Cecil & Ors v Bayat & Ors

This is an application by the Defendants to set aside service of the proceedings on the ground that the Claimants have no sufficiently arguable case on the merits or on the jurisdictional gateways, on the ground of forum non conveniens and on various other grounds relating to service.

The claims in this action originate with an oral agreement allegedly made on 19 September 1998 in London, whereby the Claimants allege that the first and second defendants (“Bayat” and “TSI Inc.”) promised the first and second claimants (“Cecil” and “Bentham”) a 45% interest in the shares in TSI Inc., and/or in any other corporate vehicle used to carry out a project to set up a telecommunications network in Afghanistan (“the Afghan Project”). This promise was allegedly made in return for Cecil and Bentham taking responsibility for the business, technical and development aspects of the Afghan Project.

It is alleged that the initial agreement was that the fourth Defendant (“Warner”) was to have 11.25% of the promised 45%, subsequently amended to 49%, of which Warner was to have 9%. Later, by further alleged oral agreements between (inter alios) Bayat, TSI Inc. and the third and fourth Claimants (“Lehmkuhl” and “Grinling”), it was agreed that Lehmkuhl and Grinling should in consideration of their respective services have respectively 5% and 1% of the equity out of the 49% minority interest.

It is further alleged that as a result of further adjustments in late 2002 or 2003 involving Warner and others relinquishing their interests, Cecil and Bentham became entitled to 21.67% each, Lehmkuhl to 4.66% and Grinling to 1% (totalling 49%).

None of the Claimants have received any shareholding in TSI Inc. or in any other corporate vehicle for the Afghan Project, despite allegedly providing the services which they had agreed to provide.

The Claimants claim damages for breach of contract, remedies for breach of constructive trust, alternatively a quantum meruit for their services. The claimants also claim damages for fraudulent misrepresentation and damages for conspiracy.

The principal issues are:-

Service out

Whether, in relation to each cause of action, there is a good arguable case that it comes within one of the discretionary grounds on which the court may order service out of the jurisdiction.

Whether in relation to each cause of action, there is a serious issue to be tried on the merits, or substance, of the claim.

Whether the English court is a more suitable jurisdiction for this case to be heard than any other available jurisdiction (forum conveniens).

Service generally

Whether the orders of Field J on 19 September 2008 and Tomlinson J on 18 March 2009 extending time for the service of the proceedings should be set aside either (a) because they were wrongly made or (b) because of non-disclosure of material facts.

Whether the order of David Steel J made on 8 April 2009 giving permission to service out of the jurisdiction should be set aside because of non-disclosure of material matters.

Whether the order of David Steel J made on the same day for alternative methods of service should be set aside.

Whether service has been validly effected within the terms of David Steel J’s order.

There is an unusual background to the present proceedings.

On 21 November 2002, TSI Inc. and the third defendant in this action, (“AWCC”) commenced proceedings against Cecil, Bentham and NetMobile S.A., a company managed by Cecil and Bentham, claiming damages for conspiracy to defraud, breach of fiduciary duty and conversion of their property in the Southern District New York (“SDNY”) court.

The defendants in that action counterclaimed, and added Bayat as a counterclaim defendant, based on a refusal to recognise Bentham and Cecil’s interests in the entity holding the licence and operating the Afghan Project. In their Reply, the claimants in that action asserted that Bentham and Cecil had no interest in TSI Inc or the Afghan Project.

On 30 November 2004, without hearing any evidence, the SDNY court dismissed the claim and counterclaim, and ordered that the file, and nearly all documents relating to the action, be “sealed”.

Cecil and Bentham (but not the claimants in the action, TSI Inc and AWCC) appealed against the decision dismissing the proceedings (including the counterclaim) to the Second Circuit Appeal Court, which affirmed the SDNY court’s decision in January 2006. The Second Circuit also issued a Protective Order amending the instructions sealing the claim and setting out the requirements for dealing with the documents, evidence and court proceedings which they ordered. The Order is available to a limited number of named individuals, but they alone may see its terms, and they are not permitted to say anything about them. These include the parties’ lawyers in the SDNY proceedings, Mr Friedman, who acted for Cecil and Bentham, and Mr Maines, who acted for TSI Inc and Bayat. They may review this in a secure location but copies are not allowed to be taken of it. Cecil and Bentham then appealed to the Supreme Court, but in January 2007 it declined to hear the appeal. The information and documents relating to these appeals are also sealed.

The essential claim made in these proceedings has therefore already been the subject matter of proceedings in the US, which proceedings were dismissed on the court’s own motion on terms and for reasons which cannot be revealed to this court.

Service out

The general rules

The conditions for serving out of the jurisdiction as set out in CPR 6.37(1) to (3) in the following terms:

An application for permission under rule 6.36 must set out –

The “gateways” are contained at paragraph 3.1 of Practice Direction B:

“The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where – …

Claims in relation to contracts

A claim is made in respect of a contract where the contract –

was made within the jurisdiction;

is governed by English law; or

A claim is made in tort where

damage was sustained within the jurisdiction; or

Standard of proof

In relation to the merits of the claims, the test is whether the claimant has a reasonable prospect of success or has shown a serious issue to be tried and is the same as the test for resisting summary judgment. It is satisfied if the claimant puts forward a case which has sufficient substance to defeat a notional summary judgment or strike-out application: see De Molestina and Others v Ponton and Others [2002] 1 Lloyd’s Rep 271, and Swiss Reinsurance Company Limited v United India Insurance Company [2002] EWHC 741 (Comm) at para. 27, per Gross J:

“To my mind, the wording in CPR 6.21(1)(b) [now 6.37(1)(b)] is synonymous with “real prospect of success” — wording to be found in CPR Parts 3 and 24. “Real” is to be contrasted with fanciful or imaginary. Once this stage is reached, the test is the same or substantially the same as the test in Seaconsar : an issue which is imaginary or fanciful is not a serious issue to be tried. …Any higher test would doom parties in such applications to unwarranted mini trials on the merits.”

In relation to the jurisdictional gateways now in Practice Direction B, the standard of proof is to establish more than a serious issue to be tried, but not as much as balance of probabilities: see Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438, and, more recently, the Court of Appeal in Carvill America Incorporated PK Carvill & Co v Camperdown UK Ltd [2005] 2 Lloyd’s Report 457, in which Clarke LJ stated at para. 45:

“The judge correctly held in paragraph 39 of his judgment that the test is that of a “good arguable case”: Seaconsar Far East Ltd v Bank Markazi Jomhouri Islam Iran [1994] 1 AC 438 , especially per Lord Goff of Chieveley at 453D-G. As the judge observed, that test is somewhat higher than the test under CPR Part 24 , but less stringent than a balance of probabilities: see MRG v Engelhard Metals Japan [2004] 1 Lloyd's Rep 731 per Toulson J at 732 paragraph 9. It was thus for Carvill to demonstrate a strong argument which was short of a balance of probabilities..”

There was an issue between the parties, to which I will return below, as to whether in this context it is also necessary to consider and apply what is known as the Canada Trust gloss, derived from the judgment of Waller LJ in Canada Trust and Others v. Stolzenberg and Others (No. 2) [1998] 1 WLR 547 (CA); [2002] 1 AC 1, namely that what is required to establish a jurisdictional gateway is much the better, or at least the better, of the argument.

The standards of proof are different, as between whether there is a serious issue to be tried on the merits of the action and whether it is established that a relevant Practice Direction gateway has been engaged. It is necessary therefore to consider whether an ingredient for a cause of action is also part of what has to be established for jurisdictional purposes. If so, the lower standard of proof is subsumed into the higher, and becomes irrelevant.

In Seaconsar Far East Limited v. Bank Markarsi Iran [1994] 1 A.C. 438 Lord Goff held that, in order to prove a good arguable case for the gateway provisions which relate to contract, the constituent elements which must be proved to the standard of good arguable case, include the existence of the contract. At pages 454-5 he stated:

“… I am of the opinion that what has to be sufficiently shown by the plaintiff for the purposes of establishing jurisdiction is, in the case of, for example, sub-paragraph (i) [contract made within the jurisdiction], not merely that, if the contract existed, it was made within the jurisdiction, but that (1) there was a contract, and (2) such contract was made within the jurisdiction. Likewise, under sub-paragraphs (ii), (iii) and (iv) [contract made through an agent in the jurisdiction, contract governed by English law and contract containing a jurisdiction clause in favour of the English court], the existence of the relevant contract has to be sufficiently proved. But, once that is done, there arises a separate question as to the merits of the plaintiff’s claim relative to that contract….”

Lord Goff noted that different sub-paragraphs of Order 11 (now Part B of the Practice Direction to Part 6) may raise the separate question of the merits of the claimant’s claim. This is of particular relevance to the claims in tort, constructive trust and restitution in the present case. In relation to such claims the merits need to be considered as a separate question, as it is necessary only to show a serious issue to be tried on the cause of action, but a good arguable case on elements of the jurisdictional gateway.

Forum conveniens

In relation to forum conveniens, CPR 6.37(3) states that:

“The court will not give permission [to serve out] unless satisfied that England and Wales is the proper place in which to bring the claim.”

The criteria which govern the application of forum conveniens in this context are set out in the speech of Lord Goff in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460, at pages 478 to 482. These principles are summarised in the notes to the White Book at 6.37.15 (approved at para. 20 per Waller LJ in of Cherney v Deripaska [2009] EWCA Civ 849):

“(i)

The burden is upon the claimant to persuade the court that England is clearly the appropriate forum for the trial of the action.

(ii)

The appropriate forum is that forum where the case may most suitably be tried for the interests of all the parties and the ends of justice.

(iii)

One must consider first what is the “natural forum”: namely that with which the action has the most real and substantial connection. Connecting factors will include not only factors concerning convenience and expense (such as the availability of witnesses), but also factors such as the law governing the relevant transaction and the places where the parties reside and respectively carry on business.

(iv)

In considering where the case can be tried most “suitably for the interests of all the parties and for the ends of justice” ordinary English procedural advantages such as a power to award interest, are normally irrelevant as are more generous English limitation periods where the claimant has failed to act prudently in respect of a shorter limitation period elsewhere.

(v)

If the court concludes at that stage that there is another forum which is apparently as suitable or more suitable than England, it will normally refuse permission unless there are circumstances by reason of which justice requires that permission should nevertheless be granted. In this inquiry the court will consider all the circumstances of the case, including circumstances which go beyond those taken into account when considering connecting factors with other jurisdictions. One such factor can be the fact, if established objectively by cogent evidence, that the claimant will not obtain justice in the foreign jurisdiction. Other factors include the absence of legal aid or the ability to obtain contribution in the foreign jurisdiction.

(vi)

Where a party seeks to establish the existence of a matter that will assist him in persuading the court to exercise its discretion in his favour, the evidential burden in respect of that matter will rest upon the party asserting it.”

England will be the appropriate forum where another forum is the natural one, but justice cannot be achieved there: see Lord Diplock of The Abidin Daver [1984] AC 398 at 411B-D. In Cherney, the Court of Appeal found that England was an appropriate forum, despite Russia being the natural one, because Mr. Cherney would not get a fair trial there (paras. 31 to 44 per Waller LJ). In Alberta Inc v Katanga Mining Ltd [2008] EWHC 2679, Tomlinson J concluded (para. 33) that the Democratic Republic of Congo was not a forum in which the case may be tried suitably for the interests of all the parties and the ends of justice. In The Vishva Ajay [1989] 2 Lloyd's Rep 558, Sheen J concluded, at page 560, that a delay of around 10 years in the High Court in Bombay amounted to delay of such magnitude that it was a denial of justice.

Dicey, Morris & Collins on The Conflicts of Laws (14^th ed.) summarises the position in the following terms at paragraph 12-031:

“There may be cases where there is a risk that justice will not be obtained in a foreign court for ideological or political reasons, or because of inexperience or inefficacy of the judiciary or excessive delay in the conduct of the business of the courts, or the unavailability of appropriate remedies.”

These cases all involve natural fora in which, for various reasons, justice could not be achieved, although claims could technically have been brought. But similar considerations apply where the claim could be technically brought but would be summarily dismissed.

In Banco Atlantico v British Bank of the Middle East [1990] 2 Lloyd’s Rep 504, the Court of Appeal overturned a decision to stay English proceedings. In his speech, Lord Bingham commented that it would not be conducive to justice to require a plaintiff, as a party with an arguable claim under the proper law, to litigate in a jurisdiction where it would be bound on the evidence to face summary rejection of its claims (at p509). The Court of Appeal held that Spanish law was the proper law of the contract and the question was whether the appropriate forum was England or the UAE. As the UAE did not have a developed conflict of laws doctrine, it would not apply Spanish law. The evidence was that under UAE law the claim in question would be summarily dismissed (but not under Spanish law applied in England). This would not be conducive to justice.

A claimant must establish a factor that makes England appropriate, or an otherwise natural forum inappropriate or unavailable, by “cogent evidence”. But this does not involve a mini-trial, nor does it involve reaching a conclusion on the balance of probabilities. Where a claimant asserts that another forum is not available because of the risk that something will happen, this does not need to be proved on the balance of probabilities. Rather, the claimant must show on cogent evidence that there is a “real risk” of it happening. As Waller LJ explained in Cherney (para. 29):

“I should make clear again, having regard to points made by Mr Malek, that the judge is not conducting a trial. It is not a situation in which he has to be satisfied on the balance of probabilities that facts have been established. He is in many instances seeking to assess risks of what might occur in the future. In so doing he must have evidence that the risk exists, but it is not and cannot be a requirement that he should find on the balance of probabilities that the risks will eventuate… he has to make an evaluation taking account of all factors as to whether the claimant (despite Russia being the “natural forum”) has discharged the burden of showing that England is “clearly the proper forum”. That involves … assessing whether … Mr Cherney has shown on cogent evidence that there is a real risk that he will not get a fair trial there.”

The above legal principles were not seriously in dispute. However, there were three questions of law about which the parties joined issue. These were:

The Canada Trust gloss.

Whether grounds of jurisdiction other than those clearly identified at the permission stage may be relied upon.

The scope of claims “in respect of” a contract under 6PD B3.1(6).

The “ Canada Trust” gloss

The Canada Trust gloss results from the following passage in the judgment of Waller LJ in that case (at p555-6):

“It is also important to remember that the phrase which reflects the concept “good arguable case” as the other phrases in Korner's case “a strong argument” and “a case for strong argument” were originally employed in relation to points which related to jurisdiction but which might also be argued about at the trial. The court in such cases must be concerned not even to appear to express some concluded view as to the merits, e.g. as to whether the contract existed or not. It is also right to remember that the “good arguable case” test, although obviously applicable to the ex parte stage, becomes of most significance at the inter partes stage where two arguments are being weighed in the interlocutory context which, as I have stressed, must not become a “trial.” “Good arguable case” reflects in that context that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i.e. of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.

The civil standard of proof has itself a flexibility depending on the issue being considered and the concept “good arguable case” has a similar flexibility. It is natural, for example, in a case concerned with a contract where the jurisdiction depends on whether the breach took place within the jurisdiction, but where the issue to be tried will be whether there was a contract at all, not to wish to give even the appearance of pre-trying the central issue, even though the concept of being satisfied must apply both to the existence of the contract and the place of the breach. It is equally natural for the court in the process of being satisfied to scrutinise most jealously that factor which actually provides jurisdiction. It is equally natural that where the foundation of jurisdiction is domicile, i.e. an issue that will not arise at the trial, that particular scrutiny of the material available takes place in the context of the limitations applied to an interlocutory process.”

This decision was appealed and the appellants’ contention in the House of Lords was that the Court of Appeal had been wrong to reject balance of probabilities as a test. The House of Lords rejected this (at p13). In the course of his speech, Lord Steyn, with whom the other members of the House agreed, approved Waller L.J.’s analysis, but without any specific reference to the “much the better of the argument” sentence.

In Cherney [2008] EWHC 1530 at first instance it was argued that (para. 34):

“...where a claimant puts forward credible evidence of an agreement that is both at the heart of his claim and the foundation of his claim to English jurisdiction, but there is a conflict of evidence as to whether the agreement relied on was made, the Court should not attempt to resolve that conflict, and, if the claimant has presented a good arguable case, should not apply the Canada Trust gloss i.e. determine which side has much the better of the argument. If both parties have an arguable case on the point, to require the claimant to show that his case is markedly better than that of his opponent is, in effect, to require him to establish it on the balance of probabilities, when the authorities show that that is not necessary: Seaconsar 453 C–F; Canada Trust 555 D.”

After reviewing the relevant authorities, Christopher Clarke J rejected this argument and held that (at para. 41):

“…even in a case where there is a dispute between two apparently credible witnesses the Court should usually, before giving permission, be satisfied that the claimant's contentions about the alleged agreement provide a much better, or at any rate a better, argument in favour of there being the ground for jurisdiction alleged than of there not being one. In granting permission to serve out of the jurisdiction the court is exercising an exorbitant jurisdiction over those who are not within its ordinary reach. In those circumstances the court is, as it seems to me, justified in applying the good arguable test in that manner in order to avoid the risk of compelling individuals or companies to submit to a jurisdiction to which they ought not in truth to be made subject. Further if, as Canada Trust indicates, the concept which the phrase reflects is “ of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction ”, it ought ordinarily to require that, when the Court looks at the material, it finds the points in favour of the ground for jurisdiction alleged to be more than just evenly balanced by those which point the other way.”

He further observed (at para. 44):

“I do not regard this as introducing by the back door a requirement that a claimant seeking permission should prove his case on the balance of probabilities. The Court is concerned, at this stage, with the arguments in favour of the respective parties in the light of the material then tendered. Whilst the Court is entitled to reject the wholly implausible, what it will be concerned with is the relative plausibility of the contentions. Proof on the balance of probabilities would require a finding of fact, not a decision about the strength of arguments, and would probably require the availability of oral evidence and discovery.”

This point was not dealt with by the Court of Appeal on the appeal in Cherney. However, this approach has since been adopted and applied in subsequent first instance decisions and by the Court of Appeal in Sharab v Al Saud [2009] EWCA Civ 353.

In the present case Mr Nicholas Strauss QC for the Claimants forcefully criticised the Canada Trust gloss for similar reasons as those advanced in Cherney. In cases where the issue of jurisdiction depends on disputed evidence I accept that there are difficulties, consistent with the requirement being one which is less than balance of probabilities, in applying a test of much the better of the argument. As has been pointed out by Rix LJ in Konkola Copper Mines v Coromin [2006] 1 Lloyd's Rep 410 (see paras. 79-81) and Toulson LJ in WPP Holdings Italy Srl v Benatti [2007] 1 WLR 2316 there may well be cases where at the interlocutory stage both sides may have a good arguable case on the material before the court and it is not possible to say who has much the better of the argument without testing the evidence. Be that as it may, in the light of the Court of Appeal judgment in Sharab v Al Saud I consider that I should and probably have to apply the Canada Trust gloss. Consistently with Christopher Clarke J’s conclusion in Cherney (at para. 41) and the test as applied by the Court of Appeal in Sharab v Al Saud (at para. 40), I consider that the test can be expressed as being who has the better of the argument, rather than who has “much” the better of the argument. However, in the present case I shall apply the much the better of the argument test and it is in that sense that I shall use the term “good arguable case”.

I should record that Mr Strauss QC had a further argument to the effect that the Canada Trust gloss should not apply in circumstances where it is found that there is no available alternative appropriate forum. In this connection he relied upon the various statements made as to the flexibility of the test and the fact that, as Christopher Clarke J stated at para. 38 of his judgment in Cherney, that “the essential test, laid down by the rules, is that the claimant must satisfy the court that England is the proper place in which to bring the claim”. In the light of the findings I have made, as set out below, it is not necessary to make any ruling on this admittedly novel argument.

Whether grounds of jurisdiction other than those clearly identified at the permission stage may be relied upon.

The Defendants submitted that the Claimants will not be permitted to pray in aid at the inter partes hearing a different basis of jurisdiction if permission was not originally sought on that basis - see Metall & Rohstoff AG v Donaldson Luffkin and Jentrette Inc [1990] 1 QB 391.

The Metall & Rohstoff decision makes it clear that if a claim is put forward at the permission stage on one legal basis, the claimant cannot subsequently justify permission on another legal basis. This has been held to apply not just to the cause of action asserted, but also to the jurisdictional gateway relied upon – see ABCI v Banque Franco-Tunisienne [2002] 1 Lloyd’s Rep. 511 at paras. 43, 45 and Albon v Naza Motor Trading Sdn Bhd [2007] 1 WLR 2489 at para. 16. However, in both those cases it was recognized that this was subject to the court’s power to waive any procedural irregularity.

In the present case, the Claimants argued that since they had set out in their evidence all the relevant gateways it did not matter that their evidence identified in support of particular causes of action different gateways to those now sought to be relied upon. The only requirement was to identify “which ground is relied upon” and this is satisfied if the ground is referred to in the application or evidence, even if the evidence then relies upon a different ground to that now asserted.

I reject this argument. The requirement is to “set out which ground…is relied upon”. Which ground is relied upon depends on the proper construction of the application which is made. If the application, as it should do, identifies particular grounds as being relied upon then, unless otherwise clearly indicated, it will reasonably be understood that those are the only grounds being relied upon. The mere fact that contained within the application is a reference to a gateway now sought to be relied upon will not assist if that reliance is not made clear at the time.

Nevertheless, because: (1) this is not a case of reliance upon a new cause of action; (2) the gateway now relied upon was at least referred to in the Claimants’ evidence; (3) the Claimants’ reliance upon different gateways turns on matters of argument rather than of evidence, I am prepared in the exercise of my discretion to cure these defects.

The Claimants stressed that paragraph 3.1(6) refers to a claim made “in respect of a contract” fulfilling the criteria set out at (a) to (d), not “pursuant to” or “under” such a contract. This was said to be wider than the provision in RSC O.11 (Order 11.1(1)(d) was in the following terms “the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract”) and requires only that the claim relates to or is connected with the contract. Therefore, a restitutionary claim can fall within paragraph 3.1(6): see paras. 26 and 27 of Albon v Naza Motor Trading [2007] EWHC 9 (Ch) per Lightman J:

“Accordingly the formula of words in CPR r 6.20(5) “in respect of a contract” does not require that the claim arises under a contract: it requires only that the claim relates to or is connected with the contract. That is the clear and unambiguous meaning of the words used.”

Paragraph 3.1(6) has recently been considered by the Court of Appeal in Greene Wood & McLean LLP v Templeton Insurance Ltd [2009] EWCA Civ 65 in which it was held that the contract with which the relevant claim is connected does not need to be between the intended claimant and the intended defendant: a claim by a third party against a defendant which is connected to a contract to which the defendant (but not the third party) is party may be within paragraph 3.1(6), for example if it is governed by English law.

Thus the Court of Appeal held that a claim by a third party for a contribution under the Civil Liability (Contribution) Act 1978 which had “a connection” with a contract governed by English law was a claim “in respect of” that contract within the meaning of (now) 6BPD3.1(6)(c), even if it was not a claim in connection with a contract between the intended claimant and the intended defendant.

Longmore LJ, with whom the other members of the Court of Appeal agreed, said:

“17 The first question is whether the claim for a contribution or indemnity pursuant to the 1978 Act is “a claim … in respect of a contract” for the purposes of CPR r 6.20(5) . The claim is only being made because, as it happens, the insurers do have a contract with the miners whereby they have agreed to indemnify the miners in respect of costs which may be ordered against them in the GLO application and in respect of own disbursements. But can it be said that GWM's claim is a claim in respect of a contract? It is not a contract to which GWM are a party and the paradigm case of a contract pursuant to which permission is given under rule 6.20(5)(c) is a contract between the intended claimant and the intended defendant. Indeed the notes to the rule in Civil Procedure 2008 , vol 1, p 203, para 6.21.34 do actually say that the contract has to be a contract between those parties. That is adopted by Mr Sweeting for the insurers who says that is not enough for only one of the parties to the intended action to be a party to a contract. Suppose that there is a contract to which only the intended claimant is a party and the defendant merely has a tortious or fiduciary obligation to the third party, would that be sufficient for the sub-rule to apply? That would be odd because the defendant would be brought before the court under a contractual provision of CPR r 6.20 when he was not a party to a contract at all.

18 To say that, for a claim to be “in respect of a contract”, it must be “in respect of a contract between the intended claimant and the intended defendant” is to add words to the rule which are not there. The commentary in Dicey, Morris & Collins, Conflict of Laws , 14th ed (2006), vol 1, paras 11–182–11–184 does not suggest any such requirement. Moreover, since the Contracts (Rights of Third Parties) Act 1999 , Parliament has contemplated cases in which a third party can sue on a contract made between two persons for his benefit. If such a contract is governed by English law (or, even, made or broken in England) why should the third party not be able to take advantage of sub-rule (5)(c) of CPR r 6.20 ? It would be odd if he could not and every reason to suppose that he should be able to utilise the sub-rule, always subject to the court being satisfied that England is the “proper place” in which to bring the claim, pursuant to CPR r 6.21(2A) .

19 The claim in the present case clearly has a connection with a contract governed by English law. To my mind that makes it a claim in respect of that contract even if it is not a claim brought under the contract. No doubt some connections with contracts are more remote than others but the present claim has a very close connection with the insurers' contract with the miners to pay their costs and own disbursements if they lose. As the judge said the remoteness from the contract (if any) is something that can be dealt with when the court considers whether England is the proper place for a claim under CPR r 6.21(2A) .

20 I doubt if it would be any different if it was the intended claimant rather than the intended defendant who was a party to the contract in respect of which the claim was brought but I am content to leave that question to be decided in a case in which it actually arises.”

The Claimants accordingly submitted that all they needed to show to bring themselves within this gateway was “a connection with” a contract falling within the criteria (a) to (d). Thus even though Grinling and Lehmkuhl’s contractual claims were claims made under their own contracts with the relevant Defendants, since they were related to the Cecil and Bentham contract it did not matter if they could not show that their own contracts fell within the relevant criteria. It was sufficient if the Cecil and Bentham contract did so.

This submission goes far beyond the existing caselaw and would have far reaching consequences. It would also potentially subvert the application of the prescribed contractual jurisdictional criteria.

In my judgment, at least in respect of contractual claims, some relevant legal connection between the claim and the other contract is required. If that contract needs to be referred to and relied upon in order to assert the relevant cause of action then that requirement is likely to be satisfied since it will be a necessary part of the cause of action. However, a mere factual connection between the two contracts is not enough.

Whether, in relation to each cause of action, there is a good arguable case that it comes within one of the discretionary grounds on which the court may order service out of the jurisdiction.

Whether in relation to each cause of action, there is a serious issue to be tried on the merits, or substance, of the claim.

Cecil’s and Bentham’s contract claims against Bayat and TSI Inc.

The existence of the contract

The Claimants’ pleaded case was as follows:

“15.

During the weekend of 18-20 September 1998, Cecil and Bentham had lengthy discussions with Bayat, Warner and Breshinsky. The discussions were held at the residences of Bentham and Cecil, respectively located in London and Hertfordshire.

The Confidentiality Agreements

16.

Cecil (on behalf of Wilken) and Bentham each entered into a “Confidentiality and Non-Circumvention Agreement” (“the Confidentiality Agreements”) with TSI Inc. The Confidentiality Agreements which were dated 19 September 1998 were signed at Bentham’s home in London and provided for Cecil and Bentham, inter alia, to receive confidential information from Bayat and TSI Inc.

17.

Cecil and Bentham explained their business backgrounds with special reference to projects in the developing countries and Cecil’s background in telecoms in Africa.

18.

Cecil and Bentham were given a briefing on the Afghan Project and were shown a copy of the Licence. They informed Bayat that it would not be possible to raise US$140 million for a project in Afghanistan in the current political climate. Bayat informed them that he could arrange for this figure to be changed through his contacts with the Afghan Government. On the basis that they had no obligation to raise any minimum amount of finance, Cecil and Bentham agreed to proceed.

19.

Breshinsky informed those present that he had made proposals to a number of potential financial and/or strategic investors on behalf of TSI Inc. (including ATT, Nokia, Motorola and Ericsson) with regard to the setting up of the Afghan project but that his proposals had been rejected.

20.

The meeting at Bentham’s residence then focussed on the split of equity in the Afghan Project and Bayat explained that he had to retain a majority stake in the Afghan Project as he intended to issue shares to other people, including people in Afghanistan. Cecil & Bentham accepted this and requested 45% of the equity of the Afghan Project, which Bayat accepted.

21.

As Cecil & Bentham did not have a company in which they jointly had equity, it was agreed that the initial contract would be in the name of Wilken until such time as either they took the shares in their own names or through another company.

IV.

THE CECIL AND BENTHAM CONTRACT

22.

In the premises, by a contract (“the Cecil and Bentham Contract”) made orally on 19 September 1998 at Bentham’s home in London, Bayat , TSI Inc, Warner, Cecil and Bentham agreed as follows:

a.

Bayat would be the majority shareholder in the Afghan Project;

b.

Cecil and Bentham would receive 45% of the Afghan Project;

c.

Cecil and Bentham’s 45% interest would be awarded to them individually and/or through Wilken;

d.

Bayat would be responsible for liaising with the Afghan Government;

e.

Cecil and Bentham would be responsible for the business, technical, and development aspects of the Afghan Project;

f.

Cecil and Bentham would assist with the financing of the Afghan Project; and

g.

Warner would help procure finance for the Afghan Project.”

The Defendants contended that the Claimants’ case that they entered a binding contract with Bayat at a meeting in September 1998 is inherently implausible and is inconsistent with the contemporary and subsequent documents.

In relation to inherent implausibility, they stressed that Bayat was meeting with Cecil and Bentham for the first time in September 1998. TSI Inc had already obtained a valuable, exclusive, licence to establish a wireless telecoms network in Afghanistan. The licence required an initial investment of US$140m. Bayat was the sole shareholder in TSI Inc. They submitted that the notion that Bayat would have entered into a legally binding contract to give them almost half of the shares in TSI Inc, at his first meeting with Bentham and Cecil, when they had done nothing (and when, on the Claimants’ case, they had given no commitment to provide finance), is deeply improbable. It would have involved handing away a large portion of the company without any assurance of any return, and it would diminish the equity pot available for other investors.

In relation to the contemporaneous documentation, they relied in particular on the following:

In relation to subsequent dealings between the parties, the Defendants submitted that the history shows that there was no concluded contract: the most that Cecil and Bentham may ever have arrived at was a hope or anticipation that they would in due course reach an agreement, the result of which would be that they would obtain a stake in TSI Inc. The key terms that would need to be negotiated remained up in the air. Those key terms included (at least) the size of any stake, the entity in which any stake would be held, the identity of the contracting parties, and the performance required of the promisee to entitle it or them to a stake. The Defendants contended that the history of dealings between the parties showed that they never reached a contract on these points. In particular:

The Defendants further contended that the Claimants have never been able to identify what they say they were obliged to do in return for the valuable stake they say they were given. At the early stages the basis of any relationship (and compensation) was contemplated as being Wilken’s ability to raise funding. That never happened and neither Wilken nor Cecil or Bentham ever raised any substantial funding. Further, the limited functions that the Claimants did perform between 1998 and 2002 were financially rewarded in various ways, in particular through Netmobile and Network Telecom. The Defendants submitted that it is difficult to conceive of any agreement that could have been reached in 1998, the result of which would be that the Claimants would be entitled immediately to a valuable financial stake though (a) they procured no substantial funding for the project and (b) such work as they did do was the subject of separate reward.

In response the Claimants stressed that on this central issue there is no direct evidence from Bayat. The evidence on behalf of the Defendants (apart from a short statement by Mr. Mujahid) is given by their solicitor, Ms. Duncan, and much of it is argument. There is for example no account of the meetings in London in September 1998.

The Claimants emphasised four background points which I accept were materially undisputed:

TSI Inc. was, in September 1998, a start-up special purpose vehicle with no employees and no assets except the licence to develop telecommunications in Afghanistan granted on 2 September 1998. As such, although it had “some monetary value”, it also had a substantial liability to raise finance.

Bayat had no telecommunications experience, nor of setting up and managing a project of this scale in the developing world; his business interests were fast food restaurants and food distribution.

Cecil and Bentham had considerable experience in the creation, management and operation of businesses in the developing world. Cecil had 9 years of experience of telecommunications.

Bayat and TSI Inc. were under considerable pressure to make progress and faced the prospect of the Licence (TSI Inc.’s sole asset) being cancelled if satisfactory progress was not made. TSI Inc was committed to having assets and infrastructure in place in Afghanistan by the end of 1998.

The Claimants placed particular reliance upon the fact that it is inherently unlikely that they would have carried out the extensive work detailed in their witness statements for well over 3 years without a share in the equity.

As set out in the Claimants’ witness statements, the principal components of that work may be summarised as the establishment by Cecil, Bentham, Grinling and Lehmkuhl of a telephone communications system in Afghanistan, which required, inter alia, the following:

Between late 1998 and mid 2002 the Claimants’ case and evidence was that Cecil and Bentham worked diligently to establish Afghanistan’s first wireless telecommunications operation which operated under the company AWCC. They did so mostly from an office established in London in part for this purpose, which itself had up to 22 employees. For part of this period, not only was the work conducted from this London office, but also because of US sanctions imposed on Afghanistan in July 1999, no part of the operation could take place in the US.

In the course of this work various special corporate vehicles were established in order to hold the licence and care had to be taken to ensure that the generation of international telephone call revenues or any other part of the business did not offend the US sanctions regime. This required an injection of capital. Lehmkuhl was to assist in this by securing a US$400,000 loan to the venture from the Special Situations Equity Fund (“SSEF”), a Lehmkuhl Family investment vehicle.

Grinling was originally employed as Acting Managing Director of AWCC in November 1999 and was responsible for overseeing the early operations of AWCC in Afghanistan. In September 2001, following the 9/11 attack on the World Trade Center, he returned to his home and continued to work in London in his role from Network Telecom’s offices. Grinling’s skills in managing AWCC’s operations on the ground were valued and in November 2001 he was asked by Bentham to return to Kabul as Managing Director of Operations.

Although Cecil and Bentham accepted that they did receive a salary from Network Telecom (although not NetMobile), their evidence was that Network Telecom was principally interested in projects which had nothing to do with the Afghan Project.

The Claimants pointed out that it was not substantially in dispute that the Claimants did the work summarised above and set out in their evidence. However, in the Defendants’ reply evidence it was claimed that a substantial part of the work done between about March 1999 and January 2002 (when US sanctions were lifted), was separate work and not part of the main project. This was disputed by the Claimants. They alleged that the mobile network evolved from the existing network and the two were integrated. The satellite infrastructure installed by the Claimants was used in the evolved mobile network. Their work in establishing the original satellite infrastructure was material in AWCC’s ability to offer mobile services to its customers. In particular, the fact that the first part of the network was already operating in Kabul meant that TSI Inc did not have to prequalify as a bidder for the telecommunications licence which was put out for tender in 2002. A successful bidder needed to provide evidence that they had 500,000 subscribers, which TSI Inc did not have at this time. Further, the Claimants pointed out that the Defendants do not refer to any contemporaneous documents which supports their case on this issue. On the material before the Court I am satisfied that the Claimants have a good arguable case that their work was part of the Afghan Project.

The Claimants submitted that, apart from occasional infelicities in the pleading, a clear and coherent case is pleaded. There was an initial agreement in London that Cecil and Bentham would have 45% either individually or through their corporate vehicles, this was increased to 49% to accommodate additional shares for Bentham, and subsequently the percentages were varied to accommodate others, Bayat’s 51% being a constant. That shareholding was to be in whatever company ultimately carried out the project.

All this is perfectly understandable in what they submitted was in effect a partnership or joint venture between the originator of the business and others whose assistance was required because he lacked the expertise, funding contacts or time to develop it.

The Claimants submitted that many of the documents relied upon by the Defendants did not advance their case. For example:

The Confidentiality Agreements were a necessary pre-cursor to the discussions which led to the contract and were not inconsistent with such contract being made.

Wilken was used as a generic short hand to refer to the minority shareholders and was never a party to the shareholding agreement, nor an intended shareholder, unless so nominated by Cecil.

Unless and until the shares were transferred to Cecil and Bentham or their corporate vehicles Bayat remained the 100% shareholder in TSI and so there is nothing particularly surprising about documents which so refer to him.

The fact that there were details about the arrangements to be agreed and that the proposed shareholdings changed over time did not detract from the basic division agreed at the outset.

By contrast, the Claimants’ contended that their case is strongly supported by a number of documents.

The principal document they relied upon was a filing with the Federal Communications Commission reference ITC-214-20020521-00241 dated 31 May 2002, signed and attested on oath by Bayat, in which he listed, in response to a request to provide the name, address, citizenship and principal business of TSI Inc’s ten per cent or greater direct and indirect shareholders or other equity holders, each of Cecil and Bentham as 15.11% holders of an equity interest in TSI Inc.

Other documents upon which they placed particular reliance included the following:-

An email from Bayat to Cecil, Bentham and Warner of 10 November 1998:

“TSI is a special purpose company formed to develop communications in Afghanistan. It has been composed to reflect the expertise required for this project. Included in TSI are companies and individuals with longstanding experience in not only the telecommunications field itself, but also in finance, banking, and the establishment of new ventures. As such, it has been established to include all the specific elements needed to ensure the success of the company. Of particular relevance is Wilken’s background in telecom, and therefore a short summary of some of the company’s activities and achievement over the past 35 years has been included for reference. The importance of Wilken’s contribution is reflected in its 49% stake in TSI.(emphasis added)

TSI’s officers are as follows:

CEO Ehsanollah Bayat

Senior vice president Vincent Castellano

Vice president Stuart Bentham

Vice president Lord Michael Cecil

Vice president Gary Breshinsky

Vice president finance Mark Warner”

Warner’s email to Bayat 17^th March 1999 which relates to the shareholdings in “Satellite Services Ltd” (a mistake for SCL) and was said to confirm Warner’s view at the time that it was “a portion of the deal”. It was submitted that it suggests that there is an existing agreement as to the shares and was said to evidence at least an understanding that the 4 protagonists would share in whatever corporate vehicles were used to carry out the Afghan Project.

Bayat’s email of 22 March 1999 to Cecil, Bentham and Warner:

“Now then,

When we first met in London it was my impression that Stuart and Michael would equally share their part of the telecom project, and Mark will get certain shares of his efforts putting our meeting together. With that understanding, I committed 45% of TSII’s shares under our control to the three of you. Later on I was told that Stuart is going to give Mark half of his shares. In order to compensate Stuart, I decided that I would issue another 4% of the TSII shares to the two of them.

However, it is my opinion that this will not be fair to Stuart since he has put a lot of time, effort and money into this project.” (emphasis added)

Warner’s email of 24 March 1999 which relates mainly to proposals for shareholdings in AWCC. It recognises that “Wilken” should have a shareholding, depending on whether a finance partner was needed, as opposed to debt financing. The “Wilken” allocation of shares is then expressly broken down into share allocations for “Stuart”, “Michael” and “Mark”.

Warner’s email to Bayat 24 March 1999 which referred to “the original discussions over share distribution” and stated that we “appear to have resolution” on the TSI shares, being a share split of 51%, 20%, 20, & 9%.

It will be apparent from the above summary that both the Claimants and the Defendants have strong points to make in relation to inherent plausibility and that both can point to particular documents which support their case or detract from that of the other. The Defendants can point to the implausibility of a contract being concluded at the very first meeting between the parties when everything was still at an embryonic stage. On the other hand, Cecil and Bentham can point to the implausibility of carrying out the extensive work which they did without there being any commitment to an equity share.

There is a considerable amount of documentary material which supports the Claimants’ case that some understanding was reached that there would be a division of shares. On the other hand the Claimants have to prove not merely an understanding but a contract.

I consider that this is the kind of case in which in order to decide where the truth lies and whose case is to be preferred it will be important to explore the inherent plausibilities, and the statements made in various documents, with the relevant witnesses. However, that is something which can only be done at trial.

On the basis of the material before the Court I am nevertheless satisfied that the Claimants have made out the requisite good arguable case. In particular:

They have provided direct evidence of what was said and agreed at the crucial meetings, which is not demonstrably false and which is not met by any direct evidence from Mr Bayat.

There is support for their case in the documents, and in particular Bayat’s emails of 10 November 1998 and 22 March 1999 and the FCC filing.

They have provided an explanation for many of the documents relied upon by the Defendants.

They have made out a good arguable case that extensive work was done by them which was part of the Afghan Project.

As with all my conclusions on whether the Claimants have made out a sufficiently arguable case, that conclusion is necessarily based on the material presently before the court. It has no bearing on what may or may not be proved at trial.

I am therefore satisfied that on the material before the court the Claimants have established to the requisite standard of proof that a contract was made on 19 September 1998 as alleged in the Particulars of Claim.

The place where the contract was made

If, as I have found, the Claimants have a good arguable case that the Bentham/Cecil contract was made on 19 September 1998 then it was common ground that any such contract would have been made in England.

The Defendants contended that any contract made at that time would have been made with Wilken and that Bentham and Cecil could only claim under it on the basis that there had been a novation of that contract so as to make them parties to it. That would be a new contract and there was no evidence that such contract was made in England. Further or alternatively, the contract allegedly made whereby Lehmkuhl became a party to the contract would necessarily involve a novation and that contract was made in Geneva.

However, the pleaded contract, as to which I accept that there is a good arguable case, was a contract with Cecil and Bentham, albeit that it might be in the name of Wilken and that their shareholding interest might be awarded through Wilken.

It was the Claimants’ case that as far as Cecil and Bentham were concerned there was an initial contract on 19 September 1998 which was subsequently varied and that there was no novation. I accept that they have a good arguable case to this effect.

The Claimants have therefore established a good arguable case under this jurisdictional gateway.

Contract governed by English law

The Defendants contended that this ground could not be relied upon. The argument advanced on the application for permission to serve out was that because the alleged contract was made in England, there was a presumption that it was governed by English law. The suggestion that a contract made in England is taken to be governed by English law is wrong, as is now accepted. It was submitted that the Claimants cannot now rely on other grounds for saying that the contract was governed by English law.

I reject that argument. In my judgment the jurisdictional gateway that the contract was governed by English law was relied upon at the time of the application for permission. The fact that other matters are now relied upon to support that gateway does not make it a new basis of jurisdiction.

The applicable law of the contract is determined by reference to the Rome Convention 1980 (“the Convention”), implemented into English law by the Contracts (Applicable Law) Act 1990.

Where the applicable law has not been chosen in accordance with Article 3 of the Convention, Article 4, which is in the following terms, is to be applied:

“(1)

To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

(2)

Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated. ….

(5)

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

The Claimants contended that the “characteristic performance” of the contract was the provision of services by them and that the provision of shares was effectively the price for those services.

They relied on the Giuliano-Lagarde Report which makes clear that the characteristic performance of a contract is the performance for which payment is due and not the payment of money itself (at p20):

“…one of the parties in a modern economy usually takes the form of the payment of money. This is not, of course, the characteristic performance of the contract. It is the performance for which payment is due, i.e. depending on the type of contract, the delivery of goods, the granting of the right to make use of an item of property, the provision of a service, transport, insurance, banking operations, security etc, which usually constitutes the centre of gravity and the socio-economic function of the contractual transaction.”

They submitted that, as pleaded at para. 22 of the Particulars of Claim, Cecil and Bentham were “responsible for the business, technical, and development aspects of the Afghan Project” and “would assist with the financing”. In contrast, Bayat’s only obligation was to provide shares to Cecil and Bentham, in exchange for their services (equivalent to paying money), and to liaise with the Afghan Government. Warner’s obligation was to “help to procure financing”.

By contrast, the Defendants contended that the characteristic performance of the contract was the issue/transfer of the shares and that the services should be regarded as the price payable for those shares. The shares were to be issued/transferred by Bayat/TSI Inc, both of whom are based in the US.

On the basis of the Claimants’ pleaded case I am satisfied that Cecil and Bentham’s performance is the more prominent and is the substantive obligation pursuant to the contract which characterises the contract. This means that it is presumed pursuant to Article 4(1) that the governing law of the contract is the law of the country of Cecil and Bentham’s habitual residence or principal place of business at the time of the contract, which is England.

Once the presumption is applied, it should only be disregarded in circumstances which clearly demonstrate the existence of connecting factors which justify disregarding the presumption. The presumption may most easily be rebutted in cases where the place of performance differs from the place of habitual residence of the party whose performance is characteristic of the contract.

The Defendants submitted that the alleged contract is most obviously connected with the United States (where TSI Inc was incorporated) or Afghanistan (the contract being said to relate to what the Claimants describe as “the Afghan Project”). The only connection with England is that Cecil and Bentham are English. The bulk of the activities relied on involved work for or by Network Telecom (and/or Netmobile) which was separately rewarded and was in any event in connection with the “satellite project”.

The fact that the Defendants put forward two different connected countries suggests that this is not a case in which the contract is clearly most closely connected with a particular country. In the present case I am not satisfied that it is an appropriate case to disregard the presumption. As already stated, there were contemplated and actual substantial acts of performance in the UK as well as it being Cecil and Bentham’s habitual residence. Further, the contracts were made in England.

I am accordingly satisfied that the Claimants have established to the requisite standard that the Cecil and Bentham contract was governed by English law.

Cecil and Bentham’s contract claims against AWCC: The Cecil and Bentham Contract with AWCC

This pleaded case was abandoned during the course of the hearing.

“The Grinling Contract”

The pleaded case on this contract was as follows:

“65 In or about November 2001, when Grinling was in London, Bentham and Cecil proposed to Bayat and Warner, that Grinling be offered 1% of the shares of the Afghan Project in recognition of Grinling’s past and continuing contribution to the Afghan Project. Bayat and Warner agreed and Grinling accepted the offer. On 25 November 2001, Grinling was moved to the position of AWCC Managing Director Operations and returned to Kabul to take up the position. The agreement to give Grinling 1% of the shares in the Afghan Project was recorded in writing dated 12 November 2001 and attached to his contract of employment with TSI S.A/NetMobile.”

The Claimants contended that this was a new and separate contract made directly between Grinling and Bayat/TSI Inc. It was not contended that it involved any novation of the pre-existing Cecil and Bentham contract.

The Defendants submitted that no good arguable case of such a contract had been made out. In particular:

Grinling’s alleged contractual entitlement was to 1% of “the Afghan Project”. However, it was not alleged that this 1% was to come out of Bayat’s 51% share. It was recognized that it was to come out of the Claimants’ 49% share. But, on the Claimants’ own case Bayat had no right to decide who the minority shareholders were and it was therefore difficult to see why he should be entering into any direct contractual arrangement with Grinling.

The evidence referred to and relied upon does not support the alleged agreement. What is actually recorded in writing, in the letter dated 12 November 2001, is that Grinling was offered 1% of NetMobile by Bentham. The same is recorded in Grinling’s own memo of what was agreed. NetMobile was Grinling’s employer and the 12 November 2001 letter was attached to his letter of employment. It was also a company whose shareholders were Cecil, Bentham and Lehmkuhl, not Bayat.

Although there was evidence of an agreement between Grinling and Bentham, there was no proper evidence of an agreement with Bayat.

The Claimants’ answers to these points were as follows:

Since the shares had not yet been issued/transferred, and their issue/transfer was within the control of Bayat/TSI Inc, it was necessary for a direct contract to be made between them and Grinling for his right to those shares to be properly enforceable. An agreement with Cecil and Bentham would make no commercial sense in circumstances where they did not yet have any shares.

NetMobile was the project company at the time, given that it was impossible for TSI Inc to be active in the light of the US sanctions. The sanctions also meant that Bayat could not be a shareholder in NetMobile, but it was understood that those shares were being held on behalf of the interested parties in the same proportions as agreed for TSI Inc. An agreement to be provided with shares in NetMobile was not therefore inconsistent with the underlying agreement being to provide shares in the ultimate operating company.

There was evidence from both Bentham and Grinling confirming his agreement that Grinling be given a 1% stake. There was no evidence to the contrary from Bayat. Further, there was good reason for offering this inducement to Grinling as he was being asked to return to work in Kabul at a difficult time and his salary was relatively modest.

In addition the Claimants relied upon a number of subsequent documents in which it was envisaged by all parties, including Bayat, that Grinling would be receiving a 1% share in TSI Inc. This was evidence both of the fact of an agreement and of the fact that the agreement was to give Grinling a 1% share in the Afghan project, not simply NetMobile.

On balance I am satisfied that the Claimants have made out a good arguable case as the existence of the Grinling contract for the reasons outlined above and detailed in their evidence.

If the Claimants have a good arguable case that the Grinling contract was made I accept that such a contract would have been made in England and therefore within 6BPD3.1(6) (a). A contract is made in the place where the contractual offer is accepted. In this case, on the evidence, the offer to Grinling, as set out in the letter dated 12 November 2001, was communicated to him by Bentham handing it to him on or about 12 November 2001 at a meeting at the offices of Network Telcom in London and he accepted the same at that meeting.

I would not, however, accept that the claim pursuant to the Grinling contract is “a claim in respect of” the Cecil and Bentham contract. I do not consider that the claims pursuant to the Grinling Contract are sufficiently legally connected to the Cecil and Bentham contract to fall within this head. They are claims in respect of the Grinling contract, not some other contract. On the Claimants’ case the claim is an independent claim made under an independent contract. It does not depend on the existence or terms of the Cecil and Bentham contract. Grinling had an enforceable right to his 1% shareholding regardless of the Cecil and Bentham contract.

Nor would I accept that the Grinling contract was governed by English law within 6BOD3.1(6)(c). It was accepted that the characteristic performance of the alleged contract was the provision by Grinling of services in Afghanistan and that at the material time that was his habitual residence. It was nevertheless contended that the presumption of Afghan law is displaced because the fact that the overall operation was being run from England meant that the contract was more closely connected with this country. I reject that contention. The contract had a far closer connection with Afghanistan where Grinling was based and where he would be providing his services.

The Lehmkuhl Contract

The pleaded basis of the contract was as follows:

“60 The Lehmkuhl Contract was entered into in London in about March 1999 and varied in about October 1999 as follows:

The Defendants submitted that no good arguable case of such a contract had been made out. In particular:

As with the case of Grinling, Lehmkuhl’s alleged 5% share was not to come out of Bayat’s 51% share. It was recognized that it was to come out of the Claimants’ 49% share. As such, that was a matter for the Claimants to decide and agree upon and over which Bayat, on the Claimants’ case, had no say.

In any event, the nature of the contract alleged is one under which companies connected with Lehmkuhl advanced monies to Satellite Communications Limited, with terms as to interest agreed subsequently between Lehmkuhl and Bentham. This provides no basis for alleging any contract between Lehmkuhl and Bayat/TSI Inc. Further, the evidence was the loan was repaid with interest of about 25% per annum so that Lehmkul’s only identified contribution was a loan which was in any event repaid with generous interest.

The Claimants answer to point (1) was the same as that provided in relation to Grinling. As to (2), given the importance of the loan it was always the case that Lehmkuhl was to receive more than interest on the loan. The original agreement was that he would receive a share of the satellite business revenue through his 25% share of SCL. However, when in October 1999 it was agreed to roll that revenue into the main business it was agreed that he would get a 5% share in TSI Inc instead.

The Claimants again stressed that there was no evidence from Bayat to contrary effect. Further, there were a number of subsequent documents in which it was envisaged by all parties, including Bayat, that Lehmkuhl would be receiving a shareholding in TSI Inc.

On balance I am satisfied that the Claimants have made out a good arguable case as to the existence of the Lehmkuhl contract for the reasons outlined above and detailed in their evidence.

However, I am not satisfied that any jurisdictional gateway has been established. The gateways relied upon were:

Cecil’s and Bentham’s claim for quantum meruit

The pleading on this issue was exiguous.

The claim was put on the basis that the Defendants requested that the Claimants provide services and acquiesced in and accepted such services. This was said to give rise to a claim in quantum meruit in restitution or on the basis of implied contract.

The Claimants submitted that the quantum meruit claim arises in circumstances in which the main contractual claim fails. In those circumstances, there was still a request from Bayat to Cecil and Bentham to perform the services in relation to the Afghan Project which they did in fact perform in the expectation that they would be rewarded. That they were compensated to a limited degree in respect of other services which they performed does not affect the position. Even if some very limited payment was received in respect of the services in relation to the Afghan Project, a quantum meruit claim would still lie on the basis that the sums received were not enough and did not represent the value of the services.

Although the existing pleading is far from satisfactory, I accept that Cecil and Bentham have a sufficiently arguable case on this issue. I have already accepted that they have a good arguable case that there was an express contract. If, contrary to their primary case, they fail to make out that there was such a contract, I am satisfied that their evidence and the representations and assurances relied upon make out a sufficient case for a quantum meruit claim. The services requested were dealing with “the business, technical and development aspects of the Afghan project”. Where services are performed in anticipation of a contract being made claims in quantum meruit commonly arise.

The jurisdictional gateways relied upon are:

Grinling’s and Lehmkuhl’s claims for quantum meruit

I have already held that both Grinling and Lehmkuhl have made out a good arguable case that a contract was made between them and Bayat/TSI Inc. If the alleged agreement of Bayat/TSI Inc falls short of being an express contract I am satisfied that their evidence and the representations and assurances relied upon make out a good arguable case claim in restitution or implied contract against Bayat/TSI Inc.

The jurisdictional gateways relied upon are:

In summary, whilst I accept that both Grinling and Lehmkuhl have made out a serious issue to be tried in respect of their quantum meruit claims, only Grinling is able to bring the claim within a relevant jurisdictional gateway.

Deceit/fraudulent misrepresentation

The Claimants summarized their claim as follows:

There are a number of difficulties about this case. In particular:

If that conclusion is wrong and it is necessary to consider the jurisdictional gateways, the gateways relied upon are:

As to the damage sustained, it is not necessary that all the damage has been sustained within the jurisdiction, it is “enough if some significant damage has been sustained in England” - Metall und Rohstoff at page 437. In this case, although the claim centres on shares or the value of shares in a foreign company, it involves a claim that shares and profit in the project would have been transferred to them. I am satisfied in respect of Cecil and Bentham that some significant damage was sustained in England, being where they were based and worked at the material time, where the transfer to them of shares and profit would have been made to them and where financial loss would have been suffered by them. On balance, I am also satisfied that Grinling can also establish this. Although he was working in Afghanistan the evidence is that his economic base was England, that it was to this country that the shares and profit would have been transferred and where the financial loss would have been suffered by him. However, none of these considerations apply to Lehmkuhl whose base was never this country.

As to the acts committed within the jurisdiction, the tortious act may have been committed partly within the jurisdiction and partly without. It is not necessary that all of the acts have been committed within the jurisdiction, but is enough if “substantial and efficacious acts” have been committed within the jurisdiction, even if substantial and efficacious acts have also been committed outside the jurisdiction - Metall und Rohstoff at page 437.

In relation to fraudulent misrepresentation, the damage sustained resulted from an act committed within the jurisdiction if the misstatement was made in England, rather than being received in England – see Newstat Holdings Ltd v Zani [2006] 1 All ER (Comm) 607.

In this case, substantial and efficacious acts were committed in England with regards to Cecil and Bentham since the original and principal representations relied upon were made in England. However, the same does not apply to Grinling and Lehmkuhl. With regard to Grinling, the original representations were made by telephone from abroad. Although they may have been received by Grinling in England that is insufficient. In relation to Lehmkuhl, the alleged representation in relation to shareholding was made at a meeting in Geneva.

In summary, if there is a serious issue to be tried in respect of the Claimants’ claims in deceit/fraudulent misrepresentation, the Court would have jurisdiction over Cecil, Bentham and Grinling’s claims but not those of Lehmkuhl.

Fraudulent conspiracy claims

The tort of conspiracy consists in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means. There are broadly two types of conspiracy: a conspiracy to use unlawful means (which includes a breach of contract) and a conspiracy to injure. A conspiracy to injure may give rise to civil liability even though the ends were brought about by conduct and acts which by themselves, and apart from the combination or concerted action, could not be regarded as a legal wrong – see Clerk & Lindsell on Torts (19^th edition) at para. 25-116.

In the case of an “unlawful means” conspiracy, the claimant must prove an agreement, combination, or concert to injure, involving two or more persons to use unlawful means (including a breach of contract) and that the defendants have acted deliberately – Clerk & Lindsell at paras. 25-118, 25-123, 25-128.

In the case of a conspiracy to injure, the claimant must prove an agreement or combination, involving two or more persons, to injure the claimant and the defendant’s object is deliberate damage to the Claimant – Clerk & Lindsell at paras. 25-118, 25-130 to 25-137.

In this case the Claimants’ primary case was that the Defendants conspired to ensure that the Claimants did not receive the shares which they had been promised and/or earned. They contended that this is ultimately what happened and that at some stage it must have been resolved that it should happen and various steps involving Bayat, TSI, AWCC and Warner were taken to ensure that it did.

On the basis that the Claimants have a good arguable case that they did have an entitlement to the shares I am satisfied that the various manoeuvrings outlined in the pleading make out a serious issue to be tried in respect of this conspiracy claim. Although the Defendants contended that it was difficult to see how this added anything to the contractual claim and was a case of breach of contract dressed up as conspiracy, the case does involve parties other than Bayat and TSI Inc, and in particular Warner.

The pleaded basis of the claim involving Warner was as follows:

“86.In about January 2002, Bayat directed Warner to incorporate a new company in Bermuda, which was named Marilis Investments Limited (“Marilis”). As an experienced banker with numerous contacts, Warner was ideally placed to arrange for the incorporation of Marilis and the setting up of its bank account. Bayat and Warner were Directors of Marilis. Warner was the sole authorised signatory on the bank account of Marilis at the Bank of Bermuda. Warner issued 20% of the shares of Marilis to Bayat, and held the remaining 80% in his own name which Warner and Bayat represented was being held “in trust” for Cecil, Bentham, Lehmkuhl and Grinling. The shareholdings in Marilis were intended to replicate the shareholders’ interests in the Afghan Project including TSI Inc. and any other company operating or benefitting from the Afghan Project.

.....

97.

In an email from Warner to Bayat dated on or about 8 or 9 October 2002 Warner confirmed that he was prepared to give up his claim to 7.5% of the shares in TSI Inc. in return for payment and stated “My position with regard to Marilis is difficult, as the 80% of shares that I hold in my name, were meant to represent the interests of all the previously agreed shareholders including [Bentham] and [Cecil]…If you can agree to indemnify me against claims they might make against me, I can either sell my 80% in Marilis to [TSI Inc.], or simply transfer the funds to [TSI Inc.]”

….

103.

In or about January 2003, on a date unknown to the Claimants, Warner disposed of the 80% shareholding in Marilis that he held in trust for Cecil, Bentham, Lehmkuhl and Grinling and transferred it to Bayat.

104.

By email dated 24 January 2003, the Director of Private Client Services at the Bank of Bermuda, Charles Boulton, confirmed Warner’s instructions to transfer funds, the property of Marilis, as follows:

(1)

$1,969,688.81 to TSI Inc.’s revenue account at JP Morgan Chase, earmarked “AWCC”;

(2)

$351,964.32 to TSI Inc.’s account at JP Morgan Chase;

(3)$600,000 to Warner’s account at the Bank of Bermuda.

105

The unaudited accounts of Marilis for the year ending 31 December 2003 show that in excess of $2.9 million was paid away as “dividends” The aforementioned sums were the profits of Marilis which were distributed to TSI Inc. and Warner ostensibly as dividends, without lawful justification and without regard for the interest of the Claimants in the said sums. “

In essence the claim is therefore that Warner helped set up Marilis and acknowledged that he was holding shares therein on behalf of the “previously agreed shareholders” including the Claimants. Subsequently, in agreement with Bayat, he disposed of that shareholding without accounting for any part of it to them. On the basis of the pleaded case I am satisfied that they have made out a serious issue to be tried against Warner.

As already noted, the contractual and related claims against AWCC were abandoned. No doubt this was to a significant extent due to the difficulty in identifying independent acts by or on behalf of AWCC. At the hearing no attempt was made to develop or justify this part of the Claimants’ case and I am not satisfied that a serious issue to be tried has been made out as to its independent involvement either generally or in relation to the alleged conspiracy.

The jurisdictional gateways relied upon are:

In summary, I accept that there is a serious issue to be tried in respect of the Claimants’ claims in conspiracy against all Defendants other than AWCC, and that the Court has jurisdiction over Cecil, Bentham and Grinling’s claims, but not those of Lehmkuhl.

Constructive trust claims

The Claimants’ primary case is that the Defendants each owed the Claimants fiduciary duties, which they breached and are therefore liable to account to the Claimants. They took advantage of their work to enhance the value of the project. The Claimants have a further or alternative case that the Defendants are liable to account as constructive trustees on the basis of knowing receipt, and that Warner is liable in dishonest assistance.

The primary case was put on the basis that the Claimants and the Defendants were essentially quasi-partners or joint venturers and as such in a relationship of trust and confidence. In relation to Cecil and Bentham I consider that a serious issue to be tried has been made out. They were involved from the outset and, on their case, were to be major contributors to the venture, as reflected in the size of the equity share promised. However, such a case is far more problematical in relation to Grinling and Lehmkuhl. Quite apart from the limited direct contact between them and Bayat/TIS Inc, they came in later and contributed specific services for which they were paid. Grinling was employed as managing director and paid a salary. Lehmkuhl provided a loan which was repaid at a handsome rate of interest. Neither appear to have had any involvement in directing the project. The mere fact that they may have a contractual or quasi contractual claim does not begin to establish that there was a fiduciary relationship. I am not therefore satisfied that a serious issue to be tried that they were or were equivalent to joint venture partners has been made out in relation to either of them.

The knowing receipt case was premised on alleged misappropriation of funds and resources on the ground of breach of fiduciary duty or breach of trust. I accept that Cecil and Bentham have shown a serious issue to be tried on this issue but Grinling and Lehmkuhl have not done so since they have not made out a case of fiduciary duty or of a trust relationship.

The case of dishonest assistance against Warner was based on his dealings with Marilis and his alleged “dishonest assistance in each of Bayat’s breaches of fiduciary duty/breaches of trust”. Again, I accept that Cecil and Bentham have shown a serious issue to be tried on this issue, but Grinling and Lehmkuhl have not done so since they have not have not made out a case of fiduciary duty or of a trust relationship.

The jurisdictional gateways relied upon in relation to this claim are:

In relation to the last two gateways, it was contended that the claims arise out of a combination of (i) the initial agreements (which for the purposes of considering this issue should be assumed to be an agreement in principle, not a binding contract); (ii) the work done by the Claimants in reliance on the Defendants’ assurances; and (iii) the Defendants’ failure to give the Claimants their share of equity in the Afghan Project. It was submitted that it was not necessary to show that all relevant acts were committed within the jurisdiction but rather substantial and efficacious acts:

In summary, I accept that Cecil and Bentham, but not Grinling and Lehmkuhl, have made out a serious issue to be tried in respect of this claim and that the Court has jurisdiction in respect of the Cecil and Bentham claim. Even if Grinling and Lehmkuhl had made out a serious issue to be tried I am not satisfied that they would have been able to bring their claims within any jurisdictional gateway.

Whether the English court is a more suitable jurisdiction for this case to be heard than any other available jurisdiction (forum conveniens).

The appropriate forum is that forum where the case may most suitably be tried for the interests of all the parties and the ends of justice. It is necessary to consider what is the natural forum, with which the action has the most real and substantial connection (factors include convenience, expense, the governing law and places where the parties reside and carry on business).

The Claimants submitted that England is plainly the forum which has the most real and substantial connection to the action. In particular:

The Defendants submitted that the essential issue between the parties relates to what was discussed between them at various stages of their relationship and that it was only the 19 September 1998 discussions which took place with all parties present in this country. In relation to these discussions the most relevant witnesses are the parties to the proceedings, not the myriad of supporting witnesses identified by the Claimants. Many of the parties’ dealings after the initial meeting related to what was to be done in the US in respect of the shareholding in and license held by a US company, TSI Inc. The US is also where Bayat was based. The US is therefore the most appropriate forum for any trial. Alternatively, in an international case of this kind involving parties based in various different jurisdictions and in respect of which both witnesses and documents are readily available in the US and the UK, it cannot be shown that England is clearly the most appropriate forum.

However, although the dealings between the parties are of central importance I accept that what work was done by Cecil and Bentham in relation to the project, and whether and to what extent the work done on the satellite project was part of the Afghan project, are significant evidential issues in relation to which the vast majority of the witnesses are based in the UK. It was also from England that the project was directed and, in respect of work carried out at the material time, there was little which was taking place in the US. In particular, the effect of the US sanctions was that the project could not in any event be managed from the US.

But for one factor I would therefore consider England to be clearly the most appropriate forum for the trial. That factor is that proceedings in respect of the same claims have already been the subject of proceedings in the US involving the lead Claimants and Defendants. Extensive pleadings, disclosure of documents and depositions were provided in those proceedings and both sides had lawyers heavily involved. If the US was an available forum this would be a compelling factor in favour of it being the more appropriate forum for prosecution of effectively the same claims.

Indeed, this was essentially recognised in Bentham’s evidence in which he stated:

“87.

Had the prospect of bringing the claims that are the subject of these proceedings in the SDNY or any other court in the U.S. existed and having invested so much time and effort with Kelly Drye, we would have exhausted every possible legal avenue in the U.S. in the pursuit of our counterclaim and claims against Bayat. Over the preceding four years we had spent significant amounts on legal fees, flights and accommodation and other disbursements. Prior to engaging Kelley Drye, we had spent approximately US$500,000 on Martin J. Murray’s fees. We subsequently accrued over US$2.6 million in legal fees with Kelley Drye, not including approximately US$100,000 in a share of the fees associated with the Supreme Court appeal, which had to be paid to Kelley Drye.

88.

Given the contingency arrangements, it was as much in Kelley Drye’s interests (as it is their only hope of being paid) as in ours, to pursue the claims in New York, but we were unable to do so.”

The Claimants own case (or at least that of the lead Claimants, Cecil and Bentham) was therefore that it would be more appropriate for any trial to be in the US, but that the US is not an available forum.

It was the Claimants’ case that if the action was commenced in New York or some other US court, it would be dismissed again. The relevant facts resulting in the dismissal of the New York proceedings and sealing of the court order have been summarised above. Cecil and Bentham’s counterclaim in the SDNY proceedings is based on the same facts as the current action. The Claimants contended that the obvious inference is that whatever secret consideration caused the previous action to be treated in this way still exists, and therefore, whilst it may be that a new action may be technically brought, it would suffer the same fate as the previous one.

The reason why the SDNY proceedings were dismissed and sealed is secret. This fact is therefore not capable of being proved precisely. The Claimants submitted that they have adduced the best available evidence in the very unusual circumstances of this case to show that this inference is correct. In particular:

The evidence of the Defendants’s US lawyer, Maines’, focuses on the fact that (i) the order dismissing the claims in SDNY did not expressly state that it was “with prejudice” on its face and (ii) that, in any event, the dismissal was made without a determination on the facts of the case. Therefore, in Maines’ view, the position is governed by US procedural law and as such there is no procedural bar to litigating the issues in the US.

The Claimants accepted that the dismissal was made without any determination of the substantive merits. However, their evidence is that in circumstances where the reasons for the order cannot be identified, the dismissal is to be treated as being “with prejudice” and therefore of preclusive effect. Whether or not this is correct, the Claimants say that the fundamental point is that the SDNY Proceedings were dismissed and sealed. The same facts and issues are the subject of the present action. If the claim was started again in SDNY (or any other US court), it is at least more likely that it would follow the same fate. Even if the Defendants are right that as a matter of technical procedure a claim may be commenced, the Claimants’ evidence shows that it would be dismissed again.

This was disputed by Mr Maines who pointed out that it was not supported by the fact that the New York court had made an order for redaction of documents. That, it was said, was only consistent with further US proceedings being contemplated and the reason for the sealing not being such as to preclude further proceedings.

Given that it is not possible to know what were the reasons for the decision to dismiss and seal the proceedings this is a difficult issue to resolve. As stated in Biggin v. Permanite [1951] 1 KB 422, at page 438: “It is only where precise evidence is obtainable, the court naturally expects to have it.  Where it is not, the court must do the best it can.” The US lawyers for the parties have given opposing evidence as to whether further proceedings would meet the same fate, but neither is able to explain why that is or is not the case. However, taking the evidence as a whole I am satisfied that the Claimants have at least established a real risk that any further US proceedings would be dismissed. In particular, given the significant resources already committed by Cecil and Bentham and, even more so, by their US lawyers, to the US proceedings I accept that if there was any realistic prospect of carrying on with their claim in the US that is what they would have done. Indeed that was the point of the costly and unsuccessful appeals which they made. I am therefore satisfied that the Claimants have sufficiently established that the US is not an available forum. In those circumstances there can be little doubt that England is clearly the most appropriate forum for the trial of these claims.

Service generally

The legal issues which arise are the relevant principles in relation to

Extension of time for service

Extensions of time for service are governed by CPR 7.6(2) and 7.6(3) which provide as follows:

The power to extend time under CPR 7.6 has been reviewed in several recent Court of Appeal decisions, notably Hashtroodi v Hancock [2004] 1 WLR 3206, Collier v Williams [2006] 1 WLR 1945, and Hoddinot v Persimmon Homes [2008] 1 WLR 806.

The cases establish that the discretion to grant a prospective extension of time under CPR 7.6(2) “should be exercised in accordance with the overriding objective, and that the reason for the failure to serve within the specified period is a highly material factor” – Hashtroodi at para. 22 per Dyson LJ.

As stated by Dyson LJ in Collier at para. 87:

“[87]…When deciding whether to grant an extension of time under CPR 7.6(2), the court is required to consider how good a reason there was for the failure to serve in time … the stronger the reason, the more likely the court will be to extend time; and the weaker the reason, the less likely. This involves making a judgment about the reason why service has not been effected within the four months’ period …”

The cases make clear the importance of adherence to time limits in the context of the overriding objective:

“One of the important aims of the Woolf reforms was to introduce more discipline into the conduct of civil litigation. One of the ways of achieving this is to insist that time limits be adhered to unless there is good reason for a departure. In the Biguzzi case [1999] 1 WLR 1926 Lord Woolf MR said, at p 1933: “If the court were to ignore delays which occur, then undoubtedly there will be a return to the previous culture of regarding time limits as being unimportant.” – see Hashtroodi at para. 20.

They also emphasise the importance of such adherence regardless of limitation considerations:

“It is tempting to ask: what is the point in refusing to extend the time for service if the claimant can issue fresh proceedings? But service of the claim form serves three purposes. The first is to notify the defendant that the claimant has embarked on the formal process of litigation and to inform him of the nature of the claim. The second is to enable the defendant to participate in the process and have some say in the way in which the claim is prosecuted: until he has been served, the defendant may know that proceedings are likely to be issued, but he does not know for certain and he can do nothing to move things along. The third is to enable the court to control the litigation process. If extensions of time for serving pleadings or taking other steps are justified, they will be granted by the court. But until the claim form is served, the court has no part to play in the proceedings. A key element of the Woolf reforms was to entrust the court with far more control over proceedings than it had exercised under the previous regime. The rules must be applied so as to give effect to the overriding objective: this includes dealing with a case so as to ensure so far as is practicable that cases are dealt with expeditiously and fairly: CPR r 1.1(2)(d) . That is why the court is unlikely to grant an extension of time for service of the claim form under CPR r 7.6(2) if no good reason has been shown for the failure to serve within the four months' period.” – see Hoddinott at para. 54.

In considering whether good reason has been shown a distinction has been drawn between matters which might justify a failure to serve the claim form, and those which might instead lead to a request for an extension of time for service of particulars of claim after the claim form has been served. For example:

In considering whether good reason has been shown it will be relevant to consider whether the applicant or its legal advisers have acted “sensibly and responsibly”. For example:

As to the relevance of limitation, whether the claim has become statute barred since the issue of the claim form is a matter of importance. Where an extension of time is sought in circumstances where the claim has, or may have, become time-barred since the date on which the claim form was issued, or will become time-barred in the extended period, the court should have regard to the fact that an extension of time might disturb a defendant who is entitled to assume that his rights can no longer be disputed as a matter of importance when deciding whether to grant an extension of time for service: see Hashtroodi para. 18 and Hoddinot para. 52. See also Sodastream v Coates [2009] EWHC 1936 (Ch) “…it was certainly prejudicial to the fifth defendant who, as a result of the further extension, found the limitation period for the claim against him extended by a further three months” (para. 38). This consideration is the more important if the extension is beyond four (or six) months after the expiry of the limitation period when such an assumption can be safely made.

The Claimants also submitted that in the exercise of its discretion the court should have regard to the balance of hardship. In this regard reliance was placed upon case law under RSC Ord 6 r 8 (under which it was necessary to show “good reason” for an extension) and Lord Brandon’s judgment in Waddon v Whitecroft-Scovill Ltd [1988] 1 All ER 996 at p1003 in which he stated that whilst balance of hardship could not in itself be a good reason, “where there were matters which could, potentially at least, constitute good reason for extension, balance of hardship might be a relevant consideration”. Although reliance upon RSC caselaw is generally discouraged (see in the present context Hashtroodi at para. 16), I accept that, if a potentially good reason for an extension has been shown, balance of hardship may be relevant to the exercise of the court’s discretion to extend time.

Service by alternative means

The Defendants submitted that an order for alternative service is an exceptional order and that there must therefore be “good reason” for an order for service by alternative means: see CPR 6.15(1). The Court of Appeal held in Knauf UK GmbH v British Gypsum Ltd [2002] 1 WLR 907 (at p921c) that, “a mere desire for speed is unlikely to amount to good reason, for else, since claimants nearly always desire speed, the alternative method would become the primary way”. That was a case involving service out of the jurisdiction, in which the normal means of service would have been under the Hague Convention, and would have taken some time.

The Court of Appeal also made plain in Knauf that the conventions controlling service between the UK and Germany should not be bypassed merely for the sake of establishing jurisdiction in England:

“In our judgment there cannot be a good reason for ordering service in England by an alternative method on a foreign defendant when such an order subverts, and is designed to subvert, in the absence of any difficulty about effecting service, the principles on which service and jurisdiction are regulated by agreement between the United Kingdom and its Convention partners. This is not a matter of discretion, but of principle.” (p. 924f)

It was this aspect of stealing a march which was regarded as being “the essence of the decision” in Knauf by David Steel J in Marconi Communications International Limited v PT Pan Indonesia Bank Limited TBK [2004] EWHC 129. In that case it was emphasised that it was no longer necessary to show that service was “impractical” (the test under RSC Ord 65 r4) and that “the discretion afforded by the new rules is much broader than that” (para. 44). In deciding that good reason had been shown in that case he relied upon the fact that service in Indonesia “would involve very extensive delay in a claim which was already stale” and that the Defendant did not have “a genuine desire to ensure the proprieties of service were met” (para. 45).

Support for a broad approach involving the “pragmatic use of common sense” and consideration of “the ends of justice” is provided by the decision of HHJ Chambers QC in Addax BV v Coral Suki SA [2005] 2 All ER 137. He stated (at para. 23):

“[23] It seems to me that, where one is concerned with service on a defendant outside this jurisdiction, one must apply to the criterion of ‘good reason’ the historic caution that a court brings to the exercise of that jurisdiction. But the application of the criterion involves the pragmatic use of common sense. There may be situations in which service by orthodox means can be effected but it does not serve the ends of justice to use such means: not least because their use will be materially less effective in bringing the proceedings to the notice of the defendant than the method requested. The most obvious question to be met when a court is asked to order service by an alternative method is, ‘Why not use the ordinary method?’ What I think to be essential is that the chosen means of service should have the effect of bringing to the attention of the defendant, not simply the existence of the proceedings, but the fact that he is regarded by the English court as having been brought into them as a party.”

Non-disclosure

On a without notice application, the applicant must act in the utmost good faith and must disclose to the court all matters which are material to be taken into account by the court in deciding whether or not to grant relief without notice, and if so on what terms. However, the extent of the duty of disclosure and the consequences of any non-disclosure depend on the nature of the application made.

There is a distinction between the obligation to make full and frank disclosure in the context of applications which can cause serious prejudice to the defendant’s position, such as freezing injunctions, and those such as service out applications where adverse consequences can usually be compensated by a costs order.

In A/A D/S Svendborg v Maxim Brand (23 January 1989) Kerr LJ said in relation to an application to discharge leave to serve out of the jurisdiction, in addition to a freezing injunction, that:

“in principle the same duty of disclosure arises in relation to Order 11. But in practice such oversights are more likely to be penalised only in the forum of costs, since it would not be right to drive the plaintiffs to an inappropriate jurisdiction or to bar a bona fide claim from a proper one. To that extent the practice may be different in relation to Order 11 from cases involving injunctions”

In Payabi v Armstel Shipping Corporation (The Jay Bola) [1992] QB 907 various criticisms were made of the claimants’ evidence on previous applications for an extension of time for serving the proceedings on the defendants out of the jurisdiction.. Hobhouse J dealt with the points made as follows (at p917-8):

“There is a duty of disclosure on all ex parte applications but the extent of the duty and the gravity of any lack of frankness will depend in any given case on the character of the application. Where the application is, as in the present instance, one of a character which would not prejudice the relevant party's position… At one end of the scale there are Anton Piller orders and Mareva injunctions where the consequences of the order may be unpredictable and irremediable and very possibly most serious for the proposed defendant: there the very fullest disclosure must be made so as to ensure as far as possible that no injustice is done to the defendant. At the other end of the scale are minor procedural applications where there may be no risk at all of prejudice, or at least none that cannot be fully made good by an order in costs. Armstel, and would not cause them any loss or inconvenience that would not fully be made good by an order in costs, the duty of disclosure does not have such an extreme extent.”

In Arab Business Consortium International Finance and Investment Co v Banque Franco–Tunisienne [1996] 1 Lloyd’s Rep 485 Waller J set out at p490, what sorts of non-disclosure would be fatal on an application to serve out:

“There is clearly a distinction to be drawn between deliberate non-disclosure designed to deceive the Court and persuade it to grant an ex parte order where it otherwise would not, and innocent non-disclosure where disclosure would in fact have made no difference to the order that the Court would have made. Obviously, if a non-disclosure has been of a serious kind and deliberate, the Court would wish to ensure that any advantage gained by the non-disclosure should not be retained.”

Whether the orders of Field J on 19 September 2008 and Tomlinson J on 18 March 2009 extending time for the service of the proceedings should be set aside either (a) because they were wrongly made or (b) because of non-disclosure of material facts.

The Defendants contended that the Claimants could not establish good reason for the extension of time. In particular:

The Claimants decided in May 2008 to issue proceedings in the Commercial Court. They did that without arranging advance funding. That was their choice. Having made that decision, they had 4 months to get on and serve. They knew they needed permission to serve out, but they did not apply for that. Indeed, they did nothing to put themselves in a position to serve.

Instead, at the end of the 4 month period, they sought an additional 6 months. They applied on paper and without notice. If they lacked a proper basis for applying for an extension they took the risk that the order would later be set aside.

This is a case where, on the Claimants’ own case, a limitation defence would accrue during the period of the extension they were seeking.

The Claimants did not notify the Defendants of the issue of the claim form or of the applications for extensions of time or send a letter before action; hence, the Defendants were entitled to assume that the limitation period had expired.

The Claimants’ attempts to get third party funding were not a good reason for failing to serve the proceedings. Litigants in commercial litigation would, no doubt, often prefer not to run the risk of paying their own or the other side’s costs. But the risk is a generic feature of all such litigation, and once a claimant takes the step of issuing proceedings he must get on and serve the claim, so that the Defendant knows of the claim and so that his reasonable expectations based on his limitation defences are not unduly upset and for the other reasons explained in Collier at para. 54. If the desire to shift the costs risk onto a third party was accepted as a good reason in the present case, it would apply to any case where a claimant was hoping to secure funding, but had not yet done so before expiry of the claim form.

Anyway, it is now clear that the Claimants had easily enough resources to cover at least the initial stages of the proceedings as shown by the fact that Cecil and Bentham in fact funded the proceedings down to July 2009 from their own resources.

Even if the funding issues could ever have justified a stay of the proceedings, that should have been raised as a case management question to be held after service of the proceedings at an inter partes hearing, where all the arguments could have been ventilated. If an application for a stay had been made at the same time as service of the claim form the Claimants would not have incurred any significant costs risk.

The Claimants contended that there was a good reason for the extension, namely that the Claimants did not have sufficient liquid assets to fund a case of this size and complexity and accordingly, they were still trying to secure insurance cover and funding. The fact that such insurance cover and funding had not been concluded by September 2008 (or by March 2009 when a further short extension was requested) was not due to any want of effort on the part of the Claimants or their legal representatives. On the contrary, painstaking efforts had been made to obtain insurance cover and litigation funding generally over a considerable period of time. In particular:

Whilst I accept that lack of funding will often not be a good reason for an extension of time, in the unusual circumstances of the present case I am satisfied that good reason has been made out. In particular:

In the unusual circumstances of the present case I therefore accept that the Claimants acted “sensibly and responsibly” in not serving the claim form. In cases such as Steele v Mooney it was not sensible to serve the claim until it had been established that the claimant had a viable claim. In that case expert evidence was required for the claim to be viable. In the present case funding was required for the claim to be viable. That could clearly not justify a prolonged extension of time but in this case a short extension was being sought in circumstances where extensive efforts had been made to obtain funding and there was a real prospect of it being obtained shortly, as events proved. Further, the obtaining of ATE insurance before serving the claim was in the Defendants’ own interests since it would provide them with costs protection in respect of the heavy applications which would inevitably follow service.

I also consider that the balance of hardship strongly favours the granting of an extension. If the extension is set aside the Claimants will have lost the opportunity to pursue a very sizeable claim which they are now in a position to fund and which they have been seeking to pursue since 2002. Through no fault of their own the US proceedings came to an end without resolution. This is not a case where the Defendants are suddenly faced with a claim for the first time at or after the end of the limitation period. The Defendants have been facing and dealing with this claim since 2002 and extensive documentary and witness evidence has already been procured in relation to it. In such circumstances, a short further delay in prosecution of the claim would cause little prejudice. Nor is this a case, given its history, in which the Defendants could safely assume that the claim was no longer being pursued. It will have been apparent from Cecil and Bentham’s conduct of and attempts to revive the US proceedings that this was a claim that they were very serious about pursuing. In any event, on the Claimants’ case on limitation the extension did not in any event take the claim outside the period of 6 years and 6 months after which, in an ordinary case, such an assumption might safely be made. Although the Defendants contended for a slightly earlier date, even on their case the extension is only just outside the extended period.

For all these reasons, I am satisfied that there was good reason for the grant of the extensions of time and that this is an appropriate case for an extension.

However, the Defendants submitted that the orders should in any event be set aside for non-disclosure. They contended that in circumstances where the desire to obtain litigation funding is the ground relied upon, there should have been proper disclosure of the Claimants’ ability to fund the proceedings themselves. The extent of the Claimants’ assets was plainly relevant to the balancing exercise. Their evidence gave the misleading impression that the Claimants did not have the ability to progress the proceedings at all, even as far as serving the claim form.

It was pointed out that in his statement the Claimants’ solicitor, Greaves, had said that Cecil and Bentham had “exhausted” their funds in the SDNY proceedings. Nothing was said then about Lehmkuhl or Grinling. However, when the Defendants later sought security for costs of the jurisdiction challenge, the Claimants’ position changed. They now said that they all had substantial assets within the jurisdiction. The Defendants contended that that evidence showed that the Claimants’ assets are worth more than £8.5 million. This is was said to be starkly at odds with the impression given in the application for an extension of time that the Claimants would be unable to fund any further steps in the proceedings unless litigation funding was first obtained.

There was considerable debate at the hearing as to exactly what was the realisable value of the assets disclosed. However, whilst it is apparent that the Claimants do collectively have significant assets, I accept that few of those assets are readily realizable or of a kind which could be used to raise significant funds. Bentham’s evidence, which I accept, was that in seeking litigation funding loans were only available if adequately secured and there were few available assets which met this requirement.

I also do not accept that the statement that Cecil and Bentham had “exhausted” their funds would be reasonably understood as meaning that they had no funds; not even sufficient funds to issue a claim form. The statement was made in the context of evidence relating to their attempts to obtain litigation funding for the prosecution of the claim. What was being said was that in view of the monies spent in the US proceedings they were not in a position to fund proceedings here and could not pursue their claim without external funding. That was and remains true. The assets disclosed do not reveal an ability to fund this expensive litigation without significant external support.

I therefore do not accept that there was a material non-disclosure or misrepresentation or, if there was, that it was deliberate or that it in any event it would be appropriate to set aside the orders made.

Whether the order of David Steel J made on 8 April 2009 giving permission to service out of the jurisdiction should be set aside because of non-disclosure of material matters.

The principal non-disclosures alleged were as follows:

The Claimants failed to disclose that Blair J had directed that the first application was not suitable for disposition on the papers and should be dealt with at a half day hearing.

The Claimants failed to properly explain the deficiencies in the first application identified by Tomlinson J at the hearing on 13 March 2009 to David Steel J and which resulted in the first application being dismissed.

The Claimants failed to make clear that the order in the SDNY proceedings was not made “with prejudice” and that its effect did not, and certainly did not necessarily, bar further proceedings in the US. The Claimants’ evidence wrongly gave the opposite impression to David Steel J.

The Claimants failed to properly explain to David Steel J the possible defences to the claim, including defences that had already been put forward by the First to Third Defendants.

The Claimants did not tell David Steel J what were the allegations made against Cecil and Bentham in the SDNY proceedings.

The Claimants did not tell David Steel J that the real reason that an order for service by alternative means was sought was that the time within which the claim form had to be served was about to expire.

The Claimants did not tell David Steel J that the relevant limitation periods would or might expire during the period over which time was sought to be extended.

The Claimants response to each of these points was respectively as follows:

I accept the Claimants’ case on this issue for the reasons given by them and in the light in particular of their covering letter of 7 April 2009. The principal points relied upon by the Defendants were (1) the failure to refer to Blair J’s order that there be an oral hearing and (2) the statement that the SDNY proceedings had been dismissed “with prejudice”.

As to (1), David Steel J was made well aware of the fact that there had been an oral hearing before Tomlinson J, which is itself unusual. He was referred to and would have undoubtedly have had regard to the transcript of that hearing. He would have appreciated that this was potentially an appropriate case for an oral hearing and he would have called for one had he considered it necessary.

As to (2), this evidence was based on what Friedman had been heard to say. As far as Greaves was concerned it was therefore true. In fact the order was not expressly stated to be “without prejudice”, although it remains the Claimants case that is its effect both as a matter of procedure and because any further action would suffer the same fate. If a full explanation of the position had been given I do not consider that it would have made any material difference to David Steel J’s decision.

For all these reasons I am therefore satisfied that there was no material non-disclosure or misrepresentation or, if there was, that it was not deliberate or that it in any event it would not be appropriate to set aside the orders made.

Whether the order of David Steel J made on the same day for alternative methods of service should be set aside.

The Defendants submitted that the Claimants lacked a good reason for an order for alternative service. So far as Bayat and TSI are concerned, Greaves said that “taking into account the usual bureaucratic delays in any Government organisation (wherever in the world), the Hague Convention process is likely to be very slow and could take several months before service is finally effective”. Service by alternative means was sought on AWCC “so as to avoid any delay and in the best interests of justice and in line with the overriding objective”. For Warner, what he said was that service in the US would normally be under the Hague Convention.

The Defendants contended that these “portmanteau” reasons for an order permitting service by alternative means are insufficient. No effort had been made to serve the Defendants, despite the claim form having been issued in May 2008, and no special problems were identified. If delays in service through the prescribed routes are indeed “usual”, they affect all claimants who wish to serve out of the jurisdiction. The fact that the prescribed process takes time is not by itself a reason to allow the process to be side-stepped.

In addition, the Claimants appear to have wished to serve the proceedings without going through the prescribed processes and without prior warning, so as to seek to found jurisdiction in England (over the US) and to avoid the possibility of an anti-suit injunction. This was akin to stealing a march as in the Knauf case.

By contrast, the Claimants submitted that it was obviously sensible, in view of the potential difficulties in locating the Defendants around the world, and potential limitation difficulties which might arise if service was delayed for months, to seek and be granted an order for alternative service.

They contended that the object of the service out rules is not to thwart actions from ever taking place by every possible procedural means, but to ensure that the claims are brought to the notice of the defendants in a way that is fair in the circumstances. The proceedings were effectively and swiftly brought to the attention of the defendants and no prejudice was suffered by them.

The evidence is that the individual Defendants in this case are international business men who travel extensively, have a transient lifestyle and homes in different countries. As such, service through official channels would not necessarily have meant that the proceedings would come to their attention promptly. I accept that the more efficient means of doing so was service by electronic means. In the case of the corporate Defendants the evidence was that service in the US and Afghanistan would involve delay. In relation to all Defendants, given the limitation issues, it was important that service was effected as soon as possible. I do not consider that there was any ulterior motive behind the request for service by alternative means. Concerns about a possible anti-suit injunction was a reason why the Defendants were not told of the proceedings in advance. It was not the reason why service by alternative means was being sought. That was justifiably motivated by a desire to ensure that proceedings were brought to the Defendants’ attention as efficiently and expeditiously as possible. In my judgment in the present case service by alternative means was likely to be the most effective and efficient means of bringing the proceedings to the attention of the Defendants and there was a need, in the interests of the Defendants themselves, for that to be done as expeditiously as possible. In all the circumstances I am satisfied that there was good reason for service by alternative means.

Whether service has been validly effected within the terms of Tomlinson J’s order.

This argument depends on the Defendants persuading me that Tomlinson J’s order dated 18 March 2009 which states that the extension is granted to 30 April 2009, should be amended under CPR 40.12 ( the “slip rule”) to properly reflect the fact that Tomlinson J gave permission for a 1 month extension and that the latest date for service to be effected should therefore have been specified as 20 April 2009 not 30 April 2009.

Tomlinson J’s order stated in terms that time was extended until 30 April 2009. As such the Claimants were entitled to conduct themselves on the basis that this was the order made. In such circumstances it would not be appropriate or just retrospectively to rule that they should in fact have been acting on the basis of a different, earlier and unstated deadline. I therefore refuse the Defendants’ application.

For the reasons set out above, save in respect of Lehmkuhl’s claims, Grinling’s claim in constructive trust and all the Claimants’ claims in fraudulent misrepresentation and against AWCC , I conclude that a proper case for service out has been established. Save in these respects, the Defendants’ applications are dismissed.