Pace Europe Ltd & Ors v Dunham & Anor

This is an appeal from the decision of the district judge who set aside on 11^th January of this year statutory demands served by the Appellants on the Respondents.

The statutory demands were served on behalf of three companies within the Pace group of companies (I shall call them “Pace”) against Mr. and Mrs. Paul and Sandra Dunham who were formerly employed by Pace in the United States. Following the termination of their employments, which, I understand, was somewhat sudden, proceedings were brought against them by Pace in North Carolina resulting ultimately in a judgment which as to part forms the basis of the statutory demands.

The judgment itself was obtained following a hearing which the Dunhams did not attend. The judgment is dated 12^th July 2010, following a hearing between 28^th and 30^th June. Before that, evidence was given on deposition in England, though not by the Dunhams, who did not attend, though ordered to do so. The judgment identified in paragraph 94 what were said to be misappropriations of corporate funds by the Defendants acting in concert in the amount of $2,112,771.75.

A number of causes of action were pursued and the order of the court at the end of the judgment reads as follows:

“Based on the foregoing findings of fact and conclusions of law, therefore, it is hereby ordered, adjudged and decreed that:

1.

The Plaintiffs are awarded $2,112,771.75 in damages against Defendants jointly and severally on Plaintiffs’ claims of breach of contract, fraud, breach of fiduciary duty and constructive fraud.”

I interpose to say that “constructive fraud” is a label used to describe what I think in this country would called breach of fiduciary duty, consisting of the failure on Mr. Dunham’s part to reveal his and his wife’s wrongdoing.

Paragraph 2 of the judgment goes on to grant Mr. Dunham a set off or credit against that sum, pursuant to a promissory note in his favour, reducing the damages to $1,794,260.30.

Paragraph 3 reads as follows:

“The actions of Defendants constituted unfair and deceptive trade practices and that the aforementioned damages are trebled and the total amount of damages against the Defendants jointly and severally is $5,382,780.90.”

What is trebled, it can be seen, is the reduced amount in paragraph 2 so that, in effect, there is a treble crediting of the promissory note, not just in Mr. Denham’s favour but in Mrs. Denham’s favour as well.

Paragraphs 4 and 5 dismiss counterclaims for unfair or constructive dismissal. Paragraphs 6 and 7 provide as follows:

“6.

The court also in its discretion awards Plaintiffs their attorneys’ fees in an amount to be supported by an affidavit from Plaintiffs’ counsel pursuant to… (and then the local law is identified).”

“7.

That Plaintiffs be awarded $132,073.25 … which represents Plaintifs’ reasonable attorneys’ fees and expenses in this matter”

That also is expressed by paragraph 8 to be a joint and several award.

There has been no appeal from that judgment and it is now final.

It will be noticed that the trebling of the damages award in paragraph 3 is said to arise out of the actions of the Defendants constituting unfair and deceptive trade practices. Under a local statute in North Carolina, treble damages can be awarded in respect of such practices. However, the award under paragraph 1 is not an award under the local legislation relating to unfair and deceptive trade practices but relates to claims for breach of contract, fraud, breach of fiduciary duty and constructive fraud in the sense which I have explained.

Accordingly, it seems to me that this judgment recognises five distinct causes of action: the four mentioned in paragraph 1, and the one mentioned in paragraph 3. In addition, there is the costs award.

The significance of that analysis is that, under the Protection of Trading Interests Act 1980, in this country a judgment for multiple damages cannot be registered and, as subsection (1) provides:

“No court in the United Kingdom shall entertain proceedings at common law for the recovery of any sum payable under such a judgment.”

Read literally that would appear to preclude recovery of any sum, even in respect of a separate cause of action not susceptible to multiple damages, where some other part of the judgment awards multiple damages.

However, the Court of Appeal in Lewis v Eliades [2004] 1 WLR 692 held that a purposive approach to construction of the 1980 Act was appropriate. The Act (see Potter LJ at paragraph 48) represented a statutory exception to the broad principle of recognition and enforcement of judgments observed for several centuries in this country under the common law. It was open to the court upon examination of a judgment to conclude that an unexceptionable part could readily be distinguished, separated and quantified for the purposes of enforcement.

Potter LJ’s judgment also supports the proposition that, where there is a multiple award, even the basic compensatory award cannot be recovered. That was in the context of the United States racketeering legislation (RICO, as it is known for short) which, as in the case of the local North Carolinian statute here, enables treble damages to be awarded. But the cause of action was exclusively under RICO. Both the compensatory and the punitive elements were referable to that cause of action. There was no other recognisable cause of action attracting compensatory damages alone.

This case is different. There is first a compensatory award for breach of contract, fraud, breach of fiduciary duty and constructive fraud. There is then a separate award for treble damages under the local statute for unfair and deceptive trade practices. It is that separate judgment which cannot be enforced here. I shall assume that even the compensatory element of that separate judgment cannot be enforced here, though I have some doubts about that. That point was not actually decided by Lewis v Eliades. Be that as it may, the separate compensatory award under paragraph 1 of the North Carolina judgment is, on the authority of Lewis v Eliades, to be recognised and enforced here.

It would be wrong to regard paragraph 1 of the North Carolina judgment as just a step towards an award which is subsumed entirely by the treble damages award in paragraph 3. Paragraph 1 is a freestanding award, albeit that the total damages cannot exceed the trebled amount. That, however, is not because of the application of the local statute but because of the rule against double recovery which, no doubt, applies (as regards the compensatory award) as much in North Carolina as it does here.

In those circumstances, whilst the district judge was persuaded by the argument that the appellant was at least arguably attempting to recover multiple damages and barred by the 1980 Act, I have reached a different conclusion.

I was also referred to the decision of Mann J in Lucasfilm v Ainsworth [2009] FSR 2, who considered obiter the position of the compensatory award in a true multiple damages case; namely, where the cause of action giving rise to the multiple damages is the same cause of action as that producing the compensatory damages. The compensatory and punitive elements were separately identified in the foreign judgment. Mann J could see no reason in policy, even had the separate and severable elements not been so clearly identified, for denying recovery in respect of the compensatory element.

Criticisms of that decision are to be found in Briggs ‘Civil Jurisdiction and Judgments’ (5^th edition) at paragraph 7-73 footnote (4). However, I find the reasoning of Mann J compelling. His conclusions are also supported by a consideration of section 6 of the 1980 Act which enables, with exceptions, “qualifying defendants” (UK citizens and the like) to recover in this jurisdiction multiple damages received under a foreign judgment, but only to the extent of the non-compensatory element.

As Nelson J observed in Lewis v Eliades at first instance [2003] 1 All ER (Commercial) 850 at paragraph 63:

“Section 6 supports the view that it is only the part of the judgment which contains multiple damages which can be regarded as objectionable.”

In the Court of Appeal, Jacob LJ said at paragraph 62:

“I am conscious that this case does not deal with the enforceability of the compensatory part of a multiplied award. It is not contended before us that the multiplier in RICO awards can be registered. For my part, I would, therefore, not wish it to be thought that the decision in this case governs that question. It can be decided if and when it arises.”

Mann J was in my judgment correct in Lucasfilm to regard the matter as open on the authorities and, notwithstanding the fact that his observations were clearly obiter, they were detailed and followed full argument from both sides. I agree with them. It seems to me in those circumstances that, although not technically part of the ratio, I should follow that decision, to the extent that it is necessary for me to go down this route. As it happens, I consider that this case falls within the ratio of the Court of Appeal’s decision in Lewis v Eliades, and it is not strictly necessary for me to pray in aid the broader approach of Mann J. For the sake of completeness, Mann J’s decision went on appeal, but the point I am addressing was not considered further.

Accordingly, the foreign judgment cannot, in this case, be attacked under the 1980 Act to the extent of the compensatory element, which is all that the statutory demands are based upon. In this connection, I add that I would regard the costs award as purely compensatory also.

It is also said that there is an arguable case that the judgment of the court in North Carolina was vitiated by a denial of natural justice. This also was an argument which the district judge accepted as justifying the setting aside of the statutory demands. .

There is evidence, which is not disputed before me, that Mr. Dunham had a health problem, some of it caused partly if not wholly by the US litigation, and that he had at some stage in 2010 undergone heart surgery. For this reason, Pace applied in North Carolina for an adjournment of the trial until September of 2010. That adjournment was only granted until 28^th June 2010. The court in North Carolina was, of course, master of its own procedure and not bound to kowtow to the wishes of the parties.

This refusal of a longer adjournment prompted the Dunhams to make their own application for an adjournment by what is called a “motion for continuance” on 9^th June 2010. By this time, as I have said, the trial was fixed for 28^th June 2010. So there was little time for the application to come on and there was no guarantee that it would be heard ahead of the trial itself. They also were seeking an adjournment to September but, as that had already been refused, it was obviously on the cards that it would be refused again. It was said in the application that Mr. Dunham was not well enough to attend the trial. He relied upon a letter showing that he had had an appointment at Northampton General Hospital for a pacemaker follow up on 1^st June 2010. There was, however, no evidence showing that he was unfit to appear at the trial.

Mr. and Mrs. Dunham did not hear further about the fate of their motion before the trial date, but they were, of course, aware of the trial date, and, in the meantime, an appointment had been made for the taking of their depositions in Milton Keynes. Pace’s attorneys offered to attend upon them at their home for that purpose. They travelled from the United States, duly arrived at Milton Keynes and took depositions from other witnesses but not the Dunhams because they did not turn up. It appears that shortly before the depositions a motion was filed in North Carolina to oppose their taking on the grounds that the Dunhams did not have adequate time in which to obtain legal advice.

One of the problems which has faced the Dunhams throughout is that they have been chronically short of money which was the product, at least in part, of the attachment by Pace of a property they owned in the United States and which might otherwise have been available to fund legal expenses. This may have made it necessary for the Dunhams to act in person. It is not however suggested that this amounted to a denial of natural justice.

As the Dunhams heard nothing about the fate of their motion for continuance once made, it was obvious (or should have been obvious) to them that 28^th June was still an effective date. They say they assumed that the trial had been adjourned. I can see no basis for their having being entitled to assume this.

Mrs. Dunham could, of course, have attended, even if Mr. Dunham was not well enough to do so, and ascertained whether or not the adjournment application had been dealt with. She could also have made the application herself at the commencement of the trial.

Although the Dunhams did not attend, the court dealt with the motion for continuance very fully on the opening day of the trial. The written reasons for denying the motion ran to nineteen reasoned paragraphs. The first reason was that Mr. Dunham had not furnished any documentation or proof that he suffered from a heart condition that would prevent him from travelling to the United States for trial. That was undoubtedly the case. Furthermore, Heather Carpenter, co-counsel for Pace, had in an e-mail warned the Dunhams that better proof was needed showing that he could not travel but the Dunhams ignored this warning. There was nothing, the court also reasoned, to show that Mrs. Dunham was precluded from attending the trial and there was no other excuse offered.

It has been contended before me that it was unrealistic to expect Mrs. Dunham to attend. I do not accept this contention. Given that Mr. Dunham’s problems were at least to some extent stress related and that a major source of stress was the litigation in North Carolina, his attendance was always a potential problem, and his problems would not necessarily go away even with an adjournment. The Dunhams had to have a Plan B which would in all likelihood involve Mrs. Dunham. Of course, she would be disadvantaged by proceeding without her husband’s evidence but she might have made submissions for reconstituting the deposition hearing had she bothered to turn up. They could also both previously have attended their depositions as scheduled.

The rest of the reasoning dealt with the notices of deposition and concluded, in my judgment incontestably, that there was no good reason for the Dunhams’ failure to attend their scheduled depositions in the United Kingdom as required by the court in North Carolina.

Had the scenario been reversed and this court had been faced with an application without any satisfactory medical evidence for an adjournment by a litigant from abroad who had failed to turn up for evidence to be taken abroad, I have little doubt that the result would have been the same.

An all events, this court does not sit as a court of appeal from the North Carolina court. That court came to a rational case management decision. The inevitable consequence was that the trial proceeded, as the Dunhams must have realised was a real risk, in their absence. The result was a substantial judgment against them.

Given that the adjournment was justifiably refused, it seems to me impossible to characterise what happened as a denial of natural justice. The Dunhams argument, expressed skilfully through Mr. Elias of counsel, is that the North Carolina court simply did not allow the Dunhams sufficient time between denying their motion for continuance and the trial itself. It is said inferentially that the motion for continuance should have been heard (and the result notified to the Dunhams) in advance of that trial. That, of course, is the sort of thing that happens in an ideal world but the Dunhams knew that had not happened because they had not been notified of any adjournment of the trial and had no basis for assuming, unless and until they were told otherwise, that a trial which was on would, in fact, be off. They deliberately took the risk of the trial proceeding in their absence and are now reaping the consequences.

In those circumstances, it seems to me that the district judge, whilst I respect his industry in producing at very short notice a careful and detailed judgment, has, in my judgment, plainly gone wrong in finding that there was anything arguably amounting to a denial of natural justice on the facts of this case.

In those circumstances, the appeal must be allowed.

I will now hear counsel as to the form of order.