England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(MR JUSTICE PETER SMITH)

		Royal Courts of Justice The Strand London, WC2A 2LL
		28 June 2004

Monday, 28 June 2004

1. LORD JUSTICE THORPE: Lord Justice Jonathan Parker will give the first judgment.
2. LORD JUSTICE JONATHAN PARKER: This is an application by Lloyds TSB Bank Plc, the defendant in the action ("the Bank"), that Mr Roy Pack, who was not initially a party to the action, pay the costs of an unsuccessful appeal to this court by Bournemouth and Boscombe Athletic Football Club Ltd, the claimant in the action ("the Club"). The appeal was brought against an order made by Peter Smith J on 16 April 2003 striking the action out on the ground that the claim was bound to fail. Mr Roy Pack is a director of the club, and (pursuant to leave previously granted by this court) he represented the Club on the appeal.
3. The Bank appears on this application by Mr Michael Lerego QC. Mr Pack appears in person. He has applied for an adjournment of the application in circumstances to which I shall turn later in this judgment, but we refused that application. I shall give my reasons for refusing that application in due course.
4. The background to the matter, in summary, is as follows. In 1994 the Club was in severe financial difficulties and the Bank, as its bankers, called in its overdraft (then standing at more than £2 million). That led to the signing of a refinancing agreement dated 23 September 1994 ("the 1994 Agreement"). The broad effect of the 1994 Agreement was to convert the overdraft into a 9- year term loan, with staged repayments for the second year onwards. The Club's indebtedness to the bank was secured by a debenture.
5. It was a condition precedent of that 1994 Agreement that a Mr Gardiner, who had recently been appointed the chairman of the Club, should enter into a guarantee of the Club's indebtedness to the Bank. Mr Gardiner entered into a guarantee in the sum of £250,000.
6. One of the existing guarantors of the Club's indebtedness to the Bank was Mr Norman Hayward, the former chairman, who remained a director of the Club. It was a term of the 1994 Agreement that Mr Hayward should confirm that his guarantee continued to apply to the new arrangements contained in the 1994 Agreement, and that any security he had should be postponed to the Bank's debenture.
7. During 1996 the Club's financial difficulties increased. On 2 July 1996 the Bank made formal demand for repayment of the full amount of the outstanding indebtedness an the footing that the Club was in arrears in making repayments under the 1994 Agreement, and that its failure to make such repayments was an event of default under the 1994 Agreement which entitled the Bank to call in the loan.
8. Later in July 1996 a winding up petition was presented against the Club, and on 2 January 1997 the Bank issued a second formal demand for payment of the outstanding indebtedness, relying (this time) on the presentation of the winding up petition as an event of default under the 1994 Agreement. It is at this point that Mr Pack came on the scene. It appears that on or about 20 January 1997 he was appointed a director of the Club; although there is (it seems) no formal record of his appointment at the Companies Registry. Shortly before Mr Pack's appointment a number of the existing directors (including Mr Gardiner) had resigned, leaving as continuing directors only Mr Hayward and a Mr Willis (who acted as Chairman in place of Mr Gardiner).
9. On 24 January 1997 the Bank, as debenture- holder, appointed a Mr Lewis and a Mr Brierley of Arthur Andersen as administrative receivers.
10. Some three weeks after their appointment, the administrative receivers sought, and were granted, a temporary injunction banning Mr Pack from entering the Club's premises.
11. In due course, the Club (which had for some time been insolvent) entered into a company voluntary arrangement (CVA), and its business was sold to a new company. Since then, the Club has remained insolvent and (in terms of trading, albeit not of litigation) dormant.
12. In due course the Bank, which remained unpaid, made demand on Mr Hayward under his guarantee. Mr Hayward denied liability, and the Bank accordingly commenced an action against him. Mr Hayward contended, among other things, that a side agreement between the Bank and Mr Gardiner had had that effect of releasing him from liability under his guarantee. At the trial of the action, Rimer J decided that issue against Mr Hayward and upheld the Bank's claim. However, the judge's order was set aside by this court, and the action remitted for a retrial. The precise reasons for that are not material for present purposes.
13. In the meantime, on 22 December 2000 the Club commenced an action against the Bank ("the first action"), claiming damages for breach of contract, and alleging (among other things) that the Bank had breached the 1994 Agreement by serving the demand dated 2 July 1996 since the Club was not in default under the 1994 Agreement as at that date. The Particulars of Claim were served late, and the bank applied for the action to be struck out. No response to that application was made by the Club, and by his order dated 21 March 2001 Master Tennant struck the first action out.
14. The statement of truth in the Claim Form in the first action was signed by a solicitor, Messrs Cripps Harries Hall, but on 16 March 2001 Cripps Harries Hall ceased to act, and thereafter the Club was represented in the action by Mr Pack. In his judgment in another action commenced by the Club, to which I shall make further reference below, Hughes J records that it was apparent from what Mr Pack had said in the course of the hearing before him that Mr Pack accepted that the first action was initiated by him.
15. On 28 June 2002 the Club commenced another action against the Bank ("the second action"), making similar allegations against the Bank to those which it had made in the first action and claiming, once again, damages for breach of the 1994 Agreement. The Claim Form in the second action was served on 28 October 2002, the last available date for service under the Civil Procedure rules, but the Particulars of Claim were, once again, served late.
16. The statement of truth in the Claim Form in the second action was signed by a solicitor in Messrs Edwin Coe, but, mirroring what had happened in the first action, in or about October 2002 Edwin Coe ceased to act and the Club was thereafter represented in the action by Mr Pack.
17. On 15 November Messrs 2002 Messrs Osborne Clarke, the Bank's solicitors, wrote to Mr Pack referring to the Particulars of Claim in the second action, asserting that the claim was bound to fail and inviting the Club to withdraw the claim. The letter concluded:

"Please note that our client will pursue both the company and you personally for payment of the costs it has incurred in this matter."

18. The claim was not withdrawn, however, and the Bank duly applied to strike out the second action on the ground of late service of the Particulars of Claim and also on the ground that the claim was bound to fail. With the leave of the court, Mr Pack appeared for the Club at the hearing of the Bank's application, which took place before Peter Smith J. In the event, the Bank's application was successful before the judge, and by his order dated 16 April 2003 he struck out the second action and ordered that the Club pay the Bank's costs of that action. He further ordered that Mr Pack be added as a defendant in the action pursuant to CPR Rule 48.2(1) (costs orders against non- parties) and that an application which the Bank had made for costs against Mr Pack be adjourned with liberty to restore.
19. No payment has been made on account of the Bank's costs of the second action, and it appears that the Club has no assets against which the Bank can enforce its order.
20. Permission to appeal against Peter Smith J's order was granted by Carnwath LJ on 26 June 2003, and the hearing of the appeal took place on 21 November 2003. As already mentioned, with the leave of this court, Mr Pack once again appears for the Club.
21. By its order dated 10 December 2003 this court dismissed the appeal. The Bank once again applied for an order for costs against Mr Pack personally but, as it happened at the hearing below, that application was adjourned with liberty to restore. The Bank's costs of the appeal were summarily assessed in the sum of £40,000, such costs to be paid by the Club.
22. I gave the leading judgment on the appeal, with which Thorpe LJ agreed. In my judgment, I concluded that the claim in the second action was bound to fail for, essentially, two reasons. In the first place, I concluded even if the Club was not in default under the 1994 Agreement on 2 July 1996 (when the first demand was served), the only effect of that would be to render the demand wholly ineffective; and that service of a wholly ineffective demand did not constitute a breach of contract. In the second place, I concluded that in any event there was (on the pleadings) no recoverable loss.
23. The Club, acting once again by Mr Pack, petitioned the House of Lords for permission to appeal to their Lordships' House, but the Appeal Committee has refused such permission.
24. So the second action is at an end.
25. In the meantime, the Club, acting once again by Mr Pack, brought an action against the administrative receivers and against Arthur Andersen, alleging that the administrative receivers had not been lawfully appointed; and that in any event they had carried out their duties negligently, thereby causing damage to the Club. The defendants in that action applied to strike out the claim on the ground that it was bound to fail. The application was heard by Hughes J, and with the leave of the judge Mr Pack appeared once again on behalf of the Club.
26. Hughes J gave judgment on 3 February 2004, in which he concluded that the claim before him was indeed bound to fail. He accordingly struck out the action.
27. In paragraph 5 of his judgment Hughes J said this:

"Mr Pack told me that he had himself started the present action against the receivers on behalf of the company and no solicitors had been involved. In two previous actions, brought by the company against the bank, Mr Pack had given the instructions. Solicitors, although instructed at the stage of claim form, had subsequently ceased to act and, in the second of those actions, Mr Pack was allowed to represent the company, both in the High Court and in the Court of Appeal. In effect, those actions, like this one, were brought largely on the initiative of Mr Pack and/or his co- directors to pursue what he alleges was a wrong done to the company in 1996/1997 by the bank."

I should also refer to paragraph 8 of Hughes J's judgment, in which he said this, with reference to an application which Mr Pack had made for an adjournment (an application which, in the event, the judge rejected):

"As to the second ground of application for adjournment, Mr Pack told me that he is a 'consultant corporate strategic planner'. He told me that he is currently advising on something like 24 different pieces of litigation here, in the United States and in Australia. None of them is an action in which he is himself a party or directly concerned, except in one case to the extent that he guaranteed some legal fees. He stands, in other words, in the position of somebody who holds himself out as willing to advise on and, if necessary, conduct litigation. His initial application to me was in terms made on the basis that, as a result of pressure of work in all those other cases, he needed more time to prepare this one."

In his oral submissions to us this morning Mr Pack has accepted that his "organisation" (as he describes it) among other things manages litigation for clients.

28. In his written skeleton argument in support of the Bank's application Mr Lerego accepts that, on the authority of the decision of this court in Re North West Holdings Plc [2001] EWCA CIV 67, [2001] 1 BCLC 468, the general rule is that directors of a company ought not to be made personally liable for costs. However, he submits this is an exceptional case in which an order for the Bank's costs of the appeal against Mr Pack, as a non- party, is fully justified.
29. Mr Lerego points out that Mr Pack only became a director of the Club shortly before the administrative receivers were appointed, and that, given the injunction which the administrative receivers subsequently obtained, he was in a position to exercise the powers of management over the Club's affairs only for a very short time.
30. Mr Lerego referred us to CPR 39.6, submitting that Mr Pack had used his status as a director as the basis for conducting litigation on behalf of the Club which he would not otherwise have been allowed to conduct. In support of this submission, he referred us to the decision of this court in Paragon Finance Plc v Noueiri [2001] EWCA Civ 1402, [2001] 1 WLR 2357. Mr Lerego also relies strongly in this connection on paragraph 8 of Hughes J's judgment (which I have quoted).
31. Mr Lerego also reminds us that by the letter from Osborne Clarke dated 15 November 2002, to which I referred earlier, notice was given to Mr Pack at an early stage that the Bank would be seeking costs against him personally, and he reminds us also that such an application was made to Peter Smith J at the hearing below.
32. Mr Lerego also reminds us of the procedural history of the various actions commenced by the Club on the initiative of Mr Pack (as summarised earlier).
33. Mr Lerego submits that the appeal in the second action should never have been brought, especially since the principal point on which the Bank succeeded in this court (that is to say that even if the Club was not in default under the 1994 Agreement on 2 July 1996 - when the first demand was served - service of the demand was ineffective and could not amount to a breach of contract) had been clearly raised in the Bank's skeleton argument for the appeal, which had been served on Mr Pack.
34. As I mentioned earlier, Mr Pack invites us today to adjourn this application. The application for an adjournment is based upon the fact that the retrial of the Bank's action against Mr Hayward is currently proceeding in the Chancery Division before Evans- Lombe J. Mr Pack submits that disclosures which are in the course of being made in that action, and additional information which has come to light in that trial, are such that his position is prejudiced since, had he known of the facts which, as he tells us, have now come to light at an earlier stage the Club would not have bought its claims in the first action or the second action in the terms in which they were framed. He submits that the Club would have taken a very different course.
35. In the course of his lengthy oral submissions this morning, Mr Pack made various criticisms of Messrs Osborne Clarke, accusing that firm not only of a conflict of interest but also of serious professional misconduct in concealing material facts. He also submits that the Bank is, and has been, complicit in such concealment. In particular, he submits that the evidence presented to Evans- Lombe J in relation to the cash deposit made in support of Mr Hayward's guarantee is such as to suggest serious misconduct on the part of not only Osborne Clark but also of the Bank. He even goes so far as to submit that the CVA itself was improperly procured by the Bank, describing it as a dishonest CVA. In his own words he says this:

"I have been slaughtered by the concealment of material facts by Osborne Clark."

He therefore seeks an adjournment in order to present the full facts in relation to what he describes as Osborne Clarke's "interference with justice".

36. What, in substance, Mr Pack is seeking to do, as I see it, is to re- open issues raised in the second action in the light of evidence being now presented in the Bank's action against Mr Hayward, notwithstanding that all the issues raised in the second action are now well and truly dead and buried. Moreover, it is necessary to bear in mind that this application by the Bank relates to its costs of Mr Pack's unsuccessful appeal against the order made by Smith J. In my judgment, there are no good grounds for adjourning this application. I cannot see how any disclosures in the Hayward action can affect the position in relation to the application made by the Bank before us today in relation to Mr Pack's liability for the Bank's costs of the appeal.
37. In the course of his submissions Mr Pack also noted that the Bank had mistakenly provided the wrong trial bundles for this hearing, the bundles originally provided being those relating to the Hayward action rather than those relating to the action in which the application is made. The right bundles were only supplied this morning. At the same time, I cannot see that Mr Pack has suffered any prejudice thereby. Indeed, he has addressed us for the best part of two hours based upon a witness statement, accompanied by a substantial bundle of supporting documents, which were only presented to the court this morning. In all the circumstances I can, for my part, see no proper basis for adjourning this application.
38. As to the substance of the application, Mr Pack submits that the case of Paragon v Noueiri is distinguishable and lays down no general principles in relation to the liability of a non- party for costs. He points out, correctly, that he was not a director of the Club at the date when the material events took place - that is to say in 1994 and thereafter. He also tells us - and I accept - that he is not a shareholder in the Club. He further tells us - and I again accept - that he took legal advice as to his position and that he followed that advice. He has also referred us to a number of authorities, copies of which he has provided in the bundle to which I referred earlier.
39. In Paragon v Noueiri this court made it clear that the court's discretion to grant rights of audience and to conduct litigation should only exceptionally be exercised in favour of an individual who makes a practice of seeking to represent otherwise unrepresented litigants (see in particular paragraphs 52- 55 and 58- 61 of the judgment of the court in that case, delivered by Brooke LJ).
40. In the instant case, it is clear from paragraph 8 of Hughes J's judgment, and indeed from what Mr Pack told us this morning, that Mr Pack is such an individual, and the plain inference (which I unhesitatingly draw) is that one of the reasons why Mr Pack became a director of the Club was to enable him to put himself in a stronger position to apply to represent it and to conduct litigation on its behalf in the circumstances where, as Mr Lerego rightly submits, the court would in all probability have refused to allow him to do so as an independent party.
41. In any event, even if Mr Pack had been a director of the Club throughout, the particular circumstances of the instant case are, in my judgment, sufficiently exceptional to justify the court in taking the course of making him personally liable for the costs of the Club's unsuccessful appeal. On his initiative, the Club has commenced two actions against the Bank, each of which has been struck out. The second action was struck out on the express basis that the claim was bound to fail, and since the allegations in the second action effectively mirrored those in the first action, it follows that the first action was similarly defective. Moreover, the actions were commenced at a time when the Club was plainly insolvent. The second action having been struck out by the judge, Mr Pack nevertheless saw fit to instigate an appeal against the judge's order.
42. In those circumstances, it is unnecessary to list the many other procedural shortcomings for which Mr Pack was responsible both in the first and in the second action. The plain fact is that the appeal, the subject of the present application, should never have been brought. In my judgment, those who seek to play fast and loose with the civil justice system in the way which Mr Pack has done, by commencing and presenting hopeless claims, and by prosecuting a hopeless appeal on behalf of an insolvent client, must face the financial consequences of their conduct.
43. I would accordingly make the order sought by the Bank, with only one qualification. It seems to me that Mr Pack is entitled to and should have, a detailed assessment of the Bank's costs of the appeal and that he should not be bound by the summary assessment of the Bank's costs which took place before this court. Subject only to that, I would make the order sought by the Bank on this application.
44. LORD JUSTICE THORPE: I agree.

(Application granted; Respondent do pay the Appellant's costs of the appeal and the cost of the application on the standard basis; such costs to be the subject of a detailed assessment).