Staines v Walsh & Anor

Introduction

The claimant is a trader “in the global equity markets.” Broadly, his claim is for an account of profits earned, net of losses. The defendants are fund managers. The claimant alleges that “in or about September 1997 he [orally] agreed with the defendants that [they] would provide him with facilities to trade in equities and in return the claimant would pay to the defendants one half of his net profits after taking into account losses.” What is for present purposes alone agreed to be a variation of the agreement is alleged to have taken place “in or about January 2000 [when] the claimant and the defendants further agreed that the claimant would set up trading facilities for the defendants in Tokyo and that the defendants would reimburse…agreed proportions of [his expenses]…” The claimant alleges that in or about March 2001 he terminated the trading arrangement. He contends that the defendants have failed to account for what is due to him. In round sums, he alleges he is owed some $250,000. 1/1/1

In this application under CPR 11, the first defendant disputes that the court has jurisdiction to try the claim. He alternatively argues that it should not exercise any jurisdiction it may have. Any trial should take place in Hong Kong. The second defendant plays no part in the application. I am told that judgment has been entered against him.

The history of the action

On 23 April 2002 Rimer J granted a freezing order against the first defendant on a without notice application. Proceedings were begun next day. On 1 May 2002 Laddie J continued the freezing order. Service by an alternative method was provided for. On 1 July 2002, Hart J set aside the service of all previous orders: also the orders for alternative service. He ordered that the claimant have permission to serve the claim forms outside the jurisdiction on both defendants. He did so under CPR 6.20(5) (a) and 6.20(5)(c) (see below). He made it clear that the defendants could apply to set aside the orders under CPR11. At that hearing, counsel on behalf of the first defendant made no submissions. This is therefore the first time that the issue of jurisdiction has been argued on both sides. 1/21/191, 1/22/194

The Legal Framework

There is no real dispute about the principles I should apply.

CPR 6.20 deals with service out of the jurisdiction. It applies equally to applications under CPR 11. The relevant provisions are CPR 6.20(5)(a) and (c). Although it is said in the claimant’s skeleton that CPR 6.20(6) applies, Mr. Ralls QC, on behalf of the claimant, has not sought to rely on it. I shall omit all further reference to it.

CPR 6.20(5)(a) (in conjunction with CPR 6.20) provides that “In any proceedings…a claim may be served out of the jurisdiction with the permission of the court if…a claim is made in respect of a contract where the contract…was made within the jurisdiction.” That is the claimant’s primary case.

CPR6.20(5)(c) provides that such a claim may be brought if the contract “is governed by English law.” That is the claimant’s secondary case.

It is agreed that in considering whether the contract is governed by English law, by reason of the Contracts (Applicable Law) Act 1990, I must have regard to the provisions of the Rome Convention. Article 3 deals with choice of the law which is to apply. It provides

“1. A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case…”

No question of an express choice arises here.

Article 4 provides

“1. To the extent that the law applicable to the contract has not been chosen…the contract shall be governed by the law of the country with which it is most closely connected…

The claimant, it is agreed, must prove a good arguable case that CPR6.20(5)(a) and/or (5)(c) apply. As to the meaning a good arguable case, I have borne in mind what was said in Canada Trust Co. v. Stolzenberg (No 2) [1998] 1 WLR 547 by Lord Justice Waller at pages 555 and 558.

"…what the court is endeavouring to do is to find a concept not capable of very precise definition which reflects that the plaintiff must properly satisfy the court that it is right for the court to take jurisdiction. That may involve in some cases considering matters which go both to jurisdiction and to the very matter to be argued at the trial, e.g. the existence of a contract…The concept also reflects that the question before the court is one which should be decided on affidavits from both sides and without full discovery and/or cross-examination…[The] "good arguable case" test, although obviously applicable to the ex parte stage becomes of most significance at the inter partes stage…[In]the interlocutory context…"Good arguable case" reflects…that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i.e. of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allows the court to take jurisdiction…[It] is a threshold below ' proved on a balance of probabilities … but higher than ' serious question to be tried …' good arguable case ' is a concept with some degree of flexibility depending on the issue. "

The finding of a good arguable case under either of the bases in CPR 6.20 is of course not the end of the matter. Additionally, the claimant has to show, first, there is a serious issue to be tried and second, if so, that England is clearly the most appropriate forum. As Lord Goff said in Spillada Maritime Corporation v Cansulex [1978]AC 460 at page 481D,

“The effect [of the authorities] is not merely that the burden of proof rests on the plaintiff to persuade the court that England is the appropriate forum for the trial of the action, but that he has to show that this is clearly so.”

The facts

In order to keep the judgment within bounds, I shall limit what I say about the facts as disclosed on the documents. I make it plain that I have read the large bundles with care and in detail. As will soon become apparent, there is a substantial factual dispute between the claimant and the first defendant. Each accuses the other of lying. Many documents said to go to credit have been included by both sides. Most are only marginally, if at all, relevant.

Where was the contract made?

There are two wholly conflicting accounts. The claimant’s case is that the agreement was reached in London in August or September 1997. The first defendant’s is that it was reached Thailand in June 1997. The claimant agrees he was in Thailand in June 1997. He says no agreement was made then.

In his second witness statement, the claimant says this.

“4. In or about July/August 1997 I met [the first defendant] at 5 Ropemaker Road, Surrey Docks, London…whereupon it was agreed that the defendants would provide premises, telephone lines, terminals, brokerage arrangements and credit lines so I could trade using these facilities…

In his third witness statement the first defendant refers to the claimant’s evidence. As to 5 Ropemaker Road, he says,

“5…there are no offices [there]…it was a residential address…I do not recall ever having met the claimant there for any purpose at all…That address had nothing at all to do with the contract whatsoever, and I believe the claimant is simply seeking to manufacture an advantage out of the fact that it is listed as a previous UK address in my first witness statement.

6. The agreement was in fact reached in Thailand as a result of meetings which took place there between 21^st June and 23^rd June…” 1/18/133

He describes the meetings. He says he explained the mechanics of the business: among other things, how a new company (what became Mondial) was to be set up by the claimant and how it would relate to first defendant’s Hong Kong company. “I verbally informed the claimant of John O’Donnell’s firm which could assist in forming the new company, which was to be “backed into” the organisation as a subsidiary…” 1/18/134

He states that the trading would be done on his instructions from Hong Kong. “Certainly none of [the trading] would be carried out from Ropemaker Road…The claimant and I shook hands on the deal on the morning of 23 June and it was agreed that the claimant would leave any current employment and join the organisation as soon as possible.” 1/18/134, paras 11-12

In his fourth witness statement the claimant responds.

“21. I have collected…some evidence with regard to Ropemaker Road. At the time, I gave my work telephone number to Danielle Dunworth (an accountant who was also the company secretary for Mondial…from September 3^rd 1997…). I recently asked her if she had a record of this number. She…identified it as 0171 252 1188. On 10 January 2003 I telephoned that number a lady…[confirmed] that [it] was…Ropemaker Road…” 2/31/340

Danielle Dunworth confirms what he says about her.

In his fourth statement the first defendant states that what the claimant says “are plainly and simply fabrications, put to the court in an effort to improve his chances of persuading the court to accept English jurisdiction.” The first defendant goes on to attack what the claimant says about Ropemaker Road. He, among other things, refers to an inconsistency in the claimant’s first affidavit, where he states that he first started trading from another house (The Boilerhouse). He attacks Miss Dunworth’s credibility on the basis she was a former girlfriend of the claimant. He finally states on this topic,

“33…the claimant’s story relating to negotiations and subsequent trading being carried out at Ropemaker Road is a complete fabrication. I would accept it is possible that the claimant could have visited…at some stage during August or September 1997 without remembering the address…I…have certainly never seen or met the claimant there…I am clear that no negotiations took place there. I note that not a single one of several witnesses…has stated that work was ever carried out from that address…” 2/38/457

Exhibited to the first defendant’s statement is a facsimile from Mr. O’Donnell dated 28 August 1997. As the claimant said, he plainly did deal with the claimant’s purchase of Mondial. He sent it from his accountant’s address in London, although it is headed “JP Company Registrations (IOM) Limited.” It refers to an earlier conversation between the claimant and Mr. O’Donnell. The claimant made a note on the bottom of the facsimile. He gave his credit card number, no doubt so that Mondial could be purchased in the way the claimant stated in his witness statement. The facsimile number to which Mr. O’Donnell sent the document to the claimant was checked with British Telecommunications Plc (“BT”) by the claimant’s solicitors. The fax in question was located at 5 Ropemaker Road. BT also informed the solicitor that “there were four or more phone lines attached to this address at the time.” See Mr. Judge’s statement

Mr. Ralls, in my view with justification, relies on this document. Miss Smith suggested that it could not be said to be contemporaneous, given, as she suggests, the contract was reached in June 1997. Moreover, she submits, the facsimile does not place the defendant in the offices at the time.

It seems to me the facsimile is of significance. Each side is accusing the other of lying. I have not seen and therefore cannot assess the witnesses. In deciding whether the claimant has shown a good arguable case, I can only rely on the statements and documents provided. Any document brought into being at the time of events I am considering, which helps on the issue of credibility and may throw light on what was happening is important.

The first defendant has claimed that 5 Ropemaker Road was never used as offices. The claimant has never worked there. He doubts he has ever been there. Yet Mr. O’Donnell, on the face of it a close associate of the first defendant is contacting the claimant there in respect of the very matters raised by the alleged agreement between the claimant and the first defendant very shortly after, on the claimant’s account, that agreement was reached. Moreover, a court would be entitled to infer that the presence of at least four telephones at the address suggests it was being used as offices, as the claimant states. In my view, this evidence tends to support the claimant’s account. While of course it does not of itself put the first defendant at Ropemaker Road at the material time, it suggests his account regarding Ropemaker Road is untrue.

In further support of his case that the agreement was reached in August or September 1997 and not in June 1997, the claimant relies on the time gap between June and August and September. Why did he only start doing anything regarding Mondial and beginning to trade some two months after, according to the first defendant, the agreement was reached? The first defendant (and Miss Smith in argument) put forward a number of reasons for the delay. The claimant still had a job. He had to leave that. There was no need to start immediately. There is little business in July and August. As far as the first defendant was concerned, there were other more important matters than the claimant and his trading.

Additionally, Miss Smith submits there is every reason to doubt the claimant’s account of the reason for his visit to Thailand in June 1997. That account is to the effect he went to enjoy himself and, if possible to obtain commissions for the bank at which he then worked. She submits (on the basis of the first defendant’s statements), first, that the trading of the bank for which the claimant worked was of a different sort to that of the first defendant which would have been obvious to the claimant and, second, that the bank was in well-publicised trouble.

Although not at the forefront of his submissions, Mr. Ralls drew my attention to the fact (plainly right on the evidence) that the first defendant states that in 2002 he destroyed the (valid) British passport which he had had for some time. Had he not, it might well have been possible to see if he left Thailand in August 1997.

I of course bear all Miss Smith’s observations in mind. I remind myself that I have to consider, whether, on the claimant’s account there is a good arguable case the contract was made in the jurisdiction. I am of the clear view there is. The claimant says so. There is evidence which supports his credibility and calls into question the first defendant’s. That evidence concerns matters closely related to the formation of the contract. There is something in the claimant’s submission that had the agreement been reached in June 1997, he would not have waited until he did to set up the offshore trading company.

In short, in my view, there is a good arguable case that CPR 6.20(5)(a) applies.

In the circumstances it is not necessary to decide whether the proper law of the contract is English. A proper analysis of this issue would lengthen this judgment considerably. However, given that I have heard argument on the topic, I shall make some observations regarding it at the end of the judgment.

Is there a serious issue to be tried?

Miss Smith submits that the contract reached was not between the claimant and the first defendant as an individual, but the claimant and the first defendant acting on behalf of a Hong Kong company. In other words, the first defendant is wrongly sued in his personal capacity. There is therefore no serious issue to be tried between the parties to this litigation.

To consider this aspect, I need to go further into the facts as disclosed by the statements.

The claimant says that during his visit to Thailand in June 1997 both defendants explained the business to him.

“They said they were fund managers, but they did not tell me where the funds came from. They said they were mostly interested in US stocks…they sought to buy and sell…[initial public offerings (“IPOs”)] that were likely to be in demand and sell them immediately on the first day they traded for a quick profit. The first defendant…stated that an entry bond was sought from traders of $50,000…

10. It became clear from the discussion that their organisation was not large…it comprised…the…defendants…a girl who did some administration part time, [a] mutual friend and someone called…Greenslade…in London. The mutual friend was using…Ropemaker Road as an office. The second defendant was also…but…was also working with another trader…in the City.” 2/31/335

As to the meeting at Ropemaker Road (see above) he also says this.

“I recall this meeting very well, it was obviously an important career move for me. It was going to be a difficult meeting because I did not have the…resources to put up the $50,000…The first defendant was working upstairs on an Apple Mac computer and we talked informally, I recall that the dog…was distracting me. We soon moved on from what the business entailed to the issue of the surety bond…[The first defendant] suggested $25,000. I basically shrugged my shoulders. He then said words to the effect that I should get an offshore trading company and we could go from there…” 2/31/337-8

The first defendant states that having been born to Irish parents in the United Kingdom, he had been for several years in the investment banking industry in London and New York. He went to Hong Kong in 1993. He says he formed a business in Hong Kong specifically for investment in IPOs. He set up a series of companies for that purpose. The companies changed over the years. Some were owned by an Isle of Man discretionary trust (Galway Trust, later Galway Foundation: “Galway.”). In June 1996 Fieldgold Limited, a Bahamian company was introduced to the organisation: again owned by Galway. In January 1999, Fieldgold Limited’s trading entities (including Mondial) were transferred to another company, Fieldgold BVI. In November 1999 Fieldgold BVI changed its name to Worldwide Investment Management Limited (“WWIM”).

The first defendant held powers of attorney for the various offshore companies. Although not legally the owner of Galway, it seems to me plainly arguable that he could in practice dictate what was to happen regarding it. It seems to me plainly arguable the structure was set up to shield the first defendant from liability for tax.

As to how the organisation worked, the first defendant says this.

“The organisation was, in essence, a set of corporate entities designed to facilitate the buying and selling of IPOs for profit, and such buying and selling would usually take place immediately on or about the first day of issue. The claimant and everyone else who joined the organisation, fully understood this…the profits which could be made from this well-established highly successful Hong Kong based business were the reason for their keenness to join. At all times the management and running of the companies…has been carried out from Hong Kong under the supervision of WWIM through myself as holder of power of attorney…Where an individual applied to join the organisation, he would do so not in any capacity as employee or agent, but as a prospective member who would operate in partnership with the company established within the organisation (in the claimant’s case, [Mondial]). There was no “one size fits all” model for deals made with individuals who wished to join. Certain individuals would be required to put up a cash security bond of US$50,000…others (like the claimant) were not-although if the equity bond was deferred, the individuals would not be allowed withdrawal of profits…below the level of US$50,000…

18. It was clear to whoever joined the organisation that the relationship involved the sharing of risk and expense in running the organisation…Although I facilitated the creation of the organisation and was the focal point of much that went on within it…it would be wholly inaccurate to view the relationship between each new member and the organisation in terms of a one-to-one deal between that member and myself. Neither the organisation, nor any company in it, is my “alter ego”…”

I should finally under this head deal with how the accounting and administration was dealt with. I will do so in some detail because it is relevant to the next head.

At first, this was dealt with from Hong Kong. As trading and the number of individual traders grew, that function, as I understand it, became more complex. A company later called Global Settlements (Hong Kong) Limited was the administration company. It prepared monthly profit and loss accounts for the traders. Profits were sent to (off shore) banks. As the business grew, in 1999 Global Settlements UK was set up. It was wholly owned by Hong Kong but based in London. There is a dispute as to its role.

Mr. Walker, a director of WWIM and Global Settlements (Hong Kong) Limited states that Hong Kong remained responsible. UK did no more than provide provisional profit and loss accounts which were adjusted and re-calculated in Hong Kong. They were audited in Hong Kong by local auditors. 2/41/735

Mr. Morley-Jacob became the chief financial officer of Global Settlements UK. He is currently an accountant with Slaughter and May, the London solicitors. He began working at Global Settlements UK on 31 July 2000. The office comprised some fifteen people. It included two managers and a managing director. In Hong Kong there were “2 accounting related staff who actioned bank transfers, monitored bank balances and performed some bank reconciliations. The staff in Hong Kong reported to…London…” 2/35/428

The bank balances generally were in the names of “one of a group of entities owned or run by the [defendants]. The profit and loss accounts effectively represented the group’s liabilities to traders from those bank balances…

7. Profit and loss accounts were prepared in London and were sent out to traders from the London office. The…defendants were also sent their own profit and loss accounts from our office…Each account was accompanied by a covering note.” 2/35/428

The first defendant does not accept Mr. Morley-Jacob’s account.

Miss Smith suggests that this was unarguably a contract with an organisation in Hong Kong. That is what the officious bystander would say. It was originally alleged (in the Particulars of Claim) to be an agreement with both defendants. It is now said, it was with only one. The original suggestion enforces the submission it was in fact with an organisation.

Mr. Ralls submits he has an arguable case that the contract was between two individuals. The first defendant does not say he was acting as a director of a corporate entity. He does not identify any corporate entity with which the claimant is said to have contracted. The arrangements agreed upon had some of the characteristics of a partnership. Mr. Morley-Jacobs makes that clear. Profits and losses were shared with each trader and the defendants.

As I understand him, Mr. Ralls submits that arguably, in reality, this was akin to a group of individual traders sharing profits and losses between each other. The presence of the various off shore entities was for tax avoidance. The court would arguably be entitled to have regard to the substance of the arrangement and not the form. The substance arguably was that at the time this contract was agreed, it was between two individuals.

I agree with Mr. Ralls. It seems to me he does have an arguable case. Whether it will succeed at trial is of course another matter.

Is this a proper case for service out of the jurisdiction? Is England is clearly the most convenient forum?

Although each side has claimed it needs many witnesses said to be relevant, I do not agree. It seems to me I should consider this case proportionately and sensibly. This is an accounting dispute involving a comparatively small sum of money (certainly in terms of the costs I suspect so far expended) which should take little more than a day or day and a half to try.

As I understand his case, the claimant suggests the first defendant knows perfectly well he is owed the money. His claim does no more than reflect the accounts sent to him. The issues now raised by the first defendant are a smokescreen to prevent him being paid what he is owed. The first defendant, he submits, has lied about many things (for example, the nature of the agreement, when and where it was reached). There are witnesses who support him on such issues. They are in England.

The account disputed, on the claimant’s case, was prepared in the United Kingdom, by English people under the control of Mr. Morley-Jacob. He is likely to be a relevant witness.

In addition to those points, Mr. Ralls makes this one. The nature of the agreement is relevant. It was reached by two (undoubtedly then British) city traders in London. Much will depend upon who is believed. Although a judge in Hong Kong would be able to make an assessment of the different accounts, it would be easier for a judge in London familiar with the City and its practices to do so.

Mr. Walsh, submits Mr. Ralls, lives in Bangkok. He still has connections with England. He has close family here. He has a car here for his use. He has property (albeit not in his name). He is a very wealthy man. It would be easy for him to come.

Mr. Walker, Mr Ralls accepts, could well be a relevant witness. It would be easy for him to come and give evidence. He points out that Mr. Walker was present in court for the application (on both days). The fact that the London accounting documents may have been sent to Hong Kong poses no problem. They can be sent back.

Finally, Mr. Ralls suggests that it simply would not be a practical proposition for the claimant to go out to Hong Kong with his witnesses for a trial.

Miss Smith suggests that Hong Kong would be the more convenient location for the trial. She submits that in any event, it has not clearly been shown that London would be. This is in reality a Hong Kong case which should be heard in Hong Kong. The defendant and his witnesses either live in or near to Hong Kong. A Hong Kong judge would know about the City. Mr. Walker’s statement suggests the accounting issues which arise could more conveniently be tried in Hong Kong.

As to those issues, Mr. Walker suggests there are three. First there is an expenses recharge. He says various Hong Kong witness would be able to confirm the accounting procedures. Second, there is an issue of an expenses claim in Japan. The auditors could explain that. Third, there is an issue concerning Euro trades in which Hong Kong solicitors were instructed. As to these issues, it seems to me likely Mr. Walker himself could explain any issues which might remain after exchange of statements.

Applying the test as I have indicated, I have concluded that England would be the appropriate forum for this trial. A number of factors influence my decision. They are (not necessarily in order of importance) these. The claimant lives in England. The contract (for present purposes) was reached in England. The disputed account (for present purposes) was calculated in England. The witness or witnesses who will be needed to deal with it live in England. Witnesses going to the issue of credit live in England. An English judge would be ideally placed to make the assessments going to credit, which are likely to be at the heart of the resolution of this case. Requiring the (very few) witnesses likely to be needed on behalf of the first defendant would not cause hardship.

The proper law of the agreement

I shall only consider this very briefly and in outline.

No law was chosen. Either the choice was demonstrated with reasonable certainty or (Article 3) or the choice of law depends upon the law of the country with which the contract was most closely connected (Article 4).

There are clearly Hong Kong connections with the contract: on the first defendant’s account, many. In outline (and rejecting for present purposes his account of how, where and when the contract was reached), they include these. The first defendant and his company, which substantially (on his account) performed the contract were in Hong Kong. The important decisions were taken there. The money traded was banked there. Profits were banked there. For most of the time, the administration was done there. The first defendant too says that even before he went to Japan, the claimant was frequently outside England.

There are clearly English connections. The contract (for present purposes) was reached in London between two British nationals. As to other matters, there again is a substantial factual dispute. For present purposes, I would accept the claimant’s account as providing a good and arguable basis for the following. At the time of the agreement, the first defendant was only trading in a small way and mainly through people from London. Before he went to Japan he lived for much of the time in London. He and others in London took actual trading decisions. The extent of the London connection can be seen by the setting up (since abandoned) of the Global Settlements UK. That company effectively administered the London organisation (and the claimant’s trading).

Although not deciding this matter, my view would be that having regard to the matters set out in paragraph 85, there is a good arguable case that the contract was most closely connected with England: that its proper law was English. However, that is not the basis of my decision.

For the reasons set out I am afraid at some length, I refuse the first defendant’s application.