ISTIL Group Inc. v Zahoor
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 14 February 2003 |
| Neutral Citation | [2003] EWHC 165 (Ch) |
| Docket Number | HC 02 C 02711 |
| Court | Chancery Division |
[2003] EWHC 165 (Ch)
Mr Justice Lawrence Collins
HC 02 C 02711
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Andrew Green (and Mr Ian Mill QC on the further hearing) (instructed by Schillings) for the Claimants
Mr John Higham QC (of Stephenson Harwood) for the Defendants
I direct that pursuant to CPR PD 39 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 Lawrence collins)
IIntroduction
This is an application by the claimants to restrain the use of e-mail correspondence which the defendants have obtained from a person (whose identity is, apparently, not known to either party) with whom the claimants say that they have been conducting privileged communications with a view to obtaining evidence for use in the action. It raises a novel point on the extent to which remedies are available to a party to restrain the use of privileged communications with a witness, or potential witness, when the latter chooses to disclose them to the opposing party.
The claimants are part of the ISTIL group, which principally carries on business in steel trading and manufacturing and stevedoring operations. Two directors of the claimants are Mr Sohail Masood ("Mr Masood"), and Win Viriayprapaikit. The latter represents the shareholder (a Hong Kong company) of 36.7% of the shares in ISTIL Guernsey. Mr Masood owns (or claims to own) a small shareholding in ISTIL Guernsey.
The first defendant ("Mr Zahoor") was the other director of both claimants. He is, through a BVI company owned by his family trust, a 49% shareholder in ISTIL Guernsey, but in de facto control through his control of nominee shareholdings.
The second defendant ("Reventox") was incorporated in Cyprus in February 2002. Mr Zahoor is the beneficial owner of Reventox through a nominee company.
The second claimant ("MCL") had the benefit of a contract dated October 19, 2001 with an entity owned by the Ukrainian Government, the State Enterprise Specialized Foreign Trade Firm ("Progress"). The agreement was to last until at least June 30, 2002 and MCL was to receive varying amounts of commission on sales by Progress to Pakistan of military equipment manufactured in the Ukraine. In return MCL was to provide what were described as consultancy services.
The claimants say that this contract (under which the claimants say that they would, or could, have earned many millions of dollars) was diverted to Reventox by Mr Zahoor. The claimants claim relief against both defendants on the basis of the alleged breaches of Mr Zahoor's contractual and fiduciary duties to the claimants.
On September 20, 2002, I made a worldwide freezing and asset disclosure order against the defendants upon the without notice application of the claimants, which has been continued on agreed terms by other judges of this Division. The contested application for continuance of the order was originally due to be heard in early December 2002, but is now due to be heard at the end of this month.
The defendants deny diversion, and maintain that Mr Zahoor and Mr Masood (and also MCL's Chief Financial Officer) orally agreed that MCL would be moved out of the ISTIL group so that the group's core business would not be affected by the stigma of arms dealing; that Mr Zahoor has fully and properly accounted to the claimants in respect of the Reventox agreement with Progress; that no further commissions have been paid by Progress to Reventox or to Mr Zahoor or otherwise to their order pursuant to the Reventox agreement with Progress; and that it is very unlikely that any further payments will become due to Reventox or be paid to Reventox or Mr Zahoor.
IIThe state of the evidence as at November 29, 2002
The importance of the date of November 29, 2002 is that this was the date on which the claimants produced important evidence in support of their contention that Mr Zahoor had diverted significant business to Reventox.
One of the crucial issues which has emerged is whether the Reventox/Progress agreement encompassed commission arrangements for the sale of power-packs (ie engines) by Progress to the Pakistani Government for Al-Khalid tanks at a commission of 14% (as the claimants contend) or whether it related to hulls for the tanks at a rate of 10% (as the defendants contend).
The practical point is that it is accepted (at least for the purposes of this application) that there was a contract between Progress and the Pakistani Government for the sale of power-packs at a price of about $93 million, and therefore if there was a commission arrangement between Progress and Reventox which encompassed these products, very substantial commission would have been due to Reventox. The defendants say that there was no such commission arrangement for power-packs. There was a commission arrangement for hulls between Progress and Reventox, but there was no contract between Progress and the Pakistani Government for the sale of hulls: the only contract on which commission was payable related to equipment, spare parts etc. for the establishment of base repair facilities for tanks, on which the only commission payable was 1%, for which Mr Zahoor has accounted to the claimants.
On September 20, 2002 (in support of their application for a freezing order) the claimants relied upon, amongst other documents, a draft Services Agreement between Progress and Reventox (acting through Mr Zahoor), which had been obtained by the claimants from a computer in the Ukraine in mid May 2002, together with numerous draft Appendices to the Agreement. The first of these draft unexecuted Appendices ("the draft Appendix 1") related specifically to power-packs for Al-Khalid tanks.
On that day Mr Masood swore his first affidavit in support of the application for a worldwide freezing order and a disclosure order. He claimed that Mr Zahoor succeeded in getting Progress to sign at least one agreement with Reventox, but stated that the claimants did not have a copy of any signed agreement between Progress and Reventox. But he exhibited the draft Services Agreement between Progress and Reventox and stated that the draft Appendix 1 to that Agreement appeared to relate to power-packs for Al-Khalid tanks, related spare parts, tools etc, and said that in section 3 the draftsman had provided for the Services Cost amount to be 14% of the cost of the contract.
Mr Masood explained that he believed that a substantial letter of credit (for $93.435 million) had been opened by Progress in favour of the Pakistani government relating to Al-Khalid tanks. In that affidavit Mr Masood also attached a list of assets of Mr Zahoor which he said had been sent to his e-mail account anonymously, and unsolicited, by somebody signing himself or herself "ISTIL Friend".
On the same day (September 20, 2002) I made the freezing and disclosure orders on the without notice application.
On September 30, 2002, Mr Zahoor swore his first affidavit in compliance with the disclosure order. In that affidavit, in response to the order to provide particulars of all agreements under which military equipment had been supplied to Pakistan, he disclosed a Services Agreement dated April 1, 2002 between Progress and Reventox together with 13 appendices and a protocol. The Services Agreement provided that the subject matter of the agreement was the provision by Reventox of the services specified in section 1.2, which were various marketing and consulting services, and section 1.5 provided that a description of each separate lot of goods, sale of which required the services, would be given in a relevant appendix.
The signed and dated Appendix 1 is expressed to be in respect of hulls for Al-Khalid tanks, and not to power-packs ("the Zahoor Appendix 1"). Section 3 provided that the services cost amount would be 10% of the amount of the cost of the contract. The appendix was to be valid until April 1, 2003. Appendix 3 related to equipment, spare parts etc. for the establishment of base repair facilities for tanks, and section 3 provided that the services cost amount would be 1% of the cost.
In the same Affidavit, Mr Zahoor asserted that only Appendix 3 (base repair workshop facilities) had been fulfilled and that the money received by Reventox was in relation this Appendix.
In each of his affidavits Mr Zahoor has stated that there is no agreement between Progress and Reventox in relation to power-packs for Al-Khalid tanks. He says that what Mr Masood found in May 2002 in relation to Al Khalid tanks was a draft appendix relating to tank power-packs which he had prepared in or around mid-March 2002 in the hope of reaching an agreement with Progress that Reventox would be the agent for Progress in the negotiation of such a contract. But he says that no agreement was in fact reached.
On October 9, 2002 Mr Masood swore his second affidavit in support of an application for cross-examination of Mr Zahoor on his affidavit. In that affidavit Mr Masood maintained his position that an agreement had been signed between Progress and Pakistan in relation to power-packs for the Al-Khalid tanks, and exhibited a letter of credit dated June 17, 2002 from the National Bank of Pakistan to the First Ukrainian International Bank in the amount of US$93,435,000 relating to power-packs. He said that Mr Zahoor had provided untrue and incomplete information. He also said that on about October 8 he...
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