Judge sends Rolls-Royce litigation to Indian limbo

Is it within a UK judge's remit to evaluate the competence of foreign courts? asks Brendan Malkin

The spat between Rolls-Royce Industrial Power and Spectrum Technologies, set down for appeal, is raising eyebrows. Not only is this the first time English courts will consider the operation of derivative actions, but a stir has also been caused by Mr Justice Lawrence Collins' decision that the correct forum to hear the case is India rather than England.

India's legal system has been open to charges that it is rife with corruption and it is not unusual for a case to take 15-20 years to complete. So why would an English judge refer a case to a jurisdiction where it will simply reach a gigantic impasse? Some lawyers claim that judges unofficially recognise the danger involved in referring a case to Eastern Europe, India and the like, but feel that not doing so is bad for state relations. Meanwhile, the claimants, Spectrum Technologies US, and three minority shareholders, are likely to see their case disappear down a vast crevasse. The respondents, Rolls-Royce India and Spectrum Power Generation India, which are accused respectively of paying and receiving millions of pounds in bribes for contracts, can sleep easy for the next generation.

Judge Collins accounted for the fact that India is a cheaper place to litigate than London, and that the companies involved in the action are incorporated in India. However, according to SJ Berwin, which acted for the claimants, he did not account for the nature of the Indian legal system.

Rulings in favour of foreign jurisdictions seem to be increasing. Last December in the Commercial Court, Morgan Lewis & Bockius and Lord Grabiner QC and Daniel Toledano, both of One Essex Court, put together a forceful argument against having an alleged unlawful transfer case between Czech bank Cesko-slovenska Obchodni Banka and respondents Nomura International, Pembridge Investments and Saluka Investments, brought before a Czech court.

The first limb of their argument was that the weight of connection to the Czech Republic was not sufficiently clear and distinct for the case to be heard there. It was thrown out. They then produced further evidence showing that the state was completely unfit to handle such a case, including a recent report by Mr Justice Colman, indicating deficiencies in the republic's legal system, plus the fact that it is an emerging state with almost no experience of heavyweight commercial litigation. Also, the Republic does not have the facilities to handle full discovery and full cross-examination, both required in this case to tackle the dishonesty allegations.

Jonathan Sumption QC, the presiding judge, did not disagree with any of this. But he concluded that it did not prove the foreign court would obstruct justice, and thus ruled the republic to be the correct forum.

It has not always been so difficult to convince English judges to hear cases with foreign dimensions, and several leading cases illustrate this. In Mohammed

Bank of Kuwait (1996), the plaintiff, an Iraqi national banned from working in Kuwait, applied for the matter to be heard in England as he feared for his safety were it to be heard in Kuwait. This was upheld, although subsequently courts have cast some doubt on this decision. The plaintiffs in Lubbe

Cape (2000), which comprised thousands of miners with asbestos-related personal injury claims, and Connelly

RTZ Corporation (1998), were allowed to have their cases heard outside South Africa, as they would have been denied legal aid there.

None of these cases arise out of contracts that have been breached. But those that do are even harder to get heard outside the forum agreed by the parties in their contracts. Jurisdictional experts could not in fact point to a single recent example (although there are plenty from years ago) in which the judge dismissed the forum referred to in the contract and allowed the case to be heard in England.

To do this a party has to show that the overseas jurisdiction would not provide a fair trial. But the very high threshold of proof required to prove this means decisions go this way very rarely. Perhaps judges do not like spoiling all those wonderful relations with such hospitable regimes as Nigeria and the like.

Eyes wide shut

Serious questions have been raised over how two solicitors with decades of experience between them could possibly have let £4m slip from under their noses into the hands of fraudsters.

The lawyers involved were Paul Simms, then a senior equity partner at respected City firm Bower Cotton, and Australian attorney Malcolm Carr. Carr instructed Simms to advise him on a £4m investment in US company Kelci.

The ludicrously simple scam involved the fraudsters telling Simms that they were having trouble with their NatWest account in Jersey, where they had always maintained the cash would ultimately arrive. They said they would deliver it via a UniBank account to a Barclays account instead, under the name of Kelly Pahl & Associates. Despite reservations from Simms, Carr agreed, and en route the money disappeared.

The Court of Appeal, which recently ruled on an unsuccessful professional negligence claim brought by Carr against Bower Cotton (now named Bower Cotton Partnership), found a general willingness on Carr's part to let things go without proper consideration. Prior to the transfer, for instance, he had sent the cash to Kelci's accounts after discovering he did not have a client account of his own. He also dispatched the money knowing that no security had been provided, despite that being a condition of the parties' investment agreement.

The Court of Appeal concluded that Carr was quite willing to transfer everything to Kelci without all safeguards in place, and for Kelci to invest as it saw fit, so that “he could begin to enjoy the promised fantastical profit”.

For a practising solicitor with nearly 20 years experience, this seems extraordinary. He was also willing to sign ill-drafted documents without advice.

Simms, who now runs Citi Legal Consultancy – situated upstairs from his old firm's offices – was found not guilty of professional negligence; but he was rebuked by the Appeal Court for involving himself in a deal that was not appropriately documented or structured.

Furthermore, he failed to take notes of any of the meetings or phone calls he made concerning the transaction, and although he did not draft the investment agreement, he still failed to give it detailed scrutiny and accepted responsibilities under it.

Meanwhile, some justice has been delivered. Kelci's directors and shareholders, as well as a US attorney, have pleaded guilty to wire fraud in the US. But this will afford little comfort to Simms, who dragged his firm into a messy transaction which, according to the Court of Appeal, he should not have involved himself with in the first place.