England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/03/2011

Mr Justice Warren :

Introduction

1. I now deal with one outstanding issue following a further hearing on 28 May 2010. Vatsal and Anju apply for an interim order for payment of amounts which will be due once the order for accounting made by Master Bragge on 28 April 2010 has been completed. The amount sought on this application is an amount sufficient (i) to enable Vatsal and Anju to meet their liabilities under the order for payment on account of costs which I have already made, an order for a payment of some £214,000 and (ii) to enable Vatsal to meet his potential liability for the whole of the amounts payable to Harshika under her quantum meruit claim, nearly £150,000 including interest. Alternatively, they apply for a stay of the order for payment on account of costs but does not seek a stay of the order in favour of Harshika on her claim.

The relevant provisions of the CPR on interim payment, payment on account of costs and stay

A. Interim payment

2. It is common ground that the court has a power to make an order for interim payment under CPR 25.7(b) where the court has made an order that an account be taken; but this will only be done where the evidence before it on the application shows that the account is "bound to result in payment to the applicant". This is, in reality, the effect of CPR 25.7(b) read with paragraph 2A of the practice direction 25BPD 2A.

B. Payment on account of costs

3. The power to make the order which I made for payment on account of Vatsal's and Anju's liability to Udi for costs is found in CPR 44.3(8). I do not recollect if Mr Sisley said anything in opposition to Mr Talbot's application for a payment on account when that application was made. If he did, it was very little and certainly did not go into the detail on which I am now addressed in the light of the evidence, some of which was not, or had not been made, available when Mr Talbot made his application. I exercised my discretion under the Rule in the way which I did because it did not seem to me then that Udi should have to wait until a detailed assessment had been carried out before he could recover a single penny.

C. Stay

4. The relevant provision for present purposes is CPR 3.1(2) (f): included in the Court's general power of management is power to stay the whole or part of any proceedings or judgment.

Factual matters

5. On 28 April 2010, Master Bragge made an order ("the April Order") which included within it a number of consent orders. It was agreed, and the April Order reflects, that

a. Udi would pay Vatsal agreed occupation rents for Rosendale Road and Kingston Road.

b. Udi would pay to Vatsal one half of future rents on the joint properties; and

c. an account would be taken of past rents on the joint properties. In taking the accounts, Udi was to be entitled to submit any claim as to just allowance (this is not to say that he is in fact entitled to any or that the point has been conceded that, in principle, he is entitled to them). There were directions for the filing of evidence by Udi (which have now, I believe, been complied with). Vatsal is to have his evidence in reply in later this month. Following that, a half-day hearing for further directions is to be listed.

6. No order has been made concerning the sale or other disposal of any of the joint properties. Vatsal expects in the end to receive a substantial amount upon completion of sales and it is clear that there is a substantial equity in the properties. It is not apparent that anything will be received in the short term.
7. Udi's evidence is that Cashco may be insolvent now that the joint properties have been shown, as a result of my main judgment, not to be Cashco assets. Its solvency is further jeopardised by the liability to Harshika following my decision on her quantum meruit claim.
8. Vatsal and Anju say that they simply do not have the assets to meet the order for payment on account of costs. Although substantial sums have been received in respect of their disposal of some partnership interests and as a result of the payment to Anju of the balance on her director's account in VU Chem, this money has all been spent in meeting their own costs, in repaying loans from friends who have helped them out during the course of this litigation and in discharging tax liabilities (in respect of which it is said that in the region of £250,000 still remains outstanding). Although there is no formal evidence about all of those matters, Mr Talbot does not really take any point about that and has no submissions to make on the financial position of Vatsal and Anju. It is reasonable for me to proceed on the basis that they are not in a position to meet the order for payment on account, which is what I do.

Submissions

9. Mr O'Mahony (now appearing for Vatsal and Anju in the absence of Mr Sisley) submits that Vatsal is bound to receive a large amount of money when the accounting ordered by Master Bragge is completed.
10. He has taken me through some material in support of his submissions that Vatsal is bound to receive a substantial sum on the taking of the account. The case, unfortunately for Vatsal, does not rest on material which shows clearly what is due (indeed, that is the whole purpose of the account) nor does it even show (at least to the standard of "bound to result in payment" to Vatsal) that any particular amount will be payable. The case rests on inference from what has been received by Udi some time in the past but without Vatsal being able to make reliable assessment of the outgoings (in particular interest) attributable to the properties.
11. As to the occupation rent actually payable pursuant to the first part of the April Order, the gross rents were nearly £82,000 paid but Udi has deducted expenses leaving Vatsal with a net receipt (his half share) of just under £12,700. Mr O'Mahony says that these rents "seem to be short" saying that it seems "odd that there are so many slight underpayments". But the total shortfall in respect of rent over the quarter is not large in the context of the amount of the order for payment on account of costs. Mr O'Mahony has not set out a total, but it seems to me to be between £10,000 and, at most, £15,000.
12. As to outgoings Mr O'Mahony says that these "as recorded leave a lot to be desired", identifying a number of complaints. Udi has awarded himself a 10% management fee on all but the let properties within the Kingswood Manor property. There is an unexplained entry moving a total of just over £20,600 from one account to another rather than being distributed.
13. Udi has provided explanations by reference to each head of complaint. Who is right and who is wrong is not a matter which I can decide on the present application. There are clearly areas of real dispute which will have to be resolved by the court, if agreement cannot be reached, in due course. As to outgoings Mr O'Mahony says that these "as recorded leave a lot to be desired".
14. So far as accounting for past rents is concerned, evidence filed on behalf of Vatsal from his accountant argues, on the basis of past accounts including balance sheets, that Vatsal's half share from 2004 to 2010 will be just under £1.15 million. Udi says that the figure is ludicrous, the main fallacy being that it fails to take account of mortgage interest. Udi's evidence is that there is in fact a net deficit over the period.
15. Having said that, Mr O'Mahony has taken me through some details in relation to Kingston Road. He has also taken me through certain accounting entries in relation to some of the joint properties and Cashco. He may well be right in saying that there are entries for deductions which should not be allowed; he may be right in saying that loans shown in Cashco's accounts are not Cashco liabilities at all; and he may be right in saying that Vatsal has not had all of the information (in particular copy leases) to which he is entitled. These are matters which will have to be dealt with (and some will be dealt with in the course of the account being taken pursuant to the April Order).
16. However, what I cannot say is that Vatsal is bound to receive any payment under that accounting. I do not, of course, say that he will receive nothing or very little. But that is not the point. I am not satisfied that Vatsal is bound to receive a sum of money which would justify an order for an interim payment.
17. When it comes to a stay, Mr O'Mahony only seeks a stay of the order for a payment on account of costs. At present, he does not press for a stay of the order in favour of Harshika since there is no indication that she is seeking, or will in the short term seek, to enforce it. He asks for a stay generally until further order or, failing that, until Vatsal receives money from the sale of one or more of the joint properties (thus providing Vatsal with the cash to meet the costs).
18. Mr Talbot was initially inclined to say that I should not even begin to consider granting a stay almost, but not quite, as a matter of absence of jurisdiction. He points out that the application for a stay was not made when he made his own application for a payment on account of costs. That was the time when such an application should have been made. Indeed, the concept of staying an order for payment on account is almost a contradiction in terms. In the end, he accepted that I had jurisdiction to grant a stay. I think he also recognised that there was no real contradiction in terms since Udi might well be entitled to a payment on account well before a detailed assessment of costs had been completed. For instance, if I were to grant a stay only until one or more of the joint properties was sold (at which time Vatsal would have money to make some payment in satisfaction of the order for payment on account of costs) the stay might well come to an end before the detailed assessment had been completed. It seems to me therefore that I have power to order a stay. But I accept that, in the exercise of my discretion, I should take into account that the factors which are now relied on by Mr O'Mahony are ones which could have been raised in opposition to the making of the order for payment on account of costs. The result, if such arguments in opposition had been made, might have been the refusal of an order for payment on account or, less likely perhaps but not impossible, the making of such an order but with a limited stay attached to it. Another significant factor in the exercise of my discretion is whether there has been any relevant change in circumstances since the date of my order for payment on account of costs; compare RSC Order 45 r 11 (which remains in force but does not exclude CPR 3.1(2)(f)). If there has been a material change of circumstance, then the failure to oppose the application for payment on account ceases to have any significant weight.

Conclusions

19. In my judgment, it is appropriate that I should grant a limited stay of the order for payment on account of costs. This is a case where the financial affairs of Vatsal and Udi are tied up in such a way that would make it unjust, at the present time, for Vatsal and Anju to be exposed to further hardship (including possible bankruptcy). The assets out of which Vatsal could expect to meet his liability are the joint properties of himself and Udi. Although there is no agreement about what Vatsal is likely to receive at the end of the day, my impression is that it will be a significant sum. Indeed, Udi's position that Cashco's weak financial position (and possible insolvency) is the result (or largely the result) of what he had asserted were Cashco properties being joint properties. On any view, there is a substantial net equity in these properties.
20. Although I do not at this stage say that the delay in the marketing and sale of any of these properties is a matter in respect of which Udi can be said to be in breach of duty in any way, it is fair for me to say, I think, that he has shown no enthusiasm in achieving a speedy sale. I am sure that if he, as well as Vatsal, were very keen to see the properties marketed and sold, more could have been achieved than has actually been achieved.
21. Further, there is a real dispute about the amount which will be shown to be Vatsal's share in the net rents and profits of the properties subject to accounting aspects of the April order. The accounting process is well under way and it is to be hoped that Vatsal will know an answer in the not too distant future. I accept that the amount which Vatsal is entitled to recover may not be enough to meet the order for payment on account of costs. But the possibility of a significant payment is something to be taken into account.
22. The proper course at present is to grant a stay pending the outcome of the account which is being taken under the April Order. When that account is finalised, the parties will know what (if anything) it is that Udi owes Vatsal. Further, by that time it is to be hoped that real progress will have been made on the realisation of the various properties in which Vatsal has a half share, producing money to enable him to meet the costs order. His own inability to meet the costs order is an important factor in leading me to this conclusion. I would not be justified in granting any stay if Vatsal had the necessary resources to meet the order.
23. The possibility of Udi being entitled to receive Vatsal's share of the net rents and profits of the joint properties in part fulfilment (from time to time) of Vatsal's liability under the costs order was raised at the hearing. I think, in the short term, that I should not impose such a condition on the stay which I am prepared to make. This is principally because of the additional hardship which this would cause Vatsal, but partly because of other complications which would arise. For instance, Vatsal will remain liable for tax on the net rent so that Udi ought, I think, to be entitled at most to Vatsal's share after deducting an amount equal to the tax (at Vatsal's marginal rate) which Vatsal will eventually have to pay, accounting to Vatsal for that amount. This will be to add an unnecessary layer of complexity and expense which I do not consider is a proportionate response in all the circumstances of the case.
24. The Parties are to be at liberty to apply to vary the duration of the stay or its terms.

The Minor Partners

25. Cumberland Ellis, the solicitors acting for certain of the Minor Partners, seek an order for payment on account of the costs which I have ordered Vatsal to pay – that is to say the costs of the proceedings since 1 May 2009. They ask for an order in the sum of £5,000. I have seen no bills which show what costs have been incurred, let alone what part of the total costs of their clients is attributable to the period from 1 May 2009. I am not willing to make an order at the present time on the material before me.