Dadourian Group International Inc & Ors v Simms & Ors

Factual and Procedural Background

This judgment of the Court of Appeal addresses appeals against four judgments of Warren J following the trial of a complex action involving two branches of the Dadourian family and their associates. The dispute arose from an option agreement entered into in September 1997 between Dadourian Group International Inc ("DGI"), a New York company controlled by Alex and Haig, and Charlton Corporation plc ("Charlton"), a UK company chaired by Mr Simms. The option agreement granted Charlton the right to purchase tooling and equipment for manufacturing hospital beds, with plans to establish a factory in Bangladesh.

Charlton exercised the option but failed to open a letter of credit as required under the purchase agreement. DGI alleged repudiation and terminated the contract, while Charlton contended otherwise and initiated proceedings in New York alleging unlawful termination and fraudulent inducement by DGI, Alex, and Haig. These proceedings were stayed pending arbitration in London, where DGI counterclaimed alleging fraudulent misrepresentations by Charlton acting through Mr Simms and Mr Rahman, and Charlton alleged fraud by DGI's representatives.

The arbitrator dismissed Charlton's claims due to non-compliance with orders but found DGI entitled to damages for repudiatory breach and fraudulent misrepresentation by Charlton's agents. DGI sought to recover damages from the appellants and Mr Rahman in the current proceedings. The appellants included Mr Simms, Jack Dadourian, and Helga Dadourian, who were alleged to have concealed their true involvement and ownership interests in Charlton and Ancon Corporation Inc ("Ancon").

The litigation involved a series of interim applications, including worldwide freezing orders against the appellants and Mr Rahman to preserve assets. The trial lasted several weeks, resulting in Warren J dismissing most claims but upholding a claim based on an "intermediary representation"—that Jack and Helga represented themselves as mere intermediaries when they in fact owned and controlled Charlton. The judge found Mr Simms and Helga liable as joint tortfeasors for deceit and held that DGI was induced by this misrepresentation to enter the option agreement.

Subsequent judgments dealt with damages, costs, freezing orders, and applications to strike out the appeals on grounds of misconduct and non-disclosure. The Court of Appeal considered seven main issues arising from the grounds of appeal and related applications, including challenges to findings of fraud, liability, inducement, damages, costs orders, and the exercise of discretion regarding freezing orders.

Legal Issues Presented

1. Did the judge err in finding that Jack made the intermediary representation?
2. Did the judge err in finding that Mr Simms was liable for the intermediary misrepresentation?
3. Did the judge err in finding that Helga was liable for the intermediary misrepresentation?
4. Did the judge err in finding that DGI was induced by the intermediary representation to enter into the option agreement?
5. Did the judge err in finding that DGI was entitled to recover as its loss caused by the intermediary representation the costs and expenses incurred in the New York and arbitration proceedings?
6. Did the judge err in ordering that the costs payable by the appellants should be paid on an indemnity basis?
7. Did the judge err in the exercise of his discretion when he refused to discharge the interim freezing orders made against the appellants?

Arguments of the Parties

The opinion contains detailed accounts of the parties' arguments, including submissions by Mr Simms and Mr Cakebread on behalf of the appellants, and responses by the respondents' counsel, Mr Samek and Mr Freedman QC. The arguments are integrated into the court’s reasoning and analysis and are summarized within the respective issue discussions below.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court of Appeal undertook a detailed review of the trial judge’s findings and the extensive evidence. The court emphasized the high standard of proof required for fraud but affirmed the judge’s findings that Jack and Helga made a false representation implying they were mere intermediaries, when in fact they owned and controlled Charlton and Ancon. The court found that the judge’s conclusion on the intermediary representation was supported by a broad range of contemporaneous emails and conduct, including Jack’s deliberate concealment of his role and the phrase "playing the game" in an email to Mr Simms, which indicated a conscious deception.

The court upheld the finding that Mr Simms was liable as a joint tortfeasor, either through participation in a common design to deceive or by adopting Jack’s misrepresentation. The court rejected Mr Simms’ arguments that he was unaware of the misrepresentation and emphasized his central role as legal adviser and chairman of Charlton.

Helga was similarly held liable as a joint tortfeasor based on her close involvement with Jack, their joint ownership and control of Charlton, and her knowledge of the misrepresentation, inferred from the evidence of their conduct and relationship.

On inducement, the court accepted the judge’s application of the legal presumption that a fraudulent misrepresentation is intended to induce reliance and found no evidence rebutting this presumption. The court agreed that DGI relied on the intermediary representation in entering the option agreement and would not have done so had it known the true facts.

Regarding damages, the court upheld the judge’s award of recoverable loss limited to the costs and expenses incurred in the New York litigation and arbitration, rejecting claims for lost profits. The court accepted the judge’s application of the tort measure of damages for deceit, which compensates the plaintiff’s negative interest and includes consequential losses directly flowing from the fraud. The court also accepted the judge’s conclusion that the appellants were bound to accept the arbitrator’s findings as between DGI and Charlton for causation purposes, although not necessarily bound by the findings themselves.

The court upheld the order for costs on an indemnity basis, finding the appellants’ conduct, including serious non-disclosure of documents and misleading evidence, justified this exceptional order. The court rejected the appellants’ submissions that the respondents’ conduct should mitigate against indemnity costs, noting that the judge had already accounted for unsuccessful claims by reducing costs by 25%.

On the freezing orders, the court analyzed the two grounds for discharge: (1) that the claim on which the respondents succeeded was not pleaded at the time of the freezing orders, and (2) that there was material non-disclosure at the time of the without notice applications. The court found that although the intermediary representation claim was added later, it was closely related to the original claims and could have supported the freezing orders. The court held that the judge did not err in refusing to discharge the freezing orders or enforce the cross-undertaking in damages, considering the overall circumstances, including the risk of dissipation of assets and the appellants’ conduct.

Finally, the court addressed the respondents’ application to strike out the notices of appeal based on newly discovered documents relating to the Brinton trust and alleged non-disclosure. The court recognized serious allegations of misconduct but held that striking out was a severe remedy requiring a compelling reason. Given the absence of cross-examination and the need to preserve the appellants’ right of appeal, the court dismissed the application to strike out, emphasizing proportionality and the availability of other remedies.

Holding and Implications

The Court of Appeal dismissed the appeals against the judgments of Warren J. The court upheld findings of fraudulent misrepresentation based on the intermediary representation, liability of the appellants as joint tortfeasors, the award of damages limited to costs and expenses of litigation and arbitration, the order for costs on an indemnity basis, and the refusal to discharge the freezing orders.

The court allowed the respondents’ notice in part and dismissed the applications to strike out the notices of appeal and to adduce fresh evidence on the appeals.

The direct effect is that the appellants remain liable for the damages and costs awarded and the freezing orders remain in place. No new legal precedents were established beyond the application of established principles to the facts. The court emphasized the importance of full disclosure and the court’s discretion in managing freezing orders and costs in complex fraud litigation.