Dadourian Group International Inc & Ors v Simms & Ors

This is the judgment of the Court of Appeal against four judgments of Warren J after the trial of this action and also on applications to this court arising from those appeals. All members of the Court have contributed to this judgment. The main judgment of Warren J was given on 24 November 2006 (this judgment is referred to by us as “J(1)”); the second judgment (referred to as “J(2)”), dealing principally with damages and costs, was given on 8 March 2007 and two further judgments (referred to as “J(3)” and “J(4)”) were given on 11 July 2007. These judgments deal principally with the effect of the main judgment on the interim freezing orders and whether the respondents deliberately omitted to disclose various matters to the court when obtaining those orders.

This action involves two branches of the Dadourian family, and their associates. Both branches were involved in international trade and investment. The causes of action on which this action was based are for the recovery of damages for fraudulent conduct. The trial was preceded by an epic series of hard-fought interim applications designed to obtain the disclosure to the respondents of assets alleged to belong to the appellants and to prevent their dissipation. The result of the litigation at trial was that the respondents’ branch of the family succeeded on one only of the causes of action against the appellants. That cause of action was fraudulent misrepresentation, and a major issue with which this judgment is concerned is whether the judge was entitled to hold that the appellants were responsible for any misrepresentation. Another is whether the judge’s holding as to the damage caused by that misrepresentation was correct in law. We are also concerned with the judge’s decision not to enforce the cross-undertaking in damages (given by the respondents on obtaining freezing orders) when the causes of action which it was designed to support failed at trial and when there was, on the judge’s finding, material non-disclosure at the time of the original grant. The applications with which we deal include an application to strike out the appellants’ appeals on the grounds of misconduct.

Where possible, we use the abbreviations used by the judge in his main judgment of 24 November 2006. Accordingly we refer to the appellants, Paul Simms, Jack Dadourian and Helga Dadourian as Mr Simms, Jack and Helga respectively, and to the respondents, Dadourian Group International Inc, Alex Dadourian and Haig Dadourian as DGI, Alex and Haig respectively. Figures added in this judgment to references to judgments of the judge (eg J(1) 100) are to the relevant paragraph of the judgment in question.

There are some 16 defendants in the action. Only three appellants took part in the trial. The respondents obtained judgment in default, with damages to be assessed, against Mr Rahman and entered into settlements with the other individual defendants, and, further to a direction by Sir Donald Rattee, sitting as a judge of the High Court, none of the corporate defendants took part in the trial. Mr Simms represented himself at both the trial and on the appeals. Mr Stuart Cakebread and Ms Juliette Levy represented the appellants. The respondents were represented by Mr Charles Samek and Mr Brian Lacy.

We begin with a brief summary of the dispute, the arbitration to which it gave rise, the course of the litigation below and the principal conclusions of the judge. We do so to set the scene for the issues which arise on this appeal. Our discussion of those issues sets out in more detail the issues of fact and the judge’s findings where it is necessary to do so for the purpose of dealing with the questions raised by the grounds of appeal.

The action has its origins in an option agreement entered into in September 1997 between DGI, a company incorporated in New York State and owned and controlled by Alex and Haig, and Charlton Corporation plc, a company incorporated in this country, of which, at the material time, Mr Simms was chairman. Mr Simms was also at the time a practising solicitor and senior partner in the firm of Bower Cotton. Mr Rahman, a banker and the second defendant in that action, was Charlton’s managing director.

The agreement conferred on Charlton the right, upon exercise of the option, to purchase for $1.5 million certain tooling and other equipment (and associated know-how and technical drawings) for the manufacture of hospital beds and related equipment. The intention was that, with the aid of local investors, Charlton would set up a factory in Bangladesh to manufacture hospital beds and related items using the tooling and other equipment available for purchase under the option agreement. Mr Rahman, it seems, had financing and other connections in Bangladesh.

The option, which was for six months and was for a consideration of $10,000, was exercised in March 1998 with the result that Charlton became contractually obliged under the purchase agreement which thereby arose to open a letter of credit with which to pay for the tooling and other equipment which it had bound itself to purchase. It failed to do so. DGI contended that this amounted to a repudiation by Charlton of the agreement. Charlton denied that this was so and contended that the obligation to open the letter of credit did not arise until it was obliged to take delivery of and pay for the tooling and other equipment. Charlton also contended that DGI, having warranted under the agreement that it was the owner of the tooling and other equipment, was in breach of that undertaking because neither at the time that the option agreement was entered into nor at any other material time did it own the other equipment.

On 18 September 1998 DGI terminated the contract in reliance on what it alleged was Charlton’s repudiation of it. Claiming that it was not in breach of any obligation to open the letter of credit, which was the basis of DGI’s allegation of repudiatory breach, Charlton countered that DGI’s act of termination was itself a repudiation of the agreement.

These events led to proceedings by Charlton in New York alleging that DGI had unlawfully terminated the agreement and that DGI with Alex and Haig had fraudulently induced Charlton to enter into the option agreement by falsely representing that DGI owned and possessed everything which was to be sold to Charlton under it. The proceedings were stayed pursuant to an arbitration clause in the option agreement but on terms that Alex and Haig would agree to submit to the arbitration the claims for fraudulent misrepresentation made against them by Charlton in the New York proceedings.

In due course an arbitrator was appointed and a few days later, on 22 April 1999, the arbitration began. It was held in London. (There was an attempt by DGI to have the venue of the arbitration moved but that was dismissed.)

In the arbitration Charlton claimed that DGI was in breach of the agreement in that, contrary to the warranties it had given, it did not own all the general equipment and also that it had no right to terminate the agreement. Charlton also alleged that, with the intention of inducing Charlton to enter into the option agreement, Alex and Haig had fraudulently misrepresented to Charlton that DGI owned the general equipment when it did not and that Charlton relied on that misrepresentation when entering into the option agreement. Against DGI Charlton claimed damages for breach of the agreement, and against DGI, Alex and Haig it claimed damages for deceit.

DGI counterclaimed for damages for breach of the agreement and for fraudulent misrepresentation. It alleged that, acting by Mr Simms and Mr Rahman (who, however, were not parties to the arbitration), Charlton had dishonestly misrepresented (1) that Mr Simms and Mr Rahman each owned major shareholdings in Charlton (“the major shareholding representation”) and (2) that Charlton was a sound trading company which was creditworthy and capable of performing its financial obligations under the agreement (“the trading and creditworthiness representation”). It claimed that, acting in reliance on those representations, it entered into the option agreement. It alleged that the representations were false in that (1) Mr Simms and Mr Rahman did not hold shares in Charlton but, instead, all of Charlton’s issued share capital was at all material times until 24 August 1999 owned by Ancon Corporation Inc (a Panamanian company) and Jack and Helga were at all material times shadow directors of Charlton and/or exercised direction and control over Charlton’s management through their (or her) ownership and/or control of Ancon and (2) throughout 1997 Charlton was not trading and, in any event, was not creditworthy because between the date of the option agreement and the date of DGI’s termination of it Charlton was unable to procure the issue of the stipulated letter of credit and was not capable of performing its financial obligations under the agreement.

The arbitration continued for many months until, on 4 July 2002, the arbitrator dismissed Charlton’s claims as a result of its failure to comply with earlier orders for the payment of security and costs. That left DGI’s counterclaim. On 13 June 2003, in the first of a series of awards, the arbitrator found that Charlton was in breach of contract by failing to open the letter of credit, that DGI had been entitled to treat this as a repudiation of the agreement and, as a result, to terminate the agreement and treat itself as discharged from further obligations under it, and that DGI had itself been induced to enter into the option agreement as a result of fraudulent misrepresentations made by Charlton acting by Mr Simms and Mr Rahman, namely (1) the major shareholding representation, and (2) the trading and creditworthiness representation (except that he dismissed DGI’s claim insofar as it alleged that Charlton was dormant rather than an active trading company). The arbitrator also found that Charlton, through Jack, was aware before entering into the option agreement that DGI did not own all of the assets which were the subject matter of the agreement and that, in any event, Charlton, through Mr Simms and Mr Rahman, knew before exercising the option that the general equipment to be purchased under the agreement was to be acquired at a later date. He found that Jack and Helga were the parties who controlled Charlton and from whom its directors obtained their instructions.

By a series of later awards (dated variously between 29 August 2003 and 11 March 2004) the arbitrator awarded DGI substantial damages and its costs of the arbitration. He assessed the damages in the sum of $1,358,085, together with interest. He assessed DGI’s costs of defending Charlton’s claims in the arbitration in the sum of £1,053,017 together with interest and DGI’s costs of its counterclaim in the sum of £184,062, again with interest. In both cases costs were assessed on the indemnity basis. He also awarded DGI $410,057, with interest, by way of financing costs relating to the financing of the costs of its defence of Charlton’s claims in the arbitration.

Charlton was unable to meet the awards. DGI therefore launched the current proceedings to effect recovery from the appellants and Mr Rahman. The proceedings were subsequently amended.

As originally constituted, the principal allegations were as follows. Having referred to the option agreement, its subsequent exercise by Charlton and later termination by DGI and also to the arbitrator’s findings, in particular those concerned with the major shareholding representation and the trading and creditworthiness representation, it was alleged that the appellants and Mr Rahman were bound by those findings. Alternatively, if they were not so bound, it was alleged that those representations had been made and were false. In the course of giving particulars of fraud, the respondents alleged that Jack and Helga were beneficially interested in or entitled to trusts which controlled Ancon, the entity which held the shares in Charlton. It was also alleged in the course of those particulars that the respondents believed that Jack’s involvement in relation to the option agreement was as a go-between for DGI and Charlton. It was alleged that the fact of Jack and Helga's involvement in Charlton was not disclosed to the respondents. However, it was not initially alleged that there was any representation that Jack was only an intermediary for Charlton. That only came by amendment in April 2005. There was a further claim that Jack and Helga were liable for the wrongful acts of Mr Simms and Mr Rahman on the basis of vicarious liability. In the course of particulars of control and direction, the respondents alleged that Charlton was owned by Ancon and that Ancon was controlled by family trusts of Helga in which Jack was beneficially interested or entitled. There was a claim to lift the corporate veil of Charlton on the basis that the appellants and Mr Rahman were parties to a conspiracy to injure the respondents by means of the pleaded misrepresentations (referred to by the judge as Conspiracy I) and also that they had conspired to injure the respondents by the manner in which they had conducted proceedings relating to the arbitration and option agreement in New York and London and in relation to the way that they had conducted the arbitration (referred to by the judge as Conspiracy II). The respondents also claimed damages against the appellants and Mr Rahman for abuse of process and for procuring breach of the option agreement. It was also alleged that the appellants and Mr Rahman were joint tortfeasors.

Following issue of the proceedings, the respondents applied, on a without notice basis, for worldwide freezing orders against the appellants and Mr Rahman. On 3 February 2004, Lindsay J granted these orders until the return date or further order. On the return date, 13 February 2004, Lewison J renewed the orders, again until further order. Each order applied to assets up to a limit of US$5.5 million. At the hearing before Lewison J, Mr Simms was present; he had filed evidence and addressed submissions, but Jack and Helga were absent and took no part at that stage. Mr Simms submitted that no reliance should have been placed on the arbitration award because it was not binding on the appellants or Mr Rahman. The judge rejected this and held that there was a good arguable case for the grant of the freezing orders. Mr Simms further submitted that the order of Lindsay J should be discharged for non-disclosure, particularly of the fact that during the arbitration the principal funding for Charlton had come from a company called Eastcastle Finance Limited, with which Jack and Helga had no connection. Lewison J rejected this argument and held that, even if there had been material non-disclosure, he would still have exercised his discretion in favour of continuing the freezing orders until trial or further order. Mr Simms sought permission from this court to appeal from Lewison J’s order. His application came before Dyson LJ who held that the judge was correct in saying that in the unusual circumstances of the case there was a good arguable case for saying that the appellants and Mr Rahman were privy to the arbitration (and thus bound by the findings of the arbitrator).

No further application was made to discharge the freezing orders prior to the conclusion of the trial.

The trial extended over several weeks. By then judgment in default with damages to be assessed had been entered in respect of the claims against Mr Rahman. By his main judgment (a long and extremely detailed analysis of the facts and arguments extending to some 762 paragraphs) Warren J, taking a somewhat different view of the facts to that of the arbitrator, dismissed all of the claims except the claim, introduced by amendment in April 2005, based upon the intermediary representation. As to that, reviewing the communications passing between the appellants and Alex and Haig before and immediately following the making of the option agreement, he found (at J(1)466) that Jack and Helga were not mere intermediaries in relation to the acquisition of the tooling and general equipment (the subject matter of the option agreement) and that they (or Helga alone) had, as indirect owners of Charlton through Ancon, a personal interest in the acquisition. He held (at J(1)467) that “it would be quite wrong to say that Jack was only an intermediary whose sole concern was to see to it that a deal was brokered …”. He held that Jack had made the representation intending that it should be relied upon by the respondents and that it was relied upon by them in deciding to enter into the option agreement. At J(1) 572 he found that Mr Simms knew, before the conclusion of the option agreement, that Jack was representing that he had no involvement in Charlton, continued to negotiate the option agreement on that basis, knew that it was incorrect, failed to correct the misrepresentation thereby engendered and thus knowingly permitted DGI to enter into the option agreement in that mistaken belief. At J(1) 575 to 579 he found that Mr Simms and Helga were both liable as joint tortfeasors to the respondents for deceit based upon the intermediary representation. He did soon the basis that the respondents were to be treated as relying on Mr Simms and Helga as much as on Jack. He also found that Mr Simms was additionally liable to the respondents on the basis that he had adopted the intermediary representation.

He rejected the claim that there was an issue estoppel that resulted in the appellants being bound by the arbitrator’s findings. He declined to lift the veil of incorporation. He also dismissed claims made by Alex and Haig personally.

On the question of loss and damage caused to DGI by the intermediary representation, the judge held (at J(1)760 to 761) that, of the items claimed, only the costs incurred by DGI in the New York proceedings and the arbitration (subject to one exception) were recoverable.

In his second judgment, itself running to 102 paragraphs and delivered on 8 March 2007, the judge dealt further with the question of damages, explaining in more detail the reasons for his earlier decision and dealing with certain particular aspects of quantum. He also dealt with the costs (so far as not already the subject of earlier orders) and awarded DGI 75% of its costs of the action. He directed that they should be assessed on the indemnity basis. The judge also dealt with permission to appeal, giving the appellants permission limited to three aspects of his judgment. He also gave DGI permission to appeal in relation to two matters although, in the event, DGI has not pursued those matters to an appeal.

That was not an end of Warren J’s involvement in this long running dispute. Following delivery of his second judgment the appellants applied to discharge the freezing orders made against them by Lindsay J on 3 February 2004 and renewed by Lewison J on 13 February 2004. They also sought orders for inquiries on the cross-undertakings in damages which the respondents had given when initially applying for and subsequently obtaining renewal of those orders. They did so on two grounds: (1) that the only claim by DGI that succeeded was the claim based on the intermediary representation which was only introduced into the proceedings by way of amendment of the particulars of claim in April 2005, with the result that the freezing orders granted had been on the basis of claims which failed and (2) that, in any event, there had been material non-disclosure when the without-notice orders had been obtained from Lindsay J.

In his third judgment, supplemented by the fourth judgment, both delivered on 11 July 2007 and together running to a further 130 paragraphs Warren J dismissed the applications and continued post-judgment the freezing orders, by this stage in support of the financial awards made in DGI’s favour but limited to £2.5 million. He ordered an interim payment of damages in the sum of £650,000. The judge dealt at the same time with further issues arising out of costs, directed an interim payment on account of costs in the sum of £885,000, dealt with further issues on interest arising out of DGI’s financing charges in connection with its costs of the arbitration, dismissed a further attempt by the appellants to persuade him to revisit the extent to which he had earlier given them permission to appeal, ordered a stay, pending the appeal, of further proceedings for the detailed assessment of costs and damages (the latter insofar as it extended to damage consisting of DGI’s costs of the arbitration) and granted an extension of time for the appellants to file notice of appeal.

That was not the end of the matter at first instance. Subsequent to the trial before Warren J, further documents came to the notice of the respondents which, they contended, could and should have been disclosed in the action prior to trial. We deal with this further aspect of the dispute, and with the further court hearings that it engendered, in the section of this judgment headed “Application to strike out the notices of appeal” starting at paragraph 211 below.

We have analysed the grounds of appeal as consisting of some seven issues. We propose to give judgment by reference to those issues in turn, and then deal with the related applications. For convenience, we list those seven issues at this point:

On some of these issues, permission to appeal was given by the judge. On the other issues, permission was given to Mr Simms by order of the Master of the Rolls and Thomas LJ, dated 12 March 2008. The permission so given was subsequently extended to the other appellants.

At the heart of this part of the appeal is an attempt by the appellants to overturn the judge’s conclusion that they were guilty of the tort of deceit. Both Mr Simms and Mr Cakebread invite the court to bear very much in mind not only the established principles of deceit but also the high standard of proof required in a deceit claim. They were each at pains to remind the court (the members of which needed no reminding) of the gravity of making findings of dishonesty. This is a subject to which we shall return later in this judgment.

The essentials of an allegation of fraud were described by Lord Herschell in Derry v. Peek (1889) 14 App Cas 337 at 376:

“First, in order to sustain an action of deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false.”

Further, the person alleging fraud must prove that the statement was made with intent that it should be acted upon by him (see Peek v. Gurney (1873) LR HL377 at 411-413) and that he did act in reliance upon it.  In considering whether a fraud has been established Mr Cakebread places heavy reliance upon the observations of Lord Nicholls in Re H (Minors) [1996] AC 563 at 586D:

“The balance of probability standard means that a court is satisfied an event occurred if the court considers that on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on a balance of probability. Fraud is usually less likely than negligence.”

This passage was examined by the House of Lords in Re B (Children) (Care Proceedings: Standard of Proof) [2009] 1 AC 11. Their Lordships affirmed the decision in Re H and provided an explanation of what Lord Nicholls’ judgment meant. Baroness Hale (with whom the other Law Lords agreed) explained that nothing in Re H suggests that a different standard of proof is to be applied in circumstances where the alleged conduct is particularly serious or unusual. There is one standard of proof and that is the simple balance of probabilities. The fact that the alleged conduct is particularly serious or unusual does not displace or change this fundamental principle. Baroness Hale stated that the inherent probabilities are simply one factor to be taken into account, where relevant, in deciding where the truth lies. However generally “there is no logical or necessary connection between seriousness and probability”. Therefore arguments that Re H had introduced a principle that where a serious allegation is in issue the standard of proof required is higher were incorrect.

With those principles well in mind, we consider Mr Simms’ and Mr Cakebread’s argument that there was insufficient evidence before Warren J to justify his findings of fraud against the three appellants.

As we have indicated, the pleaded case against the appellants contained numerous allegations of dishonesty and conspiracy. The judge painstakingly analysed the evidence he had heard during the six week trial and rejected all the allegations save for the one allegation of fraudulent misrepresentation with which we are concerned. It was contained in para 8C b of the re-re-amended particulars of claim which read: “the Defendants represented expressly or impliedly or by conduct to the Claimants that they or either of them were mere intermediaries when in fact they owned and controlled Charlton”. This is what we have earlier referred to as “the intermediary representation”.

Mr Cakebread repeatedly emphasised the fact that this allegation only surfaced in April 2005. It did not feature in the arbitration proceedings and it did not feature in this litigation until the re-amendment. However, we note that it is not just DGI which has shifted its position in the course of this dispute. As we have already indicated, before Warren J the case for all three appellants was that Jack had no interest in Charlton, that he was, in fact, a mere intermediary between the parties and that his communications with the respondents were consistent with that fact.  On that basis they argued that Jack was not a counterparty to the agreement with DGI. Any representation he made to the effect he was a mere intermediary was true.

However, the judge removed the first and main plank of the appellants’ defence by finding that Jack and Helga did in fact own and control Charlton. If Jack represented he was a mere intermediary, therefore, such a representation was false. There is, and could be, no appeal against those findings. On the basis of the documents belatedly disclosed, to which we refer below in connection with the application by the respondents to strike out the notices of appeal, there is now even stronger evidence that, contrary to the appellants’ case at trial, Jack and Helga did own and control Charlton at the relevant time. As a result Jack and Helga have abandoned their common cause with Mr Simms. They now blame him for the material non-disclosure about their interests and accuse him of gross dishonesty. Mr Simms maintains his stance that he genuinely believed that what Jack and Helga said about their interests in the various companies was correct.

In presenting their appeal the appellants have, therefore, been forced to regroup and they have launched an attack upon the judge’s findings of fact on the basis that the judge was said to be wrong to conclude that the intermediary representation was made and that all three appellants were party to the deceit.

Both Mr Simms and Mr Cakebread accept that they have a heavy burden in trying to persuade this court to overturn findings of fact made by a very fair, careful and experienced judge who heard evidence and submissions over a period of six weeks. He had the inestimable advantage of seeing and hearing the witnesses give evidence. We did not. Guidance on the approach of appellate courts to findings of fact made by a trial judge takes this factor very much into account.

Lord Steyn said in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 (“Smith New Court”), at 274H–275A:

“The principle is well settled that where there has been no misdirection on an issue of fact by the trial judge the presumption is that his conclusion on issues of fact is correct. The Court of Appeal will only reverse the trial judge on an issue of fact when it is convinced that his view is wrong. In such a case, if the Court of Appeal is left in doubt as to the correctness of the conclusion, it will not disturb it.”

Lord Mance in Datec Electronics Holdings Limited and others v. United Parcels Services Limited [2007] UKHL 23; [2007] 1 WLR 1325 at para 46 cited with approval the following passage from the judgment of Clarke LJ (as he then was) in Assicurazioni Generali SpA v. Arab Insurance Group [2003] 1 WLR 577. Clarke LJ said this:

“15.

In appeals against conclusions of primary fact the approach of an appellate court will depend upon the weight to be attached to the findings of the judge and that weight will depend upon the extent to which, as the trial judge, the judge has an advantage over the appellate court; the greater that advantage the more reluctant the appellate court should be to interfere. As I see it, that was the approach of the Court of Appeal on a ‘rehearing’ under the Rules of the Supreme Court and should be its approach on a ‘review’ under the Civil Procedure Rules.

“16.

Some conclusions of fact are, however, not conclusions of primary fact of the kind to which I have just referred. They involve an assessment of a number of different factors which have to be weighed against each other. This is sometimes called an evaluation of the facts and is often a matter of degree upon which different judges can legitimately differ. Such cases may be closely analogous to the exercise of a discretion and, in my opinion, appellate courts should approach them in a similar way.

“17.

In Todd’s case [2002] 2 Lloyd’s Rep 293, where the question was whether a contract of service existed, Mance LJ drew a distinction between challenges to conclusions of primary fact or inferences from those facts and an evaluation of those facts, as follows, at pp 319-320, para 129:

‘With regard to an appeal to this court (which would never have involved a complete rehearing in that sense), the language of “review” may be said to fit most easily into the context of an appeal against the exercise of a discretion, or an appeal where the court of appeal is essentially concerned with the correctness of an exercise of evaluation or judgment - such as a decision by a lower court whether, weighing all relevant factors, a contract of service existed. However, the references in rule 52. 11 (3) (4) to the power of an appellant court to allow an appeal where the decision below was “wrong” and to “draw any inference of fact which it considers justified on the evidence” indicate that there are other contexts in which the court of appeal must, as previously, make up its own mind as to the correctness or otherwise of a decision, even on matters of fact, by a lower court. Where the correctness of a finding of primary fact or of inference is in issue, it cannot be a matter of simple discretion how an appellate court approaches the matter. Once the appellant has shown a real prospect (justifying permission to appeal) that a finding or inference is wrong, the role of an appellate court is to determine whether or not this is so, giving full weight of course to the advantages enjoyed by any judge of first instance who has heard oral evidence. In the present case, therefore, I consider that (a) it is for us if necessary to make up our own mind about the correctness or otherwise of any findings of primary fact or inferences from primary fact that the judge made or drew and the claimants challenge, while (b) reminding ourselves that, so far as the appeal raises issues of judgment on unchallenged primary findings and inferences, this court ought not to interfere unless it is satisfied that the judge’s conclusion lay outside the bounds within which reasonable disagreement is possible. In relation to (a) we must, as stated, bear in mind the important and well-recognised reluctance of this court to interfere with a trial judge on any finding of primary fact based on the credibility or reliability of oral evidence. ….”

Warren J, in his analysis of the oral evidence, expressed reservations about the credibility of most, if not all, of the witnesses. Neither side had a clean sheet. Not surprisingly, he looked to the available contemporaneous documentation for possible support of the various accounts. He found (J(I) 537) that “Jack’s communications (faxes emails and conversations) with Alex and Haig are objectively to be taken as implied representations that he was only an intermediary” At J(1) 539 he said: “There were communications which failed to reveal Mr Dadourian and Mrs Dadourian’s true involvement and which give the impression that Mr Dadourian was only an intermediary without saying so expressly.” The respondents argue it was not only open to him so to find but also that the finding was inevitable given the material before him.

The appellants have been inclined to focus on just two emails of 1 and 8 August 1997 upon which the judge said he “principally relied”. However it is important to consider those two emails in context. The judge dealt with the build up to the signing of the option agreement between 31 July 1997 and mid September 1997 under the heading “Formation of the Option Agreement” (J(1) 58 - 118). We take our summary of events relevant to this appeal from his judgment. 

Mr Rahman met with Jack and Helga in Paris at the end of July 1997 “to discuss a number of possible ventures”. Jack raised the subject of “the Tooling” which gave rise to the idea of Charlton’s acquiring it. This led to a phone call on 31 July between Jack (at which Helga and Mr Rahman were present) and Alex (and possibly Haig) during which Jack introduced Mr Rahman to Alex for the first time.

On 1 August 1997, Alex received an email sent by Jack. It is headed “TOOLING”. Jack wrote:

“I believe that we have finally hit the jackpot. A friend of mine (Bangladeshi) has fallen in love with the package and he envisions he and his family will really make much money from the WHOLE deal.

He has a banker friend [in London] with whom I spoke on the phone from Paris yesterday while Selim was here. I have given the package to him but certain things are not there which we had when we submitted to the people in Latvia or Estonia, I forget which. What I need is the total list of hospitals all over the world that we have been involved in.  You prepared this list so it is somewhere in your office. You also sent additional information as to what other machinery and other items would be necessary. I need you to gather all this together.  Please send the above mentioned items and also if possible the brochures in color.

…….

The proposition is that they are going to raise official bank financing for about $5,000,000 to cover the cost of setting up a new factory [in Bangladesh] and getting into production. They like the idea of buy back and I think I have sold them on the fact that I could persuade DGI to take on the marketing on a world wide basis as you have the experience and know how and they will not need to set up a sales organisation.

Now I can only give you meagre information. In about a week I will be able to give you much more facts and numbers. Right now please try and give me some idea if first you have or know someone who can go to Bangladesh for a week or two to prepare a feasibility study… Maybe you could do it? Or do you think best a professional type who has a reputation and the qualifications?

I told them about the buy back and the way the deal is being structured is that the American company is moving the plant from America to Bangladesh because of the labour cost.

Send the package by courier to London. He is a client of Paul so he said to send it there. …….

……I do not need the brochure nor does he. He needs the color brochure of the beds, Electric and Manual. The FRED beds and any other beds that can be manufactured by this tooling. We may also be able to work out a deal whereby you could arrange for a specialist to manage the operation, for which DGI would be compensated…”

At J(1) 61 the judge observed:

“a.

The only Bangladeshi friend of Jack who has featured in this case is Mr Rahman. The impression is given that it is Mr Rahman and his family who hope to make a great deal of money from the whole project ie the setting up of a new factory using the production line acquired from DGI.

b.

The reference to such “other machinery and other items” necessary makes it clear, consistently with the proposals put to Herman Bal which I have mentioned, that Jack knew that DGI did not have in its possession the General Equipment, or at least not all of it, necessary to put together a production line using the Tooling (including the dies). That is consistent with the last reference to tooling.

c.

It is clear, however, that the proposal was that the investors would be setting up a new factory in Bangladesh with the aid of official bank financing.

d.

It is clear that buy back arrangements were mentioned at this early stage. What Jack did not say in this email is, as was in fact the case, that it was the investors in Bangladesh who needed to see a buy back arrangement in order to have certain guaranteed purchases of the output of the new factory, without which financing would not be available.

e.

There is no indication at all about who the potential investors might be or, indeed, would not be (although it would, I think, have been very surprising if, following that email, it had transpired that Jack himself was personally proposing to purchase the Tooling).”

Mr Cakebread  submitted in relation to each: observation (a) does not amount to, or support, any finding that Jack had misrepresented the position. No doubt Mr Rahman did intend to make a considerable profit for himself and his family from the proposal. He was going to be using his contacts in Bangladesh and was to play an entrepreneurial role in Charlton. He claimed that there is, therefore, no misrepresentation here. Observation (b) has no bearing on this issue. Observations (c) (d) and (e) he accepted as correct but suggested that they either take the matter no further or do not support a finding of misrepresentation.

On 5 August 1997, Mr Simms wrote to Jack and Helga. The letter was headed “ANCON/CHARLTON CORPORATION PLC”. In it he listed five possible business opportunities including the following:

“InterRoyal – As I understand it the equipment has been “mothballed” but is available for purchase at US$1.5 – US$2m and Selim explained the scheme to me whereby a Bangladeshi corporation with international funding would acquire the equipment and set up the venture in Bangladesh. In view of the indecision of Alex Dadourian in the past I think that it would be necessary to have a legally binding agreement that if the funding could be put together within a certain timescale the equipment would be sold for an agreed figure so that there cannot be a great deal of work carried out only to find that Alex has changed his mind.

An essential feature of the scheme, as I understand it, was a buy back of finished products. Bearing in mind that Alex and his management was not exactly successful, you would need to establish a new distribution network in the USA……”

The judge found that this letter lent support to the proposition that the DGI project was really Jack and Helga’s project. They were considering a number of possibilities for investment. Mr Simms was consulting them. None of these projects would have proceeded without Jack and Helga’s agreement.

On 8 August 1997, Jack sent two emails to Alex. In one, Jack referred to a visit to London for a meeting on the next Monday and Tuesday by one of “the principal Bangladeshi players…but I do not know who he is at this time”. If such a meeting ever took place, it was not dealt with in the evidence and the identity of the Bangladeshi “player” was never revealed to Alex and Haig. Jack stated that “so far it appears that I will be able to negotiate a price no less than $1.5 million for the tooling and drawings and all the technical and manufacturing rights and whatever else you can tell me comes with the package”. Jack told Alex there were a number of things he needs to attend to including:

“Provide some sort of valuation from some kind of official or recognised source. The object is to show the replacement value of about $10 or $15 million today. And a valuation of $7.5 million for usd [sic] reconditioned tooling. Of course you are correct that the $7.5 million will include technical knowledge and engineering and anything else you can think of.”

“Who will be the seller of the tooling? Will it be DGI or another entity? Remember the discussion we had. I can arrange for them to open two L/Cs, one to the seller and one to you personally in an offshore company. I think this is the best way after all you are the motivating factor and doing all the work mentally and creatively. You can also tell them later that from the sum received (officially in NY) you need to pay JD something for his efforts. Alex I am looking at it impartially and that is the way I see it. Of course it is up to you to decide and determine what you want to do.”

“You will need to give an option on the Tooling package for a minimum of 12 months. The reasons are obvious. They will need two real feasability [sic] studies and reports.  They will also need time to get official approvals from Bangladeshi officials for the land and construction of this new plant.”

“The Bangladeshis are also forming a consortium of about 4 very rich and powerful people to be the JV partner of Charlton Corporation Plc of the UK. On Monday the finance director of Charlton will bring with him a VP of a very prominent international banking institution who is to be the lead lender for this project if all the pieces fit together. It is too complicated for me and all I want to see is that you get $1.5 million.”

“The other important matter is the buy back deal. This is really one of the most important features of the deal… The important thing is to give the Bangladeshis an assurance or something stronger about how many electrical and how many manual beds you could sell in your market in a year…”

Mr Samek invited our attention to the suggestion that DGI would need to pay “JD something for his efforts” and Jack’s assertion “Alex I am looking at it impartially”. In the other email, Jack refers to the brochures which he had received and to the costing of the machinery needed for the operation of the factory.

Both Mr Simms and Mr Cakebread argued that the substance of the first email represented the true position because the finance for the project as a whole was coming from Bangladesh. They miss the point. The point is what, if any, representation was made as to Jack’s role. Warren J concluded that Alex was likely to have understood from the emails that Jack was an impartial negotiator. This was reinforced by the suggestion that Jack would receive a commission for his role in concluding the deal.

There followed a board meeting of Charlton dated 12 August 1997 the minutes of which record Mr Simms and Mr Rahman discussing shareholdings and Ancon. On 13 August 1997 a meeting was held at the offices of Bower Cotton. Mr Simms, Mr Rahman, Jack and Helga were present. A conference call then took place. Jack and Helga were present with Mr Rahman and Mr Simms in London and Alex and Haig were together in New York. There was a dispute whether Alex and Haig knew that Jack or Helga were present at the other end of the conference call. Alex and Haig told Warren J that they were not aware; the others claimed Jack and Helga said “hello” but acknowledged that they did not take part in the conversation. The relevance of this is that the respondents allege the failure to make their presence known was another aspect of the secrecy and non-disclosure of Jack and Helga’s part in the transaction other than as intermediaries. During the call Mr Simms discussed the detail of the proposed deal with the Dadourians in New York. Alex claimed that Mr Simms’ status as an English solicitor in a well-respected firm and the fact that he told Alex that he and Mr Rahman were major shareholders in Charlton were the primary considerations in his continuing discussions with Charlton and in causing DGI to enter into the option agreement with it. It was his (Alex’s) evidence about the contents of this call which essentially founded the allegations (rejected by the judge) that the appellants and Rahman misrepresented the nature of the shareholdings in Charlton, Charlton’s credit-worthiness and manufacturing experience. 

Mr Simms produced the first draft of the option agreement which was sent to DGI.  He understood that Charlton would be purchasing an entire production line and that DGI owned everything necessary. He has placed great emphasis on the fact Alex and Haig misrepresented the position to him. There followed a series of communications between Mr Simms, Jack, DGI and DGI’s lawyer on the fine tuning. Mr Simms said he did not consult Jack in relation to the day to day discussions with Alex although, out of courtesy, he telephoned Jack and Helga during the first week of September to inform them of progress made.

On 9 September 1997, Mr Simms and Ms Darmanian, the lawyer instructed to represent DGI, spoke on the phone. On the same date Jack sent an email to Alex and Haig. It is headed “TOOLING/BANGLADESH/CHARLTON”.  It includes the following:

“This is the best opportunity we have had to make a real sale of this tooling and then participate in the program after they start producing these beds.”

“…..The Bangladeshis are serious and they are committed to have the factory and production going as soon as possible”.

“Secondly, they need the valuation [today’s values] of the entire package, the tooling, the cost of engineering to designing the tooling, the engineering drawing and so on and so forth, like the “know how”. You need to reach a value of about $9,000,000. We need to try and get an outside recognized or qualified source to corroborate and or concur with our estimation”.

He requested this information as a matter of urgency before Mr Rahman’s trip to Bangladesh, planned for 11 September. The judge found this was a clear example of Jack putting pressure on Alex and Haig not to lose the opportunity to do the deal with Charlton.

There followed more discussions on amendments until on 11 September 1997, a final draft was prepared by Mr Simms. It was signed by Mr Rahman on behalf of Charlton. Mr Rahman spoke to Alex and he too signed on behalf of DGI. A faxed copy is dated 11 September. Mr Cakebread and Mr Simms suggested that what happened thereafter is of no relevance to the intermediary representation issue. We disagree. We agree with the judge that what happened after the option agreement was signed may provide some valuable illumination on the extent of the common design if any.

On 13 September 1997, Jack sent an email to Alex. He said “Seems you have charmed Mr Selim Rahman.” and “I am very happy you are now in direct contact with Rahman and Paul on this matter. It takes a load of the pressure off my back. You are doing a great PR job”. He asked what happened about the “buy back clause” in the agreement saying “they” (meaning Charlton/Simms/Rahman) “had told me all along that this was absolutely necessary to show that DGI had a continuing interest and could be of material assistance in selling the product”. He forwarded this email to Mr Simms. In the forwarded message, Jack said that it appeared that the buy-back package had not been strongly worded in favour of Charlton and complained that Mr Rahman was trying to be too obliging instead of insisting on firm terms and firm commitment by DGI. He ended by saying:

“Alex is already trying to by pass me completely which is OK and very good.  I will keep you copied with all E-mails between him and me.”

Somewhat disingenuously, in our view, Mr Simms attempted to distance himself from this email to Alex which gives the clear impression that Jack was a mere intermediary. Mr Simms did nothing at the time to counteract that impression.

On 16 September, Jack sent another email to Alex including the following:

“…please give them the info as required. I am trying to have them have direct contact with DGI in order to eliminate any delay of time and also eliminate any chance of misunderstandings. Meanwhile I feel my neck is in the noose as they feel I have a personal responsibility to them as I brought the deal to them. Paul has explained that although I am related to you and know all about InterRoyal, I really am only acting as consultant for DGI.”

This email is the clearest possible confirmation that, all along, Jack had deliberately led Alex and Haig to believe that he was acting as a quasi agent for DGI in their negotiations with an independent third party, a third party which had nothing to do with him. Significantly this email was copied to Mr Simms. Jack said this to Mr Simms:

“Let me know if I am doing the correct thing by playing this game. I do not want to overdo it because he is a very suspicious character so will appreciate your comments.”

The respondents, rightly in our view, attached considerable importance to this email and the accompanying note. They focused on the phrase “playing the game” which, they argued, summarises perfectly what Jack and Mr Simms were up to, namely deceiving DGI and leading it, Alex and Haig, along a path upon which, had they known the truth of Jack’s true role, they would never have embarked.

Mr Samek took us through other correspondence before and after the agreement was signed in which Jack repeatedly referred to Charlton as “them” or “they” and DGI as “us” or “we”. When he feared the deal might go sour Jack put pressure on DGI by suggesting that he may not be able to keep “them”, i.e. Charlton, interested.

During the course of his oral submissions, it became apparent that Mr Simms was prepared to concede that Jack may have given DGI the impression he was a mere intermediary. He firmly denied, however, that he, Simms, was a party to any fraudulent misrepresentation by Jack and/or that Jack’s representations would have played any part in DGI’s decision to enter into the option agreement. Thus, as it seems to us, on this first ground relating to the interpretation of Jack’s conduct and the emails it is Mr Cakebread’s submissions with which we are principally concerned.

His arguments on this issue can be reduced to one sentence: the two emails on their face do not bear the meaning given to them by Warren J.  In our view, however, this ground is simply unarguable. Even the most cursory consideration of the correspondence gives the clear impression that Jack was a mere intermediary. It is implicit in all Jack’s communications with Alex and Haig, both before and after the conclusion of the option agreement. True it is the judge said he relied “principally” on the two emails but “principally” does not mean exclusively and they must be read in context. The judge took into account the entire history of the relationship and the negotiations. He did not refer to each and every one of the communications before him in his judgment but he cannot be expected to have done so.

In any event, the appellants could not provide an adequate explanation of the email of 8 August in which Jack said in the penultimate paragraph “On Monday the financial director of Charlton will bring with him a VP of a very prominent banking institution who is to be the lead lender for this project if all the pieces fit together. It is too complicated for me and all I want you see is that you get the 1.5 million”. The substance of the email may have been accurate, as Mr Cakebread argued, to the extent that financing was coming from Bangladesh and Charlton, but that does not explain the final sentence we have highlighted, the implication of which is plain.

It is also important to note that, on the judge’s findings, Jack’s misrepresentation had a crucial purpose. He had good reason to imply he was a mere intermediary. He knew that Alex and Haig would not do business with him as counterparty. He had to find another entity which his cousins would not associate with him; hence his repeated references to “them” and “us”. To all intents and purposes Jack and Helga were Charlton at the relevant time. Yet he led his cousins to believe that “they” (Charlton) might pull out of the deal. He suggested it was only his strenuous efforts that were preventing their doing so. This was nonsense. As the judge found, Helga and Jack “called the shots” in Charlton. Mr Simms and Mr Rahman answered to them. If Jack and Helga wanted the deal to go ahead it would have gone ahead.

Thus, a false representation was clearly made, albeit by implication, by Jack.

The next question was who was a party to his deceit. Before coming to the two issues on the appeal to which this question gives rise it is appropriate to draw attention to the judge’s overall conclusions and the evidence on which the judge placed reliance.

The judge found that Mr Simms, Mr Rahman, Jack and Helga “agreed between themselves not to reveal Jack and Helga’s involvement” (J(1) 568). Jack and Helga knew why. If the truth were known the deal would collapse. In coming to this conclusion, the judge relied on evidence showing a “course of conduct commencing at the beginning and following through for months and months until the truth came out in the context of the arbitration.” He noted the close involvement of them all from the start. He noted, inter alia, the meeting between Mr Rahman, Mr Simms, Jack and Helga and the subsequent conference call during which the two owner/controllers of Charlton played no part in the business discussions with their relations. He noted the reference in an email dated November 1997 to Jack’s “helping behind the scenes”. He noted the evidence of Mr Rahman.

Both Mr Simms (who called Mr Rahman as a witness) and Mr Cakebread took exception to the judge’s reliance on any part of Mr Rahman’s evidence. There were times when their submissions bordered on the assertion that once a judge has found a witness to be a liar in some respects he or she is obliged to reject everything the witness says. If that was the case then the respondents could have argued that the evidence of both Mr Simms and Helga should have been rejected in its entirety. Fortunately for them that is not the law. The judge was entitled to do as he did. He explained in detail his approach to the witnesses and why he accepted or rejected certain aspects of what they said.

Mr Rahman acknowledged in his evidence that he, Mr Simms, Jack and Helga deliberately gave DGI the impression that Jack and Helga were mere “middlemen”. Although they each had opportunities to correct the falsity and reveal the truth, they never chose to do so. Mr Simms also acknowledged in his evidence that Jack had not been straight with his cousins. He went further and accepted that Jack should have disclosed “that he was interested through Helga’s interest in the family trust side of the venture.” He also said that Jack’s email of 1 August 1997 was “not an entirely appropriate communication for Jack Dadourian to have sent at the time.” It was not “entirely appropriate” because it gave the false impression that he was acting as a mere intermediary. This evidence coupled with the documents to which we have referred provide ample proof that Jack was deliberately and dishonestly deceiving DGI and his cousins.

We now turn to the finding that Mr Simms was liable for the intermediary representation. Warren J found him liable on two distinct bases: first, he held that Mr Simms, Mr Rahman, Jack and Helga were joint tortfeasors in that they shared a common design to deceive the respondents not only by not disclosing Jack and Helga’s involvement, but also by misleading the respondents into thinking that they had no involvement other than as intermediaries (J(1) 575 a. and b.). Second, and in the alternative, he held that Mr Simms had adopted Jack’s misrepresentation as his own (J(1) 575 c. and d.).

The judge held that Mr Simms knew “from the very beginning” that Jack was not a mere intermediary; he knew that he and Helga owned and controlled Ancon and Charlton; he knew that Jack and Helga were in fact centrally interested in the transaction; he knew the impression that Jack was giving. Yet, he continued negotiating with DGI and amending the draft agreement without disclosing the truth. Mr Simms has never provided a satisfactory explanation of these obvious truths.

Nevertheless Mr Simms argued that it was not open to the judge to find that he was a party to what Jack was doing. He reminded the court of the judge’s findings that he had not been copied in on the emails of 1 and 8 August, sent before the conclusion of the option agreement. Further, he reminded us that the judge found that he would have had no reason to think that Alex and Haig were on anything other than good terms with Jack or that they would, as a matter of policy, refuse to do business with him.

Mr Simms drew attention to the fact that the various parties had been less than consistent in their evidence as to what happened during the conference call of 13 August. He suggested that the judge paid insufficient attention to the inconsistencies and accordingly made erroneous findings of fact about the call. Other than disagreeing with the judge’s conclusions it was not clear to us what the basis was for his attack. The judge well understood the divergence in the evidence, namely that people gave differing accounts of whether Jack and Helga had said a brief “hello” or had stayed silent. Either way, as Mr Samek observed, the key point was that they did not participate in the conversation, thereby reinforcing the intermediary representation.

Mr Simms was also anxious us to assure us that he would have had no reason to become involved in a fraud. He claimed that he had no financial involvement in the project.

Finally, Mr Simms appeared to be at a loss to understand why the judge did not accept his evidence on this aspect of the case given that he accepted it on others. He was forced to concede, however, that the judge was extremely fair to him. The judge declined to infer from Mr Simms’ past actions that he must have been dishonest in this litigation. As we have already observed, he considered very carefully what evidence he should accept and what he should reject, what was supported by other evidence and what was not. Inevitably, his assessment of Mr Simms’ credibility was coloured by the fact that he had been less than frank on a number of significant matters including disclosure. On that front, as a later part of this judgment will show, things have not improved for Mr Simms since the trial.

There is a fundamental flaw in Mr Simms’ submissions which is the way in which he glossed over his central role in the affairs of Helga and Jack generally and in this transaction. He had been Jack and Helga’s trusted legal adviser for many years. He was Chairman of Charlton. He was Charlton’s legal adviser. He knew Jack and Helga owned Charlton. He was present at the conference call when their involvement was concealed. He negotiated the terms of the agreement and questions of commission directly with Alex and his lawyer. He was copied into Jack’s email to Alex of 13 September. He expressed no surprise and made no response. The lack of any response, if true, supports the inference that the “game” Jack was playing was understood by and known to Mr Simms because he was a party to it.

Mr Simms continued to negotiate the option agreement on what he must have known was a false basis, namely that Jack and Helga were not centrally involved in the transaction and that Jack was giving the impression he was a mere intermediary. Knowing the importance of Mr Simms’ role in the negotiations, it is highly improbable that Mr Rahman and Jack would have kept him in the dark. He had to be involved for the plan to work. Mr Rahman said as much. If Mr Rahman knew what Jack was doing, so too did Mr Simms. Mr Simms’ own evidence suggested as much. Finally the suppression of the incriminating emails which were not disclosed by the appellants as they should have been and only emerged (fortuitously) in the course of the trial is undoubtedly significant

In our judgment, therefore, there was ample evidence to justify the judge’s finding that Mr Simms was a party to the common design and/or adopted Jack’s misrepresentation. Mr Simms did not suggest that the judge misdirected himself on the law. Accordingly, far from being irrational or perverse, we are satisfied the judge’s conclusions flowed inevitably from the evidence called and the documents produced.

The judge held that Helga was a joint tortfeasor with Jack and the others in that they all shared a common design to deceive the respondents not only by not disclosing Jack and Helga’s involvement, but also by misleading the respondents into thinking that they had no involvement other than as intermediaries. Helga, he found, acted in concert with Jack (and with Mr Simms and Mr Rahman) in relation to the tort of deceit (J(1) 579).

Mr Cakebread was at one stage concerned that the judge may have misunderstood or misapplied the law as to joint tortfeasors. In J(1) at 473 the judge purported to give an example of when a party may become jointly liable as a tortfeasor. He said this:

“Suppose that A contracts to purchase goods from B and that B enters into the contract pursuant to a fraudulent misrepresentation by C. Suppose that A knows of the misrepresentation prior to making the contract (even if it was actually made without his prior knowledge). It must surely be the case that A should correct the misrepresentation, or take steps to ensure that B cannot be taken to be relying on it, if he is to escape liability as if he himself had made the misrepresentation. In my judgment, Helga’s position is really no different. As an indirect owner of Charlton through Ancon, her interest in the Option Agreement was such as to put her into such proximity with that Agreement as to render her liable for Jack’s misrepresentations. I would reach the same conclusion even if Charlton had fallen under the Brinton structure, particular in the light of the fact [that] the total absence of consultation with the directors of Brinton in relation to the affairs of the trust and its subsidiaries.”

Mr Cakebread tentatively submitted that this passage implied the judge acted on the basis that a failure by Helga to disclose the true state of affairs, without more, would suffice to establish her liability for the tort of deceit. He reminded the court “mere silence, however morally blameworthy, will not support an action of deceit” (per Viscount Maugham in Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205). Thus, he argued, absent a finding of common design or breach of fiduciary duty no action for deceit will lie.

It may be that the judge could have expressed his example more felicitously. However, it is clear to us from the judgment as a whole that he had well in mind the principles of joint liability for the tort of deceit. It is sufficient for a person to be liable as a joint tortfeasor if another commits a wrongful act pursuant to a common design between the two of them that such act be committed. It is not necessary for that person also to have committed a wrongful act: see The Koursk [1924] P 140, 155 and CBS Songs v Amstrad [1988] AC 1013, 1054 (per Lord Templeman). It is clear that the judge found Helga liable as a joint tortfeasor on the basis of common design whether or not he included those words in the example. He did not find her responsible simply on a failure to disclose. He was alive to the fact that a mere failure to inform Alex and Haig would not of itself be sufficient to found liability (see J(1) 468). During the course of his oral submissions Mr Cakebread virtually conceded that this was the case. We are satisfied, therefore, that the judge did not err in his application of the law.

We turn to the factual basis of the finding. Here Mr Cakebread advanced a number of propositions which come to this: there was insufficient evidence, direct or indirect, from which the judge could properly infer and conclude that Helga knew that her husband had falsely represented to DGI that he was only an intermediary. He claimed that the judge appeared to be relying almost exclusively on the fact that Helga is Jack’s wife and the fact of their joint ownership and control of Ancon and Charlton. The respondents argued that the latter was of itself a powerful finding from which it would have been appropriate to draw the conclusion that Helga was involved.

Mr Cakebread reminded us that the judge did not find that Helga had any foreknowledge of the two emails of 1 and 8 August 1997. Indeed, he did not find that she had any knowledge of their contents at any time. This it was said accorded with the fact that there was no evidence that she did. Yet, the trial judge found that she knew what Jack was “saying and doing” (J(1) 472). He said this:

“However, the evidence about their relationship both in the years before the conclusion of the Option Agreement and since then, leads me to conclude that it is most unlikely that Helga was not fully in the picture about what Jack was saying and doing in relation to the acquisition of the Tooling and General Equipment. In particular I conclude (a) that she was well aware that Jack had not told Alex and Haig that her family trust (let alone she herself, whether with or without Jack) had an interest in Charlton (b) that she knew that Jack was in regular communication with Alex and Haig and that he was presenting the proposal as one in which he was operating simply as a broker”

Mr Cakebread suggested that the difficulty with this as a proposition was that if, as the judge found, Jack merely implied that he was an intermediary, it is harder to link his representations to another party. He submitted that Helga’s involvement in the affairs of Charlton, before or after the option agreement was concluded, added nothing to the absence of any direct involvement or knowledge of the conduct of Jack in the two specific communications with Alex and Haig.

We identify two errors in this approach. First, the judge may have relied principally on the two emails but it was the whole course of conduct which was relevant. Second, one cannot simply gloss over Helga’s central role. The judge found this at J(1) 473:

“Further, she herself was as much involved in the strategic decisions about investment in Ancon and then Charlton as was Jack. She, either alone or together with Jack, was able to procure the investment of what she described as the seed capital into Charlton and it is clear that she was able to bring the project to a halt at any time. Even if this is not a case where the corporate structure of Charlton is to be ignored – so that the corporate veil is not lifted – it is a case where Helga’s interests are to be closely identified with those of Charlton. Helga, it seems to me, knew that Jack had misrepresented the position: she knew, or must be taken simply to have closed her eyes to the reality, that he was pretending to have no concern in the acquisition other than as an intermediary^”

We reject Mr Cakebread’s categorisation of the trial judge’s finding that Helga knew that Jack had falsely represented that he was only an intermediary as mere supposition, conjecture and unjustified assumption. Mr Cakebread appeared to be equating proper inferences with conjecture and assumption. At times he came close to suggesting that fraud can only be established where there is direct evidence. If that were the case, few allegations of fraud would ever come to trial. Fraudsters rarely sit down and reduce their dishonest agreement to writing. Frauds are commonly proved on the basis of inviting the fact-finder to draw proper inferences from the primary facts. That is exactly what the judge did here.

The first and most important fact upon which the judge was entitled to rely was the long standing and close connection between Jack and Helga. Virtually no distinction was drawn between them at trial and nor could there have been. They were content to stand and fall together. Their interests appeared to remain indistinguishable. There was no rational or logical basis to suppose that Helga’s knowledge of matters was in any way different from Jack’s. They attended the same meetings and conference calls. They met Mr Rahman together. The essential emails emanated from Helga’s email account. Despite their protests to the contrary it is clear Jack and Helga’s financial affairs were and are inextricably linked. They made common cause both financially and in defending their own actions. They signed statements of truth to their amended defence telling the same lies about this transaction. At trial those lies were repeated by Helga (their main witness) on behalf of both of them.

Far from it being perverse for the judge to have concluded that Helga was a party to Jack’s plan to deceive the respondents, in our view it would have been arguably perverse to find that she was not. Jack may have been in the driving seat when it came to negotiations on this deal but Helga was no shrinking violet in business matters.  This was not a case of a wife being ignorant of her husband’s business dealings or being unknowingly manipulated by the husband for his own purposes. We shall give but a few examples of her active involvement in their affairs, as provided for us by the respondents: (1) a letter headed “Ancon/Charlton Corporation plc” dated 5 August 1997 from Mr Simms which referred to the purchase of the InterRoyal equipment was addressed to both Jack and Helga; (2) the meeting in Mr Simms’ office at Bower Cotton on 13 August 1997 was attended by Jack and Helga; (3) numerous letters from Mr Simms and Mr Rahman dating from before the conclusion of the option agreement to well into 1998, as the project progressed, were sent to Jack and Helga; (4) a letter from Mr Simms referred to a cash offer by Helga of £1m for the Dukes Hotel, Bath and (5) funds were made available to Charlton “because Mrs Dadourian had asked for it to be done.”

Helga stood to benefit just as much as Jack from this transaction in that they both owned and controlled (Ancon and) Charlton. She must have known and been a party to the deception. She must have known how her husband was presenting himself and what he had misrepresented.  Mr Rahman said that she did.

Thus, as it seems to us, there was a wealth of evidence upon which it was open to the judge to make his primary findings of fact and then draw the proper inference that it was Jack and Helga who “called the shots”. They acted together and she was a joint tortfeasor with her husband. 

For those reasons we reject the first three grounds of appeal relating to the intermediary representation. In our view they are unarguable. With respect to Warren J (who was faced with what has been described as the “blizzard” of points taken before him) it was perhaps over generous of him to give the appellants permission to appeal on these grounds.

At J(1) 542 the judge directed himself that there is in law a rebuttable presumption that if a fraudulent misrepresentation is made it is intended to be relied upon.   He referred to Goose v Wilson Sanford [2001] Lloyd’s Rep PN 189 at 200 to 201.   He held that there was “no evidence which comes anywhere near rebutting that presumption in the case of Jack” and found that, in any event, on a balance of probabilities “Jack did intend Alex and Haig to understand that he, Jack, was a mere intermediary and to act on that basis.”   At J(1) 536 he held that Jack intended the intermediary representation to be relied on by Alex and Haig in deciding whether DGI should enter into the option agreement.   As regards Mr Simms the judge held, at paragraph J(1) 577 that “all of the Defendants, including Mr Simms, knew and intended that Jack and Helga’s involvement was to be hidden from the Claimants and with the intention that it be acted on by the Claimants…”.   At J(1) 579 he found that Helga’s position was much the same.  

Mr Simms submitted that the judge was wrong to conclude that Jack had intended that his e-mails to Alex and Haig be relied upon as an inducement to enter into the option agreement.   He submitted that there was no real connection between the e-mails and the option agreement and that in sending them Jack could not have intended to induce DGI to place reliance on them in deciding whether to enter into the option agreement.   He relied on the well established proposition of law that the misrepresentation must be of such a nature as would be likely to play a part in the decision of a reasonable person to enter into the transaction in question.   He drew attention to the various issues - and there were several - where the judge found that Alex and Haig’s evidence was not to be believed, indeed where the judge found that they had acted in bad faith, and submitted that these matters should have been taken into account by the judge in deciding the question of inducement.

We consider that these submissions were a further attempt to challenge the judge’s findings that Jack made the intermediary representation and that he did so dishonestly. We have already concluded that the judge was amply justified in reaching these findings.

The real question raised is whether the judge was justified in concluding that the intermediary representation did indeed influence DGI in its decision to enter into the option agreement.  

As to that, the judge directed himself in law, at J(1) 543 - 546, as follows: (1) it is a question of fact whether a representee has been induced to enter into a transaction by a material misrepresentation intended by the representor to be relied upon by the representee; (2) if the misrepresentation is of such a nature that it would be likely to play a part in the decision of a reasonable person to enter into a transaction it will be presumed that it did so unless the representor satisfies the court to the contrary (see Morritt LJ in  Barton v County NatWest Limited [1999] Lloyd’s Rep Banking 408 at 421, paragraph 58); (3) the misrepresentation does not have to be the sole inducement for the representee to be able to rely on it: it is enough if the misrepresentation plays a real and substantial part, albeit not a decisive part, in inducing the representee to act; (4) the presumption of inducement is rebutted by the representor showing that the misrepresentation did not play a real and substantial part in the representee’s decision to enter into the transaction; the representor does not have to go so far as to show that the misrepresentation played no part at all; and (5) the issue is to be decided by the court on a balance of probabilities on the whole of the evidence before it.

He held that the presumption of inducement was not rebutted.    He went further; he found, at J(1) 539, that Alex and Haig did believe that Jack was a mere intermediary and, at paragraph 532, that they would not have allowed DGI to enter into the option agreement if they had known of Jack and Helga’s involvement in Ancon and (as a result) their potential for control over its affairs and those of Charlton.   At J(1) 578 he held that, insofar as Mr Simms’ liability to DGI rested on his being a tortfeasor with Jack, the respondents were to be treated as relying on Mr Simms as much as on Jack and insofar as Mr Simms’ liability to DGI rested on his having adopted Jack’s intermediary representation (the “alternative approach” as the judge described it) the respondents did act in reliance on it.   It likewise followed that, having found Helga liable as a joint tortfeasor in respect of Jack’s intermediary representation, what applied to Mr Simms in consequence of that finding applied as much to Helga (see J(1) 579).

We are unable to detect any error of law on the part of the judge in the way in which he approached this issue and did not understand the appellants to suggest otherwise.   The question therefore was simply one of fact: was the judge entitled on the balance of probabilities, viewing the evidence as a whole, to conclude that the intermediary representation did induce the option agreement (ie, that the presumption that it did had not been rebutted)?   For there can be no doubt that the intermediary representation was of such a character as to engage the application of the presumption: once it is established - as the judge held that it was - that the intermediary representation was made, and was made dishonestly, and was intended to be relied upon by DGI in deciding whether to enter into the option agreement, there is no realistic scope for contending that the intermediary representation was not sufficiently material as to give rise to the presumption.

Mr Simms and Mr Cakebread submitted that the finding of reliance by DGI upon the intermediary representation and the related finding that DGI would not have entered into the option agreement if it had known that Jack was anything other than an intermediary were against the weight of the evidence.   Mr Cakebread went further and submitted that the findings were “contrary to commonsense”.   In short, their contention was that the judge should have found that the presumption of reliance was rebutted.   The main focus of their submissions was on the fact that it was only by amendment of their particulars of claim in April 2005 that the respondents placed any reliance on the intermediary representation.   This was notwithstanding that (1) already by October 1999 Jack and Helga’s involvement in Charlton had been referred to in a witness statement by Mr Simms made in the course of the arbitration, thereby disclosing that Jack’s interest was more than just that of an intermediary in the negotiations that culminated in the making of the option agreement; (2) no attempt was made to raise this disclosure as an issue in the arbitration even though a central feature of the respondents’ defence of Charlton’s claim in the arbitration and also of their counterclaim against Charlton was to establish that DGI had been induced to enter into the option agreement in reliance upon fraudulent misrepresentations, that, acting by Mr Simms and Mr Rahman, Charlton had falsely represented to DGI that each owned major shareholdings in Charlton (ie. the major shareholding representation) and that Charlton was a sound trading company which was creditworthy and capable of performing its financial obligations under the option agreement (ie. the trading and creditworthiness representation); (3) no mention of the intermediary representation, let alone that it had any effect on their decision to commit DGI to the option agreement or on their subsequent conduct, was made by Alex or Haig in their written or oral evidence in the arbitration, even though in their amended defence they pleaded that Jack and/or Helga were shadow directors of Charlton, exercised direction and control over its management (especially in respect of the commercial enterprise which was the subject of the option agreement), and did so by virtue of their beneficial interest and/or control of Ancon which owned all of Charlton’s issued share capital from its incorporation until 24 August 1999 and was at all material times controlled by Helga’s family trusts, and (4) even when the present action was started, in February 2004, when, again, the respondents’ concern was to establish that the option agreement had been induced by fraudulent misrepresentations, no mention was made of the intermediary representation until April 2005 when it appeared, as paragraph 8C(b), by way of amendment to the particulars of claim.   Mr Cakebread pointed out that it was not as though those responsible were unmindful before April 2005 of Jack and Helga’s role in Charlton: it is referred to in an affidavit of Michael Clarke sworn on 2 February 2004 on behalf of the respondents in connection with the respondents’ application for a worldwide freezing order against the appellants.   Mr Cakebread submitted that it defied rationality to suppose that Alex and Haig only remembered six years or so later that the intermediary representation had been made.   He submitted that the reason why the judge failed to mention that the intermediary representation - the only misrepresentation among the several alleged which the respondents succeeded in establishing in the action - first made its appearance in the course of, by then, almost six and a half years of litigation between the parties might have been because he had overlooked this very important point.   Instead, the judge dealt with the various misrepresentations compositely: see J(1) 434 – 438.  

Although we see much force in this submission we consider nevertheless that there are no grounds for upsetting the judge’s conclusion that the presumption was not rebutted.   Having seen and heard Alex and Haig the judge was entitled to accept their evidence that they would not conduct business with Jack.   Mr Samek drew our attention to passages in the cross-examination of both Alex and Haig to this effect.   He submitted that there is no good reason for the court to conclude that the judge was wrong to accept that evidence.   We agree.   Likewise, Mr Samek drew our attention to the judge’s reliance on a letter written by Alex to Jack on 5 December 1991 - some years before the option agreement was entered into - in which it was made clear that Alex and Haig would not do business with Jack and his associates.   He submitted that the judge was entitled to place weight on that letter and to conclude, after carefully reviewing subsequent dealings between them and Jack, that, in effect, their attitude had not changed: see J(1) 526–532.   In reaching his conclusion the judge drew a distinction between Alex and Haig dealing with Jack as an intermediary and dealing with him as a counterparty.   In our view there is no basis for upsetting the judge’s findings in this regard.  

The fact that Alex and Haig failed to ask whether Jack or Helga had any interest in Charlton, which was another point urged by Mr Cakebread, does not mean that Alex and Haig were simply unconcerned about whether they did.    Rather, as the judge held (at J(1) 551), it was “more likely than not that it would not have occurred to Alex and Haig to obtain confirmation from Mr Simms that Jack had had no interest in the transaction - there would have been no reason for him to think that he did.”   In other words, Jack had successfully given the impression that he was a mere intermediary.   We consider that there is no substance in this further challenge.

As to the point, and it is really the only point of substance that the appellants were able to urge, that the intermediary representation was only raised for the first time several years after the parties became locked in litigation and well over a year after the particulars of claim in the present action had been first formulated, Mr Cakebread fairly accepted that this late appearance of the claim was not something which was put to Alex and Haig in cross-examination to enable them to explain why it had come so late.   He accepted that it was not a matter which featured in either the opening or in the closing submissions made on behalf of Jack and Helga.   The closest that any of the appellants got to raising the point was in paragraph 40 of Mr Simms’ opening submissions but that merely states that the representations alleged in the action by the respondents “are more extensive than in the Arbitration”.   In our view this omission does rather take the shine off the objection.   That apart, Mr Samek pointed out that in the particulars of fraud relating to the misrepresentations that were relied upon at that stage in the particulars of claim in the action the respondents pleaded that Ancon, Charlton’s declared shareholder, was controlled by family trusts of Helga and/or Jack, that this fact was not declared to the respondents who believed that Jack’s involvement in the negotiation of the option agreement was as a go-between for DGI and Charlton and, by a later passage in the pleadings, that if DGI had known of Jack and Helga’s involvement in Charlton “it would not have entered into the option agreement, or any agreement, with Charlton”.   In short, the essential ingredients of what, by the later amendment of April 2005, was to become the intermediary representation were present; it was merely their formulation into a free-standing representation that was missing.

There is one further submission which we must deal with, namely that the judge was wrong to have held, as he did at J(1) 532, that Alex and Haig would not have allowed DGI to enter into the option agreement if they had known of Jack and Helga’s involvement in Ancon.   By ground 3 of his grounds of appeal Mr Simms contended that, for various reasons, the judge was wrong to hold that the respondents would not have concluded the option agreement if they had know that Ancon was the only shareholder of Charlton at that date and that Ancon was owned by Helga and/or Jack and Helga and/or Brinton.   By ground 2(iii) of their grounds of appeal, Jack and Helga raised a similar argument.

These grounds were not developed in oral argument but in any event are not well founded.   As the judge explained, at J(1) 546, it is irrelevant how the representee would have acted if told the truth.   Mr Samek correctly submitted that, once it is found that a misrepresentation was made, was intended to be relied upon and was relied upon by the representee in deciding to enter into the transaction in question, any speculation as to what the representee would or might have done if he had known the truth is immaterial: see Smith v Kay (1859) 7 HL Cas 750 at 759 and Downs v Chappell [1997] 1 WLR 426 at 433.   On the other hand, as the judge observed at J(1) 549, if it could be affirmatively shown that DGI definitely would have entered into the option agreement even if it had known of Jack and Helga’s involvement in Charlton, then it would be very difficult for DGI to argue that it was induced to enter into the option agreement in reliance upon the intermediary representation.   But that was not this case.    The judge held, and was entitled on the evidence to do so, that if Alex and Haig had known of Jack and Helga’s involvement, they would not have allowed DGI to enter into the option agreement.

In summary, having carefully considered the arguments addressed to us, we are not persuaded that the judge was wrong to conclude that inducement was established against Mr Simms and Jack and Helga.   We therefore reject the further grounds of appeal which, together, have given rise to the fourth issue.  

The judge held that DGI was entitled to recover from the appellants as its loss suffered from the making of the intermediary representation, the costs and expenses it had incurred in the New York and arbitration proceedings (but not those concerned with DGI’s unsuccessful attempt to alter the venue of the arbitration).   The appellants contended that none of the costs and expenses in question were recoverable and that the judge ought so to have held.   The issue raises the question of causation.

This topic was dealt with by the judge comparatively briefly in no more than 15 paragraphs in a judgment which, as we have observed, extended to 762 paragraphs in all.   The judge was to return to the matter in J(2) delivered on 8 March 2007 after hearing further argument.  

In approaching this topic the judge directed himself by reference to observations in the speech of Lord Steyn in Smith New Court.   It was common ground that the following passages set out the relevant parameters for determining what loss has flowed from an intentional wrong such as the tort of deceit.   At pages 281 to 282, after referring to Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, Lord Steyn said this:

“The logic of the decision in Doyle v Olby (Ironmongers) Ltd justifies the following propositions.   (1) The plaintiff in an action for deceit is not entitled to be compensated in accordance with the contractual measure of damage, ie the benefit of the bargain measure.   He is not entitled to be protected in respect of his positive interest in the bargain.   (2) The plaintiff in an action for deceit is, however, entitled to be compensated in respect of his negative interest.   The aim is to put the plaintiff into the position he would have been in if no false representation had been made.   (3) The practical difference between the two measures was lucidly explained in a contemporary case note on Doyle v Olby, (Ironmongers) Ltd: G H Treitel, “Damages for Deceit” (1969) 32 MLR 556, 558-559.   The author said:

“If the plaintiff’s bargain would have been a bad one, even on the assumption that the representation was true, he will do best under the tortious measure.   If, on the assumption that the representation was true, his bargain would have been a good one, he will do best under the first contractual measure (under which he may recover something even if the actual value of what he has recovered is greater than the price).”

(4)

Concentrating on the tort measure, the remoteness test whether the loss was reasonably foreseeable had been authoritatively laid down in The Wagon Mound in respect of the tort of negligence a few years before Doyle v Olby (Ironmongers) Ltd was decided: Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) [1961] AC 388.   Doyle v Olby (Ironmongers) Ltd settled that a wider test applies in an action for deceit.   (5) The dicta in all three judgments, as well as the actual calculation of damages in Doyle v Olby (Ironmongers) Ltd, make clear that the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer.   That includes heads of consequential loss.   (6) Significantly in the present context the rule in the previous paragraph is not tied to any process of valuation at the date of the transaction.   It is squarely based on the overriding compensatory principle, widened in view of the fraud to cover all direct consequences.   The legal measure is to compare the position of the plaintiff as it was before the fraudulent statement was made to him with his position as it became as a result of his reliance on the fraudulent statement.”

At pages 284 to 285, Lord Steyn turned to consider issues of causation, remoteness and mitigation:

“So far I have discussed in general terms the scope of a fraudster’s liability in accordance with the rule identified with Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158.   It is now necessary to consider separately the three limiting principles which, even in a case of deceit, serve to keep wrongdoers’ liability within practical and sensible limits.   The three concepts are causation, remoteness and mitigation.   In practice the inquiries under these headings overlap.   But they are distinct legal concepts...   The development of a single satisfactory theory of causation has taxed great academic minds: see Hart and Honore, Causation in the Law and Honore, “Necessary and Sufficient Conditions in Tort Law,” in Owen, Philosophical Foundations of Tort Law, p. 363.   But, as yet, it seems to me that no satisfactory theory capable of solving the infinite variety of practical problems has been found.   Our case law yields few secure footholds.   But it is settled that at any rate in the law of obligations causation is to be categorised as an issue of fact.   What has further been established is that the “but for” test, although it often yields the right answer, does not always do so.   That has led judges to apply the pragmatic test whether the condition in question was a substantial factor in producing the result.   On other occasions judges assert that the guiding criterion is, whether in common sense terms there is a sufficient causal connection: see Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691, 706, per Lord Wright.   There is no material difference between these two approaches.   While acknowledging that this hardly amounts to an intellectually satisfying theory of causation, that is how I must approach the question of causation.

Remoteness and mitigation

The second limiting principle is remoteness.   I have already discussed the special rule of remoteness developed by the courts in the context of deceit.   This requirement is in issue in the present case: if there is a sufficient causal link it must still be shown that the entire loss suffered … is a direct consequence of the fraudulently induced transaction.   The third limiting principle is the duty to mitigate.   The plaintiff is not entitled to damages in respect of loss which he could reasonably have avoided.   This limiting principle has no special features in the context of deceit.  …”

In Doyle v Olby the claimant was fraudulently tricked into buying a business when he would otherwise not have done so. He was held entitled to recover as damages not only what he had paid for the business but also what he had subsequently put into it, subject only to giving credit for any benefits received from the venture. He was entitled to recover all consequential losses even if they were not reasonably foreseeable.

In Smith New Court the claimant bought shares in a company from the first defendant in reliance on fraudulent representations made by the first defendant’s agent who was an employee of the second defendant. The claimant, which would not otherwise have bought them, acquired the shares with a view to holding them as a market-making risk and selling them when an appropriate opportunity arose. Some weeks later it became known that a fraud had been perpetrated on the company which caused a sharp decline in the value of its shares. The fraud was unrelated to and had been committed before the claimant’s purchase.  Thereafter, over a period of several months, the claimant disposed of the shares but at a substantial loss when compared with what it had paid for them. The claimant was held to be entitled to damages against the second defendant not by reference to the market value of the shares at the time of its purchase of them (deducted from the price paid for them) but by reference to what it was able to realise for them over the period of their subsequent sale. The loss was held to flow directly from the acquisition of the shares rather than from the retention of them following discovery of the fraud because the claimant had found itself locked into the shares and had acted reasonably in retaining them for as long as it did. It was irrelevant that what had led to the loss in value of the shares was the (unrelated) fraud upon which the claimant had placed no reliance at the time of its purchase and the fraud’s effect on the market for the shares subsequent to their purchase.  The defendant in question was therefore liable for all the losses which the claimant suffered, including those caused by a wholly independent factor, namely the fall in the market value caused by the unrelated fraud perpetrated on the company. The case is a graphic illustration of the law’s policy that, when a defendant’s conduct is fraudulent, all loss which is directly caused by the tort, even if not reasonably foreseeable, is recoverable.

With those principles in mind we turn to see how the judge approached the question of causation.

At paragraph J(1) 749 the judge said that he regarded DGI as entitled to damages on the basis that “absent the misrepresentation there would have been no contract”.   By “no contract” we understand the judge to have meant not just the option agreement but also the contract of sale/purchase constituted by DGI’s exercise of the option on 6 March 1998 since it is clear from the judge’s findings that the misleading effect on the respondents of the intermediary representation continued until (at the earliest) the start of the New York action launched by Charlton on 6 November 1998.  

After quoting from Lord Steyn’s preferred approach to causation, namely “is there a sufficient causal connection” rather than by application of the “but for” test, the judge considered each of the two main heads of damage set out in paragraph 32 of the re-re-amended particulars of claim.   At paragraphs 754 to 757 he considered and rejected the first of them, namely DGI’s claim to loss of profits from losing the opportunity to sell the tooling to a purchaser other than Charlton.   There is no appeal by DGI against that finding and we need say no more about it.   He next turned to the second main head, namely the various legal and other incidental costs and expenses incurred by DGI in and about defending Charlton’s claims in the New York action and the arbitration, prosecuting its counterclaim in the arbitration and resisting Charlton’s application to remove the arbitrator.   We have already described (at paragraph 15 above) what these costs and expenses amounted to and how they came about.  

At paragraph 758 the judge said this about the costs and expenses:

“The misrepresentations were made in order to hide Jack and Helga’s involvement to bring about a contract which would not otherwise have been made.   The reason why Alex and Haig did not want DGI to enter into business with Jack was, according to Alex, when you do business with Jack you end up in this sort of dispute.    It was precisely the sort of costs which DGI incurred which would have led DGI to refuse to enter into the contract.”

The judge then referred to a submission by Mr Ashe QC, appearing for Jack and Helga, to the effect that although all of the costs and expenses would satisfy the “but for” test they would not pass the need to establish a sufficient causal link in the alternative formulation of the limiting principle set out in Lord Steyn’s speech in Smith New Court.   He accepted that it would not be right to apply the “but for” test but rejected Mr Ashe’s submission that, even applying the alternative tests of substantial factor or sufficient causal connection, none of the costs would be recoverable.   He then reached his decision on the issue in the following two paragraphs:

“760.

The relevant costs have been incurred by DGI as a result of being embroiled in a dispute which would never have arisen if DGI had not acted in reliance on the misrepresentation.   Leaving aside for the moment the costs of the application in the New York litigation to prevent an arbitration in London, all of the costs of DGI in the litigation and the arbitration were incurred in fighting claims (either as claimant or defendant) on which it was wholly successful before the arbitrator.    DGI was faced with a claim against it: it had no option but to defend it and quite properly made its counterclaim.   I say quite properly because it was successful which, retrospectively, shows that DGI’s case was a proper one to defend and bring.   DGI had no option but to defend the claim against it since to have capitulated would have resulted in a large damages claim against it.   The counterclaim was really the other side of the coin of the defence.   Further, as DGI claims, the counterclaim was a reasonable attempt to recover from Charlton and would, had Charlton had any assets, have been an effective mitigation of any loss flowing from the misrepresentations.   In those circumstances, the costs, in my judgment, are in principle recoverable as damages.   The same goes for the costs of the unsuccessful attempt to remove the arbitrator.

761.

However, the costs of the unsuccessful application in the litigation concerning the venue for the arbitration fall into a different category.   DGI made that application for its own benefit: it was not necessary for it to make the application and, indeed, it was unsuccessful.    The application did not, in my view, result from the misrepresentation; it resulted from an independent decision of DGI to take a tactical step in a commercial battle with Charlton which had nothing to do with the misrepresentation.   Causation is not established.”

At paragraph 762, having indicated that DGI succeeded on its claim in deceit to the extent indicated, ie on the intermediary representation alone, but only in respect of its claim to the costs and expenses (excluding those identified in paragraph 761), he invited further submissions on the actual figures.

The issue of damages was one of the three matters dealt with by J(2) on 8 March 2007.   The others were the costs of the proceedings which we deal with, so far as necessary, later in this judgment, and permission to appeal.   

It is important, in our view, to set out what the judge said about damages in this further judgment since it shows what points were argued by the appellants and what challenges were made by them to the respondents’ evidence on the topic.   Before doing so, we make it clear that from our reading of this further judgment we do not understand the judge to be departing in any degree from what he had said in J(1).   We see the judgment as amplifying and dealing in greater detail with the issue of loss and its correct quantification which he found had flowed from the deceit which DGI had established at the trial.   This is apparent from J(2) 21 where the judge referred to his use of the phrase “in principle” in the penultimate sentence of J(1) 760 and explained why, in paragraph 762, he had invited further submissions on the actual figures.  This was, as he explained, “because I did not feel that I had the full picture about the parties’ positions on precisely what costs and expenses actually incurred were properly to be treated as damages”.   He went on to refer to time pressure during the last part of the trial and to his decision, on the resumed hearing which led to J(2), that the parties should be allowed to make the submissions which, if time had allowed, they could have made at the main trial.   He added that “that is not to say that an entirely new case could be made out or that the case could be treated as if an order for a split trial had been made in the first place”.

Coming to what the judge had to say on damages in J(2), he began (in paragraph 2) by stating that he had declined to allow DGI to recover the amounts of the various arbitration awards “but the damages sought also included damages for deceit”.    In paragraph 3, he referred to the allegations in the particulars of claim relevant to such damages, in particular the items referred to in paragraphs J(1) 754 and 748 (summarised above).

In paragraph 4 he referred to Parts III and VI of the arbitrator’s Final Award and to the witness statements of Alex, Haig and Michael Clarke (of the solicitors acting for DGI) before the arbitrator and, in paragraph 5, to Alex’s confirmation in a witness statement at the main trial that the losses suffered were as set out in the re-re-amended particulars of claim and in certain further information that had been supplied.   He then dealt with a claim to financing costs which the arbitrator had awarded (by Part VI of his Final Award) but which, in a passage we do not need to refer to, the judge disallowed.   

At paragraph 9 he observed that Mr Simms’ defence did not go into details about which particular expenses had in  fact been incurred or whether they were properly or proportionately incurred and that Jack and Helga made no admissions as to the alleged loss and damage but simply put the respondents to proof.   At paragraph 10 he noted that none of the witnesses for the respondents was cross-examined about the level of fees paid or other expenditure incurred in the course of the earlier litigation.   The judge then proceeded to summarise what the appellants had submitted at the main trial in relation to costs.   He described the position thus:

“13.

In his closing, Mr Simms said very little about the actual quantum of damage once liability was established, really adding nothing to what he had already said in opening.   Accordingly, Mr Simms put his case on the basis that, assuming the costs were in principle recoverable as damages (something which he of course disputed and continues to dispute), there were a number of items in DGI’s bill which should not have been recoverable (ie as costs of the arbitration), namely investigation costs and legal costs relative thereto, and costs of company searches.   He also suggested that there had been no proper scrutiny by the arbitrator of the costs.    He did not, however, identify any costs actually incurred which ought not to be recoverable as damages (assuming liability) on the basis that they were unreasonably or disproportionately incurred.

14.

Mr Ashe and Mr Cakebread in their outline submissions in opening said that the costs of the legal action (recoverable as damages) could not include any costs incurred by unreasonable action on the part of the Claimants.   In their closing submissions, they dealt with loss and damage at far greater length, dealing with causation, remoteness and mitigation, citing at length from Smith New Court Securities (a decision which I have considered in my earlier judgment).   They addressed each head of loss claimed in paragraph 32 of the re-re-amended particulars of claim.   The same points are made in relation to each head of what I may call the litigation/arbitration costs.

15.

In essence, these points were directed at the big picture.   They noted that there are limitations of causation, remoteness and mitigation.   In particular, they submitted that even if DGI could establish a sufficient causal link “it must still be shown that the entire loss suffered by [DGI] is a direct consequence of the fraudulently induced transaction.”   They submitted that in fact this head of loss was very indirect and was dependent upon subsequent and quite separate decisions by DGI and Charlton to engage in a contractual dispute.

16.

There is no hint in the submissions of Mr Ashe and Mr Cakebread that, if their arguments in relation to the big picture were incorrect, there was any issue over quantum.  

17.

Accordingly, at the time when I reserved judgment, the position was (i) that Mr Simms had submitted that certain items should have been disallowed by the arbitrator and that there had been no proper scrutiny of the costs in the arbitration at all and (ii) that Mr Ashe and Mr Cakebread had made no submissions on quantum on the basis that I might be against them on liability.   It seems to me, therefore, that the parties ought not to have been surprised that I dealt with quantum in my judgment and made an order for payment accordingly.”

We would note that neither Mr Simms nor Mr Cakebread questioned the accuracy of the judge’s summary of their respective submissions to him.   We would also comment that the same positions were adopted before us.   In particular, Mr Cakebread’s position in relation to costs and expenses was, in effect, that it was “all or nothing”.   He did not suggest, even as a fallback position, that we should consider whether some should be allowed but not others.   Neither did Mr Simms.   They continued to follow what the judge described as “the big picture” approach.

The judge then went on to explain that when completing his main judgment he was unclear about precisely what it was that the respondents were claiming on the basis of his limited decision in their favour on liability but that nevertheless “rightly or wrongly” he reached the decision set out in J(1) 747 to 761 to which we have already referred.   He then summarised the conclusions he reached, set out in those paragraphs, and explained (in paragraph 21 - to which we have already referred) why he had used the expression “in principle” towards the end of paragraph 760.

In paragraph 22 he set out the two main submissions made by Mr Simms which, we were told, Mr Cakebread for Jack and Helga adopted.   They were (1) that the chain of causation was broken by DGI’s action in breaching the terms of the option agreement and that it was that breach, not Charlton’s actions, which led to the arbitration and thus to the costs and expenses claimed as damages for the appellants’ deceit, and (2) that where costs of previous litigation are claimed as damages the claim is restricted, in the absence of agreement, to costs assessed on the standard basis.  

Before coming to the judge’s treatment of the first of those submissions we mention briefly how he dealt with the second submission and certain other matters.   He dealt at some length with the second submission and concluded, at paragraph 49, that the submission was well founded.   He also dealt with, and dismissed, a claim for storage costs.   There has been no appeal against those conclusions.   He dealt finally, in the damages section of this judgment, with a claim for interest and a payment on account.   We need not say anything about those matters.

Coming to the first of Mr Simms’ two submissions, the judge said this:

“23.

As to the first of those submissions, I have already decided the point against him in paragraph 760 of my judgment …   Even if I considered it were open to me to revisit that part of my decision, I would come to the same conclusion.   The foundation of the submission is that it was DGI’s actions which led to the arbitration and that if it had not been in breach of contract, Charlton would have been able to complete the contract and the arbitration would never have been necessary.   That foundation is, of course, entirely contrary to what the arbitrator determined as between DGI and Charlton.   Further, it is not something which, with the greatest of respect to Mr Simms, I have decided in his favour.   As I reminded him in the course of argument, Alex’s misrepresentation concerning the ownership of the General Equipment was known to Charlton (and to Mr Simms himself) by the time the option was exercised.   DGI may have remained in breach of contract in failing to procure the General Equipment expeditiously or at all; but it does not follow that, had it complied with its contract, Charlton would have been able to put in place a letter of credit.   I have not decided that issue.   So the foundation of the argument is not established.

24.

But that is not the complete answer.   The real point is that, as between DGI and Charlton, the decision of the arbitrator establishes conclusively that DGI was correct in its defence and counterclaim.   Whether or not Mr Simms, Jack and Helga are privy to the arbitration and bound by the arbitrator’s findings (a matter I have expressly left open), they are bound to accept that the arbitrator’s findings bind Charlton vis a vis DGI.   Accordingly, so it seemed to me when I wrote my judgment and seems to me now, it is not open to them to say that the chain of causation was broken by DGI’s breach of contract when that contract has been held, as between the contracting parties, not to have been broken by DGI.   In saying that, I do not consider that I am deciding the privy argument against them; I consider that there is a material difference between Mr Simms, Jack and Helga themselves being bound by the findings of the arbitrator (in particular in relation to Mr Simms’ own alleged fraud) and being bound to accept those findings as between DGI and Charlton.   It is the latter which is important, in my judgment, in addressing the chain of causation.   Accordingly, I reject the first submission.”

As we read those two paragraphs, particularly paragraph 24, the judge took the view that, on the issue of causation, the appellants were bound to accept the arbitrator’s findings as between DGI and Charlton whether or not (as he had not decided the issue) the appellants were themselves bound by the arbitrator’s findings.   He returned to and emphasised this point at paragraph 100 of the same judgment, when considering whether to give the appellants permission to appeal on the causation issue, where he said this:

“As to the direct result of the intermediary representation, the background is that Charlton was bound, in the absence of any appeal, by the decision of the arbitrator.  I accordingly held that, whilst they themselves might not have been bound by the arbitrator’s findings, it was not open to Mr Simms, Jack and Helga to go behind those findings so as to assert that it was really DGI which was in breach of contract and that DGI’s loss was caused by its own breaches of contract.  It will be apparent from my analysis of the contractual position as between Charlton and DGI that I consider that Charlton actually had very strong arguments on the contractual issues.  I did not express conclusions on those arguments since it was enough for my purposes, in dealing with Conspiracy II, to decide that Charlton had a bona fide case on the contractual issues.  But if I had made a final determination in favour of Charlton, contrary to the arbitrator’s decision, to the effect that it was DGI which was in breach of contract and that DGI was not entitled to terminate the contract as it did, then there would be considerable force in the submissions of Mr Simms and Mr Ashe that DGI’s loss (ie principally its costs of the arbitration) was not the result of the misrepresentation but was the result of DGI’s own breach of contract so that the chain of causation is broken.   I consider that Mr Simms, Jack and Helga have a real prospect of success in their argument that causation should be judged against the actual facts rather than the facts as found by the arbitrator….”

The judge therefore considered that DGI’s claim to be entitled to its costs and expenses as loss and damage caused by the intermediary representation turned on the arbitrator’s findings even though, as he accepted, the appellants might not have been bound by the findings.   But, in giving permission to appeal on causation, he acknowledged that it was arguable that causation should be judged against what he referred to as “the actual facts rather than the facts as found by the arbitrator” and that if he had gone on to find, contrary to the arbitrator’s award, that it was DGI which was in breach of contract and that DGI was not entitled to terminate the contract as it did, it might well be correct that the chain of causation was broken.

That the judge, if he had gone on to decide those issues - “the actual facts”, might well have come to a different conclusion from the arbitrator was given impetus by comments made by him in the section of J(2) concerned with the costs of the litigation (dealt with by him at paragraphs 57 to 96) when, at paragraph 64, he said this (italics added):

“DGI’s contractual claim, based on lifting the corporate veil, has been lost, as have the claims of all the Claimants in relation to the alleged Conspiracies I and II and malicious prosecution. A considerable amount of the trial time and of the evidence was devoted to matters which were principally relevant to those claims, in particular in relation to the contractual position under the Option Agreement and the letter of credit. I have taken a rather different view from the arbitrator of the contractual position and the position in relation to the letter of credit. It might therefore be thought that this evidence was essentially unhelpful in relation to the deceit claim based on the intermediary representation.  That is not, however, correct. DGI had to prove its loss and damage. It was met with the defence that the costs of the arbitration were not caused by the misrepresentation but were caused by DGI’s own breach of contract. I have rejected that argument for the reasons given in paragraph 760 of my judgment as further elaborated in the first section of this judgment on damages, essentially because Mr Simms, Jack and Helga cannot go behind the arbitrator’s decision as between DGI and Charlton in order to show that DGI’s position in that arbitration was not reasonable. The contractual position could well have been relevant if I had taken a different view on that aspect. …”

The last part of that passage again emphasises the judge’s view that the arbitrator’s decision as between DGI and Charlton bound the appellants in relation to causation of loss and damage.  

In challenging the judge’s conclusions on causation, Mr Simms submitted that the following findings by the judge - we do no more than summarise the principal matters upon which Mr Simms relied - were material to the question whether the costs and expenses in question were a direct consequence of the intermediary representation (assuming that the representation was made and that it induced DGI to enter into the option agreement): (1) Alex had knowingly misrepresented to him and Mr Rahman that DGI owned the entire production line (rather than, as was the case, just the tooling); (2) it was on this basis that he proceeded to allow Charlton to enter into the option agreement; (3) the option agreement provided for the sale by DGI to Charlton of the entire production line which, moreover, DGI warranted as being in its ownership at the date of the option agreement but, because DGI did not own the general equipment, it was in breach of that warranty; (4) the option was validly exercised by Charlton but the respondents, wrongly and in bad faith (knowing that their legal advice was to the contrary), contended until the date of termination that the option had not been validly exercised and that DGI was free to negotiate a sale to third parties; (5) the respondents wrongly maintained (because it was contrary to legal advice they had received) that Charlton was obliged from the time of exercise of the option to open a letter of credit in DGI’s favour when they knew that Charlton’s obligation was only to do so a reasonable time before shipment of the goods; (6) the respondents wrongly maintained that the option agreement obliged Charlton to open a divisible and assignable letter of credit when the option agreement made no such provision and there could have been no basis for the respondents to have thought otherwise; (7) the respondents wrongly maintained from the time of exercise of the option until termination of the agreement that DGI was not obliged to progress its side of the agreement (by sourcing the general equipment) until the letter of credit had been opened and that it had 180 days to do so from the time that the letter of credit was opened; (8) it was well arguable that by claiming in mid-September 1998 to terminate the option agreement (by declaring it to be null and void) for non-exercise of the option when it had been advised that the option had been validly exercised, DGI acted in repudiatory breach of the contract; and (9) it was also well arguable by Charlton that it was not obliged to open a letter of credit before mid-September 1998 and had not otherwise acted in breach of contract.

Mr Simms went on to submit that in the light of those findings and applying the principles set out in Smith New Court the respondents brought the New York action and subsequent arbitration upon themselves because of their own misconduct. In those circumstances, he submitted, it could not sensibly be contended that the costs and expenses of those proceedings were a direct consequence of the intermediary representation any more than were the costs of DGI’s unsuccessful application to change the location of the arbitration which the judge held, at J(1) 761, resulted from “an independent decision of DGI to take a tactical step in a commercial battle with Charlton which had nothing to do with the misrepresentation.” The judge, he said, was right to disallow the latter, against which there has been no appeal; if he had applied the same criterion to DGI’s costs and expenses on the New York action and arbitration he should have reached the same conclusion: that causation was not established.

In truth, he submitted, the arbitration (and therefore the costs and expenses which DGI incurred in the course of it) resulted entirely from DGI’s activities and not those of Charlton, much less those of himself, or of Jack and Helga. Moreover, since by June/July 1998 - which was before DGI had terminated the option agreement and before any proceedings had been launched - Jack had ceased to have any involvement in Charlton, it could not be said that “when you do business with Jack you end up in this sort of dispute”, and the judge was wrong to have relied on this (quoting from Alex) in J(1) 758. The judge, he submitted, was wrong to consider that he was bound by the arbitrator’s findings in relation to the contractual issues and wrong therefore to conclude that DGI was correct in its defence and counterclaim in that arbitration on those issues even though, as was plain, unconstrained by the arbitrator’s decision, the judge would not have found Charlton to be in breach of contract; on the contrary he would have found that it was DGI that had been in repudiatory breach.

In his skeleton argument, Mr Cakebread submitted that it was the interventions or acts of all or of some of DGI, Eastcastle and Mr Simms that were the real causes of DGI’s costs and expenses which the judge had held to be recoverable, not Jack or Helga, neither of whom, he said, played any part in either the contractual disputes or the arbitration in terms either of initiation or participation. This was because, by July 1998, it was Eastcastle that was in the driving seat at Charlton and not Jack or Helga. He submitted that neither Jack nor Helga was in anyway bound by the arbitrator’s decision or, at any rate, the judge made no finding that they were (see J(2) 24) and that the judge was wrong in law to have concluded that on the issue of causation Jack and Helga were bound to accept the arbitrator’s findings because they were binding as between DGI and Charlton. He submitted that the judge’s view was contrary to authority. He submitted that it was for DGI to prove a causal connection between Jack and Helga’s deceit and the loss it claimed to have suffered and that, at the least, DGI would have had to establish that its own breach of contract was not the cause of the arbitration and consequent costs and expenses.   He submitted that not only had the judge made no findings but “from the tenor of his judgment” would be extremely unlikely to have done so.  

In his oral submissions, Mr Cakebread submitted that the judge (1) failed to make findings of fact and law sufficient to establish a causal link between the intermediary representation and the claimed loss; (2) failed to appreciate that there was in any event no identity of issues between those which the arbitrator was concerned to decide and those which he, the judge, was having to determine (for example, the arbitrator was not concerned to decide, because it was not raised as an issue, whether the intermediary representation was made, much less whether it caused DGI to suffer any and if so what loss and, in any event, the appellants were not parties to the arbitration); (3) assumed, wrongly, that the arbitrator had reached a decision on the allegations of breach of the option agreement and on deceit advanced by Charlton against the respondents in their arbitration claim when he had not because Charlton’s claim had been dismissed as a result of its failure to comply with earlier security orders; and (4) wrongly assumed that the arbitrator’s finding that Charlton was in breach of the option agreement meant that DGI was not and therefore failed to reach any finding on whether DGI was in repudiatory breach and, if it was, whether this affected the chain of causation.

As the summary of the appellants’ submissions to us shows, there was much debate over the extent to which, if at all, the appellants were bound by the arbitrator’s findings. We have referred to the passages in J(2) in which the judge, although making clear that he had not decided whether the appellants were themselves bound by the arbitrator’s findings, considered nevertheless that they were “bound to accept that the arbitrators’ findings bind Charlton vis-à-vis DGI” (see J(2) 24) and that it was not open to them to go behind those findings “so as to assert that it was really DGI that was in breach of contract and that DGI’s loss was caused by its own breach of contract” (see J(2) 100).

The context for referring at all to the arbitrator’s findings was in connection with DGI’s costs of the arbitration (and of the New York action which preceded it) and the extent to which those costs should be treated, as DGI claimed that they should, as loss suffered by it as a direct consequence of the intermediary representation. The question is whether the judge was correct in his view that it was not open to the appellants to argue that the chain of causation between the intermediary representation and the costs and expenses of the New York action and arbitration was broken by DGI’s breach of contract when, as between DGI and Charlton, the arbitrator had held that the contract had not been broken by DGI.

It is sufficient in this regard to refer to the decision of this court in Sun Life Assurance Company of Canada v Lincoln National Life Insurance Company [2005] 1 Lloyds Rep 606. That case was concerned with the correct analysis of an arbitration award relating to a dispute between two parties (X and Y) and its relevance in a subsequent, separate arbitration between one of  those parties (Y) and a third party (Z) in which the legal position between X and Y was an issue. One of the questions raised was whether the third party, Z, was bound in the later arbitration by what had been decided in the earlier arbitration.   The precise facts are complicated and do not matter. It is the statement of certain general propositions of law in the judgment Mance LJ (with whom Longmore and Jacob LJJ agreed) that is of importance:

“53.

…The principles of res judicata and issue estoppel apply between parties to the original proceedings or their privies. It is not, and could not be, suggested here that either principle has any direct application as between Sun/Phoenix and Lincoln. In Hollington v Hewthorn, [1943] KB 587 the Court of Appeal held that not even a criminal conviction for careless driving was admissible evidence to prove negligence in a subsequent civil action. The decision has been criticised, and has been qualified (for present purposes immaterially) by statute but otherwise remains law: cf Secretary of State for Trade and Industry v. Bairstow, [2003] EWCA 321; [2003] 3 WLR 841. It is also relevant to bear in mind that the submission by Mr. Denning KC in Hollington v. Hewthorn was not that the criminal conviction should be regarded as conclusive evidence, but that it should be admissible as prima facie evidence of negligence (cf. p. 589). Section 11 of the Civil Evidence Act 1968 now achieves that result generally in civil proceedings (apart from for defamation proceedings, in which s. 13 makes the conviction conclusive). But there is nothing to give a civil judgment, still less an arbitral award, evidential value in establishing the facts needing to be proved in separate proceedings against a stranger to the original proceedings.

…

55.

There are a number of situations in which courts have considered attempts by A to rely as against B upon rights or liabilities established in separate proceedings between A and C. One familiar context is that of principal and surety. In In re Kitchin (above), the Court of Appeal held that, in the absence of explicit words, a judgment or award obtained by a creditor against the principal debtor does not bind, and is not evidence against, a surety, who is entitled to have the liability proved as against him in the same way as against the principal debtor. The court pointed out that the judgment or award might have resulted from the principal debtor’s neglect to defend or admission. The principle was applied in the context of an arbitration award in The Vasso (above), where a guarantee had been given of the due performance and payment of all liabilities and obligations of shipowners arising under or out of certain written agreements which included an arbitration clause. Mr Justice Robert Goff applied In re Kitchin, holding that the guarantee did not extend to the obligation to honour an award. He pointed out that an arbitration clause has special characteristics distinguishing it from the main obligations of the contract, as established by Heyman v Darwins, [1942] AC 356 - and confirmed, I would add, by subsequent cases. The distinction thus drawn, when considering the position of third parties, between on the one hand the main obligations of a contract and on the other hand an arbitration clause and any award relating to those obligations contrasts with, and in my view throws doubt upon, Mr Justice Saville’s assimilation of the two in Moudreas. The general principle in In re Kitchin and in The Vasso was further applied in Hayter v Nelson Home Insurance, [1990] 2 Lloyd’s Rep 265, where a reinsurer, who had been held liable to original insurers under an arbitration award, claimed to recover the amount of such liability from his retrocessionaires. Mr Justice Saville there said, citing In re Kitchin, that just as a surety could not be bound by such an award or judgment, absent agreement, so a retrocessionaire was not.

56.

In Stargas SpA v Petredec Ltd (The Sargasso), [1994] 1 Lloyd’s Rep 412, it had been determined by arbitration award that charterers were liable to sub-charterers under a voyage charter for contamination of the cargo. Charterers claimed from disponent owners an indemnity by way of damages under the head time charter. Mr Justice Clarke held that it was for charterers to prove both the breach of the head charter and that it put them in breach of the voyage charter, but that, once they had done this, the arbitrators’ award (based on their conclusion that there had been a similar breach) could be regarded as caused by the disponent owners’ breach and so as quantifying the damages flowing from that breach, unless it could be shown that the charterers had failed to mitigate their loss or that the award was perverse or unreasonable. Mr. Justice Clarke considered Moudreas as well as The Vasso and Hayter v Nelson in the course of his judgment, but his decision appears to me to have turned on a relatively limited point of causation and not to bear on the issue that we have to decide.

57.

In Hollington v Hewthorn Lord Justice Goddard, after giving his reasons for considering that a judgment was neither conclusive nor of evidential weight in subsequent proceedings, went on:

A judgment, however, is conclusive as against all persons of the existence of a state of things which it actually affects when that state of things is a fact in issue. Thus, if A sues B, alleging that owing to B’s negligence he has been held liable to pay £x to C, the judgment obtained by C is conclusive as to the amount of damages that A has had to pay C, but it is not evidence that B was negligent. ... and B can show, if he can, that the amount recovered was not the true measure of damage.

That reasoning appears to me consistent with that of Mr Justice Clarke in The Sargasso. The fact of the judgment for £x can be relied upon as the causative result of B’s breach of duty, although it is open to B to try to show that (as between himself and A) his liability to A should give rise to damages measured on some other basis. Where the breaches of duty are effectively the same, as in The Sargasso, this may involve showing either that A failed to mitigate, by taking some obvious point in answer to C’s claim, or that the amount awarded was for some other reason so erroneous as to break the chain of causation, or of course that the contract between A and B itself stipulated for some other measure or contained relevant limitations or exceptions.”

Applying those principles to this case, we consider that in seeking to answer DGI’s reliance on the arbitrator’s award in support of its claim to recover the costs of the New York action and subsequent arbitration it would have been open to the appellants to argue that the arbitrator’s findings in relation to the contractual position between DGI and Charlton were wrong and therefore that DGI should not have been awarded its costs or so much of them, or that, even if those findings were correct, the arbitrator should not have awarded DGI all of its costs. It would have been open to them to do so with a view to demonstrating that the costs DGI incurred in the arbitration and which it claimed in the present action as part of its loss resulting from the intermediary representation were not in truth caused by that representation. Insofar therefore as the judge considered that it was not open to the appellants to do so, in our view he was wrong. Although binding as between DGI and Charlton, in the absence of any finding that the appellants were privies to the award, the arbitrator’s findings were not binding on the appellants.

The real question, however, was not so much whether the arbitrator made correct findings or whether, to any extent, the appellants were bound by them but whether in defending Charlton’s claim and making its counterclaim DGI acted reasonably. In considering that question and given the judge’s findings on the making and effect of the intermediary representation, the following points appear to us to be incontestable. (1) DGI was entitled to resist performance of the contract of sale constituted by Charlton’s exercise of the option and, indeed, to rescind the contract for deceit. There has been no suggestion that DGI waived its right to do so. (2) The fact that DGI may have had no right of termination under the terms of the contract of sale (as so constituted) when in mid-September 1998 it called off the contract and treated the option agreement as null and void on the ground of Charlton’s breach of the agreement’s terms is not of itself of any materiality given its right of rescission for deceit in any event. For it is well established that a party to a contract can (subject to immaterial exceptions) justify his refusal to perform a contract in reliance on facts which were at the time in existence which would have provided a good reason even if, at the time, he was not aware of them (see Chitty on Contracts, 30^th Edition, Vol 1 at para 24-014). In fact the judge did not find in Charlton’s favour that it could have produced a letter of credit when it was required to do so. (3) The New York action and subsequent arbitration to enforce the contract of sale against DGI were brought by Charlton. For the reasons just mentioned, DGI was entitled to resist those proceedings and seek by counterclaim to establish its entitlement to refuse to proceed with the transaction. To have failed to do so and, instead, to have capitulated to Charlton’s claims would, as the judge pointed out (at J(1) 760), have resulted in a large (and, we would add, wholly unmeritorious) damages claim against it. Although the amounts claimed by Charlton in the arbitration were not quantified they were expressed to include, but not be limited to, “the loss of the entire project and recurring losses incurred during the course of the project” together with damages under other heads. The proper law of the agreement was that of New York State. The project involved the disposal of the tooling and general equipment for $7.5 million. Even allowing for considerable investment by Charlton if the project had gone ahead as envisaged, Charlton’s expectation was that it would make a profit running into several $ millions from the venture (see J(1) 463 and 469). On the face of it therefore there was a great deal at stake if DGI should have lost the arbitration.

In the light of those points we consider that the judge was fully entitled to hold, on what is essentially a question of fact, that DGI found itself embroiled in a dispute with Charlton over whether the contract sale should be enforced against it “which would never have arisen if DGI had not acted in reliance on the misrepresentation” (see J(1) 760). It is in our view impossible for the appellants to contend that no part of the costs and expenses incurred by DGI in resisting Charlton’s claims in the New York action and subsequent arbitration to enforce the option agreement constituted actual loss which directly flowed from the transaction induced by the intermediary representation. Equally, in our view, the judge was entitled to find that the counterclaim was the other side of the coin of the defence. In reaching that conclusion the judge was entitled to make the point, as he did at J(1) 760, that DGI started with an advantage: it had succeeded before the arbitrator. He was also entitled to make the point, in paragraph 760, that “The counterclaim was a reasonable attempt to recover from Charlton and would, had Charlton had any assets, have been an effective mitigation of any loss flowing from the misrepresentations.”

It does not follow that, even if the judge had gone on to decide the contractual issues and had come to conclusions different from those of the arbitrator, as, according to J(2) 64, he might well have done, DGI’s claim to recover the costs of the arbitration could not properly be regarded as loss caused by the intermediary representation. At J(1) 662, the judge recorded that he had declined to go into the letter of credit issue and whether therefore DGI was right on that issue because, as he put it, “reasonable minds might differ on a matter of contractual obligation” in relation to that issue. That is not to say that the appellants might not have sought to do so at the trial.

The question in our view is whether the loss and damage suffered by DGI extended, as the judge held it did, to the whole of DGI’s costs and expenses of the New York action and subsequent arbitration (except only the costs disallowed by J(1) 761) or to some only and if so which part of them. The difficulty here, as we have already explained, is that, as is shown by paragraphs J(2) 13 to 17 summarising the position adopted by the appellants at the main trial, there was no attempt at the trial to pursue an argument that some costs might be recoverable but others should not be. Nor was any attempt made to do so before us. The appellants approached the matter on an all or nothing basis: they were not concerned to argue that, even if they were wrong in contending that no part of the costs and expenses were recoverable as loss and damage, then at least certain elements should not be recoverable, for example, because DGI incurred them unnecessarily and unreasonably in pursuing an unmeritorious contention in the arbitration. Nor was it suggested that if their argument that none of the costs and expenses were recoverable should fail, the matter should be remitted to the judge to consider to what extent the costs and expenses were properly and reasonably incurred and thus recoverable.

Viewed on the broad basis that the matter was dealt with by the parties at the trial we consider that the judge was fully justified in his conclusion at J(1) 760 that the costs and expenses were recoverable as damages, ie as loss caused (in the sense that there was a sufficient causal connection) by the making of the intermediary representation. We therefore reject the grounds of appeal which give rise to issue 5.

The judge dealt with the question of costs in his judgment of 8 March 2007. He ordered that the appellants should pay 75% of the respondents’ costs of the action. Permission to appeal against that part of the order was refused. The judge further ordered that the appellants should pay the respondents’ costs on an indemnity basis. Each of the appellants appeals from that part of the judge’s order.

CPR 44.3(4)(a) provides that in making an order for costs the court must have regard to all the circumstances and that those circumstances include the conduct of all the parties. The judge made his findings on the conduct of the appellants in J(3) 79, where he commented on the elements of that conduct on which Mr Freedman QC, for the respondents, had relied in his submissions:

“79.

… Mr Freedman submits that the behaviour of Mr Simms, Jack and Helga has been deplorable, especially in relation to disclosure, and should be visited with an indemnity costs order. He relies in particular on the following:

a.

Adverse findings about the honesty of Mr Simms, Jack and Helga in connection with their evidence. There was deliberate lying, which had to be uncovered in order, finally, for all of the layers of falsity to be revealed. Whilst I accept what Mr Freedman says in relation to Jack and Helga, I think that it is unfair to Mr Simms where most of my criticisms were directed not at his evidence but at what he told third parties during the course of the Bangladesh project.

b.

Adverse findings about the disclosure provided (including the failure to adduce evidence to make good assertions in the evidence of Mr Simms, Jack and Helga). The fact that some of the most important documents emerged during the trial is testimony to how serious this non-disclosure of documents was. My judgment does indeed contain several references to the lamentable disclosure in this action as well as the arbitration. It is true also that important documents emerged during the trial. All of them (Mr Simms, Jack and Helga) must take responsibility for this.

c.

The conduct of the Defendants made necessary a vast number of applications in order to unearth how limited were the assets of Brinton. Moreover, the important evidence of Dr. Marxer only came about as a result of so many applications despite every attempt of Jack and Helga to stand in the way of the provision of such information. Again, this criticism of Jack and Helga is justified. It is less justified in the case of Mr Simms.

d.

Jack’s and Helga’s deliberate evasion of service of proceedings and court orders, and subsequent untrue evidence about that, the lies only emerging by way of admissions extracted during the case.

e.

The lies and inaccuracies contained in detailed statements and affidavits (from Jack and Helga and from third parties such as Maitre Croisier) about the settling of assets into Brinton from the affidavits of disclosure onwards.

f.

The protracted attempts on the part of the Defendants to resist the identity of Brinton being revealed. Mr Simms assisted in this, I consider, although the primary opposition may have been orchestrated by or on behalf of Jack and Helga.

g.

The persistent refusal by Jack and Helga to identify where their assets really were, since they were not within Brinton. DGI was able to find out about Cooke Investments Ltd which, as I describe in my judgment, was effectively used by Helga as a bank account.”

The judge noted that this court has held that to justify an indemnity order:  “There must be some conduct or circumstance which takes the case out of the norm.  That is the critical requirement.” (per Lord Woolf LCJ in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson [2002] EWCA Civ 879). He further noted that in Kiam v MGM (No 2) [2002] 3 All ER 242 at [12] Simon Brown LJ held that the conduct would need to be unreasonable to a high degree and not merely wrong or misguided in hindsight. The judge summarised the submissions made to him. The respondents relied on the lies told by the appellants and the suppression of documents. The appellants for their part relied on the fact that the respondents had made claims which they had not established. The judge was critical of some of the conduct of the respondents: he held that the respondents should not have made one of their claims (Conspiracy II). He also held that the respondents’ allegation in their pleadings that the misrepresentations had been made to DGI through Alex and Haig was incorrect, because the findings in the arbitration showed that the representations had only been made to Alex, and not to Haig. The judge held that this allegation also should not have been made (J(3) 10).

In his submissions to the judge, Mr Simms also complained about the time spent on trust issues and the corporate structure underneath the trust. The judge held that these issues were not peripheral to Jack’s true role, and thus to the intermediary representation. The judge concluded, in relation to indemnity costs:

“In relation to Jack and Helga, I consider that this is an appropriate case for an award of indemnity costs against them in the light of the factors which I have set out in [79] above. I have found the position far more difficult in relation to Mr Simms. I am persuaded that an indemnity order should be made against him too but my reason for that conclusion is ultimately his 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.”

We have already referred to these documents in particular the “playing the game” email: (see paragraphs 59 and 60 above)

The respondents’ argument was as follows:

“118.

Mr Freedman complains bitterly about the lack of proper disclosure, inviting me to make adverse inferences against the defendants whenever facts are in dispute. He also attaches a huge importance to Jack’s email to Mr Simms dated 16 September 1997, focussing on the phrase “playing the game” which, he says, summarises perfectly what Jack and Mr Simms were up to – that is to say deceiving DGI and leading it, and Alex and Haig, along a path which, had they known the truth of Jack’s true role, they would never have embarked upon.”

The judge effectively accepted this argument as to the importance of the “playing the game” email as he went on to find that that email significantly confirmed his finding that Mr Simms was well aware from the beginning that Jack was making the intermediary representation to the respondents:

“571.

Although Jack’s emails to Alex on 13 and 16 September 1997 (copied to Mr Simms) and his “playing the game” email of 16 September to Mr Simms all post-dated the conclusion of the Option Agreement, they are a significant confirmation of the way in which Jack was operating and the way in which Mr Simms understood him to be operating. They show, I think, quite clearly that Jack was not only hiding his involvement but had been leading Alex to think that he was only an intermediary. None of this appears to have come as any surprise to Mr Simms; at least, there is no evidence at all to suggest that he was remotely surprised by the contents of the emails or that he disapproved of what Jack was doing.”

Another example of important documents which Mr Simms failed to produce is the Wildhorse file, which was his client file for the matters relating to Brinton, and which contained information about Brinton. Mr Simms claimed that he did not have this file. He was cross-examined about it on day 24. Subsequently, in the course of the trial a file was produced which indeed contained some of the documents that would have been on the Wildhorse file but not all of them.

Returning to the procedural history, Mr Simms and Jack and Helga attempted at a subsequent hearing to reopen the question of whether costs should be ordered to be paid on an indemnity basis, but the judge in his third judgment summarily rejected this attempt (J(3) 59).

In his submissions before this court, Mr Simms relied on the decision of Mr Michel Kallipetis QC, sitting as a deputy judge of the Chancery Division, in Shaina Investment Corporation v Standard Bank London Ltd [2001] 1 All E R (D) 36, but the judge rightly in our judgment applied the more recent authorities in this court. Mr Simms submitted that the judge failed to take into account that the conduct of the respondents in pursuing fifteen issues which failed, in making claims which on his submission they knew to be false and in giving on his submission false evidence to the court, should be considered in relation to what costs orders should be made. The same ground was put forward by Jack and Helga.

It is of course correct that the respondents lost a number of issues, but the judge made a reduction of 25% for this purpose and permission to appeal against that percentage has been refused. We reject the remainder of Mr Simms’ submission about false claims and evidence, because it is inconsistent with the judge’s findings. The judge accepted that, while Alex exaggerated some of his evidence, he was not deliberately telling anything other than the truth as he saw it (J(1) 28). The judge specifically found in his main judgment that the claims made in the arbitration were made in good faith (J(1) 709). The judge accepted the evidence of Haig, with one small exception. It is correct that the judge found that Alex fraudulently represented that DGI was selling an entire production line (J(1) 700), but it appears that the judge must have meant that he fraudulently misrepresented that DGI owned the entire production line. The damage caused by this statement is lessened by the fact that Charlton knew what the true position was before it exercised the option (J(1) 702). Mr Simms’ submission about the falsity of their claims and evidence is accordingly not made out. In so far as the respondents failed, that matter has been taken into account. Moreover, the judge did not omit to note that certain claims made by the respondents should not have been made. He therefore had this point in mind. He did not, however, find that any claims had been made in bad faith.

In their challenge to the judge’s indemnity costs order, Jack and Helga relied simply on the fact that there were serious adverse findings against the respondents. This submission appears in the written skeleton argument, and it was not amplified in oral submissions. It is wholly lacking in particularity. In our judgment, it is not appropriate to apply some modified standard to the appellants’ conduct of the action by reference to the conduct of another party. In any event, the conduct of the respondents, to the extent that the judge considered it worthy of sanction, was sanctioned by a reduction in costs.

Mr Simms further submitted that his conduct in failing to make disclosure of the documents referred to by the judge was not a failure that was unreasonable in a high degree and that the judge’s decision was perverse. He accepted that he failed to disclose emails from Jack to Alex dated 13 and 16 September 1997 respectively. These were found on thirteen CD-ROMs for which an application was made during the trial for disclosure. These CD-ROMs contained copies of documents seized by the Law Society in February 2002. The respondents should have made an application long before the trial. The CD-ROMs were in any event in the possession of the defendants with whom the respondents had settled. So far as these emails are concerned, Mr Simms had taken the decision not to review documents relating to the corporate defendants because the corporate defendants were not required to attend the trial. These matters are no answer to a failure by Mr Simms to comply with disclosure obligations imposed on him personally.

The other documents which were the subject of late disclosure related to the structure of Brinton. Mr Simms submitted that these documents were not relevant to any issue in the action. He contended that they were not relevant to the question whether the corporate veil should be pierced because the question there was whether Jack and Helga exercised management control over Charlton.

We do not accept these arguments. The judge held that the emails were important. The judge noted that a number of important emails between Mr Simms and Jack were not disclosed prior to the commencement of the action. The judge described the extraordinary way in which they had been discovered and concluded that there was clearly a failure by the appellants to make full and proper disclosure (J(1) 117). The judge expressly concluded that they came to light only because of the assiduity with which the respondents’ advisers had constantly pursued the appellants for disclosure of documents which they were sure existed but which had not been disclosed (J(1) 117).

In our judgment, documents relating to the structure of Brinton were clearly disclosable as the case run by Jack and Helga was that Brinton owned Charlton, Jack had no interest in Brinton and Helga’s interest in Brinton was only as a discretionary beneficiary. Moreover, the respondents claimed that the corporate veil of Charlton should be pierced on the basis that it was owned and controlled by Jack and Helga. The whole of the relationship between Jack and Helga on the one hand and Charlton on the other was relevant to their case that Charlton was a mere sham or facade for Jack and Helga.

We note that the documents that the judge referred to as not having been disclosed were relatively few in number, but the fact that there were only a few documents, which were not disclosed, does not mean that an order for indemnity costs could not be made. It is their significance to the issues which matters. It is also possible to argue that the disclosure obligation was not simply that of Mr Simms but also that of Jack and Helga. We do not think that this argument would help any of the parties either since each of them clearly owed the obligation. The judge did not make any clear finding that the non-disclosure was deliberate, but on the other hand he clearly did not think it was excusable.

Neither Mr Simms nor Jack and Helga has pointed to any error of principle on the part of the judge in awarding costs on the indemnity basis. They therefore have to show that the judge exercised his discretion in a way that is outside the generous ambit within which a reasonable disagreement is possible. The arguments raised by Mr Simms and Jack and Helga come nowhere near to establishing this high threshold. Accordingly, we dismiss the appellants’ appeal against the orders for indemnity costs.

Following the judge’s main judgment, the appellants applied to the judge for discharge of the freezing orders made against them. Their application was made on two grounds. The first ground was that the respondents had succeeded in the action only on the intermediary representation and that had not been pleaded at the time of the applications for the freezing orders. The second ground was that, when those applications were made, the court was not informed about certain matters. The judge rejected both grounds in his third judgment. Permission to appeal was then sought. In the course of that application, Mr Cakebread submitted to the judge that he had put forward a submission not dealt with by the judge, namely the submission that the non-disclosure had been deliberate. The judge dealt with this matter in his fourth judgment.

As to the first ground, the original particulars of claim did not assert the misrepresentation ultimately upheld by the judge, namely the misrepresentation by Jack, Helga and Mr Simms that Jack was only an intermediary for Charlton. On the contrary, the original particulars of claim asserted that the respondents entered into the option agreement on the basis of other representations. The claim based on the intermediary representation was not made until April 2005. As part of these amendments, the respondents pleaded that they relied on the intermediary representation in making the option agreement.

The judge, in our view rightly, rejected the argument that the entirety of the intermediary representation was before the court on the without notice application (J(3)9). The application to Lindsay J was supported by the affidavit of Mr Clarke dated 2 February 2004. This stated that Jack represented that he was acting on behalf of the respondents in the negotiations with Charlton “as, in effect, their intermediary.” Mr Clarke did not, however, say that Mr Simms and Helga knew of the representation or that the respondents relied on it in making the option agreement.

The second ground for the appellants’ application to discharge the freezing orders made against them was that the respondents had not informed Lindsay J of certain matters. In particular, they had not informed Lindsay J (a) that there was no basis for asserting or implying that Jack and Helga controlled Charlton at the time of the arbitration as the evidence before the arbitrator showed that Charlton was funded at that time by a company called Eastcastle, and indeed had taken a majority shareholding in Charlton, and (b) that the respondents had been unable, despite their detailed inquiries, to establish any connection between Jack and Helga on the one hand and Eastcastle on the other. This disclosure was relevant to the question whether the findings in the arbitration, on which the respondents relied in support of their claims, bound Mr Simms, Jack and Helga.

The judge dealt with this application in his third judgment. The judge held that both Lindsay J and Lewison J had relied only on the arbitration award and the factors set out in paragraph 7 of the particulars of claim when granting and renewing the freezing orders respectively (J(3)25). He considered that the failure to draw the attention of Lindsay J to Jack and Helga’s position in relation to the arbitration and their position regarding Eastcastle was a material non-disclosure (J(3) 27). He held:

“27.

I consider that the failure to draw the attention of Lindsay J to Jack and Helga’s position in relation to the arbitration and their position concerning Eastcastle, was a material non-disclosure. With the benefit of hindsight it is, of course, easy to see that Jack and Helga’s participation or non-participation in the arbitration (as funders and persons calling the shots behind the scenes) would be a very important point in deciding whether they were privies to the arbitration. I do not, however, consider that it is only, or even mainly, the benefit of hindsight which shows the importance of Jack and Helga’s participation to that issue. Paragraph 7 relied on paragraph 29 which in turn relied on paragraphs 21 to 26, and thus on Conspiracy II. It was always part of DGI’s case that Jack and Helga were involved behind the scenes in the arbitration and indeed in his witness statement dated 27 August 2004, Mr Clarke there expressed his scepticism about their non-involvement given the paucity of evidence about Eastcastle.”

As to the consequences of non-disclosure, the judge held that the principal authorities are Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 (CA) (which contained citation of many important earlier authorities); Lloyds Bowmaker Ltd v Britannia Arrow Holdings [1988] 1 WLR 1337 (CA); and Behbehani v Salem reported as a note at [1989] 1 WLR 723. The judge adopted a summary of the authorities found in the judgment of Alan Boyle QC, sitting as a deputy judge of the Chancery Division, in The Arena Corporation Ltd v Peter Schroeder, 15 May 2003. The judge noted that the general rule was that, if there had been a breach of the duty of full and fair disclosure on a without notice application, the court would discharge the order obtained but the court had jurisdiction to continue or re-grant the order, though it would exercise that jurisdiction sparingly.

The judge also relied on the judgment of Nelson J in Eliades v Lewis [2005] EWHC 2966. That case concerned the question, arising on an inquiry as to what damages ought to be paid on discharge by consent of a freezing order, whether the freezing order had been improperly granted. Nelson J held that the claimant was not prevented by the consent order from arguing this point. Ordinarily, the court will order an inquiry as to damages once it was established that the injunction was wrongly granted, even without fault on the applicant’s part. However, the court had a discretion whether or not to enforce a cross-undertaking in damages, even if the injunction was discharged. The court had to determine whether in all the circumstances it would be inequitable to enforce the undertaking. On the facts, the freezing order had been properly made since the claimant’s claim had subsequently been upheld in foreign proceedings. In any event, the conduct of the defendant was such that it would be inequitable for the undertaking to be enforced. Therefore Nelson J refused to enforce the undertaking in that case.

Having set out the law, the judge then turned to the exercise of his discretion. On the first ground on which the application was made, the judge primarily relied on two analogies which he drew. He first gave the example of two closely related claims with a similar measure of damage. He postulated that an application was made for a freezing order. But the order was granted on the basis of one only of those claims. At trial, the claimant won on the weaker claim and failed on the claim on which the freezing order was granted. The judge held that it was inconsistent with principle if the injunction was discharged and an inquiry ordered on the cross-undertaking. He held that it could not seriously be said that the injunction was wrongly granted (J(3) 38). He held there was no material difference between this case and the case (the judge’s second example) where the second claim was added after the freezing order had been obtained but had never been mentioned to the court. In this example, many of the facts relevant to the claim were already pleaded or in evidence on the application. The judge did not consider that the claimant would need to make a fresh application in those circumstances. He contrasted that case with the situation where a second claim added later was insufficient to support the first freezing order or its amount. The judge held that in this case DGI could in theory have made an application for continuation of the freezing order once it had amended its pleading to include the intermediary representation claim. He held that, if this had happened, the court would not have held that the original injunction was wrongly made. However, if that view were wrong, he considered that this would be the sort of case where the court could properly exercise its discretion by refusing to discharge the injunction.

As to the second ground on which the application was made, the judge held, as we have already explained, that there was material non-disclosure by the respondents at the time of the grant of the freezing orders, namely the failure at the hearing before Lindsay J expressly to inform the court of Jack’s and Helga’s non-involvement in Charlton since June 1998 and in particular their lack of involvement in the arbitration (and not simply the fact that they were not parties to it) (J (3) 45). However, the judge concluded that Lewison J was properly informed of the relevant facts. Mr Simms told him in his affidavit of 11 February 2004 about the material non-disclosure and made submissions about it. In his affidavit, Mr Simms said:

“60.

The claimants have failed to disclose that the third and fourth defendants played no part in bringing either the New York action or the arbitration. As the claimants well knew, and this was accepted both by the claimants and the arbitrator, by June 1998, the third and fourth defendants had no dealings with Charlton and Eastcastle, which has no connection whatsoever with the third and fourth defendants, had agreed to take over the arrangement with the first claimant, to take a controlling interest in Charlton and to cash collateralise the letter of credit of $1.5 million from its own resources. In paragraph 34 of Mr Clarke’s affidavit he totally fails to identify that Eastcastle had nothing to do with the third and fourth defendants and was controlled by a Mrs Pauline Alianza, and Mr Ammerman both resident in Phoenix, Arizona. Mrs Alianza gave evidence in the arbitration.”

Mr Clarke’s evidence in reply deals with this paragraph by asserting that there had been full disclosure because he had disclosed already that the appellants had failed to accept the offer made to them to participate in the arbitration. He contended that there was no need to refer to Jack and Helga in paragraph 34 of his first affidavit, because he was drawing attention to the fact that the funding may have come not from Eastcastle, but from another company.

Ms Levy submitted that Mr Clarke missed the point. However, the fact remains that any non-disclosure was corrected. The judge did not consider that it was material that the respondents had not appreciated that the lack of involvement by Jack and Helga with Charlton after June 1998 might be an answer to the privy argument.

Warren J did not reach any conclusion on the question whether Lindsay J, Lewison J or Dyson LJ would have reached a different conclusion on the privy argument if they had appreciated the possible impact of the point. He simply held that he did not consider that appreciation of the point would have turned an arguable case into an unarguable case. He pointed out that the question whether the judge would have reached a different conclusion was given little weight in the exercise of the discretion.

Warren J reached the not unsurprising conclusion that Mr Simms was not able to seek to discharge the injunction on the grounds of material non-disclosure of a fact that he himself had disclosed to Lewison J when the application for discharge had been considered, but rejected, by Lewison J and permission to appeal had been refused by this court. He went on to hold that Jack and Helga likewise could not obtain discharge of the order since they failed to appear before the court on the return date and Mr Simms in any event put the facts before the court. They could not rely on non-disclosure to Lindsay J because Lewison J had dealt with the matter.

The judge went further and held that, if it were still open to Jack and Helga to object to non-disclosure, the non-disclosure did not justify refusal of post-trial freezing order relief. To hold otherwise would be wholly disproportionate. He also held that there was a real risk of dissipation of assets by the appellants. The ownership of the property-holding companies was not clear. Brinton was in winding up. It was possible that Jack and Helga were owners of the assets of Brinton and of the shares of property companies involved in the litigation. If Jack and Helga contended that they had no assets, the freezing order could do them no harm. The judge accordingly continued the freezing orders post-judgment in support of the damages ordered to be paid to the respondents (J(3) 58). On the facts, there was also a real risk of dissipation of assets by Mr Simms. The judge considered that, in the circumstances, it would be unjust to expose the respondents to liability on the cross-undertakings. Furthermore, if he had come to the contrary view and had ordered that the freezing orders should be discharged, the appropriate sanction in the judge’s judgment would have been an order for the costs of the applications related to the freezing order (J (3) 54).

In his fourth judgment, the judge held that it was arguable that the respondents had breached their obligation of disclosure by failing to disclose the fact of their investigation into the connection between Eastcastle and Jack and Helga and their failure to establish any such connection. However, he left that question open (J(4) 7). In addition, the judge held, in his fourth judgment, that no point had been taken before him on the discharge application as to whether it was an inevitable inference from the material that there was deliberate non-disclosure, which would make it a strong case for discharge of the freezing order. He held that this point should only be raised with the permission of the Court of Appeal, which was in fact given by the Master of the Rolls and Thomas LJ on 12 March 2008.

We start with some preliminary matters. In dealing with this issue we proceed on the basis that the appellants have failed on Issues 1 to 5. Different considerations would have arisen if they had succeeded on one or more of those issues.

We also proceed on the basis that the appellants are not prevented from raising on their appeals the question whether there was non-disclosure of any material matter at the time of the grant of the freezing orders. As appears above, Mr Simms had already raised the point unsuccessfully before Lewison J and had failed to obtain permission to appeal against the order made by Lewison J. The respondents also argued that Jack and Helga cannot now raise an argument on non-disclosure as they were served with the application for renewal of the freezing order and failed to appear before Lewison J. The position, however, is that this court (the Master of the Rolls and Thomas LJ) has granted permission to appeal on the footing that non-disclosure was deliberate. In those circumstances the question whether the appellants can raise the issue of non-disclosure is now academic.

Once the judge gave his main judgment, it was clear that the respondents had obtained freezing orders without justification in the original particulars of claim. In those circumstances the court will ordinarily order an inquiry as to damages. However, as Lord Diplock stated in F. Hoffman-La Roche & Co AG v Secretary of State [1975] AC 295 at 361, the court has a discretion not to enforce the undertaking if the court considers that the conduct of the defendant in relation to the obtaining or continuing of the injunction or the enforcement of the undertaking makes it inequitable to do so. But that statement is not an exhaustive statement of the circumstances in which the court can exercise its discretion to depart from the ordinary rule. For instance, in Financiera Avenida SA v Shiblaq, referred to below, the question was whether the cross-undertaking in damages should be enforced where the claimant had failed on the causes of action on the basis of which the injunction had been granted but succeeded on others. Lloyd LJ, with whom Stocker LJ and Sir George Waller agreed, held:

“Two questions arise whenever there is an application by a defendant to enforce the cross undertaking in damages. The first question is whether the undertaking ought to be enforced at all. This depends on the circumstances in which the injunction was obtained, the success or otherwise of the plaintiff the trial, the subsequent conduct of the defendant and all the other circumstances of the case. It is essentially a question of discretion. Discretion is usually exercised by the trial judge since he was bound to know more of the facts of the case than anyone else. If the first question is answered in favour of the defendant, the second question is whether the defendant suffered any damage by reason of the granting of the injunction.”

Where the defendant’s conduct is relied on, there has to be a link between his conduct and the obtaining or continuing of the injunction or the enforcement of the undertaking: see, for example, Universal Thermo Sensors Ltd v Hibben [1992] 1 WLR 840.

There had to be an application for discharge of the freezing orders if the freezing orders were to be determined since according to the tenor of the freezing orders they continued until further order of the court, even, apparently, after judgment in the action. However, the reality is and was that the appellants were seeking to obtain the discharge of the freezing orders as a preliminary step to enforcing the cross-undertaking in damages given by the respondents on the grant of the freezing orders. The appellants want to show that the freezing orders should not have been granted and thus that the ordinary rule that an inquiry as to damages applies. This is confirmed by the fact that the appellants have not appealed against that part of the judge’s order granting freezing orders post-judgment. It is not suggested that the orders would be discharged with some retrospective effect. Accordingly, any discharge would be for a scintilla of time.

Since the application for discharge was in substance an application to enforce the cross-undertaking in damages, we consider that the correct approach was for the judge to determine in a straightforward way whether there had been material non-disclosure and whether the causes of action put forward at the time of the application for freezing orders had all failed and if so, without more ado, apply the relevant principles on the enforcement of the cross-undertaking in damages. The judge substantially followed this approach. Once he had considered whether the grant of freezing orders was justified by the causes of action relied upon and whether there had been material non-disclosure, he considered whether the freezing orders should be discharged and - at the same time - whether the cross-undertaking in damages should be enforced. He drew no distinction between the two matters.

As the judge pointed out, the relevant authorities on non-disclosure emphasise the importance of disclosure and confirm that the ordinary rule is that an injunction must be discharged in the event of non-disclosure. The principles applicable to discharge of an injunction and the grant of permission to enforce the cross-undertaking in damages were recently set out by Potter LJ, with whom Hale and Thorpe LJJ agreed, in Yukong Line v Rendsburg Investments Corp [2001] 2 Lloyd’s Rep 113 at [32] to [34]:

“32.

Whereas the usual practice in respect of interlocutory injunctions is not to order an inquiry into damages on the cross-undertaking until the merits of the action have been finally decided at trial, in cases where a Mareva injunction is involved, a defendant or other party bound in respect of whom the injunction is discharged at any stage may seek, and be granted, an inquiry into damages on the basis that, regardless of the ultimate merits of the action, the injunction was ‘wrongly granted’. That term is in my view preferable to ‘improperly obtained’, because impropriety seems to me to carry connotations of improper conduct by the applicant, such as non-disclosure of material facts, whereas the term ‘wrongly granted’ covers the far wider circumstances in which the injunction may be discharged and an inquiry ordered. In respect of those wider circumstances it is necessary, for the purposes of the argument in this case, to distinguish between the position where the order is attacked on the grounds that the court lacked jurisdiction to make it and the position where the court makes an order within its jurisdiction but which is subsequently demonstrated or conceded to have been too wide in its scope or unjustified or inappropriate on the facts.

33.

Upon discharge of a Mareva injunction, the court has a discretion whether or not to enforce the undertaking in damages. It may enforce it by a summary award of damages: see Practice Direction (Mareva and Anton Piller Orders: New Forms) [1994] 4 All ER 52 at 54, paragraph (4) of which requires consideration of such a remedy when the injunction is discharged on its return date. More usually, the court, having exercised its discretion to enforce the undertaking, may order an inquiry as to damages. In appropriate cases it may adjourn the application to the trial or further order, as in Cheltenham & Gloucester Building Society -v- Ricketts [1993] 1 WLR 1545. It may decide that the undertaking is not to be enforced. However, if it is established that the injunction was wrongly granted, albeit without fault on the plaintiff’s part, the court will ordinarily order an inquiry as to damages in any case where it appears that loss may have been caused as a result.

34.

The question whether the undertaking should be enforced is a separate question from the question whether the injunction The question whether the undertaking should be enforced is a separate question from the question whether the injunction should be discharged. The order for an inquiry as to damages is discretionary, such discretion being exercised in accordance with equitable principles, taking into account all the circumstances of the case, but bearing in mind that, since the injunction should not have been obtained, prima facie the plaintiff ought to bear the loss: see Financiera Avenida -v- Shiblaq [1991] The Times 14^th January (CA Civil Division). As observed by James LJ in Graham -v- Campbell (1877) 7 Ch. D. 490 at 494, the undertaking ought to be given effect except under ‘special circumstances’. Those special circumstances include the conduct of the injunctee at the time the injunction was obtained or later, see per Lord Diplock in F. Hoffmann -v- La Roche & Co AG -v- Secretary of State [1975] AC 295  at 361. However, whilst the principles referred to above have been enunciated as generally applicable to the exercise of the court’s discretion whether or not to order an inquiry as to damages, if the reason for the discharge of the injunction is that the court lacked jurisdiction to make it in the first place, it is difficult to envisage any circumstances in which the court would refuse to order an inquiry as to damages upon some evidence of loss: c.f. Norwest Holst Civil Engineering Limited -v- Polysius Limited (1987) The Times, 23^rd July, where the court held that, regardless of the merits of the substantive claim, the obtaining of Mareva relief had been misconceived in that it was clear that there was no substantial risk of dissipation of assets and the court directed an inquiry even though the merits of the claim had not yet been decided.”

We now turn to the first ground on which the appellants sought discharge of the freezing orders, namely that all of the claims on the basis of which the orders were granted failed at trial. The original misrepresentation claims were not made against Jack and Helga. They were claims against Mr Simms and Mr Rahman in reliance on the major shareholding representation and on the trading and creditworthiness representation. The claim that succeeded was a claim that there was an implied representation that Jack’s only interest was as an intermediary. This claim was not raised in the arbitration. The essential facts for the intermediary representation were not pleaded or even substantially pleaded. The claim that the appellants were privy to the arbitration award did not succeed. This was because the judge took the view that in order to find whether the appellants were privies he had to decide many of the underlying issues in the arbitration. He came to a view on these issues which was contrary to that of the arbitrator. But he also found that the award did not create any relevant issue estoppel and accordingly that the question whether Jack and Helga were privy to the award did not arise (J(1)736). He held that Mr Simms was not a privy (J(1)745). While the judge did not decide that question as regards Jack and Helga, once he had decided that there was no issue estoppel with respect to the misrepresentations found by the arbitrator, the claim against them as privies could not succeed. In any event at trial the respondents’ principal case had been the intermediary representation.

The causes of action on the basis of which the freezing orders were made did not include the cause of action on which the respondents ultimately succeeded. But the judge went on from there to say that the original freezing orders were not wrongly made notwithstanding that the causes of action originally pleaded had failed (J(3) 41). The judge took two examples. The first is what may be an unusual situation where there is more than one cause of action and the without notice application is made on the basis of both or all causes of action, but the judge grants the freezing order on the basis of only one of the causes of action on the basis that the other is insufficient for the purpose of the grant of a freezing order. In this example, at trial that one cause of action fails and the one that was thought to be insufficient succeeds. The particular feature of this example is that the judge takes a decision which for one reason or another turns out to be wrong. The consequences of that are unlikely to be laid at the claimant’s door. That feature is sufficient to render it not analogous to the situation in the present case. The second example was where a new claim was added by amendment after the grant of a freezing order but is not mentioned to the court. In the judge’s example, many of the facts relevant to the new claim were already pleaded or in evidence on the application. In this second example, the judge postulates that at trial the claimant fails on the original claim but succeeds on the new claim. The judge concludes that it is not necessary for the claimant to make a second application to add the second ground as a ground for the freezing order. He expresses the view that it would be very doubtful whether the defendant would obtain a discharge of the freezing order or an order permitting enforcement of the cross-undertaking at the end of the trial. The judge considered that the original injunction would not be wrongly made notwithstanding that the causes of action originally pleaded had failed. That example fits the present case. However, Mr Cakebread criticised this example given by the judge.

We have also concluded that the second example is unsound. The judge was concerned that it may be very inconvenient for the claimant to return to the court each time he amends his particulars of claim. However, we do not consider that the inconvenience or cost of doing this would be significant. Moreover, we would not wish to encourage claimants who have obtained freezing orders on one basis to amend their claims to add claims on a new basis without going through the process of establishing before the court that the freezing order is properly made in support of the new claims as well as the old. The court ought to be informed of any material change of circumstance. In any event, it must be a matter of judgment for a claimant whether the amendment is sufficiently serious to justify going back to the court. The responsibility is clearly that of the claimant and the claimant must bear the risk that if the amendment constitutes a new cause of action and he fails on the original cause of action at trial the freezing order may be discharged and the cross-undertaking enforced.

In this case, the judge was influenced by the fact that there was a relationship between the claims in the original particulars of claim and claim as amended to include the intermediary representation claim, on which the respondents succeeded at trial. This factor is bound to vary from case to case, making it difficult to lay down any general rule.

Furthermore, we do not consider that the question whether the grant of the freezing order was justified is to be determined on the pleadings as they stand at the date of the application to discharge. If that were the law, the claimant would be better off if he amended his pleading to add a claim subsequent to the grant of the freezing order than if he had failed to disclose some material matter. Non-disclosure can only be remedied by disclosing the matter to the court. The position should in our judgment be the same so that if the claimant fails to establish at trial the cause of action on which the freezing order was granted, the freezing order is ordinarily discharged and the cross-undertaking in damages enforced, subject to the court’s discretion not to discharge the order and not to enforce the cross-undertaking in damages.

We refer below to The Niedersachsen, where this court held that on an application to discharge an injunction the court should have regard to the evidence as at the date of the hearing. In our judgment, that decision applies to evidence, and has no application where pleadings are amended.

In this case, the judge went on to consider the position if he was wrong. His contingent exercise of discretion was fully reasoned and was not expressed to be provisional. He took the same course in relation to the appellants when he decided that it was not open to them to raise the point that there had been a material non-disclosure at the time of the application to Lewison J. (This is a point we have not gone into ourselves, as we have taken the view that in the light of the permission given on the question of the deliberate non-disclosure this court should proceed on the basis that it was open to the appellants to raise the point.) In those circumstances, the usual test must apply that the exercise by a judge of his discretion will not be set aside on review by this court unless one of the well-established hurdles is crossed. The commonest situations where this court will set aside the exercise by a judge of his discretion are where it is shown that the exercise of the discretion is perverse or where it is shown that the exercise of the discretion is wrong in principle.

We now turn to the second ground on which the appellants sought discharge of the freezing orders, namely material non-disclosure. The appellants say that the judge, having found material non-disclosure, should have gone on to apply the ordinary rule, namely that the order should be discharged, and an inquiry as to damages ordered by way of enforcement of the cross-undertaking. Mr Simms submitted that there were further material matters that the respondents failed to disclose to Lindsay J, for instance, the evidence of Haig in the arbitration denying the existence of the misrepresentations. But this evidence was not material because the case put to Lindsay J was that the appellants were bound as privies to the findings of the arbitrator.

The first question is whether there was any material non-disclosure. The judge held that the failure to disclose Jack and Helga’s position in relation to Eastcastle, their non-involvement in Charlton after June 1998, and their lack of involvement in the arbitration was material non-disclosure. The position was that after June 1998, the majority shareholder in Charlton was Eastcastle. The respondents contended that this disclosure was not material because no case was advanced that Jack and Helga controlled Eastcastle and no reference is made to Eastcastle in the particulars of claim. We agree with the judge on the question of material non-disclosure. The respondents needed to establish the link between Jack and Helga on the one hand and Charlton on the other hand for the purposes of the privy argument and indeed also for Conspiracy II, and possibly certain of the other claims advanced in the particulars claim. (The respondents in their argument do not address the relevance of the information about Conspiracy II in this connection, but it was one of the claims in the pleading placed before the court on the without notice application even if the application was principally based on the privy claim.) The most obvious way to establish that link, once Eastcastle had become a majority shareholder in about July 1998, was through ownership or control of Eastcastle. The fact was that the link could not be established in that way. It might be established in some other way, but the fact that it could not be established through ownership of Eastcastle was material to the court’s assessment of the claim based on Jack and Helga, and Mr Simms as their associate, being privies to the arbitration. Likewise, the position of Jack and Helga in relation to Charlton at the time of the arbitration was material to the privy claim.

The subsidiary question is whether the respondents had also to disclose the fact that they had made detailed investigations into the ownership of Eastcastle and been unable to establish any link and indeed that the evidence in the arbitration was that Eastcastle was able to fund Charlton out of its own resources. This subsidiary question is relevant to whether Mr Simms’ evidence on the return date made the non-disclosure academic. In our judgment, the essential point for disclosure was that Jack and Helga had no interest in Eastcastle and that they had not taken part in the arbitration after July 1998. This was sufficient for the court’s purpose. The point about the investigations and the evidence as to Eastcastle’s financial position was merely evidence to support this point. If that point had itself been made, we do not consider that this evidence was required to be disclosed.

The next question is whether the non-disclosure was deliberate. This point is made both by Mr Simms and Ms Levy. Ms Levy submitted that Mr Clarke, in his evidence in support of the freezing orders, must have taken a deliberate decision not to disclose the information, which we have held to be material, because he considered it might harm the respondents’ case. All that assumes that the respondents must have known, contrary to their case, that the position of Eastcastle was material. There is no material whatever to support this serious allegation, which amounts to an allegation of fraud against a professional man. It should not have been made, and we accordingly reject this ground of appeal. We note that the worst which the judge thought could be said against the claimants and their advisers at the stage of the application to Lewison J was that they failed to appreciate that the fact of the alleged non-involvement of Jack and Helga with Charlton might have led to an argument which could be deployed by them in their defence to the privy argument (J(3) 46). The application to Lindsay J could not be on any different basis. So the judge did not consider that the non-disclosure had been deliberate, and there is no basis for saying that his assessment was plainly wrong.

Notwithstanding that the claims had failed at trial or that there had been non-disclosure, and while discharge of the freezing orders would be the normal course, there was a discretion not to discharge the order. There is an issue between the parties as to the evidence that the court can take into account in deciding whether the freezing order should be discharged. The appellants said that the freezing orders should be discharged because at the time they were granted the intermediary representation had not been raised and accordingly all the causes of action on which the freezing orders were based failed at trial. The respondents, however, submitted that when the court is hearing an application for discharge it must take into account all the evidence in the case as it then stands. In support of this submission, Mr Samek cited a passage from the judgment of Kerr LJ, giving the judgment of the court, in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH (The “Niedersachsen”) [1983] 2 Lloyd’s Rep 600 at 619.

In the Niedersachsen the application to discharge took place shortly after the freezing orders were granted. The principle must nevertheless be the same whenever the application to discharge is made. Thus we accept the submission of Mr Samek that in considering whether to discharge the freezing orders the judge was entitled to take into account the fact that the respondents had succeeded at trial on the intermediary representation. This could have been the basis for the grant of the freezing orders.

It also follows from the Niedersachsen that the court is not prevented from considering whether non-disclosure on the without notice application was remedied at the on notice stage or any later stage. In addition, we see no reason why disclosure made by a defendant or co-defendant does not bring to an end for the future the risk that the freezing order is set aside by the court for non-disclosure. We thus reject the argument of Mr Cakebread to the contrary.

In our judgment, the factors relevant to the exercise of the discretion included the relationship between the original claims, and the claim later added by amendment on which the respondents succeeded at trial. The judge took this relationship into account. The fact was that, although the intermediary representation was not pleaded at the time of the without notice application for the freezing orders, it was part of the original particulars of claim that Mr Simms and Mr Rahman had failed to  disclose to the respondents that Jack was not simply an intermediary for Charlton and the evidence of Mr Clarke in support of the application for freezing orders referred to a representation by Jack that he was only an intermediary in entering into the option agreement. This was no doubt just one of the factors which led the judge in his third judgment to describe the claims as closely related, and in his fourth judgment as being very similar in their underlying basis (J(4) 1).

It was also a relevant factor, as the judge noted, that the respondents had succeeded in one claim and that that claim could have supported the grant of the freezing orders that were in fact ordered if an application had been made following the amendment to the pleadings. In our judgment, that is what the judge meant when he said that he saw no reason to exercise his discretion in a way different from that in which he would have exercised the discretion if a further application had been made for the grant of a freezing order following the amendment of the pleadings (J(3) 42). It was also a relevant factor that the claim that succeeded was no less in amount, than those for which the freezing orders had been granted.

We agree with the submission of the appellants that the respondents obviously benefited from the freezing orders. They not only had the benefit of the freezing orders themselves that they obtained. The freezing orders against the appellants were also a springboard from which the respondents obtained three additional freezing orders against the corporate defendants. Jack and Helga submitted that the non-disclosure was repeated on this occasion. Indeed, they complained that the non-disclosure was serial: it was committed before Lindsay J and repeated before Lewison J and on subsequent applications against the corporate defendants. Jack and Helga only discovered about the investigations that the respondents had made into Eastcastle on the eighth day of the trial. All these matters would have been very familiar to the judge and he must be taken to have had them in mind.

The appellants relied before the judge and before us on Finanziera Avenida SA v Shiblaq, Court of Appeal, unreported, The Times 14 January 1991. In that case, the plaintiffs obtained a freezing injunction, then called a Mareva injunction. At the outset of the proceedings, they had four causes of action. At trial they failed on two and two were not pursued. They succeeded on three further claims that had been added subsequently by amendment, long after the injunction had been granted. The judge directed the inquiry as to damages under the cross-undertaking, and made findings as to the amount that ought to be paid. Lloyd LJ held:

“I can understand the plaintiff’s disappointment, and indeed sense of frustration, in obtaining a judgment in their favour (albeit far less than they originally claimed) and then finding that the amount for which they are allowable on the cross undertaking in damages is more than the amount that they have recovered. But I can see no fault or flaw in the judge’s approach or in his conclusion on either causation or on quantum.”

However, this court held that the case should be remitted to the judge because he had failed to consider whether to order an inquiry at all and had merely made the order. The appellants rely on the fact that in this case the discretion to enforce the cross-undertaking was engaged. We agree with the judge that the judge’s order to enforce the cross-undertaking must have turned on the facts of the case, which are not set out in the report. Undeniably this is a matter for the court’s discretion. Accordingly this case is of no assistance in resolving the present case.

In relation to non-disclosure, the judge took the view that it was no longer open to the appellants to rely on non-disclosure. The non-disclosure had been remedied within a short period after the grant of the original freezing orders. In any event, the judge took the view that, as he had concluded that it would be appropriate to make a post-trial freezing order against the appellants, it would be unjust to the claimants to expose them to liability on the cross-undertaking. The claimants had established that the appellants had a large liability to the respondents and that there was a real risk of dissipation.

The judge would also have had in mind that the non-disclosure proved to be of little materiality at the trial as there was evidence that even though Jack and Helga had ceased to be majority shareholders in Charlton they were able to direct its funds: see J(1) 388. In addition, the judge held that it was clear that Ancon had retained a substantial interest in Charlton even after Eastcastle had injected funds (J(1) 694b).

We have therefore considered whether the judge’s exercise of his discretion should be set aside by this court. Mr Cakebread and Ms Levy both submitted that there were no special circumstances justifying departure from the ordinary rule that an inquiry should be ordered. We have considered the factors which the judge expressly took into account and which led him to the contrary conclusion. The judge would also have taken into account other matters not mentioned by him because he was fully familiar with the details of this litigation. We do not see any basis on which it could be said that the matters he identified were not capable of constituting special circumstances in law. The judge expressly reminded himself of the importance of the rule which requires disclosure of all material matters on without notice applications, and that the discretion was only to be exercised in exceptional cases. We do not see any basis on which it could be said that his conclusion that such special circumstances justified departure from the normal rule was perverse or outside the area in which reasonable disagreement is possible.

Introduction

Prior to commencing the hearing of the appeals, we heard an application by the respondents to strike out the notices of appeal filed by the appellants. The basis of the application was essentially the discovery by the respondents of important documents relating to Brinton, which the appellants had not disclosed in the course of this action. We explain in more detail the nature of those documents in the section of this judgment headed Background, below. The Master of the Rolls and Thomas LJ had directed that this application should be heard immediately prior to the hearing of the appeals. We dismissed the application on the basis that the reasons for our ruling would be given in this judgment.

Failure to comply with disclosure obligations has been a recurrent feature of the way in which the appellants have conducted this litigation. The judge refers in his main judgment to the fact that, among other things, the claimants fortuitously discovered a number of highly relevant documents only in the course of the trial. The judge observed that there was considerable force in the submission that so serious had been the concealment of documents that the defences should be struck out on the grounds of abuse of process (J(1) 42). We have already referred under Issue 6 to the important emails which were only disclosed in the course of the trial and which Mr Simms had failed to disclose. At a later point in his judgment, the judge held that there had been “a lamentable inadequacy in disclosure by Jack and Helga and by Mr Simms both in the arbitration and in the action…” (J(1)614). As we have already explained, the judge was persuaded to order that the costs payable by Mr Simms should be paid on an indemnity basis, because of his failure to provide proper disclosure of documents of great importance (J(2) 90).

CPR 52. 9 provides:

“(1)

The appeal court may –

(a)

(a) strike out the whole or part of an appeal notice;

(b)

(b) set aside permission to appeal in whole or in part;

(c)

(c) impose or vary conditions upon which an appeal may be brought.

(2)

The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so.”

Background

Subsequent to the trial, the respondents received a large quantity of documents from a former employee of Mr Simms, Ms Julie Eagle. The documents related to the beneficial interests and control of Brinton. The respondents contended that these documents ought to have been disclosed in the action prior to the trial. Jack and Helga applied for injunctions to restrain the use of these documents. The matter came before Patten J who, following a seven-day hearing, made an order on 25 July 2008 dismissing the applications and granting permission to the respondents to use the documents. He held that the documents were not privileged, but if they had been privileged, the privilege had either been lost or there was a strong prima facie case of fraud in the litigation which destroyed any privilege.

Relevance of the newly discovered documents

The most important document among the documents newly discovered is a copy of the by-laws of Brinton concerning the designation of its beneficiaries. These by-laws are dated 16 January 2003 and are signed by Dr Peter Marxer junior on behalf of the bearer of the founders’ rights in Brinton. That bearer is an entity called Domar Fiduciary and Management Establishment. Dr Marxer has initialled each page, but there is no evidence of attestation or approval by Jack or Helga or Mr Simms. These by–laws state that Jack and Helga have life interests in possession in Brinton. There is also a set of by-laws of Brinton, which bears the legend “approved 29 June 2004” and the signatures of Jack and Helga. This alters the beneficial interest in Brinton so that Jack has no interest and Helga’s interest is as a discretionary beneficiary only. Further correspondence (also newly discovered) suggests that Jack and Helga approved this document at a later date. The significance of 29 June 2004 is that it was the date on which Helga swore an affidavit in the action as to her assets and describing her interest in Brinton as a discretionary beneficiary. There are other significant items in the correspondence, such as indications in the correspondence between Mr Simms and Maitre Croisier (see below) that Helga had made at least one visit to Maitre Croisier in Geneva. We do not propose to identify every single significant document, as we have now identified those which we regard as the most important.

In the action, the respondents sought to argue that Jack was not a mere intermediary because he and Helga owned and controlled Charlton and its shareholder Ancon. They argued, first, that there was no evidence that Charlton and Ancon were part of Brinton, and secondly, if it were the case that Charlton and Ancon were within the Brinton structure, that Brinton was a sham. In the event, the judge rejected the contention that Brinton was a sham (J(1) 424-428) but found that Jack and Helga owned and controlled Charlton and Ancon and that there was no or no sufficient evidence that they had been settled into Brinton. The respondents do not appeal against that holding. Jack and Helga’s case was that Jack had vested his assets in Brinton and that he was not a beneficiary of Brinton, but Helga had a discretionary interest in it. She said that she had instructed a Swiss lawyer, Maitre Croisier, and a firm of Liechtenstein lawyers, Marxer & Partners. She had acted on their advice. None of the appellants produced a copy of the by-laws of Brinton (which were not available for public inspection in Liechtenstein), but a copy of a document (in fact draft statutes) was falsely put forward, by Ms Eagle apparently on the instructions of Mr Simms, in response to an order of the court for production of the statutes and by-laws of Brinton, as the only document constituting the interests in Brinton, by one of the corporate defendants.

The identity of the beneficiaries of Brinton was also relevant for the purpose of identifying the assets of Helga subject to the freezing order made against her. Helga’s first affidavit as to her assets and setting out her case as to her interest in Brinton was sworn on 29 June 2004. She repeated that she was only a discretionary beneficiary in a later witness statement of 18 November 2004. In a further witness statement of 5 May 2005, she denied that Brinton was a bare trust or that she and her husband were beneficially entitled to the assets. In her witness statement of 21 November 2005, served for the purposes of the trial, Helga repeated that Brinton was a discretionary trust, and that she was one of the potential discretionary beneficiaries. What appears to have happened is that by-laws of 16 January 2003 have been in force at all material times and have not been altered. Moreover, these by-laws would appear to be consistent with resolutions of the bearer of the founders’ rights of Brinton (then called Wildhorse Establishment) adopted on 21 February 1994 by Helga and Jack. That means that the court was misinformed about Helga’s and Jack’s interest in Brinton. Furthermore, the appellants did not disclose relevant documents.

The newly discovered documentation, taken on its own, gives rise to a strong inference that Mr Simms, Jack and Helga knew that the beneficial interests in Brinton were not as stated to the court. Mr Samek submitted that if the judge had known this he might well have taken a more sceptical view of other actions by Mr Simms. However, the newly discovered documentation does not stand on its own. Helga has put in a lengthy witness statement on this application. In it, she states a number of matters, including that she was not aware of the 2003 by-laws until 2008. She says that they must have been approved without her consent. As to the by-laws which she and Jack signed, she states that the reference in these by-laws to the earlier by-laws of 16 January 2003 must have been inserted by Mr Simms after that date. She denies any intention to avoid any disclosure obligations. She says that she relied on her former solicitors. She did not know that the interests in Brinton had been incorrectly described to the court, although there had been effective disclosure on her part. Jack, who is seriously ill, has put in a short witness statement effectively confirming Helga’s evidence. Jack and Helga say in their witness statements that they are horrified at the misstatements made to the court and that they had no knowledge of the alterations to the by-laws, that they understood all along that Helga was a mere discretionary beneficiary, that Jack had no interest in possession or at all in Brinton, and that Mr Simms must have acted dishonestly.

Mr Simms’ position was that he disputes the effect of the by-laws of Brinton. His case was that these were altered but without the authority of Helga and thus were invalid alterations. He said that Helga and Jack knew about the by-laws. He pointed to the fact that Brinton is now in winding up in Liechtenstein and to the fact that proceedings have been commenced in Liechtenstein to obtain the court’s directions as to the interests in Brinton. He submitted that in any event, the documents did not go to an issue in the action. We do not accept the submission. Documents relating to interests in Brinton were relevant and disclosable for the reasons already given.

Mr Samek submitted that this is a situation in which the court should reject the evidence of Mr Simms, Jack and Helga without cross-examination and strike out their notices of appeal. He advanced very many criticisms of the conduct of the appellants in relation to this action, in particular with regard to the production of what was said to be the by-laws of Brinton, but which were not. We do not propose to set out all his criticisms in detail, but in taking this course we in no way underestimate his criticisms. We have not set them out because they are very numerous, and because they are not such as in our judgment prevent the fair hearing of this appeal. As we explain below, this in our judgment is a critical factor.

Jurisdiction

We have already set out CPR 52.9. Part 6 of the European Convention on Human Rights is also in point. This guarantees the right of access to court with respect to the determination of civil rights and obligations. Accordingly, art 6 applies to any appeal from the judge’s findings, and to this application, as much as it did to the trial before the judge. This does not prevent the court from disposing of a matter on a summary basis in a proper case (Z v United Kingdom (App No. 29392/95) (2002) 34 EHRR 97).

Both Mr Samek and Mr Cakebread have relied on the recent decision of this court in Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167. This was an appeal from an order made during the course of the trial of a minority shareholder’s petition for unfair prejudice. The petitioner admitted that he had forged documents which were central to his case. The respondent applied to strike out the petition on the ground that a fair trial was no longer possible. The judge dismissed the application on the grounds that a fair trial was possible. Further evidence of fraud emerged and the respondent renewed the application to strike out. The judge found that the petitioner had persisted in his fraudulent behaviour, but dismissed the application because a fair trial was still possible in respect of the claims which had not been infected by the petitioner’s fraudulent conduct. The length of the trial had been greatly increased by the need to investigate the forged documents.

This court allowed an appeal. This court took the view that, once the judge had excluded the evidence that was infected by the petitioner’s fraudulent conduct, there was no ground on which the court could properly find that the respondent had behaved unfairly to the minority shareholders. The court also held that the judge had been wrong to refuse to accede to the second application to strike out the petition.

Chadwick LJ, with whom Ward and Roch LJ agreed, decided the case on two grounds. First, at [53] he said that the judge should not have allowed the petition to proceed on the remaining issues not affected by the forgery of documents as the evidence remaining was not sufficient to disclose a cause of action for relief. He held that he would also allow the appeal on a second, and additional, ground. The second and additional ground was based on the principle that a litigant who has produced the forged documents with the object of preventing a fair trial, with the result that there was a substantial risk of injustice, had forfeited his right to have his claim heard by the court. We will need to consider this ground further below. Chadwick LJ expressed his second reason in these terms:

“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. The reason, as it seems to me, is that it is no part of the court’s function to proceed to trial if to do so would give rise to a substantial risk of injustice. The function of the court is to do justice between the parties; not to allow its process to be used as a means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.”

Ward LJ invoked the overriding objective in the CPR and held that the striking out was not in this particular case a disproportionate remedy, even if there could be a fair trial. He held:

“72.

When exercising any power under the rules, the court must, by virtue of r 1.2, seek to give effect to the overriding objective. The overriding objective in its rightful place at the forefront of the rules is in these terms:

‘1.1(1) These Rules are a new procedural code with the overriding objective of enabling the courts to deal with cases justly.

(2)

Dealing with a case justly includes, so far as is practicable—(a) ensuring that the parties are on an equal footing; (b) saving expense; (c) dealing with the case in ways which are proportionate—(i) to the amount of money involved; (ii) to the importance of the case; (iii) to the complexity of the issues; (iv) to the financial position of each party; (d) ensuring that it is dealt with expeditiously and fairly; and (e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.’

It is not at all clear to me to what extent, if at all, the judge had the overriding objective in mind as setting out the parameters for the exercise of his discretion. He correctly saw at the beginning of his judgment that the source of his power to strike out lay in r 3.4 but he did not trace back through the case management rules to r 1.1. Even though this was a reserved judgment it may still be unfair to the judge to engage in too close a textual analysis of his judgment and infer from the omission of express reference to the overriding objective that he did not direct himself to it. Consequently I prefer to assume he had it in mind. Nevertheless, there is still every indication that he regarded the risk of a fair trial not being possible as the factor of crucial, even overriding, weight. It undoubtedly is a factor of very considerable weight. It may often be determinative. If the court is satisfied that the failure to disclose a document or the effect of a tampered document can no longer corrupt the course of the trial, then it would be a factor of much less and perhaps even little weight in considering a strike out. Where, in my judgment, Evans-Lombe J erred, was to treat the question of a fair trial as the only material factor. It was not: other matters have now to be put in the scales and weighed.

73.

…The judge did not, however, treat cost and time as elements of the overriding objective. He did not appear to allot to the case an appropriate share of the court’s resources while taking into account the need to allot resources to other cases. In this day and age they are elements of case management which must not only be seen to have been placed in the scales but also given due and proper weight when assessing how justice is to be done to the parties and to other litigants. 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 financial position of the parties…

74.

This was, therefore, a flagrant and continuing affront to the court. Striking out is not a disproportionate remedy for such an abuse, even when the petitioners lose so much of the fruits of their labour.”

Roch LJ agreed with both judgments.

Discussion on the strike out application

The allegations made by Mr Samek, if correct, indicate an extraordinary audacity on the part of Mr Simms, Jack and Helga to confound the judicial process and mislead the court. Moreover, even if Mr Simms’s case on the effect of the various alterations of the by-laws is correct, that constitutes no reason whatever for not explaining the position to the court and disclosing the relevant documents. Furthermore, on any basis the information as to Brinton’s assets was inaccurate and Mr Simms took no steps to correct evidence placed before the court.

We do not consider that we can, in the absence of any application for cross-examination, form a view as to the credibility of Jack and Helga with respect to their evidence as to why the documents were not disclosed and the effect of the documents. One can certainly doubt its plausibility but, given the incomplete picture that the court has, we can do no more than express a provisional view to that effect. The case of National Westminster Bank plc v Daniel [1993] 1 WLR 1453 does not enable us summarily to reject the appellants’ evidence about the by-laws of 16 January 2003 because we are not faced with a straight conflict between two different parts of Jack and Helga’s evidence or between two different documents produced by them. The situation is also quite unlike that in Arrow where there had been a judicial investigation into the forgery of documents produced to the court and the court had the assurance of findings by the trial judge, which we do not. It may be that a distinction can be drawn between the case of Jack and Helga and that of Mr Simms. But in view of the fact that we cannot reject summarily the explanations given by Jack and Helga and the fact that we have other grounds for concluding that the application should be rejected, we do not propose to draw a distinction with regard to Mr Simms.

In this case, the application is under CPR 52.9. This sets out what must be inferred to be a deliberately high standard for the applicant to meet before this court will strike out a notice of appeal. In our judgment, CPR 52.9 must oust any inherent jurisdiction to set aside a notice of appeal because of abuse of process on some lesser basis. For the same reason, contrary to the submission of Mr Samek, it is not in our judgment possible to rely upon any other provision of the CPR for this purpose.

The reason for the standard in CPR 52.9 is obvious: it is to deter satellite litigation calculated to delay the appeals process by an application which in many instances will involve hearing the appeal itself. As Laws LJ said in Barings Bank PLC (in liquidation) v Coopers & Lybrand [2002] EWCA Civ 1155:

“It seems to me to be of the highest importance that the court should very firmly discourage the bringing of satellite litigation under the guise of an application under CPR, r.52.9. The rule is there to cater for the rare case in which the lower court’s justice granting permission to appeal has actually been misled. If he has, the court’s process has been abused and that is of course a special situation. There may also be cases where, as Longmore LJ indicated in Nathan v Smilovitch [2002] EWCA Civ 759, some decisive authority or statute has been overlooked by the lord justice granting permission. But where such a state of affairs is asserted, the learning in question must in my view be plainly and unarguably decisive of the issue. If there is anything to argue about, an application to set aside grant of permission will be misconceived.”

CPR 52.9 also reflects the policy that, where litigants have had judgment entered against them and have grounds for obtaining permission to appeal, they should not be shut out from pursuing their appeals unless there is a good reason to do so.

It is incontestable, in our judgment, that if, as a result of abuse of the court’s procedure by an appellant, there could not be a fair hearing of the appeal, there would be or be likely to be a compelling reason for striking out the notice of appeal. However, that is not this case. Nor is it said that the judgment below was obtained by fraud so that the judgment could be set aside on that basis (as for example in Sphere Drake Insurance plc v Orion Insurance Co plc [2001] 1 Lloyd’s Rep IR 1). Clearly in circumstances where the judgment below has to be set aside because of fraud, there would be a compelling reason to set aside any notice of appeal by the party responsible for the fraud. Likewise this is not a case where the alleged fraud has been discovered before the judge gave judgment, where different circumstances might apply. To strike out the notices of appeal would not be analogous to “refusing a driving licence to a person who, in order to secure a favourable outcome, distracts and obstructs the driving instructor during the driving test” (see per Professor A Zuckerman, [2008] CJQ 419) since we are concerned on this appeal with reviewing the judgment of the judge after the trial has taken place.

That leaves the alternative ground established in Arrow, namely that the parties had by their conduct forfeited their right to bring any appeal. In our judgment, this turns on the true interpretation of [54] of the judgment of Chadwick LJ in Arrow, with which the other members of the court agreed. We consider that this paragraph is not to be read as meaning that a litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial is to be taken to have forfeited his right to take part in a trial in every case. Chadwick LJ is careful to emphasise that the litigant’s conduct had put the fairness of the trial in jeopardy and that the court’s power to strike out the proceedings was not a penalty for disobedience with the rules. This interpretation of [54] of the judgment of Chadwick LJ is consistent also with art 6 of the European Convention on Human Rights. Any restrictions on access to the court must, among other things, be proportionate (see, for example, Z v United Kingdom, above). We do not consider that the judgment of Ward LJ, who agreed with Chadwick LJ and who was the only other member of the court to give reasons, is inconsistent with this interpretation since he relies on the overriding objective in the CPR, which requires a case to be dealt with in a proportionate manner. In the Arrow case, as Ward LJ points out, the forgeries carried out by the petitioner had greatly increased the length of the trial.

In this case, however, there is a specific rule, namely CPR 52.9, which requires there to be a compelling reason. A compelling reason is likely to be a more restrictive test than that the striking out is proportionate. As we have explained, we take the view that this is an exhaustive statement of jurisdiction to strike out a notice of appeal in circumstances such as these. Since the breaches of disclosure obligations revealed by the newly discovered documents do not affect the conduct of the appeals, we do not consider that there can be said to be a compelling reason for striking out the notices of appeal. Our conclusion on this aspect of the case was reinforced by the fact that there was virtually no mention of Brinton throughout the hearing of this appeal.

An analogy can be drawn between the point we make here and the decision of this court in Universal Thermosensors v Hibben, to which we referred in the context of enforcing cross-undertakings in damages. In that case, the plaintiff sought to resist enforcement of the cross-undertaking which it had given on the footing that the defendant’s conduct had been outrageous and dishonest. Sir Donald Nicholls VC accepted that the defendant’s conduct was outrageous and dishonest. However, he held that he had to keep in mind that he was concerned with the protection of the plaintiff’s property and rights and to assess fair compensation for the loss suffered. Punishment of the defendants was not his function. Likewise, here, as Mr Cakebread submitted, the purpose of striking out on notice of appeal is not to inflict punishment on the appellants. It would be disproportionate to deny the appellants, having obtained permission to appeal, access to this court in the absence of an appropriate link between their conduct and the grounds of appeal. Mr Samek submitted that the appellants obtained permission to appeal from the judge and this court in circumstances where had the fraud been disclosed beforehand it is hardly likely that they would have obtained such permission. That proposition amounts to saying that appellants may not apply for permission to appeal if they have committed some dishonesty which does not affect the proposed appeal. Their conduct may have some relevance but we do not think that it follows that it would, as submitted, almost inevitably bar the application permission.

In reaching our conclusions, we have borne in mind that it would be open to the respondents to take other steps in the light of the late disclosure of documents. They might for instance seek to reopen the judge’s order for costs so as to get an order for costs in a greater amount or on a different basis. They might also seek to have the papers referred to some prosecuting authority for investigation. As it is, the effect of striking out the notice of appeal would be to render the judgment of the judge immune from review in this court. We appreciate that the respondents have been put to extra trouble and expense as a result of the late disclosure and the falsity of the evidence if that is proved, but they can be compensated for that in other proportionate ways. In those circumstances, we do not consider that the respondents have shown prejudice which cannot be compensated in some other way.

The respondents have filed a respondents’ notice seeking to uphold the orders of the judge against which the appellants appeal on the grounds that his conclusions as to the fact that the appellants were joint tortfeasors and parties to a common design are supported by the fresh evidence which they adduced in support of their application to strike out the notices of appeal. The respondents also rely on the newly-discovered documents in support of their opposition to the appeals against the judge’s orders for indemnity costs and the judge’s orders rejecting the discharge of the freezing orders. The respondents also rely on the fresh evidence if this court considered that it has to re-exercise the discretion to discharge the freezing orders and not to order an inquiry as to damages. We have not found it necessary to rely on the fresh evidence for any of these purposes and accordingly dismiss the applications for that purpose.

The respondents’ notice also raised the argument considered and accepted above that the chain of causation was not broken by DGI when it was still labouring under the delusion created and perpetuated by the intermediary representation. The respondents’ notice also argued other matters. To the extent that we have accepted those arguments above, we allow the respondents’ notice.

For the reasons given above, we (1) dismiss the appeals, (2) allow the respondents’ notice in part, (3) dismiss the applications to strike out the notices of appeal and (4) dismiss the application to adduce fresh evidence on the appeals.