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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> The High Commissioner for Pakistan in the United Kingdom v National Westminster Bank Plc & Ors [2015] EWHC 55 (Ch) (16 January 2015) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/55.html Cite as: [2015] EWHC 55 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Rolls Building, Royal Courts of Justice Fetter Lane, London, EC4A 1NL
		16/01/2015

Mr Justice Henderson:

Introduction and background

1. On 11 and 12 November 2014 I heard a number of applications arising from the commencement on 11 June 2013, and the subsequent discontinuance by notice dated 21 November 2013, of proceedings in the Chancery Division of the High Court brought by the High Commissioner for Pakistan in the United Kingdom against National Westminster Bank Plc ("the Bank"). The proceedings related to a fund, now worth just under £35 million including accumulated interest, which since September 1948 has been the subject of a celebrated legal stalemate.
2. The money in question, then amounting to a little over £1 million, was transferred on or about 20 September 1948 into an account opened with the Bank (then the Westminster Bank Limited) in the name of the first High Commissioner of the recently formed sovereign state of Pakistan, Mr Habib Ibrahim Rahimtoola ("Mr Rahimtoola"). The transferor, at least ostensibly, was the absolute ruler of the largest and richest of the Indian princely states, the seventh Nizam of Hyderabad, acting through an agent who undoubtedly had apparent (if not actual) authority to make the transfer on his behalf. The money was received by Mr Rahimtoola in his official capacity, acting on the instructions of the Foreign Minister of Pakistan. The transfer was made at a time of acute political and military tension, after the government of the recently formed sovereign state of India had begun a campaign (called "Operation Polo") to annex Hyderabad. Following the partition of the Indian sub-continent in 1947 pursuant to the Indian Independence Act 1947, and the formation of the independent sovereign states of India and Pakistan, the numerous princely states within the sub-continent were permitted by the United Kingdom to elect to join either of the two new states, or to remain independent. The Nizam chose the latter course, but this was unacceptable to India. Operation Polo swiftly achieved its objective. On 18 September 1948 the Nizam's army surrendered, and Hyderabad was annexed to India.
3. A little over a week later, on 27 September 1948, the Nizam sought to reverse the transfer of money to Mr Rahimtoola, claiming that it had been made without his authority. The Bank was understandably unwilling to comply with this request without the agreement of the account holder, who by now had undisputed legal title to the money. Such consent was not forthcoming, and for a number of years matters remained unresolved while attempts were made to negotiate a solution to the problem. At one stage in the negotiations the Bank suggested interpleader proceedings, but the government of Pakistan was not prepared to waive its immunity, and the suggestion was dropped. Eventually, in an effort to break the deadlock, the Nizam and the State of Hyderabad issued proceedings in England in July 1954, naming the Bank and the agent through whom the original transfer had been implemented as defendants. A concurrent writ was also served outside the jurisdiction on Mr Rahimtoola, who had meanwhile become Pakistan's ambassador to France. Payment of the money in the account was claimed on three alternative grounds: (a) as money held in trust for the claimants; (b) as money due and owing to them; or (c) as money had and received to their use.
4. Mr Rahimtoola then applied to the court to set aside the proceedings against him, and to stay the proceedings against the Bank, on the ground of Pakistan's sovereign immunity. This contention succeeded before Upjohn J, whose judgment was reversed by the Court of Appeal, but upheld by the House of Lords: see Rahimtoola v Nizam of Hyderabad [1958] AC 379.
5. For present purposes, it is unnecessary to explain in any detail why Pakistan's claim of sovereign immunity was upheld. It is probably enough to quote what Viscount Simonds said at 397:

"The claim is that money was paid to Rahimtoola in trust for the Nizam or as money due and owing to the Nizam or as money had and received to the use of the Nizam. These are matters which directly concern the principal on whose behalf Rahimtoola received the money. They cannot be determined without impleading him. Therefore they cannot be determined at all."

So far as the claim against the Bank was concerned, its attitude (then as now) was "one of impartial willingness to pay its debt to whomsoever it may be justly due" (p 393). Viscount Simonds said, at 398, that it was clear that it would not be right to allow the action to proceed against the Bank alone, because the Bank would be left unprotected if it were obliged to pay the fund to a third party under an order of the court made in proceedings by which the government of Pakistan was not bound.

6. In reaching these conclusions, the House of Lords recognised that the stay of proceedings against the Bank might lead to an indefinite period of deadlock if the various claimants to the fund were unable to resolve their differences. This was most clearly stated by Lord Denning, who said at 421:

"If the Nizam of Hyderabad is not allowed to proceed with this action, the money will lie stagnant in the bank and the debt may remain unpaid forever. The bank cannot safely pay either Rahimtoola or the State of Pakistan because, once it does so, there will clearly thenceforward be no immunity available to protect the bank. The bank must wait until it is sued by Rahimtoola or the State of Pakistan: and once that is done, the State automatically waives its immunity. If Pakistan succeeds in getting a stay, therefore, it means that it does not choose to sue for the debt itself: and yet by claiming immunity, it can prevent the Nizam from ever getting the money: and it can prevent the bank from ever getting a good discharge. That would not seem to be right. It creates a stalemate."

Lord Denning nevertheless upheld Pakistan's plea of sovereign immunity, on the basis that the essential nature of the dispute was inter-governmental, and as such it should be solved by inter-governmental negotiations: see 422-423, and the judgment of Upjohn J at [1957] Ch 185, 209.

7. Lord Denning's words were prophetic. For over half a century, from 1957 to 2013, the fund steadily grew in size, but no agreement on its distribution could be reached. Meanwhile, the position was further complicated by the emergence of other potential claimants to the fund. Apart from Pakistan and India, those asserting a beneficial interest in the fund now include (at least):

a) the present (eighth) Nizam of Hyderabad, Prince Mukkaram Jah, who succeeded his grandfather, the seventh Nizam, on the latter's death in 1967;

b) Prince Muffakham Jah, the younger brother of Prince Mukkaram Jah, and his assignee Shannon Consulting Limited ("Shannon"); and

c) other members of the extensive family of the seventh Nizam, who claim through or against him in various ways. The potential size of this last category of possible claimants can be gauged from the fact that the seventh Nizam is reputed to have had as many as 49 concubines and around 150 illegitimate children.

I will refer to Prince Mukkaram and Prince Muffakham together as "the Princes", and to them and India as "the Interested Parties".

8. In a little more detail, the general nature of the rival claims to beneficial ownership of the fund appears on the evidence now before me to be broadly as follows. I emphasise that none of the potential claimants (apart from Pakistan) has yet had an opportunity to plead its case, and what I say is not intended in any way to curtail or prejudice their right to set out their respective cases at the appropriate time as they think fit. I also make no comment on the merits of the claims, but will proceed on the assumption that each of them is at least arguable.
9. I will begin with Pakistan. In the proceedings in the 1950s, Pakistan did no more than assert its sovereign immunity. As Viscount Simonds said in the House of Lords at 394-395:

"Much stress has been laid on the fact that [Pakistan] has not asserted a beneficial interest in the fund. But why should it? It is not concerned to admit, assert or deny. It has the legal title, which cannot be displaced except by litigation which it is entitled to decline."

At first instance, Upjohn J commented ([1957] Ch 185 at 202) that Mr Rahimtoola had adduced no evidence on behalf of the government of Pakistan as to why the transfer had been made, and Pakistan (as it was entitled to do) had declined to file evidence on the matter. The judge inferred that the probable reason for the transfer was a reasonable desire on the part of Hyderabad to try to keep the sum from being claimed by a possibly victorious Indian government,

"but whether that be so or not (and I express no concluded view upon that) in so far as the equitable title of the Government of Pakistan to the debt is relevant, in my judgment, for the purposes of this motion, they do not establish a scintilla of such a title …"

In the Court of Appeal further evidence was adduced on behalf of Pakistan, but it still left the nature of Pakistan's claim to beneficial entitlement obscure, and such entitlement formed no part of Pakistan's claim of sovereign immunity: see [1957] Ch 185 at 231 per Lord Evershed MR and 245 per Romer LJ.

10. The claim which the High Commissioner for Pakistan began against the Bank on 11 June 2013 is no more informative. The particulars of claim dated 25 June 2013, settled by Cherie Booth QC and Oliver White of counsel, include a statement "for the avoidance of doubt" that Pakistan "asserts both full legal and beneficial entitlement to the funds"; but no particulars are given of the claim to beneficial entitlement, and none is provided in the evidence filed on behalf of Pakistan. During her oral submissions, Ms Booth suggested that the money might have been a gift from the Nizam, who was a Muslim ruler with many Muslim subjects, to the newly created (and predominantly Muslim) state of Pakistan. In the absence of any evidence to substantiate this suggestion, however, I cannot at this stage regard it as any more than speculation.
11. India was not a party to the 1950s proceedings, but contemporary correspondence from the Bank shows that India was actively involved in trying to recover the funds. Its present claim appears to be based, at least in part, on its position as "successor state" to Hyderabad. In addition, India relies on a deed of assignment dated 5 July 1965, whereby the Nizam purportedly assigned his rights in the fund to the President of India.
12. The Princes claim to be entitled to the funds as beneficiaries of a 1965 appointment from a discretionary trust established by the Nizam in 1963. As the Nizam's legitimate heirs, they are also significant beneficiaries of his estate under the relevant rules of intestacy. It should be noted, however, that by a document dated 3 February 1967, and apparently signed by the Princes, they purportedly assigned and relinquished in favour of the Nizam "whatever right, title interest and benefit" they had in the trust fund under the 1963 settlement. It is nevertheless the Princes' case that the 1965 appointment still governs the beneficial interests in the fund, subject to an assignment by Prince Muffakham Jah of his rights thereunder to Shannon. They say that, if necessary, they will challenge the validity of the document which they signed in 1967 on grounds which include undue influence, mistake and duress.
13. Various claims have also been put forward over the years by or on behalf of other members of the Nizam's extended family. These include claims advanced by an organisation called the Nizam Family Welfare Association. A descendant of the Nizam and active member of that Association, Nawab Najaf Ali Khan, has made it clear through his solicitors that he will seek to be joined to any court proceedings as a representative of the other descendants and potential heirs of the Nizam.
14. In the light of these competing and unresolved claims, the Bank has throughout sought to maintain a neutral position. For decades, the Bank has made it clear that it can only deal with the money in the account on the joint instructions of Pakistan, India, the trustees of the Nizam's 1963 settlement, and (latterly) the Princes. For many years, the Bank has also regularly sent bank statements for the account to the High Commissioner for Pakistan in London, the solicitors for the High Commissioner for India in London, and Prince Muffakham Jah.
15. Meanwhile, there have been repeated attempts to reach a settlement through diplomatic and other initiatives, but none of these has borne fruit.

The present proceedings

(1) Before the Notice of Discontinuance

16. On 3 April 2013 the solicitors for the High Commissioner for Pakistan in the United Kingdom wrote to the Bank, seeking release of the funds to Pakistan and threatening to make an application to the court to lift the stay originally imposed by the House of Lords in the original proceedings if the Bank refused to release the money. The letter said that the services of leading and junior counsel had been retained, and set out an analysis of the legal position concluding with the optimistic assertion that:

"It is impossible to conceive of circumstances in which a third party might displace Pakistan's title and entitlement to the funds."

17. The Bank responded on 9 May 2013 through its solicitors, Ashurst LLP. The Bank said it intended to maintain its position that it would not consent to release the funds without an order from the English court, or an agreement between all those who claimed an interest in the funds. The Bank said it would co-operate with any proper judicial process to determine entitlement to the funds, and would be concerned to ensure that all potential claimants were notified so that they could choose whether or not to participate in the proceedings.
18. On or shortly before 11 June 2013, Pakistan's English solicitors (Farani Javid Taylor Solicitors LLP) sought to issue an application in the stayed proceedings against the Bank, asking for the stay to be lifted. The proposed application was supported by evidence maintaining that Pakistan was entitled to claim payment of the funds on the strength of its legal title without waiving its sovereign immunity. The matter was rightly referred by the staff in the court office to the Chancery Applications Judge, who happened to be myself, and on 11 June a short hearing took place at which I heard junior counsel for the High Commissioner, Mr Oliver White. No notice of the application had been given to any other interested party. I said that I did not understand how Pakistan could hope to lift the stay without waiving its sovereign immunity, and that the obvious way to resolve the dispute (as Lord Denning and others had pointed out) would be for the High Commissioner to waive immunity and sue the Bank.
19. Mr White did not seek to dissuade me from taking this view, so the proposed application was never issued. In the course of the hearing, Mr White said that:

"everyone wants to effectively litigate this matter in order to arrive at some form of a result, which currently is an impasse. It shows no prospect of reaching any form of result, absent Court intervention."

Mr White also agreed with my view that:

"Whichever route you go down one has to get the necessary parties before the Court."

20. Later the same day, the High Commissioner issued his claim form against the Bank. The claim form said that he had full legal title to the account, which he held as agent for the state of Pakistan. He requested an order for delivery up of the funds and/or damages for their conversion by the Bank. These contentions were then repeated, without much elaboration, in the particulars of claim settled by leading and junior counsel which were served on 25 June 2013. The primary formulation of the claim relied on the High Commissioner's legal title to the account which had been opened by Mr Rahimtoola in 1948, and sought to recover the money in the account as a debt owed by the Bank to the claimant. As I have already noted, the claim also included an unparticularised assertion that Pakistan was beneficially entitled to the funds. The alternative claim in conversion was maintained, despite (a) the absence of any credible evidence to support it, and (b) the legal impossibility, since the decision of the House of Lords in OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1, of establishing conversion of a chose in action, such as the debt representing money held in a bank account.
21. The Bank's response was to write on 6 August 2013 to the principal parties who had asserted claims to the funds, including India, the Princes and Mr Khan, notifying them of Pakistan's action, stating that the Bank intended to interplead and asking for confirmation of each recipient's position. On 13 August 2013, the Bank applied to strike out Pakistan's claims for conversion, damages and interest, while in respect of the claim for payment of the money in the account the Bank sought interpleader relief pursuant to RSC Order 17 rule 1(1)(a), then still contained in Schedule 1 to the CPR, on the basis that the Bank expected to be sued in respect of the fund by two or more persons making adverse claims to it, and was "unable to resolve the longstanding dispute as to which of the adverse claimants is entitled to the monies in question".
22. The Bank's application was supported by a witness statement of a solicitor at Ashurst, Ms Sophie Jean Law, in which she set out a helpful summary of the background to the case and explained why the claim in conversion was misconceived. She also stated the grounds on which the Bank sought interpleader relief, giving the necessary confirmation on behalf of the Bank (pursuant to RSC Order 17 rule 3 (4)) that the Bank claimed no interest in the monies (other than for charges, costs or any tax the Bank might be required to pay out of them), the Bank did not collude with any of the claimants, and it was willing to dispose of the fund as the court might direct.
23. On 28 October 2013, the Princes made separate applications to be joined to the proceedings as interpleader claimants. I should explain at this point that the Princes have at all material times been separately represented. Thus one application was made by Russell-Cooke LLP on behalf of Prince Muffakham Jah and Shannon, while the other application was made by Withers LLP on behalf of Prince Mukkaram Jah, the eighth Nizam.
24. On 21 November 2013, a similar application was also made by Mr Khan, through his solicitors Jones Day, as the representative of the heirs of the seventh Nizam.
25. India was already aware of Pakistan's intentions well before receipt of the Bank's letter of 6 August 2013, because the claimant's solicitors had written to the Indian High Commissioner in London on 10 April 2013, a week after the pre-action letter sent to the Bank on 3 April, to inform him of the steps which Pakistan was proposing to take. The letter emphasised that the proposed course of action was not intended to be either provocative or confrontational, and India was invited to participate in settlement discussions "with a view to avoiding formal proceedings which we are instructed to pursue in default of settlement". No open response to this proposal is in evidence, but on 2 September 2013 the Indian High Commission informed the Bank's solicitors that India maintained its claim to the funds and would revert shortly on further steps. On 17 September 2013 a diplomatic communication, or "note verbale", was sent by the Ministry of External Affairs in New Delhi to Pakistan's High Commission in New Delhi, requesting clarification whether Pakistan had claimed the disputed fund from the Bank in proceedings in London, "and if so, the status of bilateral negotiations held thus far between India and Pakistan in this regard".
26. On 17 October 2013, India's solicitors, TLT LLP, notified Ashurst of their formal appointment in the matter. They explained that India's position remained as stated in the High Commissioner's letter of 2 September, and there was nothing new to report. In a further letter dated 29 October 2013, India informed the Bank that a range of options was under consideration, including applying to the court for a stay of the proceedings on the grounds of state immunity, or (conversely) applying to be joined as a defendant to enable the beneficial entitlement to the fund to be determined. On 4 November 2013, the Bank asked India to clarify its position in good time before the forthcoming hearing of the Bank's interpleader application (which had been fixed for a one day hearing in a window beginning on 27 November 2013). No response to this letter was received, however, before Pakistan discontinued the whole of its claim by a notice of discontinuance signed on 21 November 2013 ("the Notice of Discontinuance").

(2) After the Notice of Discontinuance

27. The applications now before the court stem from the service by Pakistan of the Notice of Discontinuance. They are as follows:

a) On 18 December 2013 Prince Mukkaram Jah applied to be joined as a party to the claim, and asked for the Notice of Discontinuance to be set aside. This application was served on 21 February 2014.

b) Also on 18 December 2013, a similar application was made by Prince Muffakham Jah and Shannon. This application was served on 5 March 2014.

c) On 3 February 2014 the Bank also applied to set aside the Notice of Discontinuance. Before making this application, the Bank had received letters from each of the Princes and Mr Khan saying that they considered the Bank to be under a positive duty to make such an application, and giving notice that they might sue the Bank if it failed to do so. In the alternative, the Bank asked for an order that Pakistan should pay its costs of the proceedings on an indemnity basis, and in any event it sought such an order in relation to the costs of the "direct claims" (i.e. the misconceived claims for conversion, damages and interest). The Bank's application was supported by a witness statement of Mr Jonathan William Gale, one of the solicitors with conduct of the case on behalf of the Bank at Ashurst.

d) On 16 April 2014 India issued an application to be joined as a party to the proceedings, to be heard on the Bank's application to set aside the Notice of Discontinuance, to set aside the Notice in its own right, and for associated relief. This application was supported by a witness statement of Mr Jeremy John Thomas, the partner in TLT Solicitors with conduct of the matter on India's behalf.

e) By a further application, issued on 24 September 2014 after detailed evidence had been exchanged between the parties, India applied for an order that Pakistan's principal witness, Mr Wajid Shamsul Hasan, should be cross-examined before the judge when the applications to set aside the Notice of Discontinuance were heard. When he made his first statement dated 29 May 2013, Mr Hasan held the office of High Commissioner for Pakistan in the United Kingdom. He retired from that post shortly before making his second statement dated 15 April 2014. The subject-matter of the proposed cross-examination was said to be matters of fact relevant to the question whether the Notice of Discontinuance was an abuse of the process of the court, and the circumstances in which it was issued, including in particular those alleged in paragraph 11 of Mr Hasan's second statement. In the event, as I shall explain later in this judgment, the application to cross-examine Mr Hasan was briefly opened, but not pursued, at the hearing before me.

28. On 15 January 2014, India confirmed that, if the Notice of Discontinuance were set aside, it would not apply for a stay on the basis of state immunity and would fully participate in proceedings to resolve the question of beneficial entitlement to the disputed fund.

The issues

29. Against this background, I will now deal with the issues raised by the above applications in the following order:

a) the question of joinder of the Interested Parties;

b) the question whether the Notice of Discontinuance should be set aside; and

c) to the extent that they are still relevant, questions about costs.

Joinder of the Interested Parties

30. The first question is, joinder to what? The Interested Parties all wish to be heard on the Bank's application to set aside the Notice of Discontinuance. As the sole defendant to the action begun by Pakistan in 2013, the Bank is the only party with undoubted standing to make the application. I therefore need to decide whether the Interested Parties have a right to be heard on that application, or (if I have a discretion in the matter) whether I should exercise it in their favour. In addition to that, the Interested Parties wish to be joined as parties to the proceedings in their own right. This would enable them to pursue one or more of the following objectives: (a) to make their own applications to set aside the Notice of Discontinuance; (b) to seek orders for costs against Pakistan; and (c) if the Notice of Discontinuance is set aside, to participate in the future conduct and resolution of the case.
31. Although the question whether the Interested Parties should be heard on the Bank's application is logically a preliminary issue, the parties sensibly agreed that I should not rule on it at the beginning of the hearing, but should instead hear all the submissions that the parties wished to make and then treat it as one of the questions I had to decide.
32. CPR rule 19.2(2) provides as follows:

"(2) The court may order a person to be added as a new party if –

(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or

(b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue."

It can be seen, therefore, that the court has a discretion to add a person as a new party in the alternative circumstances specified in paragraphs (a) and (b) of rule 19.2(2). That discretion should of course be exercised in a principled manner, and with the aim of giving effect to the overriding objective of enabling the court to deal with the case justly and at proportionate cost: see rules 1.1 and 1.2(a).

33. In addition, the court has a general case management power under rule 3.1(2)(m), except where the Rules provide otherwise, which enables it to:

"(m) take any other step or make any other order for the purpose of managing the case and furthering the overriding objective."

34. In relation to costs, section 51 of the Senior Courts Act 1981 confers jurisdiction to make an order for costs in favour of, or against, a non-party, and CPR rule 46.2(1) provides that where the court is considering whether to exercise that power, the non-party must:

"(a) be added as a party to the proceedings for the purposes of costs only; and

(b) be given a reasonable opportunity to attend a hearing at which the court will consider the matter further."

35. For the reasons which follow, it is in my judgment clearly appropriate to join each of the Interested Parties as parties to the action, both under rule 19.2(2) and (for the purposes of their applications for costs against Pakistan) under rule 46.2.
36. In the first place, I am satisfied that service of the Notice of Discontinuance without the permission of the court pursuant to CPR rule 38.2 did not automatically terminate the proceedings in such a way as to deprive the court of its jurisdiction under rule 19.2(2) to add new parties. The proceedings clearly remained alive at least for the purposes of (a) the Bank's application to set aside the Notice of Discontinuance pursuant to rule 38.4(1), and (b) dealing with any question of costs arising from the discontinuance: see rules 38.5(2) and (3), and 38.6(1). If, therefore, the proceedings are still in existence for the purposes of the Bank's application to set aside the Notice, I consider that it must in principle be open to the court to order the joinder of each of the Interested Parties on either or both of the following grounds:

a) on the basis that it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings, including in particular the question whether the Notice of Discontinuance should be set aside, and (if it is) the underlying dispute as to beneficial ownership of the funds; and

b) on the basis that there is an issue involving the new party and an existing party, Pakistan, which is connected to the matters in dispute in the original proceedings, and it is again desirable to add the new party so that the court can resolve that issue. Here I would identify the relevant issues between the new party and Pakistan as (i) the question whether the Notice of Discontinuance should be set aside, and (ii) the question of beneficial entitlement to the funds.

37. Given the history which I have related in the previous sections of this judgment, I consider that the arguments in favour of exercising my discretion so as to join the Interested Parties are very strong. Each of them has a clear interest in resolution of the underlying dispute, and once Pakistan had started the proceedings against the Bank, and the Bank had indicated its intention to interplead, each of them incurred significant time, trouble and legal costs in considering what position to adopt, preparing and filing evidence, and generally preparing for the hearing of the Bank's interpleader application. Any prejudice thereby caused to Pakistan was in my judgment entirely predictable and self-inflicted, because it should have been obvious to Pakistan's advisers that the Bank would promptly seek interpleader relief. Moreover, Pakistan's motive in starting the proceedings, as Mr White told me on the day the claim form was issued, was to achieve resolution of the dispute with all the necessary parties before the court. In those circumstances, everything points in favour of permitting the Interested Parties to be joined; and, to be fair, Pakistan did not advance any separate argument based upon the exercise of my discretion, if I reached the stage that I had a discretion to exercise. Pakistan's point was, rather, that the Bank was the only other party to the proceedings which had any standing in the matter, and was therefore the only party that could apply to set aside the Notice of Discontinuance. As I have explained, I consider that this submission takes too narrow a view of the effect of a notice of discontinuance and the powers of the court under rule 19.2.
38. Even if I am wrong in the conclusion which I have just reached, it would clearly have been necessary to join the Interested Parties under CPR 46.2(1) as parties to the proceedings for the purposes of costs only. The wording of the rule is mandatory: the non-party in question must be added as a party to the relevant proceedings. That is so whether the costs order sought is one against, or (as here) in favour of, the non-party.
39. Finally, even if the jurisdiction under rule 19.2(2) is for some reason not exercisable after service of a notice of discontinuance, I would in any event have exercised my discretion under rule 3.1(2)(m) to permit the Interested Parties to address the court and make submissions on the question whether the Notice of Discontinuance should be set aside. In view of their close involvement in the events leading up to the aborted hearing of the Bank's interpleader application, the apparent prejudice caused to them by service of the Notice, their interest in the underlying dispute, and the light which each of them (and India in particular) might be able to throw on Pakistan's reasons for serving the Notice, it was always probable that the court would be assisted by their submissions in deciding whether or not to set aside the Notice of Discontinuance; and with the benefit of hindsight, I can say that this has indeed been the case.

Should the Notice of Discontinuance be set aside?

The law

40. CPR rule 38.4(1) reads as follows:

"Where a claimant discontinues under rule 38.2(1) the defendant may apply to have the notice of discontinuance set aside."

As with all provisions in the CPR, this rule must be construed, and the discretion under it exercised, with the aim of furthering the overriding objective.

41. Under the old Rules of the Supreme Court ("RSC") that preceded the CPR, there was no express provision enabling the court to set aside a notice of discontinuance. Nevertheless, the House of Lords decided in 1980 that a notice served without leave of the court in accordance with the rules could be set aside under the court's inherent jurisdiction if the discontinuance was an abuse of process: see Castanho v Brown & Root (UK) Ltd [1981] AC 557. Giving the only reasoned judgment (with which Lord Wilberforce, Lord Diplock, Lord Keith of Kinkel and Lord Bridge of Harwich agreed) Lord Scarman said at 571G:

"Even if it be illogical (and I do not think it is) to treat the termination of legal process as an act which can be an abuse of that process, principle requires that the illogicality be overridden, if justice requires. The court has inherent power to prevent a party from obtaining by the use of its process a collateral advantage which it would be unjust for him to retain: and termination of process can, like any other step in the process, be so used. I agree, therefore, with Parker J and Lord Denning MR that service of a notice of discontinuance without leave, though it complies with the rules, can be an abuse of the process of the court."

42. Lord Scarman continued, at 572A:

"Was it, then, in the circumstances of this case, an abuse? In my judgment, it was. A sensible test is that which both the judge and Lord Denning MR applied. Suppose leave had been required (as it would have been, if the notice had been served 24 hours later), would the court have granted unconditional leave? It is inconceivable that the court would have allowed a plaintiff, who had secured interim payments and an admission of liability by proceeding in the English court, to discontinue his action in order to improve his chances in a foreign suit without being put upon terms, which could well include not only repayment of the monies received but an undertaking not to issue a second writ in England."

This passage gives a sufficient indication of the facts in Castanho v Brown & Root, and also marks the emergence of a "sensible test" which has often been applied in the subsequent case law.

43. I was referred to a number of pre-CPR cases in which the principle established by Castanho v Brown & Root was applied. In Fakih Bros v Moller [1994] 1 Lloyd's Rep 103, Hobhouse J at 109 derived five principles from Lord Scarman's speech in Castanho v Brown & Root, of which I will cite the third:

"Thirdly, in considering whether or not the service of the notice was an abuse of process it is necessary to have regard to the overall position as between the plaintiff and the defendant and what the plaintiff is attempting to achieve by serving the notice."

In Ernst & Young v Butte Mining Plc [1996] 1 WLR 1605, Robert Walker J discussed the law fairly briefly at 1610D to 1611A. He pointed out that discontinuance had featured in the RSC for well over a century, having superseded older procedures such as nonsuit or voluntary dismissal of a bill in Chancery. At 1610G, he characterised the principle to be derived from Castanho v Brown & Root in these words:

"A plaintiff's apparently unfettered right to discontinue before or within 14 days after defence is, however, subject to the overriding rule that discontinuance will not be permitted if it is an abuse of process."

Later in his judgment, having concluded that the service of the notice of discontinuance was, on the facts, an abuse of process, Robert Walker J made it clear at 1622F that he still had a discretion:

"whether to set aside the notice of discontinuance entirely or to leave it to stand, conditionally or unconditionally."

44. In Gilham v Browning [1998] 1 WLR 682, the Court of Appeal (Lord Woolf MR, Potter and May LJJ) held that the same principles applied to service of a notice of discontinuance under Order 18 of the County Court Rules 1981. The leading judgment was given by May LJ, with whom the other members of the court agreed. At 689C, May LJ said:

"It is of course important to recognise on the one hand that the court uses a jurisdiction to strike out for abuse sparingly and in plain cases where there has been misuse of the court's process, and on the other that the court is not constrained by fixed categories of circumstances in which the court has this power."

45. Against the background of this case law, counsel for Pakistan submit that the express power now conferred on the court to set aside a notice of discontinuance under CPR rule 38.4(1) should be construed as extending no further than the inherent power to set aside such notices for abuse of process which the House of Lords had recognised in Castanho v Brown & Root. The argument is that the rule provides a procedure enabling a defendant to apply to set aside a notice of discontinuance, and a time limit for doing so (28 days from the date of service of the notice: see rule 38.4(2)); but that it does not in terms confer any discretion on the court wider than that recognised in the pre-existing cases.
46. I am unable to accept this submission. The CPR formed an entirely new procedural code (see rule 1.1(1)), the provisions of which should as a matter of principle be construed in their new context, and not by reference to previous case law on provisions in the superseded RSC. In some areas, of course, cases on the old rules may continue to have strong persuasive authority, but the primary obligation of the court is to construe any rule in the CPR, and exercise any power given to it by the Rules, so as to further the overriding objective. Thus I consider that the court should approach an application to set aside a notice of discontinuance under rule 38.4(1) on the basis that the court has a discretion which it should exercise with the aim of giving effect to the overriding objective of dealing with the case justly and at proportionate cost. If the facts disclose an abuse of the court's process, that will no doubt continue to be a powerful factor in favour of granting the application; but it would in my view be wrong to treat abuse of process as either a necessary or an exclusive criterion which has to be satisfied if the application is to succeed.
47. I am fortified in reaching this conclusion by the judgment of Aikens J (as he then was) in Sheltam Rail Co Ltd v Mirambo Holdings Ltd [2008] EWHC 829 (Comm), [2009] Bus LR 302, where he discussed the jurisdiction under rule 38.4(1) in the following terms, with which I respectfully agree:

"34. Instead of the old practice of applying to strike out a notice of discontinuance as an abuse of process, CPR r 38.4(1) now specifically provides for an application to be made to set the notice aside. The wording of the rule does not impose any particular test that has to be satisfied before the court will set aside a notice of discontinuance that has been issued under rule 38.2(1) without the court's permission. However, I agree with note 38.4.1 of Civil Procedure 2007 (vol 1) that a court may set aside a notice of discontinuance if it concludes that it is an abuse of the process of the court. I accept that this may not be the only circumstance in which the court exercises its powers under CPR r 38.4(1). Further, even if it concludes that it is an abuse of process, a court must still have a discretion whether to set aside a notice of discontinuance. (Compare the comment of Robert Walker J in Ernst & Young v Butte Mining Plc [1996] 1 WLR 1605, 1622F).

35. When considering whether or not a notice of discontinuance constitutes an abuse of the process of the court, I regard a useful question to ask (as under the old RSC): if the permission of the court had been required to issue a notice of discontinuance, would that permission have been granted unconditionally? However, that is not the only matter to consider before a court exercises its discretion to set aside a notice of discontinuance under CPR r 38.4. A court must also be entitled to consider both the circumstances in which the notice of discontinuance was issued and what the claimant is attempting to achieve by issuing and serving the notice."

The circumstances in which the Notice of Discontinuance was served

48. So far as the Bank was concerned, service of the Notice of Discontinuance by Pakistan on 21 November 2013 (a Thursday) came as a bolt from the blue. The Bank had not been party to any discussions between Pakistan and the Princes, nor was it involved in any diplomatic exchanges which may have taken place between Pakistan and India. As I have explained, the Bank had made applications for summary judgment on part of the claim brought against it by Pakistan, and for interpleader relief in relation to the funds in the disputed account. Those applications were due to be heard imminently, in a window beginning on the following Wednesday, 27 November. The Bank's solicitors had just finished finalising the hearing bundles, which had to be lodged by 21 November. They were duly lodged on that day, before receipt of the Notice of Discontinuance which was emailed to Ashurst late in the morning. Skeleton arguments for the hearing were due to be served by the next day, Friday 22 November. Without any warning, or even any accompanying letter of explanation, all this work was brought to an abrupt halt.
49. At the hearing before me, leading counsel for Prince Muffakham Jah, Mr Hodge Malek QC, said that service of the Notice of Discontinuance had also come as a bolt from the blue for his client. It later transpired, however, that this was not entirely accurate. At 5.54 pm on the day after the conclusion of the hearing, 13 November 2014, Pakistan's solicitors sent an email to my clerk (copied to the solicitors for the other parties) in order to draw my attention to an email exchange between them and the solicitors for both Princes on 5 November 2013. The exchange formed part of a chain of "without prejudice" correspondence, and the copies supplied to the court were therefore redacted. The unredacted part of the email from Pakistan's solicitors referred to Pakistan "being placed under increasing pressure from the government of India to withdraw the current proceedings and resume diplomatic negotiations in final resolution of this dispute", and continued:

"Needless to say, in the increasingly likely event our client is persuaded to adopt this proposed course of action, we will have no alternative other than to withdraw the current proceedings with immediate effect."

50. I think it is regrettable that Pakistan's solicitors should have decided (or been instructed) to contact the court in this way, without giving any prior notice to the other parties. Any reference to the content, as opposed to the existence, of "without prejudice" correspondence is bound to be a sensitive matter, even if it is alleged that the unredacted material is not covered by the cloak of privilege. By presenting the redacted material to the court in this way, Pakistan effectively pre-empted any objections to the admissibility of the unredacted parts of the emails which might have been made on behalf of the Princes. The fact that the Princes' solicitors were copied into the email to my clerk does not help, because by then any damage had been done, in the sense that the court would inevitably see the unredacted material. It is therefore unsurprising that on 14 November Prince Muffakham Jah's solicitors (Russell-Cooke LLP) wrote to Pakistan's solicitors objecting in the strongest terms to their placing of this material before me. They said they did not agree to the use of without prejudice correspondence before the court for any purpose, and did not waive privilege.
51. On the same day, India's solicitors also wrote to the court inviting me to disregard the material in its entirety, or alternatively to give a direction that all parties were to have seven days in which to respond to it. In the light of Pakistan's unilateral conduct, I decided that the least objectionable way forward was to give the parties an opportunity to file a brief written response to the material disclosed by Pakistan, while making it clear that the disclosure should not open the door to a further round of expensive satellite litigation, and that no permission would be granted for any further submissions in reply or rejoinder. Despite the unfortunate procedure adopted by Pakistan, I thought it was understandable that Pakistan should have wished to draw my attention to the email sent on 5 November 2013 to the solicitors for the two Princes, and I was also provisionally inclined to think that disclosure of the unredacted passage in the email did not involve any breach of the privilege attaching to the negotiations. I set out these views, and gave directions in the form I have indicated, in a short Note to the parties dated 17 November 2014.
52. In the event, I received short written submissions on behalf of the Bank, India and Prince Muffakham Jah. With the benefit of those submissions, I am satisfied that it would be wrong for me to attach any weight to Pakistan's assertion that it was under pressure from the government of India to withdraw the proceedings. The proper place for any assertion of that nature was in the evidence filed for the purposes of the hearing, and I can see no justification for seeking to place it before the court after the hearing had ended, and otherwise than in a proper witness statement. On the other hand, I think I can properly take notice of the fact that on 5 November 2013 Pakistan did inform the Princes' solicitors that it might seek to withdraw the proceedings with immediate effect, which it could only do by service of a notice of discontinuance. Counsel for India did not object to this in their written response, while stressing that its only relevance was to the issue whether Prince Muffakham Jah's solicitors had received any prior warning of the Notice of Discontinuance, and thus to respond to the "bolt from the blue" submission made by Mr Malek. I agree with, and accept, that submission.
53. In truth, the question of how much notice the Interested Parties and the Bank received of Pakistan's intention to serve the Notice of Discontinuance has little, if any, relevance to the questions I have to decide. Where (as in the present case) a claimant has the right to discontinue without the permission of the court, the claimant is not obliged to give notice to the defendant (and still less to other prospective parties to the action) before doing so. Any prejudice to the defendant can normally be compensated by costs, for which the discontinuing claimant is presumptively liable. In an appropriate case, the court can award costs on the indemnity basis. I therefore turn to the question which in my judgment lies at the heart of this part of the case, namely Pakistan's reasons for serving the Notice of Discontinuance and thus (subject to the present application) terminating the action which it had begun less than six months before.
54. It must be said that the reasons advanced by Pakistan have been far from consistent. On 28 November 2013, the Bank's solicitors wrote to Pakistan's solicitors in the following terms:

"We note that you have offered no explanation as to why your client has suddenly, just days before the listed hearing in this case, served the Notice.

If it is because your client no longer asserts a claim to the Monies and accepts that the claims of the other claimants to the Monies are stronger, it behoves your client to let us know so that the ownership of the Monies can be fairly established and extensive costs are not wasted in dealing with your client's position. For this possibility, we enclose a draft Consent Order which relinquishes all your client's claims over the Monies and the Account. If this possibility is the case, please sign and return the enclosed Consent Order to us.

If the above possibility is not the case and in the absence of any other explanation, the inference arises that the Notice is a manoeuvre intended to retract your client's waiver of state immunity and frustrate our client's Interpleader application. This would appear to be an abuse of process.

In the circumstances and if your client intends to maintain a claim to the Monies, please set out your client's position clearly and provide a full explanation as to why the Notice is not an abuse of process and why it should not be set aside pursuant to CPR r 38.4."

55. Pakistan's solicitors replied on 4 December 2013. They said they were under no obligation to explain why the Notice had been served, but it "should not be misconstrued as an admission that our client no longer asserts full legal title and beneficial interest in the funds". Pakistan was therefore unwilling to sign the draft consent order. The letter went on to argue that Pakistan could not have waived its immunity against any of the Interested Parties, because they had not yet been joined to the proceedings, and said that any application to set aside the Notice of Discontinuance would be robustly contested, and Pakistan would seek to recover its costs "on an indemnity basis in the inevitable event that the application is dismissed and determined to be without merit". The letter concluded:

"Without prejudice to the foregoing, and without prejudice to our client's assertion of rights over both the legal title and beneficial interest in the funds, we are nonetheless able to advise that we remain in productive discussions with all the parties purporting to assert an interest in the funds in the expectation and hope of achieving a lasting resolve [sic] to this dispute, whereupon we anticipate presenting your client with the necessary consent order enabling the release of the funds."

56. It seems clear from this letter that Pakistan had no intention of relinquishing its claim to a beneficial interest in the funds, and that Pakistan wished to resume negotiations on the footing that it was still entitled to rely on its sovereign immunity as against all other persons claiming an interest in them. In other words, the position would revert to the stalemate which had prevailed until Pakistan began its action against the Bank, and the court would not again be involved unless and until a negotiated solution was reached.
57. On 7 January 2014 Pakistan's solicitors wrote again to Ashurst, introducing a new theme which here made its first appearance in the open correspondence in evidence before me:

"The simple explanation resulting in the decision to issue the notice was motivated by political considerations alone, which our client was unable to disregard at the time the notice was issued. These recent developments should not be misinterpreted by your client as a release by our client to its claim in the funds, which is incompatible with our client's active lead in the settlement discussions which have ensued following the notice of discontinuance."

The letter went on to assert that:

"Put simply, at all material times it was within the Claimant's gift to discontinue proceedings, in accordance with and in adherence to the applicable CPR legislation.

…

The decision to issue proceedings against the Bank alone (to ensure that sovereign immunity was not lost against any interested third parties, whether named or unnamed, claiming an interest in the funds) was in fact a course of action envisaged over 65 years ago by their Lordships giving judgment in the related historical proceedings, where it was noted by Viscount Simonds that "Pakistan could have taken proceedings directly against the bank to recover the money"."

The italics in the above quotation are the writer's, not mine.

58. Ashurst replied on 13 January 2014. They pointed out that the settlement discussions to which Pakistan had referred did not involve India, without whose agreement it would be impossible for the Bank to release the funds. They asked for a full explanation of the "political considerations" which were now said to be the sole reason for service of the Notice of Discontinuance. They also pointed out that Pakistan's service of the Notice was hard to reconcile with Pakistan's stated desire to achieve a negotiated solution:

"The apparent inference to be drawn is that, whilst your client accepts the need for the Court's involvement and approval in resolving the question of the beneficial ownership of the funds, it wishes to stop and start proceedings to suit your client's negotiating position."

59. Two days later, on 15 January 2014, India's solicitors wrote to Ashurst (as I have already noted) stating that if the Bank's application to set aside the Notice of Discontinuance succeeded India would not apply for a stay of proceedings on the grounds of state immunity, and would fully participate in them.
60. On 15 April 2014 Mr Hasan, who had recently retired as Pakistan's High Commissioner in the United Kingdom, signed his witness statement in answer to the Bank's application. He exhibited to it his first statement, dated 29 May 2013, which he had made in connection with Pakistan's abortive application to lift the stay imposed by the House of Lords in the original proceedings. In paragraph 11 of his second statement, Mr Hasan gave the following explanation of Pakistan's decision to serve the Notice of Discontinuance:

"11. The Bank has alleged that the Claimant has refused to provide a full and satisfactory account in explanation of its decision to discontinue proceedings as at 21 November 2013. I would, respectfully, disagree. In fact, the Claimant's solicitors have provided an explanation which precipitated the decision to formally discontinue proceedings in a letter dated 7 January 2014 … As per the letter of 7 January 2014 the Claimant's actions arose out of the danger of a diplomatic fall out which was being threatened in the event that the Claimant did not consent to withdraw the said proceedings, and to engage in "bilateral" discussions in resolution of this longstanding dispute in accordance with past diplomatic convention and established practice between two sovereign states. Understandably I am not authorised to disclose the precise details of the nature of the communication received and its contents and threatened consequences between high level discussions which affect foreign relations between two sovereign states. However, I am able to say that, immediately before the date of discontinuance, the Pakistan High Commission was contacted through internal channels by its counterpart at the Indian High Commission in the United Kingdom and passed a document which caused the Claimant to decide to discontinue proceedings. In other words, the decision to issue a notice of discontinuance was made as a result of these discussions between Pakistan and India."

61. This explanation was challenged by India. The evidence filed by India in support of its own and the Bank's applications to set aside the Notice of Discontinuance included a statement made on 26 June 2014 by Mrs Smita Pant in her capacity as Counsellor (Political) at the High Commission of India in the United Kingdom, and head of the High Commission staff dealing with political affairs. Mrs Pant said she had caused enquiries to be made in both London and New Delhi, as a result of which Mr Hasan's allegations were denied. In particular, she denied that India had sent Pakistan any document, or made any communication to Pakistan, which "would be capable of being construed as intended to convey a warning of negative consequences unless the action should be withdrawn".
62. Mrs Pant's statement continued:

"7. Although the Government of India would not normally wish to comment on diplomatic communications, we see no real option but to provide the Court with some account of the most recent diplomatic communications on this matter, in order to prevent the Court from being misled. [She then stated the sources of her information].

8. The Government of India had been instrumental in the original attempt, through the Hyderabad Funds Case brought by the then State of Hyderabad and the late Nizam VII, to obtain the release of the Hyderabad Funds through the English courts. This was blocked by Pakistan's assertion of State immunity which ultimately succeeded in the House of Lords in December 1957.

9. Since it was not possible thereafter to pursue release of the Hyderabad Funds through the courts, the Government of India has participated in discussions with Pakistan about the Hyderabad Funds Case. Bilateral discussions have taken place intermittently since 1958, at various levels. The Hyderabad Funds Case has in more recent years routinely featured as an agenda item in any bilateral meetings held between the Foreign Secretaries (Ministers of External Affairs) of the Governments of India and Pakistan. This was true of the most recent such meetings, which were held in New Delhi during 4-5 July 2012.

10. Since 5 July 2012, there have been no further bilateral negotiations or discussions between any representatives of India and of Pakistan on the Hyderabad Funds Case.

11. On 17 September 2013, India sent a Note Verbale to the High Commission of Pakistan in New Delhi, through official channels … The contents of the Note Verbale speak for themselves. I certainly would not accept (were it to be suggested) that the document could be construed as conveying any sort of warning, express or implied, of adverse consequences for Pakistan. I also note some two months elapsed between provision of the [Note Verbale] and Pakistan's Notice of Discontinuance.

12. No response has been received to the Note Verbale (not even by way of acknowledgment) and it has not been discussed between India and Pakistan. Nor has any request been made, in any fashion, for Pakistan to withdraw (or discontinue) the action.

13. The High Commission of India in London has not contacted the High Commission of Pakistan in London at all about the Hyderabad Funds Case since well before the commencement of this action in June 2013. We have not passed to the High Commission of Pakistan either the [Note Verbale], or any other document referring to this litigation.

14. In these circumstances, I can only conclude that the allegations made in paragraph 11 of Mr Hasan's statement have no foundation and are inaccurate."

63. It can be seen, therefore, that according to Mrs Pant:

a) the most recent discussions between India and Pakistan about the case had taken place in New Delhi in July 2012;

b) the Note Verbale (to which I have already referred in [25] above) was sent by India to the High Commission of Pakistan in New Delhi on 17 September 2013, but had received no response; and

c) there had been no contact at all between the High Commissions of India and Pakistan in London about the case since well before the commencement of the present action in June 2013.

It was in the light of the obvious inconsistencies between Mrs Pant's account and the evidence of Mr Hasan that India issued its application to cross-examine him at the hearing.

64. In correspondence before the hearing, Pakistan made it clear through its solicitors that it opposed India's application to cross-examine Mr Hasan, and said that Mr Hasan would claim diplomatic privilege if any attempt were made to question him about the diplomatic communications referred to in his statement. Furthermore, Mr Hasan was no longer the serving High Commissioner, and it was uncertain whether he would attend the hearing. In their letter dated 15 October 2014, Pakistan's solicitors said they had no instructions from Mr Hasan in connection with India's application, but they would revert in due course when such instructions were finalised.
65. There matters rested until Pakistan served its skeleton argument just after 8pm on Saturday, 8 November 2014. This document confirmed that Pakistan intended to rely on the Diplomatic Privileges Act 1964 and Article 31 of the Vienna Convention in order to prevent any questioning of Mr Hasan about his diplomatic correspondence or his actions while in office as High Commissioner. It was argued that Mr Hasan had not waived his diplomatic immunity by giving the evidence which he did in paragraph 11 of his second statement.
66. It is also relevant to note what counsel for Pakistan said in the concluding section of their skeleton argument, at paragraph 69:

"Central to this application is the undeniable fact that each of the interested parties (and the [Bank] for separate reasons) stand to benefit from the resumption of proceedings for their own different reasons. All would stand to gain by Pakistan's forced re-emergence in the proceedings and with it the loss of her immunity (which would almost certainly take effect) upon the Bank's interpleader application taking place. This concern, above all else, was instrumental and precipitous in the subsequent decision taken to discontinue proceedings. The discontinuance itself was carried out in CPR compliant manner and shortly after accompanied by a written explanation accounting for the decision to discontinue proceedings."

It appears from this passage, which must be taken to reflect Pakistan's latest instructions in the matter, that the predominant reason why Pakistan discontinued the proceedings was indeed the contemplated loss of its sovereign immunity which would ensue if the Bank's interpleader application were granted. What is less apparent is how this explanation could be reconciled with Mr Hasan's evidence, reflecting the letter from Pakistan's solicitors dated 7 January 2014, that diplomatic pressure from India was the sole cause of the discontinuance.

67. In the light of Pakistan's skeleton argument, India inferred that Pakistan would in no circumstances produce Mr Hasan for cross-examination, even if an order requiring his attendance were made pursuant to CPR rule 32.7, and that Mr Hasan would therefore not take the opportunity to rebut the allegations made against him by India. Assuming that to be correct, which Pakistan was invited to confirm, India said it would not need to pursue its application to cross-examine Mr Hasan, but would simply invite the court to reject his evidence as irreconcilable with contemporaneous documentation, the chronology of events, Mrs Pant's evidence and Pakistan's own skeleton argument.
68. In the event, however, Pakistan did not provide the confirmation which India had requested, and Mr Hasan was present in court when the hearing began on Tuesday, 11 November. In those circumstances, it was clearly necessary for India's application to cross-examine Mr Hasan to be dealt with first. The application was briefly opened by Mr Timothy Otty QC on behalf of India, but it soon became clear that, if it were persisted in, potentially difficult questions of diplomatic immunity were going to arise which would require full argument and a ruling on which I would probably need to reserve my judgment, with the likelihood of an immediate appeal from it if it were adverse to Pakistan. In view of the further delay, expense and uncertainty which all this would entail, India wisely decided not to pursue the application.

Discussion and conclusion

69. Against this factual background, I have little hesitation in concluding that the main objective which Pakistan hoped to achieve by service of the Notice of Discontinuance was to preserve the sovereign immunity which it had waived as against the Bank by initiating the present action in June 2013, and which Pakistan perceived it was likely to lose as against the Interested Parties if the Bank's interpleader application proceeded to a hearing and they were joined as parties to the proceedings. This, in essence, is the explanation which Pakistan gave both in the immediate aftermath of service of the Notice (in the letter from its solicitors dated 4 December 2013) and in the skeleton argument of counsel for the present hearing before me. This is also the explanation which one would naturally infer from Pakistan's conduct, in the absence of any other explanation established by the evidence.
70. Pakistan has, of course, sought to advance a different explanation in the form of diplomatic pressure from India, but in the light of Mrs Pant's detailed and unchallenged evidence in rebuttal, and Mr Hasan's refusal to waive diplomatic privilege, I find myself unable to attach any significant weight to his evidence on this point. I cannot rule out the possibility that there was an element of diplomatic pressure behind the scenes, of which Mrs Pant was unaware, or that there may at least have been a reasonable perception of such pressure on the part of Pakistan as a result of the "high level discussions" and receipt of the unidentified "document" to which Mr Hasan refers. I am, however, satisfied that Pakistan's primary motivation was a desire to preserve its sovereign immunity and to reinstate a stalemate which could only be broken by a settlement reached (if at all) through a process of further negotiations in which Pakistan would continue to hold the trump card of sovereign immunity.
71. A question arises at this stage whether Pakistan's understanding of the legal position in relation to the preservation of its sovereign immunity was correct. Having started the present action, and admittedly waived immunity against the Bank, was it really open to Pakistan to seek to turn the clock back and continue to assert sovereign immunity against the Interested Parties who were about to be joined as parties to the action, for the purpose of resolving the very question of beneficial entitlement to the disputed funds which Pakistan had voluntarily brought before the court by suing the Bank? It is strictly unnecessary for me to decide this question, because the characterisation of Pakistan's conduct, and the question of what Pakistan hoped to achieve by it, do not depend on the correctness or otherwise of the view of the law taken by Pakistan. However, the strength of the case to set aside the Notice of Discontinuance could only be increased if Pakistan's conduct was motivated by a misconceived view of the law, so I will briefly consider the question.
72. Sections 1 and 2 of the State Immunity Act 1978 provide (so far as material) as follows:

"Immunity from jurisdiction

1(1) A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.

(2) A court shall give effect to the immunity conferred by this section even though the State does not appear in the proceedings in question.

Exceptions from immunity

2(1) A State is not immune as respects proceedings in respect of which it has submitted to the jurisdiction of the courts of the United Kingdom.

…

(3) A State is deemed to have submitted –

(a) if it has instituted the proceedings;

…

(6) A submission in respect of any proceedings extends to any appeal but not to any counter-claim unless it arises out of the same legal relationship or facts as the claim."

73. It follows from these provisions that Pakistan is deemed to have submitted to the jurisdiction of the English court by instituting the present action, and that the submission would extend to any appeal from a decision of the English court in that action. Section 2(6) gives statutory effect to decisions such as that of the Privy Council in Sultan of Johore v Abubakar Tunku Aris Bendahar [1952] AC 318: see the judgment of the Board (delivered by Viscount Simon) at 341, where he said of the appellant who had himself started the relevant proceedings before the Japanese court that:

"he could not object to being made respondent in these appeal proceedings, for his original submission to the original court binds him to accept the jurisdiction on appeal. If, on the other hand, the respondents' application to the High Court of the Colony of Singapore to reverse the decree is a "new" proceeding, and not a continuation of the previous one, the appellant's objection that he is a foreign sovereign would prevail, so far as the new proceeding impinged on his sovereign immunity."

74. As a matter of principle, it seems to me that a waiver of sovereign immunity by submission to the jurisdiction of the court must be irrevocable, and must extend to procedural steps properly taken, and orders of an interim nature made by the court, in the conduct of the relevant proceedings, as well as to the final determination of the proceedings by the court and any appeal therefrom. A submission to the jurisdiction of the court cannot be partial in relation to proceedings which a foreign state has instituted or to which it has submitted, nor can it be of a temporary nature. Once made, it must continue until the proceedings have run their course. There appears to be surprisingly little authority on this point, but it is in my judgment implicit in section 2 of the 1978 Act, and gains some support from the decision of the Employment Appeal Tribunal in Yendall v Commonwealth of Australia (1984) 107 ILR 590 where Popplewell J said at 599 that a waiver of immunity, once given, could not be withdrawn. The waiver therefore extended to any new claim which might be made by amendment in the proceedings. For that reason, the Tribunal refused permission to amend so as to raise a new claim (for alleged racial discrimination) in respect of which the state concerned (Australia) would not have waived its immunity if such an allegation had been included in the original application for unfair dismissal.
75. It must also be noted that any submission to the jurisdiction of the court under section 2 of the 1978 Act extends only to the adjudicative function of the court. Enforcement of any judgment or order obtained against a foreign state is another matter, and is subject to the far-reaching procedural privileges conferred by section 13: see Hazel Fox QC and Philippa Webb, The Law of State Immunity, 3^rd edition (2013), at p 188 and Dicey, Morris and Collins, The Conflict of Laws, 15^th edition (2012), at paragraph 10-030.
76. Applying these principles, I consider that Pakistan's waiver of sovereign immunity in submitting to the jurisdiction of the English court by starting its action against the Bank would clearly have extended to any interpleader proceedings set in motion by the Bank and to the subsequent determination by the court of beneficial title to the disputed funds. It was entirely predictable that Pakistan's claim would lead the Bank to interplead, and by pleading its beneficial title to the money Pakistan must in my judgment be taken to have intended that the English court would adjudicate on that question. Accordingly, procedural steps taken to that end, within the same action, would clearly have fallen within the scope of Pakistan's irrevocable waiver of immunity.
77. It follows, in my judgment, that by serving the Notice of Discontinuance Pakistan was attempting to frustrate the future conduct and completion of a process of adjudication by the English court to which Pakistan had already irrevocably submitted. Counsel for Pakistan sought to avoid this conclusion by arguing that the contemplated interpleader proceedings would have been separate proceedings to which the waiver did not extend. However, this submission is in my view impossible to reconcile with the clear wording of RSC order 17, which provides that where an application for interpleader relief is made in an existing claim, it must be made in accordance with CPR Part 23: see rule 3(1). Similarly, the powers conferred on the court hearing the application by rule 5(1) include power to order:

"(a) that any interpleader claimant be made a defendant in any claim pending with respect to the subject-matter in dispute in substitution for or in addition to the applicant for relief under this order, or

(b) that an issue between the interpleader claimants be stated and tried and [to] direct which of the interpleader claimants is to be claimant and which defendant."

All of these steps are taken within the action in which the application for interpleader relief is made. They do not involve the commencement of fresh proceedings. The position is similar under CPR Part 86, dealing with "stakeholder claims and applications", the provisions of which came into force on 6 April 2014: see rules 86.2(3) and 86.3(1).

78. If the matter is viewed in this way, it becomes clear, to my mind, that in serving the Notice of Discontinuance Pakistan was abusing the process of the court. The abuse lay in seeking to achieve a tactical advantage which would place Pakistan in a better position than that to which it had already voluntarily submitted by bringing its action against the Bank. This is just the kind of attempt to achieve a collateral tactical advantage which has led the court in pre-CPR cases to set aside a notice of discontinuance as an abuse of process; and, as such, it must be equally amenable to the broader jurisdiction now expressly conferred on the court by CPR rule 38.4(1).
79. It is helpful to test the position by asking what terms, if any, the court would have imposed had Pakistan been required to obtain the permission of the court before discontinuing its claim. It seems to me inconceivable that Pakistan would have been permitted to withdraw its claim unconditionally. In order to remove any collateral advantage, I consider that the court would have imposed at least the following conditions.
80. First, Pakistan would have been required to undertake not to claim sovereign immunity in the context of any subsequent proceedings to determine beneficial entitlement to the disputed funds. Such an undertaking would not have compelled Pakistan to maintain its own claim to beneficial entitlement, but would have ensured that any subsequent proceedings to determine the question could not again be blocked by Pakistan as they were in 1957. Equally, if Pakistan chose to participate in any future proceedings, it would have to establish its beneficial claim to the monies on the merits, in the same way as the other claimants.
81. Secondly, the court would have been concerned to prevent Pakistan from starting fresh proceedings against the Bank to recover the money, at any rate in the absence of any material change of circumstances.
82. Thirdly, the court would have required an undertaking by Pakistan to pay the reasonable costs of the Bank and the Interested Parties, and in view of section 13 of the State Immunity Act 1978 would probably have required actual payment of those costs before any notice of discontinuance was permitted to take effect.
83. For the reasons which I have given, I am satisfied that this is a clear case for the court to exercise its power under rule 38.4. The court has a discretion in the matter, but in my judgment everything tells in favour of setting aside the Notice of Discontinuance. That is the only way in which the proceedings begun by Pakistan against the Bank can achieve the objective which Pakistan must objectively be taken to have contemplated when it issued the claim form on 11 June 2013. Only in this way can proper and full effect be given to the waiver of immunity which Pakistan voluntarily gave by starting the proceedings.

Costs

84. In view of the conclusions which I have reached, the only question which I need to consider under this head is whether Pakistan should pay the Bank's costs of the so-called "direct claims" for conversion, damages and interest on the indemnity basis.
85. The relevant chronology may be briefly stated. In their letter before action dated 3 April 2013, Pakistan's solicitors gave no reasoned basis for advancing any of the direct claims against the Bank, nor did they threaten to do so. They merely asked for an explanation of all profits and/or benefits which the Bank had derived from its control and stewardship over the deposited funds. In their reply dated 9 May 2013, Ashurst explained that monthly bank statements had been provided to the High Commissioner for Pakistan in London, as well as the other parties asserting a claim over the funds, and these statements included details of the account, principal amount, interest earned and interest rates. Ashurst attached a document outlining the basis on which the account operated, together with a sample copy of the monthly statements. Despite this explanation, Pakistan included the direct claims in the claim form which it issued on 11 June 2013, and they were repeated in the particulars of claim dated 25 June. On 13 August 2013 the Bank applied for summary judgment on those claims, and on 25 September 2013 Pakistan conceded that they could not be maintained: see paragraphs 4 to 6 of Mr Javid's witness statement of that date on behalf of Pakistan.
86. In my view it should always have been obvious to Pakistan that these claims were unsustainable, and if proper notice of Pakistan's intention to bring them had been given in the letter before action, the Bank's solicitors would swiftly have been able to demonstrate that they were unfounded. In those circumstances, I am satisfied that Pakistan acted unreasonably in including the claims and putting the Bank to the time, trouble and expense of defending them. Unreasonable behaviour of this kind clearly merits an award of indemnity costs, and I will therefore order Pakistan to pay the Bank's costs of this part of the claim, including the Bank's application for summary judgment, on the indemnity basis, if they cannot be agreed.

Conclusion

87. For the reasons which I have given, the Interested Parties will be joined to the action and the Notice of Discontinuance will be set aside. When this judgment is handed down, I will give further directions for the future conduct of the proceedings. The parties should consider what directions may be appropriate, and do their best to agree them, before the hearing.