England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice The Strand London Thursday 30 August 2001

Thursday 30 August 2001

1. LORD JUSTICE PETER GIBSON: Lord Justice Tuckey will give the first judgment.
2. LORD JUSTICE TUCKEY: We have heard these two appeals together because each raised the question as to whether the appellants' time for providing security for the respondents' costs of the appeal should be extended following unless orders (made by the court in the usual form) which have not been complied with, and so as things stand both appeals are dismissed. However, the facts giving rise to the default in each case are very different. In the Ferrotex case the order was made by consent which means, so the respondent contends, that different considerations apply to whether time should be extended.

The Civil Procedure Rules

3. In the Zappia case, where the order was not made by consent, the respondent concedes that the CPR gives this court power to extend time and to grant relief from the sanction of dismissal imposed by the unless order. CPR 3.1(2)(a) says that the court may extend the time for compliance with any court order, even if an application for an extension is made after the time for compliance has expired.
4. CPR 3.8 says that any sanction for failure to comply with a court order will have effect unless the party in default applies for, and obtains, relief from the sanction. On such an application CPR 3.9 requires the court to consider all the circumstances, including the factors listed in sub-paragraphs (a) to (i) of the rule, which I will return to when I deal with the individual facts of each case.
5. But do these rules apply to consent orders? This was a vexed question under the Rules of the Supreme Court. We have been referred to most, if not all, of the decisions under those rules which, as a number of judges have observed, do not speak with one voice. A distinction was drawn between a consent order which embodied a genuine or real contract between the parties from which they could only be released on conventional contractual grounds, and a consent order which meant no more than that the consenting party was not objecting to the order being made, in which case there was no real contract and so the court could extend time in an appropriate case. But even in a case where there was a real contract, the court could extend time unless the contract expressly or impliedly excluded the court's jurisdiction to do so.
6. Since the CPR came into force, so far as I am aware this court has not had to consider whether the position has changed, although Neuberger J in Ropac Ltd v Inntrepreneur (2001) L & TR 93 thought "with some hesitation" that the court did have power to override an agreement between the parties because the overriding objective of the rules to enable the courts to deal with cases justly gave the court rather more wide-ranging and flexible powers than the RSC, and the objective might require the court to override an agreement in an exceptional case. However, for reasons which I will explain when I deal with the Ferrotex case, I do not think it is necessary to consider whether Neuberger J was right about this. Suffice it to say at this stage that if the court is considering an application to extend time for complying with an order made by consent, one of the important factors which has to be taken into account is that the applicant had previously agreed to the time limit imposed by the order.
7. With those general observations in mind, I turn to deal with the cases individually.

The Ferrotex case

8. Ferrotex and its co-claimant are Bulgarian companies. The facts giving rise to their claim against the respondent bank are not material to this application, except that they involve serious allegations against a number of the respondent's employees which the judge rejected when he dismissed the claim after an eight or nine day trial in February and March 2000. Brooke LJ gave permission to appeal in August 2000.
9. The respondent's solicitors first raised the question of security with the appellants' then solicitors in October and they agreed that "the principle of the provision of security" was not in dispute. This was not surprising as the appellants had provided security for the costs of the trial.
10. In April 2001, the appellants' solicitors came off the record when the solicitor who had been acting for them left the firm. For a time they acted in person until the solicitor's new firm came on the record on 19 June 2001.
11. In the meantime, however, in May the respondent's solicitors had taken up the question of security with the appellants' directly. They asked for £60,000. The appellants were also provided with a copy of the proposed draft order for security and the form of the guarantee which the respondent wanted, which followed that given by the appellants for the trial. The appellants were only prepared to offer £36,000, but did not question the form of the order or the guarantee. The respondent suggested £48,000, but the appellants stuck with their original offer. The respondent replied by issuing a summons for security on 15 June, but in the evidence which accompanied it they made it clear that they were only asking for the £36,000 which the appellants had offered.
12. By this time the appellants' new solicitors had come on the record. There was a further exchange of correspondence between the solicitors, culminating at the close of business on 2 July with agreement to the terms of a draft order by consent which the court was to be asked to make. The order in those agreed terms was made by Judge LJ the following day, 3 July. It required the security to be provided by 4.30pm on 10 July by means of a bank guarantee to be issued by a bank acceptable to the respondent in the form of the draft annexed to the order and for the appeal to stand dismissed without further order if such security was not provided.
13. Several months before this time the hearing of the appeal had been fixed with an estimate of two to three days for the week beginning 23 July 2001. So the time by which security was to be provided was obviously important because the hearing of the appeal was so imminent.
14. What happened after the order was made is not in dispute. The guarantee was to be provided by Lloyds Bank in London. English banks do not accept counter-guarantees from Bulgarian banks, so the appellants had to instruct an acceptable bank to issue the counter-guarantee for Lloyds to enable them to provide the guarantee to the respondent. On 3 July the appellants, through their agents in Cyprus, provided the necessary collateral to UBS AG in Lugano to enable them to issue the counter-guarantee to Lloyds. The following day they gave written instructions to UBS to issue their counter-guarantee so that Lloyds could issue the guarantee to the respondent. In those instructions UBS were asked to issue the counter-guarantee "today", but they were not informed that the court required the guarantee to be provided by 10 July.
15. UBS did not act on these instructions until 6 July, although on that date they issued instructions marked "very urgent" to Lloyds to issue the guarantee against their counter-guarantee.
16. The 6th July was a Friday, and Lloyds did nothing until 11 July when they raised a number of queries on the terms of the guarantee and the counter-guarantee, which UBS resolved to everyone's satisfaction the following day. Lloyds did not issue the guarantee until 16 July. It is not clear whether anyone at any stage informed them that the court had ordered the appellants to provide the guarantee by the 10th, but it seems that no one did.
17. In the meantime it is clear that the appellants were anxious to comply with the order and were monitoring the bank's progress. Their solicitor was out of the country until 11 July, but on 9 July the appellants sent the respondent's solicitors a copy of UBS's instructions to Lloyds of 6 July. In the accompanying fax the sender said:

"I hope everything now seems to be in order. Please advise me if there is anything we need to do. I remember that last year I had to call myself Lloyds Bank to urge them to speed up matters."

18. This was one day short of the deadline. There was no reply to the fax by the respondent's solicitors and the time expired with no guarantee being provided. On the appellants' solicitor's return to this country the application to extend time, which is before us, was made on 12 July. By that time, however, this court had taken the appeal out of the list. So much for the facts.
19. For the respondent, Mr Dunning QC's first submission is that the court has no jurisdiction to extend time because the order was made by consent and the time for complying with it formed part of a genuine or real contract from which the appellants can only be released on conventional contractual grounds.
20. Mr Charlton QC, for the appellants, submits that there was here no real contract; it was simply a procedural accommodation which amounted to no more than an agreement that an agreed draft order would be put before the court for it to decide whether to make the order.
21. I do not think one can escape from the conclusion that the parties did make a real contract, albeit one which was conditional upon the court making the order in the agreed terms. But this conclusion is not decisive since it is common ground that, even where there is a real contract, the court's jurisdiction to extend time is not ousted unless the parties have expressly or impliedly agreed that this should be the case. Mr Dunning submits that they have impliedly done so in this case because time was of the essence of this agreement, having regard to the imminence of the date for the hearing of the appeal. Security was to be provided thirteen days before that date. If it was, the parties would know that the appeal would go ahead; if it was not, the parties would know that the appeal stood dismissed. The parties could not have contemplated that no security would be provided and yet the appeal might still be able to proceed at some future date. The order contained no liberty to apply.
22. Persuasively though these argument are put, I do not accept them. The essence of the agreement between the parties was that the appellants would provide security for the respondent's costs. Time was important because the hearing of the appeal was imminent, but time had not been the subject of negotiation and I can see nothing in the exchanges between the parties from which one can infer that they intended to oust the jurisdiction of the court to extend time for compliance with the order if the circumstances justified it. One can well imagine circumstances which could not be characterised as being wholly exceptional or unusual (for example a bank strike) where a party in the position of the appellants was unable through no fault of his own to comply with an order of this kind. Unless the parties had clearly spelt out their intention that in such circumstances the court could not be invited to exercise its undoubted jurisdiction to extend time, I do not think any such term should be implied. Whether the court should extend time is of course a different question, but I do not think that the parties here excluded the court's jurisdiction to do so in the circumstances which I have outlined. That is why I do not think it is necessary to consider whether the CPR now gives the courts more extensive powers since the discretion which I think the court has in this case is one which it would also have had under the RSC.
23. The real question in this case is whether on the facts which I have set out time should be extended, having regard in particular to the fact that the appellants agreed to the time limit and that this was an unless order.
24. Mr Dunning submits that time should not be extended. He made his submissions on a broad front, but I think it is convenient to consider the matter by reference to the subparagraphs of CPR 3.9(1), to which I have referred. Four of those subparagraphs can, I think, be taken together on the facts of this case since they raise largely the same points. These are: (a) the interests of the administration of justice; (g) whether the trial date can still be met if relief is granted; (h) the effect which the failure to comply had on each party; and (i) the effect which the granting of relief would have on each party.
25. Mr Dunning submits that it is not in the interests of the administration of justice to allow the appellants to get out of the agreement which they made shortly before the hearing of the appeal, which has had the effect of vacating the three days allotted for that hearing and will have the effect of requiring the court to find and allot further substantial time for this case if the appeal is reinstated. The order produced certainty for the respondent. If the appeal is reinstated, they face uncertainty for an uncertain time which will cause hardship to them, particularly to their employees against whom serious allegations were made.
26. Those points, it seems to me, all have validity. On the other hand, if we refuse an extension of time the appellants will lose their right of appeal which this court has already decided has a real prospect of success. That, says Mr Charlton, would not be a proportionate response to the appellants' failure. But, says Mr Dunning, it is a consequence which the appellants accepted when they agreed to the consent order.
27. I entirely accept that the effect of losing their right to appeal will have a serious effect on the appellants. On the other hand, as Mr Dunning says, they did agree that that would be the effect of their failure to comply with the order, and so that must reduce the extent to which they can rely on this.
28. Subparagraphs (b), whether the application for relief has been made promptly, and (c), whether the failure to comply was intentional do not tell against the appellants. But subparagraph (d), which asks whether there is a good explanation for the failure, has given rise to a certain amount of argument. As Mr Dunning says, it depends where you start. If it is accepted that the clock started to run on 3 July, then it is difficult to deny that there is a good explanation for what has happened as a result of the banks' delay over which the appellants had no control. But, he says, it was always proposed that security should be provided within seven days of the order and the arrangements for providing such security in such a short time should have been put in hand weeks before when the appellants knew they would have to provide a guarantee and, furthermore, knew from their previous experience that banks often delay in producing guarantees of this kind. They compounded their lack of preparation by not telling UBS or, it seems, Lloyds that there was a deadline at all (let alone a very tight deadline) for the provision of security.
29. I accept Mr Dunning's submissions about this. I accept that the banks could have provided this guarantee within the seven-day deadline which had been imposed, but there was nothing exceptional or unusual about their failure to do so in circumstances where it seems that the urgency of the situation had not been impressed upon them.
30. Subparagraph (e) of 3.9 says the court must consider the extent to which the party in default has complied with other rules, practice directions and court orders. Here Mr Dunning relies upon the previous history of these proceedings in which, he says, there are both defaults and delays by the appellants. The action which was started in 1996 was not progressed swiftly to trial. Likewise, the appeal was not proceeded with quickly once permission had been granted. There was default in giving discovery, which resulted in the appellants' principal witness having to be recalled twice -- once after the end of trial. The previous order for security for costs was not complied with, which resulted in the action being stayed for a month or two until the security was forthcoming. More recently, the court issued a default costs certificate in respect of the trial costs which required the appellants to pay £176,000. They applied to the Costs Judge to set that order aside. He did so on 19 July 2001, but on terms that they paid £100,000 into court within fourteen days, filed, served points of dispute within the same time, and paid £1,000 to the respondent for their costs. None of those orders was complied with although very recently the £1,000 has been paid. That history, Mr Dunning submits, counts against the appellants in the balancing exercise which this court has to perform. I agree.
31. Finally, subparagraph (f) of the rule asks whether the failure to comply was caused by the party or his legal representative. Here there is no question but that the failure was that of the appellants rather than their solicitors.
32. Those are the factors which we have to consider on this application. I am bound to say that, at the end of the day, I find the matter finely balanced, but, on balance, I am not persuaded that we should extend time. My principal reason for taking this view is that the order was designed to produce finality. It was designed to make time of the essence given the imminence of the hearing date. Failure to comply with an order of this kind in such circumstances makes it very unlikely that the court will extend time. Taking this factor with the background of earlier default and delay by these appellants, I do not think it would be right for the court to extend time. I would therefore dismiss the appellants' application.

The Zappia case

33. In these proceedings, as my Lord has already outlined, Mr Zappia personally, and his British Virgin Island registered construction company, claim damages for breach of professional duty against their former solicitors, Clifford Chance. Their appeal is against Blofeld J's refusal to allow them to make extensive amendments to their claim. The hearing before him lasted three days. Kay LJ gave permission to appeal and the respondent applied for substantial security for costs. The application was hotly contested but, on 5 June 2001, Robert Walker LJ made an order that the appellants should provide security of £50,000 by payment into court by 4.30pm on 3 July, and that in default the appeal would stand dismissed. This appeal is fixed for hearing in November, and the date is still available.
34. Although, as I have said, the application was hotly contested, Robert Walker LJ records in his judgment that although no evidence of the appellants' assets was before the court, their solicitor, an associate with Zaiwallas, in a statement of 24 May 2001 had said that the appellants do have assets. Both sides accepted that the application should be dealt with on this basis. It was not therefore contended before Robert Walker LJ that the appellants would be unable to provide security if it was ordered.
35. What happened after his order was made is set out in Mr Zaiwalla's sixth statement of 31 July 2001. He says after the order was made:

"It appeared to me that Mr Zappia .... was both distressed and upset by the terms of and the Order of Lord Justice Robert Walker."

36. Mr Zaiwalla had a long telephone conversation with Mr Zappia on 12 June and

"attempted through discussion to resolve Mr Zappia's problems. Mr Zappia was adamant that he wanted my firm to appeal to the House of Lords; alternatively, to seek 60 days in which to furnish the security ordered. I explained to Mr Zappia that neither of these could be done. During this telephone conversation Mr Zappia appeared very confused, distressed and frustrated. Mr Zappia told me that he had seen a distinguished lawyer from Naples who had advised him that that the Court of Appeal ought not to have made an order for security for costs....

Mr Zappia then asked me to obtain an extension of time from the Court of Appeal for 60 days to enable him to raise security and so that he can consider his position with regard to appealing to the House of Lords.... I drew to Mr Zappia's attention that Mr Hossain QC [one of the three counsel who appeared for the appellants before Robert Walker LJ] had in fact asked Lord Justice Robert Walker for 42 days but the Court had imposed 28 days time limit. Mr Zappia continued to ask what was he to do if he did not have immediate available finance to provide for security. He told me that he had recently undertaken a construction project in Montreal which led his liquid assets to be temporarily blocked. He told me that it would take him an unspecified time to reorganise his liquidity. I advised him to try his very best to raise the security required before 3 July 2001."

37. Mr Zaiwalla then says that in the following days he tried to make contact with, and to see, Mr Zappia, but

"I spoke to Mr Zappia twice but I found him uncharacteristically very cold and distant. Mr Zappia hinted that my firm was close to Clifford Chance and that both my firm and I were under Clifford Chance's influence. .... I found that he was in a very confused and distressed state .... By the end of that week, Mr Zappia would not answer any of my calls. Mr Zappia appeared to have 'gone cold' on me. On the weekend of 29 June 2001 I telephoned [Mr Zappia's accountant in Dubai] who told me that Mr Zappia was indeed very upset about the circumstances in which the Security for Costs Order was made and he had decided to dispense with our firm's services. I said that that would be fine but he should appoint another firm of solicitors straightaway because of the drastic nature of the Court of Appeal's Order. [The accountant] said that he was helpless about that because it was Mr Zappia's business."

38. The next day Mr Zaiwalla was "disinstructed". That remained the position until 24 July, that is to say three weeks after the time for complying with the order had expired, when he was re-instructed. A week later Mr Zaiwalla took out the application which is before us today, which asks for an extension of time for furnishing security until 4.30pm tomorrow, or such other date as the court shall think fit, and that the nature of the security be varied from payment of £50,000 into court to provision of a bank guarantee in the same amount in terms satisfactory to the court. The grounds for this application are said to be because the claimant was unable to provide security within the time ordered by Robert Walker LJ.
39. Those are the facts which the court has to consider in deciding whether to extend time in the Zappia case. Mr Zaiwalla has prepared written submissions on behalf of the appellants, which we have considered before coming into court this afternoon. In the light of our ruling that Mr Zaiwalla should not be permitted to address us, Mr Zappia has addressed us and has put before us further written submissions on behalf of himself and the company. These submissions concentrate to a large extent on the merits of the claim against Clifford Chance and the earlier history of the proceedings in which the appellants succeeded on a number of occasions in obtaining costs orders in their favour. But all of that, it seems to me, is very much in the background. It was considered and taken into account by Robert Walker LJ when he made his order. The question for us is whether, in the circumstances explained in Mr Zaiwalla's statement, the appellants should have an extension of time to allow them to provide the security which was ordered.
40. I do not think in this case that it is necessary to go in detail through all the subparagraphs of CPR 3.9(1) in order to reach a decision. I focus on 3.9(1)(c) which, as I have already said, requires the court to consider whether the failure to comply with the order was intentional. I do not think in this case that one can escape from the conclusion that the failure was intentional in view of the history to which I have referred. It is quite clear that Mr Zappia did not like the order which Robert Walker LJ made and decided that he would not comply with it. In the process he "disinstructed" Mr Zaiwalla, who was urging him to comply with the order, sought the advice of lawyers in Italy (who could hardly be in a position to give him proper advice about the effect of the order of this court), and simply did not provide the money. When Mr Zaiwalla was re-instructed, a guarantee from a Swiss bank was produced, but that was not what the court had ordered. Without rehearsing the detail, there were a number of very obvious objections to the proposed form which the respondent's solicitors, rightly, in my judgment, rejected.
41. The failure to comply was intentional. There is no good explanation for it. The fact that Mr Zappia did not like the order is not a good explanation for his failure to comply with it.
42. Those two factors alone persuade me that this is not a case in which to extend time. The appellants can still pursue their original claim, but if we were to extend time, the respondent would be faced again with the prospect that the claim against them would be substantially enlarged to include serious allegations about their conduct many years ago. I do not think they should be. For these reasons I would reject the application to extend time in Zappia's case as well.
43. LORD JUSTICE PETER GIBSON: When an interlocutory order has been made by this court requiring payment or some other action by a party by a particular date and the order spells out the automatic consequence of failure so to comply, that is to say the dismissal of the appeal, and the order is not complied with but shortly thereafter an application is made to extend time, this court must conduct a balancing exercise, taking into account all the circumstances of the case, but in particular the matters which are listed in paragraphs (a) to (i) of CPR 3.9(1). That exercise must also be carried out having regard to the overriding objective in CPR, Part 1, which includes, in particular, the notion of proportionality.
44. In the Ferrotex case pointers which weigh in favour of the extension of time include, first, that this court has given permission to appeal so that an appeal that this court has considered to have a real prospect of success would be lost if an extension is not granted. Other factors include the unintentional nature of the failure y the applicants to comply with the order and the attempts which they made to prod the bank providing the guarantee to comply with the order but which, unhappily, did not produce what was required in time. Those pointers provide material for the argument by Mr Charlton QC that it would be disproportionate to refuse an extension of time in that case. But in the scales have to be put the other points advanced by Mr Dunning QC for the respondent which, in my view, preponderate. First and foremost is the fact that the order made by Judge LJ was a consent order. The period for complying with that order was much shorter than one is accustomed to see. That was plainly deliberate, given the imminence of the appeal hearing. The parties must have expected that there would be certainty as to the appeal within seven days of the order. Either security would not be provided, in which case the appeal would be dismissed, or security would be provided and the appeal would go ahead with the respondent having the comfort of that security. In either case certainty would be achieved. That certainty would be defeated by an extension of time. The appeal hearing slot has been lost. I accept that that may not have been the automatic consequence of a failure to comply with the order, but that is the result. It is not clear when the appeal would be heard if an extension of time was granted. Certainly there is bound to be a considerable delay.
45. Another factor which seems to me to be important is the interruption to the good running of the business of the courts if there is no extension of time in spite of the failure to comply with the order. The interests of the administration of justice are not served by condoning the failure to comply with the order. I also take into account the fact that the applicants, who from previous experience had known that delays in providing a bank guarantee could well be encountered, did not seek to clear with the bank the terms of the guarantee and that appears in the event to have occasioned some delay and caused some changes in the form which was produced for approval. Nor did the applicants, when they knew that time was running out, come back to the court and make an urgent application for a short extension of time.
46. I also take into account the considerable delays in the applicants' conduct of the litigation, some of which were the result of defaults by the applicants in complying with the rules, practice directions and court orders. These proceedings started as long ago as April 1996, and there were delays on several occasions as a result of failures by the applicants to proceed as they were required to do.
47. I have already adverted to the loss of the hearing date and the effect that that has on the conduct of the appeal.
48. These matters taken together seem to me to leave the scales firmly weighing against the applicants' application, notwithstanding the relatively short period of default. But the consequence of that default was, as I have said, spelt out in the order, as the applicants must have, or should have, known. Accordingly, in relation to the Ferrotex case, for these and for the reasons given by my Lord, I too would refuse that application.
49. In the Zappia case the significant feature, and to my mind the conclusive feature, is the fact that the failure to comply with the order of the court was an intentional one. True it is that in Zappia there was no consent order, but the consequence of failure to comply was there for anyone to see in the order itself. For the reasons given by my Lord, I too would refuse that application.
ORDER: (Not part of judgment) In Ferrotex applications refused with costs to be summarily assessed at £14,770. In Zappia applications refused with costs to be summarily assessed at £15,000; costs of unsuccessful appeal before Robert Walker LJ to be subject of detailed assessment; permission to respondent to discontinue respondent's notice with no order as to costs.