Hathurani v Jassat

This is an application by the Claimant in this case, Mr Hathurani, resident in South Africa, for an interim payment as against the Defendant, Mr Jassat, a resident of the United Kingdom. It arises out of the following background facts.

Mr Hathurani has various business interests in South Africa. Pursuant to those business interests he accumulated a certain amount of money. It appears that by his own admission he did not declare all that money for tax and thereby committed various offences in South Africa. He then committed various other offences by exporting that money to Switzerland, where it has remained since then and until the relevant money was drawn down by Mr Jassat in circumstances to which I will come. He thereby committed various exchange control offences under South African law and that gives rise to various illegality questions which are said to arise in this case.

Whilst the money was in various Swiss bank accounts he met Mr Jassat. He is said by him to have trusted Mr Jassat and agreed that Mr Jassat should from time to time take money out of the accounts and invest the money in English properties in some form of joint venture. Mr Jassat did not put in any of his own money, but he chose and managed the properties pursuant to the joint venture. It was agreed that the profits would be split 50/50, notwithstanding the fact that Mr Hathurani was providing all of the capital that is said to have given rise to a form of partnership or perhaps that joint venture. That has gone on since the late 1980s. The first transaction was, I think, in 1988. A significant sum of money has been paid for this purpose amounting to many millions of pounds. Furthermore, various businesses have been run with the money involved and this is to said to (inaudible) tens of millions of pounds.

Mr Hathurani’s complaint in this case is that Mr Jassat has not accounted for the money which he has taken, and indeed he now denies the existence of a joint venture. Mr Hathurani claims various forms of relief in a shortly pleaded re-amended Particulars of Claim from which I now read the prayer:

“1.

An order dissolving the partnership (to the extent necessary) and

all necessary accounts and enquiries for determining

(i)

what has happened to the assets of the said partnership and/or joint venture and/or

(ii)

the amount that the Defendant should pay to the Claimant in respect of the latter’s capital and share of profits.

The Defendant, who has pleaded his case in a rather lengthy amended defence, does not dispute that he took monies from Swiss bank accounts in the name of or controlled by Mr Hathurani. He accepts, at least to the extent of some of the monies, the case of Hathurani that he, Mr Jassat, had access to the Swiss bank accounts and that he used that access to extract money. However, Mr Jassat’s case is that the money was taken out by way of agreed loans. In short, his case is that in 1988 he asked if he could take a limited loan, that is to say limited in money when compared with the monies he ultimately took, for the purchase of a particular property. It was agreed he could. The amount in question was £76,000. That exercise was repeated a year later in a sum which is another few tens of thousands of pounds. Those are said by Mr Jassat to have been express loans so that he, Mr Jassat, could purchase properties in his, Mr Jassat’s, own name. The loans are said to be interest free and not repayable until first a demand is made, and second for such sufficient time thereafter as would be necessary to allow Mr Jassat to raise the monies necessary to repay the loans.

Further similar transactions followed over the next seven years or so. The total pleaded by Mr Jassat as having been taken from Mr Hathurani’s Swiss bank accounts with Mr Hathurani’s permission for further loans, for similar purposes and on the same basis is pleaded in a total of between £7.2m or £7.9m, depending on a question of construction of his pleading that I do not need to resolve. It is accepted that for present purposes I can work on the assumption that Mr Jassat admits or rather avers a loan of £7.2m made by Mr Hathurani for those purposes.

The factual case is that, at least in relation to the later loans (and by later I mean 1990 and subsequently) Mr Jassat would ring Mr Hathurani, who happened to be in South Africa, and asked for permission to take money for a particular property and Mr Hathurani, following the previous pattern, agreed that he could do so.

The original pleading of Mr Jassat was that the arrangement between Mr Jassat and Mr Hathurani was a form of umbrella arrangement in 1988 which was applicable to later draw-downs. He now proposes an amendment, which has now been consented to by Mr Hathurani, to the effect that each transaction (and there are a significant number of them) between 1988 and about 1995 was a separate loan separately and expressly agreed and not a draw-down under an original umbrella agreement. It was suggested by Mr Brisby QC, who appears for Mr Hathurani on this application, that that amendment was intended to improve the chances of Mr Jassat succeeding on a choice of law point, which appears below. That may be a sensible and correct inference to draw from the amendment of the pleading, although it has to be said that looking at the amended-out words the relevant analysis could probably have been argued on the basis of the former pleading. Mr Brisby criticises that amendment as being opportunistic. However, save for being a jury point, which is of no assistance at all, nothing material turns on that point today.

Having set up the loan, as being an answer to why he took money from Mr Hathurani’s bank accounts, Mr Jassat then resists paying it. He resists paying it on the basis that the loan is tainted by illegality, because of the breaches of South African exchange control law. Mr Jassat’s case is that the loans were all subject to South African law and he has put in some expert evidence, which first demonstrates the breaches of exchange of control regulations and secondly demonstrates, or is said to demonstrate, that under South African law that would render the contracts illegal and unenforceable.

The present application is, as I have indicated, an application for an interim payment. It was originally for an interim payment of £7.5m, but has now been reduced to £7.2m based on what Mr Brisby maintains is an admission by Mr Jassat and/or the fact that on the facts as pleaded by both parties, and on the evidence of both parties, as a result of trial Mr Hathurani is bound to get judgment for at least that sum. If he does not get it under the partnership claim, because Mr Jassat is right, then he will get it under the loan. If necessary Mr Brisby says that he will get it under a resulting trust, even if the arguments in favour of a loan and its invalidity are good.

Mr Gourgey QC, who appears for Mr Jassat, maintains that Mr Hathurani is not bound to get a judgment or a monetary judgment for at least £7.2m. As I have indicated, he sets up the loan as being the explanation for the transactions and says that the applicable law is South African law and as a result the loan is tainted with illegality. Alternatively, he says if (which is Mr Brisby’s case) English law applies to the loans, and if there are loans, then the loans are still unenforceable for illegality. He also takes a point, not originally taken in his skeleton argument, that the claims in this case are not all amenable to the interim payment jurisdiction.

The issues before me are therefore as follows. First, are the claims made in this action amenable to the interim payment jurisdiction under the rules? If they are not, then the application fails. Second, if they are, has an evidential case been made out to the relevant degree of certainty required by the rules to the extent that Mr Hathurani is bound to recover at least £7.2m? Success in that application depends on my resolving in Mr Hathurani’s favour the questions of choice of law and consequential illegality points that arise.

I start therefore with the first point - are these claims all amenable to the interim payment jurisdiction? The relevant provisions of the CPR appear in CPR 25.1 and CPR 25.7. I will read the relevant provisions. CPR 25.1 provides:

“(1)

The court may grant the following interim remedies –

...

(k)

an order (referred to as an order for interim payment) under rule 25.6 for payment by a defendant on account of any damages, debt or other sum (except costs) which the court may hold the defendant liable to pay.”

I emphasise for the present purposes the words “on account,” and I will return to them later. CPR 25.7 so far as material reads as follows:

“25.7(1) The court may only make an order for an interim payment where any of the following conditions are satisfied –

(a)

the defendant against whom the order is sought has admitted liability to pay damages or some other sum of money to the claimant;

...

(c)

it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment whether or not that defendant is the only defendant or one of a number of defendants to the claim...”

It seems to me that at this stage of the argument I can rule out (a) as being a basis on which Mr Hathurani is entitled to apply for an interim payment. There has been no admission of a liability to pay. There has been merely an admission and indeed an averment of a loan, but it was swiftly followed by an express averment that the loan is, in the events which it happened, not recoverable, so it is paragraph (c) or nothing so far as Mr Hathurani is concerned.

The Claimant’s claim advances three claims, as I have indicated - dissolution of a partnership with consequential relief, resulting trust and damages or compensation. The Defendant has countered with another analysis of the transaction, which on one basis is capable of amounting to a fourth basis of claim and the loan. The loan has not been expressly pleaded by Mr Hathurani as an alternative basis of claim in his Particulars of Claim, but he has said in his reply in the further alternative, that he will, if Mr Jassat is right in saying there was a loan, claim repayment of the loan. It therefore can be treated as a fourth basis of claim. If this were a case in which it was sufficiently plain that the Claimant would succeed in getting a relevant judgment on at least one of those bases, which would plainly yield at least £7.2m to him, then I could, as a matter of jurisdiction, order an interim payment. By a relevant judgment I mean one within the terms of the rules, that is to say a judgment “for a substantial sum of money,” or, being translated, a money judgment. That is how the Claimant seeks to argue the point. It is said that he has a good claim on his partnership claim or trust claims and if the answer to that is the loan, then he is entitled to succeed in the monetary claim, because he will get at least £7.2m on one or other of those footings. He also has his damages claim in respect of which it is said he must succeed to an extent, which entitles him to his interim payment.

Even if that argument is right on the facts (and, as will appear, I do not think it is) it does not necessarily bring the Claimant within the interim payments regime. An interim payment order is an order for a payment: “On account of damages, debt or other sum (except costs) which the court may hold the Defendant liable to pay.” So there are two key requirements. There has to be a claim which leads to the Defendant being liable to pay a sum and second, the payment sought has to be a payment on account of that liability. That appears from CPR 25.1. CPR 25.7(1)(c) requires that I be satisfied that the Claimant will get judgment for a substantial amount of money. The loan claim as a claim certainly falls into the category of claims which fall within those definitions, conceptually speaking. It would result in a judgment for a sum of money and it makes sense to talk about a payment on account of that claim. The same might be said about the damages claim. However, the main partnership and trust claims, which are really the prime claims of Mr Hathurani, do not seem to me to fall within that category. They are claims for a winding up and dissolution of a partnership (in essence). If those claims are successful the Claimant will get orders to that effect. Eventually there would be sales of the property and the Claimant would be entitled to orders for payment of his entitlement out of those sales. His entitlement will be his capital and his share of the profits. However, that is not, to my eyes, a claim within the rules. The Defendant will not necessarily, and probably not at all, be under a liability to make a payment of the kind referred to in the rules. In my view, the order would probably not order him to pay money at all within the meaning of the rules on a proper analysis. So that claim is not an order of the right kind for the purpose of the interim payment rules.

The same applies to the trust argument. If the trust argument succeeds the Defendant will be declared to hold property on trust, but will not be required or will not necessarily be required, to pay money to the Claimant. The order for equitable compensation or damages is obviously potentially a claim within the rules. However, it is not apparent on the pleaded case or on the evidential case that there is such a valuable claim. There might be a claim for damages or compensation, but it is not pleaded or evidenced in monetary terms, and indeed the express pleading in the Particulars of Claim is that it cannot be quantified. It is possible that there will not be any damages claim at all if the position is that Mr Jassat applied the money properly to buy assets and all the assets are still there and there has been no misappropriation of monies. So the order for damages or equitable compensation is a qualifying claim that could give rise to a relevant judgment for the purposes of CPR 25.1 and CPR 25.7, but there is no attempt to quantify it at a minimum of £7.2m or any other sum.

The position thus far is therefore that on the way this application is presented it is not inevitable that on whichever claim you like to take, Mr Jassat will end up having to pay money to Mr Hathurani within the meaning of the rules. Mr Brisby sought to avoid that conclusion by saying that he could choose a remedy which turned the claim from an equitable one in properties into a financial and personal one, which would cause the Defendant to disgorge the benefit that he ought not to hold. It could therefore be turned into a claim which falls within the rules. Alternatively, he could get equitable compensation in the amount of the higher of the monies taken by him or of the current value of the assets in which they were applied. That, said Mr Brisby, was a course which would be open to Mr Hathurani at a trial and he was entitled to say that those claims would come within the interim payment regime.

For my part I am not sure that that is a proper analysis of the claims or the possibilities open to Mr Hathurani, but even if it is then on the current state of the pleadings it is not one of several claims, all of which will one way or another lead to a monetary judgment of the appropriate size. If the claims are good then they would be claims to a potential remedy which Mr Hathurani might elect to take at some point. He has not hitherto, that is to say prior to the hearing before me, elected to do so. Mr Brisby said he is not obliged to elect now and adduced authority to that effect. I accept that if there is a right of election Mr Hathurani is not obliged to elect at this stage and can elect at some time in the future. But all that means is that on his pleading and pending an election he cannot be said to have a set of claims all of which will result in a relevant monetary judgment.

Mr Brisby’s last position on this is that, if an election is needed, he would elect now to claim only a monetary remedy in respect of the partnership or joint venture claims or equitable compensation in respect of them so that he could get his interim payment, because all the claims arising from now on would inevitably lead to a monetary judgment. I do not accept that that shortly stated position gets him out of the difficulty that he is otherwise in. The extent to which he might be entitled to a remedy which is capable of coming within the interim payments regime in this respect was not properly canvassed in argument and I am not satisfied with sufficient clarity at present that the trick would work. It is also inappropriate in these circumstances to allow him in an unpleaded fashion to rework his claim in a way which is intended to advance his position in the heat of argument, on an interlocutory application. I do not think that that fixes Mr Brisby’s problem. The resulting trust claim also does not assist the Claimant, because he does not seem to me to have one, or at least I am not satisfied with the relevant degree of certainty required for interim payment jurisdiction. I deal further with this point below.

The position is therefore that the Claimant advances a series of claims. His application for an interim payment is based on the premise that all are money claims and that he has a minimum claim on any footing, so he is entitled to succeed to the extent of that minimum. If I assume for the purposes of this stage of the argument that the loan claim is good, nonetheless, his primary claim is not one which is amenable to the interim payment jurisdiction, so the first premise of his argument fails. Therefore, on that footing his application fails. I cannot be satisfied that a trial or even after it he will get a judgment for a substantial sum of money against the Defendant, because he might just get orders that the venture is to be wound up, that property be held for him and so on. That is, after all, his primary claim.

That by itself would amount to an end of the application and would mean it fails. But there was much argument before me as to whether or not Mr Brisby is bound to win on the loan argument anyway. It is of the essence of his argument that he is. Mr Gourgey submitted that it was not clear that Mr Brisby would win, because of the illegality defence. Mr Brisby sought to say that that defence, so far as there was a loan, could be demonstrated to be wrong and not to work even at this stage of the case. If Mr Gourgey is right about this and Mr Brisby is wrong, then that is another reason why the interim payment application fails. On that footing I could not be satisfied that Mr Hathurani would get a judgment for a substantial sum of money.

The arguments took some time to deploy and a number of less than straightforward authorities were referred to. That by itself might be thought to raise sufficient doubt as to deprive me of the relevant degree of certainty that is required before I can order an interim payment under CPR 25.7. I note that I have to be “satisfied” that a judgment will be ordered against the Defendant. The word satisfied connotes a high degree of certainty, although not necessarily absolute certainty.

However, it is both necessary and appropriate to consider to ascertain whether Mr Gourgey’s arguments have substance or whether they are some form of penetrable smokescreen and I shall do that. Mr Gourgey’s defence runs thus. The payments were taken by way of loan over a period. On the pleaded case, though not quite on his witness statement, they start with a request that monies be allowed to be taken for a particular project. That request was acceded to. That pattern was, as I have indicated, repeated over the years and on each occasion Mr Jassat rang Mr Hathurani to ask for his consent in relation to the purchase of a particular and identified property.

The case then runs that the making of those loans amounted to illegal transactions by virtue of South African exchange control regulations. Furthermore, the monies had origins in funds not declared to the tax authorities, as Mr Hathurani admits. Mr Hathurani was subject to those exchange control regulations. The relevant regulations or what are said to be the relevant regulations are clearly set out in expert evidence from South African lawyers, which Mr Jassat has filed in this case. It was filed in circumstances in which the Claimant did not have an opportunity to meet the evidence, and indeed in circumstances in which permission to adduce expert evidence had not been obtained. But notwithstanding that and since Mr Hathurani did not seek an adjournment, it seemed to me to be right to admit the evidence for the purposes of this application and I did so.

The regulations are made under the South African Currency and Exchanges Act, Act No. 9 of 1933, which allowed the promulgation of regulations, and the relevant regulations were, according to the evidence, promulgated on 1^st December 1961 and amended from time to time. The relevant regulations for present purposes are as follows. First, regulation 2.1:

“Except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose, no person other than an authorised dealer shall buy or borrow any foreign currency or any gold from or sell or lend any foreign currency or any gold to any person not being an authorised dealer.”

The next regulation 3.1(c):

“Subject to any exemption which may be granted by the Treasury or a person authorised by the Treasury, no person shall, without permission granted by the Treasury or a person authorised by the Treasury and in accordance with such conditions as the Treasury or such authorised person may impose ...

(c)

Make any payment to, or in favour, or on behalf of a person resident outside the Republic, or place any sum to the credit of such person.”

The next regulation is 6(5):

“No person who is entitled (whether actually or contingently) to receive a payment in a foreign currency shall, except with permission granted by or on behalf of the Treasury and in accordance with such conditions as may be imposed by the Treasury or on its behalf to do, or refrain from doing, any act with intent to secure that -

(a)

the receipt by him of the whole or any part of the payment in such currency as delayed;

(b)

the payment ceases, in whole or in part, to be receivable by him or receivable in that currency;

(c)

the contingency on which the right to receive payment as aforesaid is dependent (including the declaration of a dividend or profit by a company in which such a person has an interest) does not eventuate.”

And last regulation 10(1)(c):

“No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose -

(c)

enter into any transaction whereby capital or any right to capital, is directly or indirectly exported from the Republic.”

Realistically, Mr Brisby did not embark on any consideration as to whether or not the acts in question were in fact in breach of any of those provisions. I assume that for present purposes that Mr Hathurani’s export of the currency and his deployment thereafter in what, for these purposes, I assume to be loans, was in breach of those regulations.

Next, Mr Gourgey says that it is at least arguable, if it is not correct, that the proper law of the loans, which he avers and which for present purposes I assume to have been made, was South African law and, as I have indicated, he has evidence of South African law that would mean that a contract for the making of those loans was unenforceable, because of their illegality.

Mr Gourgey’s next point is that, if he is wrong about the applicable law appropriate to the loans and if the applicable law was in fact English law, which is the only other realistic candidate, then the loans were still made under an illegal contract, because the contract involved the performance of illegal acts in a friendly State. He therefore submits that whichever law is applicable the loans are unenforceable here.

Mr Brisby’s position on this is as follows. He accepts for present purposes, or at least did not argue to the contrary, that if the loans are subject to South African law, then he cannot clearly demonstrate them to be enforceable in this country. His answer to this overall point is that it is clear now and at this stage that the loans are in fact English law contracts, or one overall English law contract, and that the facts are such that as a matter of English law it can be demonstrated that the loans are not so tainted by illegality as to make them unenforceable here.

The question of the proper law of the contract in this case is, as in other cases, a fact sensitive exercise. There was no express agreement. Interim payment applications are not appropriate applications to entertain where the facts are complicated or the legal issues are difficult - see Chiron Corporation v. Murex Diagnostics [1996] FSR 578. I bear that point firmly in mind. There is a particular problem in relation to questions of fact in the case before me. The payments around which this point turns do not amount to payments made pursuant to an originally pleaded claim made in the Particulars of Claim by the Claimant. It is an alternative claim put forward on the basis of facts pleaded by the Defendant and in relation to whom the Claimant’s primary case is that they are denied.

The loan argument is put forward very much as a late alternative, so for this purpose the Claimant is dependent on the factual case put forward by the Defendant. I have to bear in mind that at a trial, when the facts would come to be fully investigated, the very facts upon which the Claimant relies in this application will not be accepted by the Claimant. It seems to me on the facts of this case that nothing like the full facts of the transaction are before me and that raises a particular and significant problem in relation to any matter which is fact sensitive and dependent on the facts of the transactions in question.

I have concluded that the factual and legal matters that Mr Hathurani has to establish in order to succeed have not been and at this stage cannot be decided in his favour with sufficient clarity so as to satisfy me that he must win on at least the loan argument in this case. In those circumstances, while I will go through the points made before me indicating areas of difficulty on which I unable to reach a sufficiently clear conclusion, I will not always set out in full the arguments each way and deal with them fully. I do not intend by taking this course to demonstrate in any way that Mr Hathurani has a weak overall case. Many of his arguments appear to me to be strong. The trouble is, they are not sufficiently strong or clear for present purposes. Some trespass into difficult areas of law which it is inappropriate for me to penetrate deeply on this application so I shall not do so. I shall merely indicate, so far as appropriate, how and why it is that Mr Hathurani does not get sufficiently close to home for the purposes of this application.

First is the applicable law point. I approach this point on the footing that there are two relevant periods to consider: (1) before the coming into force of the Contracts (Applicable Law) Act 1990 (in April 1991), which enacted and passed into English law the Rome Convention; (2) is the period after that. Two of the payments taken by Mr Jassat fall into the earlier period, the rest (the vast preponderance) fall into the later period. The Claimant might wish to say at the trial that there is in fact only one relevant period, because all the loans, if they were loans, were advanced under an umbrella transaction which arose in the earlier period, but I cannot decide that. The Defendant’s case is that each transaction was a discreet loan and bearing in mind the nature of this application I have to approach it on the footing that the Defendant is right about that. Otherwise I would have to decide points of fact, which it is not appropriate for me to decide.

Mr Brisby’s case is that in relation to the first period the Convention has no application, and that is not disputed. The proper law of the first two transactions at least is therefore to be determined in accordance with traditional English conflicts of law principles. The applicable law is that which the parties have either expressly or impliedly agreed to be the proper law of the contract, or in the absence of agreement the system of law with which the contract has its closest connection. Mr Brisby does not rely on any express agreement. Obviously he cannot do so when he actually denies the existence of any agreement at all. Mr Jassat does not aver any express agreement. He does, however, rely on an implied agreement arising out of facts which he disputes, but which for these purposes it must be assumed that Mr Jassat succeeds on.

The principal factor in support of the argument of an implied agreement in favour of English is that if the agreement were subject to South African law they would not be enforceable and that points in favour of an implied agreement that English law should be the applicable law. In this respect Mr Brisby relied on two cases. First, Re Missouri Steamship Company [1889] 42 Chancery 321 and second, NV Handel Maatsschappij, J Smits v. English Exporters (London) Limited [1955] 2 Lloyds Reports 317.

In the Missouri case a specific clause was included excluding a party from liability and which was obviously included by the agreement of both parties. That provision would be void if the proper law of the contract was the United States law, which was one of the two candidates, but not under English law, which was the second of the two candidates. Fry LJ found this to be a cogent pointer towards an intention that the agreement should be subject to English law - see page 341. So did Lord Chancellor, Lord Halsbury - see page 337. Mr Brisby is certainly entitled to point to those dicta as being some support for his case, but very arguably that case is distinguishable. That was a case of a particular agreed term which was specifically agreed between the parties and it was therefore a case of inferences to be drawn from the agreement of that particular term. That is not the case before me. The illegality does not arise out of a particular term of the contract that was agreed between the parties. It is said to arise out of the circumstances of the whole agreement. Furthermore, Mr Jassat says in his witness statement that he did not know of the exchange control problems. If that is right then a crucial fact in relation to its implication was known only to one party, which is not a promising start for an implication. It is therefore arguable that there was no shared agreement or understanding in relation to any matter which would render the contract illegal given a certain system of law. It is therefore distinguishable from the Missouri case where there was agreement in relation to the very matter which gave rise to the illegality questions. Accordingly, Missouri seems to me to be very arguably distinguishable.

The same applies to the Handel case. Again, the court implied an English choice of law from the fact that the contract contained a term which would be prohibited under the other candidate, namely Dutch law. It is probably distinguishable for the same reason; it turns on the inclusion of an expressly agreed term. That is not a fact present in the instant case. So it is not clear to me, at least at present, that English law would apply to the first period on this basis.

Mr Brisby then turns to the closest connection point. There are three potential jurisdictions involved - England, South Africa and Switzerland. Switzerland is where the money happened to be. No one has contended for Switzerland as being the proper law of the contract. Mr Brisby said the proper law was English law, because that is where the contract had its closest connection. The money was paid to here, the properties were bought here and Mr Jassat, the borrower and who was under an obligation to pay, was resident here.

Mr Gourgey said the calculation was quite nicely balanced, but if anything it tilted in favour of South Africa, because the lender was there and he ultimately controlled the money. I have to say there is much to be said for Mr Brisby’s argument here, but the trouble is that this is a fact sensitive argument and, for reasons that I have already given, not all the facts emerged from the evidence. Mr Brisby does not even want to have to rely on the facts which do emerge from the evidence, because it is very much a tertiary, if not a lower ranked, case that he makes when relying on the loan. He will be challenging all this evidence at the trial. Other facts may emerge which will be relevant to this issue and, as I have said, Mr Brisby will be mounting a vigorous attack on the facts put forward by Mr Jassat.

In the circumstances it is not really appropriate or sensible for me to make assumptions as if the only facts which are going to be relevant are those which have currently emerged at this stage of the proceedings. Some facts which might go to this issue have not yet emerged and that means that I cannot sensibly reach a safe conclusion that English law would on this basis be the law appropriate to the contracts.

The second period is the Rome Convention period. Here the provisions are very different. The provisions of the Rome Convention were brought into force in England and Wales by the Act to which I have referred. The relevant Articles appear in a schedule to the Act and those Articles are as follows. First Article 3 allows freedom of choice to the parties. It reads as follows:

“1.

A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.”

I pause here to observe that Mr Brisby runs a similar implied choice argument in relation to the Convention as he runs in relation to what I will call the English law period. For this purpose I emphasise at the moment the expression “with reasonable certainty.” I will return to the point.

The next relevant Article is Article 4, which operates in the absence of choice and provides a rather different mechanism for the ascertainment of the proper law of the contract from that which hitherto operated under English law. It reads as follows:

“To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected ...”

I need not read the rest of that Article. Paragraph 2 of Article 4 provides a presumption as to the closest connection. It reads:

“Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration ...”

And then paragraph 5 reads as follows:

“Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.”

I therefore turn to Mr Brisby’s submissions on this in order to consider whether he has established with sufficient clarity at this stage that English law applies to the later period under the provisions of the Convention. He starts with his implied choice argument, which he runs again in a similar fashion to the way in which he ran it in relation to the English law period. He is entitled to run the argument under Article 3(1), but I observe that under that Article the choice must appear “with reasonable certainty.” In my view he does not, at least at this stage, surmount that hurdle, the reasons primarily being those which apply in relation to the English period.

That being out of the way and not available to him, Mr Brisby then tackles the closest connection point and the presumption in Article 4(2). Here he runs into different difficult points. What one has to do under Article 4(2) is first of all identify the performance which “is characteristic of the contract.” One then has to ascertain who is to effect that performance and then ascertain the residence of that person. In this particular case there are two people to choose from - Mr Hathurani and Mr Jassat. There is no problem about determining their respective residences, but there is a serious problem about ascertaining what is the “performance which is characteristic of the contract” in relation to a loan such as that which I am assuming to have been made in this case. This is a problem common to all loan transactions. Is the characteristic performance the lending or is it the repayment? Somewhat remarkably no authority has yet determined that. There is some debate in academic and other works, but the result is inconclusive. I was referred to some of those works. The first is the Giuliano Lagarde Report, to which I am entitled, if not obliged, to have regard in interpreting the Convention, and Mr Gourgey drew that to my attention. In one of the unhelpfully un-numbered paragraphs in that document the following sentence appears:

“Thus, for example, in a banking contract the law of the country of the banking establishment with which the transaction is made will normally govern the contract.”

That appears after a passage referring to the characteristic performance. That is all that is said about the topic of loans. It is hardly conclusive, but if it points anywhere it points in favour of the characteristic performance being that of the lender. That would mean Mr Hathurani in this case and his residence is South Africa. So Mr Brisby cannot win if that is right.

I was referred to other material which points the same way. I will not set out the text, but merely record what it is. First is an article by Professor Kurt Lipstein in a publication whose reference is 1981 3 Northwestern J Int Bus Law at 402. He refers to the fact that the doctrine of characteristic performance is one which has its roots in Swiss law and goes on to say that Swiss authority tends to indicate that in the case of a private loan it is the law of the lender’s residence or place of business which applies. It is implicit in that that the characteristic performance is that of the lender. It therefore points generally in the same direction as the Giuliano Lagarde Report might be said to point. It is hardly, however, conclusive. Nevertheless, it does not assist Mr Brisby.

I was also taken to the current version of Dicey & Morris at pages 1583 and 1584, which does not help Mr Brisby, and a publication by Mr Jonathan Hill, a professor of law at Bristol in his work International Commercial Disputes in English Courts, published in 2005. He comes to the point and the difficulties involved in the case of loans at pages 488 - 489 of his book and he points out the inherent difficulties in identifying an answer to the question. So far as the book begins to provide any possible answer to the question, it, like Professor Lipstein points to the Swiss background, and the Swiss view is the lender is the person providing characteristic performance (in that case because it is the lender which assumes more of the risk).

If the direction in which those publications points is that relied on by Mr Gourgey, then subject to the application of Article 4(5) the law would be that of the residence of the lender, which in this case is obviously South Africa. I am unable on the material that I have to decide that those are wrong or plainly wrong, and an application such as this would certainly not be an appropriate vehicle for deciding a potentially very important point in the general jurisprudence of the Convention, which has not hitherto been provided as a result of a full trial or any hearing which is a more satisfactory vehicle than the hearing before me. I therefore cannot decide the point in favour of Mr Brisby on that basis.

On that footing Mr Brisby then turns to Article 4(5) and he invites me to say that, notwithstanding or perhaps because of the difficulties in previous articles, it can be said on the facts of this case that, even if one would arrive at the conclusion that South Africa was the country with the closest connection to the transaction if one applied the presumption in Article 4(2), nevertheless, on the facts of this case one can see that England is a rather more appropriate jurisdiction, and he should be entitled to succeed on the basis of the provisions of Article 4(5). In support of this he advanced the same sort of arguments as he advanced in favour of England having the closest connection for the purpose of the English conflicts principles. As I have already indicated, there is much to be said for those arguments. I think they have some considerable weight, but on an application such as this and for the reasons that I have already given I do not think that they are clearly right. The facts lack the necessary clarity at this stage. So if Mr Brisby’s argument fails at this point he cannot establish with sufficient clarity that this is an English law contract. That being the case it might be a South African law contract and the necessary certainty that I need to have for the purposes of the interim payment jurisdiction is not present.

Mr Brisby’s next argument was advanced on the footing that this was indeed an English law contract. Of course, that has not been established, but I will nevertheless advert to his arguments on this point. The Defendant says that under English law the intention to defeat South African exchange control laws involves the commission of an illegal act in the territory of a friendly State, South Africa, and that English law would therefore regard the contract as illegal and unenforceable, at least at the behest of the Claimant. I was shown various authorities said to go to the question of whether any wicked intention had to be that of both of parties for the doctrine to apply or whether the intention of one was sufficient. Since these questions do not arise in the light of my previous findings, I shall not say anymore about them and will certainly not review the authorities save to say that in my view the question of whose intention is required and how many intentions are required is not straightforward; but if I consider it likely that Mr Brisby was right to say that the illegality of the offence only works on the facts of cases such as this if the contract requires that the illegal act be carried out in the territory of a friendly foreign country. The emphasis is on the word “required” - see Ispahami v. Bank Melli Iran [1998] Lloyds Reports of Banking Cases at 133. Indeed, Mr Gourgey went a long way with Mr Brisby in this and accepted that an act in a foreign jurisdiction was a necessary ingredient.

The contract in this case on the facts that I am assuming happened to involve the commission of an illegal act in South Africa, which is where Mr Hathurani was when he agreed to each draw down, but in my view that was in a real sense the product of chance. The same offence would have occurred under the South African legislation had Mr Hathurani been anywhere else in the world. The contract, in my view, did not require the commission of an act in South Africa, and again the emphasis is on the word “required” so that this is a point which, in my view, should be decided in favour of Mr Brisby. If the case had turned on this point then Mr Brisby would, in my view, have succeeded, but it does not so he does not.

Last in this application is Mr Brisby’s resulting trust point. He brought this in as a sort of safety net. He sought to say that even if he could not win on the loan argument for present purposes he could succeed on a resulting trust argument. He said he had demonstrated that money had been paid to Mr Jassat in circumstances where the presumption of advancement did not apply. Accordingly, he said, there was a presumption of resulting trust. The only reason for saying that there was no resulting trust was a transaction which Mr Jassat himself averred was illegal, so that was no reason for rebutting it at all. Therefore the presumption of resulting trust applied since he (that is Mr Hathurani) did not have to rely on an illegality to make his claim. Any illegality was irrelevant on his analysis of the transaction - see Tinsley v. Milligan [1994] 1 AC 340. He also cited to me a passage about resulting trusts in Snell at paragraph 23-02:

“[W]here A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested in B alone or in the joint names of A and B there is a presumption that A did not intend to make a gift to B: the money is property held on trust for A (if he is the sole provider of the money) or in the case of joint purchase by A and B in shares proportionate to their contributions.

In both kinds of transactions the facts giving rise to the presumption of a resulting trust are that A transfers a property to B for which B provides no consideration. The trust arises by operation of law to give effect to a presumption that A did not intend B to take the property beneficially. The presumption can be rebutted by proof that A did in fact intend B to take the property as beneficial owner. This intent may be established by direct evidence or by reliance on the presumption of advancement.”

I am afraid, that this argument is not merely one that is not plainly not correct (if I may be allowed as many negatives), it is actually not even arguably right. The presumption of resulting trust arises only where money is paid in circumstances not suggesting a transfer of the beneficial interest; I have read the passages from Snell. Plainly it has no applicability in the present matter, or at least not in the area in which Mr Brisby seeks to apply it. Mr Hathurani puts forward a case based on express arrangement and express form of trust. Mr Jassat puts forward an argument based on loan. So far as the latter is concerned, if it is correct it leaves absolutely no room for the operation or presumption of a resulting trust. The parties have agreed something else. It will have been demonstrated that in the wording of the passage in Snell “A did in fact intend B to take the property as beneficial owner.” Of course, that alternative transaction may be illegal, but nevertheless the intention that a beneficial interest should pass has been demonstrated and that deals with any resulting trust argument. The parties have agreed something else. The presumption only applies where they have not. So this does not give Mr Hathurani an alternative route.

It follows, for all the reasons that I have given, that this application fails and I so order. However, I should take this opportunity to give directions, which I understand have not been given hitherto, in order to get this case ready for trial. This case is, in my view, a case which ought to be propelled to trial as swiftly as is reasonably practicably, although I do not propose to make an order for a speedy trial. If Mr Hathurani is wrong in his claims he is making a claim on a basis on which he should never have advanced it is right that that should be dealt with as soon as possible. If Mr Hathurani is right and Mr Jassat is wrong, then Mr Jassat is sitting on a very large amount of money to which Mr Hathurani is entitled and he is resisting payment by means of an argument which on this premise he should not be advancing at all. It is right that this matter should be dealt with as soon as reasonably practical and I shall give some crisp directions for making sure that this case now gets on to trial in good order as soon as is practicable.