Masood and Others v Zahoor and Others

JurisdictionEngland & Wales
JudgeLord Justice Mummery
Judgment Date03 July 2009
Neutral Citation[2009] EWCA Civ 650
Docket NumberCase No: A3/2008/1304 &1305
CourtCourt of Appeal (Civil Division)
Date03 July 2009
Between
Mohammad Zahoor & Ors
Appellants/defendants
and
Sohail Masood & Ors
Respondent/claimants

[2009] EWCA Civ 650

Before : Lord Justice Mummery

Lord Justice Dyson And Lord Justice Jacob

Case No: A3/2008/1304 &1305

HC04C01331 & HC02C02711

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MR JUSTICE PETER SMITH

MR ANTHONY TRACE QC and MR JAMES ALDRIDGE (instructed by Hogan & Hartson) for the Appellants

MR RICHARD DE LACY QC and MR LUKE HARRIS (instructed by Messrs Devonshires) for the Respondents

Hearing dates: 2 nd & 3 rd December 2008

Judgme

Lord Justice Mummery

Lord Justice Mummery

This is the judgment of the court.

Introductory

1

If there has been serious wrongdoing in legal proceedings by each side, in what circumstances, if any, can the court properly refuse to try the merits of their substantive dispute and simply make an order striking out or dismissing the action?

2

In this lamentable litigation Peter Smith J found that both sides attempted to deceive the court by forging documents. A list of over 50 challenged documents was produced. The trial judge had to hear the evidence of three experts on handwriting issues. He found it impossible to come to a clear conclusion in respect of each document and did not do so. He identified those key documents, agreements and share transfers which he held were not genuine.

3

The judge also found that both sides also lied in their evidence. In some areas of the case his task of evaluating the true facts about the dispute was difficult, if not impossible. Each of the individual parties, by using reprehensible means, set out to improve his own prospects of success, to damage those of the other side and to defeat the efforts of the court to do justice according to law. They abused, obstructed and attempted to undermine the justice system and the legal processes in which they were participating.

4

The defendants' application at trial that the action should be struck out or dismissed without deciding its merits was rejected. Instead, the judge made detailed findings in a reserved judgment, in which he concluded that he should grant relief to the claimants. Was he right to take that course? The defendants say “No.” They have appealed submitting that the judge ought to have granted their application by throwing the action out on account of the claimants' proven misconduct in the case. Alternatively, they appeal against the orders made by the judge that the claimants were entitled to a beneficial interest in disputed shares and to damages for breach of an employment contract.

5

The summary disposal issue is the main point of principle in this appeal. Most of the other points are special to the facts of the case. Of course, they matter to the parties, but they are of little concern to anyone else.

Overview of proceedings

6

The appeal is from an order made by Peter Smith J on 14 May 2008. Permission to appeal was granted by a single Lord Justice on 28 July 2008. The judgment under appeal ( [2008] EWHC 1034 (Ch)) was delivered in an action brought by Mr Sohail Masood. He, along with his companies, is a claimant/respondent and is referred to in the judgment below as “SM.” Mr Masood brought the action against his former friend, Mr Mohammad Zahoor. He, along with his companies, is a defendant/appellant and is referred to in the judgment below as “MZ.”

7

There was also before the judge Mr Zahoor's application, which was issued in other proceedings, for a third party costs order against Mr Masood. The application was based on his alleged conduct in the course of an interlocutory application in the other proceedings to which Mr Zahoor was a party.

8

Mr Masood made two main claims, which are relevant to this appeal, against Mr Zahoor and his companies.

9

The first (the Shares Claim) was of beneficial entitlement to shares in Mr Zahoor's Guernsey company, International Steel and Tube Industries Limited (ISTIL). The shares were claimed as promised compensation for services to be rendered to Mr Zahoor and his companies. The claim was resisted on the basis that no shares were promised. Peter Smith J rejected the alleged written agreement for shares, holding that it was a forgery. However, he made an order in favour of Mr Masood based on what the judge held was a contribution to the purchase price of the shares. His order stated that Mr Masood—

“1. …was and is beneficially entitled to the shares in the Third Defendant [ISTIL] numbering 2,007,500 registered or formerly registered in the name of the late Khatoon Shahood [referred to as KS in the judgment below] and numbering 2,307,500 registered or formerly registered in the name of the Fifth Defendant [Waseem Mehboob] and entitled to direct the disposal of the legal and beneficial title to such shares.”

10

The judge ordered that Mr Masood and his fellow claimant, Mohammad Ali, were entitled, subject to undertakings given by them to the Guernsey Court, to direct the disposal of the legal title to such shares and to be registered as holders of the same (see [2] of the order).

11

Mr Masood's second main claim (the Employment Claim) was for unpaid salary from the date of his summary dismissal until the contractual termination date. Mr Zahoor resisted the Employment Claim on the ground that Mr Masood's summary dismissal and his consequent loss of salary or pay in lieu of notice were justified. Mr Masood was alleged to have procured forged documents, an activity giving rise to disputes in the other proceedings already mentioned involving ISTIL, Mr Zahoor and a Cypriot company owned by him, Reventox Consulting Limited (Reventox).

12

On the Employment Claim the judge made an order in favour of Mr Masood that

“3. The Third Defendant [ISTIL] do pay to the First Claimant [Mr Masood] the sum of US $342,000 together with interest thereon from 7 July 2003 until the date of this judgment at the rate of 8% per annum amounting to US $ 131,328.00 provided that this judgment is not to be enforced but is subject to set off against the liabilities of the First Claimant to the Third Defendant pursuant to the Mutual Release and Settlement Agreement signed by the First Claimant dated 7 January 2007.”

13

The adjourned costs application (the Reventox Costs Claim), which was heard by Peter Smith J along with the Shares Claim and the Employment Claim, was for a third party costs order against Mr Masood personally under section 51 of the Supreme Court Act 1981 and CPR 48.2. A direction had been given that it should be heard by the same court as would hear the Employment Claim.

14

The Reventox Costs Claim was for some of the costs incurred by Mr Zahoor in the proceedings brought against him and Reventox by ISTIL Group Inc in 2002. In the course of the proceedings a contentious interlocutory issue relating to the return of privileged documents arose. Mr Zahoor alleged that Mr Masood had procured forged documents to be put in evidence and that this had caused legal costs amounting to an estimated £80,000 to be incurred by him. The judge made no order on the Reventox Costs Claim.

15

As for the costs of the proceedings overall the order of the judge was that-

“12. In the exercise of the power conferred by CPR 44.14 there shall be no order for the costs of the proceedings save in respect of outstanding interlocutory costs orders already made.”

16

We note that these are only some of the legal proceedings in which these parties are engaged. Proceedings in the Royal Court of Guernsey have been stayed pending trial of the Shares Claim. Another action in Guernsey (called the EGM Action) is mentioned in the judgment below, but, as it does not feature in this appeal, we stay silent about it.

17

Welcome developments in the course of the hearing led to a reduction in the grounds of appeal. Some factual aspects of the case which Peter Smith J had to cover in his judgment no longer concern this court. The interested reader can find out more about the detail by accessing that judgment.

18

The position in this court is that, by the end of the hearing, Mr Zahoor was no longer pursuing all of his original grounds of appeal. Further, Mr Masood's response to some of the remaining grounds was shortened. The factual background can now be treated relatively briefly.

Background facts

19

Mr Zahoor is a steel expert and metallurgist. He owned 49% of a holding company for a steel trading group called Metalsrussia Group Holdings Limited (MGHL). His financial backer is Mr Wit, an important figure in the Asian steel industry based in Thailand. Other “Zahoor Companies” were ISTIL, an ISTIL company incorporated in Delaware, Metalsukraine Corporation Limited incorporated in the British Virgin Islands and Azot Limited. Mr Zahoor gained control of the ISTIL group of companies in March 2003. That is when there was a falling out between him and Mr Masood.

20

Mr Masood was an old friend from schooldays in Pakistan. He owned Newport West Financial Inc (NWF), a financial services business incorporated in Oregon, USA. It carried on business from Portland. A related company was Newport Financial Holdings Limited incorporated in Nevada. The Masood companies were co-claimants in the action.

21

From about 1996 to 2003 Mr Masood was effectively the finance director of the group of Zahoor Companies. He organised and raised the group's finance. He claimed that from April 1996 he was engaged to provide financial services to Mr Zahoor and his group of companies under consultancy agreements, which were later amended and...

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