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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Zahoor & Ors v Masood & Ors [2009] EWCA Civ 650 (03 July 2009) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2009/650.html Cite as: [2009] EWCA Civ 650, [2010] 1 All ER 888, [2009] CP Rep 44, [2010] Bus LR D12, [2010] 1 WLR 746

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE PETER SMITH
HC04C01331 & HC02C02711

		Royal Courts of Justice Strand, London, WC2A 2LL
		03/07/2009

Lord Justice Mummery:

This is the judgment of the court.

Introductory

1. If there has been serious wrongdoing in legal proceedings by each side, in what circumstances, if any, can the court properly refuse to try the merits of their substantive dispute and simply make an order striking out or dismissing the action?
2. In this lamentable litigation Peter Smith J found that both sides attempted to deceive the court by forging documents. A list of over 50 challenged documents was produced. The trial judge had to hear the evidence of three experts on handwriting issues. He found it impossible to come to a clear conclusion in respect of each document and did not do so. He identified those key documents, agreements and share transfers which he held were not genuine.
3. The judge also found that both sides also lied in their evidence. In some areas of the case his task of evaluating the true facts about the dispute was difficult, if not impossible. Each of the individual parties, by using reprehensible means, set out to improve his own prospects of success, to damage those of the other side and to defeat the efforts of the court to do justice according to law. They abused, obstructed and attempted to undermine the justice system and the legal processes in which they were participating.
4. The defendants' application at trial that the action should be struck out or dismissed without deciding its merits was rejected. Instead, the judge made detailed findings in a reserved judgment, in which he concluded that he should grant relief to the claimants. Was he right to take that course? The defendants say "No." They have appealed submitting that the judge ought to have granted their application by throwing the action out on account of the claimants' proven misconduct in the case. Alternatively, they appeal against the orders made by the judge that the claimants were entitled to a beneficial interest in disputed shares and to damages for breach of an employment contract.
5. The summary disposal issue is the main point of principle in this appeal. Most of the other points are special to the facts of the case. Of course, they matter to the parties, but they are of little concern to anyone else.

Overview of proceedings

6. The appeal is from an order made by Peter Smith J on 14 May 2008. Permission to appeal was granted by a single Lord Justice on 28 July 2008. The judgment under appeal ([2008] EWHC 1034 (Ch)) was delivered in an action brought by Mr Sohail Masood. He, along with his companies, is a claimant/respondent and is referred to in the judgment below as "SM." Mr Masood brought the action against his former friend, Mr Mohammad Zahoor. He, along with his companies, is a defendant/appellant and is referred to in the judgment below as "MZ."
7. There was also before the judge Mr Zahoor's application, which was issued in other proceedings, for a third party costs order against Mr Masood. The application was based on his alleged conduct in the course of an interlocutory application in the other proceedings to which Mr Zahoor was a party.
8. Mr Masood made two main claims, which are relevant to this appeal, against Mr Zahoor and his companies.
9. The first (the Shares Claim) was of beneficial entitlement to shares in Mr Zahoor's Guernsey company, International Steel and Tube Industries Limited (ISTIL). The shares were claimed as promised compensation for services to be rendered to Mr Zahoor and his companies. The claim was resisted on the basis that no shares were promised. Peter Smith J rejected the alleged written agreement for shares, holding that it was a forgery. However, he made an order in favour of Mr Masood based on what the judge held was a contribution to the purchase price of the shares. His order stated that Mr Masood-

"1. …was and is beneficially entitled to the shares in the Third Defendant [ISTIL] numbering 2,007,500 registered or formerly registered in the name of the late Khatoon Shahood [referred to as KS in the judgment below] and numbering 2,307,500 registered or formerly registered in the name of the Fifth Defendant [Waseem Mehboob] and entitled to direct the disposal of the legal and beneficial title to such shares."

10. The judge ordered that Mr Masood and his fellow claimant, Mohammad Ali, were entitled, subject to undertakings given by them to the Guernsey Court, to direct the disposal of the legal title to such shares and to be registered as holders of the same (see [2] of the order).
11. Mr Masood's second main claim (the Employment Claim) was for unpaid salary from the date of his summary dismissal until the contractual termination date. Mr Zahoor resisted the Employment Claim on the ground that Mr Masood's summary dismissal and his consequent loss of salary or pay in lieu of notice were justified. Mr Masood was alleged to have procured forged documents, an activity giving rise to disputes in the other proceedings already mentioned involving ISTIL, Mr Zahoor and a Cypriot company owned by him, Reventox Consulting Limited (Reventox).
12. On the Employment Claim the judge made an order in favour of Mr Masood that

"3. The Third Defendant [ISTIL] do pay to the First Claimant [Mr Masood] the sum of US $342,000 together with interest thereon from 7 July 2003 until the date of this judgment at the rate of 8% per annum amounting to US $ 131,328.00 provided that this judgment is not to be enforced but is subject to set off against the liabilities of the First Claimant to the Third Defendant pursuant to the Mutual Release and Settlement Agreement signed by the First Claimant dated 7 January 2007."

13. The adjourned costs application (the Reventox Costs Claim), which was heard by Peter Smith J along with the Shares Claim and the Employment Claim, was for a third party costs order against Mr Masood personally under section 51 of the Supreme Court Act 1981 and CPR 48.2. A direction had been given that it should be heard by the same court as would hear the Employment Claim.
14. The Reventox Costs Claim was for some of the costs incurred by Mr Zahoor in the proceedings brought against him and Reventox by ISTIL Group Inc in 2002. In the course of the proceedings a contentious interlocutory issue relating to the return of privileged documents arose. Mr Zahoor alleged that Mr Masood had procured forged documents to be put in evidence and that this had caused legal costs amounting to an estimated £80,000 to be incurred by him. The judge made no order on the Reventox Costs Claim.
15. As for the costs of the proceedings overall the order of the judge was that-

"12. In the exercise of the power conferred by CPR 44.14 there shall be no order for the costs of the proceedings save in respect of outstanding interlocutory costs orders already made."

16. We note that these are only some of the legal proceedings in which these parties are engaged. Proceedings in the Royal Court of Guernsey have been stayed pending trial of the Shares Claim. Another action in Guernsey (called the EGM Action) is mentioned in the judgment below, but, as it does not feature in this appeal, we stay silent about it.
17. Welcome developments in the course of the hearing led to a reduction in the grounds of appeal. Some factual aspects of the case which Peter Smith J had to cover in his judgment no longer concern this court. The interested reader can find out more about the detail by accessing that judgment.
18. The position in this court is that, by the end of the hearing, Mr Zahoor was no longer pursuing all of his original grounds of appeal. Further, Mr Masood's response to some of the remaining grounds was shortened. The factual background can now be treated relatively briefly.

Background facts

19. Mr Zahoor is a steel expert and metallurgist. He owned 49% of a holding company for a steel trading group called Metalsrussia Group Holdings Limited (MGHL). His financial backer is Mr Wit, an important figure in the Asian steel industry based in Thailand. Other "Zahoor Companies" were ISTIL, an ISTIL company incorporated in Delaware, Metalsukraine Corporation Limited incorporated in the British Virgin Islands and Azot Limited. Mr Zahoor gained control of the ISTIL group of companies in March 2003. That is when there was a falling out between him and Mr Masood.
20. Mr Masood was an old friend from schooldays in Pakistan. He owned Newport West Financial Inc (NWF), a financial services business incorporated in Oregon, USA. It carried on business from Portland. A related company was Newport Financial Holdings Limited incorporated in Nevada. The Masood companies were co-claimants in the action.
21. From about 1996 to 2003 Mr Masood was effectively the finance director of the group of Zahoor Companies. He organised and raised the group's finance. He claimed that from April 1996 he was engaged to provide financial services to Mr Zahoor and his group of companies under consultancy agreements, which were later amended and ultimately terminated in March 2003; that, in return for services, Mr Zahoor promised him a 5% shareholding in ISTIL on completion of the privatisation of a steel mill (DMZ) in the Ukraine; and that he also promised him a further shareholding in ISTIL consisting of another 3% plus an option over 2% as part of an employee share option scheme on the completion of a successful flotation of the group.
22. The conditions relating to the DMZ steel mill acquisition were, according to Mr Masood, fulfilled entitling him to shares in return for the services rendered by him and his companies. The parties then fell out. Mr Masood was dismissed. He issued proceedings for remuneration for services rendered, including a bonus of US $2m, recovery of unpaid salary and damages for malicious falsehood. He claimed entitlement to 8% of the issued share capital in ISTIL.
23. Part of Mr Masood's pleaded case (see [47] of the Particulars of Claim quoted below) was that an agreement was made on 2 February 1997 that 500,000 shares to be vested in Khatoon Shahood [KS] and Waseem Mehboob (who are both mentioned in the court order quoted above) were to be held on trust for him. This is referred to as the "Shares Agreement."
24. In the ensuing litigation the disgraceful behaviour of both sides elicited the judge's comment that the case was unmanageable and almost impossible to try. Mr Zahoor alleged that the documents underpinning Mr Masood's claims against him were forged. Mr Masood alleged that Mr Zahoor had forged documents to bolster his defence. The judge found both of them guilty of forgery and perjury. This court sympathises with the judge before whom the case lasted 20 days. Fortunately for this court and for the parties, Mr Anthony Trace QC, who appeared for Mr Zahoor, and Mr Richard de Lacy QC, who appeared for Mr Masood, guided the court responsibly and expertly through the mass of confusing and conflicting documents and evidence. On various points each of them made sensible and realistic efforts at keeping the issues on the appeal within more reasonable bounds.

The judgment

25. The perjury and forgery by both sides was so extensive that the judge said that he would not accept the evidence of either side, unless supported by independent documents whose authenticity was not challenged and the evidence of witnesses whose veracity was not challenged. He aimed at deciding the case on the basis of uncontaminated evidence.
26. Mr Masood has not cross appealed against the judge's findings that he forged documents to support his Shares Claim and a claim to a bonus of US$2m. Against the finding of the judge that Mr Zahoor had forged or created "Loan Deeds" to refute Mr Masood's Shares Claim, Mr Zahoor did appeal, but, in the course of the hearing, Mr Trace informed the court that his client no longer pursued that ground. The same went for another ground of Mr Zahoor's appeal - that the judge ought to have found that the Mehboob Agreement, which the judge had accepted as genuine, was in fact another of Mr Masood's forgeries.
27. The grounds of Mr Zahoor's appeal that he no longer pursues only arose if he failed on his two main grounds for appealing the decision on the Shares Claim. The two main grounds were, first, that the judge should have struck the claim out, as it was based on forged documents; and secondly, he had wrongly decided the Shares Claim in favour of Mr Masood on a basis which was never pleaded, proved or argued.
28. On the overall conduct of the case the judge rejected Mr Trace's contention that Mr Masood was precluded from recovery under the Shares Claim by reason of his attempts in the litigation to deceive the court and to bolster the claim with forged documents, though he went on to hold that the conduct of both sides was such that neither should recover costs in the main action.
29. The judge reached the following specific conclusions on the Shares Claim and the Employment Claim.
30. First, there was no written or oral primary consultancy agreement for the shares in ISTIL claimed by Mr Masood in return for services rendered to Mr Zahoor and his companies. The claim was based on documents forged by Mr Masood. So the Shares Claim based on shares as promised remuneration and on forged share transfers failed. In case he was wrong about the forgeries the judge said that he did not accept that the performance fees claimed were earned.
31. Secondly, the judge also held that the Loan Deeds relied on by Mr Zahoor by way of defence to Mr Masood's claims for performance fees and shares were not genuine. They had been put forward by him "as a smokescreen to challenge SM's entitlement."
32. Thirdly, Mr Masood had a good claim to certain shares (4.3% of the shares in ISTIL) held by nominees (KS/Mr Mehboob) on the basis of an understanding reached between the two men. The judge found that there was an agreement between Mr Zahoor and Mr Masood that the KS/Mehboob shares would be held for Mr Masood beneficially. Mr Masood had contributed to the original purchase price of the shares pursuant to an understanding that he would receive some shares for his contribution.
33. On this point the judge held that-

"86. I determine that the Nominees were not intended to be beneficial owners of the shares. None of them so far as I can see had any means ever to satisfy any of the large loan liabilities and the structure of the Loan Agreements was intended in effect to prevent any of the Nominees seeking to deal with the shares. However I reject MZ's contention that the shares were intended to be held for his benefit. In my view (and I so determine) the Nomineeship was split as SM suggests. That reflects the large unchallenged contribution that he made towards the purchase price. An arithmetical analysis of the figures shown on the Richards Butler statement and the purchase price stated in the loan documents is significant. The total shortfall between the prices purportedly paid by the Nominees and the figures shown on the Richards Butler statement is approximately $1,515,000. The total purchase price in respect of the Mehboob and KS shares is also $1,515,000 and the amount contributed by NWF is $1,515,000. This in my view is the key document to show what actually went on. Its authenticity is not challenged. Given those figures the only conclusion that can be made is that the $1,515,000 is in effect attributable to SM's acquisition of shares by Mehboob and KS. In view of the problems (to use a mild expression) of a significant amount of the other contemporary documentation (see below under the section forgery and perjury) this is the strongest indication of where the true agreement lay."

34. Fourthly, the judge referred to what happened after he sent out the draft of his proposed judgment in advance of the date fixed for handing it down. Mr Zahoor's legal advisers produced written submissions, which the judge described as an attack on the findings in favour of Mr Masood in relation to the shares currently registered in the named of KS and Mr Mehboob. He was invited by Mr Trace QC not to hand down judgment, but to adjourn the handing down for further argument to take place. The judge deplored this proposal and added that nothing in the written submissions persuaded him that he should change his judgment, which he was firmly convinced was the correct decision and in accordance with the pleadings, though he had not accepted every aspect of the parties' pleadings on that particular issue when he determined the facts.
35. The judge returned to the great difficulties caused to him in trying a case in which the parties had presented their cases by lying and forged documents to support untruthful versions of events concerning the shares and by withholding truthful and frank evidence about the acquisition of the shares. We sympathise with the judge on this point and appreciate the problems created for him by the conduct of both sides in the litigation.
36. The judge then dealt with the main criticism of his judgment and re-iterated his conclusion that the shares were held in trust for Mr Masood. He said (see [95]) that it was clear that Mr Masood had funded the acquisition of the KS and Mehboob shares and that he had made out the contention in his pleadings (see [49] of the Re-Amended Particulars of Claim) that he had made a large contribution for those shares and was never repaid. The judge rejected the contention of Mr Masood that he paid for the shares under the terms of the agreement pleaded by him and he rejected Mr Zahoor's contentions as to the beneficial ownership of the shares. The judge said-

" 96. Given the difficulties imposed on me by the conduct (sic) of the parties I am driven to conclude nevertheless that he made that contribution on the understanding that he was to own those shares beneficially and MZ owned the others in the names of other Nominees.

97. I am unable to discern the full terms of such understanding because of the lies and forgery of all parties. However I am firmly of the view that it was intended that SM was to be the beneficial owner of the shares and that the Nominees and MZ had no beneficial interest in them whatsoever. That conclusion is amply supported by such untarnished evidence as is left to me as a result of the actions of the parties. There was either an express agreement as such or there was an implied understanding to that effect.

98. Alternatively if there was no such express or implied agreement I would conclude absent any such agreement that he is the beneficial owner by reason of his payment for the acquisition of the shares as established by the findings above in accordance with paragraph 149 of his Claim as there is no other claim that is established in respect of those shares by any other party and that PS and Mr Mehboob hold them upon trust for him. Such an alternative finding is open to me on the claim as pleaded in my view."

37. The judge added that he did not consider that this was an attempt by him to devise a result not made out before him and that it arose out of his difficulties in ascertaining the truth, difficulties to which all the parties had contributed. He said that given the fact of payment it would be an injustice, despite the lies and forgery committed by Mr Masood, to deny his undoubted claim to these shares.
38. In submissions on the appeal this basis for upholding the Shares Claim has been called "the Contribution Theory." It is criticised by Mr Zahoor as being the judge's theory, which was not based on a pleaded case, or on evidence or argument at the trial. Mr Masood's advisers defended the judge's conclusion as being open to him on the pleadings, though they did not support his alternative conclusion based on contribution to the acquisition of the shares.
39. Fifthly, the judge held that Mr Masood was entitled to the balance of his salary ($342,000 from ISTIL for the period December 2002 to July 2003) for breach of the contract of employment when Mr Zahoor obtained control of the ISTIL group. Mr Masood had not repudiated his employment contract. The summary termination of it on 8 March 2003, when Mr Zahoor obtained control of the ISTIL group, was a breach of contract.
40. The judge referred to the closing submissions on behalf of Mr Zahoor that Mr Masood had spent time battling against the interests of the shareholders and concocting forgeries and that that justified summary dismissal. The judge said-

"282. ….Whilst I have found that forgeries were concocted they are in relation to his personal claims against individual Defendants. I have not been able to come to a conclusion about his third Affidavit in the Reventox proceedings. Had I determined that he had a part in procuring forged documents I would have concluded that ISTIL would have been entitled summarily to dismiss him. Further ISTIL would have been able to rely upon that ground even if they were not aware of it at the time (Boston Deep Sea Fishing v. Ansel (1888) 39 Ch D 339)."

41. The judge added-

"283. I do not accept any lawful justification has been made out for the summary dismissal for SM in March 2003. The reality is that by 2002 these former friends had fallen out. SM had a role in procuring ISTIL to pursue MZ in the Reventox proceedings. I do not think those proceedings as I have said were without justification. It is hardly surprising however that when MZ as defendant obtained control of ISTIL the Claimant the first thing he did was terminate SM's contract of employment. He would have seen him as his tormentor (I suspect he still does to a degree).That is not however a justification for breaking the contract.

284. It follows therefore that ISTIL Group in my view was in breach of contract when it summarily terminated SM's employment in accordance with the Exit Agreement. SM is entitled to damages flowing from that. He claims salary. That could not be claimed as a debt for the reasons I have already set out but it does not matter because it is not suggested by the Defendants that he has suffered any less loss than the amount of the salary he claims. Further whilst SM is under a duty to mitigate his loss the burden of proving non-mitigation is on the Defendants. SM is therefore entitled in my judgment to the balance of the salary as damages."

42. Sixthly, the judge held that Mr Masood was entitled to nominal damages for malicious falsehood for a statement on the ISTIL website alleging that he was guilty of dishonesty in relation to the Reventox litigation. That aspect of the dispute has not been pursued on the appeal.
43. Seventhly, on the Reventox Costs claim, the judge concluded that he could see no reason why Mr Masood should be ordered to pay any of the costs for the Reventox action personally under section 51 of the Supreme Court Act 1981. He said that he was in no better position than Lawrence Collins J, who had heard the injunction application in the Reventox action, to determine the truth of the two Appendix 1 documents procured by Mr Masood and adduced by him in evidence in his third affidavit on that application. The judge was satisfied that there was an arguable case in that action that Mr Zahoor had sought to divert to himself, through the medium of Reventox, commissions and opportunities that ought to have come the way of ISTIL, but he had insufficient material to make a clear finding.
44. As for Mr Masood's alleged part in procuring forged documents and his third affidavit in the Reventox proceedings, he had already held, when dealing with the Employment Claim, that he had not been able to come to a conclusion and that, in the absence of such a finding, there was no justification for summary dismissal.
45. Accordingly he held that Mr Masood should not be ordered to pay the sum of £80,054.52 costs arising from the interlocutory proceedings in the Reventox action.

Appeal issues

46. We will deal separately and seriatim with the Shares Claim, the Employment Claim and the Reventox Costs Claim.

I. Shares Claim

A. Zahoor submissions

47. Mr Zahoor contended that the judge should have dismissed the Shares Claim with costs, mainly on the ground that, as Mr Masood based it and his other claims on forged documents and false oral and written evidence, it should simply have been struck out. The judge said that he would have taken this course if Mr Masood had been the only person guilty of forgery and perjury, but he was not. The judge found that Mr Zahoor was also guilty of forgery and perjury. He held that the approach in the leading case of Arrow Nominees Inc v. Blackledge [2000] 2 BCLC 167 (discussed below) did not apply with full force where both sides had forged documents. This approach, it was contended by Mr Trace QC, was wrong in principle.
48. If that ground failed, the alternative ground of appeal is the "pleading point," though that description does not do full justice to the sweep of Mr Trace's submission. The complaint is that the judge (rather than Mr Masood) advanced the Contribution Theory on which he based the order relating to the shares in ISTIL. It was not the subject of pleadings, evidence or submissions.
49. Mr Trace QC strenuously contended that it was not open to the judge to make the finding that he did. Mr Masood's case was not advanced as a claim to shares arising out of his provision of purchase monies. It was pleaded and sought to be established as a claim of an agreed entitlement to shares in ISTIL as compensation for and in return for services to be rendered. That case failed, because the judge held that the contractual documents on which it was founded had been forged.
50. It was, he said, unacceptable for the judge to substitute his own theory of the case for what had been pleaded by Mr Masood and then to decide the issue in favour of Mr Masood on a basis which had not been explored with any of the witnesses. Mr Zahoor was denied the opportunity of considering whether to seek the disclosure of documents or the opportunity of considering whether to seek evidence from other witnesses directed to the issue. The judge had wrongly found for Mr Masood on an unpleaded case.
51. Mr Trace QC cited Al-Medenni v. Mars UK Limited [2005] EWCA Civ 1041 per Dyson LJ at paragraph 21-

" ….It is fundamental to our adversarial system of justice that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other. The function of the judge is to adjudicate on those issues alone. The parties may have their own reasons for limiting the issues or presenting them in a certain way. The judge can invite, and even encourage, the parties to recast or modify the issues. Bur if they refuse to do so, the judge must respect that decision. One consequence of this may be that the judge is compelled to reject a claim on the basis on which it is advanced, although he or she is of the opinion that it would have succeeded if it had been advanced on a different basis. Such an outcome may be unattractive, but any other approach leads to uncertainty and potentially real unfairness.

22. The starting point must always be the pleadings…

……..

25. ……By making findings for which the claimant was not contending, it seems to me that the judge crossed the line which separates adversarial and inquisitorial systems. What he did may have been legitimate in an inquisitorial system. It was, in my judgment, impermissible in our system. "

52. Mr Trace QC submitted that, far from being pleaded, the Contribution Theory was directly contrary to the case that Mr Masood had pleaded in the re-re-amended Particulars of Claim and to Mr Masood's evidence in his witness statement and in cross examination. His case on the evidence was not that he was obtaining an interest in the shares in return for providing purchase money: it was his intention that the purchase monies would be repaid, having been, as he had asserted in correspondence in 2005 when threatening to sue for re-payment, provided as a loan to Thaiwin Asia Limited (one of Mr Wit's companies) and Azot Limited.
53. If both of those grounds failed, there were originally other grounds of appeal, but, as mentioned above, they were not pursued.
54. One of the disappearing grounds was that the judge was wrong to find that the Loan Deeds had been forged or created by Mr Zahoor to bolster his case, to deceive the court and to defeat Mr Masood's allegedly false Shares Claim. Although they had been backdated by some months to 13 December 1996, they were in existence in early 1997. That was supported by evidence from Mr Mahboob and was well before any dispute arose between the parties on their falling out from September 2002 onwards. Mr Zahoor's ground of appeal had been that the judge should have found that the Loan Deeds were executed as alleged by him.
55. Another ground not pursued by Mr Zahoor was that the Mahboob Agreement relied on by Mr Masood was not supported by unchallenged evidence and was a forgery. There was no reason for its existence.
56. Although those grounds were not pursued on this appeal, it was made clear on behalf of Mr Zahoor that he did not accept the findings of the judge. He denied that he had forged documents or committed perjury. The judge's finding that he had was unjustified and was not for a civil court.

B. Summary of Masood submissions

57. In a letter sent by Mr Masood's solicitors to Mr Zahoor's solicitors on 29 October 2008 it was accepted, in response to a request for clarification of Mr Masood's skeleton argument relating to contribution to the purchase price of the shares, that

" ….the finding of a resulting or possibly constructive trust was not argued and was not open to the judge."

58. Thus Mr Richard De Lacy QC for Mr Masood did not support the judge's holding of a resulting or constructive trust of the shares based on the Contribution Theory. He accepted that it was not pleaded that there was a resulting trust arising from a contribution of Mr Masood to the purchase price. Instead, he supported the outcome of the Shares Claim on the basis of a contractual claim pleaded in [47] of the Particulars of Claim. It was, it was submitted, included in the agreed list of issues at trial (issue 5B) and was proved.
59. [47] pleaded an oral agreement in the following terms-

"On or about 2 February 1997, after a board meeting of MGHL in Bangkok, Masood, Wit (on behalf of himself and Thaiwin), Zahoor (on behalf of himself and AZOT) agreed ("The Shares Agreement") that in view of the facts:_

(1) that there would be a delay in effecting the Initial Public Offering;

(2) that in consequence there would be a delay in Masood's receiving compensation under the General Consultancy Agreement;

as a result of the decision not to proceed with a listing of MGHL on the Hong Kong Stock Exchange, 500,000 of the Shares to be transferred to Khatoon Shahood and Mehboob would in future be held by them for the benefit of Masood as part of the compensation due to Masood under the terms of the Donetsk Consultancy Agreement subject only to completion by Newport Holdings of its obligations thereunder. It was an express term of the Shares Agreement, alternatively such a term is to be implied in order to give business efficacy to the contract, that Zahoor and AZOT would not act in any way to prejudice Masood's interests in the 500,000 shares that were to be transferred to Khaltoon Shahood and Mehboob."

60. It was also pleaded that

"49. In any event, Newport Holdings paid the purchase price for the shares but neither Zahoor or Azot have indemnified Newport Holdings for that expense either out of the dividend or at all."

61. The Donetsk Agreement of 1 April 1996, which the judge did not find to be a forgery, provided for payment of a monthly retainer and for a performance fee. It did not provide for Mr Masood to have shares in ISTIL. Provision for shares was alleged to have been made by way of written amendments to the Donetsk Agreement on 10 November 1996, which amendments the judge held to have been forged.
62. It was also submitted that the judge was entitled to exercise his discretion not to strike out Mr Masood's Shares Claim in the summary fashion sought by Mr Zahoor.

C. Discussion and conclusions on shares claim

63. In support of the main ground of appeal that the judge erred in not striking out all of Mr Masood's claims as an abuse of process on the grounds that some (at least) were based on forged documents and false written and oral evidence Mr Trace QC relied on the decision of this court in Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167. Peter Smith J referred to this decision and cited extensively from the judgments of Chadwick and Ward LJJ. He then said:

"150. If I was dealing solely with misconduct by SM I would have had no hesitation in striking out the entirety of his claims. He has not made the case impossible but he has very nearly made it so. To remove from the Judge's tools for assessing where the truth lies all significant contemporaneous documents is a very serious act of misconduct. He has made my task virtually unmanageable.

151. That is not however the end of the matter. In this case the Defendants themselves have also been guilty of forging documents and perjury. It is not as extensive as that of SM's but it is equally pernicious. The difficulty I have is with the application of an appropriate sanction. With regard to a Claimant the sanction is clear; it is the dismissal of the action which it was sought to bring with the use of illegitimate material. If SM's action is struck out then striking out the Defendants' Defence does not achieve anything because they have no claim to meet. I could not even if I struck out the Defence prevent a Defendant from having the right to challenge a case without calling any evidence itself. That is a normal consequence when a court strikes out a Defence. The hearing has to be listed so that the Claimant can prove his case.

152. Where as in this case all the main parties are guilty of forgery and perjury striking out the claim in effect awards victory to a wrongdoer Defendant. It would be unjust (if that is the appropriate word for a forger and a perjurer) if SM's claim is struck out with no corresponding effective sanction applied to the Defendants. There may be cases where doing that can achieve a fairness as between misconducting parties. It is possible to think of examples where that might be effective. However in the present case the Defendants are in possession of the shares which form the primary claim. Simply putting an end to an action from both sides' points of view leaves them in possession of the shares. These are particular assets which they have sought to maintain possession of by forgery and perjury. Now it can be said that the reason why they succeed despite their forgery and perjury is because SM fails because of his own forgery and perjury. He is therefore the victim of his own misconduct and one should not weep over it.

153. Putting it another way if both sides have their ability to adduce evidence removed because of their misconduct one falls back on the principle that the case is decided on the basis that the party on whom the burden of proof lay has failed to satisfy that burden see Rhesa Shipping SA v Edmunds [1985] 1WLR 948 at 951 B-D.

154. The easy course given the parties conduct would be simply to decline to adjudicate the case and strike out all the pleadings and then leave SM with no remedy. I have come to the reluctant conclusion that that in itself would not be an appropriate action in the present case. At the end of the day everybody (however badly they perform) is entitled to have access to the courts to have disputes resolved. If they abuse their right to access then the court has sanctions. However when all abuse their access as in the present case punishing one to a greater extent than the other would itself in my view create an injustice. I have accordingly therefore come to the reluctant view that despite all my misgivings and (I have to say) the great distaste I feel about this that I must attempt to resolve all the issues doing the best I can but without a great deal of assistance from testimony of the main players and with the need to adopt an extremely cautious approach to contemporaneous documents. Ultimately if I am unable to decide an issue on the uncontaminated material that is left to me that issue will be decided on the burden on proof. The parties will then suffer the consequences of their actions. I have made clear to the parties during the course of the trial that it is extremely likely that I will take further action over their misconduct and I intend so to do."

64. Mr Trace QC submitted that, in the light of his findings at [150], the judge should have refused to determine any of the claims. He should have struck out all of the claims on the grounds that Mr Masood had persisted in his object of frustrating a fair trial and damaging the due administration of justice, thereby forfeiting the right to a determination of any of the claims.
65. In the Arrow Nominees case, A had a minority shareholding in a company managed by B who was the majority shareholder. He presented a petition alleging unfairly prejudicial conduct of the company's affairs by B. Following the admission by A that he had produced fraudulent documents, B applied to strike out the petition on the ground that a fair trial was no longer possible. The judge dismissed the application on the grounds that a fair trial was possible. At the trial, further evidence of fraud emerged and B renewed the application to strike out. The judge found that A had persisted in his fraudulent behaviour, but dismissed the application because a fair trial was still possible in respect of the claims which had not been infected by A's fraudulent conduct. In the event, the judge gave judgment for A.
66. The Court of Appeal allowed B's appeal. The court accepted that, once the judge had excluded the evidence that was infected by A's fraudulent conduct, there was no evidence to support his conclusion that B had behaved unfairly to the minority shareholders. Nevertheless, they held that the judge had been wrong to refuse to accede to the second application to strike out the petition.
67. Chadwick LJ gave two reasons for his decision. First, at [53] he said that the judge should not have allowed the petition to proceed once he had reached the conclusion that there was a substantial risk that there could not be a fair trial. He expressed his second reason in these terms:

"54…. But where a litigant's conduct puts the fairness of the trial in jeopardy, where it is such that any judgment in favour of the litigant would have to be regarded as unsafe, or where it amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice, the court is entitled, indeed, I would hold bound, to refuse to allow that litigant to take further part in the proceedings and (where appropriate) to determine the proceedings against him. The reason, as it seems to me, is that it is no part of the court's function to proceed to trial if to do so would give rise to a substantial risk of injustice. The function of the court is to do justice between the parties; not to allow its process to be used as a means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.

55. Further, in this context, a fair trial is a trial which is conducted without an undue expenditure of time and money; and with a proper regard to the demands of other litigants upon the finite resources of the court. The court does not do justice to the other parties to the proceedings in question if it allows its process to be abused so that the real point in issue becomes subordinated to an investigation into the effect which the admittedly fraudulent conduct of one party in connection with the process of litigation has had on the fairness of the trial itself. That, as it seems to me, is what happened in the present case. The trial was 'hijacked' by the need to investigate what documents were false and what documents had been destroyed. The need to do that arose from the facts (i) that the petitioners had sought to rely on documents which Nigel Tobias had forged with the object of frustrating a fair trial and (ii) that, as the judge found, Nigel Tobias was unwilling to make a frank disclosure of the extent of his fraudulent conduct, but persisted in his attempts to deceive. The result was that the petitioners' case occupied far more of the court's time than was necessary for the purpose of deciding the real points in issue on the petition. That was unfair to the Blackledge respondents; and it was unfair to other litigants who needed to have their disputes tried by the court.

56. In my view, having heard and disbelieved the evidence of Nigel Tobias as to the extent of his fraudulent conduct, and having reached the conclusion (as he did) that Nigel Tobias was persisting in his object of frustrating a fair trial, the judge ought to have considered whether it was fair to the respondents, and in the interests of the administration of justice generally, to allow the trial to continue. If he had considered that question, then, as it seems to me, he should have come to the conclusion that it must be answered in the negative. A decision to stop the trial in those circumstances is not based on the court's desire (or any perceived need) to punish the party concerned; rather, it is a proper and necessary response where a party has shown that his object is not to have the fair trial which it is the court's function to conduct, but to have a trial the fairness of which he has attempted (and continues to attempt) to compromise."

68. Ward LJ was also of the view that the question of a fair trial was not the only material factor. He said at [70] that it was necessary to "emphasise and protect the court's own interest in administering justice fairly not only as between the parties before the court, but to all others using the court service". At [73], he said that "the attempted perversion of justice is the very antithesis of parties coming before the court on an equal footing". At [74], he said that A's admitted forgeries were:

"a flagrant and continuing affront to the court. Striking out is not a disproportionate remedy for such an abuse, even when the petitioners lose so much of the fruits of their labour."

69. Finally, at [75], he said:

"Even if the judge were correct in his analysis that all effect of the 1994 agreement could be excised from the petition and a prima facie case could be made out of what remained, I am quite clear that, if the CPR are to receive a correct start, then this court must make the clear statement that deception of this scale and magnitude will result in a party's forfeiting his right to continue to be heard."

70. Roch LJ agreed with both judgments.
71. In our judgment, this decision is authority for the proposition that, where a claimant is guilty of misconduct in relation to proceedings which is so serious that it would be an affront to the court to permit him to continue to prosecute his claim, then the claim may be struck out for that reason. In Arrow Nominees, the misconduct lay in the petitioner's persistent and flagrant fraud whose object was to frustrate a fair trial. The question whether it is appropriate to strike out a claim on this ground will depend on the particular circumstances of the case. It is not necessary for us to express any view as to the kind of circumstances in which (even where the misconduct does not give rise to a real risk that a fair trial will not be possible) the power to strike out for such reasons should be exercised. There is a valuable discussion of the principles by Professor Adrian Zuckerman in his editor's note entitled "Access to justice for litigants who advance their case by forgery and perjury" in CLQ [2008] 27 p 419.
72. We accept that, in theory, it would have been open to the judge, even at the conclusion of the hearing, to find that Mr Masood had forged documents and given fraudulent evidence, to hold that he had thereby forfeited the right to have the claims determined and to refuse to adjudicate upon them. We say "in theory" because it must be a very rare case where, at the end of a trial, it would be appropriate for a judge to strike out a case rather than dismiss it in a judgment on the merits in the usual way.
73. One of the objects to be achieved by striking out a claim is to stop the proceedings and prevent the further waste of precious resources on proceedings which the claimant has forfeited the right to have determined. Once the proceedings have run their course, it is too late to further that important objective. Once that stage has been achieved, it is difficult see what purpose is served by the judge striking out the claim (with reasons) rather than making findings and determining the issues in the usual way. If he finds that the claim is based on forgeries and fraudulent evidence, he will presumably dismiss the claim and make appropriate orders for costs. In a bad case, he can refer the papers to the relevant authorities for them to consider whether to prosecute for a criminal offence: we understand that this was done in the present case.
74. In his note, Professor Zuckerman comments on the judgment of Peter Smith J that, if the judge had struck out the claims, "he would have spared the legal system considerable resources and would have delivered a clear message to those who might be tempted to use suppression, forgery and perjury to advance their cause". We can see that, if an application to strike out had been made at an earlier stage of the proceedings, this might well have been the case. Indeed, Professor Zuckerman himself says that the adoption of the "forfeiture approach would require the court to be alert to the possibility of fraud on the court and take the necessary measures at an early stage" (emphasis added). In a complex case (such as the present) which requires a good deal of evidence before the fraud can be established to the requisite standard of proof, it may be difficult to avoid a full trial.
75. The judge said at [150] that he would have struck out all the claims if he was dealing solely with the misconduct of Mr Masood. As we have said, we think that it was too late to take that course. But the judge was wrong to hold that the fact that the defendants had also been guilty of misconduct was a reason for him not to exercise the power to strike out the claims on the grounds of Mr Masood's misconduct. In our judgment, the defendants' misconduct was irrelevant. On the assumption that it was not too late to consider striking out the claim, the sole question was whether, by reason of Mr Masood's forgeries and fraudulent evidence, the claimants had forfeited the right to have an adjudication of their claims. The answer to that question did not involve an exercise of weighing the misconduct of the claimants against that of the defendants. The defendants did not start the proceedings. They did not seek relief from the court. They were merely defending the claims brought by the claimants.
76. It follows that we reject the first ground of appeal. The judge was right not to strike out the claims, although we do not agree with the reasons that he gave for refusing to do so.
77. We are grateful to Counsel for drawing to our attention the very recent case of Shah v. Ul-Haq [2009] EWCA Civ 542. It was decided by the Court of Appeal after the oral hearing in this appeal. The judgments comment on attempts to rely on the judgments in Arrow Nominees in order to strike out a genuine claim at the end of a trial on the ground that the claimants had been involved in a fraud upon the court in respect of an associated claim. We informed counsel that we did not think that it was necessary for them to make written or oral submissions on the new authority.
78. The appeal in that case arose from an unsuccessful application at the end of the trial of a road accident injury claim for a strike out under CPR 3.4(2)(b) on account of the claimants' part in an attempted fraud in falsely alleging that the claimant driver's mother was also a passenger in his car at the time of the accident. Under that CPR provision the court has a discretion to strike out a statement of case, if it appears to the court that the statement of case "is an abuse of the court's process or is otherwise likely to obstruct the just disposal of the proceedings."
79. In her judgment (at [28]) Smith LJ, with whom Moses and Toulson LJJ agreed, rejected the notion that Arrow Nominees was authority for the proposition that CPR 3.4(2) provides a power to strike out a claim at the end of a hearing where there is no suggestion that it had not been possible to hold a fair hearing. She said that she was unaware of any reported case in which a judge had dismissed the whole of a claim because he has found that the claim has been dishonestly exaggerated (see [17]). She treated Arrow Nominees as relevant to a case where it becomes apparent either that it will not be possible to have a fair trial or because, without some corrupted evidence, which has to be disregarded, the claim cannot succeed. It may then be possible to take a course which will cut matters short and prevent waste of costs (see [29]).
80. In his concurring judgment Toulson LJ also treated Arrow Nominees as a case in which the conduct of a litigant has jeopardised a fair trial and given rise to a "substantial risk of injustice" which was not the case in Shah. He added that

" 50. …..Where, as in this case, there has been a full trial, the proper course for the judge is to give judgment on the issues which have been tried. To have struck out the claims of the first and third claimants would have been to invoke a case management power not for a legitimate case management purpose (in other words, for the purpose of achieving a just and expeditious determination of the parties' rights, or avoiding an unjust determination where a party's conduct had made a safe determination impossible) but for the very different purpose of depriving those parties of their legal right to damages by way of punishment for their complicity in the second claimant's fraudulent claim, which in my judgment he had no power to do. It was open to him impose costs sanctions on the first and third claimants, which he did, but that is a different matter."

81. He also added the possibility of criminal prosecution for conspiracy to defraud and conspiracy to pervert the course of justice as a possible deterrence to others.
82. That leaves Mr Zahoor's only other live ground of appeal on the pleading point. As explained earlier, the judge rejected Mr Masood's Shares Claim based on an agreement which he held was forged, but he then upheld the claim on a basis which was not expressly pleaded and which Mr Masood does not seek to support on the appeal. The Contribution Theory was that Mr Masood owned the shares claimed because he had paid for them. There was either a resulting or constructive trust by virtue of the contribution or the contribution was evidence of an agreement or understanding that he would be entitled to some shares in return for that contribution.
83. Such findings were not open to the judge. They were never alleged or proved. What was pleaded in paragraph 4 of the Particulars of Claim was the Consultancy Agreement as amended promising shares in return for services, but that agreement was forged and so could not be relied on and the judge did not base his decision on it. It must follow that Mr Masood had failed to establish either on the basis of agreement or contribution that he was entitled to the shares.
84. In our judgment Mr Zahoor's appeal on the Shares Claim must be allowed on that ground.

II. Employment Claim

A. Summary of Zahoor submissions

85. Mr Zahoor's main ground of appeal was that the judge was wrong to conclude that there was no justification for the summary dismissal of Mr Masood. It is contended that he was justified in summarily dismissing him for procuring the forged Reventox documents. Mr Masood was not therefore entitled to be paid from that date to the contractual termination date.

B. Summary of Masood submissions

86. On the appeal Mr de Lacy QC accepted that there was unchallenged expert evidence that two letters of 9 November were forged by Mr Masood to support the claim at a time when Mr Masood was still employed by ISTIL. The letters referred to an agreed proposal for the provision of shares and compensation in return for services which the judge had rejected as a fabrication.
87. Mr de Lacy did not dispute that such acts would be contrary to the interests of his employer ISTIL and would justify summary dismissal.

C. Discussion and conclusions on Employment Claim

88. If the summary dismissal was justified, there was no breach of contract and Mr Masood was not entitled to be paid to the end of his contracts and was not entitled to damages for wrongful dismissal.
89. In our judgment, Mr Zahoor was entitled to dismiss Mr Masood summarily for procuring, whilst still employed by ISTIL, forged documents. There were such documents produced by him in support of the Reventox claim and also in support of his claims for compensation in the form of shares and cash in return for services rendered to ISTIL (see letters and stock transfer form dated November 1996 and November 1997 respectively). Mr Masood was not therefore entitled to be paid damages for loss of salary between the date of his summary dismissal and the termination date of his contract

III. Reventox Costs Claim

A.Summary of Zahoor submissions

90. The issue before the judge was whether Mr Masood was, by reason of culpable conduct, personally liable under a third party costs claim to pay the costs of an application to Lawrence Collins J in the Reventox proceedings brought by ISTIL against Mr Zahoor and Reventox, the Cypriot company wholly owned by Mr Zahoor through a nominee company.
91. Mr Masood was a director of the claimant ISTIL companies, as was Mr Zahoor. It was alleged that, in breach of fiduciary duty, Mr Zahoor had diverted to Reventox the benefit of the claimants' contract with an entity owned by the Ukrainian government.
92. The interlocutory application dated 25 November 2003 was for an order that, on the ground that it was just and reasonable that he do so, Mr Masood pay Mr Zahoor £80,054.52 in respect of the costs of and relating to ISTIL's application dated 16 December 2002 for a mandatory injunction and delivery up of certain documents. That application was dismissed by Lawrence Collins J in February 2003.
93. The basis of the third party costs application was explained in a witness statement by Mr Zahoor's solicitor, Mr Rodney Baker. Mr Zahoor, who had not recovered all his costs from ISTIL in the Reventox action which had been awarded on an indemnity basis, submitted that Mr Masood was liable to a third party costs order as a result of his conduct in the litigation. It was alleged that he was the prime mover behind the claimants' action, giving evidence on their behalf and providing instructions to their solicitors throughout the action. In particular he had put in a third affidavit served on 29 November 2002 in that litigation referring to documents (a letter of 31 December 1996 and Appendix 1) which he knew to be forged and making allegations that were based on the documents without mentioning the receipt of earlier forged documents from the same source. The affidavit was sworn in support of a freezing order obtained by the claimants against Mr Zahoor and their contention that he had diverted significant business to Reventox.
94. In his judgment of 14 February 2003 on the injunction application Lawrence Collins J stated in [107] his initial conclusion that the account in Mr Masood's third affidavit of the acquisition of the Masood Appendix 1 (relating to commission rates) from the same source ("ISTIL Friend") in November 2002 "was incomplete and misleading, and also dishonest."
95. There was unchallenged expert evidence of their forgery from Dr Audrey Giles. It was submitted that Mr Masood was culpably responsible for failing to tell the court that the source of an allegedly genuine document had previously provided documents which he knew to be forgeries and for allowing forged documents to be placed before the court as allegedly genuine documents. Costs were thus incurred in relation to a dispute whether the forged documents were entitled to privilege. The claimants had applied for an injunction restraining the use of the e-mails. It was submitted that, if Mr Masood had given proper disclosure of the circumstances in which the claimants had come into possession of the appendices to the affidavit, Mr Zahoor and Reventox would not have had to contest the claimants' claim to privilege in ISTIL e-mails in order to use them to bring to the attention of the court the forged Masood appendix. Costs had been incurred directly as a result of Mr Masood's dishonest conduct.
96. It was made clear that it was not an application, as the judge appeared to think, for payment of the entire costs of the Reventox action. Mr Zahoor was only seeking his costs of ISTIL's application for the return of privileged documents, in particular the costs of Mr Masood's third affidavit containing the forged appendices.
97. The judge had failed to determine the application and the matter of Mr Masood's responsibility. He did not decide where the responsibility for the forgery lay, even though there was unchallenged expert evidence that the document Appendix 2 procured by Mr Masood as evidence of the case against Mr Zahoor was a forgery. The issue for the judge was where the responsibility lay for the manner in which the documents were placed before the court. It was wrong to say, as the judge did, that he was no better placed than Lawrence Collins J to determine the truth of the Appendix 1 documents. There was sufficient evidence to establish that Mr Masood had procured the forged Appendix 1 documents and knowingly placed them before the court and that had caused costs to be incurred by Mr Zahoor in relation to the application for the return of documents in that litigation on the ground of privilege.

B. Summary of Masood submissions

98. It was submitted on behalf of Mr Masood that he had not acted dishonestly in relation to the Reventox litigation. This was borne out, for example, by the judge's conclusion on the malicious falsehood claim on which the misrepresentation by Mr Zahoor on the website was as to the effect of the judgment determining the application for which Mr Zahoor claims costs against Mr Masood.
99. Further, Mr Zahoor's conduct justified refusal of the relief. Mr De Lacy QC emphasised that the Reventox claim raised a serious case for him to answer. He also submitted that the amount of the costs claimed was wholly disproportionate.

C. Discussion and conclusions

100. The court was taken by Mr Trace QC to the unchallenged expert evidence showing that Mr Masood had procured the forged documents using the same base original signature to forge the letter of 31 December 1996. He said that Mr Masood had animus and motive for forging documents damaging to Mr Zahoor.
101. We are satisfied that the judge was wrong not to have made a third party costs order against Mr Masood on Mr Zahoor's application. He erred in holding that he had insufficient material on which to determine the application. He ought to have made an order against Mr Masood for those costs which he had caused to be incurred by Mr Zahoor in the Reventox action in consequence of the third affidavit and the appendices whereby he had procured forged documents to be put in evidence.

IV. Result

102. Mr Zahoor's appeal is allowed on the Shares Claim on the ground that the basis on which the judge decided it in favour of Mr Masood was not pleaded, proved or argued; on the Employment Claim on the ground that the summary dismissal of Mr Masood was justified on account of his procuring forged documents whilst in the employment of ISTIL; and on the Reventox Costs Claim on the ground that his conduct in procuring forged documents and putting them in evidence in the Reventox litigation made it just and equitable to make a third party costs order against him in favour of Mr Zahoor, limited to the costs incurred by Mr Zahoor in relation to the application to return privileged documents.