Swiss Life AG v Kraus (aka Moses Krausz)

Introduction, issues and conclusions

There is before the Court an appeal brought by Swiss Life AG (“Swiss Life”) from the decision of Deputy Master Eyre of 16^th December 2014 striking out the Appellant’s claim and giving summary judgment to the Defendant Mr Moses Kraus (“Mr Kraus”). The claim by Swiss Life was to enforce the costs component of a Default Judgment made on 13^th December 2013 by the US District Court (Southern District of New York) (“the Default Judgment”). As I explain more fully below the costs claim amounts to c. $1.5m; however the underlying damages award amounts to c. $150m. The judgment (as to both damages and costs) was made in favour of Swiss Life in respect of a Third Party Claim against Mr Kraus and a Lichtenstein company, Caruso AG (“Caruso”) under (inter alia) the Racketeer Influenced and Corrupt Organisation Act (“RICO”). I refer to these proceedings in this judgment as the “Third Party proceedings”. The appeal by Swiss Life against the refusal to enforce the Default Judgment is brought with the permission of the Deputy Master by Order dated 18^th December 2014 (Footnote: ¹). In determining this appeal I am considering whether the Deputy Master wrongly concluded that the summary judgment test was met. There is no need to set out in any details the law relating to the test to be applied by this court on an appeal from such a judgment. For the reasons I set out below I am satisfied that the Deputy Master clearly erred and should not have granted summary judgment. The Deputy Judge did not address himself to the law on the issue of the “real plaintiff”. He did not therefore address the relevant facts. There are serious issues to be tried upon which Swiss Life has a proper case to advance.

The Default Judgment relates to the allegedly unlawful conduct of (inter alia) Mr Kraus in the context of a range of proceedings in the US, Switzerland and Israel in which it is said by Swiss Life that Mr Kraus acted unlawfully and wrongly and also in contravention of RICO. One part, but only one part, of that conduct concerns a law suit commenced in New York against Swiss Life by various plaintiffs who are said to be nominees or ciphers of Mr Kraus. I describe this action below where it is referred to as the “Main Action”. In the Default Judgment an order was made for the damages to be quantified in the future at an “inquest”. The damages were also to be subjected to a trebling pursuant to the penal provisions of RICO. Swiss Life was also awarded its costs. As I understand matters the award of costs was made pursuant to express statutory provision in RICO; costs are not (unlike in this jurisdiction) normally awarded in ordinary litigation.

It is also important to record at the outset that the costs and the damages were awarded for conduct which went beyond the facts of the Main Action. There is however no break down of either the damages or the costs in the New York proceedings so that it is not stated how much is to be allocated to each of the various objected to acts which are the subject matter of the Third Party proceedings.

Swiss life has now brought proceedings to enforce the costs element of the Default Judgment; this is notwithstanding that (albeit subsequent to the commencement of this action) in August 2014 the quantification process occurred and Swiss Life now has an order that Mr Kraus pay trebled damages of in excess of $150,000,000. Mr Kraus applied to the Deputy Master for summary judgment and/or to strike out the costs enforcement proceedings because he had not, he contended, submitted to the jurisdiction of the US courts in either the Main Action, or, the Third Party proceedings and the Default Judgment in the Third party proceedings was therefore not enforceable in England & Wales in the High Court. The Deputy Master agreed. Hence this appeal.

The issues arising on the appeal can be summarised as follows.

First, did Mr Kraus submit to jurisdiction in the Main Action by reason of his actions in initiating and controlling the Main Action via the named (nominal) plaintiffs (the real plaintiff point)?

Secondly, if Mr Kraus can be said to have submitted to jurisdiction in relation to the Main Action did he thereby submit to the jurisdiction in relation to the Third Party proceedings given that they, at least in some measure, relate to the conduct which is the subject matter of the Main Action (the related action point)?

Thirdly, did Mr Kraus submit to jurisdiction in the Third Party proceedings because of a letter that he wrote to the Judge on 22^nd January 2013 in the context of those Third Party proceedings (the 22^nd January 2013 letter point)?

Fourthly, even if Mr Kraus can be said prima facie to have submitted to the jurisdiction of the New York Courts in relation to the Third Party proceedings does he has available to him other defences which can be said now to be so compelling as to justify upholding the Deputy Master? Three possible defences arise:

In relation to the PTIA 1980 it has long been assumed that the judicial practice of awarding treble damages (objectionable and egregious to English eyes) was a device dreamt up by US lawyers in the context of antitrust (pace Section 4, Clayton Act 1914) and then extended to other areas of public policy, such as RICO. However, its origins lie, in actual fact, in this jurisdiction in the Statute of Monopolies of 1624 which prohibited the granting of royal monopolies and held them to be void. It also introduced a right to treble damages for those who were “hindered, grieved or disturbed” by any monopoly or letters patent. The Protection of Trading Interests Act 1980 (PTIA 1980) has seen English law come full circle. In 1624 treble damages were vogue; by 1980 they were rogue.

In relation to these issues I have to decide, in effect, whether Swiss Life has an arguable case to go to trial. I have decided that it does. In particular:

Summary of relevant facts

The origins of this appeal lie in proceedings brought against Swiss Life by various plaintiffs alleging breach of contract arising out of various endowment policies and loans issued by Swiss Life.

The plaintiffs in the Main Action were members of the Chassidic Jewish communities in New York State who resided or used to reside in Brooklyn, New York. In this judgment I refer to them as the “Moskovitz Plaintiffs”. Between 1988 and 1995 Swiss Life sold “mixed life” or endowment insurance policies on the life or marriage of a child (the “Marriage Policies”) through a number of authorised brokers and representatives. Mr Kraus, a resident of London, was an insurance broker affiliated with Caruso, an authorised broker, who also had an affiliation with another brokerage firm, Bituswiss SA (“Bituswiss”). It was alleged that Mr Kraus signed an agreement between Caruso and Swiss Life permitting him to sell the Marriage Policies in New York. These policies paid benefits to the named beneficiary, a child of the policy purchaser, when the beneficiary died, married, or reached a certain age without marrying. The policy holders paid annual premiums and earned dividends on the Marriage Policies and could borrow against them after a specified period of time. It was alleged that, in soliciting broker arrangements with Swiss Life to sell these policies, Mr Kraus, and others, misrepresented to Swiss Life the marriage rates and ages of the targeted Chassidic communities. This caused Swiss Life to base the Marriage Policy premiums upon the allegedly misrepresented rates and ages. However, in due course, the children married at far earlier ages than projected and the policy holders paid, commensurately, in the region of 5 fewer annual premiums than Swiss Life had anticipated and planned for and the policy holders thereby reaped a very favourable rate of return. Upon this basis the brokers, including Mr Kraus, were able to sell many thousands of such policies to the Chassidic communities. Swiss Life sustained, it is alleged, substantial losses as a result of these policies but the brokers benefited significantly because of commissions earned upon every policy sold.

Swiss Life has submitted that in fact Mr Kraus paid all or most of the premiums on behalf of the policy holders. It is said that Mr Kraus solicited the sales of the policies by placing advertisements in newspapers circulating in the Chassidic communities offering that the brokers would pay the premiums upon the policies. The brokers stated that the policy holders would not receive the policy benefits, but would receive a sum of money upon the marriage of the named child in exchange for the use of the policy holder’s names.

Swiss Life ceased issuing new policies in 1995 when it discovered what it considered to be the alleged misrepresentations and sought to take steps to stem losses flowing from existing policies.

The Moskovitz plaintiffs in the Main Action however contended that this conduct amounted to a breach of contract. They contended that Swiss Life acted in breach of contract by, inter alia: backdating policy start dates to cause accelerated premium payment due dates; backdating premium due dates in order to charge late interests; levying penalties by wrongfully claiming that marriages occurred prior to the child’s 19^th birthday; failing to prorate early marriage deductions by monthly rather than full-year increments; and, requiring unnecessary and illegal documentation for proof of marriage.

The Moskovitz plaintiffs sought to pursue a class action in New York against Swiss Life. They contended that they were suitable to act as representatives for the class. Their application was (says Swiss Life) masterminded by Mr Kraus. Had this strategy prevailed then the damages action against Swiss Life could have been very significant indeed. The application however failed as did the Main Action itself. Swiss Life then brought a Third Party complaint against Mr Kraus and Caruso alleging actionable misrepresentation, fraud and they also brought a claim under RICO for bribery and extortion. I set out the details of this below.

It is Swiss Life’s case that notwithstanding the existence of the Moskovitz plaintiffs in the Main Action the “real” plaintiff in that action was Mr Kraus. Accordingly all of the substantive procedural steps taken in the name of the Moskovitz plaintiffs were in fact attributable to Mr Kraus and demonstrate plain and obvious submission to jurisdiction in the Main Action. The Claimant has drawn my attention to evidence intended to show that Mr Kraus was, in pith and substance, the real plaintiff and that the Moskovitz plaintiffs were mere nominees or ciphers for him. During the hearing I was referred to a substantial body of documentary evidence to demonstrate the closeness of Mr Kraus to the conduct of the litigation. Since the oral hearing I have carefully reviewed the extensive file of evidence upon this issue. This provides evidence of: Mr Kraus instructing US attorneys to act on behalf of the Moskovitz Plaintiff; the frequency and intensity of the instructions given to those attorneys by Mr Kraus in relation to all aspects of the Main Action spanning big issues of strategy right through to the minutiae of negotiations with lawyers for Swiss Life over procedural matters and the preparation of evidence; the payment of attorneys’ fees by Mr Kraus and later Caruso (who Swiss Life submits is controlled by Mr Kraus); and the detailed involvement of Mr Kraus in settlement discussions with Swiss Life whereby it is submitted Mr Kraus hoped personally to benefit.

Further, the Claimant has adduced the deposition evidence of seven out of the eight named Moskovitz plaintiffs. They described the role of Mr Kraus in funding, organising and instructing the attorneys acting for them. These depositions were given in connection with the plaintiffs’ application for certification that they were suitable representatives of classes of policy holders in bringing representative action. Class certification was rejected by the New York Court in 2002 on account of the Moskovitz plaintiffs failing to satisfy the statutory requirements for acting as representatives of a class. Judge Yanthis (a Federal Magistrate Judge performing a similar role to that of a High Court Master) in his Report and Recommendation dated 31^st March 2011 summarised the position of the plaintiff/deponents in relation to the Main Action in the following way:

“Although this action was first filed in 2005, none of the named plaintiffs were aware of the litigation until shortly before their respective depositions in May and June of 2009…None of them are paying for an attorney or know the fee arrangements for the attorney.

[Plaintiffs] Malka, Sarah, Berl, and Victor did not authorise or seek an attorney to bring a lawsuit in their names…Malka only spoke with an attorney once in connection with her deposition…Sarah first spoke to an attorney three to four weeks prior to her deposition…Berl only spoke to an attorney twice: the day before and the day of his deposition…Moshe first spoke to an attorney one day before his deposition, and only learned he had an attorney a few days before that…Israel first spoke to an attorney a couple of weeks before his deposition…Joseph first spoke to an attorney a few days prior to his deposition…Sarah believes that she does not need to know everything about the litigation and has no familiarity with it other than what she learned at her deposition…an attorney told Israel that he does not need to know everything about the lawsuit…neither Israel nor Joseph recognise the Class Action Complaint or Amended Complaint…Victor did not understand what the documents filed in the action meant, and his son, Berl, did not even know he had a Marriage Policy until four months prior to his deposition…Neither Moshe nor Victor know who makes decisions regarding litigation…Neither Moshe nor Joseph know the former or present filing attorneys.

In addition, Sarah, Berl, Victor, and Moshe do not understand the responsibilities of a Class representative…Moreover, Malka, Sarah, Berl and Moshe do not know the details of their Marriage Policy or loan(s) to sufficiently describe or be aware of their claims, and thus whether said claims are typical to another Class member…Finally, Joseph does not know who decided to file a Class Action…

This testimony demonstrates that the action was filed without plaintiffs’ authorisation and knowledge, they only learned of the lawsuit shortly before their respective depositions, and most do not know who is financing the litigation or who makes the decisions. Their lack of knowledge of the litigation is not simply a matter of ignorance. None of the plaintiffs stayed abreast of the litigation and there is a stark lack of substantive discussion with their attorneys. As such, the plaintiffs are not adequate class representatives”.

It is not necessary for the purpose of this judgment to set out all of the specific items of evidence which have been placed before this Court upon this issue. However, in order to give a flavour of that evidence I set out below a few illustrations.

First, it is recorded in the Report and Recommendation of Judge Yanthis (ibid.) that Mr Kraus admitted that he had extensive involvement between May 2005 and January 2006, through the internet, emails and telephone calls to New York in finding counsel for the current policy holders in the present action (ibid. page [13]).

Secondly, it is also evident from documents before the Court that Mr Kraus was at various points involved with Swiss Life in settlement negotiations vis-à-vis the Main Action and that he contemplated that he would receive, into his own hands, a benefit therefrom. For instance, in an email of 21^st November 2006 from Mr Kraus to a Dr Vogel the following is stated:

“Dear Dr Vogel, attached please find a paper by the US Attorney with reference to the proposal transmitted to you today.

Besides this option, there is also another possible option, as follows:

SL does not pay anything today, but everyone withdraws everything, including the US complaint. SL then deposits the entire amount to a frozen account, to be paid out later as desired by SL, under the condition that there will be no new legal cases appearing from this point forward. At the latest, ten years after the last policy has been paid.

Please note: The entire amount in the frozen account is to be invested in Swiss Life stock. The dividends are payable on a regular basis, to me”.

Thirdly, in relation to the giving of instructions, it is clear from itemised fee notes prepared by the attorneys acting for the Moskovitz plaintiffs that they were receiving detailed instructions about the litigation on a frequent basis from Mr Kraus and, it would appear, no one else. Emails between Mr Kraus and the attorneys evidence negotiations over fees and levels thereof and an acceptance of responsibility on the part of Mr Kraus for the satisfaction of fee invoices. It appears that at some point in time in or around 2009 fee notes were being sent to Mr Kraus and to Caruso. I have already recorded that it is the case of Swiss Life that Mr Kraus, in effect, controls Caruso. Mr Croxford QC, for Swiss Life, drew my attention to one illustrative email of 28^th July 2008 from the US attorney to Mr Kraus in which the following is recorded:

“Finally, we consider you one of our best clients. You know the litigation details and you know strategy. Moreover, you have always paid our bills conscientiously and quickly. I would appreciate your attention to bill outstanding now…”.

It is clear from the extensive emails passing between Mr Kraus and the US attorneys that Mr Kraus was closely involved in all aspects of the litigation which included, inter alia: advising on overall policy; the review of evidence and pleadings; the detailed drafting and finalisation of statements and other evidence; and, the detailed conduct of negotiations with lawyers representing Swiss Life. There is no evidence that Mr Kraus obtained instructions from third parties before expressing his own opinions or giving instructions to the US attorneys.

Fourthly, evidence before the Court shows that Mr Kraus adopted a sophisticated view of the “risk/reward” ratio in the litigation. This level of sophistication extended to an appreciation of the risks of Default Judgments being obtained from the New York Courts and thereafter being the subject of enforcement proceedings extra-territorially. For example, in an email of 3^rd June 2008 from Mr Kraus to the US attorneys he sets out, in detail, his views on jurisdictional issues. At the start of the email Mr Kraus states as follows:

“2.

New matters have been brought to my attention, which may change the initial planned tactic of filing a “motion to dismiss for lack of jurisdiction”.

1.

In the agency contract, which forms the basis of any indemnity claim, there is a jurisdiction exclusion clause, which excludes anything else than Lausanne.

2.

In the unlikely case that I litigate the jurisdiction issue in the USA and lose, UK Courts will enforce US Rulings; but if I do not appear at all, then the UK Courts will look at the Jurisdiction issue before enforcing, I can bring jurisdiction defences here in the UK later, and they will be heard (but only if I have not tried already in the USA).

Things progress nicely here in the various European litigations, settlements may be forthcoming sooner or later”.

Later in the same email the following is stated:

“Please, think it through. Please, let me have your thoughts on the Risk/Reward ration of my intention. Be aware that I have no enforceable assets in the United States or in Switzerland, and my assets in UK can move away from name within due course. So, I am actually quite judgment-proof. So, why risking $150,000 just [to] (sic) defend an unlikely and far-fetched potential judgment? I want rather to spend $300,000 on attacking LS’s to make them pay the class. Time is running, please consider and comment”.

The above illustrations serve to provide a flavour of the degree of control over the Main Action maintained by Mr Kraus. I return to the inferences in law that may be drawn from this later in this judgment.

The present litigation arises out of the Third Party proceedings. The facts that I have described in relation to the Main Action are relevant context thereto. I turn now to consider, again briefly, the procedural history of the Third Party proceedings brought by Swiss Life against Mr Kraus. The Third Party complaint was commenced on 17^th March 2008 by the filing of a Third Party Summons and Complaint in the New York Court. Paragraph [23ff] of the Third Party proceedings set out the factual basis of the claims. It was alleged that Mr Kraus, inter alia, had informed Swiss Life that he, and other brokers, planned to market the Marriage Policies to the Jewish population at large. Statistics about marriage rates and ages of the Jewish population were said by Mr Kraus and others to be consistent with statistics of marriage rates and ages of the Swiss population. However, it was pleaded that in fact the marriage rates and ages of the Chassidic community are different to those of the Swiss or Jewish populations generally. It was alleged that the brokers, including Mr Kraus, in fact knew that the average marriage age of members of the Chassidic community was approximately 19 years which was far lower than that of the Swiss or Jewish population generally. When Swiss Life began to uncover the fraud in 1995 it immediately ceased the sale of new policies but continued paying the benefits on existing policies. It is said that the information provided to Swiss Life to induce it to offer the policies amounted to misrepresentation and led to substantial losses of up to 300 million Swiss Francs being incurred.

In paragraph [67] of the Third Party proceedings the following is alleged:

“67.

Upon information and belief, the brokers, including Kraus and Caruso, paid the premiums on behalf of policy holders of Marriage Policies in exchange for the right to collect the benefit of the Marriage Policies. The Brokers never informed [Swiss Life] that, in many cases, they were the true party of interest”.

In paragraphs [69ff] it is alleged that Mr Kraus used the threat of litigation and actual litigation to attempt to extort Swiss Life. Particulars of extortion and bribery are set out in paragraphs [70ff]. These include allegations that Mr Kraus offered to provide favourable testimony for Swiss Life in other, similar, litigation if he were compensated. It is pleaded that:

“In the context of demands by Kraus that [Swiss Life] make payments to him, he advised [Swiss Life] executives that he could influence the jury in [other litigation] depending upon how he chose to testify. He also said that he had, in his possession, documents which could similarly sway the jury”.

It is then alleged that because Swiss Life refused to make the payments sought Mr Kraus planned to testify for the Plaintiffs in this other litigation. Paragraph [78] of the Third Party proceedings refers to a “silent solution”, as follows:

“78.

Kraus and Caruso's numerous extortionate acts relating to the policyholder lawsuits include:

a.

On or about August 31, 2006, Kraus met with a representative of Swiss Life at the Geneva airport. Kraus presented himself as a representative for Caruso and for the policyholders. At the meeting, he threatened to file yet more lawsuits against Swiss Life in Switzerland (Zurich and Lausanne). He threatened to block any formal class action settlement of Moskovitz unless Swiss Life made payments to him of CHF 1,000 per policyholder per policyholder involved. (As the class is comprised of approximately 10,000 policyholders, Kraus effectively demanded a personal payment of approximately CHF 10,000,000 to permit Swiss Life to settle its claims with the policyholders).

b.

At this same meeting, Kraus proposed a settlement which he called the "silent solution." Under the "silent solution," Swiss Life would make a payment directly to Kraus and Caruso. In exchange, Kraus promised to withdraw all policyholder lawsuits, including Moskovitz, and block other policyholders from asserting claims against Swiss Life in 1he future. The principal draw of the "silent solution," as proposed by Kraus, was that it would cost Swiss Life approximately CHF 10,000,000 less than the class settlement, even after factoring in Kraus's demand of CHF 1,000 per class member to allow a class settlement.

c.

Kraus and Caruso have repeated the class settlement threat and "silent solution" proposals numerous times and have made countless threats to file additional lawsuits in the name of policyholders against Swiss Life if they were not compensated.

d.

For example, on or about December 15, 2006, Kraus sent Swiss Life several written settlement demands. Following up on the "silent solution," two of the settlement demands did not provide for any payment directly to the policyholders, but instead provided for payment only to Kraus and Caruso. In exchange for the payments to Kraus and Caruso, they would cause all lawsuits brought against Swiss Life by the policyholders to be withdrawn and prevent future lawsuits by policyholders. The settlement demands made clear that Kraus and Caruso would be entitled to distribute payments made by La Suisse in their absolute discretion without any oversight, including keeping the payments themselves.

e.

In another follow up to the "silent solution," Kraus suggested, on or about June 13, 2007, in a telephone call with a Swiss Life representative, that he could easily cause Moskovitz to be withdrawn if Swiss Life would quickly enter into a "quiet" settlement that avoided disclosure to all class members. He also threatened that the cost to Swiss Life of any settlement would increase if Swiss Life failed to accede to his demands because, according to Kraus, the dispute would be publicized and more class members would learn of the litigation and demand a part of such a settlement.

f.

Kraus threatened to finance and bring a class action on behalf of the policyholders in Israel, similar to Moskovitz, if Swiss Life did not make payments directly to him. On or about December 29, 2006, he sent a draft of that complaint, which was never filed, to attorneys for Swiss Life.

g.

On February 18, 2008, Kraus, in a telephone call to a Swiss Life representative, repeated his threats. Kraus, once again, implied that he would cause Moskovitz, and other litigations against Swiss Life, to be withdrawn if Swiss Life made direct payments to him”.

Very little seemingly happened in the Third Party proceedings for some years. Problems occurred in relation to service outside of the US. A significant document in respect of the present appeal is a letter sent on 22^nd January 2013 by Mr Kraus to Judge Yanthis who was at the time responsible for the docket relating to the Third Party proceedings. This letter is important because it is submitted, by Swiss Life, that it amounts to voluntary submission to the jurisdiction of the New York Court. I now set it out in full:

“Dear Judge Yanthis:

I have been served a third-party complaint in April 2008 at the above address which is my correct domicile. On 24 December 2012, when my entire family was away, FEDEX has left at the above address a “sorry we missed you” card for a parcel #794376774051. When Mrs Malka Kraus returned on 31^st December, she told me about the attempted delivery. I called FEDEX and informed them that I will come back on 21^st January 2013. I asked them to deliver it again on 22^nd.

On 2^nd January, the courier came again. Mrs Malka Kraus informed him again that Moses Kraus is abroad and comes back on 21^st, and that he must deliver on 22^nd.

I came back. We had no delivery, so I called FEDEX. FEDEX informed me that it is recorded in their computer file that they had scheduled the parcel to be re-delivered today the 22^nd, but that meanwhile the shipper from New York called them on 7^th January and was informed that the parcel is with FEDEX London to be delivered on 22^nd. The shipper thereupon explicitly instructed FEDEX to return the parcel immediately to the sender.

Meanwhile I received with regular mail a copy of a letter from Becker-Glyn to your Honor, dated 8^th January 2013, mentioning a declaration of a Jesse T Conan, stating that I had made an attempt to avoid receipt of said documents. That declaration is knowingly false. Becker-Glynn as the shipper of said documents know that the fact is exactly the opposite: They have been informed by FEDEX that I have made sure that I will get the shipment as soon as I return, whereupon Becker-Glynn have made certain that the shipment returns undelivered I demand that they return my shipment to me, so that I can react or reply.

Whilst I write to you, I use the opportunity to state the true facts. All the allegations in the Third-Party complaints are completely untrue. I am confident that your Honor will notice so when you are checking their allegations in detail. Your Honor will recognize that all their allegations are confused, unspecified and constructed without factual basis. Moreover, they confuse myself with Caruso, of whom I was never a director or owner or employee. They mix figures and numbers and actions of other independent entities like of Bituswiss and Horowitz and Beck and Caruso and of a Moses Kraus of Monsey who has no relation to me whatsoever (Document 22. ¶12 - ¶50). When your Honor will look at their exhibit to ¶48 you see the Monsey fax stamp from that different Moses Kraus. Swiss Life has deliberately burdened the third-party complaint with so many unrelated parties and persons that it became so unspecified and so confusingly mixed, that it can hardly be defended or relied upon. I ask your Honor to direct the Third-Party claimant to narrow down their allegations towards me to concentrate it on what they want to allege my person with.

Respectfully submitted”.

It appears that this letter had the effect of stirring the New York Court into action. An Amended Memorandum Order (“the Memorandum”) was prepared by Judge McMahon on 25^th November 2013. This was an internal document prepared by Judge McMahon upon the action being assigned to her. She records that the action: “…has lingered for some years on the dockets of two District Judges and a Magistrate Judge who are no longer sitting on the Court. This Court was asked to take over the matter based on my familiarity with the underlying facts and the need for expedition in view of the extraordinary - and unfortunate – delays in dealing with open issues in this case”.

She explained that the letter from Mr Kraus had been sent in response to an application by Swiss Life for default judgment against Mr Kraus and Caruso. She stated:

“In December 2012 [Swiss Life] moved for entry of a default judgment as against both defendants. Efforts to serve both defendants with the motion papers at the addresses where the summonses and complaints had been served were unsuccessful”.

Prior to this matter being assigned to Judge McMahon the Judge dealing with the matter (Judge Yanthis) had concluded that service of the default judgment proceedings upon the defendants lacked proper process and it was his position at the time that the motion for default judgment against both defendants be dismissed. Judge McMahon, in the Memorandum, took a different view:

“Kraus, however, had actual notice of the default judgment papers. Indeed, only a month after the motion was made, Kraus sent an ex parte letter to Judge Yanthis on January 22, 2013, alleging that he was out of the country when Federal Express attempted to serve the default judgment papers. In that letter, he revealed that he had received by regular mail a letter dated January 8, 2013, from counsel for [Swiss Life], in which the defendant alleged that Kraus was attempting to evade service. Had that letter included a copy of the default judgment papers, there would be no question that service of the motion papers had been effected on him – and quite possibly on Caruso as well, since [Swiss Life] counsel alleges that Kraus controls Caruso and an affidavit filed by Kraus in this action confirms that Kraus is a minority shareholder in Caruso who has worked as an insurance broker at Caruso (albeit under a power of attorney rather than as an employee) from 1989 – 2000”.

Judge McMahon proceeds to explain in the Memorandum that the letter of 22^nd January 2013 had been retained on the Court file and had not been communicated to Swiss Life. They discovered its existence only when the document was docketed some nine months later.

It is clear from the Memorandum that Judge McMahon did not view this letter as constituting any sort of a response by Mr Kraus to the motion for default judgment and nor was it treated as being a step contemplated by procedural rules. She stated:

“I have reviewed the papers in support of the motion for a default judgment. As all asserted facts are deemed proved upon default, it is quite clear that [Swiss Life] will be entitled to entry of a default judgment unless Kraus has an acceptable explanation for his failure to file an answer during the last 20 months”.

Later Judge McMahon stated:

“If Kraus’ excuse for failing to file an answer to the Third Party Complaint is deemed inadequate, the motion for entry of a default judgment will be granted and judgment will be entered against him. Kraus should understand that he cannot cure the default by filing an answer now; only if the Court concludes that the has proffered an adequate excuse for his one and one half years of default will the Court permit him to file an answer”.

As such, Judge McMahon treated Mr Kraus as remaining in default and not having answered the complaint. Mr Kraus was given until 5pm New York time on 10^th December 2013 to file with the Court whatever explanation he could for his “…failure to file an answer to the complaint as previously stipulated and ordered”. In response, Mr Kraus did nothing.

Accordingly, on 13^th December 2013 default judgment was entered in favour of Swiss Life. The preamble to the Judgment was in the following terms:

“The Third Party Complaint was commenced on March 17, 2008 by the filing of the Third Party Summons and Complaint. The Third Party Summons and Complaint was served on the defendants, Moses Kraus (“Kraus”) and Caruso AG (“Caruso”), on or about March 20, 2008, by international mail at each defendant’s primary UK address under Fed R Civ P 4 (f) and Article 10 of the Hague Convention on the Service Abroad of Judicial and Extra Judicial Documents in Civil or Commercial Matters. Proofs of Service were filed on or about April 17, 2008 (Clerk Certificates of Mailing Received). The defendants have not answered the Complaint, and the time for answering the Complaint has expired”.

Thereafter, the Court declared and ordered, inter alia, that Mr Kraus participated in a racketeering scheme in repeated violation of US criminal statutes on extortion, mail and wire fraud and bribery under RICO. This entitled Swiss Life to treble damages as well as injunctive relief. The Court also ordered that Mr Kraus, and sub-brokers under his control, owed a duty to Swiss Life properly to explain and not misrepresent the terms of the Swiss Life insurance policies and to the extent that they intentionally misrepresented, exaggerated or failed to explain the policy terms that Swiss Life was entitled to indemnification. The Order also permanently enjoined Kraus from pursuing, directly or indirectly, litigation against Swiss Life in the US or abroad in limited respects relating to marriage policies.

For present purposes, paragraphs [4] – [6] of the Order are particularly relevant. They are in the following terms:

“(4)

Swiss Life is awarded monetary damages against Kraus and Caruso, on a joint and several basis, in an amount to be fixed at inquest.

(5)

Swiss Life is further entitled to a trebling of its monetary damages pursuant to 18 U.S.C. § 1964(c).

(6)

Swiss Life is further awarded attorney’s fees against Kraus and Caruso, on a joint and several basis, in the amount of 1,369,718.50 U.S. Dollars, plus costs and disbursements in the amount of 201,884.61 U.S. Dollars, all computed pursuant to 18 U.S.C. § 1964(c).”.

As noted below Swiss Life commenced enforcement proceedings in relation to the costs element of this judgment in the High Court shortly thereafter in January 2014. The quantum of the Third Party proceedings was finally determined in the US on 6^th August 2014. The Judgment in relation to quantification records that Mr Kraus had not answered the complaint and the time for answering the complaint had expired and that on 17^th December 2014 the Court had issued a Default Judgment in which Mr Kraus was found to have participated in a racketeering scheme and which also recorded that the monetary damages payable to Swiss Life were to be “fixed at inquest”. The quantification judgment concluded that the monetary damages suffered by Swiss Life for which Kraus and Caruso were liable on a joint and several basis amounted to $52,640,373.43 which total was then trebled leading to a total amount for which Kraus and Caruso were jointly and severally liable of $157,921,020.29.

On 31^st January 2014 Swiss Life commenced proceedings in the High Court against Mr Kraus in the sum of £955,063.210 together with costs in enforcement of the costs Order of the New York Court. This is a claim therefore only for the costs of the US Third Party proceedings. It is not a claim for the damages ordered to be paid (whether trebled or otherwise). As already set out the basis upon which the Order is sought to be enforced is said to be that Mr Kraus submitted to the jurisdiction of the US Court by virtue of the letter of 22^nd January 2013. It is submitted additionally or in the alternative that Mr Kraus and Caruso submitted to the jurisdiction of the US Court in that at all material times Kraus and Caruso had been and continued to be the real plaintiffs in the Main Action and that the Third Party proceedings were sufficiently related to the Main Action to be a part thereof such that being subject to jurisdiction in the Main Action sufficed to found jurisdiction over the Third Party proceedings.

Mr Levey, counsel for Mr Kraus in respect of the written submissions, observed that the costs enforcement proceedings were a form of Trojan horse, to be followed by the damages components of the Default Judgment:

“By these proceedings (commenced on 31 January 2014), the Claimant is seeking to enforce the costs and disbursements element of the Default Judgment but, if successful, it will no doubt then seek to enforce the treble damages awards subsequently made in its favour (on 21 July 2014) in the sum of approximately US$150,000,000”.

Mr Kraus complained that he was in effect to be subjected to multiple enforcement litigation in this jurisdiction arising out of a single US judgment. During the course of the oral hearing I asked why Swiss Life was pursuing simply the costs element of the Default Judgment. I was informed that as of the date of the claim for enforcement the quantum had not yet been fixed and that a quantum claim might follow which would strip out the treble damages component of the claim. Two legal issues were present in my mind. First, whether it was open to the Claimant to pursue a claim for costs if the underlying treble damages award was unenforceable in whole or part by virtue of Section 5 PTIA Act 1980. Secondly, whether it might, in principle, be an abuse of process to attempt to bring, subsequently and through new proceedings, a claim for substantive damages which could, and should, have been included or joined to the enforcement claim for costs: Henderson v Henderson (1843) 3 Hare 100; Johnson v Gore Wood (No 1) [2002] 2 AC 1. And possibly, if that was the intention of Swiss Life, whether it might be an abuse now to set in train a litigation strategy which had as its end purpose the pursuit through different pieces of litigation the enforcement of a single judgment.

By an application dated 4^th March 2014 Mr Kraus applied to strike out the claim and/or for summary judgment. This was upon the basis that the Default Judgment was not enforceable because he had, at no point in time, either appeared in New York or otherwise voluntarily submitted to jurisdiction. Further, even if he had this was only in relation to the Main Action and not in relation to the Third Party proceedings. The matter came before Deputy Master Eyre on 9^th December 2014 and he granted summary judgment to Mr Kraus. In paragraphs [16] – [20] of his ruling the Deputy Master stated as follows of the argument about the letter of 22^nd January 2013:

“16.

On 22/01/13, the Defendant sent the New York court the letter on which the Claimant now relies.

17.

In it:

(a)

He complains that the suggestion that he was evading service was “knowingly false.”

(b)

He “demands” that the Claimant re-send him the application.

(c)

He protests that the allegations in the 3^rd Party proceedings “are completely untrue.”

(d)

He asks the New York court “to direct the Third-party claimant to narrow down their allegations.”

(e)

He concludes the letter with the words “Respectfully submitted.”

18.

The Claimant insists that these expressions are consistent only with a submission by the Defendant to the jurisdiction of the New York court.

19.

However, that is to disregard the circumstances in which the letter was written. The letter was provoked by what the Defendant (who by the way was now acting in person) considered an allegation of bad faith by him. It is quite impossible to say that what he wrote was “only necessary or useful” if he had abandoned his objection to the New York jurisdiction. Even his request at (d) gives no indication of whether he proposed to do anything at all on receiving the narrowed-down allegations, far less an unequivocal indication that he intended to challenge the 3^rd Party proceedings. The suggestion that he betrayed his real intentions by his concluding words completely disregards the evidence that they are the standard formula in New York legal usage, and doubtless imitated by the Defendant for that reason.

20.

The Claimant however says that by docketing that letter the New York court demonstrated that it considered it of importance. But docketing in that jurisdiction is a matter purely of ensuring that a document forms part of the court file, and confers no status on the document such as is suggested, or possibly of any kind whatever”.

With regard to the submission that Mr Kraus was the “real” Plaintiff in the underlying US proceedings, at paragraph [7] of his judgment, the Deputy Master pointed out that Swiss Life had chosen to refrain from taking procedural steps in the Main Action to ensure that if Mr Kraus wished to obtain the benefit of that underlying action he was also obliged to accept the burden of it. He said that Swiss Life could have sought an Order compelling Mr Kraus to join the Main Action as a claimant, or, if he refused to do that, as a defendant. In paragraph [10] of his judgment the Master stated:

“The contention…is quite simply impossible. It entails that this court can rule that an individual that was a stranger to the Main Action ought to be treated as having been a party to that action. But the Claimant quite freely chose not to make him a party to the Main Action, and whether he ought nonetheless to have been treated by the New York Court as such is a matter for that Court not this one”.

Submission to jurisdiction: Relevant legal principles

Swiss Life submits that by virtue of the facts and matters set out in paragraphs [21ff] above Mr Kraus is the “real plaintiff” in the sense that he was the driving force and potential beneficiary behind the Main Action and the actual plaintiffs were merely nominees or ciphers of his. As such the actions taken by the nominal plaintiffs during the proceedings amounted to submission or appearance by Mr Kraus in the New York proceedings and, critically, this included for the purpose of any counterclaim or other collateral or related proceedings, such as the Third Party proceedings.

Mr Kraus contends that, to the contrary, there is no truth in the actual allegation that the plaintiffs in the Main Action were mere ciphers or nominees for him. But, more fundamentally, he argues that even if he is the so-called “real” plaintiff in the Main Action that does not, in law, make him the actual plaintiff for purposes of submission to jurisdiction. He says that there is no principle of being a constructive plaintiff. He also contends, in the alternative, that even if it did it would only go to the point of requiring him to submit to a counterclaim that was related to the claim, but not to the Third Party proceedings.

I turn now to consider the principles of law which are relevant to this appeal.

The principal requirement for the recognition or enforcement of a foreign judgment in this jurisdiction at common law is that the foreign court should have jurisdiction according to the domestic rules of conflict laws: see e.g. Sirdar Gurdyal Singh v Rajah of Faridkote [1894] AC 670, 683 – 684 (PC). This is upon the basis that jurisdiction is territorial and in personam actions and orders or decrees pronounced “in absentem” by a foreign court in circumstances in which the defendant has not in any way submitted himself to that court are in international law a nullity. In Buchanan v Rucker (1808) 9 East 192 at page 194 Lord Ellenborough famously posed the following rhetorical question: “Can the Island of Tobago pass a law to bind the rights of the whole world? Would the world submit to such an assumed jurisdiction?” A leading modern authority on this point, Adams v CK Industry Plc [1990] Ch. 433, 517 – 518 (CA) (“Adams”), is authority for the proposition that: “…in determining the jurisdiction of the foreign court…, our court is directing its mind to the competence or otherwise of the foreign court to summon the defendant before it and to decide such matters as it has decided”.

The basis upon which domestic law recognises the competence of foreign courts and respects its judgments is a species of comity. In Adams (ibid.) at pages [517] – [519] the Court of Appeal described the source of the territorial jurisdiction of the court of a foreign State to summon a defendant to appear before it as “…being his obligation for the time being to abide by its laws and accept the jurisdiction of its courts while present in the territory”. In Lewis v Eliades [2003] EWCA Civ 1758 at paragraph [48] (“Lewis”) Lord Justice Potter explained that the principle of recognition and enforcement of foreign judgments evolved from one of comity to become a part of a “doctrine of obligation”. He cited Blackburn J in Schibsby v Westenholz (1870) LR6 QB 155, 159 where the principle of enforcement was predicated upon the judgment of a court of competent jurisdiction over a defendant imposing “…a duty or obligation on the defendant to pay the sum for which judgment is given, which the courts in this country are bound to enforce…”. In Murthy v Sivajothy [1999] 1 WLR 467 (“Murthy”) Lord Justice Evans stated that the jurisdiction of the domestic courts to enforce a foreign judgment was derived from comity of nations but was not based upon reciprocity in any strict sense since the English Court did not have to enquire whether the foreign court in question would enforce an English judgment if the courts’ positions were reversed. He put the basis in the following way:

“But when the defendant has submitted to the jurisdiction of the foreign court then he cannot be heard to say that the court has no jurisdiction to decide the issues raised by the proceedings in which the submission was made”.

(ibid. page [476H], [477A])

In essence, when in Rome live by the law of the Romans.

However, be that as it may, the principles which explain why the domestic laws are as they are tell one little about the precise test which will be applied in domestic law to determine precisely when a defendant must be treated as having succumbed to the jurisdiction of the foreign State and hence triggered the duty of the English courts to respect that judgment.

Under the common law a court of a foreign country has jurisdiction to give a judgment in personam in certain circumstances which have been drawn together and summarised in “Rule 43” of Dicey, Morris and Collins,Conflict of Laws, 15^th ed., 2012, paragraph 14R-054. This was approved of by the Supreme Court in Rubin v EurofinanceSA [2012] UKSC 46 (“Rubin”) at paragraph [7ff] per Lord Collins.

Rule 43 identifies four circumstances or “cases” where a person may be subject to a foreign judgment. It is in the following terms:

“A court of a foreign country outside the United Kingdom has jurisdiction to give a judgment in personam capable of enforcement or recognition as against the person against whom it was given in the following cases:

First Case? If the person against whom the judgment was given was, at the time the proceedings were instituted, present in the foreign country.

Second Case? If the person against whom the judgment was given was claimant, or counterclaimed, in the proceedings in the foreign court.

Third Case? If the person against whom the judgment was given submitted to the jurisdiction of that court by voluntarily appearing in the proceedings.

Fourth Case? If the person against whom the judgment was given had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or of the courts of that country”.

It follows that if the Default Judgment in issue is regarded as a judgment in personam within the ambit of Dicey Rule 43, then it will only be enforced in England at common law if the judgment debtor was, in summary, present in the foreign country when the proceedings were commenced, or submitted to its jurisdiction.

What is understood by the concept of submission? The general rule is that the party alleged to have submitted must have "taken some step which is only necessary or only useful if" an objection to jurisdiction "has been actually waived, or if the objection has never been entertained at all": cf. Williams & Glyn's Bank plc v Astro Dinamico Compania Naviera SA [1984] 1 WLR 438, 444 (HL) citing Rein v Stein (1892) 66 LT 469, 471 (Cave J), approved of in Rubin (ibid) paragraph [158] per Lord Collins.

This principle has been extended to apply to any question whether there has been submission to a foreign court for the purpose of enforcement in this jurisdiction. The question is to be determined according to English law and involves an objective assessment of all the surrounding facts. The position adopted by the foreign court is relevant and admissible but not conclusive. In Rubin Lord Collins thus stated:

“160.

The same general rule has been adopted to determine whether there has been a submission to the jurisdiction of a foreign court for the purposes of the rule that a foreign judgment will be enforced on the basis that the judgment debtor has submitted to the jurisdiction of the foreign court: Adams v Cape Industries [1990] Ch 433, 459 (Scott J); Akai Pty Ltd v People's Insurance Co Ltd [1998] 1 Lloyd's Rep 90, 96-97 (Thomas J); see also Desert Sun Loan Corpn v Hill [1996] 2 All ER 847, 856 (CA); Akande v Balfour Beatty Construction Ltd [1998] ILPr 110; Starlight International Inc v Bruce [2002] EWHC 374 (Ch), [2002] ILPr 617, para 14 (cases of foreign judgments); Industrial Maritime Carriers (Bahamas) Inc v Sinoca International Inc (The Eastern Trader) [1996] 2 Lloyd's Rep 585, 601 (a case involving the question whether the party seeking an anti-suit injunction in support of an English arbitration clause had waived the agreement by submitting to the jurisdiction of the foreign court).

161.

The characterisation of whether there has been a submission for the purposes of the enforcement of foreign judgments in England depends on English law. The court will not simply consider whether the steps taken abroad would have amounted to a submission in English proceedings. The international context requires a broader approach. Nor does it follow from the fact that the foreign court would have regarded steps taken in the foreign proceedings as a submission that the English court will so regard them. Conversely, it does not necessarily follow that because the foreign court would not regard the steps as a submission that they will not be so regarded by the English court as a submission for the purposes of the enforcement of a judgment of the foreign court. The question whether there has been a submission is to be inferred from all the facts.

162.

It is in that context that Scott J said at first instance in Adams v Cape Industries plc [1990] 1 Ch 433, 461 (a case in which the submission issue was not before the Court of Appeal): "If the steps would not have been regarded by the domestic law of the foreign court as a submission to the jurisdiction, they ought not … to be so regarded here, notwithstanding that if they had been steps taken in an English court they might have constituted a submission. The implication of procedural steps taken in foreign proceedings must … be assessed in the context of the foreign proceedings.

163.

I agree with the way it was put by Thomas J in Akai Pty Ltd v People's Insurance Company Ltd [1998] 1 Lloyd's Rep 90, 97:

“The court must consider the matter objectively; it must have regard to the general framework of its own procedural rules, but also to the domestic law of the court where the steps were taken. This is because the significance of those steps can only be understood by reference to that law. If a step taken by a person in a foreign jurisdiction, such as making a counterclaim, might well be regarded by English law as amounting to a submission to the jurisdiction, but would not be regarded by that foreign court as a submission to its jurisdiction, an English court will take into account the position under foreign law”.”.

The premise which underlies this case law appears to be based upon procedural fairness – taking the “rough with the smooth”. In Adams (ibid.) at page 519, when discussing the relevance of physical presence in a foreign country, the Court thus stated as follows:

“So long as he remains physically present in that country, he has the benefit of its laws, and must take the rough with the smooth, by accepting his amenability to the process of its courts. In the absence of authority compelling a contrary conclusion, we would conclude that the voluntary presence of an individual in a foreign country whether permanent or temporary and whether or not accompanied by residents, is sufficient to give the courts of that country territorial jurisdiction over him under our rules of private international law”.

In Dicey (ibid.) it is pointed out that in Adams the Court referred to the “voluntary” presence of the defendant as being one not induced by compulsion, fraud or duress. However, it is also stated (ibid. paragraph [14 – 064]) that it was not finally decided that the presence of such factors would necessarily negative jurisdiction. It is pointed out that there is no decision in this jurisdiction as to the position that would pertain were a defendant forcibly brought or fraudulently induced to come into the jurisdiction of the foreign court and there served with process. In the United States the view is held that in such a case jurisdiction exists but may or should be “…disclaimed by the court for reasons of equity if the plaintiff is privy to…force or fraud”. In such a case it is said that the defendant has the benefit of the laws of the State concerned and owes temporary allegiance thereto. Once again, basic tenets of fairness or equity appear to underlie the operation of the rules.

Equally difficult questions of classification arise in determining whether a foreign corporation carries on business in this jurisdiction sufficient to render itself amenable to the jurisdiction of the English courts at common law. Case law suggests that complicated issues of fact arise in such cases: see Dicey (ibid.) paragraph [14 – 065]. It is pointed out that the mere fact that a defendant contracted through an agent in a foreign country is not of itself sufficient: see Dicey (ibid.) page 695 footnote 244 citing Seegner v Marks (1895) 21 VLR 491.

Case law provides illustrations of the sorts of acts of participation in foreign proceedings which amount to submission. These include: pursuing acts as a plaintiff; pleading to the merits of a claim qua defendant without contesting jurisdiction; contesting jurisdiction but nonetheless proceeding further to plead to the merits; agreeing to a consent order dismissing the claims and cross claims; failing to appear in proceedings at first instance but appealing on the merits; taking no part in proceedings and allowing judgment to go against him in default of appearance but later applying to set aside the default judgment on non-jurisdictional grounds. In Guiard v De Clermont [1914] 3 KB 145 a defendant applied successfully to set aside default judgment and have judgment entered in his favour at first instance. The original judgment was restored by an appeal court and the defendant held to have voluntarily submitted. For a general discussion which includes illustrations of acts of submission see Stichting Shell Pensioenfonds v Krys [2014] UKPC 41 at paragraph [27ff] (“Stichting”). Where a defendant now contests the jurisdiction of a foreign court, pursuant to Section 33 Civil Jurisdiction & Judgment Act 1982 if his challenge to jurisdiction prevails no question of submission arises; if unsuccessful and he proceeds to contest the case on the merits he will have submitted to the jurisdiction of the foreign court. Dicey records that it is an open question whether if such a defendant takes no further part in the proceedings and judgment in default is entered against him whether he will be regarded as having voluntarily submitted. Dicey states:

“Common sense would suggest that a defendant who has been vigorously protesting that a court has no jurisdiction should not be regarded as having voluntarily submitted”.

(ibid. paragraph [14 – 070])

In Rubin it was accepted (ibid paragraph [166]) that an objection made in the proceedings to jurisdiction was not evidence of submission. It seems also to have been implicitly accepted (ibid paragraph [169]) that the fact that it had not been argued in the foreign proceedings by the party later seeking enforcement that the other party (now the defendant in the enforcement proceedings) had in fact submitted to the foreign jurisdiction was also a relevant factor against submission (when the person in question had not appeared).

In Rubin participating in a liquidation by way of proof and receipt of dividends was treated as capable of amounting to submission and, as such, that party “… should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made in that proceeding.”(ibid paragraphs [158] [165] and [167]). Proof in a liquidation was considered to be an act of submission because it was part of the process of judicial supervision which, in due course, could led to the payment out of dividends.

In relation specifically to “appearance”, this is treated as an instance of submission. Dicey states (ibid. paragraph [14 – 069]):

“This case rests on the simple and universally admitted principle that a litigant who has voluntarily submitted himself to the jurisdiction of a court by appearing before it cannot afterwards dispute its jurisdiction”.

There are two final matters that I should address before setting out my conclusions on the application of the law to the facts of the present case. The first point is that it is well established in case law that where a person renders himself susceptible to the jurisdiction of the foreign court he does so not only with regard to the original claim but also to such other claims as the court allows to be added by the plaintiff or which are “related”. Dicey states:

“In principle, submission will extend to claims concerning the same subject-matter, and to related claims which ought to be dealt with in the same proceedings, but (in either case) only if advanced by parties who were such at the date of the defendant’s submission to the jurisdiction of the court; the decision of the foreign court to allow the new claim is not decisive”.

(Dicey paragraph [14 – 075])

In Murthy (ibid.) the Court of Appeal, in the context of an analysis of Dicey Rule 36 (which ultimately became Rule 43), applied the ultimate test of fairness to the extent to which a person who submits for the purpose of one set of proceedings may be taken also to have succumbed to the jurisdiction in relation to other related matters. Lord Justice Evans (ibid. page [476e/f]) stated:

“We must remind ourselves that these United States authorities are cited to us as persuasive authorities, showing what the English common law is likely to be. There is nothing in them, in my judgment, which precludes or contradicts a common law rule to the effect that when a person submits to the jurisdiction of a foreign court in respect of a claim made against him by the plaintiff or claimant in those proceedings, then he can also be taken to have submitted to its jurisdiction in respect of, first, claims concerning the same subject matter and, secondly, related claims in the sense described above. This is provided, of course, that such claims may properly be brought against him under the rules of procedure in the foreign court, either by the original claimant or by others who are parties to the proceedings there at the time when he makes the submission”.

The reference to “related claims in the sense described above” in the quote above was a reference to the analysis in the judgment at pages [473ff]. The gist of the authorities referred to do not, unambiguously, speak with one voice. However, the test involves looking at all the facts from the perspective of fairness and whether there is a sufficient nexus between the facts of the case in which the submission to jurisdiction is established and the related litigation in terms of time, space, origin, motivation or whether their “treatment as a unit” conforms to the parties’ expectations or business understanding or usage.

The second point, which is also of central relevance to the present case, focuses upon the position where a person is said to amount to the “real” plaintiff in substitution for nominal plaintiffs in an action. The gist of the Claimant’s argument in the present case is that Mr Kraus is, constructively, to be viewed as the plaintiff in the Main Action and, by virtue of the principles referred to above, has thereby submitted to jurisdiction and should be susceptible to judgment arising out of the related Third Party proceedings. As to this there is some guidance to be had from domestic law.

In Willis v Baddeley [1892] 2 QB 324 (“Willis”) it was held that where the agent of a principal resident abroad brought an action in his own name, but on a contract made with him as agent, the defendant was entitled to discovery to the same extent as if the principal were a party to the action and to have the action stayed pending discovery. Lord Esher MR (ibid. pages [325], [326]) stated:

“I do not desire to confine what I am about to say to cases of insurance; I am prepared to decide that where it is known to the Court that there is a foreign principle residing abroad who is the real plaintiff in the action and is only suing through his agent here, and that the agent was dealt with by the other side as agent and not as principal, then, in order to prevent palpable injustice, the Court by reason of its inherent jurisdiction will insist that the real plaintiff shall do all that he ought to do for the purposes of justice as if his name were on the record. It is true that the Court cannot make an order on him such as is here asked for, because he is not a party to the action; but he can say that the nominal plaintiff shall not proceed with the action until the real plaintiff has done that which, had he been a party to the action, he might have been ordered to do”.

The concept, therefore, of a “real plaintiff” who was subject to the jurisdiction of the Court has thus been long recognised. Though, in the quote above, the Court of Appeal appeared to draw a distinction between the taking of procedural steps in order to facilitate justice and the making of an Order directly against the “real plaintiff”. The Court could not do the latter because the “real plaintiff” was not a party to the action. The Court, therefore, limited the Order it made to the “nominal plaintiff” with the sanction of a stay as the consequence of non-compliance.

In Rainbow v Kittoe [1916] 1 Ch 313 it was held that a plaintiff who was an administrator would not be ordered to provide security for the defendant’s costs of the action notwithstanding that the letters of administration were only granted to him as the attorney of a person who was abroad and notwithstanding that he could be shown to be insolvent. The underlying facts, to modern eyes, verge on the bizarre. They are not, however, relevant for present purposes. Mr Justice Sargant, in the course of giving judgment, stated this:

“Now the first rule of our Courts clearly is that no plaintiff should, on the mere ground of poverty, be deprived of his opportunity of suing in a Court of first instance; the matter is otherwise when the question of appeal comes to be considered. But to that rule there is this very broad and general exception, that where a person is suing is a mere nominee of the real plaintiff – and I will consider presently what is meant by the phrase “a mere nominee” – and he is also insolvent, that is to say unable to pay the costs if given against him, he should be ordered to give security for costs. The broad general reason fro that exception is that a plaintiff is not to be allowed to escape from liability for costs by means of setting up a dummy to fight on his behalf”.

In Vogel v R & A Kohnstamm Limited [1973] 1 QB 133 the issue arose as to whether the defendant could be said to have been at any material time resident in the State of Israel. Mr Justice Ashworth stated:

“As has been said in many cases, residence is a question of fact and when one is dealing with human beings one can normally approach the matter on the footing that residence involves physical residence by the person in question. I keep open the possibility that even in regard to such a person he may be constructively resident in another country although his physical presence is elsewhere”.

(emphasis added)

The Judge made the obvious point that in the case of a corporation there is no question of physical presence since a corporation is resident there by way of its human agents.

Abu Dhabi National Tanker Co v Product Star Shipping Limited [1992] 2 All ER 20 (“Abu Dhabi”) concerned a claim upon a charter party. The owners sought specific discovery of various classes of document relating to the damages claim including documents in the possession of Adnoc (the parent company of the charterers whose primary purpose was to provide a shipping arm to Adnoc, which itself was the main oil company in the UAE). Adnoc refused to disclose the documents upon the basis that under the law of Abu Dhabi the charterers had no right to compel Adnoc to supply the documents and consequently they were not in its possession, custody or control. The owners contended that the charterers were nominal plaintiffs with a limited interest in the proceedings and that they were accordingly entitled to an order staying proceedings until Adnoc, the real plaintiff, disclosed the relevant documents. In judgment Webster J cited Willis (ibid.). He drew from this a general principle that the Court was to look through the “legal rights or liability as between” various companies and the nominal plaintiffs and determine who was “…to be regarded as the real plaintiffs…”. He stated (ibid. [25e]):

“In my view I have to look at the position, as between Adnoc and Adnatco, at the date of the application for discovery; and in my view I have jurisdiction to make the order sought if I conclude that, at that date, whatever their legal rights or liabilities as between themselves and the defendants, Adnoc are to be regarded as the real plaintiffs and Adnatco as nominal plaintiffs, in the sense that beneficial interest in the proceedings is that of Adnoc and that Adnatco had no interest in the proceedings other than their right to bring them. If Adnoc are properly to be regarded as undisclosed principals it would follow, without more, that they satisfied that test. But in my view it is not a condition of their satisfying that test that they must, in law, be regarded as undisclosed principals. Whether or not they satisfy that test is ultimately one of fact”.

The “test” being referred to in the above quotation was simply whether a particular person was, as a matter of fact, to be viewed as the “real plaintiff”.

More recently, as Mr Levey pointed out in his skeleton argument on behalf of Mr Kraus, the mere fact that a person might be viewed as a “real” plaintiff for the purposes of certain procedural rules did not thereby necessarily make that person a “real plaintiff” for the purpose of “substantive liability” in relation to the cause in action. He cited the judgment of Mr Justice Cooke in Deutsche Bank v Sebastian Holdings Incorporated [2014] EWHC 2073 at paragraph [10]:

“…if a non-party costs order is made against a company director or shareholder, it is wrong to characterise this as piercing or lifting the corporate veil or to say that the company and the director or shareholder are one and the same. The separate personality of a corporation, even a single member corporation, is deeply embedded in our law for the purpose of dealing with legal rights and obligations. By contrast, the exercise of the statutory discretion to make a non-party costs order leaves the rights and obligations exactly where they are. The fact that the making of such an order is discretionary demonstrates that the question is not one of rights and obligations of a non-party, for no obligation exists unless and until the court exercises its discretion. Moreover, the fact that the discretion, if exercised, is exercised against a non-party has the effect of underlining the proposition that the non-party has no substantive liability in respect of the cause of action in question.”

Mr Levey also cited the case law showing the practice of the English courts in exercising the power under section 51 Senior Courts Act 1981 to make non-party costs orders. He submitted that the way in which that power is exercised is not such as to support the conclusion that simply because a person is held to be a “real” plaintiff or an alter ego to litigation that the person will be treated as the person against whom final orders can or should be made.

Analysis: Conclusions

I turn now to my conclusions.

I consider first whether Mr Kraus is to be treated as the “real plaintiff” in the Main Action. In my judgment the proposition that he is, is properly arguable and must go to trial. The case law adopts a test whereby the court examines the pith and substance of the relationship between the alleged “real” plaintiff and the nominal plaintiffs. I am required to look beyond the legal niceties to see whether the nominal plaintiffs are the “real plaintiffs” and if I conclude that (arguably) they are not then I must seek to identify who the real plaintiff is. A Court may certainly take procedural steps against the nominal plaintiffs in the light of its findings about the identity of the real plaintiff. So, for example, in Willis (ibid.), which was treated as good law by Webster J in Abu Dhabi, the Court stayed the proceedings by the nominal plaintiff unless and until the real plaintiff gave discovery. The Court however observed that they would not make an Order against the real plaintiff who was not a party. However, in Abu Dhabi Mr Justice Webster seemingly did go further and make an Order directly against the “real plaintiff”. Although he purports to apply the Court of Appeal in Willis he did not consider himself bound by the procedural limitation that the Court of Appeal in that case perceived itself constrained by. The guiding principle applied by Webster J was one of general fairness or equity or justice.

In the present case I am satisfied that there is a proper case to go to trial on the question of whether Mr Kraus was the real plaintiff behind the Main Action. The point at which the person becomes “real” plaintiff is clearly one of degree. A person does not become the “real” plaintiff simply because he/she provides funding or proffers advice or assistance in the compilation of a witness statement or affidavit, etc. However, at some point the degree of involvement crosses the line and suffices to label the actor as the “real” plaintiff. Identifying the point when the Rubicon has been crossed involves focusing upon all of the acts and omissions both of the alleged “real” plaintiff and the alleged nominal plaintiffs.

In my view, the questions to focus upon include:

Posing these questions in the context of the present facts I am of the view that it is arguable that Mr Kraus devised and implemented the litigation, funded it and sought and intended to benefit from it, and, that the nominal plaintiffs were disinterested, uninformed, passive and non-participative and had no expectations about benefits or even burdens. I rely upon the facts and matters recorded at paragraphs [18] – [25] above. On this basis Mr Kraus did sufficient by way of conduct in the course of litigation to lead to the conclusion that he was in effect the true plaintiff and as such it follows that he also took sufficient procedural steps in that litigation which self-evidently amounted to submissions to jurisdiction (commencing the litigation, pursuing it, making application for certification, etc).

Mr Kraus, in his comprehensive oral submissions, accepted that he was actively involved in the litigation. He denied tht he was the real plaintiff. He said that he performed this role out of a sense of moral obligation towards the Chassidic community. He explained that the US attorneys were never bound to accept the advice that he gave to them. He denied that he had paid their fees. He submitted that he had received nothing by way of benefit from the litigation. He emphasised that in his view he had acted honestly and in good faith at all times. He categorised the submissions of Swiss Life as “character assassination”. He explained in detail how he came to be involved in the promotion of the endowment policies which was because he perceived them to be of considerable benefit to the Chassidic community and he felt obliged to help. He denied that he had evaded service of documents although he accepted that he had quite deliberately sought to avoid appearing or submitting to the jurisdiction of the New York Court in the context of the Third Party proceedings. He said that had he done so he would have been sucked in to an ever escalating and uncontrollable piece of litigation which he simply could not have afforded to engage in and which he would have been swamped by. He also submitted that even if, as a matter of principle, he was to be treated as the real plaintiff in the Main Action there was no or no sufficient connection between that action and the Third Party proceedings.

I do not discount Mr Kraus’ explanations. However, the question for me is whether the Deputy Master erred in granting summary judgment upon the basis that the “real plaintiff’s” argument was unsustainable. As to this, I have concluded that the Deputy Master clearly erred. He did not, in a proper sense, grapple with the law or the facts.

I turn now to the next question, which is whether assuming that Mr Kraus was (arguably) subject to the jurisdiction of the US Court in relation to the Main Action this suffices for the purposes of submission to the Third Party proceedings. It is clearly not the case that the latter inexorably follows from the former.

The judgment now sought to be enforced is predicated upon it having been obtained in default of appearance by Mr Kraus. The US Court did not treat any act or conduct by Mr Kraus in that litigation as having amounted to a submission or appearance. Indeed it is recorded that the Judge treated Mr Kraus as having been served but not as having taken part in the proceedings whether in relation to procedural matters or substance. Whilst this therefore suffices for the purposes of US jurisdiction it will not (and subject to the analysis of the letter of 22 January 2013 below) establish jurisdiction in the High Court unless submission at the Main Action is in law sufficient to establish submission to the Third Party proceedings. The test in law is set out at paragraphs [65] – [67] above.

As to this, some, but by no means all, of the Third Party proceedings are predicated upon the facts and matters relied upon in the Main Action. This is because a considerable part of the Third Party proceedings arise out of alleged misconduct on the part of Mr Kraus in relation to, at least, three other matters. First, in relation to the role he played in a series of policy holder lawsuits against Swiss Life in New York (in Kalman Weiss v La Suisse 97 Civ 1352 (CM) (MDF)). Secondly, in relation to litigation pursued or procured by Mr Kraus in Switzerland. Thirdly, litigation pursued or procured by Mr Kraus in Israel. Details of conduct on the part of Mr Kraus in relation to all of those three matters form a significant component of Third Party proceedings. Furthermore, throughout the complaint Swiss Life used the expression “The Brokers” upon the basis that Mr Kraus was simply one of a number of brokers who engaged in acts said to be unlawful and detrimental to Swiss Life.

The costs order is said to arise under a power accorded to the court under RICO to award costs. Those costs would appear to have been incurred in relation to a range of matters which go beyond the Main Action. By way of illustration of the general point, under the heading “Extortion and Bribery” a series of allegations are made to the effect that Mr Kraus was prepared to provide favourable testimony for Swiss Life in the Kalman Weiss litigation if he were compensated. It is then said that when Swiss Life declined to make the proposed payments, Mr Kraus and Caruso not only filed the Main Action but also initiated 50 lawsuits in Switzerland and Israel. In further particularisation it is said that Mr Kraus threatened harm to Swiss Life by filing criminal complaints in Switzerland against employees of Swiss Life. Indeed, it is clear that the acts relied upon in considerable measure are unrelated to the matters pleaded and relied upon in the Main Action. On a fair reading of the complaint in the Third Party proceedings it is, in my view, clear that only one part thereof relates to the Main Action. Paragraph [101] of the Complaint states:

“Kraus and Caruso’s violations…approximately caused, to date, Swiss Life to suffer direct injury to its business and property, including legal fees incurred in defending against Kraus’ extortionate lawsuits in New York, Switzerland and Israel, and other damages and losses described above”.

In my judgment it is arguable that there is a sufficient connection between the Main Action and the Third Party proceedings to enable submission to the former to constitute submission to the latter. Whether this ultimately turns out to be sufficient in law is a matter from trial. It is not possible for me to say, in the context of an appeal against a summary judgment decision, that the connection between the two sets of proceedings is so remote as to make them wholly or insufficiently unconnected.

I turn now to the question of the letter of 22^nd January 2013. I propose to consider: how this was in fact treated by the New York Court; whether there is any evidence before the High Court as to how, even in principle, this could have been treated under New York procedural law as a formal procedural step; and, how the domestic courts would deal with this.

It is clear (see paragraphs [30]–[37] above) that the US Courts did not view this as a step in the proceedings there. It was treated as an informal letter having no status which did not even have to be disclosed to Swiss Life. It was placed on a Court file and came to the attention of Swiss Life only as a matter of happenstance. It was essentially ignored by the Court and it played no part in the reasoning behind the Default Judgment which proceeded upon the basis that Mr Kraus had neither appeared nor submitted to the jurisdiction of the US Courts i.e. had taken no steps of a procedural nature.

Swiss Life argues that, contrary to the above, the letter did amount to a procedural step in the litigation emphasising that pursuant to the test in Stichting (ibid.) at paragraph [31] all that had to be established was “any procedural step consistent only with acceptance of the rules under which the court operates” (emphasis added). It is said that the letter represents an engagement with the New York court’s procedural rule because Mr Kraus was accepting those rules and going further by asking the court to enforce those rules. He invited the New York Court to: (i) order that Swiss Life effect proper service upon him; and (ii), order that Swiss Life narrow down its allegation against him so that he could better understand them. Of these two alleged steps it is contended that the first seeks an “order that Swiss Life effect proper service of the default judgment on him” where proper service is a “paradigm” procedural rule; and as to the second it is said that this “looks like a request for further and better particulars”. I do not accept this argument.

First, the difficulty with these arguments is that the letter was, in actual fact, not treated as steps recognised under New York procedural law by the Judge. As observed the letter was ignored. If the New York Court had treated these as steps “consistent only with acceptance“ of the rules operating in New York then there is no explanation as to why they were not acted upon as such by the Court and were simply put away in a court file, no doubt under the troublesome litigant heading, and not even passed on to Swiss Life. I have set out at paragraph [57] above citation from authority which indicates that if the foreign court does not treat an act as submissions that the English court will at the very least treat the foreign court’s view as of substantial weight in forming its view under English law. In relation to a concept which is underpinned by comity, it is hard to see why the domestic court should in such circumstances accord the disputed act in question much weight as an indicator of submission.

Secondly, no evidence was put before this court to show how, in principle, and notwithstanding the view of the New York judge, New York procedural rules would apply to the procedural steps which it is submitted the letter amounts to. Indeed, it was not submitted that this letter was capable of being a formal procedural step under identified, specific, procedural rules in New York. To make an application, for instance for further and better particulars (and I assume that there is an equivalent under New York procedure) must special forms be used? Must a court fee be paid? Must an application be attested to by a statement of truth or a jurat? Must it be served upon the other side? Does the fact that Swiss Life did not respond to it as if it were a formal procedural step (and indeed sought default judgment upon the basis that Mr Kraus had not complied with the rules) have relevance? And so on. It is notable that the act in question which was being referred to in Stichting was the formal lodging of a “proof” which had equally formal procedural consequences in the litigation (see per Lord Sumption and Lord Toulson (ibid.) at paragraph [31]).

Thirdly, if the High Court is not to take the position in New York as providing the definitive answer then it is relevant to consider how this letter would have been treated under domestic procedural rules. It was not however in this context argued before me that an informal letter of this sort sent by a litigant in person would be treated as a pleading or procedural step recognised under the CPR in this jurisdiction. In my view, had such a letter been sent to a Judge in the High Court (and such letters are from time to time sent) it would equally have been treated as an informal communication. If this letter had been sent to a Judge he/she would have (i) passed it on to the court office so that advice about procedure could be given by court officials to the author of the letter and (ii) sent a copy as a matter of courtesy to the other litigants in the case upon the basis that a judge should not be receiving communications from one litigant that another litigant does not know about. It would not have been treated as a formal procedural step.

Fourthly, the Stichting test, cited by Swiss Life, assumes that the procedural step being examined must be consistent “only” with acceptance of the rules under which the court operates. See also the reference to “only” in Williams & Glyn’s Bank (ibid.) approved of in Rubin (ibid.): cited at paragraph [56] above. If one applies this strictly then where there is ambiguity and the step does not point unequivocally to compliance with the foreign procedural rules, it does not amount to submission. Nonetheless, in so far is it is relevant in my judgment it cannot be said that this letter meets the exclusivity requirement. The letter was a response to what Mr Kraus perceived as a slur to his reputation and it was also a complaint about the shipment of documents: See the 3^rd and 4^th paragraphs of the letter cited at paragraph [30] above.

Finally, case law indicates that the test is an objective one based upon all of the facts: Rubin (ibid.) paragraph [163]. In so far as the intention of the person alleged to have submitted is concerned has any relevance it is clear, as recorded at paragraph [24] above, that Mr Kraus did not intend ever to submit to the jurisdiction of the New York Court. My attention was drawn to this correspondence by Swiss Life as an indication of the fact that Mr Kraus was playing a clever game and supportive of its argument that he was the “real plaintiff”. I accept that a person might not intend to submit to jurisdiction but, mistakenly, perform an act which amounts to submission, and it is the latter which will prevail. Actions count louder than words. But in the present case, and bearing in mind the overall context, I do not take the letter as reflecting an intention to submit to jurisdiction.

Standing back from this issue I am, in effect, asked by Swiss Life to treat as relevant and decisive a document that the Court in New York treated as irrelevant. There is no other piece of evidence which suggests Mr Kraus in any way communicated with, or appeared in, or submitted to the US courts in relation to Third Party proceedings. No evidence has been put before me to show that an informal letter would or could be treated as a formal procedural step in New York; and the same goes for the position in this jurisdiction. In my judgment, the Deputy Master correctly rejected this letter as evidence supporting jurisdiction. I am fortified in this conclusion by the position adopted by the Outer House Court of Session in Service Temps Inc v Innes Nicholson MacLeod et Ors [2013] CSOH 162 per Lord Hodge (“Service Temps”). In that case the Court had to consider whether there was sufficient evidence of submission to jurisdiction in relation to a decree of the District Court in the 68^th Judicial District of Dallas County Texas. An issue arose as to whether the judgment was tainted by virtue of the PTIA 1980. In this context an issue arose as to whether a letter sent to the Dallas District Court amounted to submission. Lord Hodge clearly (ibid. paragraphs [24] and [25]) treated the stance adopted by the Texas Court as highly relevant, though not dispositive. He observed that the US Court treated the letters as instituting a valid appeal and he stated that the Scottish Courts would in his view have acted similarly.

In view of these matters I conclude that the Deputy Master did not err in his analysis of the letter.

I therefore conclude that there is an arguable case that Mr Kraus in acting as the real plaintiff in the Min Action also submitted to jurisdiction in relation to the Third Party proceedings. There are now certain other matters I would address which go to whether Mr Kraus has some knock-out defence that should lead me to dismiss the appeal notwithstanding my prima facie conclusion. In the case of each possible defence below I have concluded that they are certainly arguable from the perspective of Mr Kraus but that I cannot say at this stage that they are so strong that I should refuse to give effect to my prima facie conclusion which is that Swiss Life has a proper case to take to trial on its enforcement action.

Abuse of process: The first concerns the fact that Swiss Life has not sought enforcement of the Judgment in relation to the principal damages, which have been trebled and amount to a sum exceeding $150,000,000. Mr Kraus complained that, if it were now to be pursued (whether in a trebled form or not), it should have been pursued much earlier and that it was an abuse of process to pursue it in separate proceedings. He emphasised that he is now a litigant in person who could not afford legal representation. He complained that it was unfair to use the tactic of multiple, staged, litigation to wear him down. Mr Croxford QC, for Swiss Life, submitted that the High Court proceedings were commenced before the quantification of the Default Judgment had occurred, which was only in August 2014. He submitted it was therefore within the discretion of Swiss Life to seek to enforce that sum as a quite separate action. I have already referred to the general principle of law that a party should include all of the causes of action that it can in one set of proceedings: See paragraphs [9] and [44] above. It would of course have been open to Swiss Life to delay bring the enforcement proceedings until after the quantification judgment was obtained in New York. Whether the strategy adopted by Swiss Life sounds as an abuse either now, or, at the stage of an attempt to enforce the underlying monetary claim, is for trial or for later proceedings. I do not view it as a knock out reason to justify refusing the appeal.

Non-severability: A second issue arising is that even if in principle it is possible to seek to enforce the costs order in this jurisdiction because there is a sufficient connection between the Main action and the Third Party proceedings the trial judge might conclude that only a part of the costs sought to be claimed are in fact attributable to the Main Action and that therefore only a part of the claim is enforceable here. If that is so then a consequential issue as to severance might also arise. Is it possible to separate out the recoverable claim from the unrecoverable part? Mr Croxford QC submitted generally that issues such as this could in law be resolved through a principle and process of severance. He referred to Lewis where severance was applied under the PTIA 1980. He said that Swiss Life recognised that pursuant to the PTIA 1980, and also under the common law, the courts will not enforce a penalty and that Swiss Life was not intending to pursue the trebled part of the quantum claim. Mr Croxford QC submitted that in Lewis (ibid.) the Court of Appeal held that, in principle, it was possible to sever unenforceable, penal, treble damages from, otherwise unobjectionable damages. At paragraph [52] Lord Justice Potter stated:

“…in a situation where the court is asked to enforce a foreign judgment for a particular sum and it is faced with a plea by the defendant that the judgment is unenforceable, it should first examine whether and to what extent the judgment falls within the exception to enforceability relied on. If, upon such examination, it is apparent that part only of the judgment falls within that exception, the court should then consider whether the unexceptionable part can readily be distinguished, separated and quantified for the purposes of enforcement. If it can, then that separable part should be recognised and enforced”.

Ultimately it is for the trial judge to: examine the nexus between the costs claim and the Main Action to see to what extent there is overlap; and in the light of that assessment to determine whether the whole or only a part of the costs claim can be recovered; and if only a part can be recovered whether it is in fact possible to sever the recoverable from the irrecoverable parts. It is correct to conclude that the Default Judgment does not contain any reasoning which allocates the costs as between issues in the Third Party proceedings and this might be an obstacle to severance. Ultimately however I confine myself to concluding that these are all arguable defences but I cannot say at this stage that their resolution is so clear in favour of Mr Kraus that they should lead me to refuse the appeal.

High Court no jurisdiction to entertain enforcement claim under section 5 Protection of Trading Interest Act 1980: There is one other matter to mention which concerns whether the Courts are permitted to even entertain an application to enforce a part of a judgment which contains a trebled component. In Lewis (ibid.) an issue arose as to whether a US judgment which was, in principle, subject to trebling pursuant to RICO could be enforced in the domestic courts, even though the specific judgment sought to be enforced had not been subject to any trebling process. It was argued that pursuant to Section 5 PTIA 1980 because this was a judgment which fell within the broad scope of Section 5(3) and Section 6 PTIA 1980 then the prohibition in Section 5(1) applied. This reads:

“(1)

A judgment to which this section applies shall not be registered under Part II of the Administration of Justice Act 1920 or Part I of the Foreign Judgments (Reciprocal Enforcement) Act 1933 and no court in the United Kingdom shall entertain proceedings at common law for the recovery of any sum payable under such a judgment”.

In Lewis it was contended that the bite in Section 5(1) was broad and sharp. It applied to “any sum” payable under a judgment caught within the scope of the Act. And as to the latter question, Section 6 made clear that a judgment which imposed treble damages was a judgment to which Section 5(1) applied. It was thus submitted that since the US judgment sought to be enforced in that case included an element of, prohibited, treble damages then no other part thereof could be enforced in the United Kingdom, even if the judgment actually being enforced had no component of trebling within it. The Court of Appeal considered that Section 5(1) was ambiguous in this regard but that there was no reason of policy within the terms of the Act which dictated a construction which led to the “draconian consequence that a US judgment for damages largely in respect of private causes of action otherwise enforceable under longstanding principles of English law may be rendered wholly unenforceable by inclusion of a claim, and consequent judgment, for damages under the RICO Act” (ibid. paragraph [47]). On the facts the Court applied a test of severance (cf. paragraph [39]) and thereby permitted the untainted judgment to be enforced in the United Kingdom.

The Court in Lewis was thus concerned with particular facts: the Claimant was enforcing in this jurisdiction a US judgment which was for a fixed sum with no element of trebling therein: see (ibid.) at paragraphs [5] – [10]. This was the context in which severability was held to be unobjectionable. Importantly for present purposes Lord Justice Jacob expressly distinguished the instant case from the more complex one where enforcement was sought of a component of a single judgment which also included a trebled award (cf. ibid. paragraph [62]).

The facts of the present case are more complex than in Lewis both because here the claim is for enforcement of the costs element of a single judgment that explicitly provided for trebling with only quantification deferred, and because the costs order was made under the very statute (RICO) which permits the trebling.

In Service Temps (ibid), Lord Hodge, having cited Lewis, concluded that the prohibition on courts entertaining foreign judgments containing treble damages elements set out in section 5 PTIA 1980 was to be given a wide (i.e. strict) meaning (ibid paragraph [37]):

“[37] It is consistent with the purpose of the 1980 Act to give a wide meaning to the words at the end of section 5(1): "proceedings at common law for the recovery of any sum payable under such a judgment". I acknowledge that the judgment against the defenders, which STI seeks to enforce, relates to a claim under the UFTA and is not a direct claim for multiple damages. But it is a judgment against United Kingdom citizens resident in the United Kingdom which orders them to pay a creditor of HDL, whose only claim for such an order is a judgment against HDL for multiple damages under US anti-trust legislation. That in my view involves the recovery of a sum payable under a judgment for multiple damages within the meaning of section 5(1). The fact that the claim under UFTA arises from an alleged transfer of assets to defeat STI's claim is not material. As STI accepts, the 1980 Act prevents it from suing HDL in the United Kingdom to recover multiple damages. It would be contrary to the broad intention of the legislation, which is to discourage the extra-territorial enforcement of anti-trust judgments and measures, for the court to order HDL's directors in the United Kingdom to pay sums to STI, an anti-trust claimant, to enable it to recover its award of multiple damages.

Lord Hodge was of the view that on the facts of the case before him there was no possibility of severance of the compensatory element of a judgment from its excess: See paragraph [39].

On one view the present claim, which seeks to enforce a costs order, is an attempt to enforce a part of a judgment which, itself, contains a component which is objectionable under the PTIA 1980. The facts of this case are not four square on a par with those in Lewis (where the foreign judgment was enforced here) and as was observed in that case by Lord Justice Jacobs where there is a greater degree of linkage between the sum to be enforced and the underlying judgment which contains the objectionable trebling, then the limits of section 5 require further exploration. In this respect Service Temps suggests a relatively strict approach. The exploration of these questions will have to be performed by the trial judge in this action. Once again it suffices for present purposes to conclude that the points arising as possible defences are arguable but are not such that at this stage I can say that they afford Mr Kraus a clear and unanswerable defence to the case advanced by Swiss Life.

Conclusion

For the reasons set out in this Judgment the appeal is allowed.