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 HIGH COURT OF JUSTICE CHANCERY DIVISION
(Mr Justice Lawrence Collins and Mr Justice Rimer)

		Royal Courts of Justice Strand London WC2 Wednesday 4th April, 2001

1. LORD JUSTICE ALDOUS: Before coming to the applications of Mr Perotti which he has made to this court, I must summarise some of the factual background which goes back over many years.
2. Mr Angelo Perotti was the uncle of Mr Perotti (the applicant). He died in 1984. He left a substantial estate in England and in Italy. His beneficiaries were Mr Perotti, Mr Perotti's sister Mrs Abbate, and his brother Guiseppe Perotti who has since died. The attorney administrator of the estate was Mr Watson. In 1992 Mr Perotti issued proceedings in the Chancery Division against Mr Watson alleging conspiracy and fraud in the administration of his brother's estate. He sought an order removing Mr Watson from his office. During the lead up to the trial there were numerous applications both to the Chancery Division and to the Court of Appeal, with the result that substantial expenditure on legal costs was incurred by Mr Watson. In fact, by the time the case reached the Court of Appeal Mr Watson had costs orders in his favour to be paid by Mr Perotti amounting to about £400,000.
3. The trial started before Rimer J on 27th January 1997. It lasted for 25 days including reading time. On 26th March 1997 Rimer J handed down a 125-page reserved judgment which was largely favourable to Mr Watson and the other defendants. However it is right to record that the judge held that Mr Watson had failed to bring any high degree of skill to the administration of the estate and he referred to a number of grounds on which the court could have exercised its discretion to remove him. However the judge held that in the interests of the proper overall administration of the estate the court should not do so.
4. Mr Perotti appealed against the judgment and order of Rimer J to the Court of Appeal. That appeal, together with other applications, came before Nourse, Waller and Kay LJJ. In their judgments handed down on 2nd February 2001 they dismissed Mr Perotti's appeal. They assessed the costs of Mr Watson at £100,000 and ordered that that sum should be paid by Mr Perotti. The result is that as of today Mr Perotti has orders for costs against him which I am told exceed £500,000. Those orders for costs arise not only in the 1992 action to which I have referred, but also in other actions. Those actions are called the second, third and fourth actions and another action called the remuneration action. Mr Watson is not a party to the third, nor I believe to the fourth action, but he is the claimant in the remuneration action. That is an action started by Mr Watson seeking an order from the court to enable him to charge the estate for the work that he had done and would do. According to Mr Perotti:

"... the Defendants in the said four Actions are only the nominal Defendants and that the real Defendant is SIF (the solicitors Indemnity Fund)."

5. It is Mr Perotti's case that he will recover in those actions damages of a substantial amount, perhaps £2 million.
6. I shall deal with the applications that are before this court in the order in which I believe they arise, rather than the order in which Mr Perotti addressed us.
7. The first application which I will deal with is number 6032. In that application Mr Perotti seeks a stay of execution of the costs orders against him pending resolution of the second, third and fourth actions and the remuneration action and resolution of his petition to the House of Lords for permission to appeal against the judgment of the Court of Appeal of 2nd February 2001. That is resisted by Mr Watson and we have had the advantage of a written skeleton argument by Mr Semken who appears on his behalf.
8. The case for Mr Perotti is I believe simple, although during his submissions it became extremely complicated. He accepts that under the order for costs he owes Mr Watson a considerable sum of money, in excess of £400,000. However he has lodged a petition seeking permission to appeal to the House of Lords. If his petition is successful and he succeeds in the appeal, then it is likely that his costs obligations will be substantially reduced.
9. He also contends that he will succeed in the other actions to which I have referred, with the result that he will obtain a substantial sum of money by way of damages. In those circumstances he submits that it would be inappropriate for the orders for costs to be enforced, as that would have the result of making him bankrupt, thereby preventing him from pursuing his appeal to the House of Lords and the other actions. That would prevent him from obtaining a considerable sum by way of damages. It would also cause him considerable hardship. He drew to our attention the attraction he has for the flat he lives in and the difficulties that he would incur if he had to move out.
10. To support his case Mr Perotti drew to our attention Burnet v Francis Industries Plc [1987] 1 WLR 802 and Canada Enterprises Corporation Ltd v MacNab Distilleries Ltd [1987] 1 WLR 813. Those cases concerned the question of whether a stay of an order for damages should be granted. In my view they add nothing of relevance, save that they apply the principle that a stay of an order for payment of money will only be ordered in special circumstances and where justice requires.
11. I will come to the position of Mr Watson in a moment. However it must be remembered that an order that a party should pay costs is an order requiring the paying party to pay the reasonable costs paid or payable by the other party. The receiving party does not make a profit. Thus in this case the order for costs - which exceeds £400,000 and is probably of around £500,000 - are in relation to costs that have been expended by Mr Watson or will have to be paid by him. Those are the costs that the courts have held have been incurred by reason of the faults of Mr Perotti.
12. On behalf of Mr Watson, Mr Semken accepted that Mr Perotti should be in a position to pursue his petition to the House of Lords. He gave an undertaking to the court that pending resolution of the petition seeking permission to appeal, no petition would be presented to make Mr Perotti bankrupt. He also submitted that the existence of the pending actions did not amount to special circumstances. There was no reason why Mr Watson should be kept out of what he called "the fruits of the costs order in his favour". I pause because costs orders are not really fruits at all. They are recompense for costs to be paid or which have been paid. He also submitted that Mr Perotti was unlikely to obtain damages that he was seeking in the second, third and fourth actions. Further the longer the costs orders were outstanding, the less likely that they would be satisfied. To support that submission Mr Semken drew to our attention, in his written submissions, the freezing order and the judgment of Laddie J in which he had found that Mr Perotti had acted dishonestly in a number of transactions, including the transfer of a flat to his daughter, which was, according to the judge, a dishonest attempt to avoid execution of the order for costs.
13. I accept that Mr Perotti believes that he will recover substantial damages exceeding £2 million in the other actions. But as he must have learned by now, nothing is certain. It would not be right for Mr Watson to have to wait the outcome of those actions before being recompensed for the costs that he has expended. The second action has not proceeded beyond the statement of claim. The third action is against lawyers in which there were applications to strike it out, but they failed. The fourth action is also against lawyers and that has not proceeded with any expedition. There is no reason, in my view, why Mr Watson should have to wait to recover the costs that he has paid.
14. For my part I do not consider that there are any special circumstances which should prevent Mr Watson from enforcing the orders for costs in his favour. However I came to the conclusion that it would not be right that the order should be enforced so as to prevent Mr Perotti being able to pursue his petition for permission to the House of Lords. Mr Semken having offered the undertaking which I accept, there does not appear to me to be any reason why this application should succeed.
15. Again, I draw attention to what these costs orders really are. They are recompense for Mr Watson for the money which has been expended by him in rebutting the flow of litigation instigated by Mr Perotti. In my view he is entitled to be paid the sums ordered by the court and it would be totally wrong to stay the orders to allow Mr Perotti to use the funds to litigate against him. The fact, if it be a fact, that the litigation in reality is against the Solicitors Indemnity Fund is in my view irrelevant. The money is owed for costs paid by Mr Watson. It should be paid. I realise that Mr Perotti believes the other actions are a good investment. If so, they must be financed from his own money, not money that he owes to Mr Watson.
16. Mr Perotti also drew to our attention the hardship that he will incur if the costs orders are enforced. He will lose his flat, a flat of which he is particularly fond. He would have nowhere to place the 40 boxes of documents that he has. That hardship will occur I have no doubt. But that does not, in my view, amount to special circumstances which should prevent the costs order being enforced. I therefore would dismiss the application.
17. The next two applications are interrelated. To understand them it is necessary to set out some more of the detail of what happened during the lead up to the judgment of the Court of Appeal on 2nd February 2001. In June 1999 an application was made to Rimer J for a world-wide freezing order to prevent Mr Perotti from dissipating his assets to avoid payment of the costs orders that had then been made. That freezing order was granted. In July 1999 committal proceedings were started against Mr Perotti for breach of the freezing order. In particular it was alleged that he had transferred his interest in a flat, 64 Ivor Court, to his daughter, Miss O'Driscoll, in breach of the order. His case was that there was a secret trust in favour of his daughter which could be proved by his evidence and that of his mother. The committal proceedings came before Laddie J who held that Mr Perotti was the owner of the lease of 64 Ivor Court. He said that the suggestion that Mr Perotti held it for and on behalf of his daughter was wholly untrue and it was a concocted story so as to enable Mr Perotti to put his assets beyond the reach of Mr Watson. The judge held that Mr Perotti was in breach of the freezing order and imposed a penalty of imprisonment.
18. Mr Watson then commenced proceedings against the daughter, Miss O'Driscoll, for re-transfer of 64 Ivor Court to Mr Perotti. The hearing was fixed for 7th January. Miss O'Driscoll did not attend. On 7th January 2000 Master Price ordered that the transfer to Miss O'Driscoll be set aside and the land register be rectified to show Mr Perotti as proprietor. His order was upheld by Rimer J on 24th January 2000. Miss O'Driscoll is I believe seeking permission to appeal and her application has not been heard. It seems that she has also commenced proceedings against Mr Perotti (that is her father) for a declaration that he holds 64 Ivor Court on trust for her.
19. On 15th March 2000 charging orders on 64 Ivor Court were made in favour of Mr Watson for £219,000. Further charging orders have been made in favour of two members of the solicitors who acted for Mr Watson in a total of £53,000-odd. There followed an application by Mr Perotti to this court to obtain funds for Mr Perotti's representation in the forthcoming appeal. That application ultimately came before myself and Clarke LJ on 19th May 2000. Having looked at the freezing order that was made, it did not appear to us that there was any restriction upon Mr Perotti either selling the property or charging it for the purpose of raising money for taking legal advice and obtaining representation. That was not the view taken by solicitors acting for Mr Watson. Their view was accepted at the hearing before us to be misconceived. It was upon that basis that we came to consider the effect of the charging order. It prevented Mr Perotti from selling the property or using it to raise money for the purposes of his legal representation. We concluded that Mr Perotti should have an opportunity to try to use his property for the purposes of obtaining funds for legal advice and legal representation. In those circumstances we made a declaration that the freezing order made by Rimer J on 24th June 1999 did not prevent Mr Perotti from expending, selling or charging his assets for the purpose of paying for legal advice. We also made an order that the order of Master Moncaster should be varied so as to allow Mr Perotti to raise money for the purposes of paying for legal advice and representation for himself by the sale or on security of the leasehold of the flat, notwithstanding the order that had been made charging it in favour of Mr Watson.
20. Having obtained that order from this court, Mr Perotti raised £80,000 on the security of the lease of 64 Ivor Court. I understand from the documents that it was split in two halves. One half of the £40,000 was allocated to costs of various sorts in relation to the forthcoming appeal, whereas the other was set aside to meet the interest charges on the loan. The other 40,000 was in due course paid to solicitors that Mr Perotti had instructed in the summer of 2000 with a view to them representing him on the forthcoming appeal.
21. By September 2000 it was apparent that the costs of advising Mr Perotti and instructing counsel to represent him at the hearing of the forthcoming appeal would exceed the sum of the limit imposed in the order of £80,000. Mr Perotti, with the aid of solicitors and counsel, applied to Rimer J to be permitted to raise a further £90,000 on security of the lease of 64 Ivor Court. On 27th October 2000 Rimer J permitted a further £60,000-odd to be raised in priority to Mr Watson's charging order. He said in his judgment that he had considerable reservations as to whether it was appropriate to make the further order.
22. The appeal was due to be heard on 13th November and it was contemplated that the money would be raised within the next few days after the order of Rimer J so as to enable Mr Perotti's legal representation to be financed. However Mr Perotti was not able to supply his solicitors with sufficient funds with the result that he appeared before the Court of Appeal in person when the hearing came on.
23. The order of Rimer J permitting the further £62,000-odd to be raised on security of the lease of 64 Ivor Court in preference to the charging order in favour of Mr Watson was never drawn up. On 19th February 2001 solicitors on behalf of Mr Watson issued an application for an order that the judgment of Rimer J given on 27th October 2000 be recalled and that the application of Mr Perotti to raise a further sum be dismissed. The reasons given for that application was that the order had never been perfected and that the purpose of allowing Mr Perotti to raise further sums was to enable him to pay had not been fulfilled. There was therefore a material change of circumstances since the judgment was given on 27th October 2000.
24. That application to recall the judgment and order came before Rimer J on 5th March 2001. Having recited in his judgment the history, he concluded that he had jurisdiction to recall the order. He rejected Mr Perotti's objections including an objection to him hearing the application. He concluded that he ought to recall the order that he had made and to dismiss Mr Perotti's application. There was also an application for payment out to Mr Watson of the sum of £25,000 and an application by the solicitors who had been instructed by Mr Perotti prior to the hearing of the appeal to be paid certain sums. The judge acceded to those applications. Against that background I come to the three further applications before this court.
25. First is an application number 0180 which appears to be an application by Miss O'Driscoll to allow her to use funds raised on 64 Ivor Court for the purposes of the litigation in which she is a party. There is also an application by Mr Perotti to vary the freezing order and/or the charging order so as to allow him to pay for his daughter's legal advice and representation in the two actions in which she is involved and to pay for certain other matters, such as a computer which he says he needs to carry on the litigation.
26. The first point that is taken by Mr Perotti is that the order that he seeks coincides with the intention of Clarke LJ and myself when we heard his application to vary the freezing and charging orders, namely that it was our intention to enable him to raise money for the purposes of legal representation not only at the forthcoming appeal but in the other actions. However it is quite clear from the transcript of what was said that that was not the intention of the court. At page 48 of the transcript Mr Semken said this:

"Subject to one small point. Your Lordship said `only released for obtaining legal advice and representation'. There is an issue of course as to the legal advice and representation for whom.

LORD JUSTICE ALDOUS: I leave it to Mr Perotti at this stage, it will be limited to Mr Perotti. You are clear that it is going to be paid, any money obtained by him will be paid into the client account or account controlled by a solicitor and that solicitor will only release the money for the purposes of Mr Perotti's legal representation and advice."

27. In my view the order made records the view of the court. Although the order does not expressly state that the money should be made available for representation in the forthcoming appeal, that clearly was the intention of the court as the order was made in those proceedings.
28. Mr Perotti submitted that the transcript did not accurately record what was said and he produced a witness statement in which he set out what he believed had been said at the time. He understood that he was to be entitled to use the funds raised on the security of 64 Ivor Court to fund legal representation for him and his daughter without restriction. I reject that submission. There is absolutely no basis for the suggestion that the transcript which has been produced was not an accurate transcript.
29. Mr Perotti also submitted that the lease of 64 Ivor Court was owned by his daughter and therefore it was proper that she should be able to use the funds how she liked, and in particular for legal representation to substantiate her claim to the lease. I think not. First, her claim is not based upon any knowledge she has. The evidence to support the allegation is that of Mr Perotti and his mother. That has been rejected by Laddie J in contempt proceedings in which he applied the higher standard of proof, namely that it had to be established beyond reasonable doubt. Second, the charging order given to Mr Watson establishes a proprietary right which should not be set aside to fund an action by Miss O'Driscoll against her father. Third, the request for the recourse to the funds would put Mr Watson and other beneficiaries of Angelo Perotti's estate at a disadvantage by reducing the assets of Mr Perotti which appear to be needed to satisfy the costs orders made against him.
30. In my view these applications have no substance. Miss O'Driscoll was in court but it would not be right for us to make any order in her favour, particularly as Laddie J has, as I said, held in proceedings between Mr Watson and Mr Perotti that she has no interest. He of course will be the main witness which he will need to establish her case if she pursues it. In my view the judgment of Mr Justice Lawrence Collins was correct. He said this in paragraph 23 of his judgment:

"In any event, it is plain that the Court of Appeal did not declare that the freezing order did not apply to Miss O'Driscoll's costs. The freezing order provided that the order did not prohibit Mr Perotti from spending a reasonable sum on legal advice and representation. That could not possibly have applied to Miss O'Driscoll's costs. Its terms did not apply to her, and in any event she was not engaged in litigation at the time of the freezing order.

24. Although Mr Perotti does not now ask for a variation of the charging order, it is plain that the Court of Appeal did not vary the charging order in her favour; it is extremely unlikely that the Court of Appeal could have envisaged Mr Perotti making a transfer of property to her to the prejudice of the estate. Finally I do not consider that to deny her the right to funds subject to a post-judgment freezing order (or a variation of the charging order) could possibly deny her the right to a fair hearing under Article 6 of the European Convention on Human Rights. The court has adjudicated that she has no existing proprietary right to Ivor Court (subject to appeal) and it would not be a breach of her convention rights when the judgment creditors have an overwhelmingly stronger claim to the assets of Mr Perotti, and particularly to the assets subject to the charging order. Consequently, although the application is strictly one which Mr Perotti will have to pursue before the Court of Appeal if his case is that the judgment and order were the result of an error which can be corrected under the slip rule, it is not an application which I would wish in any way to encourage. Indeed, I would consider that an application to the Court of Appeal would be as misconceived as this application, which is the latest in his obsessive and wasteful litigation, and which I accordingly dismiss."

31. I come next to the application by Mr Perotti for permission to appeal against the judgment of Rimer J of 5th March 2001 in which he recalled his earlier order of 27th October. In my view this application is also misconceived. It is clear from the order made by Clarke LJ and myself and from the transcript of the proceedings that the money that could be raised on 64 Ivor Court by Mr Perotti in preference to the charging order in favour of Mr Watson was only to be used for the purposes of legal representation in the proceedings which were to come before this court at the end of 2000.
32. Mr Perotti challenged the ability of Rimer J to hear the application because of an order that the Court of Appeal had made that the remuneration action should be tried by a judge other than Rimer J. In so doing, it had concluded that he was not the appropriate judge to try that particular case. But the court had made it absolutely plain that there was nothing in the was the judge had acted which would make him unfit to do so. It followed that the order of the Court of Appeal did not prevent Rimer J from dealing with the application to recall which was an application made in the main action. In my view it was entirely appropriate for him to do so as he had been intimately concerned with the proceedings and also was the judge that had made the order which was sought to be recalled. It would therefore have been inappropriate for any other judge to have dealt with that application when Rimer J was available.
33. Mr Perotti also included within his applications an application to use funds that had been raised for the purposes of his legal representation to purchase a computer, pay for its running costs and to pay for access to a legal database. He also wishes to purchase a copy of the White Book. In my view that application is also misconceived. To allow such payments in preference to payment of the costs orders would amount to a complete injustice so far as Mr Watson and the other beneficiaries are concerned. The costs orders, as I have said, reflect expenditure that Mr Watson has had to make to meet the tide of litigation wrongly instituted by Mr Perotti. I accept that Mr Perotti believes that he will ultimately recover substantial damages exceeding £2 million. But that expectation is not sufficient in my view to allow him to spend money which he owes to Mr Watson and will ultimately benefit the beneficiaries of the late Mr Angelo Perotti's estate.
34. For those reasons, and upon the undertaking offered by Mr Semken, I would dismiss all the applications before this court.
35. LORD JUSTICE KAY: I agree.
ORDER: Applications dismissed; Mr Perotti to pay the costs of Mr Watson assessed at £3,522. (Order not part of approved judgment)