Dweck v Forstater [2010] EWHC 1874 (QB)

[2010] EWHC 1874 (QB)

Case No QB2009PTA619HH

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 26 July 2010

Before

HIS HONOUR JUDGE ANTHONY THORNTON QC

Between

Leslie DweckClaimant

Mark ForstaterDefendant/ Applicant/ Respondent

Mr Robert Marven (instructed by Stones) for Appellants

Mr George Hayman (instructed by Harbottle & Lewis LLP) for Respondent

Judgment

[1]This judgment is concerned with the appeals of each of the appellants, Mrs Cynthia Rowbury (“CR”), Mr Richard Dweck (“RD”) and Mrs Suzy Dweck (“SD”), from the order of Master Eyre dated 22 October 2009. The appeal was brought with the permission of Blake J granted on 2 December 2009. Master Eyre had made a non-party costs order in favour of Mr Mark Forstater (“MF”) whereby CR, RD and SD (“the appellants”) were held to be jointly liable for MF’s costs in the action up to a limit of £60,382.72. CR, RD and SD were also ordered to pay MF’s costs of the non-party costs order application which Master Eyre summarily assessed in the sum of £19,272.67.

[2]The underlying action (“the fraud action”) leading to the non-party costs action had been brought by Mr Leslie Dweck, (“LD”) against MF and it had been struck out by Master Eyre on 8 December 2008. The respondents to MF’s subsequent and successful non-party costs order application, the appellants in this appeal, are CR who is LD’s wife, RD who is one of his two sons and SD who is his mother. In a subsequent order, dated 22 October 2009, Master Eyre had ordered that CR, RD and SD should be joined into the fraud action for the purpose of making them liable for MF’s costs and, in the same order, he made the costs order against each of them jointly and severally. This order was based on Master Eyre’s finding that the appellants had unfairly and unjustly provided LD with financial assistance so as to enable him to bring the fraud action.

[3]The fraud action had involved LD as claimant and MF as defendant. LD had claimed that the judgment in the first action (“the commission action”), that had been brought by MF against LD and his brother Eliot Dweck’s (“ED”) estate, should be set aside on the grounds that MF had fraudulently procured that first judgment. The commission action had involved a trial on liability conducted by Langstaff J which had led to a judgment in favour of MF and to a hearing conducted by Master Eyre in which an account was taken in MF’s favour for $149,576.85. LD was then ordered to pay this sum to MF along with MF’s costs of the liability trial and the account hearing which MF has estimated as a total of about £150,000.

[4]LD has subsequently paid MF nothing towards the judgment in MF’s favour and, following the order striking out the fraud action, LD was made bankrupt in an unsuccessful attempt to enforce the judgment. To date, no assets have been recovered by LD’s trustee in bankruptcy and MF has received nothing towards the judgment in his favour. Background

[5]LD and CR married in 1979 and since 1982 they have always lived in the matrimonial home that they still live in. This property was originally registered in LD’s sole name but LD transferred it into CR’s sole name in 1995 for consideration that was sufficient to avoid the property being taken by LD’s trustee in his bankruptcy. LD was, until 1988, a fruit and vegetable trader. In that year, he had a severe heart attack that required him to retire from his business and from paid work. Since then, he worked at home on an unremunerated but full-time basis developing investment software programmes for use by brokers and other professional traders when trading in commodities and futures anywhere in the world. He had started to work on these programmes in the early 1980s in his spare time.

[6]CR is a general medical practitioner and she has been the main earner of the household since LD ceased to work as a fruit and vegetable trader. RD is one of their two sons and he is now aged 27. He is a teacher by profession. ED was one of LD’s two brothers and a mathematician. He had lived in Brazil between 1993 and 2001. Whilst living there, he had worked with his brother in a partnership later called AllZys developing the investment software programmes. ED unhappily died of cancer in 2002. LD has a second brother, Alan Dweck (“AD”), who lives and works in Australia and who was involved in the company that was used to market LD and ED’s investment software once these programmes had been developed and tested. SD is the mother of LD, ED and AD and the grandmother of RD. She is a widow and lives in North London close to the LD and CR and RD currently lives with her, having lived with his parents until recently.

[7]The investment software that LD and ED had spent so long writing and developing was intended to be used by brokers and professional investors to assist them in taking investment decisions when trading in futures on any financial market around the world. The software was written so that the fact and content of any access to the programmes by a user was to be confidential and incapable of ascertainment by any other user, thereby maintaining the confidentiality of the identity of any user and their investment decisions. The software was finally ready for marketing in the late 1990s. LD and ED required capital, to be provided by private investors, to enable the software to be marketed. MF, who is a film maker and writer and who also lives in North London, was known to LD through MF’s friendship with LD’s sister Lucille Dweck. MF knew people who might have been interested in investing in LD and ED’s software marketing project and, in about 2000, he introduced them to one such potential source of funds, an Australian called Bob Weis (“BW”). BW introduced a number of investors to LD and ED including Neil Kaplan QC (“NK”). These investors, in return for their respective investments, became shareholders in a company acquired to market the software called Automated Profits Ltd (“APL”) and NK, who was one of the principal investors, became chairman of APL.

[8]According to MF, a meeting took place in LD’s house in the first week of August 2000 attended by LD, ED and himself. The commission action involved a claim by MF for commission payable pursuant to a commission agreement entered into by the three men at that August 2000 meeting. LD’s case at the liability trial was that this meeting never took place and MF was lying when contending that it had taken place or that any commission agreement was reached with him. Langstaff J found that a meeting had taken place which was attended by MF, LD and ED and that an oral commission agreement was entered into by all three of them to the effect that LD and ED would pay MF 15% of any financial benefit, net of expenses, wherever arising that was received by either brother arising from the exploitation of the investment software as a result of the finance which MF had been instrumental in assembling.

[9]In finding for MF on liability, Langstaff J rejected LD’s evidence that ED had been in Brazil, where he had been resident for many years, throughout 2000 without leaving the country and, in particular, had been there in August 2000. He also found that ED had met NK in London at an earlier meeting in April 2000. In reaching his decision,

the judge found that LD was lacking in credibility and that he was:

“on occasions determined that he was right, whatever the evidence might be to the contrary.”

Langstaff J found that there was a significant amount of reliable evidence that pointed clearly to the conclusion that the August 2000 meeting had taken place at which the commission agreement was reached notwithstanding the absence of any direct documentary evidence of the fact or terms of that agreement. At the trial, the judge had been presented with the evidence of ED’s passport which had not been disclosed until a week before the hearing. LD contended that the passport had been in his mother’s possession and she only drew it to his attention not long before it was disclosed to MF. The passport was said to show that ED had been in Brazil continuously throughout 2000 and that he had not left Brazil at any time during that year. LD’s case was that this evidence showed that ED could not have attended a meeting in London in August 2000 and could not have joined into an agreement to pay MF commission. However, Langstaff J, having “been troubled by this question”, concluded that the passport evidence was not sufficient to undermine his finding as to the existence and terms of the commission agreement which has been made in the light of all his other findings that were adverseto LD and his overall finding that LD’s contrary evidence was not credible.

[10]LD sought to appeal the liability judgment. He obtained further evidence from the Brazilian authorities and a Brazilian lawyer which explained that the absence of any markings in the passport conclusively demonstrated that ED, a long-term resident in that country, could not have left Brazil during 2000. However, the Court of Appeal refused to admit the fresh evidence on the conventional grounds that no sufficient or justifiable explanation had been put forward to explain and justify the late disclosure of the passport and the failure to obtain the Brazilian evidence much earlier. Smith LJ, on 16 April 2008 in her judgment rejecting the admission of this evidence and dismissing the application for permission to appeal, stated:

“18. … I do no accept that the new evidence is of such crucial importance that a failure to admit it is likely to result in a miscarriage of justice. Indeed Mr Platford [LD’s counsel] told us that, if refused permission by this court, his client will seek to challenge the obtaining of judgment by fresh proceedings in fraud. So be it. He is free to do so if he considers it worthwhile. That is a matter for him.”

[11]Master Eyre’s order in favour of MF for $149,576.85 and interest and £70,000 on account of costs was made on 17 April 2008. This sum was adjudged to be due to him in commission. LD contended that nothing further was due to MF since no relevant earnings or profit had been made from the exploitation or marketing of the investment software. Master Eyre found that MF had procured an investment agreement between LD and ED on the one hand and APL on the other whereby LD and ED sold the investment software to APL in April 2001 for $5,000 followed by certain staged payments. Thereafter, LD and ED made two payments to MF that related to his entitlement to commission on two stage payments made to LD and ED by APL for royalties and related payments due to them following the sale of the software. APL traded successfully but a dispute arose between it and LD which led to a Settlement Agreement whereby LD bought the shares in the company for $1 and APL provided in exchange $1m plus the rights to exploit the software plus undertakings to pay deferred payments totalling $1.43m and $870,000 in respect of unpaid royalties. MF’s claim succeeded on the basis that he was found to be entitled to 15% of the sum then found by Master Eyre to be held by or in the name of APL, a sum of $149,576.85. LD gave evidence at length during the course of the four-day hearing and Master Eyre found his evidence to be:

“the opposite of straightforward or convincing.”

[12]LD then obtained permission to appeal and the appeal was heard by Lloyd Jones J on 1 and 22 July 2008. On the first day of the hearing, the judge dismissed two of the three grounds of appeal. The judge adjourned the third ground of appeal for further argument on condition that LD paid £25,000, being his assessed costs of the first part of the appeal, into court. LD did not pay any part of this sum into court and, in consequence, the entire appeal was dismissed by an order dated 22 July 2008. Later that day, MF issued a bankruptcy petition against LD based on LD’s failure to pay the judgment sum and costs that had been ordered to be paid by Master Eyre.

[13]LD then started the fraud action on 23 July 2008. In it, LD sought an order setting aside the judgment of Langstaff J and the order of Master Eyre on the grounds that MF had deliberately and dishonestly given false evidence, principally to the effect that ED was in London in the first week of August 2000 and had entered into the agreement with him when MF knew that ED was in Brazil at the time. The particulars of claim were settled by counsel. MF applied to strike this action out as being an abuse of process and devoid of any prospects of success.

[14]Master Eyre struck the action out on these grounds in an order dated 8 December 2008 and ordered an interim payment on account of MF’s costs in the sum of £20,000 to be paid to MF by LD. Master Eyre made this order having found that the action was hopeless, principally because LD had not provided any convincing explanation for the late provision of the evidence that he contended showed that ED had been in Brazil on the day of the meeting and that, in any event, the fresh evidence did not show that ED must have been in Brazil at that time. Overall, Master Eyre concluded that LD’s assertions that MF had given fraudulent and dishonest evidence in the commission action was hopeless and flew in the face of evidence of other witnesses which LD could not or would not challenge as being untruthful.

[15]On 10 December 2008, LD was made bankrupt following a hearing of MF’s bankruptcy petition by the Registrar. A previous hearing of the bankruptcy petition had been adjourned with the consent of MF’s solicitors to await the decision in the striking out application. It had also been agreed that if the fraud action was not struck out, the bankruptcy petition would have again been adjourned pending the outcome of the fraud action. The three respondents were added as parties in relation to costs by an order dated 15 June 2009 and the non-party costs order that is the subject of this judgment was made on 22 October 2009. Basis for a non-party costs order

[16]The legal basis for a non-party costs order is provided by sections 51(1) and 51(3) of the Supreme Court Act, CPR 48.2 and several authorities. Those cited in argument were Metalloy Supplies v MA (UK) Ltd

[1997] 1 WLR 1613

, CA. ; Murphy and another v Young & Co’s Brewery and another

[1997] 1 All ER 518

, CA. ; Lockabail v Bayfield [2000] 2 Costs LR 169, Ch Div, Mr Lawrence CollinsQC. ; Hamilton v Al Fayed (No 2)

[2003] QB 1175

, CA. ; Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others

[2004] 1 WLR 2807

, PC. and Jackson v Thakrar

[2007] EWHC (TCC) 626

. It is clear that section 51 of the Supreme Court Act and CPR 48.2, which was provided as the procedural means of giving effect to section 51, permit the court to make a non-party costs order. Such an order can be made in favour of a party who the court has decided is entitled to recover all, or part, of its assessed costs incurred in litigation from someone who is not a party but who has provided funds to a paying party against whom the primary costs order has been made. However, such orders are rare and the court’s discretion is severely restricted in making them.

[17]The authorities provide the following guide to the circumstances in which such an order may be made in the circumstances of this case:(1) Costs orders against non-parties are to be regarded as exceptional, that is outside the ordinary run of cases. The ultimate question is whether it is just to make the order. The jurisdiction permitting a non-party cost order is fact-specific involving a balancing of considerations in favour of making an order against those against (Dymocks Paragraphs 25 – 26. ).

(2) In undertaking that exercise, the court should take account of the general principle that a claimant should not be denied access to the courts to pursue a genuine claim on the grounds of impecuniosity (Hamilton Paragraphs 40, 63 & 81 – 84. ). Furthermore, although the funder need not be a relative of the impecunious party, a disinterested relative supporting that party’s litigation out of familial love and affection would ordinarily be a non-party against whom a non-party costs order should not be made (Hamilton Paragraphs 43 & 47. ).

(3) Generally speaking the discretion will not be exercised against pure funders, namely those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business and in no way seek to control its course (Hamilton Paragraphs 47 & 71. ).

(4) Exceptional circumstances in pure funder cases are, particularly found where the litigation was malicious or pursued for some ulterior purpose (Metalloy Supplies Page 1670B. and Hamilton Paragraphs 47 & 86. ) or where the non-party has played an active part and has an interest in the litigation (Dymocks Paragraphs 25 & 27. ). The fact that the litigation was quite unmeritorious would be powerful evidence of ulterior motive but neither necessary nor a sufficient criterion in itself (Hamilton Paragraph 86. ).

(5) A non-party costs order will not be made unless it can be shown that the claiming party has incurred expense and costs liability that it would not have done had the non-party not provided funding for the litigation (Jackson Paragraph 20. ).

[18]It is clear that first instance judges in at least one early case where a non-party costs order was made placed weight on the fact that the funder knew that the party being funded would be unable to satisfy a costs order if he lost the claim (Lockabail Page 185. ), that is no longer a justifiable basis for making a non-party costs order although such knowledge might be evidence of malice or the pursuit of the litigation for an improper purpose (Dymocks;Hamilton Paragraphs 40, 63 & 81 – 84. ). The appeal

[19]This is a first tier appeal from three non-party costs orders made by a Queen’s Bench Master in a fraud action. The claimant’s costs in that action had been funded by the non-parties and the Master had previously struck out the action as being an abuse. Had he not struck the action out on that ground, Master Eyre would have entered summary judgment against the claimant on the ground that it had no prospects of success. Thus, this appeal is limited to a review of the decision of the Master and the appeal will only be allowed where the Master’s decision was wrong or unjust because of a serious procedural or other irregularity in the proceedings in the lower court CPR 52.11(1) – (3). .

[20]In hearing the appeal, the approach that I should adopt as a first-tier appeal judge is that identified by Lord Fraser of Tullybelton in G v G 1985] 1 WLR 647, HL at p 652C. which was adopted and applied by the Court of Appeal in Tanfern Ltd v Cameron-Macdonald

[2000] 1 WLR 1311

, CA, paragraph 32. :

“… the appellate court should only interfere when they consider that the judge of the first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible." This approach was also adopted and amplified by May LJ in E.I. Du Pont Nemours & Co v S.T. Du Pont [2006] 1 WLR 1368, CA, paragraph 94. : “A review here is not to be equated with judicial review. It is closely akin to, although not conceptually identical with, the scope of an appeal to the Court of Appeal under the former Rules of the Supreme Court. The review will engage the merits of the appeal. It will accord appropriate respect to the decision of the lower court. Appropriate respect will be tempered by the nature of the lower court and its decision making process. There will also be a spectrum of appropriate respect depending on the nature of the decision of the lower court which is challenged. At one end of the spectrum will be decisions of primary fact reached after an evaluation of oral evidence where credibility is in issue and purely discretionary decisions. Further along the spectrum will be multi-factorial decisions often dependent on inferences and an analysis of documentary material. Rule 52.11(4) expressly empowers the court to draw inferences.”

[21]This appeal relates to a decision that involved the exercise of discretion which itself involved taking account of a number of facts which had to be found or inferred entirely from the written evidence. Master Eyre had previously delivered two further judgments concerned with his decision on the taking of an account and as to the striking out of the fraud action. The first judgment followed a four-day hearing in which he heard much evidence from both LD and MF. Master Eyre had, therefore, acquired a familiarity with both the commission and fraud actions and his findings about the knowledge and involvement of the appellants in the fraud action should be given considerable respect.

[22]I therefore conclude that my approach to this fact-sensitive exercise of discretion should be as follows:(1) The hearing involves a review of Master Eyre’s decision.

(2) I must first consider whether any of the findings and inferences of fact that are challenged were reasonably open to Master Eyre. I will reach my own conclusion as to whether these impugned findings could reasonably be made since Master Eyre heard no oral evidence and his findings were based entirely on the documents. I will, of course, pay due respect to his findings and will only substitute my own findings for any of his findings if I conclude that his findings were not reasonably open to him.

(3) Having established the reasonable factual basis on which the non-party cost decision should be made, I will review the way that Master Eyre exercised his discretion by taking account of the facts and matters that he weighed in the balance, the erroneous findings of fact that he took into account and any corrected findings of fact that he failed to consider. Having done so, I will decide whether his decision was within, or exceeded, the generous ambit within which a reasonable disagreement is possible and decide whether or not the decision was wrong or unjust.

(4) If I consider that the decision cannot stand, I must decide the non-party costs application myself by balancing all facts and matters that should be taken into account and then reaching a decision by applying the principles that I have already set out. Master Eyre’s non-party costs order

[23]Master Eyre made non-party costs orders against the three appellants for these reasons:

“An order of the kind sought is exceptional, and will only in rare cases be justified. Mere funding will not justify such an order, nor will the fact that the case being advanced by the funded party happens to be unmeritorious. What is required is, for example: (1) An ulterior motive on the part of the funders such as to use the action, not in reality to obtain a verdict but to put pressure on the opposing party. (2) A willingness to support a party whose stance in the litigation is to the funders plainly unreasonable and malicious.”

Having set out this test, Master Eyre summarised the contentions that had been made on behalf of the parties and the relevant evidence provided in the witness statements that had been served and concluded:

“What has emerged from the evidence now before the Court is that: (1) LD: (a) Is incurably evasive, and has not paid and never will pay MF a single £ or $ unless forced to do so. (b) Simply ignores any finding by any court that does not give him what he wants. (c) Brought this action to thwart MF’s attempts to enforce the award on the account. (2) CR, RD and SD: (a) Were quite content in the original action to engage in what was on their own evidence obviously a fiction about repayment. (b) Paid the bills for solicitors and counsel in this action, again on the basis of what was on their own evidence a fictional loan. (c) Those bills included bills in relation to the trust for funding, and the respondents paid them either knowing perfectly well why a trust was to be used, or ensuring that they were not to be told why. (d) Tried to obstruct the bankruptcy. (e) Have always been aware of the findings set out under (1)(a) – (c) above, yet see no reason why they should not assist LD in those respects. (f) Funded this action, knowing that the action was oppressive, malicious and plainly vexatious.” (1) An ulterior motive on the part of the funders such as to use the action, not in reality to obtain a verdict but to put pressure on the opposing party. (2) A willingness to support a party whose stance in the litigation is to the funders plainly unreasonable and malicious.” (1) LD: (a) Is incurably evasive, and has not paid and never will pay MF a single £ or $ unless forced to do so. (b) Simply ignores any finding by any court that does not give him what he wants. (c) Brought this action to thwart MF’s attempts to enforce the award on the account. (2) CR, RD and SD: (a) Were quite content in the original action to engage in what was on their own evidence obviously a fiction about repayment. (b) Paid the bills for solicitors and counsel in this action, again on the basis of what was on their own evidence a fictional loan. (c) Those bills included bills in relation to the trust for funding, and the respondents paid them either knowing perfectly well why a trust was to be used, or ensuring that they were not to be told why. (d) Tried to obstruct the bankruptcy. (e) Have always been aware of the findings set out under (1)(a) – (c) above, yet see no reason why they should not assist LD in those respects. (f) Funded this action, knowing that the action was oppressive, malicious and plainly vexatious.”

[24]Master Eyre refused permission to appeal but Blake J granted permission on 12 December 2009. Blake J also granted permission to the appellants to rely on the further evidence of Daniel Tench of Olswang, the solicitors who acted for the appellants in the non-party costs order application. This witness statement was subsequently responded to by a witness statement from David Rubin, LD’s trustee in bankruptcy, which was admitted by consent. Both witness statements dealt with the adverse inferences drawn by Master Eyre as to the involvement of the appellants in LD’s bankruptcy.

[25]Blake J granted permission to appeal for these reasons:

“There are reasonable prospects of establishing that:- 1. There was no or insufficient evidence to rebut the appellants’ contention that they were pure funders of the fraud claim and did so as a result of an honest belief that the claimant had been the victim of injustice in the commission claim. 2. Funding of the fraud claim by way of loan repayable in the event of success was [not] a device rendering the appellants vulnerable to a third party costs claim. 3. The appellants’ application to prove the loans in the bankruptcy was [not] intended to frustrate or obstruct that bankruptcy and was [not] otherwise a material factor in justifying the exceptional course of a third party costs order against family members. 4. Adverse inferences on the appellants’ statements were reached without sufficient or fair inquiry or opportunity to disabuse.”

[26]Both parties referred in detail to Master Eyre’s findings of fact. On behalf of the appellants, it was contended that each of the principal findings was erroneous whereas on behalf of MF it was contended that these findings were correct. These findings, were as follows:(1) The appellants were not to be treated as pure funders since they had an interest in the outcome of the fraud action (pure funders See paragraphs 33 – 40 below. ).

(2) Regard should be had to the appellants’ contributions to LD’s costs in both the commission and fraud actions (relevant contributions) See paragraphs 41 – 43 below. .

(3) The contributions that were made in both actions were gifts. Master Eyre found that although all the contributions had the appearance of being loans from the appellants to LD, they were in fact gifts dressed up as fictitious loans (gifts or loans) See paragraphs 44 – 48 below. .

(4) The funding for the fraud action, although apparently provided by a discretionary trust set up by SD whose trustees were RD and CR, should be treated as having been provided by the appellants personally since the trust was a fiction or device set up with the sole object of protecting the appellants from non-party costs orders being made against each of them. The appellants knew that that was the purpose of the discretionary trust or else they deliberately avoided finding out what the trust’s true purpose was See paragraphs 49 – 59 below. .

(5) The appellants attempted to obstruct the bankruptcy proceedings so as to further obstruct MF’s attempts to enforce his judgment See paragraphs 60 – 63 below. .

(6) The appellants knew that LD would be unable to satisfy a costs order if he lost and that they might be liable for costs as a result of providing funding See paragraphs 64 – 65 below. .

(7) The appellants knew that the fraud action had no prospect of success and that its real purpose was the malicious and ulterior one of frustrating and obstructing MF’s attempts to obtain just satisfaction following his success in the commission action. Thus, the appellants knew that the fraud action was not brought for a good reason but was, instead, oppressive, malicious and plainly vexatious See paragraphs 66 – 79 below. .

[27]The general submissions advanced on behalf of the appellants were, in summary, that:(1) Master Eyre failed to apply the appropriate test in determining that the appellants should pay all of MF’s costs of the fraud action. In doing so, he wrongly took account of a series of erroneous findings of fact and other factors in exercising his discretion and failed to take any, or any sufficient account of the factors that he should have done that pointed in favour of the appellants.

(2) Given these errors, the decision was wrong and unjust. The application for a non-party costs orders should be redetermined as part of the appeal and dismissed.

[28]The general submissions advanced on behalf of MF were to the effect that Master Eyre’s decision was correct for the reasons that he gave, albeit that his findings were only expressed in brief terms. The submissions sought to uphold these findings by reference to the evidence contained in the documents that were before Master Eyre supplemented by the two further witness statements admitted into this appeal that are concerned with LD’s bankruptcy. The factual findings General

[29]The appellants had been given due notice of the hearing of MF’s application which was served with a lengthy witness statement and exhibits from MF. This was responded to by lengthy witness statements from each appellant and a brief witness statement from MF’s solicitor exhibiting pre-action correspondence between his firm and the appellants. The bundle of documents prepared for the hearing also included relevant documents relating to the commission and fraud actions including a lengthy witness statement from LD which had been served in opposition to the application to strike out the fraud action and in support of his cross-application for summary judgment in that action.

[30]The hearing proceeded in the normal manner for a procedural hearing before the Master with no cross-examination of the appellants on the contents of their witness statements. However, this was a hearing in which a substantial payment was being sought from each of the appellants who had served detailed evidence setting out why these payments should not be ordered. The application was opened by MF’s counsel on the basis that the appellants’ statements were not credible in several material respects, that material loan documentation evidencing material loans made by the appellants in their personal and trustee capacities and the material discretionary trust were shams and that adverse inferences should be drawn about the appellants as to their knowledge of, and their direct involvement in, an abusive attempt to frustrate bankruptcy and enforcement proceedings by the misuse of court procedures.

[31]Master Eyre then made adverse findings against the appellants to the effect that that they had obstructed the bankruptcy proceedings, had given evidence that the payments to LD were genuine loans although they knew that these were fictional, had funded the fraud action which, despite their denials, they knew was hopeless and was being pursued maliciously and vexatiously to oppress MF and had participated in the creation of a trust which had been set up and operated as a device to avoid the risk of having to pay LD his costs of defending the action. In fairness to the appellants, advance notice should have been given to them of these allegations and they should have been asked to attend the hearing and the allegations should have been put to them in cross-examination. No objection was taken at the hearing to what, with hindsight, appears to have been significant procedural unfairness. However, Blake J, with understandable justification, granted permission to appeal on four grounds, the fourth of which being that adverse inferences had been drawn on the basis of the appellants’ statements without them being given a sufficient or fair opportunity to investigate and respond to these inferences or to seek to disabuse these inferences from being drawn.

[32]The unfairness of the procedure adopted is highlighted by the way the hearing proceeded in relation to the allegation that the appellants sought to obstruct the bankruptcy proceedings. During the appellants’ counsel’s submissions, Master Eyre sought further evidence from the appellants through counsel as to why they had proved in LD’s bankruptcy. This led to a short recess whilst instructions by telephone were obtained. Master Eyre then sought yet further evidence as to why the appellants had sought to be represented on the Creditors’ Committee which led to a second short recess whilst further instructions by telephone were obtained. Master Eyre based his finding that the appellants had sought to obstruct the bankruptcy on what he understood to have been the information that had been provided to him in this way. The further evidence adduced for the hearing of this appeal dealt with the appellants’ role in the bankruptcy proceeding and that role is dealt with in my findings. (1) Pure funders

[33]A “pure funder”, being an expression developed in the authorities concerned with non-party costs orders, is someone who has no interest in the litigation that he or she is providing financial support for. As such, the expression has no precise meaning so that it is not easy to state what the interest is that a person needs to have before being considered as an interested party and not a pure funder with the greater protection from costs orders afforded to pure funders. It is clear from the authorities the type of direct interest that is referred to is a direct financial interest in the outcome of the litigation. Thus, those with an indirect interest, particularly if it is linked to emotional or family involvement with the party being supported, are not to be regarded as being interested parties.

[34]In Hamilton, Simon Brown LJ set out this description of the non-parties in that case who were found to be pure funders and who were sought to be made the subject of a non-party costs order

[2003] QB 175

, CA at paragraphs 3 and 6. :

“3 … A sizeable part of Mr Hamilton’s costs have been contributed by a fighting fund conceived and raised by Lord Harris of High Cross to enable the action to be brought. The money was raised on the understanding that if the action were successful, the money would be returned, otherwise not. … 6 At the heart of the judgment below, in a section headed “funding”, Morland J said: ‘69. The respondents to Mr Al Fayed’s application are pure funders. Their donations towards Mr Hamilton’s costs were not made as a result of any obligation owed to him but as an act of charity through sympathy with his predicament and in some instances affinity to the Conservative Party. They have no control over how their donation is spent. They have no part in the management of the litigation up to and including the trial … Their only hope was that Mr Hamilton would achieve sufficient success in trial to enable their donations to be repaid to them. Why would a pure donor be in any more vulnerable position than a solicitor or counsel acting on a contingency fee?’” ‘69. The respondents to Mr Al Fayed’s application are pure funders. Their donations towards Mr Hamilton’s costs were not made as a result of any obligation owed to him but as an act of charity through sympathy with his predicament and in some instances affinity to the Conservative Party. They have no control over how their donation is spent. They have no part in the management of the litigation up to and including the trial … Their only hope was that Mr Hamilton would achieve sufficient success in trial to enable their donations to be repaid to them. Why would a pure donor be in any more vulnerable position than a solicitor or counsel acting on a contingency fee?’”

[35]Master Eyre made no express finding that the appellants were pure funders but the test he set out as being applicable to the determination of MF’s application Paragraph 25 of his determination, set out in paragraph 23 above. was the test that is appropriate for pure funders but would not be appropriate for interested parties. However, on behalf of MF in this appeal, it was contended that the appellants should have been considered to be interested parties and the application should have been, and the appeal should be, approached on that basis. The submission was that the appellants each stood to benefit from the fraud action since, if it succeeded, the loans each had made to LD in both the commission and fraud actions would be repaid with compound interest at 2% above Bank of England base rate.

[36]I will deal later with whether the loans were genuine or sham and whether the money advanced for the fraud action was advanced by the appellants or by the discretionary trust at the direction of RD and CR as trustee. Assuming that the appellants had genuinely loaned the funds in question to LD and that the trust had genuinely advanced the loans in the fraud action, there is no difference in principle between the appellants in this case and the funders in Hamilton. In both cases, the funders were advancing money to a claimant to enable that claimant to fund his legal claim. Each claimant was an impecunious litigant seeking to vindicate their respective reputations and legal rights and to obtain just satisfaction from the respective defendants. In both cases, the money advanced would be repaid if the action was successful and it yielded sufficient return to enable the claimant to be able to fund that repayment. In both cases, the funders had no direct interest in the litigation and no control over it or its management and were providing funding for reasons of sympathy, personal empathy or, in this case, family love and affection. It cannot therefore make any difference that in this case, the moral obligation to return the funds from any successful recovery in the litigation was backed by a contractual loan arrangement. The appellants knew that the loan could not be repaid if LD lost his action and they had no intention of seeking to enforce the loan in such circumstances. Although Mr Hamilton’s obligation to refund the loans to him was not backed by an express loan agreement, the funding arrangement would have probably created an implied trust or a contractually enforceable obligation to refund the moneys if he had succeeded in recovering his costs from the action. Thus, the difference between an equitable or restitutionary obligation to repay in his case and a contractual debtor’s obligation to repay in this case is one without a meaningful difference.

[37]Of course, if the appellants’ loans and SD’s discretionary trust were both shams, LD would still have had an obligation to repay the appellants if he had succeeded in recovering his costs from MF. This is because the monies that he had recovered would be impressed with a trust in the appellants’ favour and LD would also be subject to a restitutionary obligation to repay them.

[38]It was also argued that CR had an interest in the litigation because she was the main earner in her household. LD only had a limited income from part-time work which barely covered the cost of his board and lodging, the matrimonial home was wholly owned by CR and LD had not earned any significant income for over twenty years following his serious heart attack and his enforced retirement on health grounds in 1988. In consequence, it was contended, LD’s success in the fraud claim would have directly benefited CR since it would have prevented his bankruptcy and enabled him to contribute more to the family budget than he had done for many years. However, any benefit that CR might have obtained from LD’s hypothetical success in the fraud action would have been of an extremely indirect kind. Moreover, had LD been a female litigant and CR a male funder, it is inconceivable that it would be contended that LD had had a direct interest in the fraud action. Thus, not only does the contention that CR had a direct interest in the litigation defy common sense, a finding to that effect would probably be discriminatory and unlawful.

[39]It was yet further argued, in the cases of both CR and RD, that they had an interest in the fraud action as a result of their involvement in APL and the development of the investment software programs. This was not the case as a summary of the relevant facts shows:(1) For a short period in the early 1990s, when LD was working full-time at home developing the software, CR was slightly involved in that development. This involvement arose due to the fact that LD’s life and much of the family home had been taken over by software development and by CR’s interest in software programming. LD’s involvement petered out long before the software development had reached the point when it was considered ready to be marketed, largely because CR had become so busy running her GP practice.

(2) In 2003 and 2004, when RD was about 20 and a university student, he undertook part time work for APL at the suggestion of the then chairman Mr Neil Kaplan, earning about £12,000 in all. His cousin Philip Dweck was similarly employed. They undertook data maintenance, the running of programs, the issuing of trades to brokers and the maintenance of the accounts.

(3) Marketing literature put out by AllZys, which was LD and ED’s partnership that solely owned the investment programs, mentioned CR and AD although neither in fact had any interest in the programs. When the sale of the programs to APL was being negotiated, APL’s lawyers insisted that a Deed of Assignment should be executed that vested all rights of any description in the programs that were held by LD, ED, CR and AD into the joint names of LD and ED trading as AllZys.

(4) Much later, in about 2007, after APL’s shares had been sold to LD and it had come under LD’s control and its accounts were being drawn up and its liabilities were being settled, CR was invited to submit an account to APL to cover APL’s extensive use of her home over many years. This account covered payment for LD’s use of the home to develop software and for the resulting wear and tear for the seven years that APL had owned the programs. It was agreed that this compensation and use payment should be assessed in the sum of £7,680 per annum or £48,000 in all. APL agreed to pay this sum to CR. The sum was held in Stones’ clients account since APL had no bank account within the United Kingdom. When Stones were about to pay this sum to CR out of their clients’ account, CR was on the point of advancing money to her husband towards LD’s commission action costs. She therefore instructed Stones to transfer £48,000 due to her directly into their appropriate account to reduce his liability to Stones for his commission action costs.

(5) When LD sold his APL shares in 2007, AD was still based in Australia as well as being a director of APL. He asked RD to become a director to assist in the daily updating of the software market data base and in running the simulated trading and the maintenance of the programs. He fulfilled these roles for two years but, due to the downturn in the marketability of the programs and the extensive time that he was devoting to his APL work for relatively little reward to the detriment of his teaching career, RD resigned all his connections with APL in 2009. During his period as a director, he had no involvement in, or knowledge of, the commission action which was, in any case, an action that APL had no interest in.

[40]It is clear, from this unchallenged summary of the relevant evidence, that neither CR nor RD had any direct or indirect involvement in the investment software or in the commission or fraud actions or in LD’s potential recovery from them. (2) Relevant contributions

[41]Master Eyre found that it was relevant to his decision to make the non-party costs orders that the appellants, in the commission action, were content to engage in what was, on their own evidence, the obvious fiction that they would be repaid. Notwithstanding that fiction, they were still prepared to assist LD in funding the fraud action.

[42]I deal later with the suggested fictional nature of the loans made by the appellants to LD in both their personal and trustee capacities. However, it would not have been relevant to the decision whether or not to make a non-party costs order that the advances in the commission action were made by way of fictional loans. These advances could not have given rise to a non-party costs order whether they were gifts or loans unless, in both cases, the action was pursued maliciously or for an ulterior purpose. What is significant, however is that a claim was originally made on behalf of MF from the appellants for his costs that he had incurred in the commission action. This claim was made in letters before action dated 31 March 2009 and 22 April 2009. However, no further action was taken to try and recover non-party costs orders based on monies advanced towards LD’s costs in the commission action. It has never been explained why a non-party costs application was never pursued. The only possible explanation must be that it was appreciated that the appellants were pure funders of a genuine claim.

[43]It follows that , it is irrelevant when considering the appellants’ liability to pay MF’s costs in the fraud action that they had funded LD’s costs in the commission action, that that funding was provided through the medium of loans repayable with interest, that those loans were allegedly shams since there was no intention to require repayment or that the commission action was the prelude to the fraud action which was trying to have the commission action judgment set aside. These earlier funding arrangements are particularly irrelevant if the fraud action funding was provided from the discretionary trust. (3) Gifts or loans

[44]Master Eyre found that although the appellants’ contributions in the commission action and from the trustees in the fraud action had the appearance of being loans, they were in fact gifts dressed up as fictitious loans.

[45]The evidence about the sums advanced by the appellants and as to the nature of these payments is as follows: (1) Commission action. (i)(a) CR. On 1 August 2007, CR contributed £48,000 towards LD’s costs that had already been incurred in the commission action. This contribution was made at a time when Langstaff J had given judgment and permission to appeal had been served on the Court of Appeal. The payment was made by CR in instructing Stones to transfer £48,000 being held for her to meet LD’s liability to Stones for unpaid fees in the commission action. The payment was received by Stones to discharge three of their invoices rendered to LD and dated 12 January 2007, 19 April 2007 and 31 July 2007 as well as part of the invoice for counsel’s fees incurred between 29 August 2006 and 25 July 2007.

(b) On the same date, LD wrote a letter to CR which read:

“Dear Cynthia For good orders sake, this is to confirm that you have kindly agreed to assist me in the funding of my defence in relation to the Mark Forstater case with £48,000 that you are releasing to my account with Stones Solicitors. This £48,000 is an unsecured loan that will earn interest at the rate of Bank of England base rate plus 2% per annum. Starting from 01 August 2007. Any unpaid interest will compound yearly until the debt is fully paid. Thank you for all your help and support in this matter.”

Thank you for all your help and support in this matter.” (c) The appellants’ evidence suggested that they were prepared to make these payments as gifts to LD but he insisted that they should be made as loans and wrote to each appellant on receipt of their respective advances a letter acknowledging the terms of the loan that he was proposing would apply to that contribution. The proposal in each letter was accepted by its recipient orally. CR stated that:

“ … the contributions [were] recorded as loans to Leslie. This was at Leslie’s insistence and I did not expect to be repaid for my personal contribution, nor did I expect the Trust to be repaid in the event that Leslie’s defence of the Commission Claim or the Fraud Claim failed. We have subsequently claimed on these loans in the bankruptcy, but would never have required repayment in the event that Leslie had not been made bankrupt.” (ii)(a) RD. On 20 December 2007, RD contributed £22,580.74 in relation to costs already incurred in the commission action. This contribution was made at a time when LD was awaiting both the decision of the Court of Appeal in his application for permission to appeal and the account hearing by Master Eyre. The payment was received by Stones so as partially to discharge three of their invoices rendered to LD and dated 31 July 2007, 28 August 2007 and 11 December 2007 and also to discharge counsel’s fees incurred between 8 August 2007 and 4 December 2007. (b) On 20 December 2007, LD wrote to RD a letter that was addressed to him at CD’s home where he was then living which read: “Dear Richard Robert Stone let me know yesterday afternoon that you have as promised assisted in the funding of my defence by paying £22,580.74 to my account to clear the outstanding fees that are due. For good orders sake, I confirm that this £22,580.74 is an unsecured loan that will bear interest at Bank of England base rate plus 2% per annum starting from the 19 December 2007 with unpaid interest compounding yearly until the debt is paid. I am very touched and extremely appreciative of your financial support.” (c) RD stated that his contribution had been motivated by his desire to help his father in the light of his difficulties in relation to the dispute. The dispute had seriously and detrimentally affected his father and his family and he wished to assist him. He also stated that the contribution was made as a loan to his father, that he did not expect that he personally or the trust would be repaid in the event that his defence in the commission action or his claim in the fraud action failed. He made no statement to the effect that he would never have required repayment in the event that his father had not been made bankrupt. (iii)(a) SD. On 9 May 2008, SD contributed £52,374.36 in relation to costs already incurred in the commission action. This contribution was made following the refusal by the Court of Appeal at the renewed permission hearing to give permission to appeal. It was received by Stones to discharge the unpaid balance of their invoice dated 11 December 2007 and two further invoices dated 31 March 2008 and 28 April 2008 and counsel’s fees incurred between 25 January 2008 and 28 April 2008. (b) On 9 May 2008, RD wrote to SD a letter which read: “Dear Mum For good orders sake, I confirm that the payment of £52,374.36 you have made to Stones Solicitors, to assist me with my legal expenses relating to the Mark Forstater cause, is an unsecured loan that will bear interest at Bank of England base rate plus 2% per annum, stating from 08 May 2008. Any unpaid interest will compound yearly until the debt is paid. I am very touched and will remain forever grateful to you for this financial support.” (c) SD stated in her witness statement: “I was happy to contribute money to Leslie to assist him with his legal defence. He insisted that the money should be treated as a loan and would attract a reasonable rate of interest. There was no agreement as to when the loan should be repaid.”

SD also stated, when replying to MF’s claim from her for a contribution towards MF’s costs:

“I was more than happy to gift money to him to assist him with his legal defence, but he insisted that the moneys should be treated as a loan and attracts a reasonable rate of interest. There was no agreement as to when this loan would be repaid.” (2) Fraud action. The trustees of the Suzy Dweck Discretionary Trust. The trust deed establishing the discretionary trust was dated 18 June 2008. It was signed by SD and her signature was witnessed by her care assistant. CR and RD were appointed trustees and SD initially paid into the trust fund as trust property £10,000. The trust deed provided that the trust extended to any future assets added to the trust fund and that the beneficiaries were to fall within a class defined as being the settlor, her children and remoter issue, any spouse, widow or widower of the settlor, any of her grandchildren or remoter issue and any charity. The trust was a discretionary trust which gave the trustees absolute discretion to pay or loan to any beneficiary any or all of the trust funds or to convert a previous loan into a gift. (a) The trustees informed Stones that they would arrange that Stones’ fees and disbursements incurred by LD in the fraud action would be discharged by payments made out of the trust fund on his behalf. There is no evidence as to what, if any, request LD made to the trustees for payment in this way. The trustees made five separate payments out of the trust fund on cheques drawn on a separate account entitled “CA Rowbury & R Dweck Trustees of the Suzy Dweck Settlement” that were signed by them and which were made payable to “Stones Solicitors”

. These cheques were drawn on five separate dates between 8 October 2008 and 3 February 2009 and were paid to discharge invoices rendered to LD in connection with the fraud action. The cheques were paid by the trustees pursuant to their powers as trustees to pay trust funds in their discretion to any beneficiary. (b) RD stated that he had agreed with CR for the payments to be made because he was acting in accordance with his grandmother’s wishes and on the basis that the two trustees thought it was a proper use of the trust fund to assist his father in paying his legal fees. His sole motivation as trustee was to see that the wishes of his grandmother were fulfilled. CR gave similar evidence. SD stated that she had read the statements of both RD and CR in this respect, and in all other respects, and that she agreed with their contents entirely. (c) When LD was notified by Stones that each payment had been made, he wrote to the trustees on each occasion addressing the letters to CR and RD as trustees at RD’s address (i.e. SD’s address where RD was then living) in similar terms. The only letter in the bundle, that related to the last payment to be made and the last acknowledgment to be sent by CR, was in these terms:

“27 January 2009 Attention the trustees For good orders sake, I confirm that up to the 10 December 2008 the date when I was made bankrupt, following the registrar’s hearing, the legal fees that I have incurred dealing with Mark Forstater amounted to £10,914.88 which you were committed to pay Stones for the fees I was incurring up to my bankruptcy. As confirmed in my letter of the 27th November 2008, this also is an unsecured loan with the same terms as my previous loans. If the appeal is not allowed to proceed and the irrefutable evidence we have of Mark Forstater’s fraud is effectively shut out, there will be no prospect of making Mark Forstater repay all the costs and damages suffered as a result of his fraud. It is exceedingly upsetting, frustrating and very unjust that I am here. Our faith that the irrefutable documentary evidence we obtained proving Mark Forstater’s fraud would win through eventually seems misplaced. Our legal system would appear to be more concerned with whether I could have and should have obtained this evidence in time for the first trial, rather than what the irrefutable documentary evidence shows, which gets shut out!! I regret all the losses I seem to have caused everyone who has supported me. How will I ever be able to repay you all?”

Attention the trustees

[46]As further evidence of the nature of these payments, it is instructive to consider what the appellants did when a bankruptcy petition was served on LD on behalf of MF and in the ensuing bankruptcy proceedings. The appellants lodged a proof of each of the loans made by them in their personal capacity and, in the case of the trustees, made by the trust. These proofs were accepted by the trustee in bankruptcy, despite his seeking to dissuade the appellants from lodging their proofs because he considered that they had little to gain from proving in the bankruptcy. The trustee in bankruptcy stated that he subsequently ignored the appellants’ views and refused them a vote in the creditors’ committee because they were connected creditors. Thus, the trustee in bankruptcy decided that the appellants were creditors, albeit connected creditors, and that the payments had been made as loans and not gifts. He did not, therefore, seek to reject their proofs nor did he send them a written statement of reasons for rejecting any of these proofs as he was required to do had he rejected the proofs because the payments were gifts and not loans.

[47]It was contended on behalf of the appellants that this evidence clearly showed that all payments made to Stones on LD’s behalf were loans and not gifts and on behalf of MF it was a fiction to describe them as loans. The only reason given for this latter contention, which was adopted by Master Eyre, was that the appellants did not expect to be repaid. However, a fair reading of the appellants’ evidence is that they did not expect the loans to be repaid if LD’s original defence and appeals in the commission action failed. This view was both understandable and inevitable since the appellants knew from their intimate knowledge of LD’s finances as, respectively, his wife, mother and son, that he had no assets of any description. However, the appellants clearly considered that the loans would be repayable from any recovery by LD from MF. Moreover, the loans had had a purpose. They avoided the argument that MF was not liable to pay these costs because they had been funded by way of an outright gift to LD from his family.

[48]I therefore find that the letters evidence a bona fide series of loans, in the terms described in the letters, from the appellants to LD. In the fraud action, the loan was advanced from the trust at the direction of the trustees. Any other finding would have involved my concluding that the appellants were lying since it is inconceivable that they could have had an honest but mistaken belief that the payments were gifts given the terms of the letters written to them by LD. Such a finding was inherent in Master Eyre’s judgment and this should not have been made without first giving the appellants the opportunity of answering that suggestion and, if necessary, of being cross-examined on their witness statements and then disbelieved on their oaths. Master Eyre should also have given detailed reasons for deciding that he did not accept or believe the appellants’ unchallenged written evidence. (4). Discretionary trust

[49]Master Eyre found that the funding for the fraud action was provided by the appellants personally even though it was apparently provided from SD’s discretionary trust on the direction of RD and CR acting in their trustee capacity. He also found that the trust, although set up by a properly constituted trust deed, was a fiction or device that had been used for the sole object of protecting the appellants from non-party costs orders. Moreover, he found that the appellants knew that that was the purpose of the discretionary trust or, alternatively, they had deliberately avoided finding out what the trust’s true purpose was.

[50]These findings were based on two emails that MF’s solicitor had obtained from the trustee who had in turn obtained them from LD’s files. The trustee was clearly entitled to these documents since they were part of the LD’s papers that he was entitled to take possession of. However, it is not clear that the trustee was entitled to make them available to MF, who was one of LD’s creditors, since they were LD’s property and their contents were protected by legal advice privilege which the trustee was not authorised to breach. However, no point was taken about the use of these documents and I, like Master Eyre, took their contents into account.

[51]The first email was sent by LD’s counsel to LD’s solicitor and is dated 23 April 2008. It was sent a few days after both the dismissal of LD’s renewed application for permission to appeal and Master Eyre’s account judgment. In it, counsel was advising Stones about how LD could fund the fraud action that LD wished to bring against MF. His email included this passage:

“A third party funding a claimant who loses can be ordered to pay the costs of the successful defendant. Although I do not believe this would be an appropriate case to order the funder to meet Forstater’s costs if he won (and the authorities are against it), doubtless Forstater and his backers would try. To mitigate that risk, whoever proposes to fund Leslie might simply make him a loan at interest and, in order to avoid that lent money being available to Forstater in the execution of the judgment, lend in tranches to cover bills as rendered. However, some judges would treat that as funding the litigation sufficient to give jurisdiction to make an order for costs against the lender. Alternatively, they might put funds as necessary into a discretionary trust which in turn funds the litigation so that the pot is limited (doubtless exhausted by the time of judgment) and an order for costs against the trustees pointless even if the court would make it.”

[52]The second email was sent by LD to Stones and was dated 9 May 2008. Having discussed the immediate need to pursue MF with a new action that alleged fraud so as to introduce the new evidence that had obtained, LD said:

“… Clearly it is important for us to have commenced proceedings on this case for a stay to be granted. What timescale are we working on to be effective in frustrating their intentions to bankrupt me? I presume merely because they say it is not appropriate that a stay of execution be granted, it does not mean this is correct does it? It would of course not be at all appropriate for me to be bankrupted whilst the appeal and the new case is pending given we have conclusive evidence that Eliot was in Brazil in August 2000 and thereby that MF obtained his judgment by Fraud. … Perhaps now is the time to mention that my wealthy mother is organising to help fund my legal expenses in the new case and appeal (so that they do not get the wrong impression and imagine that I have such funds). She is incensed that MF obtained his judgment by fraud and knows Eliot was not in the UK in the year 2000 (whenever he came to the UK he stayed with her). Given the fruitless endless years of full time unpaid work I have dedicated to the program trading business it is impossible to see how I can be expected to have any funds whatsoever, let alone the absurd judgment funds. My entire day to day living has been covered by my wife. Mark Forstater is fully aware of this … I do not think they are deflated enough to settle for $100,000 or less that I may be able to raise from my mother. What do you think? To deflate them, we need to get the new case under way and frustrate my bankruptcy pending the outcome.”

[53]SD’s evidence is also important. She recounted that she had made her personal contribution to LD’s costs in the commission claim, a sum of £52,374.36, on 9 May 2008, the same day as LD had sent his email to his solicitor. It was no doubt necessary for this sum to be sent off to Stones since they would not have acted in the fraud action until their large outstanding unpaid costs bill in the commission action had been settled. SD then stated:

“15. … I am the settlor of the Trust. Leslie came to me before I made my personal loan to him and suggested the idea of setting up a family trust. Having recently sold part of my assets to raise cash I then felt that I had some money to be able to do this. My oldest friends had themselves set up a trust many years ago for which Leslie was a trustee. They had mentioned over the years that it was something I should also consider, especially as I got older and cashed in part of my assets. So I agreed and Leslie organized for the trust to be created. … 16. I appointed Richard and Cynthia as trustees because I knew that they lived locally and would be able to act quickly on behalf of the trust. Richard and Cynthia both have successful jobs; Richard as a teacher and Cynthia as a doctor. I felt comfortable that they would not need to benefit from the trust funds as much as other members of my family. As trustees, they would not be eligible to receive any money. Richard’s brother Marc, a cardiologist in Edinburgh, was also a possible trustee. I felt however as he lived so far away it would not be practical. 17. Neither at that stage nor later was I advised that the Trust may have been established to protect me from the risk of a non-party costs order. I was simply not aware that such a risk existed.”

[54]RD and CR both stated that they had neither seen nor were aware of these two emails. Moreover, they were not aware of any advice that had been given as to the possible risk to them or to SD of a non-party costs order being made against them until they had received a letter before claim from MF’s solicitor dated 31 March 2009. Thus, as both stated, they were unaware that the trust might have been set up to protect them from a non-party costs order. This evidence was confirmed by Mr Robert Stone of Stones, who was the solicitor acting for them and who had acted for LD in the fraud action, in an email that he sent to RD dated 11 September 2009. Mr Stone stated that he had only given advice to LD about the risk of a non-party costs order or of the possible use of a trust fund by non-party funders of LD’s costs liability. Mr Stone also confirmed that none of the appellants were involved in the conduct and management of the commission action.

[55]Master Eyre gave limited reasons for his findings about the trust. The basis of his reasoning was that the appellants had created a discretionary trust in order to finance the fraud action because, and only because, they wished to provide a vehicle behind which to hide so as to avoid a non-party costs order being made against them. On behalf of MF it was submitted that the discretionary trust was set up by LD and not by SD, that Master Eyre correctly identified the sole purpose of the trust as being to provide a vehicle by which the appellants could avoid the future risk of non-party costs orders being made against them and that it was inconceivable that the appellants did not know that that was the purpose of the trust.

[56]Master Eyre’s findings involved him finding that the evidence of both the appellants and Mr Stone about the trust was untrue. Such findings, given that their evidence was the only evidence adduced about the trust, should only have been made once each appellant had been cross-examined and given an opportunity to answer the inference that, despite their written evidence, the trust had had the sole and sinister purpose contended for and that they had had express or imputed knowledge of that purpose.

[57]I find that the purpose of the trust was as recounted by SD. There is no basis, in the light of the evidence adduced, for speculating that LD and not SD had set up the trust, that RD and CR had contributed in any way to the trust, that the sole purpose of the trust was to avoid otherwise likely non-party costs orders being made or that the appellants were aware that advice had been given to LD about the possible use of a trust to avoid the risk of non-party cost orders being made. It is obvious that what triggered SD’s decision to set up the trust was the advice that LD had received that if he wanted to bring a fraud action against CR, it would have to be started very quickly since, otherwise, a bankruptcy order would be made against him. If that occurred, he would automatically be precluded from continuing with a fraud action due to it being automatically stayed. On receiving that advice, LD knew that since he had no money he could not fund the fraud action so that he would have to borrow yet more funds from his family. His mother was the only likely provider of funds and, at that moment, she had provided substantial funds to pay off his remaining costs liability in the commission action. Her evidence was to the effect that it was already in her mind to set up a trust and that she also wanted to continue to help and support her son. It is clear, therefore, that the timing of the decision to set up the trust was dictated by the coincidence of two events, namely SD’s realisation that yet more funds were needed by LD and her recent decision to create a family trust in any event. She no doubt felt that she should leave the decision as to whether, and if so what, money should be provided for this new action to younger and more hard headed trustees and that any funding that she was to provide to LD should come from the trust fund following their decision. This evidence is wholly credible and it was not shaken by any other evidence since there was no other evidence.

[58]It is also necessary to address Master Eyre’s view that was supported by the submissions made on behalf of MF that it was reprehensible for a discretionary trust to be set up as the means of avoiding or reducing the risk of non-party costs orders being made. In truth, the trust made no difference to the appellants’ future risk of such orders. The orders could only be made if the fraud action was being prosecuted for a malicious or ulterior motive. Absent these reprehensible objectives, no pure funder would be at risk of a non-party costs order whether that funding came from their own account or via a discretionary trust that they had either settled or controlled. If the action was malicious or was being pursued for an ulterior purpose, the risk of non-party costs orders would be high whether the funds came from the appellants in their personal or their settlor and trustee capacities and virtually non-existent if the action was genuine albeit misguided.

[59]Thus, not only were the findings about the discretionary trust incorrect, they were irrelevant to the decision as to the making of non-party costs orders. (5). Bankruptcy proceedings

[60]Master Eyre found that the appellants tried to obstruct the bankruptcy proceedings so as to obstruct MF’s attempts to enforce his judgment. This finding was not supported by any finding as to what the appellants did in order to obstruct MF’s enforcement attempts save that they proved in the bankruptcy to obtain control of it. This finding was supported by the submissions made on behalf of MF.

[61]This finding did not consider the procedural consequences of the bankruptcy legislation. The petition was served by MF and was based on the outstanding judgment debt. Under the insolvency rules, other creditors could support the petition, which the appellants did not do. Thus, they subsequently lodged a proof of the debts owed to them by the bankrupt. The trustee, appointed by the only petitioning creditor, being MF, accepted the appellants’ proofs and thereby accepted them as creditors of LD. However he concluded that they were connected parties, which they were, and refused to allow them a vote on the creditors’ committee. This committee is an advisory committee and is the body to whom the trustee reports save for the final report that brings the bankruptcy to an end which is sent to all creditors.

[62]The appellants had two purposes in proving their debts. Firstly, they proved because, if they did not prove, their debts would be expunged. Although there was little prospect of their being paid through the bankruptcy, since LD had no known assets, they cannot be said to be obstructing the bankruptcy by proving since that is what they were entitled to. Secondly, they hoped to be able to vote against the anticipated decision of the trustee not to appeal Master Eyre’s order striking out LD’s fraud action. However, the best that they could have done in that regard would have been to sit on the creditors’ committee and vote against any such decision. This they would have been entitled to do, if permitted to vote by the trustee, notwithstanding their connection with LD. Had they been able to vote in this way, the trustee would still have been able to proceed with his decision not to appeal since the committee’s decision would not have been binding upon him. However, as was obvious, they were connected parties and, as such, were correctly excluded from the committee of inspection by the trustee. The trustee, in his short statement, states that he ignored the views of the appellants as to how he should proceed. He speculated that he believed that they had only proved in LD’s bankruptcy as they wanted to try to control its conduct. The trustee did not put forward any basis for that belief and he provided no evidence of any action by any of the appellants that amounted to an attempt to control his conduct. Indeed, the trustee stated that he ignored their views and was in no way influenced by them.

[63]I find that there was no actual or attempted obstruction of the bankruptcy by the appellants and that the step that was taken by them in the bankruptcy, being their lodging proofs of debts, was one that they were entitled to take. Thus, no adverse inferences arose which could properly be taken into account so as to weigh against them in the non-party costs order decision. (6). Appellants knowledge as to costs

[64]Master Eyre made no finding that the appellants knew that LD would be unable to satisfy a costs order if he lost and that they might be personally liable for costs as a result of providing funding. However, it was contended on behalf of MF that such a finding was open to him and, moreover, it would have provided a further ground supporting the making of non-party costs orders.

[65]The appellants accepted that each of them knew that LD could not satisfy a costs order. This is hardly surprising since CR had been supporting her penniless husband for at least fifteen years and had ensured that her assets would be preserved by placing the matrimonial home, with LD’s consent, into her sole name in 1995. SD lived close by and had an intimate knowledge of her son’s financial position and RD must have also had an intimate knowledge of his father’s circumstances. However, there is no evidence to support the inference that the appellants knew that they were at risk of a non-party costs order or that anyone had mentioned this to them or advised them about it. This is not surprising since, absent malice or ulterior motive in relation to the fraud action, the appellants were not at risk of such orders being made against them. (7). Appellants knowledge as to fraud action

[66]Master Eyre’s crucial finding was that appellants knew that the fraud action was hopeless and had no prospect of success and that its real purpose was the malicious and ulterior one of bullying MF into dropping any attempt to enforce the commission action judgment and of frustrating and obstructing his attempts to obtain just satisfaction following his success in the commission action. Thus, as he found, they knew that the fraud action was not brought for a good reason but was, instead, oppressive, malicious and plainly vexatious.

[67]This finding should be considered in the light of Master Eyre’s further findings in the non-party costs order judgment that LD is incurably evasive, will never pay MF unless forced to do so, ignores any finding by any court and only brought the fraud action to thwart MF’s attempts to enforce the judgment in the commission action.

[68]I will deal with LD’s and each appellant’s knowledge and motives separately.

[69]LD. LD has been found to be an unreliable witness by Langstaff J and to have been the opposite of straightforward and convincing by Master Eyre following the taking of the account. It is also true that he had sought to appeal the commission action liability and account judgments and launch the fraud action and to wish to appeal the fraud action striking out judgment. These various procedural steps and motives arose from his burning desire to right what he perceived to be the fraudulent wrong done to him by MF. That desire explains his motive in launching the commission action appeal, the fraud action and the unfulfilled wish to appeal the striking out order. The appeal in relation to the account related to different perceived errors, one of which Lloyd-Jones J would have let him argue but for his lack of funds which prevented his meeting the required conditional payment into court. In order to consider LD’s motives, it is necessary to consider what LD’s grounds were for starting the fraud action.

[70]LD obtained, albeit too late in the day, evidence which appeared to him to strike a mortal blow to MF’s case. That evidence was never tested but it suggested to him that there had never been a meeting in early August 2000 that had involved MF, LD and ED. Had ED not been present at that meeting, LD considered that no commission agreement, which Langstaff J had found had been reached by the three men at that meeting, could have been reached. The evidence to be inferred from ED’s passport, if accepted, appeared to LD to be overwhelming and it was reinforced by the evidence he subsequently obtained from the Brazilian authorities and from ED’s widow and his close family members. LD was therefore convinced that the meeting had not taken place and that he would be able to prove this in a fraud action against MF. It is also significant that LD’s account was supported by SD who stated that ED had come home to England in early 2001, the year before his death, and had lived in her house for several months before dying of cancer. SD stated that he always stayed with her when he visited the United Kingdom from his home in Brazil and that he hadn’t stayed with her for over a year before that final and fatal visit. CR remembered that ED was not at either of two important family gatherings in August 2000 which he would have attended had he been in the United Kingdom and thus could clearly remember that his absence from the United Kingdom lasted throughout 2000. RD also remembered that his uncle was in Brazil at the vital time. There was also written evidence from ED’s Brazilian widow to the same effect.

[71]The appeal had been dismissed because, for procedural reasons, this evidence could not be admitted into the appeal since most of it had not been adduced at the trial. However, Smith LJ had acknowledged without any adverse comment when dismissing LD’s application for permission to appeal the commission action judgment that if LD wished to bring a separate fraud action, then “so be it”. That comment suggested to LD and his family that there was no insuperable bar to the bringing of a second fraud action since, had there been, Smith LJ would have dismissed even the possibility of such an action. It is also significant that there is no evidence that LD’s legal team advised him that the fraud action was utterly hopeless or that it would be an abuse of process. This absence is noteworthy since, unusually, at least some of the legal advice that had LD received is now known due to the disclosure of such written advice as he had received that was in his files being provided by his trustee to MF’s solicitors. It is also to be inferred that counsel had satisfied himself that fraud could properly be pleaded in this case since he asked LD’s solicitor See paragraph 51 above for details of the passage in this email dealing with the possible use of a discretionary trust. The passage referred to that is concerned with the pleading of fraud action is not reproduced. for a copy of the transcript of MF’s evidence before settling the particulars of claim and these were only settled many weeks later.

[72]Master Eyre struck the action out principally because LD had not given an adequate explanation as to why the critical evidence had not been adduced at the commission action trial. He also considered that the evidence was insufficient to shake the judgment in the commission action. However, his finding were that the action had no prospect or was vexatious. The findings were of a procedural nature and were well within Master Eyre’s margin of discretion. However, LD’s motive in bringing the action was not malicious but was brought with the intention righting what he saw as MF’s dishonestly perpetrated wrong. He had been advised that unless it was brought immediately, he would be unable to bring it at all because MF was about to make him bankrupt which would prevent the fraud action from being started. The action, from his point of view, could hardly be described as vexatious or oppressive since LD, honestly but mistakenly thought that the action was a necessary means of correcting the injustice he had suffered. That view was shared by his family and LD was not advised that the action should not be brought or could not be properly pleaded.

[73]The appellants. The appellants had formed their own view of the fraud action. These are summarised in their evidence in this way.

[74]RD. RD stated that:

“23. I considered that the Court’s decision not to admit the evidence as to my uncle’s absence from the United Kingdom at the crucial time of the agreement that the applicant alleged as the basis for his claim was unfair. I wished to assist my father on that basis, I had seen how badly he had been affected by the proceedings brought against him by the Applicant. The software at the heart of the commission claim had been designed by him and his brother (whom he had sadly lost not long before [MF] commenced his demands) and he was upset by the claim and significantly damaged by the result. We wished only to help him in this difficult time: he had been bankrupted, had suffered from heart problems, a bout of pneumonia and severe depression, and we just wished to help him seek justice. 24. I offered the money to him because I understood that he had a good claim. As a layman, it seemed obvious to me that the courts would overturn a judgment which was predicated on a version of events which the evidence my father had subsequently gathered demonstrated was false. … 25. Beyond moral support, I had no involvement whatsoever in either claim. When the Fraud Claim was commenced by my father, this was his decision and he ran the claim. … I took no interest in how the claim was progressed. … Throughout all of the proceedings between my father and [MF], I had no involvement in the running and management of the case … .”

[75]SD. SD stated that:

“19. … I believed that it was unfair for the Court to disallow the evidence as to the absence of Leslie’s brother, Eliot, from the United Kingdom at the crucial time of the agreement that [MF] alleged as the basis for his claim. … 21. … I genuinely believed Leslie’s denial of any agreement with [MF]. I understood that it was only later on in the claim that Eliot’s absence from the United Kingdom on the date that [MF] alleged the agreement was reached became a focus. To me, this was irrefutable evidence that Leslie’s side of the story was true (something I had always, of course, believed). It was, therefore, very disappointing when the Court refused to accept Eliot’s passport as evidence of that absence. This was particularly so because I was personally very aware of when Eliot was in the country, as he would always stay with me when he visited. I knew that he was not in the country when it was contended by [MF] that he had met with him and the alleged agreement had been made. 22. For these reasons, I have always believed that Leslie had a genuine and proper reason to contest the matter and I was very happy to help Leslie in the fraud claim by assisting him with his legal fees.”

[76]CR. CR stated that:

“16. I considered that it was unfair that the Court disallowed evidence as to the absence of my husband’s brother, Mr Eliot Dweck, from the United Kingdom at the crucial time the whole of 2000. … 17. To what Richard has said I would add as follows: (a) I was certain Eliot was not in the United Kingdom at the time of the alleged meeting with him, my husband and [MF]. I particularly recall that Eliot was not present at the family birthday celebration held on 27 August 2000 when we celebrated Marc Dweck’s 21st and Richard Dweck’s 18th birthdays and that he was in Brazil for a prolonged period at this time. (b) I am aware that the court in the appeal on the commission claim criticised my husband for failing to obtain and admit evidence of Eliot’s absence from the United Kingdom at a sufficiently early stage in the proceedings. I understood that my husband was seeking to make amends for this in the fraud claim by obtaining as much evidence as he could. However, the claim was nonetheless struck out. I also know that Mrs Denise Dweck, Eliot’s wife, asked my husband to do all he could to avoid her having to give evidence in court about her late husband and feared that this would cause her to break down emotionally. (c) I recall attending at the hearing of my husband’s appeal in the commission hearing at the Court of Appeal and Lady Justice Smith saying that it was open to Leslie to take out fraud proceedings should he so wish. 18. For all of these reasons, I feel that Leslie has a genuine and strong case for refuting the existence of any agreement with [MF] and that the result of the commission claim was unjust.” (a) I was certain Eliot was not in the United Kingdom at the time of the alleged meeting with him, my husband and [MF]. I particularly recall that Eliot was not present at the family birthday celebration held on 27 August 2000 when we celebrated Marc Dweck’s 21st and Richard Dweck’s 18th birthdays and that he was in Brazil for a prolonged period at this time. (b) I am aware that the court in the appeal on the commission claim criticised my husband for failing to obtain and admit evidence of Eliot’s absence from the United Kingdom at a sufficiently early stage in the proceedings. I understood that my husband was seeking to make amends for this in the fraud claim by obtaining as much evidence as he could. However, the claim was nonetheless struck out. I also know that Mrs Denise Dweck, Eliot’s wife, asked my husband to do all he could to avoid her having to give evidence in court about her late husband and feared that this would cause her to break down emotionally. (c) I recall attending at the hearing of my husband’s appeal in the commission hearing at the Court of Appeal and Lady Justice Smith saying that it was open to Leslie to take out fraud proceedings should he so wish. 18. For all of these reasons, I feel that Leslie has a genuine and strong case for refuting the existence of any agreement with [MF] and that the result of the commission claim was unjust.”

In reaching his decision, Master Eyre must have disbelieved this evidence. It was submitted on behalf of MF that Master Eyre was correct to take this course because it was inconceivable that LD did not talk to his family about the commission and fraud claims. It was also submitted that it was open to Master Eyre, on the evidence and on the balance of probabilities, to do so and to conclude that the appellants knew that the fraud claim had no prospects of success and was oppressive.

[77]It was procedurally unfair to make these findings, and reject the appellants’ evidence without giving them the chance to be cross-examined or to answer these potential findings with further evidence. The inferences do not, as I find, reasonably arise from the evidence.

[78]Thus, I find that:(1) The evidence of the appellants is credible and is not undermined by other admissible evidence.

(2) The fraud action was not known to be hopeless by LD or the appellants and, certainly when the trust advanced the funds, was not one which could reasonably be characterised as having no prospects of success.

(3) The action was brought in the genuine, albeit erroneous, belief that it could and would remedy the injustice he perceived that MF had perpetrated.

(4) Each appellant genuinely believed that the fraud action had good prospects of successfully overturning the commission action judgment which each genuinely thought had been wrongly induced by what each genuinely thought was MF’s fraudulent evidence.

(5) In providing LD with financial support, the appellants were providing moral support to, respectively, their husband, son and father. Each appellant was particularly emotionally involved in the adverse findings in the commission action about both LD and ED and each had genuinely held reasons for considering that those findings were wrong.

(6) The motives in bringing and supporting the fraud action were genuine, if misguided, and were not oppressive, vexatious or malicious.

[79]Master Eyre found that it was vexatious to bring the fraud action since it was intended to obstruct the enforcement of the commission action and the bankruptcy proceedings. However, as I have already found, the applicants did nothing which they were not entitled to do as LD’s creditors or in pursuit of a possible attempt to reach an out of court settlement with MF.

Master Eyre’s exercise of discretion

[80]It is clear from my findings that Master Eyre reached his decision on the basis of a series of findings and inferences he was not entitled to make and that they had a significant influence on his decision. As a result, his decision fell well outside the generous ambit of appreciation allowed to him notwithstanding his detailed knowledge of the commission and fraud actions. The decision is both wrong and, in view of the failure to give the appellants a fair hearing, unjust. It cannot stand and must be set aside. Reconsideration of the non-party costs order application

[81]It is not necessary for me to do other than restate my conclusions arising from my review of the evidence. I am satisfied that the appellants were genuine funders with no other interest in the fraud action save their family love and affection of, and loyalty to, LD. Their wish was to provide him with support in what they considered to be his attempt to right the injustice he had suffered that had so closely impacted on his life’s work and had also seriously damaged his health. The appellants were not providing funds for an action which was hopeless and nor one which was malicious, vexatious or oppressive. There were no other reasons for not applying the normal approach to non-party pure funders or which made this an exceptional case where non-party costs orders were appropriate.

[82]I therefore allow the appeal and dismiss the non-party costs order application.

[83]The parties must now consider the cost consequences of this order. The starting point must be that the appellants are entitled to a summary assessment of their costs to be paid by MF, that the costs schedule lodged with the court should be used as the basis for that assessment and that the costs should be paid to the appellants and should not be set off against LD’s costs liabilities still outstanding to MF. However, if that starting point is not accepted, the parties must put forward their respective contentions at the handing down of this judgment. If they can agree the terms of the order that follows from this judgment, the judgment can be handed down and the agreed order entered without the need for attendance in court. Judge Anthony Thornton QC

Cited in 1 later judgment

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