Anna Ovcharenko & Yury Moskaltsov v Investuk Ltd & Anglo-Sino Capital Partners Ltd [2017] EWHC 2114 (QB)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
IN THE LONDON MERCANTILE COURT
[2017] EWHC 2114 (QB)Case No Case No: LM-2016-000156, 2017-000058Venue The Rolls Building, 7 Rolls Buildings, Fetter Lane, London EC4A 7NL, Friday, 16 June 2017
Between
Anna Ovcharenko & Yury MoskaltsovClaimantsInvestuk Ltd & Anglo-Sino Capital Partners LtdDefendants
Before
His Honour Judge Waksman165 Fleet Street, London, EC4A 2DYTel No: 020 7404 1400 Fax No: 020 7404 1424Web: www.dtiglobal.com Email: courttranscripts@dtiglobal.eu(Official Shorthand Writers to the Court)Date 16 June 2017
[1]HIS HONOUR JUDGE Waksman QC: There are two applications before me, both of which are made by the second defendant in this action Anglo-Sino Capital Partners Limited, for which I shall refer, for ease of reference, simply as D2. The first of those is to set aside an admittedly regular default judgment entered against it by the two individual claimants on 13 January 2017. The second is an application to stay these proceedings under s9 of the Arbitration Act 1996 on the grounds that the dispute as against the second defendant is covered by an arbitration clause to which it was party. Both of those applications were made on 7 March. There is a third ancillary application which is to extend the time for the making of the section 9 application[2]Both of the claimants, as I have indicated, are individuals. The first defendant, to which I shall refer as D1, carried on business as a company which offered various services in connection with the obtaining of investments by non-UK nationals, which, if obtained, and subject to certain conditions, would entitle them, under the prevailing immigration rules, to obtain a visa; the underlying logic being that such individuals should be permitted to live here if they have been prepared to invest risk capital in certain qualifying investments operative in the UK.[3]The second defendant is authorised to carry out investment business for the purposes of the Financial Services and Markets Act 2000 and D1 is its authorised representative. I shall say something more about the details of that relationship in due course. Both claimants are represented by the same counsel, Mr Kokelaar. The first defendant is not represented here because it is not party to the present applications. Mr Marquand for whose assistance today I am indebted, appears on a direct access basis for the second defendant. There is no director or person with managerial responsibility present in court for D2. But Mr Henry, who has appeared in court previously, and who is a consultant to D1, appears and has an authority to so appear by D2. Nonetheless, as will become plain, there are some matters about which I enquired and which Mr Henry was not able to assist the court.[4]So far as D2 is concerned, I should state at this stage that its financial position is, at the very highest, precarious. The last filed statutory accounts for the year ended 31 May 2016 show that turnover for that year, ending 31 May 2016, was some £17,000. At that stage, there appeared to be £10,000-worth of debtors and £5,000 in the bank. It is accepted, on behalf of D2, that is obvious, that any judgment on anything like the magnitude of that obtained here, which is a total of £260,000, would render it insolvent.[5]It is convenient for me to begin by rehearsing the salient terms of the relevant agreements. I first turn to the authorised representative agreement between D1 and D2. It was made on 31 October 2012. It refers to D1 as the representative and D2 as the principal. It recites that the principal, that is D2, is authorised and regulated to carry out regulated activities including advising on investments, arranging deals and investments and making arrangements with a view to transaction of investments. Recital two records that D2 wished to appoint D1, which is not an authorised person, to carry on the regulated activities specified in clause 3, as its appointed representative, and the representative agrees to such appointment.[6]Clause 2 then provides that D2 appoints D1 as defined in FSMA, s.39(ii) and permits it to carry out the services as defined in clause 3. In its capacity as appointed representative of D2, D1 will, for the duration of the agreement, provide the services. In clause 2.2, D2 accepts responsibility for the activities of the representatives in providing the services.[7]I interpose there to say that as is well-known, unless an entity is itself authorised and regulated and permitted to carry out regulated activities as defined by FSMA, no other person can do so unless they carry the status of authorised representative. Clause 3.2 states that the services here to be provided by D1 are:
"(a) arranging and bringing about deals and investments for clients, (b) the activity of making arrangements with a view to transactions and investment, (c) the activity of advising on the investments, and (d) the activity of carrying on any of the above activities."
[8]At 4.3 it says:
"When carrying on regulatory activity, D1 should not carry out regulated activities falling outside the scope of the services described in clause 3 above [to which I have just made mention]. It will not act in a manner which would need genuine requirement or limitation applied to, including or incorporated into that permission."
[9]Clause 4.7 says:
"The representative will not, for the duration of this agreement, carry out any activity in breach of section 39 or of any other applicable law."
[10]By clause 8, D1 would pay D2 £6,000 per annum as a fee for being permitted to act as its appointed representative. Subject to that payment, therefore, it is plain from these arrangements that D1 collects the fees which it charges to its clients for itself. It does not remit them to D2 because the price it pays for being allowed to carry out that authorised business is the early fee.[11]I then turn to the client agreements which are those made between D1 and the first claimant and the second claimant respectively. They are in identical terms, although the first client agreement was made on 19 February 2014 whereas the second was made on 19 December 2014.[12]The services which are to be provided to the client are set out in the schedule. They include profiling investment priorities and investment strategy risk profiling, scoping of business plan, sourcing of potential investment opportunities, shortlist of target investee companies, preparing investment justification for the Home Office, selection of final target company, complete due diligence, meeting with chosen target company's 4management team, negotiation with management of deal to agree terms of investment target, company structure and completion of investment, post-investment monitoring, and various other points. In return for which the client would pay fees of some £15,000 and following investments, if there were funds recovered from the investee company, there is effectively a 5 per cent commission as well.[13]That is all I need to say at this stage about the two agreements. I, therefore, turn to these proceedings. The claim made by the claimants proceed along similar lines. They are set out in the Particulars of Claim. Having recited the status for FSMA purposes of the defendants, the dealings between the first claimant and D1 are recited. In short, it is said that the first claimant was put in touch with an investment opportunity in something called My Library. The same is true for the second claimant as well.[14]The claim is first made in breach of contract and I can go simply to the Particulars of breach. After the claimants have been assured, having raised some concerns about the financial viability of the investment companies, and in particular whether they had any significant liabilities and whether there was any doubt about the security of tenure of a lease which was relevant, and having been reassured that there were none, very shortly after the investment was completed, the man behind My Library, Mr Ladarro, went into bankruptcy and shortly afterwards the claimants were provided for the first time with management accounts which showed that this was a wholly irregular loss-making company with net losses of over £360,000. It subsequently appeared that the lease on which it was said to have the benefit had, in fact, been forfeited years before with a further sum of over £200,000 being owed. Shortly after that, the relevant company went into liquidation and an expert report which has been commissioned hereafter shows, perhaps unsurprisingly, that the shares which had been acquired by the claimants are worthless.[15]The claim against the first defendant alleges that in breach of the obligations pursuant to clause 2(5), that is the various services which I have recited, there was nil or no adequate due diligence on the relevant investment companies in relation to the rental position and in relation to their actual liabilities, and that there was a failure to take any steps to verify the accuracy or reliability of matters that had been put forward in the businesses plan which, on the face of it, were grossly misleading.[16]Apart from that, there is an allegation that there were certain statements of advice given by the claimant in respect of the proposed investment, that is to say what its value was, which themselves were misleading; in other words, there was a wholesale failure by references to the services which D1 should have provided. An alternative claim in paragraph 67 is, in negligence based upon a failure to take reasonable care and skill in the same respects. Paragraph 68 alleges loss and damage of the investment being £100,000 in the case of the first claimant and £160,000 in respect of the second.[17]The Particulars of Claim then turn to D2. Paragraph 69 recites:
"In providing the services, D1 was carrying out designated investment business as specified; namely arranging deals, making arrangements and advising on investments."
There can be no doubt about that.[18]Paragraph 70 then says that D1 was required to comply with all the relevant COBS rules which are familiar, including acting honestly, fairly and professionally and showing that communications to clients are fair, clear and not misleading, and that information is accurate and does not emphasise any potential benefits without giving a fair and prominent indication of any relevant risks.[19]In paragraph 71, it says they were to be treated as retail clients. Paragraph 72 says that there were breaches of those COBS rules and the Particulars relied upon are the same as those given in respect of breach of contract. There is a further or alternative claim in relation to communications and statements about proposed investments at paragraphs 73 and 74. Paragraph 75 alleges, as a result of that, D1 was in contravention of the COBS rules and the same losses are claimed.[20]The claim is then brought against D2 by reason of section 39(3) and it is appropriate for me to turn to that here. Section 39(1), first of all, says: (1) If a person (other than an authorised person) — (a) is a party to a contract with an authorised person ("his principal") which — (i) permits or requires him to carry on business of a prescribed description, and (ii) complies with such requirements as may be prescribed, and (b) is someone for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing, he is exempt from the general prohibition in relation to any regulated activity comprised in the carrying on of that business for which his principal has accepted responsibility.[21]Section 39(3) then says: (3) The principal of an appointed representative is responsible, to the same extent as if he had expressly permitted it, for anything done or omitted by the representative in carrying on the business for which he has accepted responsibility. That, therefore, is a statutory attribution of liability against, here, D2 for the activities of D1 in the way I have described.[22]At the time when these proceedings were first issued and served, Farrer & Co were acting on behalf of both defendants. The first defendant acknowledged service but applied immediately for a stay under the Arbitration Act, s.9. That is because clause 22 of the client agreement contained an arbitration clause which I will now read:
"The agreement shall be governed and construed in accordance with the laws of England. All disputes, whether contractual or of another nature, arising out of or in connection with the present agreement shall be resolved by a sole arbitrator. These proceedings, including appointment of sole arbitrator, shall be conducted under the rules of arbitration applicable in England, the trial will be in London and the decision should be final. Then the client [that is to say the claimants] expressly agree they will not, under any circumstances, take any legal action against D1 by reference to its actual name, Investuk, or any of its directors' offices or employees, agents, consultants or lawyers or consulting agents to provide services to the client except in the manner provided by this clause."
[23]Once that application had been made, the claimant considered that it was well-founded, as it was, and after some delays caused by procedural randomness, the claim against D1 has been stayed and a notice of arbitration in respect of D1 has been made by the claimants, although it is not clear much else yet has happened in that arbitration.[24]The position was somewhat different so far as D2 is concerned. At D2, filed an acknowledgement of service on 29 November 2016. In and of itself that was on time but it indicated the intention to dispute the court's jurisdiction. What that required then, to avoid a judgment in default, was either that such an application be issued within 14 days or, if that stance was abandoned, a defence be filed. Neither of those steps were taken.[25]If I pause there, it is necessary to say a little bit more about why all that came about. There are two witness statements filed in respect of these applications by Mr Fox, who is a director of both D1 and D2. What he says is that on the 23rd, Farrer had filed the acknowledgement of service on behalf of D1 but not D2. Then it was said that the matter came to the attention of a co-director of Mr Fox's, called a Mr Hill who had a friend who was a QC, and they took the precaution of filing the acknowledgement of service which I have referred to. This was all passed on to Farrer & Co. According to him, on 21 December Farrer then made the application to stay on behalf of D1 but made no application on behalf of D2, even though, as Mr Fox saw it, D2 would be liable for the faults of D1. He says that Farrer & Co declined to represent D2 on the supposed basis of a conflict of interest, although that was not identified.[26]What Farrer & Co actually said, in an email of 21 December 2016, is this, addressed to two directors of D1:
"To update you, this is the application for a stay of proceedings against Investuk for a dispute to be referred to arbitration. The next step is for us to refer to Slade, the solicitors for the claimants, to agree the stay and counsel is relatively confident as to the merits of that application."
As I say, in the event it was consented to. Then they say:
"In the meantime, we have also spoken to Shane [the barrister] about Anglo-Sino's position. Anglo-Sino is not a party to the claimant/client agreements and, therefore, it cannot seek to rely on clause 22.1, as Investuk can. It is, therefore, currently at risk of judgment in default being entered against it as it has not yet filed a defence. There is a potential conflict between your position and Anglo-Sino's and, accordingly, we and counsel cannot act for them too. In the circumstances, they need to seek separate representation. We can suggest some names that are helpful. While not advising them, I must stress it is important they deal with this as soon as possible."
[27]Thus, there can have been no doubt on the part of the representatives of D2 that urgent steps were to be taken and the advice was they should get on and file a defence. In fact, no further steps were taken by D2 at that stage at all.[28]The result of that was that the time for serving a defence or serving an application to challenge jurisdiction had passed. Therefore, as they were entitled to do, the claimants entered judgment in default. That was on 13 January and, due to circumstances which were not the fault of D2, it only became aware of that judgment in default on 14 February. There was a hearing to do with various matters concerning the, by then, operative judgments in default on 24 January. At that stage, D2 appeared I think by Mr Henry. No application to set aside judgment had then been made and I reminded the representative in court about that and, indeed, referred to the fact that the clock was ticking. As I say, in the event, the application was made on 7 March.[29]In this particular case, it is necessary, first of all, to remind myself about the provisions of CPR 13.3 . That provides that the court may set aside or vary a judgment entered if(a) the defendant has a real prospect of successfully defending the claim, or(b) it appears to the court that there is some other good reason why the judgment should be set aside. Those are threshold conditions. Then if either of them are met, the court has its well-known discretion to set aside or not as the case may be.[30]Sub-paragraph 2 of 13.3 says:
"It's in considering whether to set aside or vary a judgment entered under part 12 and matters to which the court must have regard include whether the person seeking to set aside the judgment has applied to do promptly."
[31]Mr Marquand phrased his application to set aside so far as threshold conditions are concerned, principally by reference to some other good reason to set aside the judgment. However, he also contends that there is a real prospect of a successful defence on the part of D2 in any event. He also accepts, for reasons that I will come to, that, in any event, the question of the merits of the defence are relevant for my consideration.[32]I, therefore, turn to the logically first question which is whether there is, in any event, a real, as opposed to a fanciful, defence. The argument made on behalf of D2 runs thus. What D1 is alleged to have done was to give investment advice. While it is true that this was firmly encompassed by the permitted services in the authorised representative agreement, there was a problem for D1 because the client agreement expressly stated that whatever else it did it must never communicate an inducement to invest with the client or arrange a deal, or provide any investment advice. That, says D2, is what is alleged against D1 and if that is right, it has not only exceeded the terms of the client agreement but it has, in fact, exceeded the terms of implied limitation on the permission under the authorised representation agreement. That being so, D2 cannot, in any event, be liable for the defaults of D1.[33]I regard that proposition as wholly unarguable for the following reasons. First of all, as would be expected, the whole point of section 39(3) is to ensure a safeguard for clients who deal with authorised representatives but who would not otherwise be permitted to carry out regulated activities, so that they have a long stop liability target which is the party which granted permission to the authorised representative in the first place. In my judgment, section 39(3) is a clear and separate statutory route to liability. It does no more and no less than enable the claimant, without law, to render the second defendant liable where there have been defaults on the part of the authorised representative in the carrying out of the business and which responsibility had been accepted. The business for which responsibility had been accepted encompasses the services set out in clause 3 of the authorised representative agreement. It matters not whether, as between the client, the authorised representative was not entitled to proffer those services. That is an entirely separate matter.[34]In seeking to rebut that conclusion, Mr Marquand has relied upon certain other provisions within the authorised representative agreement. I have recited them. He relies on paragraph 4.3 which is simply a promise by D1 to D2 that it will not do anything outside clause 3 and, in fact, it did not but also would not act in a manner which would breach any requirement or limitation applied including what had been incorporated into that permission.[35]All that does is regulate the position inter se between D1 and D2. It says nothing about the scope of the liability of D2 to the claimants under section 39(3). The same point can be made in respect of clause 4.7 which says, "The representative will not carry out any activity in breach of section 19 of FSMA which limits the activities that can be undertaken or of any other applicable law or regulation". Again, that is a promise made inter se .[36]The reason for those promises is obvious. D2 will be, as it were, on the hook to the claimants as in respect of the defaults of D1 and if those defaults have arisen because D1 has exceeded what it was entitled to do or has broken the law in any way, then that gives a right of recourse which sounds in damages on the part of D2 against D1. If Mr Marquand was correct, it would follow that any time there was any default on the part of an authorised representative, for example, by being in breach of COBS, that very default will automatically take the authorised representative not only outside the scope of the authorised representative agreement but will take D2 outside the scope of 9section 39(3), in which case its purpose as a failsafe protection for the client will be rendered nugatory; that is an impossible construction and I reject it.[37]That, in short, disposes of the defence. Mr Marquand, of course, points out to me that it may be that the first defendant is not in breach anyway and all that will come out in the arbitration. That is not good enough. If D2 wishes to say that D1 was not in default anyway, so there is nothing for it to be liable for, then it needs to put positive contentions to that effect before the court. There is no evidence about that. There is no draft pleading. That is all the more surprising given that Mr Fox is a common director of D1 and D2, and clearly, at least for some purposes, are associated. So, there is no excuse for not putting that evidence forward.[38]The final point I make on the question of merits is that it seems to me that in any event, at least as far as the services to be provided are concerned, Mr Marquand's point is misconceived. That is because the essence of the claim made by the claimants against D1 is not that it wrongly advised them about an investment from the off which, on the face of it, it is not permitted to do under the client agreement but rather that it failed in the duties which it had assumed connected with the due diligence of the investment and making accurate statements about the investments. That is why the claim is firmly founded upon the express contractual terms, in which case the notion that the claim against D1 is all about some activity which under the client agreement it had no obligation to undertake, is simply a red herring.[39]Therefore, I am quite satisfied that there is no real prospect of the defence which has been advanced succeeding.[40]I then turn to the second limb which is the principal argument made by Mr Marquand. What he says, in effect, is this: first, D2 can take advantage of the arbitration clause in the client agreement so as to entitle it to take to arbitration the claim under section 39 made against it. If that is right, he says, then that is a good reason for setting aside the judgment because the correct forum would be arbitration and, inferentially, if there had not been a default judgment there would have been an application under section 9 which would have succeeded.[41]I, therefore, turn to the contention that the second defendant is a party to the arbitration clause. That contention has to be based on the notion that D2 was, indeed, a party to the signed agreement. If it was not, then it cannot rely on the arbitration clause. The foundation of Mr Marquand's argument is that there was an agency relationship between D1 and D2. It is an agency relationship which, if it existed so far as that contract was concerned, could only arise by D2 being an undisclosed principal. There is no reference to D2 whatsoever in the agreement nor is there any reference in the client agreement to any principal as opposed to D1. I have been referred to a selection of correspondence. It is right to say that the collection which I have, which begins at page 128, starts with a letter from 1 April 2015 and summarily letters. The bottom of the letters are headed, "Investuk is an appointed representative of Anglo-Sino Capital Partners Limited which is authorised and regulated by the Financial Conduct Authority" and so on.[42]This stream of correspondence begins with an email on 9 December 2014. It is said that that shows that the principal it disclosed. It does nothing of the kind, in my judgment. The fact that for the purposes of FSMA regulations, Investuk is described as an appointed representative of Anglo-Sino Capital Partners Limited does not, in my judgment, mean that it is the principal in relation to any or all contract, which is undertaken by D1. In any event, so far as the agreement with the first claimant is concerned, none of that can assist because the first agreement was made in February 2014 and the first item of correspondence is 9 December. I am told it is a selection but I have to go on the materials before me. If there was anything in the argument, I accept, for the purposes of the second claimant's agreement, there is at least one email to that effect before that agreement was made but I do not consider that takes the matter any further.[43]Mr Marquand's better point, perhaps, is that it does not matter because it is plain that if there is an undisclosed principal for a particular contract, then they are entitled to take advantage of an arbitration clause within it (see Russell on Arbitration at paragraph 3036).[44]The question, therefore, boils down as to whether there was an agency relationship in respect of the client agreement. The core point underlying Mr Marquand's submission is that, by reason of the appointed representative agreement, it must follow that any time that an appointed representative enters into any agreement with anyone in relation to the permitted services, D2 is, without law, a principal on a common law basis, leaving aside its liability under section 39(3).[45]I do not accept that proposition. While the word, "principal" is used in the statute and in the authorised representative agreement, the entire framework of this is regulatory. It is the vehicle through which persons who are not otherwise entitled to carry out certain forms of investment business are allowed to do so because of their connection with the party that makes the authorised representative agreement with them. The fact that they are an authorised representative does not mean that they are agents for all purposes of the other party. The statute does not say so. The authorised representative agreement here permits D1 to carry out certain activities for financial services purposes in return for a fee. It does not, for example, require D1 to remit all of its income to D2 on the basis that D2 is, in fact, the proper party. It does not say that D2 can collect the fees owed by the client to D1. It does not say that the services themselves will be provided by D2. All of this, therefore, is within the context of financial regulation.[46]There will, undoubtedly, be some cases where the circumstances will show that in relation to a particular contract, naming a particular client it can be inferred that there is a true agency relationship between the parties as well. This is not one of them. Mr Marquand has relied upon a commentary to section 39(3) of the Encyclopaedia of Financial Services Law . That states, under the commentary:
"The ordinary principles of common law, especially the civil law principles of law agency, will apply to render the principal liable for certain activities or his appointed representative. However, section 9 makes further provision clarifying responsibility for the principal [and so on]."
I am not prepared to accept that a one-line statement, unsupported by any authority, is a sound basis for concluding that in each and every case where the appointed representative acts it is also doing so at common law as an agent for the other party.[47]For the sake of convenience, although it is not a case which is being relied upon by Mr Marquand, the decision of Parker J in Martin v Britannia , where it is said that the principal would be liable for an appointed representative on the basis of ordinary agency principles, was a case where there was an individual who was seeking to advise, carry out advisory work on behalf of the alleged principal. The only question was whether he had exceeded his authority. That is different.[48]Where, for example, D2 had been mentioned in this agreement, and there was some connection with D2 in the client agreement, then it might well be said to be the case of agency even if D1 had only signed it. As I say, that is not this case.[49]Equally, it is not merely that the appointed representative agreement does not mean that agency must arise in all circumstances. Neither does it flow from section 39(3) itself. Section 39(3) renders an entirely separate statutory liability and has nothing to do, on the face of it, with the law of agency. It does not require an agency to be proved before it can be activated, which is why, no doubt, no allegation of agency was made in the Particulars of Claim. A further factor here is that D1 was a business on its own account, quite clearly.[50]On that footing, I do not consider that D2 can be regarded, for the purpose of the arbitration clause, as being a party to the arbitration agreement. That conclusion is not defined, in my judgment, by the following further matters. Clause 22 of the client agreement, which is the arbitration clause, has the last sentence which prevents Investuk, already with its directors, but not any relevance to the principal from taking legal action as opposed to going by way of arbitration. That is highly specific and it actually names that party.[51]This is not a conclusive point but it does, in my judgment, inform the more general points which come before it, in the absence of it. If, otherwise, it was clear that D2's undisclosed principal for D1, then the general words of 22.1 would not provide an obstacle to relying upon the clause. But the specificity of Investuk does make a difference in the last sentence. Similarly, under clause 18, where it says, "Nothing shall be intended or construed to confer upon a gift to any person other than the Parties any wide remedy or claim". Now, "Parties" is spelled with a capital P and they are identified specifically as this client and D1.[52]So, for example, it seems to me, if, for some reason, D2 wanted to claim from the claimants the monies that were owed from the services provided by D1, that clause could be invoked by them to prevent remedy. I consider that the last part of clause 22 and clause 18.1 are at least some support for the conclusion that in this particular case, in any event, there is no relationship of principal and agency. Even if they were not there, I would come to the same conclusion.[53]Mr Marquand made a further point which was to say that if D2 did not take advantage of the arbitration clause, then there would be an unsatisfactory position because there would then be the spectre of parallel proceedings in different forum. That is true in the sense that there could be the claim against D1 in arbitration and, had it been prevented, a claim against D2 under section 39(3) in this court. But parallel proceedings do sometimes occur and I do not consider that the fact that they might occur here is any reason for construing the client agreement or the relationship between D1 and D2 in respect of that client relationship any different. Sometimes, when there are parallel proceedings, the court will order a general stay to introduce some order into the litigation going forward. In that way, any difficulty can be avoided. The notion that there could, in theory, be parallel proceedings here does not seem to me to be of any great significance.[54]Mr Marquand said, in reply, that there were various parts of the authorised representative agreement which clearly pointed towards the inevitable creation of an agency at common law. All the clauses he pointed to, in recital 3.1 and 3.2, are simply repetitions of the nature of the authorised representation and the permitted activities. But that is all in the context of the FSMA regulations. That does not indicate agency, per se , in my judgment, without law.[55]The conclusion I have reached, therefore, at this stage is that there is no real prospect of a successful defence and there is no arguable point that D2 can rely upon the arbitration clause. Since its reliance on the arbitration clause is fundamental to Mr Marquand's assertion that there was some other good reason for setting aside judgment, neither of those threshold conditions have been met.[56]So far as discretionary matters are concerned, if they were relevant, it is clear to me that D2 did not act promptly here. It had the clearest possible advice from Farrer & Co on the risk of judgment and default. If it was unclear what it should do, it should have gone to other lawyers immediately. Farrer's are not the only lawyers in London. To the extent that it is said, notwithstanding Farrer's email, that Mr Fox was labouring under a misapprehension that the service of an acknowledgement of service indicating challenge to the jurisdiction which was then made on the part of D1 would do for D2. There is simply nothing to support that belief, even if he held it. Farrer's email is directly contrary to that suggestion. The reasonableness of any belief on the part of a sophisticated person is relevant under the question of setting aside judgment.[57]The second discretionary factor that I bear in mind is there has been no good reason they could not have got the service properly served to begin with, secondly there was a three-week delay so far as the applying to set aside judgment is concerned. That is a significant delay in the timescale here and given all the warnings that were going on before and it weighs against the second defendant, thereby itself a wholly determinative factor. The third point is that is not as if the claimants have simply being doing nothing and could afford to do nothing in the meantime because once the default judgment was issued, a damages assessment was put into place with directions that were given, directions that were not complied with, in fact, by the second defendant for the value of the shares because the second defendant, in any event, was not prepared to accept that the shares in the underlying investment companies were valueless. So, they had to spend time and money in doing all of that, some of which would now be wasted.[58]For all those reasons, I would refuse to set aside the judgment but I make one point very clear. Even if there had been anything in the argument that the second defendant could rely upon the arbitration clause, I would still have dismissed this application for this reason: it would not affect the fact that there is no real prospect of a successful defence. Mr Marquand realistically accepted, in argument, that is something which I can take into account and would have to because while his submissions as to why, in the round, this application should be granted, was because if it was not, it would deprive the second defendant of an opportunity properly to defend the claim against it. That point vanishes if there is, in fact, no arguable defence to advance in the first place.[59]Allied to that is the fact that here the second defendant has effectively got no money, certainly no money by reference to the size of the claim which is made against it. Therefore, what the second defendant invites me to do, irrespective of any rights otherwise to make an application under section 9, is to make the claimants fight out a claim where there is no prospect of defence against a defendant that will not be good for the money anyway and in the context of an arbitration where there are additional fees payable. That is a nonsense and I am not prepared to countenance that in the exercise of my discretion.[60]For all of those reasons, the application is dismissed and it now follows that the application under section 9 is dismissed as well.

Cited in 6 later judgments