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Cite as: [2002] EWCA Civ 198

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Anglo-Eastern Trust Ltd. & Anor v Kermanshahchi [2002] EWCA Civ 198 (22nd February, 2002)

		Neutral Citation Number: [2002] EWCA Civ 198
		Case No: A3/2001/1601 QBCMI; A3/2001/1601A FC2

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
HH Judge Hegarty QC

Royal Courts of Justice
Strand,
London, WC2A 2LL

22nd February 2002

B e f o r e :

LORD JUSTICE BROOKE
LORD JUSTICE MANCE
and
MR JUSTICE PARK
____________________

	(1) THE ANGLO-EASTERN TRUST LIMITED (2) SIR DAVID ALLIANCE	First Claimant/ Respondent Second Claimant
	- and -
	ROOHALLAH KERMANSHAHCHI	Defendant/ Appellant

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Michael Ashe QC & James P Roberts (instructed by Arnander Irvine Zietman) for the Appellant
Peter Smith QC & Andrew Latimer (instructed by Boote Edgar Esterkein) for the Respondent
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

INDEX

Part		Para

1	Overview	1
(i)	The facts giving rise to the dispute	7
(ii)	Is it improbable that Mr Kermanshahchi’s defence will succeed?	14
2.	What order should the judge have made? – Introduction	19
3.	What should the court do if it is minded to make a conditional order, but it appears to it that the defendant will not be able to raise the money to comply with it?	22
4.	What evidence ought this court to consider on the question of whether Mr Kernamshahchi will or will not be able to comply with Judge Hegarty’s order?	27
5.	How should the court evaluate the evidence which it does consider?	45
6.	Having evaluated the evidence, what order should the court make?	58

Mr Justice Park :

1 Overview

In this judgment I refer to the first claimant, Anglo-Eastern Trust Limited, as A-ET.

In April 2001 A-ET commenced an action against Mr Kermanshahchi claiming repayment of loans which it said it had made to him between 1993 and 1997. It said that it had demanded repayment but Mr Kermanshahchi had not repaid. The total amount of loans alleged to have been made was over Ł850,000, and A-ET’s case was that, with interest, the total debt was approaching Ł1.4m. A-ET applied for summary judgment under Part 24 of the Civil Procedure Rules. Mr Kermanshahchi opposed the application, and it was heard by His Honour Judge Hegarty, sitting as a High Court judge.

The judge refused to grant summary judgment. His reason was that, expressing it in the double negative which is appropriate given the wording of CPR r24.2(a)(ii), he did not consider that Mr Kermanshahchi had no real prospect of successfully defending A-ET’s claim. A-ET has not appealed against that aspect of the judge’s decision. However, the judge did make a ‘conditional order’, by which he ordered Mr Kermanshahchi to pay into court Ł1m, and further ordered that, if Mr Kermanshahchi did not make the payment within 28 days, his defence would be struck out and A-ET would be at liberty forthwith to enter judgment in default of a defence. Mr Kermanshahchi has appealed against the judge’s order in that respect, and the appeal has now come before this court.

On behalf of Mr Kermanshahchi Mr Ashe QC and Mr Roberts have advanced two arguments. First they submit that the circumstances in which it may be proper for a conditional order to be made are not present. Those circumstances are (in words taken from paragraph 4 of the Practice Direction to Part 24 of the CPR): ‘where it appears to the court possible that a .. defence may succeed but improbable that it will do so’. Judge Hegarty considered that, although there was sufficient merit in Mr Kermanshahchi’s defence for him to refuse to give summary judgment in favour of A-ET there and then, nevertheless it was improbable that the defence would succeed. Mr Ashe and Mr Roberts submit that the judge was wrong in that respect. I disagree. In my judgment the judge was entitled to take the view that it was improbable that the defence would succeed, and I would not allow the appeal on this first ground.

The second submission of Mr Ashe and Mr Roberts is that, even if the circumstances were such that, under the terms of the Part 24 Practice Direction, the judge could make a conditional order, nevertheless in the circumstances of this case he ought not to have made one, because the effect of the order was to stifle the defence. In large measure I agree with this, and I consider that the judge’s order should not be allowed to remain as it presently stands. However, for reasons which I will explain later, I also consider that Mr Kermanshahchi should not be allowed to defend the claim without putting up some amount which it is realistic to believe that he will be able to raise, and which will demonstrate that he is serious in his defence. I would vary the judge’s order by substituting Ł75,000 for his amount of Ł1m.

I should also mention in this overview that there was a substantial dispute about evidence. Mr Kermanshahchi had not put any evidence about his means before Judge Hegarty. Ought this court now to consider evidence to the effect that Mr Kermanshahchi could not afford to pay Ł1m into court? The court ruled that, for the reasons which I will describe below, the evidence should be admitted and taken into account in this hearing.

(i) The facts giving rise to the dispute

A-ET is an English company wholly owned by Sir David Alliance CBE. Sir David was born in Iran, but came to this country in (I think) the early 1950s. He has had a long and successful business career, particularly in the field of textiles. He has achieved many distinctions, including being knighted in 1989.

Mr Kermanshahchi was also born in Iran. He is now 70 years old. He was a member of a prosperous Jewish family. He came to this country, at least partly for the purposes of study, in 1949. One of his witness statements says that he met Sir David in 1950, and the two of them became friends. He returned to Iran in 1956 to join the family businesses. By the 1960s and 1970s he and his three brothers owned large industrial and property interests, and on his own account, which I see no reason to doubt, he was a very wealthy man. However, in 1979 there occurred the Islamic revolution in Iran. Mr Kermanshahchi happened to be out of the country at the time, and he has not gone back since. The family wealth, in so far as it was located in Iran, was lost. From 1979 Mr Kermanshahchi has lived mainly in England. He has had a number of business and property interests, but nothing on the scale of his earlier years in Iran. He says in one of his witness statements that he decided to retire in about 1990. He and his wife have a flat in Highgate (of which more later). They also rent an apartment in Monaco where they spend some of their time.

In the early 1990s Mr Kermanshahchi and two of his brothers owned an undeveloped plot of land in Israel. They were planning to have apartment blocks constructed on it. Mr Kermanshahchi was expecting to emerge as the owner of nine apartments. In early 1993 he came to an agreement with Sir David the nature of which is fundamentally disputed between them in the present proceedings. The agreement was not made in writing. It certainly had something to do with the Israel project, and it certainly led to sums of money being paid to Mr Kermanshahchi over a number of years. There appear to have been 33 payments made at irregular intervals between March 1993 and March 1997. They were of varying amounts, the largest being Ł100,000 and the smallest being Ł10,000. As I said in the overview they appear to have aggregated to over Ł850,000. Two of the payments (the earliest two) were made by Sir David. The others were made by A-ET. If interest falls to be added to them the combined total by now would certainly be over Ł1m, and would be a good deal more if interest was calculated on a compound basis.

Sir David and A-ET say that the payments were interest-bearing loans to Mr Kermanshahchi, and that he is liable to repay them. Mr Kermanshahchi’s case is that the payments were not loans at all. Rather they were outright payments for the forward purchase by Sir David of three of the nine Israeli apartments which would come to be owned by Mr Kermanshahchi when the construction project was completed. Mr Kermanshahchi also says that, whatever the nature of the agreement, it was made between him and Sir David, not between him and A-ET. Therefore, Mr Kermanshahchi argues, if he owes anything he does not owe it to A-ET, and this claim has been brought by the wrong claimant.

In the event the construction project has not progressed as successfully as Mr Kermanshahchi had hoped. I believe that the apartments have been constructed, but they are heavily charged to a bank. Mr Kermanshahchi has not transferred any apartments to Sir David, but he has given Sir David a power of attorney which effectively vests management control in Sir David in so far as it is in Mr Kermanshahchi’s power to bring that about. There are arguments about whether this is consistent with Sir David trying to protect A-ET’s position as creditor of a loan which had gone wrong (which is what he and A-ET say), or whether it is more consistent with Sir David having intended to become an equity investor in the property development project (which is what Mr Kermanshahchi says).

There are many other detailed factual aspects of the case which emerge from the witness statements and supporting documents which we have before us. Some of the further facts are clear and undisputed; others are not. I do not propose to go into the facts in further detail here, although in the next section of this judgment I shall say something about certain letters which may be important. What I have said already is sufficient at this stage. In any event the case is going to go to trial where all factual issues will be at large and will be investigated fully.

I should conclude this summary of the factual background by recording that in March and April last year (2001) A-ET’s solicitors and A-ET itself made written demands for the repayment of what it asserted was a debt owed to it. Mr Kermanshahchi did not pay, and this action was commenced.

(ii) Is it improbable that Mr Kermanshahchi’s defence will succeed?

I begin by repeating the words of paragraph 4 of the Part 24 Practice Direction: ‘Where it appears possible that a .. defence may succeed but improbable that it will do so ..’ . Judge Hegarty proceeded on the basis that this case came within that description. Mr Ashe and Mr Roberts submit that he was wrong in his view that it was improbable that the defence would succeed. They say that he ought to have concluded that it was just as likely that the defence would succeed as that it would fail, and that the judge could not form a view to the opposite effect without hearing the evidence.

I do not intend to say much about this. The reason is that this court has indicated already in the course of the appeal that it does not accept this submission. Therefore the trial will presumably go ahead. It will be for the trial judge to decide, on the basis of all the evidence, whether either of the defences does or does not succeed. (The first defence is that the agreement was not a loan agreement at all but rather an agreement for an equity investment, and the second defence is that, if Mr Kermanshahchi owes anything, he owes it to Sir David, not to A-ET.) I believe that, as far as possible, this court should refrain from making observations which could be used in an attempt to influence the trial judge. Under the CPR Part 52 rule 11 this appeal is limited to a review of Judge Hegarty’s decision, and this court should only intervene if it considers that the decision was positively wrong. The judge considered that it was improbable that the defence would succeed, and I am not prepared to say that his view was wrong. In the circumstances I will limit myself to a condensed account of the judge’s reasoning.

The judge outlined the respective cases of the parties: A-ET’s case that the agreement was a loan agreement; and Mr Kermanshahchi’s case that it was an agreement for a forward sale of apartments which had not yet been constructed, and that in any event if he was liable for anything he was liable to Sir David, not to A-ET. The judge then said that he thought it unlikely that an arrangement as ‘vague and uncertain’ as that contended for by Mr Kermanshahchi would have been reached between the parties (transcript, page 19). He went on to consider four documents. Two were documents signed by Mr Kermanshahchi in 1998 and 1999. They had both been requested for the purposes of A-ET’s auditors. They asked Mr Kermanshahchi to confirm, in one case, ‘the agreed balance on your loan account’, and in the other case ‘the amount receivable from you’. Mr Kermanshahchi confirmed the amounts in each case, thereby apparently confirming also that the amounts were debts owed by him to A-ET (which he now says that they were not). In each case he added a somewhat cryptic manuscript note that he agreed ‘for the sake of Sir David Alliance’. There are witness statements of Mr Kermanshahchi in which he gives his explanation of why he signed these two letters. However, Judge Hegarty said that, if the evidence had stopped at that point, he would have given summary judgment for A-ET.

The evidence did not stop there, and the judge went on to consider two other letters, which were adduced by Mr Kermanshahchi and which were said to support his case. Each began: ‘To whom it may concern’. Each was said by Mr Kermanshahchi to have been written by him at the request of Sir David. The letters bear dates in 1995 and 1996, and each contains wording to the effect that Mr Kermanshahchi had agreed to transfer apartments to Sir David. On the face of them they support Mr Kermanshahchi’s case. Sir David says in a witness statement that the letters are fabrications. The judge understandably said that at the stage of an interim hearing he could not decide whether they were fabrications or not. He stated the following conclusion: ‘I conclude that it is not possible to hold that there is no prospect that Mr Kermanshahchi may succeed in defending the action, though I consider that it is improbable that he will be able to do so ..’.

In the context of the present appeal the important words are the final ones, in which the judge states his view that it is improbable that Mr Kermanshahchi will succeed in defending the action. I am unable to accept Mr Ashe’s submission that the judge was wrong to form that view. I deliberately say nothing about whether I would or would not have formed the same view myself. All I say is that, on the materials which the judge had before him, it is a view which it was open to him to form, and on an appeal which is limited to a review of his decision I do not think that the court should interfere with this aspect of it. I take Mr Ashe’s point that the judge has not heard the oral evidence, but the CPR (including the Practice Direction, which has the force of law) expressly contemplate that, on applications for summary judgment (which are dealt with on the papers and without oral evidence) there may be instances where the judge will be able to form a view that a party’s case is weak to the extent that it is improbable that it will succeed, but not so weak that summary judgment should immediately be given against it. Mr Ashe’s submission comes close to saying that, if the judge has concluded that the case has some prospect of success (so that he will not give summary judgment for the other party), he cannot also conclude that success is improbable. However, the Practice Direction proceeds on the basis that he can, and in my opinion this court ought not to interfere with Judge Hegarty’s conclusion to that effect in this case.

2. What order ought the judge to have made? Introduction

The judge’s view that it was improbable that the defence would succeed was the springboard for him, pursuant to paragraph 4 of the Part 24 Practice Direction, to consider whether or not to make a conditional order, that is an order (strictly made under Part 3(3)) requiring Mr Kermanshahchi to make a payment into court. In fact he did decide to make a conditional order. He said this: ‘I am satisfied that this is a case where it is appropriate that he should be required to make a payment as a condition of continuing to defend the action. The figure which I shall require him to pay is the figure of Ł1,000,000.’ Mr Ashe submits that, even if the judge had a discretion to make a conditional order, he ought not to have made one. Alternatively this court, in the light of evidential material which we should consider but which was not before the judge, ought to set aside the order which the judge made.

The essential point which is advanced now is that it is simply not possible for Mr Kermanshahchi to comply with the conditional order: he has not got Ł1m, and he cannot raise it from elsewhere. This was not said to Judge Hegarty. No evidence was placed before him designed to show that Mr Kermanshahchi did not have the financial means to comply with an order for him to pay Ł1m into court.

It appears to me that four questions now arise, which I will examine under four headings, as follows:

What should the court do if it is minded to make a conditional order, but it appears to it that the defendant will not be able to raise the money to comply with it?

What evidence ought this court to consider on the question of whether Mr Kermanshahchi will or will not be able to comply with Judge Hegarty’s order?

How should the court evaluate the evidence which it does consider?

Having evaluated the evidence, what order should the court make?

3. What should the court do if it is minded to make a conditional order, but it appears to it that the defendant will not be able to raise the money to comply with it?

This is an important question of principle, but I believe that the answer to it is clear: the court should not require the defendant, as a condition of defending the claim, to make a payment which he cannot make. The effect would be that judgment in default of defence would be given against him. The defence would be stifled. The practical effect would be the same as if the court had given summary judgment for the claimant. Yet, by declining to give summary judgment, the court had taken the view that there was some prospect that the defence might succeed. I add that Mr Smith QC and Mr Latimer, who appeared for A-ET, did not argue to the contrary. Their submissions were that this court should not consider new evidence at the appeal stage, and that, even if it did, it should not find that Mr Kermanshahchi would not be able to comply with Judge Hegarty’s conditional order.

The equivalent pre-CPR context was an application for summary judgment under Order 14 of the Rules of the Supreme Court. In that context essentially the same question of principle arose in Yorke Motors v Edwards [1982] 1 WLR 444. A concession was made in the Court of Appeal and accepted by that court as correct. The case went to the House of Lords on a further aspect which I will refer to under a later sub-heading. It is, in my view, clear that the House of Lords, as well as the Court of Appeal, agreed with the concession. It was as follows: ‘If the sum ordered to be paid as a condition of granting leave to defend is one which the defendant would never be able to pay, then that would be a wrongful exercise of discretion, because it would be tantamount to giving judgment for the plaintiff notwithstanding the court’s opinion that there was an issue or question in dispute which ought to be tried.’ In my judgment the same principle applies to a conditional order under the CPR. Indeed this court so held in the unreported case of Chapple v Williams (8 December 1999, referred to in para 24.6.6 of the Autumn 2001 issue of the White Book Service).

Mr Ashe and Mr Roberts reinforced their submissions to us on this point by arguments invoking Article 6 of the European Convention on Human Rights, the right to a fair trial. Authorities were cited, some of which arose from orders for claimants or appellants to provide security for costs, failing which they would be barred from prosecuting their claims or appeals. In my judgment orders of that type are fairly comparable to orders for defendants to make payments into court, failing which they would be barred from defending claims against them. We were referred to two such cases in the European Court of Human Rights and one case in the Court of Appeal. The ECHR cases were Tolstoy-Miloslavsky v UK [1995] 20 EHCR 442 and Ait-Mouhoub v France, case 103/1997/887/1099. The Court of Appeal case was Nasser v United Bank of Kuwait [2001] EWCA Civ 556, [2002] 1 All ER 401, in which the judgment was delivered by Lord Justice Mance.

I do not propose to examine the cases at length. I agree that they provide support for the submission advanced on behalf of Mr Kermanshahchi, but in my opinion the submission was soundly based already as a matter of English law, and did not need the further support of Article 6 of the Convention. The thrust of the Article 6 cases is that the state may impose limitations on the right of access to the courts, but that there are restrictions on how far the limitations may go. The European Court of Human Rights put it in this way in the Tolstoy case (see para 59 of the judgment):

“… the Court must be satisfied, firstly, that the limitations applied do not restrict or reduce the access left to the individual in such a way or to such an extent that the very essence of the right is impaired. Secondly, a restriction must pursue a legitimate aim and there must be a reasonable relationship of proportionality between the means employed and the aim sought to be achieved.”

It is the first restriction which is particularly relevant in this case. An order, such as Judge Hegarty’s order, that a defendant who has a defence with some prospects of success must pay money into court before he can deploy his defence is a limitation on his right of access to the courts. If he can comply with the order, or if it is reasonable for the judge to believe that he will be able to comply with it, the limitation is not a contravention of Article 6. But if he cannot comply with the order, and if there is material before the court from which it appears that he cannot comply, the effect of the order goes beyond limiting his right of access to the courts: it impairs the very essence of the right.

4. What evidence ought this court to consider on the question of whether Mr Kermanshahchi will or will not be able to comply with Judge Hegarty’s order?

The background to this question is that there was no evidence about Mr Kermanshahchi’s means before Judge Hegarty when he made his order. Mr Ashe wishes this court to consider evidence of means now, on the hearing of the appeal. Mr Smith opposes this. (There is one conceivable exception to the proposition that there was no evidence before the judge, but I do not think that any significance can be attached to it. Sir David’s first witness statement contained a brief assertion that Mr Kermanshahchi had always represented himself as a multi-millionaire. However, that witness statement was not in any way directed to the question of whether a conditional order should be made. Its sole purpose was to set out the facts on the basis of which A-ET claimed that it should be granted summary judgment.)

Judge Hegarty, having declined to grant summary judgment, went on to say this:

“There is no evidence before me as to the defendant’s means and no grounds, therefore, to think that he would not be able to make any payment which is required of him as a condition of defending the action or by way of interim payment if that were considered appropriate.

I am satisfied that this is a case where it is appropriate that he should be required to make a payment as a condition of continuing to defend the action. The figure which I shall require him to pay is the figure of Ł1m.”

My understanding of this passage is that the judge would not have made a conditional order if he had had evidence that Mr Kermanshahchi could not afford to comply with it; but, in the absence of such evidence, the judge assumed that Mr Kermanshahchi would be able to pay Ł1m, so he went ahead and ordered Ł1m to be paid. An alternative explanation might be that the judge made no assumption one way or the other about whether Mr Kermanshahchi would be able to pay Ł1m, but he thought that it was Mr Kermanshahchi’s fault that no evidence about his means had been placed before the court; so he was not prepared to refrain from making the order because of doubts about whether Mr Kermanshahchi could afford it.

Whatever the explanation, the judge made his order on 3 July 2001. Mr Kermanshahchi had until 31 July to make the payment into court. On 17 July Mr Kermanshahchi issued an Appellant’s Notice seeking permission to appeal and a stay in the meantime of the order for judgment in default of the Ł1m being paid. There was a flurry of witness statements at that stage. On 17 July Mr Kermanshahchi, in his fourth statement, said that he could not pay Ł1m or anything like it. He did not go into details of what assets he did have. On 25 July Sir David made a witness statement in reply. This was his fourth statement. He disputed Mr Kermanshahchi’s assertion that he could not meet the order, and gave some details of assets which he believed Mr Kermanshahchi to have. On 30 July Mr Kermanshahchi made his fifth witness statement. He responded to the detailed points which Sir David had made, and gave what he said was full information about his assets. I will address at a later point the contents of what he said.

Mr Kermanshahchi’s application for permission to appeal and a stay in the meantime came before Clarke LJ on 2 August. There had been a temporary stay until then pursuant to an order of Rix LJ. Clarke LJ gave permission to appeal and extended the stay. He said nothing about the admissibility on the appeal of any of the witness statements about Mr Kermanshahchi’s means. The appeal for which he gave permission is the appeal which has been heard by this court.

Mr Ashe invited us to admit and take into account the evidence in the fourth and fifth witness statements of Mr Kermanshahchi. It would be a natural consequence that we would also admit Sir David’s fourth statement. In addition, Mr Kermanshahchi has recently produced a sixth witness statement. Most of it is concerned with other matters, but there is a comparatively short section dealing with his means, and Mr Ashe wished us also to take account of what Mr Kermanshahchi said there. Mr Smith submitted that this court, being the Court of Appeal, ought not to admit any of the evidence. It could, he says, have been produced before Judge Hegarty; it was not produced then; and Mr Kermanshahchi should not be allowed to bring it forward at the appeal stage.

After hearing submissions on this issue the court ruled that we would admit Mr Kermanshahchi’s fourth and fifth statements (with, of course, Sir David’s fourth statement), but we were not inclined to admit Mr Kermanshahchi’s sixth statement. However, given that his fourth and fifth statements were to be considered by the court, there were some points in the sixth statement to which Mr Smith desired to refer. In the circumstances we have read and we take account of the short section of the sixth statement which is concerned with Mr Kermanshahchi’s financial means.

I now explain my reasons for considering that, in the particular circumstances of this appeal, it was right for the court to consider evidence which was not before the first instance judge.

The normal principle is that an appellate court will not admit evidence which could have been adduced before the court of first instance. The CPR r52.11 provides: Unless it orders otherwise, the appeal court will not receive … (b) evidence which was not before the lower court. In my judgment this is a case where the court should order otherwise. The critical point is that, given the way that the case came before Judge Hegarty and the way that it proceeded before him, I do not think that Mr Kermanshahchi and his legal advisers were at fault in not adducing the evidence then; or at least, if they were at fault at all, they were not at fault to a sufficient extent to justify them being refused permission to adduce the evidence now.

In my view the issues on this aspect of the appeal are rather different from those which normally underlie a dispute about whether new evidence should be admitted in an appellate court. Normally such disputes are resolved by applying the well-known principles of Ladd v Marshall [1954] 1 WLR. Those principles are still relevant after the introduction of the CPR: see Hale LJ in Hertfordshire Investments Ltd v Bubb [2000] 1 WLR 2318 at 2325. However, the Ladd v Marshall principles presuppose a case where a party was aware at first instance of what the issue was, and wants to adduce on appeal new evidence which bears on that issue. In my opinion this case is not like that.

What brought the matter before Judge Hegarty in June and July last year was an application made by A-ET. A-ET had commenced the claim by a claim form issued on 6 April 2001. By an application notice issued on 30 April 2001 it gave notice that it wished to apply for ‘summary judgment and/or an interim payment.’ An interim payment is not the same thing as the type of payment which the judge ordered Mr Kermanshahchi to make. Interim payments are regulated by the CPR r25.6 and 7. In the case of a money claim, like A-ET’s claim against Mr Kermanshahchi, if the court is not prepared to give summary judgment for the whole claim, it can order an interim payment, but only if some liability has been admitted or if the court is satisfied that at trial the claimant ‘would’ (not, for example, ‘would be likely to’) obtain judgment for a substantial amount. On the view which Judge Hegarty took, neither condition existed in this case. Thus Mr Kermanshahchi succeeded in defeating A-ET’s application for an interim payment, the proposed amount of which had not in any event been identified in the application notice. In those circumstances the possibility that Mr Kermanshahchi, as a fall back argument against the application for an interim payment, might have produced evidence of means but did not do so cannot, in my judgment, count against him in the quite different context of a conditional order, especially one for so large a sum as Ł1m.

As I have said, A-ET’s application notice was asking for summary judgment or an interim payment. As Brooke LJ explains in his judgment which I have seen in draft, it was not asking for a conditional order. Consistently with that, its application notice said nothing about a conditional order. There was discussion in the hearing about what might or might not have been said in the application notice, but I am persuaded that, for the reasons which Brooke LJ gives, the notice was entirely in accordance with normal practice. If Mr Kermanshahchi had ample means to comply with a conditional order, I would not suggest that the absence in the application notice of a reference to such an order would have prevented the judge from making one. The fact remains that nothing was done to give to Mr Kermanshahchi and his advisers any advance indication that, if the judge would not award summary judgment to A-ET, he was going to be asked to make a conditional order – and an order requiring a payment of the large sum of Ł1m. Mr Smith said that, in cases where an application notice applies only for summary judgment, it is common practice to request the judge at the hearing to make a conditional order instead. I have no personal experience of that, but when Mr Smith tells me that it is common practice I accept what he says. Indeed, it is confirmed by Brooke LJ’s judgment. All the same, I do not accept that the practice meant that Mr Kermanshahchi’s legal advisers were at fault in it failing to occur to them that, just in case counsel for A-ET asked the judge to make a conditional order, they ought to have evidence of Mr Kermanshahchi’s lack of financial means ready.

The possibility of a conditional order was briefly mentioned at the end of AE-T’s skeleton argument, but skeletons were exchanged between counsel only on the morning of the hearing before the judge, so the skeleton cannot be regarded as a substitute notice alerting Mr Kermanshahchi’s solicitors and counsel that they might need evidence of want of means.

The hearing before Judge Hegarty was on 7 June 2001. Mr Smith QC and Mr Latimer appeared for A-ET (as they also appeared before us). Mr Roberts appeared for Mr Kermanshahchi. Before us he was junior counsel to Mr Ashe QC. At the start of the hearing counsel were informed that the judge could not sit in the afternoon. He wanted the hearing to conclude by 1 o’clock. Mr Smith opened and presented his arguments for summary judgment. He said nothing about a conditional order. Mr Roberts made his submissions, contending (successfully as it turned out) that the judge should not award summary judgment. Mr Smith replied. At some stage in his reply (I would imagine towards the end of it) he requested the judge, if not prepared to give summary judgment, to make a conditional order for payment of Ł1m into court. By this time it was already after 1 o’clock. The usual stages of the hearing were over, but, as Mr Roberts recalls it, the judge turned to him and asked him to confirm that there was no evidence of want of means before the court. Mr Roberts confirmed that that was so. The judge reserved judgment, and rose.

Judgment was delivered orally on 3 July 2001. A draft of it had not been sent to counsel beforehand. The transcript of the judgment occupies 28 pages. On page 27 the judge turned to the question of a conditional payment and dealt with it in the brief terms which I quoted earlier. He observed that there was no evidence of Mr Kermanshahchi’s means. He said that ‘therefore’ there were no grounds to think that Mr Kermanshahchi would not be able to make any payment required of him as a condition of defending. (I comment that equally there were no grounds to think that Mr Kermanshahchi would be able to make any such payment. Ł1m, after all, is a lot of money.) The judge ordered a payment of Ł1m into court, failing which judgment in default would be given in favour of A-ET. In my respectful opinion it would have been better for the judge to say that he was inclined to make a conditional order, but that he would not do so without giving Mr Kermanshahchi and his advisers the opportunity to consider whether they wished to adduce evidence of his financial means. However, the judge did not do that. He delivered judgment in terms which meant that he had already decided the point. It seems to me that the judge thought that Mr Kermanshahchi had had his opportunity to put in evidence of want of means at the hearing on 7 June and had not taken it. In my opinion that was not a fair appraisal.

That was on 3 July 2001. On 17 July Mr Kermanshahchi applied for permission to appeal and for a stay, and supported his application with his fourth and fifth witness statements.

In my opinion it is virtually self-evident on those facts that justice requires that Mr Kermanshahchi should be allowed to put evidence of his means or want of them before the court now. He did not have prior warning that he might need to present such evidence to Judge Hegarty on 7 June 2001, and I do not accept that Mr Roberts and his instructing solicitors were at fault in failing to guess that they might need it. Mr Smith has said that Mr Roberts could have asked at the end of the hearing on 7 June for a future opportunity to adduce the evidence; Mr Kermanshahchi’s solicitors could have written to the court in June mentioning the point; Mr Roberts could, on 3 July after the judge had delivered judgment, have risen and asked the judge to withdraw his decision to make a conditional order for a payment of Ł1m, so as to allow Mr Kermanshahchi time to assemble evidence of means. I accept that Mr Roberts and Mr Kermanshahchi’s solicitors could have done those things, but I do not think that they should have been put into a position where they needed to do them, and I do not think that it is fair to criticise them for not doing them. It would in my view be a serious injustice for this court, on the ground that Mr Kermanshahchi’s legal representatives did not adopt one of the expedients which Mr Smith has identified, to refuse to consider Mr Kermanshahchi’s evidence now.

The foregoing are my reasons for concurring in the ruling of the court, given in the course of the hearing, that we should take into account the additional evidence which Mr Ashe invited us to consider.

5. How should the court evaluate the evidence which it does consider?

I should first outline what the evidence is.

Mr Kermanshahchi’s fourth witness statement was made on 17 July 2001, two weeks after Judge Hegarty’s decision. It was in support of his application for permission to appeal. It gave no specific details of assets. The relevant passages are as follows:

“The problem arises because I am physically unable to pay the sum of Ł1,000,000 (one million pounds) into court as ordered by the judge. I am equally unable to provide any other security for that sum. … I simply do not have Ł1 million in cash or in any bank accounts, or even the merest fraction of that sum. I have no valuable assets that could be used to provide security to support a loan for that sum.”

Sir David challenged this in his fourth witness statement, made on 25 July 2001. He said that Mr Kermanshahchi had omitted the property in Highgate where he lived. He said that it was registered in the joint names of Mr Kermanshahchi and his wife, and that it was worth about Ł1.5m. He also said that Mr Kermanshahchi had failed to disclose his business interests in Israel, a company called Gradoil, and overseas bank accounts.

Mr Kermanshahchi replied in his fifth witness statement, made on 30 July 2001, very shortly before Clarke LJ considered his application for permission to appeal. He first dealt with the Highgate property. He gave some new information about it, in particular that on 21 June 2001 title had been transferred from the joint names of himself and his wife into the sole name of his wife. He said that the property (which incidentally was not a penthouse, as Sir David had alleged in his statement, but rather a split level flat on the third and fourth floors of a seven storey building) had been bought solely by his wife in 1976 with her own money. It had always belonged beneficially to her, and the registration of it in joint names was a mistake made by the solicitors in 1976. In 1985 documents had been prepared in order to correct the error, but because his wife’s mother became terminally ill he and his wife did not get round to executing them. He exhibited documents which appear to confirm what he said. He also exhibited a valuation, dated 24 July 2001, by local estate agents who had inspected the property. They valued it at Ł750,000, in contrast to Sir David’s figure of Ł1.5m.

Mr Kermanshahchi then dealt with the other assets mentioned by Sir David. He said his only asset in Israel was his interest in the apartment blocks development, which was managed at the time by Sir David pursuant to the power of attorney to which I referred earlier in this judgment. Gradoil was his son’s company, not his own. He added:

“I confirm that I have no interest or shareholding directly or indirectly or power of attorney or signature power in any company within or outside the UK jurisdiction, … nor do I provide any consulting services to or for any company. I am in all respects retired.”

Mr Kermanshahchi gave information about his bank accounts. He and his wife had an account in England which was Ł26,000 overdrawn. He had an account in Monaco and an account in Geneva. Those accounts had small credit balances which were lower in aggregate than the overdraft on the English account.

Finally he mentioned an asset to which Sir David had not referred. He and three others owned an undeveloped plot of land in Houston, Texas. He said that they were unable to sell it, but state property taxes were paid on it. Documents which he exhibited showed that in 1999 the tax authorities had valued it at $267,890. (We were told from the bar that the partnership had in the meantime arranged for the Houston property to be offered for sale at public auction. The auction was to be held on 13 September 2001. That was two days after the terrorist attack on the United States. No bidders turned up, and the property remains unsold.)

There has been no further formal evidence as such from Sir David, but a skeleton argument on behalf of A-ET criticised several aspects of Mr Kermanshahchi’s statement. The criticisms were repeated in oral submissions by Mr Smith. One criticism was that Mr Kermanshahchi did not explain how, if he was really as impecunious as his statement implied, he was able to meet his living expenses and the costs of this litigation. Mr Kermanshahchi’s sixth statement proffers some evidence about this. He says that his wife pays the rent on the flat in Monaco, the service charge on the Highgate flat, and all the household bills and outgoings. Their sons pay for and provide for them other items which they need. He has made enquiries of his family and friends, but they cannot assist him further. In relation to the legal costs of the case he says: ‘I am grateful to Marian [his wife], who paid some of my early solicitors’ bills, and to a company called Ascol International which has paid others and is prepared to continue paying, on the basis that the sums advanced are a loan to me.’ Mr Smith commented that this was the first time that Ascol International had been mentioned. We understood Mr Ashe to be telling us that the company belonged to one of Mr Kermanshahchi’s sons. It would have been better if Mr Kermanshahchi had spelled this out in his sixth statement, but I am not willing to assume that Ascol International is a hitherto secret company of Mr Kermanshahchi’s own. I refer to the passage in his fifth statement, which I quoted above, to the effect that he is fully retired and has no interests in any company.

Reverting to Mr Kermanshahchi’s fifth witness statement, Mr Smith’s strongest criticisms related to the Highgate flat, and in particular to the transfer of the registered title from Mr and Mrs Kermanshahchi jointly to Mrs Kermanshahchi alone. Mr Smith points out that the transfer was effected on 21 June 2001, which was after the hearing before Judge Hegarty, and at a time when the decision was awaited. The transfer must have been prompted by the present case, but Mr Kermanshahchi made no reference to it in his fourth witness statement, the one made on 17 July 2001 by which he applied for permission to appeal and for a stay. In my view this is a reasonable criticism. For all that the fourth witness statement was prepared at short notice, was directed only at obtaining permission to appeal, and did not go into details of Mr Kermanshahchi’s assets, I think that so recent a transaction ought to have been alluded to, even if only briefly.

However, I do not think that that is a reason for deciding the present appeal against Mr Kermanshahchi. The 1985 documents exhibited by him to his fifth statement present a reasonable case that it always was the opinion of himself and his wife that the flat belonged solely to her, and that the registered title was wrong. We were told that A-ET is bringing other proceedings designed to have the transfer set aside. If such proceedings succeed and the present case is still in progress the order which this court is about to make could be reconsidered, but as matters now stand I believe that we should evaluate Mr Kermanshahchi’s means on the footing that the transfer has been made and that, as the evidence presently stands, he appears to have no beneficial interest in the Highgate flat.

On Mr Kermanshahchi’s evidence of means generally Mr Ashe submitted that we should accept it. He pointed out the difficulty of proving a negative. Thus it is almost always possible for the other party to suggest some conceivable source of funds which the evidence has not closed off. For example in this case, although Mr Kermanshahchi has said that his relatives and friends are unable to assist further, there is no evidence from them to confirm this. He has said what the balances in his bank accounts are, but he has not exhibited the bank statements. He has not produced evidence from his bank that it will not lend him the Ł1m required to comply with Judge Hegarty’s order. Mr Ashe said that the court ought not, because of allegations of missing evidence of that nature, to decline to accept the evidence which it does have. It is not acceptable for a claimant like A-ET to ‘go on asking for corroboration after corroboration.’ I accept this submission.

On the basis of the foregoing evidence and my comments about it, I conclude that, on the balance of probabilities, Mr Kermanshahchi does not himself have Ł1m or anything like it. He would only have it if he has lied outrageously and has large secret funds secreted away somewhere. I am not prepared to find that he has done that, for all that I have sympathy with Mr Smith’s criticism that Mr Kermanshahchi ought not to have kept quiet in his fourth witness statement about the transfer of the half interest in the Highgate property to his wife. Further, I consider that Mr Kermanshahchi could not borrow Ł1m on the strength of his own personal covenant and any assets of his own which he could charge by way of security.

Mr Kermanshahchi has given evidence that his wife and sons are unable to help further. There is no direct evidence from them, and it is possible that between them they could raise Ł1m in cash if they really set their minds to it. However, A-ET’s claim is only against Mr Kermanshahchi: it has no claim against his wife and children. In my opinion it would be excessive for the court to put pressure on them to put as much as Ł1m of their own money or property at risk, particularly given the judge’s view that it is improbable that Mr Kermanshahchi’s defence to A-ET’s claim will succeed. If the judge had given summary judgment against Mr Kermanshahchi, A-ET would have had no right to enforce the judgment against Mrs Kermanshahchi or her sons, and it would be a remarkable thing if the court made an order which, because she and her sons did feel pressurised to put up Ł1m, placed A-ET in a stronger position to enforce a judgment in its favour. I would feel differently about an order which took into account the assets of Mrs Kermanshahchi and the sons if the amount concerned was not Ł1m but a much more modest sum. I return to this theme in the next section of this judgment.

6. Having evaluated the evidence, what order should the court make?

In my judgment the court should set Judge Hegarty’s order aside. On the basis of what I have said in the foregoing paragraph I do not think that Mr Kermanshahchi alone would be capable of complying with it. Further, in my opinion it would not be reasonable for the court to order that so large a sum as Ł1m be paid into court on the basis of assumptions, first, that Mr Kermanshahchi’s wife and sons could provide it if they tried hard enough, and, second, that if Judge Hegarty’s order was left in place they might provide it.

Nevertheless, I would not be content simply to set the order aside without putting something more modest in its place. I think that there are good reasons for making some order for a payment into court. The judge takes the view that, although Mr Kermanshahchi has a defence to A-ET’s claim, it is a weak defence. I am uncomfortable about the transfer of the half interest in the Highgate flat to Mrs Kermanshahchi: Mr Kermanshahchi’s position that she was always the true beneficial owner of the entire interest in the flat may be upheld in proceedings directed at setting the transfer aside, but, even if it is, and even accepting that Mr Kermanshahchi’s fourth witness statement was prepared at short notice and did not attempt to give a detailed account of his assets, I still think that he should have made some allusion to what he was doing in relation to the flat. In the circumstances I think that both A-ET and the court can reasonably look for some payment into court so as to provide an element of assurance that Mr Kermanshahchi is serious about his defence, and that he is not just stringing A-ET and Sir David along and playing for time.

I have in mind a figure of Ł75,000. Whereas I am not prepared to uphold the existing order on the footing that Mr Kermanshahchi’s wife and sons probably can raise Ł1m and, if they can, they ought to do it, I would take the opposite view about an order for Ł75,000. Mrs Kermanshahchi is (commendably) supporting her husband in various ways. She participated in the transfer of the registered title to the Highgate flat, which was obviously prompted by the present action. According to Mr Kermanshahchi’s sixth witness statement she and her sons have been meeting the family’s living expenses and paying Mr Kermanshahchi’s legal costs of the action. It also appears from that statement that the sons’ businesses have been funded out of generous gifts to them by Mr Kermanshahchi, and that in large measure the gifts have been made out of the payments to Mr Kermanshahchi by Sir David and A-ET – the payments which the case is about. In those circumstances I consider that this court can, exercising its common sense, conclude that, even if Mr Kermanshahchi personally cannot raise Ł75,000, his wife and sons almost certainly can. Further, the court can reasonably take the view that, if they are not willing to stand behind Mr Kermanshahchi to the extent of Ł75,000, he ought not to be allowed to go on defending the claim.

I believe that there is clear support for this approach in what actually happened in the Yorke Motors case ([1992] 1 WLR 444), to which I referred earlier. The case was on a much smaller scale than the present one: it was about a second hand car sale which went wrong (a Rolls Royce, but still a second hand car). Nevertheless the case went through four levels of courts. The plaintiff was claiming damages of Ł23,250. He applied for summary judgment under Order 14 of the Rules of the Supreme Court. The Master refused summary judgment and gave the defendant leave to defend without any conditions. The plaintiff appealed to the High Court. The judge still refused summary judgment, but he made the leave to defend conditional on the defendant paying Ł12,000 into court. The defendant was receiving legal aid with a nil contribution, he was unemployed, and he was receiving supplementary benefit. (I mention in passing that evidence of the latter two points was presented only in the Court of Appeal, and was admitted.) It was clear that he could not meet the condition. He appealed to the Court of Appeal. That court allowed the appeal on the basis of the concession which I have quoted earlier in this judgment: a condition with which the defendant could not comply was equivalent to judgment for the plaintiff, and such a condition ought not to be imposed. However, the court substituted a condition that the defendant should pay Ł3,000 into court. The evidence suggested that the defendant himself did not have Ł3,000, but the court made the common sense assumption that he was likely to have relatives and friends who, if he was putting forward his defence in good faith, would be willing to help him to that more modest extent. He appealed to the House of Lords against the imposition of the Ł3,000 condition, but their Lordships dismissed his appeal.

The figures involved in the present case are larger, but I believe that the principles are the same. In Yorke Motors the condition for a payment into court of Ł12,000 was excessive, and in my view the same is true in this case of the condition for a payment into court of Ł1m. But in Yorke Motors the more modest condition for a payment into court of Ł3,000 was not excessive. I believe that in this case an order for a payment into court of Ł75,000 would not be excessive, and that is the order which I would make.

Lord Justice Mance:

I agree with the judgment of Park J and also with that of Brooke LJ, which I have read in draft.

Lord Justice Brooke:

I agree, and I am only adding a short judgment of my own because this appeal raises an interesting point of practice under CPR Part 24. A-ET applied for summary judgment on the basis that Mr Kermanshahchi had no real prospect of successfully defending the claim (CPR 24.2(a)(i)), and for an order for interim payment pursuant to CPR 25.1(k). In order to obtain the latter relief in circumstances where it did not obtain an outright judgment for the sums it claimed, A-ET would have had to satisfy the court that it would obtain judgment for a substantial amount of money (CPR 25.7(1)(c)). In the event the judge was not willing to make an interim payment order because it was unclear whether A-ET or Sir David Alliance was the proper claimant. In any event, since he considered that Mr Kermanshahchi had a prospect of successfully defending the claim which he could not dismiss as “fanciful”, this form of relief would have been inappropriate.

Following the making of the summary judgment application the parties exchanged evidence on the merits of A-ET’s claim. A-ET did not suggest, whether in its formal application, or in the evidence it served, or in any solicitors’ letter sent to Mr Kermanshahchi’s solicitors pending the hearing of its application, that if its application for summary judgment failed it would nevertheless be inviting the judge to make a conditional order of the type mentioned in CPR 24 PD para 5.1(4), let alone an order requiring Mr Kermanshahchi to pay Ł1 million into court, subject to the sanction that his statement of case would be struck out if he did not comply with the order within a set time. This suggestion surfaced for the first time in a skeleton argument delivered to Mr Kermanshahchi’s counsel, in the absence of his client, shortly before the hearing at Liverpool began. Mr Smith did not refer to the suggestion during his opening submissions to the judge. He mentioned it only in his closing submissions in the circumstances described by Park J in paragraph 40 of his judgment.

It is well known that significant changes were made to the procedure for summary judgment by the Civil Procedure Rules. In the present context it is only necessary to mention one of them. Under the former procedure the court was given express power to direct on an application for summary judgment that a defendant be given leave to defend “either conditionally or on such terms as to giving security … or otherwise as it thinks fit” (RSC O14 r 4(3)) It was well settled that it was appropriate to grant conditional leave to defend if the court considered the proposed defence to be “shadowy”. Under the new procedure there is no question of the defendant being given permission to defend. If he has not filed his defence before the summary judgment application is made, he need not file it before the hearing (CPR 24.4(2)), and if the court dismisses the application, it will then proceed to give case management directions in the usual way. CPR 24.6 expressly provides:

“When the court determines a summary judgment application it may

(a) give directions as to the filing and service of a defence;

(b) give further directions about the management of the case. (Rule 3.1(3) provides that the court may attach conditions when it makes an order).”

CPR 24 PD para 5 places the position beyond doubt:

“5.1 The orders the court may make on an application under Part 24 include:

(1) judgment on the claim,

(2) the striking out or dismissal of the claim,

(3) the dismissal of the application,

(4) a conditional order.

5.2 A conditional order is an order which requires a party

(1) to pay a sum of money into court, or

(2) to take a specified step in relation to his claim or defence, as the case may be,

and provides that that party’s claim will be dismissed or his statement of case will be struck out if he does not comply.

(Note – the court will not follow its former practice of granting leave to a defendant to defend a claim, whether conditionally or unconditionally).”

This reference to the court’s power to make a conditional order is of course a cross-reference to CPR 3.1, where after the list of the court’s court management powers in sub-rule (2), sub-rule (3) provides

“When the court makes an order, it may –

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

(b) specify the consequence of failure to comply with the order or a condition.”

It has always been a feature of the summary judgment procedure that the plaintiff/claimant is unlikely to want to refer to the possibility of a conditional order being made, and the defendant is unlikely, unless pressed, to want to refer to any lack of means when asserting that its defence has a real prospect of success. The former would regard any reference to a conditional order as a sign of weakness because its desire is to persuade the court that the defendant has no real defence. The latter is unlikely to wish to parade its lack of means when contesting the merits of the claim, because this might encourage the court to look more critically into the merits of the defence it wishes to put forward in response to a claim which it knows it cannot pay. In these circumstances a court should not as a general rule make an order of the type made by Judge Hegarty in the absence of any evidence about the defendant’s means unless it is satisfied that the defendant has been given appropriate prior notice, which may be given informally by letter (as opposed to a formal application), to the effect that if the summary judgment application fails the claimant will be seeking a conditional order along the lines set out in the letter. The defendant can then prepare a witness statement as to its means, for production at the stage of the proceedings when the court says it intends to make a conditional order.

It was suggested in the course of argument that CPR 23.6(i) required A-ET to apply for a conditional order, as an alternative to the summary judgment order it was seeking, in its original application notice. I do not consider that this is a correct interpretation of that rule, which provides that “an application must state what order the applicant is seeking”. The order the applicant is seeking in these circumstances is an order for summary judgment. It is only when that application fails, so that the applicant is not given what it seeks, that the court may consider making a conditional order in the course of its case management directions.

It would be wrong for this court to prescribe any particular procedure which might avoid the problem that arose in this case, given that the rules and the practice directions are silent and circumstances may vary so much from case to case. What is important is that if a claimant is seeking a conditional order that is out of the ordinary if a summary judgment application fails – and an order that a defendant should pay Ł1 million into court falls into that category – the judge should not allow any order of that kind to be perfected immediately if the defendant seeks an opportunity to place evidence before him to the effect that the order will stifle its defence completely because it does not have the means to pay.

In my judgment, Judge Hegarty ought, at the highest, to have said at the end of his judgment that he would hear counsel before deciding what conditional order he should make, even if he had indicated that he was minded to direct a payment of Ł1 million within 28 days pursuant to his powers under CPR 3.1(3). If he had taken that course, counsel would no doubt have sought an opportunity for his client to submit evidence of his means (if so advised). If he had done so, it would have been open to the judge to make the order forthwith (to save the parties the cost of a further attendance if no evidence of means was forthcoming) but to direct that it be not drawn up for a week or two, so that Mr Kermanshahchi would have an opportunity for placing evidence of his means before the court. If the judge had adopted a course along these lines, none of the later disputes about the admissibility of such evidence need have arisen.

Under the previous procedural regime the only occasion on which a defendant might be ordered to pay a sum into court as a condition for being allowed to continue to take an active part in the action arose within the Order 14 procedure. In this context CPR 24PD para 4 was clearly intended to set out a new code of practice which could be understood and applied without the need to refer to caselaw, when it provided that:

“Where it appears to the court possible that a claim … may succeed but improbable that it will do so, the court may make a conditional order, as described below.”

I would not wish to exclude the possibility that a claimant might wish to use an ordinary application for case management directions to seek a similar order in a case where it appreciates that it has no reasonable prospect of obtaining summary judgment. Whether that course would be open to a claimant, and whether the criterion for making a conditional order in a summary judgment context would be appropriate in a context in which summary judgment was not being sought, are questions which do not arise on the present appeal. In the circumstances it is better to delay expressing any opinion on them until an occasion in which they do arise for decision.

Order: Appeal allowed in part. Order as drafted by counsel. (Order does not form part of the approved judgment)