Dadourian Group International Inc & Ors v Simms & Ors

There is before the court a renewed application for permission to appeal from the judgments of Warren J, given in November 2006, March 2007 and July 2007. Warren J gave permission on certain grounds as will emerge in our judgment, but the applicant now wishes to pursue other grounds of appeal.

The judgments of Warren J were given after a long trial. The facts are very complicated, but it is only necessary to summarise them briefly and in short order, simply for the purposes of understanding our decision. There may therefore be some inaccuracy in detail in what it is necessary to summarise.

The essence of the case relates to the Dadourian family. They had a number of interests, including interests in a company called DGI, which had acquired the assets of a company that included tooling and various other items of a production line to make products, including hospital beds; DGI was a claimant in the action. The principal shareholders in that company were Alex and Haig Dadourian; they were the other claimants in the action before Warren J and are the respondents to the appeal.

From about 1995 attempts were made to sell the tooling which was part of the  production line. The cousin of Alex and Haig Dadourian was Jack Dadourian, who was married to Helga Dadourian. We shall refer to all of these as Alex, Haig, Jack and Helga, we hope without disrespect, but it is easier to do so, following the way in which the learned judge dealt with their names. They had interests in the family business and, on the judge’s findings, had other assets which they controlled through offshore entities including a Liechtenstein anstalt, Brinton, and a company called Ancon, a Panamanian company; the applicant seeks to challenge these findings. Relations between Jack and Helga on the one part and Alex and Haig had deteriorated and, on the judge’s findings, Alex and Haig would not do business with Jack.

In about 1997, through the applicant, a solicitor and partner in a London firm, Jack and Helga became involved in a business venture relating to China. In the course of preparing for that business venture, a shelf company, Charlton, was acquired. A Mr Rahman became the managing director and the applicant was appointed the other director. When the venture did not succeed, Jack introduced Mr Rahman to Alex, with the view that Charlton would acquire the tooling and other items relating to the production line of the business of DGI.

On 1 and 8/9 August 1997 Jack sent two e-mails to Alex relating to the proposed sale to Charlton. These e-mails described the interest of Charlton in setting up a factory in Bangladesh which would use the production line. Those e-mails formed a central part of the case ultimately made against Jack and the other defendants, who include the applicant, Helga, Mr Rahman and various offshore entities.

The judge found that Charlton was owned and effectively controlled by Helga and Jack through the anstalt and Ancon. After negotiations (which it is not necessary to set out but which were set out in detail in the judgment) an option agreement was entered into on 11 September 1997 between DGI and Charlton, under which Charlton could acquire the tooling and other property relating to the production line. In support of this a letter of credit was to be opened.

There were a number events set out in detail in the judgment, to which it is not necessary to refer.

In March 1998 Charlton purported to exercise the option. DGI did not accept it was validly exercised. There arose a dispute over the obligation to open the letter of credit. Again it is not necessary to set out the nature of that dispute. In July and August 1998 the shareholding in Charlton was transferred to a third party called Eastcastle. This was owned by two individuals; the judge found that they were not connected with Helga or Jack. Eventually on 18 September 1998 DGI invited its New York lawyers to terminate the option agreement on the basis there had been repudiation by Charlton.

Charlton then commenced litigation in New York in late 1998. This was stayed in favour of an arbitration, which was to include claims to the effect that there had been fraudulent misrepresentations in relation to the making of the option agreement. The arbitration commenced in April 1999. It lasted a long time. Charlton’s claim was dismissed for failure to comply with peremptory orders. In an award in June 2003, the arbitrator found that Charlton was in breach of the agreement, that DGI was entitled to treat the option agreement as repudiated, and that DGI had entered into the agreement as a result of fraudulent misrepresentation on the part of the applicant and Mr Rahman as its directors. Those representations were as to who had been shareholders in Charlton and as to the creditworthiness of Charlton and other matters relating to the ability of Charlton to perform the agreement.

The award was of substantial damages against Charlton. Charlton had no assets and therefore Alex, Haig and DGI sought to recover the amounts from Jack and Helga as well as the applicant and Rahman, on the basis that Charlton was a facade for Jack and Helga and that the applicant and Rahman had conspired with them in that respect.

Proceedings to that end were commenced in the Chancery Division and came on for trial before Warren J in March, April and May 2006. Prior to the commencement of those proceedings, there were interlocutory applications for Freezing Orders to which it will be necessary briefly to refer. It is clear, as the trial progressed, the bitterness of the family dispute became more evident. At the trial the applicant appeared in person; Mr Rahman, although he gave evidence, submitted to judgment. There were other parties that took no part in the trial, but Helga and Jack were represented by leading and junior counsel.

The judge, in the judgement handed down on 24 November 2006, found in favour of DGI, Alex and Haig, essentially on one issue relating to the two e-mails that had been sent on 1 and 8/9 August 1997. It is that finding which is central to the appeal. It could be summarised broadly thus. Jack, in two e-mails on 1 and 8/9 August impliedly represented that his only status was that of an intermediary in relation to the sale of the tooling. The judge found that that was untrue because Jack and Helga between them controlled Charlton, as we have stated, through the Liechtenstein anstalt and the Panamanian company. He found that the representation made by Jack was fraudulent, that it was relied on and it induced DGI, Alex and Haig to enter into the option agreement. The judge went on to find that Helga and the applicant were responsible as joint tortfeasors on the basis that they had entered into a design with Jack and Mr Rahman to the effect that the involvement of Jack and Helga would be kept secret from DGI, Alex and Haig.

The judge granted permission to appeal on the question of whether the e-mails gave rise to the implied representations. This became Ground 1 of the appeal. He also granted permission as to whether the applicant and Helga were liable as joint tortfeasors. That became Ground 5 of the appeal, and the appeal is proceeding before this court on that basis.

The judge, however, refused permission on a number of other points, three of which the applicant wishes to pursue. The first of these is Ground 2; the applicant wishes to contend that DGI and the claimant were not induced by the representation. Secondly, that the judge was wrong to find that DGI and the other claimants would not have entered into the option agreement if they had known that Ancon was a shareholder in Charlton at the date of the option agreement or that Ancon was in the beneficial interest of Helga and Jack at that time. That is Ground 3 of the proposed Appeal. Ground 6 of the Appeal is that the judge was wrong to rely on legal presumptions on which the judge had relied in reaching his decision in relation to inducement.

The contentions which the applicant wishes to make on these three grounds --. that is Ground 2, Ground 3 and Ground 6 – are all interrelated. It is his case that, given the background circumstances of the relationship between the two parts of the Dadourian family, it will be necessary for the court in any event to look to an extent to the background of the relationship when the court comes to consider the implied representation – Ground 1 of the appeal. Secondly, it is said that, as the judge found that the applicant was (1) unaware of the sending of the two e-mails and (2) that he did not know the extent of the bad relationship between Alex and Haig on the one part and Jack on the other, the court ought, when considering the overall issue of his liability as joint tortfeasor, to examine the issues of inducement. He also pointed to the fact that in the course of the judgment the judge relied upon the presumptions at paragraphs 542 -554 of the judgment, and wishes to challenge the correctness of the application of those presumptions to the findings of inducement.

It seems to us that, although in one sense it could be argued with great force that the issue of the finding of inducement which the judge made must be ultimately a question of fact, we think that in circumstances where the applicant wishes to pursue the grounds on which he has been granted permission -- namely Ground 1, relating to the meaning of the two e-mails and Ground 5, relating to his liability as joint tortfeasor -- it would not be right to preclude him from arguing the points he seeks to argue in relation to inducement on Grounds 2, 3 and 6. In therefore granting him permission on these aspects, we do so on that basis.

We would add that it seems to us that every effort must be made to confine the factual issues that this will raise to as narrow a circumstance as possible. It should be possible to produce within a short compass the relevant history of the relationship between the two parts of the Dadourian family and gather together the findings that the judge made.

It also seems to us that when that is done, it should be incumbent upon the applicant to identify specifically any particular finding the judge has made which he wishes to challenge, so that this aspect of the appeal can be kept within a narrow ground. That is the first part of the application before us.

The second part of the application relates to the judge’s decision on the costs. The judge refused permission to appeal. There were two parts of the order which the applicant wishes to challenge. First, the judge disallowed 25% of the claimants’ costs to reflect the fact that they not succeeded on a number of the grounds which they had originally brought and which they pursued at trial, and then only in essence succeeded on the basis of the implied representation set out in the two e-mails. The judge also made an order as to the indemnity costs which the applicant also seeks to challenge. We shall deal with each separately.

As to Ground 9, the ground on which the applicant wishes to challenge the order as to the deduction of only 25% of the claimants’ cost, the applicant contends that this did not properly reflect the reality of what had happened at the trial. He submits that if one looks at the numerous ways in which these claimants had put their claim, both in the application for Freezing Orders and subsequently, the judge should have made a much greater order in favour of disallowance against the claimants’ costs.

There is no dispute, it seems to us, as to the issue of principle. The judge is bound to look at, in deciding the issues on costs, the extent to which the parties have succeeded or failed, and to look at the time that each of the issues has taken and stand back and look at the matter overall. We see the force of the argument based on the fact that on a number of the claims put forward by the claimants they did not succeed. However, it seems to us that the judge was right in the view he took that the essence of the claimants’ claim was that the real issue was as to the true ownership and control exercised over Charlton, the attempts that were made to keep that concealed as well as the interests of Helga and Jack in it. He was also right in saying that in relation to that broad issue, although it was put in a number of different ways, each of those ways really required a proper examination of the factual substrata.

It seems to us that, as it is accepted that the judge applied the correct principles and secondly, as the judge was right in his basic approach, it is difficult to see how there is a realistic prospect of challenging the judge’s exercise of his judgment in this respect. We therefore refuse permission.

As regards the second issue in relation to the application for permission to appeal in respect of costs, it relates to the judge’s decision that the applicant should pay the costs of the claims on an indemnity basis. The reasons for his decisions are given at paragraphs 19(b) and 79(b) of the judge’s judgment dated 8 March 2007. The judge, in essence, found it difficult, as he says at paragraph 79(b), to reach the decision that the applicant should pay costs on an indemnity basis. He did so ultimately on account of the applicant’s failure to provide proper disclosure of material, which in the end included documents which turned out to be of great importance, in particular the e-mails surrounding the “playing the game” e-mail. He made clear his reasoning at paragraph 79(b) where he stated that the fact that some of the most important documents emerged in the course of the trial was testimony as to how serious the non-disclosure of documents was and referred to what he described as the lamentable disclosure in the action as well as the arbitration.

It seems to us that the decision to award indemnity costs, although it is a matter which lies within the discretion of the judge, does raise at least an arguable issue as to whether the judge had a sufficient basis for making the order he did on the narrow basis he set out in his judgment. We think this because it appears to us that there is what can be put no higher at this stage than something we think is just about arguable as having a real prospect of success; firstly because the documents in question in the case appear to have been voluminous and the documents in respect of which the judge made his remarks were very few; there does not seem to be a clear finding that anything was done deliberately; and there is an argument that the primary duty to disclose these documents in any event rested upon Helga, Jack and others. We would therefore propose to grant permission in respect of that ground of appeal.

The next matter on which the applicant seeks permission to appeal relates to an application that there ought to be an enquiry as to damages in two circumstances: first, if the applicant was to succeed in his primary grounds of appeal, namely that he was not liable; and/or secondly, on the basis that Freezing Orders were not properly granted. There is an issue before the court, which we shall describe in more detail in a moment, as to whether the Freezing Orders were properly granted. If the applicant were to succeed on either of the grounds we have set out above, it seems to us that he must be entitled to argue that in those circumstances there should be an enquiry as to damages. If and insofar as that is a separate ground of appeal, we would grant permission.

The more substantial issue that arises in relation to the Freezing Orders relates to the circumstances in which they were granted. The judge held that Freezing Orders granted prior to the trial were properly granted. He concluded that that was so notwithstanding that there had been material non-disclosure as to the position of Jack and Helga by the claimants. That non-disclosure related to the conduct of the arbitration by Charlton after it had been acquired by Eastcastle (prior to the arbitration) as we have set out. He concluded despite that non-disclosure the Freezing Orders were properly made. He also concluded that although the application for Freezing Orders were made on the basis of claims that failed at trial, they were nonetheless properly granted.

On those two issues the judge gave permission to appeal. However, it emerged at the end of his judgment on that question that there may have been a misunderstanding as to the basis on which Jack and Helga advanced the case on non-disclosure. At paragraph 9 of the second judgment handed down on 11 July, the judge said:

“I am troubled by one aspect, however, which is that Mr Cakebread [counsel for Jack and Helga] says that the inevitable inference from the material is that there was a deliberate non-disclosure which makes it, of course, a very strong case. It formed no part of his submissions before me on the discharge application that there had been a deliberate non-disclosure. This does seem to me to be a new point that if it is to be run, should only be run with the permission of the Court of Appeal itself. So, I am not giving permission to base any part of the appeal on that point.”

It has been contended before us today by the applicant that the way in which the argument on non-disclosure went before the judge was on the basis that it must have been deliberate. Whether that was in fact the case or whether the judge did not fully appreciate the way in which the matter was being put, it seems to us that, as the judge has given permission to appeal on the point as to whether the material non-disclosure that he accepted was made was insufficient to justify the discharge of the Freezing Orders, it would be necessary to enquire into the circumstances in which the non-disclosure was in fact made. It seems to us therefore that it is inevitable that part of that examination must include issues as to whether it was innocent or otherwise and we therefore think it right that this further point should be before this Court.

That concludes the issues in relation to the applications for permission. One further issue has been raised before us orally today, and that relates to the interpretation of paragraph 15(i) of the order of the judge in relation to a stay in the events that have subsequently happened. It appears that a petition of bankruptcy has been presented against the applicant by a creditor wholly unconnected with DGI. In the course of those proceedings, the applicant is seeking to obtain the discharge of the petition by payment to that particular creditor, but DGI have intervened in the proceedings and wish to take it over and have found a debt owed by the applicant which is not covered by the terms of the staying order in paragraph 15(i) of the order. This is, it seems to us, not a matter that can possibly be dealt with on this ex parte application, and, as the issue primarily relates to the interpretation of the order of Warren J, it should, in the first instance, be referred to him. Of course, if there is any issue that arises as a result of any order he may make on which any of the parties wish to seek permission to appeal, they must pursue that in the ordinary way.

The only question that therefore remains for us to consider is whether, between the hearing of that in the parties’ application before Warren J and today, it is necessary for this court to make any interim order preserving the position pending that hearing.

Thank you. Subject to that last point the order of the court will be: (1) permission to appeal granted on Grounds 2, 3, 6, 10 and 14. (2) Permission to appeal refused on Ground 9. (3) As to Ground 13, permission granted on the assumption that Grounds 11 and/or 12, upon which permission was granted by the judge, succeed. (4) The application to vary or clarify paragraph 15(i) of the order of the judge of 23 July 2007 be adjourned to be heard by Warren J on notice to the respondent. (5) Any further application to this court, including any application for permission to appeal from any order made by the judge on the application referred to in paragraph 4 of this order, to be determined by Thomas LJ. (6) Costs reserved to the appeal.