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 CENTRAL LONDON COUNTY COURT
(HIS HONOUR JUDGE ZUCKER QC)

		Royal Courts of Justice Strand London, WC2 Tuesday, 19th November 2002

Tuesday, 19th November 2002

1. LORD JUSTICE PETER GIBSON: The third claimant, Shipshape Holdings Ltd ("Shipshape"), seeks permission to appeal from the order made on 20th March 2002 by His Honour Judge Zucker QC allowing an appeal by the defendants, Paul Stafford and Richard Osborn-Kirby, from the refusal by District Judge Cohen on 7th December 2001 to order Shipshape to provide security for costs. Judge Zucker ordered Shipshape to pay £20,000 into court as security within seven days and ordered a stay if that was not done.
2. The background to this dispute is this. The first claimant, Keith Smeaton, and the second, Brian Newton-Fisher (who, I am sorry to say, has died), had the idea of purchasing a large sailing ship, the Astrid, to use for corporate entertainment, sailing holidays, management training, as a conference venue and a floating hotel with additional revenue from cabin sales. Mr Smeaton and Mr Newton-Fisher caused Shipshape to be incorporated on 24th June 1999. They were then the sole shareholders and directors, but they needed funding to purchase the Astrid. Although Mr Smeaton now asserts that the success of the project did not depend on purchasing the Astrid and that chartering was possible, save for a reference to hiring in paragraph 19 of the particulars of claim to which I will come later, there is nothing in the pleading to support that. Mr Osborn-Kirby on 29th November 2000 introduced the claimants to Mr Crook, the business manager of Lloyds TSB ("Lloyds"), and it was agreed to open an account for Shipshape with Lloyds which would consider funding the purchase of the Astrid. Mr Crook and the defendants were informed by Mr Smeaton and Mr Newton-Fisher that they had invested their available funds in the project and could not invest any more. On 2nd January 2001 the defendants were appointed directors on the understanding, as the claimants allege, that the defendants would provide guarantees to Lloyds for the funding. The owner of the Astrid wanted a 10% deposit for an agreement for a sale, but as Lloyds was not willing to advance as much as that, not having the ship as security, the owner was prepared to take a five per cent deposit with the balance due in January 2002. On 22nd January 2001 the defendants told Mr Smeaton that he and Mr Newton-Fisher had to provide £10,000 of the £30,000 deposit, being the 5% deposit which the owner wanted. Mr Smeaton and Mr Newton-Fisher were willing to provide a guarantee of £10,000 but were not willing to put up any money. Mr Osborn-Kirby, according to the claimants, had obtained £75,000 worth of orders for Shipshape of which £15,000 was two days hire of the Astrid by a client called Rampage, and an order for £30,000 was from a Mr Bill Winch. The claimants say that it was agreed that the £30,000 was to be used as the deposit. On 29th January 2001 Mr Stafford told Mr Smeaton that he, Mr Osborne-Kirby and Mr Winch were to form a company to purchase the Astrid. The claimants consulted solicitors. On 1st February 2001 the defendants sent a letter of resignation as directors. What I have recounted comes from the particulars of claim of the claimants.
3. I must refer in more detail to paragraph 19, as it is relied on by Mr Smeaton. In that paragraph it is pleaded that until 29th January 2001 Mr Newton-Fisher dealt with Rampage but thereafter Mr Stafford took that client over without informing Mr Smeaton or Mr Newton-Fisher and that Mr Stafford lost the order from Rampage because he told Rampage that Shipshape could not deliver the Astrid for the two-day hiring. It is pleaded that Rampage proceeded to hire another vessel, that Mr Smeaton could have arranged the hire and the claimants could have obtained commission or profit on the transaction. It is not apparent from this pleading that what Mr Stafford did was in breach of fiduciary duty and, if so, how. It is not suggested that the new company, which it was pleaded was to be set up, was ever in fact set up or that it ever received the benefit of any business which had been obtained for Shipshape. Nor is it pleaded that the Astrid was in fact available on the two days the subject of Rampage's booking. For the first and only time in the pleading there is reference to Mr Smeaton being able to hire another vessel. It is not pleaded that such hiring was ever part of any arrangement with the defendants; in contrast there are copious references to the plan having been to purchase the Astrid. Nor is it pleaded that the booking by Rampage of the Astrid included as a contractual term that another vessel could be substituted for the Astrid. It is therefore hard to see what claim for foreseeable loss could be sustained. Further, the pleaded loss of commission or profit is unparticularised. It is elementary that a loss can only be of the net profit after allowing for expenditure, and there is no material to enable the court to form any view of what amount, if any, of net profit could be sustainable as a claim.
4. The defendants in their defence admit being directors from 2nd to 29th January 2001. They deny that £75,000 of orders had been placed. Two clients had merely made enquiries, whilst the third, Rampage, had sought to place the order for a two-day hire, but the ship had already been booked for the period in question. They say that they proposed forming a new company with Mr Smeaton and Mr Newton-Fisher as employees or consultants after it became apparent that Mr Smeaton and Mr Newton-Fisher were not prepared to make any financial investment in the project.
5. On 11th July 2001 these proceedings were commenced in the Willesden County Court. Mr Smeaton, though not a lawyer, appears to have drafted the particulars of claim. He started the pleadings in this way:

"Cause of action:

The Defendants when acting in the capacity of Directors of Shipshape Holdings Limited, attempted, with intent, to take a business opportunity from the said company and act in competition to the said company with the object of profiting from their actions which directly resulted in the claimants being damaged. In that regard:

As a director of an English company [Mr Stafford] and [Mr Osborn-Kirby] owed a number of fiduciary duties to [Shipshape], the most relevant of which are that:-

(i) Where a business opportunity or contract is offered to the company they must not take it for their own benefit.

(ii) They must not compete with [Shipshape].

(iii) They must be open in their dealings with [Shipshape] and disclose all conflicts of interest.

(iv) They must not profit from [Shipshape] save as permitted by its contract or by agreement with the Company."

There is no pleading, as I have noted, that the defendants did take the business opportunity from Shipshape or that they in fact acted in competition. But the pleading ends:

"DAMAGES:

(i) As a direct result, [Shipshape] have lost the £75,000 plus worth of business and the goodwill of the said clients and therefore their future business;

(ii) [Shipshape's] reputation has been damaged;

(iii) Solicitors costs of £1000 plus VAT

(iv) [Shipshape] has lost not only the last four months which is a key time for organising the forth coming years activities because that said time is the period when the ships in the industry are laid up for the winter, but also the forth coming year. That turn over is estimated at £2,000,000.

(v) The cost of the Website construction the value to be determined

(vi) The time and money [Mr Smeaton] and [Mr Newton-Fisher] have invested into the project during the said four months £2000 plus."

Item (vi) appears to be a personal claim of Mr Smeaton and Mr Newton-Fisher. It is not apparent which of the claimants is claiming item (iii) and (v). I draw attention to the damages said to be in the loss of turnover as distinct from what the law would recognise as being a true loss.

6. The defence denies not only any breach of duty but also any loss. The purchase of the Astrid never reached the stage of a firm contract, still less of a sale to Shipshape.
7. The defendants applied to strike out the claims made by Mr Smeaton and Mr Newton-Fisher, though not that of Shipshape, but they asked for £26,000 security for costs from Shipshape. That application became before District Judge Cohen. Mr Smeaton appeared for Shipshape. Counsel appeared for the defendants. Mr Smeaton applied for an adjournment to put in evidence to show the losses sustained. The District Judge refused that application. The District Judge struck out the claims of Mr Smeaton and Mr Newton-Fisher, but he dismissed the application for security. He found that Shipshape's claim was bona fide. He said of the prospects of success that there was nothing overwhelming in the defendants' evidence which would suggest that the claimants could not succeed. He was not satisfied that the application for security was not being made oppressively to stifle the claim and said that the claim was that it was the defendants who prevented Shipshape from going forward and so from having resources. After the District Judge completed his judgment, counsel drew the District Judge's attention to the fact that he had not addressed the point, which counsel had made both orally and in writing, that on the authorities binding on the District Judge the burden lay on the party resisting an application for security for costs on the grounds of impecuniosity to show that funds could not be raised from another source. The District Judge then gave a second judgment in which he retracted what he had said in his first judgment about stifling the action, but said that in the exercise of his discretion he refused to order security because Shipshape's allegation was that the actions of the defendants had brought the company to its impecunious position.
8. The defendants appealed. The Circuit Judge in Willesden who was to have heard the appeal became ill, and at very short notice the appeal was transferred to Judge Zucker in the Central London County Court. Mr Smeaton again appeared for Shipshape on the appeal. The judge heard the arguments of Mr Smeaton. He then gave judgment allowing the appeal. He took the view that the claim was not made bona fide, it was a sham, it had no reasonable prospect of success and it would be unjust for this £2 company, which had never traded, to pursue its action without providing security for costs. The judgment does not specifically identify what it was in the District Judge's judgment that was erroneous. Counsel therefore at the end of the judgment asked the judge to state what the District Judge's errors were. The judge said the District Judge had erred in saying that there was nothing overwhelming in the defendants' evidence which would suggest that the claims could not succeed.
9. I have to say that the way both the District Judge and the judge initially gave judgments expressing their reasoning was unfortunate. The District Judge in his first judgment ignored on whom the onus lay to resist a claim for security for costs on the ground of impecuniosity, and the conclusion expressed in his second judgment rested on what he said was Shipshape's allegation that the defendants had caused that impecuniosity. That was mere submission, not evidence. The pleadings do not assist in showing any such thing. Shipshape has never had any money and the claims against the defendants do not establish that but for the defendants wrongdoing it would have been in funds. As for the judge, until reminded by counsel, he does not appear to have recognised in his judgment that the hearing before him was a true appeal and not a complete rehearing. Whilst the particulars of claim are not skilfully pleaded, I am afraid that I do not, with respect to the judge, think that he was justified in saying that the claim was a sham and was not made bona fide. However, it is plain from the judge's judgment that he fundamentally disagreed with the District Judge on the prospects of success.
10. Mr Smeaton appears for Shipshape today on the application for permission to appeal. When the hearing commenced this morning I drew his attention to three matters. The first was that if this appeal is allowed to proceed it would be a second appeal within CPR 52.13, and that governs the ability of this court to grant permission to appeal. This court can only do so if an important point of principle or practice arises, or there is some other compelling reason why the appeal should be heard. Although the Royal Courts of Justice Advice Bureau, in a letter which they have prepared and have put in front of me this afternoon, take the point that this is Mr Smeaton's first appeal because he was successful in defending the application for security in the county court, I am afraid that that does not take the case outside the rule, which is quite specific as to the test which has to be applied.
11. The second point that I drew to Mr Smeaton's attention was that although the bundle put before me contains a number of witness statements by him dating from after the hearing before the District Judge, no leave has been obtained to adduce those witness statements and without leave they fall to be ignored.
12. Third, the skeleton argument which he supplied to me, and which is also said to be his grounds of appeal and a witness statement, contains numerous references to exhibit SHA/1. That appears to be a bundle of documents. It has not been supplied to the court.
13. Mr Smeaton asked for time to consider the three points and he consulted the Advice Bureau, as I have indicated. This he did in the two and a quarter hours which I allowed him on my adjourning the hearing until this afternoon. This afternoon he has told me that he relies on the points which are taken by the Advice Bureau in the letter to which I have referred.
14. I have already dealt with the first point about CPR 52.13 and this being a second appeal.
15. The second point taken is that there is a compelling reason for the court to grant permission to appeal. What is pointed out is that the case was transferred to the judge on short notice, and Mr Smeaton submits it was impossible for the judge to have read the file in the time available and therefore he could not have had a complete picture of all the issues involved. I do not know how much reading the judge did do before the start of the hearing. I am prepared to accept that he had little time. But the parties, it is quite clear from the transcript, had the opportunity of drawing the attention of the judge to any matters, and in my judgment it is not a ground of appeal raising a point of principle or practice to say that the judge might have pre-read some other documents if he had had more time. It has not been shown that the judge did not deal with the case properly.
16. Third, what is said is that in explaining the issues surrounding the case to a judge with no previous dealings with the case Mr Smeaton was under severe prejudice since he is dyslexic and was unrepresented. Mr Smeaton, it is said, did not have the papers with him at court and so the appeal was based on incomplete information without the parties being on an equal footing. Happily we have the transcript of the proceedings in front of the judge, save for what appears to have been a short time at the commencement of the hearing when counsel for the defendants was addressing the judge. At the commencement of his submissions Mr Smeaton made abundantly clear to the judge that he, Mr Smeaton, was suffering from a disability. He said:

"... I am a dyslectic, so I have difficulty with documents in a pressurised situation."

To which the judge's response was:

"Well, we will take our time."

It is apparent from the way the judge listened to the submissions, without interrupting, that Mr Smeaton was able to say all that he wanted to say. He concludes after many pages of submission:

"Your Honour, that is all I can say for the time being. Thank you."

I can see nothing, therefore, from the transcript to show that Mr Smeaton was unfairly put at any disadvantage. Still less can I see any basis for the allegation which Mr Smeaton makes in his skeleton argument that he was treated unfairly by the judge or that his rights under Article 6 of the European Convention on Human Rights to a fair trial by an impartial tribunal was breached in any way.

17. Fourth, it is said for Mr Smeaton that he relied on assistance from a law centre which had insufficient time to collate documents before the matter was listed for hearing; and reference is made to the application to the District Judge to adduce evidence, and to the fact that Mr Smeaton tried again in front of the judge only after judgment was given to have further evidence adduced. As I have already pointed out, the application to the District Judge for an adjournment to enable evidence to be put in was refused and there has been no appeal from that decision. He applied too late to the judge.
18. Mr Smeaton has told me today that he would therefore have to make an application out of time for that evidence to go in. There are very considerable difficulties in so doing after the case has already been decided by the District Judge and on appeal by the judge and is now in this court. This court by CPR 52.11(2) will not receive evidence which was not before the lower court unless it orders otherwise, and this court continues to be guided by the three-fold test in Ladd v Marshall [1954] 1 WLR 1489 that the evidence could not have been obtained with reasonable diligence for use below, that the evidence, if received, would probably have had an important influence on the result of the case and that the evidence was credible. There would be considerable difficulties in Mr Smeaton's way in getting in fresh evidence, particularly in the light of the first condition of Ladd v Marshall. I therefore am not impressed by that ground of appeal.
19. Then it is said that the defendants misled the judge in the submissions of counsel. I have looked with care at the transcript. I am unable to see any substance in that serious accusation. But, in any event, Mr Smeaton was in court, he heard all that was said by counsel, and he had the opportunity to respond to what was said. Again there is nothing in this point.
20. The next ground refers to Article 6, and I have already dealt with that.
21. The substance of the case relates to whether or not the judge was entitled to reach the conclusion which he did that this was not an action which had any real prospect of success. The judge was entitled to consider that point, even though at that stage no evidence had been heard. That is an exercise which courts are frequently called upon to perform. The fact that the District Judge was unable to reach a clear view on this -- he attempted no analysis of the pleadings -- does not mean that the judge, with his considerable experience, could not properly form a view. The fact is that although it is alleged that the defendants said that they would be setting up a new company, there is no pleading that they did in fact set one up or otherwise acted in competition with Shipshape. Even if there were firm orders obtained for Shipshape to the extent of the £75,000 (pleaded and the judge saw the evidence on that by looking at various documents), it does not mean that Shipshape would have been in a position to meet its obligations. The Astrid was not purchased. Nor does the fact that there were such bookings mean that a net profit would result. It would have been quite impossible for earnings to have been made by Shipshape without considerable expenses, for example interest on borrowed money. But, in truth, the fact of the matter is that this project never got off the ground. Although Mr Smeaton strongly disagrees with the judge's conclusion, I have to say that I cannot see any point of principle that is involved in that decision. It was merely an assessment by the judge of the prospects of success of the pleadings as they then stood. Mr Smeaton now says that he would like to amend the pleadings so as to strengthen the claims made against the defendants. He may be able to do that if he can lift the stay, but I can only review the decision of the judge on the material put before the judge.
22. As I said in Keary Developments v Tarmac [1995] 3 All ER 534 at 536, in general the system of justice which prevails here is founded on the premise that the interests of justice are ordinarily best served if successful litigants recoup the costs of their litigation and unsuccessful litigants pay them. In general justice is not served by allowing an impecunious corporate litigant to litigate a claim which is at best speculative, causing the defendants to incur heavy costs, when the defendants will, even if successful, be unable to recover their costs from the impecunious company. That is why the rules provide for security for costs to be ordered in such a case. It is left to those behind the company, if the company itself has no money, who believe that the company has a strong case, to try to persuade others to put up the money to enable that case to be tried. That is what the judge ordered.
23. I can see no proper basis, I am afraid, for allowing this appeal to go ahead. Accordingly I must refuse this application.
Order: Application refused.