders ("Fennoscandia") in various jurisdictions is long and complex. Since I could not hope to improve on the account of the twists and turns given by the Lord Ordinary (Kingarth), 2004 SC 197, 199-202, paras 1-11, I am more than content to adopt, without repeating, the narrative in his judgment.

The core facts for present purposes can be stated quite shortly. The story began when Mr Clarke raised proceedings against Fennoscandia in the United States District Court for the District of Delaware. In those proceedings he sought to establish that there had been a conspiracy between Fennoscandia and certain businessmen with the aim of depriving him of the office of president of an American company, DRX Inc. On 1 February 1991 Judge Farnon rejected Mr Clarke's evidence, accepted evidence for Fennoscandia, and rejected Mr Clarke's claim. The judge also made an order against him for the costs. His appeal was rejected and an order for the costs of the appeal was made against him. An application for a rehearing of the appeal was denied, as was his certiorari petition to the United States Supreme Court.

Mr Clarke then raised a fresh action in the Federal Court to have the judgment in the first action set aside on the ground that it had been obtained by fraud in the shape of alleged perjury by two witnesses for Fennoscandia. Those proceedings were transferred to the Delaware District Court where, on 30 December 1994, Judge Farnan dismissed the action on the ground that Mr Clarke required to establish fraud on the court and that entailed showing that an officer of the court, such as an attorney, was involved in the alleged fraud. Neither of the two witnesses who Mr Clarke alleged had committed fraud was an attorney. Mr Clarke's appeal against this decision was dismissed, as was his certiorari petition to the Supreme Court.

In about 1994 Fennoscandia raised an action in the Court of Session to enforce against Mr Clarke the two orders for costs in the Delaware action. He was living in Scotland at the time. Mr Clarke defended the action on the basis that the costs orders related to proceedings in which judgment had been obtained by fraud practised on the court by witnesses for Fennoscandia.

In 1997, while that action by Fennoscandia was still running in the Court of Session, Mr Clarke raised the present action, seeking a declarator that the order of 1 February 1991 against him in the Delaware action "was obtained through fraud on the Court." He also sought interdict against Fennoscandia taking any steps to enforce another judgment which they had obtained against him in different proceedings involving essentially the same issues. That judgment, for a large sum in Canadian dollars, had been pronounced by the District Court of the City and County of Denver, Colorado, on 11 July 1996. Mr Clarke's appeal against the judgment had also been refused.

In May 1998 Fennoscandia abandoned their Court of Session action against Mr Clarke, "under the statute", thus leaving it open to them, if so advised, to raise fresh proceedings in the Court of Session to enforce the same two awards of costs in the Delaware action. Mr Clarke then amended his pleadings in the present action so that there are now four conclusions.

His first conclusion has been expanded from its original form: the pursuer now asks for a declarator that both costs orders in the Delaware action are unenforceable, having been obtained by fraud. He also has a conclusion (number 4) for interdict against Fennoscandia taking any steps in Scotland to enforce those costs orders. The overall purpose of these conclusions was to prevent Fennoscandia from raising fresh proceedings against him in Scotland to enforce their awards of costs in the Delaware action.

The pursuer's second conclusion is for a declarator that the judgment against him in the Colorado action is not enforceable by Fennoscandia in Scotland, because it was obtained through fraud on the court. His original (second) conclusion for interdict against Fennoscandia taking any steps in Scotland to enforce the judgment in the Colorado action has been renumbered as conclusion number 3.

Eventually, in March 2000, Lord Johnston granted the parties a proof before answer of their respective averments. Fennoscandia reclaimed and, in February 2001, in the course of the proceedings in the Inner House, they lodged a minute (No 35 of Process) in which they gave "the following irrevocable undertaking to the pursuer and to the Court:

'That the Company and the Joint Liquidators thereof will not at any time seek to enforce, or take steps which would entitle others to seek to enforce, by action of decree conform in Scotland the orders and judgements referred to in Conclusions 1, 2, 3 and 4 of the present action.'"

In short, Fennoscandia irrevocably undertook not to seek to enforce in Scotland either the judgment in the proceedings in Colorado or the two orders for costs in the proceedings in Delaware - the only judgment and orders that are at issue in these proceedings. In due course Fennoscandia amended Answer 10 in their defences to refer to the undertaking.

In the hearing before this House Mr Mitchell QC acknowledged that any breach of their undertaking by Fennoscandia would attract essentially the same penal consequences as any breach of interdicts granted in terms of the third and fourth conclusions. That concession was sound. In Graham v Robert Younger Ltd 1955 JC 28 the complainer had breached the terms of an undertaking given in the course of proceedings for his sequestration at the instance of Robert Younger Ltd. The company lodged a minute seeking his apprehension for contempt of court. The sheriff ordered the apprehension of the complainer and subsequently held that he was in breach of the undertaking and sentenced him to a period of imprisonment. The complainer challenged his imprisonment in a bill of suspension and liberation, which came before the Justiciary Appeal Court. (The jurisdiction of that court was not challenged by the respondent company.) Although the Appeal Court remitted the remainder of his sentence, it held that, in an appropriate case, breach of an undertaking would constitute contempt of court. Lord Birnam noted, at p 33, that the minute for breach was, in effect, a petition and complaint for breach of interdict. In this House the law as so laid down was accepted as being correct in Beggs v Scottish Ministers 2007 SLT 235, 240-241, para 31.

In these circumstances Mr Mitchell conceded that the pursuer could not insist in the present proceedings simply in order to obtain decrees of interdict in terms of the third and fourth conclusions. Again, especially given the early stage in the proceedings at which the undertaking was given, I consider that the concession was correct. The interdicts would add nothing to the undertaking. Any further proceedings to obtain them would accordingly be an unnecessary waste of time, effort and money.

The significance of the change in the situation thus brought about by the minute of undertaking cannot be underestimated. The defenders are Fennoscandia, a company registered in England, and the liquidators of that company, with addresses in England. The only basis on which the Court of Session ever had jurisdiction over the defenders was therefore Mr Clarke's averment that the apprehended harm, in respect of which the interdicts in the third and fourth conclusions were sought, would occur in Scotland.

I pause to note that the House heard no argument on the appropriateness of the pursuer seeking to interdict Fennoscandia from taking steps to enforce the American judgment and orders, on the ground that they were obtained by fraud, rather than simply leaving the issue of fraud to be resolved, if and when Fennoscandia exercised their right to raise fresh proceedings for enforcement. In particular, the House heard no submissions on the nature of any alleged legal wrong that was apprehended. In his judgment of 22 December 1997, unreported, Lord Bonomy touched on the point. I therefore express no view on the competency of the interdicts that were sought or on the relevancy of the averments in support of the conclusions for interdict. The question is now academic in view of Mr Mitchell's concession that, because of the undertaking, the pursuer cannot now insist on those conclusions.

Mr Mitchell rather faintly suggested, however, that, despite the undertaking, there was still a risk - albeit remote - of Fennoscandia attempting to enforce the American orders and judgment in future. He was, however, himself unable to envisage any circumstances whatsoever in which the Court of Session, having acted on the irrevocable undertaking, would ever allow it to be withdrawn and the orders and judgment to be enforced against Mr Clarke in Scotland. Mr Mitchell also made clear that he was not putting forward the argument, advanced by counsel for the pursuer in the lower courts, that there was a risk that the Court of Session might be asked to enforce judgments against Mr Clarke obtained in the French or English courts on the strength of the American orders or judgment. In these circumstances, the House must proceed on the basis that, given the terms of the undertaking, there is no risk whatever of enforcement proceedings being taken against Mr Clarke in the Court of Session.

Nothing is now left of the pursuer's action except his two conclusions for declarator that the Delaware costs orders and the Colorado judgment are not enforceable by the defenders in Scotland, since they were obtained by fraud. The defenders say that the declarators sought no longer relate to any live issue between the parties and are accordingly incompetent. The approach of the Court of Session to this kind of plea to competency is encapsulated in the classic passage in the judgment of Lord Justice Clerk Thomson in Macnaughton v Macnaughton's Trs 1953 SC 387, 392:

"Our courts have consistently acted on the view that it is their function in the ordinary run of contentious litigation to decide only live, practical questions, and that they have no concern with hypothetical, premature or academic questions, nor do they exist to advise litigants as to the policy which they should adopt in the ordering of their affairs. The courts are neither a debating club nor an advisory bureau."

In developing his argument, Mr Mitchell emphasised that the issue raised by the conclusions for the declarators could and should be broken down. The first issue was whether the orders and judgments should be recognised by the Court of Session. Only if the court decided that they should be recognised would the second issue, of enforcement, arise. Adopting the characteristically lucid account by Professor Briggs in his book on The Conflict of Laws (2002), p 115, counsel submitted that recognition meant "treating the claim which was adjudicated as having been determined once and for all." If the foreign judgment was recognised, the matter was then res judicata, and the losing party would be barred from contradicting it in subsequent proceedings in the Scottish court. The Scottish court would then proceed to consider whether the foreign judgment could be enforced. I note that the division into recognition and enforcement is already reflected, of course, in the heading to Chapter 62 of the Court of Session Rules, "Recognition, Registration and Enforcement of Foreign Judgments etc."

As counsel for Fennoscandia pointed out, the need to analyse the position in terms of recognition and enforcement did not form any part of the submissions of the counsel who represented Mr Clarke in either the Outer House or Inner House. It is accordingly not reflected in the Court of Session judgments.

On the basis of this new analysis Mr Mitchell submitted that, while there was now no question of the Court of Session being asked to enforce the American judgment and orders, the logically anterior issue of whether the judgment and orders were "capable of recognition", having regard to the allegation that there had been fraud on the courts, remained for determination. Admittedly, at first sight that issue might appear academic, but it was not truly so. In that connexion counsel drew attention to the averments in article 10 of Condescendence that Mr Clarke's

"ability to raise finance for his business ventures both in Scotland and elsewhere is compromised by the fact that the defenders hold a large and unsatisfied decree against him. Should the pursuer obtain a declarator that the said decree was obtained through fraud his ability to raise finance would be materially improved."

Mr Mitchell also drew attention to a letter from the Royal Bank of Scotland which was referred to in the pleadings and which, he said, strengthened these averments. In addition, he pointed to further averments about problems, with financial implications, which Mr Clarke had encountered as a result of his role in the Delaware and subsequent actions. In short, counsel submitted, if the Court of Session pronounced declarators in terms of the two conclusions, this would help to repair Mr Clarke's reputation, materially improve his ability to raise finance and so alleviate his overall situation.

My Lords, I am happy to accept that, in the words of Professor Briggs, "the logic of the law is that recognition is the necessary primary concern...": The Conflict of Laws, p 116. I also accept that recognising a judgment entails the court treating the relevant claim as having been determined once and for all by the foreign court. Hence any question as to the possible effect of fraud would properly fall to be considered at the recognition stage. In addition, I assume, for the sake of the argument, that the Court of Session would apply a broader test of fraud on the court than was applied in the American proceedings.

Although analytically distinct, recognition and enforcement are, nevertheless, closely linked. The simple fact is that, in this case, the Court of Session would only ever have been called on to consider whether the American orders and judgment could be recognised, as a preliminary to deciding whether to grant the interdicts against Fennoscandia taking steps to enforce them against Mr Clarke. But Fennoscandia's undertaking means that they will never now ask the court to enforce these orders and judgment against him. Therefore the court has no need to consider whether to grant the interdicts and, it follows, no need to consider whether the judgment and orders are capable of being recognised by a Scottish court. Whatever it might involve, recognition or non-recognition is no longer a live issue.

Although Mr Mitchell did not spell out the terms of the declarators which, in his submission, the Court of Session might pronounce if the action succeeded, the whole train of his argument showed that he accepted that the court could not now be asked to declare that the judgment and orders were "not enforceable", by reason of having been obtained by fraud. That is plainly correct. Presumably - despite the conclusions remaining unamended - on his submission any declarators would be to the effect that the judgment and orders were "not capable of being recognised" under Scots Law, by reason of having been obtained by fraud. But, if it would not be competent for the court to pronounce declarators that the judgment and orders are not enforceable, then, a fortiori, it would not be competent for the court to pronounce declarators that they are "not capable of being recognised".

The fact that the precise legal question to be determined by the declarators might no longer be live does not matter, said Mr Mitchell, provided only that Mr Clarke would derive a practical benefit from the declarators. That practical benefit was to be seen in the averments about the potential effect of the declarators in alleviating the damage which Mr Clarke had suffered as a result of the existence of the orders and judgment. These averments must, of course, be taken pro veritate. Even so, they provide no basis for saying that the Court of Session is seised of a live issue about the recognition of the American judgment and orders, on which it would be competent for the court to pronounce judgment. In that connexion, it should be remembered that any declarators pronounced by the Court of Session would not have effect in rem. In other words, the declarators would not - indeed could not - have any conceivable legal effect except in the Scottish proceedings. And in those proceedings they would actually have no practical impact. In any other context and for any other purpose, the American orders and judgment would remain untouched.

Mr Mitchell pointed out that Fennoscandia are resisting the grant of the declarators which Mr Clarke seeks. So, he submitted, there is a contradictor and that shows that there is a live issue between the parties. But the basis of Fennoscandia's continued defence is that the pursuer is not entitled to seek declarators as to the recognition of a judgment and orders which Fennoscandia themselves cannot ask the Court of Session to recognise and enforce in Scotland. There is therefore no live issue on the question of recognition on which it would be competent for the court to pronounce a declarator.

Mr Mitchell submitted that, nevertheless, the pursuer's averments of loss which he was suffering as a result of the American judgment and orders were enough to make the declarators competent, even though Fennoscandia were no longer trying to enforce them in Scotland. He founded most strongly on the decision of the Court of Five Judges in Law Hospital NHS Trust v Lord Advocate 1996 SC 301. The case arose out of circumstances in which doctors were minded to stop providing food, hydration and nursing care to a patient in a persistent vegetative state. They were unwilling to do so, however, without an assurance that they and the other medical staff would not be committing a criminal offence or doing something that was unlawful under the civil law. They therefore raised proceedings, with the Lord Advocate and relatives of the patient as defenders, for a declarator that discontinuing treatment would not be unlawful. The Lord Advocate took a plea to the competency of the declarator sought, so far as it related to the criminal law, on the basis that matters of criminal law were not for decision by the Court of Session.

The case raised various procedural problems. In particular, neither the Lord Advocate nor any of the relatives opposed the discontinuance of the treatment. Nor did they argue that it would be unlawful. So there was no clear contradictor in the proceedings. Despite this, as Mr Mitchell emphasised, the court pronounced a declarator that what was proposed was lawful under the civil law.

While the position of doctors who discontinued treatment in England had been clarified by this House in Airedale NHS Trust v Bland [1993] AC 789, by the time of the Law Hospital case there had been no similar clarification in Scotland. Particularly because the criminal law in the two jurisdictions was different, doctors and other medical staff were understandably apprehensive and wanted reassurance about the position in Scotland. Therefore, although there was no opposition, as such, in the proceedings, the Law Hospital case raised an issue of importance for many others besides the particular parties involved. Lord Clyde accordingly regarded "the issue of civil liability which has been raised as one of reality, of concern and of practical utility": 1996 SC 301, 323. In these circumstances, since the only challenge to the competency of the declarator had been to its covering criminal liability, like the other members of the court, he was prepared to accept that a declarator, as to the position under the civil law, could competently be granted.

The circumstances of the Law Hospital case could not be further removed from those in the present case. The absence of a contradictor in an action for declarator will usually matter because it will be an indication that there is no live controversial legal issue which the court could properly spend its time considering and determining. But the Law Hospital case actually raised a legal issue of acute practical importance to members of the medical profession all over Scotland. Unusually, therefore, despite the fact that the defenders were not opposing the substance of the declarators and so there was no proper contradictor, there was still an important public interest to be served by the Court of Session considering the whole position and, in the end, deciding whether to grant the declarator sought. In that sense, the case lay outside "the ordinary run of contentious litigation" of which Lord Justice Clerk Thomson was speaking in Macnaughton v Macnaughton's Trs 1953 SC 387, 392. In these special circumstances it was competent for decree of declarator to be pronounced. Here, by contrast, the case concerns a dispute which was only ever of concern to the parties. Now that the undertaking has been given, no public interest would be served by the Court of Session hearing evidence and determining what is now an academic point about the recognition of the American orders and judgment.

Of course, if it were otherwise competent for the court to pronounce the declarators sought, then Mr Clarke might derive from them the indirect benefits which he avers. But these benefits are essentially ancillary or secondary and could not, in themselves, justify the court in pronouncing the declarators. Like Lord Clarke, 2005 SLT 511, 520, para 37, I entirely agree with Lord Kingarth, 2004 SC 197, 212, para 35, that "The fact that the pursuer might obtain such ancillary benefits would not…make the declarators competent." Also agreeing with Lord Kingarth, the Lord Justice Clerk (Gill) said, at p 513, para 8, that "It is not the business of this court to grant a declaratory decree merely to further the ulterior purposes of the party who seeks it." I agree.

The reality is that, except as a peg for a legal argument, the pursuer is no longer concerned about the recognition or enforcement of the American orders and judgment in Scotland. He just wants the Court of Session to declare that they were obtained by fraud. In other words, he wants to enlist the Court of Session to attack the decisions of the competent first instance and appellate courts in the United States, which dealt with the cases. For the Court of Session to pronounce a decree with no other purpose than to undermine the judgments of competent courts, which are the product of a fair hearing, would be contrary to all doctrines and considerations of comity.

As the courts below noted, the decision in Westergaard v Westergaard 1914 SC 977 confirms that the Court of Session cannot interfere with judgments of competent foreign courts in such circumstances. The parties were a divorced couple. A decree of the Danish court had given the husband power over his son. At the relevant time the son was living in Scotland with his father. With considerable reluctance, the Second Division held that it was simply not open to a Scottish court to help the wife by pronouncing a decree giving her access to her son in Scotland. Lord Justice Clerk Macdonald put the matter concisely, at p 980:

"The position of the matter is either that the judgment in Denmark is not final, in which case the Danish tribunal would be the proper place in which to apply for an order altering it, or that the judgment is final, in which case no foreign court can have any right to interfere."

Mutatis mutandis, the same applies in the present case. The judgment and orders of the competent American courts are final. No question of enforcement arises. The Court of Session has no right to interfere.

The other way that Mr Mitchell tried to breathe life into the conclusions for declarator was by reference to proceedings between the parties in the High Court in England, relating to essentially the same events as lay at the heart of the American proceedings and as lie at the heart of the present case. Mr Mitchell focused, in particular, on the action brought by Alexandra Claims Trust against Fennoscandia Bank Ltd for declarations of non-liability, for the return of certain shares and for damages for misuse of confidential information. The action was dismissed as an abuse of process and vexatious, being an attempt to re-litigate in England matters that had already been decided by the Delaware court. An appeal against that decision was dismissed by the Court of Appeal on 17 May 1996 in a judgment given by Hobhouse LJ.

Mr Mitchell's argument, as I understood it, was that some additional evidence, pointing to perjury by witnesses for Fennoscandia in the American proceedings, had come to light. If Mr Clarke were now able to deploy all the available evidence in a proof in this action and so obtain declarators from the Court of Session, that the American orders and judgment were not capable of recognition in Scotland, then, armed with the declarators, he could return to the Court of Appeal and ask that court to reopen its decision to dismiss his action.

This hypothetical scenario does nothing to make the declarators competent. For one thing, if there is indeed additional relevant evidence which the Court of Appeal in England might consider significant, then the place to go with that evidence is the Court of Appeal. For the rest, there are no proceedings pending before the Court of Appeal and it is the merest speculation to suggest that declarators in the terms envisaged by Mr Mitchell would persuade the Court of Appeal to reopen the English proceedings, even assuming that it had power to do so. As already pointed out, they would not operate in rem. Moreover, as Mr Mitchell accepted, the Court of Session would not have had jurisdiction to entertain the action which Mr Clarke brought against Fennoscandia in England. However you look at it, therefore, having lost in the Court of Appeal and not now being prepared to go back and ask that court to reopen its judgment, Mr Clarke wants, in effect, to use the Court of Session - a court not even having parallel jurisdiction in the matter - to mount a collateral challenge to the Court of Appeal's judgment. That is not a legitimate purpose. On this basis too, the declarators which the pursuer seeks would be incompetent.

For these reasons the Lord Ordinary and the Second Division were correct to sustain the eleventh and twelfth pleas-in-law for the defenders and to dismiss the action as incompetent. I would dismiss the appeal.

LORD WALKER OF GESTINGTHORPE

My Lords,

I have had the privilege of reading in draft the opinion of my noble and learned friend Lord Rodger of Earlsferry. I agree with it, and I too would dismiss this appeal.

LORD NEUBERGER OF ABBOTSBURY

My Lords,

I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Rodger of Earlsferry and for the reasons he gives, I too would dismiss this appeal.