Islamic Investment Company of the Gulf (Bahamas) Ltd v Symphony Gems NV

These are cross-applications for permission to appeal by the claimant and the second defendant in commercial litigation. The claimant is a major financial institution. The first defendant, now in liquidation, was a diamond trading company.

In 2000, the claimant and the first defendant entered into a finance agreement. The second defendant guaranteed performance by the first defendant. The first defendant defaulted. The claimant brought proceedings against both defendants. On 3 February 2002, the claimant obtained summary judgment against the second defendant for some $10 million US. Ever since then the claimant has been endeavouring to enforce that judgment. The claimant maintains, and the second defendant denies, that the second defendant has substantial hidden assets with which he would be able to satisfy the judgment.

On 17 January 2007, Master Miller made an order that the second defendant should attend court to provide information about his means on 20 February 2007 and also the second defendant should produce at court all documents in his control which relate to his means of paying the amounts due and those documents must include a number of documents specified in an attached list.

For various reasons that proposed hearing did not happen. The claimant obtained an order that the second defendant should provide the necessary documents by 31 August 2007.

Procedural wrangles followed. On 15 July 2008, David Steel J ruled that the documents were not protected by privilege. The second defendant produced certain documents in early 2009 but not all of those which the claimant was seeking. David Steel J concluded eventually that the second defendant had wilfully refused to comply with the court's order.

On 1 October 2009, David Steel J made a committal order for 9 months' imprisonment. This was suspended on condition that the second defendant complied with the other terms of that order within 6 weeks. The Court of Appeal dismissed an appeal against the committal order. The second defendant did not comply with the conditions.

On 4 October 2010, David Steel J made two orders. The first order was a certificate of non-compliance in respect of the conditions contained in the suspended committal order. The second order was a bench warrant for the second defendant's arrest. This bench warrant was not backed for bail. Mr Andrew Benson of Byrne and Partners, the solicitors for the second defendant, was present in court at the hearing as an observer. He said that he was without instructions. The defendant was abroad at the time of the hearing in October 2010. He instructed Mr Benson to appeal against the judge's orders of 4 October 2010.

At this point, Mr Benson embarked on an elaborate and remarkable fraud against his own client. For over 3 years he pretended to be pursuing proceedings for the second defendant’s benefit before the Court of Appeal and the Commercial Court. He fabricated orders of Gloster J and other judges. He fabricated judgments of the Court of Appeal. He fabricated instructions to and correspondence with Edward Fitzgerald QC, Timothy Owen QC and Lord MacDonald QC.

This fraud did not come to light until December 2013. An English solicitor called Rohit Sanghvi was acting as middle man between the second defendant and Mr Benson. He became suspicious. He made inquiries. It turned out that the various judges and counsel referred to in the fictitious litigation had had no involvement in the matters alleged. Mr Sanghvi reported the matter to the police on 20 December 2013. On 9 January 2014, there was a reference to the Solicitors Regulation Authority.

The second defendant then applied to the Commercial Court to set aside all orders made against him since June 2007. That was when Mr Benson had started to act for the second defendant. The claimant opposed that application. The application was argued out over two days before Hamblen J (as he then was) in the Commercial Court.

Hamblen J gave a long and careful judgment on 19 November 2014. He set out the history of the matters in very great detail. I shall not attempt to summarise the judge's excellent summary of the history of the events. Those who are interested will find it in the judgment reported at [2014] EWHC 3777 (Comm). Having set out the history of events, the judge turned to the relevant principles. He noted that the application was made under Rule 3.17 of the Civil Procedure Rules 1998 (as amended). He also noted that authoritative guidance on the application of that Rule had been given by this court in Tibbles v SIG Plc [2012] EWCA Civ 518. The judge then proceeded to analyse the vast mass of documentary evidence and correspondence. He noted that Mr Benson had been misleading the second defendant and Mr Sanghvi, who was assisting the second defendant, ever since September 2008. He noted that Mr Benson had not been complying with instructions, that he had been failing to forward material and he had on occasions misrepresented to his client what he had been told.

The judge then very carefully considered the impact of Mr Benson's misconduct on the various orders made by the court. The judge concluded that up until the summer of 2010, even if Mr Benson had acted properly, this would have had no impact on the actual orders which David Steel J and other judges had made.

The judge then turned to the events leading up to the hearing on 4 October 2010. In paragraph 131 of his judgment he set out a history of Mr Benson's misconduct between December 2009 and October 2010. He concluded that if that misconduct had not occurred, David Steel J may well not have made the orders which he did make on 4 October 2010. In the result, the judge set aside David Steel J's orders of 4 October 2010. He declined to set aside any of the earlier orders.

Both parties are dissatisfied with the judge's decision. The claimant says that the judge should not have set aside the October 2010 orders. The defendant says that the judge should have set aside earlier orders at least from April 2009 onwards.

The application for permission to appeal originally came before Tomlinson LJ on the papers. Tomlinson LJ was not impressed. He refused the applications for permission to appeal, both that made by the claimant and that made by the second defendant. He noted that the judge's reasoning was impeccable and the appellants were simply trying to overturn the findings of fact made by an experienced commercial judge who had considered the evidence at great length. Tomlinson LJ observed that he had come close to certifying both applications as being totally without merit. Despite that ominous warning, neither party was discouraged. They have both come to court today in order to pursue their applications with vigour.

Mr Andrew Ayres QC, on behalf of the claimant, submits that the judge applied the wrong test. He referred me to Rule 3.1(7) of the Civil Procedure Rules, which is in open terms. It says that a power of the court under these rules to make an order includes a power to vary or revoke the order. Mr Ayres then took me to the authorities bundle, which in accordance with hallowed tradition was handed up on the morning of the hearing, and to the decision of the Court of Appeal in Tibbles. The crucial guidance in that judgment is at paragraph 39 (i) and (ii) as follows:

Mr Ayres submits that the judge did not follow the guidance given in the latter part of paragraph 39 (ii). I reject that submission. The judge came to the conclusion that the requirements set out in the latter part of the paragraph were in fact met in this case. Even if they were not precisely met, this case is so exceptional that it does seem to me to cry out for an exercise of the court's power under CPR Rule 3.1(7).

Mr Ayres submits that the judge has not found on the balance of probability that the misconduct of Mr Benson impacted on the orders made on 4 October. The judge has merely found that there is good reason to believe that that was the case.

In my view, that is a semantic argument. The judge has, in effect, found that the misconduct of Mr Benson on the balance of probabilities had an impact on the orders made on 4 October. If Mr Benson had carried out his instructions, had not misled people and so forth, it is probable that a different order would have been made.

Mr Ayres submits that the judge has adopted the approach of considering whether there was a good arguable case or a prima facie case. I do not agree. I consider that the judge has dealt with the matter on balance of probabilities.

Mr Ayres next makes a very important point, which is this. Litigation is intended to achieve finality. Parties cannot in the ordinary way get orders of the court set aside because their own solicitor has acted badly, dishonestly, inappropriately, negligently or whatever adverb you may wish to apply.

I accept that civil courts, like criminal courts, have got to be extremely slow before they set aside an order against one party because of misconduct by that party's lawyers. It is a problem which the Criminal Division of the Court of Appeal has dealt with on a number of occasions. It arises less often in civil litigation. But the point does arise in this case. In my view, the facts of this case are so exceptional and so out of the ordinary that it is appropriate to set aside the October 2010 orders because of the solicitor's misconduct. As I pointed out in argument, this is not the end of the world for the claimant. The claimant can simply make a fresh application for the orders which have been set aside. That would be a less expensive process than pursuing fruitless applications to the Court of Appeal.

Mr Ayres takes Hamblen J to task for apparently making numerous errors in paragraph 136 of his judgment. He submits that the first two subparagraphs of 136 relate to the period after 4 October 2010 and are not relevant to the issues presently arising. I do not agree. I think that in subparagraphs (i) and (ii) of paragraph 136 Hamblen J is talking about the entire period between December 2009 and December 2013.

Turning to subparagraph (iii) of paragraph 136, Mr Ayres submits that the misrepresentations made by Mr Benson were not substantial, they may well have been honestly believed, and Mr Ayres takes me to various documents in the correspondence bundle. I am not prepared to second-guess the judge's decision on matters like this. The judge read the whole of the correspondence bundle in context. He has made very careful findings of fact. It is not the function of the Court of Appeal to re-open findings of fact of that nature.

Mr Ayres then turns to subparagraphs (iv), (v) and (vi) of paragraph 136. He submits that again the judge was in error and the failures were not of such severity as to affect the orders made by David Steel J.

Mr Ayres then turns to subparagraphs (vii) and (viii), which refer to the period after 6 October 2010 and the fraudulent or fictitious litigation which Mr Benson pretended to be conducting. Mr Ayres submits that that is of no relevance at all; there is a clear dividing line between 5 October when the fraudulent conduct began and all events before and leading up to 4 October.

I am not persuaded. It seems to me that the judge was entitled to draw inferences from Mr Benson's conduct after 5 October as to the way he had been conducting things before then.

Taking matters quite shortly, I do not see any force in this proposed appeal by the claimant. My view of the matter is the same as that taken by Tomlinson LJ. One needs to bear in mind the functions of the different civil courts. The Commercial Court sitting at first instance goes through the correspondence and the documents, the judge there grinds through the detail and makes findings of fact, drawing not only on the material before him but also his long experience of commercial litigation. It is not the function of the Court of Appeal, and the Court of Appeal does not have the time or the resources, to second-guess all those findings of fact and to trawl back through the bundles unless there is an error of law which calls for correction. Mr Ayres has, in my view, failed to point to any error of law which calls for correction and has failed to make out any basis upon which this court could take a different view of the documents from that taken by the commercial judge.

I now turn to the cross-application for permission to appeal made by the second defendant.

Mr Tomson submits that the judge drew an arbitrary line in October 2010. He ought to have set aside orders from a much earlier date. He is not as ambitious now as he was when the application first was made before Hamblen J. Mr Tomson submits that the judge should only have set aside orders made after 29 April 2009.

The judge's analysis of Mr Benson's conduct in the period after 2009 is to be found in paragraph 124 of the judgment at subparagraphs (i) to (xiii). Mr Tomson took me through some of the documents. He was very critical of the judge's findings of fact in those thirteen subparagraphs. He submits that if Mr Benson had conducted matters properly, David Steel J would never have made the order which he did make on 1 October 2009 for a suspended committal order.

Again, I am not persuaded by those submissions. The judge has carried out a very careful analysis of the history of the litigation with reference to the judgments given, the correspondence exchanged and the evidence before the court. Hamblen J has concluded that although Mr Benson's conduct is open to criticism during 2009, the same order would have been made as was actually made on 1 October 2009. As Hamblen J puts it in paragraph 126(1) of his judgment:

It seems to me that paragraph 126(1) and the subsequent subparagraphs of that paragraph in the judgment present a formidable obstacle for the second defendant's proposed appeal.

I bear in mind at this point the submission made by Mr Ayres that the Court of Appeal has got to be very hesitant before setting aside orders or overturning judgments on the ground of incompetence by one party's representation. There does need to be finality in litigation and it is only in truly exceptional circumstances that the court will set aside an order under Rule 3.1(7) because of misconduct by a party's lawyers.

I do not think that the test set out in Tibbles has been met by the second defendant in respect of any orders made before October 2010.

Mr Tomson submits that it is suspicious that Mr Benson only charged £25,000 for his services after 4 October 2010. What was his motive for the fraud? Perhaps he was being paid by some third party whose interests were adverse to those of the second defendant.

I do not know. That is all pure speculation. It seems to me that there is no proper basis for the Court of Appeal to reopen the very careful findings of fact made by the commercial judge in this case. I take the same view as Tomlinson LJ. I can well understand why Tomlinson LJ came close to certifying these applications as being totally without merit.

In the result, therefore, I refuse both applications for permission to appeal.