Raiffeisen Zentralbank Osterreich Ag v Crossseas Shipping Ltd. & Ors

Mr Justice Morison :

1. This is an application for an order that the fourth defendant, whom I shall call Ajay Shah, and his former solicitors, Messrs Lawrence Jones, disclose the name of the party or parties which maintained Ajay Shah’s defence to and appeal in the Action.

2. The Action referred to is 1998 Folio No 231. The proceedings were commenced on 20 February 1998. The Claimants, Raiffeisen Zentralbank Osterreich AG, whom I shall call the Claimants, contended that Ajay Shah was indebted to them in the sum of US$5 millions pursuant to a personal guarantee. Two days prior to the commencement of the Action, and without notice, an application was made for a world-wide freezing Order against Ajay Shah and he was further required to disclose the whereabouts of all his assets. The order applied for was granted by Colman J on 18 February 1998. When disclosure was made by Ajay Shah no bank accounts or cash were revealed.

3. In due course, Ajay Shah invited the court to determine a preliminary issue in his defence to the claim. The issue came before Cresswell J on 9-10 March 1999 and the Court found in favour of the Claimants on that issue. Ajay Shah appealed but his appeal was dismissed by the Court of Appeal on 5 November 1999 and Ajay Shah was ordered to pay the costs of the preliminary issue and of the appeal. Those costs were the subject of a detailed assessment by a taxing officer and have been assessed in the sum of £50,650.32.

4. The trial of the Action was scheduled to take place on 15 March 2000, but 5 days earlier, Ajay Shah’s solicitors, Messrs Lawrence Jones, notified the Claimants’ solicitors, Messrs Stephenson Harwood, that they had come off the record and were no longer able to represent Ajay Shah through lack of funds.

5. The trial of the Action came before David Steel J on 15 March 2000 and he gave judgment for the Claimants in the sum of US$5,970,626.68, being the amount of the principal due together with accrued interest. He also ordered that the Claimants were entitled to their costs of the Action to be assessed on an indemnity basis. Steel J’s judgment was entered on 17 March 2000. The costs have yet to be assessed. Neither the judgment sum nor the costs of £50,650.32, referred to in paragraph 3, have been paid by Ajay Shah.

6. On 26 September 2002 the English Judgment was registered in Kenya, where Ajay Shah resides, and an application by him to set aside the registration was due to be heard in that jurisdiction on 12 June 2003.

7. Section 51 of the Supreme Court Act 1981 confers on the High Court a discretion in relation to the payment of costs of and incidental to all proceedings commenced there. Subsection (3) confers on the High Court “full power to determine by whom and to what extent the costs are to be paid”. This subsection gives the court power to order that a person who is not a party to the proceedings to pay costs and in a number of reported and unreported decisions it has been held that the court necessarily has an ancillary power to order a party to proceedings, or solicitors who have been on the record for that party, to disclose, to the opposing party, the name or names of those who financed the litigation for the benefit of that party: see, for example

Singh v Observer Limited [1989] 3 All ER 777 at 777j-778b;

McFarlane v EE Caledonia Limited (No 2) [1995] 1 WLR 366 at 373C;

Abraham v Thompson [1997] 4 AER 326 [CA] at 367j-368b;

Hamilton v Al Fayed [unreported] 21 December 1999 at transcript pages 7-11.

None of these authorities is entirely satisfactory, for a variety of reasons, but the reasoning of Potter LJ in the Abraham case is directly applicable namely, “where the power exists to grant the remedy, there must also be inherent in that power the power to make ancillary orders to make that remedy effective”. Therefore, since section 51 empowers the court to make an order for costs against a person who is not a party to the action, the power would be ineffective unless there was an inherent power to discover who such persons might be. It does not, of course, follow that once the identities are revealed the Court will go on to make an order against anyone who has been identified. That is a matter for the discretion of the court at the second stage. I am satisfied that I have the power to make the order which is sought.

8. On 15 April 2003, Andrew Smith J gave the Claimants permission to serve this application on Ajay Shah in Kenya. I am satisfied from the affidavit of John K Njoroge sworn on 15 May 2003 that service was duly effected on Ajay Shah on 29 April 2003. I am told, and accept, that Ajay Shah has spoken on the telephone with a representative of the Claimants’ solicitors, Ms Griffiths, on 6 June. He told her that he did not intend to oppose this application; he was asked to confirm that in writing. He said he would not have time to do so there and then but would send written confirmation on the following Monday. No such written confirmation has been received. He has not appeared before me and has not instructed anyone to act on his behalf. In these circumstances, I decided to proceed to hear this application in his absence. The position of Lawrence Jones is that they have not attended this hearing either. On 15 April 2003 they wrote to say that they would not oppose the application but could not formally consent to it. By a further letter dated 10 June 2003 they said this:

“We have been considering this matter further. As we have previously pointed out, we are not proposing to attend the hearing of your Application. We will be grateful, however, if you could bring to the Court’s attention that we will only be able to state the source of funds received in respect of the payment of our costs (whether from Mr Shah or elsewhere). We will not be in a position to disclose the names of parties who have maintained the action, if this be the case, as we do not have sufficient information to determine this.”

9. On receipt of this letter, Messrs Stephenson Harwood, varied the order they were seeking against Lawrence Jones to meet their concerns and that firm has also indicated that it does not intend to resist the application. Therefore, no-one has appeared to oppose the application. Nonetheless, I must consider it on its merits and determine whether in the exercise of my discretion I should make the order asked for.

10. The application is supported by the first witness statement of Richard Gwynne a partner in the Claimants’ firm of solicitors. He draws to the Court’s attention that Ajay Shah’s assets, as disclosed by him showed shareholdings in various companies 6 in number located in Kenya and a majority shareholding in a company located in India. After giving an account of the history of the proceedings, Mr Gwynne estimates that Ajay Shah’s own costs “must have been at least £100,000.” The basis for that estimate appears to me to justify that conclusion.

11. Mr Gwynne says that Ajay Shah’s main assets were his shareholding in Trust Bank Limited and City Finance Limited. He says that these entities are two banks which came under the control of the Central Bank in Kenya in September and November 1998 respectively. Apparently, Trust Bank entered into a Scheme of Arrangement with its creditors which resulted in Ajay Shah’s shareholding being substantially diluted. According to Mr Gwynne’s source of information, City Finance Limited (which changed its name to City Finance Bank Limited) also entered into a Scheme of Arrangement with a similar dilution in Ajay Shah’s shareholding. He concludes that he does not believe that the shares in these two entities could have been used by Ajay Shah to finance the litigation in England as the shares do not produce an income, there is no evidence to suggest that they have been pledged or mortgaged and in any event the shares have little if any value. As for the shareholding in the other companies, there is no evidence that any had any real value. Some of the companies owned various plots of land. On 15 June 1999, in accordance with undertakings given by Ajay Shah as a condition of the freezing order being lifted, Lawrence Jones gave 14 days’ notice of Ajay Shah’s intention to sell one of the pieces of land located about 2 ½ miles from the centre of Nairobi and sought Stephenson Harwood’s consent. The piece of land was just over ½ acre and the purchase price was said to be 7.5 million Kenyan Shillings [approximately £65,000]. Stephenson Harwood’s response was to agree subject to undertakings that the sale proceeds would be used solely to pay reasonable legal expenses with any balance being retained by Lawrence Jones’ client account. No such undertakings were ever given; no notification was given that the sale had taken place; and no certification given by Lawrence Jones of the sort offered in their letter of 30 June 1999. The inference I draw from this history is that the sale did not come to fruition.

12. Mr Gwynne points out that the Claimants paid to Ajay Shah the sum of £7,300 by way of costs, pursuant to an order to that effect, which was made when the freezing order was discharged. But, as he observes, such a sum would be a mere fraction of Ajay Shah’s actual costs.

13. As to Ajay Shah’s other assets, his shareholding in the Indian Company was said by him in his affidavit to have no value. Any land held by companies in Kenya does not appear to have been sold or mortgaged. If Ajay Shah’s affidavit was complete and accurate, he personally would not have had sufficient monies to fund his participation in these proceedings. The plain and only inference to be drawn, therefore, is that he was being funded by third parties, such as through family trusts. Someone must have been maintaining his defence in these proceedings.

14. Having reached that conclusion on the evidence, it seems to me clear that I should exercise my discretion to make the order sought. There are no countervailing circumstances, which would suggest that such an order should not be made. I therefore make the order as requested in its amended form.

15. The Claimants should have the costs of this application which I summarily assess in the sum of £17,000.