Having considered the defendants' prospects of successfully defending the claims against them and the matters specified in CPR 3.9 (relief from sanctions), the court refused to set aside judgments entered against the defendants in consequence of their failure to comply with "unless" orders.Applications by the 10th defendant, Mora Hotel Corporation NV ('Mora'), and the 38th defendant, Chascona NV ('Chascona'), to set aside judgments against them entered in consequence of their failure to comply with "unless" orders. The claimants, as trustees of certain pension and other funds in Canada, made loans to and invested in a group of companies known as the Castor group. Castor collapsed in 1992 and the claimants' loans proved to be irrecoverable and their investments virtually worthless. The claimants alleged that their loans and investments were made in reliance on fraudulent misrepresentations made by the first defendant ('WS'), of which the second defendant ('MG'), and other defendants, including Mora and Chascona, were aware and to which they were party. MG was a Swiss attorney and was a shareholder in and director of the Castor holding company. He was also a director of Mora and Chascona which owned and operated a hotel in New York. MG held all the bearer shares in Mora and Chascona. Both Mora and Chascona obtained substantial loans from Castor. The claimants made a tracing claim against Mora and obtained a worldwide freezing order against it. Later Chascona was added as a defendant and claims in conspiracy were made against Mora and Chascona. The freezing relief was extended to Chascona. In 1998 and 1999 Rattee J made a number of orders against Mora and Chascona to secure compliance with the freezing orders, some of which were "unless" orders. Mora and Chascona did not comply and were consequently debarred from defending the proceedings. In 1999 the claimants obtained judgments against Mora and Chascona which they attempted to enforce in New York and elsewhere. In 2002 Mora and Chascona applied to set aside the judgments and applied for relief from the unless orders and for discharge of the freezing orders. The basis of the applications was that Mora and Chascona were beneficially owned not by MG but by PC. PC had left the conduct of the litigation to MG who had pursued a strategy of not contesting the English proceedings on the merits and of relying on a challenge to English jurisdiction which ultimately failed. PC then lost confidence in MG and became involved in the proceedings. The companies applied to set aside the default judgments on grounds that they: (i) had a strong defence to the claims under CPR 13.3(1)(a); and (ii) should be granted relief from the sanction imposed by the "unless" orders pursuant to CPR 3.9.HELD: (1) On the evidence Mora would have an arguable defence to the tracing claim but the claimants would have a real prospect of succeeding on that claim at a trial on the merits. If the judgments againts Mora and Chascona were set aside they would have an arguable defence to the conspiracy claims but the claimants had a real prospect of succeeding on those claims. The court rejected the companies' proposition of law that the receipt of money on commercial terms and for a legitimate commercial purpose (in this case for refurbishment of the hotel) rendered it impossible to establish liability in conspiracy against the recipient, notwithstanding that the recipient was fully aware that the money was the product of a fraud on the claimant and even where the recipient repeatedly applied to the fraudster for funds with that knowledge. The claimants' rival proposition that anyone who received money knowing it to be stolen was a conspirator was also rejected ((1) Khaled Naser Hamoud Al-Sabah (2) Juan Jose Folchi Bonafonte v Grupo Torras SA (2001) CLC 221 considered). Whether Mora and Chascona were parties to an effective combination to defraud the claimants depended on all the facts. Assuming MG's knowledge was to be imputed to Mora and Chascona, they knowingly provided a mechanism by which loans and investments were fraudulently procured by Castor from the claimants and others, on the basis of fraudulently drawn financial statements which misrepresented that Mora and Chascona were fully performing their loan obligations when they were not. The effect was to enable Castor to continue in existence and to enable MG and others to extract funds for their personal benefit through commissions and dividends. If those facts were established at trial there was no legal impediment to the claimants establishing liability for conspiracy even if the loans paid to Mora and Chascona were used for commercial purposes and were on commercial terms. Even if that was wrong as a matter of law, this was not a suitable case for forming a view, at this stage of proceedings, that if the judgments against Mora and Chascona were set aside, the claimants' case in conspiracy would have no real prospect of success. In a fraud case of this complexity the court should be very wary of reaching conclusions when disclosure had not been completed and there had been no oral evidence and cross-examination. It was not clear that the lending was such as would have been entered into by a fully independent commercial lender, and the evidence as to the involvement of MG in the affairs and management of Mora and Chascona provided the claimants with a real prospect of succeeding in a claim that MG's knowledge of Castor's frauds on the claimants should be imputed to Mora and Chascona so as to make them liable for conspiracy. (2) Taking account of all the circumstances and in particular all the matters specified in CPR 3.9, the judgments should not be set aside in the present case. There had been deliberate non-compliance with the freezing and unless orders, despite the advice of English solicitors to comply. The debarring sanction imposed by the unless order was not disproportionate in relation to the failure of Mora and Chascona to provide the statements of assets required by the freezing order. Setting aside the judgments would revive complex and expensive litigation which had been entirely resolved against the defendants. There was prejudice or a risk of prejudice to the claimants caused by the delay and by reason of the additional costs which would be incurred if the judgments were set aside and the claimants succeeded.Applications dismissed.

[2003] EWHC 13 (Ch)

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