England and Wales Court of Appeal (Civil Division) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd November 2007

Lord Justice Lloyd:

1. This is an application by the respondent to an appeal for security for costs and for an order that the appellant be put on terms requiring it to pay certain amounts due under existing costs orders, which are not challenged, as a condition of being allowed to prosecute the appeal.
2. The application notice originally asked for an order stipulating a time within which the appellant should amend its appellant's notice as had been ordered to happen in an order made by this court, consisting of Sedley LJ and myself, on 3 October, by which we gave permission to appeal. The amendment to the appellant's notice has been effected so that point has fallen away.
3. There is a consequential point, which I need do no more than mention. The appeal is an appeal against the judge's costs order at the end of the trial. It is plain, as a result of the amendment to the appellant's notice, that the appellant seeks not only to persuade the court that the judge went wrong in principle in the exercise of his discretion, but, if it succeeds in that, it will ask the Court of Appeal to exercise the discretion, rather than ask that the matter be remitted to the trial judge. The respondent's position is that the judge did not err in principle in the exercise of his discretion; but its position is that if the court is persuaded that he did, so that the court then embarks on the exercise of the discretion as to costs, it would wish to argue that the judge was not sufficiently favourable to it. That is a contention that would, in that event, be open to the respondent. The court, as Mr Saini points out, would have power to make an order more favourable to the respondent. The respondent's contentions in that respect are contingent contentions as a fallback to its primary position, which is that the judge's order ought not to be disturbed. However, it is plain that such a contingent contention must be set out and supported in a respondent's notice, and I have directed that a respondent's notice be served and filed by 7 December.
4. That leaves the two substantial matters, namely, the proposed condition as to payment of existing costs orders, and the application for security for costs. I will deal with the condition first. Three costs orders are at stake. One is an order that EMC, the appellant, pay the costs of the adjournment of the trial in October 2005. That is a liability of EMC alone, in respect of which Peer, the respondent, claims, or has put in a bill claiming, £45,500 odd. Whether it is strictly appropriate or not, reference has been made in the evidence to some subsequent dealings between the parties, from which I can see that the respondent might be willing to accept £28,000 in respect of that order for costs, and that is one item which is not substantially at issue, other than as to the period within which EMC can reasonably be expected to pay it.
5. The same order of Lindsay J, which was dated 4 December 2006, also included a separate provision as to costs, under which EMC, the appellant, and Termidor Publishers Limited (which is a UK company) and Termidor Musikverlag GmbH & co KG, (an associated German company) should jointly and severally pay two thirds of Peer's costs of the preliminary issues in the trial. As regards the quantum of that, that has been agreed in October of this year at £54,000. As between Peer and the Termidor companies, the position is that Peer is liable to pay some costs to Termidor and those are to be set off against Termidor's liability, in respect of what is now quantified as £54,000. So that is a sum: £54,000 is due from EMC, but it is also jointly and separately due from the Termidor companies. The third item is pursuant to an order of Lindsay J of 26 February 2007, under which EMC is required to pay £7,400 odd with interest, which is said to amount to £7,800 or so by the time of the respondent's application. As to that, the evidence is that EMC, which is a Cuban entity and which has had difficulties in the past in obtaining exchange control permission to make payments in foreign currency, has started the process of remitting that money to its English solicitors so that that money may be paid over in satisfaction of the order, so far as it goes; but that money has not yet arrived. Thus, Peer's application is that it should be made a condition of EMC pursuing its appeal that by some given date (it says fourteen days, but that is probably too short) EMC should pay £54,000 on the order for which it is jointly and severally liable with Termidor, the £7,000 odd, under the order of February this year and, in practice, £28,000, in respect of the costs of the adjournment under Lindsay J's order of 4 December 2006.
6. Undoubtedly, there is jurisdiction to make an order of that kind as a condition of allowing an appeal to proceed. The leading case in this area is Hammond Suddards v Agrichem International [2001] EWCA Civ 2065, in which such an order was made where the appellant was, if I remember right, a company established in the British Virgin Islands with a post office box address in Jersey, and no assets in the United Kingdom and no admission of any assets anywhere, but with an unexplained ability to finance its side of the litigation. An order of that kind was made in that case, and such orders have been made in other cases, where the appellant is a person or entity based outside not just the United Kingdom but the European Union, and has no assets or presence within the jurisdiction, and there is no obvious means for the respondent to enforce the orders for costs, if they are not voluntarily complied with, voluntarily, that is to say, without a sanction of this kind. Of course, compliance with an order of the court should not be regarded as a matter of choice. In Hammond Suddards, at paragraph 40, Clarke LJ as he then was, set out six factors which, in the view of the court in that case, made compelling reasons which satisfied rule 52.9, to vary the conditions on which the appeal may be brought by imposing such a condition. The first of those was in terms of the appellant being an entity against whom it will be difficult to exercise the normal mechanisms of enforcement. That is true of this case as well.
7. The second is that the appellant plainly either had the resources, or access to resources, enabling it to instruct solicitors and counsel to prosecute its appeal. That is also this case. It is then said the third factor is this: there is no convincing evidence that the appellant does not either have the resources or have access to resources which would enable it to pay the debt and costs at all. In the present case it is just costs that are ordered. There is evidence of a rather general kind that the appellant's assets are limited. The clearer evidence is that, in common no doubt with other entities in Cuba, it has difficulties in transmitting funds into hard currency to a place such as the United Kingdom. The fourth factor was that the discovery which the appellant had provided of its financial affairs was inadequate. So far as this case is concerned, there is almost no disclosure of the appellant's financial affairs. The evidence filed on behalf of the appellant in a witness statement of Mr Davies of the appellant's solicitors describes updates of the position from a witness statement of Mr Shear of 2005, and says that the availability of foreign exchange is even more difficult, and at paragraph 36 he reports the director of EMC, Senor Ernesto Vila, as saying that EMC's return from its principal markets (Spanish speaking countries) had reduced. The United States, (I interpose, with a substantial Spanish speaking population) is the biggest market for this music. EMC cannot obtain any return from it, due to the US embargo. Payments in sterling are particularly difficult because of the strength of the pound against the dollar.

"Senor Vila told me that for EMC to pay in pounds is a very, very high sacrifice and it is very, very expensive."

8. I can well believe that, but it does not go to show that, given time, EMC could not pay if it had to. The Court of Appeal in Hammond Suddards continued by saying that they were not persuaded that the appeal would be stifled by the order and that, in those circumstances, they found it unacceptable that in the absence of any other orders of the court; the appellant was intending to prosecute the appeal, whilst at the same time continuing to disobey the orders of the court to pay the judgment debt of costs. Not all circumstances of that case are reflected in the present case; but it seems to me that the essence of it is common with that case in that, if EMCs appeal fails, Peer will not have any reasonable prospect of being able to recover, either costs already ordered in its favour and not challenged, or the costs of the appeal, insofar as ordered in its favour.
9. In those circumstances, as it seems to me, in principle this is a proper case for the exercise of the discretion and that there is compelling reason to vary the terms on which permission to appeal was given by this court on 3 October to impose these conditions. Perhaps it is appropriate to record that, at that very hearing, this application, or something of its kind, was foreseen. As regards what the conditions should be, it seems to me that, subject to the question of time, EMC should be required to pay the £28,000 in respect of the costs of the adjournment, and the £7,400 odd figure, under 26 February 2007 order.
10. It does not seem to me that it should be required to pay the £54,000 for which EMC is jointly and severally liable with Termidor. Of course, as Mr Saini submits, EMC is liable for that amount, and Peer is entitled to look to EMC for that amount. But it is not, as it seems to me, the case that, if that sum is not paid by EMC as a pre-condition of the appeal and if the appeal fails, Peer will have no prospect of recovering that £54,000. Termidor, the two companies based in the UK and Germany, are equally liable and there is no evidence before the court to suggest that they will not be able to pay. Therefore, quite apart from the issue as to the relevance of a possible set-off as between Peer and Termidor of Peer's liability to pay Termidor's costs, which seems to me to be irrelevant, I do not regard it appropriate to require EMC to pay that sum because Peer is not at risk of failing to recover that sum in the way that it is as regards the sums ordered against EMC alone. If there is an effective set-off, as regards sums due from Peer to Termidor, it will simply mean that Peer is satisfied as regards the £54,000, either by the discharge of its own liability to Termidor, or in part by that and in part by payment from Termidor. Accordingly, as regards the conditions, I propose to accede to Peer's application, but only in respect of the sum of £35,404.25. The time for payment is yet to be decided on which it may be that I shall hear submissions.
11. I move on to the question of security for costs. Undoubtedly the basic conditions for an order for security are satisfied. Indeed, the circumstances that I have referred to, as supporting an order for imposing conditions as to the £35,000, are very much the same reasons as would justify an order for security. It seems to me that the question is not whether, but how much?
12. Peer has put forward a costs breakdown, showing a total of £52,890. EMC submits that that is too high, and that counsel's brief fee, whilst it may be a perfectly proper fee for Peer to pay if it wishes, is far too high to visit on the unsuccessful appellant, if that turns out to be the result of the case. Equally, it is said that the thirty hours anticipated preparation on the part of the solicitors is likely to be excessive. As against that, Mr Saini says, with some force to my mind, that this appeal, which is estimated for two days, with two days of pre-reading on the part of the members of the court, is a very substantial exercise because the court will have to be educated in the issues that were at stake in the course of the trial (the trial phase 2) and as to the course that that trial took, which was far from straightforward, and that whereas the trial judge knew all of that and it was common to him and to the advocates before him so no particular briefing or explanation was required, Mr Saini says that the Court of Appeal will have to be instructed, so to speak, in the matter very fully, and a very full (though he hopes, and no doubt the court will hope, well- focused) skeleton argument will be desirable on each side.
13. Mr Mellor makes a number of points. He makes the point that Peer has been willing in the past to incur, and therefore risk, considerable sums already, but with at that stage no particular prospect of cost recovery from EMC. That is a fair point so far as it goes, but it seems to me that it is a point of much less weight when one considers the conditions subject to which an appeal should be allowed to proceed, both those that I have already considered and the question of security to which I am now directed. Moreover, he submits that the £53,000 figure, in effect, is significantly higher than is likely to be recoverable on an assessment, and that I should reasonably take the view that that the recoverable amount would not be likely to be more than about £35,000. He further makes the point that it is now clear that the respondent will be serving a respondent's notice, and that some of the costs will be properly attributable to the respondent's notice; therefore there should be a further discount, even from this £35,000 figure.
14. It seems to me, as I say, that an order for security for costs is appropriate. I reject, for the reasons already given, the proposition that Peer should be treated as being fully at risk for its costs of the appeal. The question is how much security should be provided. I take the point that Mr Saini makes, that this will be a substantial appeal, but it seems to me that there must be a reasonable prospect that £53,000 is not the amount that would be allowed on an assessment. I do not propose to make any significant discount for the fact that some costs will be, or may be, capable of being regarded as referable to the respondent's notice, apart from the modest cost, as I imagine it would be, of actually settling the respondent's notice (modest in the context, at any rate); but it seems to me that Mr Mellor's figure of £35,000 is too low, and instead of that I propose to fix the amount payable by way of security in the sum of £40,000.
15. Now Mr Mellor has made it plain that, so far as the £28,000 more or less offered (I say more or less offered -- it was more or less offered in respect of the actual costs order rather than the condition) that was something which EMC reckoned that it would be able to pay in twelve weeks. That would be twelve weeks running from the moment when it knows that it has to pay it. The appeal is currently fixed for 5 to 7 February, and 5 February is seventy-four days from now; so less than twelve weeks. It seems to me that, in the light of my order which requires EMC to pay £75,000 as a condition of prosecuting the appeal, the timescale needs to be reconsidered. Of course, the court is reluctant, in general terms, to postpone an appeal that is already fixed; and neither party, in a sense, wishes that to happen, but for different reasons.
16. Nevertheless, in the present circumstances, it seems to me, that the right course is to set a timescale for payment, which is at least twelve weeks, and I am prepared to consider submissions as to whether it should be longer than that, and to vacate the date presently fixed and postpone it until after that timescale has run.
17. Mr Saini submits that the case should not be re-fixed until it is known whether the condition is complied with. I am not much attracted by that course, because it seems to me that that would be likely to result in a very substantial delay. I quite see his point that, alternatively, if (for purposes of argument) one took a timescale of, simply for illustration, twenty weeks and re-fixed the appeal for a slot which is, in effect, a four-day slot, with two days of pre-reading, at least it would seem after that it might turn out that those four days were wasted, and both the court and the counsel would have been committed for that period. Nevertheless, I am inclined to think that that is probably the right course, subject to submissions as to what period should be allowed. So the order that I propose to make, subject to details which are yet to be fixed (apart from the order as to regards the service of a respondent's notice) is that EMC must pay £28,000 and £7,404.25 in respect of the two existing costs orders as a condition of being allowed to pursue the appeal, and it must pay £40,000 by way of security for costs. Precisely how that should be reflected and what the time should be I will hear submissions on.

Order: Application granted