England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EPSOM COUNTY COURT
(JUDGE HULL Q.C.)

		Royal Courts of Justice Strand London WC2 Tuesday, 3rd July 2001

Tuesday, 3rd July 2001

1. LORD JUSTICE JUDGE: In this case Mr. Sikka seeks permission to appeal against the orders made by his Honour Judge Hull Q.C. on 22nd February and 27th April this year. He also applies for an extension of time and a stay of execution of the order made on 27th April. This would constitute a second appeal for the purposes of the Civil Procedure Rules,

Part 52.

2. District Judge Raeside sat at Epsom County Court in November 2000 and granted summary judgment to the claimant for £60,000 which, together with interest, created a liability of nearly £75,000. The background to that decision was that Mr. Sikka and Mr. Davidson had had extensive business dealings with each other. Mr. Davidson was a director of a German company, MFI. There was a joint venture agreement between MFI and ASBL to set up a business in India with Mr. Sikka to advise on the joint venture. His participation was to be based on his business experience in India. There was to be profit sharing in respect of MFI's proceeds from this venture.
3. The litigation arose out of a document ("the agreement") signed by Mr. Sikka, Mrs. Davidson and Mr. Davidson. Under the agreement Mr. Sikka purported to acknowledge that he owed Mrs. Davidson £60,000 and that all agreements existing between him and Mr. Davidson at that time were to be regarded as void. Mr. Sikka was to repay the £60,000 in instalments, but, if one payment became overdue, then Mrs. Davidson was entitled to the full amount of the debt plus interest. In the end, proceedings were issued for £60,000 plus interest on the basis of the absence of payment.
4. Mr. Sikka's defence below depended on his assertion that he did not receive any money from Mr. or Mrs. Davidson, he did not owe her any money, the agreement was a fraud and Mr. Davidson was seeking to avoid his liabilities to his creditors on the subsequent liquidation of the company MFI by transferring assets to his wife.
5. The District Judge below concluded that Mr. Sikka had no real prospect of success. Accordingly, he entered summary judgment for Mrs. Davidson. Mr. Sikka appealed. His grounds of appeal before his Honour Judge Hull were that the agreement was conditional on three factors: first, MFI should continue with the joint venture; second, that the joint venture would come to fruition; and third, that monies would be received from ASBL to be paid to Mr. Sikka.
6. The learned judge agreed with District Judge Raeside's construction of the agreement. He held that one obligation had been substituted for all previous obligations. He accepted, however, that a condition precedent is not always contained in the agreement and that, despite the unsatisfactory features of Mr. Sikka's case, the District Judge had failed to consider whether the agreement apparently signed by Mr. Sikka, Mrs. Davidson and Mr. Davidson might not have been a conditional agreement.
7. Judge Hull therefore concluded that he was prepared to allow the case to be defended. He imposed a condition on Mr. Sikka that £75,000 should be brought into court within 21 days. He made that order, having asked counsel who appeared for Mr. Sikka at the hearing whether he could afford £75,000, to which the answer had been "Yes".
8. The way in which Judge Hull explained his conclusion on that occasion was this:

"It may be that he [that is, Mr. Sikka] will not stand up, so to speak, to five minutes of the heat when he actually comes to be asked how he came to sign this agreement, but it seems to me that there is just enough material to enable me to say - and I do say - that I am not entirely happy; I have an uneasy feeling about the District Judge's conclusion because she did not deal with this, and I do not think that I can satisfactorily deal with it on the material before me in the sense of saying it is absolutely hopeless and should be chased out of court without a hearing.

"In those circumstances I am, as it used to be put, just prepared to allow the case to be defended."

9. He then went on to explain that he was only prepared to do so on the basis that the claimant was well secured; hence the order for £75,000 as security.
10. The date for the provision of security was 16th March. On 14th March Mr. Sikka applied to vary the order so as to reduce the amount to be paid as security to £20,000. There was provided for Judge Hull a witness statement from Mr. Sikka which explained how, at the original hearing, he genuinely believed that he would be able to borrow so as to provide himself, and therefore in due course the court, with the £75,000. He went on to set out how he had approached the problem of finding this money. He explained the position in relation to the mortgage on his home in Cheam and the assets of the company which, as he put it, realistically had no substantial assets. He ended his statement by saying that he seemed to have

"exhausted all commercial sources for the raising of the lump sum the Court has ordered me to pay. I cannot raise any more against the security of my own and my wife's house..."

11. Mr. Sikka told me today that a caution had been entered by Mrs. Davidson's solicitors which made the problem that much more acute. He went on in his statement:

"... I do not have any other assets available by way of security and could not service any greater mortgage in any event. However, I will be able to raise £20,000 from a very good friend who has stood by me in the past."

12. When the matter came on before Judge Hull on 27th April, he dismissed the application and ordered that the original decision of District Judge Raeside should stand. He explained in his judgment:

"My state of mind, as I recall it, was that had it not been possible to order the Defendant to pay in almost the whole sum which was being claimed I would not have allowed him leave to defend."

13. And then again, answering the question what his response would have been if Mr. Sikka had not been able at that time to offer to bring £75,000 into court but only £25,000, he, the judge, would have said:

"I think my doubts are quite insufficient, there is no real prospect of defending this case."

14. He went on:

"... I say only I think that is probably what I would have said. It is my present feeling that I would certainly have said that. There it is."

15. And again later in his judgment he uses words to the same effect:

"As I say, my present feeling is, had the sum of £75,000 not been available to pay into court I would most certainly have dismissed the appeal."

16. He went on to conclude that his order must stand:

"It seems to me that my order must stand unless I can properly interfere with it and I do not think I can properly revisit the order. The remedy of Mr. Sikka, if there is to be one, must be in my judgment by an appeal. Otherwise my order must stand. It is not alleged to be a nullity, it is simply alleged that I have a discretion to revisit it."

17. Mr. Sikka submits that he has a defence to the claim and summary judgment should not be granted. He says in terms: "The condition to defend is so oppressive that it deprives me of my right to defend the action," and he goes on to indicate that there would be no prejudice to the claimant if time was extended and the conditions of permission to defend varied.
18. The principles which arise in relation to impecuniosity are well established in the House of Lords in the decision in York Motors [1982] 1 WLR 444. The defendant in that case was unable to afford to pay the sum ordered by the judge as a condition of leave to defend. He appealed and Lord Diplock said, in a well-known passage, that if the sum ordered to be paid as a condition of granting leave to defend is one which the defendant would never be able to pay, then that would be a wrongful exercise of discretion because it would be tantamount to giving judgment for the plaintiff, notwithstanding the court's opinion that there was an issue which ought to be tried.
19. The question which now arises is whether, in the light of the further material before Judge Hull on 27th April, he was right to make no order, leaving the original order he had made to take effect as it did on 16th March without any compliance by Mr. Sikka. In my judgment, it is arguable that Judge Hull misdirected himself by approaching the problem, as the passages from his judgment indicate that he did, by saying that although the defence was arguable if £75,000 was paid into court, it was not so arguable if only £25,000 or so were paid into court. The judge concluded that he had no discretion to vary his original order when the application was made for variation before the time for compliance had expired. It therefore followed, in his view, that in a case such as this it was necessary for the defendant to come to this court to raise issues of non-compliance arising from impecuniosity and his inability, as set out in the statement to which I have referred, to meet the financial condition imposed by the court originally, as I say, with his consent.
20. On the face of it, this is an issue of some practical importance. If it is not outside the power of the circuit judge to reconsider the conditions attached to his order giving leave to defend, then Judge Hull was wrong to find that he had no jurisdiction to do so, and arguably his reasons for not doing so were susceptible to criticism. If, on the other hand, it is indeed outside his powers, then, assuming there has been an unexpected change in a defendant's ability to bring money into court between the date when the original order was made and in the light of subsequent developments, there appears to be a gap in the procedures which it would be appropriate for this court to consider on appeal.
21. Accordingly, I shall grant permission. The case will be listed before a three-judge constitution. One of those judges may be a judge of the High Court. The current estimate will be a two-hour estimate. I have not said, but it is implicit in this judgment that time should be extended for Mr. Sikka, and, so far as a stay of execution is concerned, that should follow from the grant of permission to appeal.
ORDER: Application allowed; time extended; stay of execution allowed. (ORDER NOT PART OF APPROVED JUDGMENT)