Lady Justice Arden:
- The appellants Mora Hotel Corporation NV ("Mora") and Chascona NV ("Chascona") are the tenth and thirty-eighth defendants in this action. They seek to appeal against the order of Etherton J dated 3 February 2003. By his order the judge dismissed applications to set aside judgments entered against the appellants on 4 February 1999, 21 October 1999 and 7 December 1999. The applications also sought in consequence to set aside certain freezing orders and debarring orders dated 26 February 1997, 13 October 1998, 3 March 1999, 23 July 1999, 4 October 1999 and 8 May 2000. The orders dated 13 October 1998, 23 July 1999 and 4 October 1999 were "unless" orders, that is conditional orders providing that the appellants should be debarred from defending the claims made against them unless they complied with the order. If a party does not comply with such an order, the other party can obtain judgment with costs. The unless orders made in this case, and the judgments entered pursuant to them, are all described in the passage from the judge's judgment in paragraph 3 below. I will refer to them collectively as "the unless orders", and to them separately as "the July 1998 unless order", "the October 1998 unless order" and "the October 1999 unless order" respectively. The present litigation arises out of the collapse of the Castor group. I refer below to "Castor" as meaning Castor Holdings Limited or any member of its group.
- There were essentially two issues before this court:
i) should the court grant permission to the appellants to appeal against the judge's holding that the respondents had a real prospect of success on their claim against the appellants in conspiracy ("the conspiracy issue")?
ii) did the judge err in the exercise of his discretion to refuse to set aside the judgments against the appellants ("the discretion issue")?
Mr John Wardell QC made submissions on both issues for the appellants. On behalf of the respondents, Mr Christopher Carr QC and Mr Philip Marshall QC made the submissions on the conspiracy issue and the discretion issue respectively. By an order of this court (Mummery and Mance LJJ) dated 11 November 2003, the appellants' application for permission to appeal on the conspiracy issue was adjourned to this court, but permission to appeal was granted on the discretion issue. The court refused permission on the conspiracy issue and this judgment sets out my reasons for doing so.
The procedural background
- I start with an explanation of how the unless orders came to be made. The judge set out the procedural background in these terms:-
"4. These proceedings ("the Proceedings") are brought by the Claimants as trustees of certain pension and other benefit funds established by Daimler Chrysler Canada Inc. for its employees. Between 1984 and 1992 the Claimants made substantial loans to, and investments in, an international group of finance and investment companies known as the Castor Group ("Castor"). The loans and investments made by the Claimants totalled approximately CAN$240 million. Castor collapsed in early 1992 with debts of CAN$1 .8 billion. The Claimants' loans have proved to be irrecoverable, and their investments virtually worthless.
5. The Claimants allege that their loans and investments were made in reliance upon fraudulent misrepresentations by the First Defendant, Wolfgang Stolzenberg, of which the Second Defendant, Marco Gambazzi, and others of the Defendants, including Mora and Chascona, were aware and to which they were party.
6. Mr Gambazzi is an attorney in the firm Gambazzi & Berra based in Lugano, Switzerland. He specialises in acting as a fiduciary, using off-shore companies and entities. Mr Gambazzi was a shareholder in and director of the leading Castor company, Castor Holdings Ltd, ("Castor Holdings") until its insolvency in February 1992. He was also a director of a number of other Castor companies, some of which were key operating subsidiaries of Castor Holdings, including C. H. International Finance NV, C. H. International (Netherlands) BV, Castor Finance A. G., CH (Ireland) Limited and Castor Investment AG.
7. Mora and Chascona own and operate the Gorham Hotel in New York ("the Hotel"). From 1979 Mr Gambazzi was the managing director of Chascona. He was also a director of Mora from 1995. The Claimants allege that he was actively involved in the affairs of Mora even before 1995. Until relatively recently, Mr Gambazzi held all the bearer shares in Mora and Chascona. He claims, however, that at all times prior to the collapse of Castor he held them as nominee for the true beneficial owners.
8. In May 1996 the Claimants issued the Proceedings against the main conspirators. The first four Defendants are individuals. The other Defendants are corporations. At that time, the only claim against Mora was a tracing claim for US$380,687 and CAN$357,738.
9. On 26th February 1997 Mr Justice Rimer granted a worldwide freezing order against the individual Defendants and many of the corporate Defendants, including Mora. The order required Mora, in relation to the tracing claim, to provide information and documents regarding what had become of the money which it had allegedly obtained by fraud. In order to enable the freezing injunctions to be policed, Mora, in common with others of the Defendants, was required to produce information and documents regarding its assets. Mora was also required to provide copies of any documents which it held which were relevant to the proceedings.
10. On 10th April 1997 Mora acknowledged service of the writ. Mora was thereafter represented by the same solicitors and counsel who appeared on behalf of Mr Gambazzi. The solicitors acting for Mora at that time were Richards Butler.
11. On 11th April 1997 Mora, Mr Gambazzi and other Defendants applied to set aside service of the writ on the grounds of lack of jurisdiction.
12. On 23rd May 1997 Mr Justice Rattee dismissed the applications to set aside service of the writ on grounds of lack of jurisdiction. An appeal to the Court of Appeal was dismissed on 29th October 1997. In due course permission was granted to appeal to the House of Lords.
13. By this time Colman Coyle had replaced Richards Butler as Mora's solicitors for the Proceedings.
14. On 10th July 1998 Mr Justice Rattee made several orders against Mora to secure compliance with the freezing order of Mr Justice Rimer, some of which were "unless" orders.
15. On 13th October 1998, Mr Justice Rattee made an order that, unless Mora served on the Claimants' solicitors by 10th November 1998 "all documents within its possession, custody or power relating to the security granted by [Mora] to C H International Overseas which either remained in existence, or was created, after 20th May 1992" Mora be debarred from defending the Proceedings further, and the Claimants be at liberty to proceed with an account of what was due to the Claimants from Mora in respect of the tracing claim against Mora.
16. Mora did not supply any such documents. Nor did it serve any affidavit or witness statement explaining why it had failed to do so.
17. On 4th February 1999, following the taking of an account against Mora by Master Winegarten, pursuant to the order of 13th October 1998, judgment was entered against Mora, as I have said, for CAN$357,738.21 and US$386,687.95.
18. In the meantime, on 11th January 1999 Chascona had been joined to the Proceedings. A claim in conspiracy was made against Chascona. Furthermore a claim in conspiracy was now made against Mora. The amended writ and statement of claim were served on Mora and also on Chascona.
19. On 25th February 1999 Chascona entered an acknowledgement of service. On 12th March 1999 Chascona issued an application challenging the jurisdiction of the English court. That application was adjourned pending the determination by the House of Lords of the jurisdiction issue.
20. On 23rd July 1999 Mr Justice Lightman made an order extending the existing freezing relief against Mora, and also granting freezing relief against Chascona, up to a value of CAN$420 million in respect of the conspiracy claim. Mora was also required, by Mr Justice Lightman's order, to take certain steps to ensure that any proceeds of certain litigation it had brought in Canada against Castor's auditors ("the C & L Litigation"), and any proceeds of a proof of debt which it had submitted in Castor's bankruptcy, were preserved. Those steps included opening an account at a branch of a bank in England & Wales, for the purpose of receiving any such proceeds, and giving certain notices.
21. Mora and Chascona took no steps to comply with the order of Mr Justice Lightman.
22. On 4th October 1999 Mr Justice Rattee ordered that, unless Mora and Chascona complied with the outstanding terms of the order of Mr Justice Lightman within fourteen days, they would be debarred from defending the Proceedings further, and the Claimants would be entitled to enter judgment for damages to be assessed in respect of their claims in conspiracy. Mora and Chascona took no steps to comply with that order.
23. Accordingly, on 21st October 1999 it was ordered that Mora and Chascona pay the Claimants damages to be assessed, together with the costs of the Proceedings, such costs to be taxed on an indemnity basis. Damages were assessed at a hearing before Master Bowles on 7th December 1999, when the Claimants were, as I have said, awarded damages of CAN$245,701,477.70 and US$134,315,511.10 against Mora, and CAN$246,082,660 and US$134,727,540.30 against Chascona.
24. In May 2000 the Claimants applied to the Supreme Court of the State of New York for recognition and enforcement in the United States of their judgments against Mora and Chascona.
25. On 12th October 2000 the House of Lords dismissed the appeal from the decision of the Court of Appeal upholding the decision of Mr Justice Rattee not to set aside service of the writ on grounds of lack of jurisdiction.
26. On 21st December 2000 the Honourable Justice Ira Gammerman gave judgment in New York in favour of the Claimants, and appointed a receiver over the Hotel.
27. Mora and Chascona appealed the decision of the Honourable Justice Ira Gammerman. On 28th May 2002 the Appellate Division of the New York State Court dismissed the appeal of Mora and Chascona.
28. On 5th December 2001 Mora and Chascona applied to set aside the order of 21st October 1999 for damages to be assessed on the conspiracy claim, and the order of Master Bowles of 7th December 1999 assessing those damages.
29 On 30th April 2002 Mora applied to set aside the order of Master Winegarten of 4th February 1999, on taking the account in respect of the tracing claim against Mora.
30. On 27th November 2002 Mora and Chascona applied for relief from the "unless" orders of 13th October 1998 and 4th October 1999 of Mr Justice Rattee, and also for the discharge of freezing orders against Mora and Chascona, including the freezing order against Mora of Mr Justice Rimer of 26th February 1997 and the freezing order against Mora and Chascona of Mr Justice Lightman of 23rd July 1999.
31. There is currently pending in the United States an appeal from the decision of the Appellate Division of the New York State Court of 28th May 2002 to the New York Court of Appeals.
32. The Claimants have also taken proceedings in Ontario and the Netherlands Antilles for recognition and enforcement of the judgments obtained by them against Mora and Chascona in the English Proceedings."
- The following points may be added. As to paragraph 25 of the judge's judgment, the decision of the House of Lords is now reported as Canada Trust v Stolzenberg  1 AC 1. As to paragraph 31 of the judge's judgment, the New York Court of Appeals has now dismissed the appellants' appeal. One of the grounds for the appeal was that it was contrary to the law of New York for the judgments obtained against the appellants in these proceedings to be recognised and enforced in New York. One of the grounds on which this appeal was dismissed was that the appellants had submitted to the jurisdiction of the English courts by making the applications heard by the judge without preserving any objection to the High Court's jurisdiction over them for the purposes of enforcement proceedings in New York. It seems clear from the judgment of that court that if their appearance in the English courts had not been voluntary, the appellants would not have been treated in New York law as having submitted to the jurisdiction of the English courts for the purposes of any enforcement proceedings in New York. From this it would seem to follow that it would not in fact have prejudiced the appellants' position under New York law if the appellants had complied with the unless orders.
- The judgments of 4 and 21 October 1999 and 7 December 1999, which the appellants seek to have set aside, are described in paragraphs 17 and 23 of the judge's judgment, set out above. Those judgments were entered following non-compliance with the July 1998 unless order, the October 1998 unless order and the October 1999 unless order. These orders are described in paragraphs 14, 15 and 22 of the judge's judgment set out above. So far as material, the July 1998 unless order required Mora to produce an affidavit exhibiting all documents within its possession, custody or power relating to the security granted to the Castor Group which remained in existence after 20 May 1992. Subsequent to this order, Mora requested the Swiss Public Prosecutor ("the SPP"), who had seized certain documents from the offices of Mr Gambazzi's law firm in Lugano, to release relevant documents, and Mora also supplied the claimants with a copy of this request and the SPP's refusal to release documents. In fact, the SPP released documents to Mr Gambazzi (from whose offices they had been seized) in May and October 1997 and again in 2000, and these included certain documents falling within the July 1998 order. However, these were not timeously disclosed to the claimants. However, the appellants' solicitors, Withers, who were instructed in August 2001, took steps to obtain two other files in the possession of the SPP and to give the respondents access to them. I will refer to these matters in greater detail below.
Appellants' explanation for non-compliance with the orders of the court
- A key issue is the explanation provided by the appellants for their non-compliance with the unless orders. The judge made the following findings as to the appellants' explanation:-
"36. The Hotel was purchased, according to that evidence, by an Italian, Mr Enzo Cori, in about 1981. Mr Cori was another client of Mr Gambazzi. Mr Gambazzi at all material times was the holder of the bearer shares in both companies. By 1994, 25% of Mora and Chascona were owned beneficially by Mr Gambazzi. In that year Mr Gambazzi recommended to Mr Cavazza that he should invest in the Hotel, and Mr Cavazza acquired from Mr Cori 50% of the beneficial interest in the shares in Mora and Chascona. In 1995 Mr Cavazza acquired Mr Cori's remaining 25% interest in those companies.
37. Mr Cavazza's interest in Mora and Chascona was acquired in breach of Italian exchange control regulations, and without disclosing the acquisition to the Italian authorities. In view of those matters, Mr Cavazza did not wish his beneficial ownership of the shares in Mora and Chascona to become known to the wider world. Like Mr Cori, Mr Cavazza was not a director of either Mora or Chascona. In Mora and Chascona's tax returns from 1987 onwards Mr Gambazzi was held out as owning 100% of the shares in those companies. Mr Cavazza left it to Mr Gambazzi to conduct the case of Mora and Chascona in the Proceedings. It was only in August 2001 that Mr Cavazza consulted the solicitors Withers, after Mr Cavazza lost confidence in Mr Gambazzi. Mr Cavazza's evidence is that, until Withers advised, he did not know it was open to him to apply to set aside the judgments against Mora and Chascona. It was, as I have said, at that stage that the interest of Mr Cavazza in Mora and Chascona first came to light in the Proceedings.
38. The evidence, on behalf of Mora and Chascona, is that Mr Gambazzi took the view, from the outset, that the proper tactics to adopt, on behalf of Mora and Chascona, as well as himself and other Defendants, were to contest the jurisdiction of the English courts, and not to fight the Proceedings on their merits here, but to do so only in the courts in New York. Mora initially took steps to comply with the freezing order of Mr Justice Rimer of 26th February 1997, and some subsequent orders in that year. From the end of 1998, however, Mr Gambazzi took the view that Mora and Chascona should not comply with any orders of the English court, save in connection with the challenge to jurisdiction. For that reason, notwithstanding that the English solicitors for Mora and Chascona, Colman Coyle, advised that the "unless" orders should be complied with, no steps were taken to comply with those orders, and Mora and Chascona permitted the judgments in default to be entered against them. According to the evidence for Mora and Chascona, the stance taken by Mr Gambazzi, on behalf of Mora and Chascona, resulted from the firm advice which Mr Gambazzi received that the English courts would ultimately accept that they did not have jurisdiction and, moreover, the United States courts would not, against the background of the jurisdiction challenge, enforce a judgment of the English courts which did not result from a trial on the merits. According to that evidence, those tactics of Mr Gambazzi were formed after consultation with, and upon the advice of, an old friend of his, Mr Dario Ceppi. Mr Ceppi was a New York litigator, who was, at the relevant time, a sole practitioner carrying on practice from premises on Park Avenue in New York.
39. Following the unanimous rejection by the House of Lords of the jurisdiction challenge, and the willingness of the New York courts to enforce the default judgments against Mora and Chascona, it became apparent that Mr Gambazzi's strategy, on behalf of Mora and Chascona, was completely misconceived.
40. Although the decision of the Honourable Justice Ira Gammerman was given in the Supreme Court of the State of New York on 21st December 2000, Mr Cavazza did not become involved in the Proceedings, as I have said, until August 2001. His involvement was prompted by the injunction granted in respect of Chinablue, as a result of which he instructed Withers at the end of August 2001. Mr Cavazza has explained that the reason for the delay in his involvement, even after it had become apparent that the strategy of Mr Gambazzi had proved so disastrously wrong, was that he wished to await the passing of legislation in Italy granting an amnesty to persons who had invested outside Italy, in breach of Italian exchange control regulations. That legislation was only passed in April 2001."
- As the judge noted, the involvement of Mr Cavazza as the owner of 75% of the shares in Mora and Chascona was only revealed in his first affidavit sworn on 29 November 2001. He acquired his interest in 1994 or 1995, that is after the alleged fraud, described below, took place.
Factual allegations made by the claimants in this action
- The judge summarised the respondents' factual allegations in this action as follows:-
"50. As I have said, the Claimants allege that they made loans to, and investments in, Castor and its subsidiary and associated companies in reliance upon fraudulent misrepresentations made by Mr Stolzenberg, of which Mr Gambazzi and other Defendants, including Mora and Chascona, were aware and to which they were party. It is alleged that such participation and assistance often took the form of involvement in artificial transactions designed to give a misleading impression as to the financial position and business of Castor or, in other cases, transactions designed to cover up fraudulent activity or to extract funds obtained by fraud. In particular, Mr Stolzenberg, acting with the assistance of Mr Gambazzi and others, made representations that Castor's business was to lend money secured by mortgages over high quality real estate developments in North America on a short to medium term basis. Further, Mr Stolzenberg, acting in conjunction with Mr Gambazzi and others, ensured that the Claimants were provided with copies of consolidated financial statements of Castor, as well as other documentation, which indicated that Castor was financially sound, profitable and growing, and invited the Claimants to lend money or invest on this basis.
51. The Claimants allege that, in fact, Castor did not conduct business of the character represented. Its business was, in reality, to lend money to companies which were also owned, controlled or managed by Mr Stolzenberg, Mr Gambazzi and the Third or Fourth Defendants ("the Individual Defendants"). Such companies were linked to Castor or to the Individual Defendants by common shareholdings, directorships and management. Among those companies were Mora and Chascona. The companies in which those Defendants were interested either consistently made losses or were insolvent or able to secure lending from Castor on more favourable terms than they would otherwise have been able to obtain. No arms' length lender or investor, knowing the truth, would have lent monies to those companies or would have invested in their projects either at all or on the terms on which Castor did so.
52. In many instances the companies to which Castor made loans were unable to repay those loans, or even to pay a small percentage of the interest which was due on them. Nevertheless, over a period of years, Castor's financial statements made it appear that there was consistent growth on its loan portfolio, income and earnings. The Claimants allege that this was only achieved by a series of artificial and deceptive arrangements by Mr Stolzenberg, Mr Gambazzi and others of the Defendants. One essential feature of each of these deceptions was that, rather than making substantial provisions in Castor's accounts on the basis that the loans were irrecoverable, it was represented that unpaid interest due to Castor upon its loans had in fact been paid, and unpaid interest was treated as a new debt. This created the appearance that income and earnings were increasing, that net assets were increasing, and that the loan portfolio was expanding. The truth, according to the Claimants, was that Castor was simply recycling bad debt.
53. The Claimants contend that from 1986 onwards the financial position of Castor was such that it was no longer carrying on any legitimate business. Its sole function was to act as a vehicle for the purpose of obtaining money by deception for the benefit of the Individual Defendants or the corporate Defendants or other entities associated with them.
54. From 1981 onwards both Mora and Chascona obtained substantial loans from Castor, rising from US$3.5 million to US$21.5 million by the time of Castor's collapse in 1992. The Claimants claim that Castor's lending to Mora and Chascona was not on commercial terms, including rates of interest. Further, Castor did not always collect interest in cash. It frequently permitted Mora and Chascona to capitalise interest (that is to say, add it to the existing loan balance) when they requested it. There are a range of other matters which, the Claimants say, illustrate the uncommercial or improper financial arrangements between Mora and Chascona, on the one hand, and Castor, on the other hand.
55. The evidence is that Mr Gambazzi obtained commissions or fees when companies introduced by him lent money to, or invested in, Castor.
56. Furthermore, there is evidence that Mr Gambazzi received a share of the fees paid to Castor by Mora and Chascona.
57. In addition, Mr Gambazzi received dividends, as a shareholder of Castor Holdings, on the basis of fictitious profits or earnings of Castor. As I have said, such profits or earnings were fictitious since they resulted from the incorrect representation of Castor's actual financial position in its accounts; in particular, treating interest payments as having been paid, and the loan book as continually expanding, and failing to make proper provision for bad debt."
- The appellants submit that the finding in paragraph 56 of the judge's judgment (set out above) was not supported by the evidence. That evidence consists of an appendix to the 33rd affidavit of Mr Pugh. This shows that relatively small amounts of commission on borrowings were paid by Mora and Chascona into an account into which commission was paid from other companies under the control of Mr Stolzenberg and Mr Gambazzi. Commission was paid out of that account to Mr Stolzenberg and Mr Gambazzi but the evidence does not go so far as to show that the money paid out to them was money paid in by Mora or Chascona.
The Castor loans
- Mora originally borrowed $3.5 million from the Castor Group to acquire the Gorham Hotel. The price paid for the hotel was $6.5 million. It was Mr Gambazzi who suggested to Mr Cori that he should raise money with Castor. By 31 March 1992, the amount outstanding from Mora and Chascona to the Castor Group had risen from $3.5 m. to $21,350,365.97. The loans made by the Castor Group are summarized as follows in the appellants' skeleton argument:-
"4.3.1 Mora and Chascona borrowed US$3.5 million from CHIF on 3rd February 1981 secured by a mortgage of the same date;
4.3.2 Mora and Chascona borrowed further sums of US$350,000 on 25th October 1982 and US$150,000 on 2nd December 1983, both of which were secured by mortgages;
4.3.3 the three mortgages were consolidated into one mortgage securing US$4,000,000 on 2nd December 1983 (which was matched by deposits that had already been made by Mr. Cori);
4.3.4 on 10th December 1987 Mora and Chascona entered into a building loan agreement secured by a mortgage of the same date whereby CHIO agreed to advance a further US$6,500,000 to enable them to carry out an extensive refurbishment scheme. On the same day, the mortgages were consolidated into one loan in the sum of US$10.5 million;
4.3.5 a further US$4.5 million was advanced on 5th December 1989 again secured by mortgage."
- Mora and Chascona had difficulties in paying interest due to CHIO short after CHIO took over the lending to them on 10 December 1987. From about April 1989, CHIO began to include an interest component in its monthly advances to Mora. CHIO was also asked to fund consultancy expenses. Of the further advance of $4.5m. agreed in December 1989, $1.5m. related to interest which was thereby to be capitalized. Mora and Chascona were in substantial default in the payment of interest after 1987.
- CHIF and CHIO were members of the Castor Group. CHIF is the parent of CHIO. Their full names were CH International Finance NV and CH International Overseas Limited. I refer to them below by their initials. In 1981 Mora had deposited some $4m. with CHIF.
- In May 1992, the borrowings of Mora and Chascona from Castor were restructured. On 20 May 1992, these borrowings were in effect novated in favour of Banque Paribas, New York ("Paribas").
- I refer below to an interest differential as between the interest paid by Castor to its lenders on monies lent to the appellants, and interest paid by them to CHIO. This arises in the following way. From 2 April 1981 to December 1983, CHIF borrowed from Banque Paribas or other sources the amount needed to make the loan to the appellants, and paid interest in Canadian dollars on the monies thereby raised at rates which from time to time were greater than those paid by the appellants. The appellants, on the other hand, paid interest to CHIO in US dollars, thus also exposing CHIO to currency fluctuations as well as to interest rate fluctuations.
Fees and commissions paid to Mr Gambazzi and Mr Stolzenberg
- The fees and commissions paid by the Mora and Chascona to Mr Stolzenberg and Mr Gambazzi are summarised as follows in the respondents' skeleton argument:-
"4.7.1 [to Mr Gambazzi personally] US$35,000 commitment fee on the original advance;
4.7.2 US $210,000 commitment fee on the building loan advance;
4.7.3 [to an account of CHIO from which Mr Gambazzi, Mr Stolzenberg and others drew substantial amounts for their own account] US $300,000 commitment fee on the additional building loan advance
4.8 [to Mr Stolzenberg personally]
a one-off consultancy fee of US$134,000 in respect of advice [Mr Stolzenberg] gave in respect of the refurbishment of the Hotel." (words in square brackets added from other evidence).
- Mr Gambazzi was not appointed as a director of Mora until 1995. However, prior to that date, the directors of Mora were a Mr Conti and a trust company. Mr Conti gave his address as that of Mr Gambazzi's firm in Lugano, Switzerland. Mr Gambazzi referred to Mr Conti as "his former accountant". There are documents which show that Mr Gambazzi held himself out as the managing director of Mora from about 1986. In his evidence in Canadian proceedings, Mr Gambazzi accepted that he was involved in the affairs of Mora as appears from the following extract from his examination by counsel for the liquidators of Castor:-
"R. I am always busy with Mora, I have always assisted the company in its business for around fifteen years, ten years perhaps, ten years.
Q. Is it correct to understand that you were the representative of the company for the transactions in question, those which are alleged in the Statement of Claim.
R. Yes, yes, I was the representative."
- This evidence was given in French, which was not Mr Gambazzi's mother tongue, and it is said that the first sentence is a mis-translation and that what Mr Gambazzi said was:-
"I have always dealt with Mora."
- However, the question that there was is a mis-translation can only be determined at trial since it all depends on what meaning Mr Gambazzi intended to give to the words he used.
Basis of the applications to the judge
- It is common ground that the judge was correct in holding that, in order to set aside the orders as sought by the appellants, he had to be satisfied:
i) by analogy with CPR 13.3(1) (setting aside judgment in default of defence, etc.) that they had a real prospect of successfully defending the claims and
ii) the requirements of CPR 3.9 had to be considered.
- CPR 3.9(1) provides:-
"On an application for relief from any sanction imposed for failure to comply with any rule, practice direction or court order the court will consider all the circumstances including -
(a) the interests of the administration of justice;
(b) whether the application for relief has been made promptly;
(c) whether the failure to comply was intentional;
(d) whether there is a good explanation for the failure;
(e) the extent to which the party in default has complied with other rules, practice directions and court orders and any relevant pre-action protocols;
(f) whether the failure to comply was caused by the party or his legal representative;
(g) whether the trial date or the likely date can still be met if relief is granted;
(h) the effect which the failure to comply had on each party; and
(i) the effect which the granting of relief would have on each party."
- Having considered the matters which CPR3.9(1) requires the court to consider, the court must exercise its power to grant relief in accordance with the overriding objective of the CPR, set out in CPR 1.
- CPR 1 provides:-
"The overriding objective
1.1(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.
(2) Dealing with a case justly includes, so far as is practicable:
(a) ensuring that the parties are on an equal footing;
(b) saving expense;
(c) dealing with the case in ways which are proportionate:
(i) to the amount of money involved;
(ii) to the importance of the case;
(iii) to the complexity of the issues; and
(iv) to the financial position of each party;
(d) ensuring that it is dealt with expeditiously and fairly;
(e) allotting to it an appropriate share of the court's resources, while taking into account the need to allot resources to other cases.
Application by the court of the overriding objective
1.2 The court must seek to give effect to the overriding objective when it:
(a) exercises any power given to it by the Rules; or
(b) interprets any rule.
Judgment of Etherton J
The judge's judgment on the conspiracy issue
- The respondents put their claim on the basis of tracing and in conspiracy. The judge held that they had a reasonable prospect of success on both those claims but that likewise the appellants had a reasonable prospect of success in their defence to those claims. This court is not concerned with the tracing claim. The judge turned to the conspiracy issue at paragraph 62 of his judgment.
(a) Commercial terms
- The judge rejected Mr Wardell's argument that Mora and Chascona could not be liable in conspiracy, even if they received money from a fraudster knowing it to be the product of a fraud, where the money was received on commercial terms for legitimate purposes. He also rejected the claimants' argument that, to establish liability in conspiracy, no concerted action was necessary. Unlike accessory liability in constructive trust, such action had to be shown.
- The judge also rejected Mr Wardell's submissions that the loans were plainly for a commercial purpose and at commercial rates:-
"84. Again, it seems to me that it is important to bear in mind at all times that the evidence before the Court, on these Applications, is limited. On the face of it, arrangements which permitted interest rates to get out of kilter, so that Castor might be paying more interest than it was receiving from Mora and Chascona, raises a query. Further, from about 1987 Mora and Chascona increasingly failed to make interest payments and Castor permitted such unpaid interest to be capitalised. The fact that Castor was increasingly prepared to permit this over a substantial period, whilst at the same time agreeing to provide fresh funds, also raises a legitimate query as to whether Castor was adopting the same attitude as would have been taken by a wholly independent lender. Mr Wardell emphasised, as I have said, that Banque Paribas was prepared to lend Castor substantial amounts in 1988 and 1990, secured by collateral assignments of the mortgage in favour of Castor, and would only have been prepared to do so if satisfied as to the legitimacy of the business carried on by Mora and Chascona and as to the appropriateness of the loan to value ratio. As Mr Carr observed, however, Banque Paribas must be assumed to have decided to lend to Castor on the terms, and at the times, it did lend, on the basis of its belief as to Castor's financial standing. That belief as to Castor's financial standing will have been based on the fraudulent accounts and financial records of Castor.
85. Mr Wardell also submitted that the evidence shows that the terms of the loans were not negotiated by Mr Gambazzi, on behalf of Mora and Chascona, but rather by a New York attorney, Mr Emanuel Demos, acting on the direct instructions of Mr Cori. On the other hand, Mr Demos' own evidence indicates that Mr Gambazzi played an important role in procuring the loans from Castor to Mora and Chascona.
86. In my judgment, it is impossible to conclude at this stage, in the absence of oral evidence and the opportunity for cross-examination, and in the absence of full disclosure and also the absence of expert evidence as to the appropriateness of the lending from time to time by Castor to Mora and Chascona, that such lending would have been entered into by a fully independent commercial lender
87. The Claimants' skeleton argument refers to other respects in which Castor's loans to Mora and Chascona were not such as would have been agreed by a normal commercial lender. It is there alleged, for example, that, unlike any normal commercial lender with back-to-back lending arrangements, Castor was prepared to lend money to Mora and Chascona for purposes outwith those provided for in the loan arrangements and where no back-to-back facility was available. So, it is said, in December 1989 Castor provided funding for "professional fees and interest" when there was no provision for such funding in its loan arrangements with Mora and Chascona and when no request was made for an equivalent draw down from the back-to-back third party lender, then Banque Paribas. Further, it is also alleged that, unlike any normal commercial lender, Castor was willing to advance funds to Mora and Chascona using facilities made available to other parties arid for other purposes. So, it is alleged, loan facilities made available by Castor to Immenhausen NV and Aliakmon Corporation NV (both of which were also allegedly controlled by Mr Gambazzi and Mr Stolzenberg) were used to advance further funds to Mora and Chascona when they had reached the limit of their agreed borrowing limit with Castor of US$l5million. These points were not expanded upon in the oral submissions to me, and I do not find it necessary to rely upon them to reach my conclusion that, on the available material, it is not appropriate or possible, on these Applications, to reach any firm conclusion as to whether the loans by Castor to Mora and Chascona were such as would have been made by independent commercial lenders."
(ii) Directing mind and will
- Mr Wardell submitted to the judge that the overwhelming weight of the evidence before him was that Mr Gambazzi never had a real management role in relation to the affairs of Mora and Chascona. Therefore, Mr Gambazzi's knowledge of Castor's frauds could not be imputed to Mora and Chascona on the basis of the principle of "directing mind and will" recently explained in El Ajou v Dollar Land Holdings plc  2 All ER 685. On this point, the judge held:
"64. There is, however, before the Court documentation which is capable of supporting a case that Mr Gambazzi's role in Mora and Chascona was not limited simply to acting in a nominee, and purely administrative, capacity. There is evidence, for example, that Mr Gambazzi played an important role in procuring for Mora and Chascona both the initial finance in 1981 and subsequent finance up to, and including, 1992. Mr Wardell realistically recognised that it is impossible for the Court, in the light of all the evidence, and bearing in mind the absence of cross-examination or even full disclosure, to reach the conclusion, at this stage, that the guilty knowledge of Mr Gambazzi, at least, is not to be imputed to Mora and Chascona."
- The judge reviewed the evidence concerning Mr Gambazzi's involvement in the affairs of Mora and Chascona. Mr Wardell submitted to the judge that Mr Gambazzi was simply a nominee of Mr Cori. Mr Carr relied on documents which he submitted showed that Mr Gambazzi had a real role in relation to the management of Mora and Chascona, particularly in relation to its financial arrangements. At paragraph 93 of his judgment, the judge concluded:-
"93. It is clear, in my judgment, that the evidence as to the involvement of Mr Gambazzi in the affairs and management of Mora and Chascona, and, in particular, the procuring of loans by Castor to Mora and Chascona, provides the Claimants with a real prospect of succeeding, at any trial on the merits, in a claim that Mr Gambazzi's knowledge of Castor's frauds on the Claimants should be imputed to Mora and Chascona. The Claimants have a well arguable case that, in relation to those loans, Mr Gambazzi was the directing mind and will of Mora and Chascona, and, accordingly, his knowledge in relation to the dishonest acquisition of those funds and use of them by Castor is to be imputed to Mora and Chascona: El Ajou. Whether or not Mr Cori and Mr Cavazza are wholly innocent and unrelated to any of the frauds of Castor, the imputation of Mr Gambazzi's knowledge of dishonesty to Mora and Chascona, and any consequent liability of those companies for conspiracy, would not be surprising. As Hoffmann LJ observed in El Ajou at p.707:
'If the persons beneficially interested in a company prefer for tax or other reasons to allow that company to be for all legal purposes run by off-shore fiduciaries, they must accept that it may incur liabilities by reason of the act or knowledge of those fiduciaries'."
- In the judge's judgment, the question whether Mora and Chascona were parties to an effective combination to defraud the claimants could only determined at a trial. He referred to evidence indicating that Mr Gambazzi personally benefited from the way in which Castor carried on business. He also found that there was evidence that Mr Gambazzi procured payments to himself when loans were made by Castor. He held that on the applications before him he had to assume that this could be proved at trial. In addition, there was evidence that Mr Gambazzi had received dividends from Castor. The judge's principal conclusion on the conspiracy issue is in paragraph 78 of his judgment:-
"78. Putting together these various elements, and assuming Mr Gambazzi's knowledge is to be imputed to Mora and Chascona, Mora and Chascona knowingly provided a mechanism by which loans and investments were fraudulently procured by Castor from the Claimants and others, on the basis of fraudulently drawn accounts and financial statements, which misrepresented, at least from 1987, that Mora and Chascona were fully performing their loan obligations, including the payment of all interest due, even though they were not. Mora and Chascona knew that those fraudulently obtained funds enabled Castor to continue in existence. Mora and Chascona knew that, indirectly, by keeping Castor in existence, and also directly, the fraudulently obtained funds were used to generate dividends for Mr Gambazzi out of fictitious profits, and to generate personal payments for Mr Gambazzi's benefit when clients introduced by Mr Gambazzi made loans to, or investments in, Castor, and also when loans were made by Castor to, among others, Mora and Chascona. In short, Mora and Chascona were knowingly parties to a scheme, under which loans to them by Castor were an element in the process by which Castor, by fraudulently procuring the drawing up of its financial information and accounts, dishonestly procured funds from, among others, the Claimants, and thereby enabled Mr Gambazzi and others to extract funds for their personal benefit through commissions and dividends. If those are the facts established at trial, then I see no legal impediment to the Claimants establishing liability, on the part of Mora and Chascona, for common law conspiracy, even if the loans paid to Mora and Chascona were for the purpose of the acquisition of the Hotel by Mr Cori, and the renovation and refurbishment of the Hotel, and were on commercial terms."
- For these reasons, the judge held that the claimants had a real prospect of succeeding on their conspiracy claim.
The judge's judgment on the discretion issue
- The judge summarized the jurisprudence on CPR 3.9 as follows:-
"44. The Court of Appeal has laid down guidance as to the approach of the Court when considering an application for relief from sanctions within CPR r.3.9. The Court, in such a case, must consider each of the nine items listed in r.3.9(1) which are relevant to the case, carrying out the necessary balancing exercise methodically, and explaining how the ultimate decision has been reached: Woodhouse v Consignia  EWCA Civ 275,  1 WLR 2558. The Court must bear in mind that, where the effect of the sanction is to preclude a trial on the merits, the effect is to deprive the applicant of access to the Court, a concept which now has a particular resonance under article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms, as scheduled to the Human Rights Act 1998 ("Article 6"): ibid at para. . The Court, in carrying out the balancing exercise, is not, however, limited to the nine items specified in r.3.9. That rule expressly requires the Court to consider all the circumstances. In an appropriate case, for example, the Court can and should consider the merits, as part of the circumstances: Chapple v Emmett (unreptd) (CA) 8th December 1999. The exercise of the discretion of the Court under CPR r.3.9 must be carried out against the background, and in the light of, the overriding objective to deal with cases justly, as set out in CPR r.1.1: ibid.; Arrow Nominees Inc. v Blackledge  2 BCLC 167, esp. at paras.54-55 (Chadwick LJ) and 70 and 72 (Ward LJ)."
- That passage has not been criticized.
- The judge gave careful consideration to each of the specific considerations required to be taken into account under CPR 3.9(1).
The interests of the administration of justice (CPR 3.9(1)(a))
- The judge held that there was a conscious decision on the part of Mora and Chascona, acting by Mr Gambazzi, not to comply with the unless orders made by Rattee J. He found that their decision was originally to comply with those orders but that they later decided not to comply with them in the hope that the jurisdictional challenges which they were making would succeed. Mr Cavazza was content to leave the conduct of the litigation in Mr Gambazzi's hands as he had not declared his interest in Mora and Chascona to the Italian authorities as required by Italian law. He made the requisite disclosure under the terms of a tax amnesty granted in 2001. Mr Cavazzi states in his evidence that there was no outstanding tax due from him and that the disclosure was in effect simply to avoid the expense and inconvenience of an investigation.
- The judge found that the applications for the unless orders and for the judgments which the appellants seek to set aside were duly served on them.
- The judge held that the correct inference was that Mora and Chascona were advised that as a matter of English law compliance with the unless orders would not prejudice their challenge to the jurisdiction. Mr Wardell accepted that that advice was correct.
- The judge held that the fact that there had been a conscious decision not to comply with the "unless" orders was a factor which militated against the grant of relief. He found support in the judgments of Sir Swinton Thomas and Brooke LJ in R C Residuals Ltd v Linton Fuel Oils Ltd  1 WLR 2782. The judge emphasized the importance of orders supplementary to, and in enforcement of, freezing orders. The grant of relief generally sent the wrong message to those who face allegations of fraud.
- The judge in effect rejected the submission that Mr Cavazza's ignorance of the fact that Mora and Chascona had not complied with the unless orders was relevant to the exercise of his discretion. He held:-
"107. It seems to me, however, that a more realistic appraisal, on the evidence, is that Mr Cavazza took the deliberate decision not to become a director of, or closely involved with management of, Mora or Chascona, but rather to have Mr Gambazzi as a director of those companies and to leave the conduct of the Proceedings to Mr Gambazzi, on behalf of Mora and Chascona, in order to keep hidden from the Italian tax authorities Mr Cavazza's acquisition of the shares in Mora and Chascona in breach of Italian exchange control. In those circumstances, it is difficult to see why any significant weight should be attached to Mr Cavazza's personal ignorance of tactical decisions made by Mora and Chascona, through Mr Gambazzi, and the grounds for those decisions. Further, Mr Cavazza is not the same as Mora and Chascona, each of which has an independent legal personality. His personal circumstances are no more relevant than those of any other shareholder in, or creditor of, Mora and Chascona."
Had the applications been made promptly? CPR 3.9(1)(b))
- Before the judge, Mr Wardell submitted that, once judgment was entered against Mora and Chascona, they were in danger of submitting to the jurisdiction if they applied then to set aside the judgments. Accordingly, they could not so apply until the jurisdictional issue was settled. Moreover, Mr Cavazza was not advised that an application could be made to set aside the judgment until August 2001. The judge held that no authority had been cited to him to support Mr Wardell's proposition on submission to the jurisdiction. In any event, Mora and Chascona should have applied promptly to set aside the judgments after the decision of the House of Lords on 12 October 2000. The judge held that Mr Cavazza's ignorance of the conduct of the English litigation was not a good reason for the delay (judgment, paragraph 110).
- The judge held that the issue of delay weighed against the grant of relief. Delay was relevant because of the public interest in the finality of litigation and because of its impact on a fair trial. He held that the date at which a trial could have been held if an application had been made immediately following the decision of the House of Lords on 12 October 2000 was at the end of 2002, as opposed to the end of 2004, if the judgments were set aside by virtue of his order, and that accordingly, the delay was of the order of 1½ to 2 years.
- The judge did not take into account the delay which occurred following the issue on 5 December 2001 of the first of the applications before him because the reasons for the delay were not known to him.
- The judge considered the impact of the delay on a fair trial. He held that there was a real possibility that witnesses' memories would have dimmed during the period of the delay. He rejected Mr Wardell's submission that such a concern was overcome by the fact that there was a large amount of documentation. He held that there was likely to be extensive oral evidence.
- As to documents, the order of Rimer J dated 26 February 1997 had required the appellants to produce to the respondents all documents relating to any transaction between any defendant and Castor. On 11 March 1997, the Swiss Public Prosecutor ("the SPP") had seized a large number of documents held by Mr Gambazzi in Lugano. In May and October 1997, and again in 2000 on deciding against any prosecution, the SPP returned a number of those documents but the respondents were not informed. The respondents submitted to the judge that, because of the very recent disclosure of the documents which had been returned, there was a risk that they had been tampered with. Mr Wardell submitted to the judge that the documents were unlikely to be relevant. In addition, by a letter dated 18 August 1997, Richards Butler, the then solicitors to Mora and Chascona, had made it clear that because of the voluminous nature of the documents they would not be giving full disclosure. Mr Wardell also submitted that there was no evidence of tampering. The appellants' solicitors had moreover obtained from the SPP and delivered to the respondents the two files most likely to be relevant and there was no evidence that they had been interfered with.
- The judge held this issue, namely whether there had been any tampering with documents, went to the issue whether there could still be a fair trial. He dealt with it under CPR 3.9(1)(b) out of convenience. He held that it was a matter of speculation whether any relevant and important documents, as opposed to merely formal documents, which were originally taken by the SPP from Mr Gambazzi were subsequently returned to him. However, it was possible that there were such documents. He also held on the evidence that Mr Gambazzi acted deceitfully in failing to make it clear to the claimants' solicitors in 1997 what had been returned to him by the SPP. He also directed himself that he had to bear in mind that Mora and Chascona accepted that there was a strong basis for the allegation that Mr Gambazzi had been implicated in and a party to the frauds of Castor specified in the claimants' claim.
- The judge concluded as follows:-
"131. In summary, there is a possibility that a fair trial may not be possible because a substantial period of time has elapsed since the "unless" orders and the default judgments during which Mr Gambazzi - a director, or former director of Mora and Chascona who had control of the Proceedings on behalf of those companies, and who appears to have been involved in and a party to substantial frauds on the Claimants - has had the opportunity to retain, secrete or destroy documentary evidence which may have been in his possession or control."
- The respondents also submitted to the judge that it would be necessary for them to constitute a new legal team, increasing the costs of the litigation. These costs would be borne by the claimants if they were successful since the amounts claimed by them far exceeded the amount of the assets of Mora and Chascona. They contended that they had incurred some £10m. in costs in connection with the claims alleged in the statement of claim. Mr Wardell submitted that a new team would have to have been created in any event because of the delay caused by the jurisdictional challenge.
- The judge held that there was at least a risk of an increase in costs due to the need to constitute a new legal team. He also held that, even if he were to make a condition of the grant of relief that Mora and Chascona should pay the costs of enforcing the judgments which the claimants had obtained, that would only serve to diminish the assets which were available for the claimants. He rejected an offer from Mr Cavazza to hold his shares in the appellants to the order of the claimants.
Was the failure to comply intentional? (CPR 3.9(1)(c))
- Mr Wardell submitted to the judge that even though there was intentional non-compliance with the unless orders, the judge should weigh in the balance that on close analysis the October 1998 unless order had proceeded on a false basis, and there was no breach of it, and that the breaches of the October 1999 unless order were of no practical significance and that the order was disproportionate.
- The judge considered the terms of the October 1998 unless order, the material part of which was set out in paragraph 15 of his judgment, (which is quoted in paragraph 3 of this judgment). The judge held that, as the security granted by Mora to CHIO had been assigned to Banque Paribas on 20 May 1992, the date mentioned in the October 1998 unless order, that order had been made on a mistaken basis and that that was a factor to be weighed in the balance in favour of Mora and Chascona.
- The judge rejected the argument that that part of the October 1999 unless order, which required Mora and Chascona to produce an updated statement of assets, was disproportionate. The original statement of assets had been produced at a time when Mora and Chascona were free to deal with their assets in excess of £250,000. After the conspiracy claim was added, that sum was increased to CAN $420m. The judge held:-
"147. In my judgment, the sanction imposed by the order of 4th October 1999 was not disproportionate in relation to the failure of Mora and Chascona to provide statements of their assets. It is a standard feature of freezing orders to require the defendant to give details of the defendant's assets. Such information is critical to the very purpose of the freezing order, which is designed to prevent the wrongful dissipation of assets with a view to frustrating any judgment that might be awarded. Freezing orders are, as I have said, a crucial weapon in the court's armoury against fraud, although, of course, they are not restricted to cases in which allegations of fraud are made.
149. It seems to me that Mr Justice Rattee had no realistic alternative to making the "unless" order on 4th October 1999 (with its debarring sanction) in the face of the persistent defiance of Mora and Chascona to the freezing order of Mr Justice Lightman in relation to the disclosure of assets."
- As to the July 1999 unless order, which provided that Mora and Chascona should open a special account for receipt of the proceeds of the proof in the bankruptcy of Castor, Mr Wardell submitted that there had been no prospect of a dividend on this proof for two reasons. First, for a dividend to be paid, there would have to have been a recovery in litigation brought by the trustee in bankruptcy of Castor against its auditors, but that litigation had been discontinued in 1996. Second, the proof had been lodged on a precautionary basis in the case the trustee in bankruptcy rejected a set-off affected against the borrowings of Mora and Chascona. This had not happened so there were never any monies to be paid into the account which the appellants were ordered to set up. The judge accepted these arguments. He held that the relevant part of this order had also in effect been made on a mistaken basis and that this was a factor to be weighed in favour of Mora and Chascona.
Was there a good explanation for the failure to comply with the unless orders? (CPR 3.9(1)(d))
- The judge held that there was no good explanation providing a justifiable excuse for non-compliance with the unless orders.
Were Mora and Chascona in default with other court orders? (CPR 3.9(1)(e))
- The judge considered whether Mora and Chascona were in breach of other orders but found that (with respect to the disclosure order made by Rimer J) the submissions about these breaches did not assist him and (in relation to other orders) that the orders in question were not relevant.
Was the failure to comply with the "unless" orders caused by Mora and Chascona or their legal representatives? (CPR 3.9(1)(f))
- The judge held that the English solicitors of Mora and Chascona had advised Mora and Chascona to comply with the unless orders, and therefore that the failure to comply was not caused by the actions of the legal representatives of Mora and Chascona.
What would be the likely date of trial if relief was granted? (CPR 3.9(1)(g))
- The judge found that, if relief was granted, the likely trial date would be in the second half of 2004.
What effect did the failure to comply have on the claimants on the one hand and Mora and Chascona on the other hand? (CPR 3.9(1)(h))
- The judge held that, in relation to the claimants, he had already considered this point.
- As to Mora and Chascona, he held that the effect of non-compliance was that judgments were entered against them for very substantial sums, well in excess of their assets. The judge continued:-
"Such judgments were entered without any trial on the merits, and so depriving them of the opportunity of presenting defences which, on the material before me, are arguable. This is plainly a most important factor to be taken into account in the exercise of my discretion under CPR r.3.9." (judgment, paragraph 162).
What effect would the granting of relief have on the claimants on the one hand and Mora and Chascona on the other hand? (CPR 3.9(1)(i))
- The judge held the effect on the relevant parties was apparent from the earlier parts of his judgment.
Weighing up the factors
- The judge then proceeded to weigh up the factors and he held as follows:-
"164. In exercising my discretion, I bear in mind that the overriding objective is to deal with the Proceedings and the Applications justly.
165. I fully recognise the importance to Mora and Chascona of being permitted to defend the serious claims against them, and to resist a huge liability in damages, at a full and proper trial on the merits, in circumstances in which it appears that they have arguable defences. In this regard, I am conscious of the resonance of Article 6. I take full note of the fact that they initially complied with the orders of the English court in 1997 and 1998, and that subsequent non-compliance was the result of the disastrous and misguided tactic of non-compliance adopted by Mr Gambazzi, apparently following discussions with Mr Ceppi. I take into account that the "unless" order of 13th October 1998 proceeded on a mistaken basis, and there was, strictly, no breach of it by Mora. I also take into account that the part of the "unless" order of 4th October 1999 requiring Mora to open a bank account also proceeded on a mistaken basis
166. Nevertheless, taking account of all the circumstances and in particular all the matters specified in CPR r.3.9, I am firmly of the view that the judgments should not be set aside in the present case.
167. I do not propose to rehearse in detail all those matters which I have identified earlier in this judgment as tending to the rejection of the Applications. They include the following important considerations as to the administration of justice, in particular deliberate non-compliance, against the advice of English lawyers, with the freezing order of Mr Justice Lightman of 23rd July 1999 in relation to the provision of statements of assets and the "unless" order of 4th October 1999, and also the public interest in the finality of litigation, in circumstances in which setting aside the judgments would revive complex and expensive litigation, which has been entirely resolved against the defendants; the prejudice or risk of prejudice to as fair and speedy a trial as there could have been if there had been compliance with the "unless" orders or the Applications had been made promptly; the prejudice or risk of prejudice to the Claimants in the preparation and presentation of their case at a trial on the merits caused by delay since the judgments were entered against Mora and Chascona and the delay in making Applications; the additional costs (that is to say, over and above those that would have been incurred had the litigation proceeded continuously to trial in the usual way) that would, in effect, be borne by the Claimants themselves, if the judgments were to be set aside and the Claimants were to succeed in their claims. Finally, bearing in mind what I have said as to the apparently erroneous basis of the "unless" order of 13th October 1998, I also take account that, in view of the much greater liability of Mora under the default judgment of 21st October 1999 (on the conspiracy claim) than under the earlier judgment of 4th February 1999 (on the tracing claim), there is no practical point in setting aside the earlier judgment unless the later judgment is also set aside."
Submissions on this appeal
The conspiracy issue
(a) Appellants' submissions on the conspiracy issue
- Mr Wardell submits that the respondents have no real prospect of success in their conspiracy claim against the appellants.
- Mr Wardell submits that it is unarguable:-
(a) that there was any conspiracy in law;
(b) that the lending by Castor to Mora and Chascona was not on commercial terms, and
(c) that the intention of Mr Gambazzi should be attributed to Mora and Chascona as he did not make any decision to buy the hotel or sign the documentation for the borrowings from Castor.
- Mr Wardell's submissions may be summarised as follows. The judge erred in that he failed to have regard to the need for overt acts in furtherance of the conspiracy. Moreover, the judge erred in holding that there was a triable issue as to whether Mora and Chascona had the necessary knowledge if Mr Gambazzi had knowledge of the fraudulent scheme. In addition, liability in conspiracy cannot be shown as the loans were indisputably for a lawful purpose and on commercial terms.
(i) Overt acts
- As to the need for overt acts, Mr Wardell submits that it is well-established that it is an essential ingredient of the tort that the conspirators perform acts in furtherance of their agreement, see Crofter Hand Woven Harris Tweed Co Ltd v Veitch  AC 435 at 461 per Lord Wright, Marrinan v Vibart  QB 234 at 238 239 per Salmon J, Lonrho Ltd v Shell Petroleum Ltd  AC 173 at 188 per Lord Diplock; and Al-Sabah v Grupo Torras SA  Lloyds Rep PN 117.
- Every conspirator must, on Mr Wardell's submission, be involved in some overt act done in pursuance of the conspiracy, though he need not be involved in all of such acts. As to whether the conspirators who join at a late stage are liable only for loss which the claimant suffers after that stage, see Grupo Torras SA v Al-Sabah, 24 June 1999, unreported, per Mance LJ at pages 199 to 200. In the present case, Mr Wardell submits that the only overt act is the taking out of the loan agreements. He submits that on any fair analysis of the facts surrounding each loan agreement, it cannot be said that they were taken out in pursuance of concerted action against the respondents.
(ii) Commercial terms
- Mr Wardell submits that the borrowing by Mora and Chascona from Castor was for a bona fide commercial purpose. The original borrowing was for the acquisition of the hotel. The further borrowings were for the refurbishment of the hotel. Mr Cori had always had in mind that he would embark on a substantial refurbishment of the hotel. Much more money was spent than originally intended because of difficulties which Mora encountered in the course of refurbishment which caused unexpected costs and expenses.
- Mr Wardell submits that the borrowing was on commercial terms and that, therefore, no claim in conspiracy can lie. He seeks to meet the respondents' case in this regard. The points made by the respondents are set out in greater detail below but in summary the respondents contend that at one time there was a differential between the interest being paid by Castor on its borrowings and the interest being paid by Mora and Chascona on the money which they borrowed from Castor. They also point out that in 1987 Mora and Chascona were permitted to capitalise the interest which they were unable to pay. The respondents also refer to the fact that when Mora and Chascona exceeded their facility with Castor, a facility granted by Castor to another company controlled by Mr Stolzenberg and Mr Gambazzi was diverted to Mora and Chascona. In addition, interest was released when Castor went into liquidation and futhermore Mora and Chascona were permitted to set-off deposits which they had with a fellow subsidiary against monies which they borrowed from another subsidiary of Castor. This set-off was not lawful and gave Mora and Chascona an uncovenanted benefit. The respondents accordingly contend that the lending by Castor to Mora and Chascona was not, in fact, ordinary commercial lending. As to these points, Mr Wardell submits that the interest differential was for a relatively limited period at the outset of the original loan. In any event, it did not make the arrangements uncommercial since the appellants were paying 2% over US prime rate. Mora and Chascona kept down the interest on the borrowings from Castor until 1987. Overall Castor received more from Mora and Chascona than it had to pay out to its own lenders. As to the capitalisation of interest, Mr Wardell submits that there is nothing unusual about capitalising interest on a building refurbishment loan. Indeed, they submit that this is commonplace. As to the diversion of the facility from Immenhausen Corp, Mr Wardell submits that this does not make the loans uncommercial. As to the receipt of commissions by Mr Gambazzi, Mr Wardell submits that, if it is correct Mr Gambazzi received a share of the substantial commitment fees paid by Mora and Chascona, it must follow that he was acting in breach of his fiduciary duties to Mora and Chascona. In those circumstances, Mr Gambazzi's knowledge would not be imputed to Mora and Chascona.
- Mr Wardell further submits that, up to 1988, the hotel was profitable. It ceased to be profitable simply because of the excessive costs of refurbishment. The commercial nature of the borrowings is confirmed by the involvement of an independent third party bank, Banque Paribas, which until 1992 lent Castor 85% of its lending to Mora and Chascona.
- Mr Wardell submits that the judge's conclusion that the knowledge of Mr Gambazzi could be imputed to Mora and Chascona for the purposes of the tracing claim does not mean that the companies had the relevant intention for the purposes of the conspiracy claim. The judge accepted that the knowledge required for conspiracy was the same as that required for the tracing claim. In this he was in error.
(iv) Whose knowledge?
- Mr Wardell submits that the respondents must show that the individual who is to be regarded as the directing mind and will of the company for the purpose of the attribution of his knowledge to the company was indeed its directing will and mind with regard to the act or omission in question. Mr Wardell submits that the relevant decisions by Mora and Chascona were the making of the agreement to borrow money from Castor when the hotel was acquired, and the refurbishment loan. All that Mr Gambazzi did was suggest Castor's name to Mr Cori as a possible source of finance when he bought the hotel, and sign the relevant resolutions on Mr Cori's instructions. Mr Gambazzi did not sign the loan documentation.
- Mr Wardell submits that the respondents do not allege that the acquisition of the hotel by Mr Cori was fraudulent. Moreover, he submits that it was indisputable that Mr Cori took no active part in the management of the hotel. It is not suggested that either Mr Cori or Mr Cavazza were parties to the fraud.
- Mr Wardell submits that Mr Cori on acquiring the hotel appointed Mr Davis as his manager. However, later he brought in Mr Spitzberg to develop his hotel chain in the United States. In fact, the refurbishment plan turned out to be too grand with the result that the refurbishment programme got into difficulties and the borrowings from Castor increased.
- Mr Wardell submits that there is no suggestion by the respondents that it was not Mr Cori who decided to take out the building loans. Mr Wardell submits that Mr Cori's decision cannot be tainted by Mr Gambazzi's knowledge. Mr Gambazzi was simply a nominee. A dishonest nominee implementing the decision of his client cannot render his client liable in conspiracy. The building loan and supplemental loan agreements were signed by Mr Spitzberg and not Mr Gambazzi.
(b) Respondents' submissions on the conspiracy issue
(i) Overt acts
- Mr Carr submits that there is no authority on the question whether every party to a conspiracy must commit an act in furtherance of the conspiracy. He submits that in principle it is not necessary to show that every conspirator committed an act in implementation of the agreement. In this case, he submits that the point is academic because there were overt acts by Mora and Chascona in pursuance of the conspiracy. As the judge held in paragraph 78 of his judgment (set out above), Mora and Chascona acted in pursuance of the conspiracy by keeping Castor in existence and by making payments for the benefit of Mr Gambazzi.
(ii) Commercial terms
- Mr Carr submits that the fact that the lendings were commercial, and that accordingly the purpose of Mora and Chascona in borrowing those monies was for legitimate purposes, does not exclude a further purpose on their part to participate in the conspiracy.
- Mr Carr submits that the loans were not on a commercial basis for the following reasons:-
(a) Mr Stolzenberg and Mr Gambazzi controlled both the lender and the borrowers, and thus the transactions were between related parties;
(b) Mora and Chascona had the benefit of a lower rate of interest than Castor itself paid (this is the interest differential referred to above);
(c) the borrowings were used for purposes not permitted by the facilities, such as for professional fees and interest, and facilities were increased without appropriate documentation;
(d) the facility granted by Castor to Immenhausen Corp, an entity associated with Mr Stolzenberg and Mr Gambazzi, was diverted for the benefit of Mora and Chascona;
(e) Banque Paribas lent money to Castor on the basis of false representations by Castor and accordingly the fact that Banque Paribas was involved does not mean that the lending was on commercial terms;
(f) in the later stages, interest due from Mora and Chascona was capitalized rather than paid on time. This enabled the accounts of Castor to give the impression interest was being received in the normal course of business;
(g) in the accounts of Castor, no provision was raised against the lending to Mora and Chascona even though those companies were unable to pay interest on time;
(h) in the accounts of Castor, the carrying value of the security over the hotel was based on its improved cost. This was an over-valuation because no adequate provision had been made for the costs of improvement;
(i) Mr Gambazzi and Mr Stolzenberg benefited personally to a substantial extent from the commissions;
(j) part of the interest due from Mora and Chascona was released on Castor's bankruptcy and in addition, there was the improper set-off referred to above.
- Mr Carr questions whether it is correct, as Mr Wardell submits, that the capitalisation of interest was common in building arrangements. (There appears to be no evidence on this point). In reality Mora and Chascona were simply vehicles for extracting fees and commissions. The inference is that monies of Mora and Chascona were used to pay fees to Mr Stolzenberg and Mr Gambazzi. In reality Mora and Chascona assisted Castor to survive and to carry on defrauding its own investors. It is not necessary to show that Mr Gambazzi obtained personal benefits from these particular lendings to Mora and Chascona. The benefit could be indirect in the form of dividends paid by Castor and benefits from other borrowers.
- Mr Carr submits that the court cannot conclude that Mr Gambazzi was not the directing mind and will of Mora and Chascona. The position may be compared to that of Mr Ferdman in the El Ajou case. Mr Gambazzi said in evidence, when cross-examined on behalf of the liquidators of Castor that he dealt with the affairs of Mora and Chascona. The fact that Mr Spitzberg signed the relevant loan agreements does not assist the appellants' case because Mr Spitzberg was authorised to sign the agreements by resolutions of the board of Mora and Chascona signed by Mr Gambazzi. Mr Carr submits that the evidence of Mr Demos that Mr Cori took the business decisions in relation to Mora and Chascona and that Mr Gambazzi was just a nominee for Mr Cori had to be rejected.
(iii) Whose knowledge?
- Mr Carr submits that the judge did not confuse knowledge for the purposes of the tracing claim with the intention required for the conspiracy claim. The form of conspiracy relied on was conspiracy to injure the investors of Castor by unlawful means. The unlawful means involved raising money from them for the purposes of Castor by actionable misrepresentation. Mr Carr submits that where alleged the conspiracy is to injure by unlawful means, the necessary intention can readily be inferred from the use of those lawful means.
The discretion issue
- Here I will follow the course taken by the judge and summarise the parties' submissions under each subparagraph of CPR 3.9(1) in turn. It will be apparent that some issues are relevant to more than one subparagraph.
The interests of the administration of justice (CPR 3.9(1)(a))
(a) Appellants' submissions
- Mr Wardell puts two propositions at the forefront of his submissions. First, he submits that in considering whether a fair trial would be endangered, the judge misdirected himself. He should have evaluated whether a fair trial could still be held. He submits that the question whether a fair trial can still be held is a compelling and sometimes critical factor to be taken into account by the court in the exercise of its discretion of CPR 3.9(1): see Arrow Nominees v Blackledge  2 BCLC 167. This was a factor which should have counted in the appellants' favour. The judge wrongly focused on remote possibilities as to whether a fair trial could take place.
- As his second principal submission, Mr Wardell submits that the failure to grant relief in CPR 3.9 where a fair trial is still possible may amount to a breach of a litigant's right of access to the court. With this general proposition, Mr Marshall agrees.
- As to the question whether a fair trial could still take place, Mr Wardell submits:-
i) The judge concentrated on prejudice to the claimants caused by the possible destruction of documents by Mr Gambazzi at a time when there was no question of any breach by Mora and Chascona of any unless order. By relying on this as a relevant factor, the judge placed weight on something which, as he acknowledged, was entirely speculative.
ii) The judge also relied on the impact of the delay on memories. But the trial in this case could only have taken place in 2002 at the earliest and so witnesses could only give evidence by reference to the relevant documents in any event and there is plenty of relevant documentation.
iii) The judge placed weight on alleged difficulties in putting together a new legal team. He should not have had regard to those difficulties. These matters were not raised in evidence. The claimants are well-resourced. They have the same counsel now as they have always had and indeed the same solicitor, Mr Irvine, is in charge of the matter.
- Mr Wardell's third principal submission was that the judge failed to consider the sanction imposed by the October 1998 unless order in the context of the substantial prior compliance by Mora with earlier orders made by the court, and in the context of the fact that the tracing judgment in February 1999 had been entered against Mora pursuant to the October 1998 unless order. This had been improperly entered against it because the October 1998 unless order had been made on a mistaken basis, as the judge found.
- Mr Wardell's fourth principal submission is that in considering individual points under CPR 3.9, the judge was guilty of double counting. He failed to give proper weight to the factors in favour of Mora and Chascona with the result that he unfairly limited their right of access to the court under article 6 of the European Convention on Human Rights ("the Convention"), Article 6 provides (among other matters) that in the determination of his civil rights and obligations everyone is entitled to a fair hearing by a tribunal established by law.
- Mr Wardell makes the following points about the three reasons which led the judge to hold that there was a possibility that there would not be a fair trial in this case. As regards the dimming of the memories of witnesses, Mr Wardell submits that, since the witnesses will in any event have to deal with events from the early 1980s, a postponement of the trial by two years would make little difference. In any event, the risk is irrelevant since the case would largely be tried on documents. As respects the relevance of the documents, Mr Wardell stresses the fact that the judge held that it was speculative whether any documents seized by the SPP had, in fact, been tampered with by Mr Gambazzi. In any event, there were no relevant documents among those documents.
- As respects a fair trial, Mr Wardell points out that the claimants themselves had not sought to locate witnesses, such as officers of Banque Paribas and Ms Laubitz, one of the officers of Castor in New York, until after they knew there would be no trial in New York. In addition, the claimants have over seventy lever-arch files of transcript evidence from the proceedings by the liquidator of Castor against the auditors of Castor and much other documentary evidence.
- Mr Wardell further submits that the judge wrongly attached weight to the possibility of the destruction of documents. His conclusion on the speculative destruction of documents handed back by the SPP failed to address any of the points in favour of Mora and Chascona, which make it unlikely that Mr Gambazzi would tamper with documents. Furthermore, the judge failed to give weight to the fact that the first judgment given against Mora was irregular, as he held. In addition, the judge failed to give sufficient weight to the fact of substantial prior compliance with the freezing order and to the fact that the failure to provide an up to date statement of the assets of Mora and Chascona did not prejudice the claimants at all. Finally, Mr Wardell submits that the decision not to participate in the English proceedings was due to the advice of legal counsel in the United States. He submits that as Mr Ceppi was a specialist it was not unreasonable for Mr Gambazzi to rely on him. Mr Wardell accepts, however, that compliance with the orders of the court would not have prejudiced their challenge to the jurisdiction for the purposes of English law and that Richards Butler would have so advised.
- Mr Wardell explained the position regarding the seizure of documents by the SPP. In 2000 the SPP decided not to proceed with the prosecution of Mr Gambazzi. He held on to most of the documents other than two files which the SPP thought contained no information of interest. These two files were not disclosed to the respondents but the judge could not conclude that there was a serious risk of fair trial as a result of this. Mr Gambazzi dealt with this in evidence.
- By letter dated 18 August 1997, Richards Butler made it clear that they were not going to comply with the very wide terms of the order of Rimer J of 26 February 1997. On its face, the order would have covered every payment of interest. Richards Butler took the view that the order was limited to documents relevant to the tracing claim. The respondents had made no complaint about this approach of Richards Butler until these applications were launched.
- Mr Wardell refers to the releases of documents by the SPP in 1997 and 2000. The only documents which one would expect Mr Gambazzi to have had were formal company documents such as resolutions. He would also have evidence of the beneficial interest in the companies. But there was no likelihood of Mr Gambazzi tampering with these documents. If there had been any "smoking gun", the SPP would have held on to the relevant documents. In fact, everything took place between Mr Conti and Mr Gambazzi in the same office and so there were few documents.
- Mr Wardell points out that the claimants' claim is that Mr Gambazzi lied in his failure to disclose that some documents released by the SPP related to Castor. Mr Wardell submits that the court should take the view that Mr Gambazzi could reasonably conclude that the documents released by the SPP were irrelevant. In any event, Mr Gambazzi had had ample opportunity to tamper with documents when the proceedings were launched and before the unless orders were made.
- The respondents subsequently asked for certain documents which were produced to them. There was no reference to Mora and there were only one or two marginally relevant documents referring to Chascona. Accordingly, there was no evidence of any systematic breach of the judge's order. The documents which had been held by the SPP were peripheral. Mr Wardell also submits that Mr Gambazzi had no motive to tamper with the documents. Documents were always produced at the claimants' request.
- Mr Wardell disputes the respondents' contention that they will have to reconstitute their legal team if the judgments are set aside. He submits that this matter was not dealt with in the respondents' evidence before the judge. In addition, he submits that no change will be required either with respect to counsel or as respects the partner in charge in the firm of solicitors acting for the respondents. The legal team would have to have been reconstituted after the judgment of the House of Lords in any event.
- On this last point, Mr Wardell relies on paragraph 102 of the affidavit of Mr Gambazzi, summarized by the judge in paragraph 38 of his judgment (set out above) in which he states that it was on Mr Ceppi's firm advice that he had ceased to comply with the various orders made by the English court and concentrated exclusively on the jurisdiction challenge. Mr Wardell submits that the judge's finding, that the non-compliance was the response of a conscious decision on the part of Mr Gambazzi, was relevant to the judge's consideration of CPR 3.9(1)(c) rather than CPR 3.9(1)(a) and that for the judge to take it into account under both subparagraphs was double-counting. Under sub-paragraph (a), the judge should have concentrated on the court's responsibility to dispose of actions efficiently and the litigant's right to have a proportionate share of the court's resources. The policy of the court that orders of the court should be complied with falls more naturally within sub-paragraph (c) than sub-paragraph (a).
- Mr Wardell submits that, when weighing up the relative importance of the ability to hold a fair trial and judicial policy respecting obedience to orders of the court, the former is more important. It is required by article 6 of the Convention.
- Mr Wardell submits that there was double-counting by the judge in that he took account of willful disobedience to an order of the court, the desirability of achieving finality in litigation and the need for the efficient disposal of litigation as three separate factors. Mr Wardell submits that these all arise out of willful disobedience to an order of the court and delay and should only have been taken into account once.
(b) Respondents' submissions
- Mr Marshall in reliance on the Arrow Nominees case submits that fairness includes obtaining a fair trial at reasonable cost. Accordingly, the fact that there would be substantial delay and an increase in costs by reason of having to reconstitute the legal team were relevant factors.
- Mr Marshall also relies on Habib Bank v Jaffer, Court of Appeal, 29 March 2000 (unreported). He submits that notwithstanding the more flexible approach to sanctions under the CPR than under the Rules of the Supreme Court, the approach of the court to deliberate and repeated breaches of an order has not changed: see generally per Laws LJ in Arogundade v London Borough of Brent, 15 November 2000 unreported at . Indeed, Mr Marshall submits that it would be very surprising if the position were otherwise since the CPR was intended to tighten up the conduct of litigation. Mr Marshall submits that there is no case where relief from sanctions has been granted, where there was a deliberate breach of an "unless" order. He submits that the desirability of a trial is likely to be a factor of lesser weight where there is deliberate breach of an order.
- Mr Marshall submits:-
i) Obedience to court orders is fundamental to the administration and the authority of the court.
ii) An unless order is in a very special category. It gives a party a last chance to comply. It is not intended to be an idle threat. On the other hand, a deliberate breach of a court order will not be overlooked. He submits that it follows that a review of the risks to a fair trial are of lesser weight. In support of this he draws on observations of Mance LJ in Hansom v Makin  EWCA Civ 1801. He submits that in this case this court held that, on an application for relief from sanctions, the court does not have to be satisfied that there is a substantial risk that it would be impossible to have a fair trial.
- Mr Marshall submits that article 6 of the Convention is qualified by obligations which can legitimately be imposed by rules of court designed to achieve a fair trial.
- Mr Marshall submits that the claimants were prejudiced by Mr Gambazzi's failure to disclose the documents returned to them by the SPP. The trustee in bankruptcy of Castor said that there had been a shredding of Castor's documents and the removal of three tons of documents. Mr Marshall submits that the claimants and the court were misled by Mr Gambazzi, Mora and Chascona as regards the documents released by the SPP. Mr Marshall submits that part of a file specifically requested by the respondents, being one of the files released by the SPP, was tampered with. (Mr Wardell disputes this and proffers an explanation for the state of the file, but this court cannot resolve that dispute on this appeal). Furthermore, on Mr Marshall's submissions, the respondents would in fact have to reconstitute a legal team if the judgments were to be set aside.
- Mr Marshall submits that the judge was entitled to reach the conclusions he did on the question of the possibility of a fair trial. Moreover, as regards the cost of reconstituting the legal team, the court should bear in mind that the claimants had a team of forensic accountants who have now been dispersed.
- As regards delay prior to October 2000, there were other defendants who were pressing for the case to continue. The calculation of delay should not be limited to the period after the decision of the House of Lords. The real reason why Mora and Chascona were not prepared to take any action until then was that Mr Cavazza was not prepared to take an active part for tax reasons.
- Mr Marshall submits that witnesses would play an important part in any trial on this action. Lapse of memory may prejudice a fair trial.
- As regards the possible destruction of documents, the SPP returned a large number of documents to Mr Gambazzi in 2000. These were handed by Mr Gambazzi to Withers. Mr Gambazzi would have had plenty of opportunity to tamper with the documents between the date of their return and the date they were disclosed to the claimants.
Were the applications made promptly? (CPR 3.9(1)(b))
(a) Appellants' submissions
- Mr Wardell submits that the period of delay starts only with the judgment in the House of Lords. The critical period is between that date and the date on which the application to set aside the conspiracy claim was made, and this was less than 1½ to 2 years. He submits that there is a good explanation for the delay in that to have made an application to set aside the judgments which would involve a consideration of the merits, would risk submitting to the jurisdiction for the purposes of enforcement proceedings in New York.
- Mr Wardell submits that the judge failed to put the question of delay in its proper context. At the material time, Mr Cavazza had left the matter to Mr Gambazzi.
(b) Respondents' submissions
- Mr Marshall submits that the appellants' jurisdictional challenge did not prevent them from seeking relief from sanctions. Accordingly, the delay in applying for relief was of the order of two to three years.
Was the failure to comply intentional? (CPR 3.9(1)(c))
(a) Appellants' submissions
- On 13 October 1998 Rattee J made an order requiring the disclosure of documents relating to the security granted over the hotel after 20 May 1992. The judge had found that this order had been made on a mistaken basis. There was moreover no good reason for the order of Lightman J dated 23 July 1999 for a statement of assets.
- Mr Wardell submits that the court should look at the order of Rattee J on 4 October 1999 in the light of subsequent knowledge, in particular in the light of the fact that there had been substantial prior compliance, that there had been a jurisdictional challenge and that the conspiracy claim had been added. Mr Wardell submits that Rattee J should have ordered the application to him to be adjourned until after the jurisdictional challenge by Mora and Chascona had been resolved. He submits that this would not have caused any prejudice to the claimants. Alternatively, Rattee J could have debarred Mora and Chascona conditionally on their purging their contempt.
(b) Respondents' submissions
- Mr Marshall draws attention to the fact that the appellants have not appealed against the judge's finding that the breach of the orders was conscious. He submits that the appellants should be confined to their election not to defend the English proceedings.
- The appellants did not appeal any of the unless orders. At the hearing on 13 October 1998 before Rattee J, it was admitted by counsel for the appellants they were in breach of the then existing orders of the court.
- Mr Marshall does not accept the October 1998 unless order and the October 1999 unless order were made on an incorrect basis. He submits that the judge was wrong in his interpretation of the October 1998 unless order. In any event, the point was not taken at the time that there were no documents within the description contained in that order.
- Mr Marshall submits that the failure to comply with the October 1998 unless order was significant. Mr Marshall does not accept that the documents were irrelevant. The object of requiring disclosure was to ensure that documents were preserved. The order of the court was cynically breached. The breaches were more serious than the respondents at first realised as undisclosed documents were also subsequently discovered in New York.
- As respects the updated statement of assets, this was an important requirement since the financial limit in the freezing order had been increased from £250,000 to Can. $420m. Accordingly, the claimants needed an updated statement of assets to police the injunction. During the time the original freezing order was made and the time when the further freezing order was made, the appellants had had an opportunity to dispose of considerable sums of money. Indeed, the sum of $595,000 had been paid to Mr Gambazzi. Mr Marshall submits that there is still no proper statement of assets. The judge was right to hold that Rattee J had no alternative but to make the October 1999 unless order.
- In summary, Mr Marshall submits that it is wrong to say that the breaches in 1998 and 1999 can be excused. Furthermore, this is a case of deliberate breach of unless orders. No proper excuses have been offered.
Whether there is a good explanation for the failure (CPR 3.9(1)(d)
(a) Appellants' submissions
- Mr Wardell submits that Mora and Chascona were entitled to rely on the advice of Mr Ceppi.
(b) Respondents' submissions
- Mr Marshall submits the excuses offered by the appellants are inadequate. He submits that they have sought to mislead the court and have not been frank. On Mr Marshall's submission, aspects of Mr Gambazzi's evidence are patently untrue. Mora and Chascona initially took steps to comply with court orders without difficulty while reserving their position on jurisdiction. However, this was inconsistent with the advice of Mr Ceppi. Furthermore, on 11 June 1998, Mora made an application to the court to discharge the freezing order made against it on a number of grounds but including the ground that there was no good arguable case against it. This meant that it raised the question of the merits of the respondents' case without any express reservation of its position as to jurisdiction. The application which Mora made in June 1998 was inconsistent with the alleged advice from Mr Ceppi which was that compliance with any order would prejudice the position of Mora and Chascona in disputing enforcement of the judgment in the United States. Accordingly, the explanation which Mora and Chascona gave to the judge was not full and invites scepticism. Mr Marshall invites the court to reject the evidence of Mr Gambazzi which the judge accepted. The appellants had declined to produce Mr Gambazzi for cross-examination before the judge, despite the request of the respondents.
- Mr Marshall submits that the appellants only decided to make the application the subject of this appeal when they found that the New York courts would recognize the judgments given against them by the English courts, and in addition when Mr Cavazza had secured a tax amnesty in Italy.
The extent to which the party in default has complied with other rules, practice directions and court orders and any relevant pre-action protocol (CPR 3.9(1)(e))
- Mr Wardell submits that the judge failed to give weight to the extensive compliance by Mora with the original freezing order. Mr Sabo had sworn three affidavits on behalf of Mora dealing with Mora's assets. Richards Butler, Mora's solicitors, had prepared three bundles of documents.
- Mr Wardell submits that the respondents also failed to persuade the judge that the appellants were in breach of any other relevant order apart from the unless orders.
- Mr Marshall submits that the appellants were in breach of a number of orders, including the freezing order in December 1999. However, some at least of these matters are in issue between the parties.
Whether the failure to comply was caused by the party or its legal representative (CPR 3.9(1)(f))
- Mr Wardell submits that the judge failed to give weight to the fact that Mr Gambazzi had acted on the advice of Mr Ceppi, who was an expert in the field.
- Mr Marshall does not accept that Mr Ceppi's advice was sound as a matter of New York law. There is no evidence from Mora and Chascona that it was.
- Mr Marshall submits that it is clear that Mr Gambazzi was the person responsible for non-compliance by Mora and Chascona with the unless orders.
Whether the trial date or the likely trial date could still be met if relief is granted (CPR 3.9(1)(g))
- Mr Wardell submits that if the judge had granted relief, the likely trial date would have been in 2004.
- Mr Marshall submits that that date now has to be put back to the summer of 2006, at the earliest. The complexity of a trial is increased by the fact that the appellants have said that they will contest the issue whether Mr Gambazzi committed any fraud, if there was a trial.
The effect which the failure to comply had on each party (CPR 3.9(1)(h))
- Mr Wardell submits that the overall effect of the failure to comply on the appellants was to deprive them of the opportunity of a trial of their defence on the merits. The judge should have taken into account that failure to comply with the order of 4 October 1999 had no practical effect on the respondents.
- Mr Wardell submits that the judge failed to consider the impact of failure to comply with the October 1999 unless order. The judge should have acknowledged that the failure to provide the statement of assets had no impact on a fair trial of the claimant's claim. Likewise, the judge should have acknowledged that non-compliance with the order to set up a joint account in the event had no impact whatever on a fair trial of the respondents' claims.
- He submits that the court should exercise its discretion afresh under CPR 3.9 and find that there is every likelihood of a fair trial and that any additional dimming of witnesses' memories in the context of an action of this size is minimal. So far as documents are concerned, the court should bear in mind that on 5 August 1998 Mr Gambazzi complied with the respondents' request to write to the SPP. The SPP replied that he could not produce documents without an order of the English court. The court should also bear in mind that it was unlikely that any important document was returned by the SPP in 1997. Nothing was returned regarding Mora at all. Moreover, documents were immediately produced on request. Furthermore, the respondents were never ready for trial. Like everyone else, they were concentrating on the jurisdictional challenge. If there was a trial now, they would not have to repeat all their prior work on the list of documents.
- Mr Marshall submits that there is a serious risk that a fair trial is now impossible. Moreover, if the enforcement costs thrown away were paid by Mora and Chascona, the assets available to meet the respondents' claims would be diminished. The position of the appellants is less deserving than that of the respondents as they have brought the present position on themselves.
The effect which the granting of relief would have on each party CPR 3.9(1)(i)
- Mr Wardell submits that any prejudice to the respondents in relation to the enforcement costs incurred to date could be dealt with by the imposition of suitable conditions.
- I have summarized the respondents' position on conditions below.
Other circumstances CPR 3.9(1)
- CPR 3.9(1) requires the court to consider all the circumstances and not simply those specifically enumerated. There are several circumstances relevant here which are not caught by the provisions of sub-paragraphs of CPR 3.9(1).
(1) Delay following the issue of the application.
The first application to set aside the judgments were issued in December 2001. Delay after the date of the application is not covered by CPR 3.9(1)(b). Here, there was delay after the issue of the application because the appellants took the view on advice that the application to set aside the judgments should await the outcome of a separate application known as the Chinablue application. The appellants were eventually successful on this application. On the basis that they were successful, they decided to proceed with the present applications. Jacob J ordered that the Chinablue application and the present application should be heard separately, but made no order for the hearing of these applications to be held up. The respondents say that the appellants took seven months to complete their evidence in support of these applications. The appellants say that almost all their evidence was ready after four or five months. They also say that it was not the failure on their side to complete the evidence which held the application up. The claimants asked for security for costs by an application notice dated 27 February 2002 which was not resolved until 13 May 2002.
i) A relevant consideration is the conditions which the appellants are prepared to offer if the judgments against them are set aside. The appellants offer to pay all the costs of enforcing the judgments, estimated at $6.5m. They contend that some $2m. of this has already, in fact, been paid. The payment of this sum, however, would be out of the assets of Mora and Chascona and therefore would deplete the assets available to meet any judgment at trial. Mr Wardell informs the court that Mora and Chascona would comply with any reasonable conditions imposed by the court.
ii) Mr Wardell submits that the receivership of the hotel does not create any difficulty about setting aside the order. Nonetheless, as Mr Marshall points out, the order for the appointment of a receiver would have no basis if the judgments were set aside. It was on that basis that the receiver was appointed. However, the only issue left in the receivership is who is entitled to the proceeds of sale. These disputes can continue to be heard even if the judgments are set aside, although it might be necessary to have a receiver to defend the claims being made to those funds. Mr Wardell accepts that the appellants may have to provide an indemnity to the outgoing receiver (who, it seems to me, would be entitled to require the indemnity to be backed by bank guarantee) and that the outstanding costs orders (said to total £1.248 million) would have to be paid as a condition of the judgment being set aside. Again, however, there is no provision for any of these matters to be met out of third party funds. Mr Wardell informs the court that the costs of Mora and Chascona in making these applications and bringing this appeal have been paid for by Mr Cavazza.
(iii) Mr Marshall submits that, in addition to the appellants paying the costs of the enforcement proceedings which would be wasted if the judgments were set aside, paying all outstanding costs orders (said to give rise to a liability of £10m.), and providing an indemnity against liabilities incurred as a result of the appointment of the receiver, backed up by a bank guarantee, Mora and Chascona should make an interim payment on account of the costs outstanding. He also submits that Mora and Chascona should comply with the outstanding disclosure orders, that trial should be expedited, that there should be security for the costs of the trial provided by Mora and Chascona to the claimants.
(1) Conclusions on the conspiracy issue
- The act of conspiracy consists not in the making of an agreement, but in the taking of concerted acts ("overt acts") pursuant to an agreement (see per Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No.2)  AC 173 at 188). The agreement must either be one to cause damage to the claimant (or a person in his position) by unlawful means (the sort of conspiracy alleged in this case) or be one to injure the claimant (or a person in his position). In the latter case, but not the former, the claimant must show that the predominant intention of the defendant was to injure him (or a person in his position) (see Lonrho v Shell, above).
(i) Overt acts
- The appellants contend that a vital ingredient of the tort of conspiracy is the doing of an overt act by each party alleged to be a conspirator. However, this is an open question of law on the authorities: the passages to which we have been taken in Kuwait Oil Tanker Co Ltd v Al Bader  2 All ER (Comm) 271, 312-313, 317; Credit Lyonnais Bank Netherland NV v Export Credit Guarantee Department  1 Lloyds Law Rep 19; the Grupo Torras case,  Lloyds Rep PN 117 (on appeal from Mance LJ) at  and the earlier authorities mentioned above, do not decide this issue. It is not one which we need to decide because, as the judge held, there are ample allegations that overt acts were committed by Mora and Chascona. They include the borrowing of money from Castor and the payment of commissions on those loans.
(ii) Commercial terms
- The appellants rely on the fact that the terms of the lending were commercial. The judge was not satisfied that this was so. In my judgment it is clear from the parties' respective contentions, which I have summarized above, that the question whether or not the loans were on commercial terms cannot be determined by the court at an interim stage in the proceedings. Moreover, the respondents have filed evidence (thirty-third witness statement of Mr Pugh dated 11 October 1992) showing that by a memorandum dated 20 May 1991, Mr Stolzenberg was advised by Miss Laubitz, one of the senior officers of Castor, that the increase of £6m. being sought in the loan, then £15m., to Mora and Chascona "cannot be justified on a regular loan basis in the current basis". Yet some $700,000 was advanced after that date and before Castor's insolvency (including monies earmarked for Immenhausen Corp).
- Even if the terms were commercial, that fact would not in my judgment prevent Mora and Chascona from being parties to the fraud. If the object of the fraud was to extract monies from Castor to enable Castor to lend money to related companies which would in turn be used to provide benefits to Mr Stolzenberg and Mr Gambazzi, the fact that the borrowing was on commercial terms would be no defence . In any event, it is possible for the conspirators to have had the principal purpose of defrauding the claimants and a subsidiary purpose of borrowing on commercial terms.
(iii) Attribution of Mr Gambazzi's knowledge to Mora and Chascona
- There is no doubt that there is an arguable case that there was a conspiracy between Castor, Mr Stolzenberg, Mr Gambazzi and others to extract money from the respondents by unlawful means, that is by misrepresentation. The issue is whether the respondents have a real prospect of success in arguing that Mora and Chascona are parties to that combination.
- Mora and Chascona are not companies incorporated in England and Wales, but there is no evidence of foreign law. Accordingly, it must be assumed that the relevant foreign law is the same as English law.
- The principles of law pertaining to the attribution of the knowledge of a director to the company of which he is a director are not in doubt. It is convenient to take the summary of the relevant rules from Buckley on the Companies Acts (15 ed) (last updated 2004) Volume 3, divider P:-
"Knowledge of director or secretary not necessarily notice to company
The knowledge of a director is not necessarily the knowledge of the company.1 A director is simply a person appointed to act as one of a board, with power to bind the company when acting as one of a board, but not otherwise. Because the same person is a common director of two companies, the one company does not necessarily have notice of everything that is within the knowledge of the common director, which knowledge he has acquired as director of the other company, any more than it can be supposed to have knowledge of everything the director knows about his own private affairs.2
1 Peruvian Rlys Co v Thames and Mersey Marine Insurance Co, Re Peruvian Rlys Co (1867) 2 Ch App 617; Re Carew's Estate Act (No 2) (1862) 31 Beav 39; Ebbw Vale Co's Claim (1869) LR 8 Eq 14. Even less is the knowledge of mere employees to be imputed to the company: see John Henshall (Quarries) Ltd v Harvey  1 All ER 725.
2 Re Marseilles Extension Rly Co, ex p Crιdit Foncier and Mobilier of England (1871) 7 Ch App 161 at 168, 170; Re David Payne & Co, Young v David Payne & Co  2 Ch 608; Houghton & Co v Nothard, Lowe and Wills  AC 1; and see, as to a common manager, Hardy v Metropolitan Land and Finance Co (1871) LR 12 Eq 386; on appeal (1872) 7 Ch App 427; and as to common officers, Re Hampshire Land Co  2 Ch 743; R v Northwich Savings Bank (1839) 9 Ad & El 729 at 730.
So if the same man be secretary or director of two companies, knowledge as secretary or director of the one company is not necessarily notice to the other company. In order to make it notice it must be shown that it was his duty to the first company to communicate the fact to the second1 and that he was authorised by (or owed a duty to) the second company to receive it.2 However, even if, because he has no duty to the first company to communicate the fact to the second, his knowledge is not on this basis notice to the second, it will be otherwise if, in relation to the transaction concerned, his mind and will are the directing mind and will of the second company.3 For this purpose different persons may for different purposes satisfy the requirements of being the company's directing mind and will.3 Moreover, the knowledge of someone who cannot properly be regarded as the company's directing mind and will may nevertheless be attributed to the company if such attribution is necessary to achieve the purpose of some substantive law which is intended to apply to companies.4
1 Re Fenwick, Stobart & Co, Deep Sea Fishery Co's Claim  1 Ch 507. Belmont Finance Corpn v Williams Furniture Ltd (No 2)  1 All ER 393 at 404.
2 El Ajou v Dollar Land Holdings plc  BCLC 735,  BCC 698; revsd on appeal  1 BCLC 464,  BCC 143.
3 El Ajou v Dollar Land Holdings plc  1 BCLC 464,  BCC 143, on appeal.
4 Meridian Global Funds Management Asia Ltd v Securities Commission  2 BCLC 116,  BCC 942. Compare Arab Bank plc v Zurich Insurance Co  CLC 1351, where the appropriate rule of attribution was determined by reference to the terms of the insurance policy with which the case was concerned.
Once the knowledge of a director has been treated as being the knowledge of the company in relation to a given transaction, the company continues to be affected with that knowledge for any subsequent stages of the same transaction.1
1 El Ajou v Dollar Land Holdings plc  1 BCLC 464,  BCC 143, on appeal.
A company is not affected with notice through the knowledge of its sole director, when the imputation of notice would have necessarily involved that the director had disclosed to the company his own fraud1, and this will also be the case where all the directors share the guilty knowledge.2 Where the company is the victim, it will not be fixed with the knowledge of a director who is defrauding it.3 But it will be otherwise if the fraud is not a fraud on the company but a fraud on a third party, and the company is being used as the vehicle for the fraud.4
1 Re European Bank, ex p Oriental Commercial Bank (1870) 5 Ch App 358; and see Re Carew's Estate Act (No 2) (1862) 31 Beav 39; and Bank of Ireland v Cogry Spinning Co  1 IR 219; so in the case of a common board, where the directors were the very persons who had failed in their duty of disclosure: Houghton & Co v Nothard, Lowe and Wills  AC 1; Lagunas Nitrate Co v Lagunas Syndicate  2 Ch 392 at 431; and see that case passim as to the effect of two companies having a common board. See also Gluckstein v Barnes  AC 240 at 247; Belmont Finance Corpn v Williams Furniture Ltd  Ch 250 at 271,  1 All ER 118; A-G's Reference (No 2 of 1982)  QB 624,  2 All ER 216; Berg Sons & Co Ltd v Adams  BCC 661 at 677, 678.
2 Re Fitzroy Bessemer Steel Co (1884) 50 LT 144; but see the observation of Baggallay LJ, in the Court of Appeal (1885) 33 WR 312 when the court was told that the appeal had been settled.
3 R v Rozeik  BCC 271 at 275, CA; Arab Bank v Zurich Insurance Co  CLC 1351.
4 Re Slobodinsky  2 KB 517 at 523, 5256; Royal Brunei Airlines Sdn Bhd v Tan Kok Ming  BCC 899 at 909G.
- Of those rules, the rule on which the respondents principally rely is that Mr Gambazzi was the directing mind and will of Mora and Chascona. This can be seen from the allegations in the statement of claim on which the respondents rely to establish that the knowledge of Mr Gambazzi, which are as follows:-
"181B. In relation to Mora and Chascona the Plaintiffs will rely upon inter alia, the following facts and matters:
(1) the fact that Gambazzi was at all material times the managing director and de facto controller of Mora and Chascona and a shareholder of Mora;
(2) the fact that Stolzenberg was involved in the management of Mora and/or Chascona; in 1989 he was appointed by Mora as a consultant in connection with the Gorham hotel. He also managed the Gorham Hotel and its dealings with the Castor Group.
(3) the fact that Gambazzi and/or Stolzenberg caused the Castor Group to make substantial loans to Mora and Chascona for the purpose of financing the purchase and subsequently the renovation of the Gorham Hotel, 136-138 West 55th Street, New York ("the Gorham Hotel") (at all material times the Gorham Hotel was owned by Chascona and leased to Mora at a nominal rent); by the time of Castor's collapse a total of approximately £21.35 million was owed by Mora and/or Chascona to Castor;
(4) the fact that Gambazzi and/or Stolzenberg caused and procured the Castor Group to make payments to Mora and/or Chascona, including payments of funds which had been procured from the Plaintiffs by means of fraudulent misrepresentations as set out in paragraphs 225 to 226 below and Schedule 5 hereto;
(5) the fact that in or about December 1987 Gambazzi and/or Stolzenberg agreed that the loans by Castor to Mora/Chascona should be partially refinanced by a loan from Banque Parisbas on terms which left Castor unsecured as to the balance of approximately $2.25 million which was not refinanced;
(6) the fact that, as Gambazzi and/or Stolzenberg well knew and intended, interest on the loans to Mora/Chascona was capitalized and such capitalization of interest was not revealed in the audited and unaudited consolidated financial statements of Castor."
- For the purposes of this appeal, no reliance is placed on (a) the allegations in paragraph 181B which relate to Mr Stolzenberg, as the respondents do not submit on this application that it is sufficient if his knowledge is attributed to Mora and Chascona or (b) the allegation in paragraph 181B(3) that Mr Gambazzi's caused Castor to lend money to Mora and Chascona to acquire the Gorham Hotel, as again the respondents do not submit on this application that they can show a real prospect of success on that point either.
- The respondents' primary submission is that Mr Gambazzi was the controlling mind and will of Mora and Chascona. The principle of directing mind and will is a powerful one, where it applies, for three reasons. First, it has the effect of treating the relevant individual's knowledge as that of the company for the purpose of the relevant transaction (including subsequent stages of the same transaction). Second, it is clear that it is not necessary for the relevant individual to be responsible for all or even substantially all of the decision-making by the company. Third, a person may be the directing mind and will of a company even though he acts only on the instructions of the beneficial owners of the shares.
- Accordingly, in El Ajou v Dollar Land Holdings plc, this court held that in the context of a claim for knowing receipt of property in breach of trust, the principle applied where the participation of the particular individual was limited to the decision to enter the transaction sought to be impugned.
- The individual in question, Mr Ferdman, was a non-executive chairman whose responsibility was in general for formal paperwork rather than business decisions. He had, however, been responsible for the crucial decisions which caused his company to receive the trust monies. It did not matter that in making these decisions he had acted as a nominee on the instructions of the controlling shareholders. The relevant decisions were taken without a board resolution of the company. (Indeed, in the judge's view, the board of directors would not have been the controlling mind of the company since the directors were simply nominees of the controlling shareholders). In those circumstances, this court held that the knowledge of Mr Ferdman was to be attributed to the company. The position was to be determined pragmatically; it did not depend on the terms of the company's articles of association or Mr Ferdman's service contract. Likewise, the fact that Mr Ferdman had not been responsible for taking the decision as to how the company would invest the monies once they had been received did not matter. It is, therefore, possible that, in different activities of a company, different persons can be its controlling mind and will.
- Mora and Chascona contend that the relevant directing mind and will was Mr Cori. He was never a de jure director, but he may have been a de facto director. However, the critical issue is whether there is a real prospect of establishing that Mr Gambazzi was the directing mind and will of Mora and Chascona for the purpose of its dealings with Castor. On the authorities, the respondents do not have to show more than that. It is common ground on this application that Mr Gambazzi was himself one of the conspirators. If his knowledge can be attributed to Mora and Chascona, they become conspirators too.
- Mr Gambazzi was a director of Chascona at all material times and is, therefore, clearly a candidate to be the directing mind and will. As far as Mora is concerned, the directors at the relevant time were Mr Conti and a Patricia Delco, a partner of Mr Gambazzi in his law firm. Mr Gambazzi became a director in 1995 but the appellants accept that he held himself out as a managing director from 1986. The respondents do not contend that Mr Gambazzi was the directing mind and will of Mora at the time when the original loan was made on the acquisition of the hotel in 1982. However, they contend that by the time the building loan was taken out (1986) and when it was extended (1987), he was the directing mind and will of both companies. The building loan was taken out at or about the same time as Mr Gambazzi started to act as managing director of Mora. In addition, there is in evidence an undated board resolution of Mora, signed by Mr Gambazzi, authorizing the increase in the building loan to $15.5m., empowering Mr Spitzberg to sign the relevant documentation and approving a consultancy fee to Mr Stolzenberg. He also (on one interpretation) gave evidence in Canada that he dealt with the affairs of Mora at the relevant time. Furthermore, Mr Gambazzi benefited personally out of the borrowings by Castor in the form of dividends from Castor from various commissions paid by the companies to whom Castor lent (including Mora and Chascona) and from the residual 25% share which he held in Mora and Chascona (which he may still retain).
- Mora and Chascona paid commissions for the benefit of Mr Stolzenberg and Mr Gambazzi. It is, therefore, arguable that far from being conspirators they were, indeed, victims of the conspiracy between Mr Gambazzi, Mr Stolzenberg and others. However, that is not necessarily so. There is sufficient material supporting the inference that Mr Gambazzi took the decisions about borrowing from Castor to indicate that there is a real prospect that, after a full investigation of all the relevant material at trial, the respondents would be able to show that he was their directing mind and will. If that is so, it became the purpose of Mora and Chascona also to defraud the investors in Castor by misrepresentations which would (among other things) enable them to get substantial borrowings. Mora and Chascona would have helped to create the impression that Castor was an attractive investment vehicle, for instance by borrowing from Castor to pay the interest they had defaulted in paying. For all these reasons, the issue of whether Mora and Chascona were conspirators or victims of a conspiracy could not, in my judgment, have been determined at the interlocutory stage. The respondents' case could not have been struck out as disclosing no real prospect of success. They had a sufficient prospect of success for that purpose.
- Mr Wardell's submission is that the judge confused the knowledge required for the tracing claim and the intention required for the conspiracy claim.
- The knowledge required for the tracing claim is conveniently set out in Buckley on the Companies Acts:-
Where liability is imposed for involvement in a director's misapplication of company funds, the court is concerned with a situation where the defendant has culpably facilitated a breach of someone else's obligations: it is wrongdoing as an accessory to a director's breach of duty, not receipt of company property (or its traceable product), that founds liability1. The ingredients for personal liability as such an accessory are: (a) a misapplication of funds in breach of the director's fiduciary duty2; and (b) dishonest facilitation of the breach by the defendant3. Dishonesty is an objective standard4, not a matter of personal whim; but when setting the standard of honesty, the characteristics of the particular defendant in question are relevant5. Essentially, it appears that what amounts to dishonest conduct is objective, but a person is not dishonest unless he is subjectively aware of that, or, at the very least, is reckless about it6. An accessory found liable as discussed in this paragraph must compensate the company for loss caused by reason of his dishonest involvement in a director's breach of duty, and he might, in the alternative, be accountable for profits made through that involvement7. It is possible for the recipient of misapplied company property (or its traceable proceeds) to become liable to the company by reason of his dishonest involvement in a director's misapplication of company funds, as well as subject to the restitutionary liabilities noted above consequent on his receipt. However, there should be no double recovery of loss by the company.
1 Agip (Africa) Ltd v Jackson  Ch 265 at 292293 (Ch D); Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378. It is because the liability is based on the breach of some other person's duties that the liability is said to be 'secondary' or 'accessory': see eg Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378 at 382.
2 The breach need not be 'fraudulent' or 'dishonest': Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378. Dicta in Brown v Bennett  2 BCLC 97,  BCC 91, Ch D that there could be no dishonest assistance of a breach of fiduciary duty, as opposed to a breach of trust, were disapproved by the Court of Appeal in the same case,  1 BCLC 649,  BCC 525. See also Natural Extracts Pty Ltd v Stoller (1997) 24 ACSR 110 and Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 396397, per Gibbs J.
3 Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378. The involvement might, but need not, take the form of receiving trust property in a fashion (eg as agent) which does not of itself found liability: Agip (Africa) Ltd v Jackson  Ch 265; affd  Ch 547, CA.
4 That is, set by the court.
5 See Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378 at 389, and Nolan  CLJ 505.
6 See now Twinsectra Ltd v Yardley  UKHL 12,  2 AC 164 and Dubai Aluminium Co Ltd v Salam  UKHL 48,  1 All ER 97.
7 Consider Aveling Barford Ltd v Perion Ltd  BCLC 626, 5 BCC 677, and see Lord Nicholls of Birkenhead, 'Knowing Receipt: The Need for a New Landmark', ch 15 in Cornish, Nolan, O'Sullivan & Virgo (eds) Restitution, Past, Present and Future (Hart Publishing 1998)."
- By contrast, for the purposes of the tort of unlawful means conspiracy, the conspirators must have a common intention to injure the claimant. As already stated, it is not necessary that this should be their predominant intention (Lonhro v Shell). However, as Nourse LJ held in the Kuwait Oil case:-
in the case of most conspiracies to injure by tortious means it will be clear from the acts of the conspirators that they must have intended to injure the claimant. In the case of a conspiracy to defraud by wholescale misappropriation it would be absurd to argue that the conspirators did not intend just that."
- In these circumstances, Mr Wardell's criticism of the judge's approach to the intention of the alleged conspirators in this case must be rejected.
(2) Conclusions on the discretion issue
(a) Legal principles relevant to CPR 3.9
- We have not been shown any authority in which there has been an application under CPR 3.9 to set aside a judgment entered in default of compliance with an order of the court. However, in Woodhouse v Consignia plc  1 WLR 2558, Brooke LJ gave the following guidance as to the manner in which a court should approach the task of applying CPR 3.9 in the context of deciding whether to lift an automatic stay:-
"32. This rule is a good example of the way in which the draftsman of the Civil Procedure Rules has sometimes endeavoured to set out in a codified form the various matters which the court may have to take into account when deciding how to exercise its discretion in a context with which it will be all too familiar. One of the great demerits of the former procedural regimes was that simple rules got barnacled with case-law. Under the new regime the draftsman has sought to dispense with the need for litigants to be familiar with judge-made case-law by drawing into one place the most common of the considerations a court must take into account when deciding whether a litigant should be granted relief from a sanction imposed on him.
33. The circumstances in which a court may be asked to make a decision of this kind are infinitely varied. This is why the rule instructs the court to consider all the circumstances of the particular case, including the nine listed items. On the other hand, the rule would lose much of its praiseworthy purpose of encouraging structured decision-making if courts did not consciously go through the exercise of considering all the items on the list when determining how, on balance, it should exercise its discretion. Provided it does so, and in this way ensures that the risk of omitting any material consideration is minimised, it is most unlikely that an appeal court will interfere with its decision. If it fails to do so, an appeal court may not be able to detect that it has taken all material matters into account, and it may be obliged to exercise its discretion afresh for this reason."
- In Flaxmann-Binns v Lincolnshire County Council  EWCA 424, also involving an application to lift an automatic stay, this court (Lord Phillips MR and Clarke and Jacob LJJ) endorsed that guidance adding only the following dictum of Mance LJ in Hansom and others v Makin and Wright  EWCA Civ 1801 at paragraph 20:-
at the end of the day, the right approach is to stand back and assess the significance and weight of all relevant circumstances overall, rather than to engage in some form of 'head-counting' of circumstances."
- The dictum of Mance LJ makes it clear that although the court must go through each of the matters in the list in CPR 3.9 as a separate and distinct exercise the result is not ascertained by adding up the "score" of either side on each point. If that were the right method, there would be a danger of double-counting. The object of CPR 3.9 is to ensure that all the right questions are asked. That produces "structured decision-making". In addition to going through the subparagraph of CPR 3.9, the court must ask itself if there are any other circumstances that need to be taken into account. However, having done all this, the court is then also required to stand back and form a judgment to the aggregate of the relevant circumstances that have been identified in going through the list to see whether it is in accordance with the overriding objective in the CPR to lift the sanction. This overall "look see" is simply the overriding objective in action.
(b) Legal principles generally relevant to a review of the exercise of the judge's discretion
- The power to grant relief against sanctions is a judicial discretion. Accordingly, to succeed on appeal, the appellants must show either that the judge exercising the discretion erred in principle or that he left out of account a material consideration or that he took into account an irrelevant consideration or that he was plainly wrong in his overall conclusion.
- However, as Lord Atkin said in Evans v Bartlam  AC 473, 480-1:-
while the appellate court in the exercise of its appellate power is no doubt entirely justified in saying that normally it will not interfere with the exercise of the judge's discretion except on grounds of law, yet if it sees that on other grounds the decision will result in injustice being done it has both the power and duty to remedy it."
- In the same case, Lord Wright said (at page 486 to 487):-
"It is clear that the Court of Appeal should not interfere with the discretion of a judge acting within his jurisdiction unless the Court is clearly satisfied that he was wrong. But the Court is not entitled simply to say that if the judge had jurisdiction and had all the facts before him, the Court of Appeal cannot review his order unless he is shown to have applied a wrong principle. The Court must if necessary examine anew the relevant facts and circumstances in order to exercise a discretion by way of review which may reverse or vary the order. Otherwise in interlocutory matters the judge might be regarded as independent of supervision. Yet an interlocutory order of the judge may often be of decisive importance on the final issue of the case, and one which requires a careful examination by the Court of Appeal."
- In Birkett v James  AC 298, Lord Diplock with whom the majority of the House agreed, described the function of an appellate court reviewing the exercise by a judge of his discretion to dismiss a judgment for want of prosecution as follows:-
"It is only very exceptionally that an appeal upon an interlocutory order is allowed to come before this House. These are matters best left to the decision of the masters and, on appeal, the judges of the High Court whose daily experience and concern is with the trial of civil actions. They are decisions which involve balancing against one another a variety of relevant considerations upon which opinions of individual judges may reasonably differ as to their relative weight in a particular case. That is why they are said to involve the exercise by the judge of his "discretion". That, and the consequent delay and expense which appeals in interlocutory matters would involve, is also why no appeal to the Court of Appeal from his decision is available except with the judge's leave or that of the Court of Appeal. Where leave is granted, an appellate court ought not to substitute its own "discretion" for that of the judge merely because its members would themselves have regarded the balance as tipped against the way in which he decided that matter. They should regard their function as primarily a reviewing function and should reverse his decision only in cases either (1) where they are satisfied that the judge has erred in principle by giving weight to something which he ought not to have taken into account or by failing to give weight to something which he ought to take into account; or (2) as in Ward v James  1 QB 273, in order to promote consistency in the exercise of their discretion by the judges as a whole where there appear, in closely comparable circumstances, to be two conflicting schools of judicial opinion as to the relative weight to be given to particular considerations."
- The precise scope for the review by an appellate court of an exercise of a discretion is, in my judgment, likely to vary according to the type of the discretion in question. Since the adoption of the CPR, the courts have stressed that appellate tribunals will not lightly interfere with case management decisions by trial judges or judges at a pre-trial stage. While the present case may be described as procedural, and trial judges have to be given a margin of discretion in procedural matters, nonetheless this court must be satisfied that there was no error of law, that all the relevant factors (and no others) were taken into account and that, looking at the matter overall, the judge's conclusion is not plainly wrong. Within those limits, it is for the judge to decide how much weight to give to each relevant circumstance.
- Article 6 of the Convention requires attention to be addressed to a matter which has always been implicit in cases of this kind, namely that the effect of the court's refusal to grant relief is that the losing party will be deprived of a trial of his defence on the merits. Clearly, as the judge recognized, that is an important factor. But three points must be borne in mind. First, it is open to a party to consent to judgment being given against him without a trial on the merits. In the absence of some special feature (not present here) there is no public policy consideration which forces an unwilling party to undergo a trial if he, being competent to do so, decides against this course. Second, this is not an appeal against the judgments entered against the appellants. The appellants cannot say that those orders were wrongly made. Third, the state can impose restrictions on the right of access to court provided that the restrictions serve a legitimate aim, are proportionate and do not destroy the very essence of the right. Here, the legitimate aim in imposing a sanction is to secure compliance with court orders, which in the instant case were made to ensure the effectiveness of freezing orders. The imposition of a sanction is proportionate if it is reasonably necessary for achieving that aim. The essence of the right of access to court is not destroyed because the litigant has the opportunity to seek relief against the sanctions. The refusal of that relief is Convention-compliant if the same tests are satisfied. The legitimate aim remains the same. Proportionality will be satisfied if the overriding objective is met. The essence of the right will not be destroyed even if refused, since the appellants always had the chance to comply with the court orders and to help progress the case to trial.
- It was common ground before the judge that the appellants had to show that they have a real prospect of succeeding on their defence and that the judge had to apply CPR 3.9. As to the former, there is no challenge on appeal to the judge's conclusion that the appellants have a reasonable prospect of success in their defence. In the latter exercise, it is common ground that the guidance in Woodhouse v Consignia plc and the dictum of Mance LJ in Hansom v Makin are applicable to the present case.
(b) Did the judge attach too great weight to the appellants' non-compliance with the orders?
- In my judgment, the judge correctly found that to set aside the orders in the face of the deliberate non-compliance by the appellants would not be in the interests of justice.
- Mr Wardell argues that the judge was wrong to apply the observations of Sir Swinton Thomas and Brooke LJ in R C Residuals Ltd v Linton Fuel Oils, where relief was sought from the sanction imposed by an unless order which debarred the applicant from relying on an expert's report served late. Sir Swinton Thomas said:-
"This court cannot stress too strongly the importance of strict compliance with court orders, particularly unless orders. If relief is granted lightly an entirely wrong message goes out to litigants and their advisers. Further, as Brooke LJ pointed out in the course of argument, judges of first instance are entitled to complain if, having made orders envisaged by the rules and which they are encouraged to make by this court, this court then lightly sets them aside."
See also per Kay LJ at  and per Brooke LJ at .
- Mr Wardell submits that this court should adopt the more measured approach of Chadwick LJ (with whom Roch LJ agreed) in Arrow Nominees Inc v Blackledge, where there was an application to strike out the proceedings because the other party had produced forged documents on disclosure:-
"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.
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
- Ward LJ (with whom Roch LJ also agreed) said:
"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 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 final position of the parties."
- For my part, I do not read Sir Swinton Thomas as laying down any absolute rule that the court can never grant relief against a sanction imposed as a result of non-compliance with an unless order. The approach of the court in R C Residuals was bound to be different from that in Arrow Nominees Inc v Blackledge as there was no unless order in the latter case. Indeed, there was not surprisingly no order at all against the production of forged documents. The fact that an unless order has been made inevitably means that there is an additional factor to consider. Had there been a relevant order in Arrow Nominees that too would have been a factor. It is only a factor to be weighed in the balance. Moreover, compliance with orders of the court is not a question of judicial amour propre. It goes to the essence of the rule of law that parties subject to the court's jurisdiction as Mora and Chascona were held to be should comply with the court's orders. The gravity of the matter of non-compliance is plainly increased where the non-compliance results from a conscious decision, as in this case. It follows, as Ward LJ said in Hytec Ltd v Coventry City Council  1 WLR 1666 at 1674 to 1675, that "if a party intentionally or deliberately
flouts the order, he can expect no mercy." He has to persuade the court that in all the circumstances the injustice to him outweighs the interests of the administration of justice and the injury to the other party.
- I now turn to the judge's treatment of the question of non-compliance with orders of the court. The fact that it was the first factor he examined, and that his examination extends to eleven paragraphs, is some indication of the importance that these matters had for him in the circumstances of this case. He made a clear and unchallengeable finding that there was a conscious decision by the appellants not to comply with the orders of the court. No attempt has been made to challenge that finding on this appeal. The respondents accepted that the decision not to comply was deliberate but did not accept the explanation which Mr Gambazzi gave, and which the judge in due course accepted. The respondents sought to cross-examine Mr Gambazzi, but the appellants did not produce Mr Gambazzi. No doubt the explanation was that Mr Gambazzi was abroad. In those circumstances, in my judgment, the judge could justifiably have expressed scepticism about Mr Gambazzi's explanation for this deliberate decision of non-compliance. He attributes this to the advice of Mr Ceppi and the challenge to the English courts' jurisdiction. But this may not be the entire story as the respondents point out. The challenge to the English courts' jurisdiction had not prevented the appellants from applying to set aside the injunctions granted against them on their merits in June 1998: there is no explanation from the appellants for that. Moreover, what seems more likely was that by December 2001 the appellants had failed to resist enforcement of the judgment of this court in New York. That was a far more significant matter since all their assets are in New York. That is not spelt out or explained in Mr Gambazzi's affidavit. If it had been, it would have been obvious that the appellants had really attempted to run with the hare and hunt with the hounds. Once resistance to the New York enforcement had failed, the appellants' only remaining option was to make these applications. While that change of course is totally understandable, it evidences a desire to gain advantage by not complying with orders of the court. As a matter of general principle, it is difficult to see why in such a situation the respondents should be put to a tangible risk of prejudice and very substantial expense to enable the appellants to run that strategy. Thus, there was in my judgment ample material to support the weight which the judge gave to the fact that the appellants made a conscious decision not to comply with orders of the court.
(c) Did the judge misdirect himself as regards the prospects for a fair trial?
- The judge found that there was a possibility that there would not be a fair trial if the judgment was set aside. Mr Wardell submits that he ought to have concluded that there was every likelihood of a fair trial. However, to reach this conclusion the judge would have to have concluded that the possibility that there would not be a fair trial was a minimal one or insignificant. In my judgment, if this had been his view, he would have said so. However, he did not say so. Accordingly, it would not have been consistent for the judge himself to have said that there was every likelihood of a fair trial.
- As I read the judge's judgment, the judge fairly accepted that it was possible that there could be a fair trial. But, for example, the opening sentence of paragraph 165 of the judge's judgment demonstrates that he considered that it was not impossible that there could be a fair trial. If he had reached any different view, that would have been a short answer to the case. In addition, the judge accepted, as a starting point, that Mora and Chascona had a right to a fair trial pursuant to article 6: see, for example, paragraphs 162 and 165 of his judgment (quoted above).
- The fact that a fair trial is possible does not mean that that relief from sanctions should follows. In Hansom v Makin (which was decided after the judge's judgment in this case), Mance LJ (with whom Dame Elizabeth Butler-Sloss P and Keene LJ agreed) held:-
"27. No doubt there will be many cases where the possibility or otherwise of a fair trial is highly important to the exercise of discretion under CPR 3.9. In Audergon the claimant's 'substantial delays
[had] placed such a difficulty in the way of a fair trial of the issues' that justice required that the stay should not be lifted (paragraphs 111 and 113). But it does not follow that, where a fair trial is still possible, relief will necessarily be granted. CPR 3.9 deals generally with relief from sanctions imposed for failure to comply with a rule, practice direction or court order. It could not be the case that, whenever such a sanction had been imposed, and however flagrant or persistent the failure, the defaulting party could have it set aside by showing that a fair trial was still possible
- I turn to consider how the judge dealt with the question of a fair trial. He did so under CPR 3.9(1)(a) and (b). In my judgment, he went through the submissions made to him with meticulous care. It has not been demonstrated that he was plainly wrong or that he took into account any irrelevant matter. It is not necessary to go through all the points made to the judge. On the dimming of witnesses' memories, the judge was entitled to say that, from his limited experience of the case, it was likely that there would be extensive oral evidence and cross-examination (judgment, paragraph 120). This conclusion accords with common sense and common experience. Fraudsters do not generally leave a convenient audit trail for their activities. Moreover, there are critical issues as to the knowledge and intentions of Mr Gambazzi. (He fiercely denies any wrongdoing). There is also a substantial issue, as has been seen, as to whether Mr Gambazzi was the directing mind and will of Mora and Chascona. It is likely that, in many important respects, the relevant events are not documented as many communications passed orally between Mr Gambazzi and Mr Conti or Miss Delco (a fellow director of Chascona and a partner in Mr Gambazzi's law firm). The judge was entitled to say that there was a risk that the elapse in time between the date when the trial ought to have been heard (2002) and the time when it would be heard if the applications were successful (2004) would lead to some impairment in the memories of witnesses. There was no reason for witnesses to be proofed once judgment was entered against Mora and Chascona on the conspiracy claim, and it is difficult to criticize the respondents for not having located and proofed all relevant witnesses before a defence was even filed by Mora and Chascona.
- On the question of the destruction of documents, the judge effectively found in favour of the appellants by ruling that it was 'speculative' whether any relevant documents had been lost. I do not consider that the appellants could have hoped for better. The judge was clearly not in a position to form a concluded view on the point. The judge's conclusion - that it was possible that there could not be a fair trial - was the only one open to him. What weight he gave that factor relative to any other factor was then a question for him within the limits of review on appeal which I have described above.
- As to the need to reconstitute a new legal team, it seems to me that the judge was entitled to take this factor into account in a case of this complexity. As I read the judge's judgment, he was concerned about the effect of the additional costs on the assets of Mora and Chascona which were already inadequate to meet the respondents' claims.
(d) Did the judge" double-count"?
- Another way of saying that the judge attached too much significance to the interests of the administration of justice is Mr Wardell's submission that the judge 'double-counted', i.e. that he identified several different factors to be weighed in the balance against the appellants when they were in reality simply facets of the same factor, the interests of administration of justice, and that he took the appellants' willful disobedience to orders of the court under CPR 3.9(1)(a) and (c). But the interests of the administration of justice, being plural, by their nature represent a combination of different elements. The judge regarded the interests of the administration of justice as a factor to which great weight should be given. By identifying several elements of those interests, he provided an explanation for why he attached such importance to this factor. There is no evidence in the judge's conclusions that he was performing a mathematical 'head-count' of factors so as to give the interests of the administration of justice or wilful disobedience special 'scores'.
(e) Calculating delay
- As regards delay, in my judgment, the respondents are correct in submitting that the period of time is to be calculated from the last date for compliance with the unless orders (a point raised in their respondents' notice). The question whether the appellants were justified in issuing their application later is a question which goes to CPR 3.9(1)(d) and not to the question whether the application was made promptly for the purposes of CPR 3.9(1)(c). It follows that the period of delay was therefore of the order of 2½ to 3 years not 1½ to 2 years as the judge held.
(f) Was the judge correct in the view which he took of the unless orders?
(i) The October 1998 unless order
The judge took the view that no documents existed of the kind described in this order. In my judgment, this was a misreading of the order. The order did not on its true construction require, as the judge thought, that the security which Mora had created over the hotel should have continued after 20 May 1992 in the form it was originally created. The order applied to any security which Mora had created which continued in existence after that date, i.e. had not been discharged or satisfied, whether or not the person originally entitled to the security had ceased to be so entitled. However, this point was decided in favour of the appellants and accordingly it could not lead to the court setting aside the order of the judge.
(ii) The July 1999 unless order
It was argued before the judge that there was no good reason to require Mona and Chascona to produce a statement of assets. The judge was in effect asked to review the order of Lightman J. In my judgment, as the judge was not sitting on an appeal from that order, he should not have been asked to approach the matter in that way. It was relevant to ask what effect non-compliance with it had on the respondents, but it was inappropriate to question whether the order should ever have been made.
(iii) The October 1999 unless order
Likewise, it was inappropriate to enquire whether it was proportionate for Rattee J to make an unless order to enforce compliance with the orders of Lightman J dated 23 July 1999. If the appellants had wished to argue that, they had the opportunity to appeal against the order of Rattee J but failed to take it.
(g) Miscellaneous matters
- In my judgment, there is no substantial evidence of non-compliance with other orders. As to Mr Wardell's submission that Rattee J should have made some lesser order on 4 October 1999, I conclude that it is not open to the appellants to take this point. Mora and Chascona neither appeared before Rattee J on that date nor sought to appeal his order. As the judge found, Rattee J had no alternative but to make the order he did. Moreover, the failure to comply was caused by the acts of Mora and Chascona, not their legal representatives. In addition, the judge was entitled to hold that the likely date for trial was put back by some two years by the result of the appellants' actions. On the question of delay following the issue of the applications, this was not a matter explored before the judge, and is of no moment on this appeal unless the court has to re-exercise the discretion of the judge because it has set it aside. Suffice it to say that it seems to me that the appellants would have to accept that a delay of some four months at least was caused by their late filing of evidence. Given that the application to the court was for the exercise of a discretion, the appellants ought to have been able to provide a satisfactory explanation for this delay.
(h) The overriding objective (and the overall "look-see")
- We have not in the event been asked to consider the strength of the case against the appellants as part of the CPR 3.9(1) exercise. However, there has certainly weighed in my mind, as it did with the judge, the formidable consequences of the appellants' non-compliance with the unless orders. This case never got beyond a statement of the respondents' case in conspiracy, which, as can be seen from the extract set out above, not particularly detailed. I also bear in mind that the conspiracy claim is based on a very arguable question, namely whether Mr Gambazzi's knowledge of the conspiracy is to be imputed to Mora and Chascona. The damages assessed for that conspiracy far exceed the appellants' assets and the amount lent to them by Castor. However, that said, there is nothing to distinguish this situation from the situation where, for example, a person makes a negligent statement and the costs which flow are very considerable. The fact that the damages are so considerable cannot lead the court to set aside a judgment if it would not otherwise do so.
- However, as against the size of the judgment, there are other equally remarkable facts and statistics. I will identify some of them. First, the appellants' decision not to comply with orders of the court was a conscious decision, as explained above. They brought this state of affairs on their own heads. Second, the elapse of time between the making of the first of the unless orders (October 1998) and the issue of the first of the applications (December 2001) before the judge was three years and two months. Third, the appellants have taken a wholly unreal position on conditions, as can be seen above. For example, they accept that the respondents must be paid the enforcement costs of $6.5m. to date but make no proposal for their payment otherwise than out of the assets which are required to meet the respondents' claim. Fourth, even now the appellants have not taken steps to put their house in order or file the updated statement of assets that they were ordered to file as long ago as July 1999, or (it seems) fully to comply with disclosure orders. Fifth, they have put in evidence explaining their non-compliance which for the reasons given above is unsatisfactory and have failed to tender the deponent for cross-examination or to give us any explanation why he was not tendered.
- There is no suggestion that the judge did not apply the overriding objective. As I see it, there was ample material for his conclusion with respect to its application.
(i) The weighing exercise
- Accordingly, the remaining question is whether there is any error in the way he weighted up the various relevant factors. As I have already said, it was for the judge to decide what weight to give to the relevant circumstances. It was for him to decide what weight to give to each circumstance relative to all the others. He must also look at the position overall. In my judgment, he performed these steps in paragraphs 164 to 167 of his judgment.
- His conclusion is really expressed in the short paragraph 166 where he says that, taking account of all the circumstances and in particular the matter specified in CPR 3.9, he is firmly of the view that judgment should not be set aside. In paragraph 167, the judge enumerates a number of particular matters which he regarded as of greater importance relative to the matters mentioned in paragraph 165 of his judgment. He has not articulated his reasons, but it is clear that the major factors for him were the conscious decision not to obey orders or the court and the possible prejudice to a fair trial. It follows from the points I have already made in my conclusions on this issue that I do not consider that the judge can be said to have been plainly wrong in his assessment of the weight to be given of these various factors.
- For all these reasons, I would refuse permission to appeal on the conspiracy issue, dismiss the appeal on the discretion issue, and uphold the respondents' notice in part.
Sir William Aldous :
- I agree.
Lord Justice Ward :
- I also agree.
Order: Application for permission to appeal on the conspiracy issue refused; appeal on discretion issue dismissed; Respondent's notice upheld in part; further orders as per agreed draft minute of order; application for permission to appeal to the House of Lords refused.
(Order does not form part of the approved judgment)