Jersey Unreported Judgments

Striking out - reasons.

[2021]JRC113

Royal Court

(Samedi)

14 April 2021

Before     :

Advocate Matthew John Thompson, Master of the Royal Court.

 

Advocate J. Angus for the Plaintiff. 

The Fourth Defendant in Person. 

CONTENTS

		Paras
1.	Introduction	1
2.	Background	2-16
3.	Submissions	17-28
4.	Decision	29-41

judgement

the master:

Introduction

1.        This judgment contains my reasons for striking out those parts of the amended answer and counterclaim of the fourth defendant which asserted that the first and second defendants had not been validly served.  As a consequence of striking out the relevant paragraphs in the fourth defendant's amended answer, the pleadings in response in certain parts of the plaintiff's amended reply were also struck out. 

Background

2.        The general background to the present dispute is partly set out in my previous judgment dated 26^th November 2019 reported at Cohen, Kerr and Anor v Arbitage Research Trading Ltd and Ors [2019] JRC 229.  I adopt paragraphs 2 to 9 of that judgment for the purposes of these reasons.

3.        The judgment of 26^th November 2019 contained my written reasons for refusing the fourth defendant's application for a preliminary issue.  As a consequence, I then made discovery orders and then stayed the matter for alternative dispute resolution ("ADR") (see the Act of Court of 12^th November 2019). 

4.        Further directions were given on 30^th April 2020, extending the time period for ADR and arranging directions if ADR proved to be unsuccessful, for exchange of witness statements of fact and the fixing of trial dates. 

5.        On 3^rd July 2020, the time limit for exploring matters by way of ADR was further extended. 

6.        On 14^th July 2020, a hearing took place to determine an application brought by the plaintiffs to amend their order of justice as a result of certain discovery provided by the fourth defendant.  Although submissions were made, ultimately the fourth defendant agreed to the amendments by consent.  The executive summary contained in the amended order of justice was therefore amended to include the following additional allegations at paragraph 2.1(f) as follows:-

"(f) that by effecting the 2014 Transfer the Fourth Defendant has misappropriated the ARTL shares (being the entirety of the fund held by him as purported trustee of the SRCT) and has through ARF retained the property in the ARTL shares and/or converted the same to his use and is liable to procure the return of the ARTL shares to Creditforce and/or the Estate..."

7.        The plaintiffs also sought the following additional orders at paragraphs 2.2(c) and 2.2(d) of the amended order of justice as follows:-

"(c) that the Fourth Defendant procure the transfer or otherwise the return of the ARTL shares to whichever of the Plaintiffs the Court shall determine to be their true owner; and

(d) that the Fourth Defendant do pay to one or other or both of Creditforce and the Estate such damages or equitable compensation as aforesaid and that for that purpose so far as necessary an inquiry be directed as to what would have been the value of the ARTL Shares had they not in breach of trust been transferred or purportedly transferred to ARF."

8.        The fourth defendant was permitted to file an amended answer by the Act of Court of 14^th July 2020.  His amended answer was filed on 19^th August 2020. 

9.        In addition to pleading to the amendments contained in the amended order of justice, at paragraph, 11.6 and 11.6(A) the fourth defendant pleaded that the plaintiffs had failed to serve the proceedings on either of the first and second defendants.  The fourth defendant also pleaded the following at paragraph 232(B):-

"232B. The Fourth Defendant avers that the Plaintiffs' amendments to the OJ, made ostensibly on the basis of the Fourth Defendant's discovery, to introduce personal claims against the Fourth Defendant, are the result of the Plaintiffs' (at least implicit) acknowledgment that they have failed validly to serve the proceedings on ARTL and ARF and are accordingly unlikely either to obtain declaratory relief in these proceedings or to obtain any order which could be enforced against either ARTL or ARF in Panama or elsewhere, in relation to which paragraphs 11.6, 11.6A and 11.6B above are repeated. The Plaintiffs accordingly seek to obtain all their relief from the Fourth Defendant, who as the only defendant to have filed an Answer, has become the Plaintiffs' sole target. The Fourth Defendant avers that the Plaintiffs' approach is abusive."

10.      Allegations were also made about invalid service in the latter part of the first sentence at paragraph 232(F), at paragraph 232H.5.1 in the final line, in the final sentence of paragraph 233.6.5 and in paragraph 233.9.4.  For the reasons set out below it is all these paragraphs that were struck out. 

11.      The amended reply was filed on 28^th February 2020.  The parts of the reply responding to the fourth defendant's allegations about the alleged failure to serve the first and second defendants service were set out in paragraphs 2.20(A), 4.96 and the words "having nothing whatever to do with any alleged failure to serve ARF/ARTL but".  In paragraph 4.113 as well as in an appendix to the amended reply.  As a consequence of the paragraphs of the amended answer being struck out as described above, these paragraphs in the amended reply were also struck out. 

12.      On the 20^thJanuary 2021 a further directions hearing took place before me.  At paragraph 5 of that Act of Court I directed as follows:-

"5.      at 10:00 a.m. Thursday, 18th February 2021 the Plaintiffs and the Fourth Defendant shall attend upon the Master's Secretary to fix a date for the Master to determine whether or not the matters pleaded at paragraphs 11.6, 11.6A and 11.6B of the Fourth Defendant's Amended Answer and paragraph 2.20A of the Plaintiff's Reply and Appendix to the same shall be permitted to form part of their cases at trial or whether all or any part of these matters shall be struck out..."

13.      I also directed the following at paragraph 8:-

"8.      The expert evidence on the laws of Panama is not required to address any issues of whether valid service has taken place in accordance with the laws of Panama..."

14.      I made these orders because the fourth defendant wished to adduce expert evidence on whether or not the first and second defendants had been served in accordance with the case pleaded in his amended answer.  The plaintiffs took objection to this essentially for the same reasons which have now been articulated more fully and helpfully in the plaintiffs' skeleton argument filed for this hearing supported by the oral submissions of Advocate Angus.  I therefore directed that the plaintiffs' objections should be determined before me because it was necessary as part of effective case management to determine whether or not the trial court was required to determine the question of whether or not the first and second defendants had been validly served. 

15.      At the hearing in January, in permitting other expert evidence, I therefore refused at that stage permission for the fourth defendant to adduce evidence on the service question until I had determined whether or not the service question required determination at trial. 

16.      The only other relevant development to refer to is that on 10^th December 2020 the first and second defendants were dissolved in Panama.  As was set out in the affidavit of Matthew Davies, an English Solicitor and an employee of Ogier, sworn on 10^th March 2021, this dissolution was effected by the officers of the first and second defendants as distinct from any form of accidental or automatic dissolution due to a failure to file documents. 

Submissions

17.      Advocate Angus firstly contended that those parts of the amended answer of the fourth defendant dealing with whether or not the first and second defendants had been validly served ("the service question") did not arise out of the amendments to the order of justice.  It was trite law that where one party had permission to amend, the other party could only make amendments consequential upon the permission to amend granted to the first party.  Anything that went beyond pleading consequential amendments was therefore liable to be struck out - see West v Lazard [1993] JLR Note 6D. 

18.      The pleading in fraud was made because of documents disclosed by the fourth defendant.  There was clearly a prima facie case based on those documents which the fourth defendant had ultimately accepted by consenting to those amendments being made.  The amendments did not therefore arise out of any issues relating to whether or not the first and second defendants had been validly served.  

19.      In any event there had been no challenge made by the first and second defendants whether or not they had been validly served.  Now they had been dissolved no such challenge could be made.

20.      The fourth defendant did not have standing to challenge whether or not the first and second defendants had been validly served.  In that regard the fourth defendant, if, contrary to the plaintiffs' primary submission, he had standing to challenge the service on the first and second defendants, he had not in fact done so.  The fourth defendant was therefore trying to use an incorrect procedure.  Challenges to service should be made at the outset of proceedings and not at a trial.

21.      The question of whether or not the first and second defendants had been validly served was not a valid defence to the fraud claim against the fourth defendant.  Rather it was a matter for the plaintiffs should they seek to enforce any judgment of the Royal Court against the first and second defendants whether in Panama or elsewhere following a trial in Jersey. 

22.      As it was put at paragraph 8.15 of the plaintiffs' skeleton:-

8.15 ...why would a former trustee of a defunct charitable trust seek to advance, at the expense of his own case, allegations which afford him no defence and have no factual bearing upon his position concerning that trust?."

23.      To allow questions of whether or not the first and second defendants had been validly served to be determined at trial also caused prejudice to the plaintiffs because it would lead to additional expert evidence, a longer trial, extra expense and possibly delay.  This therefore made any such challenge both vexatious and an abuse of process. 

24.      To the extent that the fourth defendant was seeking retrospective permission for the amendments in his answer pleading service (which was not clear), any request for retrospective permission to amend should be refused.  Any such request was being made late in the proceedings, was hopeless and there was no explanation as to why these matters had not been raised previously given correspondence that there had been exchanged at the end of 2019 and in early 2020 between Ogier for the plaintiffs and Dickinson Gleeson, then advisers to the fourth defendant, about whether or not the first and second defendants had been validly served. 

25.      Underpinning all these submissions was that the plaintiffs maintained that the first and second defendants had been validly served. 

26.      The fourth defendant argued that the question of whether or not the first and second defendants had been validly served was one that was arguable and therefore required a trial. 

27.      Why this was relevant to him was because he was being made a scapegoat by the plaintiffs because they had not validly served the first and second defendants.  The plaintiffs therefore had to justify the proceedings they had brought. 

28.      The fourth defendant also argued that the proceedings were abusive because he had made an open offer agreeing to the declarations sought by the plaintiffs which the plaintiffs had rejected.

Decision

29.      I decided to strike out the relevant parts of the fourth defendant's answer referred to above dealing with the question of service because largely I agreed with the submissions put forward by Advocate Angus on behalf of the plaintiffs.  My reasons for striking out the offending paragraphs (and the consequential pleadings in response in the reply) are as follows.

30.      Firstly the amendments in the answer raising the service question were not consequential upon the amendments permitted by the amended order of justice.  As was set out in West v Lazard, amendments to any pleading filed in response to another amended pleading can only be consequential.  The fourth defendant's amendments relating to service on the first and second defendants were not consequential. 

31.      Secondly the fourth defendant is not in any event entitled to challenge whether or not the first and second defendants had been validly served.  Prima facie it is for a party itself who wished to challenge service of proceedings to do so.  The first and second defendants have not done so, to date, and now it appears cannot do so because they have been dissolved. 

32.      I accept that in certain cases it might be possible for one defendant to challenge the validity of service on another defendant where that other service affects whether the party wishing to bring the challenge has itself been validly served.  In other words, there needs to be a link between the service on another party which is being challenged and the party making that challenge because that link allows the challenging party to contend that it had not been served.  Such a scenario does not arise in the present case because the fourth defendant voluntarily submitted to the jurisdiction by being served through his advocates.  There was therefore no need to obtain any permission to serve the fourth defendant out of the jurisdiction.  The fourth defendant has also taking an active part in the proceedings and therefore for that reasons also has submitted to the jurisdiction of the Royal Court.  This means that he has no legitimate interest in challenging whether or not any other party has been validly served. 

33.      Thirdly I agree with Advocate Angus that the question of whether or not the first and second defendants have been validly served is not a valid defence to the prima facie case of fraud pleaded against the fourth defendant.  In that regard it is significant that the fourth defendant agreed to such amendments by consent.  He cannot therefore at this stage assert that there is no such prima facie case or plead matters of motivation in response to a case that arises by reference to documents he himself has disclosed. 

34.      I should add for the sake of completeness in my judgment the fourth defendant was right to consent to the amendments once the allegations being advanced by the plaintiffs had been inserted into a pleading.  The issue at the hearing in July 2020 was that the allegations as put by the plaintiffs in their skeleton argument went further than their draft pleading at that stage.  Once a draft pleading had been finalised to reflect the allegations the plaintiffs were actually advancing against the fourth defendant, the threshold to plead a prima facie case of fraud was then met.

35.      Fourthly the fact that the plaintiffs have rejected an open offer by the fourth defendant to agree to the declaratory relief sought by the plaintiffs is irrelevant to whether or not a trial court should be required to consider whether or not the first and second defendants have been validly served.  In any event it is right to record that the offer by the fourth defendant was only in respect of the declaratory relief originally sought by the plaintiffs in the original order of justice and did not address the personal claims brought by the plaintiffs against the fourth defendant in the amended order of justice.  Rather the fourth defendant was seeking to have these claims abandoned in return for him agreeing to the declaratory relief sought against the first and second defendants.  It was a matter solely for the plaintiffs whether they accepted or rejected that offer or to look to continue those actions against the fourth defendant.  The decision to reject the offer does not justify the Royal Court having to decide whether another party (now dissolved) has been validly served for the reasons I have already given.

36.      Whether the plaintiffs' claims will succeed at trial is a matter for the trial court, but questions of service are not relevant to the trial court's determination of the substantive claims brought by the Plaintiffs.  Accordingly whether the amount spent by the Plaintiffs in pursuing the Defendants, including the Fourth Defendant, is justified is a matter between the Plaintiffs and those ultimately interested in the estate the Plaintiffs as joint administrators represent but such a question does not concern the Fourth Defendant.   

37.      To require the trial court to determine question of service would also be both vexatious and an abuse of process.  It would also lead to additional expert evidence being required and additional cost, which is not necessary to determine the plaintiffs' claims against the Fourth Defendant.  It would also serve as a distraction from the existing timetables set for the filing of factual witness statements and the expert evidence which I have permitted. 

38.      Although the fourth defendant did not expressly ask for the amendments in his amended answer underpinning the service question to be permitted, even though they were not consequential, I am not willing to do so.  The fourth defendant has not explained why, if he was entitled to challenge service, he has not done so previously by issuing an application to do so when the issue was explored over a year ago.  To allow the amendments would also permit the fourth defendant to bring a challenge which he is not entitled to bring for the reasons set out in paragraphs 31 and 32 above. 

39.      For all these reasons the relevant paragraphs dealing with the service question contained in the amended answer and the consequential pleading and the amended reply were all struck out. 

40.      Finally, I should make it clear that in reaching this decision I have not reached a conclusion on whether or not the first and second defendants have been validly served or whether the criticisms of that service are correct as explored in correspondence between Ogier for the plaintiffs and Dickinson Gleeson then acting for the fourth defendant.  I express no view on these competing arguments.  Rather my decision is for the reasons set out above. 

41.      Finally, in relation to the question of costs of and occasioned by this application, the plaintiffs sought indemnity costs.  In my judgment the fourth defendant was clearly on notice about the difficulties with his ability to challenge service as a result of the concerns raised at the directions hearing on 20^th January 2021 and in subsequent correspondence.  His resistance to these paragraphs being removed was hopeless and was bound to fail.  The plaintiffs have been put to significant expense in respect of an issue which should have been conceded.  Accordingly, I agree this justifies indemnity costs. 

Authorities

Cohen, Kerr and Anor v Arbitage Research Trading Ltd and Ors [2019] JRC 229

West v Lazard [1993] JLR Note 6D.