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
QUEEN'S BENCH DIVISION
(MR JUSTICE IRWIN)

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 February 2007

Lord Justice Tuckey:

1. This is an appeal from a decision of Irwin J, who dismissed the defendant's application for security for costs. The claimants had earlier been ordered to provide security of £30,000 to cover the period up to the exchange of witness statements. The present application was for more than £350,000 to cover the remainder of the costs down to the end of a six to eight-day trial which is now fixed to start on 23 April 2007. The judge concluded that a substantial order for security was likely to stifle the claim but the defendant says that his reasons for reaching this conclusion are flawed.
2. The first and second claimants are the executors and trustees of the estate of Emmanuel Kwame Ashiagbor (deceased). The deceased took his own life on 29 July 1997. He was an influential and successful Ghanian with extensive international business interests. The first claimant, whom I shall call Mr K, is a senior lawyer in Ghana. He was a friend of the deceased and his lawyer. The second claimant is the deceased's widow. His eight children are the beneficiaries under the will of which probate was granted in the High Court of Ghana in June 1998. The third claimant is a British Virgin Islands company established for the deceased, apparently for tax purposes. The defendant is an English company whose business includes the construction and equipment of hospitals throughout the world.
3. On 21 September 1995 the defendant entered into an agency agreement with the deceased with a view to its being employed by the government of Ghana ("the client") to construct and equip a hospital or hospitals to the value of £35 million. The agreement, which was drafted by English solicitors, recited that the deceased was to:

"Use [his] reasonable endeavours to procure that the Client awards contracts to and engages [the defendant] to design, construct, equip and commission the Project (the Work)".

4. The deceased was employed as the defendant's sole agent for five years "to secure for [the defendant] the contract being awarded by the Client for the Work" (clause 1). He was to be paid a commission of 15 per cent of the value of all contracts "awarded by the Client" to the defendant (clause 6). Payment was to be made "as and when and pro rata each payment received by [the defendant] from the Client" (clause 8).
5. In February 1996 the government of Ghana awarded the defendant a £35 million contract to build and equip a hospital at Sunyani. On 18 December that year, by means of a variation agreement and a deed of assignment, the parties agreed that commission due under the agency agreement would be split five per cent to the deceased and ten per cent to the third claimant. The deed recited that the commission due under the agency agreement "has become payable".
6. By the time these agreements were executed, the Sunyani project was underway and between 2 October and 13 November the defendant had paid a total of nearly £3 million to the deceased or the third claimant. No claim for further commission was made until a letter before action written by the claimants' solicitor in October 2003. When the defendant refused payment proceedings were issued which were subsequently struck out by this court early in 2006 because they had not been served in time. Following that decision, in early 2006 £45,000 was paid by or on behalf of the claimants in satisfaction of interim costs orders made against them in those proceedings.
7. The present proceedings were started in April 2004. About £5.5 million is claimed for the balance of the commission plus interest due on the Sunyani project under the agreements to which I have referred. The re-amended defence admits that the defendant received further payments for the Sunyani hospital after the deceased's death, but contends that no commission is due on these payments because the deceased's entitlement was dependant upon his continuing assistance for the duration of the project so as to ensure, among other things, lack of interference by local officials and prompt payments to the defendant. The full extent of this defence was slow to emerge but it is now put as a matter of construction of the agreements themselves alternatively as a claim for rectification on the basis that these agreements do not contain a complete record of what the parties have agreed, or as a necessary implied term. There is also a counterclaim which, among other things, claims losses attributable to late payments by the government.
8. So that, shortly, is what the case is about. The history of the applications for security for costs is important. In May 2005 the defendant's solicitors wrote asking for a full statement of the net unencumbered assets of the deceased's estate in the United Kingdom and elsewhere. Despite promises, no such information was forthcoming and so the first application for security was issued in September 2005. On the morning of 12 October, when this application was due to be heard by a Deputy Master, a statement from Mr K was produced. It said that it had been made from "information obtained during perusal of the documentation of the estate, my own knowledge and belief", and continued:

"In our capacity as executors of the estate of the deceased we liquidated the deceased assets and distributed them amongst the beneficiaries. No funds were retained from the estate to litigate because we were not aware at the time that there would be any litigation. Exhibited herewith as 'NK1' are the interim Estate Accounts. This is the form in which estate accounts were submitted in Ghana for inheritance tax calculations and probate and would have been based on estimates. Although reasonably accurate the final figures and distribution would have been subject to actual values realised upon the liquidation of the assets and proof of debts and liabilities claimed."

9. The one-page exhibited document showed assets and liabilities in Ghana and London expressed in sterling or the sterling equivalent and showed an overall deficit of £93,752. So, Mr K said, there were no assets in the estate out of which security could be provided. The prospects of raising funds were, he said, slim, but if the claimants were forced to do so the maximum they would be able to raise would be £30,000 in the form of loans. Although Mr K's statement does say that the deceased's assets had been distributed amongst the beneficiaries, the one-page exhibited document does not say what those assets were or how much was distributed. Nor does Mr K's statement. On the face of the exhibit there were in fact no assets to distribute because there was a deficit.
10. The Deputy Master accepted that the claimants had a strong prima facie case on the merits in view of the wording of the agreements. Nevertheless, he ordered security of £30,000, as I have already said, and ordered the claimants to pay the costs of the application which he assessed at £8,793. The claimants provided this security and paid the costs following which their solicitors gave notice that they were acting under a conditional fee agreement with no after-the-event insurance.
11. The trial was originally fixed for mid-October 2006. It was adjourned at the defendant's request and the defendant was ordered to pay the costs thrown away as a result of that adjournment. The present application for security followed, based in part upon documents which the claimants had recently disclosed. These showed that in December 1995 the deceased had US $1.3 million and £600,000 in bank accounts in London which did not feature in the list of assets produced by Mr K. They also showed that the deceased had given instructions that £325,000 of the commission he received from the defendant in November 1996 should be paid by way of loan to a BVI company, apparently related to the third claimant. No such loan had been listed as an asset of the deceased.
12. The hearing of the further application for security was listed to be heard between 11 and 13 December. On 11 December a further statement from Mr K was served. He explained that estate accounts were then being prepared to give as accurate an account as possible as to how the estate came to be insolvent and said:

"The exact amounts that were left to the estate will become apparent from the estate accounts when they are filed. I estimate that it would have been approximately U.S. $1 million. The interim accounts exhibited in my first witness statement were exactly that i.e. interim accounts. The figures therein are noted as estimates. They were prepared for the purpose of obtaining probate with the information available at the time and I have never suggested that they were anything more than that."

13. Mr K added that the claimants had never said that the estate was insolvent at the time of the deceased's death, but only at or by the time the first security for costs application was made. But whatever Mr K may have thought, the clear impression given by his earlier statement and the document he produced was, I think, that at the time of death and when probate was granted the estate had indeed been insolvent.
14. Mr K went on to state that the $1 million had subsequently been spent on the upkeep and schooling of the beneficiaries, who were aged between eight and nineteen when the deceased died. School fees alone were on average $20,000-$30,000 per annum per child. None of the children were yet working full time. Mr K did not attempt to explain what had happened to the money received by the deceased from the defendant in the months before his death or the money which he had at the end of 1995. He said that the claimants had been able to pay the £30,000 and the costs orders to which I have referred under the terms of the CFA, a fact confirmed by the claimants' solicitor in his statement.
15. So that was how things stood when the matter came before Irwin J on 13 December 2006. He was asked to adjourn the application to enable the claimants to produce the estate accounts referred to by Mr K which he was told could be produced by the end of January 2007. The judge rejected this application, given the history to which I have referred and the fact that in October 2006 the claimants' solicitors had said that it would take four to five weeks to get this information together.
16. I should add at this stage that Mr Pearson for the claimants applied this morning for permission to put in further evidence. First, a further statement from the solicitor explaining why the accounts to which Mr K referred in his December statement were still not available due to insuperable practical difficulties of getting such things done in Ghana. Admission of that statement was not opposed but it added little if anything to what had already been said about the state of affairs in Ghana before. Second, a further statement from Mr K dealing with his assets. Admission of that statement was opposed on a number of grounds, including the fact that this evidence has always been available. That is obviously a strong ground for not admitting this evidence but nevertheless I would admit it, lest it should be thought that its exclusion played any part in the outcome of the appeal.
17. It was and is common ground that the court could make an order for security in this case because the first two claimants were resident outside the jurisdiction of this court and the European Union (CPR 25.13(1)(a)) and had failed to give an address in the claim form (CPR 25.13(1)(e)). There was reason to believe that the third claimant would be unable to pay the defendant's costs if ordered to do so (CPR 25.13(1)(c)) because it had been struck off the BVI register and only been restored at a cost to the claimants of £20,000 for the purpose of these proceedings. The judge rightly said that the question was whether, having regard to all the circumstances of the case, it was just to make an order for security.
18. Obviously the merits of the claim had to be taken into account. At paragraph 54 of his judgment the judge said:

"In the end, in my view, the claimants are not sure to win, but they certainly do have a high prospect of success. In short, I find myself, on the merits, in exactly the same position as [the Deputy Master]."

19. Mr Guy Phillips QC for the defendant did not seriously challenge this assessment before us this morning. If I thought that it was important to distinguish between a strong prima facie case and a high prospect of success for the purposes of determining this appeal, it would be necessary to look in more detail at the merits to see whether the judge's conclusion was justified, but I do not think that any such distinction is determinative, so I shall assume without deciding that the judge's assessment was one he was entitled to make.
20. As I have said, Mr Phillips' real challenge to the decision relates to the judge's conclusion that any substantial order for security was likely to stifle the claim. There was and is no dispute as to the correct approach. It is summarised by Peter Gibson LJ in Keary Developments v Tarmac Constructions [1995] 1 AER 534 at p.540:

"6. Before the court refuses to order security on the ground that it would unfairly stifle a valid claim the court must be satisfied that in all the circumstances it is probable that the claim would be stifled. The court will consider not only whether the plaintiff company can provide security out of its own resources to continue litigation but also whether it can raise the money from its directors, shareholders, other backers or interested persons. As this is likely to be peculiarly within the knowledge of the plaintiff company it is for the plaintiff to satisfy the court that it would be prevented by an order for security from continuing the litigation."

21. The judge considered the impact of any order for security by asking himself a series of questions which were: Would it stifle the claim? Has there been any positive misstatement of means? Is there a lack of probity? Has there been a failure to set up the kind of account of impecuniosity that one would expect? He answered the last question with a resounding "yes". There had been, he said, "a woeful failure to organise information in a way that was desirable" in the face of an application for security which had been anticipated. Mr Phillips relies on this conclusion but says that the judge's answers to the other questions which he posed were wrong. He answered these questions in paragraphs 57-61 of the judgment.
22. In paragraph 57 the judge says that the interim estate accounts were incomplete and probably intentionally misleading, but adds that they were intended to mislead the Ghanian tax authorities rather than the court. But that is not the point. If those accounts were misleading they misled the court, irrespective of the intention with which they were deployed.
23. In paragraph 59 the judge notes the lack of explanation as to what has happened to the money which the deceased had undoubtedly had from the defendant and in bank accounts at some earlier time and simply says that he is unable to unpick all this.
24. In paragraph 60 the judge says:

"[Mr K in] his witness statement of 11 October 2005 stated that at that point there was a £93,000 deficiency in the net estate: I emphasise at that point. His statement of 11 December 2006 told us that approximately $1 million had been left in the estate after the death. There is no logical inconsistency between $1 million being in the estate some years ago and a £93,000 deficiency in the net estate in October 2005. So there is no inconsistency necessarily there, nor is there any suspicious inconsistency in the claim that £30,000 was the limit that could be met at the time of the application before the Deputy Master whereas a little more has been raised since."

Here, it seems to me, the judge has obviously misunderstood the position. There was, I think, a glaring inconsistency between Mr K's two statements which had not been satisfactorily explained. The Deputy Master was told that the estate was insolvent at the time when probate was obtained; the judge was told that it had been solvent to the tune of $1 million.

25. In paragraph 61 the judge said:

"Putting both sides of this case together, it does seem to me that if there was money available for security for costs, given the strength of the case as I have found it to be, as the Deputy Master found it to be, and as the claimants must believe it to be, including their advisors who were on risk, then if money was available it would have been produced. That seems to me to be a logical consequence of the judgment about the strength of the case."

I do not accept this analysis. My experience is that parties to litigation, particularly those who reside in jurisdictions where enforcement may be difficult, are reluctant to provide security however strong their claims may be. But in fact here the claimants had produced money when ordered by the court to do so -- over £100,000 if one includes the money paid to restore the third claimant to the BV1 register. So there was no factual basis for the logical consequence which the judge felt able to draw.

26. All in all, I think the judge took an over charitable view of the claimants' position. It was for them to show that their claim would be stifled if an order for security was made. They had not started to give any sort of intelligible or credible account of the assets and liabilities of the estate, although they had been pressed to do so since mid 2005. Instead they had produced a misleading document and contradicted it by a later unsubstantiated assertion. The fact is that they have been able to produce substantial sums when ordered to do so by the court or it was in their interests to do so since they claimed (as they did in October 2005) that there were no assets from which this could be done. If this money has been paid under the CFA it must be a very unusual agreement. But if that is what it provides, then it is a source of funds available to the claimants.
27. I think that this is a case in which the claimants have wholly failed to establish that their claim would be stifled by an order for security. For the reasons I have given, I think the judge's reasons for concluding to the contrary are flawed and so we must exercise the discretion afresh. In principle I think that an order should be made. We heard arguments this morning about the amount to be ordered and announced that it would be £100,000. Put shortly, my reasons for selecting this sum were that this further security should reflect the fact that the claimants have a strong prima facie case; should only cover the period from exchange of witness statements; and should take into account the fact that the defendant has been ordered to pay the costs of the adjournment last October. We said that we would hear any further argument about the method of payment after judgment. As to timing it was agreed that the security, or a large part of it, should be provided by 25 March.

Lord Justice Pill:

28. I agree. I add only that this court has not made its own assessment of the respondents' prospect of success in the action. That is because, as Lord Justice Tuckey has stated, this factor, putting it at its highest, could not, in the circumstances of this case, be crucial to the decision which the court has to make as to whether security for costs should be ordered.

Order: Application allowed.