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 CHANCERY DIVISION
(MR JUSTICE LIGHTMAN)

		Royal Courts of Justice Strand London WC2A 2LL Thursday 29 November 2001

1. LORD JUSTICE ALDOUS: This is an application for permission to appeal from the decision of Lightman J sitting in the Chancery Division of the High Court dated 9 May with appeal to follow if permission is granted.
2. In paragraph 16 of his order, the judge refused the claimant's application for a discharge of previous orders for security for costs in the sums of £58,000 which had been ordered to be paid on 23 April 1998 and £60,000 which had been ordered to be paid on 13 February 2001. I understand that those sums have either been paid or satisfactory security put up. In paragraph 13 of the order, the judge also ordered that the sum of £60,000 be paid by 31 May 2001, in default of which the claim should be dismissed. In paragraph 14 of his order he ordered further security for costs of the trial in the sum of £141,750 to be paid in four monthly instalments of £30,000 and a fifth instalment of £21,750. Those dates reflected the fact that the trial date would have to be postponed because the claimant was no longer represented by solicitors and counsel and was to be represented by one of its directors, Mr Subramanian. He needed time to prepare the case in these proceedings.
3. The application for permission to appeal first came before Chadwick LJ on 27 July 2001. He refused the claimant permission to appeal against paragraph 16 and 13 of the order because the application did not satisfy the grounds for a second tier appeal. He adjourned the application for permission to appeal paragraph 14 to be heard on notice to the defendant with appeal to follow if permission granted. He did not deal with the question of costs, which is dealt with in paragraph 18 of the judge's order, nor with the decision of the judge that there should be a trial on liability with a trial on quantum to follow if need be. However, those matters are raised on this application. The result was that security of £60,000 and £58,000, making a total of £118,000 had to be put up. There remained, therefore, for decision whether the further security in the sum of £141.750 had to be provided and also the appeals against having a split trial and costs.
4. The claimant in this case is a Japanese company. It is a subsidiary of a company incorporated in Washington State USA. Both companies are engaged in the process of providing translations and adaptations of computer software and marketing, distribution and support. The defendant is a United Kingdom company carrying on the business of developing and manufacturing business intelligence software. It is now part of a large group.
5. The dispute arises from negotiations which took place in about 1994. According to the claimants there was an oral agreement that they would translate a particular programme of the defendants called HOLOS into Japanese and then market it. That they did. They allege breach of contract and infringement of copyright. Their amended statement of claim also alleged interference with economic interest, unjust enrichment and a claim based on a quantum meruit basis.
6. In their defence dated 13 January 1998 the defendants denied that the agreement alleged by the claimant had been made, but they accepted that they had hired the claimants to provide services. On 31 October 2000 they amended their defence to deal with all further claims that had been added by the claimant. They included a Part 20 claim. They asserted, amongst other things, that any agreement reached was between the claimant and the defendant's subsidiary. While the claim for sums owed by the claimant to this subsidiary had been assigned to the defendant, liability had not. They denied breach of contract and infringement of copyright.
7. Before coming to the judge's judgment on security for costs, it is appropriate to set out how that dispute arose and the surrounding facts. On 24 March 1998 the defendant applied for an order that the claimant provide security for costs. On 23 April 1998 Master Moncaster made an order for security for costs of £58,000. That sum was paid into court on 8 June. On 16 August 2000 the defendant made a second application for security for costs. On 22 August Master Moncaster made an order for further security in the sum of £80,000. On 18 February 2001 this was reduced by Master Moncaster to £60,000. It would appear from his judgment that this was because he took into account a Part 36 offer that had been made.
8. It was those two orders which were subsequently appealed to Lightman J and were the subject of a refusal for permission to appeal by Chadwick LJ.
9. On 23 November 2000, the defendants made a Part 36 offer which they value at a sum of 20 million Yen (about £250,000). It was made up of an offer of £125,000 and the sum claimed, which also amounted to just over £125,000. We were told that the claim was in fact £175,000 and therefore the Part 36 offer had a value of £275,000 pounds. That Part 36 offer is stated to be in relation to the quantum meruit claim only.
10. On 3 May 2001 the defendants made another application for security of costs and on 8 May 2001 the claimant applied for discharge of the previous orders for security for costs. It was those issues which came before Lightman J.
11. He considered those applications and came to his reasons at page 3 of his judgment where he said:

"The third application for security is in respect of a period of the trial. That application is before me on this case management application. The application is for the sum of £141,750.

The test on an application for security for costs, int he situation such as the present where a foreign company is the claimant, is by common consent stated in a judgment which I gave in a case called Leyvand v Barasch as follows:

'Security cannot now be ordered as a matter of course for a foreign claimant. To avoid such a making of the order he does not have the burden of establishing the ownership of fixed and permanent property here or indeed any property at all. The simple and single criterion for the security is what is just in the circumstances of the particular case. The authorities relied by the defendant were no longer of any relevance or assistance. They are a distraction and should not be cited.'

The criterion, therefore, is what is just in the circumstances of the particular case, and I look at the relevant circumstances as they appear in this case in relation to all three applications. First of all, as I have said, the claimant is a foreign corporation resident outside the jurisdiction of the court and is a wholly [owned] subsidiary of a company incorporated in Washington State, USA. It is not a body against whom an adverse [order] for costs can be enforced under the Brussels or Lugano Convention.

Secondly, there is no evidence before me as to the assets of the company. Mr Subramanian, who is the president of the claimant company and of its holding company, has told me that he thinks that the company could raise the money sought as security but that there could be difficulties and there might be repercussions for the company. It is however of critical importance, as I reminded him, that he has not sought to put in any evidence giving any information regarding any problems or difficulties that might arise in raising the necessary money either on the part of the claimant or its holding company or any shareholder in the holding company.

Thirdly, there are, in my view, reasonable grounds for concern that if the defendant succeeds in this action it will not be able to recover its costs; at any rate, it is placed in great risks as to recoupment of these costs. There is further evidence before me that, if an order for costs were obtained, even if the claimant is a substantial company, there could be difficulties and delay in seeking to enforce that order in Japan.

Fourthly, in view of what Mr Subramanian has told me and in view of the lack of evidence as to the claimant's financial state of affairs, I must proceed on the basis that the order for security for costs sought will not stifle this litigation.

Fifthly, the pleadings contain an admission by the defendant that it owed the claimant £2,500, and the defendant has effectively offered £250,000 to settle one of the claims made by the claimant, namely the claim, based on quantum meruit. If this claim were accepted, it would seem clear that this would dispose of the whole of the action, for none of the other claims could then be pursued.

Sixthly, I can form no view as to the respective strength of the cases of the claimant or defendant, and accordingly, in my view, that is not a factor which enters into the equation when making the order which I have been asked to make on this application.

Seventhly, it is clear that the claimant is a minute company when compared to the defendant. But, so far as his action is concerned, that again does not appear to me to be a factor of any weight, where there is no evidence to support a suggestion that there has been any oppression here by the defendant, or that the claimant is being precluded or sought to be precluded from proceeding with his claim by this application for security for costs."

12. I need not refer to the part of the judgment where the judge considered the application for permission to appeal against the orders of £60,000 and £58,000 which had been previously made. He then considered the further application for further security in the sum of £141,750. He said:

"In my view, that is a very fair and reasonable sum for which security should be provided. It is to be borne in mind that this is likely to be a very expensive action, and it will be unjust, on the evidence before me, that the defendant should be at any serious risk of being out of pocket fails and the defendant obtains an order for costs against the claimant and then has to seek to recover those costs from the claimant. I think that security, the security in the sum of £14,750 is a fair and proper figure in respect of which security should be ordered and I do so."

13. Mr Subramanian, who appeared on behalf of the claimant, put forward five submissions. First he submitted that the judge failed to pay sufficient attention to the Part 36 offer. He submitted that the purpose of the order for security for costs against a foreign claimant was to ensure that there were sufficient funds within the jurisdiction in the event of defendant succeeding. He submitted the Part 36 offer was an admission equivalent to a payment into court and that security for costs may be dispensed with if there was an admission for amounts larger than were asked to be ordered. To support those submissions he referred us to Porzelack KG v Porzelack (UK) Limited [1987] 1 WLR 420; Hogan v Hogan [1924] 2 IR 14; and Sir Lindsay Parkinson & Co Ltd v Triplan [1973] 2 WLR 632.
14. Mr Subramanian submitted that the probability of the claimant's recovery in the entire action was always greater than or equal to the probability of the recovery of the defendant. Further, the judge should have concluded that, because the Part 36 offer only related to a portion of the claim, it was highly probable that the claimant would recover significantly higher amounts.
15. Mr Subramanian says that the judge was incorrect to ignore prima facie weaknesses and in the defendant's case and certain omissions when judging the respective merits. In particular he referred us to the defence which he submitted contained admissions that a Japanese subsidiary was liable to pay certain invoices. That, he submitted, was supported by the accounts of the subsidiary which showed provision for a substantial payment to the claimant. Mr Subramanian submitted that, despite the allegation that the defendant was not liable, that argument could not succeed as the parent was liable because the agreement was concluded before the Japanese subsidiary was incorporated on 31 January 1996.
16. It is accepted that the subsidiary was incorporated after the alleged agreement was made, but it is probable that after incorporation the claimant would have carried out work for the subsidiary. If so, it is not right at this stage to conclude that anything said in the defence is an admission of liability either by the defendant or the Japanese subsidiary. I understand the subsidiary has now been joined and has recently been served. It follows that we do not know what the defence of the subsidiary will be.
17. It is clear from the judgment of the judge that he did not feel it right to come to any conclusion as to the strength of the parties' case at this stage of the proceedings. In my view he was right to do so. From the documents and without hearing any evidence, I cannot come to the conclusion that the Part 20 claim is likely to succeed any more than the other claims of the claimant. I believe the judge was right in the conclusion to which he arrived.
18. It was also submitted that the defendants had admitted the merits of the quantum meruit claim and thereby acknowledged the merits of the unjust enrichment claim, and that it constituted an admission of the reasonableness of the underlying breach of contract claim. That is said to be in direct conflict with the conclusion that the judge reached. I cannot find any basis for such a submission. It will require a trial to determine whether it is correct.
19. Mr Hildyard QC, who appears before us, responded that the claimant was a company incorporated in Japan, no assets had been shown within the jurisdiction and that the matter for security for costs was in the discretion of the judge. The judge had specifically mentioned the Part 36 payment alongside other relevant factors. He accepted that the cases relied upon by the claimant established that a Part 36 payment had to be taken into account as going to show that there was substance to the claim to which it related and to provide a sum of money within the jurisdiction that could be taken into account. However, he pointed out in his written submissions that the cases did not compare upon their facts with the present case where the Part 36 payment only related to one of several claimants. The Part 36 offer valued the quantum meruit claim at approximately £125,000 which, together with the defendant's Part 20 claim, valued at £125,000 or £175,000 made up £250,000.
20. As to the Part 20 claim, Mr Hildyard said it was a strong claim, but that there has not been an application for summary judgment. It follows that it should be assumed that the defence is arguable. The submission that it was bound to succeed cannot be evaluated at this stage, any more can the similar submissions of the claimant. I believe the judge's conclusions as to the claimant's submissions on such a point should be adopted in relation to the Part 20 claim.
21. In his judgment the judge did mention the Part 36 offer, but when he came to consider whether the further £141,750 should be ordered, he did not specifically refer to it, and it is not clear as to whether he took it into account or not. For those reasons, I believe it is open to this court to reconsider the matter.
22. The judge, however, was right to conclude that the court could not take a view as to the prospective strength of the parties' cases. It is, therefore, appropriate to consider the figures as they stand. The defendant is, in my view, effectively secured in a sum of approximately £300,000. That is made up of £175,000, consisting of £125,000 cash offer and the Part 36 offer plus £50,000 for costs, £2,500 admitted by the claimant to be owing and £118,000 which is the sum already paid by way of security. At the date of the hearing the defendant's costs were stated to be just over £577,000. It followed that the money actually produced by way of security was in excess of half of the costs.
23. This was a case in which the judge decided to postpone the trial date. There was a substantial amount of water to flow under the bridge before the action would come to trial. That is particularly so because, as we now know, a third party has been added to the proceedings. In my view the correct approach was to be cautious at that stage of the proceedings. Therefore, it followed that a sum of £300,000 was sufficient at that stage. I would discharge the judge's order ordering a further £141,750.
24. I must now consider some of the other submissions that were made. There was no submission made to the judge about human rights. However, Mr Subramanian has had the advantage of speaking to the Citizens' Advice Bureau which directed his attention to the Human Rights Act 1998. That drew him to the recent decision of the Court of Appeal in Nasser v United Bank of Kuwait [2001] EWCA (Civil) 556, and in particular to the judgment of 11 April 2001 of Mance LJ. In that judgment Mance LJ considered in detail the effect of the Human Rights Act upon applications for security from an individual residing in the United States. He concluded:

"The risk against which the present defendants are entitled to protection is, thus, not that the claimant will not have the assets to pay the costs, and not that the law of her state of residence will not recognise and enforce any judgment against her for costs. It is that the steps taken to enforce any such judgment in the United States will involve an extra burden in terms of costs and delay, compared with any equivalent steps that could be taken here or in any other Brussels/Lugano state. Any order for security for costs in this case should be tailored in amount to reflect the nature and size of the risk against which it is designed to protect."

25. Mr Subramanian submitted that the same principle should be applied in this case. He submitted in circumstances where he was prepared to give an undertaking on behalf of the company that they would not resist enforcement of the order for costs in Japan, the only security for costs that should be ordered was the extra costs of enforcing the order in Japan.
26. We have not heard full argument on this matter, and I would have expected Mr Hildyard to put forward a submission that the case of Nasser was distinguishable from the present case. Also he might wish to refer to matters which were not before the judge, because the matter was not raised at that time. There is no need for me to express any view upon this issue. It appears to me that it will have to be decided either in this case, if there be a further application for security for costs, or in another.
27. It was also asserted that the judge was incorrect to hold that the order was not oppressive as the claimant had failed to show hardship. Reference was made to the Civil Procedure Rules to show that the parties were to be placed on an equal footing, Mr Subramanian referred to the fact that the defendants were part of a very large group, 8,000 times larger than the size of the claimant.
28. In my view the judge cannot be faulted in his reasons on this matter. There was no evidence upon which the judge could find hardship or that the order was oppressive. The claimants have resolutely avoided putting in accounts or any evidence as to their financial position. They are now represented in court by their director. It makes me very suspicious as to their financial position and that of their parent, when this information has not been put before the court. Certainly the judge was entitled to take view that he did.
29. There was also a submission that the judge misunderstood the defendant's estimate of costs. We were referred to part of the transcript. That submission is misguided. It was quite clear that Mr Hildyard quite rightly and explained to the judge that the figure he had in mind of £900,000 was not the correct figure. Further, the calculations that can be made, based upon the figures in the judge's judgment, show that he was not under any such misapprehension.
30. I now turn to the submission that the judge was wrong to order a split trial with liability being heard before quantum. Mr Subramanian says that could be a waste of costs and involve an unnecessary complication. That is always a risk when a trial on liability with quantum to follow is ordered. But that was a decision within the discretion of the judge. It is a decision that judges have to take regularly when carrying out their case management functions. This court would not interfere with that decision.
31. It follows that we should allow the appeal and discharge the order for further security in the sum of £141,750. In those circumstances it would appear appropriate to hear further argument as what action we should take as regard to paragraphs 18 and 19 of the judge's order which ordered that the claimant should pay the costs of the hearing before Master Moncaster on 12 March 2001, the hearing on 2 April 2001, the hearing before Lloyd J on 11 April 2001 and the hearing before the judge on 9 May.
32. I would allow the appeal in that respect.
33. LORD JUSTICE WARD: I agree. I add this. Where the application for security for costs is being based on Part 25 13(2)(b) (that the company is ordinarily resident out of the jurisdiction and is not a body against whom a claim can be enforced under the Brussels Convention or the Lugano Convention), the court is in fact dealing with a quite different kind of application from that which might be made under paragraph (c) of the rule, namely that there is reason to believe that the company will be unable to pay the defendant's costs at all. Hence, the justification and the rationale of the application under paragraph (b) is that there may be difficulties, obstacles or extra burdens of costs and delay in enforcing the English judgment far greater than ordinarily to be expected in enforcing a judgment against an English claimant or a claimant subject to either of those Conventions. Security is primarily intended to cover that extra cost.
34. That seems to me to add to my Lord's conclusion that in the particular circumstances of this case the security offered by virtue of the payments into court in the Part 36 order are enough and, at least for the time being. Any future applications will need to take the Nasser v Bank of Kuwait judgment into account and the extent to which the rule there expressed for an individual claimant applies to a company claimant and to the factual basis of whether or not there is true difficulty in enforcing a judgment in Japan. Those are matters not for today, but for tomorrow if tomorrow arrives.
35. I agree with my Lord that the appeal should be disposed of as he has suggested.
Order: Appeal allowed. Paragraph 14 of Order of Lightman J discharged. Paragraph 19 relating to costs to be varied to so as to make the costs costs in the cause before Lightman J. Paragraph 18 of the order will stand. Costs of the appeal will be costs in the action. (Order does not form part of approved judgment)