Standard Bank Plc v EFAD Real Estate Company WLL & Ors [2014] EWHC 1834 (Comm)

Case No 2013 FOLIO NO. 628[2014] EWHC 1834 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 06/06/2014
Before
THE HON. MR JUSTICE MALES
Between
STANDARD BANK PLCClaimantEFAD REAL ESTATE COMPANY WLLDefendantsKHALID BADER AL ROUMIDefendantREZAM MOHAMED AL ROUMIDefendant
Mr Robert Anderson QC & Mr Andrew Scott (instructed by Jones Day) for ClaimantMr Derrick Dale QC (instructed by Latham & Watkins LLP) for DefendantsHearing Hearing date: 23 rd May 2014
JudgmentMr Justice Males :Introduction
[1]This is an application by the second and third defendants (but, subject to one point, not the first defendant) challenging the jurisdiction of the English court. Their challenge arises in an action in which the claimant bank seeks to recover funds advanced to the first defendant pursuant to an Islamic finance agreement. In addition the bank asserts causes of action against the first defendant for breach of contractual obligations relating to the provision of security and in tort for deceit and conspiracy. As against the first defendant the bank has the benefit of a contractual non-exclusive jurisdiction clause which provides for English jurisdiction and the proceedings have been served pursuant to a service of suit clause. The first defendant has not challenged the jurisdiction of the court.[2]However, the bank seeks also to hold the second and third defendants personally liable in tort for deceit, inducing breach of contract and conspiracy. For this purpose it obtained permission pursuant to CPR 6.36 to serve the proceedings on the second and third defendants in Kuwait and subsequently, when that proved impracticable, leave pursuant to CPR 6.15 to effect service on Latham & Watkins LLP, the solicitors representing all three defendants.[3]The second and third defendants do not challenge the appropriateness of the order for service on their solicitors, but they do contend that the requirements for service out of the jurisdiction are not satisfied. Those requirements are threefold. a) First, the claimant must satisfy the court that in relation to the foreign defendants there is a serious issue to be tried on the merits. This is the same test as for resisting summary judgment, namely whether there is a real (as opposed to fanciful) prospect of success. b) Second, the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more of the jurisdictional gateways set out in paragraph 3.1 of CPR PD 6B. This means that the claimant must have much the better of the argument on this point. c) Third, the claimant must satisfy the court that in all the circumstances England is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.[4]On behalf of the second and third defendants Mr Derrick Dale QC submitted that the bank fails to overcome any of these three hurdles, although the arguments were principally focused on the issue of real prospect of success. This is a relatively low hurdle, although Mr Dale submitted and I accept that the evidence required to establish that there is a serious issue to be tried must be commensurate with the seriousness of a claimant’s allegations in a case such as the present where the defendants are accused of dishonesty.[5]The Supreme Court has recently made clear the correct approach to the question whether there is a serious issue to be tried. Thus hearings on jurisdictional issues should not "involve masses of documents, long witness statements, detailed analysis of the issues, and long argument”: VTB Capital Plc v Nutritek International Corpn [2013] UKSC 5, [2013] 2 WLR 398 at [82] and [83]. Even more recently, Flaux J has spoken of the need for a defendant challenging jurisdiction on the basis that the claim has no real prospect of success to identify "some ‘killer point’ which demonstrated that [the claimant’s] case on the facts was unsustainable”, without which "the expending of so much time and energy on a full-scale evidential challenge is a fruitless exercise”: Erste Group Bank AG v JSC “VMZ Red October" [2013] EWHC 2926 (Comm) at [11]. I propose to adopt this approach.

The parties

[6]The claimant Standard Bank Plc is a bank incorporated in England which also has representatives based in Dubai.[7]The first defendant EFAD Real Estate Company WLL (“EFAD RE”) is a Kuwaiti company within the EFAD group. The group was formed as a partnership between two wealthy Kuwaiti families, the Al Roumis and the Al Humaidhis, each of which holds 50% of the shares. There is a suggestion by the bank that the Al Roumi family holds 50.33% and therefore has a very small majority, but this is denied by the defendants and I proceed on the assumption that the shareholdings of the two families are equal.[8]EFAD RE operates and invests internationally in several business sectors, including financial services, logistics and transportation, hospitality and real estate. According to its consolidated financial statements for the period ending on 31 December 2007, at that date EFAD RE had net assets of the Kuwaiti equivalent of US $2.025 billion. These included a 100% shareholding in a Kuwaiti company called Adeem Investment Company KSC(C), which in turn was the ultimate beneficial owner of a 32% shareholding in Grosvenor House Apartments Ltd and a 31% shareholding in Aston Martin (UK) Holdings Ltd.[9]In accordance with its Memorandum of Association, EFAD RE’s governing body is a partnership board. There are three members, Mr Mohamed Al Roumi, Mr Waleed Al Humaidhi and Mr Najeeb Al Humaidhi. Neither the second nor the third defendant is a member of the board.[10]The second and third defendants are first cousins and the third defendant Mr Rezam Al Roumi is the son of Mr Mohamed Al Roumi. The second defendant Mr Khalid Al Roumi is the General Manager and sole authorised signatory of EFAD RE. According to the bank, the third defendant is the Chief Executive Officer, and is also sometimes referred to as the Chairman, of EFAD RE. This is denied by the defendants, who say that the third defendant is the Chief Executive Officer, not of EFAD RE but of the EFAD group as a whole.

The facts

[11]On 26 May 2008 the bank agreed to provide a short term sharia compliant finance facility to EFAD RE upon the terms set out in a document described as “the May Murabaha”. The facility was for a total combined sum of US $50 million and AED 36.73 million, with a maturity date of 26 November 2008. EFAD RE provided security to the bank including a pledge of various investments which included shares in a company called The Investment Dar Company KSC(C) (“TID”). The shares pledged were held by a custodian, Al Dar Asset Management Company KSC (“ADAM”), which according to the bank is another company in the EFAD group. The full amount of the facility was then drawn down.[12]By November 2008 the effect of the global financial crisis was such that the value of the shares in TID had fallen to 57.25% of the facility amount, which put EFAD RE in default under the May Murabaha. The bank would therefore have been entitled to declare an event of default and to enforce against the TID shares which were pledged to it in order to claim repayment of the sum advanced.[13]EFAD RE was anxious that the bank should not enforce its rights and proposed a restructuring of the financing, offering to provide additional security including its shareholdings in various companies and real estate, but not including its shareholding in Adeem. The bank made clear that it was only prepared to consider this proposal if the additional security to be provided included also a pledge of the Adeem shares. It regarded these as the jewel in EFAD RE’s crown. In addition it pressed EFAD RE to make some repayment from its available funds.[14]EFAD RE responded on 26 November 2008 by submitting a restructuring proposal which included the provision of the additional security including the Adeem shares which the bank had requested. After some negotiation this led to the conclusion of a further Islamic finance agreement dated 18 December 2008 (“the December Murabaha”) between the bank and EFAD RE. Meanwhile, on 4 December 2008 EFAD RE repaid US $8.3 million and AED 6.1 million. On 17 December 2008 EFAD RE sent an e-mail assuring the bank that the share component of the additional security to be provided would be added to the existing pledge which had been provided pursuant to the May Murabaha. This was in sufficiently wide terms to permit new security to be added to the shares already pledged and for the shares which were subject to the pledge to stand as security for any additional funds advanced by the bank.[15]The December Murabaha, like its May predecessor, was governed by English law and provided for the non-exclusive jurisdiction of the English court. It did not involve the provision of any new money by the bank and was in substance a rescheduling of EFAD RE’s repayment obligations for a further six months. This was to be accomplished by a notional repayment of what was outstanding under the May Murabaha and the making available by the bank of an equivalent sum for a further six month period. The mechanism by which this would be done was that EFAD RE would make what was called a “Transaction Request”, following which the bank would execute Islamic compliant “Commodities transactions”. In this way EFAD RE’s existing obligations under the May Murabaha would be discharged and replaced by new obligations under the December Murabaha. However, it was a condition precedent to EFAD RE’s right to make a Transaction Request that the required “Additional Security” should have been provided and that the bank had been provided also with (among other documents) a suitable resolution of EFAD RE’s partnership board approving the new arrangements.[16]Thus clause 3 of the December Murabaha provided:
“CONDITIONS 3.1 Conditions Precedent EFAD may not issue a Transaction Request unless the Investment Agent has confirmed to EFAD and the Participants that all of the conditions precedent listed in Schedule 1 (Conditions Precedent Documents) have been satisfied, in form and substance, satisfactory to it. The Investment Agent shall notify EFAD and the Participants promptly upon being so satisfied. 3.2 Conditions Subsequent EFAD undertakes to ensure that all the Security Documents (where applicable) are registered, notarised, as required, and effective within ten (10) days of the date of this agreement.”
[17]The December Murabaha contained a definition of the “Effective Date”. This was defined as the date when the bank certified that the conditions precedent had been satisfied. However, the substantive terms made no reference to the “Effective Date” and appear to contemplate that the Murabaha would have contractual force as of 18 December 2008, albeit that the bank would not be under any obligation to execute “Commodities transactions” until those conditions were complied with.[18]The conditions precedent in clause 3.1 were never satisfied. In particular the bank was never provided with the executed “Additional Security” documents which were required or with any board resolution. However, on 21 December 2008 EFAD RE confirmed to the bank in an e-mail that it was “in the process” of transferring the shares in Adeem and the various other companies to the pledged investment portfolio and also wrote to the bank enclosing copies of the title deeds to all the real estate which was to form part of the security, stating that this real estate “will be mortgaged to [the bank] as security for the facilities extended by the bank to EFAD”. It appears that on the following day, 22 December 2008, EFAD RE sent Transaction Requests to the bank requesting drawdown of funds pursuant to the December Murabaha and the bank proceeded to execute Commodities transactions in accordance with the terms of that Murabaha. Thus it appears that the bank was sufficiently satisfied by the assurances which had been given to proceed without waiting until all the security was finally in place, even though it would have been entitled to insist on waiting.[19]Thereafter efforts were made by the bank to persuade EFAD RE to complete the security documentation. On 11 January 2009 ADAM provided the bank with an account statement for the pledged investment portfolio which showed that the portfolio had a total market value of the equivalent of US $109,004,030 and that the pledged shares included the Adeem shares. However, there were difficulties with the finalisation of the documentation. On 17 January 2009 the third defendant told the bank’s local representative that EFAD RE wished to sign the Additional Security documents as soon as possible, and that it was merely waiting for the bank’s lawyers to fix an appointment with the Kuwaiti Ministry of Justice for notarisation. On 20 January 2009 an appointment at the Ministry for a signing meeting was made for the following day, 21 January 2009, but this did not take place because of a problem with the form of power of attorney for the bank’s representatives. Another meeting was fixed for 27 January 2009, but the EFAD RE representatives (who were to include both the second and third defendants) failed to attend. The excuse given at the time was that “EFAD’s Chairman [which the bank contends is a reference to the third defendant] had to travel”.[20]The bank’s evidence, so far uncontradicted, is that Mr Peter Kennedy (a managing director of the investment banking division at the bank) telephoned the third defendant on the same day, 27 January 2009, to complain that EFAD RE and the Al Roumis were stalling and playing games with the bank over the Additional Security, and that the third defendant replied that the bank was operating in Kuwait, not the UK, and that it would be easy for him to make the current position (namely EFAD RE’s non-payment and failure to provide security) continue for years.[21]There is no evidence before me from the second or third defendants, although witness statements in support of their application have been provided from others including Mr Reda Morssy, the financial manager of EFAD RE. His evidence is that the 27 January 2009 meeting did not take place, not because the third defendant or indeed anyone else was travelling, but “because agreement had not and could not be reached over the real estate transfer agreement, and in particular, the identity of the transferee proposed by the Claimant’s Kuwaiti lawyers”. However, I was shown no contemporary evidence that this was the reason for the EFAD RE representatives’ failure to attend the meeting.[22]Meanwhile the financial position of EFAD RE had deteriorated further. It appears that it was defaulting on loans from other banks, and that on or about 27 January 2009 it appointed UBS as a financial adviser to arrange a restructuring of its debts generally.[23]On 28 January 2009 the bank wrote to EFAD RE reserving all its rights and followed this with a notice of acceleration on 5 February 2009 holding EFAD RE in default.[24]On 3 March 2009, the bank commenced enforcement proceedings in Kuwait against the shares in the investment portfolio account pursuant to the terms of the pledge. Those proceedings were served on 10 March 2009. On or around that day, according to Mr Morssy’s evidence, the shares which EFAD RE had added to the portfolio (including the Adeem shares) were removed from it. Mr Morssy does not comment on the coincidence of this timing. He says that ADAM returned the shares to EFAD RE “because the written consent required from the Claimant pursuant to clause 2 of the Mortgage Contract had not been provided by the Claimant so ADAM would not accept the Disputed Shares in the Investment Portfolio”. On the face of it, this explanation seems difficult to reconcile with the confirmation given to the bank by ADAM on 11 January 2009 that the shares had been added to the portfolio.

Proceedings in Kuwait

[25]There have already been several proceedings in Kuwait as a result of these events.[26]On 3 November 2009 the bank commenced criminal proceedings against the second defendant and a representative of ADAM, alleging misappropriation of shares in the pledged investment portfolio account. The court found that there was insufficient evidence to establish the offence to the criminal standard and applied the principle that where there was doubt, the accused was entitled to be declared innocent. The bank appealed, but the appeal was dismissed. Mr Dale submitted that the ruling made in these proceedings, that the accused were innocent of the accusation charged, may constitute res judicata, but the evidence before me is that this would not be so as a matter of Kuwaiti law.[27]A second criminal complaint was brought on 4 April 2012 against the second defendant and another individual regarding the investment portfolio account. However, it appears that this has not been actively pursued.[28]The bank has also commenced civil proceedings seeking to enforce the security to which it is entitled under the pledge, but these have made little progress. EFAD RE also brought an action in Kuwait, in December 2009, seeking a declaration of its (non-)indebtedness to the bank, although this action has not been pursued. However, it is notable that one point taken by EFAD RE in the course of these various proceedings was to dispute its debt to the bank on the basis that the full amount of the May Murabaha was not drawn down and that the only funds which were ever drawn down have been repaid. Mr Morssy does not deny that this was EFAD RE’s case in Kuwait. Nor does he suggest that what EFAD RE said in Kuwait about this was true or that EFAD RE believed it to be true. In his evidence he characterises what appears to have been a blatant falsehood as a legitimate argument.

The bank’s case

[29]Subject to any defence which has not yet emerged, it would appear that the bank has a straightforward claim in debt to recover from EFAD RE the funds outstanding under the December Murabaha. Indeed, in support of the bank’s case that there has been bad faith on the part of the second and third defendants, Mr Robert Anderson QC for the bank relies on the fact that an apparently indisputable debt has not been paid.[30]In addition to its claim in debt, the bank contends that EFAD RE is in breach of the December Murabaha, including principally but not exclusively clause 3.2, for failing or refusing to execute the Additional Security Documents within 10 days of the date of the December Murabaha or at all. It contends also that the statements made by EFAD RE in which it offered to provide the Additional Security and confirmed that the security would be or was in the process of being transferred constituted fraudulent representations that EFAD RE was able and willing to provide such security and was in the process of doing so, made (in summary) with the intention of inducing the bank to grant further time to EFAD RE and not to enforce its existing security under the May Murabaha, when in fact EFAD RE never had any intention of providing the Additional Security. The bank says that it was induced by these representations to enter into the December Murabaha, to agree to EFAD RE’s Transaction Request pursuant to the December Murabaha, and to refrain from putting EFAD RE into default and enforcing its rights, at any rate until February 2009.[31]These further claims are said to give rise to causes of action against EFAD RE for deceit and conspiracy. Although it may be doubted whether these further claims against EFAD RE add anything of substance to the remedy to which the bank appears to be entitled on its claim in debt, they provide the foundation for the bank’s claims against the second and third defendants.[32]As against the second and third defendants, the bank’s case is that the representations made by EFAD RE were directed or procured by the second and/or third defendants and were made on their behalf. Although for the most part the relevant statements were not made by the second or third defendants personally, it is the bank’s case that these defendants exercised control over EFAD RE, in part by virtue of the positions which they held and in part because in practice others who were concerned in the management of EFAD RE (and in particular the company’s dealings with the bank) deferred to and took their instructions from them. It is the bank’s case that the second and third defendants were acting dishonestly throughout in causing these representations to be made, so that they are personally responsible in law for the statements in question. On this basis the bank makes claims against the second and third defendants for damages for deceit, procuring breach of contract by EFAD RE and conspiracy.

The second and third defendants’ case

[33]Although it was Mr Morssy’s evidence that “the dispute between the Claimant and EFAD Re is a genuine one”, Mr Dale submitted that there is no credible case of breach of contract against EFAD RE, which was under no obligation to provide the Additional Security required by the December Murabaha because the conditions precedent referred to in clause 3 were not fulfilled and the December Murabaha “did not proceed”. This is a point which, as I understand it, emerged for the first time in Mr Dale’s skeleton argument served shortly before the hearing of this application.[34]As for the claims against EFAD RE for deceit and conspiracy, Mr Dale did not seriously contest, at any rate for present purposes, that the statements made by EFAD RE were capable of amounting to representations that the company was able and willing to transfer the Additional Security. The focus of his submission was that even if by (say) mid January 2009, there was a reasonable case to be made that EFAD RE was stalling the bank, there is no basis on which to conclude that the representations made by EFAD RE were dishonest either from the outset or at all, this being nothing more than a case where EFAD RE (in common with many others) had been overwhelmed by the financial crisis and was doing what it could to survive.[35]Obviously, if the bank has no valid claim against EFAD RE for breach of contract or for deceit or conspiracy, its claims against the second and third defendants fall away. However, even if the bank has such claims against EFAD RE, Mr Dale submitted that the second and third defendants did not in law or in fact exercise control over EFAD RE so as to be personally responsible for the statements in question and there was no basis for a claim in conspiracy against them.[36]Asked to identify any “killer point”, Mr Dale identified three such points: first, that EFAD RE had in fact taken steps to transfer the shares after conclusion of the December Murabaha and had placed them with ADAM as the portfolio manager and had also made some repayments to the bank; second, that EFAD RE had engaged in a long period of negotiations with the bank; and third, that as its financial position had deteriorated, EFAD RE had appointed UBS to advise it about the restructuring of all of its loans.

Serious issue to be tried

[37]I keep firmly in mind that at this stage I am only deciding whether there is a serious issue to be tried against the second and third defendants in the sense described above.[38]On that basis I am satisfied that the bank has a real prospect of establishing that EFAD RE was in breach of clause 3.2 of the December Murabaha in failing to provide the Additional Security referred to in that clause, and that the December Murabaha was a legally binding contract despite the fact that the conditions precedent were not complied with. These were (or at least it is reasonably arguable that they were) conditions precedent to EFAD RE’s right to make a Transaction Request and not conditions precedent to the coming into force of the Murabaha; they were conditions included for the benefit of the bank, which conditions the bank was entitled to waive. It appears that the bank did waive them by agreeing to proceed with the execution of Commodities transactions in accordance with the terms of the Murabaha even though it could not have been compelled to do so. It is plausible that it acted as it did, instead of taking steps to enforce its existing security, because of EFAD RE’s stated willingness to provide additional security and its assurance that this security was in the course of being transferred into the pledged investment portfolio. The fact that the bank continued to press for execution of the additional security documentation and that some of its correspondence appears to be consistent with a view that the May Murabaha continued in force does not necessarily detract from this.[39]The questions whether the statements made by EFAD RE were made dishonestly and, if so, at what point the dishonesty began, are matters which will have to be investigated at trial. I accept the submission of Mr Anderson that all the evidence about this will need to be considered in the round, and that at present there is evidence from which the court may conclude that EFAD RE was acting in bad faith in order (literally) to lull the bank into a false sense of security. In summary: a) Contrary to the assurance given on 21 December 2008, it appears that the Adeem shares were not in the process of being transferred into the investment portfolio or, if they were, were transferred on terms which rendered the transfer effectively meaningless because EFAD RE or the EFAD group retained the ability to reverse the transfer at will. b) For the same reason the account statement provided by ADAM on 11 January 2009 appears to have been thoroughly misleading. c) EFAD RE appears to have been stalling the bank by mid January 2009 at the latest, providing flimsy and apparently false excuses for not attending the meetings at which the security documents were to be signed. The fact that the bank’s local representative appears to have believed at the time that EFAD RE would eventually sign the documentation is immaterial: he did not have the full picture before him. d) There appears to be no valid reason for the reversal of the transfer of the shares, which constituted security to which the bank was entitled under the December Murabaha, while the timing of the removal of these shares from the portfolio appears significant. e) Similarly the assurance that the real estate would be transferred to the bank was not complied with, and there appears to have been a series of excuses as to why this could not happen. In the event the real estate was later transferred to a third party who is closely connected to the defendants and much of it has since been sold. f) It appears also that there is some basis for saying that EFAD RE is prepared to give a false account to a court, and regards doing so as a legitimate tactic in litigation. There has in any event been no explanation why EFAD RE has not repaid the money which the bank advanced to it.[40]I emphasise that these are provisional comments, based on the evidence before me at this early stage of the case, and that the matter may appear very differently after a full investigation at trial. Nevertheless, taken together, these matters do suggest, in my judgement, that the bank has at any rate a real prospect of establishing dishonesty on the part of EFAD RE from an early stage of the negotiations which led to the December Murabaha.[41]I do not accept that Mr Dale’s “killer points” are anything of the kind. Precisely what if any steps EFAD RE actually took to place the shares with ADAM after the conclusion of the December Murabaha is obscure. If it did so at all, it appears nevertheless to have done so in a way which retained effective control over these shares while giving the contrary impression to the bank. Similarly, the fact that EFAD RE did make some repayments to the bank before the December Murabaha was concluded is a point in its favour, but for present purposes is inconclusive. It may for example have considered that this was the least it needed to do in order to hold off the bank from taking steps to enforce its existing security. The other matters relied on by Mr Dale, that EFAD RE engaged in a long period of negotiations with the bank and that it eventually appointed UBS to advise it constitute part of the story, but when the position is considered as a whole they do not begin to demonstrate that the bank’s case is fanciful.[42]As for the position of the second and third defendants, I am satisfied that there is evidence from which a court may conclude that they exercised control over and directed the conduct of EFAD RE by virtue of the positions which they held. Whether the third defendant was the Chief Executive Officer of EFAD RE itself or of the EFAD group as a whole does not seem to me to be a matter of great significance, but for what it is worth he appears to have been held out on the company’s website as the Chief Executive Officer of EFAD RE until 27 August 2013, which was a few days after the date when the present proceedings were sent to the defendants in draft. The defendants appear to have felt some sensitivity about this, as on 27 August 2013 the website was taken down, supposedly for routine maintenance, and I am told that it is no longer accessible. It seems to me that there is at least a real prospect that EFAD RE’s own website was accurate in its description of the third defendant. It is not in dispute that the second defendant held the position of EFAD RE’s General Manager.[43]In any event, regardless of the formal positions which the second and third defendants held, and notwithstanding that formally the governing body of EFAD RE is the partnership board of which the second and third defendants were not members, the bank’s evidence is that in all its dealings with EFAD RE it was apparent that the second defendant and (principally) the third defendant were the key decision makers within the company to whom all important decisions were referred. That evidence is disputed, but it gives rise to a reasonable inference with a real prospect of success that it was the second and third defendants who caused EFAD RE to make the representations and directed the other conduct on which the bank relies. Indeed if Mr Kennedy’s so far uncontradicted account of his conversation with the third defendant on 27 January 2009 is accurate, the third defendant was there acknowledging his ability and intention to direct the conduct of EFAD RE so as to frustrate the bank’s attempts to recover the funds which it had advanced.[44]Precisely what degree of involvement the second and third defendants had in the matters of which the bank complains in this action, and whether their state of mind was such as to give rise to personal liability on their part, will depend on a full investigation of the facts of the case. It is unnecessary to explore further on this application precisely what the bank would need to prove as to the second and third defendants’ state of mind. I am satisfied, however, that the bank has at any rate a real prospect of establishing such personal liability.[45]Accordingly, and giving due weight to the seriousness of the allegations against the second and third defendants, the bank surmounts the first of the three hurdles which it has to overcome.

Necessary or proper parties

[46]The principal jurisdictional gateway on which the bank relies is that the second and third defendants are necessary or proper parties to the claim against EFAD RE within paragraph 3.1(3) of CPR PD 6B.[47]Under this paragraph the court may permit service of a claim outof the jurisdiction where:
“(3) A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and – (a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and (b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.” (a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and (b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.”
[48]A claim will raise a “real issue which it is reasonable for the court to try” where the claim is not liable to strike out or summary judgment, while a defendant will be a “necessary or proper” party to the claim where it would be appropriate to join it in accordance with ordinary rules on joinder, ie CPR 19.2(2). As Lord Collins of Mapesbury put it in AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7, [2012] 1 WLR 1804, at [87]:
“the question whether D2 is a proper party is answered by asking: ‘supposing both parties had been within the jurisdiction would they both have been proper parties to the action?’: Massey v Heynes & Co 21 QBD 330 , 338, per Lord Esher MR. D2 will be a proper party if the claims against D1 and D2 involve one investigation: Massey v Heynes & Co, p 338, per Lindley LJ; applied in Petroleo Brasiliero SA v Mellitus Shipping Inc (The Baltic Flame) [2001] 1 Lloyd's Rep 203, para 33 and in Carvill America Inc v Camperdown UK Ltd [2005] 2 Lloyd's Rep 457, para 48, where Clarke LJ also used, or approved, in this connection the expressions ‘closely bound up’ and ‘a common thread’: at paras 46, 49.”
[49]Accordingly, where the liability of several persons depends upon one investigation (eg a case of alleged joint liability) each will be a “necessary or proper” party for the purpose of the rule: cf The Baltic Flame [2001] EWCA Civ 418, [2001] 1 Lloyd's Rep 203 and Erste Group Bank AG (London) v JSC (VMZ Red October) [2013] EWHC 2926 (Comm).[50]Applying these tests, once it is concluded that the damages claims against EFAD RE have a real prospect of success, it is apparent that the second and third defendants are necessary and proper parties to the claim. It is in effect the same claim and involves a single factual investigation. The bank has therefore a good arguable case that its claim against the second and third defendants falls within CPR PD 6B, paragraph 3.1(3).[51]Most of the points made under this heading by Mr Dale in his written submissions were directed to disputing the bank’s case on the merits. However, I have already concluded that the bank does have a real prospect of success on the merits, and this is the basis on which the “necessary or proper party” issue arises. Ultimately Mr Dale made only two points under this heading which were independent of the merits of the bank’s claim.[52]The first was that EFAD RE has not acknowledged service and that the bank has taken no steps to progress the action against it, so that it may be that the action will not proceed against EFAD RE here after all. However, as Mr Anderson explained, the bank has been awaiting the outcome of the present application by the second and third defendants with the intention, if that application fails, of progressing the action against all three defendants at the same time. It seems to me that this is a reasonable course for the bank to have taken.[53]It is possible, I suppose, that EFAD RE may choose not to defend the action, but that cannot yet be known. In any event, even if that is the choice which EFAD RE makes, paragraph 3.1(3) of CPR PD 6B is concerned with the position at the time when the claimant seeks permission to serve the claim form on a “necessary or proper party”. All that is required to come within the paragraph is that the claim form has been or will be served on the “anchor” defendant and that there is between the claimant and that anchor defendant a real issue which it is reasonable for the court to try. The court is not required to predict whether the anchor defendant will take an active part in defending the claim against it.[54]Mr Dale’s second non-merits point was that there is no benefit to the bank in proceeding against the second and third defendants when (if it is right) it has a perfectly good claim against EFAD RE. Thus, although there was no analysis before me of the measure of the damages to which the bank will be entitled if its claims against the second and third defendants succeed, it seems clear that none of its claims can entitle it to damages for an amount greater than the amount of its apparently straightforward claim in debt against EFAD RE, while the damages recoverable on at least some of its claims (eg in deceit) would appear to be limited to what it could have obtained by enforcing the security pledged to it pursuant to the May Murabaha at a time when the value of that security had fallen dramatically. Nevertheless, if the bank has valid claims against the second and third defendants personally, there may be real value to it in pursuing those claims and, in my judgment, it is entitled to do so. For example, the second and third defendants are wealthy individuals who come to this jurisdiction from time to time and it may be that they would not wish to have an unsatisfied judgment against them here or that they have assets here against which a judgment could be enforced. The fact that the claims against the second and third defendants may not add much to the bank’s claim against EFAD RE does not mean that the second and third defendants are not necessary or proper parties to that claim.

Tort within the jurisdiction

[55]Alternatively, the bank relies on paragraph 3.1(9) of CPR PD 6B, contending that it has a claim in tort where damage was sustained within the jurisdiction. There was very little argument about this gateway at the hearing and, in view of my decision on the “necessary or proper party” gateway, it is unnecessary to decide whether this alternative gateway is also available to the bank.

Appropriate forum

[56]The principles applicable to the question whether England is the appropriate forum are well established. The claimant has the burden of showing that England is the appropriate forum, ie the forum in which the case may most suitably be tried for the interests of all parties and the ends of justice. Ordinarily, the claimant must show that England is the natural forum, ie that with which the action has the most real and substantial connection. In determining whether England is the natural forum, the court takes account of a wide variety of factors, not only factors concerning convenience and expense (such as the availability of witnesses), but also factors such as the law governing the relevant transaction and the places where the parties reside and respectively carry on business. The court will also have regard to the overall shape of the dispute, and in particular whether part of it will proceed in England in any event.[57]In the present case some factors point to England, while others point to Kuwait. In brief: a) The bank is an English company and its principal witnesses are based in England and will give evidence in English, although at least one likely bank witness is based in Dubai. Its documents are in English. b) The second and third defendants are based in Kuwait, although they speak good English. The third defendant comes regularly to England, and is a director of Aston Martin group companies (which are part owned by Adeem). Their documents are likely to be in both English and Arabic, although they may have very few documents to disclose which will not be disclosable in any event by EFAD RE. Other witnesses who are officers of EFAD RE are also based in Kuwait although they (and for that matter the second and third defendants themselves) may also be witnesses in the bank’s claims against EFAD RE. c) There is an issue whether the law applicable to the bank’s claims in tort is English or Kuwaiti law, which (in England) will fall to be decided in accordance with the Private International Law (Miscellaneous Provisions) Act 1995. To reach a final determination about that would require a close examination of the facts but, in any event, it does not appear from the evidence before me that there is any material difference between the two potentially applicable laws. d) There have been various proceedings in Kuwait, but those proceedings have raised different issues and are either concluded or inactive.[58]So far it may be doubted whether this would justify a conclusion that England is “clearly or distinctly” the appropriate forum for the trial of the bank’s claims against the second and third defendants. However, it seems to me that an important factor is that the claim against EFAD RE will proceed in this jurisdiction, to which EFAD RE has agreed by reason of the non-exclusive jurisdiction clause in the December Murabaha. Moreover, it seems highly likely that the second and third defendants knew and agreed that any such claims against EFAD RE would proceed here. In Erste Group Bank v JSC "VMZ Red October"[2013] EWHC 2926 (Comm)Flaux J held at [156] that "it would be verging on the perverse" to require a claimant who was pursuing and was entitled to pursue claims against some defendants here to litigate the same claims in Russia against other defendants, when those other defendants were necessary or proper parties to the claims here and were in the same corporate group as the defendants to the English action. He regarded this as “a very strong factor” in favour of English jurisdiction. In my judgment the same reasoning applies here.[59]Once again, it is irrelevant that EFAD RE has so far chosen not to acknowledge service here, in part because the issue of appropriate forum falls to be decided at the time when the claimant seeks permission to serve the claim form out of the jurisdiction and in part because, in any event, it remains to be seen whether EFAD RE will persist in ignoring this action, particularly now that jurisdiction over the second and third defendants has been established.[60]I conclude, therefore, that England is clearly and distinctly the appropriate forum for the trial of the bank’s claims against the second and third defendants.

An application by the first defendant

[61]Although the point does not arise in view of the conclusions which I have already reached, I should record that Mr Dale submitted that, if the second and third defendants’ application were to succeed, the claim against EFAD RE should be stayed so that all of the bank’s claims could be tried together in Kuwait. EFAD RE had not issued any application notice seeking such a stay, but when I asked Mr Dale whether he was representing EFAD RE for the purpose of making such an application, he confirmed that he was. Mr Anderson did not object to the absence of any notice.[62]If the point had arisen, I would have rejected this application. In a case where the bank is able to establish jurisdiction over EFAD RE pursuant to the Judgments Regulation, it is doubtful whether I have power to grant such a stay in any event but, assuming that I have, I would not be prepared to do so as a matter of discretion. The bank is entitled to proceed against EFAD RE here pursuant to the jurisdiction clause in the December Murabaha. The fact that (on this hypothesis) it would be unable to found jurisdiction here against the second and third defendants would not in my judgment constitute a good reason for depriving it of the benefit of that clause.

Conclusion

[63]The second and third defendants’ application is dismissed. The first defendant’s contingent application for a stay does not arise although, if it had, I would have dismissed it.

Cited in 3 later judgments