R (Kay) v Leeds Magistrates’ Court [2018] EWHC 1233 (Admin), [2018] 4 WLR 91, [2018] 2 Cr App R 27

R (Kay) v Leeds Macistrates’ Court [2018] EWHC 1233 (Admin), [2018] 4 WLR 91 was a judicial review granted by the Divisional Court (Sweeney J and Gross LJ) that quashed a District Judge’s refusal to dismiss summonses issued against Scan-Thors (UK) Limited and its managing director, Mr Martin Kay, on the ground that the private prosecutor had breached the duty of candour when applying ex parte for the summonses.

Summonses were issued on 19 May 2016 at Leeds Magistrates’ Court on an information laid on behalf of Mr Marek Karwan, President of Adriana SA, a Polish company. The summonses charged four offences of fraud contrary to section 1 of the Fraud Act 2006 relating to the period between 2007 and 2012. It was alleged that Mr Kay had falsely represented to Adriana that DFS, the ultimate customer, required a five per cent discount on furniture products, when in fact no such discount had been required. District Judge Mallon refused on 7 October 2016 to dismiss the summonses or to stay the proceedings as an abuse of process, finding that the abuse application should be determined in the Crown Court.

The commercial relationship between Adriana and Scan-Thors involved the manufacture, import and onward sale of furniture. In September 2007 Scan-Thors had acquired a thirty per cent shareholding in Adriana for approximately £1.5 million and Mr Kay was given a seat on Adriana’s Management Board. It was alleged that over subsequent years Mr Kay had falsely represented that DFS required a five per cent discount. By late 2011 or early 2012 it was said that Mr Karwan discovered the falsity of this representation and the relationship between the companies became acrimonious. Nevertheless, loan agreements were signed in May 2012. On 26 July 2012 the companies concluded six inter-related agreements including a share purchase agreement under which Scan-Thors sold back its shareholding at a considerable loss and a settlement agreement. The settlement agreement, signed by Mr Karwan personally and by or on behalf of the claimants, provided that the parties confirmed they had no claims of whatsoever civil or criminal law nature against each other, especially related to any actions undertaken by Mr Kay as member of Adriana’s management board or to pricing negotiations. All disputes were to be resolved by arbitration in Warsaw and the document was governed by Polish law. The settlement agreement did not seek to exclude any public prosecution.

On 14 August 2013 Scan-Thors filed a statement of claim for unpaid commissions in arbitration before the Court of Arbitration of the Polish Chamber of Commerce in Warsaw. On 10 February 2014, during evidence in those proceedings, Mr Karwan stated that he had given instructions to notify the Regional Prosecutor’s office of an offence committed by Mr Kay. By a notification dated 5 March 2014 Adriana notified the Regional Prosecutor of the suspected commission of a crime by Mr Kay and on 8 May 2014 the Regional Prosecutor commenced an investigation. On 3 June 2014 the first arbitral award was issued, ordering Adriana to pay Scan-Thors nearly £560,000. Before that award was formally notified, Adriana applied for a temporary stay of proceedings on 4 June 2014, arguing that the decision depended on the outcome of the criminal investigation. On 27 June 2014 the Regional Prosecutor discontinued the criminal investigation into Mr Kay, providing a sixteen-page written justification. The first arbitral award monies were transferred to Scan-Thors on 16 July 2014 following Adriana’s failure to respect the award.

The Regional Prosecutor re-opened the criminal investigation on 12 August 2014. Mr Kay and Mr Johnson gave evidence to the Regional Prosecutor on 5 November 2014 and Mr Karwan gave evidence on 24 November 2014. On 1 December 2014 the Regional Prosecutor discontinued the investigation again, providing a twenty-six-page written justification. That justification recorded, amongst other things, that Scan-Thors had extended low interest rate unsecured loans to Adriana and that there was no way in which it could be concluded that the actions of Scan-Thors and Mr Kay were aimed at the detrimental disposal of Adriana’s property. In early 2015 Adriana appealed to the Regional Court in Torun against the discontinuance decision. On 22 May 2015 the court upheld the prosecutor’s decision to discontinue in a sixteen-page judgment. That judgment found, amongst other things, that Mr Kay’s conduct in informing Mr Karwan about the alleged discount did not entail abusing rights within the meaning of the relevant provision of Polish law; that cooperation between the companies had worsened against the background of Mr Karwan’s refusal to give Adriana financial support; that the information could have been a negotiating tool; and that Mr Karwan’s assumption that the five per cent would have reached Adriana was erroneous because Scan-Thors would not have entered into an unprofitable arrangement. The court further found that Adriana’s financial issues did not result from Scan-Thors’ five per cent discount and that the amounts granted by Scan-Thors compared with resources recovered contradicted any suggestion that Scan-Thors had defrauded Adriana.

On 22 May 2015 Scan-Thors initiated a second arbitration claiming payment of commission and damages totalling more than £4 million. On 7 April 2016 Mr Karwan’s information was laid at Leeds Magistrates’ Court seeking summonses. On 3 May 2016 the court requested clarification including whether West Yorkshire Police had been asked to investigate and if not why not. The following day Mr Karwan’s solicitors explained that police had not been asked to investigate because their client had not wished to utilise precious police resources nor delay the matters further. On 19 May 2016 the summonses were issued. On 17 June 2016 Adriana applied to the Court of Arbitration for a temporary stay of the second proceedings pending conclusion of the English criminal proceedings. On 28 February 2017 Adriana was ordered to pay more than £4 million to Scan-Thors in the second arbitral award.

The information laid on 7 April 2016 invited the issue of four charges of fraud. It gave brief outlines of the businesses and roles, referred to email extracts said to evidence the alleged false representation about the DFS discount, and asserted that Adriana had discovered the falsity of the representation. The information stated that further to the breakdown in the relationship, civil proceedings had resulted in arbitration during which the legal adviser to Scan-Thors had stated that Scan-Thors admittedly confirmed that during price negotiations it used an argument concerning the DFS discount that was not entirely true. The information stated that on 5 March 2014 Adriana had lodged a notification to Polish prosecutors and summarised or quoted extracts from resulting evidence. It referred to the fact that on 1 December 2014 the prosecutor had decided to discontinue the investigation because the act did not show constituent elements of a criminal act under Polish law. The information stated that the second offence the prosecutor had considered required direct and specific intent under Polish law and that the Polish Penal Code differed to offences under the Fraud Act 2006, and thus the Polish decision acted as no bar to the charges currently being sought. Financial prejudice was estimated at approximately £3 million. The information did not disclose the existence of the settlement agreement, the detailed findings of the Regional Prosecutor on two occasions, the judgment of the Regional Court upholding the discontinuance, the use Mr Karwan had attempted to make of the Polish criminal proceedings to stay the first arbitration, or that he had initiated the English proceedings during the currency of the second arbitration in which Adriana was at risk of a loss exceeding £4 million.

The claimants applied before the District Judge for the summonses to be dismissed or for the proceedings to be stayed as an abuse of process on four grounds: that the prosecutor failed to disclose material which would undermine the application, namely the settlement agreement; that the prosecutor’s motive was to advance his position in the ongoing arbitration proceedings or to derail them; that the defendants relied on an assurance that no criminal claims would be brought; and that the only relevant venue for resolution was Poland. The District Judge rejected the abuse argument, finding that the circumstances did not apply and that cases should be stayed as an abuse in the magistrates’ court only in wholly exceptional circumstances. As to the court’s discretion, the District Judge found that the court which issued the summons was not made aware of matters that should have been brought to its attention, but concluded that the issue involved a complex legal analysis of an international legal issue and that the appropriate venue for determination was the Crown Court. Accordingly the summons would not be set aside.

The claimants challenged the District Judge’s refusal to dismiss the summonses and her conclusion that the abuse application should be determined in the Crown Court. They argued that whether a case was proper for the issuance of a summons was a matter for the magistrates’ court and for the High Court on review; that the magistrates’ court had power to reconsider the decision to issue a summons and to stay proceedings; that the additional material required her to reconsider whether this was a proper case to issue summonses; that had she been the judge dealing with the initial application and had she been provided with the additional material she would have been bound to consider and determine whether this was a proper case for issuance; and that she was asked to consider the conduct of the prosecutor in English proceedings, which was a matter of English not Polish law. Mr Karwan argued that he complied with any duty of candour, choosing not to disclose the settlement agreement as it was irrelevant and the claimants knew his position that it was unenforceable; that the District Judge considered all evidence and authorities and dealt with all issues; that she concluded the Crown Court was the proper forum for determination of any abuse application; and that unless the judge simply accepted what the claimants said she was bound to consider the issues were fact dependent.

Sweeney J held that this case underlined the importance of compliance by prosecutors, public and private alike, with their duty of candour when applying ex parte for the issue of summonses in the magistrates’ court. The right of private prosecution was expressly preserved by section 6 of the Prosecution of Offences Act 1985. Section 1(1)(a) of the Magistrates’ Courts Act 1980 provided that on an information being laid a justice might issue a summons. The duty of a magistrate in considering an application for the issue of a summons was to exercise a judicial discretion. The magistrate should ascertain whether the allegation was an offence known to law and if so whether the essential ingredients were prima facie present; that the offence was not out of time; that the court had jurisdiction; and whether the informant had the necessary authority to prosecute. The magistrate should also consider whether the allegation was vexatious and should consider the whole of the relevant circumstances. A decision whether to issue a summons was a judicial function involving the exercise of a discretion subject to control by judicial review.

The authorities established that when considering whether to issue a summons the magistrate must ascertain the matters identified; that generally the magistrate ought to issue the summons unless there were compelling reasons not to do so, most obviously that the application was vexatious or an abuse of process or otherwise improper; that the magistrate should consider the whole of the relevant circumstances to enable satisfaction that it was a proper case to issue the summons and should consider whether the application was vexatious, an abuse of process or otherwise improper; that whether the applicant had previously approached the police might be relevant; that there was no obligation on the magistrate to make enquiries but a magistrate might do so if necessary; and that a proposed defendant had no right to be heard but the magistrate had a discretion to require notification of the application and to hear the proposed defendant if necessary. It was not disputed that a private prosecutor was subject to the same obligations as a Minister for Justice as were the public prosecuting authorities, including the duty to ensure that all relevant material was made available both for the court and the defence. Advocates and solicitors conducting private prosecutions must observe the highest standards of integrity, of regard for the public interest and duty to act as a Minister for Justice in preference to the interests of the client, owing a duty to the court to ensure that the proceeding was fair.

There was no doubt that the duty of candour applied to an ex parte application for the issue of summonses. In R v Grays Justices ex parte Low a refusal to dismiss summonses was quashed because of a failure to comply with the duty of candour, and it was established that the withholding of material information was in itself a critical factor in determining whether a summons should be set aside as an abuse of process. More generally, the authorities variously described the duty as one of full and frank disclosure which necessarily included a duty not to mislead the judge in any material way and which required disclosure of any material which was potentially adverse to the application or might militate against the grant or which might be relevant to the judge’s decision. As Hughes LJ memorably put it, a prosecutor seeking an ex parte order must put on his defence hat and ask himself what, if he were representing the defendant or third party with a relevant interest, he would be saying to the judge, and that was what he must tell the judge. Sweeney J was fortified in these conclusions by the recent amendment of Part 7 of the Criminal Procedure Rules, which now required an application by a prosecutor not represented by a legal representative to include a statement that to the best of the applicant’s knowledge, information and belief the application disclosed all the information that was material to what the court must decide.

As to abuse of process, jurisdiction to be exercised sparingly, the High Court and the magistrates’ court had concurrent jurisdiction save for a limited category of cases involving infractions of the rule of law outside the narrow confines of the actual trial or court process. The wide category of cases over which the magistrates’ court had jurisdiction included investigation of the bona fides of the prosecution or of whether the prosecution had been instituted oppressively or unfairly. It was, however, open to magistrates in a case outside the limited category to require the matter to be pursued in the High Court. Where the point was novel or complex the magistrates’ court should normally leave it for resolution in the Crown Court or the High Court as appropriate.

Sweeney J held that when Mr Karwan’s lawyers applied on his behalf for summonses to be issued, both he and they were subject to the duty of candour. However, the carefully crafted information failed to comply with that duty in each of the respects alleged by the claimants. Whatever the views of Mr Karwan and his lawyers as to the settlement agreement, it should have been obvious, applying any formulation of the test, that there was a duty to disclose to the court in order to enable the court to properly carry out its duty to consider whether the application was vexatious, an abuse of process or otherwise improper; to consider whether to make further enquiries; to require the claimants to be notified; and to hear the claimants. As the case demonstrated, the grant of summonses,

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