England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISION
His Honour Judge Weeks QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		24th July 2003

Lord Justice Waller:

This is the judgment of the court.

1. On 6^th December 2002 His Honour Judge Weeks QC dismissed a claim by the appellant company (Contract). Contract were claiming specific performance or damages by reference to a contract for the purchase of shares. Contract had however been struck off the register. It had by the time it commenced proceedings been restored to the register with retrospective effect. The issues that the judge had to resolve related to the effect of that retrospective restoration he holding that that restoration did not prevent the company being in repudiation of the contract during the period when it was struck off the register. Contract's claim was thus dismissed with costs. The judge refused an application to assess costs on an issue basis taking the view that that question was essentially an academic one having regard to the fact that the company had no assets. He thus ordered an interim payment of £15,000 being the sum which Contract had been ordered to put up as security for costs.
2. Contract put in a notice of appeal on 20^th December 2002. By that notice an application was made for a stay of execution in relation to the order for costs made in favour of the defendants.
3. As already indicated Contract has no assets. The action had been funded by certain individuals including a Mr Shuck. The defendants have at all times been concerned to see whether they can make the individuals who funded the action responsible for the costs.
4. It was in that context that the defendants made an application to the judge that he should reconsider the permission to appeal in the light of new evidence and make permission to appeal conditional on the payment of the defendants'costs in the sum of £100,000. The argument of the defendants involved submitting to the judge that when the matter got to the court of appeal the court of appeal would not have the power to impose such a condition and thus that it was a matter for the judge. The judge refused to impose any conditions. In addition the defendants made an application that the individuals who funded the application should be liable for the costs under section 51 of the Supreme Court Act 1981. The judge has refused to hear that application pending the appeal.
5. So far as the court of appeal is concerned an application for a stay in relation to the order for costs was made and dealt with by Waller LJ on 24^th March 2003. He refused that application. At the same time there was an application by the respondents for security for costs for the appeal and an agreed order for that security in the sum of £20,000 was made. That security was to be supplied by 4.00pm on 7^th April 2003.
6. In considering whether to grant a stay the main issue was whether unless a stay were granted the appeal would be stifled. Waller LJ took the view that there was no cogent evidence of the appeal being stifled on the basis that Mr Shuck who had financed the action below and was financing the appeal had not demonstrated that he could not pay such liability for costs as there might be. However Waller LJ was concerned to relieve Contract or those funding Contract from incurring the costs of a detailed assessment and made an order that if the sum of £50,000 was paid into the court there would be a stay of execution. That sum has however never been paid into court.
7. Indeed what has happened is that those acting for Contract have done all they can to postpone the assessment of costs so that if possible the appeal would come on before the respondents have a sum in relation to which they can execute against Contract.
8. The solicitors for Contract appear to have been put in funds to make such applications as they have deemed necessary to support the stalling tactics or to resist the respondents' attempt to get the order they need. That seems to indicate that funds are available through Mr Shuck. He is content to fund his solicitors but determined the respondents do not get any money from him. Mr Shuck's aim is clearly to try and win the appeal in which event the costs order will be reversed, Contract will survive and he will benefit from that survival. We assume that he through Contract would have every intention of seeking an order for costs against the respondents which he would have no compunction in enforcing. But if the appeal is lost Contract will have no assets and go into liquidation. Mr Shuck will then fight tooth and nail to prevent any individuals who backed the original action and who backed the appeal being liable for costs.
9. The order to supply security for costs for the appeal was not in fact complied with. The sum was provided ten minutes late. As Waller LJ indicated in relieving Contract from sanctions that conduct by Mr Shuck was very close to being deliberate. Indeed his conduct was such that it was a close run thing as to whether Contract should be relieved from sanctions and have their appeal dismissed.
10. The attempts however to prevent the respondents obtaining an enforceable order have continued. The details appear in Mr Davies' seventh statement. Despite the efforts of those representing Contract the respondents have now obtained an interim costs certificate for £37,000 although the money is to be paid into court and not to the respondents personally. But the effect of the delaying tactics of those representing Contract is that that order was not obtained until 6^th June 2003.
11. On 4^th June 2003 the appellants had issued an application returnable before His Honour Judge Weeks QC asking him to vary the order made on 6 December 2002 to make the costs order issue based. This application appears to have been made to support an argument before Master Wright at the hearing on 6^th June 2003 that an interim costs certificate was premature since the matter was going back in front of the trial judge. Master Wright as already indicated did issue a certificate of £37,000 payable within 14 days. However he ordered that the money be paid into court rather than to the respondents.
12. The application before His Honour Judge Weeks QC was heard on 24^th June 2003. It was dismissed on the grounds that the judge had no jurisdiction to vary his previous order and on the further basis that Contract had already informally made the same application at the hearing before His Honour Judge Weeks QC on 21 February 2003.
13. In addition to the interim costs order of £37,000, the respondents now also have an order for the payment of costs in relation to the hearing before Master Wright in the sum of £2,000. They have a further order from His Honour Judge Weeks QC in relation to the hearing before him in the sum of £4,791. Although those costs should have been paid within 14 days they have not been paid. Furthermore the sum of £37,000 has not been paid into court. It is obviously the aim of Contract to have the appeal heard before they actually pay those sums so that if the appeal is lost execution against Contract will achieve nothing.
14. When Waller LJ dealt with Contract's application for a stay on 24^th March 2003 he held that the evidence that any appeal would be stifled was exceedingly weak. It is now clear both from a statement put before His Honour Judge Weeks QC by Mr Tasselli and from the concession made by Mr Reeve on behalf of Contract before us that there is no question of there being any stifling of the appeal if the above sums were ordered to be paid. Mr Shuck would find it inconvenient to pay those monies but he would be able to do so if it was made a condition of Contract being entitled to pursue their appeal that those orders should be met.
15. The application made by the respondents was to obtain either a dismissal of the appeal by reference to Contract's conduct or [more realistically] an order that those costs be paid within a short time or the appeal be dismissed or in the further alternative that the appeal be taken out of the list and adjourned until the costs were paid.
16. At the conclusion of the hearing before us we made the order that unless by 4.00pm on Friday 18^th July 2003 Contract paid the sum of £37,000 into court and the sums of £2,000 and £4,792 to the respondents the appeal be struck out. We further ordered Contract to pay the respondents' costs of this application and ordered that sum also to be paid by 4.00pm 18^th July 2003 and that the appeal would be struck out if the costs were not paid. We are now giving our reasons for making that order.

Jurisdiction

17. Mr Reeve submitted that there was no jurisdiction in the court of appeal to make the order sought. His submission was that CPR 52 laid down the powers of the court of appeal. In particular he submitted that CPR 52.9 identified the situations in which the court was empowered to impose conditions upon which an appeal might be brought. CPR 52.9 provides as follows:

"(1) The appeal court may-

(a) strike out the whole or part of an appeal notice;

(b) set aside permission to appeal in whole or in part;

(c) impose or vary conditions upon which an appeal may be brought.

(2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so.

(3) Where a party was present at the hearing at which permission was given he may not subsequently apply for an order that the court exercise its powers under sub-paragraphs (1)(b) or (1)(c)."

18. Mr Reeve has two prongs to his attack by reference to CPR 52.9. First he says that permission to appeal was granted by the judge at a time when the respondents were present. That was on 6^th December 2002. Thus he argues CPR 52.9(3) prevents an application to impose conditions upon which an appeal may be brought. Second and additionally the respondents had made an attempt to persuade the judge to vary the order he had made for permission to appeal. They sought to persuade him to order that permission to appeal should be made conditional on a payment into court in respect of both costs orders made on 28^th November 2002 and 6^th December 2002 alternatively the provision of appropriate security in relation to the same. They made that application on the basis that there had been a change of circumstances since the judge had made his first order granting permission to appeal. The judge rejected that application. Mr Reeve relies again on CPR 52.9(3) but in addition suggests that even if CPR 52.9 does not apply on its true construction to prevent conditions now being imposed on permission to appeal, it would be wrong for the court of appeal to entertain what is in effect the same application already rejected by the judge.
19. In Societe Eran Shipping [2001] EWCACiv568 at para 18 Rix LJ was inclined to the view that CPR 52.9(3) was applicable only to applications for permission before the court of appeal. It was not he was inclined to the view applicable to applications to the trial judge. His reasoning was that parties would always be present at hearings at first instance. Further CPR 52.9(1)(c) relates to varying conditions which seems to indicate an application to the court of appeal to vary conditions made in the court below. We see the force of Rix LJ's reasoning but it is not necessary for the disposal of these applications to rule finally on that aspect.
20. There is an answer to Mr Reeve's objections to jurisdiction by reference to entirely different provisions of the CPR. These provisions also deal with his point that this court should not be entertaining a similar application to that which has already been made before His Honour Judge Weeks.
21. The court of appeal has the power to manage its own cases. It would be very strange if CPR 52.9 prevented the court of appeal imposing conditions under its case management powers where circumstances during the currency of the appeal made it appropriate either to stay the appeal or stay the appeal subject to conditions. This matter was dealt with in Great Future International Limited v Sealand Housing Corporation [2003] EWCACiv682 where the court was concerned with its jurisdiction to impose a condition on the appellants' application for permission to appeal. Arguments were run in that case that the power to impose conditions came from CPR 52.10 but Waller LJ doubted whether that was the provision that provided the requisite powers. Waller LJ said this:

"8. The provisions on which Mr Kosmin relies are CPR 3.1. He suggested in his submissions that the Court of Appeal had the power to exercise the powers provided by CPR 3.1 by virtue of CPR 52.10, which provides for the Court of Appeal having the powers of the court below in relation to any appeal. For my part I am doubtful whether it is CPR 52.10 which provides the Court of Appeal with any of the requisite powers. It seems to me that it is CPR 2.1 which gives the Court of Appeal case management powers, which are the powers provided for by CPR 3 to which I will turn in a moment. CPR 2.1 provides that:

"Subject to paragraph (2), these Rules apply to all proceedings in …

(a) county courts;

(b) the High Court; and

(c) the Civil Division of the Court of Appeal."

And the case management powers are clearly case management powers both in relation to the Court of Appeal and the other courts there referred to. The important parts of CPR 3.1 are 3.1(2), which provides:

"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;

(m) take any other step or make any other order for the purpose of managing the case and furthering the overriding objective"

and 3.1(3), which 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 is unnecessary to quote other aspects of 3.1, although they all provide support for the court having the power to make the form of order that Mr Kosmin seeks in this case.

9. The argument put forward by Mr Connerty for suggesting that 3.1 does not provide the requisite power rests essentially on the opening words of 3.1(2), which provide "Except where these Rules provide otherwise, the court may". What he suggests is because there is CPR 25, dealing with security for costs, including CPR 25.15 dealing expressly with security for costs on an appeal, and CPR 52, dealing with what happens in relation to appeals and applications for permission "these Rules provide otherwise".

10. As my Lord, Lord Justice Kay pointed out during the argument, the truth is that the Rules are silent in relation to the situation that actually exists in this particular case. There is no provision of the Rules which deals with what should happen where an application for permission has been adjourned to an oral hearing and where the appeal is to follow. Furthermore, it seems to me that the argument put forward by Mr Connerty comes up against one of the authorities to which we were referred, which is Olatawura v Abiloye [2002] CP Reports 73, where Simon Brown LJ approved the use of CPR 3.1 in the context of a summary judgment application. What is referred to by 3.1(2) is something that expressly prohibits or expressly deals with the particular matter which might otherwise be dealt with under 3.1(2). In my view the jurisdiction is there. "

22. It seems clear that the court of appeal has case management powers in addition to those that it may have under CPR 52. Furthermore it seems to us that the application that is now before us is an application made during the currency of an appeal where the court is being asked to consider whether to exercise its case management powers by reference to conduct while the appeal is pending. That is totally different from the application before His Honour Judge Weeks. In our view the court of appeal has jurisdiction to deal with this application and it is not inappropriate to consider the making of the order asked even though the respondents did seek to impose conditions on the permission to appeal before His Honour Judge Weeks.
23. Mr Reeve's next point was to suggest that the costs order is flawed. His argument was that the original costs order should have been issue based. Although the judge has refused to make an issue based order that was at first because he thought it was academic and later because he did not think he had any jurisdiction to do so. It will be contended on the appeal that even if Contract lose, the costs order made by the judge should be reversed and an issue based costs order be made. So it is submitted by Mr Reeve that the liability for the costs may not be as high as the £37,000 certified by the costs judge. It would thus he submits be prejudicial to order the payment of £37,000 into court in those circumstances.
24. We do not think there will be any prejudice. Even if the costs order was varied to an issue based order, and a lower sum than the £37,000 was ordered to be paid, since this sum is in court any surplus would be ordered to be repaid to Contract.
25. The main point taken by Mr Reeve is that the respondents are attempting to prejudge the question whether Mr Shuck should be personally liable for the costs of the trial below. It is in this context that it is right to consider the authorities cited to us. We were referred to Hammond Suddard v Agrichem International Holdings Limited [2001] EWCACiv2065 and to CIBC Mellon Trust Company v Mora Hotel Corporation NV and Chascona NV [2002] EWCACiv1688.
26. CIBC was a case in which the judge at first instance had used case management powers to make it a condition of the pursuit of certain applications the payment into court of £1,600,000 which related to past costs. The circumstances of the case were that an individual shareholder had come in to finance later aspects of litigation and the order for the putting up of past costs was made on the basis that that individual could afford to put those costs up. A lengthy citation from the judgment of Lord Justice Peter Gibson will demonstrate both the points at issue in that case and the distinction between that case and the Hammond Suddard case. He dealt first with jurisdiction and having held there was jurisdiction said this:-.

"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.

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."

27. The instant case is very different from the CIBC case. First Mr Shuck had financed the whole of the trial process or been a party to the financing. Second this is a case in which a section 51 application must stand a considerable prospect of success. Third it is an appeal and that places the case management powers in a very different context. Fourth this is not a case where the respondents are simply seeking to inflate the pool against which they can later execute any judgment. Their position is that when Mr Shuck has financed the trial and is financing the appeal, there is no reason why he should be allowed to conduct that appeal on a heads he wins and a tails they lose basis.
28. It is not in our view to prejudge the question whether the individuals should be liable for the costs of the trial to make the orders that the respondents now seek. Contract can abandon the appeal and Mr Shuck can fight the question of personal liability for costs. But if Mr Shuck chooses to fund an appeal there is no reason why the court should not say Contract can bring the appeal but only on terms.
29. For these reasons we made the order that we did.
Order; order made 11.07.03 setting out conditions on which appeal should be pursued. (Order does not form part of the approved judgment)