England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF FI CALL LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006

		Rolls Building, Royal Courts of Justice 7 Rolls Buildings, Fetter Lane London, EC4A 1NL
		19/03/2014

Mr Justice Newey :

1. The question raised by the applications with which I am now concerned is whether orders for security for costs should be made.

Some procedural history

2. The proceedings concern a company called Fi Call Limited ("Fi Call"), which was set up to provide "VoIP" (or "Voice over the Internet Protocol") telephony services. Fi Call's main shareholders are the first claimant, Apex Global Management Limited ("Apex"), and the second defendant, Global Torch Limited ("Global"). Apex is itself owned by the second claimant, Mr Faisal Almhairat, who is a Jordanian national. As for Global, 50% of its shares are held by HRH Prince Abdulaziz bin Mishal bin Abdulaziz Al Saud ("Prince Abdulaziz"), a member of the Saudi royal family. The remainder of Global's shares are registered in the names of the fourth defendant, Mr Emad Abu Ayshih, who is Prince Abdulaziz's private adviser, and a Mr Yasin Sabha, who is a Jordanian lawyer.
3. On 2 December 2011, Global presented a petition to which the respondents were Apex, Mr Almhairat and Fi Call. Global sought relief under section 994 of the Companies Act 2006 on the basis that Fi Call's affairs had been conducted in an unfairly prejudicial manner. In the alternative, it asked for an order that Fi Call be wound up. The relief claimed under section 994 included an order for one or other of the respondents to buy Global's shares in Fi Call.
4. Within a fortnight, Apex had presented a petition of its own. The respondents to this petition were Fi Call, Global, Prince Abdulaziz, Mr Ayshih and Prince Abdulaziz's father, HRH Prince Mishal bin Abdulaziz Al Saud ("Prince Mishal"). Like Global, Apex alleged unfairly prejudicial conduct and claimed relief under section 994 of the Companies Act 2006. In particular, it sought an order requiring one or more of the respondents to purchase its shares in Fi Call.
5. The procedural position was complicated further when Apex and Mr Almhairat ("the Apex Parties") served points of defence to the Global petition. The document included both a counterclaim and additional claims against Prince Abdulaziz and Mr Ayshih.
6. Vos J took steps to rationalise the litigation in the middle of last year. He concluded that the Apex Parties should serve amended points of claim reflecting both (a) the petition Apex had presented and (b) the counterclaim and additional claims asserted in the proceedings brought by Global. Global, Prince Abdulaziz and Mr Ayshih were then to serve a single defence which could also include a counterclaim against the Apex Parties. Vos J further provided for the Apex Parties to serve a reply and defence to counterclaim and for Global to serve a reply to defence to counterclaim. The Apex Parties were to be treated as the claimants (or petitioners) and Fi Call, Global, Mr Ayshih and the two Princes as the defendants (or respondents).
7. Vos J also ordered Prince Abdulaziz to provide a statement containing certain information. The statement was to be verified by the Prince personally. What in the event happened was that a personal assistant made a witness statement in which he said that a royal conduct protocol precluded the Prince from making statements in litigation himself. In September 2013, Norris J ordered that Prince Abdulaziz should be debarred from defending unless he complied with what Vos J had ordered, and, when the Prince still did not do so, judgment was entered against the Prince on a money claim made by Apex. As things stand, therefore, Prince Abdulaziz has been ordered to pay $5,984,000 plus interest to Apex. An appeal is, however, due to be heard by the Court of Appeal in May of this year.
8. The trial of the proceedings was at one stage going to begin last month, but it is now due to start on 27 October of this year, with a time estimate of five weeks.
9. Prince Mishal has not taken any active part in the proceedings since June of last year.

The present applications

10. Global and Mr Ayshih ("the Global Parties") ask that the Apex Parties be ordered to provide security for costs in the sum of £2 million. The Apex Parties have made a cross-application for security for costs against Global, but their primary position is that none of the parties to the proceedings should be required to give security. In contrast, the Global Parties' position is essentially that there should be security from both sides: they maintain that an order for security should be made against the Apex Parties and say that, if it is, they would be happy to furnish security themselves.

CPR Part 25

11. CPR 25.13 empowers the Court to make an order for security for costs where it is satisfied that it is just to do so and one or more of the conditions set out in CPR 25.13(2) applies.
12. The conditions listed in CPR 25.13(2) include these:

"(a) the claimant is-

(i) resident out of the jurisdiction; but

(ii) not resident in a Brussels Contracting State, a State bound by the Lugano Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982;

…

(c) the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so;

(d) the claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation;

…

(g) the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him."

Application of the conditions in the present case

13. Mr Justin Fenwick QC, who appeared with Mr Daniel Saoul for the Global Parties, relied on a number of the conditions set out in CPR 25.13(2). In relation to Apex, conditions (a), (c) and (g) were all said to be satisfied. As regards Mr Almhairat, the Global Parties invoked conditions (a), (d) and (g).
14. I can concentrate, I think, on condition (g). As Park J noted in Chandler v Brown [2001] CP Rep 103 (at paragraph 17), three requirements emerge from the wording of the condition:

"(1) the claimant must have 'taken steps'; (2) the steps must have been taken in relation to his assets; (3) the steps must be steps which would make it difficult to enforce an order for costs against him."

A defendant "is not required to show that the steps were taken with the specific intention of defeating enforcement (Aoun v Bahri [2002] EWHC 29 (Comm); [2002] 3 All E.R. 182) or that those steps were taken during the litigation or in contemplation of it (Harris v Wallis, [2006] EWHC 630 (Ch); The Times, May 12, 2006)" (see the White Book, at paragraph 25.13.18).

15. In the present case, Apex received a payment of some $16.7 million in April 2011. There is an issue between the parties as to whether part of this sum should have been paid on to Global, but it is common ground that Apex was entitled to keep upwards of $10 million for itself. It appears, however, that Apex no longer holds any of this money. In a letter dated 13 May 2013, the Apex Parties' solicitors stated that Apex's assets comprised its claims in these proceedings, its shareholding in Fi Call and a 60% shareholding in a Seychelles company also called Fi Call Limited. There was no mention of Apex still having all or any of the $16.7 million, and it was explained that Apex's legal costs were being met by Mr Almhairat. Further, there is nothing in the evidence put in on the Apex Parties' behalf for the present applications to suggest that Apex now has any of the $16.7 million. In the circumstances, I agree with Mr Fenwick that the evidence indicates that Apex has taken steps in relation to its assets that would make it difficult to enforce an order for costs against it. It can be inferred that, for whatever reason, Apex has paid away the $16.7 million, including the $10 million to which it was entitled even on the Global Parties' case, and that that would make it difficult to enforce an order for costs against it. In the course of submissions, Mr Daniel Lightman, who appeared with Miss Emma Hargreaves for the Apex Parties, accepted that it was open to me to draw this inference, and I do so. In the circumstances, I am satisfied that condition (g) applies as regards Apex.
16. On balance, I also consider condition (g) to apply in relation to Mr Almhairat. Since Mr Almhairat is Apex's only shareholder and director, he must be responsible for the fact that the company has paid away the $16.7 million. Had Apex retained the money, the Global Parties could have been expected to be well-placed to enforce against Mr Almhairat's shares any costs order that they might obtain against him. The position has, however, changed as a result of the steps that Mr Almhairat would appear to have taken to cause Apex to part with the $16.7 million. Since it is not clear that Mr Almhairat has other assets against which a costs order could easily be enforced, it can, I think, fairly be concluded that Mr Almhairat must have taken steps in relation to assets of his (viz. his shares in Apex) that would make it difficult to enforce an order for costs against him.
17. I accordingly take the view that condition (g) is applicable in relation to both Apex and Mr Almhairat. That being so, I do not need to consider whether any of the other conditions on which Mr Fenwick relied is in point.

Discretion

18. Mr Lightman put forward a number of matters which he submitted meant that I should not order the Apex Parties to give any security for costs even if I concluded (as I have) that one of the conditions set out in CPR 25.13(2) applies. Mr Lightman's arguments included these:

i) Mr Almhairat is no more than a nominal petitioner/claimant and so should not be required to provide security unless (which is not suggested) one of conditions listed in CPR 25.14(2) would be met; and

ii) The existence of cross-claims makes it inappropriate to make an order for security against either of the Apex Parties.

19. I address these points in turn below.

Mr Almhairat as a petitioner/claimant

20. CPR 25.14 allows the Court to make an order for security for costs against a non-party if it is satisfied that it is just to do so and one or more of the conditions in CPR 25.14(2) applies. Those conditions are that the person in question:

"(a) has assigned the right to the claim to the claimant with a view to avoiding the possibility of a costs order being made against him; or

(b) has contributed or agreed to contribute to the claimant's costs in return for a share of any money or property which the claimant may recover in the proceedings; and

is a person against whom a costs order may be made."

21. It is not suggested by the Global Parties that any of the conditions set out in CPR 25.14(2) applies as regards Mr Almhairat. Their position is that CPR 25.14 is not in point because Mr Almhairat is a named petitioner/claimant. Mr Lightman, however, argued that Mr Almhairat is a petitioner/claimant in no more than name and that it could not therefore be right to make an order against him without the requirements of CPR 25.14 being satisfied.
22. Mr Almhairat first became involved in the proceedings as one of the respondents to the petition presented by Global. As I have already said, the Apex Parties' points of defence to that petition also included a counterclaim and additional claims against Prince Abdulaziz and Mr Ayshih. The claims asserted included one for damages for conspiracy. Apex and Mr Almhairat were both said to have suffered loss as a result of the alleged conspiracy.
23. As mentioned above, when Vos J took steps to rationalise the litigation, he directed that the Apex Parties were to be treated as the claimants. His order of 30 July 2013 provided for Mr Almhairat to be joined as a second claimant in the petition presented by Apex and for the service of amended points of claim by both the Apex Parties. Vos J had said in his judgment that the "way the matter should be staged is that the claimants should be regarded as Apex and Mr Almhairat".
24. In his judgment, Vos J also urged the Apex Parties to "consider long and hard" whether their conspiracy claim was going to add very much to the case. As Mr Lightman explained, the Apex Parties took Vos J's comments on board, with the result that the conspiracy claim does not feature in the amended points of claim. That means that, although named as a petitioner/claimant, Mr Almhairat is no longer asserting any claim in his own right.
25. That being so, I agree with Mr Lightman that it would not be appropriate for me to make an order for security for costs against Mr Almhairat in circumstances where the requirements of CPR 25.14 are not met. While Mr Almhairat remains a named petitioner/claimant, he is no longer one in a real sense. The fact that Mr Almhairat is not now, in substance, advancing any claim of his own also means that the Global Parties cannot be incurring costs in meeting such a claim. Their costs arise from the claims made by Apex and their own claims.

The significance of the cross-claims

The parties' positions

26. The Apex Parties' position was summarised in these terms in their skeleton argument:

"The primary position of the Apex Parties is that, as a matter of principle, it would be wrong for any party to be given security for costs in this situation and on that basis alone both [the Global Parties' application and that of the Apex Parties] should be dismissed. This is because these proceedings consist of two unfair prejudice petitions, one of which is effectively a cross-petition against the other arising out of the same facts and seeking much the same relief; in those circumstances neither side should be required to give security to the other, otherwise they would in effect be giving security for the costs of the other side's claim."

27. The Global Parties, on the other hand, maintain that there is no question of the Apex Parties' participation in the dispute being merely responsive. The reality, Mr Fenwick submitted, is that the Apex Parties have considerably widened the scope of the litigation by making a range of very serious additional allegations. Those matters, Mr Fenwick argued, were not raised merely as defences to Global's petition but have an "independent vitality of their own".

The legal framework

28. The authorities show that the existence of a cross-claim will sometimes lead a Court to decline to make an order for security for costs in respect of a claim.
29. The decision of the Court of Appeal in B J Crabtree (Insulation) Ltd v GPT Communication Systems Ltd (1990) 59 BLR 43 is much cited in this context. In that case, a building contractor brought proceedings to recover money said to be due to it for additional work. The employer denied that it had authorised such work and also counterclaimed for damages for defective and uncompleted work. The Court of Appeal concluded that the contractor should not be ordered to give security in respect of its claim. Bingham LJ stressed that there could be "no rule of thumb as to the grant or refusal of an order for security" in the circumstances. On the facts of the case, he considered the most important factor to be that the rival claims "raise essentially the same issues and are going to be fully litigated anyway so far as one can tell". Bingham LJ was concerned in part about the risk of one-sided litigation if security were ordered. As to this, Bingham LJ said:

"It is … necessary, as I think, to consider what the effect of an order for security in this case would be if security were not given. It would have the effect, as the defendants acknowledge, of preventing the plaintiffs pursuing their claim. It would, however, leave the defendants free to pursue their counterclaim. The plaintiffs could then defend themselves against the counterclaim although their own claim was stayed. It seems quite clear and, indeed, was not I think in controversy–that in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiffs were to pursue their claim, but on that basis they would defend the claim and advance their own in a somewhat hobbled manner, and would be conducting the litigation (to change the metaphor) with one hand tied behind their back. I have to say that that does not appeal to me on the facts of this case as a just or attractive way to oblige a party to conduct its litigation.

Mr Phillips for the defendants submits there would really be no problem because, if the defendants failed in their counterclaim and the plaintiffs' case contrary to the counterclaim effectively succeeded, then the stay could be lifted and the plaintiffs could be given judgment. But on that assumption one is bound to ask what would be the point of making the order at all except to give the defendants a tactical advantage in the litigation."

30. Bingham LJ also had in mind the fact that the costs in respect of which security would be awarded could be said to be costs of pursuing the employer's own claim. He said:

"It may in some cases be fair and just to make such an order even though the defendant is himself counterclaiming, but I am persuaded that it would be wrong to do so here because the costs that these defendants are incurring to defend themselves may equally, and perhaps preferably, be regarded as costs necessary to prosecute their counterclaim…. The fact that the plaintiffs are plaintiffs and the defendants are counterclaiming defendants instead of the other way round appears on the facts here to be very largely a matter of chance."

31. The other member of the Court, Parker LJ, observed in his judgment that:

"if the money is not paid into court and the plaintiff's claim is therefore stayed, the defendant will still raise issues on the counterclaim which are precisely the same as the issues which he would raise on the claim."

32. Where security for costs is sought in respect of a counterclaim:

"the question may arise, as a matter of substance, not formality or pleading: is the defendant simply defending himself, or is he going beyond mere self-defence and launching a cross-claim with an independent vitality of its own?"

(to quote from Bingham LJ's judgment in Hutchison Telephone (UK) Ltd v Ultimate Response Ltd [1993] BCLC 307). If a claim raises issues that do not arise from a cross-claim, it may be appropriate to limit any award in respect of the claim to costs relating to the extra issues. In Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm), [2010] 2 CLC 661, Hamblen J observed:

"Where the claim raises substantial factual inquiries which are not the subject of the counterclaim, an order for security may be appropriate notwithstanding the fact that the claim provides a defence to the counterclaim…. In those circumstances, an order for security will normally be limited to the costs of addressing additional issues raised only by the claim."

33. In a case involving a claim and cross-claim, the right course could potentially be to order security in respect of both claim and cross-claim. That was the approach adopted in Samuel J. Cohl Co v Eastern Mediterranean Maritime Ltd (The "Silver Fir") [1980] 1 Lloyd's Rep 371. Lawton LJ there said:

"In my judgment where, as in this case, both parties carry on business outside the jurisdiction, both are claiming against the other as parties who have been badly treated and have suffered damage, and it was mere chance that one started the arbitration before the other could get in a claim, then both should be treated alike. If one gets an order for security for costs then the other should too."

In Autoweld Systems Ltd v Kito Enterprises LLC [2010] EWCA Civ 1469, Black LJ said of The "Silver Fir":

"It is of note that this was an arbitration between two foreign corporations and the Court of Appeal were fortified in their conclusion by the way in which matters were dealt with in commercial arbitrations elsewhere in Europe."

The present case

34. When considering the extent, if any, to which the claims that Apex advances raise issues additional to those raised by Global's petition, it is helpful to look at the pleadings in the proceedings brought by Global as they were prior to Vos J's rationalisation of the litigation. It can be seen that the original petition pleaded that the relationship between the parties had been destroyed by the Apex Parties' conduct. Mr Almhairat was said to have:

"misappropriated funds from [Fi Call], … misconducted the Company's business in various ways, … failed to keep proper books and records and to supply all the books and records to [Global], and … blocked the holding of board meetings to discuss and try to resolve such matters."

Matters were said to have been:

"exacerbated by false allegations of criminal conduct that the [Apex Parties] have made about [Global] and its shareholders, alleging falsely that they have used the Company for criminal purposes, and that the [Apex Parties] have threatened to publish to third parties."

It was said that, in the circumstances, the affairs of Fi Call had been conducted in an unfairly prejudicial manner and that it was just and equitable for the company to be wound up.

35. In their points of defence, the Apex Parties asserted that the relationship between the parties had in fact been destroyed by conduct on the part of the Global Parties and Prince Abdulaziz. The conduct in question was said to encompass "criminal conduct, breaches of fiduciary duty and conduct which has been and is unfairly prejudicial to the interests of Apex" and was stated to be the subject of Apex's own petition. The points of defence themselves detailed allegations to the effect that Prince Abdulaziz and Mr Ayshih had caused Fi Call to become involved in activities relating to money-laundering for Hezbollah and smuggling. It was also pleaded that, were the Apex Parties ordered to buy Global's shares in Fi Call, the valuation of the shares should take account of, for example, the fact that "Prince Abdulaziz … is liable to repay to [Fi Call] … the sum of US$202,000 which he wrongfully caused the Company to pay for the charter of an aircraft for an unlawful and/or improper purpose".
36. The consolidated pleadings filed pursuant to Vos J's directions contain the same points. In the amended defence and counterclaim, the Global Parties once again allege that the Apex Parties have been conducting the affairs of Fi Call in an unfairly prejudicial manner. Among other things, the Apex Parties are said to have:

"…

3.9 forged emails and other documents with a view to making false and scandalous allegations against Mr Abu-Ayshih, Prince Abdulaziz and Prince Mishal with the intention of coercing them and Global Torch into agreeing to a compromise of this litigation by buying Apex's shares at an artificial and inflated value;

3.10 procured the decommissioning of [Fi Call's] servers with the intention of preventing the Global Torch Parties from proving their case that disputed emails have been forged thus placing the Apex Parties in breach of their disclosure obligations in this case … ;

…

3.16 threatened to expose Prince Abdulaziz and the Global Torch Parties to severe public embarrassment and distress with the intention of causing him to buy out Apex's shareholding in the Company."

In contrast, the Apex Parties' reply concludes that:

"The conduct of Global Torch, Mr Abu-Ayshih, Prince Abdulaziz, and Prince Mishal has caused Apex justifiably to lose trust and confidence (and has been the cause of the breakdown in trust and confidence) and has caused detriment to [Fi Call] and the destruction of its business (in particular by reason of carrying out unlawful activity)."

37. Further information filed on behalf of the Global Parties states:

"the Court can and should investigate the reasons why the relationship between the parties broke down and should have regard to those reasons when determining what (if any) relief should be granted under the Apex Petition and/or Global Torch Petition."

38. In the circumstances, I cannot see how the issues to which Global's petition gives rise can be satisfactorily disentangled from those arising from Apex's petition. Mr Fenwick is doubtless right that the allegations on which Apex's petition is founded have widened the scope of the litigation. The allegations are, however, relevant to the Global petition as well as that presented by Apex. The Global Parties have themselves alluded to the allegations both in the original Global petition and, more recently, in their amended defence and counterclaim: see paragraphs 34 and 36 above. The allegations would anyway be central to the Apex Parties' defence to the proceedings brought by Global. The Apex Parties maintain that the breakdown in the relationship between the parties is attributable, not to the reasons given by the Global Parties, but to the misconduct that they (the Apex Parties) allege.
39. It follows, I think, that there are clear parallels between the Crabtree case and the present one. Here, as with Crabtree, an order for security for costs could give rise to one-sided litigation. If the Apex Parties failed to comply with such an order and the Apex petition was, in consequence, stayed or struck out, the Apex Parties could still put forward their allegations when defending the Global Parties' claims, but they would be "conducting the litigation … with one hand tied behind their back" (to borrow Bingham LJ's words). Further, the costs that the Global Parties are incurring are as referable to the Global petition as they are to Apex's. Were I to order the Apex Parties to provide security for costs, I would in effect be giving the Global Parties security for the costs of their own claims.
40. Mr Fenwick said that, were security ordered against the Apex Parties and not provided, the Global Parties might abandon their reliance on the allegations made by the Apex Parties. No formal offer to that effect has, however, been made. In any case, the Apex Parties would be entitled to put forward their allegations by way of defence to Global's petition even if the Global Parties no longer wanted to make anything of them.
41. Mr Fenwick also argued that any risk of one-sided litigation should be considered, not now, but if and when the Apex Parties failed to comply with an order for security for costs. However, the Courts have in the past regarded the existence of such a risk as relevant to whether security should be ordered at all. Moreover, the decision in Crabtree was not based solely on the danger of one-sided litigation. In Anglo Irish Asset Finance plc v Flood [2011] EWCA Civ 799, Moore-Bick LJ (with whom the other members of the Court of Appeal agreed) observed that, while the risk of one-sided litigation "was certainly one factor that weighed with the court" in Crabtree, "it does not appear to have been the primary factor, at least as far as Bingham LJ was concerned". As noted in paragraph 30 above, Bingham LJ also attached importance to the fact that the costs in respect of which security would be ordered could be said to be costs of pursuing the applicant's own claim.
42. Mr Fenwick drew an analogy with The "Silver Fir". As, however, was pointed out by Black LJ in Autoweld Systems Ltd v Kito Enterprises LLC, that case concerned arbitration between foreign corporations and the Court was influenced by the practice relating to such arbitrations elsewhere in Europe. The present case, in contrast, involves Court proceedings.
43. In my view, the right approach in the present case is not to order both sides to give security for costs, but to make no order for security. To my mind, the existence and implications of the Global petition make it inappropriate for me to exercise my discretion to order Apex to provide security for costs in respect of its claims. Had I not already decided against requiring security from Mr Almhairat (see paragraph 25 above), I would have also have declined to make an order against him on this ground.

Other matters

44. The conclusions I have arrived at above make it unnecessary for me to consider other objections that Mr Lightman advanced to my ordering his clients to provide security for costs.

Conclusion

45. I shall dismiss both applications for security for costs.