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 Park)

		Royal Courts of Justice Strand London WC2 Friday 11th May, 2001

1. LORD JUSTICE ALDOUS: For about 10 years Mr and Mrs Joiner were business partners with Mr George and Mr Robinson. They first met in about 1990 but their business connection started in September 1992. On 16th September 1992 they entered into an agreement which was called "Heads of Agreement". It was drawn up by Mr Joiner. It provided for them to acquire a new company which was ultimately to be called Unigel Ltd, which was to acquire the assets of a business which had been started by Mr Joiner using the trade name Unigel. The new company was to be a 51/49 company, with 51 per cent of its shares to be held by Mr and Mrs Joiner and 49 per cent held by Mr George and Mr Robinson through a holding company which was to be established in Hong Kong. The initial directors were to be Mrs Joiner and Mr George.
2. The company was acquired. It was originally called Tunknot Ltd. A month or so later after it was acquired its name was changed to Unigel Ltd and it started in business. However the share ownership and directorship structure visualised by the Heads of Agreement did not proceed. At some time during that period a documented agreement was reached for Mr Joiner to provide consultant services to Unigel UK. He in fact was engaged by ITG, the Hong Kong holding company, and ITG provided his services to Unigel.
3. Mr Joiner was at that time involved in litigation and therefore he did not take up his directorship but was paid £38,000 a year. That was the income which he lived out of.
4. On 7th November the parties entered into what the judge called an Option Agreement. The relevant clause was in these terms:

"It is agreed that [Mr and Mrs Joiner] will have the option to acquire ordinary shares in Newco representing up to 51% of the equity in Newco."

5. Matters thereafter proceeded on the basis provided for by the agreement. Mr George was the sole director of Unigel UK, and remained as such throughout the years which are relevant to the particular case. Neither Mr and Mrs Joiner ever became a director. Mr Joiner acted in the capacity of consultant to which I have referred, and there were only two issued shares which were acquired by ITG.
6. Mr Joiner continued to be involved in the business. In 1993 there was a gradual disintegration of the relationship between the parties. It started, according to the judge, in 1993 and got progressively worse over the rest of the year and into 1994. Mr and Mrs Joiner disliked the shareholding and management structure of Unigel UK. They had no shares. Neither of them was a director, and indeed Mr George as the single director was in sole managerial control. There were other matters which rankled between the parties, to which I need not go into but were dealt with in considerable detail by the judge.
7. Against that background I come to the dispute that came before Park J and was decided in his judgment of 31st January 2000. First, the claimants Mr and Mrs Joiner alleged that pursuant to the Option Agreement they had a right to acquire 51 per cent of the shareholding of Unigel UK, and that they had exercised that right by a letter dated 23rd November 1994. As to that allegation the judge held that they were correct. He refused to grant specific performance of the agreement, but instead ordered that damages should be paid by Mr George and Mr Robinson, the actual sum to be decided at an inquiry if not agreed.
8. Second, Mr and Mrs Joiner alleged that they had an option to acquire shares in Unigel HK. That allegation was rejected by the judge.
9. Third, Mr and Mrs Joiner claimed ownership of certain goods in Unigel's UK factory. The judge referred to that matter as a minor dispute, but in part he decided it in their favour; the question of the damages to be determined at a later stage.
10. Fourth, Mr Joiner claimed unpaid consultancy fees and expenses from the company. The judge upheld that claim and awarded Mr Joiner £9,704 plus interest from 2nd January 1995 until judgment.
11. Fifth, it was alleged in a counterclaim that Mr Joiner owed money to Unigel UK. That allegation was accepted by the judge, who assessed the sum at £20,520.41. There were other matters raised in the counterclaim, but they are not relevant to the matter before this court.
12. There followed an inquiry as to damages which resulted in a decision that the damages payable to Mr and Mrs Joiner were £129,000 plus interest. That was a sum considerably less than the amount claimed by Mr and Mrs Joiner, which was a sum exceeding £1 million, and substantially more than that contended for by Mr George and Mr Robinson which was, at its lowest, £51.
13. The judge granted Mr and Mrs Joiner permission to appeal his decision as to the amount of damages. The defendants, Mr George and Mr Robinson, did not seek permission to appeal at that time. Subsequently they wrote to the judge seeking permission to do so, and also seeking permission to appeal on liability. The judge by a letter dated 7th November 2000 granted an extension of time and permission to appeal against his order as to damages. Amongst other things he refused a stay of the order for payment of the damages, and also refused permission to appeal on liability.
14. On 14th February 2001 the judge set aside the permission that he had granted to appeal on quantum because he concluded that he had no power to make the order. Thereafter Mr George sought help from the Court of Appeal. He made two applications. In effect he applied for permission to cross-appeal on liability and on damages, and also for a stay of the order requiring payment of the damages. Those applications came before me on paper. I concluded that I should refuse the application for permission to appeal out of time against the order of the judge on liability. I said that the suggestion that the first two defendants were acting as agents for an unformed company stood no real prospect of success. I extended the time for applying for permission to cross-appeal against the damages order and gave permission to appeal against that order. I said:

"As the judge gave the claimants leave to appeal against his damages order, this Court will have to consider whether the conclusion he reached was correct. Therefore it is appropriate that this Court should, when deciding the appeal, be able to reduce the damages if the Court concludes that that be right."

15. I went on to consider the application for a stay and granted a stay pending an oral hearing upon notice. I gave directions to enable that oral hearing to be heard.
16. It is that adjourned hearing that has come before us today. The court therefore has to decide whether the stay that I granted should be continued until after the appeal has been determined.
17. Mr Wilson, who appeared on behalf of Mr George and Mr Robinson, submitted that the stay should be continued until after the appeal had been determined.
18. Mr Joiner, who represented himself, alleged in his written submissions that there were certain irregularities. He went on to deal with the question as to whether there should have been permission to appeal on quantum, liability and other matters. He did not press those matters in oral argument, and I have no doubt that the only matter that arises for decision at this hearing is whether the stay should be extended until determination of the appeal. I therefore come to consider whether a stay would be appropriate.
19. Since the introduction of the Civil Procedure Rules, the exercise of the discretionary power to grant a stay has to be carried out to achieve the overriding objective. In essence the court must do justice between the parties. With that in mind I believe that the court should start from the position that where, as in this case, there has been a decision on the merits the successful party should not be deprived of the fruit of the judgment except for good reason. What amounts to a good reason will depend on the facts of each case. However:

"... if a defendant can say that without a stay of execution he will be ruined and that he has an appeal which has some prospect of success, that is a legitimate ground for granting a stay of execution." (per Staughton LJ in Linotype-Hell Finance Ltd v Baker [1992] 4 All ER 887, at 888.)

20. That is only one circumstance.
21. Mr Joiner relied upon statements made by the Court of Appeal Ferdinand Wagner v Laubscher Bros & Co [1970] 2 QB 313, and also statements in Halsbury Laws volume 17 paragraph 451. In my view paragraph 451 is not the appropriate paragraph; 455 is. That states:

"The court has an absolute and unfettered discretion as to the granting or refusing of a stay, and as to the terms upon which it will grant it, and will, as a rule, only grant a stay if there are special circumstances, which must be deposed to on affidavit unless the application is made at the hearing."

22. That statement was made before the introduction of the Civil Procedure Rules.
23. In the present case when the Court of Appeal has to consider the grant of a stay, it has to be careful not to overrule the exercise of the discretion of the judge if he has not erred. In this case the decision of the judge was not criticised as such. But the factual matrix has moved on and the facts have been explained in more detail. I therefore believe it appropriate for this court to reconsider the decision.
24. Mr Wilson relied upon four grounds. First, risk of irrecoverability; second, the real harm to his clients; third, the prospects of success; and fourth, that it would be inequitable for a stay to be refused. I will consider the arguments of the parties under those four heads.
25. First, irrecoverability. In 1998 Mr Joiner was made bankrupt. He subsequently entered into a voluntary arrangement with his creditors, based upon the suggestion that they would receive 100 pence in the pound. The basis for that suggestion was that his proceeds of this action, namely 1/50th of the amount received, would come to £15,000 and that his wife would contribute 10 per cent of the amount which she recovered. Upon that basis his bankruptcy was annulled. Since then the voluntary arrangement has been extended.
26. Mr Joiner suggests that if the money is paid upon the basis upon which the voluntary arrangement was extended, there would still be a balance of about a £142,000 which would be available. That could be repaid if Mr George and Mr Robinson were successful on appeal.
27. In my view there is doubt as to whether money paid to Mr and Mrs Joiner would be recoverable if the appeal did succeed. But that is not the crucial element in the decision in this case. Any difficulty on recoverability could be dealt with by ensuring that the money is paid into court or was dealt with in a similar fashion.
28. I therefore come to the damage that Mr George and Mr Robinson say they will suffer. Prior to the hearing they provided witness statements. Mr George, who gave an address in West Sussex, drew attention to the fact that Mr and Mrs Joiner have served a statutory demand based upon the judgment debt, and that the application to set aside that statutory demand had been dismissed. He said that he was a director of Unigel Ltd in Hong Kong. He shared his house with his partner and three children aged 2, 6 and 8. He stated that if he were to be made bankrupt, he could not continue in his position as a director, nor take an active part in the running of the business. In those circumstances he would lose the source of his income and it would lead to him being unable to maintain the family home.
29. Mr Robinson's witness statement made similar points. However, he said that he did not have funds from which he could settle the award without selling the family home. The family home was jointly owned by his wife and himself, and he lived there with his wife and daughter, who is 2½. The sale of the house would require them to move to rented accommodation, possibly some distance away. His daughter attends nursery school to enable his wife to work.
30. At the hearing we pointed out to Mr Wilson that Mr George's witness statement was deficient, in that it really told us nothing about his assets at all. Mr Wilson took instructions. He told us that Mr Robinson's house had equity of about £40,000. There is no second mortgage and his share was about £20,000. Mr George's house was owned only as to 5 per cent by him. Thus the equity that he owned was about £6,000. Mr Robinson earned between £35,000 and £40,000 a year. Mr George's income was more sporadic. As to the business, the shares that they owned were in an American company and there was a restriction upon them being sold. So far as they were concerned, they were not a tradeable asset. Further, the company was not doing as well as it had been.
31. Mr Joiner rightly drew to our attention that that information had not been provided upon oath and it was only given on instructions. It is therefore right that that information should be incorporated in affidavits to be sworn by Mr George and Mr Robinson, copies to be supplied to Mr Joiner within 14 days.
32. Mr Joiner also drew attention to a letter in the bundle which showed that Mr and Mrs Robinson had sold their house in December 1999 for £249,500. From that it would seem that there would be money available to satisfy the debt. Mr Wilson, upon instructions, informed us that the house was sold for that amount of money. The money went to pay off the mortgage and to fund a bridging loan. It was then reinvested in the house to which I have referred. The affidavit should include that information.
33. It is, I think, reasonable on an application like this to take an overall look at the harm that will be suffered by these applicants. In my view there is sufficient evidence, basing myself upon what I have been told by Mr Wilson, to establish that the failure to grant a stay will cause the applicants considerable harm. That is an indication that a stay should be granted.
34. I turn under this head to consider the harm that might be suffered by Mr and Mrs Joiner. As Mr Joiner pointed out, a stay of execution could mean that they would be less likely to recover the damages after the appeal if he succeeds on the appeal. Other than that, however, there is no evidence of any hardship that they would suffer if the stay is granted.
35. I come next to consider the prospects of success. Mr Joiner submitted that it was not a bona fide serious appeal by the applicants; it was only a step taken to delay having to pay. He reminded us that Mr George and Mr Robinson had not applied to the judge initially to appeal against his finding on quantum. He also submitted that if one looked at the detail of the case their chances of success did not come up to being other than fanciful. In my view it is not possible to go into any great depth on this matter. However, the judge who had heard the evidence did initially grant permission to appeal. When I considered the matter on paper I had come to the conclusion that this was a case which was not fanciful. In those circumstances, I believe it to be a bona fide and serious appeal.
36. I come lastly to the submissions that it would not be equitable. Mr Wilson relied on the debts which he said were owed by Mr Joiner to Mr George and Mr Robinson. Firstly, a debt of £103,000 plus interest plus costs of £24,000, which was ordered to be paid by Mr Joiner to a company called Fiberflex. That debt has been assigned to Mr George and Mr Robinson. In reply Mr Joiner drew to our attention that he has a claim for detention of goods. The amount of that claim has still to be determined.
37. The second debt is one owed to Unigel in the sum of £32,000, which includes interest, which was ordered by the judge. That also has been assigned to Mr George and Mr Robinson. If one adds that to the other judgment they amount to about £159,000. Mr Wilson also drew to our attention costs orders in his clients' favour which the judge had made. The judge estimated they would not exceed £50,000. Taking all those sums into account he submitted that there was money owing by Mr Joiner to Mr George and Mr Robinson in excess of £160,000, and probably amounting to £200,000.
38. Mr Joiner drew attention to the fact that those were debts owed, if owed at all, by him and not by Mrs Joiner. In those circumstances we should, in considering equitable position, consider her position as well.
39. True, the debts are owed by Mr Joiner, but the order made for damages to be paid by Mr George and Mr Robinson was an order made to them jointly. The judge made that clear. He said:

"Since the Option Agreement granted one option to Mr and Mrs Joiner together, not two options (one to Mr Joiner and another to Mr Joiner), the damages award will be of one sum in favour of the two of them together. It will be a matter entirely for them how they will divide it between themselves."

40. Thus the debt that Mr George and Mr Robinson owes is a joint debt. The obligation of Mr Joiner is to pay them jointly. In my view those facts do weigh in favour of granting a stay.
41. Taking all those matters into account – which I believe is the correct way to deal with this – I believe that justice will best be met by granting a stay until the appeal has been determined. I am impressed by the harm that the applicants will suffer, the lack of harm the Joiners will suffer and the equitable position taking into account the money that is owed by Mr Joiner.
42. I therefore would grant a stay. But before concluding this judgment, I wish to make observations as to its future conduct. The more one looks into it one sees litigation between these parties which in some cases one party wins and in others they lose. We now have claims by one against the other and enforcement proceedings one against the other. This case is one which is suitable for Alternative Dispute Resolution. Here we have three businessmen who worked together for many years until they fell out over a shareholding. They being businessmen, they should be able to settle all these proceedings on a business basis. They may need help, and no doubt the longer it has gone on, the more they have become entrenched in their views of the rights and wrongs. But the position has been reached where both sides are suffering, both with the time it has taken and the worry that the litigation has involved. It must be very worrying for Mr George and Mr Robinson. I suspect it is equally worrying for Mr and Mrs Joiner. I would urge them, before the appeal comes on, to seek help from the court's Alternative Dispute Resolution process.
43. I would grant the stay.
44. LORD JUSTICE RIX: I agree. In an area where permission to appeal is required, it is significant that permission to appeal has been granted in this case to Mr George and Mr Robinson, first by the judge himself (albeit it turned out that he lacked jurisdiction in the event), and secondly by my Lord, Lord Justice Aldous, on paper.
45. The grant of permission, of course, in itself does not qualify a judgment debtor for a stay. But it is a valid first step. As my Lord has said, their appeal is a bona fide appeal.
46. I confess that I am not satisfied by the evidence presently provided on affidavit as to Mr George's and Mr Robinson's means, or as to the consequences for them of execution of the judgment against them. But that deficiency may be made good by my Lord's order as to the confirmation on oath of the instructions about which we have been informed during the course of the hearing.
47. What has particularly influenced me, however, is that Mr Joiner is himself a judgment debtor in respect of the two judgment debts assigned in favour of Mr George and/or Mr Robinson, and in respect of further costs orders against both him and Mrs Joiner in these proceedings.
48. There is no appeal against those judgments or orders, nor any stay of execution in respect of them. In those circumstances, therefore, and looking at the matter in the round, I would not think it to be equitable against the background of a bona fide appeal that Mr and Mrs Joiner should be entitled to execute on their judgment for £129,000 plus interest, the quantum of their damages as found by the judge, without taking into account Mr Joiner's judgment debts and Mr and Mrs Joiner's judgment debt in respect of the costs orders against them. It is true that the assignment debts cannot be set off against what is owed to Mr and Mrs Joiner jointly, but, if those judgment debts were paid, then that would enable Mr George and Mr Robinson to feed the judgment which was in favour of not only Mr Joiner but also his wife. I would therefore grant a stay.
49. In conclusion, I would gratefully adopt my Lord's comments about the desirability of an attempt at alternative dispute resolution.
ORDER: Application for a stay of execution granted; it is ordered that Mr George and Mr Robinson do swear an affidavit confirming on oath the information that the court was given on instructions, and serve copies of those affidavits on Mr Joiner within 14 days in the case of Mr George and 21 days in the case of Mr Robinson. (Order does not form part of approved judgment)