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
(HIS HONOUR JUDGE PHILIP PRICE QC)

		Royal Courts of Justice The Strand London
		Tuesday 6 November 2001

Tuesday 6 November 2001

1. THE LORD CHIEF JUSTICE: Lord Justice Simon Brown will give the first judgment.
2. LORD JUSTICE SIMON BROWN: Before the court is the claimant's appeal on limited grounds, and his application for permission to appeal on further grounds, from parts of the order of Judge Price QC, sitting as a Judge of the Queen's Bench Division, made on 6 February 2001. The parts of the order sought to be overturned are those by which, first, the claimant was ordered to pay £80,000, plus interest of £6,400, to Red Internet Limited ("the company"), and, secondly, the order that these sums, together with other substantially lesser sums awarded to the first and second respondents, are to be set off against monies owing to the claimant under a judgment in his favour against the two personal respondents.
3. The essential background to the judge's order can be comparatively briefly told, although the history as a whole is somewhat complex. The respondents are directors and shareholders of the company which was incorporated on 17 June 1999 and began trading in September 1999, as they had been of various predecessor companies: Red Group Limited, Red Group Incorporated, Design Publications (US) Limited, all of which had been engaged in one shape or another in the design and publication of magazines for blue chip companies in Europe and the USA.
4. The appellant became associated with the respondents in these companies in the USA and, after a dispute had developed between the parties, he brought two sets of proceedings. In one he obtained judgment in December 1998 in Michigan against Design Publications Limited and the first respondent, a judgment which on 23 November 1999 enabled him to obtain from Astill J summary judgment against the first respondent for £73,589, plus interest.
5. In the second United States action in which the corporate veil of Red Group Incorporated was raised, the appellant obtained judgment jointly and severally against the respondents and the Red Group for US $400,000. Red Group Limited went into insolvent liquidation on 30 August 1999, that is to say shortly before the company began trading.
6. On 5 November 1999, an order was made by Hallett J giving the appellant permission to apply for summary judgment against the respondents in this country in respect of his $400,000 judgment in Michigan, and in the meantime freezing the respondents' assets, including those of their "business known as Red Internet" up to the value of £243,531, being the sterling equivalent of the US $400,000 judgment.
7. On 12 November 1999, the summary judgment application and the freezing injunction application were adjourned by Astill J to 23 November 1999, and the freezing injunction initially made on 30 November was continued on terms which were varied, which I need not set out. On this occasion (although not on 5 November) the appellant gave an undertaking that he would comply with any order the court might make thereafter if it were found that the order had caused loss to the respondent and decided that the respondent should be compensated for that loss.
8. On 23 November 1999, as already stated, Astill J gave summary judgment for the appellant for £73,589. In addition, he continued the previous freezing order, once again varying its terms in ways I need not relate, save only that at the conclusion of the order under the heading "Loss or Damage" appears this:

"If the court later finds that this order and/or the order of 12 November 1999 has caused loss to the defendants, including for this purpose Red Internet Ltd, and decides that the defendants and/or Red Internet Ltd should be compensated for that loss, the court may order an inquiry into the losses suffered and make such order as it thinks just".

9. On 21 December 1999, Eady J gave the appellant summary judgment for US $400,000 or its sterling equivalent, together with interest, credit to be given for any payment made pursuant to the earlier judgment for £73,589. For a number of reasons, however, including not least the appellant's material non-disclosure to Hallett J of the existence of the company, Eady J discharged forthwith the freezing order of 23 November and, most relevantly for present purposes, ordered

"there be an inquiry as to the damage which the first and second defendants and Red Internet Ltd have suffered as a result of the orders made on 12 November and 23 November 1999, such inquiry to be held by a judge."

10. Directions were then given as to discovery and the service of evidence, discovery being limited to "mutual disclosure of all documents intended to be relied on in the inquiry".
11. It was this inquiry as to damages which came before Judge Price and which, following a full hearing on 4 October 2000, when oral evidence was given by a number of witnesses on behalf of the respondents, led to the order now under challenge.
12. Permission to appeal was refused initially by Judge Price himself on 30 January 2001, when the judgment (at that stage with two pages unfortunately missing) was first handed down. It was refused in these terms:

"No point of principle arises. Complaint over quantification. Approach has to be to do best one can on evidence."

13. Proposed grounds of appeal were then filed. The first six paragraphs were introductory. Paragraphs 7 and 8 read:

"7. The Order purports to award damages against the Claimant in favour of a non-party who was not properly before the Court. The Court's jurisdiction is limited to dealing with disputes between the parties before it. The parties before the Court at all material times were the Claimant and the Defendants. Red Internet Limited could have applied to be joined as a party seeking relief in the Inquiry but it failed to do so. The Inquiry proceeded to hear evidence contained in the Second Defendant's Affidavit on the basis of an undertaking that solicitors would come on the record for Red Internet Limited. That undertaking has not been complied with. The Court had no jurisdiction of the Court to award damages to Red Internet Limited on the Inquiry.

8. The Court had no jurisdiction to order that the damages payable to Red Internet Limited, a stranger to the proceedings before The Honourable Mr Justice Eady, should be set-off against the Claimant's judgment made on 21 December 1999 against the Defendants. Red Internet Limited has no right of set-off and is a stranger to the Claimant's judgment against the Defendants. The identity of the parties and the Judgments are legally distinct. The Claimant is entitled to enforcement of its Judgement against the Defendants without a reduction of the Defendants' liability to the Claimant by virtue of Red Internet Limited's alleged losses."

14. Those were the grounds for which permission to appeal was given.
15. Paragraphs 9 to 16 then sought to attack the judge's award to the company of damages of four particular losses totalling £80,000, essentially on the basis that there was insufficient evidence to establish and support those awards. Finally, paragraph 17 reads:

"A Judgment of the High Court on an Inquiry as to Damages should have been given with the full reasons in a public hearing. It was wrong for the Judge to give an incomplete Judgment, without all of the reasoning and this amounted to a failure to deal with the case justly. The maintenance of public confidence in the administration of civil justice demanded that a full judgment with reasons should be given publicly at a hearing. The failure to give the full reasons in open Court also meant that the Claimant's application for permission to appeal could not be made with a full consideration of the basis of the Judge's findings."

16. The application for permission to appeal to this court came before Longmore LJ on the documents in March 2001. As stated, he granted permission solely in relation to paragraphs 7 and 8, observing that they "raise a question of principle on the extent to which personal defendants can rely on losses incurred by their company". He refused permission to appeal in relation to the matters complained of in paragraphs 9 to 17, stating that they

"raise points of detail on quantification that are inappropriate for an appeal. As to paragraph 17, now that the full judgment has been received on 12 February 2001, no point can now arise."

17. The appellant's solicitors, by letter dated 26 March 2001 indicated their intention to apply to the court orally for permission to argue the additional grounds of appeal also. Their letter, however, assuming that it was received, was regrettably overlooked by the court. When recently this came to light, it was directed that this application should be made to us today, as indeed it was made at the outset of this short hearing. We refused it, and I shall include the brief reasons for doing so within this short judgment.
18. I propose to deal, first, with the two grounds for which permission to appeal was given. I can do so very briskly. The first, that complained of in paragraph 7, asserts that the court had no jurisdiction to award damages to the company essentially on the basis that the solicitor's undertaking to come on to the record for the company was not initially complied with. The facts as to this are as follows. By letter dated 22 September 2000, the appellant's solicitors stated that since the company had not applied to be a party to the inquiry and was not represented by solicitors, they could not be heard. That argument was repeated in the appellant's skeleton argument provided shortly before the inquiry hearing on 4 October. What had been a procedural point as to notice of acting then became a substantive objection to Red Internet being heard on the ground that it had not applied to be joined in the inquiry. The point that the respondent's solicitors had not filed notice of acting was raised at the outset of the hearing on 4 October. It was submitted on the contrary that there was no provision in the rules of notice of acting on behalf of the party not formerly joined in the action. The learned judge cut the matter short by asking whether there would be any difficulty in the respondents' solicitors agreeing to undertake and file notice of acting. When told that there would be no difficulty, he accepted an undertaking from those solicitors to file such a notice within seven days. Although it was duly prepared by the solicitor having conduct of the matter, due to an unfortunate oversight it was not filed or served on the appellant. That oversight was later remedied, although not in the event until 27 April 2001, after this appeal was launched.
19. The judge below dealt with the point in paragraph 7 of his judgment as follows. Having set out the undertaking which specifically allowed for an award of damages to Red Internet Limited, as well as the personal defendants, the judge said this:

"My understanding is that the terms of these Orders were as agreed between the parties and approved by the Judge. The Company has never been a party to these proceedings and the difficulty, acknowledged by counsel for the Claimant as being technical, of counsel for the Defendants making submissions on behalf of the Company has been dealt with by counsel's undertaking that solicitors acting for the Defendants should come on the record as solicitors for the company and give him instructions accordingly."

20. As recently as yesterday, Mr Hickey for the appellant submitted a revised skeleton argument which as to this particular ground of appeal states:

".... the company could have made, but did not make, itself a party to the inquiry proceedings and had no right to be heard or for the court to determine its rights. An undertaking was given for solicitors to come onto the record for Red Internet Limited, but was not complied with until 27 April 2001 after this appeal was commenced. The court can only deal with the rights of the parties properly before it."

21. For my part, I see no substance whatever in any aspect of that argument. I have already recited the terms both of Astill J's order of 23 November 1999, and of Eady J's order for an inquiry of 21 December 1999, both of which expressly contemplate that the company itself should be compensated for any loss which it had suffered consequent upon the continuing of the freezing orders which the appellant should never have obtained in the first place. Neither order was appealed and there can be no doubting the court's powers in the first place to impose such a term as a condition of making a freezing order and thereafter to enforce it.
22. As for the solicitors' breach of undertaking, that was to be regretted and reflected little credit on the solicitors responsible, but ought not, in my judgment, to result in the respondents and the company forfeiting their rights under the orders and the benefit of the subsequent judgment. It caused the appellant no prejudice whatever and the non-compliance was ultimately rectified.
23. The second ground for which permission to appeal was given goes to the order for set-off. At first blush the argument might be thought to have some substance. The contention in that there is "no mutuality of debts nor commonality of the parties", so that it is inappropriate to set off this damages assessment in favour of the company against a personal liability of the individual respondents under the American judgment.
24. Given the particular history and the nature of this litigation, however, and the form of order for an inquiry which was in fact made, I can see in the end no sound objection in principle to the order which was ultimately made for the set-off. The freezing injunction was obtained against an express undertaking that there would be within the self-same proceedings a liability to compensate the company were it to be found that the order ought not to have been made. That is what happened here. It is within the same proceedings that the set-off is ordered. In any event, as the appellant recognises, the point is largely academic. His recent skeleton argument observes that the point "may not achieve much of a practical result". To my mind it is unnecessary to spend longer upon it.
25. The application for permission to appeal against the company's award of damages on this inquiry can be dealt with briefly. Mr Hickey, in arguments of some skill and ingenuity, advanced with no small charm, takes essentially three points. First, he says simply that it was for the defendants to prove their case on the balance of probabilities and this, he contends, was never done. Instead of the documents which one ordinarily might have expected to be produced to verify all aspects of their claims, the defendants relied rather upon oral evidence. Secondly, he contends that, although the judge correctly directed himself as to causation, he did not then faithfully follow his self-direction. Thirdly, he submits that only awards should have been made for the losses which were within the reasonable contemplation of the appellant, and said reasonable contemplation should have been assessed by reference to the defendants' affidavit evidence when they initiated the inquiry proceedings.
26. To my mind there is nothing in any of these points. The judge in a very careful and thorough reserved judgment looked scrupulously at the evidence in order to see what precise losses could properly be established by the company. There were in fact four elements of the £80,000 total, each relating to a separate company with whom the company itself had transacted business. All four companies, the judge held, ceased to trade with the company because, as he found, the company's overdraft facility was withdrawn consequent upon the continuation of the freezing orders of 12 and 22 November, until finally they were lifted on 21 December. As the judge put it "the loss of its lifeline funding was a major blow".
27. The result, as he held, in relation to the company was increased costs through losing the favourable rates which it had previously enjoyed; £25,000 increased costs of printing through losing Lithomaster; and £5,000 increased costs of distribution through losing UPS. The loss of the other two companies resulted in losses of profits assessed respectively at £10,000 in the case of Seton and £40,000 in the case of Pfizer. The judge goes through all this in some detail. It is quite unnecessary to rehearse it here. There was ample evidence, largely oral though it may have been, to support these claims. Others the judge rejected as too speculative. Where there was doubt, it is plain that he gave the benefit of it to the appellant and reduced the award to its barest minimum.
28. As to causation, there is nothing whatever in this complaint. Mr Hickey sought to argue that the real losses here were the result of litigation rather than the continuation of the freezing orders. That is flatly contrary to an express finding of fact reached by the judge at page 11 of his judgment in these terms:

"The variation of 12 November to allow the company to trade was plainly important to the bank but the fact that freezing orders were still in place until 21 December was in my judgment on all the evidence the cause of the loss of the credit line which was of such importance to the company."

29. As to which losses were within the reasonable contemplation of the parties, the judge in this regard too correctly directed himself as to the law. In my judgment, it was entirely open to him to reach the final conclusion that he did reach, namely that the losses for which he compensated the company were indeed within the reasonable contemplation of the appellant, not least given the terms of the orders of November and December 1999.
30. These are the reasons that I, for my part, had for rejecting the renewed application for permission to appeal on extended grounds. I would dismiss the appeal also.
31. LORD JUSTICE BUXTON: I also would refuse the application and dismiss the appeal in both cases for the reasons given by my Lord. I would add only one further comment. In view of the terms of the order of Astill J of 23 November 1999, and the order of Eady J on 21 December 1999, both of which have been set out by my Lord, it is in my view a misnomer for paragraphs 7 and 8 of the grounds of appeal to have described Red Internet Limited as "a non-party" and also to have described it as a "stranger to the proceedings" before Eady J.
32. The terms of Astill J's order made it quite clear that it was envisaged at that time that loss caused by the freezing order that had been in the event wrongly obtained would extend to losses of Red Internet Limited. That (as I understand from the judge's judgment) agreed acceptance at the time of the order before Astill J was taken up by Eady J when he made an order, unappealed by the appellant in these proceedings, that there should be an inquiry into the damage suffered by Red Internet Limited. In those circumstances it is simply not right to suggest that Red Internet Limited was in orthodox terms a non-party or a stranger to the proceedings.
33. Furthermore, these orders were made, as my Lord has pointed out, within the same proceedings as those which the appellant originally brought against the defendants. For that reason it is entirely inappropriate to suggest that there should not be a set-off because the set-off is between separate and distinct debts.
34. It would have been better if the particular nature of these proceedings, and not least the exact terms of the orders made by Astill J and Eady J, had received more attention in the grounds of appeal. When the matter is fully investigated, as it has been before this court, it becomes clear that the position is as set out by my Lord. There is nothing else I wish to add.
35. THE LORD CHIEF JUSTICE: I agree with both judgments.
ORDER: Appeal dismissed with costs assessed at £5,000.