IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Court of Justice
Strand, London, WC2A 2LL
Date: 29th November 1996
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Miss B. Dohmann Q.C.,
with Prof. I. Brownlie Q.C., Mr. T. Beazley and Dr. L. Collins. FOR THE APPLICANTS.
Mr. M. Crystal Q.C., with Mr. W. Trower, and Mr. P. Sands. FOR THE RESPONDENTS.
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Rattee J.:
The application now before me is the latest in a long line of pieces of litigation arising from the collapse of Polly Peck International plc ("PPI"). PPI is in administration pursuant to orders made by this court in the past. The four applicants before me ("the Applicants") seek leave under section 11 of the Insolvency Act 1986 to bring proceedings against PPI together with (as co-defendants) the Administrators of PPI ("the Administrators") and the Scheme Supervisors of a Scheme of Arrangement which has previously been approved by this court in relation to PPI under section 425 of the Companies Act 1985. Annexed to the present Application is a draft statement of claim setting out the claims which the Applicants wish to pursue against PPI. Those claims, in essence, represent an attempt by the Applicants (whose identity I shall explain a little later) to recover from the Administrators part of the proceeds of the sale by the Administrators of PPI's holdings of shares in various subsidiaries, on the ground that part of the proceeds represents profit made by the subsidiaries from the illegal occupation and exploitation of land in Northern Cyprus alleged to belong to the Applicants. The Administrators contend that the draft statement of claim discloses no seriously arguable case against any of the proposed defendants, and have accordingly themselves refused consent to the Applicants' proposed action against PPI under section 11(3) of the Insolvency Act 1986. The Applicants therefore apply to the court for leave to bring that action.
Section 11(3) of the Insolvency Act 1986 provides (so far as material) as follows:
"During the period for which an administration order is in force -
(d) no... proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the company or its property except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as [the court may impose]"
Some guidance as to how the court should decide whether or not to grant leave for a company in administration to be sued is to be found in Re Atlantic Computer Systems plc [1992] Ch. 505. In that case the Court of Appeal was more directly concerned with the approach to be adopted on an application to the court under section 11(3)(c) of the 1986 Act for leave to take steps to enforce a security over the property of a company in administration. However, it was common ground before me that a passage right at the end of the Court of Appeal's judgment in that case is relevant to the exercise of the court's discretion to grant leave for legal proceedings against such a company. At p. 544B of the report the Court of Appeal said this:
"In some cases there will be a dispute over the existence, validity or nature of the security which the applicant is seeking leave to enforce. It is not for the court on the leave application to seek to adjudicate upon that issue, unless... the issue raises a short point of law which it is convenient to determine without further ado. Otherwise the court needs to be satisfied only that the applicant has a seriously arguable case."
Accordingly counsel before me agreed that I should grant leave only if satisfied, on the evidence to which I have been referred, that the draft statement of claim annexed to the Application discloses a seriously arguable case against PPI.
The draft statement of claim recites some important background facts which were not in issue for the purposes of the application before me, and which I therefore set out in the words of that draft:
"1. The Republic of Cyprus ('the Republic') is an independent sovereign State which came into being on 16 August 1960. Its independence involved a set of multilateral transactions embodied in a package of treaty instruments, the key elements of which were the Treaty of Guarantee, the Treaty concerning the Establishment of the Republic of Cyprus and the Treaty of Alliance. With the sole exception of Turkey, all States recognise, and have at all material times since 16 August 1960 recognised, the Republic as the lawful sovereign of the whole of Cyprus. The territory of the Republic comprises the Island of Cyprus, together with the islands lying off its coast (with the exception of two areas defined in Annex A to the Treaty of Establishment which remained under the sovereignty of the United Kingdom).
2. In the summer of 1974 Turkey began an invasion of the Republic. The invasion was carried out in two main phases. The first main phase began on 20 July 1974, when United Nations Security Council Resolution 354 (1974) was adopted, calling for an immediate cessation of firing in the area. During the ceasefire Turkey increased its forces on the Island and gradually extended the area under control of the Turkish army. The second main phase of the Turkish invasion began on 14 August 1974 and ended on or about 16 August 1974. By 16 August 1974 Turkey had occupied a large area in the north of the Island of Cyprus (amounting to 36.4 per cent of the territory of the Republic) ('the occupied area'). The Turkish military operations during the invasion and occupation of the occupied area involved the use and threat of force by land, sea and air forces, and involved, amongst other things, shelling by warships, air attacks and attacks by columns of tanks. The operations caused many deaths, and produced a massive refugee flow, particularly of members of the Greek Cypriot community (which expression includes members of communities, such as the Armenian and Maronite communities, which opted for the purposes of Article 2 of the Constitution of the Republic, to be considered members of the Greek Cypriot community) fleeing the Turkish armies.
3. Since the invasion, Turkish troops have remained stationed throughout the occupied area, although, as set out below, various 'regimes' have been invented for that area.
4. On about 13 February 1975 an entity calling itself the 'Turkish Federated State of Cyprus' ('TFSC') was instigated by Turkey, although it appears that 'TFSC' did not purport to be a State. In any event, 'TFSC' was illegal and invalid and was not entitled to be recognised as a State. It was not so recognised by any State or International Organisation. The Security Council responded to the invention of 'TFSC' by affirming the territorial integrity of the Republic in Security Council Resolution 367 (1975), adopted on 12 March 1975.
5. On about 15 November 1983 the 'Turkish Republic of Northern Cyprus' ('TRNC') was declared by the Turkish Cypriot authorities, purporting to create an independent state in the occupied area. 'TRNC' is and was illegal and invalid. There is, and has at all material times been, a duty not to recognise 'TRNC'. 'TRNC' is not and was not entitled to be recognised as a State.
5.1. No State, apart from Turkey, and no International Organisation, has recognised 'TRNC'.
5.2. In Security Council Resolution 541 (1983), adopted on 18 November 1983, the Security Council, amongst other things, confirmed that the declaration of 'TRNC' on 15 November 1983 was 'legally invalid' and called for its withdrawal. Similar decisions appear in Security Council Resolution 550 (1984), adopted on 11 May 1984. Recognition would involve a failure to implement the decisions of the Security Council in breach of Article 25 of the United Nations Charter.
..
6. The United Kingdom has never recognised, and does not recognise 'TRNC' (or 'TFSC' before it) as a State in the occupied area or at all, and under English law 'TRNC' (and 'TFSC' before it) is not, and never has been, a State..."
The claims sought to be raised by the Applicants relate to the occupation of various pieces of land in the occupied area. The first Applicant is a company incorp orated in the Republic. According to the draft statement of claim, at the time of the invasion of the occupied area, the first Plaintiff owned a hotel at Famagusta known as the Constantia Hotel. The second Applicant is also a company incorporated in the Republic. It is alleged in the draft statement of claim that, at the time of the invasion, the second Applicant owned a block of apartments in or near Kyreia known as Jasmine Court. The third Applicant is said to be "a cooperative society with limited liability," and to have owned at the time of the invasion of the occupied area a fruit and vegetable packaging plant at Kato Zhodia, which is also in the occupied area. Each of the first three Applicants is said to be, and at all material times to have been, owned and controlled, or principally owned and controlled," by persons who are not Turkish or Turkish Cypriots, but mainly members of the Greek Cypriot community.
The fourth Applicant is described in the draft statement of claim as a State body of the Republic", which was established in 1973. According to an Administrative Order of the Government of the Republic, as front 1 August 1976 the fourth Applicant took over ownership of ports in the Republic previously vested in another Government body (referred to as the Department of Ports), and in particular the port of Famagusta. The draft statement of claim pleads that, at the time of the invasion of the occupied area, the Department of Ports owned a warehouse, known as Warehouse 20, at the port of Famagusta, in the occupied area. It is alleged that ownership of Warehouse 20 became vested in the fourth Applicant on 1 August 1976 and remains so vested.
It is alleged by the Applicants, and not disputed for present purposes, that, following the invasion of the occupied area, the illegal government imposed on the occupied area by the invaders purported to expropriate inter alia the properties to which I have referred, that is to say, the Constantia Hotel, Jasmine Court, the packaging plant and Warehouse 20 ("the Applicants' Properties"). There are included in the evidence filed on the present application translations of two purported pieces of legislation, one by "TFSC" and one by "TRNC". The former, called "TFSC Law 32 of 1975", provides, in section 4, as follows:
"Subject to what has been stated in this law all the immovable properties left in the Turkish Federated State" [i.e. the occupied area) "belonging to foreigners, that is to say the Greek Cypriots and the mainland Greece people, is in the control, possession, administration and ownership of the minister of Finance." [i.e. of TFSC]
The second relevant purported law is section 159 of what is called the "TRNC Constitution 1985". So far as material, that section provides (according to the translation in evidence) as follows:
"(1) On 15 November 1983 all that is found within the Turkish Republic of Northern Cyprus and
(a)...
(b) all the immovable property abandoned or where the owners are no longer present in TRNC and land which as a result of the enactment of the 1975 constitution of the Turkish Federated State of Cyprus has passed into the hands of the Federated State and all other immovable property not yet accounted for or recorded including buildings and industrial sites or installations;
(c)... all the immovable property mentioned in (a), (b) and (c) above whether registered or not is the immovable property of the TRNC and the registration is recorded and amended accordingly.
(2) ... In the interests of the public the Government or Government organs can lease the said immovable properties [and] lands and grant rights of easement and of possession and other use for long periods by law which will prescribe the mode and the conditions of such lease.
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(3) ...
(4) If any person claims any rightful ownership or possession over immovable property mentioned in (1) (b) and (c) above and if that person proves his claim according to law and procedure, he will be entitled to compensation which will be regulated by law.
(5) ..."
It is common ground for the purposes of the present application that each of the Applicants' Properties was purportedly appropriated by TFSC and later TRNC pursuant to the "laws" I have quoted. By the draft statement of claim the Applicants seek to allege that, since that appropriation, one or more companies which were subsidiaries, direct or indirect, of PPI, have occupied each of the Applicants' properties without the authority of the Applicants or any of them, and have thereby trespassed on those properties. The Applicants further allege that such trespass was committed under the direction or control, or at least with the active encouragement, of PPI itself. It is unnecessary for present purposes to go into the details of the structure of the PPI Group or the particular subsidiaries which it is alleged occupied the Applicants' Properties. It is sufficient to say that in March 1995 the Administrators, as part of the process of realisation of the assets of PPI, sold to a Northern Cyprus company by the name of Learned Limited PPI's shareholdings (direct or indirect) in the companies which the Applicants allege trespassed on the Applicants' Properties.
By the draft statement of claim the Applicants seek various heads of relief said to flow from the alleged trespass, but in particular a declaration that the Administrators are constructive trustees for the Applicants of so much of the consideration received by them from the sale to Learned Limited as represents the increase in the value of PPI's holdings in the relevant subsidiaries which resulted from the subsidiaries' wrongful occupation of the Applicants' Properties. The draft statement of claim also claims inter alia an injunction to restrain the Administrators dealing with the moneys received from the sale to Learned Limited without giving effect to the Applicants' claims. The Administrators and the Scheme Supervisors, of course, wish to be free to use the proceeds of the sale to Learned Limited in making a further distribution to the unsecured creditors of PPI.
The Applicants have adduced no evidence to suggest that PPI itself ever occupied any of the Applicants' Properties, but there is evidence that it did provide finance for the operations of the relevant subsidiaries on the Applicants' Properties. The Administrators' position, according to evidence filed on their behalf, is that they really have limited knowledge of any relevant activities of the subsidiaries concerned, because the Administrators have never succeeded in gaining effective control over the activities of the subsidiaries operating in Northern Cyprus. They put the Applicants to proof that they owned the Applicants' Properties at the time of the Turkish invasion, and they say that, at least in respect of two of the Applicants' Properties, TRNC purported to grant leases of those properties to the PPI subsidiaries which the Applicants allege occupied the properties concerned unlawfully.
There is no doubt that the United Kingdom does not recognise TRNC as a state, but TRNC continues to have de facto control over the occupied area despite United Nations Security Council Resolutions calling on it to withdraw. (See Polly Peck International plc v. Nadir (No. 2) [1992] 4 All E.R. 769, 773a.)
The Administrators refused consent to the proposed action against PPI by the Applicants, and now submit that the court should refuse leave for that action to be brought, because the action would be bound to fail - in other words the draft statement of claim does not disclose any seriously arguable case against PPI. The Respondents support this proposition on two alternative grounds:
(1) The court has no jurisdiction to entertain the action.
(2) Quite apart from any question of jurisdiction the action would be bound to fail, because, in the context of the evidence before me, the claims pleaded against PPI are misconceived.
The Respondents submitted that the English court has no jurisdiction to entertain the Applicants' proposed action by virtue of the rule in British South Africa Co. v. Companhia de Mocambique [1893] AC 602 as modified by section 30(1) of the Civil Jurisdiction and Judgments Act 1982 ("the 1982 Act"). The common law rule was restated and applied in the context of a claim relating to land in Northern Cyprus in Hesperides Hotels v. Aegean Turkish Holidays Ltd. [1979] AC 508. The facts in that case bear a striking resemblance to those of the present case. The two plaintiffs were companies registered under the law of the Republic of Cyprus which, at the date of the Turkish invasion of Cyprus in 1974, owned hotels in Carina, Northern Cyprus. The plaintiffs were controlled by Greek Cypriots. They alleged that they lost control of their hotels by virtue of the 1974 invasion. They alleged that the defendant Aegean Turkish Holidays Ltd and TFSC had conspired to trespass on the hotels by illegally occupying them, and they sued that defendant and a representative of TFSC for an injunction and an account of profits. The House of Lords held that the court had no jurisdiction to entertain the action by virtue of the Mocambique rule. Lord Wilberforce, at p. 534B of the report, said that the rule was accurately stated as Rule 79 in the 9th Edition of Dicey & Morris, The Conflict of Laws in the following terms:
"Subject to the exceptions hereinafter mentioned, the court has no jurisdiction to entertain an action for (1) the determination of the title to, or the right to the possession of, any immovable situate out of England (foreign land); or (2) the recovery of damages for trespass to such immovable."
As Lord Wilberforce pointed out, the exceptions referred to in this quotation related to actions in equity and other special cases not relevant to the facts of the case before the House. The House had then to consider an argument put on behalf of the plaintiff appellants to the effect that the Mocambique rule did not apply in a case where there was no real dispute as to title to the relevant land, or to possession of it. Their Lordships rejected that limitation of the rule, and held that the result of the rule was that the English court had no jurisdiction to entertain the action, notwithstanding that it alleged a conspiracy entered into in England to trespass on the land in Cyprus.
It is significant that in the Hesperides Hotels Case counsel for the respondent before the House of Lords (who was a representative of TFSC) argued that in fact there was a dispute about the title of the appellants to the hotels concerned, on the ground that, even though the United Kingdom did not recognise TFSC as a state, nonetheless it was a settled de facto regime, whose acts the court should not ignore for all purposes. As counsel for the respondent put it at p.523E-F:
"It is an open question whether the courts of England will for any purposes have regard to the laws of a government which has not been recognised de jure or de facto by Her Majesty's Government."
The Respondents in the case before me similarly submitted that the Applicants' title in this case is in dispute, because the Respondents argue that the court cannot sensibly, and therefore should not, blind itself to the fact that there is a settled de facto regime in Northern Cyprus with its own judicial system, which purported to acquire the land concerned and to authorise the alleged trespasses in the present case. There is a real question to be answered, therefore, (runs the argument) as to whether the court should treat the Applicants as having a right to possession of the Applicants' Properties as against the alleged trespassers.
In the event, since the House of Lords decided that the Mocambique rule applied whether or not there was a real dispute as to the plaintiffs' title, it was unnecessary for their Lordships to deal with the respondent's argument that there was such a dispute based on acts of the illegal regime in the occupied area. As Lord Wilberforce said at p.537H of the report:
"In view of this conclusion it is not necessary to enter upon the questions raised by the respondent's counsel as to the degree of notice (if any) which the courts should take of the situation in Cyprus and of 'laws' passed by the non-recognised Turkish Federated State of Cyprus. These gave rise to an interesting and learned argument for which the House is indebted but having regard to the issues raised I think that the present is not the occasion to pass upon them."
Apart from the provisions of the 1982 Act, it would be clear that the decision in the Hesperides Hotels Case would be applicable to the present case, and the Respondents' argument on jurisdiction would be clearly right. Miss Dohmann, on behalf of the Applicants, argued that the proposed claim in the present case would fall within the recognised exception to the Mocambique rule in respect of "an action based on a contract or equity between the parties" (see exception (a) to Rule 116(3) in Dicey & Morris on the Conflict of Laws 12th. Edn. p.946 and the authorities there cited). Miss Dohmann submitted that this exception would apply to the proposed claim by the Applicants, because they claim an equitable interest by way of constructive trust in the proceeds of the sale by PPI to Learned Limited. I do not accept this argument. The exception from the Mocambique rule applies where the plaintiff's alleged title to or right to possession of the foreign land is based on some contractual or equitable right. The Applicants' claim in the present case is not so based. It is based on alleged legal ownership of the Applicants' Properties.
However, the Applicants have two arguments based on the 1962 Act, one on section 2 and its incorporation into English law of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters ("the Brussels Convention"), and one on section 30(1). I will deal with the latter argument first.
The clear object of section 30(1) was to mitigate the severity of the Mocambique rule as applied by the House of Lords in the Hesperides Hotels Case. It is in the following terms:
"The jurisdiction of any court in England and Wales or Northern Ireland to entertain proceedings for trespass to, or any tort affecting, immovable property shall extend to cases in which the property in question is situated outside that part of the United Kingdom unless the proceedings are principally concerned with a question of the title, or the right to possession of, that property."
The Applicants submit that the proceedings which they wish to commence against PPI would not be "principally concerned with a question of the title, or the right to possession of" the Applicants' Properties. The fact that the Applicants may be put to proof of their title as a preliminary to making good their trust claim against the proceeds of the sale to Learned Limited does not make the proceedings principally concerned with their title. Obviously any claim in trespass is dependent on proof of title to possession.
The Respondents, on the other hand, say that it is not just a question of putting the Applicants to proof of their title prior to 1974. The Respondents raise an argument very similar to that put before the House of Lords by counsel for the respondent in the Hesperides Hotels Case, on which their Lordships did not find it necessary to rule. The Applicants' right to possession of the Applicants' Properties at the dates of the alleged acts of trespass depends on ignoring completely the "legislation" passed and the "leases and "authorities" given in relation to property in the occupied area by TFSC and TRNC. The Respondents argue that this is not a necessary consequence of the non-recognition of Northern Cyprus as a state by Her Majesty's Government. The Respondents point to the fact that in the Hesperides Hotels Case the House of Lords did not think it appropriate to reject this argument out of hand. In the Court of Appeal in that case a similar argument received the approval of Lord Denning M.R. In his judgment, reported in [1978] QB 205, Lord Denning considered the contrasting arguments, on the one hand, that, by virtue of the fact that Her Majesty's Government did not recognise the government of TFSC, the courts of this country could take no cognisance of purported acts of that administration, and, on the other hand, that the courts could take account of such "acts" in the context of determining private rights. At p.218B Lord Denning cited a passage from the speech of Lord Wilberforce in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) (1967] 1 AC 853, 954, where Lord Wilberforce said:
"... where private rights, or acts of everyday occurrence, or perfunctory acts of administration are concerned ... the courts may, in the interests of justice and common sense, where no consideration of public policy to the contrary has to prevail, give recognition to the actual facts or realities found to exist in the territory in question."
At p.218F-G Lord Denning said this:
"If it were necessary to make a choice between these conflicting doctrines, I would unhesitatingly hold that the courts of this country can recognise the laws or acts of a body which is in effective control of a territory even though it has not been recognised by Her Majesty's Government de jure or de facto: at any rate, in regard to the laws which regulate the day to day affairs of the people, such as their marriages, their divorces, their leases, their occupations, and so forth: and furthermore that the courts can receive evidence of the state of affairs so as to see whether the body is in effective control or not."
At p.221F Lord Denning referred to what he described as "the real state of affairs" in Northern Cyprus as follows:
"The real state of affairs is, however, very different. There is an effective administration in North Cyprus which has made laws governing the day to day lives of the people. According to these laws, the people who have occupied these hotels in Carina are not trespassers. They are not occupying them unlawfully. They are occupying them by virtue of a lease granted to them under the laws or by virtue of requisitions made by the existing administration. If an action were brought in the courts of this northern part - alleging a trespass to land or to goods - it would be bound To fail. It follows inexorably that their conduct cannot be made the subject of a suit in England. Even if any of the present occupiers himself came to England and was sued here the court would be bound to reject the claim. The case would fail because, in order to be actionable in England, it would have to satisfy the second of the conditions as laid down in Phillips v. Eyre (1870) L.R. 6 QB 1, 29: 'the act must not have been justifiable by the law of the place where it was done.' Nor would it satisfy the conclusion in Dicey & Morris, Conflict of Laws, 9th Edn. (1973) rule 178(1) (b), that it must be 'actionable according to the law of the foreign country where it was done.' Nor would it satisfy Lord Wilberforce's test in Boys v. Chaplin [1971] AC 356, 389. He said that an action would not lie in England if 'civil liability does not exist or is excluded, under the law of the place where the wrong was committed.'"
Of the argument that the English court should not ignore the acts of the unrecognised administration de facto in control of Northern Cyprus Roskill L.J. said (at p.228C of the report):
"...having regard to the observations of their Lordships in the House of Lords in the Carl Zeiss case [1967] 1 AC 853, and in particular to those of Lord Reid and Lord Wilberforce, it is clear that at some future date difficult questions may well arise as to the extent to which, notwithstanding the absence of recognition, the English courts will or ny recognise and give effect to the laws or acts of a body which is in effective control of a particular area or place."
Scarman L.J. agreed with the judgment of Roskill L.J.
Mr. Crystal, on behalf of the Respondents, submitted, in reliance on these dicta, that the question how far (if at all) the English court should take notice of the acts of TRNC in relation to a dispute concerning private rights is a very open one and that, if the Applicants are allowed to prosecute their proposed action, that questionwill inevitably fall to be considered by the court in the context of determining whether the Applicants now have any right to possession of, and therefore any locus standi to complain of trespass to, the Applicants' Properties. In other words there is a very real dispute as to the right to possession of the Applicants' Properties to be determined in the proceedings. Indeed, submitted Mr. Crystal, such right to possession will be the only issue in the proceedings other than questions relating to the appropriate form of relief for the alleged trespass. Therefore, ran the argument, the proceedings will be "principally concerned with a question of title to, or the right to possession of" property situate outside the United Kingdom within the meaning of section 30(1) of the 1982 Act, and that section will not apply to mitigate the rigours of the Mocambique rule as applied by the House of Lords to similar litigation in the Hesperides Hotels Case. Therefore the English court has no jurisdiction to entertain the proceedings.
Miss Dohmann, on behalf of the Applicants, initially submitted that I was only concerned to decide whether she could show a seriously arguable case to the effect that the court would have jurisdiction to entertain the proposed proceedings. If she could, the Applicants should be given leave to start those proceedings, leaving the question of jurisdiction to be determined by the court on any application subsequently brought by PPI to strike the action out on jurisdictional grounds. Miss Dohmann submitted that it was at least seriously arguable that the proceedings would not be "principally concerned" with a question of the title to, or right to possession of, the Applicants' Properties, and that therefore the court would have jurisdiction under section 30(1) of the 1982 Act.
Mr. Crystal, on the other hand, submitted that this question of jurisdiction under section 30(1) of the 1982 Act is a pure point of law, on which I have heard full argument, and which I should decide, rather than considering only whether the Applicants can show that it is arguable that the court does have jurisdiction.
I accede to Mr. Crystal's invitation to decide this question of the application of section 30(1) of the 1932 Act, rather than just deciding whether the point is arguable. For I have heard very full argument on it, and it seems to me to be a pity that it should have to be argued all over again at further cost to the parties or one of them on a possible future application to strike cut the proceedings, should I allow them to be commenced.
Counsel were able to refer me to no authority on the construction of section 30(1). The material words are "principally concerned with". Would an action begun by a writ and statement of claim such as proposed by the Applicants be "principally concerned with" a question of the right to possession of the Applicants' Properties? In my judgment the word "principally" is used in its ordinary sense of "for the most part" or "chiefly" (see the Concise Oxford Dictionary). I do not consIder that the Applicants' action would be principally concerned with the question of the Applicants' title to, or right to possession of, the Applicants' Properties. Of course, as in any action for trespass to land, it would be a sine qua non of success that the plaintiffs proved their right to possession at the dates of the alleged trespass, but that right is far from the only substantial question raised by the proposed statement of claim. In particular it raises the questions:
(a) Whether PPI itself committed any acts which can be characterised as trespass by it on the Applicants' Properties or any of them;
(b) Whether by some process referred to as "piercing the corporate veil" PPI can be held responsible for acts of trespass by its direct or indirect subsidiaries;
(c) Whether, even if question (a) or (b) is answered in the affirmative, the Applicants have any rights in specie in the proceeds of the sale by PPI of shares in its subsidiaries to Learned Limited, as opposed to a right in personam entitling them to participate in the Scheme of Arrangement relating to PPI.
Such questions cannot, in my judgment, be said to be merely incidental to the question of the Applicants' right to possession of the Applicants' Properties. Of course they will not arise unless the latter question is decided in the Applicants' favour, but they are substantial questions going to the Applicants' right to the relief sought in the action. They are not minor or incidental questions. Given that the relevant proceedings, if allowed to be brought, will concern such questions quite as much as the question of the Applicants' right to possession of the properties concerned, in my judgment those proceedings would be concerned, but not principally concerned, with such right to possession. I consider that the purpose of section 30(1) of the 1982 Act is to preserve the Mocambique rule only in cases where the real issue in the proceedings is the question of title to, or the right to possession of, foreign land, and all other questions are merely incidental thereto. Such is not this case.
Accordingly, in my judgment the court would have jurisdiction to entertain the proposed action by virtue of section 30(1) of the 1982 Act. Accordingly it is unnecessary to reach a conclusion on Miss Dohmann' s second argument on jurisdiction, which was to the effect that, quite apart from section 30(1), the court would have jurisdiction by virtue of Article 2 of the Brussels Convention, as incorporated into English law by section 2 of the 1982 Act, despite the decision of the House of Lords in the Hesperides Hotels Case. The argument seemed to me to face considerable difficulty in the light of the decision of the Court of Appeal in Re Harrods (Buenos Aires) Ltd. [1992] Ch. 72, but, as I say, I need not decide the point.
Mr. Crystal, on behalf of the Respondents, argued that, even if (as I have concluded) the court would have jurisdiction to entertain the proposed action by the Applicants, leave should not be given for that action to be commenced, because the draft statement of claim discloses no seriously arguable case for the relief sought in the action, and in particular for a determination that the Applicants have some beneficial interest in the moneys representing the proceeds of the sale of the shares in subsidiaries by PPI, which is the real object of the proposed action.
The draft statement of claim alleges, in the case of each of the Applicants' Properties, that after the invasion of the occupied area "PPI and/or persons acting for and/or on behalf of and/or at the direction of and/or in concert with PPI, wrongfully and illegally occupied and/or exploited" the relevant property. It was accepted by Miss Dohmann in argument that there is no evidence to support an allegation that PPI itself, as opposed to one or other subsidiary (direct or indirect) of PPI, ever occupied any of the Applicants' Properties. On the other hand Miss Dohmann submitted that there is evidence in the documents before the court on this application that PPI encouraged or facilitated the exploitation of the Applicants' Properties by its subsidiaries, in particular by financing the activities of those subsidiaries on the properties. According to the draft statement of claim, and Miss Dohmann's submissions, the Applicants are entitled to hold PPI responsible for the exploitation of the Applicants' Properties by its subsidiaries, either on the basis that in the circumstances pleaded it is appropriate to "pierce the corporate veil" or veils between PPI and the relevant subsidiaries and treat the acts of the latter as the acts of PPI, or on the basis that PPI itself was a joint tortfeasor in the trespasses alleged, by virtue of its encouragement or facilitation of those trespasses with knowledge that the subsidiaries had no right to occupy and exploit the Applicants' Properties.
According to the Applicants' proposed pleading and submissions, PPI's accountability for the trespasses means not only that the Applicants have a claim in damages against it for loss sufferedby them as a result of the trespasses, but also that they can claim an equitable interest in the proceeds of the sale by PPI of its interests in the relevant subsidiaries to the extent that those proceeds were increased by reason of the subsidiaries concerned having profited from the trespasses. For to that extent PPI has benefitted from the trespasses.
Miss Dohmann submitted that, in the circumstances of this case, it was appropriate for the court, applying the principles considered by the Court of Appeal in Adams v. Cape Industries plc [1990] Ch. 433, to ignore the corporate veil between PPI and its relevant subsidiaries and treat the allegedly tortious acts of those subsidiaries as the acts of PPI itself. The corporate distinction between the companies was a mere façade. Alternatively Miss Dohmann submitted that in any event the court should ignore the separate existence of such of the relevant subsidiaries as were "TRNC entities", and that this was so despite the provisions of the Foreign Corporations Act 1991.
I think both these latter arguments face formidable obstacles, but it is unnecessary for me to reach a conclusion on either of them for the purposes of this application. For it does seem to me, on the evidence I have seen, that it is possible (I put it, and need put it, no higher for present purposes) that the Applicants might be able to make good an argument that PPI itself did encourage or facilitate the activities of its subsidiaries on the Applicants' Properties. There is at least some evidence that PPI provided the finance for those activities. It is also possible that the Applicants might succeed in proving some degree of knowledge on the part of those directing PPI's affairs at the relevant times that those activities were being carried on on properties claimed by the Applicants.
However, the Respondents submitted that, even if the Applicants could prove these allegations, they could not, as a matter of law, establish any proprietary claim to the proceeds of the sale to Learned Limited, which is the essential object of the proposed action which the Applicants seek leave to bring against PPI. The Respondents point out, in particular, that the sale by PPI of its interests in its subsidiaries has in no way caused any loss to the Applicants, or resulted in PPI acquiring any property belonging to the Applicants. If, before the sale, the Applicants had good causes of action against the subsidiaries for trespass, those causes of action remain completely unaffected by the sale by PPI. If the amount of the proceeds of sale has indeed been increased by reason of the fact that the subsidiaries have benefitted from the trespasses alleged, then PPI has obtained the benefit of that increase, not from the Applicants, but from Learned Limited, which, on this hypothesis, has been prepared to pay a price not discounted for the outstanding liabilities of the subsidiaries to the Applicants. The position of the Applicants has been wholly unaffected by the sale.
This contention is plainly right, and not one which Miss Dohmann was able to seek to deny. However Miss Dohmann submitted that it does not invalidate the Applicants' claim to hold PPI accountable for the profit it has made from the sale, insofar as that profit is referable to the trespasses alleged. She relied on a statement by the learned editors of Goff & Jones on The Law of Restitution, 4th. Edn. at p.721 that:
"in our view English courts should adopt a similar principle: namely, if it can be demonstrated that a tortfeasor has gained a benefit and that benefit would not have been gained but for the tort, he should be required to make restitution."
In support of the proposition that English law has already recognised this principle, Miss Dohmann relied on the decision in Powell v. Rees (1837) 7 Ad. & El. 426. In that case a deceased intestate had mined and sold coal belonging to the plaintiffs. The plaintiffs sued the administrator of the deceased's estate to recover a sum equal to the proceeds of the wrongful sale as money had and received by the intestate to the use of the plaintiffs. In giving the judgment of the court Lord Denman C.J., at p. 428, said:
"In the present case, the money which has been produced by the sale of that which had been wrongfully severed from the plaintiffs' estate, and converted into chattels, is traced into the pocket of the intestate: it cannot be doubted that an action for money had and received would have been maintainable against him for that money. His personal estate has come to the hands of the defendant, by so much increased; and we cannot see any grounds why the same action is not to be maintained against her who represented him in respect of that estate."
In that case the proceeds of property of which the plaintiffs had been wrongfully deprived were traceable into the hands of the wrongdoer and were held recoverable from his personal representative as money had and received. This decision does not seem to me to provide any direct support for the Applicants' argument in this case that they have a claim against the proceeds of the sale by PPI of its interests in its subsidiaries, which were never the property of the Applicants.
Miss Dohmann also relied on a dictum of Hoffmann L.J. (as he then was) in Ministry of Defence v. Ashman [1993] 2 EGLR 144. In that case the question before the Court of Appeal was the proper measure of damages on a claim by the Ministry of Defence for damages for wrongful continued occupation of R.A.F. married quarters by the wife of a member of the Service who himself no longer occupied those quarters. The dictum relied on by Miss Dohmann in the present case is at p.146 of the report of the case:
"A person entitled to possession of land can make a claim against a person who has been in occupation without his consent on two alternative bases. The first is for the loss which he has suffered in consequence of the defendant's trespass. This is the normal measure of damages in the law of tort. The second is the value of the benefit which the occupier has received. This is a claim for restitution. The two bases of claim are mutually exclusive and the plaintiff must elect before judgment which of them he wishes to pursue. These principles are not only fair but, as Kennedy L.J. demonstrated, also well established by authority."
Mr. Crystal, on behalf of the Respondents, submitted that this dictum, which relates to a claim by a person entitled to possession of land against an occupier of the land to make the occupier liable to account for the benefit of occupation, has no relevance to the Applicants' claim against PPI, which itself was never in occupation of any of the Applicants' Properties. Miss Dohmann, however, submitted that the dictum represents a statement of wider principle applicable to this case, where PPI, although it has not itself occupied the properties, has become a joint tortfeasor with the actual occupiers by encouraging and facilitating their wrongful occupation, so as to make PPI accountable for any profit it has made as a result of such occupation.
If and insofar as Hoffmann L.J. intended to expound a general principle that a plaintiff in an action for trespass to land can make the defendant disgorge any profit made by him from the trespass, Lloyd L.J. (as he then was) took a rather different view. At p.147 of the report of the case he said this:
"In the present case Mr. Huskison, for the plaintiff, contends that he is entitled to ask for restitution and Kennedy and Hoffmann L.JJ. have so held.
There are two difficulties about that. In the first place the pleaded case is a claim for damages for trespass.... There has never been any application to amend the pleading so as to claim restitution in the alternative.
Second, it is very doubtful, as the law now stands, whether the restitutionary remedy is available in the case of wrongful occupation of land. The reasons for this anomalous exception to the general rule are set out in Goff & Jones on Restitution 3rd. ed. at p.607. Three reasons are discussed. The substantial reason is that it was so decided by the majority of this court in the case of Phillips v Homfray (1883) 24 ChD 439. The editors of Goff & Jones express the view that Phillips v. Homfray should be overruled and the dissenting judgment of Baggallay L.J. preferred. But Phillips v. Homfray was recently followed obiter by Lane J. in the case of Morris v. Tarrant [1971] 2 QB 143 and is, in any event, binding on us. We would be rash indeed to express a view about Phillips v. Homfray without having heard full argument on both sides. We have not had that advantage in this case. So, with respect, it was not open to Mr. Huskison to elect in this case to claim restitution even if he had pleaded such a claim."
In fact all three members of the court agreed that the case before them to be sent back to the court of first instance for reassessment of damages. So the decision in the case cannot be said to be authority for the proposition embodied in the Applicants' proposed claim in the present case, namely that a plaintiff entitled to complain of wrongful occupation by way of trespass of his land can, instead of claiming damages claim by way of restitution any profit which the trespasser has made as a result of his trespass. The most that can be said is that some dicta in the judgments of Kennedy and Hoffmann L.JJ. arguably lend some support to such proposition, whereas the dictum of Lloyd L.J. which I have quoted, and the cases there cited, appear to me to be against it, though I should say that I heard no argument on the dictum of Lloyd L.J. or the cases cited by him, to which I was not referred by counsel.
The proposition put forward by the Applicants to the effect that, if, as they allege, PPI was a party to trespass on the Applicants properties, then the Applicants have a good restitutionary claim against PPI for any profit it has made as a result of the trespass by its subsidiaries, in my judgment, raises a point of law which cannot be described simply as a short point of law convenient to be decided on this summary application for leave to start proceedings. It faces considerable obstacles, but I am not satisfied that it is so clearly unarguable that it is bound to fail. In other words, it is a seriously arguable point.
It does not, of course, follow that, even if the Applicants succeeded in making good their claim to hold PPI accountable for profit made by it from its alleged complicity in the alleged trespasses by its subsidiaries, they would have a beneficial interest in the proceeds of the sale to Learned Limited, as opposed to a claim in personam against PPI.
Miss Dohmann submitted that, if, as the Applicants contend, PPI was a knowing party to the trespasses by its subsidiaries, and it can be shown that the proceeds received by PPI from its sale of its interests in those subsidiaries was increased by reason of those trespasses, then PPI should be treated as a constructive trustee of the part of such proceeds representing such increase.
The first ground on which Miss Dohmann sought to establish that there is a seriously arguable case for the existence of such a constructive trust was that PPI was "a dishonest accessory to a breach of trust committed by the subsidiaries." In my judgment this argument has no prospect of success. There is no evidence of any fiduciary relationship between the allegedly trespassing subsidiaries and the Applicants, and therefore no basis on which such trespasses can be said to have been in breach of trust. Miss Dohmann failed, despite the ingenuity of her submissions, to persuade me that there is any seriously arguable case for the existence of any institutional constructive trust affecting any part of the proceeds of the sale by PPI to Learned Limited (see the explanation of the distinction between an institutional and a remedial constructive trust given by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996] 2 W.L.R. 802 at p.837-8).
Alternatively Miss Dohmann submitted that in the circumstances of the case there was at least a seriously arguable case for the imposition of a remedial constructive trust, notwithstanding that, as Lord Browne-Wilkinson pointed out in his speech in the Westdeutsche Bank Case at p.837E-F of the report of the case:
"hitherto English law has for the most part only recognised an institutional constructive trust: see Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc. [1990] 1 Q.B. 391, 478-80."
Miss Dohmann relied on the dictum from the Metall und Rohstoff A.G. case referred to by Lord Browne-Wilkinson in the passage from his speech which I have just cited. At p.479C of the report of the Metall und Rohstoff A.G. case the Court of Appeal, in a judgment of the Court, said this:
"The extent to which a constructive trust can properly be treated as a remedy is far from clearly defined in the authorities. The position is stated thus in Snell's Principles of Equity, 28th ed. (1982), p.193:
'In some jurisdictions the constructive trust has come to be treated as a remedy for many cases of unjust enrichment: whenever the court considers that the property in question ought to be restored, it simply imposes a constructive trust on the recipient. In England, however, the constructive trust has in general remained essentially a substantive institution: ownership must not be confused with obligation, nor must the relationship of debtor and creditor be converted into one of trustee and cestui que trust. Yet the attitude of the courts may be changing; and although the constructive trust is probably not confined to cases arising out of a fiduciary relationship, it is far from clear what other circumstances suffice to raise it or how far it can be employed as a species of equitable remedy to enforce legal rights.'
However, the authors of Goff & Jones, The Law of Restitution 3rd. ed. (1986), after a comprehensive review of the authorities, state their views, at p.78:
'Equity's rules were formulated in litigation arising out of the administration of a trust. In contrast restitutionary claims are infinitely varied. In our view the question whether a restitutionary proprietary claim should be granted should depend on whether it is just, in the particular circumstances of the case, to impose a constructive trust on, or an equitable lien over, particular assets, or to allow subrogation to a lien over such assets.'
While we have had very full argument on almost all other aspects of the law involved in this case, we have neither heard nor invited comprehensive argument as to the circumstances in which the court will be prepared to impose a constructive trust de novo as a foundation for the grant of equitable remedy by way of account or otherwise. Nevertheless we are satisfied that there is a good arguable case that such circumstances may arise, and for want of a better description, we will refer to a constructive trust of this nature as a 'remedial constructive trust.'"
Miss Dohmann submitted that there is indeed a good arguable case that such circumstances have arisen in the present case. It is to be assumed for the purposes of this argument that the Applicants have succeeded in establishing that the subsidiaries in which PPI has sold its interest to Learned Limited wrongfully, and by way of trespass in breach of the Applicants' rights, exploited the Applicants' Properties to their own profit, and that PPI knowingly caused or encouraged them to do so. It also has to be assumed that PPI realised more for its interest in those subsidiaries as a result of the profit made by them from the trespass, and that part of the proceeds of sale in the hands of PPI represents that additional realisation. Miss Dohmann's submission was that in those circumstances the court should and would consider it just to impose a remedial constructive trust over that part of the proceeds in favour of the Applicants. In my judgment it is by no means clear that the court would so consider it, particularly where, as here, the relevant defendant (PPI) is insolvent, so that a remedial constructive trust in favour of one claimant against it will prima facie prejudice other persons with unsecured causes of action against it. However, the full relevant circumstances will only be available after a trial of the Applicants' claim. I accept Miss Dohmann' s argument that the question whether the court should impose a remedial constructive trust in those circumstances is not one which I can properly determine on this application, but that it may well be a seriously arguable question in the circumstances which emerge at the trial of the Applicants' claim.
The draft statement of claim put forward by the Applicants contains claims which face formidable obstacles, but, in my judgment, it does disclose a seriously arguable claim against PPI based on the allegations (a) that the Applicants remained at all material times entitled to possession of the Applicants' Properties, (b) that PPI knew that its subsidiaries were exploiting those properties, to which it knew the Applicants claimed title and the right to possession, (c) that PPI actively encouraged such exploitation, (d) that it has benefited from that exploitation and should be bound to disgorge such profit, and (e) that the court should accordingly impose a remedial constructive trust on so much of the proceeds of the sale by PPI to Learned Limited as represents such profit. I express no opinion as to the prospects of success of such claim. I say only that it seems to me right in the interests of justice that the Applicants should have leave to make it.
Of course the draft statement of claim includes claims other than the claim I have just summarised. I do not consider it appropriate to reach any conclusion on the prospects of success or even arguability of such claims on this application. The fact that I am giving leave for the action to be brought against PPI does not, of course, affect the right of any defendant to that action to take such interlocutory steps by way of applications to strike out parts of the pleading or otherwise as that defendant may be advised. I simply give leave for the proceedings to be commenced against PPI. I will hear further submissions as to the form of the order I should make, and, in particular, as to whether any conditions should be imposed on the leave under section 11 of the Insolvency Act 1986.