Refco Inc. v Eastern Trading Company
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MORRITT,LORD JUSTICE POTTER,LORD JUSTICE MILLETT |
| Judgment Date | 17 June 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0617-7 |
| Docket Number | No LTA 98/6302/3 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 June 1998 |
[1998] EWCA Civ J0617-7
Lord Justice Millett
Lord Justice Morritt
Lord Justice Potter
No LTA 98/6302/3
QBCMI 98/0706/3
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
APPLICATION FOR LEAVE TO APPEAL WITH
APPEAL TO FOLLOW IF GRANTED
APPEAL FROM ORDER OF MR JUSTICE RIX
Royal Courts of Justice
Strand
London WC2
MR RICHARD PERKOFF (Instructed by Rakisons of London) appeared on behalf of the Appellant
MR STEVEN GEE QC (Instructed by Sidley & Austin of London) appeared on behalf of the Respondent
Section 25 (1) and (4) of the Civil Jurisdiction and Judgments Act 1982 provide as follows:
"1 The High Court in England and Wales and Northern Ireland shall have power to grant interim relief where -
(a) proceedings have been or are to be commenced in a Brussels or Lugano Contracting State other than the United Kingdom or in a part of the United Kingdom other than that in which the High Court in question exercises jurisdiction; and
(b) they are or will be proceedings whose subject-matter is within the scope of the 1968 Convention as determined by Article 1 (whether or not the Convention has effect in relation to the proceedings).
(2) On an application for any interim relief under subsection (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject-matter of the proceedings in question makes it inexpedient for the court to grant it."
By subsection (7) interim relief is defined as "interim relief of any kind which the court has power to grant in proceedings relating to matters within its jurisdiction" with two exceptions which are not material. By subsection (3) power was reserved to Her Majesty by Order in Council to extend the power to grant interim relief. That was exercised with effect from 1st April 1997 by the Civil Jurisdiction and Judgments Act 1982 (Interim Relief Order) 1997, SI/1997 No 302. The jurisdiction conferred by the section is now exercisable in respect of any proceedings in any foreign country.
By an originating summons issued on 19th December 1997 pursuant to the section, the plaintiffs Refco sought Mareva injunctions against each of the defendants to the summons in connection with proceedings pending before the United States District Court in the Northern District of Illinois, Eastern Division. On 4th March 1998 Rix J granted such relief but only pending an application he required Refco to make on or before 26th March 1998 for relief similar to that sought from him. On 3rd June 1998, no such application having been made because it would be bound to fail, Rix J dismissed Refco's originating summons.
These are appeals of Refco from both orders of Rix J, leave in respect of the first having been granted by Swinton Thomas and Waller LJJ on 4th June and in respect of the second by us at the commencement of the hearing.
Refco is one of the largest futures brokers in the world. Refco Inc, the first plaintiff, is incorporated in Illinois and Refco Capital Corporation, an associated Company in Delaware. The first defendant, Eastern Trading Company ("ETC"), is a Dubai general partnership in which the Ashraf family, the second to sixth defendants, are partners. The partnership trades in precious metals.
On 3rd January 1982 a general power of attorney from ETC appointed the second defendant, the father of the others, and the third defendant, his eldest son Zahid, to carry out all the functions of the partnership which was an experienced large-scale futures trader. From January 1992 onwards ETC opened various accounts with Refco on the introduction of a Dubai broker, Ramada. The Customer Agreement contained a jurisdiction clause on which, in the subsequent proceedings, ETC relied.
On 26th June 1996 Refco started to liquidate ETC's open positions, having earlier expressed concern to Ramada at the size of them. The process, when completed in early July, gave rise to a debt from ETC to Refco of US$27.9m. With effect from 7th July 1996, though executed on 17th July, by a promissory note entered into by ETC through Zahid, ETC and Zahid acknowledged the indebtedness in US$27.9m and jointly and severally promised to pay by monthly instalments of not less than US$2m until the whole had been paid on or before 30th September 1997. The note contains its own jurisdiction clause in wider and different terms to that contained in the Customer Agreement. The note was assigned on the same day by Refco, the first plaintiff, to Refco Capital, the second plaintiff. Nothing turns on that. According to ETC, it was not until July or August 1997 when the father, the second defendant, was visiting London that the defendants other than Zahid discovered for the first time the scale and outturn of the operations with Refco which had been conducted by Zahid in the name of ETC.
Following that discovery, on 29th September 1997 proceedings were commenced in Illinois by ETC and the second, fourth, fifth and sixth defendants in these proceedings against Refco and Capital. In the proceedings in Illinois they asserted that the trading carried out by Zahid on behalf of ETC was without authority, that Refco had been involved in a conspiracy to defraud ETC and the members of the Ashraf family and that Zahid had been induced by the fraud and duress of Refco to execute the promissory note.
Refco counterclaimed in those proceedings as promisee of the note and as the person to whom the underlying debt was owed against both the plaintiffs in the Illinois proceedings and Zahid.
On 17th December 1997 an arbitration award was made against Republic New York Securities Corporation in New York in favour of Zahid in the sum of US$13m. That was two days before Refco instituted these proceedings in England under Section 25 of the Civil Jurisdiction and Judgments Act 1982. On the same day Refco obtained from Tuckey J a Mareva injunction limited to the sum of US$16.75m. On 2nd February 1998 ETC and the Ashraf family, except for Zahid, applied to discharge that injunction. On 20th February Zahid assigned to ETC the benefit of the arbitration award in his favour obtained on 17th December 1997.
As I have already indicated, the application to discharge came before Rix J on 4th March 1998. He ordered on that date that the Mareva injunction should be discharged if, by 26th March 1998, the equivalent relief had not been sought by Refco in Chicago. In his judgment he recorded that the opposing cases for the parties raised substantial issues of fact which he could not determine but, in all probability, would be determined in due course in Illinois probably by a jury. He considered that in such a case a court exercising a merely ancillary jurisdiction should be especially cautious and sensitive to the informed view of the foreign court concerned as to the substantive merits. As to the question of dissipation of assets, he considered that it was so bound up with the overall merits that the English court should not express any concluded, though interlocutory, view of the merits of the application until the court seized of those merits in the United States of America had itself done so. He considered that the jurisdiction clauses in the Customer Agreement and the promissory note indicated that any residual discretion remaining in the English court pointed to leaving the question to the appropriate court in America. He decided that in those circumstances the English court should grant a holding injunction but leave it to the court in America seized of the merits of the dispute to determine whether an interlocutory protective order should be made.
On 17th March, by agreement, the Mareva injunction was replaced by a deposit made by ETC of US$16.7m in a bank in London.
On 26th March Rix J granted an extension of time so that the merits of the application to the court in the United States might be further researched. The matter came back before him on 1st April when he was informed that Refco would not be making the application he envisaged because, under the relevant law in the United States, such an application would be so hopeless that it would be against the professional responsibilities of the lawyers to make it and might expose them personally to an order for costs. However, Rix J was prepared to continue the injunction pending an application in the United States based on an alleged fraudulent conveyance.
On 7th April Refco applied in Chicago for declaratory relief instead of the equivalent Mareva relief which Rix J had envisaged. This was refused by Her Honour Judge Conlon on the ground that the court did not exist to give advisory opinions. In the course of her judgment Her Honour Judge Conlon made plain that she deferred to the courts of England as to the preservation of assets of the defendants in England.
On 12th May Refco obtained in New York a temporary restraining order in respect of the arbitration award in favour of Zahid which had been assigned by him to ETC and the other defendants. This temporary order has since been superseded by an attachment order.
On 3rd June, as I have indicated, Rix J only continued the injunctive relief pending the determination of this court of the application for leave to appeal from his order of 4th March. Subject to that, he dismissed the proceedings commenced by Refco against all the defendants except Zahid. In his judgment he explained the reasons. First, he must regard the forensic activity in America as amounting to an application such as he envisaged on 4th March having been made but lost on its merits. He...
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