Mahon and Another v Rahn and Others (No 2)

JurisdictionEngland & Wales
JudgeLORD JUSTICE BROOKE,LORD JUSTICE MANTELL,LORD JUSTICE LAWS
Judgment Date08 June 2000
Judgment citation (vLex)[2000] EWCA Civ J0608-10
Docket NumberCase No: QBENI 99/1131/A2
CourtCourt of Appeal (Civil Division)
Date08 June 2000
Patrick Mahon
Andrew Leslie Kent
Claimants/Respondents
and
Dr Christian Rahn
Hans-Jakob Biedermann
Martin Haab-Biedermann
Frank Bodmer
Rahn & Bodmer (A Partnership)
Appellants/Defendants

[2000] EWCA Civ J0608-10

Before:

Lord Justice Brooke

Lord Justice Mantell and

Lord Justice Laws

Case No: QBENI 99/1131/A2

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

(Mr Justice Eady)

ON APPEAL FROM QUEEN'S BENCH DIVISION

Patrick Moloney QC (instructed by Bircham & Co for the Appellants)

Alun Jones QC & Victoria Sharp (instructed by Sheridans for the Respondents)

LORD JUSTICE BROOKE
1

This is an appeal by the defendants against an order of Eady J on 1st July 1999 when he determined as a preliminary issue that the letter to the Securities' Association ("TSA") of which complaint is made in this action was not published on an occasion of absolute privilege. The defendants also appeal against the judge's dismissal of their application for summary dismissal of the claimants' claim for malicious prosecution and against his dismissal of their appeal against the refusal by Master Hodgson on 25th March 1999 to give them permission to add paragraphs 6A(3A) and (3B) to their plea of justification.

2

In order to understand the issues which arise on this appeal it is necessary to set out the background to the case in some detail.

3

The first four defendants are the partners in Rahn & Bodmer, the fifth defendants ("the bank"), which is a private bank based in Zurich. Five representatives of the bank feature in this story. First, there is Mr Markus Kaiser. He was the senior officer of the bank who conducted the bank's dealings with Mr Malcolm Johnson and with the London stockbroking firm called TC Coombs ("TCC"). He resigned in January 1990 when the events which are the subject-matter of these proceedings came to light. He shared an office with another officer of the bank called Martin Dunki, and he had an assistant called Rolf Ernst. The first defendant Dr Christian Rahn is the son of one of the former partners in the bank, in which he is now a partner himself. He conducted inquiries into what came to be called the Coastline transaction when it came to the attention of Mr Kaiser's superior officers early in 1989. Finally, there is Dr Edgar Paltzer, who practises law in Zurich and who acted at all material times for the bank as its Swiss lawyer. He was the author of the two documents around which the claimants' complaints in these proceedings are centred. The first is a Working Paper which was given by Dr Rahn and Dr Paltzer to Mr Lee and Mr Dickson, members of the staff of the Serious Fraud Office ("SFO"), at a meeting held at the SFO's offices in London on 9th August 1990. I will call this document "the Working Paper". The second is a seven-page letter written by Dr Paltzer to Mrs Wright of the TSA on 20th December 1990, which I will call "the TSA letter". Dr Paltzer sent a copy of the TSA letter to the SFO on the same day.

4

Mr Malcolm Johnson was an Australian financier who obtained a reputation for fraudulent conduct. He had an assistant called Paul Main, and he retained as his English solicitor Mr Lynne Brooke, of the firm called Brooke Blain and Russell. Mr Johnson appears to have conducted business through a large number of companies, and he had had dealings with Mr Kaiser before August 1988 when he conducted the business deal which is at the heart of these proceedings. That deal was concerned with the sale of shares in a Canadian company called Coastline, of which a Canadian businessman called Brian Mountford was President.

5

In 1988 Mr Johnson owed a very large sum of money to TCC. This was a firm of London stockbrokers which had been set up in the early 1980s. Mr Patrick Mahon, the first claimant, was TCC's managing director and Mr Andrew Kent, the second claimant, was its corporate development manager.

6

The Financial Services Act 1986 came into force just before the events with which we are concerned in this action, and TCC and Mr Kent in turn faced difficulties in obtaining from their new regulator, TSA, the requisite authorisations they needed in order to be able to conduct investment business within the meaning of that Act. On 25th November 1987 TSA gave TCC interim authorisation, but five months later its new capital adequacy rules came into force and TCC's auditors expressed concern about the volume of bad debts TCC was owed by Johnson companies, and in particular by a company called Safeguard. On 29th July 1988 the Stock Exchange required TCC to show £3 million extra capital by 5th August 1988. In the event it did so, and during the second half of that year TCC was successful in beating off a challenge by TSA to the effect that it did not comply with the new capital adequacy rules.

7

TSA also came in due course to consider that Mr Kent was not a fit and proper person to conduct investment business under the Act. Indeed, in December 1990, when the TSA letter was written, Mr Kent was appealing to TSA's authorisation tribunal against a ruling to that effect by a TSA committee.

8

It is common ground that on 4th August 1988 as a consequence of events which are in issue between the parties, Mr Kaiser sent a telex to Mr Mahon in London, following a telephone conversation with him, in which he placed an order for 3,125,000 Coastline shares at a price of C$1.60 per share for the bank's account for settlement within 90 days. Mr Mahon acknowledged the order and issued a contract note the same day showing a sale of these shares to the bank at a price of C$1.60 per share for a total consideration of C$5,000,000.

9

One issue which divides the parties is whether, as the claimants suggest, the contract note evidences accurately all that was agreed that day or whether, as the defendants suggest, the truth was very different. Their primary case is that the true agreed price of the Coastline shares was C$3 million, but that Mr Kent prevailed upon Mr Kaiser to co-operate in producing documents which purported to show a sale at a price of C$5 million against Mr Kent's promise that TCC would pay the bank the balance of C$2 million before the agreed settlement date.

10

In this summary it is sufficient merely to say that on 15th November 1988 the bank paid TCC C$3 million, and that on 10th April 1989 TCC demanded a further C$2 million, a claim which the bank refuted a fortnight later. During 1989 Dr Rahn inquired into what had taken place, and on 9th January 1990 Mr Kaiser resigned. Dr Rahn later described Mr Kaiser to Mr Lee as "naive and therefore unreliable".

11

By this time the SFO had instituted criminal proceedings for fraud against Mr Johnson, and on 2nd March 1990 it obtained a restraint order against him with worldwide effect pursuant to Section 77(1) of the Criminal Justice Act 1988. The order also imposed similar restraints against a large number of companies whose names appear in a list attached to the order. These include companies called Establissement Kola, Grona AG and Roses Investment. It appears that a copy of this order was sent to the defendant bank.

12

The defendants have exhibited in support of their present application a number of documents produced by their London solicitor Mr Millar. It appears that Mr Millar first contacted the SFO on his clients' behalf on 11th June, and that he had a preliminary meeting with Mr Lee on 12th June during which he told him about the bank's dealings with Mr Johnson and was told something about the current state of the SFO's inquiries.

13

There followed some negotiations between Mr Millar and the SFO about the basis on which the defendants would be willing to provide evidence to the SFO at a meeting arranged for 9th August 1990. This led to written assurances by the SFO to the effect that it would not disclose to any other party the fact that the bank had been the source of any oral and/or written information it might provide at the meeting, and also that no information the bank might disclose to the SFO would be shown to third parties without the bank's consent. The SFO also said that it would consider that the meeting and the information disclosed at it would be subject to the provisions of Section 2(8) of the Criminal Justice Act 1987. Needless to say, the SFO reserved the right to use, as necessary, the material provided to it by the bank in any prosecution which it undertook. It gave a further assurance that it did not intend to prosecute either the bank or any of its present employees, officers, directors or partners.

14

It was in those circumstances that Dr Rahn and Dr Paltzer, accompanied by their English solicitor Mr Duncan, met Mr Lee and Mr Dickson at the SFO's offices on 9th August. Most of this meeting was concerned with Mr Johnson and his companies. Dr Rahn and Dr Paltzer described the bank's dealings with them and the results of the inquiries the bank subsequently made.

15

During the course of the meeting Dr Paltzer gave the SFO's representatives a copy of the Working Paper he had prepared. It is headed "TC Coombs —Coastline Resources NPV Transaction", and it set out the bank's version of events, together with 14 supporting documents. The 3-page Working Paper ends in these terms:

"10. Rahn & Bodmer comes to the following assumptions:

It is possible that Safeguard might have a claim against TC Coombs for not having paid Can$ 3 mio or 5 mio. (Can$ 2 mio have certainly not been paid, otherwise TC Coombs would have claimed interest on that amount from Rahn and Bodmer)

It is possible that Safeguard promised to pay Mr Kent Can$ 2 mio into the bank account with Rahn & Bodmer but now might have paid to a bank account...

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