Walbrook Trustee (Jersey) Ltd & Ors v Fattal & Ors

This is an appeal with the permission of Carnwath LJ from orders made on 22 June 2007 by Sir Francis Ferris sitting as a judge of the Chancery Division given in two actions relating to Berkeley Court, which is a large mansion block at the corner of Baker Street and Marylebone Road with many flats and some commercial units on the ground floor, and parking and storage space in the basement.

I start with an overview which will inevitably oversimplify matters. The block was acquired in 1989 by a consortium of four persons or groups of persons who owned 25% each. First, the trustees of a trust known as the Delta Trust, of which the ultimate beneficiaries are members of the Dangoor family; secondly, the trustees of a trust known as the Sofaer Trust; which was connected with a Mr Charles Sofaer; thirdly, Mr Salim Dangoor; and fourthly Mr William Fattal and his brother Mr Elias Fattal in equal shares.

The arrangement was governed by a joint venture agreement entered into in that year. The agreement contained a right of pre-emption, exercisable by the other persons beneficially interested in the event of any of the persons interested wishing to sell his or its interest to a third party.

The legal estate in the block is vested in an English company called Berkeley Court Investments Ltd which is wholly owned by Baker Street Ltd, an Isle of Man company I think, whose shares are held in trust for the underlying trust interests.

The Fattal interests are held through an offshore settlement of which the trustees are, I believe, Rysaffe Ltd and Walbrook Trustees (Jersey) Ltd (to which I shall refer as Walbrook, including its associated companies and other entities) and Walbrook was also alone or jointly with other persons or trust corporations the trustee of the Delta Trust and the Sofaer Trust.

Salim Dangoor’s interest was the subject of a declaration of trust in favour of a BVI company called Interlands and subsequently transferred to something described as the Sharet Trust, of which Walbrook is one of the trustees; and that aspect of the matter has become a major source of contention.

Since 1989 the general management of the property has been undertaken by Walbrook. The joint venture agreement envisaged that the functions of something called a coordinator might be delegated to some other party who would then become entitled to the fee and it appears that a Mr David Dangoor has carried on certain management functions under powers delegated by Walbrook. Those powers came to be exercised by Mr Dangoor’s company, Monopro Ltd.

Disputes have arisen between the Fattals and the Dangoors. The Fattals complain about the way in which the block has been run by Walbrook and the Dangoors, or Mr David Dangoor, and also claim that they (or the Fattal trusts) have pre-emption rights over the 25% share in the block which was transferred to the Sharet Trust.

The disputes between the Fattals and the Dangoors put Walbrook in a position where it has been called upon to do different things by different groups of beneficiaries and had the result of preventing it from acting decisively in relation to any of the main problems which have arisen. Because it was caught in the middle of the dispute Walbrook issued Part 8 proceedings seeking directions for the sale of the block.

The Fattals do not think the block should be sold, and say that if it is to be sold Walbrook should not have the conduct of the sale. The Fattals brought an action against Walbrook and Mr David Dangoor and his company (described here as “the Part 7 proceedings”), making (in 161 paragraphs) a number of allegations of varying sizes, ranging from the Sharet issue which I have identified to a claim that Walbrook, in charging £570 per hour for its services, charged rates which were grossly excessive.

The real issues between the parties are these. First, whether the block should be sold and if so by whom: the court was told that the block might be worth as much as £24 million. Secondly, whether the Fattals have pre-emption rights in respect of the 25% share in the property: if they had such a right the court was told that they could purchase it for some several hundred thousand pounds below its current market value. Third, whether Walbrook and David Dangoor and his company have mismanaged the block: the monetary value of the claims in this category appears to be modest compared with the time, energy and legal costs expended on them.

The Part 8 proceedings were issued in July 2006. Directions as to evidence were given in October  2006, evidence was filed by Mr Fattal in November 2006 and in December 2006 a trial date of 8 October 2007 for three days was fixed.

The Part 8 proceedings seek essentially two things. First, an order for the sale of the block and directions as to the sale including that Walbrook are to have the conduct of the sale and that Knight Frank be appointed as agents to market it and that Davenport Lyons be instructed as solicitors. The second claim is for the court to determine whether the Sharet Trust has a 25% interest in the block and, if not, who has that interest.

The Part 7 claim seeks first, relief to enforce rights of pre-emption contained in the joint venture agreement, which the Fattals say arose as a result of the sale by Interlands to which I have referred. Secondly, restitution from Walbrook for failure to exercise the right of pre-emption and thirdly, other relief relating to the management or mismanagement as they say of the property. The parties to the Part 7 and Part 8 claims are not the same but I do not think that matters for present purposes.

Although it was issued in October 2006 the Fattals did not serve the Part 7 claim form until nearly four months later, on 9 February 2007, and did not serve the Particulars of Claim until 26 February 2007, which was after the time permitted for their service had expired. That was due to an error by their solicitors. This is because, under CPR 7.4(1)(b), where Particulars of Claim are not contained in, or served with, the claim form they must be served within 14 days of the service of the claim form. However, that rule is subject to rule 7.4(2) which provides:

“Particulars of claim must be served on the defendant no later than the latest time for serving a claim form.”

So it was that on 28 February 2007 the claimants applied for an extension of time for service of the Particulars of Claim until the date when they should have served it, extending time until 26 February when the Particulars were actually served.

In this judgment of 22 June 2007 Sir Francis Ferris granted the extension but he said that if the Part 7 proceedings continued with the Particulars of Claim in their then form there were bound to be applications for further information. There might well be applications to strike out and applications in relation to the severance of claims against the various parties in one capacity from claims against them or different parties in another capacity.

He considered whether it was his duty to take the bold course and to say that if the claims were to proceed at all they must be reformulated but he came to the conclusion that he should not do this although, as he said, steps were going to have to be taken to sort out the mess.

He gave permission without prejudice to any applications to strike out, or for further information, or to separate the various claims which had been made.

In addition he said that he was seriously disturbed by the suggestion that directions should be given which would enable the Part 7 claim to be tried in some way jointly with the Part 8 claim. Consequently he stayed all further proceedings in the Part 7 proceedings until after determination of the issues raised by the main paragraphs of the Part 8 proceedings, which related to the sale of the block.

The second aspect of the judge’s judgment related to an application by the Fattals to serve in the Part 8 proceedings a Part 20 counterclaim raising most, if not all, of the same main issues as had been raised in the Part 7 proceedings. The judge said the proposed counterclaim was in the same or substantially the same form as the Particulars in the Part 7 proceedings. He considered that it was inconceivable that if permission were given for service of the counterclaim it could be tried jointly with the existing claim in such a way as to enable the October 2007 date to be kept and in such a way that would enable the trial to be kept within anything like the two-day time limit then estimated for the hearing of the claim.

He said that with one possible exception it was highly undesirable that any of the matters raised in the proposed counterclaim should be raised in the existing claim. The exception was the issue relating to the Sharet Trust. He said that the Sharet Trust issue could and should be determined separately from the other Part 8 claims. He considered whether the right course might be to allow a Part 20 claim to be made, limited to the Sharet Trust issues, but he decided that that would involve a delicate problem of case management which was essentially one for the judge seized of the Part 8 proceedings as a whole, for these reasons.

First, the question whether there should be a sale and the conduct of that sale was central to the dispute between the parties and capable of being determined at an early date and, if determined, was quite likely to lay at rest many of the other disputes which had been raised. Secondly, he was not convinced that the Sharet issues had to be determined before the sale issues were determined. Thirdly, there was no sufficient reason to complicate matters by giving permission to plead, by way of Part 20 counterclaim, the Sharet issues in advance of those case management directions. Fourth, the court which was seised of the Part 8 claim would have to decide how to proceed and how to deal with the Sharet Trust issues, and it might be that the best course would be to direct pleadings of some kind.

Accordingly, the judge’s order was: that in the Part 7 action, that time be extended but all further proceedings be stayed until determination of the sale issues in the Part 8 claim; in the Part 8 application, that permission to put in a Part 20 counterclaim be refused. Costs were awarded against the Fattal parties on the Part 7 application because the judge thought the Fattals had been unsuccessful because they had failed to use the Part 7 proceedings to complicate or delay the Part 8 proceedings.

Permission to appeal was sought from the judge only on his refusal to allow a counterclaim in respect of the Sharet issue but Carnwath LJ gave permission to appeal at the beginning of October 2007 and I will revert to that aspect later.

After a five-day trial in October 2007 Henderson J gave judgment at the end of November 2007 in which he found that there had been a sale of the interest to the member of the Dangoor family named in the pleading. In December Henderson J gave further directions for the purposes of the trial of the Sharet Trust issue including the exchange of pleadings and a further case management conference. He also refused to lift the stay on the Part 7 claim. He accepted the position advanced by Walbrook, namely that the remaining Sharet issues should be the subject of pleadings and should be brought back for a further case management conference after the pleadings had closed. He also said that he would have taken the same view as Sir Francis Ferris on the relationship between the Part 7 and Part 8 claims, and that mingling them together would be a recipe for confusion and unmanageable complexity and length. If all matters were to be heard together, the judge said that one would be looking at a trial of possibly months in duration rather than weeks. He also accepted that a lot of the Part 7 claims were relatively vague and ill-focussed.

The main points on this appeal are these. The appellants say that in granting the stay and refusing to give permission for the Part 20 counterclaim the judge wrongly gave weight to the view that for the Part 7 claims to proceed either separately or jointly with the Part 8 claims would tend to complicate or delay the trial of the Part 8 claims.

Secondly, it is said that the judge gave no, or no adequate, weight to the fact that the Part 7 claims, especially those made in relation to the Sharet issue, arose out of the same subject matter as underlay the claims for relief made in the Part 8 claims. It is said that they were claims which directly affected the Part 8 claims and raised substantial issues of fact which ought to be decided for the purposes of the just disposal of the claims made in the Part 8 claim.

The third main point is that the judge wrongly refused to give the Fattals permission to make a counterclaim in the Part 8 claim limited to the Sharet issue. The reason is that Walbrook maintained before the judge, and all parties agreed, that the Sharet issue had to be resolved before (or with) the sale directions and so there was no alternative other than to resolve it and it should be resolved properly, which required pleadings, disclosure and live witnesses.

The fourth main point is that the judge should not have granted a stay in relation to the other Part 7 claims. The Fattals were entitled to prosecute the Part 7 claims to trial in the ordinary way and, in any event, they were so closely tied up with the issues in the Part 8 claim that the administration of justice dictated that they be tried with those issues.

It is also said that the Part 7 issues were fully pleaded in the Part 7 Particulars and raised issues of fact to which the Part 7 procedure was appropriate and therefore could equally be dealt with in the Part 8 claim by way of counterclaim.

The next and final point is that the judge made wrong orders as to costs. First, he was wrong to order that the Fattals pay all of the costs of the application for the extension of time in relation to the Part 7 Particulars of Claim. It is said that everything after 8 March 2007 was concerned with the issue raised by the defendants that the claims had no prospects of success or were an abuse of the process. The defendants lost on those issues and it was wrong in principle to order that the Fattals should pay the defendants’ costs of dealing with them. It is said that the question of a stay was raised at a late stage by Walbrook and occupied only an insignificant amount of court time. The fact that the application for a stay was opposed by the Fattals ought not to have affected the costs order or only marginally so. The second point on costs is that the judge should not have awarded two sets of costs in relation to the Part 20 counterclaim application.

I can deal with the contentions on the substance of the appeal shortly. These were case management decisions. I do not need to cite authority for the obvious proposition that an appellate court should not interfere with case management decisions by a judge who has applied the correct principles and who has taken into account matters which should be taken into account and left out of account matters which are irrelevant, unless the court is satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the judge.

In my judgment, in granting the stay and refusing to give permission for the Part 20 counterclaim, the judge correctly took the view that allowing the Part 7 claims to proceed would complicate or delay the trial of the Part 8 claims.

On the principal point, the determination of the Sharet issue, he took full account of the fact that the Sharet issue, might have to be dealt with on the Part 8 claim and sensibly left it to case management by the judge dealing with the Part 8 claim. There was no need for the Sharet issues to be dealt with by Part 7 or by counterclaim because the judge could direct disclosure of documents in cross-examination and his conclusion has been vindicated by the subsequent treatment of the case management by Henderson J.

Although there was an overlap between the other Part 8 and Part 7 claims they did not need to be dealt with together in all respects. As I have said, the Fattals say that some of the issues raised in the Part 7 claims are intimately bound up with the question of the sale directions. It is true that four of the non-Sharet complaints may have some connection with the issues likely to arise in the Part 8 claims. The appellants give four examples: the so-called car parking issue, the storage space issue, the Davenport Lyons issue and the issue of whether the Fattal trustees should be represented on the boards of Baker Street Ltd and the other Baker Street company.

These claims are only relevant to the Part 8 claims insofar as they may support the appellant’s case that Walbrook is not a suitable person to conduct the sale. These claims have no, or only a small, monetary value. The costs of litigating them would be wholly disproportionate to the amounts at stake. Because they are made in the context of the Part 8 proceedings to establish that the sale should not be conducted by Walbrook it seems to me that they do not need to be gone into the same detail as they would have had to be gone into if they had been fully-fledged independent claims in an independent action.

I take as one example one of the issues which the appellants say is intimately bound up with the Part 8 claim. In the Part 8 claim Walbrook asks for an order that Walbrook has liberty to instruct Davenport Lyons to act as solicitors of the sale. In the Part 7 Particulars of Claim it is alleged that Mr McCombie of Davenport Lyons promoted the Dangoor interests in preference to the other jointly interested trusts, especially the Fattal Trust; that Walbrook was in breach of fiduciary duty in continuing to retain Davenport Lyons notwithstanding a conflict of interest arising from the fact that the Dangoors are important clients of Davenport Lyons’s property department; that Mr McCombie, anxious to please David Dangoor, acted against the interests of the companies owning the block and so on. Now it is plain that the question of whether Davenport Lyons should be instructed will arise in the Part 8 claim but it seems to me to be absolutely clear that it will not be necessary to have a full trial on these allegations for that purpose.

As for costs, I am satisfied that the judge’s decision as to costs on the Part 7 application was well within the bounds of the normal discretion. The Part 7 application was necessitated by the appellant’s failure to comply with the rules and they were seeking the indulgence of the court. The judge held that the Particulars of Claim were inadequate and, although he did not go as far as the respondents invited him to do, he recognised that there might be an application in the future to strike out and he took into account the fact that the stay granted was “against the manifest opposition of the Fattals and in that sense ... they were the unsuccessful party in the Part 7 application. I see no error of principle at all in that finding. Nor do I see any error in the judge having awarded two sets of costs in the Part 8 application.

I revert to the point which I signalled earlier, which concerns the permission to appeal granted by Carnwath LJ. The timetable is important. The judgment of Sir Francis Ferris was on 22 June 2007. The application for permission to appeal to this court was made on 12 July and a skeleton argument was filed on about 14 August 2007.

I have already set out the main points of argument on behalf of the appellants but I highlight one in particular. In paragraph 49 of the skeleton arguments the appellant said that the Sharet issue had to be resolved properly with pleadings, disclosure and live witnesses; but at a case management conference in the Part 8 claim on 14 September 2007 Henderson J had directed that an issue arising in the Sharet Trust matter (namely whether or not Interlands had sold its interest in Baker Street Ltd to Niazi Dangoor) be tried as a preliminary issue at the long-fixed October hearing of the Part 8 claim with disclosure and cross-examination of deponents.

In the judgment which he gave on 14  September 2007 Henderson J said at paragraph 9:

“…Sir Francis Ferris expressed the view that he was not necessarily persuaded that the Sharet issues needed to be resolved first. However, all parties before me are agreed that it is in fact the appropriate course to adopt… It does seem to me clearly right that the Sharet issue should be resolved first.”

He said that the October hearing date with its three-day slot should, if at all possible, be kept and so he reserved it for a determination of that aspect of the Sharet issues. He said that issue was central to the case advanced by the Fattals and if it were resolved against them it was common ground that would dispose of the entire Sharet issue. If the court reached the conclusion that there was a sale, that would open the door to a considerable number of other potentially more difficult questions including whether the pre-emption rights were enforceable and if so by whom and against whom. There was also a question about whether the joint venture agreement of 1989 was still subsisting at the time of the transfer.

He also dealt with disclosure and said that he was satisfied that disclosure on the Sharet issues had been unsatisfactory and made various disclosure orders which are set out in his order. As I have said, that judgment was given on 14 September 2007 and permission to appeal was given by Carnwath LJ on 3 October 2007 although it seems that the order was not drawn up until 10 October, which was, in fact, after the trial had begun.

It is plain that Carnwath LJ gave permission to appeal in ignorance of the developments in September because his reason was that it was:

“realistically arguable that the judge went beyond his proper case management functions by staying the Part 7 claim and preventing the litigation of the Sharet Trust issue”.

If he had known that the Sharet Trust issue was going to be tried in October (at least in part) it is inconceivable that he would have given permission on that basis.

Under CPR 52.9 the court may set aside the permission to appeal only where there is a compelling reason for doing so. This court has decided that there would be a compelling reason if the materials before the court were so inaccurate or incomplete that the judge granted permission where otherwise he would not have done so, see Hertsmere Borough Council v Harty [2001] EWCA Civ 1238. The rule caters for the rare case in which the Lord Justice granting permission to appeal has been misled. If he has been misled deliberately the process of the court will have been abused, see Barings Bank Plc v Coopers and Lybrand [2002] EWCA Civ 1155.

In this case the application notice and the skeleton argument were not misleading when they were lodged respectively in July and August 2007, but by the time the matter was considered by Carnwath LJ at the beginning of October 2007 the position had dramatically changed to the knowledge of the Fattals and their advisers. When Carnwath LJ granted permission on the ground that the judge had gone beyond his proper case management functions by staying the Part 7 claim and preventing the litigation of the Sharet issue that question had become entirely academic. All parties knew by then that an important aspect of the Sharet issue would be determined at or following the hearing before Henderson J in October and that the other aspects would be dealt with subsequently.

This comes very close to the type of case in which the court should of its own motion set aside permission to appeal even though no application has been made to that effect. The respondents did not take action after they were given notice of Carnwath LJ’s order because an application to set aside the order would have been unnecessary satellite litigation which would probably have taken up as much time as this appeal.

So this is not a case in which in my judgment the court should set aside the permission. But I think it right to say that in cases of this kind it is incumbent on applicants, both before and after the grant of permission, to inform the Civil Appeals Office in writing if there have been any material changes which would affect the question of whether permission should be given or should have been given. If the reasons given by the Lord Justice show that the Lord Justice has given permission on the basis of a misapprehension of the position, the appellant should write to the Civil Appeals Office to explain the position and seek any necessary directions.

I would only add that with some common sense this is a dispute which should be capable of resolution and without that there will certainly be years of wasteful litigation concentrated on a number of points which should really be of marginal interest to businesspeople of this calibre. I would dismiss this appeal.

So would I.

I would dismiss this appeal for the reasons given by my Lords, save that I would express no concluded view on the Davenport Lyons issue as it is not necessary to do so on this appeal. In the light of my Lord, Lawrence Collins LJ’s concluding remarks, this may well be a case in which the parties should seriously consider whether some of the issues in the Part 7 litigation could be resolved by mediation. I would dismiss the appeal.