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 (Mr Justice Elias)

		Royal Courts of Justice Strand, London, WC2A 2LL
		Thursday 31 October 2002

Lord Justice Potter:

Introduction

1. On 8 May 2002 Elias J gave judgment for the claimant ('Bell') against the defendant ('Aweco') for damages for breach and/or repudiation of an agency agreement dated 10 August 1999 pursuant to which Bell acted as agent for Aweco in the United Kingdom, selling Aweco's components to United Kingdom manufacturers of large domestic appliances on advantageous commission terms.
2. Elias J made an award of £100,000 to be paid by way of interim damages, the balance of damages to be assessed, and a further sum of £35,000 to be paid on account of costs. Both sums were ordered to be paid within 14 days. Aweco made application to Elias J for a stay of the orders for payment pending Aweco's intended appeal, but a stay was refused. Aweco appealed from that judgment and the appeal is presently listed for a two-day hearing in February 2003.
3. Aweco's application for permission to appeal was made on 22 May 2002, and permission was granted on paper by Longmore LJ on 19 July 2002. Again Aweco applied for a stay of execution in relation to the total sum of £135,000 due by way of interim payment. However, Longmore LJ refused that application. At that stage Aweco made no application to the full court in respect of the refusal of Longmore LJ to grant a stay. It simply ignored the order of Elias J and refused Bell's request for payment.
4. There is no suggestion that Aweco are unable to pay. Aweco are a very substantial German company. They have simply been unwilling to pay on two grounds. The first is that their business assets lie in Germany. They thus fear no execution here, and they have informed Bell that, if Bell sought to enforce the judgment in Germany prior to the hearing of the appeal, they would be faced with an application by Aweco to stay enforcement pending the appeal which they assert would be granted by the German court. The second reason which Aweco advance is that, Bell being a relatively small family business which made a loss last year, Aweco fear that, if they pay over the monies and win the appeal, Bell would be unable to make repayment.
5. Against that background Bell make three interlocutory applications, which Aweco seek to counter with a belated application of their own.

Bell's applications

6. Bell's first application is that the time permitted for them to file a respondent's notice to Aweco's appeal be extended to 8 August 2002, the date upon which it was in fact filed and served. It is by no means clear that the notice was in fact out of time and Aweco make no objection in principle to the application. However, Mr Tolley who appears for Aweco, points out that Additional Ground 6 identified in the respondent's notice is in reality a cross-appeal against one of the judge's findings, concerning as it does the judge's refusal to permit Aweco to amend their claim on the last day of trial to raise a new claim under the Commercial Agents (Council Directive) Regulations 1993. As such, it required an application for permission to appeal to be made to Elias J, which application was not made at the time of Aweco's application to him for permission to appeal. At first sight, it seems that Additional Ground 6 stands little chance of success in the light of the judge's wide discretion in respect of amendment. Nonetheless, I would grant permission for Bell to cross-appeal in the present form of their respondent's notice.
7. Bell's second application is made pursuant to CPR 52.9 which provides:

"52.9 – (1) The appeal courts may –

(a) strike out the whole or 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."

8. The form of the application is to the effect that Aweco's notice of appeal be struck out and its appeal dismissed with costs under paragraph 1(a) because of what is stated to be Aweco's 'wholesale disregard' of the judge's orders for an interim payment, the judge and Longmore LJ both having refused a stay of execution. However, it has been made clear to the court by Mr Coppel, who appears for Bell, that the application is equally intended to be made under paragraph (1)(c) of CPR 52.9, Bell being content with an order that, unless Aweco pay the interim sum within 28 days, the appeal be stayed.
9. Bell's third application is made as an alternative to this second application. It seeks an order for security for costs under CPR 25.15 which provides:

"25.15 -(1) The court may order security for costs of an appeal against –

(a) an appellant …

on the same grounds as it may order security for costs against a claimant under this Part.

(2) The court may also make an order under paragraph (1) where the appellant … is a limited company and there is reason to believe that it will be unable to pay the costs of the other parties to the appeal should its appeal be unsuccessful."

Security for Costs

10. Although this application is made in the alternative, it is really self-standing and may be dealt with briefly. The grounds on which the court may order security for costs against a claimant, as referred to in CPR 25.15(1), are set out in CPR 25.13. By paragraph (1), in order to make an order for security the court must be satisfied that one or more of the conditions in paragraph (2) applies. The relevant conditions where the claimant is a company are either that it is ordinarily resident out of the jurisdiction and is not a body against whom a claim can be enforced under the Brussels Conventions or the Lugano Convention or the Regulation as defined by section 1(1) of the Civil Jurisdiction and Judgments Act 1982 or it is a company (whether incorporated inside or outside Great Britain) in respect of which there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so. This latter provision is echoed in paragraph (2) of CPR 25.15 in respect of the costs of other parties to the appeal, should the appeal be unsuccessful. In this case, Aweco being a company incorporated and resident in Germany, the condition in CPR 25.13(2) is not satisfied and, in order to succeed, Bell must demonstrate that Aweco is a company in respect of which there is reason to believe it will be unable to pay Bell's costs if the appeal is unsuccessful. Mr Coppel has recognised before us that his case in this respect cannot be made out on a literal reading of the rule. Indeed it is part of his case that the attitude of Aweco is the attitude of an asset-rich company which is acting oppressively in respect of a smaller company desirous of securing compliance with the order for interim payment for the purposes of increased liquidity in its business. He seeks to equate Aweco's 'unwillingness' to pay with their 'inability' to do so. Not surprisingly, he did not spend long in this submission. It seems to me unsustainable. The jurisdiction to order security for costs against a claimant at first instance or an appellant on appeal is concerned with securing an appropriate sum by way of protection for the defendant/respondent against the risk that, having been successful, the normal processes of enforcement or execution are rendered nugatory by a lack of available assets against which to enforce the original judgment. There is no realistic suggestion of such danger or deficiency in the case of Aweco and, in those circumstances, a case for security under CPR 25.15 cannot be demonstrated.
11. I therefore return to the application upon which Bell have principally relied as providing a solution for their unsatisfactory situation.

CPR 52.9

12. Mr Coppel's argument for Bell is a straightforward one. He submits that the deliberate flouting of the order of Elias J by Aweco following their failure to procure a stay of execution and their refusal to make payment of the interim sums due simply on the ground that, if Bell took proceedings for enforcement in Germany, such proceedings would be stayed pending the appeal constitutes 'a compelling reason' for this court to require such payment to be made as a condition of prosecuting the appeal. He submits that, not only would such an order reflect the justice of the case, but it enables the court to mark its disapproval of Aweco's disobedience in failing to comply with the order of the court below in circumstances where both the trial judge and Longmore LJ, on the grant of permission to appeal, considered and refused a stay upon the judgment sum. He points out that, strictly speaking, such conduct amounts to a contempt of court.
13. Mr Tolley for Aweco acknowledges that the failure of Aweco to comply with the order of Elias J is regrettable, but seeks to justify it on two grounds. The first is a point of principle, taken in reliance upon EU Council Regulation No.44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial matters ("the Regulation"), which replaces the former Brussels and Lugano Conventions on the same subject-matter.
14. Under Section 1 (Recognition) of Chapter III (Recognition and Enforcement), Article 33.1 of the Regulation provides that a judgment given in a Member State should be recognised in the other Member States without any special procedure being required. Articles 34 and 35 provide for limited grounds on which a judgment shall not be recognised; however, such grounds are not relevant to this case. The general rule (contained in Article 36) is that under no circumstances may a foreign judgment be reviewed as to its substance. Section 2 of the Regulation (Enforcement) provides by Article 38 that a judgment given in a Member State and enforceable in that State shall be enforced in another Member State when, on the application of an interested party, it has been declared enforceable there. Articles 39 and 40 provide for the application for enforceability to be submitted to the appropriate court of the enforcing state and Article 41 provides that the judgment shall be declared enforceable immediately on completion of certain formalities set out in Article 53 without any review under Articles 34 and 35. The party against whom the enforcement is sought is not at that stage entitled to make any submissions on the application (see Article 42) but is forthwith to be served with notice of the declaration of the judgment sought to be enforced, a right of appeal against the decision to grant a declaration of enforceability being provided for in Article 43. However, by Article 45.1, the court with which an appeal is lodged may refuse or revoke a declaration of enforceability only on one of the grounds specified in Articles 34 and 35 (which, as I have stated, are not relevant to this case) and, by Article 45.2, it is provided that under no circumstances may the foreign judgment be reviewed as to its substance.
15. Article 46 provides as follows:

"1. The court with which an appeal is lodged under Article 43 or Article 44 may, on the application of the party against whom enforcement is sought, stay the proceedings [i.e. for enforcement under Article 43] if an ordinary appeal has been lodged against the judgment in the Member State of origin …

2. Where the judgment was given in Ireland or the United Kingdom, any form of appeal available in the Member State of origin shall be treated as an ordinary appeal for the purposes of paragraph 1.

3. The court may also make enforcement conditional on the provision of such security as it shall determine." (emphasis added)

16. Aweco cite Article 46 and rely upon it as justifying the following argument. Mr Tolley submits that the proper machinery for enforcement of Elias J's judgment and order for interim payment is by the normal processes of enforcement as to which there is on the face of it no impediment, save for the absence of any assets of Aweco within the jurisdiction. Since Aweco's assets are in Germany, this means that the appropriate remedy for Bell is not by way of CPR 52.9, but by an application in Germany for enforcement under the provisions of Section 2 of Chapter III of the Regulation. Should Bell seek to take this course (which they have not done, but from which they are not prevented), Aweco, having been served with the declaration of enforceability to which Bell would be entitled under Article 42, would immediately appeal under Article 43 for the very purpose of obtaining a stay of the enforcement proceedings under Article 46 (1) on the grounds of the appeal pending before this court. In this respect, Aweco relies upon an assertion contained in a letter dated 29 May 2002 to Bell's solicitors from Haarmann Hemmelrath, Aweco's solicitors stating:

"We confirm that our client will appeal against any attempt to enforce the Order in Germany and will rely on the fact that an "ordinary appeal" (refer Article 46(2) of the Regulations) has been lodged with the Court of Appeal in England. Based on our understanding of German law any enforcement order will therefore be stayed." (emphasis added)

17. That being so, Mr Tolley submits that it is objectionable in principle, and an impermissible use of CPR 52.9, for Bell to invoke its provisions as a collateral method of enforcement of the order of Elias J, when the orthodox route to enforcement prior to the hearing of the appeal is open to them but in practice will not avail them. In this respect he submits that the principal purpose of CPR 52.9 is to enable the Court of Appeal to strike out an appeal if it is clearly hopeless (see: Turner v Haworth Associates [2001] EWCA Civ 170: para 26) or on the grounds that the appellant, in obtaining permission to appeal, has misled the court in a way which would have affected the outcome of the application for permission (see: Hertsmere Borough Council v Harty [2001] EWCA Civ 1238: para 2). He also relies upon the cautionary note which appears at para 52.9.2 of volume 1 of the White Book to the effect that advocates should not be lured by CPR 52.9 into 'tactical skirmishing or into manoeuvres designed to wear down the opposition', it being a misuse of the court's resources and a waste of costs for the court (save in exceptional circumstances) to consider the substance of an appeal on some intermediate date between the permission hearing and the full appeal. In any event, he submits that, because the normal processes of enforcement are available to Bell, the circumstances of this case cannot be said to represent a "compelling reason" for making an order of the kind which Bell seeks.
18. Mr Tolley's second point is that the court should not stigmatise or regard Aweco's failure to comply with the order of Elias J as in any sense contumelious, it being based on a reasonable fear that if the order is complied with and Bell then lose the appeal, Bell will not be in a position to repay the monies they have received. In this respect, Aweco, by way of belated application dated 9 October 2002, apply for an extension of time to renew their application to the full court for a stay of the order of Elias J, Longmore LJ having refused to order a stay on 19 July 2002. I shall consider that application separately below.
19. The discretion under CPR 52.9(1)(c) to impose or vary conditions upon which an appeal may be brought is unfettered by any provision specifying or classifying the nature of the condition which may be imposed or varied. The only requirement is that the court should be satisfied that there is a 'compelling reason' why it should, for the purpose of doing justice between the parties, intervene in the ordinary progress of the appeal between leave being granted and the date for the hearing of the appeal. Since such intervention involves placing a fetter upon the appellant's right to appeal on grounds which have been recognised by the court to be arguable upon the application for leave, it will in the ordinary way be undesirable, as a misuse of court resources and a waste of costs, for the court to revisit the merits of the grounds of the appeal before the date fixed for their determination. Hence (i) the provision in CPR 52.9(3) that, where a party was present at the hearing at which permission was given, he may not subsequently apply for an order under CPR 52.9(1), and (ii) the form of the note in the White Book to which I have already referred. However, the power in CPR 52.9(1)(c) is one which may in appropriate circumstances properly be relied on where the condition sought to be imposed does not involve consideration of the merits of the appeal, but is based upon some aspect of the conduct of the appellant or some other circumstance which either had not occurred or was at any rate not available to be advanced by the respondent at the time of the grant of permission. It remains necessary that the reason for imposing any condition must be "compelling", but the task of the court in deciding whether that is so will be the more straightforward.
20. Thus, it is clear to me that, in a case in which it appears to the court that there is a compelling reason to do so, it may properly deploy its powers under CPR 52.9 to make orders which require the appellant, as the price of prosecuting the appeal, to pay into court or otherwise give satisfactory security for the judgment debt and costs ordered to be paid at first instance. Indeed, such a power was recognised and applied by this court in Hammond Suddards Solicitors-v-Agrichem International Holdings Ltd [2001] EWCA Civ 1915, 18 December 2001 (unreported). In that case, respondents to a cross-appeal by a British Virgin Islands company applied (i) for an order for security of the cross-appeal and (ii) an order under CPR 52.9 for an order for payment or security in respect of the respondent's judgment debt and costs. The respondent's entitlement to an order for security for the costs of the appeal was not disputed, quantum only being in issue. So far as the making of an order under CPR 52.9 was concerned, the appellant, as in this case, resisted the imposition of any condition on the ground that there was no justification for linking the appellant's right of appeal to its satisfying the order being appealed against. It was argued that, whereas an order for security for costs should be made where appropriate, if the judgment sum remained unpaid the respondent's remedy must lie in the normal processes of enforcement. In that case the appellant also argued that, in the particular circumstances, the imposition of a condition that the order below be satisfied or secured would stifle the appeal. The court was not satisfied that the evidence so established, and it granted the application of the respondents.
21. In the judgment of the court, given by Clarke LJ, he listed six particular facts or features which combined to constitute a compelling reason for the making of the order. These factors principally went to the reason why the court was persuaded that the appeal would not be stifled if the order was made. However, and this point has been emphasised by Mr Tolley, Clarke LJ also observed that the appellant was an entity against which it would be difficult to exercise the normal mechanisms of enforcement as it was registered in the British Virgin Islands and had no assets in the United Kingdom. There was accordingly a real risk that if the appeal failed the respondents would be unable to enforce and/or recover the judgment debt and costs, it being fanciful to think that the appellant would co-operate in the enforcement process. On that basis, the court was satisfied that there was a real risk that, unless the order sought was made, the respondents would be deprived of the fruits of their judgment and would only be able to recover whatever sum was secured in respect of the costs of the appeal (see paragraph 41 of the judgment). Having concluded that a compelling reason had thus been established, the court had no hesitation in exercising its discretion on the basis that it was just and in accordance with the overriding objective to make the order. Clarke LJ observed:

"The appellant has been ordered to pay the judgment debt and costs after a trial, and should do so as a condition of the court giving it permission to challenge the order, provided only that it can raise the money. We see nothing unjust or inconsistent with the overriding objective in requiring such a company to obey the court's orders as a condition of being permitted to continue to prosecute its appeal."

22. The question posed in this case, to which the judgment in the Hammond Suddards case provides no answer, is whether, where there is no reason to suppose that vigorously pursued steps by way of enforcement will ultimately prove fruitless if the appeal fails, there may nonetheless be a "compelling reason" meanwhile to make an order staying the appeal if the interim order is not complied with, or a payment into court made or other security provided in respect of the judgment sum. Depending upon the overall circumstances, I see no reason in principle why that should not be so in a case where (i) the appellant is in deliberate breach of the order to pay the judgment sum; (ii) he has applied for and been refused a stay; (iii) his failure or delay in payment is due not to any financial difficulty but is cynically based upon the practical difficulties for the respondent in seeking enforcement in a foreign jurisdiction.
23. So far as that last circumstance is concerned, I consider that the principal ground advanced by Aweco, namely that a stay pending appeal would be bound to be granted if Bell sought to take enforcement proceedings in Germany, is specious and unestablished. The terms of the letter relied on fall far short of being evidence of expert opinion on the attitude of the German Court in the exercise of its plainly discretionary power to stay under Article 46 of the Regulation. Speaking for myself, and bearing in mind the principles of harmony and reciprocity which underlie the measures of recognition and enforcement provided for in the Regulation, I would be surprised if the German Court declined to follow the view of the English Court, per Elias J and Longmore LJ, that the grant of a stay pending the hearing of the appeal was not appropriate. Without further evidence or information, I attach little weight to the principal reason advanced by Aweco. However, I do consider that it demonstrates an intention to ignore the order of Elias J simply on the basis that the apparent delays and difficulties of enforcement in Germany prior to the hearing of the appeal provide a real, and (as Aweco assert) insurmountable, disincentive to Bell's seeking to enforce their right to payment under that order.
24. As to the second reason advanced by Aweco in correspondence, namely the fear that any sum paid over might be lost to Aweco should they succeed on the appeal, it may well be that such fears were genuine. However, the time to develop and supply evidence to support those fears was upon the application for a stay made before Elias J and then to this court, rather than to adopt an intransigent attitude, exploiting Aweco's position as a foreign-based defendant, only applying to the full court out of time in response to the making of Bell's application. To adopt the terminology of the White Book note to which I have already referred, I consider that it is Aweco and not Bell which has been guilty of 'tactical skirmishing' and it is their own conduct which has placed them in the position in which they now require leave to apply to the Full Court. Turning to the evidence upon which they rely, the considerations as to stay or no stay, seem to me evenly balanced. Bell are not a large company and they made a loss last year. On the other hand, they are still solvent and Mr Bell has made clear that, if necessary, he would make funds available to repay the judgment sum should Aweco succeed on the appeal. The risk of non-payment in such circumstances is but one of the factors to be taken into account in relation to the justice of granting a stay: see Lester Circuits Ltd v Coates Brothers plc [2002] EWCA Civ 474, 20 March 2002 (unreported). As I observed in that case at paragraph 13:

"The proper approach is to make the order which best accords with the interests of justice. Where there is a risk of harm to one party or another, whichever order is made, the court has to balance the alternatives to decide which is less likely to cause injustice. The normal rule is for no stay, but where the justice of that approach is in doubt, the answer may well depend on the perceived strength of the appeal."

25. In the circumstances of this case and in light of Aweco's previous intransigence, I would not be prepared to grant permission to Aweco to apply out of time for a stay of the order of Elias J, nor to grant it, save on terms that the sum of £135,000 be paid into court within 14 days to abide the outcome of the appeal. Equally, I consider that, in the light of Aweco's unjustified refusal to comply with the order of Elias J when well able to do so, and the obstructive attitude which they have adopted over the question of enforcement, there is a compelling reason to make an order in Bell's favour to similar effect, namely that Aweco's appeal be stayed unless within 14 days Aweco pays into court the sum of £135,000 to abide the outcome of the appeal. The parties should agree an appropriate form of order accordingly.
26. I would only add the following by way of footnote. It is implicit in the decision I have reached that I reject the argument that, if the "normal" processes of enforcement are available to a successful party in respect of a sum ordered to be paid following trial, that is fatal per se to a successful application under CPR 52.9 for payment for security in respect of the judgment sum. I think it clear that, in the ordinary case of an appeal by an individual or company resident in the UK or possessed of assets here, the court would be most unlikely to regard the failure of an unsuccessful defendant to pay the judgment sum following refusal of a stay of execution as constituting a compelling reason to deploy its powers under CPR 52.9. In such a case, in the absence of very exceptional circumstances, it seems plain that the remedy of execution and/or bankruptcy or winding-up proceedings should be deployed as the appropriate and effective route to enforcement. Nonetheless where, as here, a litigant of means, whether a UK resident or a resident in a Member State of the Community subject to the Regulation, demonstrates its intention to ignore the orders of the court and to rely upon the expense or other practical difficulties which may confront the respondent in seeking enforcement of its judgment abroad, it may well be appropriate for the Court to exercise its powers under CPR 52.9. In my view this is such a case.

Lord Justice Carnwath:

27. I agree.
Order: made in terms of draft minute of order, as amended after argument; permission to appeal to House of Lords refused; stay of order pending presentation of petition to House of Lords refused. (Order does not form part of the approved judgment)