Finers (A Firm) v Miro
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DILLON,LORD JUSTICE BALCOMBE,LORD JUSTICE BUTLER-SLOSS |
| Judgment Date | 25 July 1990 |
| Judgment citation (vLex) | [1990] EWCA Civ J0725-6 |
| Docket Number | 90/0722 |
| Court | Court of Appeal (Civil Division) |
| Date | 25 July 1990 |
[1990] EWCA Civ J0725-6
Lord Justice Dillon
Lord Justice Balcombe
and
Lord Justice Butler-Sloss
90/0722
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr. Justice Mummery)
Royal Courts of Justice
MR. G. LIGHTMAN and MR. F. HINKS (instructed by Messrs Reynolds Porter Chamberlain) appeared on behalf of the Respondents (Plaintiffs).
MR. J. CROW (instructed by Messrs Simmons & Simmons) appeared on behalf of the Appellant (Defendant).
This appeal, against an Order made by Mummery J. on the 29th June 1990, raises what is to me a novel point.
The proceedings were commenced by an Originating Summons issued on the 4th June. The first plaintiffs, Messrs Finers, are a firm of solicitors who practice in London. The second plaintiff, Mr. Stein, is the partner in that firm who has been particularly concerned with the affairs of the defendant. The third and fourth plaintiffs are companies owned and controlled by the firm. It is the defendant who is the appellant in this Court.
The Originating Summons seeks the directions of the Court, apparently under Order 85 of the R.S.C., in respect of a number of matters in relation to "property investments moneys and companies" which are in the possession or under the control of any of the plaintiffs as a result of Mr. Stein having acted as solicitor for the defendant. In particular it asks whether the plaintiffs should give notice of these proceedings to any of certain named individuals and companies, and whether the plaintiffs should supply any, and if so what, information to any of those named individuals or companies. The first named of the individuals and companies is a Mr. Green ("the Liquidator") who is the Commissioner of Insurance for the State of Louisiana and is also the liquidator of a U.S. insurance company ("the Insurance Company").
The judge by the Order under appeal directed that a letter, in the terms of a draft to be settled by counsel and annexed to the judge's Order, be sent to the Liquidator and his London solicitors. The defendant appeals against that direction and submits that, so far from any directions being given, these proceedings should be struck out as misconcieved.
The actual form of letter drafted by the plaintiff's counsel in accordance with the indications in the judge's judgment is to my mind a rather useless document since it does not give the Liquidator's solicitors enough information to enable them to advise their client. That applies a fortiori to the amended form of the draft favoured by the defendant's counsel. If the letter is sent in either form, the inevitable result will, as it seems to me, be that the Liquidator's solicitors will require further information and there will have to be a further application to the judge to consider what more they should be told. We in this Court have, in my judgment, to consider primarily whether the proceedings should be struck out as misconceived. But in deciding that we must form a clear view on whether, if the proceedings are not struck out, there is any basis, and if so what, on which they can serve any useful purpose.
The factual background is that Mr. Stein, while acting as solicitor for the defendant, carried out work, for which the firm was substantially remunerated, in setting up chains of overseas companies and trusts to hold assets and moneys provided by the defendant. Some moneys are indeed held in the firm's client account but the bulk are held through complex chains, with all the trimmings often found in the more sophisticated tax avoidance schemes; the powers expressed to be conferred by the documents on one nominal party can only be exercised on the direction of another who in turn holds his power to give directions as bare trustee for a third and so on. The end result is that all assets are held to the order of Mr. Stein on behalf of the defendant.
The object of the exercise was unquestionably secrecy. The defendant did not want any one to know who owned these various moneys and other assets, and he relied on the duty of confidentiality owed him by Mr. Stein and the firm (and predecessor firms). There is no reason to doubt that when Mr. Stein set up all these elaborate arrangements for the defendant he honestly believed that all the moneys and assets belonged to the defendant as a result of inheritance and success in business and that the defendant wanted to conceal his wealth from fear of political expropriation.
There are however now grounds for suspecting that very much of this wealth may have been achieved by the defendant by fraud on the Insurance Company. The defendant denies that there has been any fraud or dishonesty whatsoever on his part against the Insurance Company or any one else, but it is conceded, for the purposes of this appeal, that the plaintiffs have grounds for believing that he may have acquired funds from the wrongful misappropriation of assets of the Insurance Company.
The Liquidator has started three actions, now consolidated, against the defendants and certain companies in the United States. In none of them is fraud alleged against the defendant; if the Liquidator can establish the causes of action pleaded it would not be necessary for him to allege fraud. So far the Liquidator has not made, or even suggested that he may have, any claim against any of the plaintiffs. Nonetheless, at any rate if the decision of Millett J. in Agip (Africa) Ltd. v. Jackson [1989] 3 WLR 1367 is correct (as to which I express no opinion either way since these proceedings do not have the right parties for a decision of the point), there is an arguable case by English law that the plaintiffs have constructive notice of the fraud of the defendant if there was fraud and hold their various powers over the "property investments moneys and companies" in question, or some part thereof, on a constructive trust for the Liquidator. Furthermore it is arguable, if the Judgment of Millett J. is correct, that if Mr. Stein, with the knowledge he has, exercises his powers under the schemes he has set up to transfer any of the property and money in question to the defendant, he may be regarded by an English Court as having acted dishonestly so as to render himself, and possibly the firm, personally liable to the Liquidator for the amount of the property and moneys transferred to the defendant, or for any loss so occasioned to the Liquidator.
It is in those circumstances that the Plaintiffs seek directions as set out in the Originating Summons.
The defendant submits through Mr. Crow that the Court has no jurisdiction to entertain the Originating Summons, because there is no relevant trust to found jurisdiction under Order 85. He urges that there is no trust, constructive or otherwise, in favour of the Liquidator or the Insurance Company yet established, or even claimed by the Liquidator. That, however, while correct, does not avail the defendant if there is a trust for the benefit of the defendant against which the Liquidator, on the facts known to the plaintiffs, might be entitled to claim. Mr. Crow urges however that a bare trust of the defendant's own assets held for him absolutely would not be a relevant trust, and that in any event on the schemes set up by Mr. Stein the underlying assets which might be claimed to represent moneys misappropriated from the Insurance Company belong absolutely to certain of the scheme companies, and the only property which could be held to be subject to trusts for the defendant are shares in scheme companies, and not the underlying assets. As to that, however, if there has been fraud, the corollary must be that the schemes set up by Mr. Stein were, although he did not know it, set up to conceal the traces of fraud, and in such circumstances there is no difficulty in piercing the corporate veil. The plaintiffs have fiduciary powers in respect of the underlying assets either directly or through their control of the scheme companies and trusts; they claim no interest for themselves in those assets or the scheme companies or trusts, save for the proper professional costs of the firm as solicitors acting for the defendants. In my judgment the Court has jurisdiction under Order 85, and should be prepared, to give directions in the dilemma in which the plaintiffs now find themselves, if there is indeed any basis on which such directions could serve a useful purpose.
As I see it, however, directions given by the Court can serve no useful purpose unless sufficient information is given to the Liquidator to enable him to make a claim. Moreover it is the practice of the Court of Chancery, when giving directions in relation to the administration of an estate or trust or the winding up of a company not to authorise an executor, trustee or liquidator to distribute without regard to the possible claims of a claimant whose whereabouts are unknown, without first giving notice to that claimant to come in and prove, if so advised. See e.g. Armstrong Whitworth Securities Co. Ltd. [1947] Ch.673.
The difficulty about that is of course that in the present case any communication to the Liquidator or his solicitors which gives enough information to be of any practical use must breach the secrecy which was the whole object of the defendant's instructions to Mr. Stein, and must breach the legal professional privilege to which the defendant is consequently entitled as against the plaintiffs.
It is well established, however, that that privilege is...
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