Makdessi v Cavendish Square Holdings BV & Anor (Commital)

This is an appeal by Mr Makdessi, with the permission of the judge, from the decision of Burton J of 18 December 2012 to grant Cavendish Square Holding BV (“Cavendish”) permission to apply to commit him for contempt of court in respect of a Statement of Truth made by him in respect of his Defence and Counterclaim of 25 February 2011. Cavendish’s application for permission to apply was determined following the judge’s decision in a judgment dated 14 December 2012 that clauses 5.1 and 5.6 in an agreement by which Cavendish acquired shares in Team Y & R Holdings Hong Kong Ltd (“the Company”), which is now named WPP 2005 Limited, were not penal. The latter decision is one which this Court has overruled in the judgment (“the appeal judgment”) which will be handed down at the same time as this one, with which I shall assume that any reader of this judgment is familiar.

Under the Sale and Purchase Agreement of 28 February 2008 (“the Agreement”) Mr Makdessi and Mr Ghossoub agreed to sell 47.4% of the shares in Young & Rubicam International Group B.V. The Agreement contained in clause 11.2 the restrictive covenants set out in paragraph 11 of the appeal judgment. Any breach of those covenants would cause the relevant Seller to become a Defaulting Shareholder. The effect of clauses 5.1 and 5.6 of the Agreement was that, if those two clauses were not penal, as the appeal judgment holds them to be, the last two instalments of the price would cease to be payable and Cavendish, the Buyer, would be entitled to call for the transfer to it of the shares at the Defaulting Shareholder Option Price, being a price consisting of the Seller’s proportion of the Net Asset Value at the date when the Seller became a Defaulting Shareholder. I refer to this latter clause as “the call option”. The Seller would also be liable for any loss caused by the breach.

By Clause 7.5 of the Agreement (“the Carat Clause”) the Sellers agreed that within four months after completion they would dispose of any shares held by them in Carat Middle East S.a.r.l (“Carat”), and procure that a joint venture agreement of 19 December 2003, to which Group Carat (Nederland) BV and Aegis International B.V, on the one hand and Mr Makdessi, on the other, were parties (“the Carat Agreement”), would be terminated. Carat was a joint venture company established under the Carat Agreement, said on its own website to be one of the world’s leading media planning and buying organisations, and was admittedly a competitor of the Company. Under Article 7 of the Carat Agreement Mr Makdessi had extensive obligations including obligations (a) to assist Carat in all matters concerning its operation; (b) to assist it in its business operations and marketing in 10 different countries in the Middle East; and (c) to assist it in getting new clients.

In March 2008 Mr Makdessi gave notice that he wished to resign as Chief Executive of Carat. In June 2008 a new Chief Executive - Mr Damien Harnist - was appointed. That appointment did not last and in January 2009 a second Chief Executive – Mr Antonio Boulos – was appointed. On 13 December 2010 Cavendish purported to exercise the call option on the footing that Mr Makdessi was a Defaulting Shareholder.

The action was commenced on 15 December 2010. In it Cavendish claimed a declaration that it was entitled not to pay the last two instalments of the price, and sought specific performance of the call option and damages in respect of the loss of the value of its shareholding in the Company on account of Mr Makdessi’s alleged breaches of the Agreement. The Company claimed an account of all profits made in connection with Mr Makdessi’s alleged breaches of fiduciary duty or, at its option, equitable compensation.

In the Particulars of Claim paragraph 11 (e) set out clause 7.5, i.e. the Carat clause, and paragraph 11 (f) set out clause 11.2 of the Agreement, i.e. the restrictive covenants, which the judge held to be valid. Paragraph 15 was headed “Breaches by the Defendant of the Agreement”. It pleaded:

“In breach of the terms referred to in paragraph 11(e) and (f) above respectively and/or his fiduciary duties and duties of fidelity, the Defendant:

(a)

Failed within 4 months after 28 February 2008:

(i)

to dispose of his shares in Carat. The Claimants believe that the Defendant only disposed of his shares in Carat in about May 2009; and/or

(ii)

to procure that the Carat Agreement was terminated, as to which the Claimants rely on the following matters:

(A)

The Defendant was party to a document entitled “First Amendment Agreement to the Joint Venture Agreement” (the “First Amendment Agreement”) which states under paragraph 2 that: “All other terms and provisions of the Agreement, which are not contradictory to the terms established by the Amendment Agreement, shall continue to apply in full”. It is to be inferred from this that the Carat Agreement has not been terminated;

(B)

the Defendant has a three year earn-out agreement with Carat in the terms set out in paragraph 1 of the First Amendment Agreement;

(C)

after July 2008 the Defendant:

(I)

provided his services to Carat, maintaining an email address “Talal ELMakdessi/Beirut/CARAT/@CARAT” for all Carat related business;

(II) actively assisted Carat to generate new business from LVMH, the French luxury goods company; between January and May 2009 the Defendant met with representatives of or on behalf of LVMH and engaged in email correspondence with them relating to the prospect of Carat pitching for the LVMH account;

(III) represented Carat, for instance at a meeting with Pierre Choueiri, the Chief Executive Officer of the Choueiri Group in January 2009, the largest media representation group in the Middle East, during which he explained that he wanted to discuss volume rebates for Carat in 2009 and future working arrangements in 2010 between Carat and the Choueiri Group;

(IV)

diverted or sought to divert media buying business to Carat, often at the expense of MEC, including Etisalat which was a client of MEC;

(V)

approved on behalf of Carat a contract entitled the Dolphin Maintenance Contract in about March 2009;

(VI)

assisted Carat in May 2009 by providing information regarding its cash flow in respect of its Beirut based bank accounts and its “basket” regional account;

(VII)

threatened Sara Assaf (General Manager of Intermarkets in Beirut) in August 2009 with cancellation of an advertising campaign which she had booked for the Bank of Beirut and the Arab Countries (“BBAC”) through MEC unless she re-booked it through Carat; and

(VIII)

acted in relation to Carat, as set out in paragraph 17 below.”

Paragraph 15 (b) then contained averments of engaging in Restricted Activities in Lebanon and Saudi Arabia by setting up companies with “Adrenalin” in their name. Restricted Activities were defined in the Agreement to mean various activities in competition with the Group (which included the Company and other companies). Paragraph 16 averred that Mr Makdessi had solicited Clients away from the Group Companies and accepted orders in respect of Restricted Activities in Lebanon in favour of Adrenalin companies and Carat, thereby diverting business from them. Paragraph 17 gave particulars of those activities. These included examples of business lost by Group companies to Carat. Paragraph 18 averred that Mr Makdessi had in Lebanon solicited employees away from Group companies to Adrenalin. Paragraph 19 gave particulars. Some of the solicitation was said to have been successful and some not. Paragraph 20 claimed that Mr Makdessi had solicited Clients away from Group companies and diverted business from them to Adrenalin in Saudi Arabia. Paragraph 21 gave particulars. Paragraph 22 gave details of unsuccessful attempts at solicitation of Clients in that country. Paragraph 23 stated that Mr Makdessi had solicited employees away from Group companies in Saudi Arabia. Paragraph 24 gave particulars. Paragraph 25 gave details of unsuccessful attempts at solicitation. The loss of custom referred to in paragraphs 17 (Lebanon) and 21 (Saudi Arabia) and the loss of the services of employees referred to in paragraphs 19 (Lebanon) and 24 (Saudi Arabia) were said to constitute the loss and damage which the Company had suffered. Paragraph 26 pleaded that one of the consequences of the breaches was that Mr Makdessi was a Defaulting Shareholder.

As is apparent from paragraph 6 above the averment in respect of Carat was that Mr Makdessi had failed (a) to dispose of his shares within 4 months after 28 February 2006 and (b) to procure that the Carat Agreement was terminated. The pleading contained allegations that he had provided services to Carat in 2008 and 2009, had sought to divert business their way and had had some success in that respect. These allegations were put forward as matters relied on in support of the allegations in paragraphs (a) (i) and (ii) of paragraph 15 although the opening words of that paragraph referred to the activities pleaded in it being in breach of the terms referred to in two earlier paragraphs of the pleading – paragraphs 11 (e) and (f) – which set out the Carat Clause and the restrictive covenants.

On 25 February 2011 Mr Makdessi filed his defence. In paragraph 15 he denied that he was in breach of the terms referred to in paragraphs 11 (e) and (f) or either of them and/or in breach of the alleged fiduciary duties and duties of fidelity whether as alleged or at all. Without prejudice to that denial the “position regarding Carat” was set out in 11 sub-paragraphs. The first 7 of them referred to an agreement of 28 April 2008 (“the First Amendment Agreement”) whereby Mr Makdessi agreed to sell his shares in Carat to the two other parties to the Carat Agreement. This agreement was said to be effective under French law to divest Mr Makdessi of his shareholding as at 28 April 2008 with the effect that the Carat Agreement was terminated with respect to him in accordance with its own terms.

Paragraphs 15 (h) – (k) and 16 then pleaded as follows:

“(h)

Further, in or around March 2008, the Defendant notified Mark Jamison of Aegis Media EME (“Aegis”) that he wished to resign his position as Chief Executive Officer of Carat and to dispose of his shares in the joint venture.

(i)

By letter dated 26 March 2008 from Mark Jamison on behalf of the other parties to the Carat Agreement, the Defendant’s resignation was accepted on the basis that he was required to give three months’ notice to expire at the end of June 2008.

(j)

Following 26 March 2008 the Defendant's only involvement in the business of Carat was to assist in finding a replacement CEO and, pending his appointment, to sign cheques on behalf of the business.

(k)

In the event in 2008, Aegis appointed a Mr Harvist (sic) to replace the Defendant as chief executive officer at Carat, who was later replaced by a Mr Boulos.

16

In the premises, save as set out in paragraph 15(j) above, from no later than 28 April 2008 the Defendant ceased to carry on or be engaged, concerned or interested, whether in competition with the Group or at all, in any activities of Carat and by that date had fully complied with the provisions of Clause 7(5) of the agreement."

Paragraphs 17 to 24 then made specific pleas in relation to paragraphs 15 -25. In paragraph 35 Mr Makdessi denied that he was a Defaulting Shareholder.

The pleading ended with a Statement of Truth, signed by Mr Makdessi, in the following terms:

“I believe that the facts stated in this Defence and Counterclaim are true”.

The application before the judge related to three statements (described as the first, second and third statements). The judge refused the application in relation to the second and third statements and there is no appeal from that decision. The first statement, in relation to which the judge did give permission, was Mr Makdessi’s statement of belief in the facts stated in the Defence and Counterclaim insofar as it related to paragraphs 15 (j) and (k) and 16 of the Defence.

The judge found, in my view correctly, that by his Statement of Truth Mr Makdessi was stating that:

“(i)

he assisted in finding a replacement CEO for Carat and pending that appointment he signed cheques on behalf of the business; and

(ii)

this continued after 26 March 2008, but only until June 2008 when Mr Harnist was appointed;

(iii)

what he did on behalf of Carat, namely as above, was his only involvement in the business of Carat after 26 March 2008, such that, from 28 April 2008, he was not concerned at all in any activities of Carat, and certainly not involved in any activities of Carat which were competitive with the Claimants or MEC.”

On 25 March 2011 Mr Makdessi sought further information concerning certain allegations in the Particulars of Claim. By Requests 16-34 he sought to understand the nature of the case pleaded against him regarding his ongoing involvement with Carat beyond the four month period contemplated by Clause 7.5 of the Agreement.

On 28 April 2011 the Respondents gave further information in respect of the Particulars of Claim. Requests for information numbers 18-34 met with the response that “save for the copy emails attached” and pending full disclosure no further information could be given. The attachment consisted of 52 pages of emails covering an 8 month period many of which were not sent to or copied to Mr Makdessi. 17 of these emails were referred to at the hearing of the application before Burton J in December 2012.

In July 2011 the Particulars of Claim were amended in respects not presently material and an Amended Defence and Counterclaim was served. That, too was supported by a Statement of Truth.

In May 2012 the Particulars of Claim were Re-Amended so that, as amended, paragraph 15 reads (ignoring the deletions):

“15

In breach of the terms referred to in paragraph 11 (f) above and/or his fiduciary duties and duties of fidelity the Defendant:

(a)

Engaged in Restricted Activities (namely in the provision of advertising, communications, public relations and media buying services) within the Prohibited Area. The best particulars of the Defendant’s engagement in Restricted Activities in the Prohibited Area are as follows:”

What were originally sub-paragraphs (a) (i) and (ii) (A) and (B) were then crossed out. The new paragraph 15 (a) above was what had originally been the opening paragraph of 15 (b), which was now deleted. There then followed:

“(i)

Carat

The Defendant:

(A)

Continued throughout 2008 and 2009 to provide his services to Carat including by maintain an email address at t.makdessi@carat-me.com for all related Carat business;

This was a slight amendment of paragraph 15 (a) (ii) (C) (1). There then followed some new averments and, after them, what had previously been paragraphs 15 (a) (ii) (C) (II) - (VII).

The effect of this pleading was (a) to remove any complaint of breach of the Carat clause or that by entering into the First Amendment Agreement only in April 2008 Mr Makdessi was in breach of that clause; and (b) to put forward the particulars that had previously been in paragraphs 15(a) (ii) (C) (I) – (VII) as particulars of Mr Makdessi’s engagement in Restricted Activities.

On 15 July 2011 at the first Case Management Conference, the Court ordered a split trial of liability and quantum. On 31 May 2012 that trial was fixed for 12 November 2012. On 1 October 2012 Mr Makdessi made a Part 36 Offer of $ 500,000 in respect of the Company’s claim, which on 8 October 2012 the Company accepted. 8 October 2012 was the (extended) date for exchange of factual witness statements. Mr Makdessi served no evidence.

On 10 October 2012 Mr Makdessi provided Cavendish’s solicitors with a draft Re-Amended Defence and Counterclaim. As amended paragraph 9 read:

“9

As to paragraph 15:

(a)

It is admitted that after 28 February 2008 the Defendant had an ongoing, unpaid involvement in the affairs of Carat pending the appointment of a replacement CEO and that such involvement placed him in breach of fiduciary duty to the Second Claimant with effect from 1 July 2008;

(b)

It is denied that the Defendant’s ongoing involvement in the affairs of Carat placed him in breach of the covenants set out in Clause 11.2 of the Agreement or any of them, such covenants being unenforceable.”

Mr Makdessi continued to deny that he was in any way interested, concerned or involved in the operations of Adrenalin.

Paragraph 17 (a) of the amended pleading now contended that Mr Makdessi was not a Defaulting Shareholder because the covenants in clause 11.2 were unenforceable; but paragraph 7 (b) accepted that “if …the covenants are valid and enforceable it is admitted that the Defendant’s involvement in the affairs of Carat rendered him a Defaulting Shareholder within the meaning of the Agreement”. The pleading did not specify the date when Mr Makdessi accepted that he first became a Defaulting Shareholder, although it appeared to be after 28 February 2008, when the involvement referred to in paragraph 9 (a) began.

This amendment was a dramatic development since, if Mr Makdessi was a Defaulting Shareholder, clauses 5 .1 and 5.6 would, if valid, apply.

On 12 October 2012 Cavendish’s solicitors, Squire Sanders, wrote to Mr Makdessi’s solicitors, Clifford Chance, in relation to the draft amendment in the following terms:

“The principal change is that your client now admits that in and following July 2008 he engaged in conduct which falls within the definition of Defaulting Shareholder. You client has until this Wednesday denied that this was the case.

As you will appreciate, the question of whether or not your client has engaged in conduct which falls within the definition of Defaulting Shareholder is an issue which has involved a very substantial amount of work by us and our clients, with respect to disclosure, the preparation of witness evidence and preparation for trial. A trial, which had originally been listed for 4-5 weeks to accommodate evidence from numerous witnesses, you now propose listing for 5 days to deal largely with legal argument only.

Had your client made his present admission, as he clearly should and could have done, when he first served his Defence (in February 2011) all of this work would have been unnecessary and your clients would not have incurred the very substantial costs of carrying it out - which, as you are aware, are in excess of £1 million. We do not see how your client could possibly maintain that he was not in a position to make his admission at the time of service of his Defence; indeed we now have very serious concerns about the Statement of Truth that he signed at that time.

You currently appear to be suggesting that the costs that have been incurred by our clients in seeking to establish that your client was a Defaulting Shareholder should be costs in the case. However, this position is untenable. Had your client made his admission at the appropriate time, these costs would not have been incurred by our clients.

We therefore invite you once again to provide us with your proposals as to the payment of the Claimants' costs unnecessarily incurred in this way."

On 17 October 2012 Squire Sanders indicated their client’s preparedness to agree to the draft amendment subject to service of the Re-Amended pleading verified by a Statement of Truth. This was provided when the Re-Amended pleading was served on 29 October 2012 pursuant to permission given by Burton J on 26 October 2012.

At 13.37 on 31 October 2012 Squire Sanders wrote a Calderbank letter to Clifford Chance offering to settle all outstanding claims in the proceedings together with certain other claims. At 16:42 on 31 October 2012 they wrote to tell Clifford Chance of their clients’ intention to apply for an order of committal. The letter enclosed an application for permission to apply in draft together with a copy of an affidavit sworn by Mr Paul Oxnard and invited Clifford Chance to accept service. That consent was not forthcoming and on 2 November 2012 Cavendish and the Company, applied for an order for substituted service on Mr Makdessi via Clifford Chance; and for permission to apply for the committal of Mr Makdessi. On 5 November 2012 Burton J gave permission for service of the application on Clifford Chance.

At the beginning of November 2012 Cavendish’s claim for damages for breach of the Agreement was abandoned after the exchange of skeleton arguments. Thus it was that the trial, originally fixed for 4-5 weeks became one of 5 days, confined to legal argument as to the validity of clauses 5.1 and 5.6. That trial, which addressed all but two of the issues on liability, lasted from 12 November 2012 to 16 November 2012 and judgment was handed down on 14 December 2012.

The application for permission to apply to commit came on before Burton J, as directed by him, after he had delivered his judgment on the liability issues. The hearing of the application took place on 14 and 17 December 2012 and judgment was given on 18 December 2012.

The judge referred to the summary of the law made by Hooper, LJ in Barnes t/a Poole Motors v Seabrook [2010] EWHC 1849 (Admin); [2010] CP Rep 42, at paragraph 41:

The judge concluded (paragraph 40) that there was a strong case that after April and June 2008, contrary to the statement in his defence, and, consequently, to his Statement of Truth Mr Makdessi was very substantially involved in Carat “requiring considerably more explanation if there be one than had been given” in his witness statement. In reaching this conclusion he relied on a number of matters.

First, Mr Makdessi in his evidence had said this:

Next the judge referred to events which had been referred to in certain emails exhibited to Mr Oxnard’s affidavit. In one email of 12 February 2009 Mr Makdessi had told Mr Mark Jamison, the Chief Financial Officer of Aegis Media in London:

This email was a response to an email from Mr Jamison of 11 February 2009. He had said that he had received an audit query about £ 342K paid from Carat Saudi to Carat Lebanon which was recorded as a dividend in the Saudi accounts but did not appear as received in the Lebanon accounts. Mr Michael Bloch QC, on behalf of Mr Makdessi, submits that this is not evidence of activity, at any rate of any substance, on behalf of Carat in 2009. The exchange relates to a dividend for the year ending 31 December 2007 and it is not clear from the email when the BBAC Account had been opened. This is true. But what the email exchange does appear to show is that in 2009 Mr Makdessi was (a) in a position to arrange payment from that account; (b) aware of Carat’s cash position; and (c) inquiring about future coordination in relation to financial matters.

Next the judge referred to a set of emails in March 2009. On March 2009 Mr Boulos emailed his team consisting of 3 local managers, with copies to Mr Makdessi and Mr Harnist, about a meeting in Beirut on 19 March 2009 “re Carat ME re-organisation – financial matters”. The email recorded that “Talal would like us all to meet up in Beirut on Thursday 19 March to share his POV and discuss Carat ME re-organisation process, and other finance related matters as follows...” There then followed a list of matters to be discussed in relation to (1) designated signatories of company payments; (2) reporting channels for financial reports; and (3) some five other types of report. The email said that Maitre Antoine Haddad would be present to consult with on any legal matter. On 12 March 2009 Mr Harnist responded to Mr Makdessi to say that there was an opportunity to meet with P&G (i.e. Proctor & Gamble) in Geneva on 17 March, which was an important meeting and that he had asked Mr Boulos to attend and apologised for the conflict. Mr Makdessi replied the same day to wish him good luck with the P&G meeting and to say that “our regional meeting could be at any time”.

Mr Bloch observes that wishing Mr Harnist good luck with a meeting could scarcely be regarded as carrying on any form of Restricted Activity nor could being invited to a meeting in Beirut count as that either. However the fact that Mr Makdessi had called for what appears to be an important regional meeting in Beirut and was wishing Carat’s CEO success in relation to another meeting in Geneva appears to show a considerable degree of active participation on his part in the business affairs of Carat.

Mr Oxnard’s affidavit also exhibited four draft contracts of employment for employees of Carat Middle East which were to be executed by Mr Makdessi as President and CEO. These had been sent to Mr Makdessi on 19 March 2009 by a lady at Carat Dubai saying:

“As agreed earlier, please find attached all Carat Dubai staff employment’s contracts. Haven’t shared the final document with them, will do so once you would revert with your signature on the respective letter of employment...”

Mr Makdessi’s evidence as to the contracts of employment was that Mr Harnist had been appointed to help out on a temporary basis; but he was based in Paris and never visited the Middle East so that the business was left with a vacuum at the top. He said that he had not told most of the staff that he had resigned because he anticipated that they would be anxious and upset. The staff looked to him to respond to their needs and it did not occur to him that he was committing any wrongdoing in doing so. He regarded it as entirely natural that he should “manage the handover” pending the appointment of Mr Boulos. He did not accept that he competed with WPP through Carat. Rather he just “kept the ship afloat” until a new CEO was in place.

The judge referred to paragraph 39 of Mr Oxnard’s first affidavit which read:

The judge then referred to some emails in March 2009 which formed part of the emails annexed to the Further Information but which were not exhibited to Mr Oxnard’s first affidavit. These had apparently been found by Mr Ghossoub on the Carat server. Two of them requested Mr Makdessi’s correspondent to use his Carat email address and not the one at the Company. One of them informed Mr Makdessi of a proposed pitch by Carat to seek to keep the business of Louis Vuitton on 5 May 2009. Another was an email of 24 April 2009 to Mr Boulos saying in relation to a meeting with Louis Vuitton:

“Does my presence add value? If yes, will attend with great pleasure. If not, wish you the best of luck”.

In relation to the emails the admissibility of which is not challenged the judge found it significant that in his witness statement Mr Makdessi, whilst saying that he found it striking that there were in the material referred to by Mr Oxnard almost no emails from him and that he did not know what they were supposed to prove, gave no explanation as to how he came to be involved in the P&G business or why he was to sign the contracts of employment describing him in March 2009 as President and CEO of Carat.

In relation to the emails which were annexed to the Further Information Mr Makdessi said this:

The judge considered and rejected a contention that the application for permission to apply to commit Mr Makdessi was made in bad faith or for some improper motive. He referred to the words of Sir Richard Scott VC in Malgar v Leach [2000] FSR 393 to the effect that the court will be concerned to see that the case is one in which the public interest requires committal proceedings to be brought; and to the observation of Cox J in Kirk v Walton [2008] EWHC 1780 (QB); [2009] 1 All ER 257 that the discretion to grant permission should be exercised with great caution and that there must be strong prima facie case against the alleged contemnors.

He also referred to the observations of Moore-Bick LJ in KJM Superbikes Ltd v Hinton [2008] EWCA Civ 1289 ; [2009] 1 WLR 2406; which he quoted as follows:

“In [Malgar v Leach the Vice-Chancellor] declined to give permission for proceedings to be instituted against the alleged contemnors because the falsity of the statements in question could not be clearly established without trespassing on the issues in the trial and because in any event the statements themselves had not been persisted in to the point at which they were likely to affect the outcome of the proceedings. He therefore regarded the committal application as tenuous, having earlier expressed the view that in order to succeed in an application to commit for contempt in making a false statement it is necessary to show that the maker knew that what he was saying was false and that his false statement was likely to interfere with the course of justice."

He then said:

"16.

……Factors such as these are likely to indicate whether the alleged contempt, if proved, is of sufficient gravity for there to be a public interest in taking proceedings in relation to it. In addition, the court will also wish to have regard to whether the proceedings would be likely to justify the resources that would have to be devoted to them.

17.

In my view the wider public interest would not be served if courts were to exercise the discretion too freely in favour of allowing proceedings of this kind to be pursued by private persons. There is an obvious need to guard carefully against the risk of allowing vindictive litigants to use such proceedings to harass persons against whom they have a grievance, whether justified or not ... I would therefore echo the observation of Pumfrey J. in paragraph 16 of his judgment in Kabushiki Kaisha Sony Computer case [2004] EWHC 1192 (Ch) at 16 that the court should exercise great caution before giving permission to bring proceedings. In my view it should not do so unless there is a strong case both that the statement in question was untrue and that the maker knew that it was untrue at the time he made it."

Finally, he states in paragraph 19 as follows:

"In some cases, of which this is an example, it may be possible to deal with an application of this kind at a much earlier stage, especially if the alleged contempt relates to a statement made for a limited purpose which has passed and has no continuing relevance to the proceedings. Although we did not hear argument on this point, I think that in general a party who considers that a witness may have committed a contempt of this kind should warn him of that fact at the earliest opportunity (as the appellant did in this case) and that a failure to do so is a matter that the court may take into account if and when it is asked to give permission for proceedings to be brought. However, it is important not to impose any improper pressure on a witness who may later be called to give oral evidence. In particular, if the alleged contemnor is to be called as a witness, an application under rule 32.24 should not be made, and if made should not be entertained by the court, until he has finished giving his evidence."

The judge omitted the opening words of paragraph 16 of KJM Superbikes namely:

“Whenever the court is asked by a private litigant for permission to bring proceedings for contempt based on false statements allegedly made in a witness statement it should remind itself that the proceedings are public in nature and that ultimately the only question is whether it is in the public interest for such proceedings to be brought. However, when answering that question there are many factors that the court will need to consider. Among the foremost are the strength of the evidence tending to show not only that the statement in question was false but that it was known at the time to be false, the circumstances in which it was made, its significance having regard to the nature of the proceedings in which it was made, such evidence as there may be of the maker's state of mind, including his understanding of the likely effect of the statement and the use to which it was actually put in the proceedings.”

In later passages of his judgment the judge recorded (a) the agreement of both parties that he should exercise the jurisdiction with caution; (b) that the public interest must justify the bringing of committal proceedings; (c) that no improper pressure should be imposed on someone who might be obliged subsequently to give oral evidence at trial; (d) the need for a strong case, for the false statement to be significant in the proceedings, and for the court to be satisfied that the alleged contemnor knew the effect of the statement and the use to which it would be put in the proceedings.

The judge concluded (paragraph 39) that:

“there is clear evidence by reference to the emails and the documents, both those which are exhibited to Mr Oxnard's witness statement, primarily the documents for example relating to the bank account of Carat and his apparent position as Chief Executive of Carat as late as 2009, and those exhibited to the Further Information, of his continuing involvement, close involvement, with the affairs of Carat in the manner described by me above long after July 2008, and even after the appointment of the second replacement Chief Executive in January 2009. The case is thus that his statement that he had nothing further to do with Carat after April 2008, and certainly nothing after June 2008, is falsified on the face of these documents”

The judge also concluded that, even if he were to ignore the contents of the emails which were attached only to the pleadings, the position was as stated in paragraph 29 above. It did not seem to him to be a case where Mr Makdessi could have forgotten what he was up to after April 2008 in relation to the affairs of Carat; or that a case could be made that, if his statement was false, he had no reason to know that fact. He would also have known that a knowingly false statement was of considerable significance to the case. The case against him was that in breach of clauses 11.2 and 7.5 he was running Carat, a very substantial competitor of MEC a group company for a considerable time. Had the statement not been made the factual defence on liability would and could not have been made and the vast amount of time which was spent would not have been spent on the trial before the defence case was abandoned. The judge did not consider that the fact that he still needed to resolve the question as to the date upon which Mr Makdessi became a Defaulting Shareholder would prejudice Mr Makdessi in giving his account of the truth of the first statement. Accordingly he granted the Respondents permission to apply to commit.

It does not appear to me that the judge has misdirected himself as to the relevant principles. Nevertheless Mr Bloch contends that he was in error in no less than 10 different respects, which I now consider.

The first matter is that the judge is said wrongly to have admitted evidence. Mr Oxnard’s affidavit in support of the application exhibited various documents and then went on to say:

“The pleadings and Orders and the Claimants' other witness statements and exhibits that I refer to in this Affidavit will be made available to the Court separately on the hearing of the Claimant's applications."

Ms Joanna Smith QC, for the Respondents, submits that the attachments to the Further Information were admissible having regard to CPR 32.6 which provides:

“(1)

Subject to paragraph (2), the general rule is that evidence at hearings other than the trial is to be by witness statement unless the court, a practice direction or any other enactment requires otherwise.

(2)

At hearings other than the trial, a party may, rely on the matters set out in –

(a)

his statement of case; or

(b)

his application notice, if the statement of case or application notice is verified by a statement of truth.

Under CPR 2.3, a statement of case “includes any further information given … voluntarily or by court order under rule 18.1”.

In my view, notwithstanding CPR 32.6, CPR 81.14 requires attachments to a statement of case to be exhibited to the affidavit required by 81.14 (1) if they are to be relied on in support of the application. Part 81 is a self contained part of the Rules applying to the specific circumstance of an application for permission to commit, itself a quasi-criminal procedure, and must take precedence over the more general provisions of CPR 32.6. If CPR 81.14 requires more of the applicant than might otherwise be required, it must be complied with. CPR 81.14 (1) (b) requires the exhibition of “all” documents relied on. “All” means all. It may be that, in litigation between parties such as these, the requirement is somewhat technical. So be it. It is not a requirement with which is difficult to comply; and in other cases, such as the case of a litigant in person or where the alleged contemnor has mislaid the documents, it may be particularly important. A person whom it is sought to commit to prison needs to be provided with a full package of the documentation which is to be marshalled against him, so that he may know and have a copy of exactly what is relied on.

There was, thus a failure to comply with the Rules. It is not, however, a failure which in my judgment invalidates the judge’s conclusions. First and foremost, he made it plain that even if he ignored the contents of the emails which were not exhibited, he was of the view that there was a sufficiently strong case against Mr Makdessi. Secondly Mr Makdessi did in fact respond to the material in dispute, to which Mr Oxnard had referred in his affidavit: see paragraph 40 above. The hearing at which the admissibility of the emails was challenged was adjourned part heard from Friday 14 December to Monday 17 December 2012. Further written submissions were produced but no additional evidence was put in nor was an adjournment sought in order to do so. And as the judge observed at paragraph 37 of his judgment:

“…there is no evidence to support the proposition that when the Defendant made the comments he did ….. he was only assessing them halfheartedly because he did not regard them as part of the evidence against him. He deals particularly with the documents in the passage, which I have quoted, in his statement, ending with the short comment "So what".”

In those circumstances the judge was entitled to have regard to the disputed emails and Mr Makdessi’s response in deciding whether he should grant permission. He directed the claimants to serve a further affidavit by 4pm on 24 December 2012 and Mr Oxnard swore a third affidavit exhibiting the statements of case and the documents attached to them.

The second ground relied on is that the judge is said to have taken no account of (i) the Appellant’s perspective of the allegations and his evidence that he did not consider himself to have competed with the Company; (ii) the reasonableness of that belief; or (iii) his evidence that he did not appreciate the falsity of the first statement. Had the judge done so he would not, Mr Bloch submits, have concluded that there was a strong case that Mr Makdessi appreciated that the first statement was false. He refers to various passages in Mr Makdessi’s evidence where he denies knowingly making a false statement, says that he did not think that the Agreement prevented him from managing the handover of Carat to Mr Boulos, does not accept that he competed with WPP through Carat, and says that never set out to mislead the Court.

The fact that the judge did not refer to the passages relied on does not mean that he failed to take them into account. It is apparent from a number of paragraphs in his judgment (e.g. paragraphs 20, 23, 24, 26, 27, 37, 40 and 43) that the judge took account of Mr Makdessi’s evidence, but did not regard it as explaining (a) how he came to give one account in the original defence (no involvement in Carat after June 2008 and little before) and then change it in the October 2012 amendment; or (b) how the matters relied on by the Respondent did not signify a very substantial involvement on his part in Carat post June 2008.

In finding that there was strong case that Mr Makdessi was substantially involved in Carat after April and June 2008 the judge is said to have proceeded on a mistaken basis that he had opened a bank account on behalf of Carat in February 2009 and wrongly treated wishing Carat luck in relation to the P&G pitch and being asked for a signature on Carat employment contracts as evidence of that involvement.

I have considered these matters in paragraphs 31-36 above. In my view the judge was entitled to find that the material in question provided a strong prima facie case of substantial involvement and active engagement in the affairs of Carat after June 2008, whether or not Mr Makdessi opened the Carat bank account in February 2009, particularly when, on his own evidence, he continued to respond to Carat’s “day to day operational needs” well after June 2008, at which point, according to his original defence, he had ceased to have any involvement at all. Mr Makdessi’s evidence about the contracts of employment does not explain how he was apparently holding himself out, or prepared to hold himself out, as President and Chief Executive of Carat. Wishing Carat good luck with the P&G pitch might, in other circumstances, have been without significance. When it occurred in the context of postponing a regional meeting and at a time when he was responding to Carat’s operational needs it is consistent with an involvement of substance.

The fourth ground is that in paragraph 43 of his judgment the judge wrongly characterised the claim being made against Mr Makdessi as being that he had “carried on running a very substantial competitor of MEC and [the Respondents] for a considerable period of time and that was the case he was denying”. This was not, so it is said, the allegation made in paragraph 15 (a) (i) and (ii) of the original Particulars of Claim to which he was responding when he made the first statement. The allegation in those paragraphs was that he had failed by 1 July 2008 to dispose of his Carat shares and to terminate the joint venture. The subparagraphs of paragraph 15 (a) (ii) were only put forward as matters supporting that contention. This mischaracterisation informed the judge’s view of the strength of the Respondents’ case that Mr Makdessi knew that the first statement was false. Having misidentified the issue to which the first statement was responding as being the extent of Mr Makdessi’s involvement with Carat after June 2008 the judge went on to conclude that Mr Makdessi must have appreciated its falsity. If he had realised what issue Mr Makdessi was addressing he would have appreciated the fallacy of his conclusion.

I do not regard this criticism as valid. The allegations against Mr Makdessi in the particulars of paragraph 15 were that he had failed to dispose of the Carat shares or terminate the joint venture and that in 2008 and 2009 he had engaged in activities in relation to both Carat and Adrenalin which were in breach of the restrictive covenants. Even if the matters in sub-paragraph (C) of paragraph 15 (a) (ii) of the Particulars of Claim are to be treated only as matters from which a breach of the Carat clause may be inferred and not as breaches of the restrictive covenants, the allegations in that sub-paragraph were of substantial engagement on Mr Makdessi’s part in the running of Carat continuing after July 2008 and into 2009, with which it was necessary for Mr Makdessi to deal. It appears from paragraph 46 of his witness statement that he appreciated that. The activity pleaded in sub-paragraph (C) would have meant that Mr Makdessi was a Defaulting Shareholder, as paragraph 26 (a) of the Particulars of Claim alleged him to be. Even if, for the purposes of determining whether Mr Makdessi was a Defaulting Shareholder, that sub-paragraph is to be ignored on the grounds that it relates only to the breach of the Carat clause alleged in paragraph 15 (a) (ii), the last averment in paragraph C (VIII) is that he acted in relation to Carat as set out in paragraph 17, which is a separate head of complaint of a breach of clause 11 of the Agreement in the form of solicitation of clients in 2009 and 2010 some of whom had ended up with Carat.

It was in that context that Mr Makdessi pleaded in paragraph 16 of his Defence that he had not from 1 July 2008 been “engaged, concerned or interested, whether in competition with the Group or at all, in any activities of Carat” and that following 26 March his only involvement was that of signing cheques and finding a replacement CEO. Paragraph 16 was the conclusion to be drawn from paragraph 15 of the Defence which was a general denial of any breach of the Carat clause or the restrictive covenants and which set out the position regarding Carat. It does not seem to me that the judge was guilty of any mischaracterisation of the claim or of Mr Makdessi’s denial.

Mr Bloch submits that, in the light of KJM Superbikes, the Respondents or their solicitors should have warned Mr Makdessi at the earliest opportunity of the fact that they considered that he may have committed a contempt. They should have written before the end of March 2011, drawing his attention to the emails of February and March 2009 to which I have referred above, saying that they considered that they demonstrated an involvement in the affairs of Carat beyond June 2008 and reminding him that false statements were punishable by committal proceedings. This would have focused Mr Makdessi’s mind upon the extent of his involvement with Carat and would probably have led to an amendment.

The judge was, he submits, wrong to find, as he did, that, if a warning was necessary, it was to be found in Squire Sanders' letter of 12 October 2012. He ought to have held that the public interest would not be served by the pursuit of committal proceedings in circumstance when there had been no warning.

I do not accept this. A litigant in the position of Mr Makdessi, a highly successful and intelligent businessman with top flight lawyers, did not need to be reminded by the Respondents that false statements of truth were punishable by committal. If in March 2011 Squire Sanders had written to Clifford Chance in the terms suggested it seems to me unlikely that the volte face which occurred in October 2012 would then have followed. This is particularly so in the light of Mr Makdessi’s witness statement the tenor of which was that the evidence against him was worthless, and the fact that the Re-amendment of the Defence was only made when the factual evidence was due to be exchanged shortly before trial. A more likely result is that Squire Sanders would have received a dusty response and complaints of improper pressure on Mr Makdessi.

The sixth matter relied on is that, in granting permission to apply to commit, the judge allowed the process of the court to be used as an instrument of oppression. The despatch of the draft application within hours of an offer of settlement had all the appearance of oppression and was regarded by Mr Makdessi, as he says, as an “attempt to intimidate and oppress” him. The implication from the timing was that if he settled on the Respondents’ terms the committal proceedings would not be pursued.

I do not accept this. The combination of events that occurred in and at the end of October 2012 was a result of Mr Makdessi’s abrupt change of position on 10 October 2012. The trial was fixed to commence on 12 November 2012. A PTR took place and Mr Makdessi filed his Re-Amended Defence, verified by a Statement of Truth, on Friday 26 October 2012. If, as was sensible, any question of applying for permission to commit was to be heard immediately after the trial, it would be necessary to serve the application to be allowed to do so in short order, since the trial was fast approaching and might well be short, as in the event it was. It would also be necessary to address the question of service promptly since Clifford Chance might decline to accept service, as in the event they did. In the light of the time available any application for permission to apply to commit would thus have to be made at roughly the same time as any further offer on the Respondents’ part to settle. Further, if an offer of settlement was accepted by Mr Makdessi without the possibility of an application to commit him having been raised, the failure to do so would, no doubt, have been criticised. The Respondents’ evidence is that they thought that they should make their counter offer before an offer that had been made by Mr Makdessi expired on 31 October. Whilst any counter offer did not have to be made by then, it seems to me that the judge was entitled to be wholly unpersuaded that the Respondents were acting in bad faith or with an improper motive or were guilty of threatening behaviour. Nor was he bound to accept that to allow the Respondents’ application would be to permit them to abuse the process of the court. Mr Makdessi did not suggest that he was in fact intimidated and he rejected the offer made to him as “derisory”.

The seventh ground relied on is that the judge incorrectly allowed an application to commit to be made when the matters to be canvassed at the hearing of that application would overlap with matters that are still to be determined, namely the date upon which Mr Makdessi became a Defaulting Shareholder (“the date issue”). Mr Makdessi’s Re-Amended Defence admitted that after 28 February 2008 he had an ongoing, unpaid involvement in the affairs of Carat which placed him in breach of fiduciary duty from 1 July 2008. It also admitted that, if the covenants in clause 11.2 were enforceable, he was a Defaulting Shareholder from a date unspecified. The judge appears to have regarded that as an admission that he was a Defaulting Shareholder from 28 February 2008. By a letter of 17 October 2012 Squire Sanders had indicated that, although it was their clients’ case that Mr Makdessi became a Defaulting Shareholder before 1 July 2008, it would not be proportionate to litigate whether he became one 2 months earlier. In the light of the Re-Amended Defence the Respondents resiled from this stance.

On 14 December 2012, Mr Makdessi was permitted to re-re-amend his pleading to allege that on a true construction of the Agreement he was entitled to act as CEO of Carat and perform the obligations imposed on him by the Carat Agreement until 1 July 2008 and that, if clause 11.2 was enforceable, his involvement in the affairs of Carat rendered him a Defaulting Shareholder but only with effect from 1 July 2008.

In those circumstances the overlap between any trial of the date issue and the contempt application is very limited. The date issue will require the court to determine whether Mr Makdessi’s contention as to the construction of the Agreement is correct. If it is not, then he will have been a Defaulting Shareholder since 28 February 2008 unless it could be said that his continuing involvement with Carat (going beyond looking for a new CEO and signing cheques) did not mean that he was engaged, concerned or interested in Restricted Activities. This appears implausible in itself, and all the more so in the light of the obligations imposed on Mr Makdessi under the Carat Agreement which are set out in paragraph 3 above which Mr Makdessi claims he was entitled to perform.

The contempt application is based on the falsity of the statement that his involvement in the business of Carat after 26 March 2008 and until 1 July 2008 was limited to finding a replacement CEO and signing cheques and after that was non-existent. The statement is said to be false both in respect of the period 26 March 2008 to 30 June 2008 and in respect of the period from 1 July 2008 onwards. The evidence adduced primarily focused on the latter period. In respect of the former period the first statement is said to be false on the basis of his statement in the Re-Amended Defence as to what he was doing (ongoing involvement in the affairs of Carat after 28 February 2008) and his evidence in response to the application. Whether or not his admitted activities during that period amounted to a breach of the Agreement may, however, have a bearing on his appreciation, in respect of that period, of the untruth of what he was saying or its significance for the purpose of these proceedings. The extent of his activities during that period may also be relevant for the same purposes and, possibly, as to the extent of any sanction, if a contempt was proved.

The judge recognised that the date issue would at some stage need to be resolved but did not think that that would in any way prejudice Mr Makdessi’s position in giving his account as to the truth of the first statement or at any rate not to such an extent as would cause him to come to a different conclusion as to granting permission.

Subject to one qualification the judge was, in my view, entitled to conclude that there was no such prejudice to Mr Makdessi as should cause him to refuse permission. The qualification is that, if the date issue remained a live one, it seems to me that, in order to avoid any possible prejudice (which appears remote), it would be appropriate that the issue should be determined before the contempt application.

As it is, however, in the light of our decision on the liability appeal, the date issue has become moot. The call option is unenforceable and the date when Mr Makdessi became a Defaulting Shareholder is no longer material.

In KJM Superbikes Moore-Bick LJ, referred to the decision in Malgar as one in which the considerations taken into account in deciding whether the public interest required or justified committal proceedings was whether the statements had been persisted in to the point at which they were likely to affect the outcome of the proceedings. This, it is submitted, was not the case here. The statement may have affected the costs of the proceedings. But that is a different question. The judge was wrong to treat the “outcome”, as he did, as including the very substantial expenditure of time and costs even if the case was abandoned prior to the actual trial.

The extent to which a statement has been persisted in is plainly a relevant consideration. I do not, however, accept that an application to commit should be regarded as inappropriate simply because the maker of it recants before trial. Any such principle would risk becoming a licence to lie until the penultimate moment. Nor is there any rule that permission to apply to commit should be refused unless the statement in question has affected the outcome of a trial. The facts of the present case are markedly different from those in Malgar where the false statements were made in witness statements which were not relied on at the hearing of the application for summary judgment.

The penultimate ground relied on is that the judge failed to have regard to the Court resources which would be required to deal with the application. The application relates to an isolated statement, which was not persisted in until trial, and whose significance had to be discerned from a consideration of several sub paragraphs of a complex pleading. Allowing the Respondents to embark on an attempt to commit was an unwarranted use of scarce resources.

I disagree. The question whether Mr Makdessi was in contempt is not going to take very long to try in the Commercial Court, in which forum it will appear neither abstruse nor particularly complex. As the judge said, the evidence will, or at any rate should be, within a small compass and much of it has already been given.

The last ground relied on is that the judge impermissibly strayed into the merits of the application. The judge found that there was a strong case that the first statement was made by Mr Makdessi knowing it to be false and he said that “ he would have known, if this statement was a knowingly false statement that it was of considerable significance in relation to the case” (Para 43).

It is axiomatic that, upon an application for permission, the judge is required to find whether or not there is a strong prima facie case, not whether that case is established. It may not, however, be an altogether easy task to express a conclusion that there is a strong case without appearing to indicate that the case is established. In the present case I am wholly satisfied that the judge did not purport nor appear to have decided the case. It is clear from what the judge said that he was only considering whether there was a strong prima facie case (see paragraphs 42 - 44). Whether the case is well founded will be determined on the hearing of the application which the judge permitted to be made.

The 10 grounds relied on are, in large part, attempts to review the judge’s evaluation of a threshold question as to the strength of the case against Mr Makdessi. In respect of such an issue this court should, in my view, be slow to interfere with the conclusion of the trial judge, and I do not regard any of the grounds suggested as reason to do so.

The critical question, in this and every case, is whether or not it is in the public interest that an application to commit should be made. That is not an issue of fact but a question of judgment. The discretion to permit an application to commit should be approached with considerable caution. It is not in the public interest that applications to commit should become a regular feature in cases where at or shortly before trial it appears that statements of fact in pleadings supported by statements of truth may have been untrue. Whether an application for committal is in the public interest will depend on a number of considerations many of which have been considered in the authorities including the significance of the statement in the context of the case, the clarity of its meaning, the strength of the contention that the maker of it knew it to be untrue, the status of the maker, the seriousness of the consequences of it having been made, the length of time over which, and the circumstances in which, it was maintained, and any explanation as to why it was made.

In the present case the first statement related to a very important issue, namely the extent of Mr Makdessi’s involvement in Carat after 28 February 2008, which issue bears on the question whether he was at any material time a Defaulting Shareholder. What Mr Makdessi did in relation to Carat after 28 February 2008 was something peculiarly within his own knowledge. It was not something about which he was likely to have been mistaken or which he was likely to have forgotten. The evidence of Mr Oxnard was that by the conclusion of the trial due to start in November 12 2012 some £ 1.75 million in costs had been incurred by the Respondents in seeking to establish that Mr Makdessi was a Defaulting Shareholder. Some of this, perhaps a large proportion, related to the claims in relation to the Adrenalin companies. The amendment did not affect the resolution of those claims. That does not, to my mind, detract from the importance of the first statement to the issues relating to Carat. The failure to retract the first statement meant that, in addition to his denial of any involvement with Adrenalin, Mr Makdessi continued to maintain that his activities in relation to Carat were minimal and, from 1 July 2008, non-existent, and did not make him a Defaulting Shareholder, even if the restrictive conditions were valid. Thus the Respondents had to incur the cost and expense of establishing what those activities were and that they made him a Defaulting Shareholder; and the court had to provide and earmark resources for that purpose. There is strong ground to think that Mr Makdessi appreciated the significance of what he was saying. Once he accepted the true position namely that, on account of his activities in relation to Carat, he was, if the restrictive conditions were valid, a Defaulting Shareholder, there was a real prospect that the claims other than to enforce clauses 5.1 and 5.6 would settle, as in the event they did.

As the judge rightly said, citing the approval by the Supreme Court in Fairclough Homes Ltd v Summers [2012] UKSC 26 of the words of Moses LJ in South Wales Fire and Rescue Service v Smith [2011] EWHC 1749 (Admin), the discouragement of the making of false statements by litigants by way of false statements of truth is in the public interest both because of their effect on those involved in litigation and their effect upon our system of justice, which depends above all upon honesty. In the present case the judge was not in error in granting permission to the Respondents to apply to commit. Whether or not Mr Makdessi was in fact in contempt, and, if so, what consequences, if any, should follow are, of course, matters to be decided when the application to commit is heard.

Accordingly I would dismiss the appeal.

I agree.

I agree.