Cecil & others v Ehsanollah Bayat & others

Hearing dates: March 8 th– 11 th & 15 th 2010

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic

Mr Justice Hamblen :

Introduction

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

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

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

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

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

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

The issues

The principal issues are:—

A. Service out

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

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

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

B. Service generally

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

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

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

(7) Whether service has been validly effected within the terms of David Steel J's order.

Other Proceedings

There is an unusual background to the present proceedings.

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

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

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

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

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

A. Service out

The law

(a) The general rules

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

“(1) An application for permission under rule 6.36 must set out –

(a) which ground in paragraph 3.1 of Practice Direction B supplementing this Part is relied on;

(b) that the claimant believes that the claim has a reasonable prospect of success; and

(c) the defendant's address or, if not known, in what place the defendant is, or is likely, to be found.

(2) Where the application is made in respect of a claim referred to in paragraph 3.1(3) of Practice Direction B supplementing this Part, the application must also state the grounds on which the claimant believes that there is between the claimant and the defendant a real issue which it is reasonable for the court to try.

(3) The court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim.”

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

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

Claims in relation to contracts

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

(a) was made within the jurisdiction;

(b) was made by or through an agent trading or residing within the jurisdiction;

(c) is governed by English law; or

(d) contains a term to the effect that the court shall have jurisdiction to determine any claim in respect of the contract.

…

Claims in tort

(9) A claim is made in tort where

(a) damage was sustained within the jurisdiction; or

(b) the damage sustained resulted from an act committed within the jurisdiction.

…

Claims about trusts etc.

…

(15) A claim is made for a remedy against the defendant as constructive trustee where the defendant's alleged liability arises out of acts committed within the jurisdiction.

(16) A claim is made for restitution where the defendant's alleged liability arises out of acts committed within the jurisdiction.”

(b) Standard of proof

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

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

In relation to the jurisdictional gateways now in Practice Direction B, the standard of proof is to establish more than a serious issue to be tried, but not...