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 PATTEN)

		Royal Courts of Justice Strand, London, WC2A 2LL
		10th June 2008

Sir John Chadwick:

1. The applications listed for hearing are: (1) an application (reference A3/2007/0301) for permission to appeal from an order made on 6 December 2006 by Patten J in proceedings (reference HC03C01553) brought by Crystal Decisions (UK) Limited and others against Vedatech Corporation, a Japanese corporation, and Mr Mani Subramanian; and (2) an application (reference A3/2007/1168) for permission to appeal from a subsequent order made on 9 May 2007 by the same judge in the same proceedings. The principal relief sought in proceedings HC03C01553, to which I will refer as "the second proceedings", was a declaration that an agreement dated 30 August 2002 in settlement of earlier proceedings (reference HC9706139) brought by Vedatech Corporation against Crystal Decisions (UK) Limited ("the first proceedings") is valid and enforceable.
2. The circumstances in which that relief was sought was set out by the judge in some detail at paragraphs [2] to [24] of the judgment which he delivered on 9 May 2007, [2007] EWHC 1062 (Ch). It is unnecessary for the purposes of this judgment to rehearse those paragraphs in full, but I must summarise the position shortly.

(1) Vedatech was formed in 1991 as a vehicle for providing assistance to United States and European software companies seeking to introduce their products into the Japanese market. Mr Subramanian is its President and principal officer. In or about 1995, Vedatech carried out work in Japan for Crystal (UK) and for one of its co-claimants in the second proceedings, then known as Crystal Decisions (Japan) KK.

(2) In 1997 Vedatech commenced the first proceedings, claiming payment for the work that it had done. Details of that claim are set out in a judgment delivered by Jacob J on 21 May 2002, [2002] EWHC 818 (Ch) following the trial in those proceedings, Jacob J rejected the claim for payment based on contract. But he held that Vedatech was entitled to be paid reasonable remuneration quantum meruit in an amount to be assessed in respect of the work which it had done. He stayed further proceedings to enable the parties to reach agreement through a process of mediation as to the amount to be assessed.

(3) On 29 August 2002, the parties signed a mediation agreement governing the basis on which mediation was to be conducted. Mediation commenced on that day and continued into the early hours of 30 August 2002. On 30 August 2002, Mr Subramanian, on behalf of Vedatech -- and, as Pumfrey J later found, on behalf of himself -- and Ms Susan Wolfe, the senior in-house lawyer for Crystal Decisions Inc, the parent of Crystal (UK) and Crystal (Japan), signed a settlement agreement. The agreement provided for payment of US$970,000 to Vedatech. On payment of that sum, the parties were to be released from all claims between them. The agreement contained a covenant not to bring any further claims in any jurisdiction arising out of the subject matter of the first proceedings.

(4) On 24 September 2002, Mr Subramanian, on behalf of Vedatech, issued an application in the first proceedings seeking orders setting aside the settlement agreement but maintaining the stay. The basis of that application was said to be that the settlement agreement had been obtained by fraudulent representations made by Ms Wolfe and by a solicitor with Freshfields (who were acting for Crystal) at the commencement and in the course of the mediation.

(5) That application was heard by Jacob J on 25 November 2002. He took the view that the issue whether the settlement agreement had been obtained by fraud and should be set aside could not properly be dealt with in the then existing proceedings (the first proceedings) and that if Mr Subramanian wished to pursue Vedatech's claims in that respect he would need to commence new proceedings for that purpose. Jacob J ordered the first proceedings to be stayed. Vedatech obtained permission to appeal, but that appeal was dismissed for reasons given by this court in its judgment of 3 July, [2003] EWCA Civ 1066.

(6) In the meantime, on 21 April 2003, Crystal had issued these proceedings (the second proceedings) with the object of resolving the question whether the settlement agreement of 30 August 2002 was binding. As the judge explained, [2007] EWHC 1062 (Ch) at paragraph 24:

"Although it is perhaps unusual and in some ways procedurally awkward for the Claimants to have to seek this affirmation of an agreement whose validity they do not dispute, they were invited to take this action by Mr Subramanian who relies on the effectiveness of his notices of rescission as the basis for refusing to recognise the enforceability of the Settlement Agreement but who declined to commence proceedings of his own based on the allegations [of fraud] contained in those notices."

The notices to which the judge there referred were dated 30 October 2002 and 21 November 2002 respectively.

3. There had been a number of interlocutory applications and orders in the second proceedings prior to those with which the present applications are directly concerned. As described by the judge at paragraphs 24 to 41 of the judgment which he delivered on 9 May 2007, it is sufficient in the present context to mention the following:

(1) On 3 August 2004, Pumfrey J granted an anti-suit injunction to restrain Vedatech and Mr Subramanian from continuing proceedings commenced in the United States District Court, Northern District of California, against Crystal (UK), Crystal Inc and Ms Wolfe in which the settlement agreement of 30 August 2002 was challenged on the grounds of fraud, conspiracy, negligent misrepresentation and unfair competition. His judgment may be found at [2004] EWHC 1872 (Ch). Permission to appeal from that order was refused by this court on 7 July 2005. Vedatech and Mr Subramanian were ordered to pay the costs of application before Pumfrey J and of the application in this court for the permission to appeal.

(2) On 11 July 2005, Vedatech and Mr Subramanian issued an application to strike out the claim in the second proceedings: alternatively for summary judgment. In response, the claimants issued an application on 14 July 2005 seeking directions for a properly particularized defence. On 18 July 2005, Lightman J ordered the provision of a draft defence and adjourned the other applications to a case management conference. The matter came back to him on 12 October and 20 October 2005. On 30 November 2005, Lightman J made costs orders in the amounts (which he assessed summarily) of £2,100 and £13,500; that is to say, in the aggregate amount of £15,600. He adjourned the case management conference for further hearing on 11 January 2006.

(3) The further hearing of the case management conference came before Patten J. He refused a further application from Mr Subramanian for an adjournment and refused the application for summary judgment; made in the application of 11 July 2005. On 10 March 2006, permission to appeal from the orders of October and November 2005 and 11 January 2006 were refused by this court. On 22 September 2006, the claimants (Crystal) issued an application notice seeking orders: (1) for the service of witness statements; (2) for the substitution of Business Objects (Japan) KK as the second claimant; and (3) for permission to amend their pleadings. Vedatech and Mr Subramanian responded with an application notice issued on 29 September 2006 seeking permission to file an amended defence.

4. Those applications came before Pumfrey J on 5 October 2006. He ordered that witness statements be exchanged by 27 October 2006, and that the further applications be heard at a case management conference shortly thereafter. In the event, that case management conference was not listed for hearing until 4 December 2006. By that date, further applications had been made. Those were: first, an application made by notice issued by Crystal on 27 November 2006 seeking, amongst other relief: further directions for the service of witness statements by Vedatech and Mr Subramanian; the exchange of experts' reports; an order that allegations of fraud, in particular allegations of fraud made against counsel and solicitors, be struck out of the defence; and an unless order debarring the defendants from defending the proceedings unless they pay by 18 December 2006 the sums already ordered to be paid in respect of costs in the second proceedings. Second, an application (made in a witness statement of Mr Subramanian dated 28 November 2006) seeking directions as to an extended timetable for the service of witness statements and the exchange of experts' reports.
5. When those applications and further applications came before Patten J on 4 to 6 December 2006, he dealt only with the following matters:

(1) he substituted Business Objects Japan KK as second claimant;

(2) he gave the claimants permission to amend their pleadings;

(3) he directed exchange of witness statements by 19 January 2007 and ordered that, unless the defendants file and serve statements in accordance with that direction, they be debarred from adducing evidence at the trial;

(4) he directed that the defendants provide a valid address for service within the United Kingdom;

(5) he gave permission for expert evidence as to the laws of Delaware and California;

(6) he ordered that certain allegations of fraud in the defence be struck out;

(7) he dismissed the defendants' applications to strike out parts of the Re-re-amended Particulars of Claim; and, and importantly in the present context;

(8) he ordered (at paragraph 19 of his order of 6 December 2006) that, unless by 13 December 2006 the defendants pay to the claimants the costs in the amount of £15,600 ordered to be paid by Lightman J on 30 November 2005, they be debarred from defending the proceedings. The judge recorded in his order that he had offered Mr Subramanian and Vedatech a longer period in which to pay that amount of costs but that Mr Subramanian had asked that the date for payment be 13 December 2006. The judge stood over further matters to an adjourned hearing of the case management conference to be held at the beginning of January 2007.

6. The defendants did not pay the costs which were to be paid under paragraph 19 of Patten J's order of 6 December 2006 by 13 December 2006 or at all. The adjourned case management conference came before Patten J on 11 January 2007. There were then three further applications (so far as material in the present context): first, an application by the defendants for permission to appeal from the order of 6 December 2006; and second, an application by the defendants for a stay of that order pending appeal; and, third, an application by the claimants for judgment pursuant to paragraph 19 of the order of 6 December 2006. The judge refused permission to appeal, although he extended time for the filing of an appellant's notice to 19 January 2007. He did not grant a stay of his unless order pending appeal. He gave directions for the filing of evidence on the claimants' application for judgment.
7. The claimants' application for judgment came before Patten J on 9 May 2007. By an order made on that date the judge declared that the settlement agreement of 30 August 2002 was valid and enforceable. He gave judgment on the claim in the second proceedings: requiring the defendants to withdraw the proceedings which they had commenced in California (to which I have referred earlier in this judgment) and restraining them from commencing any further proceedings anywhere in the world in relation to the matters which had been the subject matter of the first and second proceedings. He ordered that the defendants pay, by way of damages for breach of the settlement agreement, the claimants' costs in the California proceedings. He ordered payment out to Vedatech of the US$970,000 then lodged in court by the claimants - being the amount payable under the settlement agreement - but subject to payments to the claimants in respect of damages and costs in amounts which would, at first sight at least, exhaust that sum. In the event I understand that to be the case.
8. The defendants filed an appellant's notice in A3/2007/0301 seeking to appeal from paragraph 19 of the order of 6 December 2006; and, also, from paragraphs 2 to 6 (granting permission to amend); paragraph 10 (striking out allegations of fraud); paragraph 15 (refusing the defendants permission to issue a further application for summary judgment); paragraph 16 (refusing to order the claimants to provide answers to CPR Part 18 requests); and paragraph 17 refusing to strike out parts of the Re-re-amended Particulars of Claim. The Grounds of Appeal are set out in section 7 of that notice.
9. In the events which happened - namely the defendants' failure to pay the costs which were the subject of paragraph 19 of the order of 6 December 2006 - the principal issue on an appeal from that order would be whether the judge was wrong to make the unless order which he did. As the judge explained, in the judgment which he delivered on 6 December 2006 [2006] EWHC 3500 (Ch), the applications for an unless order made on 27 November 2006 were based on three earlier costs orders: orders made by Pumfrey J on 19 May and 3 August 2004, and the order made by Lightman J on 30 November 2005. The judge took the view, for reasons which he explained at paragraphs 4 to 8 of that judgment, that although cost certificates had been issued in relation to the two orders made by Pumfrey J, challenges to those certificates could not be regarded as having been finally disposed of. So, as he put it:

"…it would not be appropriate in those circumstances for me to make an order barring the defendants from defending or entering judgment against them, based on two cost certificates which are still subject to a process of appeal."

10. He then turned to the costs which were the subject of Lightman J's order of 30 November 2005. As I have said, the costs payable under that order had been summarily assessed at the aggregate figure of £15,600. No question of cost certificates - or a challenge to cost certificates – arose; and permission to appeal that order of 30 November 2005 had been refused. The judge said this, at paragraphs [9] to [14] of his judgment:

"9. That does, however, leave the order made by Lightman J. So far as that is concerned, there has been no challenge by way of appeal and the order therefore stands as drawn. The rules of court under the CPR do not prescribe any particular procedure or conditions which have to be satisfied on an application of this kind. The consequences of a failure to comply with an order for costs made during the course of the action in relation to the future conduct of the action is therefore a matter to be dealt with as part of the inherent jurisdiction of the court.

10. It is perfectly true, of course, that parties in the position of the claimants would, in these circumstances, have other remedies available to them. Those might include proceedings for contempt, but equally they might involve a more routine enforcement of the judgment for costs by, for example, seeking an order for payment and a charging order against any known assets. In the present circumstances, however, where they are faced with defendants who are not resident within the jurisdiction, and have no assets here, those remedies are likely to be of limited value."

11. So, as he commented, the only effective sanction was that he should deny the defendants the right to continue to contest the proceedings, unless they complied with the orders which had been made against them.
12. The judge then reminded himself of the need to have regard to the rights conferred by Article 6 of the European Convention. He said this, at paragraph 12:

"There is a suggestion that, where an application to strike out a Statement of Case because of a litigant's failure to comply with a court order for the payment of money, was in respect of a sum beyond the means of that litigant, considerations under Article 6 of the European Convention might arise, if it could be shown that the litigant's right of access to the court would be affected by an order in those terms."

The "suggestion" to which referred is noted in the notes to CPR Part 3 in the then current edition of Civil Procedure.

13. The judge addressed that new at paragraph [14] of his judgment. He said this:

"In this particular case, limiting myself to the order for costs made by Lightman J, it seems to me that there is really no evidence before the court in answer to the claimant's application which would justify my taking the view that the payment of the sum of £15,600 would be impossible and that the requirement to pay it within a reasonable period of time would in some way interfere with the defendants' ability to conduct this litigation."

Mr Subramanian, in addressing this this afternoon, has, I think, accepted that there was no evidence before Patten J which would have enabled him to take any view as to the defendant' ability or inability to pay the sum of £15,600; but he makes the point that he had submitted to Patten J that in fact he would not be able to pay that sum. He explained to us that the reason why he had put no evidence before Patten J to meet the point was that he took the view that the impecuniosity of Vedatech had been a matter already relied upon by the claimants in earlier security for costs applications back in 2001 and 2002; so that, as he put it, he assumed that Vedatech's impecuniosity was not really in issue.

14. There are, it seems to me, three difficulties which that explanation fails to address. The first is that, whatever Vedatech's position might have been in 2001 and 2002, there was no reason to think that it remained the same in September or in December 2006. A second point is that, whatever the evidence might have been as to Vedatech's position, there was no evidence as to Mr Subramanian's own position. And a third difficulty is that, although in an application for security for costs it will usually be necessary for the applicant to satisfy the court that the party against whom the order is sought is impecunious, the position before the judge in December 2006 was the reverse. An order for the payment of £15,600 had already been made against Vedatech and Mr Subramanian. If they sought to persuade the judge that that order would be beyond their means to meet - so that they would, in effect, be prevented from seeking resolution of the dispute through lack of means - it was for them to adduce evidence to satisfy the judge that that was so. As it seems to me, the judge's approach in paragraph 14 of his 6 December 2006 judgment cannot be faulted.
15. Mr Subramanian raised another point in front of the judge, which he has elaborated in front of us. He points out that there is already some US$970,000 due to him under the settlement agreement: that sum is in court and will provide an ample cushion for any costs which may be ordered in the event that he and Vedatech fail in the proceedings. The judge addressed that point at paragraph [15] of his judgment. He said this:

"Mr Subramanian, on behalf of himself and Vedatech, has made the point to me that the claimants are secure in the sense that they have not paid the [US$970,000] due under the settlement agreement arrived at at the mediation, and that therefore, in the event that he and Vedatech fail in these proceedings, there will be more than enough available to the claimants at the end of the day to satisfy any order for costs that are made in their favour. But that possibility depends, first of all, on the claimants failing in the litigation, or alternatively on the defendants accepting, which clearly they do not, that their opposition to the claim is misconceived. As things stand, the defendants' position remains that they have rescinded the agreement, and with it the entitlement to the payment of that sum. In those circumstances, I find it difficult to see how I can realistically take that into account on the defendants' side in determining whether or not to make the order sought."

16. There are, as it seems to me, at least two difficulties in the way of the submission that it is unnecessary to require payment of the £15,600 already ordered to be paid in these proceedings because the claimants are sufficiently secured already. The first is that the US$970,000 due under the settlement agreement would only be payable to Vedatech and Mr Subramanian if they, Mr Subramanian and Vedatech, were to lose in the second proceedings. If they are successful, then the settlement agreement goes, and whatever sum may be payable to them is not in court and would not be US$970,000. But the liability to pay costs already ordered against them remains. Further, if Mr Subramanian and Vedatech were to lose the second proceedings, it is reasonable to assume that there would be further substantial costs orders in those proceedings which would have to be met, in addition to the £15,600 already ordered by Lightman J. So that it is by no means clear - and was not clear in December 2006 - that there would be any surplus to meet costs orders already made.
17. But thirdly – and, to my mind, most importantly - the court's ability to make interlocutory costs orders following, in particular, the Access to Justice reforms in 1998, is a sanction which is available to it in order to encourage responsible litigation. The court marks what it regards as an irresponsible application by an immediate order for the payment of costs. That is intended to bring home to a party - when considering whether to make an application - that an unsuccessful application may carry a price which will have to be paid at once. If the court is not in a position to enforce immediate interlocutory orders for the payment of costs which it was thought right to make, then the force of that sanction is seriously undermined. It is important that, in cases where the court thinks it right to make an order for immediate payment on an interlocutory application, that it does have the power - and can exercise the power - to ensure that order is met. For the reasons which Patten J explained, the only effective sanction in a case of this nature is to require payment of interlocutory costs as the price of being allowed to continue to contest the proceedings. Unless the party against whom an order for costs is made is prepared to, or can be compelled to, comply with, that order, the order might just as well not be made.
18. That point attracted the judge, He said this, at paragraph [16] of his judgment:

"In any event I take the view that orders of the court, even in relation to interim costs, require to be complied with and that, unless there is some overwhelming consideration falling within Article 6 that compels the court to take a different view, the normal consequence of a failure to comply with such an order, is that the court, in order to protect its own procedure, should make compliance with that order a condition of the party in question being able to continue with the litigation."

For my part, I would hold that - whether or not a statement in such general terms can be supported – the proposition can be supported in a case (such as the present) where there is no other effective way of ensuring that the interim costs order is satisfied. That, of course, is always subject to what the judge referred to as the overwhelming consideration falling within Article 6: that orders requiring payment of costs as a condition of proceeding with litigation are not made in circumstances where to enforce such an order would drive a party from access to justice. But, for the reasons that the judge explained and to which I have already referred, this was not such a case.

19. For those reasons it seems to me that the approach of the judge to paragraph 19 of his order of 6 December 2006 cannot be said to be flawed. He directed himself correctly as to the principles which should govern his exercise of discretion. Mr Subramanian, in his lucid and helpful submissions, has explained to us that a decision-maker cannot simply assert that he is exercising a discretion; he must give reasons, he must not reach his decision arbitrarily, and that, were there to be evidence from the judgment that a judge had not considered the matter properly, then an appellate court must interfere. But, for the reasons which I have sought to explain, this is not such a case. The judge explained why he took the view that he did; and for my part I can see no real prospect that an appellate court would think it right to interfere with his exercise of discretion.
20. The position, therefore, was that Vedatech and Mr Subramanian were required to pay the £15,600 as a condition of being permitted to continue to defend the second proceedings. The judge was willing to give them some four weeks to make that payment, but he was urged by Mr Subramanian to cut that time to only one week. It does not lie in Mr Subramanian's mouth - and he has not suggested otherwise - that one week was too short. His position is that there was never any prospect of him finding that money, whether the time period were one week, four weeks or several months: so that there was no purpose in extending the time. But that argument did not find favour with the judge; and there is nothing before us to suggest that the judge was wrong when he held, at paragraph [14] of his judgment, that there was really no evidence to suggest that payment of the £15,600 would be beyond the defendants' means.
21. For those reasons I would refuse permission to appeal from the order of 6 December 2006. If the defendants are debarred from defending, then the other paragraphs in the order now have little, if any, materiality.
22. I turn then to the order of 9 May 2007. By that date, the position before the judge was that the defendants were debarred from defending the action. The judge appreciated that that was the position. He said this at paragraph 44 of his judgment:

"The Defendants have failed to pay the £15,600 as ordered, or at all, and therefore at the resumed CMC on 11 January 2007 I gave the Claimants permission to apply for judgment in accordance with my order of 6 December. Following their failure to pay the costs of £15,600 no further attempt was made by the Defendant to seek permission to amend the defence or to pursue any of the other outstanding applications. No application was made at the resumed CMC for relief from sanctions under CPR 3.9 but Mr Subramanian did issue an application for hearing before me on 20 March. In the event he accepted that he could not proceed with this application to the extent of inviting me to relieve him from the de-barring order and I therefore made no order on his application."

23. Nevertheless, as the judge appreciated, it did not follow from the fact that the defendants were debarred from defending under the order of 6 December 2006 that the claimants were entitled to the relief which they claimed in the second proceedings. The judge directed himself, correctly, that the only form of declaratory relief that it would be proper for him to make was a declaration on the basis of those facts which were pleaded in the Re-re-reamended Particulars of Claim, and which could be proved.
24. For the reasons which he explained in paragraph 49 of his judgment, he took the view that he should grant declarations where an issue raised in the Particulars of Claim turned simply on the construction of a document referred to in the pleadings. The court could look at the pleading, look at the document, and decide the point. He reminded himself, correctly, that a court must be cautious before making declarations without a trial, not least because it could not express itself satisfied as to matters of fact on which it had not heard evidence. Nevertheless, at paragraph 52, the judge said this:

"It seems to me that the Claimants are entitled to the declaration that the Settlement Agreement is valid and enforceable against the Defendants. There is nothing in the Agreement itself upon which to base any challenge to its enforceability and as a result of the de-barring order made the Defendants are not in the position to adduce evidence in order to substantiate the notices of rescission which were served. In any event, for the reasons explained earlier, rescission based on innocent or negligent misrepresentation would not suffice as the basis for setting aside the Agreement. It seems to me that the Claimants are therefore entitled in justice to a declaration from the Court following its determination of these proceedings (albeit in a summary form) that the Settlement Agreement is valid and enforceable."

The judge's reference to the fact that notices of rescission based on innocent or negligent misrepresentation would not suffice was founded on his earlier examination of the terms of the settlement agreement itself: its terms made it clear that the settlement was not to be challenged save on the basis of fraudulent misrepresentation.

25. Even though the pleadings might raise allegations which the judge found substantiated on the documentation, the question whether or not to make a declaration - as opposed to simply giving a judgment (perhaps for a monetary sum or dismissing a counterclaim) - remained a matter for discretion. In the present case, the judge decided that this was a case in which a declaration was needed. Having set out the history of the matter, to which I have already referred, he addressed that point in the last sentence of paragraph 52:

"Without it [that is, without the declaration, the Claimants] are likely to face further challenges by the Defendants which the finality of a declaration may avoid."

26. It is, in my view, necessary to approach this case with the history in mind. This was a case in which mediation, back in August 2002, had produced an apparent resolution of the parties' disputes. It was important, in order to preserve the integrity of the process initiated by Jacob J, that there should not be doubt as to whether or not that mediation agreement was binding. The form in which that issue was to be resolved were the second proceedings. The second proceedings were always intended to be the vehicle for a decision which would put to rest the question whether the challenge raised by the defendants in October and November 2002 could be maintained. The judge plainly appreciated that, when deciding whether or not to make a declaration. And it was that, as it seems to me, which led him to the view that unusually, perhaps a declaration was important and necessary. I find it impossible to hold that there is any real prospect of an appellate court interfering with his judgment on that point.
27. That left the question of whether the claimants should be granted the anti-suit injunction which they sought. The judge explained, at paragraphs 60-61 of his judgment, why he took the view that they were entitled to insist on performance of the covenants in the settlement agreement which restrained further legal proceedings; and he explained, at paragraph 62, why the claimants should be entitled to the damages equal to the sum expended in defending the California proceedings which, on the findings which he had made, had been brought in breach of those covenants. I can see no prospect that an appellate court would differ from the judge on those points.
28. For those reasons, I would refuse permission to appeal in application A3/2007/1168 also.

Lord Justice Laws:

29. I agree that these applications must be refused for all the reasons given by my Lord, Sir John Chadwick. Mr Subramanian has addressed us with courtesy and moderation. However Patten J dealt with the material before him fully and accurately and in my judgment his orders, made in December 2006 and May 2007, are really unassailable.
30. This case discloses an unhappy story but the court would categorically do Mr Subramanian no service by granting permission for him effectively to pursue what has become a hopeless position.

Order: Applications refused.