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TED JACOBS ENGINEERING GROUP INC v. ROBERT MATTHEW JOHNSTON-MARSHALL AND PARTNERS AND OTHERS FOR ORDERS OF SECTION 1 OF THE ADMINISTRATION OF JUSTICE (SCOTLAND) ACT 1972


Submitted: 06 February 2014

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2014] CSIH 18

Lady Paton

Lord Drummond Young

Lord Wheatley

P338/13

OPINION OF LADY PATON

in the cause

TED JACOB ENGINEERING GROUP INC

Petitioner and Respondent;

against

ROBERT MATTHEW, JOHNSON‑MARSHALL AND PARTNERS AND OTHERS

Respondents and Reclaimers:

for

orders in terms of section 1 of the Administration of Justice (Scotland) Act 1972

_______________

Petitioner and Respondent: A Clark QC, Barne; Burness Paull LLP

Respondents and Reclaimers: Sandison QC, O'Brien; Morisons LLP

6 February 2014

Recovery of documents
[1] The issues in this reclaiming motion are whether the Lord Ordinary erred:

a. in holding that a prima facie intelligible and stateable case had been made out in terms of section 1 of the Administration of Justice (Scotland) Act 1972 such that the petitioner is entitled to uplift certain documents which have been recovered from the respondents;

b. in exercising her discretion in favour of the petitioner;

c. in approving a confidentiality undertaking in certain terms.

There is also a cross‑appeal against the Lord Ordinary's refusal to grant recovery under two heads, namely calls 1(e) and (f) in Appendix A in the reclaiming print pages 54-56.

Procedural history
[2] On Thursday 4 April 2013, the petitioner's ex parte motion for a commission and diligence for the recovery of documents from the respondents was granted. On Friday 5 April 2013 a "dawn raid" took place at the respondents' premises at 10 Bells Brae, Edinburgh. The commissioner was Mark Lindsay QC. Documents were recovered, an excerpting exercise carried out, and the excerpted documents lodged with the Deputy Principal Clerk of Session. On 20 June 2013 an affidavit by the petitioner's legal expert Mr Greaves was lodged. On 3 July 2013 an affidavit by the respondents' legal expert Advocate Juma was lodged. On 4 and 5 July 2013 the question whether the documents should be released to the petitioners was debated before Lady Wise. On 6 August 2013, Lady Wise granted the following interlocutor:

"The Lord Ordinary having resumed consideration of the petition and answers, allows, subject to the confidentiality undertakings given, the documents recovered by the commissioner in terms of the interlocutor dated 4 April 2013 and now in the possession of the Deputy Principal Clerk of Session to be uplifted by the petitioner with the exception of (i) those documents referred to in paragraphs 1(e) and (f) of Appendix A of the petition, (ii) documents numbered 52 and 59 on the list of recoveries prepared by the commissioner, and (iii) on the concession of the petitioner the documents numbered 167 and 168 on the said list of recoveries; remits to the commissioner to carry out an exercise to exclude those documents falling exclusively within the description in paragraph 1(e) and (f) of the said Appendix A and further report directly to the court without reference to parties; continues consideration of the petitioner's motion for expenses..."

Before matters could progress further, the respondents reclaimed against that interlocutor. A motion for urgent disposal was granted. On 10 September 2013, the Lord Ordinary's full written judgment became available. The reclaiming motion took place on Tuesday 12 and Friday 15 November 2013.

Background
[3] The petitioner is a Californian company. The respondents are inter‑linked Scottish companies and a Scottish partnership all as described in paragraphs [11] to [17] below, carrying on business as architects and engineers.

[4] In 2011 the petitioner decided to expand its engineering interests in the middle east. It purchased the first respondent's engineering business in Dubai. The parties' agreement was contained in a Sale and Purchase Agreement dated 20 September 2011 (SPA) and a Closing Agreement dated 16 August 2012.

[5] As the petitioner needed licences in order to operate in Dubai, the parties agreed that, until the petitioner obtained those licences, the petitioner would do the engineering work for clients, but the first respondent would remain as the contracting party with clients. Any fees due to the petitioner for work done (referred to as "subcontracts") would be paid into an HSBC account with the title "RMJM/TJEG account". That account was, in fact, the first respondent's bank account, but, on the petitioner's averments, the parties agreed in the Closing Agreement that:

· the first respondent would act as the petitioner's agent and trustee for the purpose of (1) receiving payment from clients for the services rendered by the petitioner; (2) making payment of the sums ingathered to the petitioner (Clause 10.3, referring to "...sum received...for and on behalf of the [petitioner]"). It should be noted however that the respondents in Answers 4 and 6 deny receiving any sums as agent and trustee for the petitioner; they aver that there was no trust (page 15D) and no fiduciary duties (page 16A), and also that the relationship of the first respondent to the petitioner was that of contractor and sub‑contractor (page 11B);

· the account would be treated as a joint account (Clause 9.1);

· all payments due to the petitioner would be paid into the joint account (Clause 9);

· disbursements from the account would be made on joint authorisation (Clause 9(v));

· named persons (from both the petitioner and the first respondent) would be authorised as representatives for the account: for example Ted Jacob and Mr Shabbas for the petitioner;

[6] In practice, possibly because the account had started out as the first respondent's account and had always been operated by the first respondent, the bank was content to permit disbursements from the account on the instructions of the first respondent alone.

[7] The petitioner characterises the arrangements referred to above in statement 6 of the petition as follows:

"...as a matter of both Scots law and the law of the United Arab Emirates ('UAE law'), the obligations undertaken by the first respondent...made the first respondent subject to fiduciary duties as agent (in Scots Law) and analogous duties of good faith (under UAE law) and trustee of the petitioner with respect to the collection of and disbursement of payments for the engineering services provided by the petitioner in relation to the subcontracts..."

Those averments are denied by the respondents, who reply in answers 4 and 6 inter alia as follows:

"4. ...following the sale of the business, the relationship of the first respondent and the petitioner was to be that of contractor and sub‑contractor...

6. Under [UAE law, the proper law of the contract], the obligations arising from the SPA and Closing Agreement are purely contractual in nature. The petitioner would have no right of action against any third party who received funds in breach of those agreements. The petitioner's remedy would be solely against the first respondent for breach of contract..."

[8] The petitioner duly carried out engineering work for clients in Dubai. Fees for that work were paid into the HSBC account. The petitioner initially had access to the account and was able to check the balance. However in November 2012 that access ceased. The petitioner also ascertained that funds had been removed from the account and taken out of Dubai. Averments in statement 10 relating to e‑mail correspondence include the following:

"... By e-mail dated 2 October 2012, Mr Shabbas of the petitioner asked Ms Mallon where the funds had been transferred to. She did not reply. By e-mail dated 2 October 2012, Mr Shabbas forwarded to Rajesh Ammanathil, the first respondent's finance manager in the middle east, the e-mail sent to Ms Mallon and asked if he knew anything about the transfer of the funds. Mr Ammanathil replied 'No'. The first respondent refused and has continued to refuse to provide an accounting or other information (i) in relation to payments into and transfers out of the joint account, and (ii) more generally, in relation to the receipt by the first respondent of payments of fees relating to the subcontracts. In response to the specific query raised by the petitioner in relation to a sum of AED 237,651 (US$64,579) that had been deposited in the joint account on or around 12 October 2012, the petitioner was told by Rajesh Ammanathil, in an e-mail dated 16 October 2012, that he did not know what was to happen to the money since 'the joint account is managed by group and I have no access to this account'. The reference to 'group' was either a reference to the RMJM group of companies in the United Kingdom , including the second respondent, or it was simply a reference to the second respondent..."

In two further e-mails dated 28 November 2012 and 2 December 2012, Harry Downie, commercial director of the first respondent, stated:

"...Unfortunately we do not manage payments from the Joint Account in Dubai so I am unable to answer your question...We do not retain anything in Dubai other that the portion [of funds] which is due to RMJM. Given this situation I am unable to address the question you have raised with me..."

[9] The petitioner understood from these (and other) e-mails that monies representing its fees, amounting to about £5 million, were no longer held in the bank account in Dubai. Moreover the respondents were not forthcoming about what had happened to the money. The petitioner avers in statements 9, 14 and 18 of the petition:

"9 ... by denying the petitioner access to and any control over the joint account, the [respondents have] breached the terms of the Closing Agreement. Furthermore in the circumstances hereinafter condescended upon, the first respondent has acted in breach of trust and in breach of fiduciary duty/the duty of good faith by refusing to account to the petitioner for money that the first respondent holds on behalf of the petitioner. Furthermore, as hereinafter condescended upon, the petitioner has been informed that the fees due to the petitioner (paid to the first respondent by clients in relation to the subcontracts) have been transferred out of the United Arab Emirates. The said fees can have been transferred out of the United Arab Emirates only by or with the co-operation of the first respondent. Such a diversion of the petitioner's fees by or with co-operation of the first respondent without the petitioner's consent or permission amounts to a fraud in Scots law and, under UAE law, an act causing harm to the petitioner and deliberate misappropriation. It also amounts to an unjust enrichment of the recipients in both Scots and UAE law, giving rise to restitutionary (or analogous) remedies. Reference is made to Mr Greaves' [the petitioner's legal expert's] affidavit. In the circumstances hereinafter condescended upon, it is believed and averred that the recipients of the funds were part of the RMJM group and therefore knowingly and fraudulently participated in the diversion. The remedies and causes of action available under the UAE law exist, or exist in a closely analogous form, as a matter of Scots law. The respondents' averments in answer are denied. Explained and averred that the respondents' reliance on an argument based on retention is an ex post facto justification that has no basis...In any event, having diverted the monies away from the joint account into the hands of a third party, the first respondent is not retaining those monies...

14 ... the first respondent has received and, it is believed and averred, continues to receive payment of the petitioner's fees from the clients under the subcontracts. In breach of trust and in breach of fiduciary duty/the duty of good faith, the first respondent has failed to account for those payments to the petitioner. Further, it is believed and averred the petitioner's fees have been and are being diverted in breach of trust, in breach of fiduciary duty/ the duty of good faith and fraudulently to entities or individuals within the RMJM group in the United Kingdom, including the second and third respondents. Separately, to the extent that the money in the joint account belonging to the petitioner has been transferred out of the joint account, the first respondent has acted in breach of trust, in breach of fiduciary duty/the duty of good faith and fraudulently/by deliberate misappropriation. As a result of the said conduct, the petitioner estimates that it has not received approximately AED 30 million [about £5 million sterling] which it is properly due...

18 ...in the circumstances hereinbefore condescended upon, in addition to the contractual breaches by the first respondent that are alleged in the arbitration, the respondents have been involved in the diversion, in breach of trust, in breach of fiduciary duty/the duty of good faith and fraudulently, of the petitioner's fees. The petitioner is likely to raise proceedings against the first, second and third respondents and any other recipient of the said funds belonging to the petitioner. The diversion out of Dubai of the petitioner's fees and the respondents' conduct in agreeing to the strictures of the joint account and then disregarding them to accomplish the diversion make the first respondent, and any recipient of the petitioner's money, liable for fraud and/or liable to account to the petitioner for the sums knowingly received in breach of trust and in breach of fiduciary duty/the duty of good faith ... The petitioner apprehends that the funds flowed to an individual or entity associated with the RMJM group of companies for the ultimate benefit of either the second respondent, being the parent company and guarantor of certain obligations under the SPA, or those associated with the second respondent, including the third respondent. The petitioner requires the documents listed in Appendix A to this petition in order to identify the person or persons to whom the money has been diverted, by whom it was diverted, when that was done and what amounts were diverted, so that proceedings can be raised against the recipient or recipients. The said information is essential for the proper prosecution of the action or actions likely to be brought. The items listed in Appendix A are also documents and property as to which questions are likely relevantly to arise in the intended proceedings ..."

[10] In November 2012 the petitioner entered into arbitration with the first respondent in Dubai, in terms of clause 26 of the SPA. Senior counsel for the petitioner stated that progress in the arbitration had been slow until service on the respondents in April 2013 of the present petition for the recovery of documents in the Court of Session.

The respondents' group of companies
[11] The first respondent is a Scottish partnership, with a place of business at 10 Bells Brae, Edinburgh (although the respondents in answer 1 deny that place of business, referring to an alternative address in Dubai). The second respondent is a limited company, formerly known as RMJM Group Limited, and since 28 March 2013 named "BSR 2013 Limited", with a place of business at 10 Bells Brae. The third respondent is a limited company RMJM Architecture Limited, with its registered office at 10 Bells Brae.

[12] The partners of the first respondent are (i) RMJM Middle East Limited and (ii) RMJM Overseas Limited. The directors of the first respondent's partner companies are Peter Morrison, Haddington and Declan Thompson, Edinburgh.

[13] The directors of the second respondent are Peter Morrison and Declan Thompson. The second respondent is in liquidation. The second respondent was until recently the parent company of the third respondent.

[14] The third respondent is the parent company of RMJM Middle East Ltd, and a subsidiary of the second respondent. Declan Thompson is a director of the third respondent.

[15] As is averred in statements 2 and 8 of the petition, three other RMJM companies in the group have gone into receivership and liquidation.

[16] It will be seen that the three respondents are closely linked, and have directors in common. In particular, Declan Thompson is a director of each of the second and third respondents, and of each company which is a partner in the first respondent. In my opinion therefore, any knowledge possessed by one of the respondents can be attributed to the other respondents.

[17] Finally it is a matter of agreement that the RMJM group of companies is in financial difficulties.

Clauses in the SPA
[18] The SPA dated 20 September 2011 contains inter alia the following clauses:

"10. SUB-CONTRACTS

...

10.2 Any sum received by the Purchaser [the petitioner] before or after the Deemed Transfer Date to the extent that it relates to services rendered by the Vendor [the first respondent]...shall be received by the Purchaser for and on behalf of the Vendor and shall be accounted for and paid by the Purchaser to the Vendor in full within 20 Business Days of receipt in the same manner as other Debts.

10.3 Any sum received by the Vendor ... to the extent that it relates to the Sub‑Contract Services or services otherwise rendered or to be rendered by the Purchaser ...shall be received by the Vendor ...for and on behalf of the Purchaser and shall be accounted for and paid by the Vendor to the Purchaser in full within 20 Business Days of receipt.

10.4 ...

10.4.1 unless and until [a certain consent is forthcoming], the Vendor shall hold ... any monies ... received ...which relate to the period on and after the Completion Date as trustee for the Purchaser;

23 GENERAL

Exclusions of Limitations on Fraud

23.1 Nothing in this Agreement shall operate to limit the liability of a party (or the remedies available to the other party) in respect of fraud, intentional non‑disclosure, or intentional breach of a valid and binding covenant, agreement or undertaking ...

24. GOVERNING LAW

Except with respect to the Guarantee, this Agreement shall be governed by, and construed in accordance with, the substantive laws of the United Arab Emirates as it is applied in the Emirate of Dubai, without giving effect to any choice of law provision or rule of any jurisdiction ...

26. ARBITRATION; INJUNCTIONS; JUDGEMENT

26.1 (a) Except with respect to the Guarantee and the matters specifically dealt with in accordance with Clause 28.5, any controversy or claim shall be settled by arbitration administered by the Dubai International Arbitration Centre in accordance with the provisions of the Dubai International Arbitration Rules (but to the extent the provisions of this Clause 26 conflict with such rules, the provisions of this Clause 26 shall be followed in the arbitration). The place of arbitration shall be Dubai, UAE and the language of the arbitration shall be English...

26.2 Any party may apply to a court of competent jurisdiction for injunctive relief or other interim measures, in aid of the arbitration proceedings; the right to injunctive relief and other interim measures only shall not be restricted by any provision of this Agreement. Any such application to a court shall not be deemed incompatible with this agreement to arbitrate or as waiver of this agreement to arbitrate..."

Excerpts from legal experts' affidavits
The petitioner's expert: Andrew Greaves
[19] Mr Greaves, in his affidavit of 20 June 2013, states inter alia:

"I, ANDREW EDWARD GREAVES, of Addleshaw Goddard (Middle East) LLP of Level 15, Tower 2, Al Fattan Currency House, Dubai International Financial Centre, Dubai, United Arab Emirates STATE ON OATH as follows:

1. I am a Solicitor of the Senior Courts in England and Wales. I was admitted as a Solicitor in 2000 whilst working with Hill Dickinson Solicitors. In 2004, I moved to Trowers & Hamlins where I was made Partner in 2007. I moved to the Dubai office of Trowers & Hamlins as a Partner in 2008 and was promoted to Head of Projects and Construction in the Middle East in 2010. I moved to Addleshaw Goddard (Middle East) LLP in 2012, heading up the Dubai office and serving as a board member of Addleshaw Goddard's International Executive Committee. I have been practising and applying the laws of the United Arab Emirates (UAE) in my day to day practice since July 2008.

2. This affidavit is being provided to assist the Scottish Court in relation to the laws of the UAE (as applied in the Emirate of Dubai), as they may apply to the rights of action open to the Petitioner against the Respondent and against potential third parties...

The UAE Civil Code Remedies Applicable to the Petitioner

13 Based on the instructions received and the papers I have reviewed, it is my opinion that the petitioner would, on the assumed facts, have causes of action against the respondent and/or the recipients based upon the following provisions of the UAE Civil Code.

(a) Acts causing harm (Articles 42, 282-285 and 290-292);

(b) Misappropriation (Articles 304, and 306-309);

(c) Unjust enrichment (Articles 318-319); and

(d) Good faith (Article 246)..."

The respondents' expert: Advocate Juma
[20] Mr Juma, in his affidavit of 3 July 2013, states inter alia :

"1. I Abdulrahman Juma, a Partner of Hadef & Partners based at Emaar Square, Building 3, Level 5, Downtown Burj Dubai, P.O. Box 37172, Dubai, United Arab Emirates. I have the following qualifications: I am a United Arab Emirates ("UAE") licensed lawyer / advocate licensed to appear in front of all levels of the UAE Federal and Dubai local courts. I have been a qualified advocate under the laws of the United Arab Emirates since 1997. I am a graduate of the Dubai Police College for law.

2. I joined Hadef & Partners in 1999 and have been a Partner since 2008. Hadef & Partners was founded in 1980 and is among the oldest and largest local firms in the UAE, with offices in Abu Dhabi and Dubai. Prior to that, I was working in the Immigration Department section of the Dubai Police. I specialise in amongst other matters in corporate and commercial disputes. I also serve as the Deputy Head of Hadef & Partners' Dispute Resolution Group...

9. In my opinion, any obligations arising out of the subject-matter of the Sale and Purchase Agreement and Closing Agreement are, in the eyes of the law of the UAE, purely contractual obligations. Any dispute about such obligations would be related to mutual obligations under a contract, and the interpretation of that contract. Those Agreements do not give rise to a claim under harm, misappropriation or unjust enrichment as alleged. The referred to heads of claim mentioned in the affidavit [of Mr Greaves] of 20 June 2013 are used when obligations do not arise out of the performance or non‑performance of contractual provisions."

Submissions for the respondents
Possible disposals
[21] Senior counsel submitted that the reclaiming motion should be allowed, and the Lord Ordinary's interlocutor of 6 August 2013 recalled. The court had several options, namely to sustain the respondents' first plea‑in‑law (petition incompetent because of arbitration proceedings) and/or the second plea (relevancy) and/or the fourth plea (unlikely that proceedings would be brought) and/or the eighth plea (in effect, averments lacking the necessary degree of cogency). But on any view, the prayer of the petition should be refused in toto.

[22] Alternatively the court might take the view that it was inappropriate to uplift the documents at this stage. The documents could be left in the custody of the court to await the petitioner's application to the arbitral tribunal. If that tribunal ordered that all or some of the documents should be released to the petitioner, it would be difficult for the respondents to resist that order. In those circumstances the respondents' seventh plea‑in‑law was the relevant plea.

[23] Finally, very much as a fall-back position, the confidentiality undertaking was insufficient. A much more effective undertaking was needed.

Overall view
[24] The respondents' position was that the parties' arrangements concerning the Dubai bank account were purely contractual. The proper law of the contract was the law of the United Arab Emirates (UAE). If the petitioner acted in breach of contract, the first respondent was entitled to withhold payment of fees.

[25] By contrast, the petitioner's position was that a trust had been created, or that fiduciary duties had been imposed upon the first respondent, thus giving the petitioner the right to trace any sums paid out in breach of trust/fiduciary duty and into the hands of "knowing recipients" (quasi-contractual or restitutionary rights). The difficulty with that position was that the contract was not governed by Scots law, but by UAE law. Not only did the contract expressly choose UAE law as the law of the contract, but the act complained of (money removed from a bank account) took place in Dubai. Accordingly Scots law relating to trusts, fiduciary duties, and restitution did not apply. While affidavits from legal experts had been lodged, there was a dispute about the law of Dubai and its effect in this case. The respondents' expert gave his opinion that (i) there was no agent, no trust, and no right of action against third parties such as knowing recipients; (ii) there was no claim available to the petitioner in UAE law other than a contractual remedy against the first respondent which was the matter to be dealt with by the arbitration.

[26] It was accepted that the second and third respondents - Scottish companies - were not subject to Dubai jurisdiction. Domestic proceedings could therefore be brought against them, but only after the arbitral tribunal's decision that there had been, for example, a "breach of trust". If documents were released prior to the tribunal's decision on the nature of the alleged wrong, there was a risk of serial litigations about the nature of any wrong, which would be undesirable.

[27] In any event, the averments relating to the second and third respondents were exiguous. There was no averment that any recipient had in fact received money, or that it did so knowingly and in breach of trust. The weaker alternative rule applied: thus statement 10 was no more than an offer to prove that the second respondent ("group") controlled the account, and as a result there was no case against the third respondent. The petitioner was wrongly using section 1 of the 1972 Act to determine whether it had a case at all. There was thus no prima facie case against anyone other than the first respondent, and that case should be decided by the arbitral tribunal in Dubai. The tribunal would be able to order the recovery of documents from both a contracting party and third parties. Thus the Court of Session should defer to the tribunal in Dubai.

Specific criticisms of the Lord Ordinary's decision of 6 August 2013
[28] Senior counsel submitted that the Lord Ordinary had erred in several respects.

There was an insufficient basis for the exercise of section 1 powers against the first respondent, because any dispute between the petitioner and the first respondent fell within the scope of the arbitration clause

[29] Clause 26 of the SPA (the arbitration clause) should be given a wide construction (Fili Shipping Co Ltd v Premium Nafta Products Ltd [2007] Bus LR 1719, Lord Hoffman at paragraphs 6-8,13). Everything about the first respondent's performance or failure to perform fell within the scope of the Dubai arbitration. The Court of Session's powers in terms of section 1 were only available in proceedings in the United Kingdom , or in a Brussels or Lugano Contracting State (Civil Jurisdictions and Judgments Act 1982; Iomega Corporation v Myrica (UK) Limited 1998 SC 636 at page 639D). There was no reasonable basis for proceedings anywhere other than in the Dubai International Arbitration Centre (DIAC). So whether it was viewed as a matter of competency or relevancy, the Lord Ordinary erred in paragraph [19] where she concluded that "the proposed proceedings in question are, as was contended for the petitioner, quite separate from that arbitration and the issues to be argued in it." Recovery of documents might be possible against the second and third respondents (although that was not conceded): but one could not "bolt on" documents designed to support a different purpose which was irrelevant under section 1 of the 1972 Act.

There was also an insufficient basis against the second and third respondents, because any question of breach of trust, breach of fiduciary duty, or restitution, had to be determined and characterised by the arbitral tribunal in Dubai
[30] Applying the guidance in Pearson v Educational Institute for Scotland 1997 SC 245, the petitioner had achieved only a thin case against anyone other than the first respondent. Because of the major intrusion caused by a section 1 application, the court should not proceed on anything other than a cogent and convincing case (cf Gillespie v Toondale Ltd 2006 SC 304, paragraphs [11]-[12]). It was not sufficient simply to have a colourable case. The law governing any "wrong" in this case was the law of Dubai, not the law of Scotland. To the extent that the Outer House proceeded on the basis of what the law would have been had matters been governed by Scots law, that was erroneous (Kuwait Oil Tanker Co SAK v Al Bader (No 3) [2000] 2 All ER (Comm) 271, at page 339). In the present case, (i) the proper law governing the underlying relationship between the parties was the law of Dubai; (ii) the obligations characterised according to Dubai law were purely contractual; (iii) any Dubai remedies did not, according to Mr Juma's affidavit, give rise to tracing the funds to knowing recipients or applying principles of unjustified enrichment.

[31] Senior counsel submitted that the Lord Ordinary, in assessing any prima facie case, ought to have attempted, as best she could, to assess the relative weights of the contents of the affidavits placed before her. Mr Juma was a qualified, experienced UAE lawyer, whereas the petitioner's expert Mr Greaves was not qualified in UAE law. He was not permitted to appear in any court or tribunal in Dubai. Those factors should have weighed with the Lord Ordinary. But there were further criticisms of Mr Greaves' affidavit. Mr Greaves said only that it would be possible that a cause of action existed. That was not sufficient. Mr Greaves also said that it was "arguable" that the funds were the subject of a trust, whereas Mr Juma was precise: there was no "trust" relationship. Mr Greaves referred to articles in the Code and gave his personal view about the meaning of those articles. But he cited no case law, which was not surprising as the case law of the Court of Cassation was only in Arabic, and Mr Greaves did not understand Arabic.

[32] By contrast, Mr Juma, experienced and qualified in UAE law, was quite clear in his affidavit, particularly at paragraphs 9 et seq.

[33] When the materials before the court were approached on that basis, it became apparent that there was simply not enough to allow the court to be convinced that there was a relevant and proper case arising out of contract shown to exist against anyone other than the first respondent. The court should therefore take the view that the criteria in Pearson v Educational Institute of Scotland 1997 SC 245 had not been met. The Lord Ordinary in paragraph [20] of her opinion seemed to suggest that she had not scrutinised the lawyers' affidavits, and her observations that "strong arguments to the contrary [negating the existence of fiduciary duties did not] affect the existence of a stateable prima facie case" could not be reconciled with Gillespie v Toondale Ltd 2006 SC 304. The SPA in clause 23.1 recognised that there might be claims involving bad faith: in other words, certain intentional breaches (such as fraud or non‑disclosure) might be met with more stringent remedies. But clause 23.1 did not deal with third parties, or non‑contractual claims.

[34] Ultimately senior counsel submitted that there was nothing to justify the Lord Ordinary's conclusion that, in all the circumstances, Mr Greaves' affidavit met the test of a cogent, convincing prima facie case. No valid basis for a section 1 application had been made out. Given the dispute about the content of Dubai law, it was not possible to conclude that an appropriate case for section 1 powers had been established. The court was not being invited to "prefer" Mr Juma: but the test in Pearson v Educational Institute of Scotland and Gillespie v Toondale Ltd had not been met. The fact that there may be a case was no basis for the section 1 jurisdiction, other than in relation to the first respondent.

[35] Another way of looking at the case against the second and third respondents was the fact that the averments were so exiguous. The petitioner simply did not know whether there was a case against them or not. The authority of Pearson stated that such situation was not good enough.

There was a wrongful exercise of discretion on the part of the Lord Ordinary
[36] The Lord Ordinary had erred in the exercise of her discretion. (a) There was a failure properly to assess the strength or otherwise of any prima facie case. (b) There were many reasons why the arbitral tribunal should be allowed to decide the question of recovery of documents: for example, parties had chosen the arbitral tribunal to resolve any dispute or claim arising out of the contract; the tribunal had full powers to secure the recovery of documents relevant to any controversy or claim; the tribunal could, if necessary, seek assistance from the Dubai courts; if the tribunal made a ruling involving the Court of Session, it would be difficult for the respondents to resist that ruling; the chairman of the tribunal was a very highly qualified Bahrainian lawyer, and the tribunal was likely to have a far greater knowledge of Dubai law than the Court of Session, even when assisted by expert witnesses; finally if the tribunal ruled that there had been no wrong, yet documents had been released in Scotland, actions against third parties would continue in Scotland even although the tribunal had ruled that there was no wrong. (c) The documents were safe in the hands of the Deputy Principal Clerk of the Court of Session. The Lord Ordinary should therefore have concluded that the appropriate moment for disclosure (i.e. the moment when the arbitral tribunal ordered that the documents should be released) had not yet arrived. (d) Finally, the invasion of privacy and private rights was substantial.

[37] All of the above cumulatively pointed to the court's discretionary powers not having been properly exercised. The Lord Ordinary had failed properly to exercise her discretion by leaving out of account matters which should have been taken into account. The pleadings were out‑of‑date. The arbitral tribunal was constituted and operating. All necessary fees had been paid. A request for the recovery of documents could be made to the tribunal.

The confidentiality undertaking approved by the court was not sufficient
[38] An undertaking was given because (a) the material was commercially sensitive, but also (b) there was an implied undertaking that a party would use the documents only for the purpose for which the court lent its aid (Iomega Corporation v Myrica (UK) Ltd 1998 SC 636, Lord President Rodger at pages 640-641). However if the petitioner were to choose to use the documents for purposes or in countries other than that for which the Court of Session granted the diligence, there was nothing which the Court of Session could do. The Lord Ordinary could have ordered that someone like a mandatary should be involved, such that he or she could be called to account if the party who recovered the documents attempted to use them inappropriately. The current undertaking was signed by a Glasgow solicitor, who would have no control over an American company or Americans generally. The schedule of relevant persons (to whom the contents of the recoveries could be disclosed) was too extensive. For example, two counsel were acceptable, but five nominees from a solicitors' firm were not. Senior counsel undertook to provide a draft of a more robust and acceptable undertaking.

Submissions for the petitioner
[39] Senior counsel for the petitioner invited the court to refuse the reclaiming motion and to allow the cross‑appeal.

[40] The contract documents referred to money being held "on behalf of" the petitioner, with several references to "trust". It would be odd if a contract governed by UAE law contained such wording if there was no concept of trust in UAE law. But it was unnecessary to define the precise legal character of the money (cf Kuwait Oil Tanker Co SAK v Al Bader (No 3) [2000] 2 All ER (Comm) 271).

[41] It could be inferred from the e‑mails at the end of 2012 that the first respondent had collected money owed to the petitioner and, together with the second respondent, had removed that money from the Dubai bank account. Contemporaneous correspondence made no complaint of any unsatisfactory performance by the petitioner which might justify retention.

[42] Mr Juma, in his affidavit, maintained that the petitioner's remedy was restricted to a claim against the first respondent. That was a startling proposition, suggesting no recourse against any third party even if fraud had occurred. Mr Juma did not touch on the offence of fraud in UAE law, but focused solely on contractual obligations. When dealing with misappropriation and unjust enrichment (paragraphs 13, 15 and 16), he did not mention the question of third party recipients or knowing recipients. Nor did Mr Juma address certain concepts specifically mentioned in the parties' contract ("for and on behalf of", "trust", "accounting", "agents and/or trustee": Clauses 8 and 10 of the SPA). There were mutual obligations of a fiduciary character, pointing to agency with fiduciary duties including an obligation to account to the other.

[43] By contrast Mr Greaves, in his affidavit, stated that various remedies were available to the petitioner in UAE law. There was a stateable, intelligible claim for fraud or intentional non‑disclosure (cf clause 23.1 of the SPA). Fraud was deliberate misappropriation in UAE law. The first respondent was to collect money "for and on behalf of" the petitioner, and was subject to the overriding duty in UAE law to act in good faith. Those elements amounted to a fiduciary duty, and permitted the petitioner to trace the funds to the recipients. Mr Greaves had now had an opportunity to read Mr Juma's affidavit, and did not, as a result, wish to change any part of his own affidavit.

[44] The petitioner's averments characterised the proceedings under reference to several concepts, derived from the two relevant legal systems (UAE law and Scots law), namely fraud, deliberate misappropriation, breach of fiduciary duty, unjust enrichment, and knowing receipt. While the Scottish courts would ultimately have to address which law applied, it did not matter at this stage whether it was Scots law or UAE law. The petitioner had a stateable prima facie case whatever view was taken. If UAE law applied, Mr Greaves' affidavit gave sufficiently clear bases for claims against both the first respondent and the recipients. But it was far from clear that the court would simply apply UAE law. The claim against the recipients could be characterised as "knowing receipt" (Commonwealth Oil and Gas Co Ltd v Baxter 2010 SC 156, paragraphs [16], [84]‑[87]; Huisman v Soepboer 1994 SLT 682; Royal Brunei Airlines v Tan [1995] 2 AC 378, pages 392‑3). The claim could also be characterised as unjust enrichment, or a constructive trust. If therefore the petitioner sought to interdict the liquidator of the second respondent from doing anything with the relevant funds, the petitioner could sue in the Scottish courts, relying upon Scottish principles such as unjust enrichment, or alternatively upon UAE law (Anton, International Private Law paragraphs 14.193, 14.202). It was not necessary to identify the correct choice of law at this stage: there was a remedy whether in Scots law or UAE law. In any event, as in Kuwait Oil Tanker Co SAK v Al Bader (No 3) paragraphs 187-188, 191 and 193, the parties' relationship was of a fiduciary character. Knowledge could be attributed to each of the respondents through Declan Thompson alone.

[45] A subsidiary argument for the petitioner arose from section 1(1) of the Recognition of Trusts Act 1987. It was submitted that the parties' arrangement qualified in terms of article 2 of the schedule, with the results set out in article 11, including the provision that "the rights and obligations of any third party holder of the assets shall remain subject to the law determined by the choice of law rules of the forum". As Anton, Private International Law (3rd ed) at paragraph 22.73 explained, that might be the relevant trust law, or the law applicable to the relevant transfer of the assets (normally the lex situs).

[46] Against the complicated factual background, all that the petitioner required for recovery in terms of section 1 was a stateable intelligible case. The petitioner had made out such a case, whether on the basis of Scots law or Dubai law. The inter‑linking of the companies and the partnership gave an ample basis for the "believed and averred" averments concerning the second and third respondents. In section 1 applications pleadings were not subjected to the close scrutiny appropriate in a procedure roll debate. The "weaker alternative" rule did not apply (Harwood v Jackson 2003 SLT 1026; Pearson v Educational Institute of Scotland 1997 SC 245). The petitioner had set out a prima facie stateable intelligible case supported by two affidavits and a supplementary affidavit as to facts, and an affidavit from Mr Greaves on questions of law. Such a case could be made out even if the identity of a defender was not known. There was no additional test of "cogency".

[47] Thus ground of appeal 1(a) (no prima facie case against the first respondent) should be refused. The arbitration covered contractual matters, but did not cover a case based on fraud (cf clause 23.1 of the SPA). If a Scottish‑based entity such as the second respondent wrongfully received £5 million, an aggrieved party could seek remedies such as arrestment or interdict in Scotland and not in Dubai. As in Fili Shipping Co Ltd v Premium Nafta Products Ltd [2007] Bus LR 1719, proceedings could be raised in Scotland, and the court would assess whether interim measures should be granted (cf clause 26 of the SPA), whether a fraud case fell within the arbitration or not, and whether the petitioner was entitled to injunctive relief or other interim measures. The "retention" defence was inspecific and unvouched by contemporaneous documentation. In any event, alleged unsatisfactory performance did not justify a wholesale departure from the joint account arrangements and the removal of funds.

[48] Similarly ground of appeal 1(b) (no prima facie case against other persons) should be refused. A stateable intelligible case had been made out against the second and third respondents. Those respondents could not rely on a retention argument. There was no suggestion that any of the recipients might have a lawful basis for keeping the money, such as having given value.

[49] In relation to ground of appeal 2 (the exercise of discretion) it was necessary to demonstrate errors such as failing to take relevant factors into account, taking irrelevant factors into account, or going plainly wrong. That had not been done. There had been a full assessment of the strength of the prima facie case. The dicta in Gillespie v Toondale Ltd 2006 SC 304 should not be imported into section 1 applications. The existence of the arbitral proceedings had been taken into account. The Lord Ordinary had been entitled to exercise her discretion as she did.

[50] Ground of appeal 3 (the confidentiality undertaking) was without merit. The draft undertaking proposed to the Lord Ordinary had been discussed and adjusted. There had been no suggestion of sisting a mandatary. There had been no requirement to give an undertaking in different terms. The Lord Ordinary had not erred in approving the express undertaking offered, together with the implied undertaking in Iomega Corporation v Myrica (UK) Ltd 1998 SC 636.

[51] The cross‑appeal: The Lord Ordinary had however erred in her approach to calls 1(e) and (f). Documents recovered under (e) would assist in establishing the amount of money apportioned to the petitioner and diverted out of Dubai. Documents recovered under (f) would disclose the state of knowledge of persons involved in the closing‑off in November 2012 of the petitioner's ability to check the balance in the Dubai account: that was relevant to the diversion of funds out of that account.

Reply for the respondents
The proper test
[52] Harwood v Jackson 2003 SLT 1026 did not set out the appropriate test. Harwood was not concerned with dawn raids, invasions of privacy, and removal of confidential information. Once confidential information was released, the repercussions could be great. The onus was therefore upon the petitioner to plead cogent averments. If averments were not cogent, they were not adequate for the purpose of section 1 of the 1972 Act.

[53] While the petitioner had averred a stateable case against the first respondent, the arbitration was the correct forum for the dispute. There was no basis for "fraud" being treated as falling outwith the arbitration (Fili Shipping Co Ltd v Premium Nafta Products Ltd [2007] Bus LR 1719 at paragraphs 6-8, 13). The injunctive relief and interim measures referred to in clause 26.2 of the SPA referred to measures supporting the arbitration proceedings.

[54] The case against the second and third respondents was not sufficiently cogent to satisfy the burden on the petitioner, who sought to carry out a major invasion of private rights. The petitioner had not made out a sufficiently stateable case supported by a UAE lawyer. There was a serious dispute between the legal experts about Dubai law, and it was not accepted that Scots law was relevant. The court could not postpone the decision about choice of law: that choice had to be made now. Kuwait Oil Tanker Co SAK v Al Bader (No 3) [2000] 2 All ER (Comm) 271 was of no assistance, as there the pursuer sued the person who had carried out the diversion of funds (and not the third party recipients).

The Recognition of Trusts Act 1987
[55] In terms of the convention attached to the 1987 Act, it was not possible to recognise a trust which was deemed invalid by the lex situs (Dubai): Administrators of Rangers Football Club plc Noters 2012 SLT 599.

Discretion
[56] The legal prerequisites for the grant of a section 1 application had not been met (Gillespie v Toondale Ltd 2006 SC 304). Accordingly the stage of discretion was not reached. In any event, recovery of documents could be achieved in the Dubai arbitration (paragraph 18 of Mr Juma's affidavit).

Undertaking
[57] The undertaking granted was inadequate. It could not be enforced against some of the individuals named. Even if everyone in the Schedule of Relevant Persons were to sign the undertaking, it could not be enforced against persons in the USA. If therefore the petitioner decided to raise an action in Minnesota based on the recoveries (contrary to Iomega Corporation v Myrica (UK) Ltd 1998 SC 363), the Court of Session would be powerless. The draft tendered by senior counsel would be signed by someone subject to the jurisdiction of the Court of Session who would be answerable to the court if a breach occurred.

Cross‑appeal
[58] The Lord Ordinary was correct in her approach to calls 1(e) and (f). The calls were too wide, covering as they did "any" communications received from clients. The petitioner was fishing, trying to find out who had been involved in the diversion of funds and to ascertain whether there was a valid claim against them - i.e. trying to find out if there was a claim, rather than making a known claim more specific (the proper purpose of section 1 of the 1972 Act).

Discussion
Section 1 of the 1972 Act
[59] Section 1 of the Administration of Justice (Scotland) Act 1972 provides inter alia:

"Extended powers of courts to order inspection of documents and other property etc.

Without prejudice to the existing powers of the Court of Session and of the sheriff court, those courts shall have power, subject to the provisions of subsection (4) of this section, to order the inspection, photographing, preservation, custody and detention of documents and other property (including, where appropriate, land) which appear to the court to be property as to which any question may relevantly arise in any existing civil proceedings before that court or in civil proceedings which are likely to be brought, and to order the production and recovery of any such property, the taking of samples thereof and the carrying out of any experiment thereon or therewith...

Nothing in this section shall affect any rule of law or practice relating to the privilege of witnesses and havers, confidentiality of communications and withholding or non‑disclosure of information on the grounds of public interest..."

[60] As Lord Nimmo Smith noted in Pearson v Educational Institute of Scotland 1997 SC 245 at pages 250-252:

"...There must be disclosure of the nature of the claim which it is intended to make and there must also be shown not only the intention of making it but also that there is a reasonable basis for making it. In Dominion Technology Ltd v Gardner Cryogenics Ltd (No 1) Lord Cullen said at p 832B to D: 'In an application under sec 1 of the 1972 Act in connection with prospective proceedings it is, in my view, plainly necessary that the applicant should do more than set out the nature of the proceedings which he is proposing to raise ... The court requires to be satisfied that the proceedings "are likely to be brought"; and that as a matter of the exercise of its discretion it is appropriate that the order should be granted. This entails in my view that the applicant requires to make adequate averments as to the substance of and basis for the case which he proposes to make. To accept less than this would not do justice to the terms of sec 1 and would create the risk of an order being granted where the applicant did not know if there was a stateable case.'...

In our opinion the proper approach to the application of the provisions of sec 1 of the 1972 Act is as set out in the cases referred to above, particularly the passage we have quoted from the opinion of Lord Cullen in Dominion Technology Ltd v Gardner Cryogenics Ltd (No 1). There must be at least be a stateable case, or what Lord Sutherland in Parks v Tayside Regional Council called an intelligible prima facie case, which the applicant is in a position to make against a defender, even if the identity of that defender is not known for the time being..."

[61] Temporary Judge J G Reid QC also commented in Harwood v Jackson 2003 SLT 1026 at paragraph [8]:

"In an application by petition for an order under s 1 of the 1972 Act for the recovery of documents, the petitioner must be able to show that proceedings are likely [to] be brought and that in relation to such proceedings he has a prima facie, intelligible and stateable case (Pearson at pp 250-251). In order to determine whether such a case exists, it is neither necessary nor appropriate to subject the petitioner's pleadings to a detailed examination. The usual tests of relevancy and specification do not apply. The pleadings will be considered to ascertain whether the basic ingredients of an intelligible and stateable case are present. In my opinion, the averments adequately disclose the substance and basis of the case which the petitioner proposes to make (Dominion Technology at 1993 SLT p 823B-D, quoted with approval in Pearson at pp 250C-E, 251l-252B)..."

[62] In my opinion, those authorities accurately summarise the correct approach to a petition in terms of section 1 of the 1972 Act. Gillespie v Toondale Ltd 2006 SC 304 is, in my view, of less assistance in a case such as the present, concerning as it does measures which can result in the deprivation of property, for example by way of arrestment of bank accounts, inhibition of land transactions, and freezing of assets (whereas in the present case, copies of documents can be taken, leaving no deficit or deprivation).

Whether a prima facie intelligible and stateable case
[63] The dispute in this case involves a Californian company, a Scottish partnership, Scottish companies, work carried out in Dubai by the Californian company, fees collected for that work for the Californian company by the Scottish partnership and placed in a Dubai bank account originally opened by the partnership, and disbursements made from that bank account, apparently by inter alios the partnership, but not to the Californian company. It is quite clear therefore that the court will, at some time, have to make decisions about choice of law. However the primary question for the court at this stage is whether certain documents recovered from Scottish premises may be released and examined in terms of section 1 of the Administration of Justice (Scotland) Act 1972. That question is governed by the authorities quoted in paragraphs [60] and [61] above.

[64] Focusing therefore upon the primary question, it is my opinion that it is not necessary, nor indeed advisable, for this court at this early stage to decide what law or laws govern matters arguably extrinsic to the contract between the petitioner and the first respondent (the proper law of the contract having been expressly declared to be UAE law: clause 24 of the SPA). I consider that it is necessary to hear evidence in full from experts in UAE law - including evidence given in cross‑examination - and also full submissions, before reaching a concluded view on choice of law. Meantime, at this preliminary stage, governed as it is by the authorities referred to in paragraphs [60] and [61] above, it is my opinion that this court is entitled to accept the opinion of a lawyer experienced in UAE law, Mr Greaves. Mr Greaves gives his opinion that remedies are available to the petitioner in UAE law against all three respondents, including breach of a duty of good faith, deliberate misappropriation, and a liability to account. As for remedies in Scots law, on the information available, the petitioner would prima facie be able to raise actions against the respondents, on the basis of one or other or more of liability to account, breach of trust, fraud, unjust enrichment, and knowing receipt.

[65] At this stage therefore I agree with the submission of senior counsel for the petitioner that it is unnecessary for the court to reach any concluded view about choice of law, as there are prima facie remedies available in both UAE law and Scots law.

[66] Against that background, I turn to examine:

1. The case against the first respondent.

2. The case against the second and third respondents.

3. The Recognition of Trusts Act 1987.

4. The exercise of the Lord Ordinary's discretion.

5. The undertaking concerning confidentiality.

6. The cross-appeal relating to calls 1(e) and (f).

[67] 1. The case against the first respondent: The dispute between the petitioner and the first respondent concerns the disappearance of £5 million apparently collected by the first respondent on behalf of the petitioner but not paid to the petitioner. The first respondent is a Scottish partnership averred to have a place of business at Bells Brae, Edinburgh. Accordingly the petitioner is in my opinion prima facie entitled to recover from the first respondent documents "as to which any question may relevantly arise...in the civil proceedings which are likely to be brought" (section 1 of the 1972 Act).

[68] In opposing recovery of those documents, the first respondent argued (i) that the parties' dispute must be governed by the arbitration in Dubai (see paragraphs [24] and [29] above); and (ii) the petitioner's poor performance during contract work entitled the first respondent to exercise a remedy equivalent to retention. The first respondent specifies that poor performance at pages 25A-26B of the reclaiming print as follows:

"....In particular, the petitioner has failed to obtain the structural engineering licence required under the law of Dubai to allow it to legally provide structural engineering design services under the SPA, thus exposing the first respondent (as principal contractor) to potential liabilities. The petitioner had failed to satisfactorily address the first respondent's legitimate concerns regarding allegations that one of the petitioner's structural engineers, Mr Peyman Nejhad, had falsely represented himself as having qualifications that he did not possess. The petitioner failed to complete the transfer of staff contracts and visas to itself from the first respondent, causing additional costs and administrative burdens to the first respondent. The petitioner made direct contact with the respondent's clients in which it made demands for additional payments to which it was not entitled, sought to persuade clients to make payment directly to it, and made false allegations regarding the conduct of the first respondent's business that were likely to damage its reputation. Over a period of months, senior staff of the petitioner, and in particular their chief executive in Dubai Mr Ray Crane, subjected employees of the first respondent to abusive and offensive behaviour. The petitioner's actions, and its failure to provide services, have led one client to terminate its contract with the first respondent. The petitioner's failures in providing services on other contracts have caused further significant delays and have exposed the first respondent to further costs."

[69] Neither of the above submissions - (i) or (ii) - has persuaded me, for the following reasons:

[70] In relation to the submission that (i) any request for documents should be referred to the arbitral tribunal, I note clauses 23.1 and 26.2 of the SPA, which are in the following terms:

"23.1 Nothing in this Agreement shall operate to limit the liability of a party (or the remedies available to the other party) in respect of fraud, intentional non‑disclosure, or intentional breach of a valid and binding covenant, agreement or undertaking...

26.2 Any party may apply to a court of competent jurisdiction for injunctive relief or other interim measures, in aid of the arbitration proceedings; the right to injunctive relief and other interim measures only shall not be restricted by any provision of this Agreement. Any such application to a court shall not be deemed incompatible with this agreement to arbitrate or as waiver of this agreement to arbitrate..."

[71] Mr Greaves' affidavit states that there is a UAE equivalent of fraud, namely deliberate misappropriation, which is a remedy available to the petitioner. Mr Juma does not mention fraud, nor does he explain how either clause should be interpreted.

[72] It is therefore my opinion that both clauses prima facie entitle the petitioner to seek the assistance of a Scottish court in recovering documents, whether applying UAE law or Scots law. The averments in the petition describe behaviour which can be characterised as fraud and/or intentional non‑disclosure and/or intentional breach of a valid and binding undertaking (relevant for clause 23.1) while a petition in terms of section 1 of the 1972 Act with a view to raising proceedings as outlined in statements 9, 14, and 18 of the petition (quoted in paragraph [9] above) can be characterised as an application for an interim measure which will aid the arbitration proceedings to the extent that the documents recovered, as defined in Appendix A of the reclaiming print, may be relevant not only to any proceedings likely to be brought in Scotland but also to the dispute between the parties to the SPA and Closing Agreement which is the subject matter of the Dubai arbitration.

[73] As for the submission that (ii) the first respondent is entitled to exercise a right equivalent to retention (and therefore that the petitioner has failed to make out a prima facie intelligible and stateable case) I note that retention in Scots law is a defensive measure whereby a person may be entitled to withhold performance (including payment) until a valid complaint against the other has been remedied or damages paid (cf Gloag & Henderson, The Law of Scotland (13th ed) paragraph 14.13). In the present case, my attention was not drawn to any productions evidencing contemporaneous complaints of any allegedly unsatisfactory conduct on the part of the petitioner. There would therefore appear to be force in the submission of senior counsel for the petitioner that any argument about retention appears to be an ex post facto justification. But even if there were some merit in the retention argument, such a remedy would not, in my opinion, entitle the allegedly aggrieved party wholly to abandon contractual arrangements concerning collection of the petitioner's fees in the Dubai bank account, and to remove the funds to an unknown and undisclosed destination. Nothing in Mr Juma's affidavit (for example, paragraph 11) suggests that such an approach would be justified in the exercise of any UAE equivalent of a right of retention.

[74] In the result I am not persuaded that the petitioner has failed to state a prima facie intelligible and stateable case against the first respondent.

[75] 2. The case against the second and third respondents: Senior counsel for the second and third respondents submitted that the averments concerning those respondents were too scanty to justify an application in terms of section 1 of the 1972 Act. There were no averments that they have received any of the funds. At most, the petitioner "believed and averred" that those respondents had received the funds, or part of them. That was not sufficient.

[76] Again I refer to the authorities noted in paragraphs [60] and [61] above. The case against the second and third respondents should not, in my view, be subjected to the strict scrutiny required in a procedure roll debate when testing relevancy and specification of pleadings. The proper question is whether the nature of the claim which it is intended to make is disclosed, whether there is an intelligible prima facie case, and whether proceedings are likely to be brought. In my opinion, the case made against the second and third respondents satisfies those requirements. The second respondent is averred to be "group" mentioned in the e‑mails, who managed the Dubai account. Both the second and the third respondents are averred to be companies linked to the first respondent, as noted in paragraphs [11] to [17] above. One director, namely Declan Thompson, is averred to be a director of RMJM Middle East Limited and RMJM Overseas Ltd (partners of the first respondent), and also a director of the second and third respondents. One company (the third respondent) is the parent company of RMJM Middle East Limited and is also a subsidiary of the second respondent. The petitioner "believes and avers" that the funds in question (or part thereof) have been transferred to the second and third respondents. In view of their knowledge of the first respondent's business affairs, any receipt of those funds by the second and third respondent may be "knowing receipt" (cf Commonwealth Oil and Gas Co Ltd v Baxter 2010 SC 156) or may amount to unjustified enrichment. There is also a possible basis for a case of breach of constructive trust (Scots law cf Commonwealth Oil and Gas Co Ltd v Baxter) or breach of a fiduciary duty (UAE law and Scots law) allowing the tracing of the funds to the recipients.

[77] In the result therefore I am not persuaded that the petitioner has failed to make a sufficiently intelligible prima facie case against the second and third respondents.

[78] 3. The Recognition of Trusts Act 1987: I have not found it necessary to resolve the competing submissions concerning the Recognition of Trusts Act 1987.

[79] 4. The exercise of the Lord Ordinary's discretion: I consider that the Lord Ordinary, once satisfied that the requirements outlined in paragraphs [60] and [61] above were fulfilled, was entitled to exercise her discretion as she did. It does not appear to me that the Lord Ordinary erred in any way in the exercise of her discretion.

[80] 5. The undertaking concerning confidentiality: Senior counsel for the respondents made certain criticisms of the existing signed undertaking, as noted in paragraphs [38] and [57] above. However the draft replacement undertaking provided by senior counsel during the reclaiming motion contains the same type of obligation as that contained in the existing one. Moreover the draft undertaking is to be signed by someone who is subject to the jurisdiction of the Scottish courts and who would be answerable to the Scottish courts: but the existing undertaking has been signed by a Glasgow solicitor who is subject to the jurisdiction of the Scottish courts and who would be answerable to the Scottish courts. Finally the Schedule of Relevant Persons indicates one representative from the petitioner and one from the respondents, whereas the existing undertaking demonstrates a more realistic appreciation of the fact that several people will require authority to have sight of the documents (for example several representatives from a firm of solicitors to allow for work‑sharing, time‑tabling, absences from work, and typing or copying activities). In the result I have not been persuaded that the approval of the existing undertaking by the Lord Ordinary demonstrated any error.

[81] 6. The cross‑appeal: Paragraphs 1(e) and (f) of Appendix A of the petition are in the following terms:

"e. The terms of any communications between 1st April 2011 and 3rd April 2013 regarding the apportionment of fees between the petitioner and the first respondent in connection with any of the contracts identified in Appendix B to this petition or received from, or on behalf of, any of the clients who are parties to the said contracts; and

f. The terms of any communications made by or to any of the respondents between 16th August 2012 and 3rd April 2013 regarding the petitioner's access to the HSBC bank account number ....., being titled 'RMJM/TJEG Account'"

[82] At paragraph [21] of her opinion, the Lord Ordinary describes those calls as "arguably [having] less to do with the issue of tracing the petitioner's funds and more to do with the detail of their contractual arrangement". However I consider that documents recovered under call 1(e) would reveal, or assist in revealing, how much money the first respondent acknowledged was due and owing to the petitioner, while the documents recovered under call 1(f) would clarify the circumstances in which the petitioner's ability to access the account was terminated in November 2013, and would also shed some light on the disbursements of the funds from the account.

[83] I therefore propose that the cross‑appeal be allowed.

Decision
[84] For the reasons given above, I propose that the reclaiming motion be refused; the cross‑appeal be allowed; and the Lord Ordinary's interlocutor of 6 August 2013 be recalled only insofar as it excludes paragraphs 1(e) and (f) of Appendix A of the petition. Quoad ultra I propose that we adhere to the Lord Ordinary's interlocutor and remit to the Lord Ordinary to proceed as accords.


EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2013] CSIH 18

Lady Paton

Lord Drummond Young

Lord Wheatley

P338/13

OPINION OF LORD DRUMMOND YOUNG

in the cause

TED JACOB ENGINEERING GROUP INC

Petitioner and Respondent;

against

ROBERT MATTHEW, JOHNSON‑MARSHALL AND PARTNERS AND OTHERS

Respondents and Reclaimers:

for

orders in terms of section 1 of the Administration of Justice (Scotland) Act 1972

_______________

Petitioner and Respondent: A Clark QC, Barne; Burness Paull LLP

Respondents and Reclaimers: Sandison QC, O'Brien; Morisons LLP

6 February 2014

[85] I agree with the opinion of your Ladyship in the chair, and that the reclaiming motion should be refused and the cross-appeal allowed. I would, however, like to say something about the manner in which foreign law may impact on a petition brought under section 1 of the Administration of Justice (Scotland) Act 1972.

[86] As your Ladyship indicates, the important statements of the law in this area are found in the opinion of Lord Cullen in Dominion Technology Ltd v Gardner Cryogenics Ltd (No 1), 1993 SLT 828, at 832, and that of Lord Nimmo Smith in Pearson v Educational Institute of Scotland, 1997 SC 245, at 250-252. The critical point for present purposes is whether the petitioner, as the person seeking recovery of documents, has set out a prima facie intelligible and stateable case for which the documents are required. The significant feature of the present case is that the parties' rights and obligations are governed for the most part by a system of law other than Scots law. The primary source of those rights and obligations is their contracts, the Sale and Purchase Agreement of 20 September 2011, supplemented by the Closing Agreement of 16 August 2012. Those contracts were expressly made subject to the law of the United Arab Emirates as it is applied in the Emirate of Dubai, although the guarantee issued under the SPA is made subject to Scots law. The rights and obligations under the parties' contracts that are material for present purposes, however, are all governed by the law of the UAE as applied in Dubai. Consequently, the prima facie intelligible and stateable case that is required under section 1 of the 1972 Act will be governed primarily by that system. Other systems may become relevant, especially in relation to remedies and procedure, but the origin of the parties' rights must lie in a relationship governed by UAE law. If, therefore, the petitioner is to demonstrate a prima facie stateable case that is intelligible to a Scottish court, the concepts and language of UAE law must be translated into the concepts and language of Scots law.

[87] Foreign law is of course a question of fact, and two affidavits were available to explain the parties' arguments on the law of the UAE. For my own part, I did not find either affidavit to be entirely satisfactory. Mr AE Greaves, who provided an affidavit for the petitioner, is a solicitor qualified in England and Wales who has been working in Dubai since 2008. I do not doubt that, in his work in that jurisdiction, he has picked up a very substantial knowledge of local law. Nevertheless, he is not qualified in that system, which comes from a very different tradition from English law. For that reason his knowledge of the local system may not be as comprehensive as that of a local lawyer. In spite of this reservation, I found his affidavit to be clear and coherent. The respondents' affidavit was provided by Mr Abdulrahman Juma, who is a lawyer and advocate in the United Arab Emirates licensed to appear at all levels of the UAE Federal and Dubai local courts. He had been a qualified advocate since 1997 and a partner in a local firm of lawyers since 2008. Thus his qualifications to give expert evidence on UAE law are not in doubt. His affidavit for the most part presented the applicable law in a clear and straightforward manner. At certain points, however, it appeared to me that it was over simplistic, failing to explore specialties or complexities of the parties' relationship and glossing over possible difficulties for the respondents' case. That applies in particular to his treatment of matters such as agency and the duties of good faith or fiduciary duties that are inevitably attendant upon any contract of agency. For this reason I cannot regard his affidavit as providing a comprehensive account of the law that is applicable to the present dispute. Nevertheless, I do not intend to be especially critical of either affidavit, because the translation of legal rights and concepts from one legal system to another is almost invariably a difficult task.

[88] As I have indicated, the starting point for any consideration of the parties' respective rights and obligations is the SPA. The most important provision of that contract is clause 10.3, which provides as follows:

"Any sum received by the Vendor [the first respondent] or any member of the Vendor's Group to the extent that it relates to [certain specified services rendered by the petitioner] shall be received by the Vendor or relevant member of the Vendor's Group for and on behalf of the Purchaser [the petitioner] and shall be accounted for and paid by the Vendor to the Purchaser in full within 20 Business Days of receipt".

Although it is not directly relevant for present purposes, it should be noted that clause 10.2 imposes similar obligations in respect of sums received by the petitioner for certain specified services. Clause 10.4 obliges the first respondent to use all reasonable endeavours to obtain certain consents, and until such consent is obtained the first respondent is to hold its interest under certain contracts with third parties "as trustee for the Purchaser" (clause 10.4.1), and the petitioner is to perform obligations under such contracts "as agent for the Vendor" (clause 10.4.2). The latter clauses are in my view of relevance in showing that this agreement cannot be analyzed as a mere subcontracting arrangement; it goes significantly further than that and creates relationships of agency based on good faith, of an essentially fiduciary nature. I return to this matter subsequently.

[89] The petitioner makes detailed averments regarding the grounds on which it claims to have a cause of action against the various respondents. Essentially three grounds are put forward. The first is a breach of trust, through the transfer of funds held by the first respondent on behalf of the petitioner to other persons, including the second and third respondents. The second is a breach of fiduciary duty, with the associated concept of breach of a duty of good faith, once again in consequence of the transfer of funds held on behalf of the petitioner to other persons. The third is fraud, in terms of Scots law, or a harmful act and deliberate misappropriation under UAE law. The petitioner also refers to unjust enrichment and the knowing receipt of monies in breach of trust or breach of fiduciary duty, but these are essentially ancillary to the three substantive grounds. The respondents aver that none of these grounds of action is available under the law of the UAE. Under that system, they say, the relationship between the first respondent and the petitioner is that of contractor and subcontractor under a contract for engineering services. Thus the relationship is entirely contractual, and the obligation of the first respondent in respect of sums received by them is merely a contractual obligation to pay what is due under the SPA to the petitioner. There is no trust; the sums received are not held under any fiduciary duties; and the requirements of liability under UAE law for harmful acts or deliberate misappropriation are not met. Furthermore, it is submitted that the existence of contractual rights under UAE law excludes any of those wider liabilities, whether they are regarded as based on fiduciary duty or good faith or delict or breach of trust.

[90] Because, for the reasons already stated, the parties' legal relationship has its origins in a contract governed by UAE law, it is necessary to consider the general nature of the obligations that might arise under that system, and the manner in which those obligations may be understood by a Scottish court. The translation of legal rules and concepts from one system to another is not a straightforward exercise. The ordinary translation of language frequently presents considerable difficulties. When the language relates to legal rules or concepts those difficulties are compounded, because the rules or concepts derive their existence from a system of law that operates as a self-contained whole, which inevitably differs to some extent from all other legal systems. In translating a legal rule or concept, it is generally functional equivalence rather than linguistic equivalence that matters. This can be illustrated by considering the concept of a trust in Scots law and English law. These are functionally equivalent, and a Scottish court would have no difficulty in giving effect to an English trust, as is now required by the Recognition of Trusts Act 1987. Yet the Scottish trust and the English trust are quite different legal entities. Put simply, the English trust involves a trustee who holds the legal estate in property for the benefit of one or more beneficiaries, who are regarded as having an equitable interest in that property. The equitable interest is governed by what was originally a separate system of legal regulation, equity, administered by the Court of Chancery; this was distinct from the system of common law administered by the common law courts, which regulated the legal estate. Furthermore, the equitable interest is regarded as giving rise to proprietary rights enforceable in equity. In Scotland, by contrast, the concept of the equitable interest has never been recognized. The interest of the beneficiary under a trust is regarded as purely personal in nature, although on the insolvency of the trustee the trust property is protected for the beneficiaries of the trust. (The theoretical basis of the Scottish trust is discussed in detail in a number of interesting academic articles, notably by Professor GL Gretton, "Trusts without Equity", (2000) 49 ICLQ 599, and Professor KGC Reid, "Patrimony not Equity: the Trust in Scotland", (2000) 8 European Review of Private Law 427; it is also discussed in Part 2 of the Scottish Law Commission's Discussion Paper on the Nature and the Constitution of Trusts (DP No 133)). Despite this fundamental difference in the nature of the legal institutions concerned, however, Scottish and English trusts are functionally equivalent. For that reason an English trust can readily be given effect in Scotland, and vice versa.

[91] Thus functional equivalence will typically form the basis for the translation of legal concepts and rules from one system to another. In considering whether a concept or rule has an equivalent in another system, however, it is important not to become over technical. Even where clearly equivalent concepts exist in two legal systems, as with the Scottish and English trust, or delict in Scots law and tort in English law, there will inevitably be differences in the detailed rules that apply to the concept. These must not be allowed to obscure the basic similarities in the underlying concepts. Thus it is broad functional equivalence that must be looked for, without regard to the more detailed rules that apply to those concepts. In determining whether functional equivalence exists common sense must be applied. In this respect it must be borne in mind that, especially in the commercial field, different legal systems deal with broadly similar economic issues and types of transaction; thus as a matter of common sense a substantial amount of equivalence is to be expected. That is relevant to the present case.

[92] The foregoing approach can in my opinion be applied to the concepts of agency and breach of fiduciary duty. Before I consider these, however, I should note briefly the petitioner's case based on breach of trust. The respondents' expert, Mr Juma, states that the trust is not recognized under the law of the UAE, which is governed by a civil code. The word "trust" is sometimes used in English translations of the UAE Civil Code, but Mr Juma states that it does not correspond to the concept of a "trust" as used in the legal systems of the English-speaking world; it refers rather to a relationship of bailment, or deposit as it would be known in Scots law. I understand that the Civil Code of the UAE is largely based on the Egyptian Civil Code, which is in turn derived from the French Code Civil. The trust is not recognized under domestic French law, and the legal systems modelled on the Code Civil do not make provision for the trust in the absence of an express statute (as has occurred, for example, in Québec). The parties' contract, in clause 10.4.1, states that certain rights will be held by the first respondent "as trustee" for the petitioners. If, however, the concept of the trust is not recognized by the legal system of the UAE, it is difficult to understand how such a provision could be effective; the concept referred to would simply be meaningless in the legal system that governs the parties' relationship. In this connection, I note that Mr Greaves does not in his affidavit place any reliance on the concept of trust. In these circumstances I consider that, for present purposes at least, it is not possible for the petitioner to rely on breach of trust.

[93] The same does not apply, however, to the concepts of agency and breach of fiduciary duty. Agency is in essence a very simple concept: one person acts on behalf of another in dealings with a third party in such a way as to create or alter a legal relationship between the third party and the principal. Agency relationships are of very obvious utility, and I think it likely that such a concept will be found in any system of law that deals regularly with commercial transactions. In Roman law, for example, the consensual contract of mandatum functioned as a form of agency, and could be entered into on the basis of mere agreement, without formality. (Mandatum was a gratuitous contract, but Roman law drew distinctions between gratuitous and paid actings which would not be considered appropriate in any modern commercial system). The affidavits of Mr Greaves and Mr Juma nowhere suggest that the relationship of agency is not found in the law of the UAE, and indeed the parties' contract clearly assumes that it does apply: clause 10.3, quoted above, provides that any sum received by the first respondent or related companies are to be received by the first respondent or related company "for and on behalf of" the petitioner, and are to be "accounted for and paid... to" the petitioner. That wording clearly assumes that, in dealing with funds so paid, the first respondent or related company is acting as an agent for the petitioner. For this purpose it is immaterial what the relationship is called; the critical factor in translating what is happening into Scots law is that the recipient of funds is functioning in substance as an agent for the petitioner.

[94] Clause 10.3 also stipulates that, on receiving such funds, the first respondent or related company is to account for the funds to the petitioner; such a duty to account would be an ordinary incident of agency, in that funds received by the agent as such are received on behalf of the principal, and must therefore be accounted for to the principal. It is difficult to imagine how an agency relationship could operate on any other basis, at least in the absence of express wording that excludes the duty to account. Consequently in the present case I consider that clause 10.3 of the SPA requires the first respondent and related companies to act as agent for the petitioner in respect of any sums received that relate to services rendered by the petitioner, and further to account to the petitioner for any sums so received. That is how the transactions contemplated by clause 10.3 are clearly intended to function in substance.

[95] Furthermore, an agency relationship of this nature must in my opinion imply an obligation akin to a fiduciary duty, as that concept is recognized in Scots law, and indeed English law. The essence of agency is that one person acts on behalf of another in respect of a particular act or transaction, or a specified range of acts or transactions. In doing so, to the extent that the agent is acting within the scope of the contract of agency, it is obvious that he must put the principal's interests first; any other rule would inevitably subvert the basic purpose of the agency. The proposition that, in performing acts within the scope of the particular relationship of agency, the agent must put the principal's interests first is at a functional level the essential feature of a fiduciary duty; it explains why, for example, the agent may not enter into a contract that conflicts with his principal's interests, or make an unauthorized profit, or compete with his principal's business. For these reasons I consider that the parties' contract must envisage, in addition to the concept of agency, a principle that at a functional level is broadly equivalent to the Scottish concept of fiduciary duty. The essence of the petitioner's case is in my opinion that the various respondents have acted in breach of such a duty.

[96] The concept of fiduciary duty bears an obvious relationship to the concept of good faith. In his affidavit Mr Greaves states that in the law of the UAE the requirement to act in good faith plays an important role in ensuring that contracting parties administer their contracts properly and fairly and in the manner originally envisaged. Reference is made to article 246 of the Civil Code of the UAE, which provides for performance of contracts in a manner consistent with the requirements of good faith. This was not disputed by Mr Juma. In view of the existence of article 246 I have no hesitation in concluding that the principle of good faith is applicable to the performance of the parties' contracts. In any event, the requirement of good faith is a standard requirement of most codified legal systems, including the French Code Civil. I have suggested that the existence of a fiduciary duty is an inevitable consequence of the relationship of agency, but a very similar result would be reached by applying the principle of good faith. Whichever analysis is used, the result is that the first respondent would be obliged to receive funds on behalf of the petitioner and to account in good faith (or as a fiduciary) for those sums to the petitioner.

[97] According to the petitioner's averments, the first respondent received sums from clients in respect of services that were actually performed by the petitioner. Under clause 10 of the SPA the first respondent is obliged to account for those sums to the petitioner. What has happened, however, is that those monies have been transferred out of the bank account in which they are to be held to other entities or individuals within the first respondent's group in the United Kingdom, including the second and third respondents. If that is correct, it would amount to a very clear and obvious breach of the first respondent's fiduciary duty, or duty of good faith, under the agency relationship. That would give rise to an obligation to account in Scots law, and for the reasons already stated I am of opinion that it must give rise to an analogous duty under the law of the UAE.

[98] The petitioner avers that the funds removed from the designated bank account flowed to an individual or entity associated with the first respondent's group, for the ultimate benefit of either the second respondent or those associated with the second respondent, including the third respondent. The documents that are sought in the present proceedings are required, it is said, in order to identify the person or persons to whom the money has been diverted, by whom it was diverted, when that was done, and what amounts were diverted, so that proceedings can be raised against the recipient or recipients. If funds have been transferred in breach of fiduciary duty, it is now established in Scots law that a recipient who takes the funds in the knowledge that they have been transferred to him in breach of fiduciary duty is not only liable to pay those funds to the person truly entitled to them but is also a constructive trustee of those funds: Commonwealth Oil & Gas Co Ltd v Baxter, 2010 SC 156, at [16] per LP Hamilton and at [84]-[87] per Lord Nimmo Smith. The underlying principle is derived from the law of trusts, but it applies equally to funds paid in breach of fiduciary duty; indeed the Commonwealth Oil & Gas case involved breaches of fiduciary duty by a company director. Cases on the constructive trust are sparse in Scots law, but the concept is clearly recognized, as indicated in Commonwealth Oil & Gas. A relatively recent example is found in Huisman v Soepboer, 1994 SLT 682, where Lord Penrose held that parties who received property in the knowledge that it was subject to a joint venture agreement did not take that property in good faith, and would hold it on constructive trust for those properly entitled under the joint venture agreement.

[99] I should note that the decision in Commonwealth Oil & Gas has been the subject of some criticism in academic articles, notably by Professor Niall Whitty in "The 'no profit from another's fraud' rule and the 'knowing receipt' muddle", 2013 Edinburgh LR 38. It is not necessary for present purposes to give detailed consideration to such criticism. Even if Professor Whitty is correct in his analysis, he concedes that a person who profits from a breach of fiduciary duty will be liable to account for the amount of such profit, at least if it is received either in knowledge of the breach of fiduciary duty or gratuitously. In such a case the basis of the action to recover such profit will be restitutionary in nature. The decision of Lord Coulsfield in Bank of Scotland v MacLeod Paxton Woolard & Co, 1998 SLT 258, supports a restitutionary approach (although the claimants did not succeed on the facts of that case). Professor Whitty's article does not attack the concept of the constructive trust as a remedy for breach of trust or breach of fiduciary duty. The existence of such a remedy has been the subject of other academic criticism. Nevertheless, on the basis of the cases that I have cited and the authorities referred to in those cases I am of opinion that the constructive trust undoubtedly exists in Scots law.

[100] Counsel for the petitioner further submitted that Scots law would recognize the principle that, in legal systems derived from English law, is referred to as knowing assistance or dishonest assistance in committing a breach of trust or breach of fiduciary duty. A detailed discussion of this principle is found in Royal Brunei Airlines Sdn Bhd v Tan, [1995] 2 AC 378: where a third party dishonestly assists a trustee to commit a breach of trust (or a person with fiduciary responsibilities to commit a breach of fiduciary duty) the third party is liable to the beneficiary of the trust or fiduciary duty for the breach, even though the third party receives no trust property, and regardless of whether the trustee had been dishonest or fraudulent. In my opinion it is likely that a broadly analogous principle would be applied in Scots law, with such variations as are necessary to reflect the fact that Scots law does not recognize anything akin to the English concept of an equitable interest. In the article mentioned in the last paragraph Professor Whitty suggests that a restitutionary remedy exists in Scots law in such a case. The basic principle involved is in my opinion manifestly just, serving as it does to protect the beneficiaries of trusts and other fiduciary relationships from dishonest conduct.

[101] In the circumstances of the present case, the petitioner submits that the principles of knowing receipt of funds derived from a breach of fiduciary duty, or knowing assistance in committing such a breach, would be available to it if it can establish that the first respondent acted in breach of fiduciary duty. In my opinion that is correct, at least at a general level; it is not necessary for present purposes to consider the detailed criticism that has been made of the knowing receipt principle as a matter of Scots law. Until evidence is available it is obviously impossible to say whether there has been a breach of fiduciary duty by the first respondent. Nevertheless, for the reasons that I have described, such a breach is clearly averred by the petitioner. The petitioner further avers that the second and third respondents have knowingly received funds derived from the first respondent's breach of fiduciary duty. In submissions counsel for the petitioner suggested that documents might disclose a case of dishonest assistance in the appropriation of funds in breach of fiduciary duty by those respondents or others. If knowing receipt or dishonest assistance (however the principles are framed in Scots law) can be established, the result would be that the second and third respondents would be under a duty to account for funds received or benefits obtained in consequence of the breach of fiduciary duty. If they retain funds derived from breach of a fiduciary duty owed to the petitioner, they would also in my opinion hold those funds on a constructive trust for the petitioner; that is the application of a constructive trust as contemplated in Commonwealth Oil & Gas and Huisman.

[102] I assume for present purposes that the concept of the trust is unknown in the law of the UAE. This would not, however, affect the imposition of a constructive trust by Scots law in the circumstances described. While the concept has never been the subject of detailed analysis in any Scottish case, the references to it treat it as a form of remedy of an essentially restitutionary nature. The advantage over straightforward restitution is that the rights of the beneficiary of a constructive trust will normally prevail in the insolvency of the constructive trustee. It is clear that the function of a constructive trust is remedial. The English case law in this area is confusing, but in the United States it is well established that the constructive trust is a form of remedy. In Scots law, as a form of restitutionary remedy, it will be equitable in nature, the word "equitable" having its usual meaning in Scots law rather than the very technical English meaning. The importance of that is that the remedy can be refused in any case where it would produce a result that is essentially unfair; that is a matter that lies within the discretion of the court that is asked to grant the remedy. If funds held for the petitioners were diverted in breach of fiduciary duty, and proceedings were brought against any of the respondents in Scotland on the basis of their presence here, the remedy available would normally be a matter for Scots law as the lex fori. That means that the petitioners might be able to assert the existence of a constructive trust of any sums remitted to Scotland. At this stage it is not necessary to go further than that; in any Scottish proceedings the possible remedies for breach of fiduciary duty would include accounting and assertion of a constructive trust.

[103] The respondents claim that the relationship between the petitioner and the first respondent is merely one of debtor and creditor; such rights as the petitioner may have against the first respondent are governed by the SPA and by UAE law. Furthermore, those rights are the subject of an arbitration in Dubai which is, it is said, where the rights under the contract will be determined. I do not doubt that the Dubai arbitration will be the appropriate forum to determine the parties' rights under the contract. So far as the SPA is concerned, however, I am of opinion that a straightforward analysis of the relationships as involving only debtor and creditor is much too simplistic. It seems to me that in that contract, and in particular in clause 10.3, agency relationships are involved, which will inevitably give rise to duties analogous to Scottish fiduciary duties. That in turn has the consequences discussed above, with possible claims in other jurisdictions against those who receive the funds derived from breach of fiduciary duty in the knowledge of the breach or gratuitously. Whether a remedy exists against persons such as the second and third respondents is not solely a matter of UAE law, since any transfer to a third party in breach of fiduciary duty is ex hypothesi outwith the terms of the SPA and therefore governed by other legal provisions, such as the Scots law of restitution and constructive trusts. Furthermore, any claim on that basis is likely to be made in the jurisdiction of residence of the recipient of funds, which is unlikely to be Dubai. For these reasons I do not think that it can be said that it is only the Dubai legal system, and in particular the arbitration that is taking place there, that has jurisdiction over the subject matter of the present proceedings.

[104] The respondents also allege that under the SPA the first respondent is entitled to exercise rights against the petitioner that are analogous to rights of retention in Scots law. They assert that they have claims for payment or damages against the petitioner for work that was not properly performed under the contract, and that in consequence they can withhold payment of sums due to the petitioner. The rights available under UAE law were not described in detail; it was merely submitted that they were analogous to the Scottish right of retention. An important feature of the right of retention, however, is that it is merely a right to withhold performance of a contract, including payment of sums due, until the party in breach performs its obligations or the contract is rescinded. Retention thus functions as a form of security for performance of the contract: see McNeill v Aberdeen City Council, [2013] CSIH 102. It does not have the effect of releasing the party who is not in breach from any part of the contract other than the duty to give performance, as by making payment. Thus a right of retention would not justify the first respondent in paying sums held in the designated bank account to third parties; it would merely permit withholding payment to the petitioner on an essentially temporary basis. It follows that a right of retention would be no defence against any claim for misappropriation of funds received by the first respondent under the SPA.

[105] Counsel for the respondents submitted that the role of Scots law in any claims brought by the petitioner would be limited. He referred to Kuwait Oil Tanker Co SAK v Al Bader, [2000] 2 All ER (Comm) 271, where it was held that, in considering whether a breach of fiduciary duty had been committed, it was necessary to consider the proper law which governs the relationship under which the duty was said to arise, and in particular to determine whether under that system of law duties arose that were analogous to fiduciary duties in English law: Nourse LJ at 339. I agree that that is the correct approach in a case such as the present. In this case, however, it appears to me that duties are likely to arise under the SPA which are analogous to fiduciary duties in Scots law. Counsel for the respondents also referred to the decision of Lord Hodge in Joint Administrators of Rangers Football Club PLC, 2012 SLT 599, where it was held that the Recognition of Trusts Act 1987 does not have the effect of making the law chosen as the governing law of a trust the system that determines the steps needed to create the trust; if that were not so, a truster would be able to alienate property that he could not dispose of under the lex situs. I agree entirely with this conclusion, but in my opinion it has no bearing on the present case, where it seems to me that trusts are only relevant to the extent that a constructive trust may be imposed by Scots law on funds in Scotland by way of remedy.

[106] For the foregoing reasons I am of opinion that the petitioner has clearly set out a prima facie intelligible and stateable case against all three respondents. I do not find this conclusion surprising. What the petitioner alleges is that the first respondent received funds in respect of work carried out by the petitioner in accordance with the SPA; the first respondent was accordingly obliged to account for those monies to the petitioner, holding them in the first instance in a designated bank account; instead of doing so, however, the first respondent paid the monies in the account to third parties; and the petitioner now intends to take steps to recover those monies. That is in essence a simple and intelligible case. Indeed, if those allegations are true, it would be most extraordinary if the petitioner were denied a remedy because of specialties of the relationship between the law of the UAE and Scots law.

[107] I have thought it appropriate to examine the nature of the petitioner's case in some detail because it is central to the claim made by them and raises matters of general importance. On all other matters I am in entire agreement with your Ladyship in the chair. I accordingly agree that the reclaiming motion should be refused and the cross-appeal allowed, with consequential amendments to the Lord Ordinary's interlocutor in relation to paragraphs 1(e) and (f) of Appendix A of the petition.


EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2014] CSIH 18

Lady Paton

Lord Drummond Young

Lord Wheatley

P338/13

OPINION OF LORD WHEATLEY

in the cause

by

TED JACOB ENGINEERING GROUP INC

Petitioner and Respondent;

against

ROBERT MATTHEW, JOHNSON‑MARSHALL AND PARTNERS AND OTHERS

Respondents and Reclaimers:

for

orders in terms of section 1 of the Administration of Justice (Scotland) Act 1972

_______________

Petitioner and Respondent: A Clark QC, Barne; Burness Paull LLP

Respondents and Reclaimers: Sandison QC, O'Brien; Morisons LLP

6 February 2014

[108] I also agree with your Ladyship in the chair that the reclaiming motion should be refused and the cross-appeal allowed, with the consequential amendments to the Lord Ordinary's interlocutor. I am also grateful for Lord Drummond Young's views on the effect of foreign law on petitions under section 1 of the Administration of Justice (Scotland) Act 1972, with which I respectfully agree.