Otkritie International Investment Management Ltd and Others v Georgy Urumov (A.K.A. George Urumov) and Others
| Jurisdiction | England & Wales |
| Judge | Sir Stanley Burnton,Lord Justice Moore-Bick |
| Judgment Date | 08 October 2013 |
| Neutral Citation | [2013] EWCA Civ 1196 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2013/2519 |
| Date | 08 October 2013 |
[2013] EWCA Civ 1196
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE EDER
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
and
Sir Stanley Burnton
Case No: A3/2013/2519
Mr. Anthony Peto QC and Mr. Jonathan McDonagh (instructed by Farrer & Co) for the appellants
Mr. Steven Berry QC and Mr. Anton Dudnikov (instructed by Hogan Lovells LLP) for the respondents
Hearing date: 24 September 2013
Approved Judgment
Introduction: the claims and procedural history
The trial of these proceedings began before Eder J on 10 June 2013. The Claimants are companies in a group of companies providing financial services in Russia. They make in essence two sets of claims against the Defendants. The first is referred to as "The Sign-on Fee Fraud and the Bribery and Conspiracy Claims". It is not the subject of the proceedings in this Court and I shall disregard them for the purposes of this judgment. The second set of claims is referred to as "The Argentinian Warrants Fraud", and it is the subject of this appeal.
In essence, the Claimants allege that the 19 Defendants (who include former employees of the Claimants) and others conspired together to cause them to purchase Argentinian warrants at prices vastly in excess of their market price or value, and similarly in excess of the price at which they had been acquired by, or at the instance of, the Defendants themselves. The Claimants allege that the resultant profits, amounting to some US$160 million, were divided up between the Defendants and others involved in the conspiracy. The Claimants claim damages and make restitutionary claims
On 8 July 2013, after much of the Claimants' evidence had been heard, the Appellants, who are the First, Second, Fourth, Fifth, Sixth, Seventh and Nineteenth Defendants (referred to at the trial as the Urumov and Pinaev Defendants) applied for permission to amend their defence to plead that the claims were barred by the principle ex turpi causa non oritur actio, i.e., that the Claimants themselves were party to illegal acts that rendered it impermissible for the Court to enforce their claims. They submitted that their new case arose out of evidence that had been adduced by the Claimants themselves, and the cross — examination of their witnesses. Counsel for the other Defendants supported the Appellants' application, but did not then make formal applications of their own. Doubtless, if the Appellants' application had succeeded, the other Defendants would have sought to make similar amendments to their Defences.
The Appellants' application was heard by the Judge on 9 and 12 July 2013. He rejected it, but did not then give reasons.
The trial continued. On 12 July the Claimants' evidence was completed. Between 15 and 25 July some of the Defendants gave evidence: Messrs Urumov, Pinaev and Gersamia, and Ms Kovarska. On 25 July the Judge handed down his judgment giving his reasons for his refusing permission to amend the Defence. On the following day, the Appellants again applied for permission to amend their Defence to plead illegality. In addition to the Appellants, the Tenth, Eleventh and Twelfth Defendants, i.e., Vladimir Gersamia, Teimuraz Gersamia and Templewood Capital Ltd, represented by Mr Bart Casella, made a similar application. The Judge heard these applications on 30 July, and refused them on the following day, when the trial was adjourned part-heard to resume at the beginning of the coming law term, i.e., on 1 October 2013. On 12 August 2013 the Judge handed down his judgment setting out his reasons for refusing the later applications for permission to amend.
On 3 September 2013 the Appellants applied for permission to appeal against both of the Judge's decisions. The Defendants represented by Mr Casella did not seek permission to appeal. On 10 September I ordered that there should be a rolled-up hearing of the Appellants' applications, with the hearing of their appeal to follow immediately if permission was granted, so as to ensure, so far as possible, that the matter would be determined before the trial resumes.
We heard the Appellants' applications on 24 September 2013. We granted permission to appeal, but dismissed the appeals. We said that we should give our reasons in writing. This is my judgment setting out my reasons for our order.
The illegality defence
I can summarise the illegality defence quite shortly. The Appellants seek to allege that the Claimants' acquisition of the Argentinian warrants was part of a dishonest fraudulent plan to sell them to Threadneedle Asset Management ("Threadneedle"), a well-established and reputable asset management company, at an even more inflated price than that for which they had been acquired, thereby defrauding Threadneedle of a very considerable sum. It is contended that it follows that the Claimants' claims against the Appellants are based on illegality, and that the Court should therefore refuse to enforce them. The profit from the resale to Threadneedle (intended to take place in August 2011) that the Claimants expected to make at the time when they acquired the warrants in March 2011 is said to have been so great that they must have realised and intended that that resale would be dishonest. The Claimants' loss resulted from the failure of their fraudulent plan to resell the warrants to Threadneedle, which realised that the price sought by the Claimants was greatly excessive and refused to purchase them.
The Judge's reasons for refusing permission to amend: the first judgment
The Judge held:
(1) The Court is bound to take notice of illegality if the transaction in question is manifestly illegal or if there is persuasive and comprehensive evidence of illegality.
(2) There was no evidence of any clearly illegal act on the part of any of the Claimants' witnesses or any proper basis for raising a defence of illegality.
(3) The proposed new case did not fit in with the Appellants' existing defence.
(4) The Appellants' arithmetical calculations, on the basis of which they asked the Court to infer that the profit anticipated by the sale of the warrants to Threadneedle obviously exceeded any honest profit, were not relevant calculations and did not provide a proper basis for the new case.
(5) The Appellants' new case involved taking unrepresentative "snippets" from the evidence of certain witnesses, and to that extent was not a fair representation of their evidence.
(6) It had not been put to any of the Claimants' witnesses that they had known that expected profit rates on the resale of the warrants were dishonest, or that they had suspected or closed their minds to the fact that the acquisition of the warrants was part of a plan to defraud Threadneedle.
In his second judgment, the Judge held:
(1) The proposed illegality defence was inconsistent with the Appellants' existing defence, and such inconsistency required the Court to look very carefully at their new case: paragraph 9.
(2) The reasons given by him for refusing the first application to amend remained in place; his focus had to be on what, if any, material change of circumstances existed since his original decision: paragraph 10. As to this, the Appellants relied on a recently disclosed transcript of an internal telephone conversation on 9 March 2011 between Mr Popkov and Mr Gherzi, a recently served witness statement of Mr Popkov relating to that conversation, the oral evidence of Mr Gersamia (who had been an employee of Threadneedle) and the evidence of Mr Katorzhnov: paragraph 10 of the judgment.
(3) The disruption to the trial that would be caused by the amendment was itself a sufficient reason to refuse permission to amend. Preparation of material to address the new case would delay the restart of the trial by something like a month, and the hearing of the further evidence that would be required would probably take 3 to 4 days on the Appellants' estimate, and in excess of five days on the Claimants' estimate. Furthermore, since the Appellants contended that they had no assets, if the new defence failed and the Claimants succeeded, the substantial additional costs that would be incurred would result in the Claimants suffering irremediable loss: paragraphs 13 and 14.
(4) The Appellants had accepted that this was not a case where the transaction in question was "manifestly" or "clearly" illegal. Furthermore, the case was not one which was sufficient to give the Court real concern that without some investigation compensation might be ordered in circumstances which would undermine the integrity of the justice system. Had it been such a case, he would have granted the amendment: paragraphs 15 and 16.
(5) The transcript of the telephone conversation between Mr Popkov and Mr Gherzi might be evidence of their intention to mislead a regulator as to the parties to and terms of the transactions in question, but the Appellants did not rely on any such regulatory infringement. Furthermore, the reference in the transcript to the return of 8 per cent expected by Otkritie on its purchase of the warrants and their resale (or on-sale) to Threadneedle was inconsistent with the Appellants' case. The transcript was not evidence of fraud or illegality sufficient to support...
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AB (by his Litigation Friend CD) v Royal Devon & Exeter NHS Foundation Trust
...in the defence in this case. The Claimant asserts that: "all matters of illegality must be pleaded and particularised" relying on Otkritie v Urumov [2013] EWCA Civ 1196 at paragraphs 11/12. 82 I reject this argument. As the Otkritie decision makes clear in paragraph 11: "If the facts giving......
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Otkritie International Investment Management Ltd and Others v Georgy Urumov (also Known as George Urumov) and Others
...In the event, I refused both applications, a decision which was upheld mid-trial during the vacation by the Court of Appeal: see [2013] EWCA Civ 1196. The alleged bribe to Mr Roman Lokhov 49 Third, although, as I have stated and as is common ground, there never was any binding forward contr......