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
CHANCERY DIVISION
Jacob J.

		Royal Courts of Justice Strand, London, WC2A 2LL
		19 November 2002

Lord Justice Peter Gibson:

1. This is an appeal by the 10^th Defendant, Mora Hotel Corporation NV ("Mora"), and the 38^th Defendant, Chascona NV ("Chascona"), from the order made by Jacob J. on 13 May 2002, whereby (1) he ordered that, as a condition of the Appellants being allowed to pursue applications to set aside default judgments entered against them, they should pay £1,600,000 into court by 10 June 2002 and (2) he refused to vary a freezing order earlier made against them in favour of the Claimants to enable the Appellants to make the required payment out of frozen assets. Of the sum of £1,600,000, £1,500,000 was in respect of costs orders already made but unpaid and £100,000 was security for the Claimants' costs of the applications to set aside. The appeal is brought with the permission of the single Lord Justice, Arden L.J.
2. The dispute arises in litigation brought by the Claimants as trustees of certain pension and other benefit funds established by DaimlerChrysler Canada Inc. for its employees. The Claimants made substantial loans to and investments in an international group of finance and investment companies known as the Castor Group. The Castor Group collapsed and it was discovered that a major fraud had been perpetrated. The loans were irrecoverable and the investments virtually worthless. The Claimants alleged that 4 individual Defendants, including a Swiss lawyer, Marco Gambazzi, instigated or participated in the fraud, and did so through many of the corporate Defendants.
3. The Appellants are companies incorporated in the Netherlands Antilles. They operate and own the Gorham Hotel in New York. The Claimants alleged that Mr. Gambazzi owned and controlled the Appellants. The Appellants on 23 November 2001 asserted for the first time that Paolo Cavazza is the owner of 75% of the shares in the Appellants, having acquired 50% in 1994 and a further 25% in 1995. No imputations are made by the Claimants against Mr. Cavazza, who is a wealthy Italian businessman and who on his evidence procured in 1994 the provision of a US $10.3 million deposit for the benefit of the Appellants and in 1995 paid US $5 million for shares in the Appellants.
4. Mora was a party to the proceedings from the outset and a proprietary tracing claim was made against it as the recipient of moneys derived from the Castor Group. On 4 June 1996 after a 9-day hearing a worldwide freezing order was made by Rimer J. against it, amongst other Defendants. Mora was one of several Defendants who applied to set aside service of the writ on them on the ground of lack of jurisdiction. That application was dismissed with costs by Rattee J. and, on appeal, by this court and on 12 October 2000 by the House of Lords (see Canada Trust Co. v Stolzenberg (No. 2) [2002] 1 AC 1). When Chascona was joined as a Defendant it too challenged the jurisdiction, but abandoned its application following the decision of the House of Lords.
5. The freezing order made by Rimer J. was accompanied by disclosure orders. Mora, with certain other Defendants, did not comply with the orders and applied to Rattee J. for the discharge of the entire freezing order. But the application was rejected on 10 July 1998, and an unless order was made against Mora. That order was not obeyed. On 4 February 1999 a default judgment was entered against Mora in the sums of Can $357,738.21 and US $386, 687.95 in respect of the tracing claim against it.
6. On 11 January 1999 a claim of conspiracy with other Defendants to defraud the Claimants was added against Mora, and Chascona was joined as a co-conspirator. A further worldwide freezing order with orders for disclosure was made by Rattee J. on 3 March 1999 against Mora and one other Defendant. On 23 July 1999 another worldwide freezing order with orders for disclosure was made by Lightman J. against, amongst others, the Appellants. Other obligations were imposed on Mora including the immediate opening of a bank account in this jurisdiction into which it was to direct any payment received in certain Canadian proceedings. Unless orders were made on 4 October 1999 but not complied with and on 21 October 1999 default judgments were entered against the Appellants, amongst others, for damages to be assessed. On 7 December 1999 they were assessed in the sums of Can $245,701,477.70 and US $134,315,511.10 against Mora and slightly larger sums against Chascona.
7. On 8 May 2000 a post-judgment worldwide freezing order was made against, amongst others, the Appellants by Evans-Lombe J. This contained the standard exception allowing the Appellants to spend reasonable sums on legal advice and representation.
8. On 18 May 2000 the Claimants applied to the New York court for recognition and enforcement of the English judgment obtained against the Appellants and an attachment order was made in respect of their assets in New York and a temporary special fiscal monitor and a receiver were appointed. The Claimants then applied to the New York court for summary judgment. The Appellants instructed attorneys to oppose the application, asking for a full hearing of the action on the merits. But the judge of the New York Supreme Court was not persuaded by the Appellants and made an order for summary judgment as requested by the Claimants. An order for the sale of the Gorham Hotel has subsequently been made. The Appellants' appeal was dismissed by the New York Appeal Court on 28 May 2002. A further appeal is now being sought.
9. The Claimants also sought and obtained an order in the New York court on 7 February 2001 that the Appellants pay US $2 million to the Claimants out of the frozen assets to cover the costs of the enforcement proceedings in New York. In return the Claimants were required to put up a bond as security.
10. Other successful proceedings have been brought in Ontario and the Netherlands Antilles for the recognition and enforcement of the English judgment. However no sums have yet been realised.
11. It is apparent from the Appellants' own evidence that it was a tactical decision on their part to dispute the English proceedings on jurisdictional grounds, and not to take active steps to resist the tracing claim and the claim in conspiracy against them. They themselves appear to have no connection with England. They may have expected to be able to establish their case on the merits in the proceedings in New York which is where what they say is their only asset, the Gorham Hotel, is situate. Those tactics have failed. We are told by Mr. Wardell Q.C. for the Appellants that Mr. Cavazza only became involved in the litigation in August 2001. Prior to that, Mr. Gambazzi appears to have been the prime mover in the Appellants. Mr. Cavazza's company, Chinablue Investment SA ("Chinablue"), was involved in the provision of a deposit of $10.3 million to secure loans to the Appellants, as the Claimants discovered. They joined Chinablue as the 55^th Defendant and obtained a freezing order from Jacob J. against it. As I understand the position, the judge has since discharged that order, accepting that there was no evidence that Mr. Cavazza was party to any fraud on the Claimants. It was with funding from Mr. Cavazza that the Appellants instructed attorneys in New York in the proceedings there. It is with his funding that the Appellants applied on 5 December 2001 to set aside the judgment dated 21 October 1999 and the order dated 7 December 1999 for the assessment of damages. Application was also on 30 April 2002 made by Mora to set aside the judgment dated 4 February 1999.
12. On 27 February 2002 the Claimants applied for an order that the Appellants' application of 5 December 2001 be stayed and that the Appellants only be permitted to proceed with that application upon the satisfaction of certain conditions:

(1) the payment by Mora of (a) £525,570.30, being costs already ordered to be paid by it and assessed, and (b) an interim payment of £4,050,000 in relation to other outstanding costs orders;

(2) the payment by Mora of the sums ordered to be paid by the judgment of 4 February 1999;

(3) the payment by Chascona of (a) £3,199.48, being costs already ordered to be paid by it and assessed, and (b) an interim payment of £3,800,000 in relation to other outstanding costs orders;

(4) compliance by the Appellants with the terms of certain specified orders requiring disclosure.

The Claimants also sought an inquiry into expenses incurred by the Claimants in reliance on the judgment and payment of the amount so found.

13. These applications came before Jacob J. on 13 May 2002. In the course of the argument before him, Mr. Philip Marshall for the Claimants modified the conditions which they were asking the court to impose on the Appellants. In view of objections raised by the judge to the inclusion of costs of some £7 million incurred in respect of the initial hearing before Rimer J, Mr. Marshall was content to seek payment of £500,000 in respect of assessed costs and £1 million in respect of costs after the initial application plus the estimated costs of the Claimants on the application to set aside which he put at £300,000. Mr. Wardell conceded that Mr. Cavazza could afford to pay £1,500,000, but objected in principle to a third party being made to pay past costs orders made against a defendant, thereby improving a claimant's position. It was argued that there was no jurisdiction, alternatively, if there was jurisdiction, that it would be wrong to exercise the court's discretion, to make such an order.
14. The judge then gave judgment. He dealt together with both the application for £1,500,000 for past costs and £300,000 as security for the application to be set aside. He found that the court had jurisdiction under CPR 3.1(2)(f), 3.1(3) and 3.1(5). He then turned to the question whether he should make the (modified) order requested by the Claimants. He said:

"28. I have come to the firm conclusion that it is appropriate that there be sums paid into court on behalf of the companies both to cover the past unpaid costs and towards the costs of this application to set aside the judgments, if it turns out that that application is unsuccessful. The fact that the money has to come from the man behind the companies rather than the companies themselves worries me not a jot. It may be he is the unfortunate victim of his own lawyer, but it is his investment that is sought to be protected by these proceedings. The fact that he is a third party and that the companies themselves are unable to provide the money is irrelevant.

29. There are clear analogies here with security for costs applications. The court is of course anxious to prevent any stifling of a claim, but it has never accepted the proposition from a party who is urging stifling that the party's own impecuniosity is enough. The court has always looked at the real position: if a company with no assets has rich backers it has always said that it does not regard the absence of money in the company itself to be a sufficient reason for refusing the security. The court has looked at the commercial reality.

30. The commercial reality here is that Mr. Cavazza is seeking, in these proceedings, to protect his investment. They are his companies which allowed the costs to run up, albeit through the activities of the dishonest lawyer. He must take responsibility for what happened in the past. If he wishes the companies to proceed with this application he must be the source of the money for security and for the almost inevitable conditions relevant if the companies are successful. I do not, of course, actually make an order against Mr. Cavazza – the order is against the companies."

15. In the discussion after judgment the judge limited the sum to be provided as security for the costs of the applications to set aside to £100,000. The judge was asked to vary the freezing order so that the amount ordered by him to be paid could be paid out of the frozen assets of the Appellants. But the judge refused saying that he had made his judgment clear: "it is the backer who has to pay .... it is his investment that is being protected by these proceedings." He went on to say that it was inappropriate to vary the freezing order being one granted post-judgment covering assets to meet the judgment.
16. Mr. Cavazza provided the Appellants with £1,600,000 which was paid into court in compliance with the judge's order.
17. In this court the Appellants, although formally challenging the whole of the order of Jacob J. including the ordering of security for costs in the sum of £100,000 in respect of the applications to set aside the judgments, concentrated on that part of the order which required the payment of £1,500,000 in respect of past costs. Mr. Wardell submitted that the court cannot, alternatively should not, use its powers under the Civil Procedure Rules to make an order requiring payment into court of past costs. Of the two alternative ways in which that submission is put, one based on jurisdiction and the other on the appropriate exercise of discretion, he concentrated on the latter.
18. I shall consider the question of jurisdiction first. Mr. Marshall submitted, and the judge accepted that the court had jurisdiction under CPR 3.1(2)(f), 3.1(3)(a) and 3.1(5) to make the order which the judge made. Those provisions are in the following form:

"3.1(2) Except where these Rules provide otherwise, the court may –

....

(f) stay the whole or part of any proceedings either generally or until a specified date or event ....

....

(3) Where the court makes an order, it may –

(a) make it subject to conditions, including a condition to pay a sum of money into court ....

....

(5) The court may order a party to pay a sum of money into court if that party has, without good reason, failed to comply with a rule, practice direction or a relevant pre-action protocol."

19. Mr. Wardell submitted that a stay under r. 3.1(2)(f) would be justified only in the event of the party against whom the stay is ordered being guilty of conduct that is oppressive or vexatious or is tantamount to an abuse of process. That submission was based on the unreported decision of Field J. in Reed v Oury [2002] EWHC 369 (CH) where that judge was considering an application to strike out or stay a counterclaim in the light of the defendant's conduct of the litigation. He said in para. 34:

"the conduct in question must be looked at in the round and, even if it cannot be shown that there has been bad faith, if in respect of a particular incident or having regard to a course of conduct overall, a party has acted oppressively or very unreasonably, it may still be appropriate to stay his claim conditionally or unconditionally or strike it out or order a payment into court."

20. Mr. Wardell acknowledged that that case went more to the question how the court's discretion should be exercised than to the question of jurisdiction. In my judgment the court has the power under the general wording of r. 3.1(2)(f) to grant a stay in any appropriate case.
21. Mr. Wardell then submitted that r.3.1(3)(a) does not empower the court to impose preconditions before an application can be made. However again the wording is quite general. I see nothing in the rule to prevent the court, when ordering a stay, making the stay subject to conditions including a condition to pay a sum into court.
22. In view of that conclusion it is unnecessary to consider r. 3.1(5) which in any event was primarily relied on by Mr. Marshall in respect of that part of the £1,600,000 which related to assessed costs, there having been a failure to comply with r. 44.8, providing for payment of assessed costs within 14 days.
23. The substantial issue on this appeal relates to the appropriateness of the order for a payment into court in respect of past costs. Mr. Wardell submits that implicit in the judge's decision were two novel propositions:

(1) the court can in advance of hearing an application to set aside a default judgment impose a condition that a corporate defendant must, by raising money from its shareholders, enlarge the pool of available assets with which to meet the judgment in the event of the application failing;

(2) the court can and should in the exercise of its discretion refuse to vary a freezing order to allow the Appellants to pay a debt to the Claimants.

24. Mr. Wardell relies on the following matters:

(1) the Claimants have security for costs already incurred by virtue of the existing judgment which had given it control of the Gorham Hotel having a net equity of US $27 million including cash reserves of US $7 million;

(2) the Appellants cannot comply with the judge's order because its assets are frozen by a court order;

(3) the court refuses to vary the freezing order to enable such payment to be made;

(4) to the court's knowledge the only person who will be able to comply with the order is a shareholder who is not a party to the proceedings;

(5) any application for an order against that person under s. 51 Supreme Court Act 1981 to pay the outstanding costs orders would fail;

(6) if the shareholder declines to put up the funds, the application to set aside the judgments will be defeated without it being given the opportunity of being heard;

(7) if the shareholder puts up the funds, but the applications are unsuccessful, the claimants will have a windfall.

25. Mr. Marshall supports the judge's decision. He submits that it is well established that the court can take account of all potential sources of funding available to a party when considering whether to require payment into court as a condition of granting leave to defend or the provision of security (Yorke Motors v Edwards [1982] 1 WLR 444, Keary Developments Ltd. v Tarmac Construction Ltd. [1995] 3 All E.R. 534), and it is for the party asserting inability to meet such a requirement to demonstrate that inability by proper evidence. Similar principles, he says, have been applied when a party has sought a variation of a freezing injunction to make some desired payment out of frozen assets (Atlas Maritime Co. SA v Avalon Maritime Ltd [1991] 1 WLR 917). He points out that all such payments by a third party may be said to constitute a windfall, but that has not deterred the court from requiring such payments in full knowledge that the party to the proceedings cannot or may not be able to pay out of his own resources.
26. Mr. Marshall relies on the following factors:

(1) the Appellants are applying to set aside judgments entered years earlier in consequence of their deliberate failure to comply with unless orders, and there is a long history of failure by the Appellants to comply with court orders;

(2) the Appellants will need to apply for relief under CPR 3.8, and the circumstances which the court is required to consider under r. 3.9 include several which are likely to tell against the granting of relief, such as the lateness of the application, the intentional failure to comply with rules and court orders consequent on the tactical decision taken by the Appellants, and the long delay, if there is to be a trial, since the relevant events occurred;

(3) in addition to the costs already assessed, the unassessed costs which the Appellants have been ordered to pay exceed £8 million;

(4) there is no prospect of the Appellants meeting any of the Claimants' costs if the applications to set aside fail unless the order made by the judge of payment into court stands;

(5) the value of the Appellants' assets subject to the freezing order is a fraction of what is owed under the orders made against the Appellants, so that the Claimants do not have security for their costs;

(6) Mr. Cavazza is the person instigating the applications and, through his interest in the Appellants, he will be the primary beneficiary if the applications succeed.

27. Mr. Marshall placed particular reliance on the decision of this court in Hammond Suddard v Agrichem International Holdings Ltd. [2001] EWCA Civ 2065. In that case the Claimants had recovered judgment in a sum with costs. The defendant obtained permission to appeal from this court and sought a stay of the orders made by the trial judge. The claimants applied for an order that the appeal be struck out unless by a specified date the defendant paid or secured the judgment debt, paid the costs awarded below and provided security for the costs of the appeal as a condition of the appeal being entertained. The defendant resisted that application on the grounds that it had insufficient assets and could not comply with the order so that the appeal would be stifled. It argued that it was irrelevant that funding from a third party was available. Clarke L.J., delivering the judgment of the court (consisting of himself and Wall J.) rejected the defendant's submissions and made the order requested. He referred to the evidence which the defendant had adduced of its impecuniosity and said it was wholly insufficient to show any risk of the appeal being stifled without a stay, and said that there was a compelling reason (for the purposes of CPR 52.9) for making the defendant pay or secure the judgment debt as a condition of permitting it to proceed with the appeal.
28. Clarke L.J. referred to six facts combining to produce such compelling reason:

(1) the defendant was a foreign company with no assets in the U.K. and there was a real risk that if the appeal failed the respondents would not recover the judgment and costs;

(2) the defendant had the resources, or access to resources, to enable it to instruct solicitors and counsel and to provide security for costs;

(3) there was no convincing evidence that the defendant did not have the resources or access to resources which would enable it to pay the judgment debt and costs orders of which it was in breach;

(4) the defendant provided inadequate evidence of its financial affairs;

(5) the defendant's appeal would not be stifled by making the order for payment;

(6) it was unacceptable for the defendant to intend to prosecute the appeal while disobeying the orders of the court.

29. Mr. Marshall says that similar factors are present in this case. He submits that just as this court in the Hammond Suddard case saw nothing unjust or inconsistent with the overriding objective in CPR 1.1 in requiring the defendant to obey the court's orders as a condition of being permitted to continue to prosecute its appeal or in putting the owner of the defendant to the choice of providing the payment of the costs orders or of seeing the appeal struck out, so it was not unjust or inconsistent to put Mr. Cavazza to a similar choice.
30. As the judge had a discretion whether to require a payment into court, the first question that arises is whether this court can interfere with the exercise of his discretion. The judge has expressed his reasoning with economy and it is not entirely easy to be sure of all the considerations which he took into account in reaching his conclusion. It would appear that in his reasoning he did not make much differentiation between the application for payment into court of security for the costs of the application to set aside and the application for payment of past costs. He applied the principle established in security for costs applications, viz. that the court can take into account not only what a party possesses but also what he might raise from other sources, to the whole of the application made to him.
31. With respect to the judge, whilst in an appropriate case that may be a determinative consideration in respect of both types of application (for example, where the applicant has not satisfied the court that he has disclosed his full assets but has asserted his impecuniosity), other differentiating factors may be crucial to the proper exercise of discretion. There is no injustice in requiring an applicant, asserting impecuniosity, to provide security for the respondent's future costs of the application, provided that thereby the application is not stifled. Nor is there injustice in requiring an applicant, who does not assert impecuniosity but has repeatedly failed to pay past costs orders, to pay what is already due to the other side if he is to be allowed to make a further application (see Graham v Sutton Carden & Co. [1897] 2 Ch 367 at 371 per Chitty L.J.). There may be injustice in requiring an applicant to set aside a judgment to make a payment into court in respect of past costs as a condition of being allowed to proceed with such application when the court knows that the applicant cannot make such payment out of his own resources and that the only source of funding to make such payment is a third party against whom no order for costs under s. 51 has been sought in respect of those costs and little reason to think that such an order could be made. In this context it must be a relevant consideration that the effect of requiring such payment is, if the application fails, to give the respondent the ability to recoup part of what he is owed from additional assets which, had the application not been made, would not have been available to him.
32. It is not apparent that the judge took into consideration this last point. In the discussion with counsel before judgment the judge asked Mr. Wardell:

"Suppose I come to the conclusion that I cannot conceive any basis whereby Mora and Chascona would be allowed to have the judgment set aside without being made to pay the considerable costs which they allow to be incurred when they did not challenge the merits earlier? "

That point is referred to again in para. 15 of the judgment:

"One can postulate an application to set aside a judgment obtained in default, where one can really see in advance that, if the application is to be successful, conditions will be imposed as to the payment of costs."

And again in para. 30 of the judgment:

"If [Mr. Cavazza] wishes the companies to proceed with this application he must be the source of the money for security and for the almost inevitable conditions relevant if the companies are unsuccessful."

33. If, as it would appear, that was part of the thinking of the judge, then I am afraid that I cannot accept that it provides justification for the order to make a payment in respect of past costs, because it ignores the possibility that the application to set aside will fail. In that event the payment into court will have enlarged the pool of assets available to the other party from which it can recoup the past costs. The Claimants have been allowed by the judge to improve their position against the Appellants in respect of the past costs orders by taking advantage of the Appellants' applications, even though those applications are not said to be frivolous or vexatious. Mr. Wardell does not dispute that if the applications succeed, the court is likely to require the Appellants to pay past costs and that Mr. Cavazza is likely to be the source of monies to comply with such order, but that does not meet the objection that the application may fail.
34. The judge robustly stated his complete lack of concern that Mr. Cavazza had to make the payment required of the Appellants and that it was irrelevant that he was a third party. For my part I cannot see how that fact can be of no relevance to the exercise of discretion. Dealing with a case justly must require the court to have regard to the substantive effect of the order being made and to the justice of, in reality, requiring the third party to make payment. In fact the judge did have regard to Mr. Cavazza's position. The judge rightly identifies the commercial reality as being that Mr. Cavazza was seeking by the application to protect his investment in the Appellants. That provides good justification for making an order for security for the costs of the applications even though the Appellants could not pay. But the point in issue is whether that is sufficient to enable the court to require the payment into court in respect of the past costs when Mr. Cavazza would have to fund such payment. The judge said that Mr. Cavazza must take responsibility for what happened in the past. I presume that the judge is there adverting to the fact that Mr. Cavazza has had 75% of the shares since 1995 and so he could have exercised his majority control earlier to prevent the Appellants conducting the proceedings in such a way as to cause the judgments in default to be entered and the costs orders to be made against the Appellants. But the court does not normally punish the person having share control of a litigant company against which a costs order is made by an order against that person under s. 51 (see, for example, Taylor v Pace Developments Ltd. [1991] BCC 406). The position might be different if there was evidence that Mr. Cavazza had funded the Appellants before August 2001, for example in the jurisdiction proceedings, or was actively involved in the litigation at that earlier time. But there is no such evidence and no s. 51 application against Mr. Cavazza.
35. Mr. Marshall sought to rely on other matters, not referred to by the judge in his judgment. Mr. Marshall complained of defaults by the Appellants in complying with disclosure and other orders. He also alleged conduct on behalf of Mr. Cavazza in breach of the freezing order. In particular he referred us to the first affidavit of Andrew Ford, a solicitor for the Appellants, said to show the extraction by Mr. Gambazzi of $600,000 from Mora, Mr. Ford explaining that Mr. Gambazzi acquired the previous shareholder's interest (including deposits advanced to the Gorham Hotel) on behalf of Mr. Cavazza. Mr. Wardell complained of being ambushed by Mr. Marshall in this court with evidence not shown to the judge and arguments not advanced to the judge. It appears from the transcript of the hearing before the judge that when Mr. Marshall was making his submissions the judge referred to what he called "a number of minor points: alleged breach of court order and so on", and the judge commented "All by the way really". The judge asked if he had to go through the breaches alleged by the Claimants, and Mr. Marshall said that that could be dealt with on the hearing of the applications to set aside. It is apparent from the transcript that Mr. Marshall was content not to argue the question of whether the Appellants were in default of court orders and to argue the case on the two points taken by Mr. Wardell – no jurisdiction, and, if there was, it was inappropriate to exercise the discretion by ordering payment. Further there is no Respondent's Notice. I therefore ignore such other matters, which are in any event controversial.
36. I can deal with other points raised more shortly. I do not accept Mr. Wardell's point that the Claimants have security for costs already incurred in the form of the Gorham Hotel. That asset covers only a fraction of what is owed to them under the existing judgments. However I do accept that that asset is safeguarded for them, through the receiver in New York who has complete control of the hotel, and just as they caused US $2 million to be withdrawn to pay for the enforcement costs, so there seems no reason why they could not arrange for the £1,500,000 in respect of past costs to be paid from the same source if the English court varied the freezing order to permit such payment to the Claimants. Normally there is no difficulty in obtaining such a variation of a freezing order to enable a debtor to pay the creditor in whose favour the freezing order was made. It is only because the Claimants want other funds to be made available that they have not sought to recoup their debt out of the frozen assets and that they oppose the Appellants' application that they should do so.
37. None of the authorities to which we were referred seems to me to be precisely on all fours with the present case. It is a truism that each case falls to be decided on its own facts. In no other case is there the combination of features distinctive of the present case, viz. that the Appellants were ordered to pay into court sums in respect of past costs which, but for the freezing order, they could pay the Claimants out of the Appellants' own assets, but which by reason of that freezing order and the refusal of the court to vary it, they cannot pay, and that the third party who in reality would be the only person capable of providing the monies for that payment is not a person who has been or could be ordered to pay those past costs under s. 51. This is not a case like the Hammond Suddard case where the court concluded that it has not been told all that it should be told in connection with the defendant's allegation of impecuniosity and suspected that the defendant had resources. Nor is it like the Atlas Maritime case where the court refused to vary a freezing order to enable a defendant to pay legal expenses in circumstances where the parent company of the defendant exercised financial control over the defendant and had chosen to operate the defendant's affairs in such a way as to leave it with no assets apart from the frozen fund.
38. In Olatawura v Abiloye [2002] EWCA Civ 998 Simon Brown L.J. (with whom Dyson L.J. agreed) confirmed that there was jurisdiction under the Civil Procedure Rules to make orders tantamount to orders for security for costs outside the provisions of Part 25, and suggested that a party only becomes amenable to an adverse order for security, in that case under r. 3.1(5), "once he can be seen either to be regularly flouting proper court procedures (which must inevitably inflate the costs of the proceedings) or otherwise to be demonstrating a want of good faith – good faith for this purpose consisting of a will to litigate a genuine claim or defence as economically and expeditiously as reasonably possibly in accordance with the overriding objective." This authority, coupled with Reed v Oury, suggests that it is only appropriate for the court to exercise its power under Part 3 to require a payment into court in limited circumstances and should not do so in the absence of good faith on the part of the party against whom the order is sought. That consideration is reinforced by the greater significance, since the Human Rights Act 1998 came into force, which the court attaches to not impeding access to justice.
39. In the present case I accept that the Appellants can be criticised for their tactical decision which led to failures to comply with unless orders and to the default judgments. Nevertheless I doubt if in the circumstances there was an absence of good faith in the sense given by Simon Brown L.J. The question of jurisdiction was a serious one to pursue, even if ultimately unsuccessful, as can be seen from the fact that the House of Lords entertained the appeal. By the time the costs in the House of Lords, which form the greater part of the assessed costs, were assessed, the Appellants' only assets were out of their control and the Claimants could have sought and probably would have obtained an order that the freezing order be lifted to the extent needed to pay the assessed costs. The applications to set aside the default judgments are, it appears, proper applications.
40. We have not been addressed by either Counsel on the merits of the applications to set aside, although, as I have noted, Mr. Marshall has drawn our attention to the difficulties facing the Appellants in seeking relief from sanction under r. 3.8 by reason of r. 3.9. It will be for the judge at the hearing in December of the applications to set aside to determine whether on the merits the Appellants have a good case and if so whether the factors referred to in r. 3.9 on which Mr. Marshall relies would nevertheless prevail.
41. I return to the question whether this court can interfere with the judge's exercise of discretion. I have reached the conclusion that the judge did err in failing to consider, and giving no weight to, the consequence of the order he was minded to make that he was retrospectively improving the position of the Claimants in relation to the past costs orders. Further the judge was in my view wrong to treat the fact that Mr. Cavazza had a controlling interest in the Appellants as a sufficient reason for making an order that in reality was directed at him, when no s. 51 order was or could be made against him in respect of past costs. But the judge's exercise of discretion to grant security for the costs of the application to set aside cannot, in my judgment, be impugned. It was well within the proper ambit of his discretion to require such payment, even though it would have to be made by the backer of the applications to set aside, and there is no question of stifling those applications.
42. If these views are shared by the other members this court, the question then arises whether this court should exercise the discretion afresh to make any order requiring payment in respect of past costs. In my judgment it should not. For the reasons given I do not see this as an appropriate case for imposing on the Appellants a requirement to make any payment into court in respect of any past costs, knowing that a third party would have to fund the payment, unless the Claimants were to agree to a variation of the freezing order to allow such payment out of the assets in New York.
43. I would allow the appeal to the extent indicated.

Lord Justice Mance:

44. I have read in draft and agree with the judgment given by Lord Justice Peter Gibson.
45. There is a relevant difference between an application to obtain security in advance for costs being or about to be incurred and a retrospective attempt to improve the position with regard to past costs orders. The difference is not one of jurisdiction. As Peter Gibson LJ has demonstrated, there is clear jurisdiction to make an order in respect of both categories of costs. But the difference may go importantly to the exercise of discretion. In the present case, the judge failed both in argument and in his judgment to give any real consideration to the distinction or its implications.
46. On the contrary, the judge attached much weight to his immediate impression that the appellants' applications dated 5^th December 2001 to set aside two judgments against them (one dated 21^st October 1999 for damages to be assessed and the other on 7^th December 1999 assessing such damages in the sums of CAN$245,477.70 and US$134,315,511.10) and dated 30^th April 2002 to set aside a prior default judgment, dated 4^th February, 1999, against Mora Hotel Corporation NV ("Mora") for Can$357,738.21 and US$ 386,687.95 would, if they succeeded at all, only be allowed subject to conditions requiring payment or security for payment of a number of other past costs orders. So he thought that, by his actual order, he was merely anticipating an order which would anyway be made. As Peter Gibson LJ has shown, this overlooked the effect of his order if the applications failed, in increasing the pool of assets available to the claimants to meet the judgments.
47. It was, I consider, also based on a misapprehension of the position if the applications succeeded. In that event, the judgments dated 4^th February 1999 and 21^st October and 7^th December 2001 would be set aside, both in this country and presumably also in New York, where they were (subject to a possible appeal) recognised by order of the New York Supreme Court (Index No. 00/602149; IAS Part 27 Case no. 15979), dated 16^th January 2001. Under the New York court's order, the claimants further obtained the appointment of a receiver to "take title possession, custody and control" of the appellants' assets and to remit the proceeds of the hotel, when sold to the appellants. The claimants assert, and I am quite prepared to accept that this amounts or is to be regarded as analogous to a form of execution in respect of all three judgments. If the present applications to set aside were to succeed, the New York order would, so far as it recognised the judgments dated 4^th February 1999 and 21^st October 1999 and 7^th December 2001, presumably also be set aside; in that case, although the assets would remain frozen, it would be possible for either side to apply for their use to meet the outstanding costs orders. So there would be unlikely to be any call or basis to require Mr Cavazza or any third party to put further funds into the appellants in that situation. As it is, the judge made an order which would have the acknowledged effect of forcing Mr Cavazza to inject further funds, if the appellants were to be permitted to pursue their applications. Far from anticipating an inevitable order, he was making an order with different implications.
48. It therefore falls for us to re-exercise the discretion. In this context, subject to the issue of jurisdiction, it was not really in issue before us that the appellants should be required to put up security for the costs of their current applications. The issue for determination is whether they should put up security for the past costs, excluding those incurred in obtaining the original freezing order in 1996 (apparently put at the extraordinary sum of £5.5 million), but including assessed costs of some £500,000 and an estimated £1 million of costs ordered to be paid, but as yet unassessed.
49. The assessed costs include £121,668 taxed on 11^th March 1999 and ordered to be paid by Mora in relation to an unsuccessful application on 10^th July 1998 to discharge or vary the freezing order against it, £15,229 taxed on 24^th May 1999 and ordered to be paid by Mora on 12^th October 1998 on a successful application by the claimants for an order that Mora comply with its disclosure obligations and £299,956 assessed on 28^th March 2001 and ordered to be paid by Mora in respect of its unsuccessful appeal on 12^th October 2000 to the House of Lords on jurisdiction. Costs were also assessed against both Mora and Chascona NV ("Chascona", which was only joined as a defendant on 11^th January 1999) in the sum of £2,814 by the judge on the claimants' application for post-judgment injunctive relief on 8^th May 2000. In Mora's skeleton before the judge, the total costs assessed against Mora were put at £441,167.21 and against Chascona at £2,814. With interest at the judgment rate, these figures became respectively £525,570.80 and £3,199.48. The judge took £500,000 for the purposes of his judgment.
50. As regards the unassessed costs, estimated at £1 million, these included as against Mora costs (estimated at £517,000) of Mora's challenge to the jurisdiction in courts below the House of Lords and costs (estimated at £3,583) of taking an account under the order dated 4^th February 1999 in respect of the tracing claims. As against Mora and Chascona they included £98,177.50 plus indemnity costs relating to the entry of judgment on 21^st October 1999. How the remainder of the £1 million figure was made up is not clear to me.
51. No-one seems to have drawn any distinction between Mora and Chascona before the judge, although the former is said to lease the Gorham Hotel from the latter, and the judge's order simply stays both the appellants' applications pending payment of £1.6 million into court, of which £1.5 million is to stand as security for the past costs orders, without distinguishing between costs orders made against Mora and others made against both Mora and Chascona.
52. Each appellant was in breach of the rules of the court in failing to pay the costs assessed as against it (see now CPR 44.8), though not the costs which, for whatever reason, the claimants had failed to have assessed. Before Jacob J the question whether the appellants were in mid-2002 in continuing or outstanding breach of any (other) court orders was put on one side; it was left for consideration, if relevant, on the substantive applications to set aside the judgments. But there was never any doubt that the appellants had in the past breached other orders, notably for disclosure, since this was the basis for the unless orders made and judgments entered against them, particularly the judgment in default entered against them on 21^st October 1999 for breach of a disclosure order made by Rattee J on 12th October 1998. So, if they had themselves had the assets available to meet the past costs, there could have been a case for requiring them to do so as a condition of pursuing the present applications (cf Graham v. Sutton, Gordon & Co. [1892] 2 Ch. 367, 370).
53. But the present case falls into a different category. First, the appellants' substantial assets were from 1996 injuncted by the freezing orders made by this court, to preserve them in the light of the claimants' claims and latterly in the light of the English judgments. Secondly, not only did the claimants at no stage make any contemporaneous application for security for costs (quite likely for the very reason that they had the benefit of the freezing orders), but, even after costs had been assessed in their favour on 11^th March 1999 and 24^th May 1999 in the sums of £121,668 and £15,229, they made no application to execute against the appellants' assets the subject of the freezing orders. Thirdly, having obtained judgments against the appellants on 21^st October and 7^th December 1999 for damages far in excess of the appellants' frozen assets, the claimants took steps to execute such judgments (and the earlier tracing judgment against Mora), rather than any of the past costs orders, against the frozen assets in New York by obtaining the order of the New York Supreme Court dated 16^th January 2001. Fourthly, as a result the appellants now no longer have any assets available to meet the past costs orders. Fifthly, Jacob J's order was made in the knowledge and on the avowed basis that it would oblige the appellants' "backer", Mr Cavazza, to provide the £1.6 million, if the appellants were to pursue their applications to set aside the judgments against them. When a suggestion was made before Jacob J on 13^th May 2002 that the English freezing order should be varied, to permit use of part of the frozen assets to discharge the past costs (although any actual use for this purpose would also have required a variation of the terms of the New York receivership), the claimants successfully resisted the suggestion. Sixthly, no basis has been shown for treating Mr Cavazza as a third party against whom it would be proper to make any order in respect of such past costs under s.51 of the Supreme Court Act 1981.
54. None of the steps taken by the claimants as recounted in the previous paragraph was anything other than perfectly legitimate, and one can understand their wish to increase the sums now available to meet the judgments and other orders which they have obtained. It is also true that the appellants themselves did not take any positive step to try to meet the outstanding past costs orders against them out of their frozen assets prior to 16^th January 2001. But the simple and more important circumstances are that, until 16^th January 2001, the appellants had assets against which the claimants could, if they had wished, have taken such steps, that, on 16^th January 2001, the claimants preferred to utilise such assets to secure or pay judgment debts (which they had, of course, no basis for requiring Mr Cavazza to meet) and that, since then, as a result, the appellants have not had any assets available to them to meet the past costs orders. In these circumstances, I see no basis in principle for requiring Mr Cavazza now to inject further funds into the appellants in respect of past costs as a condition of the appellants being permitted to pursue the applications to set aside.
55. For these reasons and those given by Peter Gibson LJ, I consider that it was inappropriate to make an order requiring security in respect of past costs as a condition of allowing the appellants to pursue their applications, and that the appeal should to that extent be allowed accordingly. No real criticism was directed by counsel at the judge's decision to require security for the estimated costs (put at £100,000) of the current applications to set aside, even though this would have to come from Mr Cavazza, and, like Peter Gibson LJ, I see no basis for interfering with that aspect of the judge's exercise of his discretion.

Lady Justice Hale.

56. I agree.
Order: Appeal allowed to the extent of £1.5 million of the £1.6 million ordered to be paid into court by the appellants. The appeal is dismissed in relation to the remaining £100,000. We refuse permission to appeal. The £1.5 million be paid out to Appellant's solicitors. The Claimants pay 80% of the Appellant's costs, such costs to be set-off against the costs ordered to be paid by the Appellants to the respondents under previous orders. We order the appellants to pay the respondents costs of today summarily assessed in the sum of £560. (Order does not form part of the approved judgment)