High Commissioner for Pakistan in the United Kingdom v Prince Mukkaram Jah, His Exalted Highness the 8th Nizam of Hyderabad

I heard argument over four days in March 2016 on various applications for summary disposal of significant parts of the rival claims to beneficial ownership of a fund (“the Fund”), now amounting to approximately £35 million, which since September 1948 has been held by the National Westminster Bank Plc (or its predecessor, the Westminster Bank Ltd) (“the Bank”) in an account (“the Account”) which was opened in the name of the first High Commissioner for Pakistan in the United Kingdom, Mr Habib Ibrahim Rahimtoola (“Mr Rahimtoola”).

The background to the opening of the Account, the legal proceedings in England to which it gave rise, and the general nature of the rival claims to beneficial ownership of the Fund, are briefly described in the judgment which I handed down at an earlier stage of the present action in January 2015: see The High Commissioner for Pakistan in the United Kingdom v National Westminster Bank Plc and Others [2015] EWHC 55 (Ch). I will refer to that judgment as “the Discontinuance Judgment”, because the applications upon which I then had to rule related to the purported discontinuance by Pakistan of the proceedings which she had started against the Bank on 11 June 2013, i.e. the present action in its initial form. In general, I will not repeat in this judgment material contained in the Discontinuance Judgment.

For the reasons given in the Discontinuance Judgment, the court set aside the notice of discontinuance which Pakistan had served on 21 November 2013, and joined a number of other parties to the proceedings as interpleader claimants so that the question of beneficial title to the Fund could be adjudicated upon by the English court in the context of the present action. The court held that Pakistan had abused the process of the court by service of the Notice of Discontinuance, and that having waived her sovereign immunity by starting the present action, she could not then, by discontinuing it, reinstate the legal stalemate which had previously prevailed, and had precluded the English court from deciding the question of beneficial entitlement to the Fund for over half a century since the decision of the House of Lords in Rahimtoola v Nizam of Hyderabad [1958] AC 379: see the Discontinuance Judgment at [69] to [83].

If I may repeat what I said in the Discontinuance Judgment at [83]:

“The court has a discretion in the matter, but in my judgment everything tells in favour of setting aside the Notice of Discontinuance. That is the only way in which the proceedings begun by Pakistan against the Bank can achieve the objective which Pakistan must objectively be taken to have contemplated when it issued the claim form on 11 June 2013. Only in this way can proper and full effect be given to the waiver of immunity which Pakistan voluntarily gave by starting the proceedings.”

In the event, there was no appeal by Pakistan from the order setting aside the Notice of Discontinuance, and on 4 March 2015 Stephenson Harwood LLP came onto the record as Pakistan’s solicitors in place of those previously instructed. There was also a change of counsel, with Mr Khawar Qureshi QC and Mr Jonathan Brettler taking over from Ms Cherie Booth QC and Mr Oliver White.

In the court’s order of 16 January 2015, directions were given for the appropriate new parties to be joined to the proceedings as defendants to the Bank’s stakeholder application and as interpleader claimants to the Fund. The significant new parties, for present purposes, are:

By the order of 16 January 2015, directions were also given for a trial of the issue of beneficial entitlement to the Fund. Pakistan was directed to file and serve amended particulars of claim setting out her claim to a beneficial interest, to which the other claimants were to respond with a defence and counterclaim, to which points of reply could then be served. Further consideration of the matter was adjourned to a case management conference, which took place on 22 July 2015. By then, India had applied by an application notice dated 14 July 2015 for an order for summary judgment against Pakistan and/or an order striking out her amended particulars of claim. In the alternative, India sought summary judgment or strike-out relief in relation to a plea of non-justiciability advanced by Pakistan in paragraph 19 of the amended particulars of claim. India’s application was supported by the 8^th Nizam and Prince Muffakham Jah (together, “the Princes”), although they had not yet issued their own applications for similar relief. For her part, Pakistan (through her new legal team) had indicated that she would issue an application seeking summary judgment and/or strike-out relief against both India and the Princes on the grounds of limitation.

Directions were therefore given at the CMC for all these actual or proposed applications for summary determination of all or parts of the claims to be listed for hearing together, with a timetable for evidence in the meantime. Directions were also given:

Those applications are as follows:

In broad terms, the applications give rise to five separate questions, helpfully identified in a written summary of India’s position provided by her counsel on the first day of the hearing:

In considering these questions, I have had the benefit of very full written and oral submissions from India, Pakistan, and each of the Princes. The Bank filed no evidence, and played no part in the hearing, while reiterating its consistently held position that it will pay the Fund (subject to proper provision being made for its costs and expenses) to whichever party the court finds to be entitled to it, combined with a general willingness to assist the court. Now that the effective involvement of the Bank in these proceedings is probably nearing its end, this provides a convenient opportunity for me to express my appreciation for the consistently helpful and constructive role which it has played in the proceedings, through its solicitors (Ashurst LLP) and counsel (Mr Adam Zellick).

Summary judgment

CPR rule 24.2 provides that:

“The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if –

(a)

it considers that –

(i)

that claimant has no real prospect of succeeding on the claim or issue; or

(ii)

that defendant has no real prospect of successfully defending the claim or issue; and

(b)

there is no other compelling reason why the case or issue should be disposed of at a trial.”

There was no disagreement between the parties about the approach which the court should adopt in deciding whether to grant summary judgment, or what is meant by a real prospect of success in this context. I was referred to the authoritative guidance given by Lord Hope in Three Rivers District Council v Bank of England (No. 3) [2003] 2 AC 1 at [95]:

“I would approach that … question in this way. The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, at p 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.”

I also find of assistance what Lord Hobhouse said at [158]:

“The important words [in Part 24] are “no real prospect of succeeding”. It requires the judge to undertake an exercise of judgment. He must decide whether to exercise the power to decide the case without a trial and give a summary judgment … Secondly, he must carry out the necessary exercise of assessing the prospects of success of the relevant party. If he concludes that there is “no real prospect”, he may decide the case accordingly.

…

The criterion which the judge has to apply under Part 24 is not one of probability; it is absence of reality.”

I was also referred to the decision of the Court of Appeal in E D & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, particularly at [52] to [53] per Potter LJ, with whom Peter Gibson LJ agreed.

A further point which is well established in the authorities is that, where an application for summary judgment gives rise to a question of law or construction, the court should in general be willing to decide that point if it has before it all the evidence necessary for a proper determination, and it is satisfied that the parties have had an adequate opportunity to address the point in argument: see the commentary in the White Book, volume I, at paragraph 24.2.3. Conversely, an application for summary judgment is not appropriate to resolve a complex question of law and fact, the determination of which necessitates a trial of the issue having regard to all of the evidence: ibid.

Striking out

CPR rule 3.4(2) provides that:

“The court may strike out a statement of case if it appears to the court –

(a)

that the statement of case discloses no reasonable grounds for bringing or defending the claim;

(b)

that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; or

(c)

…”

The first of these grounds overlaps with the power of the court to grant summary judgment under Part 24, and despite the slight difference in wording nobody submitted to me that there is any material difference between the test of “no real prospect” of success in Part 24 and “discloses no reasonable grounds for bringing or defending the claim” in rule 3.4(2)(a). The important distinction, for present purposes, is that the power to strike out under rule 3.4 also extends to cases of abuse of process, as set out in ground (b).

There is no definition of “abuse of the court’s process” in rule 3.4, and it is clear that the categories of potential abuse of process are not closed: see the notes in the White Book at paragraphs 3.4.3 and following. As Lord Diplock said, in Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536:

“My Lords, this is a case about abuse of the process of the High Court. It concerns the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people. The circumstances in which abuse of process can arise are very varied … It would, in my view, be most unwise if this House were to use this occasion to say anything that might be taken as limiting to fixed categories the kinds of circumstances in which the court has a duty (I disavow the word discretion) to exercise this salutary power.”

One particular kind of abuse of process is the rule in Henderson v Henderson (1843) 3 Hare 100, as explained in Johnson v Gore Wood & Co [2002] 2 AC 1 and subsequent authorities. The key principle was identified by Lord Bingham of Cornhill in Johnson v Gore Wood & Co at 31, as follows:

“But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question, whether in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not … Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”

The rule in Henderson v Henderson is concerned with matters which were not raised in earlier proceedings, but could and should have been raised. In this respect, it differs from the doctrine of issue estoppel, which prevents the re-litigation of issues which have already been decided between the same parties (or their privies) in earlier litigation, save in special circumstances where this would cause injustice. Issue estoppel is a rule of substantive law, and, if established, it would ground an application for summary judgment, or a strike-out under ground (a), in relation to the relevant issue. On the other hand, there is a similarity with the rule in Henderson v Henderson in that, where the circumstances give rise to an issue estoppel, the estoppel extends to the raising in the subsequent proceedings of points which were not raised in the earlier proceedings, or were raised but unsuccessfully. If the relevant point was not raised, the bar will usually be absolute if it could with reasonable diligence, and should in all the circumstances, have been raised: see generally Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46, [2014] AC 160, at [17] and [22] per Lord Sumption JSC, with whose analysis the other members of the Court agreed.

Pakistan’s pleaded claim to beneficial ownership of the Fund is advanced without prejudice to her prior contention that the court is obliged to decline jurisdiction over the present dispute on the grounds of non-justiciability and/or application of the doctrine of act of state. Pakistan has not sought summary determination of that issue in her favour, but it forms part of the applications for summary relief against her, and I will deal with it as Issue (2) below.

Pakistan’s claim to beneficial ownership of the Fund is based on the history of events which led to the opening of the Account in September 1948, and the subsequent efforts apparently made by the 7^th Nizam to regain control of the Fund after the annexation of Hyderabad by India. I therefore find it helpful to begin by setting out the relevant facts as they appear from the contemporary documents and the affidavit evidence adduced in the 1954-1957 proceedings. This material was all contained in the appendices to the printed cases of the parties in the House of Lords, and extensive references to it were made in the judgments at all levels.

On 22 October 1947 Mr L N Gupta, the Financial Secretary in the 7^th Nizam’s government, gave written instructions on behalf of the government for an account (“the first account”) to be opened with the Bank in London, in the name of the Hyderabad State Bank. He also arranged for £2 million to be deposited in the first account, which was duly done on 30 October 1947.

By a “Firman” dated 26 January 1948, the 7^th Nizam commanded that:

“… the Sterling amounts held by the Finance Department in their account in England should be reserved wholly for the purchase of machinery and the utilisation of this amount for objects of personal nature should be prohibited.”

According to Mr Gupta’s evidence, this Firman applied to the money in the first account.

According to the affidavit (filed on 4 April 1956) of Mr N S Raghavan, who was the Advocate-General of the State of Hyderabad from May 1954, the 7^th Nizam was until the integration of Hyderabad with India, and the coming into force of the Constitution of India on 26 January 1950, an absolute monarch who enjoyed uncontrolled sovereign powers. The “Firmans” were expressions of his sovereign will. They had the force of law, and would override any other laws which were in conflict with them. Moreover, there was “no effective distinction between the privy purse of the Nizam and the public funds of his State”: both were at his unrestricted disposal.

In early April 1948, Nawab Moin Nawaz Jung (“Moin”), who was the 7^th Nizam’s Finance and Foreign Minister, gave instructions, via the Hyderabad State Bank, for a second account to be opened by the Bank in the name of the Nizam’s government (“the second account”). The second account was to be maintained on the same terms and conditions as the first account. Moin also gave instructions for £1 million to be transferred from the first account to the second account, and this was duly done on 7 April 1948.

Moin’s instructions were that the second account was to be operated by either the Agent General for Hyderabad in London or the Finance Minister himself. On 4 April 1948, Moin wrote to the Agent General in London, Nawab Mir Nawaz Jung Bahadur (“Mir”). After explaining the arrangements which had been made to open the second account, Moin said the intention was that it would be operated either by the Finance Minister himself or by the Agent General under instructions from the Finance Minister. He continued:

“In view of the present circumstances it is however considered advisable, as a measure of protection that the High Commissioner of Pakistan in the UK, should also be authorised to operate on this account and this fact should be communicated to the Westminster Bank. Like the Hyderabad Agent General, the High Commissioner of Pakistan will also operate on this account under instructions from the Finance Minister of the Nizam’s government.”

Nothing seems to have come of this proposal, but it is worthy of note that, as early as 4 April 1948, Moin clearly contemplated giving the High Commissioner of Pakistan in the UK (i.e. Mr Rahimtoola) operating rights over the second account, which contained Hyderabad government money.

Later in April 1948, two payments totalling £750,000 were made from the second account to a Mr Shoib. In June 1948, further payments totalling £249,000 were also made from the second account, as to £144,000 to Mr Shoib, as to £5,000 to a Mr Ghulam Mohamed, and as to £100,000 “under control of Mr Shoib for Mr Cotton”. All these payments appear to have been duly authorised by Mir and/or Moin, and they are evidenced by a letter from the Bank.

On 24 May 1948, Moin requested the Hyderabad State Bank to give instructions for the transfer of the balance of the first account to the second account, to be held on the same terms. This transfer was effected on 29 May 1948, when the sum of £1,005,085.13.3 was transferred by the Bank to the second account.

On 13 June 1948, a “Firman-e-Mubarak” appears to have been issued by the 7^th Nizam. According to the English translation from the Urdu copy, certified as a true copy by the ex-Prime Minister of Hyderabad, this Firman was headed “Most Secret” and included this passage:

“The instructions issued and the action taken by the Prime Minister in view of the emergency conditions in the matter of transferring of £ Sterling One Million from the Government Funds in favour of [Mir] and incurring expenditure therefrom on official purposes from time to time for various secret objects as stated in the Prime Minister’s English Arzdasht dated 5 June 1948 is confirmed and sanctioned.”

The “English Arzdasht” to which reference was made in this passage does not appear to have been traced.

On 5 September 1948, the Prime Minister of Hyderabad wrote to the Controller-General, Accounts & Audit for Hyderabad, and copied his letter to Moin for information. The Prime Minister referred to the Firman of 13 June 1948 and to various payments which he had authorised, including expenditure of £1 million to be incurred by Mir in London out of the balance of £2 million held by the Hyderabad Government with the Bank. He continued:

“The above amounts were reported by the two Agents-General at London and Karachi to have been utilised on the purchase of miscellaneous equipment and stores on demand of the Army Commander. On the basis of this, the expenditure may be booked under 41-Misc.-MISCELLANEOUS. ”

It seems a reasonable inference from this material alone that the monies deposited with the Bank in London by the Hyderabad Government were being used, at least to a substantial extent, to fund the secret purchase of arms or other military equipment from Pakistan. The period was one of acute political and military tension, in the aftermath of the partition between India and Pakistan which had taken effect from 15 August 1947. Princely States such as Hyderabad were not included in the partition, and the 7^th Nizam had elected for Hyderabad to remain independent.

The annexation of Hyderabad to India, as a result of the military action known as “Operation Polo”, took place between 13 and 18 September 1948. On the latter date, the Hyderabad army formally surrendered to India.

By a letter dated 14 September 1948, apparently written from the Dorchester Hotel, London, Moin informed Mir that he was under instructions from the Nizam’s government to close the second account, and to transfer the funds in it in accordance with those instructions. By a second letter of the same date, Moin further informed Mir that the Prime Minister of Hyderabad, under orders of the Nizam, had “certified as secret expenditure” the amount of £1 million from the second account, and that the certificate had been recorded with the Comptroller General of Accounts and Audit at Hyderabad.

At or about the same time, a meeting took place in London between either Moin or Mir, Mr Rahimtoola and the then Foreign Minister of Pakistan, Sir Mohammed Zafrullah Khan. At the meeting, either Moin or Mir requested Mr Rahimtoola to accept a transfer of approximately £1 million. On the express instructions of the Foreign Minister, Mr Rahimtoola agreed to do so.

By a letter dated 16 September 1948, Moin gave instructions to the Bank to close the second account and to transfer the balance to the credit of Mr Rahimtoola, High Commissioner for Pakistan in London, whose specimen signatures were enclosed. On 20 September 1948, the Bank wrote to Moin at the Dorchester Hotel, confirming that the balance of the second account had been transferred to a new deposit account, i.e. the Account, in the name of Mr Rahimtoola. A formal advice of transfer was enclosed.

On the next day, 21 September 1948, the Bank received a telegram from Mr Gupta, the Nizam’s Financial Secretary, requesting that a stop be placed on the second account until further instructions were received. A letter to similar effect followed by air mail on 23 September. The Bank replied, by a cable dated 23 September, saying that the balance on the second account had already been transferred to the Account in the name of Mr Rahimtoola, pursuant to instructions given by Moin dated 16 September.

On 27 September 1948, the 7^th Nizam sent a cable to Moin, which referred to the reported opening of the Account and said:

“Please take immediate steps to have this amount re-transferred or deposited in State account in the Westminster Bank and report compliance.”

Moin replied by cable on 29 September, saying he would “take appropriate action without delay”, and asking for written instructions over the Nizam’s signature. Meanwhile, the Bank declined to comply with Mr Gupta’s request to re-transfer the money in the Account, thus precipitating the dispute which remains unresolved to this day.

After these events had taken place, the 7^th Nizam’s consistent position was that the transfer of monies to the Account had taken place without his authority. In the affidavit which he swore on 3 November 1956 for the purposes of the proceedings in the Court of Appeal, he was adamant:

“I say that this transfer was made by the Defendant Jung [i.e. Moin] without my knowledge or authority. I say that at no time had I given any direction or sanction or authority either orally or in writing or by way of Firman or otherwise to the said Moin … or to any other person to transfer the said sum … or any part thereof, to … Rahimtoola, or to the Pakistan Government or to any person representing the Government of Pakistan. In fact, on learning about the said unauthorised transfer … I cabled to the Defendant Jung on 27 September 1948 to take immediate steps to have the said sum re-transferred to my State Account.”

The Nizam went on to say that he confirmed the constitutional position as set out in the affidavit of Mr Raghavan, and repeated that he had never given his sanction by Firman or otherwise to transfer the money to Mr Rahimtoola or to any other person.

For his part, Moin wrote a letter to the Editor of The Times on 29 September 1948, which was published on 1 October 1948:

“In your issue of today you have given prominence to the cryptic allegation made by the representative of India at yesterday’s meeting of the Security Council [of the United Nations] regarding the transfer of certain funds of the Government of Hyderabad in the Westminster Bank. Some time ago, in view of the invasion of Hyderabad, I took, in my capacity as Finance and Foreign Minister of Hyderabad, steps which I considered necessary for safeguarding the assets of the State. I am now in communication with the Nizam concerning the funds in question, which are fully intact.”

As for Mr Rahimtoola, he swore two affidavits for the purposes of the 1954-1957 proceedings. In his first affidavit, sworn on 15 July 1955, he merely said:

“On or about the 16^th September 1948 it was agreed between [Moin] and myself that the said funds should be transferred to me as the agent of the Government of Pakistan … I accepted such transfer in accordance with the instructions of and as agent for my Government and have never claimed any personal interest in the funds so transferred.”

In his second affidavit, sworn on 19 June 1956, Mr Rahimtoola gave some further details. He said that a few days before 20 September 1948 a representative of the Nizam came to see him at his official residence in Hampstead, accompanied by Sir Mohammed Zafrullah Khan. The purpose of the visit was to ask him to accept a transfer into his name of the funds standing to the credit of the Nizam’s Government with the Bank. Sir Zafrullah Khan instructed him to accept the transfer, and overruled his objections that the Government of Pakistan should not become involved. Although in his earlier affidavit Mr Rahimtoola had said it was Moin who attended the meeting on behalf of the Nizam, he now said he was unsure whether it was Moin or Mir who had come to see him, but he was certain that it was one or other of them.

Mr Rahimtoola continued:

“5.

It was never suggested to me that I should accept the said funds on my own account as a private individual as an agent or trustee for the Nizam but if it had I should have refused to do so as I would have considered it improper to act in such a way while holding the position of High Commissioner since if I had not been acting on behalf of my Government it would undoubtedly have been generally supposed that I was.

6.

At the time when the said transfer of the said funds took place I knew nothing about them except that Moin and the said Mir … had the power to give orders to the … Bank in respect of such funds. I did not know whether they were personal monies of the Nizam or State monies or what if any orders Moin or Mir … had been given in relation thereto by the Nizam or what if any formality was required for the transfer thereof to me. At that time I knew nothing about the constitutional arrangements of Hyderabad and the question of the nature of the authority of Moin and … Mir …to deal with the funds was never discussed by me or in my presence at the said interview or at any time prior thereto. I was merely told that the funds were under the control of Moin and … Mir … and it never occurred to me to ask about the extent of their authority.

7.

After accepting the said transfer I regarded myself as bound to deal with the account in accordance with the instructions of my Government …”

Against this background, Pakistan’s primary contention, pleaded in paragraph 19 of her amended particulars of claim, is that the transfer into the Account, and the other financial dealings between the State of Hyderabad and Pakistan before the transfer, “were transactions of a governmental nature engaged in by two sovereign states in a political context”. Accordingly, it is said, the doctrine of non-justiciability and/or act of state applies, so the court is obliged to decline jurisdiction over the present dispute.

Without prejudice to that contention, Pakistan then pleads her claim to beneficial ownership of the monies in the Account as follows:

“20.1

The starting point is that a payment from one sovereign state to another sovereign state will not give rise to a trust relationship; alternatively will not give rise to a trust relationship without cogent evidence that a trust relationship was intended. States do not intend and cannot be taken to intend to render themselves trustees or beneficiaries in relation to payments made to other states and their agents; alternatively cannot be taken to intend this highly unusual relationship between states absent cogent evidence of such an intention. Presumptions which may arise in connection with “domestic” transfers have no application in the context of inter-state transfers, where entirely different expectations apply. This starting point indicates that the Transfer gave Pakistan full ownership of the Monies, through its agent. The starting point is further confirmed by reference to the broader context of the Transfer.

20.2

The Prime Minister of Hyderabad had, under orders of the Nizam, certified as “secret expenditure” £1 million utilised from the Second Account, as recorded in [Moin’s] memorandum dated 14 September 1948 to [Mir] …

20.3

During the period April-June 1948 payments of £994,000 were made from the Second Account to Mr Shoib (Financial Adviser to the Pakistan Military Defence Division) and Mr Ghulam Mohammed (Finance Minister of Pakistan). A memorandum from the Prime Minister of Hyderabad to the Controller-General Accounts & Audit refers to authorised expenditure of £1m to be incurred by [Mir], utilised in the purchase of miscellaneous equipment and stores on demand of the Army Commander.

20.4

The Transfer was accordingly not an isolated payment to Pakistan or its agents from the Second Account: all the monies passing through the Second Account were paid to Pakistan or its agents. It is to be inferred that the Second Account was set up by the Nizam’s Government for the purpose of making payments to Pakistan.

20.5

Further, [Moin] was instructed by the Nizam’s Government to close the Second Account, instructions referred to in his letter dated 14 September 1948 to [Mir], in circumstances where India’s military action to annexe Hyderabad was in progress or (depending on the precise date of these instructions) imminent. As above, this military action took place from 13-18 September 1948. The Monies cannot sensibly or realistically have been transferred to Pakistan on the basis that Pakistan would hold them as agent or trustee for the Nizam, so that upon a conquest of Hyderabad, India could compel the Nizam to transfer the Monies to India.

20.6

For the avoidance of doubt, if and to the extent that it is contended that claims that the Transfer was unauthorised and/or attempts to reverse the Transfer, made following Indian occupation/the surrender of Hyderabad to India, support any claim adverse to Pakistan’s, these claims are denied.”

In support of the “starting point” pleaded in paragraph 20.1 of her amended particulars of claim, Pakistan relies on authority which indicates that the potential role of trusteeship in relation to the Crown is limited by two factors: first, the Crown must deliberately choose to become a trustee, and will not have the role of trustee imposed upon it by the court; and secondly, the court will be ready to find that the Crown has assumed a governmental obligation, rather than one which sounds in the law of trusts. By analogy, it is submitted, the same principles should apply to the question whether a foreign sovereign state such as Pakistan has assumed a trust obligation.

With regard to the first factor, the authors of Lewin on Trusts, 19^th edition, say at paragraph 2-015:

“There is nothing to prevent the Crown from acting as a trustee if it chooses deliberately to do so, though the peculiar position of the Crown makes it less likely than with a subject that this is intended.”

Thus, in Civilian War Claimants Association Ltd v The King [1932] AC 14, where the issue was whether reparations paid by Germany under the Treaty of Versailles were received by the Crown as a trustee or agent for those who had suffered loss as a result of enemy action during the First World War, Lord Atkin said at 27:

“There is nothing, so far as I know, to prevent the Crown acting as agent or trustee if it chooses deliberately to do so. In the circumstances of this case there appears to me to be nothing which indicates that the Crown expressly assumed the position of agent or trustee, and I think the circumstances negative the idea that the Crown ever did intend to occupy that position and negative any circumstance from which the law might impose upon it the position either of agent or trustee.”

Lord Pearce subsequently adopted this statement of the law in Nissan v Attorney-General [1970] AC 179 at 223 A-B. See too Tito v Waddell (No. 2) [1977] Ch 106 at 212 A-D, per Sir Robert Megarry V.-C.

As to the second factor, counsel for Pakistan rely on the typically learned and illuminating discussion by Sir Robert Megarry in Tito v Waddell, at 216B-219H, of what Lord Selborne L.C. once termed “trusts in the higher sense”. Sir Robert introduced the topic at 211G, as follows:

“When it is alleged that the Crown is a trustee, an element which is of especial importance consists of the governmental powers and obligations of the Crown; for these readily provide an explanation which is an alternative to a trust. If money or other property is vested in the Crown and is used for the benefit of others, one explanation can be that the Crown holds on a true trust for those others. Another explanation can be that, without holding the property on a true trust, the Crown is nevertheless administering that property in the exercise of the Crown’s governmental functions. This latter possible explanation, which does not exist in the case of an ordinary individual, makes it necessary to scrutinise with greater care the words and circumstances which are alleged to impose a trust.”

To similar effect, Sir Robert Megarry then said at 217G:

“Another way of putting much the same point is to emphasise the possible explanations that there are for a transaction. In the case of an individual, there will often be only two feasible explanations, either that he holds on a true trust, or else that he holds on no trust at all, but at most subject to a mere moral obligation. In the case of the Crown, there is a third possible explanation, namely that there is a trust in the higher sense, or governmental obligation. Though this latter type of obligation is not enforceable in the courts, many other means are available of persuading the Crown to honour its governmental obligations, should it fail to do so ex mero motu [i.e. of its own motion]. This is accordingly no mere moral obligation; and it can provide a satisfactory and probable explanation of a transaction which has been conducted with formalities which suggest that more than a mere moral obligation was intended. Without putting matters on the basis of any “burden of proof”, the existence of this alternative explanation when the alleged trustee is the Crown means that the courts will be ready to adopt it unless there is a sufficient indication that instead a true trust was intended.”

In the present case, submits Pakistan, the court should be particularly ready to find that the transfer into the Account was intended to confer beneficial title to the money on Pakistan, and to give rise to obligations upon Pakistan which were of a purely governmental nature. At a time when Hyderabad was at imminent risk of being overrun by India, it is implausible to suppose that any form of resulting trust for the Nizam was intended; and the Nizam’s subsequent conduct, when he disowned the transfer and claimed it had been made without his authority, may well be explicable on the basis that Hyderabad was by then under Indian control, and he was either no longer a free agent, or his perception of what would be politically advantageous had irrevocably changed. Moreover, given the highly sensitive time at which the transfer was made, it is unsurprising that no contemporary records attest to its true intended nature, which has instead to be inferred from a careful consideration of all the circumstances. Such consideration, submits Pakistan, is wholly unsuitable for summary determination, before disclosure has taken place, before full witness statements have been filed, and before the oral evidence has been tested in cross-examination.

Further colour to Pakistan’s claim is provided by evidence suggesting that money in the second account was used to finance the supply of arms and other military equipment to Hyderabad by, or through the instrumentality of, Pakistan. As I have already said, a reasonable inference to this effect may be drawn from the material which was before the courts in the 1954-1957 proceedings. This material has now been significantly supplemented by further historical evidence collected by Pakistan’s new solicitors, Stephenson Harwood LLP, as described in, and exhibited to, the second witness statement of a partner in the firm, Mr John Michael Fordham.

It is unnecessary for me to review this additional material in detail, but in summary it includes evidence which credibly suggests that in 1948 Pakistan undertook a defence purchase mission to the UK and other European countries, for purposes which included the purchase of weapons for Hyderabad. The governments of Pakistan and Hyderabad then seem to have made arrangements for an English pilot, Mr Frederick Sidney Cotton, to organise an airlift of military material into Hyderabad from Pakistani territory. Mr Cotton was informed that £2 million had been made available by the government of Hyderabad for Pakistan to purchase weapons for Hyderabad, a figure which accords with the amount credited to the second account. In April 1948, Mr Cotton met various representatives of Pakistan in London, including Pakistan’s Defence Secretary (Colonel Mirza) and Mr Shoib. A number of flights were then organised and implemented by Mr Cotton, who purchased the necessary aircraft himself. Pakistan provided housing and maintenance for these aircraft at Karachi. According to a Major Luchwitz, who was a witness for the prosecution when Mr Cotton was later tried in London, on charges relating to the supply of arms and ammunition to Hyderabad, to which he had pleaded guilty, Mr Cotton had conducted some 35 flights from Karachi to Hyderabad up to 10 August 1948, and may have made some 12 to 15 further flights between 10 August 1948 and the end of “Operation Polo” in September of that year. The period during which these flights took place coincided with the payments out of the second account to Mr Shoib, including the £100,000 apparently earmarked for Mr Cotton.

If the second account was being used in this way, submits Pakistan, it must be a plausible inference that the transfer of the balance in the account to Mr Rahimtoola, when Operation Polo was already under way, was intended in one way or another to serve the same purpose, or at least to place the money in friendly hands, and immune from seizure by India. Either way, the probable intention of both Hyderabad and Pakistan, at the time, would have been to confer beneficial title to the funds on Pakistan.

As Mr Fordham says, in paragraph 36 of his second witness statement:

“In the context of a highly secretive relationship between states relating to the purchase and transportation of arms, it is improbable that the parties intended to create legal rights and obligations, let alone a paper trail. Deniability would be a vital requirement, one would expect, in such situations.”

Mr Fordham then refers to a letter sent by the UK Secretary of State for Commonwealth Relations to the Prime Minister (Mr Attlee) on 1 October 1948, at a time when the Indian High Commissioner in London was asking the UK government to intervene in respect of the transfer into the Account. In his letter to the Prime Minister, the Commonwealth Secretary said:

“I am quite confident that, even if we had the power, it would not be proper for us to intervene with the purpose of securing re-transfer of the funds from the Pakistan High Commissioner. That is a matter which must be settled between the Governments of India and Pakistan …

We do not of course know to what use it was intended that the funds should be put by the Pakistan High Commissioner. They may in part be designed as re-payment of monies which (as we know from top secret sources) on three or four occasions in the past three months he was instructed by the Pakistan Government to pay to Hyderabad representatives over here.”

With the benefit of this advice, Mr Attlee replied to the Indian High Commissioner on the same day declining to intervene in the matter.

Pakistan also relies on the evidence of a retired diplomat, Mr Shaharyar Mohammad Khan, who held a number of positions in the Pakistan Foreign Office from 1957 until 1994. His evidence is that he met, and later became friends with, Mir in or around 1957, when he (Mr Khan) was a young diplomat in Paris, and Mir was Pakistan’s ambassador to France. The two of them got on well, and remained in touch, even after Mir’s retirement in the later 1960s. Mr Khan says he first became aware of the present dispute during his time as Third Secretary in the High Commission for Pakistan in London from 1960 until 1962. Before then, his only acquaintance with the case had been as a law student in Cambridge. Mr Khan then says:

“So far as I can recall, from my early interactions with [Mir] onwards, we discussed the Hyderabad Fund matter. I was told by [Mir] that the Nizam was seeking to compensate Pakistan for the assistance which she had provided to Hyderabad and the Nizam.”

Mr Khan also says he was aware, from discussions within his political and social circles, that Pakistan had been assisting in the transfer of arms and other equipment to Hyderabad, and that Mr Cotton had been flying night sorties from Karachi to Hyderabad for that purpose. Mr Khan therefore understood Mir’s reference to the assistance Pakistan had provided to Hyderabad as a reference to such military assistance, as well as to political assistance. Mr Khan adds that, as far as he is aware, this military assistance was not publicly acknowledged, “being a matter of extreme sensitivity”.

In the light of the evidence which I have summarised, and the principles of law relied on by Pakistan, my strong initial inclination would be to hold that Pakistan’s claim to beneficial ownership of the Fund cannot be dismissed as having no real prospect of success, but must go to trial. It seems to me an entirely realistic possibility that the appropriate inference to draw from all the circumstances, when the evidence is complete and has been tested at trial, is that when the transfer was made the governments of both Hyderabad and Pakistan intended Pakistan to own the money beneficially, and specifically not to hold it as a trustee or agent for the Nizam or his government. Nevertheless, India, supported by the Princes, argues strenuously that the issue is not fit to go to trial at all. I must therefore now examine the arguments which India and the Princes say lead to this conclusion.

In the first place, India argues that there is no obstacle to a state assuming obligations as a trustee, provided cogent evidence is available: see Tito v Waddell at 212 A-B. In the present case, it is said, cogent evidence of a trust relationship is indeed available. The 7^th Nizam immediately attempted to countermand the transfer, and in September and November 1948 Moin, the former Finance Minister of Hyderabad who had instigated the transfer, stated that he was willing to obey the Nizam’s signed instructions in relation to the Fund, and had merely taken steps to safeguard it. Further, Mr Rahimtoola held the Fund in a newly opened account separately from his own monies and from any monies beneficially owned by Pakistan. It is hard to see why this would have been necessary or appropriate if Pakistan was intended to take the money beneficially. Nor did Pakistan make any attempt to deal with the Fund between September 1948 and July 1953, and when the Bank then refused to accept Mr Rahimtoola’s instructions, Pakistan did not herself take legal action against the Bank, but let the matter rest.

In the 1954 action, the Nizam denied, in his unchallenged affidavit evidence, that he had ever authorised the transfer of the Fund; and no explicit assertion to the contrary was made by Moin. Indeed, it was not until 2013 that Pakistan for the first time asserted any basis upon which she might have acquired beneficial ownership of the Fund; but the suggestions then made by Pakistan’s legal representatives (see the Discontinuance Judgment at [10]) were never particularised, and have not been pursued.

Furthermore, a very different picture is presented by the evidence of Prince Muffakham Jah, who has filed a witness statement dated 20 August 2015. He says that he grew up in Hyderabad with his elder brother, but when the political situation deteriorated in 1947 their grandfather, the 7^th Nizam, sent them to Europe, and in 1948 they moved to London together with their mother. In about 1949, they took up residence in Hyderabad House, opposite Kensington Palace, which then became the unofficial focal point for people who had emigrated from Hyderabad. At this time, Prince Muffakham Jah was about nine years old. Among the visitors to Hyderabad House from 1949 were both Mir and Moin, and whenever either of them came, the Fund would be mentioned.

Prince Muffakham Jah then says that, during these conversations, his recollection is that one theme was constant: Moin had acted, apparently with the best of intentions, to try to save something for the 7^th Nizam out of the turmoil of annexation. He had therefore taken it upon himself to persuade Sir Zaffrullah Khan to take custody of the Fund, and to hold it on trust for the Nizam until circumstances permitted its return. Prince Muffakham Jah goes on to say:

“It was certainly never suggested in any of the numerous conversations I had (or heard) both at the time and over the years since with those closely and personally involved with the matter that the Funds had been transferred with my grandfather’s authority, whether as a donation, gift, loan, payment for goods, supplies or services or otherwise … I do not recall it ever being said by Moin … that he was acting under my grandfather’s authority. Rather, he was using his initiative in a way he thought was in my grandfather’s interests but turned out in fact to be against my grandfather’s wishes.”

Prince Muffakham Jah also describes an occasion in or about 1958, when he was a student at Oxford University and secretary of the Islamic Society. He had occasion to meet the then High Commissioner of Pakistan, Mr Mohammad Ikramullah, who was the chief guest at a function organised by the Islamic Society. In the course of conversation, Mr Ikramullah referred to the Fund, and said (in Urdu) words meaning: “this money belongs to you people, your family, and has only been kept with us on trust”, for which he used the word “amanat”. Prince Muffakham Jah was impressed by this conversation, because he believed that Mr Ikramullah had been the first Foreign Secretary of Pakistan at the time of partition, and still held that office when the Fund was established.

India and the Princes also rely on the fact that, in the 1954-1957 proceedings, Pakistan advanced no claim to beneficial ownership of the Fund: see the Discontinuance Judgment at [9]. Furthermore, the possibility that Pakistan had become a trustee of the Fund was expressly contemplated by Lord Reid in the House of Lords: see [1958] AC 379 at 400-401, where he said:

“If anyone became a trustee by reason of the fact that to the knowledge of the Finance Minister of Hyderabad [Moin] the appellant [Rahimtoola] took the money as servant or agent of Pakistan, that no beneficial interest is claimed either by Pakistan or the appellant, and that they were later informed that the Nizam’s property had been transferred without his authority, then the trustee must, I think, be the State of Pakistan itself.”

Lord Reid made these comments, however, in the context of rejecting a submission that Mr Rahimtoola himself should be regarded as a trustee. As Lord Reid said, if Mr Rahimtoola acted throughout as the servant or agent of Pakistan, it is hard to see how he could at the same time have become a trustee for someone else.

As to the alleged wider military context, and the suggestion that the transfer of the Fund to Mr Rahimtoola was connected with the supply of arms etc by Pakistan to Hyderabad, India and the Princes submit that the evidence relied on by Pakistan is speculative, unparticularised, and with trivial exceptions unsupported by any contemporary documents emanating from Pakistan, or any clear version of events given by one of the senior Pakistani officials most closely involved, notably Mr Rahimtoola himself and Sir Zafrullah Khan. The evidence of Mr Shaharyar Khan is criticised as being extremely vague, and amounting to no more than speculative inferences derived from conversations with Mir in the distant past. Surely, it is said, if the purpose of the transfer to Mr Rahimtoola had indeed been to compensate Pakistan for particular assistance she had provided to Hyderabad, some proper record of this would survive in the National Archives of Pakistan, if nowhere else, and would have been forthcoming before now if there were any real substance to the allegation.

Some telling points were added by counsel for the Princes. In so far as Pakistan relies upon Mr Fordham’s evidence, Mr Fordham makes no claim to first hand knowledge of the relevant events, and he can do no more than place potentially relevant documentary material before the court and submit that inferences in Pakistan’s favour should be drawn from it. There is no prospect of further relevant material arising from cross-examination of Mr Fordham, and the court is in as good a position at this stage to assess the credibility of the material which he has uncovered as it would be at trial. Furthermore, Mr Fordham’s statement fails to identify any specific terms upon which the Fund was transferred, and the possible explanations advanced by Mr Fordham are mutually inconsistent. If the transfer was made in connection with the supply and/or transportation of arms by Pakistan to Hyderabad, this is in effect an assertion that the money was paid as consideration, but the relevant supplies are nowhere identified. Mr Fordham’s alternative theory is that the transfer was made in order to keep the Fund out of the hands of India, but this analysis is inconsistent with the thesis of payment for supplies, and suggests instead that the Nizam’s servants wished to create a clandestine trust in their sovereign’s favour. There is solid support for that view of the matter in the documentation, and it undermines any suggestion of a beneficial transfer to Pakistan.

Furthermore, there are some obvious differences between the payments made out of the second account in April to June 1948, and the establishment of the Fund in September 1948. The former include an identifiable payment of £100,000 to Mr Cotton, who was evidently involved in the arms trade and the supply of military equipment to Hyderabad. But these sums were not paid into a new account opened for the particular purpose of holding the funds: they were paid straight to Mr Shoib. Nor was any objection made to the payments, whereas Mr Rahimtoola’s evidence was that he objected to the government of Pakistan becoming involved, but his objections were overruled by Sir Zafrullah Khan.

I readily acknowledge that there is much force in many of the arguments advanced by India and the Princes, but in the end they do not persuade me that Pakistan’s claim to beneficial ownership of the Fund is so weak that it can safely be struck out or disposed of by summary judgment against Pakistan. I remind myself that complex cases are usually unsuitable for summary disposal, and of the warnings which have often been given against conducting a mini-trial on the documents without the benefit of disclosure and oral evidence. As Lord Hope said in the Three Rivers case, summary judgment is designed “to deal with cases that are not fit for trial at all”.

The question of beneficial ownership of the Fund is likely to turn on the appropriate inferences to draw from a unique set of events which took place nearly 70 years ago. Those events involved three sovereign states, India, Pakistan and Hyderabad, the first two of which had been newly created by the partition of British India in 1947, and the third of which was under the imminent threat, and then in the actual process, of forcible annexation by India. The political, military and religious tensions between India and Pakistan were probably as acute then as they have been at any subsequent period. Hyderabad, for all her wealth, was landlocked, lacking in military strength, and ruled by an absolute monarch. The circumstances in which the first and second accounts were set up and operated suggest a close connection with the clandestine supply of arms to Hyderabad, by or through the good offices of Pakistan. This is a subject so sensitive that it has never before been openly acknowledged by Pakistan, and little in the way of particularity has been forthcoming to date in the context of the present case.

Nevertheless, the material disclosed in the 1954-1957 proceedings, combined with the researches of Mr Fordham and his team, is sufficient to persuade me that the purpose and operation of the first and second accounts may well turn out to play a central part in the difficult exercise of inferring the true intentions of the 7^th Nizam, Moin, Mir, Mr Rahimtoola and Pakistan when the Fund was established. In making this assessment, the court will obviously have to weigh in the balance the subsequent conduct of the Nizam in disowning the transfer, and the assurances given by Moin, both privately to the Nizam and to the world at large through the columns of The Times. But it may be naïve to assume that either of them was an entirely free agent in the immediate aftermath of the annexation of Hyderabad, or that there may not have been other reasons which made it expedient for them, after the event, to place a different construction on the steps which had been taken to establish the Fund.

In relation to the documentary record, I cannot conclude with any confidence that no further relevant material will be forthcoming on disclosure. It is tempting to assume that Pakistan has already disclosed the most favourable material she can find to support her case, but I have no formal evidence of the searches that were made to uncover the material exhibited to Mr Fordham’s statements, or whether further relevant material might exist in the National Archives of Pakistan, or indeed elsewhere. It is often the case that the documents which a party chooses, or is able, to place before the court when resisting an application for summary judgment will be significantly augmented by disclosure, subject of course to the case management powers of the court.

Since the main individual actors in the drama are now all dead, oral evidence at trial is probably unlikely to form a major part of the material which the court ultimately has to evaluate. Nevertheless, it cannot be ignored, and the evidence of (at least) Prince Muffakham Jah and Mr Shaharyar Khan will need to be tested in cross-examination before the court can conclude whether any reliance should be placed upon it. This is yet another reason why, in my view, Pakistan’s claim to beneficial ownership of the Fund needs to go to trial.

At a more general level, I think it is important to guard against two dangers. The first danger is to look at the present dispute mainly through the prism of the 1954-57 proceedings. Important though they were, the only issue then determined by the courts was Pakistan’s claim to sovereign immunity on the footing that she was indirectly impleaded by the Nizam’s claim against Mr Rahimtoola. Pakistan made no claim to beneficial ownership of the Fund in those proceedings, because she did not need to if her preliminary objection was upheld. I repeat the passage from the speech of Viscount Simonds which I quoted in the Discontinuance Judgment at [9], [1958] AC 379 at 394-395:

“Much stress has been laid on the fact that [Pakistan] has not asserted a beneficial interest in the fund. But why should it? It is not concerned to admit, assert or deny. It has the legal title, which cannot be displaced except by litigation which it is entitled to decline.”

The difference, now, is that Pakistan has irrevocably waived her immunity from suit by starting the present proceedings, so subject to her reliance on the doctrine of act of state, she has to plead and prove a positive case on beneficial ownership. This requires a full examination of the relevant circumstances in 1948, and the evidence which was before the courts in the 1954-1957 proceedings forms only part of a much larger picture.

The second danger is to assume that the solution to the present dispute will necessarily be found by application of principles of English trust law, including in particular the law of resulting trusts. Certainly, such principles may have an important role to play, since the subject matter of the dispute is intangible property situated in England; but it is important not to lose sight of the possibility that the arrangements made in September 1948 were intended by both Hyderabad and Pakistan to operate at a governmental level, and not to give rise to any trust or fiduciary relationship. If that is the right level at which to examine the matter, it seems to me that many of India’s complaints of apparent inconsistency between the ways in which Pakistan puts her claim to beneficial ownership may dissolve, quite apart from the fact that there is normally nothing to prevent a party from pleading inconsistent cases, provided that there is a sufficient evidential foundation for each of them which can properly be verified by a statement of truth.

To conclude, I hope I have now said enough to explain why, in my judgment, Pakistan’s claim to beneficial ownership of the Fund should not be struck out, and needs to go to trial.

I now turn to the second issue identified at [9] above. The question is whether Pakistan’s pleas of non-justiciability and/or act of state, contained in paragraph 19 of her amended particulars of claim, should be struck out or summarily disposed of on the grounds that they have no real prospect of success.

A convenient introduction to this topic is provided by the concluding observations of Lord Denning in his speech in Rahimtoola v Nizam of Hyderabad [1958] AC 379 at 423:

“I would therefore for myself approach this case somewhat broadly and ask whether the dispute is one properly cognizable by our courts: and I would test it by asking what would be the position if the transaction had taken place, not between the Finance Minister of Hyderabad and the Foreign Secretary of Pakistan, but between the Finance Minister of Hyderabad and the Foreign Secretary of Great Britain, and the money had been transferred, not into the name of the High Commissioner of Pakistan, but into the name of a high officer such as a Custodian of Property? Would an action lie in our courts for the return of the money? Clearly not. The transaction was more in the nature of a treaty than a contract or a trust. Reference would be made to such well-known cases as Nabob of the Carnatic v East India Co (1792-3) 2 Ves 56 and Civilian War Claimants Association Ltd v The King [1932] AC 14 to show that no action would lie for money had and received or upon a trust. The court would not listen to an enquiry whether the Finance Minister of Hyderabad had authority to make the transfer. It would say that any representations to that effect must be made to the Crown and not to the courts. If our courts would not in like circumstances entertain an action against our own Government or its agent, they should not entertain an action against the State of Pakistan or its agent. Upjohn J put the point in a sentence when he said: “The present transaction was an inter-governmental transaction; let it be solved by inter-governmental negotiations”. That is the kernel of the matter. I agree with it and would allow the appeal.”

As Lord Denning himself acknowledged in the following paragraph, he had in the course of his opinion “considered some questions and authorities which were not mentioned by counsel”. Much of the passage which I have quoted may well fall into that category, and the other members of the Appellate Committee were at pains to distance themselves from Lord Denning’s excursions into unargued territory: see per Viscount Simonds at 398, Lord Reid at 404, Lord Cohen at 410 and Lord Somervell at 410. Nevertheless, I find the analogy drawn by Lord Denning an illuminating one, and the principle of non-justiciability to which he referred was by no means an invention of his own. It is one aspect of the rather Protean doctrine of act of state. Furthermore, it was, for Lord Denning, the conclusive consideration in upholding Pakistan’s claim to sovereign immunity: see his speech at 421-422.

The type of act of state which may be relevant in the present context is described as follows in Dicey, Morris & Collins, The Conflict of Laws, 15^th edition, at paragraph 5-045:

“The expression “act of state” is also used in connection with the executive and legislative acts of foreign States. The expression is found in several contexts, and it may not be possible to extract a general principle which will apply to all of them. One line of authorities (concerning the rights of inhabitants of ceded territory) indicates that the English courts will not investigate the propriety of an act of a foreign government performed in the course of its relations with another State or to enforce any right alleged to have been created by such an act.”

The first case cited in the footnote to that paragraph is Cook v Sprigg [1899] AC 572, where Lord Halsbury LC, speaking for the Privy Council, said at 578:

“It is a well-established principle of law that the transactions of independent States between each other are governed by other laws than those which municipal courts administer.”

As Lord Halsbury then explained:

“It is no answer to say that by the ordinary principles of international law private property is respected by the sovereign which accepts the cession and assumes the duties and legal obligations of the former sovereign with respect to such private property within the ceded territory. All that can be properly meant by such a proposition is that according to the well-understood rules of international law a change of sovereignty by cession ought not to affect private property, but no municipal tribunal has authority to enforce such an obligation. And if there is either an express or a well understood bargain between the ceding potentate and the Government to which the cession is made that private property shall be respected, that is only a bargain which can be enforced by sovereign against sovereign in the ordinary course of diplomatic pressure.”

In Buttes Gas v Hammer [1982] AC 888, Lord Wilberforce, delivering the only reasoned speech after 12 days of legal argument, conducted an authoritative review of the doctrine of “act of state” in English law. At 931G, he said the essential question was whether, apart from established particular rules, “there exists in English law a more general principle that the courts will not adjudicate upon the transactions of foreign sovereign states”. He continued:

“Though I would prefer to avoid argument on terminology, it seems desirable to consider this principle, if existing, not as a variety of “act of state” but one for judicial restraint or abstention. The respondents’ argument was that although there may have been traces of such a general principle, it has now been crystallised into particular rules (such as those I have mentioned) within one of which the appellants must bring the case – or fail. The Nile, once separated into a multi-channel delta, cannot be reconstituted.

In my opinion there is, and for long has been, such a general principle, starting in English law, adopted and generalised in the law of the United States of America which is effective and compelling in English courts. This principle is not one of discretion, but is inherent in the very nature of the judicial process.”

After tracing the early history of the principle, Lord Wilberforce referred at 933F to Cook v Sprigg, saying of it (and a similar decision of the Privy Council in 1859):

“These authorities carry the doctrine of non-justiciability into a wider area of transactions in the international field.”

The editors of Dicey, Morris & Collins comment, at paragraph 5-052, that the principle stated by Lord Wilberforce “was very wide in potential scope”, and although it has been relied upon by litigants in many reported cases, it has “only very rarely been applied so as to render a claim non-justiciable”. For present purposes, however, the important point is the potential breadth of the principle, and the absolute nature of the jurisdictional bar which it imposes if the court concludes that it has been properly invoked. Moreover, the Supreme Court, in its recent review of non-justiciable issues in Shergill v Khaira [2014] UKSC 33, [2015] AC 359, recognised at [42] as “paradigm cases” where an issue is inherently unsuitable for judicial determination “the non-justiciability of certain transactions of foreign states”. The court went on to observe that Buttes Gas was the leading case in this category, “although the boundaries of the category of “transactions” of states which will engage the doctrine now are a good deal less clear today then they seemed to be 40 years ago”.

In recent years, the doctrine of act of state/non-justiciability has also been considered by the Court of Appeal in two important cases. They are Yukos Capital Sarl v OJSC Rosneft Oil Co (No. 2) [2012] EWCA Civ 855, [2014] QB 458, and Belhaj v Straw [2014] EWCA Civ 1394, [2015] 2 WLR 1105. The decision of the Court of Appeal in Belhaj is itself under appeal to the Supreme Court, which heard argument on the appeal from 9 to 12 November 2015, but has yet to deliver its judgment. Since a comprehensive review of the whole subject by the Supreme Court may be expected in the near future, I will confine myself to citing a few key passages from the two Court of Appeal judgments which I have mentioned, while observing that this is self-evidently an area of law which is still in the course of development by English Courts at the highest level. This factor alone would normally be a powerful reason in favour of permitting Pakistan’s reliance on the doctrine to go to trial.

In the Yukos case, the judgment of the court was delivered by Rix LJ. After reviewing developments in the case law at the highest level since Buttes Gas, the court concluded at [66]:

“In sum, it seems to us that Lord Wilberforce’s principle of “non-justiciability” has, on the whole, not come through as a doctrine separate from the act of state principle itself, but rather has to a large extent subsumed it as the paradigm restatement of that principle. It would seem that, generally speaking, the doctrine is confined to acts of state within the territory of the sovereign, but in special and perhaps exceptional circumstances, such as in the Buttes Gas case itself, may even go beyond territorial boundaries and for that very reason give rise to issues which have to be recognised as non-justiciable. The various formulations of the paradigm principle are apparently wide, and prevent adjudication on the validity, legality, lawfulness, acceptability or motives of state actors. It is a form of immunity ratione materiae, closely connected with analogous doctrines of sovereign immunity and, although a domestic doctrine of English (and American) law, is founded on analogous concepts of international law, both public and private, and of the comity of nations. It has been applied in a wide variety of situations, but often arises by way of defence or riposte: as where a dispossessed owner sues in respect of his property, the defendant relies on a foreign act of state as altering title to that property, and the claimant is prevented from calling into question the effectiveness of that act of state.”

The court then went on to consider a number of established or developing limitations on the act of state doctrine, none of which appears to be of any obvious relevance in the present case apart from the principle of territoriality, to which I will return below.

In Belhaj v Straw, the judgment of the court (principally drafted by Lloyd Jones LJ) was delivered by Lord Dyson MR. At [55], the court adopted the analysis and conclusions in the Yukos case, which it took as the starting point for its own discussion. The court then considered the rationale of the act of state doctrine at [56] to [68]. After discussing the observations on the doctrine made by the Supreme Court in Shergill v Khaira, the differing grounds upon which the rationale of the doctrine has been expounded by the US Supreme Court, and the emphasis in many cases in this jurisdiction on the sovereign equality of states as a foundation of the principle, the court expressed its conclusions as follows:

“67.

We consider therefore that the act of state doctrine, as it has developed in this jurisdiction, is founded on the principle of the sovereign equality of states and, subject to the qualifications mentioned above, the principle of international comity. While we would accept that, given its extraordinary facts, the Buttes Gas case [1982] AC 888 itself may well be explained in terms of a lack of judicial competence arising from the separation of powers and limits of the judicial function, we do not consider that the act of state doctrine is limited to such situations, nor do we understand this to be suggested by the Supreme Court in Shergill v Khaira [2015] AC 359. In the Kuwait Airways Corpn (Nos 4 and 5) case [2002] 2 AC 883, for example, there was no lack of judicial competence arising from the separation of powers or, indeed, any lack of manageable standards. Nevertheless the House of Lords felt constrained to consider whether the proceedings could be brought within an exception to the act of state doctrine before it could permit the rights asserted there to be the basis of proceedings in this jurisdiction. The same point can be made of the Yukos case [2014] QB 458. More fundamentally, there could be no exception to the act of state doctrine, for example on grounds of violations of human rights or international law, if its basis is a lack of judicial competence. Yet, the existence of such exceptions is well established.

68.

For these reasons we approach this appeal on the basis of the principles stated in the Buttes Gas and Kuwait Airways Corpn (Nos 4 and 5) cases as helpfully explained in the light of later developments by this court in the Yukos case. In particular, the plea of act of state is not limited to cases where there is a lack of judicial competence arising from the separation of powers. A wider rule of law, as expressed most recently in the Yukos case, may result in a refusal by the English courts to permit the vindication of rights in certain situation in which the validity or legality of certain acts of foreign states and their agents are directly challenged.”

The court discussed the territoriality limitation at [127] to [133]. After referring to observations by the Court of Appeal in the Kuwait Airways and Yukos cases, the court acknowledged at [131]:

“It may well be that, to the extent that a plea of non-justiciability relates to a subject matter which is essentially concerned with the transactions of states on the international plane, questions of territoriality will not always be material. Indeed, in the case of such activities it may often be difficult to locate with precision where different elements of the transactions took place.”

The court did not expand on these comments, because transactions of that kind were not in issue in the Belhaj case. They are highly pertinent, however, to the present case, and suffice to make it clear, in my judgment, that the potential applicability of the doctrine to the transactions which led to the opening of the Account in London cannot be ruled out, on a summary basis, merely because the relevant transactions did not all take place within the sovereign territories of Pakistan and/or Hyderabad. Indeed, if the true basis of this part of the doctrine lies in the essential non-justiciability of transactions at governmental level, I have some difficulty in understanding why territoriality, as such, should have any part to play in the determination of the issue. What matters is the nature and quality of the transactions in question, not where they took place.

It will be apparent from what I have already said on Issue (1) that I am not prepared, at this stage, to rule out the possibility that the relevant transactions were indeed conducted at governmental level, and thus fall within the potential scope of the act of state doctrine. Is there, then, any reason why Pakistan should be precluded from relying on the doctrine and asking the court to decline to rule on the question of beneficial ownership of the Fund? India and the Princes submit that there are indeed a number of such reasons, which I must now consider.

One such reason, which India places at the forefront of her submissions, is that the present proceedings have been begun by Pakistan, the very party which now wishes to bring the proceedings to an end by invoking the doctrine of act of state. Having tried, and failed, to reinstate the historical stalemate by service of the notice of discontinuance, Pakistan is now seeking to achieve the same objectives by different means; and since Pakistan irrevocably waived her sovereign immunity by starting the present action, it is an abuse of process for Pakistan to seek to prevent adjudication by the court upon the issue which she has herself brought before it.

The difficulty with this submission, in my judgment, is that, whereas sovereign immunity is capable of being waived, the principle of act of state or non-justiciability is not. If the court lacks jurisdiction to determine an issue, such jurisdiction cannot be conferred upon it by the parties, and the court is in principle obliged to investigate the question itself even if the parties do not wish to do so, or even if it would otherwise be an abuse of process for a party to ask the court to do so. There are clear statements, at the highest level, of the critical difference, in this respect, between the doctrines of sovereign immunity and act of state. Thus, as Lord Millett explained in R v Bow Street Magistrates, Ex p. Pinochet (No. 3) [2000] 1 AC 147 at 269H:

“As I understand the difference between them, state immunity is a creature of international law and operates as a plea in bar to the jurisdiction of the national court, whereas the act of state doctrine is a rule of domestic law which holds the national court incompetent to adjudicate upon the lawfulness of the sovereign acts of a foreign state.”

In other words, sovereign immunity operates as a procedural bar, which the party entitled to invoke it may waive, whereas the doctrine of act of state goes to the substantive adjudicative competence of the court.

At an earlier stage of the Pinochet litigation, the distinction was stated even more explicitly by Lord Lloyd of Berwick in R v Bow Street Magistrates, Ex p. Pinochet [2002] 1 AC 61 at 90B:

“The principles of sovereign immunity and non-justiciability overlap in practice. But in legal theory they are separate. State immunity, including head of state immunity, is a principle of public international law. It creates a procedural bar to the jurisdiction of the court. Logically therefore it comes first. Non-justiciability is a principle of private international law. It goes to the substance of the issues to be decided. It requires the court to withdraw from adjudication on the grounds that the issues are such as the court is not competent to decide. State immunity, being a procedural bar to the jurisdiction of the court, can be waived by the state. Non-justiciability, being a substantive bar to adjudication, cannot.”

Since the question goes to jurisdiction, it cannot in my view be an abuse of process for Pakistan to raise it. It is a question which the court would anyway have to consider for itself, in the light of all the evidence at trial, as a threshold issue before ruling on the rival claims to beneficial ownership of the Fund. Pakistan has rightly not sought summary determination of the question in her favour, or determination of it as a preliminary issue, precisely because the correct interpretation to place upon the transactions can only be determined at trial. It is a question with which the court will then have to grapple; and, if the court then concludes that the issue is non-justiciable, it seems that Pakistan’s right to the Fund will then be indefeasible, because no action can be taken in a municipal court to displace her legal title (through Mr Rahimtoola and his successors) to the Fund. Looked at in this way, the plea is one of the methods by which Pakistan seeks to eliminate rival claims to the Fund. Accordingly, there is no fatal inconsistency between the plea and her conduct in initiating the present proceedings. It is one of the routes by which Pakistan hopes to end up victorious.

I would, in any event, not regard it as an abuse of process for Pakistan to raise the plea in the present proceedings, having failed to raise it in the 1954-1957 proceedings. At that stage, Pakistan (through Mr Rahimtoola) took her stand on the procedural bar of sovereign immunity. If that plea succeeded, as it did, there was no reason why Pakistan had to go on to set out either her positive claim to beneficial ownership of the Fund, or any rule of substantive law (such as act of state) which might prevent the English court from adjudicating upon the issue. The position is therefore quite different from the abusive conduct of which Pakistan was, in my view, guilty in first waiving her sovereign immunity so as to start the present proceedings, and then seeking to discontinue them.

A final point raised by India was that the doctrine of act of state cannot apply, because Hyderabad has not existed since 26 January 1950 and no other party objects to the court dealing with the claim. There are at least two answers to this contention. The first is that Hyderabad did not cease to exist in January 1950, at any rate for all purposes, because it was subsequently a plaintiff in the 1954 proceedings; and, as late as 27 October 1956, it was a party to a deed of assignment, whereby the State of Hyderabad released and assigned to the 7^th Nizam all its claims and title to the Fund. The second answer is that any subsequent dissolution of Hyderabad is irrelevant, or at least is arguably irrelevant, with reasonable prospects of success, because the doctrine of act of state has to be applied to the facts as they were at the time of the disputed transactions. The non-justiciable character of an inter-governmental transaction cannot be altered merely because one of the states in question has subsequently ceased to exist.

For all these reasons, I do not consider that the plea in paragraph 19 of Pakistan’s amended particulars of claim should be struck out, and I would therefore determine Issue (2) in Pakistan’s favour.

The question to which I now turn is whether the limitation defences invoked by Pakistan against India and the Princes involve an abuse of the process of the court, and should for that reason be struck out. This is the relief sought in the applications by India and the Princes dated 6 January 2016.

In Pakistan’s reply and defence to India’s defence and counterclaim, the limitation defence is pleaded as follows:

“35.

If, contrary to the above, India would otherwise have a claim, any claim is barred by the provisions of the Limitation Act 1939 or the Limitation Act 1980; alternatively (if, contrary to the Claimant’s primary case, these Acts do not bar all India’s alleged claims) the equitable doctrine of laches [applies]: see paragraph 3(c), (d) above.”

Paragraph 3(c) is in fact concerned with the Limitation Acts, and adds nothing to paragraph 35. Paragraph 3(d), however, does deal with laches, as follows:

“(d)

If, contrary to (c), any of India’s alleged claims are not statute barred they are barred under the doctrine of laches. India failed to bring a claim within a reasonable time period following the transfer of the Monies. On the contrary, India made no claim in respect of the Monies in the proceedings brought in 1954 (“the 1954 Action”); and indeed expressly disclaimed any claim. Although India now also relies upon a purported 1965 assignment in relation to its claim, India’s case is that any claim in respect of the Monies was state property at all material times. Although the State of Hyderabad was initially the second plaintiff in the 1954 Action, she ceased to be a party during the course of the proceedings, having assigned any rights she may have to the Nizam personally, not to India or any Indian state, as further described below.”

The limitation defence pleaded by Pakistan against the Princes is similar to the defence pleaded against India, but without the addition of an alternative plea of laches.

In her application notice, India explains the summary relief which she seeks as follows:

“Pakistan’s case on limitation and laches has no real prospects of success, as no action could be commenced in respect of the Fund by reason of the sovereign immunity that Pakistan had successfully claimed in the 1954 Action, and India’s claims are based on an assignment made by the 7^th Nizam, and if and to the extent necessary on a further assignment by the Princes, both made during the period when Pakistan prevented a judicial determination of this dispute. It is an abuse of the process of the court, further and alternatively contrary to law, for Pakistan to contend that time ran against any person claiming in right of the 7^th Nizam, including India during that period.”

These contentions were elaborated by India in her written and oral submissions. I have already dealt with the power of the court to strike out a statement of case for abuse of process, and the potential width of that concept: see [16] to [19] above. With regard to the facts, India stresses the following points:

India also points out that no party other than Pakistan has pleaded any kind of limitation defence, including in particular the Bank which has recently expressly confirmed in correspondence that it will not raise any defence of limitation or laches in respect of India’s claims against the Bank.

On behalf of the Princes, some arguments of a more general nature are also advanced. A defence of limitation is voluntary, in the sense that a defendant can choose whether or not to raise it. A defendant who considers it unconscionable to take advantage of the lapse of time need not do so: see McGee, Limitation periods, 7^th edition, paragraph 2.029. Furthermore, a plea of limitation (with immaterial exceptions) does not extinguish the claimant’s rights, but merely bars the remedy which is sought. It is therefore a procedural, rather than a substantive, defence: see McGee at 2.025 and 2.029. Accordingly, there is no reason in principle why a party’s decision to invoke the defence should be immune from the power of the court to control its procedure and prevent it from being abused.

As to the policy considerations which justify the limitation of actions, these fall into three broad categories (see McGee at 1.043):

Also often cited in this context is the statement of Lord Atkinson in Board of Trade v Cayzer, Irvine & Co [1927] AC 610 (HL) at 628:

“The whole purpose of the Limitation Act is to apply to persons who have good causes of action which they could, if so disposed, enforce, and to deprive them of the power of enforcing them after they have lain for a number of years respectively and omitted to enforce them. They are thus deprived of the remedy which they have omitted to use.”

The Princes submit that none of these policy considerations applies in the present case. It cannot be said to be unfair for Pakistan to have to respond to the claims of India and the Princes on their merits, when it is Pakistan’s own conduct which has prevented the proceedings from being pursued and resolved earlier. Unless and until Pakistan chose to waive her sovereign immunity, India and the Princes were unable to pursue their claims, and they cannot therefore be blamed for their failure to do so. To the extent that the claims are now more difficult to prove than they would have been 60 years ago, that is again Pakistan’s fault and she cannot rely on difficulties exclusively caused by her own conduct.

The Princes also have an argument of a more technical nature. They submit that, if a statute of limitation were to apply at all, it would be the Limitation Act 1939, not the Limitation Act 1980. The reason for this is that any applicable limitation period would have expired before the commencement of the 1980 Act, which itself provides (by paragraph 9(1) of Schedule 2) that nothing in the 1980 Act will enable an action to be brought which was barred by the 1939 Act. The significance of this point, for present purposes, is that, if the 1980 Act applied, it might be possible for India or the Princes to apply to be joined to the 1954 proceedings, and to lift the stay on those proceedings for the purposes of bringing a claim against Pakistan in reliance on the procedure provided by section 35 of the 1980 Act and CPR rule 19.5, with the result that the claim would then be treated as having been brought against Pakistan in 1954. I express no view on the question whether the doctrine of relation back in section 35 of the 1980 Act could in principle be successfully invoked by India and the Princes in the circumstances of the present case. What matters is that no similar possibility would be available if the position is governed by the 1939 Act, because it contained no equivalent of section 35 enabling a change of parties with retrospective effect after the expiry of a limitation period. In Ketteman v Hansel [1987] AC 189, the House of Lords confirmed that, under the law as it stood before 1980, a person added as a defendant did not become a party until the writ had been served on him, and his joinder could not be treated as having retrospective effect. It follows that any new claim made against Pakistan in the context of the 1954 proceedings would be treated as having been brought in 2016 rather than 1954.

In response to these submissions, Pakistan’s starting point is that the question of limitation is comprehensively governed by the Limitation Acts, which express Parliament’s considered view of how best to reconcile the competing policy considerations in play. There is accordingly no scope for the statutory code to be set aside or modified by exercise of judicial discretion.

In support of this submission, Pakistan relies on the judgment of Ouseley J in Chagos Islanders v The Attorney General and Her Majesty’s British Indian Ocean Territory Commissioner [2003] EWHC 2222 (QB) at [599], where he dismissed as unarguable the proposition that “the Court could suspend the effect of the Act where it would be unconscionable to allow the Defendants to rely upon it”. Ouseley J said that there was:

“… no basis upon which a court could decide that a statute could be removed from the arena to which its language made it apply, simply because a court thought that it would be unconscionable to allow a party to rely upon the rights which Parliament had given him. The 1980 Act is quite explicit in prohibiting the bringing of a cause of action after the relevant time limit, and has made varied and explicit provisions for the circumstances in which time should not run against a Claimant or should be extended. That represents the Parliamentary view of where it would be wrong to allow a Defendant to take advantage of the passage of time and marks the balancing of the interests of finality in litigation and fairness to a Claimant.”

The claimants’ application for permission to appeal in that case was refused by the Court of Appeal: see [2004] EWCA Civ 997. In view of the importance of the issues, the court directed that its judgment should be free from the usual restraints on reporting. The judgment of the court was delivered by Sedley LJ, and dealt with issues of limitation at [43] to [53]. In relation to unconscionability, the court said this:

“45.

The claimants’ first argument is that it would be unconscionable for the defendants to be allowed to rely on limitation. We consider that the judge was very probably right in rejecting this argument as a matter of principle, on the grounds that the Limitation Act 1980 is intended to provide a complete code, including the circumstances in which it is unconscionable for a defendant to seek to invoke limitation, and that it is simply not open to the courts to seek to circumvent the effect of the 1980 Act by adding fresh grounds.

46.

However, it is plainly possible for a defendant validly to contract not to take a limitation point, or to estop himself from taking a limitation point. Particularly bearing in mind the basis of estoppel, it is, we think, conceivable that a court may be prepared to hold that, by his conduct, a defendant had rendered it so inequitable for him to take [a] limitation point that the court will effectively not permit him to do so. In the present case, the claimants would seek to argue that, by the very actions complained of in these proceedings, namely removing them to Mauritius, and leaving them in a position where they were poor, ignorant, and without recourse to the courts, the UK government and its representatives cannot now be heard to say that the claimants have lost their right to seek relief promptly where the delay is due to these very circumstances.”

The court went on to hold that, even assuming such a proposition to be arguable, the claims nevertheless faced insuperable obstacles and therefore could not succeed.

In a similar way, submits Pakistan, there can be no scope for a judicial discretion to set aside the operation of the Limitation Acts on the ground of alleged abuse of process. This would be inconsistent with the comprehensive statutory regime governing limitation, and no authority to that effect exists.

If, contrary to her primary submission, there is scope for the principle of abuse of process to operate in relation to her limitation defences, Pakistan next submits that her conduct has not been abusive in any of the ways suggested. First, Pakistan submits there can be no substance in the suggestion that she cynically asserted her sovereign immunity with a view to subsequently asserting her rights under the Limitation Acts. Had that been her intention, Pakistan would never have sought to discontinue the proceedings which she began in 2013. Nor would she have waited for such a long time before commencing those proceedings.

Secondly, if it be suggested that the abuse lies in Pakistan’s invocation of sovereign immunity at a time when no limitation defence could be advanced, the answer is that Pakistan, as a sovereign state, was fully entitled to invoke her immunity in the 1954 proceedings. To treat the invocation of immunity as forming part of a course of abusive conduct would be inconsistent with the immunity. The real complaint of India and the Princes, says Pakistan, is that the Limitation Acts do not make special provision for an extension of time in cases where sovereign immunity is invoked. The introduction of such an extension would be a matter for Parliament alone, and it would be wrong for the court to circumvent the statutory scheme by stigmatising Pakistan’s conduct as an abuse of process in order to achieve an equivalent result.

In evaluating these submissions, I begin with the important point that limitation defences, although enacted by Parliament, are both permissive (in the sense that they do not have to be invoked, and a party may contract not to invoke them, or may be estopped from doing so) and procedural in nature. Except in relation to actions for the recovery of land, expiry of a limitation period does not bar the underlying substantive legal right, but only bars the claimant’s remedy if the defendant chooses to invoke the defence. It follows that a defendant who wishes to rely on a limitation defence must normally plead it, as Pakistan has done in the present case.

These well established features of the law of limitation show, to my mind, that the statutory scheme of the Limitation Act cannot be regarded as exhaustive in every respect. It is certainly the case that the limitation periods prescribed by Parliament, and the circumstances in which they may be extended, are comprehensively stated, and will apply accordingly if (as will usually be the case) a defendant wishes to take advantage of them. It is also true that the statutory scheme is underpinned by policy considerations of the kind I have mentioned. But the scheme is not a compulsory one; and if a person can contract out of it, or act in such a way as to be estopped from relying upon it, it seems to me only a small step to hold that, in principle, it could be an abuse of the process of the court for a defendant to rely on a particular limitation defence. The categories of abuse of process are not closed, and the inherent power of the court to control its own procedure should not be whittled down unless there are compelling grounds for doing so.

I find some encouragement for this approach in the judgment of the Court of Appeal refusing permission to appeal to it in the Chagos Islanders case: see [108] above. Although the court held that Ouseley J was “very probably right” in rejecting the claimants’ challenge to the defendants’ limitation case on the ground of unconscionability, the court clearly contemplated that there might at least arguably be circumstances in which it would be inequitable for a defendant to take a limitation point, and that the court would then prevent him from doing so. The implication of the judgment, in my view, is that the court might well have granted permission to appeal on this question, had the claim not faced insuperable difficulties even if the argument were accepted.

My inclination, therefore, would be to hold that it is in principle open to India and the Princes to argue that Pakistan’s limitation defences are abusive, and the court should not permit her to rely on them. If the court can properly entertain the question, I would then see very considerable force in the argument that Pakistan’s conduct in pleading the defences was indeed abusive. The abuse would lie in Pakistan’s reliance upon limitation to defeat claims which she had herself prevented from being pursued within the relevant limitation periods by her invocation of sovereign immunity. It is important to observe that the abuse would lie, not in Pakistan’s original decision to plead sovereign immunity, nor in her subsequent decision to waive that immunity by starting the present proceedings, but only in the reliance upon limitation defences to defeat claims which she had herself prevented from being begun in time.

It would be no objection to such an analysis, I think, that, once she had invoked her sovereign immunity, Pakistan was in principle able to defer adjudication upon the merits of the dispute indefinitely, and certainly until long after the expiry of any relevant limitation period. The point is, rather, that, once Pakistan had deliberately brought this state of affairs into existence, it would be an abuse of process for her to initiate proceedings for the purpose of resolving the dispute, but then rely on a defence which owed its existence to the immunity which she had now waived. Unless implicitly excluded by the statutory scheme of the Limitation Acts, a challenge to Pakistan’s limitation defences on these grounds would in my view, at the lowest, have good prospects of success.

The question remains, however, whether I should determine the question on a summary basis at this early stage of the present litigation, or leave it to be determined at trial. From one point of view, I am probably in as good a position now to determine the question as the trial judge would be, because it involves a short (though far from easy) question of law about the scope of the Limitation Acts and whether there is room for the doctrine of abuse of process to apply, while the underlying facts which arguably make Pakistan’s conduct abusive are matters of procedural history which cannot be controverted and are unlikely to have further light shed upon them by disclosure or oral evidence. On the other hand, if I were now to accede to the applications of India and the Princes, and strike out Pakistan’s limitation defences, an appeal by Pakistan on (at least) the issue of law would almost certainly follow, and the trial of the action would be delayed while the appeal made its way to the Court of Appeal, and possibly thence to the Supreme Court. I prefer, therefore, to defer reaching a conclusion on this aspect of the matter until after I have considered Pakistan’s cross-application against India and the Princes, that is to say her application for summary judgment against them on limitation grounds. If I were to find that the cross-applications were well founded, on the assumption that Pakistan was permitted to rely on her limitation defences, it would clearly be appropriate for me to decide the present issue. But if I were to hold that summary judgment should be refused on the cross-application, with the result that the claims of Pakistan, India and the Princes all have to go to trial, the overall picture would look very different, and as a matter of case management the preferable solution might well be to leave all questions of limitation to be decided at the trial.

I therefore now turn to Issue (4), which asks whether Pakistan’s limitation defences (assuming them to be available to her) have any substantive merit.

Pakistan seeks summary judgment and/or strike out relief against India and the Princes on the basis that their claims to the Fund have no reasonable prospect of success because they are barred by sections 5 and 21(3) of the Limitation Act 1980 (or, alternatively, by sections 2(1)(a) and 19(2) of the Limitation Act 1939). Pakistan has not sought determination of these limitation points as a preliminary issue, so the principles which are engaged are those relating to summary determination. If it is arguable, with a real prospect of success, that the claims are not time-barred, they must go to trial. As I have already explained, this part of my judgment proceeds on the assumption that Pakistan is not precluded from reliance on her limitation defences on grounds of abuse of process.

The trust claims

So far as material, section 21 of the Limitation Act 1980 provides as follows:

“(1)

No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action –

(a)

in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b)

to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.

(2)

…

(3)

Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued.

…”

The relevant provisions of section 19 of the 1939 Act were to the same effect, and I need not set them out.

In broad terms, India and the Princes plead their claims to the Fund on the basis of either a resulting trust, or a constructive trust. They have maintained their claims based on a resulting trust from the outset, but the constructive trust claims were pleaded for the first time by way of amendment in response to Pakistan’s limitation defences. No objection is taken by Pakistan to these amendments.

Thus, in paragraph 106 of her amended defence and counterclaim, India pleads that:

“(i)

In the circumstances in which the transfer was made from the Hyderabad Government Account to the Rahimtoola Account, the chose in action represented by the Rahimtoola Account has at all times thereafter been held by Pakistan as trustee for its true beneficial owner. Pakistan became trustee under a resulting trust, alternatively a constructive trust, alternatively as trustee de son tort.”

Particulars are then pleaded in support of the allegation that Pakistan held the chose in action represented by the Account upon trust for the true owner of the Fund, including the fact that the money was immediately placed in a newly opened account held by Mr Rahimtoola separately from his own monies and from any monies beneficially owned by Pakistan.

Similarly, the amended defence and claim of the 8^th Nizam pleads as follows, in paragraphs 13 and 13A:

“13.

In the premises:

(a)

Moin was not authorised to transfer the Fund to Rahimtoola;

(b)

Moin was not authorised to make a gift of the Fund;

(c)

Moin in any event did not intend to make a gift to Rahimtoola or Pakistan;

(d)

Moin transferred the Fund to Rahimtoola to hold on behalf of the 7^th Nizam;

(e)

Rahimtoola received the Fund as a volunteer and for no consideration and as trustee for the 7^th Nizam;

(f)

the beneficial ownership of the Fund remained in the 7^th Nizam before and after the transfer to Rahimtoola; and

(g)

Rahimtoola and Pakistan have been on notice of the 7^th Nizam’s interest in the Fund at all times from the transfer of the Fund to the Rahimtoola Account, and in any event since at least 17 May 1954.

13A. Accordingly, Rahimtoola or Pakistan received the Fund on trust, whether a resulting trust, an institutional constructive trust, as a trustee de son tort or otherwise, for the 7^th Nizam. The Fund has been held at all times since on trust for the true owner of the Fund.”

Similar claims are also made in paragraphs 13A and 16(a) of the amended defence and claim of Prince Muffakham Jah.

It has been clear law for a long time that a claim by a settlor or transferor to recover money held on a resulting trust falls within the scope of section 21(1) of the 1980 Act, and is therefore not subject to any statutory limitation period. Pakistan did not seek to argue the contrary, in either her written or her oral submissions. So far as concerns constructive trusts, it is now equally clear that no period of limitation applies to constructive trusts of the first kind identified by the majority of the Supreme Court (Lord Sumption, Lord Hughes and Lord Neuberger) in Williams v Central Bank of Nigeria [2014] UKSC 10, [2014] AC 1189. The distinction between institutional constructive trusts of this kind, and remedial constructive trusts in cases of ancillary liability, was articulated by Lord Sumption at [9], drawing on the influential earlier observations of Millett LJ (as he then was) in Paragon Finance Plc v D B Thakerar & Co [1999] 1 All ER 400 at 408-9. Again, Mr Brettler (who argued this part of the case for Pakistan) expressly accepted in his oral submissions that no period of limitation applies to a constructive trust of the first kind if it is properly pleaded.

Lord Sumption described the characteristics of the first kind of constructive trust, in Williams at [9], as comprising:

“… persons who have lawfully assumed fiduciary obligations in relation to trust property, but without a formal appointment. They may be trustees de son tort, who without having been properly appointed, assume to act in the administration of the trusts as if they had been; or trustees under trusts implied from the common intention to be inferred from the conduct of the parties, but never formally created as such. These people can conveniently be called de facto trustees. They intended to act as trustees, if only as a matter of objective construction of their acts. They are true trustees, and if the assets are not applied in accordance with the trust, equity will enforce the obligations that they have assumed by virtue of their status exactly as if they had been appointed by deed.”

Lord Sumption then distinguished the second type of constructive trust, (ibid):

“In its second meaning, the phrase “constructive trustee” refers to something else. It comprises persons who never assumed and never intended to assume the status of a trustee, whether formally or informally, but have exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets. Either they have dishonestly assisted in a misapplication of the funds by the trustee, or they have received trust assets knowing that the transfer to them was a breach of trust. In either case, they may be required by equity to account as if they were trustees or fiduciaries, although they are not. These can conveniently be called cases of ancillary liability. The intervention of equity in such cases does not reflect any pre-existing obligation but comes about solely because of the misapplication of the assets. It is purely remedial. The distinction between these two categories is not just a matter of the chronology of events leading to liability. It is fundamental.”

In the light of these well established principles, Mr Brettler was constrained to argue that the six year limitation period in section 21(3) of the 1980 Act nevertheless applied to the trust claims of India and the Princes because they had not properly pleaded either a presumed resulting trust or a constructive trust of the first kind. With all respect to Mr Brettler, this was in my judgment a hopeless endeavour. With regard to the resulting trust claims, the argument faces the obvious difficulty that in the 1954-1957 proceedings the possibility of a resulting trust analysis was clearly contemplated by judges at all levels. Perhaps the clearest instance of this may be found in the judgment of Romer LJ in the Court of Appeal, where he said ([1957] Ch 185 at 245):

“The position, therefore, after the new account was opened in Rahimtoola’s name would appear to be as follows: (a) The legal title to the credit balance on the account was vested in Rahimtoola; (b) as he took such title as the servant or agent of Pakistan that State had the right to control Rahimtoola in the disposition of the legal title and to call upon him to transfer it to the State or as it should direct; and (c) the entire beneficial interest in the fund remained in the plaintiffs under and by virtue of a resulting trust.”

The only basis upon which Mr Brettler was able to challenge this as a possible analysis of the facts was that, according to India and the Princes, the transfer of the money by Moin had never been authorised by the 7^th Nizam. I am unable to see, however, why that circumstance, assuming it to be established, should negative the existence of a resulting trust. It simply reinforces the point that the money was transferred without any intention on the part of the 7^th Nizam to part with beneficial title to it. Where a voluntary transfer of property is made by a person to a stranger, without consideration and without the intention to make a gift, there is a presumption of resulting trust. The position must surely be the same if, in addition, the transfer is made through an agent who has ostensible, but not actual, authority to transfer the property to the stranger.

With regard to the constructive trust analysis, Mr Brettler argued that, properly understood, the pleaded claims of India and the Princes fell into the second category identified in Williams, again because of the unauthorised nature of transfer. But that cannot be right. It is not alleged that Pakistan dishonestly participated in any breach of trust, or that she received the money with knowledge that it was being transferred without the 7^th Nizam’s authority. On this way of putting the case, India and the Princes say that Pakistan received the money in good faith, and intended to constitute herself a trustee of it by placing it in a separate account and holding it for the 7^th Nizam’s benefit. If that is the correct interpretation of the facts, the constructive trust to which they gave rise was undoubtedly one of the first kind, and was not disqualified by any defect in the title to the money which Moin ostensibly had authority to transfer. The important point, on this analysis, is that Pakistan from the outset intended to assume the obligations of an actual trustee in relation to the money. In such circumstances, Pakistan would have received the Fund as a trustee de son tort, and she could only discharge the trust by handing it over to somebody beneficially entitled to it: compare Lyell v Kennedy (No. 4) (1889) 14 App Cas 437 at 463, per Lord Macnaghten.

For these reasons, I am satisfied that Pakistan’s application for summary disposal of the trust claims in her favour must fail. Indeed, I would in principle be prepared to hold that the limitation defence to the trust claims lacks any substance, and should itself be struck out.

The restitution claims

Section 5 of the Limitation Act 1980 provides that:

“An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.”

Section 2(1)(a) of the Limitation Act 1939 was to the same effect.

India’s restitution claim is pleaded in paragraph 20 of her amended defence and counterclaim. It alleges that the 7^th Nizam’s government was entitled to payment by the Bank of the Fund, as money had and received to the use of the 7^th Nizam’s government and/or transferred by mistake. Despite the length of India’s pleading, the precise basis of her restitution claim is far from clear, and it is framed in rather antiquated language. Moreover, the operative mistake on the part of the 7^th Nizam or his government is nowhere clearly identified. In my view, these defects would need to be remedied if the claim goes forward to trial.

The restitution claims of the Princes are equally embryonic, and seem to assume that there have been no advances in the law of restitution since the 1950s when the 7^th Nizam claimed the Fund as money had and received to his use. Neither of the Princes appears to rely on an independent mistake-based restitutionary cause of action. Presumably the general nature of the claim is intended to be that the payment was made without the knowledge or consent of the 7^th Nizam, and his fiduciary Moin had no actual authority to make it on his behalf. On that basis, the cause of action in restitution would have been complete once the Bank received the money and was unjustly enriched at the 7^th Nizam’s expense. The same would apply to India’s alternative mistake-based claim.

Pakistan’s simple argument is that these claims are all time barred, because section 5 of the 1980 Act (or section 2(1)(a) of the 1939 Act) has consistently been held to apply to restitutionary claims for unjust enrichment, despite the absence of any contractual basis for the claim. The point was first clearly decided, albeit obiter, by Hobhouse J (as he then was) in Kleinwort Benson Limited v Sandwell Borough Council, reported together with Westdeutsche Landesbank Girozentrale v Islington London Borough Council, [1994] 4 All ER 890 at 942-943. This view was subsequently assumed to be correct by the House of Lords in Kleinwort Benson Limited v Lincoln City Council [1999] 2 AC 349, and has recently been affirmed by the unanimous judgment of the Supreme Court (given by Lord Mance JSC) in Aspect Contracts (Asbestos) Limited v Higgins Construction Plc [2015] UKSC 38, [2015] 1 WLR 2961, at [25].

In the Aspect case, the relevant issue was whether a fresh cause of action in restitution arose on the making of a payment pursuant to an adjudication under the Housing Grants Construction and Regeneration Act 1996, in circumstances where the adjudicator’s decision was subsequently shown to be erroneous and the claimant sought to recover the payment which had been made. If the correct view was that no fresh cause of action arose, and if section 5 of the 1980 Act applied, the claim to recover the overpayment would have been time barred. The Supreme Court answered both these questions in the claimant’s favour, and at [25] Lord Mance said this:

“Since Aspect’s cause of action arises from payment and is only for repayment, it is, whether analysed in implied contractual or restitutionary terms, a cause of action which could be brought at any time within six years after the date of payment to Higgins, i.e. after 6 August 2009. For this purpose an independent restitutionary claim falls to be regarded as “founded on simple contract” within section 5 of the Limitation Act 1980: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890, 942-943, per Hobhouse J, not questioned by the House of Lords in Kleinwort Benson Limited v Lincoln City Council [1999] 2 AC 349, when it had to consider whether, in the circumstances of that case, section 32(1)(c) of the Act operated so as to extend the normal six-year limitation period.”

In my judgment this question must now be regarded as settled by the decision of the Supreme Court in Aspect, which reflects the admittedly rather scanty authority on the point since the mid-1990s and also enjoys the support of leading restitution scholars, including Professor Burrows, Professor Virgo, and the current editors of Goff & Jones, The Law of Unjust Enrichment, 8^th edition. The only dissentient academic voice to which I was referred is that of Professor McGee, in the 7^th (2014) edition of his work on Limitation Periods at paragraph 4.007, where he submits that, as a matter of ordinary construction of section 5 of the 1980 Act, an action for money had and received cannot be regarded as an action founded on simple contract. If the matter were free from authority, I would have much sympathy with that view, the force of which is indeed acknowledged by Hobhouse J in the Sandwell case and the restitution scholars to whom I have referred. But Professor McGee’s discussion of the topic pre-dates the decision in Aspect, which seems to me conclusive.

It remains to consider, however, whether Pakistan’s reliance on sovereign immunity may at least arguably have prevented time from running in her favour until she waived her immunity in 2013. For this purpose, India and the Princes rely by analogy on the decision of the Court of Appeal in Musurus Bey v Gadban [1894] 1 QB 533, where it was held that the immunity from suit of a foreign ambassador in the English courts during his period of accreditation and a reasonable period thereafter had the effect that time did not begin to run against his creditors until the end of that period: see the judgments of A. A. Smith LJ at 357-358, and of Davey LJ at 360 and 361-362. In Halsbury’s Laws of England, 5^th edition, vol. 68, paragraph 922, Musurus Bey is cited as authority for the proposition that:

“If a person is in such a position that, even if a claim were brought and judgment given against him, the judgment could not be enforced, a cause of action cannot accrue against him.”

Both the decision and the reasoning of the Court of Appeal in Musurus Bey have been the subject of criticism in later cases. It is enough to refer to the observation of Diplock J in O’Connor v Isaacs [1956] 2 QB 288 at 326, and the illuminating discussion of the subject by Lloyd Jones J, albeit strictly obiter, in Awoyomi v Radford [2007] EWHC 1671 (QB), [2008] QB 793, at [22] to [40]. The question is not straightforward, however, and in my view it is unsuitable for summary determination. The better course is to leave it for determination at trial, when it can be considered together with the question whether it is an abuse of process for Pakistan to rely on limitation defences at all. Since the trust claims of India and the Princes will have to go to trial in any event, I cannot see any advantage in determining the difficult questions of law to which these aspects of Pakistan’s limitation defences give rise in advance of the trial, and I think the court will be better placed to consider and rule upon them in the context of its actual, rather than hypothetical, findings of fact. Apart from anything else, if the court were to conclude that the relevant transactions took place at inter-governmental level, and were to uphold Pakistan’s plea of act of state, the limitation issues would become irrelevant. A further relevant consideration, as I have already mentioned, is the delay, expense and use of court time which would be involved in dealing with appeals on difficult questions of law determined on a summary basis.

Pakistan finally argues that India’s claim is legally unsustainable to the extent that she asserts (through the 7^th Nizam) a direct claim in restitution against the Bank. I therefore need to decide whether that way of putting her claim can be maintained by India with a real prospect of success. No similar claim against the Bank is made by either of the Princes.

India’s claim under this head is pleaded as follows in paragraph 20 of her amended defence and counterclaim:

“The Bank had at all material times the option to refuse to allow Rahimtoola, or Pakistan, to deal with the Rahimtoola Account and the Fund. Once the Bank became aware of the contentions of the Government of Hyderabad and the 7^th Nizam concerning the transfer, the Bank’s restitutionary obligation was to prevent Pakistan from dissipating the money (with which obligation the Bank has complied). Pursuant to the same restitutionary obligation the Bank is obliged to account for the Fund to its true owner and has (correctly and consistently with that obligation) acknowledged that it will so account. By reason of the matters set out in detail below India is the true owner of and is entitled to the Fund, and claims the Fund, as assignee of the 7^th Nizam. Accordingly, India claims in these stakeholder proceedings payment by the Bank of the Fund.”

The Bank itself, in a letter from its solicitors dated 19 February 2016, has confirmed that it does not consider India’s claim against the Bank, as set out above, to be legally unsustainable. This has not deterred Pakistan, however, from arguing that it is. Pakistan’s principal argument is that any claim in restitution against the Bank breaks down at the initial stage, because the Bank cannot be said to have been enriched by receipt of the money in the Account. Although the balance sheet of the Bank was swollen by the receipt, it was matched by a corresponding and equal obligation in the form of the debt owed to the holder of the Account. The Bank has never disputed that it is liable to pay the Fund to the true beneficial owner, whoever that may be. Accordingly, says Pakistan, the Bank has not been enriched. It is merely the holder of a fund which it stands ready to pay to the true beneficial owner.

Some support for this analysis may be found in the judgment of Sales J (as he then was) in Jeremy D Stone Consultants Ltd v National Westminster Bank Plc, [2013] EWHC 208 (Ch), at [240] to [243]. In that case, the claimants claimed the return of monies paid by them into accounts held with the defendant bank (“NatWest”), in the form of investments in a fraudulent Ponzi scheme operated by an old family friend. One of the ways in which the claimants put their case was as a claim in unjust enrichment against NatWest.

Sales J dealt with this part of the claim as follows:

“240.

The Claimants undoubtedly did pay money into SEWL’s NatWest accounts … on the basis of their mistaken belief that the hotel business was genuine. The Claimants therefore have a cause of action against SEWL in unjust enrichment to reclaim the payments made, but SEWL has no money to meet such claims. The issue, therefore, is whether the Claimants also have claims in unjust enrichment against NatWest, which received the Claimants’ payments into SEWL’s accounts.

241.

In my judgment, the Claimants have no good claim in unjust enrichment against NatWest, either because NatWest was not enriched by the payments or because (even if on proper analysis it was enriched) it has a good defence.

242.

As to the issue of enrichment, it is true that when the Claimants paid sums to NatWest for the account of SEWL, NatWest received those sums and added them to its stock of assets as monies to which it was beneficially entitled. However, the increase in its assets was matched by an immediate balancing liability, in the form of the debt which NatWest owed SEWL reflected in the increase in SEWL’s bank balance as a result of the payments. This is how the relationship between bank and customer works. There was no basis – at any rate none known to NatWest at the relevant time as the receipts came in, credit entries were made on the accounts and payments were paid out against those credit entries – on which NatWest had any entitlement to withhold payment of sums representing credit balances on the accounts when instructed by SEWL to pay.

243.

Therefore, in my judgment, NatWest was not enriched by the payments made by the Claimants into SEWL’s bank accounts (in that regard see Box v Barclays Bank Plc [1998] Lloyd’s Rep Bank 185 and Compagnie Commercial Andre SA v Artibell Shipping Co Ltd 2001 SC 653, Court of Session, Outer House, at [16] per Lord Macfadyn). The Claimants’ proper unjust enrichment claim is against SEWL, whose assets were increased upon the making of the payments to its bank accounts by the increases in its balances on those accounts (representing the debt owed to it by NatWest).”

Sales J went on to consider the position if he was wrong about that, and NatWest was enriched in a relevant sense by the claimants’ payments. On that footing, he held that NatWest would anyway have a good defence to the claim, based on the fact that it paid out the funds in SEWL’s account in good faith and in accordance with the instructions of its customer. This gave rise to a defence of change of position and/or to a distinct defence of ministerial receipt: see his judgment at [244] to [254].

India’s answer to this argument, briefly stated, is to point to a line of authority which has recognised the availability of a restitutionary claim against a bank for money held in a customer’s account, provided that the money has not been withdrawn by the customer and the payment can still be reversed: see Colonial Bank v Exchange Bank of Yarmouth (1885) 11 App Cas 84 at 90 and 91, Bavins & Sims v London and South Western Bank Ltd [1900] 1 QB 270 (CA) at 275-276, 277 and 278, and Jones v Churcher and Another [2009] EWHC 722 (QB), [2009] 2 Lloyd’s Rep 94, at [66] and following per His Honour Judge Havelock-Allan QC.

As the judge observed in the last of these cases, at [67]:

“Ministerial receipt is a different defence to change of position. It is available only where a collecting bank has received funds as agent for the customer and has paid away the funds to the customer. Once the collecting bank has dealt with the funds in such a way that the credit to the customer is irreversible, the bank is entitled to plead a defence of ministerial receipt to any restitutionary claim by the payer to get the funds back. The defence complements the defence of change of position which may additionally be available to the collecting bank depending on the circumstances.”

Judge Havelock-Allen then referred to the judgment of Millett LJ in Portman Building Society v Hamlyn Taylor Neck [1998] 4 All ER 202 at 207, where he said:

“The true rule is that where the plaintiff has paid money under (for example) a mistake to the agent of a third party, he may sue the principal whether or not the agent has accounted to him, for in contemplation of law the payment is made to the principal and not to his agent. If the agent still retains the money, however, the plaintiff may elect to sue either the principal or the agent, and the agent remains liable if he pays the money over to his principal after notice of the claim. If he wishes to protect himself, he should interplead. But once the agent has paid the money to his principal or to his order without notice of the claim, the plaintiff must sue the principal.”

The judge then considered the defence of ministerial receipt, referring to various textbooks and saying at [69]:

“The critical point is the point at which the crediting of funds to the customer’s account can no longer be reversed. It has long been accepted that the crediting of a customer’s account with the amount of a cheque is provisional only, and liable to be reversed if the cheque is dishonoured on presentation … There is authority to suggest that this proposition holds good unless and until the collecting bank permits the customer to draw upon the funds …”

On the facts, the judge held that the defence of ministerial receipt was not available to the defendant bank, which had been sued together with its customer for restitution of a payment made under an operative mistake. In the event, judgment was entered against both the customer and the bank. See too Goff & Jones, The Law of Unjust Enrichment, 8^th edition, at paragraph 6-36, and the discussion of ministerial receipt at common law in paragraphs 28-14 to 28-16.

In my judgment, the existence of this line of authority, and the recent recognition which it has received both judicially (in Jones v Churcher) and in at least one leading textbook (Goff & Jones), is enough to show that India’s claim against the Bank cannot be dismissed as unarguable with any real prospect of success. Moreover, Jones v Churcher does not appear to have been cited to Sales J in the Jeremy D Stone case. Pakistan’s argument that the Bank was not enriched on a balance sheet basis clearly merits careful consideration, but in the current state of the law cannot be regarded as conclusive. The answer may be that, in cases of the present type, a bank in receipt of a mistaken payment should be regarded as enriched by it, because it acquires beneficial title to the money and can use it in its business, notwithstanding the existence of the corresponding debt owed to the customer. Another possibility might be to regard the cases as falling into an exceptional category, where the bank has notice of rival claims to the money which it can only resolve by initiating interpleader or stakeholder proceedings, but it meanwhile has full beneficial use of the money. This is not the occasion to investigate the question at any further length. It is enough to say that, in my view, the potential merit of India’s claim in restitution against the Bank comfortably exceeds the threshold which would make it suitable for summary disposal in Pakistan’s favour.

In the light of my conclusions on Issues (1) to (5) above, the applications on each side for summary disposal of the case, or parts of it, will with one limited exception be dismissed. The exception concerns Pakistan’s limitation defence to the trust claims brought by India and the Princes. In principle, I am satisfied that this defence has no real prospect of success and it should therefore be struck out. On the other hand, since I have held that all other aspects of the limitation defences should go to trial, there may be room for an argument on case management grounds that the preferable course would be to make no order striking out that part of the defence at this stage. I hope that the parties will be able to reach agreement on this point. If not, it can be dealt with when this judgment is handed down.