Newson-Smith v Al Zawawi

The applicant is Mark Newson-Smith. He is a judgment creditor against three parties: JARZ Mozambique Holdings Ltd (“JARZ”), ZR Energies Mocambique Limitada (“ZREM”) and Jason Rosamond (“Mr Rosamond”). Judgment was entered on 20 October 2014 in the amount of £3.183m plus costs and interest. The judgment debt remains unpaid and continues to accrue interest.

The Respondent is Alawi Al Zawawi. He was, at all times material to the creation of the judgment debt, a director and (indirectly, through intermediate companies) a shareholder of each of JARZ and ZREM.

After judgment was entered, the applicant initiated proceedings under CPR Part 71 in order to obtain information from JARZ and ZREM to enable him to enforce the judgment debt (these are the “CPR 71 proceedings”). As an officer of JARZ and ZREM the respondent became involved in those proceedings, and in the course of them was ordered to attend for oral examination and to produce documents.

The applicant alleges that during the CPR 71 proceedings, the respondent interfered with the due administration of justice by making false statements. The applicant now seeks permission pursuant to CPR 81.12 (3) to initiate committal proceedings for contempt of court against the respondent.

The applicant argues the respondent has interfered with the administration of justice, and is in contempt, in the three following ways:

The first two categories ((a) and (b)) are covered by Part III of CPR 81 (CPR 81.12-81.14). The third category (c) is covered by Part VI of CPR 81 (CPR 81.17-81.18). However, it is common ground before me that the precise categorisation is not material to the approach that I should take. As to the approach, that again is in large part agreed. The leading cases are cited in the White Book at CPR 81.18.2 and are:KJM Superbikes Ltd v Hinton (PracticeNote)[2008] EWCA Civ 1280,Barnes v Seabrook[2010] EWHC 1849

I would add the following observations, specific to this application. First, to establish a contempt, the false statement must have been made with the intention that, or at least in the knowledge that it was likely that, the administration of justice would be interfered with as a result, see Tinkler v Elliot [2014] EWCA Civ 564 at [44]:

“in order for an allegation of contempt to succeed it must be shown that ... in addition to knowing that what you are saying is false, you had to have known that what you are saying was likely to interfere with the course of justice” citingEdward Nield v Loveday [2011] EWHC2324 (Admin).

Secondly, a false statement is one which was not true, and which when made the maker knew was not true, or did not honestly believe to be true. There is a fine dividing line between mere carelessness or negligence on the one hand, and recklessness in the making of the statement on the other. Recklessness is sufficient mens rea for contempt (Berry Piling Systems Ltd at [27]). However, a statement is made recklessly only if the maker

“consciously has no idea whether it is right or wrong … Recklessness is a concept which judges can address as they do in a criminal context. Logic also suggests that a person who represents as true something which he or she consciously does not know whether it is true or not is consciously misleading the Court and that should be considered as contemptuous” (ibid, at [28]).

Optimism or even carelessness in the making of statements will not be sufficient to establish that a party is in contempt (ibid, at [30(c)]).

At this point, and only in relation to this point, the parties’ submissions diverge. They take different views on what recklessness means, in the context of false statements. The applicant argues that if the maker of a statement does not take sufficient steps to check whether the statement is true or not, then he makes a recklessly false statement, because he can have no honest belief in the truth of it. The respondent argues that a failure to conduct sufficient checks is insufficient, in and of itself, to render a statement false by recklessness, because the maker may still believe that statement to be true, even if he has not conducted those checks; it is only if he does not care whether it is true or not – a different and higher hurdle to surmount - that it can be said that he lacks an honest belief in the truth of the statement.

In resolving this divergence of view, I am assisted by the Court of Appeal’s judgment inJSC BTA Bank v Ereshchenko[2013] EWCA Civ 829.In that case, the applicant argued that the respondent, Mr Ereshchenko, was in contempt because he lacked an honest belief in his statements to the Court, based on his failure to engage with the terms of a Norwich Pharmacal order and his failure to make reasonable enquiries as to the truth of the position. Lloyd LJ rejected that argument, saying this:

“[42] … What the Bank has to persuade the court of, to make out its case of contempt as regards each or any of the statements in question, is that Mr Ereshchenko's statement was not true, and that when he made it he knew it was not true or did not honestly believe it to be true. That applies to every aspect of Mr Ereshchenko's relevant statements. If Mr Ereshchenko had not in fact made all reasonable enquiries before making his statement in answer to the Disclosure Order, then in that respect the answer may be untrue, if the answer includes a statement (express or implicit) that he has made all reasonable enquiries. The Bank may be able to show that this is the case if Mr Ereshchenko has not applied his mind properly to the obligation. That is an objective question. But to prove this does not show that Mr Ereshchenko knew that his enquiries, whatever they may have been, were not all that he could and should reasonably have made. That question is subjective and depends on Mr Ereshchenko's state of mind when he made the statement. It is not to be overridden by a policy position that a respondent must not be allowed to “get away” with making an objectively inadequate compliance with the order. To show that not all reasonable enquiries have been made may be enough to justify a supplementary order designed to reinforce the original obligations. It does not by itself justify a finding of criminal contempt, based on dishonesty.”

The Court of Appeal dismissed the appeal, upholding the Judge’s refusal of permission to bring proceedings to commit Mr Ereshchenko for contempt.

The passage cited refers to Mr Ereschchenko ‘applying his mind’ to the truth or otherwise of the relevant statement. That reflects what Akenhead J said in Berry Pilings, namely that a false statement is made when the maker “consciously has no idea whether it is right or wrong” (see [28]). There must be a subjective element – that is, a conscious engagement with the issue which is the subject of the statement – before it can be said that the statement, if it turns out to be untrue, was made recklessly and thus without an honest belief in its truth. Anything less than conscious engagement is likely to amount to mere carelessness. I agree with the respondent and reject the applicant’s looserapproach to recklessness. (Since drafting this judgment, the applicant’s counsel has sent me a copy of Patel v Patel [2017] EWHC 1588 (Ch). The respondent’s counsel responded with a copy of PJSC Vseukrainskyi Aktsionernyi Bank v Maksimov [2014] EWHC 4370 (Comm). I am grateful for these, and all earlier submissions and authorities, but I do not consider that they assist me in determining the point in dispute, or indeed the wider issues raised by this application.)

The current dispute arises out of the business of a corporate group known as the “Good Earth Power Group” of which both JARZ and ZREM are members. The Good Earth Power Group was founded by Mr Rosamond and the respondent. Mr Rosamond was at all material times the group’s Chief Executive Officer. The respondent is from Oman, although he has a home in the United Kingdom, and spends much of his time here. He has extensive business interests in Oman and elsewhere. The respondent has invested significant amounts of money in the Good Earth Power Group.

The course of this dispute has been long and the issues have been many. It is not necessary or appropriate for me to set out the facts in any great detail. What is set out below is merely an overview. I will examine particular aspects of the facts in greater depth, so far as I need to, as part of my consideration of the merits of the application.

The applicant was first introduced to the Good Earth Power Group by Craig Anderson, the Chief Investment Officer of the Group. The applicant and Mr Anderson were good friends from earlier times. The applicant decided to make a US$1.5 million investment in the Group. The terms of that investment are set out in a loan agreement dated 21 December 2012 (“Loan 1”). The applicant loaned US$1.5 million to JARZ, guaranteed by ZREM and Mr Rosamond. The loan term was 180 days. The return was to be 67% of the loan value (ie US$1million) payable within 180 days. Recital A recorded that “The Company [ie JARZ] is raising USD1,500,000 for working capital for its group”, and Group was defined as the JARZ and ZREM, their subsidiary undertakings, parent undertakings and the subsidiary undertakings of the parent undertakings. Loan 1 was to be paid into an account in the name of Good Earth Power Ltd held at the Royal Bank of Canada, details being given in the loan agreement.

On the same date, 21 December 2012, Mr Rosamond signed a side letter addressed to the applicant, on his own behalf and on behalf of JARZ and ZREM, recording that “we have approached you for a loan to provide working capital for our agriculture project in Mozambique” and acknowledging that he (and the companies he represented) had entered into the loan agreement of their own free will and with no requirement and no external pressure.

Bank statements for the Royal Bank of Canada account show that Loan 1 was received by Good Earth Power Ltd on 7 January 2013.

On 18 February 2013, the applicant entered into a further loan agreement (“Loan 2”). The terms were that the applicant would loan US$1 million to JARZ, guaranteed by ZREM and Mr Rosamond. Fixed interest would accrue, depending on the date of repayment of the loan: if repayment occurred before 6 March 2013, the coupon would be US$400,000; the coupon increased the longer Loan 2 remained outstanding; if the loan was repaid on or after 6 June 2013, the coupon would be US$700,000. Loan 2 was to be repaid no later than 5 July 2013. Recital A recorded that “the Company [JARZ] is raising USD1,000,000 for working capital for its group”, and Group was defined in the same way as it had been in Loan 1. Loan 2 was to be paid into a bank account in the name of Mr Rosamond with Natwest, details of which were given in the loan agreement.

On 20 February 2013, Mr Rosamond signed a side letter to the applicant in similar terms to that provided on 21 December 2012.

Bank statements for the Natwest account show that Mr Rosamond received Loan 2 in its then sterling equivalent of £650,000 on 20 February 2013.

In the event, none of JARZ, ZREM or Mr Rosamond was able to repay either loan when it fell due (Loan 1 was due for repayment in June 2013, and Loan 2 was due for repayment by 5 July 2013 at latest). The applicant entered into a Variation Agreement with the same counterparties, namely JARZ, ZREM and

In the event, no repayment of Loan 1 or 2 (as varied by the Variation Agreement) was ever made.

The applicant issued demands for payment against JARZ, ZREM and Mr Rosamond. These demands were not met. The applicant sued for repayment.

On 14 November 2014, the applicant wrote directly to the respondent in the following terms:

“We have sufficient facts to launch proceedings against yourself, which we shall commence shortly. I am saddened by the need to do this and I suspect that this will drag the Zawawi name into the sorry saga.

…”

On 19 November 2014, the applicant’s solicitor, Mr Byford of Eversheds, wrote to the respondent’s solicitor, Mr Jonathan Sachs of Irwin Mitchell, saying this:

“It has come to light that your client has been receiving funds from the ZR companies. In particular, we attach a copy of the transfer indicating that your client received US$250,000 from ZR Energies Ltd. Please explain what this payment was for and detail any other payments made to or on behalf of your client by the ZR companies. Further please explain why your client thought it acceptable to be paid in preference to other creditors including our client. …

We will therefore be commencing proceedings against your client to recover the full amount of the debt due since it is apparent that Mr Al Zawawi, as a director of the ZR companies, has been approving or entering into transactions which put the assets of the ZR companies beyond the reach of our client, including by making payments to himself, contrary to Section 423 Insolvency Act 1986. …”

I interpose with three comments at this stage. First, it is not clear how the applicant came to know of a payment of US $250,000 to the respondent from

Mr Sachs replied to this letter on 1 December 2014. He confirmed that the respondent had received US$250,000 from ZR Energies Ltd, in part payment of a debt of millions of dollars owed to the respondent, but denied that the respondent had entered into any transactions to put assets beyond the applicant’s reach, and noted that anyway the Insolvency Act was inapplicable because these were not UK companies; he also reminded Mr Byford that the respondent was not a judgment debtor.

On 19 December 2014, Master Leslie made an ex parte order under CPR Part 71 requiring the respondent to attend for an oral examination and to produce documents. On 2 February 2015, by consent, Master Eastman varied the order. The matter was listed for hearing on 18 February 2015. On 6 February 2015 in anticipation of that hearing, Mr Sachs wrote to Mr Byford, enclosing a number of documents. This is a letter of some importance, because it founds Ground 1 of the applicant’s application for permission. For present purposes, it is sufficient merely to note that amongst the documents disclosed under cover of this letter were bank statements for the Good Earth Power Group Ltd account held at the Royal Bank of Canada in Switzerland, Mr Rosamond’s sterling account at Natwest in the UK, and ZR Energies Ltd’s account held at Afrasia Bank, for relevant periods.

The respondent was cross examined for half a day on 18 February 2015 and during his evidence confirmed the existence of further documents of possible relevance. The matter was adjourned part heard, and the parties then embarked on a discussion, which turned into a dispute, about the proper scope of any further disclosure in light of the respondent’s evidence. In the event, Master Leslie decided at a contested hearing on 26 March 2015 that the applicant’s preferred “wider” form of disclosure was appropriate, and ordered further disclosure accordingly.

The respondent was dissatisfied with the Master’s order, considering that a “narrower” scope of further disclosure was appropriate, and notified the applicant that he intended to appeal, enclosing a draft appellant’s notice dated 31 March 2015. The applicant responded saying that the appeal would be out of time because the date from which time to appeal ran was 18 February 2015, the date of the original hearing. The matter had to go back to the Master on 9 April 2015 for the Master to clarify that the relevant date was indeed 26 March 2015. By order dated 20 April 2015, Leggatt J declared that the appeal was in time and stayed execution of the Master’s order pending the appeal. The appeal was then listed for hearing. In the event the applicant conceded the appeal on 11 May 2015, just days before the appeal hearing. The respondent’s “narrower” formulation prevailed.

Reflecting that position, on 20 May 2015, Holgate J ordered the respondent to disclose various categories of documentation, with permission to the respondent to apply to the Court for a declaration of non-liability to disclose any documents which the respondent thought would stray beyond the agreed order. On 8 June 2015, Mr Sachs wrote a letter enclosing those documents which the respondent did not object to producing. On 12 June 2015, the respondent issued an application for an interim declaration in relation to other documents, as presaged by Holgate J’s order dated 20 May 2015.

There then followed a series of delays, which resulted in the respondent’s application for an interim declaration not being heard until 25 April 2016, almost a year later. It is clear from a review of contemporaneous correspondence that the main reason for that delay was, first, Mr Byford’s holiday commitments (meaning that nothing was done to obtain a private room appointment between June and September 2015), and secondly, from September 2015 to January 2016, a delay while the applicant considered issuing his own cross-application to be heard at the same time as the respondent’s application – pending receipt of that application, the parties agreed that no further action should be taken on the respondent’s application. The applicant finally issued his cross-application on 13 January 2016. That was an application for a disclosure order in apparently identical terms to that previously sought by the applicant, but now endorsed with a penal notice. Once that application had been issued, a private room appointment was fixed for 25 April 2016.

The suggestion that the delay from June 2015 to January 2016 was attributable in some way to professional difficulties being experienced by the respondent’s then counsel is not supported by the contemporaneous correspondence. There were difficulties of that nature, but they do not appear to have had any material impact on the timing of the hearing to dispose of the respondent’s application and the applicant’s cross-application.

The hearing of both applications was then fixed for 25 April 2016. In the event, Master Eastman adjourned that hearing to 15 June 2016, because he had insufficient time to deal with the applications, or to digest the considerable evidence which had by this stage accumulated.

The respondent did serve a witness statement on the evening of 22 April 2016, the Friday before the hearing scheduled for the following Monday before Master Eastman. But that late service was not, apparently, the reason the Master gave for adjourning the hearing. The Master’s reasons, recorded in a

The matter resumed before Master Leslie on 15 June 2016. The applicant had by then filed further written evidence. The Master heard argument about the admissibility of the respondent’s witness statement filed on 22 April 2016 and the further witness statements filed by the applicant. He decided to admit all that evidence. He had insufficient time to deal with the two applications and those were adjourned to be dealt with at the resumption of the cross examination of the respondent, which was fixed for two days on 31 October and 1 November 2016.

The respondent made further disclosure of documents under cover of a letter from Irwin Mitchell dated 22 September 2016.

The respondent was dissatisfied with certain comments made by Master Leslie at the hearing on 15 June 2016. The respondent issued an application for Master Leslie to recuse himself from the case on grounds of actual or apparent bias. Master Leslie refused that application on 30 September 2016. Morris J refused the respondent’s appeal on 27 October 2016.

The matter proceeded before Master Leslie and oral examination resumed on 31 October 2016 and lasted two days. Neither application was determined at that hearing, which was adjourned for submissions to 14 November 2016 before Master Leslie.

On 11 November 2016, Irwin Mitchell (by Mr Sachs) wrote to Eversheds (Mr Byford) who had throughout acted for the applicant, abandoning the respondent’s application for an interim declaration of non-liability to produce documents. That application had been issued as long ago as 12 June 2015 and was still unresolved. By default, that meant that the applicant’s cross-application succeeded. The order was to be subject to a penal notice (Holgate J’s production order dated 20 May 2015 had been endorsed with a penal notice, so this was not a new development).

When the matter came back before Master Leslie on 14 November 2016, Master Leslie ordered disclosure in relation to each category of documents in the production order. At this hearing, the applicant’s counsel said this:

“In addition, Master, we say that it may be appropriate on the receipt of further information to contact the United States authorities. You will recall that the timber project in Arizona was obtained, it seems admittedly, through the use and with the assistance of fictional accounts, or at least where many of the entries were agreed to be fictional. That is quarter 1 of the 2013 accounts.

If there is no repayment from the companies Mr Newton-Smith may have the opportunity to use the United States, I think it is called, whistleblowing legislation. In other words you inform the United States government that it has been defrauded or misled in some way then you obtain a reward for providing that information to the United States government which may be an alternative way for the judgment debt to be, effectively, discharged from a different source.

Now, of course work remains to be done as to whether or not that is permitted but it would remain our intention to notify [AZ] of that intention before doing so, so that he can seek an injunction to restrain

[MNS] if that is what he thinks he is entitled to do.”

The main issue for resolution at that hearing was costs. Having heard argument, the Master ordered the respondent to pay indemnity costs for all hearings from 24 April 2016 to date (there was no order for costs in relation to the hearings on 26 March 2015, 27 April 2015 and 20 May 2015), £90,000 of which were to be paid on account.

The Master gave a judgment on which the applicant relies heavily. I set out a lengthy passage from this judgment, given the reliance the applicant places on

Following this hearing, the Master invited both counsel to meet him in the Bear Garden of the Royal Courts of Justice. He expressed concern about whether the applicant was threatening to blackmail the respondent, by suggesting that the US authorities might become involved.

A further hearing took place before Master Leslie on 24 January 2017. The applicant filed a skeleton argument which stated this at [7]:

“The Judgment Creditor is still reviewing the latest batch of documents to be disclosed, and no decisions have been taken as to the next steps. In the interests of keeping the Court informed, the Judgment Creditor’s options are perceived to include some or all of the following:

(1)

Commencing contempt proceedings against Mr Al Zawawi;

(2)

Continuing with the cross-examination presently listed for March 2017;

(3)

taking the steps (previously referred to as “whistle-blowing”) under the US False Claims Act;

(4)

Referring the mater to the Director of Public Prosecutions with a view to United Kingdom criminal proceedings against Mr Al Zawawi for perjury.

(5)

Other steps yet to be thought of.”

That, I understand, was the last hearing in the course of the CPR 71 proceedings.

The consequence of the CPR 71 proceedings, so far, is that a significant number of documents have been disclosed by the respondent. I am told that 125 lever arch files have been so far produced, the product of extensive electronic searches. Mr Walford complains that the respondent’s disclosure still has gaps, he says that the respondent has admitted that some searches have not yet been carried out, and that there may yet be further applications seeking further disclosure from the respondent.

The Court time taken up on the CPR 71 proceedings and related matters has, so far, been very substantial. There have been so far 2 ½ days of cross examination of the respondent. There have been a number of applications and appeals which have detained, variously, Master Leslie, Master Eastman, and a number of High Court Judges. I am told that the respondent’s costs, incurred on lawyers’ fees and in meeting the disclosure orders, currently stand at £422,000, a figure which does not include those costs which have yet to be quantified which the respondent must pay to the applicant, pursuant to Master Leslie’s order, or the costs of this permission application. The applicant will have irrecoverable costs as well. The total bill will be significantly higher than £422,000.

This application was commenced by Part 8 Claim Form issued on 3 March 2017. Details of Claim have been filed, which attach a Statement of Grounds setting out four grounds for committing the respondent to prison.

By Ground 1, the applicant asserts contempt by putting forward a false case as to the way in which Loan 1 and Loan 2 (the “Loan Monies”) were used. By Master Leslie’s Order dated 19 December 2014 in the CPR 71 proceedings, the respondent was required to provide documentation which demonstrated the bank account into which the Loan Monies were paid and the use to which those monies were put. He was also ordered to say what transfers of money or assets there had been from JARZ to any company within the Good Earth Power Group. Irwin Mitchell answered those questions by its letter dated 6 February 2015 in the following way (so far as relevant):

“No transfers of money or assets have been made from the 1^st Defendant [JARZ] to any company within the ZRH Group structure or any company within the JARZ Group structure.

The 1^st Defendant is a dormant company with no assets and has not had a bank account…

…

There have been no transfers of money or assets from [JARZ Mozambique] or [ZREM] whether directly or indirectly to Jason Rosamond, Alawi Zawawi or Maya Rosamond née Minkova…”.

The applicant argues that these statements were untrue in two ways. The first allegation is that payments were made, in fact, to a number of other companies within the Good Earth Power Group, so that the statement to the effect that

By Ground 2, the applicant asserts contempt by the respondent putting forward a false case as to his knowledge of the Loans. The applicant relies on evidence given by the respondent at a hearing in the course of the CPR 71 proceedings, on 31 October 2016, when he admitted that money was used wherever it was needed in the Good Earth Power Group and that the Loans were used in the group. The first allegation is that the respondent gave untrue evidence when he said, both orally and in written evidence that he did not know about the applicant or the Loans. The applicant points to a number of emails which were copied to the respondent, which discussed the applicant, the Loans, and related topics, such as the applicant’s travel arrangements. The second allegation is that he falsely stated that when he received US$250,000 from ZR Energies Ltd, he was unaware that the first loan was soon to fall due for repayment. The applicant again points to emails copied to the respondent which, so it is said, show that he knew about the Loans.

By Ground 3, the applicant asserts contempt by the respondent making false and misleading statements in witness statements and oral evidence given in the course of the CPR 71 proceedings, to the effect that the Loan Monies had been applied to operating expenses and capital expenditure in Mozambique. The allegation is that these statements were untrue because the Loan Monies were paid to other companies with the group operating outside Mozambique, and to individuals (Mr Rosamond, his wife Ms Minkova, and the respondent himself). Under cross examination in the course of the CPR 71 proceedings, when various bank statements were put to him, the respondent accepted that some of the Loan Monies were deployed elsewhere.

By Ground 4, the applicant asserts contempt by the respondent putting forward in oral evidence a false case as to the ability to repay the Loans. The applicant argues that there is evidence that another project in Botswana, in which a different ZR Group company was involved, had yielded net proceeds of something between $33 and $40 million in 2015. The applicant argues that the respondent was not truthful when he asserted that there were insufficient funds to repay the applicant.