COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
The Hon Mr Justice Silber
London, WC2A 2LL
B e f o r e :
MR JUSTICE WALL
| HAMMOND SUDDARD SOLICITORS
|AGRICHEM INTERNATIONAL HOLDINGS LIMITED
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Justin Fenwick QC and Ms Elizabeth Weaver
(instructed by Fladgate Fielder for the Appellant)
Crown Copyright ©
LORD JUSTICE CLARKE:
This is the judgment of the court, to which each of its members has contributed.
"The application for a stay in respect of the costs order is unsupported by any compelling reason why the successful respondents should be deprived of the normal fruits of the judgment in their favour, pending appeal. It is not suggested that it would be a hardship for the appellant to pay, or that there would be any risk of the sums not being recoverable if the appeal were to succeed."
Renewed Application for a Stay.
"The precise figures were not available, and (the appellant) did not want to put in evidence until satisfied that it was accurate, and that no further funding was available."
Ms Marr's statement deals in some detail with the history of the litigation between the appellant and CENLO, but its main burden is that because of the collapse and bankruptcy of its principal customer, a company called American Rice Inc, owing it is said $4,055,448 to the appellant, the appellant now finds itself in dire financial straits. The action against CENLO, Ms Marr asserts, was an attempt to mitigate its losses, which, because of the respondents' alleged negligence, had the reverse effect.
"[The appellant], as a privately owned BVI company, is not required to produce accounts and this document has been prepared solely for the purpose of this application.
We think the document worth reproducing in full:
"AIHL 11 September 2001
Agrichem International Holdings Limited Balance Sheet As at September 11 2001
|Cash at Bank||3|
|Represented by Share Capital||0|
|Revenue Reserves – Deficit||-3,345|
"[The appellant's] extremely difficult financial position became clear once it was established that American Rice's unsecured creditors were paid only 5% of the debt proven in the Chapter 11 Bankruptcy. This coupled with the failure by (the appellant) to recover the olives at CENLO meant that the company went from having a book net worth in 1998 of approximately US$5 million to having net liabilities as currently stated in the balance sheet once the amounts owned by American Rice had been written off and the debts crystallised. The costs of defending the claim by [the respondents] and of pursuing the counterclaim have been very significant, and (as described below) [the appellant] has exhausted all funds available to it.
It has simply not been possible to date, given the financial condition of [the appellant] to raise any further funds for [the appellant]. [The appellant] has approached all of its usual sources including existing lenders, but has found that they either are unwilling to advance funds (which is not surprising given the financial condition of the company) and/or do not have funds available to advance."
The statement concludes:
"(The appellant) is not in a position to both pursue its appeal and to satisfy the judgment and the interim costs order of 12 July 2001. Its current position is due to a great extent to the poor advice of the (respondents) If a stay is not granted then enforcement proceedings by (the respondents) could result in (the appellant) being unable to pursue its appeal, although that appeal has a real prospect of success on points which would reverse the result of the trial."
"wholly owned by a discretionary trust the beneficiaries of which are members of one family. The trust has substantial assets and no borrowings. Because all the holdings of the trust are private there is never any need to disclose financial information publicly and as a matter of policy such information is never disclosed."
We notice that the references to the substantial wealth and freedom from borrowings of the Trust which owns the appellant are omitted from Ms Marr's statement in the current appeal. The 1998 affidavit continues:
"Over the past two and a half years, (the appellant) has had substantial dealings with American Rice Inc and (CENLO). (The appellant) continues to trade with its other principals in the commodities business.
[The appellant's] turnover during the year to 30 November 1997 was $30.463 million. The company is highly profitable and continues to trade profitably…"
"[the appellant] continues to trade and is able to finance substantial trading activity. Banks will not open letters of credit on behalf of their clients unless they are satisfied that the client (ie the applicant for the letter of credit) has the ability to settle the future liability that such letter of credit will create.
[The appellant's] turnover with American Rice and CENLO alone during the six month period to 28 February 1998 exceeded US$21.3 million. This is more than twice the total turnover of CENLO during the same period.
[The appellant] has substantial assets and has a net worth in excess of $US5 million. The company has always been in a position to meet its commitments."
Security for Costs
"(b) The [appellant] is a company or other incorporated body
(i) which is ordinarily resident out of the jurisdiction; and
(ii) is not a body against whom a claim can be enforced under the Brussels Conventions or the Lugano Convention.
(c) The [appellant] is a company or other body (whether incorporated inside or outside Great Britain and there is reason to believe that it will be unable to pay the [respondents'] costs if ordered to do so."
"However, the court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested persons. As all this is likely to be peculiarly within the knowledge of the plaintiff company, it is for the plaintiff company to satisfy the court that it would be prevented by an order for security from continuing the litigation …"
As already indicated, the appellant does not seek to satisfy that burden in order to resist the respondents' application for security for costs.
Payment of or Security for the Judgment Debt
"(1) The appeal court may -
(a) strike out the whole or any part of an appeal notice;
(b) set aside permission to appeal in whole or in part;
(c) impose or vary conditions upon which an appeal may be brought.
(2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so.
(3) Where the party was present at the hearing at which permission was given he may not subsequently apply for an order that the court exercise its powers under sub-paragraphs (1) (b) or (1) (c)."
"(3) When the court makes an order, it may –
(a) make it subject to conditions, including a condition to pay a sum of money into court; and
(b) specify the consequence of failure to comply with the order or a condition."
(1) The appellant is an entity against whom it will be difficult to exercise the normal mechanisms of enforcement. It is registered in the British Virgin Islands and has no assets in the United Kingdom. There is, accordingly, a very real risk that if the appeal fails, the respondents will be unable to recover the judgment debts and costs as ordered by Silber J. Given the attitude of the appellant to date, including that demonstrated on these applications, it is fanciful to think that the appellant will co-operate in the enforcement process.
(2) The appellant plainly either has the resources or has access to resources which enable it both to instruct solicitors and leading and junior counsel to prosecute its appeal and make an application to the court for a stay of execution and to provide a substantial sum by way of security for costs.
(3) There is no convincing evidence that the appellant does not either have the resources or have access to resources which would enable it to pay the judgment debt and costs as ordered. It has failed to do so. It is, accordingly, in breach of the orders made by Silber J on 12 July 2001.
(4) The discovery which the appellant has provided of its financial affairs is inadequate and gives the court no confidence that it has been shown anything near the truth. Moreover, as stated earlier, it has produced evidence (when it wanted to) that it was a thriving and profitable institution. It has wealthy owners and there is no evidence that, if they were minded to do so, they could not pay the judgment debt including the outstanding orders for costs.
(5) For the reasons we have already given we are not persuaded that this appeal will be stifled if we make the order sought.
(6) In these circumstances, we find it unacceptable that absent any other orders of the court the appellant is intending to prosecute the appeal (and is willing to put up security for costs in order to do so) whilst at the same time continuing to disobey the orders of the court to pay the judgment debt and costs, as well as seeking to persuade us that it cannot do so.
"interestingly enough, no example of a case in which a stay of an appeal has been ordered for non-payment of costs has been brought to my attention. There is not even a case in which the matter has been considered, let alone ordered.
In the course of an analysis of CPR 52.9, Rix LJ said:
"the fact that conditions may only be imposed by an appeal court on appeal when there is "compelling reason to do so" does again suggest a very cautious approach to the question of a stay for non-payment. If I had found any encouragement either in specific provisions of the current rule or in authority for ordering a stay for non-payment of costs, I can well see that this case might well be considered to be a suitable case for the exercise of such a discretion. Not because of any doubt about the legitimacy of the appeal, but because of the complete absence of any explanation for non-payment and also because there is still some considerable time until the appeal takes place. It can be said that if the sanction of stay did not exist, then subject to all the difficulties of seeking to enforce the order in foreign jurisdictions and I bear in mind that the jurisdiction with which I am here concerned, Romania, is not one within the Brussels or European Conventions, then it is not clear to me what sanction there is to support the very desirable new provisions for summary assessment and the need for payment of costs.
I am not saying there is no jurisdiction to order a stay for mere non-payment of costs. Nevertheless, I am not sure that I would be able to say that there was here a compelling reason for making such an order ……
Ultimately, in the face of an absence of explanation for the non-payment of costs by the appellant, I am left with the choice of an inference between "cannot pay" or "will not pay". I have already given my reasons for preferring the inference of "cannot pay". If that is the correct inference to make in all the circumstances, then the inability to pay is not, it seems to me, a proper ground on which to deprive an appellant who has permission to appeal from pursuing his appeal.