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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Simms v Conlon & Anor [2006] EWCA Civ 1749 (20 December 2006) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2006/1749.html Cite as: [2008] 1 WLR 484, [2007] 3 All ER 802, [2006] EWCA Civ 1749 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT CHANCERY DIVISION
Mr Justice Lawrence Collins
HC.04.C.0049 (TLC.113/05)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE JONATHAN PARKER
and
LORD JUSTICE MOORE-BICK
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PAUL FRANCIS SIMMS |
Appellant/ Defendant |
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- and - |
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MICHAEL AMBROSE CONLON ROGER HARRIS |
Respondents/ Claimants |
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WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
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Mr Engelman (instructed by Bower Cotton Partnership) for the Respondent
____________________
Crown Copyright ©
Lord Justice Jonathan Parker :
INTRODUCTION
"The most serious finding of the Tribunal was, of course, that the appellant was dishonest. We agree with the Tribunal that the pattern of behaviour by the appellant establishes that he was not merely foolish and credulous. He was prepared on occasion dishonestly to mislead in relation to the purpose of various transactions and indeed in failing to disclose his receipt of $50,000 in one instance. Accordingly we agree that his activities were, unfortunately, properly described as dishonest. That being the case, the order that the appellant be struck off the Roll is inevitable."
"2.3 The First Claimant [Mr Conlon] will rely upon the findings of the [SDT] … and upon such further reasons as that Tribunal may produce hereafter."
"… were entered into as a result of fraud or negligent misrepresentations by the Defendant as pleaded above which entitles the Claimants to damages for fraudulent, negligent or statutory misrepresentation".
"… the Defendant was aware that he had been involved in deceitful and fraudulent activity which rendered him unfit to practise as a solicitor".
"There be a declaration that the Defendant fraudulently failed to disclose his dishonesty to the First Claimant and falsely represented that he was honest thereby inducing the First Claimant to enter into the [May 2000] Partnership Agreement and the [September 2000] Partnership Agreement and that the Second Claimant was induced into the [September 2000] Partnership Agreement by the Defendant's fraudulent failure to disclose his dishonesty and that the Claimants are entitled to damages to be assessed, such assessment to be stayed pending the Defendant's appeal."
THE FACTUAL BACKGROUND
1998
1999
"We have decided that the amount of time involved in acting for parties for schemes of the type described in the report is disproportionate to the reward and that we will not accept instructions in respect of schemes involving the use of our client account for the proposed investment monies."
"Further, if we continue to provide legal or banking services we may be guilty of a Class A offence under the Money Laundering Regulations. This is providing assistance to a money launderer to obtain, conceal, retain or invest funds knowing or suspecting that the funds are the proceeds of serious criminal conduct.
If we do not report our suspicion that this may be a money laundering exercise we also may be guilty of a Class C offence. No defence of legal privilege is available."
"We have held funds of [Elite] for over 18 months and they are people of repute dealing with substantial transactions."
2000
"I know a good deal about Elite and its principals, but I have asked for bank references for our files which will be forthcoming during this week. They are regarded as first class customers of [a number of well-respected banks]."
"All this has led us to the conclusion that the working relationship between your firm and this Bank has been seriously damaged. You may not share that view, but I think you will agree that when one party to a commercial relationship is undeniably of that opinion then it is best that the relationship terminate. …. Regretfully, therefore, I must ask your firm to make alternative banking arrangements."
"As a solicitor of over 30 years' standing, a chairman of two publicly quoted companies and a director of many UK and overseas companies, I am pleased to say that I am held in high regard by my clients who know that I offer the excellent service and advice and would never let them down."
2002
"In the event that PFS [Mr Simms] shall not return as a full Equity Partner to the Partnership by 30 April 2003 he shall leave in place security to the Bank for the sum of £120,000 which security will be reduced by £2,000 per month over [sic] 60 monthly payments by the Partnership paying to the Bank the monthly capital instalments amounts due under the loan arrangements with the Bank and to the extent that the security of PFS is by April 2003 in excess of £120,000 MAC [Mr Conlon] and RH [Mr Harris] will put forward proposals for the release of the security provided by PFS in respect of the Partnership such release to be effective no later than 30 September 2003."
2003
2004
"38. After hearing counsel for the defendants, and Mr Simms, I concluded that it was not appropriate to reopen the argument. The first point to note is that the purpose of the defendants' application for an adjournment in January was to put the decision and findings of the Tribunal before the court. They agreed with Mr Simms to withdraw that application and not to seek an adjournment. The application to reopen the argument so as to introduce the Tribunal's decision is in substance, although not in form, to do the very thing which they agreed not to do. Their agreement not to seek an adjournment was an agreement to proceed to trial on the evidence which was then before the court and on the basis of the case then presented to the court. Secondly, introduction of the Tribunal's decision does not conclude the case in the defendants' favour. There is not a clear statement of their case based on fraud or clean hands. The connection between the dishonesty found by the Tribunal and the making of the Agreement would need to be defined and established, as would other issues such as reliance. It cannot be supposed that this could be done without a trial of the issues, at which Mr Simms would be entitled to cross examine the defendants on their evidence against him. In effect, all the steps would be needed which would have been taken if the defendants had raised a case along these lines in September last year.
39. Thirdly, the findings of the Solicitors Disciplinary Tribunal are not admissible in these proceedings as evidence of the facts found by the Tribunal: Secretary of State for Trade and Industry v Bairstow [2003] 3 WLR 841, applying Hollington v F.Hewthorn & Co Ltd [1943] 2 All ER 35. Mr Engelman suggested that it would be an abuse of process for Mr Simms to seek to relitigate the issues decided by the Tribunal in this action. This can be an area of great difficulty, and to my mind it is far from certain that this argument would succeed in the present case. Relying on paragraph 38(d)(i) of the Vice-Chancellor's judgment in Bairstow, Mr Engelman submitted that it would be manifestly unfair to expect the defendants in these proceedings to relitigate issues of fact decided by the Tribunal. He submitted that the decision in Bairstow could be distinguished on the basis that the second proceedings in that case were of a public law character. I do not think that the Bairstow case can be distinguished so easily. Rather than creating a special regime for proceedings of a public law character, it applied to directors disqualification proceedings a principle which was already well-established in private litigation. The other suggested ground of distinction was that the Solicitors Disciplinary Tribunal is required by statute to make its findings on the basis of proof beyond a reasonable doubt, rather than on a balance of probabilities. I do not consider that this is a basis for distinguishing the decision, and the principles underlying it. A number of the authorities in this area have concerned a challenge in civil proceedings to an earlier criminal conviction, and in a number of cases it has been held not to be an abuse of process, and indeed it was only by statute that a previous criminal conviction was made admissible as evidence of the underlying facts."
"In the Elite transactions the Tribunal find that:
(a) the transactions were bogus and lacked an honest commercial purpose;
(b) Mr Simms knew or as a prudent and honest solicitor would have known they were bogus;
(c) Mr Simms acted for Elite and Mr Koffler as well as Investors and Intermediaries and was in clear breach of conduct rules relating to conflicts of interest;
(d) Mr Simms recommended and promoted Elite and the transactions they claimed to be able to effect and by reason of (a), (b) and (c) made misrepresentations which were deceitful."
- that Mr Simms had been actively involved in making, promoting or facilitating bogus transactions which lacked an honest commercial purpose (including the transactions involving Elite considered in Chapter 2);
- that he recommended that clients used purported businesses without having regard to what was in the client's best interests;
- that he acted for two or more clients in circumstances of conflict; and
- that he made deceitful misrepresentations to third parties.
2005
THE TRIAL BEFORE LAWRENCE COLLINS J
"I decided that that would not be an appropriate course without looking at the findings and the decision in detail, and considering the case as a whole."
"Mr Engelman, I am not going to interfere with the course of your cross-examination; I just want to see where we are going with this sort of material. I understand your point, of course, that the [SDT] findings may be evidence in themselves. If they are not, you have still got your Charlton and Elite allegations. But if you take a point like this, either you are right on whether the findings can be relied on or you are not. If you are right, then you do not need to cross-examine Mr Simms on paragraphs like 369. If you are wrong, we could only get into this if the document were here and Mr Simms had had notice of an allegation in relation to it and you were making an allegation. Or have I got the wrong end of the stick?" (Emphasis supplied)
"My submission will be … that there are two routes … through to the SDT's findings. The first and most obvious is that I am entitled to cross-examine on credit because the issues before my Lord turn upon the credit of individuals. So I am entitled to put to the witness this is what the SDT found in relation, for example, to this transaction. This is why they found it and so on and so forth. … . The second route … is that the ruling in Hollington v. Hewthorn [[1943] KB 587] is subject to the later ruling of the House of Lords in Hunter v. Chief Constable of W. Midlands Police [[1982] AC 529, a case of abuse of process]."
"This is your basic point. But again in order to get home on that point, you do not have to do into great detail on things like paragraph 369 do you?"
"But if, for example, he [Mr Simms] says: 'No, it [the SDT finding] is wrong; there was no such document.' Or 'in any event, it was not bogus', how can I possibly …. It is not before me."
"This does show the difficulty of this type of questioning, Mr Engelman. If the whole file were in court it would be possible for this court to understand what Mr Simms was doing and what the context of all this was." (Emphasis supplied)
THE JUDGMENT OF LAWRENCE COLLINS J
"105. The SDT made, by reference to 10 groups of transactions, various findings of dishonesty, the promotion of transactions which were improbable in their likely returns and which were likely to be fraudulent, illegal or otherwise improper, substantial conflict of interest by either acting for or being in association with most if not all of the companies and individuals involved in these transactions, the recommendation of companies to innocent third parties who were of no substance such as Elite, the improper encouragement of innocent third parties in transactions which he knew or an honest solicitor would have known were bogus and the active making of misrepresentations as to the truth.
106. So that the nature of the findings may be understood I shall set out fully the reasoning in relation to Elite and Hackar, two clients in respect of whom the investigation had its origin."
"157. The claimants say that the falsity of these assurances is proved by the findings of the SDT and the Divisional Court. Thus in relation to the Elite transactions which the SDT found were part of a fraudulent scheme, and in which Mr Simms participated, many of them took place after the April 1999 letter … Even if the claimants' contention that the SDT/Divisional Court findings are admissible is wrong, the case is made out."
"170. Mr Simms' assertion that Elite was to be considered substantial because of its alleged connection with Mr Koffler was not accepted by the SDT or the Divisional Court. No evidence of this assertion was produced by Mr Simms and his assertion should not be accepted unless corroborated by evidence because of his lack of credit."
"176. The dishonesty lies in the fact that Mr Simms must have known that Charlton was a creature of Eastcastle [a Panamanian company, and the ultimate holding company of Charlton] and had no independent existence and was liable to have the plug pulled on it at any time."
"193. The most fundamental obligation which the law imposes on a partner is the duty to display complete good faith towards his co-partners in all partnership dealings and transactions: Lindley and Banks, Partnership, 18th ed. 2002, para. 16-01.
194. The relationship between partners is of a fiduciary nature (ibid. para. 16-03). "If fiduciary relation means anything I cannot conceive a stronger case of fiduciary relation than that which exists between partners": Helmore v Smith (1886) 35 Ch D 436, 444.
195. It follows that when co-partners are negotiating between each other in relation to partnership assets, each partner must put the others in possession of all material facts with reference to the partnership assets, and not to conceal what he alone knows: Maddeford v Austwick (1826) 1 Sim. 92; Law v Law [1905] 1 Ch 140, 157.
196. It has been said that the duty of good faith exists not only as between persons who are actually in partnership together, but also as between persons who are negotiating their entry into partnership: Lindley and Banks, para. 16-06: Spencer Bower, Actionable Non-disclosure (2nd ed Turner and Sutton, 1990), paras. 10.01 to 10.04; Chitty on Contracts, para. 6.157. It is true that the cases cited by Lindley and Banks and by Chitty do not bear out the proposition (the only one remotely near the point is Fawcett v Whitehouse (1829) 1 Russ & M 132, but that was not a case of a prospective partnership), and that Cartwright, Misrepresentation (2002), para. 11.10, on which Mr Simms relied, says that it is not clear whether the duty of disclosure arises during the negotiations for partnership.
197. But there is authority, including very strong persuasive authority, for the existence of such a duty. In Andrewes v Garstin (1861) 10 C.B. (N.S.) 444 the plaintiff sued for breach of an agreement to enter into a partnership with the defendant, who pleaded that previously the plaintiff had carried on trade in partnership with another person, and that the defendant made the agreement on the faith and under the belief that the plaintiff had up to that time acted with honesty towards his previous partner. But after the making of the agreement the defendant discovered that the plaintiff had before the time of making the agreement acted with fraud and dishonesty towards his partner, and did not disclose it. It was held that the plea afforded no answer to the action. Erle CJ said that the arguments urged by the defendant would have been addressed with more plausibility if the plea had been a little more specific. There was no suggestion of fraud on the defendant and as to the rest it was much too vague and uncertain. Contrary to Mr Simms' argument, there is no suggestion in this decision that there was no duty to disclose material matters.
198. In Bell v Lever Brothers Ltd [1932] AC 161, at 227 (cited by Cartwright on this point, but not by Lindley and Banks), Lord Atkin assumed that an intending partner had a duty of disclosure. He said:
"Fraudulent concealment has been negatived by the jury; this claim is based upon the contention that Bell owed a duty to Levers to disclose his misconduct, and that in default of disclosure the contract was voidable. Ordinarily the failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract. The principle of caveat emptor applies outside contracts of sale. There are certain contracts expressed by the law to be contracts of the utmost good faith, where material facts must be disclosed; if not, the contract is voidable. Apart from special fiduciary relationships, contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made, so of an intending partner."
199. I am satisfied on principle and authority that prospective partners have a duty to disclose material matters.
200. Mr Simms is right to say that the duty of disclosure depends upon the relative degree of knowledge as to the partnership affairs possessed by the parties, and there is a duty of disclosure on the partner who has "exclusive or superior knowledge of the affairs of the partnership" (Spencer Bower, para. 10.02). But this is only saying that there is no duty to disclose what is already known.
201. There is, in variety of contexts, a tendency towards the view that mere non-disclosure does not give a right to damages. According to the view of Spencer Bower, Actionable Non-Disclosure, and its present editors, the right of any party complaining who elects to avoid a contract in the negotiation for which material facts have been withheld is to have the contract judicially annulled or treated as a nullity and that party is not entitled to recover damages: para. 14.02. So also, according to Lindley and Banks, para. 16-08, a breach of the duty of good faith will give rise to a claim for damages in an appropriate case, but such a claim may not be sustainable where the breach involves a mere non-disclosure, citing Uphoff v International Energy Trading, The Times, February 4, 1989 (C.A.), where it was held that even if shareholders owed each other a duty of good faith as parties to a joint venture, it was not arguable that there was a duty of disclosure in that case, but even if there had been, it would not sound in damages. Mere non-disclosure does not found an action for deceit: Clerk and Lindsell, Torts, 19th ed. 2006, para. 18-08. Nor does it give rise to liability for damages under the Misrepresentation Act 1967: Chitty, Contracts (29th ed. 2004), para. 6-072.
202. But is clear that where there is a duty to disclose, and the failure to disclose is fraudulent, there will be an action in deceit and damages will be an available remedy. In such cases "the non-disclosure assumes the character of fraudulent concealment, or amounts to fraudulent misrepresentation, or is otherwise founded on, or characterized and accompanied by, fraud": Spencer-Bower, para. 14.02.
203. But it has been said that in practice the line between misrepresentation and non-disclosure is often imperceptible: Pan Atlantic Insurance Co. Ltd. v Pine Top Insurance Co. Ltd. [1995] 1 AC 501, 549, per Lord Mustill. The deliberate withholding of information which the person knows or believes to be material, if done dishonestly or recklessly, may amount to a fraudulent misrepresentation: HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd's Rep 61, at para. 21, per Lord Bingham. It cannot be easy to conceal material facts in the course of negotiating, without falsifying something which has been expressly or impliedly stated: ibid at para. 71, per Lord Hoffmann, who also said, at para. 72, citing Brownlie v Campbell (1880) 5 App Cas. 925, 950, that where there is a duty or an obligation to speak, and the person holds his tongue and does not speak, and does not say the thing he was bound to say, if that was done with the intention of inducing the other party to act upon the belief that the reason why he did not speak was because he had nothing to say, that was fraud also.
204. The Amended Particulars of Claim also plead a contractual duty, namely the implied duty of good faith which is breached by such non-disclosure. Mr Engelman cited the decision in Trimble v Goldberg [1906] AC 494, at 500 (P.C.) for the proposition that a breach of contract arising as a result of breach of an implied term of good faith sounds in damages. But the Privy Council in that passage was speaking of breach of an express term not to purchase property for the partner's own account. Nevertheless there is no reason to doubt that breach of an implied term would give rise to a right to damages. But it is clear from the context that what is pleaded in the present case is a breach of the implied obligations in the May 2000 and September 2000 Partnership Agreements. As regards Mr Conlon, there was an express contractual duty under the 1997 partnership agreement (clause 18.1.1) to act in good faith, but no breach of that agreement is pleaded or relied upon."
"205. Mr Simms argues that the findings in the SDT proceedings are inadmissible in principle. The defence put forward by Mr Conlon and Mr Harris in the first action included a claim that Mr Simms did not come to the court with clean hands because of the matters with which he was charged by the Law Society by way of disciplinary offences. The decision of David Richards J that the findings in the SDT were not admissible is res judicata in this action.
206. Mr Simms says that since David Richards J's judgment of March 22, 2004, Mr Conlon and Mr Harris have known that the findings of the SDT were not admissible and that if they wished to raise any specific allegations which were in any way founded on or connected with the SDT proceedings that they would need to make express allegations in this action so that the matter could be dealt with by way of defence, disclosure and witness statements on the details. It has been open to the claimants for over 18 months to plead specific allegations, require disclosure, call evidence and cross-examine on the relevant documents.
207. Accordingly, he says, neither the decision nor any of its findings or conclusions will be admissible at any trial: Three Rivers DC v Bank of England (No.3) [2001] UKHL 16, [2003] 2 AC 1; Secretary of State for Trade and Industry v Bairstow [2004] Ch 1. Hunter v Chief Constable of the West Midlands Police [1982] AC 529 is of no relevance to the present action. There has been no initiation of any proceedings by Mr Simms. This action is not intended to and does not have as its purpose the mounting of a collateral attack on the SDT or Administrative Court decisions.
208. Mr Simms argues that the cross-examination of him on the findings of the SDT has not proved anything other than Mr Simms has an explanation for the matters raised in cross-examination and does not accept the findings of the SDT. The cross-examination on the findings of the SDT (which were inadmissible), without any recourse to any documentation relevant to the issues upon which cross-examination occurred, does not prove anything.
209. The claimants say that they are not precluded by the judgment of David Richards J from relying on the findings of the SDT and the Divisional Court.
210. They argue that the order of a professional disciplinary committee is admissible as prima facie evidence of the fact that Mr Simms was struck from the Roll of Solicitors on the grounds of his dishonesty: Hill v Clifford [1907] 2 Ch 236. The court is entitled to reach its own view of the facts as found by the SDT/Divisional Court: Clifford v Timms [1908] AC 12. Although judicial findings made in a previous case are not admissible in later proceedings, the principle of abuse of process would prevent collateral attack on an earlier decision of a court of competent jurisdiction where re-litigation of the same issues would be manifestly unfair or would bring the administration of justice into disrepute: Secretary of State for Trade and Industry v Bairstow [2004] Ch 1. The principle of collateral attack is not applicable where the party seeking to make that attack is able by reference to new evidence to show why the earlier judgment should not stand: ibid at para. 30.
211. Accordingly, the claimants contend that they do not have to get within the two categories identified in Bairstow, because of the failure by Mr Simms to identify any new evidence which would change the aspect of the case: Phosphate Sewage Co Ltd v Molleson (1879) 4 App Cas 801, 814. Even if that is not so, it would be either manifestly unfair or bring the administration of justice into disrepute to require such re-litigation where nothing is produced to show that the earlier decision was wrongly made."
"Before I come to my conclusions on this aspect, I should mention that the question of the role which the SDT findings and the Divisional Court decision were to play in this trial was not explored prior to trial, and it was rather faintly suggested by Mr Engelman on behalf of the claimants that I should decide it as a preliminary issue. I decided that that would not be an appropriate course without looking at the findings and the decision in detail, and considering the case as a whole. I was referred to many decisions on this aspect of the case, and I will deal with those which I consider most directly relevant. …"
"232. But Hollington v Hewthorn was followed in Secretary of State for Trade and Industry v Bairstow [2004] Ch 1, where the former managing director of a company brought wrongful dismissal proceedings against the company. Following a trial which lasted almost a year (from October 1997 to September 1998), the judge dismissed the claims in two judgments given in July and December 1999, and found that the director had been guilty of grave misconduct and neglect in the performance of his duty. An appeal against the decision was dismissed. The Secretary of State for Trade and Industry subsequently applied under section 8 of the Company Directors Disqualification Act 1986 for a disqualification order and sought to rely on the findings made in the wrongful dismissal proceedings.
233. Sir Andrew Morritt V-C, giving the judgment of the Court of Appeal, said that although Hollington v Hewthorn had been criticised by Lord Diplock in Hunter and by Lord Hoffmann in Arthur J S Hall & Co v Simons [2002] 1 AC 615, 702, it had been recognised as expressing the position at common law in several subsequent decisions: Savings and Investment Bank Ltd v Gasco Investments (Netherlands) BV [1984] 1 WLR 271; Hui Chi-ming v The Queen [1992] 1 AC 34 (P.C.); Land Securities plc v Westminster City Council [1993] 1 WLR 286; Symphony Group plc v Hodgson [1994] QB 179; Three Rivers District Council v Bank of England (No.3) [2003] 2 AC 1.
234. It was held that the decision was not limited to criminal proceedings. Accordingly the factual findings and conclusions in the employment proceedings were not admissible as evidence of the facts found in those proceedings. The cases established the following propositions. First, a collateral attack on an earlier decision of a court of competent jurisdiction might be but was not necessarily an abuse of the process. Second, if the earlier decision was that of a court exercising a civil jurisdiction then it was binding on the parties to that action, and their privies in any later civil proceedings. Third, if the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it would only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be re-litigated or (ii) to permit such re-litigation would bring the administration of justice into disrepute.
235 On the facts it was held that it would not be manifestly unfair to either party for the Secretary of State to be required to prove his case. Nor would re-litigation bring the administration of justice into disrepute, because the allegations made by the Secretary of State were serious, and they had to be proved to the satisfaction of the court hearing the application for a disqualification order by legally admissible evidence."
"236. My conclusions on this aspect of the case are these. First, I am in no sense precluded by the decision of David Richards J from deciding the question of the admissibility of the findings of the SDT and the Divisional Court. What he said was obiter and tentatively expressed, and is not res judicata as between the parties.
237. Second, Hill v Clifford (having been affirmed on different grounds by the House of Lords) is not binding authority, and its value as persuasive authority is limited by the effect of Hollington v Hewthorn. The majority decision of the Court of Appeal in Hill v Clifford accords with common sense. I consider that it does support the view that the order of the SDT is evidence of the fact that Mr Simms was struck from the Roll of Solicitors on the grounds of dishonesty. But as regards the truth of the findings themselves, in relation to the potential admissibility of the decision of the Divisional Court in the present case it is difficult to reconcile Hill v Clifford with Hollington v Hewthorn, and it would be odd if the findings of the SDT had greater evidential value than the decision of the Divisional Court. Third, it is plain (if authority were needed for such an obvious point) from Clifford v Timms [1908] AC 12, the court is entitled to reach its own view of the facts as found by the SDT/Divisional Court, provided that the facts are properly proved in accordance with procedural fairness.
238. Fourth, even where judicial findings made in a previous case were not admissible in later proceedings, and even where the earlier decision was not res judicata between the parties, the principle of abuse of process would prevent collateral attack (by a defendant as well as a claimant) on an earlier decision of a court of competent jurisdiction if re-litigation of the same issues would be manifestly unfair or would bring the administration of justice into disrepute: Hunter v Chief Constable of the West Midlands Police [1982] AC 529; Secretary of State for Trade and Industry v Bairstow [2004] Ch 1. Fifth, the principle preventing collateral attack is not applicable where the party seeking to make that attack is able by reference to new evidence to show new evidence which entirely changes the aspect of the case: Hunter v Chief Constable of the West Midlands Police [1982] AC 529, 545, and Secretary of State for Trade and Industry v Bairstow [2004] Ch 1, 14, applying Phosphate Sewage Co Ltd v Molleson (1879) 4 App Cas 801, 814."
"provided that the facts are properly proved in accordance with procedural fairness".
"239. In the present case I am satisfied that all three conditions are satisfied. First, it would be unfair to require Mr Conlon and Mr Harris to prove dishonesty in numerous transactions to which they were not parties and in relation to which the only contemporary evidence which they have is contained in the material annexed to the Law Society's complaint. Second, and connected with the first point, it would bring the administration of justice into disrepute if, after a hearing before the SDT lasting several weeks, and a full appeal before the Divisional Court, Mr Simms could, in the absence of substantial fresh evidence, challenge those findings.
240. Nor would it be unfair to Mr Simms. Mr Simms has known since these proceedings were commenced that the claimants were relying on the findings of the SDT and the Divisional Court and all he has done is to deny their admissibility. Mr Simms did not seek to put in any fresh material in relation to any of the allegations of the SDT/Divisional Court before the court in these proceedings, and he accepted in cross-examination that all the submissions and materials he wished to deploy before the SDT and the Divisional Court were deployed, save for evidence that was not called by him for reasons that were not fully explained, and he accepted that he had no new material that would satisfy the Ladd v Marshall test to put before the Divisional Court and that he had made no such application to the Divisional Court.
241. If I were wrong in that conclusion I do not think it would have been right for me to go on to decide whether Mr Simms had been dishonest on the basis of the few examples from the Law Society complaint files which were put to him in cross-examination without prior warning. But I do consider that in any event I can take account of his answers to questions on those documents which were the subject of discussion and debate between the partners in 1999. His answers throw light both on his credibility in general, and on whether his non-disclosure was fraudulent. The documents relevant for these purposes are the documents relating to Elite, Trinity Union and Scroda.
242. To the limited extent that this decision turns on oral evidence, I will indicate my impressions of the witnesses. Mr Conlon seemed to be an honest, if somewhat weak, man, who was plainly overpowered by the personality of Mr Simms. I consider that his evidence was honest and satisfactory, except that hindsight coloured some of his answers. Mr Harris was an entirely satisfactory witness, and I accept his evidence that he knew nothing of the potential problems with the Law Society when he joined the partnership, and would not have joined if he had known the true nature of Mr Simms' practice.
243. Mr Simms is a highly intelligent and articulate man, with a very powerful personality. In the course of the meeting on August 5, 1999 between Mr Vincent and Mr Brown, Mr Brown asked Mr Vincent "If [Mr Simms] always got his way" and Mr Vincent minuted "I told him the truth". It is not difficult to guess what the answer was. Mr Simms was a dominant figure in the partnership, and the partners obviously did not stand up to him enough. In the end only Mr Conlon paid a price for it.
244. The claims falls under two broad heads. The first is the Elite/Charlton representations, and the second is the non-disclosure. The reply pleads express assurances of honesty, and I could have given permission for them to be pleaded as separate claims. But if made out they would in any event go the honesty of the non-disclosure. I have set out above the correspondence and other documents in some detail, and I will not repeat their contents in this section.
245. I am satisfied that Elite was not a substantial entity, and was an instrument of fraud. Mr Simms made the representation about Elite which Mr Conlon alleges, in substance that it was a substantial entity which would generate substantial fees. The occasion was when Mr Conlon expressed concern about a transfer from the firm's client account for Elite and in the context of Mr Conlon's conversation with Mr Foley, of the Bank of Ireland, about possible money laundering. The representation was confirmed or anticipated in Mr Simms' note to the partners of about December 23, 1999, when he said "We have held funds of Elite Engineering Corporation Limited for over 18 months and they are people of repute dealing with substantial transactions … The client is an important source of new business for the future," and he referred to Elite as a "valuable client" in his note to the partners a week or so later, when he said that they were regarded as first class customers of National Westminster Bank Plc, Barclays Bank, ABN Amro, Deutsche Bank, Merrill Lynch New York, and Goldman Sachs New York.
246. The representation about Elite was untrue, and was made in December 1999 and repeated in December 1999 or early January 2000, which was before the partnership arrangements between Mr Simms and Mr Conlon were finalised, which was probably not before March 2000, when it became clear that there would be a new partnership rather than a continuation of Bower Cotton. As I have said, Mr Simms accepted in cross-examination that Elite was a £100 company registered in Gibraltar, that its accounts were not audited by a reputable firm of accountants, and that it did not have subsidiaries, and that he drafted letters on behalf of the two directors of Elite whom he had not met; and that no references were obtained from banks relating either to Elite or those standing behind Elite. The context of the Charlton representation was simply a discussion about potential fees in the arbitration which Mr Simms was conducting, and it probably took place in May 2000 after the partnership had commenced. Mr Simms probably gave Mr Conlon the impression that Charlton was substantial (which it was not), but I do not consider that there is any basis in the misrepresentation claim in relation to Charlton.
247. But I accept Mr Simms' case that in the statement made about Elite was not in the context of the future profitability of the firm, and that Mr Conlon was not, and could not have reasonably been, induced to enter into partnership by these representations. Mr Simms was the largest fee earner in the firm, and although Mr Conlon may have been worried by not continuing with those partners who did some of the work which Mr Simms introduced, I am satisfied on the evidence that he did not seek, nor was he given, any comfort in this respect by the representations about Elite.
248. I am also satisfied that Mr Simms failed to make adequate disclosure to Mr Conlon, both as an existing and as a prospective partner, of material matters, namely his dishonesty. It is no answer that Mr Simms did not know that he would be found guilty, and be struck off, nor that Mr Conlon knew (in relation to a limited number of transactions) that the Law Society had concerns. Mr Simms knew, and Mr Conlon did not know, that Mr Simms was engaged in a large number of fraudulent schemes.
249. I am also satisfied that the non-disclosure was not based on a bona fide belief in his innocence, but was fraudulent, and that because of that, Mr Simms gave numerous false assurances to his partners that the transactions in which he was involved were not fraudulent, and continued to do what he assured the Law Society the firm would not do. At the latest from the time when the Law Society first showed a interest in the transactions with which Mr Simms was involved, Mr Simms gave assurances to his partners (including Mr Conlon) that the clients and the transactions were bona fide. I accept Mr Conlon's evidence Mr Simms represented that all transactions in which he was involved were bona fide and that he was honest.
250. In response to the OSS report, in the letter of April 22, 1999 on behalf of the firm, Mr Simms said that the firm's reputation for financial probity was undoubted, and it had never knowingly put any funds of clients at risk or misapplied them in any way. Since the introduction of the money laundering regulations, systems had been instituted to ensure that the firm was not used for money laundering activities. The firm was not involved in and did not permit any clients knowingly to be involved in any activity which was intended to cause money of any investor to be put into banking or other financial instruments which it believed did not exist or were fraudulent. Mr Simms ended the letter by saying:
"We have decided that the amount of time involved in acting for parties to schemes of the type described in the report is disproportionate to the reward and that we will not accept instructions in respect of the schemes involving the use of our client account for the proposed investment monies."
251. I accept Mr Conlon's evidence that when he reported to Mr Simms in his note of December 23, 1999 on his conversation with Mr Foley of the Bank of Ireland, Mr Simms assured him that there was nothing untoward about the transactions he was involved in, particularly Elite.
252. Mr Simms wrote a memorandum about Elite in anticipation of the partners' meeting on January 4, 2000, when he said that he had checked that the Elite funds were "clean" when they were received 18 months before, that he knew a good deal about Elite and its principals, and that they were regarded as first class customers of National Westminster Bank Plc, Barclays Bank, ABN Amro, Deutsche Bank, Merrill Lynch New York, and Goldman Sachs New York.
253. I have set out in detail above (paras. 82 et seq.) the events following the discovery by the partners of the Trinity Union transaction, and Mr Simms' evidence in cross-examination. The minutes of the partners meeting of December 15, 1999 record assurances by Mr Simms that he had not allowed Trinity Union to nominate the firm's client account, or to use the firm's address. In his note to the partners sent on about December 23, 1999 he assured them of the bona fides of Trinity Union. I am satisfied that these assurances were false. Mr Simms' attempts to explain the Trinity Union transaction as a genuine commercial transaction and his involvement in it was incomprehensible and wholly unbelievable. It is relevant for at least three purposes: first, Mr Simms' evidence in the witness box on this incident satisfied me that he is a liar. Second, it shows that he was involved in dishonest transactions. Third, it shows that he gave false assurances to his partners about his honesty.
254. Even though it was written after Mr Conlon had gone into partnership with Mr Simms, Mr Simms' letter to Mr Jackson of NatWest in November 2000 confirms the type of assurance which he consistently gave over the period, when he said: "My firm has conducted its banking for clients and on its own behalf impeccably over the years … [W]e would have no desire to act for anyone dubious."
255. I also accept that during the period after the assurance was given to the Law Society, Mr Simms caused the firm to be in breach of the assurance by allowing (a) a payment of $1 million on December 22, 1989 from Elite to International Banque Holdings: (b) a receipt on January 28, 2000, of $989,987 which was credited to Elite: (c) a transfer on March 6, 2000 from Elite to Power Resources and then to MBH in the sum of $750,000; (d) payments through the client account in the name of Ace Laboratories from April to June 2000, as part of schemes involving an advance fee in respect of prospective finance; (e) arranging for the firm's client account to be used for Trinity Union transactions in November/December 1999. I do not accept Mr Simms' explanation that these were insignificant transactions or designed to comply with the assurance by getting rid of funds.
256. The letter from Trinity Union had all the characteristics about which the Law Society was concerned. It envisaged (a) a payment of $10 million to generate funds of $100 million; (b) a profit of 150 per cent. In addition, it was written on letterhead with Bower Cotton's address. It was copied to Mr Simms. It named Mr Simms as the person through whom the contract would be made. It named Bower Cotton's account as the account where the escrow funds would be kept. It said that a letter of intent should be returned to Trinity Union at the Bower Cotton address for the attention of Mr Simms.
257 Accordingly I am satisfied that Mr Simms fraudulently failed to disclose his dishonesty to Mr Conlon (and indeed falsely represented that he was honest) and thereby induced Mr Conlon to enter into the May and September 2000 partnership agreements, and Mr Conlon is entitled to damages to be assessed. There is nothing in the suggestion that Mr Conlon has waived his rights. Mr Harris was told nothing about the Law Society investigation by either Mr Simms or Mr Conlon. It is surprising that Mr Conlon said nothing (and he should have), but at that stage he did not know the nature of the Law Society's interest or the scale of the transactions. But Mr Simms fraudulently failed to disclose his dishonesty, and is liable also to Mr Harris for the consequences of Mr Harris having entered into the September 2000 partnership agreement."
"… to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute".
- in paragraph 245 the judge makes a positive finding, echoing the finding of the SDT, that Elite "was not a substantial entity" and that it was "an instrument of fraud";
- in the first sentence of paragraph 248 the judge appears to take Mr Simms' dishonesty almost as a given ("namely his dishonesty");
- to similar effect is the last sentence of paragraph 248, in which the judge refers to Mr Simms' knowledge that he was "engaged in a large number of fraudulent schemes"; and
- in paragraph 253 the judge infers from, among other things, Mr Simms' (failed) attempt to explain the Trinity Union letter that "he was involved in dishonest transactions" and that he had given his partners false assurances "about his dishonesty".
THE ARGUMENTS ON THIS APPEAL
The arguments of Mr Simms
1. that the decision of David Richards J is res judicata in his favour on the issues of admissibility and abuse of process;
2. that the SDT findings and those of the Divisional Court are inadmissible in evidence in the present action, and that "the judge was wrong in permitting the Claimants to cross-examine on unpleaded material relating to the SDT and the [Divisional Court] proceedings";
3. that the judge was wrong to hold that he (Mr Simms) is abusing the process of the court by making a collateral attack on those findings;
4. that the burden was on Mr Conlon and Mr Harris to put in any additional evidence proving dishonesty;
5. that the judge was wrong in law to hold that there is a duty of disclosure between parties negotiating a partnership agreement;
6. that any non-disclosure was not fraudulent, and that the judge was wrong to hold that it was;
7. that Mr Conlon and Mr Harris entered into the relevant agreements in full knowledge of all the relevant facts;
8. that the judge was wrong to hold that Mr Conlon and Mr Harris have a remedy in damages for any fraudulent non-disclosure, as opposed to a right of rescission;
9. that the judge was wrong to make an order for damages to be assessed in the absence of any evidence of loss suffered by Mr Conlon and Mr Harris or either of them; and
10. that the judge's findings were against the weight of the evidence.
The arguments of Mr Conlon and Mr Harris
CONCLUSIONS
Paragraph 39 of the judgment of David Richards J
The judge's order for damages to be assessed
The knowledge of Mr Conlon and Mr Harris about Mr Simms' activities
Duty of disclosure
"Ordinarily the failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract. The principle of caveat emptor applies outside contracts of sale. There are certain contracts expressed by law to be contracts of the utmost good faith, where material facts must be disclosed; if not, the contract is voidable. Apart from special fiduciary relationships, contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made, so of an intending purchaser." (Emphasis supplied)
Damages for breach of the duty of disclosure
The admissibility in evidence of the findings of the SDT and of the Divisional Court
"Even if [Hollington v. Hewthorn] could originally have been confined to cases in which the earlier decision was that of a court exercising a criminal jurisdiction, it has stood for over 60 years as establishing a much broader proposition."
"Accordingly I would accept the submission of counsel for Mr Bairstow that the factual findings and conclusions of Nelson J in the earlier proceedings are not admissible as evidence of the facts so found in these proceedings."
(1) whether, in seeking to put in issue facts found by the SDT and the Divisional Court, Mr Simms is abusing the process of the court; and
(2) whether (rephrasing Mr Simms' contention 2 above), given the inadmissibility of the findings of the SDT and of the Divisional Court as evidence of the facts found, coupled with the course which Mr Simms' cross-examination took, the findings of fact which the judge made as to Mr Simms' past conduct can stand.
Abuse of process
"The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made."
"If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute."
"… misuse of its procedure in a way which, although not inconsistent with the literal interpretation of its procedural rules, would nevertheless be manifestly unfair to a party to the litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people."
"… in an endeavour to establish, long after the event when memories and witnesses other than [the claimants] themselves may be difficult to trace, that the confessions on the evidence of which they were convicted were induced by police violence, with a view to putting pressure on the Home Secretary to release them from the life sentences that they are otherwise likely to serve for many years to come".
The judge's findings of fact as to Mr Simms' past conduct
RESULT
Lord Justice Moore-Bick:
Lord Justice Ward: