Stolzenberg & Ors v CIBC Mellon Trust Co Ltd & Ors

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.

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.”

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 [1994] 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’.”

Combination

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 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 [2002] EWCA Civ 275, [2002] 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. [42]. 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) 8^th 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 [2002] 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 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 [2002] 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.”

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.

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 4^th 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 4^th 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.

The judge held that there was no good explanation providing a justifiable excuse for non-compliance with the unless orders.

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.

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.

The judge found that, if relief was granted, the likely trial date would be in the second half of 2004.

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).

The judge held the effect on the relevant parties was apparent from the earlier parts of his judgment.

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 13^th 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 4^th 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 23^rd July 1999 in relation to the provision of statements of assets and the “unless” order of 4^th 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 13^th 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 4^th 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.”

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:-

that there was any conspiracy in law;

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.

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 [1942] AC 435 at 461 per Lord Wright, Marrinan v Vibart [1963] QB 234 at 238 – 239 per Salmon J, Lonrho Ltd v Shell Petroleum Ltd [1982] AC 173 at 188 per Lord Diplock; and Al-Sabah v Grupo Torras SA [2001] 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.

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.

Intention

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.

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.

Respondents’ submissions on the conspiracy issue

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.

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:-

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.

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.

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.

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 [2002] 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:-

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.

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 [21]. 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:-

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.

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.

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.

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.

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.

Appellants’ submissions

Mr Wardell submits that Mora and Chascona were entitled to rely on the advice of Mr Ceppi.

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.

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.

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.

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.

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.

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.

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).

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) [1982] 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).

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 [2000] 2 All ER (Comm) 271, 312-313, 317; Credit Lyonnais Bank Netherland NV v Export Credit Guarantee Department [1998] 1 Lloyds Law Rep 19; the Grupo Torras case, [2001] Lloyds Rep PN 117 (on appeal from Mance LJ) at [44] 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.

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.

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

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 55^th 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.

Intention

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:-

“T[A70.229]

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.

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.

Conclusions on the discretion issue

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 [2002] 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 [2004] 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 [2003] 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.

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 [1937] 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 [1978] 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 [1966] 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.

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 [20] and per Brooke LJ at [30].

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 [1997] 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.

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.

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’.

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.

Was the judge correct in the view which he took of the unless orders?

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.

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.

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.

I agree.

I also agree.