England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE FC2 98/5708 CMS3

Royal Courts of Justice

The Strand

London WC2

Wednesday 1st April, 1998

B e f o r e:

THE VICE-CHANCELLOR

LORD JUSTICE AULD

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STABILAD LIMITED

Respondent

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STEPHENS & CARTER LIMITED

Applicant

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(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR C HOLLANDER (Instructed by Clifford Chance, London EC1A 4JJ) appeared on behalf of the Applicant

MR A UNDERWOOD (Instructed by Messrs Nicholson Graham & Jones, London EC4N 6AR) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Wednesday 1st April, 1998

JUDGMENT

THE VICE-CHANCELLOR: This is an appeal from the refusal of Mr Lawrence Collins QC, sitting as a deputy judge in the Chancery Division, to order a stay preventing the payment out of court to the plaintiff, who had been successful in the action, of the sum of £58,000 that it had paid into court by way of security for the defendant's costs of the action.

The plaintiff is a company called Stabilad Ltd; the defendant is Stephens & Carter Ltd. The litigation arose out of commercial negotiations between the plaintiff and the defendant with a view to the plaintiff granting to the defendant a licence to exploit a patent that belonged to the plaintiff. The patent related to a device to be placed on a ladder, stabilising the ladder so that, I imagine, workmen who climbed up it would not be at risk of the ladder shifting to their physical risk.

The negotiations led to heads of agreement being drawn up and signed on 31st March 1989. It was at one time contended by the defendant that the heads of agreement did not constitute a concluded contract with legal effect, but that contention, although I think it was alive when the trial before Mr Lawrence Collins QC commenced, was not persisted in. Paragraph 4 of the heads of agreement provided for the payment to the plaintiff of two substantial initial payments on a count of royalties. It was provided that the sum of £150,000 would be paid "After feasibility study and preparation of production/marketing plan", and it was provided that a further sum of £100,000 would be paid "After evaluation of proposed regional advertising test market". The paragraph then continued to say this:

"It is intended that the whole exercise be completed by September 30 1989. Stephens and Carter will use their best endeavour's to complete the feasibility study and production/marketing plan by 30th June 1989."

There was a dispute at the trial as to whether the "feasibility study and preparation of production/marketing plan" had been completed, and whether there had been a completed "evaluation of proposed regional advertising test market". But the judge, having heard the witnesses and in particular having considered the effect of internal documents of the defendant which were produced on discovery, concluded that both those conditions precedent to the payments mentioned had been fulfilled and that, according to the terms of paragraph 4, the sums in question had become payable. But there was a problem. The plaintiff had taken the view that the defendant had committed conduct repudiatory of this agreement, repudiatory of the contract constituted by the heads of agreement. Accordingly, on 21st September 1989 the plaintiff purported to accept the defendant's repudiation and treat the contract as at an end. That left outstanding, of course, the question whether the plaintiff was still entitled to the payments on account of royalties of £250,000 provided for in paragraph 4. This was the sum for the recovery of which the plaintiff commenced the proceedings by writ and Statement of Claim of the 26th March 1990. The judge came to the conclusion that, notwithstanding that the contract was at an end by the plaintiff's acceptance of the defendant's repudiation, and notwithstanding that the plaintiff had subsequently licensed another firm to exploit the Stabilad patent, the plaintiff remained entitled to recovery from the defendant of the £250,000 and made an order accordingly. The defendant has filed Notice of Appeal against the judge's order.

The action took a very long time to come on. It appears to be common ground that the delay on the part of the plaintiff, excessive delay as it was categorised by Rimer J, in an interlocutory application he heard, in progressing the action to trial was due to its (the plaintiff's) impecuniosity. It did not have the requisite funds to put into effect what needed to be done to prepare for trial. Its delay led to a striking out application. That was the application which Rimer J dealt with. He did not strike the action out, notwithstanding that he was satisfied that there had indeed been excessive delay. He referred to the plaintiff's impecuniosity as being the reason for the delay.

Against this background it is not surprising that application was made by the defendant for security for costs to be provided by the plaintiff. The application was made under section 726 of the Companies Act 1985. The application succeeded. The plaintiff's impecuniosity was not at issue. There were three payments ordered to be made at successive stages. The total paid was a sum of £58,000. It was not a sum found by the company from its own available resources. The sum had to be borrowed. The lender was a director and major shareholder in the company, a Mr Campbell. The evidence suggests that Mr Campbell himself may have had to borrow some part of the £58,000 from another individual. At all events, the money was found for the payment into court to be made. If the money had not been found there would, of course, have been a stay on the action and that would have been an end of the plaintiff's claim for the £250,000; so the money was found. As I said the action came to trial before Mr Lawrence Collins QC and resulted in success for the plaintiff. Mr Lawrence Collins made an order for payment of the £250,000 to the plaintiff. He made an order for a certain amount of interest accrued on that sum since the date on which, in his view, it ought to have been paid, but deprived the plaintiff of two years of interest on the grounds of the delays of which the plaintiff had been responsible.

The defendant made an application for a stay of the judge's order pending appeal. There was no opposition raised by the plaintiff to the application for a stay so far as the £250,000 and interest thereon, and the plaintiff's costs of the action were concerned. But the plaintiff made clear its intention to apply for the payment out to itself of the £58,000 that had been lodged as security for the defendant's costs of the action. The defendant applied also for a stay of that payment out and it was that stay that the judge refused. It is that limited refusal of the stay that is the subject of the appeal before us.

The judge treated the matter both as one of discretion and as one of power. In the approved transcript of his judgment refusing the stay, a judgment he delivered on 20th March of this year, he referred to the payments in, the £58,000 I have mentioned. After referring to various other aspects of the case, he expressed the conclusion that the justice of the case did not require that the security be retained in court. He then went on to consider whether in any event he had power to order a stay preventing the payment out of the £58,000. He expressed, at the end of the judgment, this conclusion on that point:

"In my judgment, I do not have power, either under section 726 or the inherent jurisdiction, to make the order sought. As, I have said, this is not an order I would make even if it were open to me."

It seems plain, therefore, that the judge was expressing a view that it was not open to him to make the order, even if as a matter of discretion he had thought it right to do so.

There are therefore two issues for us on this appeal. One is the important issue of principle; did the judge have power to grant the stay preventing payment out of the £58,000 if he had thought it right to do so; and, second, as a matter of discretion, is it right for that stay to be granted?

Mr Hollander has made the point, and in my judgment it is a correct point, that the application for the stay comes before us as an application de novo . We are not simply reviewing the discretion of the judge below, as to which well-known limitations on the power of the appellate courts to interfere would come into play. We must ourselves, if we conclude we have the requisite power, decide whether as a matter of discretion the stay should or should not be granted. May I deal first with the question of power.

The authorities start with a judgment delivered by Lord Sterndale, as President of the Probate, Divorce and Admiralty Division, just a few months before he became Master of the Rolls. The case in question was The Bernisse [1920] P1. Lord Sterndale refused to make an order staying the payment out of security of costs that had been lodged. The security had been lodged because the plaintiff in the case was resident out of the jurisdiction. He said this:

"the effect of ordering the money to remain in Court would to be give them [i.e. the defendants] one or other of two things, either security for the costs of their own appeal, or security for the satisfaction of the judgment which may be given on appeal, and they are not entitled to either. Therefore I shall make an order for payment out to the claimants of the money paid in as security."

That was a judgment at first instance but it was approved by the Court of Appeal a few years later in Comitato Portuario v Instone [1922] WN 260. This, too, involved a case in which foreigners resident out of the jurisdiction had been required to lodge a sum in court as security for the costs of the action. In this case, too, judgment had been given for the plaintiffs who had then applied for an order for payment out. The judge below had refused to order payment out and the plaintiffs had appealed. The Court of Appeal (a strong one consisting of Bankes, Warrington and Atkin LJJ) according to the report held as follows:

"... it was the invariable practice that if a plaintiff who had paid money into Court as security for costs, on recovering judgment in the Court of first instance, applied to have it paid out to him, the order for payment out was made as matter of course, notwithstanding that the judgment was under appeal. The reasons given by Lord Sterndale in The Bernisse were unanswerable, namely, that ... [and then the passage from Lord Sterndale's judgment that I have read was cited]"

The appeal was allowed. The Bernisse and Comitato Portuario cases have been cited ever since in the White Book as authority for the proposition that it is not the practice to prevent payment out of sums lodged in court as security in the court below simply because an appeal against the judgment below has been lodged by the defendants.

There have been a certain number of recent cases in which comment has been made about the two cases and the proposition for which they are cited in the White Book. In Combi (Singapore) Proprietary Ltd v Sriram , in which judgments were given in the Court of Appeal on 23rd July 1997 and in which the issue was whether guarantees which had been given to secure the costs of the defendants should be or could be released, notwithstanding that the plaintiff's success in the court below was to be challenged by an appeal, Phillips LJ referred to the passages in the White Book that I have mentioned. He then made this comment:

"When the reasoning in these cases [the cases were the two I have already referred to] is considered I accept, as Mr Davis has submitted, that it is not all that easy to follow and, furthermore, that it has no application to a situation where the security afforded by way of a guarantee that relates specifically to the costs of the hearing at first instance. But there is no need to consider the extent to which the note in the White Book is justified by those authorities or, indeed, accurately reflects the practice as it is today, because Mr Davis conceded that if the matter fell to be decided according to discretion, as he submitted it should, he could not advance any valid argument for exercising the discretion in his clients' favour if the court were not minded to order a stay of execution. It seems to me that that concession was inevitable and, as I would not order a stay of execution, I would follow what is said to be the practice in the White Book by ordering that the guarantees be returned and I would order that they be returned within 24 hours, unless there is any difficulty in complying with such an order."

The Court of Appeal consisted of two Lord Justices. Ward LJ agreed with Phillips LJ.

In an earlier case than that in the Court of Appeal, which came before Dillon LJ sitting alone, in which an application was made both for leave to appeal and, pending appeal, for a stay of the order for the release of a sum paid by the plaintiff into court as a security for costs. In the event, Dillon LJ refused the application for leave to appeal. But he also made some comments about the application for a stay of the order for payment out of the sum in court. He referred to Lord Sterndale's judgment in The Bernisse and its affirmation by the Court of Appeal in the Comitato Portuario case, and then went on as follows:

"Both cases have been consistently referred to in the White Book, with no suggestion of any doubt. The only question, as it seems to me, is whether this court should follow those authorities, or should give leave for this matter now to be brought before a full court for the reasoning of the court in the 1922 case to be tested. It seems to me, however, that prima facie the reasoning of the full court binds this court, even if it now came before a full court on appeal, and it seems to me also that there is nothing in the present case to make it an appropriate vehicle for testing that ruling. Accordingly these applications are refused."

There are other cases to which we have been referred by counsel, Mr Hollander, on behalf of the appellant (defendant below) which indicate that matters of practice are not to be regarded as carved in stone but must be adjusted as changing requirements of litigation indicate the need for adjustment. I respectfully agree with that approach. Matters of practice are always being adjusted to take account of changing requirements of litigation. Moreover, where a discretionary power has been conferred on a court, although authoritative guidance may be given by decisions of superior courts as to the manner in which the discretion should be exercised, it is not possible, in my opinion, for the exercise of the discretion to be limited and confined within rigid boundaries by the authorities. The exercise of the discretion must always take account of the particular circumstances of the particular case and judicial guidance as to how the discretion should be exercised is always capable of yielding to the particular requirements of a particular case. In his judgment on the stay point Mr Lawrence Collins QC appears to have concluded that to allow the stay would be an impermissible circumvention of the statutory provisions orders for enabling security for costs to be made.

There are two relevant statutory provisions. The first is section 726 of the Companies Act 1985, the basis of the order made in the present case. There is also the provision in the Rules, I think it is Order 23, under which a plaintiff resident out of the jurisdiction, whether an individual or a company, can be ordered to provide security for costs.

Mr Collins appears to me from his judgment to have taken the view that an order requiring a sum lodged in court as security for costs to remain in court pending an appeal, would be to use those enabling provisions for purposes for which they were not intended. I take that to be the thought behind his reference to the circumvention of the statutory provisions on security for costs. If that was what he had in mind, I must respectfully say that I do not agree with it. If an order is made requiring a plaintiff to provide security for a defendant's costs to be lodged, it is of course the defendant's costs of trial that the order is directed to. If the plaintiff's action should succeed at first instance and fail on appeal, it will still be the defendant's costs of trial that may need to be provided for. And the sum lodged in court by way of security for costs will still be security for the defendant's costs of trial, even if the order requiring the plaintiff to pay those costs is made not at trial but after a successful appeal.

It seems to me that an order requiring the sum to stay in court pending an appeal is not in any sense a circumvention of the legitimate scope of the jurisdictional basis on which the order for security for costs were made, whether under section 726 or Order 23.

It may be that the learned deputy judge did not have in mind that the court would never have any power to make an order requiring the sum to stay in court. But, if he did conclude that the court had no such power, in my judgment he was wrong. Under Order 59 Rule 13 the Court of Appeal has power to direct a stay of execution of orders made by the court below. An order for payment out of a sum lodged as security for costs is an order made below of which, under Order 59 Rule 13, a stay can, as a matter of vires, be ordered. Whether it should or should not be ordered is always, in my judgment, a matter of discretion. It is that matter of discretion to which I will now turn.

It seems plain from the facts of this case that the plaintiff's impecuniosity is of an order which will make it as certain as can be that if the £58,000 is paid out, and if the defendant should succeed on the appeal, an order by the Court of Appeal for the defendant's costs of the trial to be paid by the plaintiff will be very unlikely to be satisfied. Mr Hollander has put the case before us on that footing. It is, I think, a realistic footing and I have not understood Mr Underwood for the plaintiff really to contest that that is the reality of the position. It is therefore the position that the payment out of the £58,000 to a limited extent would frustrate the ability of the defendant to obtain success on the appeal. £58,000 may be only a small part of the total amount of the costs of appeal and trial, but it is significant enough to have constituted the sum required to be paid into court as security for the costs of the trial.

So what, on the plaintiff's side, is to be set against that disadvantage to the defendant in order for the balance of advantage (as it has been put in some of the cases to which we have been referred) or balance of justice (as it might otherwise be put) to be struck? It is clear that the plaintiff cannot fund the appeal out of its own resources any more than it could fund the action below out of its own resources. It is clear that to do so it will have to look to funds from such as Mr Campbell if they are willing to provide them. It does not follow that the £58,000, if released, would be available to fund the costs of the action. There might or might not be some action that some creditor might take to intervene and claim the money.

Mr Hollander has made the point that there is really no evidence before us as to what the position would be if the payment out of the £58,000 were to be stayed. An argument based upon the inability of the plaintiff in that event to fund its costs as respondent in the appeal is based on speculation. I think Mr Hollander is entitled to say that the point is speculation and not on evidence. The evidence makes clear that the plaintiff does not itself have the resources to fund the appeal. But the evidence does not deal with the possibility of the plaintiff obtaining any further funds from anyone else. In these circumstances it seems to me that it is very difficult to argue that the balance to which I have referred comes down in favour of the plaintiff. The plaintiff has nothing to put into the balance, save for its success in the court below. But its success below is what is under challenge on appeal and, although the primary rule is that a successful plaintiff should not be deprived of the fruits of the action pending appeal, that primary rule must give way if there is a reason for a stay. There was no argument but that the fruits of the action in regard to the £250,000 should be withheld from the plaintiff pending appeal. There was no argument that pending appeal the plaintiff should not seek to tax and recover its costs of the action. What is different regarding the payment out of the £58,000? All that is relied on is the practice, described as the "invariable practice" in the cases to which I have referred and the relevant passages in the White Book. But there must, in my judgment, be something more than simply the fact of success below in order to outweigh the result for the defendant of being unable to recover any of its costs of the trial, if it should be able to satisfy the appeal court that it should have won at trial.

I have come to the conclusion, therefore, that this is a case in which the application should be allowed and the stay should be imposed.

LORD JUSTICE AULD: I agree with my Lord that the deputy judge had power to refuse to release the monies in court to the plaintiff.

As to his discretion to do so, and that of this court on this renewed application, the matter is one of balance.

As to the chances of success or failure on the appeal, the arguability is neutral; both sides have a reasonably arguable case. The only matters that Mr Underwood on behalf of the plaintiff sought to put in the balance in favour of payment out to the plaintiff, is that it won below, that it had been a great struggle for the plaintiff to get that far and that it would, no doubt, have to make a similar effort to prosecute the appeal. However, the plaintiff has not put before the court any evidence that it will be embarrassed in pursuing the appeal if the money remains in court. Mr Underwood told the court that he has no specific instructions on the matter. It is plain, however, from what he said that the appeal will proceed. As against that, the defendant faces almost certain loss of its security for the substantial sum of costs properly ordered in respect of the trial if it succeeds on the appeal.

In these circumstances, I am of the view that the balance of justice clearly favours the retention of the sum in court pending the outcome of the appeal. There is, in truth, nothing of substance to weigh on the other side of the balance. The history of the plaintiff's financial difficulty in proceeding to trial and his initial success in the outcome are irrelevant.

Accordingly, I too would allow the appeal for the reasons given by my Lord, namely that the deputy judge had power to refuse the release of the monies in court to the plaintiff but that, as a matter of discretion, he should have refused to do so, and so should we.

ORDER: Application allowed with costs, to be taxed if not agreed.