Frey& Ors v Labrouche

This is an appeal against a decision of Peter Smith J refusing an application to strike out part of a claim.

Olga Martin Montis (“Olga”) died on 8 ^th February 1980, leaving a will dated 9 May 1974 (“the will”), which was written in English and was governed by English law. In the will, Olga appointed Hugo Frey (“Hugo”) as her executor, and (i) her daughter, Soledad Cabeza de Vaca y Leighton (“Soledad”), (ii) her third husband, and (iii) Hugo, as the trustees of the will. Hugo (who died in 2005) and Soledad ceased to be trustees in 1998. On the death of Olga’s third husband in 1991, Hugo’s son, Markus (“Markus”) became a trustee of the will in his place. Markus is also the executor of the estate of his father, Hugo.

Newin Foundation (“Newin”) has been a Liechtenstein foundation since November 1995, but it was originally set up as a Liechtenstein Anstalt in about 1957. In addition to many other assets, the valuable founder’s rights in Newin, as an Anstalt, had belonged to Olga, and, on her death, they formed part of her estate (“the estate”) and were accordingly held by the trustees of her will.

The terms of the trust (“the trust”) established under the will were not entirely straightforward, but, for present purposes, it is enough to say that Forester Labrouche (“Forester”), Soledad’s son, was, contingently on attaining the age of 40 (which he did in 1991), entitled to: (i) an absolute interest in possession of 15% of the residue of the estate (which was distributed to him in about 1999), and (ii) an absolute interest in reversion in 45% of the residuary estate, the reversion being expectant on the death of the survivor of Olga’s third husband (who, as mentioned, died in 1991) and Soledad (who is still alive).

The present proceedings were brought in the Chancery Division of the High Court on 5 March 2010, by Forester against (i) Markus, (ii) Hugo’s estate, (iii) Soledad and (iv) Newin (together, “the defendants”). The main aspects of the claim are for an account, an inquiry, and an order for payment, against the first three defendants as former trustees (together, “the trustees”), an order that Markus be removed as a trustee, and a declaration as to the beneficial ownership of Newin and Newin’s assets. The claim form and particulars of claim were served in April 2010.

The claims are based on contentions that:

although there was a trustees’ charging clause in the will, the trustees, or some of them, charged at a highly excessive rate;

Hugo and Markus, as trustees, received commissions, or retrocessions, through their ownership of a company called ZT Zurich Trust AG, through the medium of payments by two Swiss banks which held the trust’s monies;

the trustees acted in breach of trust in permitting or causing Newin to be converted from an Anstalt to a Foundation, thereby losing the trust the valuable founder’s rights; Forester also sought a declaration against Newin to the effect that all assets held by it or in its name were beneficially the property of the trust;

the trustees failed to hold the balance fairly between the capital and income beneficiaries of the trust, which included contentions that (a) the proceeds of sale of a property were distributed as if they were income, (b) the trustees decided to invest largely in US dollar denominated stocks, (so far, I think, not pleaded) and (c) the trustees had directed their agents to invest for income rather than for capital appreciation.

In July 2010 (in the case of the trustees) and October 2010 (in the case of Newin), the defendants applied to strike out the proceedings, or at least some of the allegations and claims in the proceedings, essentially based on the contention that Forester had brought claims in other jurisdictions, including in Lausanne and in Zurich, Switzerland and in Liechtenstein (“the other proceedings”). So far as the other proceedings are concerned, (i) the Lausanne court had declined jurisdiction in 1999, (ii) the Zurich proceedings had resulted in a judgment dismissing all Forester’s claims in October 2006, and, although he issued an appeal, Forester abandoned it in November 2007, and (iii) the Liechtenstein proceedings were still running during 2011.

The defendants contended that, in those circumstances, at least some of the claims raised in these proceedings should be struck out on the grounds of issue estoppel or abuse of process, and in particular on the grounds that:

One or more of the claims had been raised and dismissed in the claims in the other proceedings, particularly in Zurich;

Insofar as some of the claims had not been raised in the other proceedings, they could and should have been raised in the other proceedings;

Insofar as it was said that England was the only proper forum for many of the claims, it was still an abuse of process to have brought the present proceedings in respect of those claims, given that Forester had brought and pursued the other proceedings.

In essence, the four defendants based their application to strike out on the principles and approach adopted in cases such as Henderson v Henderson (1843) 3 Hare 100, Johnson v. Gore Wood & Co (1) [2002] 2 AC 1, and Aldi Stores Limited v. WSP Group Plc [2008] 1 WLR 748, in which this court referred with approval to the approach adopted by Clarke LJ in Dexter v. Vlieand-Boddy [2003] EWCA Civ 14.

Together with one or two other matters, the defendants’ application to strike out came before Peter Smith J on 9 November 2011, at a hearing where (i) he approved Markus’s retirement as a trustee of the trust, and (ii) directed that the strike-out applications come on for hearing before him shortly. The strike out applications duly came on before him on 19 December 2011, with a time estimate of three days, most of which was presumably attributable to the applications to strike out. Apart from the applications to strike out, Peter Smith J was also being invited to consider an application to amend Forester’s statement of case, and to give directions for the trial. By that time, the trial date had already been fixed for 13 January 2013, with a time estimate of four weeks.

In order to understand properly the issues raised by the parties on this appeal, it is necessary to set out most of the contents of the first three pages of the transcript of the hearing on 19 December before Peter Smith J. Those pages record the initial exchanges between the Judge and Mr Newman QC (who appeared together with Ms Campbell for Markus and for Hugo’s Estate, as he does before us).

The transcript reads as follows:

The Judge then went on to consider Forester’s application for permission to amend his statement of case, and, thereafter, the directions for the trial.

The following day, the Judge gave a judgment explaining why he was dismissing the applications to strike out parts of the claim – [2011] EWHC 3854 (Ch). The judgment began by referring to the large volume of documentation, including the facts that (i) the particulars of claim ran to nearly 100 pages (and over 140 pages if the amendments were permitted), (ii) there were 23 witness statements running to 260 pages, (iii) there were seven lever arch files of exhibits (including the Zurich judgment of 46 pages), and (iv) 29 authorities, as well as (v) the substantial written arguments from the parties on the strike out applications.

As the Judge also recorded, the parties were agreed that “the English breach of trust matters could have been decided in the Zurich [proceedings]”. He then explained that the strike out applications were brought under CPR 3.4(2)(b), namely on the ground that the claim was, or aspects of the claim were, “an abuse of the court’s process”.

The Judge then went on to refer to the fact that the claim for an account may well survive the strike-out applications, even if they were successful. He then explained that, in his view, the overriding duty of the court was to enable parties to litigation to have “a fair trial on the merits”, “unless there is some other reason which renders it unnecessary”.

He then said that, having read “the overwhelming material provided”, he had “formed the firm view” that “it would be impossible” to conclude “confidently that the present proceedings amounted to an abuse of process”. In particular, he thought that he could not be clear “what the Zurich judgment did or did not decide, what could have been tried in the Zurich court, and how that decision correlated with the present claims”. He said that he would “have required considerable assistance explaining the [Zurich] judgment”, including “the assistance of Zurich-based lawyers”. He then reiterated his view that his decision did not mean that the defendants could not run their abuse of process arguments, but that they would have to do so at trial, and not at a preliminary stage.

The Judge then briefly explained the various claims which Forester was seeking to raise in the present proceedings. He then reiterated his view that it was impossible to determine the defendants’ abuse of process arguments, and described “the Zurich judgment” as “the key issue”. He then referred to the defendants’ contention that Forester “could have brought proceedings in relation to English breach of trust in Zurich” as “undoubtedly … a difficult exercise to do”, bearing in mind the limited role of oral evidence in Swiss proceedings and the need to explain the English law of trusts to the Zurich court.

The Judge then turned to the law relating to striking out for abuse of process, and said that the court should strike out on such a ground “only in the clearest possible cases”, as a claimant would thereby be deprived of access to the court to pursue his claim. He accepted the fact that a strike out application might take “some little time”, but that, having read the papers, he was “quite confident in forming my view that, however long we spent on [these applications], I would not be in a position to come to any concluded view”.

At the end of the judgment, Mr Newman, and Mr Furness QC (who appeared with Ms Scott, as he does on this appeal, for Soledad) asked the Judge for permission to appeal, which was refused. However, the trustees were given permission to appeal by Lewison LJ, after considering their application for permission to appeal on the papers. Newin (which was represented below) has not appealed the decision.

The basic complaint made by the trustees on this appeal is that Peter Smith J refused to hear their strike out applications, and that this breached their fundamental common law right to present their case on their strike out applications to the court; they also contend that the only way this wrong can be remedied is by the decision of Peter Smith J being set aside, and the applications remitted to the Chancery Division to be heard by another judge.

It is a fundamental feature of the English civil justice system, and indeed any civilised modern justice system, that a party should be allowed to bring his application to court, and make his case out to a judge. Of course, this principle is subject to some exceptions and limitations, which exist to ensure the proper administration of justice. Thus, the court may refuse to entertain argument from a party who is in contempt of court, a civil restraint order can fetter the right of access in the case of a person who has used the court process to harass others, and time limits are routinely imposed for hearings. However, even where a party is in contempt or is subject to a civil restraint order, the court will ensure that he is not prevented from making an application or submissions where it would be unjust to shut him out; and time limits are imposed simply to ensure that a party is not allowed an extravagant amount of time to the detriment of other court users.

Accordingly, it seems to me clear that, where an application is brought to strike out the whole or part of a claim, then, unless, for instance, the applicant is in contempt or subject to a civil restraint order, the judge before whom the application is listed has a duty to consider it properly. In particular, the judge is bound to listen to oral argument in support of the application (unless he is satisfied by what he has read, before coming into court, that the application should be granted, in which case he could call immediately on the respondent to the application – but that is not always a wise course). Particularly where the judge has had the benefit of time to read all the papers, and to consider a full written argument on behalf of the applicant (and the respondent), he may quite properly be able to dispose of the hearing of the application far more quickly than the parties and their advisers may have expected. For instance, while again it often may be unwise to do so, the judge could (i) begin by saying that, having read the papers, his provisional view was that the application should be rejected on one of the many grounds raised by the respondent, (ii) then give the applicant a fair opportunity to disabuse him of this view through oral argument, and (iii) if the judge was unpersuaded by that argument, end the hearing by giving judgment for the respondent on the ground in question.

But what a judge cannot properly do, however much he believes that he has fully read and fully understood all the documents and arguments before coming into court, is to dismiss the application without giving the applicant a fair opportunity to make out his case orally. It is vital that justice is seen to be done, but that is by no means the only, or even the main, reason for this. It is also because it is vital that justice is done. Any experienced judge worthy of his office will have had the experience of coming into court with a view, sometimes a strongly held view, as to the likely outcome of the hearing, only to find himself of a very different view once he has heard oral argument.

It cannot be said, and Mr Taube QC (who appears with Mr Staff and Mr Higgo for Forester, as he did below) has rightly not suggested, that, even in these days of full (sometimes over-full) written arguments, a judge need not entertain oral argument from the party whom he finds against. As already mentioned, it is by no means unknown for a judge to change his mind as a result of oral argument even where he has read full written arguments.

In the present case, it would, in any event have been inappropriate for the Judge not to have given Mr Newman and Mr Furness the opportunity to develop their respective cases on the strike out applications orally. First, even though they had lodged written arguments, they had not had an opportunity to answer the points contained in Mr Taube’s written argument. Secondly, the Judge rejected the strike out applications at least in part because he considered it “impossible to come … to clear conclusions as to what the Zurich judgment did or did not decide, what could have been tried in the Zurich court and how the decision correlated with the present trust claims”, and he took the view that he would “have required considerable assistance explaining the judgment”. While I accept that he may very well not have been persuaded to change his mind, the Judge should have allowed Mr Newman and Mr Furness to try and “explain” the Zurich judgment to him, and, indeed, to develop their argument that the points mentioned by the Judge did not impinge on at least one way in which they put their strike out argument, namely that the bringing of the other proceedings in three different courts (Lausanne, Zurich and Liechtenstein) before the instant proceedings in the High Court meant of itself that the High Court proceedings are abusive.

Accordingly, subject to arguments in rebuttal, it seems to me that if the Judge refused to hear the strike out applications, then he was wrong to do so, and, at least on the face of it, the only way of putting things right, is to remit the applications to the Chancery Division for a hearing. I turn to the arguments raised against this conclusion by Mr Taube on behalf of Forester.

Mr Taube’s first argument is that Mr Newman (and, by accepting what the Judge had said to Mr Newman, Mr Furness) effectively elected to go along with the decision or proposal of the court to refuse to hear argument, and to take their chances by challenging in the Court of Appeal the reasons for dismissing the applications in the Judge’s judgment, once it was given.

Mr Taube quite rightly said that it is the duty of an advocate to stand up to a judge who is proposing to take an inappropriate course, such as refusing to hear argument. He was also right to suggest that, if a judge states that he is proposing to take a certain course and a party’s advocate does not object to that course, an appeal by that party based on the proposition that the judge ought not to have taken that course would, in the absence of special factors, be doomed to failure.

However, where a judge makes it clear that he is resolved on taking a certain course and that there is no prospect of a party’s advocate being able to dissuade him from that course, it is hard to see what the party or his advocate can do other than to appeal against the judge’s decision. In my view, that is this case. The Judge said he was “firmly of the view” that the strike out applications were “really beyond the reach of sustained argument”, and that to hear the applications would be “a waste of the parties’ time and money and the court time”. When Mr Newman offered to address him, the Judge said that he did “not intend to force you to try and persuade me to the contrary. It is a pointless exercise”, and he also described the applications as “not sustainable in my view without yet more evidence. I cannot stop you going to the Court of Appeal, if your clients wish”. Further, Mr Newman specifically offered to “give [the Judge] 15 minutes and tell you what our case is”, but understandably added “but frankly I do not think it is going to make any difference at all to your … decision”, to which Peter Smith J simply said “No”.

Of course, it is almost always possible, with the benefit of the transcript of the hearing and a careful analysis of what precisely might have been conveyed by certain words, to suggest, with wisdom of hindsight, something which an advocate could, or even should, have said. However, it is important to adopt a realistic approach to what is to be expected of an advocate (or indeed a judge or a witness) in the heat of the moment in court. Further, as Rimer LJ pointed out in argument, what one cannot get from a transcript is the tone of voice, facial expression, or even gestures of a speaker.

On the facts of this case, it seems to me that, unless Mr Taube can come up with any further arguments, it would plainly be wrong in principle, as well as wholly unfair on the trustees, to deprive them of their fundamental right to a hearing of their applications, simply because, with wisdom of hindsight and time to reflect and analyse, it could be said that some advocates in the position of Mr Newman and Mr Furness might have argued harder with the Judge to dissuade him from refusing to hear argument on the strike out applications. Indeed, if one were to adopt such an approach, as Moses LJ pointed out, it could be said that Mr Taube should have suggested that the Judge listen to argument on the applications.

This should not be taken as any sort of precedent to support the notion that a party will be able to appeal a decision on the ground that a judge took an inappropriate procedural course where the party had not made it clear to the judge that he objected to that course. It is only very rarely that a party should be permitted to appeal a decision on a ground which was open to him, but he did not take, before the judge. The judge, not the Court of Appeal, is the primary fact-finder and the primary controller of procedure. Hence this court should be reluctant to interfere with a judge’s finding of fact, exercise of discretion, or procedural and case-management decisions. The Court of Appeal’s function in this connection is to correct what it regards as mistakes made by the judge, not to make fresh decisions. Where the judge has not had the opportunity of knowing that a decision is objected to by a party, it is hard to characterise the decision as one which can normally be appealed.

In this case, it was clear that the trustees objected not merely to the Judge’s decision to dismiss their applications, but also to his decision to refuse to hear their arguments. Mr Newman tried and offered to make submissions, and, once he had been rebuffed, it was not unreasonable for Mr Furness to have taken the view that he did, namely that there was no point in his pushing at the same firmly locked door.

Mr Taube next argued that the Judge in any event reached the right conclusion, and therefore the appeal should be allowed, as a rehearing of the applications would be a self-evident waste of time. This argument was not advanced by reference to the actual merits of the applications. None of the advocates was ready to deal with that aspect in this court. In any event, it may be that we could not have dealt with the merits of the applications in the time allotted to the hearing of this appeal, and it would have been an unusual course to take, particularly bearing in mind the role of this court as discussed in para 33 above. Nonetheless, given the desirability of this case being processed quickly (which the Judge rightly emphasised), it would have been an attractive course, but, as none of the parties was ready to argue the merits of the applications, it was not feasible.

Mr Taube’s argument on this aspect was that it would be pointless to strike out any part of the present proceedings in the light of the fact that, on any view, certain issues would proceed, as they could not have been raised in the other proceedings and, in addition, because Newin had not appealed against Peter Smith J’s decision dismissing its application to strike out.

It is true that (i) some of the claims for excessive fees seem likely to survive any successful strike out application, as such fees were levied after the Zurich proceedings concluded, (ii) some of the retrocession claims may well survive a striking out order for similar reasons, (iii) the claim against Newin in respect of its assets survives on any view, and may dispose of any claim in respect of the change in Newin’s status, and (iv) some of the facts founding the claim that there was inappropriate favouring of income over capital growth only came to light after the Zurich proceedings had ended. It is also true that, once a claim for an account and inquiries is granted to Forester, there may well be something of a roving commission as to what can be looked at.

However, I am unpersuaded that any of these arguments can properly justify shutting out the trustees from being permitted to exercise their right to have their arguments heard in support of their strike out applications. In the light of the importance of the principle that a party has a right to have his case heard, it would, in my opinion, require an overwhelming case before a refusal by a judge to strike out a claim without hearing any argument could be upheld by an appellate court without even that court hearing any argument on the substantive merits, and this is not an overwhelming case.

Far from being overwhelming, I do not consider that Mr Taube’s argument on this aspect is even strong – at least for the purpose of justifying us upholding the Judge’s decision. First, Soledad ceased to be a trustee in 1998. So it would clearly be of value to her if her strike out application succeeded: it may even enable her to be discharged from the proceedings entirely. Secondly, if Markus and Hugo’s estate succeed in striking out substantial parts of the claim (e.g. the overcharging claims) up to 2008, or even some earlier date, that could be of value to them; the court may well have jurisdiction to curtail the extent of the roving commission: that was not a topic on which we heard much argument (wholly unsurprisingly). Thirdly, a successful claim against Newin’s assets would not necessarily mean that there was no loss in respect of Newin: it may do so, but it is not clear. Fourthly, the fact that there is some further evidence to support the contention that the income beneficiaries were unfairly favoured does not necessarily mean that it gives rise to a fresh cause of action or even that the bringing of fresh proceedings would not be an abuse, if they would otherwise have been an abuse.

While I consider that these strike out applications must be remitted, I am very far from saying that I consider that they will be held to be well-founded. One of the sad things about this case is that the Judge’s instinctive hostility to the applications may very well turn out to be quite right in terms of the ultimate result. If only he had spent some of the time set aside for the applications listening to the arguments, the parties may well have been precisely where they were by the start of 2012, without the first nine or so months of the year having to be taken up with the cost, effort and time involved in this appeal, and subsequent remitted hearing. Instead, they could have been more valuably engaged in preparing for the trial, whose commencement date may, sadly, now have to be postponed.

This decision should not have the effect of deterring first instance judges from being properly robust. For instance, if, before coming into court, a judge has formed a preliminary view on some or all the points at issue, there is nothing wrong with his expressing that view to the parties, provided that he makes it clear that it is only a provisional view and that he will give, and then does give, them (or at least the party he is provisionally against) the opportunity to try and dissuade him from his view. Equally, if he is satisfied that a particular issue can be disposed of on the basis of one of several points which have been raised, there is no reason why he cannot tell the parties that he provisionally considers that he need not hear argument on the other points, provided, again, that the parties are given the opportunity to persuade him that he should decide one or more of those other points.

Further, on procedural and case management issues, trial judges should be encouraged to be robust. While it is the duty of this court to reverse a decision if it is wrong, that duty is only to be invoked when the decision is one which no reasonable judge could have arrived at, or was one arrived only by taking irrelevant material into account and/or by ignoring relevant material. It is not enough for an appellant to satisfy an appellate court merely that it would, let alone that it might, have reached a different conclusion from the judge. Even before the Woolf reforms, robustness of approach in procedural and case management decisions should have been supported, and now we are about to embark on the Jackson reforms, robustness in such cases is to be applauded.

However, even assuming that the decision in this case was a case management or procedural decision, it was simply unsustainable. It is fundamentally wrong for a judge to refuse to hear oral argument on behalf of a party whom the judge has decided to find against on reading the papers.

In the event, therefore, these appeals against the Judge’s decision to dismiss the trustees’ strike out applications must be remitted to the Chancery Division to be heard as soon as reasonably possible by another Judge.

We were invited to order expedition, with a view to holding the trial date, or at least minimising any slippage. I am very sympathetic to that suggestion in the light of the delays which have occurred. However, it seems to me that it is the Chancellor of the High Court who should decide whether a particular hearing should be expedited. He knows of the current demands on the Chancery judges, and is able to balance the need for an urgent hearing of these remitted applications against the similar need which other claims may have.

I agree.

I also agree.