Sinclair Investment Holdings SA v Cushnie & Ors

This is the second day of the trial of these proceedings (the estimated trial time being 8 to 10 days), the first day of which, Friday 17 March 2006, was taken up with argument on two applications. The first application, on which I am now ruling, was an application by the claimant to make a fourth amendment to the already much amended particulars of claim. The proposed amendment is not a modest one. It involves the raising of two almost brand new causes of action. I say “almost” because at an earlier stage in the case both these claims (which raise allegations of dishonesty and conspiracy) had featured in the claimant’s pleading, but they were promptly withdrawn when the claimant was unable to meet a request for particulars. This, therefore, is the second attempt to launch these claims. The proposed amendments are opposed by the two defendants at whom they are directed. They say, predictably, that it is unfair for them to have to meet such serious claims on the first day of the trial and that if they are to be permitted at all, there will have to be an adjournment so that they can prepare to answer them. The claimant does not go so far as to say there is nothing at all in this, but the thrust of the application is founded on the basis that the amendments involve little that is really new and that the two defendants ought to be able to meet the new claims of dishonesty and conspiracy here and now.

The background to the litigation can be summarised shortly. The claimant is Sinclair Investment Holdings SA, a British Virgin Islands company. There are six defendants. The first is Mr Carlton Cushnie and the fourth is Marrlist Limited, in which Mr Cushnie holds (or held) 99% of the issued share capital. The third defendant is Guillaume Leong-Son, and the fifth and sixth defendants are companies of which he is a director and shareholder, Assets International Management Limited (“AIM”) and Asset Nominees Limited (“ANL”).

In 1996 and 1997 Sinclair paid £2.35m to another British Virgin Islands company, Trading Partners Limited (“TPL”). Mr Cushnie was involved in TPL’s management. The money is said to have been paid on the basis that it would be used by TPL for what is referred to as accelerated payment trading, the nature of which I need not describe, but on terms that unless and until it was so used it would be deposited by TPL in a bank account on trust for Sinclair. This arrangement is said to have constituted a Quistclose trust in respect of the money paid over. Sinclair was not the only such trading investor. Something over £21m was similarly paid to TPL by other traders.

Mr Cushnie appears to have been dishonest in his dealings with the traders’ money. What apparently happened is that Sinclair’s money, far from being invested in accelerated payment trading or put into a trust account, was mixed by TPL with other traders’ money and transferred to other companies under Mr Cushnie’s management control in which it was used in so-called “cross-firing”. The nature of that exercise is that the money was used on an artificial revolving basis enabling the painting of a falsely profitable picture of the activities of a trading company called Versailles Trade Finance Limited (“VTF”). VTF was the trading subsidiary of a listed company called Versailles Group Plc (“VGPLC”), in which Mr Cushnie, via Marrlist, held a substantial shareholding. The effect of the cross-firing operation is said to have been to ramp up the share price of VGPLC in a dramatic way during the late 1990s, as a result of which Mr Cushnie was able to procure the sale by Marrlist of millions of shares at a substantial personal profit. Certain of those shares were sold by AIM, which derived a commission on the sales. It is also alleged that ANL sold some shares and also derived commission from such sales. Mr Leong-Son is also alleged to have benefited personally from those commissions by virtue of his directorship of those companies. The whole Versailles group show was, however, a dishonest fiction. The fiction was eventually exposed for what it was and the outcome of the story is that the Versailles group is now insolvent and Mr Cushnie is in prison.

The case at present pleaded against Mr Leong-Son, AIM and ANL is as follows. It is said that, quite apart from the Quistclose trust to which the Sinclair money is said to have been subject in the hands of TPL, Mr Cushnie assumed a separate personal fiduciary duty of loyalty to Sinclair in relation to its safe application or custody. Even though, therefore, the money became irretrievably lost when it was paid to and used by the Versailles group, Mr Cushnie is said to have remained subject to a personal obligation to Sinclair not to profit from his fiduciary position, whereas it is said he did so by the profitable sale of the Marrlist shares in VGPLC. Sinclair’s case is that, whilst the shares themselves were not trust property, Mr Cushnie’s profits on their sale were held upon constructive trust for Sinclair as being the fruits of an improper secret profit. Mr Cushnie is claimed to be accountable for that, and Mr Leong-Son, AIM and ANL are said to be answerable for the benefits they respectively derived from those sales on the basis of their alleged knowing receipt of those benefits as trust property in circumstances in which it is said to be unconscionable for them to retain them.

The claim is obviously not straightforward, a matter on which I say no more. I am at this stage only concerned with the amendment application. The amendments sought to be made are the making of (i) a claim against Mr Leong-Son and AIM that they dishonestly assisted in, or induced, an alleged breach of trust by Mr Cushnie, and (ii) a claim in conspiracy.

The essence of the first claim is that in 1996 Mr Leong-Son and AIM participated in the purchase of shares for Mr Cushnie in Windsor Energy Corporation (Canada). It is said that some £41,000 of the money used for this derived from the £2.35m paid by Sinclair to TPL. The claim includes allegations that Mr Leong-Son and AIM knew the terms on which traders like Sinclair paid their money to TPL, knew that the purchase of the Windsor shares was a breach of trust, and knew that, or was reckless as to whether, TPL and the Versailles group were being run dishonestly. The claim is supported by four paragraphs of particulars of knowledge, parts of which had already been provided in December 2005 in relation to the knowing receipt claim and parts of which are new. The essence of the conspiracy claim is that Mr Leong-Son and AIM conspired to injure Sinclair. Reliance is placed not just on the Windsor affair, but the claim is expressly put more generally and has the potential to achieve a substantially greater financial return than the relatively modest dishonest assistance claim.

The proposal to make these new claims was notified to Mr Leong-Son and AIM on about 17 February 2006 at about which time they were also told that it was proposed to call as witnesses in support of them Mrs Dilks and Constable Brock. Mrs Dilks is a financial investigator employed by the Serious Fraud Office who has been engaged in investing the affairs of the Versailles Group and TPL since 2000. A long statement from her is in the bundles. I understand from Lord Brennan QC, who appears for Sinclair, that Sinclair obtained that statement in a somewhat piecemeal way during the course of 2005 and only obtained it a full copy of it in December 2005. Lord Brennan accepted that Sinclair knew about the Windsor affair much earlier than December 2005.

Mr Geraint Jones QC, for Mr Leong-Son and AIM, opposes the amendments as being sought at an unfairly late stage in the trial process. Indeed, the application could hardly have been made later. His clients are ready to meet the knowing receipt claim, which he says involves pure questions of law and is anyway hopeless; and those assertions were the subject of the other application I heard on Friday, and on which I will rule after I have dealt with this one. The new claims, however, are rightly said to raise factual assertions involving a direct challenge to his clients’ honesty and integrity; and Mr Jones says that, if they are to be raised at all, fairness demands that his clients should be given a proper time to consider their response to them and to prepare their case accordingly. He complains that the amendments are inadequately particularised and so call for further information. He says that Mr Leong-Son will wish to consider what evidence to adduce in answer to the claim, which is likely to include evidence from his two brothers, who are not at present proposed witnesses in the case. Any new oral evidence may extend to other witnesses. He says it is obviously unjust to expect his clients to be able to meet these new claims here and now and that if they are to be allowed at all, which he says they should not, there must be an adjournment of the trial.

He goes further and says also that such an adjournment would anyway be unfair on his clients. The case originally came on for trial in July 2005 before Warren J. Sinclair’s preparation for the trial had, however, been so hopeless that it was compelled to seek an adjournment, which Mr Jones’s clients opposed, but which Warren J granted. The judge made it clear that Sinclair would be unlikely to obtain any second adjournment of the trial date and so would be advised to put their house properly in order in good time for the new trial date. In these circumstances, Mr Jones says that I should not be disposed to grant a second adjournment to enable the making of such a late amendment to raise two new causes of action raising allegations of dishonesty. He rightly reminds me of the strain that litigation imposes on litigants, in particular upon personal litigants like Mr Leong-Son, who has already had to suffer one trial adjournment last July and is now, at the very beginning of a second attempt at the trial, being asked to undergo the strain of a continued delay in the disposal of the case in order to meet Sinclair’s new claims. Mr Jones says that that would be to impose a continued strain upon Mr Leong-Son that he should not reasonably have to bear. He referred me to the familiar passage in Lord Griffiths’s speech in Ketteman and Others v. Hansel Properties Ltd and Others [1987] AC 189, at 220. That was decided during the era of the Rules of the Supreme Court, but I regard it as just as applicable under the modern era of the CPR, in which the judicial attitude towards the granting of repeat adjournments has perhaps become stricter. It is not enough nowadays, and probably never was, for a party wanting to make a last minute amendment to say that, if an adjournment is necessary, he can compensate the other party in costs. The court has now also to consider the potential waste of court time that such adjournments can impose.

Of course, every case turns on its facts and there are no hard and fast rules as to how to dispose of an application such as this. In essence, the application involves a question of case management and I have to exercise my judgment and discretion in relation to it justly and having regard to the interests of both parties. That requires me to consider not just the prejudice to the defendants in having a yet further adjournment imposed on them but the prejudice to Sinclair if it is deprived, by a refusal of the amendment, of the chance of pursuing what I must presume to be an arguable claim under each of the two new heads.

I need no persuading that, if these new claims are to be pursued at all, there must be an adjournment of the trial and, in consequence, the losing of the current trial slot. I am unconvinced by Lord Brennan’s submission that Mr Leong-Son and AIM can be expected to meet and deal with them without being given a proper and reasonable time to consider them; and anyway Lord Brennan did not in fact put Sinclair’s case quite as extremely as that, since he at least recognised that Mr Leong-Son might well reasonably want to explore the question of whether his brothers should be called to give evidence. I have no doubt that these new claims can only fairly be pursued if I adjourn the trial in order to enable proper consideration to be given to them. For practical purposes, that will involve an adjournment not just of the trial as against Mr Leong-Son, AIM and ANL, but also of the trial as against the Cushnie defendants, since the issues which that part of the trial raises are directly material to the claims made against the Leong-Son defendants. If the trial were to proceed on a split basis, there would be a risk of inconsistent findings being made in the trial of each half.

The question, therefore, is whether I should adjourn the trial. If I were satisfied that Sinclair could not reasonably have made these amendment applications before Friday, I would be more sympathetic to the suggestion that there should be an adjournment: otherwise Sinclair would be subjected to a prejudice of whose causing it was, on that hypothesis, innocent. But that does not appear to me to be the case. From what Lord Brennan told me, it appears that the amendment based on the Windsor allegation could have been made months ago. But even if that is wrong, and the reality is that none of the amendments could have been applied for until Mrs Dilks’s statement was obtained in full in December 2005, I still do not understand why an amendment application was not made at that stage. Had it been, the matter could have been dealt with by, at the latest, the end of January 2006, with the trial date still well over a month away.

The response to that from Sinclair is, as I understand it, that they could not get an early appointment for their amendment application. That response reflects an apparent ignorance on Sinclair’s part of Chancery Division procedure. I presume that, by December 2005 at the latest, Sinclair had determined to make the amendment applications. But if they had not, that was anyway the date by which they should have made a decision on the point bearing in mind that the March 2006 trial date was by then approaching fast. Their correct course given the, by then, very short time frame until trial was to make the amendment application by way of an application on three days’ notice to the interim applications judge, who sits in the Chancery Division every day during term time in order to deal with urgent applications. It is quite likely that, if that had been done in December 2005, the amendment would not have been opposed since Mr Leong-Son would have had plenty of time within which to prepare to meet the new case at trial. If, however, it was opposed, and the interim applications judge had concluded that he had insufficient time to deal with the matter – there being a two-hour limit for applications in that list – then the judge could, and probably would, have adjourned it to be heard as an application by order and have given a direction that it was fit to be heard on an expedited basis no later than, say, the end of January 2006. That would have been a usual type of order to make, and it is a type of order I have myself often made when sitting as the interim applications judge. There is in my experience little doubt that if such an order and direction had been made and given, and both sides’ solicitors had then (as would have been their duty) made a prompt attendance upon the Clerk of the Lists for an expedited fixture, an early hearing before a judge would have been arranged. Sinclair did not take these elementary procedural steps and so it is its own fault that its application was not disposed of weeks ago.

In these circumstances, I have concluded that the lateness of this application is a self-induced problem for which Sinclair is responsible. If the amendment is to be allowed at all, it can only be on the basis of an adjournment brought about because of Sinclair’s incompetence in its trial preparation. The first trial hearing date was lost because of similar incompetence and Sinclair was warned that it would be unlikely to be given any further trial adjournments. That warning does not bind me, nor would Warren J have intended otherwise. But there are limits to the extent to which litigants can expect adjournments in order to enable them to enjoy a leisurely stroll to trial. For reasons given, I consider that a further adjournment will be unfair to the Leong-Son defendants; and whilst I recognise that to refuse the amendment will cause prejudice to Sinclair, it has no-one to blame but itself for that. I refuse to permit the amendments sought against the Leong-Son defendants.