Marlwood Commercial Inc v Kozeny & Ors

Summary judgment under CPR Part 24 is inappropriate where the claim has a real prospect of success and resolution requires findings on substantially disputed evidence. The court should not conduct a mini-trial or make grave findings of criminal misconduct against persons who have not been convicted, absent overwhelming evidence.

Illegality may defeat contractual, tortious or equitable claims where the claimant’s case is founded on an immoral or illegal act. The illegality must be central rather than collateral. Whether bribery known to a claimant makes claims unenforceable depends on the facts, including attribution of knowledge, participation and the connection between the illegality and the loss. A contract is not contrary to public policy merely because one party has good governmental relations; improper trafficking in influence must be shown.

These consolidated Commercial Court proceedings arose from investments by Marlwood Commercial Inc and the Omega Claimants in Azerbaijani privatisation vouchers and options. The investments became worthless when the anticipated privatisation of SOCAR did not occur.

The claimants alleged deceit, breach of fiduciary duty, misapplication of money, breach of contract and conspiracy. The defendants relied principally on illegality, contending that the investments were connected with bribery of senior Azerbaijani officials and that the claimants knew of, or benefited from, that corruption.

The proceedings had been stayed during criminal investigations in the United States. Following guilty pleas by several participants and other evidence, the defendants applied to lift the stay, obtain summary judgment under CPR Part 24, and discharge worldwide freezing orders. The central issues were whether the claims had real prospects of success, whether knowledge of corruption could be attributed to the claimants, and whether illegality defeated the claims.

1. Applications dismissed. The court dismissed the applications for summary judgment and declined to discharge the freezing injunctions. The question whether the stay should be reinstated was left for further argument.
2. Under CPR Part 24, the defendants bore the overall burden of showing that the claims had no real prospect of success. The claimants needed only to show a real, rather than fanciful, prospect of success. The procedure was not a mini-trial: disputed factual issues requiring investigation at trial should not be resolved summarily, applying International Finance Corporation v Utexafrica Sprl [2001] CLC 1361, ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, Swain v Hillman [2001] 1 All ER 156 and Three Rivers [2003] 2 AC 1.
3. The evidence established beyond reasonable doubt at the interlocutory stage that Kozeny, Farrell, Lewis and Bodmer had participated in bribery. It did not establish the disputed alleged transfer of two-thirds of the vouchers, options or Oily Rock to Azerbaijani interests. The accounting records and inconsistent evidence created genuine issues for trial.
4. The claims in deceit, conspiracy, breach of fiduciary duty, breach of contract and account were therefore viable. The proposed account could involve secret profits, purchases at prices exceeding those permitted by the agreements, or diversion of money intended for vouchers and options.
5. Bribery abroad was contrary to English public policy even if it was not criminal under English law at the relevant time. Contracts involving bribery would be unenforceable. Following Tinsley v Milligan [1994] 1 AC 340 and subsequent authorities, the public-conscience test did not govern; the question was whether the claimant founded the action on an immoral or illegal act and whether the illegality was central rather than collateral.
6. It was arguable that Lewis’s knowledge should not be attributed to the claimants because he was acting in breach of duty and had a personal interest. Bodmer’s knowledge, acquired principally as Kozeny’s lawyer, was also not presently attributable. The effect of any attributed knowledge was a matter for trial.
7. Good relations with senior government officials did not alone establish trafficking in influence. Improper influence, of the kind identified in Lemenda Trading Co Ltd v Africa Middle East Petroleum Co [1988] QB 448, remained a factual issue.
8. The claimants retained a good arguable case for the freezing orders. Although the new evidence strengthened the defence, it did not reduce the claims below that threshold, and no serious non-disclosure had been established.