Joining a new defendant
An application to join a third defendant to the proceedings was granted, following an application made on the fourth day of the trial. The application was granted, notwithstanding that an application to join Mr Dikautschitsch had previously been made and refused six months before the trial.
This article was first published by Lexis®PSL on 12 February 2021.
At that point, Mr Dikautschitsch had not given witness evidence in the proceedings and it was not then known (or submitted) that his position was that he was the beneficiary of the trust interests which were central to the claim. In reality, Mr Dikautschitsch was participating in the proceedings and had been running the defence albeit that he had not been formally joined as a party and the court was satisfied that, despite the lateness of the application, he should be joined as a defendant. Written by Michael Rhode, senior associate at Trowers & Hamlins LLP.
Benkel (trustee in bankruptcy of Eliezer Fishman) v East-West German Real Estate Holding and another  EWHC 188 (Ch).
What are the practical implications of this case?
Persons not joined to proceedings should exercise caution as to the extent of their participation in the claim and should not consider themselves immune to being joined to the claim, even if a joinder application is made at a very late stage of proceedings and/or where previous joinder applications have not been granted.
Mr Justice Morgan considered that Mr Dikautschitsch had been seeking a tactical advantage by not joining the claim but simultaneously participating in the proceedings and effectively running the defence. Therefore, despite trial having commenced, the court made an order for him to be joined to the proceedings, considering it a necessary step to ensure the proceedings resulted in an effective outcome and to ensure the best use of the court’s time.
What was the background?
Mr Benkel, the trustee in bankruptcy for Mr Fishman, filed a claim in 2018 seeking a declaration as to the beneficial ownership of a German company (East-West Germany). East-West UK (the first defendant) held all the shares in East-West Germany and Ms Helbert (the second defendant) is the sole shareholder of East-West UK. Mr Benkel claimed that the shares in East-West Germany were held on trust by East-West UK for Mr Fishman (and subsequently for Mr Benkel as Mr Fishman’s trustee in bankruptcy), or alternatively that Ms Helbert (the second defendant) held interests in East-West UK on trust for Mr Fishman/Mr Benkel.
The proposed third defendant was Mr Dikautschitsch, a German national, and Ms Helbert’s partner. Mr Dikautschitsch and Ms Helbert have a daughter and live in Ibiza.
The particulars of claim were amended in March 2020 and referred to a connection between East- West Germany and a further corporate entity and limited partnership, JURAG Chemnitz GmbH & Co KG. It was pleaded that Mr Dikautschitsch was a limited partner of JURAG. The amended pleading then became the focus of the original joinder application, which sought to join both Mr Dikautschitsch and JURAG to the claim. The application was accompanied by a draft amended claim form which set out that Mr Dikautschitsch held his interest in JURAG as trustee/nominee for Mr Fishman (and in turn Mr Benkel).
The original joinder application was heard in June 2020 and was dismissed.
Subsequently, Mr Dikautschitsch considered it appropriate to give evidence in a witness statement that he was the ultimate beneficiary of the trust interests which were the subject matter of the claim. That position was supported by the witness evidence of Ms Helbert. While the position was not entirely clear in the witness statements, at trial Mr Dikautschitsch’s position was made clear during cross examination.
Essentially, the claim was being defended on the basis that Ms Helbert held the particular interests on trust for Mr Dikautschitsch and could not, therefore, hold the interests on trust for Mr Benkel.
In light of that position (which only became clear at a late stage), Mr Benkel applied to join Mr Dikautschitsch and amend his claim such that, if Ms Helbert held the interests in the companies on trust for Mr Dikautschitsch, Mr Dikautschitsch in turn held them on trust for Mr Benkel.
What did the court decide?
Determining whether the court had jurisdiction
As a preliminary point, the court had to consider whether it had jurisdiction to determine a dispute involving Mr Dikautschitsch as he was not domiciled in England. This involved consideration of whether Article 8(1) of Regulation (EU) 1215/2012, Brussels I (recast) applied and the judge was satisfied that it did. Note, the regulation continues to apply to proceedings in the courts of England and Wales where they were commenced prior to 31 December 2020 at 11pm, pursuant to the Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019, SI 2019/479, reg 92.
In this case, the judge determined that he had jurisdiction on the basis that the claims were so closely connected that it would be expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings. The judge also considered the possibility that, if the claimant was successful, further proceedings might be commenced against another corporate entity, and that such proceedings might involve an overlap of issues of fact to the current proceedings. While a possibility, this did not impact the court jurisdiction over Mr Dikautschitsch to the current proceedings—his addition as co-defendant would remove the ‘clear and present risk of irreconcilable findings’. The judge observed that the court is not required to consider the possible risk of inconsistency of its findings and ‘possible further findings in a possible future case’.
Determining whether to order joinder
Notwithstanding the lateness in the making of the application, Morgan J did not consider it unfair to join Mr Dikautschitsch as such a late stage, principally because this was not a case where the litigation had been going on for a long time between persons unconnected to Mr Dikautschitsch and of which Mr Dikautschitsch was unaware. On the contrary, Mr Dikautschitsch was highly involved in the proceedings, and Ms Helbert and East-West did not act independently of him. In fact, they acted on his express instruction and the decisions made during the course of the litigation were his decisions. Mr Dikautschitsch also had the full benefit of the legal advice provided to Ms Helbert and East-West.
Was there abuse of process?
The court also considered that it was not an abuse of process to join Mr Dikautschitsch even though there had been the previous failed joinder application. That had been an application to join Mr Dikautschitsch and JURAG, not a freestanding application to join Mr Dikautschitsch. The previous judge was not therefore asked to look at that question and did not do so.
However, if that was not correct, then Morgan J stated that he would exercise his power under CPR 3.1(7) to make a different order, given that at the time of the previous joinder application it was not clear what Ms Helbert’s position was, ie that Mr Dikautschitsch was the beneficiary of the interests in East-West and Ms Helbert was merely the nominee for those interests.
Morgan J then considered what procedurally was required to join Mr Dikautschitsch and the impact on the proceedings:
- An order was made for alternative service, under CPR 6.15, on the defendants’ solicitors’ London office
- To enable the trial to proceed without any tangible disruption, the judge considered that it was likely that he would make an order to abridge time to serve an acknowledgment of service and file a defence, or dispense with those steps entirely
- The judgment explores the options available to the court should Mr Dikautschitsch appeal the decision, including Mr Dikautschitsch defending the claim while not submitting to the jurisdiction of the English court and adjourning the case in the event that he sought to reverse the joinder order
- Court: Business List (Chancery Division), Business and Property Courts of England and Wales, High Court of Justice
- Judge: Morgan J
- Date of judgment: 3 February 2021