England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
TECHNOLOGY & CONSTRUCTION COURT
HIS HONOUR JUDGE WILCOX

		Royal Courts of Justice Strand, London, WC2A 2LL
		13th September 2011

Lord Justice Rimer:

1. The matters before me are applications for permission to appeal by Rajvel Construction Limited ("Rajvel") and its sole director, Rajvi Bhuva. He and his wife are also the only shareholders of Rajvel. Rajvel is a building company and is the claimant in the proceedings. The defendant (and respondent) is Bestville Properties Limited ("Bestville"). Rajvel was formerly represented in the proceedings by Julius Seal of counsel, who was instructed on a direct access basis. Today, however, it is represented by Stephen Boyd, instructed by Wilson Barca LLP. Bestville is represented, as it has been throughout, by Kenneth Hamer, instructed by Desor and Co.
2. Rajvel's claim was commenced by a claim form issued on 7 December 2009 and is for £98,000 odd, being the balance claimed to be due under a fixed price building contract into which Rajvel entered with Bestville, plus a further £119,000 odd in respect of further work done and materials supplied, allegedly at Bestville's request and for which Rajvel claims Bestville is obliged to pay. Bestville has defended and counterclaimed, disputing the quality of the work done and its claimed liability to pay any part of the extra £119,000. Its counterclaim is for substantial damages for losses of more than £500,000 that are said to have flowed from Rajvel's alleged breaches.
3. The present applications arise out of an order made by His Honour Judge Wilcox in the Technology and Construction Court on 15 June 2011. He thereby ordered Rajvel to give security for Bestville's costs of the proceedings in the sum of £90,000, such sum to be paid into court in instalments of £50,000 and £40,000 by the 13 July and 10 August 2011 respectively. He stayed the claim until such security was given. In addition, he ordered Mr Bhuva to be added as a party to the proceedings, but solely for the purposes of answering Bestville's claim for the costs of the security application, it being apparent that Rajvel is insolvent. Having made that order joining Mr Bhuva as a party, the judge then ordered Rajvel and Mr Bhuva jointly and severally to pay Bestville's costs of the application, such costs to be the subject of a detailed assessment. He also ordered them jointly and severally to pay £15,000 on account of such costs by 29 June.
4. That order was in fact the fruit of the second application that Bestville had made for security, its application notice having been issued on 5 April 2011. As recently as 28 March 2011 Judge Wilcox had given judgment on Bestville's first application for security and had refused it. The renewed application was made on the basis that Bestville considered that there had in the meantime been a material change of circumstances. Whether there had been any such change was, until yesterday, much in dispute, and there was, so it seems to me, at least an available argument that there had been no such change, although since that point is now no longer alive, I express no view on its strength. Putting it shortly, what had happened was that in the intervening days between the order of 28 March and the issue of the application on 5 April, Bestville had identified assets of Mr Bhuva, or assets in which he apparently had an interest, being assets that he had not disclosed in his short witness statement of 27 March 2011 - a statement made in response to the first security application - which on the face of it went no further than to say that he and his wife had no savings sufficient to provide any security for Bestville's costs and that the effect of the dispute with Bestville had caused Rajvel to cease trade and so put an end to the income that they had previously drawn from it. There was and is no dispute that Rajvel is insolvent and is itself unable to provide any security out of its own assets.
5. On 30 June Rajvel and Mr Bhuva issued an appellant's notice against Judge Wilcox's order of 15 June, following which they made urgent applications on paper which came before me for a stay of the security and costs orders. On 12 July I granted limited stays until after a decision on the papers as to whether or not permission to appeal should be given, also giving Bestville the right to apply to discharge or vary the stays I ordered. Bestville did make such an application and the outcome of that was that on 2 August I gave directions on paper that all questions of permission to appeal and any continued stay would be the subject of an oral hearing before a single Lord Justice; and I also directed that Bestville was to be entitled to make oral representations at that hearing. That is the hearing that has been listed before me this morning.
6. In their appellant's notice Rajvel and Mr Bhuva had challenged the justification of the second security application on the basis, so it was said, that the matter became res judicata after the first judgment on 28 March 2011 and that, whilst a material subsequent change in circumstances would have justified a renewed application, there was in reality no such change in this case. That point, or points akin to it, was and were also advanced in various different ways. In the event that line of challenge to the second security application has now been abandoned and permission to appeal on that basis is no longer sought. The £15,000 that the judge ordered to be paid on account of costs has also now been paid. The position today, as Mr Boyd has explained to me in his written argument and orally, is that whilst both Rajvel and Mr Bhuva still ask for permission to appeal, neither now seeks any continued stay.
7. The bases on which permission to appeal is sought have therefore been materially reduced. As regards Rajvel, the only such basis is that whilst it does not challenge the principle that security for costs ought to have been ordered against it, it does wish to challenge before the full court the amount of security that the judge ordered, which was £90,000. The complaint there, as Mr Boyd has explained, is that Bestville did no more than put forward a generalised costs estimate, whereas it is said that they should have provided a more detailed one, or at least that is part of the complaint. The estimate of costs that Bestville did produce was exhibited to Mr Desor's witness statement of 10 May 2011. He described that estimate as:

"…a detailed and itemised account of the costs, including counsel's fees and expert's fees which have been incurred to date and which are estimated will be incurred in the future conduct of the action on behalf of the Defendant."

8. His exhibited estimate of the costs and disbursements to date, including counsel's fees, was £60,628.78. His estimate to trial, but excluding the trial itself, was £42,000, including solicitor's and counsel's fees, plus a further £4,500 for the estimated fees of an expert surveyor and miscellaneous other expenses and court fees. His estimate for a five day trial was a further £37,000. The grand total was therefore £144,128.78.
9. In his judgment of 14 June 2011, having concluded that security ought to be given, Judge Wilcox said this:

"25. Mr Hamer asks for £146,000. In the course of submissions before me, I have made reference to proportionality. This is a case that involves, at top value, some £200,000 or thereabouts. Costs of £146,000, were it to proceed to trial, sadly and not unheard-of in this Court, border upon the wholly disproportionate. This is a case that has been bedevilled with this satellite litigation. It has already been to the Court of Appeal once. There have been cross-applications for security for costs. They continue to mount.

26. I am going to give security in the sum of £90,000. It will be in a staged way. There will be £50,000 paid within 28 days and £40,000 28 days thereafter. Should the claimant offer alternative security by way of charge or otherwise that is acceptable to the defendants then, of course, they would be at liberty within the terms of this order to accept that security. I have in mind, for instance, the uncharged property at 48 Sapcote that could be charged with the whole sum within a limited amount of time. That is a matter for the defendants and their choice in the matter to accommodate the ease with which the claimant may give security in terms of my order."

10. One of the complaints advanced about that order is that the £60,000 odd as Mr Desor's estimate of the costs to date seemed very high. There is however, in my view, no basis for doubting the genuineness of Desor's estimate. In any event the judge did not award Bestville the full security for which it was asking; he only gave them about 62 per cent of it. The further point is made that the judge failed to apply what is said to be a usual practice of making a deduction from the costs estimate so as to take account of any likely reduction in the assessment of the costs and also to make an arbitrary discount in respect of future costs so as to accommodate the chances of the case settling. It is said that the judge did neither of these things. It is also said that he could and should, rather than simply making a global order for a payment within a matter of weeks of his order, have ordered separate payments at successive stages of the proceedings, although I understand that no such submission was made to him at the time.
11. If the judge had ordered security in the full amount that Bestville had asked, there might perhaps have been something to argue about so far as concerns the justice of such an order. He did not, however, do that, even though he recognised that the estimate before him was not out of line with the levels of costs in like cases in the Technology and Construction Court in which he has considerable experience. He made a very significant reduction to the claimed costs so as to reduce them to what he assessed to be a proportionate figure having regard to the nature of the case. The making of that reduction was, I consider, a proper exercise of judgment; and there is in my judgment no real prospect of the Court of Appeal second-guessing that assessment and concluding that it was wrong in principle -- that is to say, by concluding that he ought to have discounted the claimed figure by a larger amount. Even though I accept that it would have been open to the judge to order the sort of stage payments which Mr Boyd suggested he should have ordered, Mr Boyd disclaimed any suggestion that there was authority to the effect that that is the correct approach on security applications such as this; and I also consider that there is no real prospect of persuading the Court of Appeal that the judge erred in principle in omitting to do so, not least because no one apparently suggested to him at the hearing that he might do so. In my judgment an appeal against the quantum of security would have no real prospect of success and I refuse permission to appeal against the quantum that the judge ordered.
12. The only other ground of appeal that is sought to be pursued concerns Mr Bhuva. As I have said, he was joined as a defendant solely for the purposes of answering an application by Bestville for the costs of the second security application that it made, and the judge, as I have also said, made such a costs order against him. The court's jurisdiction to make costs orders against third parties such as, for example, a director of a company that is a party to the proceedings is not in dispute, but what is said is that the judge was wrong to exercise the jurisdiction in the way he did against Mr Bhuva. The relevant judgment is that which the judge delivered on 15 June 2011. He there said, in paragraph [5]:

"Section 51 is a wide discretion. I accept that such an order would only be made under exceptional circumstances. I accept that some degree of impropriety must be demonstrated before the Court can consider making an order in these circumstances."

13. The judge then pointed out that Mr Bhuva was the guiding spirit of Rajvel and could not be closer to it. The impropriety that the judge found that enabled him to make the order he did was the making by Mr Bhuva of his witness statement of 27 March 2011 as to his ability to fund any security, being a statement that the judge said was "seriously economical with the truth". He said that:

"There is a distinction between that and being dishonest. That has not been a submission made by Mr Hamer or relied upon by Mr Hamer. Insofar as impropriety is concerned, I regard this as being at the high end."

14. The judge was also, however, at pains to point out that Mr Hamer had disclaimed any suggestion or assertion of dishonesty on the part of Mr Bhuva when he made the witness statement of 27 March. The judge also referred, in paragraphs 8 to 10, to Mr Seal's submissions as to how any apparent shortcomings in the witness statements were not ones for which Mr Bhuva deserved criticism, Mr Bhuva having had, it was said, to collect his thoughts at short notice for the hearing on Monday 28 March, a hearing of which he had only been given notice the previous Wednesday. The judge explained why he was not impressed with that explanation.
15. A further application that is also before me is the admission in evidence of a witness statement made by Mr Seal on 9 September 2011 by which Mr Seal, with of course Mr Bhuva's authority, disclosed privileged matters in relation to the advice he had given to Mr Bhuva with regard to the preparation of that witness statement. The purpose of Mr Seal's statement was said to be to correct what are said to be Judge Wilcox's erroneous inferences in paragraphs 8 to 10 of his judgment. Mr Seal's statement is a full one but the nub of it is that at a rushed conference on 27 March he took instructions and drafted the witness statement that Mr Bhuva signed that day. Mr Seal did no more than question Mr Bhuva on the particular matters that he dealt with in his statement, namely the extent of his own bank savings and whether he could borrow any money to put up the security. Mr Bhuva provided the answers that were then reflected in the witness statement, which Mr Seal had drafted, but Mr Seal did not ask him about his assets more generally, which in fact appear to be quite considerable, and Mr Bhuva said nothing about them in his statement. That conference, says Mr Seal, was the first time he had said anything to Mr Bhuva about his personal finances and it was the first time that he had indicated to him that his ability to lend money to the company was relevant to the security application. Mr Seal advanced his own opinion that for that reason he does not believe that Mr Bhuva was aware prior to 27 March that his personal finances were of any relevance to his security application.
16. The first question is whether I should admit Mr Seal's witness statement. Mr Hamer, I should say, opposes its admission. It amounts to a bid to adduce by way of fresh evidence material that could in theory have been put before Judge Wilcox when he was considering the costs application, but was not, and so it is evidence that does not satisfy the first condition in Ladd v Marshall [1954] 1 WLR 1489. The Ladd v Marshall conditions continue under the CPR to provide solid guidance as to the principles by reference to which fresh evidence will be admitted on an appeal, although they are not to be applied rigidly and the court must always also keep its eye firmly on the overriding objective of doing justice. Bearing that last important note of caution in mind, I do however consider that it would be unjust to Bestville to allow this further evidence to be admitted. The judge decided the costs application by reference to the only evidence that was before him, and he was entitled to assess that evidence and draw such further inferences from it as he considered appropriate. I recognise that it might in practice have been difficult for Mr Seal's further evidence to have been put before the judge, since to do so would have required an adjournment, and I think it more than probable that the judge would have refused to grant one. There was, however, the opportunity, upon taking Mr Bhuva's instructions, for Mr Seal to say to the judge all he has said in his witness statement, and that opportunity was not taken.
17. In any event, Mr Boyd's point is that the primary purpose of the witness statement was to make express that which he says is anyway apparent from the witness statement itself, namely that Mr Bhuva did and does in fact have further assets but that there is no justification for inferring from the witness statement that he was deliberately concealing them. The submission that there was in fact no deliberate concealment of the existence of further assets seems to me to be well-founded. If one reads the witness statement and the exhibits to it, it is obvious that Mr Bhuva had further assets with which he does not deal expressly. He exhibits a bank statement which shows that he is regularly receiving rents from some source. The bank statement is addressed to a property which Mr Bhuva does not give in his statement as his address but is plainly a property in which he has an interest. He also exhibits a statement from a firm called ACL Commercial Funding Limited, which is all about a property at 48 Sapcote Trading Centre, another property in which he has an interest. It does therefore seem strongly arguable, so it seems to me, that it would be an unfair inference from Mr Bhuva's witness statement that he was deliberately concealing that he had other assets. The plain inference from his statement is that he has does have other assets but that the statement is one that simply does not deal with them in any degree of fullness.
18. As it seems to me, therefore, given the primary purpose for which Mr Boyd seeks to adduce this statement in evidence, and given the inferences which I consider can anyway be drawn from Mr Bhuva's statement, I doubt whether the further evidence really takes the matter any further. But if and to the extent that it does, I consider that it would be unfair for Bestville to be faced with this fresh evidence, being of matters which Mr Seal could -- had he sought to do so and had he taken instructions from Mr Bhuva -- have endeavoured to put before the judge at the time. I propose therefore to exercise my discretion to refuse permission to Mr Bhuva to admit Mr Seal's witness statement in evidence.
19. I come therefore to the application by Mr Bhuva for permission to appeal against the costs order. The essence of the point made by Mr Boyd is that the judge took the view that he could only properly make the order he did by finding impropriety on the party of Mr Bhuva; and the submission is that it is arguable that the judge was wrong to find any such impropriety. The impropriety that the judge appears to haves identified is a breach of a duty by Mr Bhuva to make full disclosure of all his assets. As it seems to me, it is at least arguable that there was no duty of disclosure in that sense upon Mr Bhuva. Of course any witness statement he made had to be truthful and of course must not be misleading in any way. But, as I have indicated, it is apparent from the statement that Mr Bhuva did have other assets; it is also apparent that he had simply not condescended to explain what they were.
20. I consider that Mr Bhuva's failure to make a full and frank explanation of what assets he had probably rendered Rajvel vulnerable to the likelihood of an order for security for costs being made against it, since the court on 28 March might well have been prepared to conclude that the evidence before it simply did not demonstrate an inability on the part of the company and its directors to provide security. In the event, the judge did not draw an inference to that effect, but it is at least possible that another judge might have done. The question, however, is whether there was any impropriety on the part of Mr Bhuva in providing the limited evidence that he did. Mr Boyd submits that there was not, although he recognises that, to the extent that Mr Bhuva failed to give a full account of the assets which obviously lurked behind the scenes, he was taking the risk that the company would not succeed in its opposition to the security application. Mr Hamer, however, submits that there was a duty on the part of Mr Bhuva to make full disclosure and has referred me to various authorities which he says supports that. First, he referred to Keary Developments Ltd v Tarmac Construction Ltd & Anr [1995] 3 All ER 534, at 540j, where Peter Gibson LJ said:

"However, the court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation but also whether it can raise the amount needed from its directors, shareholders or 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 of security from continuing the litigation …."

21. That, of course, is a well established principle, but it does not appear to me to suggest that there is a duty of full and frank disclosure upon the director in quite the way the judge appears to have accepted. If, of course, Mr Bhuva did not give a full account in his assets, then he would not discharge the burden to which Peter Gibson LJ referred. But whether in failing to do so he would have been in breach of any duty to the court seems to me to be another matter, although in saying that I emphasise of course, as I hope I have already made clear, that if the evidence that the director puts before the board is untruthful in any respect then it is obvious he will be guilty of material impropriety.
22. Mr Hamer referred also to the observations of Potter LJ in Kufaan  Publishing  Ltd v Al-Wrak Publishing Ltd, 1 March 2000, in which, at paragraph [34], Potter LJ uttered words to much the same effect as Peter Gibson LJ but which, it seems to me, again fall short of amounting to a suggestion that there is some duty of full and frank disclosure upon the part of the director. But also, and perhaps more helpfully to him, Mr Hamer referred to the recent decision of this court in Mahan Air & Anr v Blue Sky One Ltd [2011] EWCA Civ 544, where at paragraph [38] Stanley Burnton LJ said:

"It is a truism that, in principle, the power to require security for the costs of an appeal, and even more the power to impose financial conditions on an appeal, should not be used to stifle a meritorious appeal. However, an appellant who urges the Court to conclude that its appeal will be stifled if any such conditions are imposed must put before the Court full and frank evidence as to its means."

23. I have already indicated that I recognise, as is clear from the earlier authorities, that if a company wishes to demonstrate that its backers do not have the means with which to provide the security, the burden is then on it and them to prove it by full and frank evidence. The point about the present case is that whilst Mr Bhuva's evidence was certainly less than full, it was apparent from it that he had not attempted to paint the full picture as regards his assets. As evidence it therefore seems to me to have been inadequate for the purpose for which it was put before the court. But it also appears to me to be at least arguable that it was unjustified for the judge to conclude that its making was somehow improper, no assertion of dishonesty having been made against Mr Bhuva. As I have said, it leaps from his statement and its exhibits that there had not been a full disclosure of assets; and that would have been obvious to anyone reading it, as it was to Mr Hamer, as is reflected in his observations at pages 24, 25 and 61 of the transcript of 28 March 2011.
24. Put another way, if Mr Bhuva had been intent on concealing the fact that he had other assets, he made a poor job of it. It does therefore seem to me that Mr Boyd is entitled to say that there is an arguable point that the judge was wrong to attach to the witness statement the impropriety which he did. Since that was the only basis on which the judge thought it appropriate to fix Mr Bhuva with the costs of the second security application, I have come to the conclusion that there is here sufficient to justify the giving of permission to Mr Bhuva to appeal against that costs order.
25. I propose therefore to give permission to Mr Bhuva to appeal on ground 11 of the grounds of appeal. I refuse permission to appeal on all the other grounds of the appellant's notice and, as I say, I refuse permission to adduce Mr Seal's witness statement in evidence.

Order: Application granted on ground 11 only