Jersey Unreported Judgments

[2010]JRC010

royal court

(Samedi Division)

20^th January 2010

Before     :

J. A. Clyde-Smith, Esq., Commissioner, sitting alone.

 

Mr B. Shelton and Mr M Power for the Plaintiff.

Advocate M. P. Renouf for the Defendant.

judgment

the commissioner:

1.        This is an appeal by the plaintiff against the Master's decision of 22^nd September, 2009, whereby he ordered that:-

(i)        Unless by 5pm on 6^th October, 2009, the plaintiff in the action against Rockwood Investments Limited ("Rockwood" and "the Rockwood action") do pay to the defendant the sum of £4,051.51 together with interest at the Court rate from the 2^nd April. 2008. to the date of payment, the particulars of claim of the plaintiff shall be struck out and the plaintiff shall pay the costs of the defendant of the action generally on the standard basis;

(ii)        

(a)       in the Rockwood action the plaintiff shall, within 14 days, provide security for costs in the sum of £12,000 to cover the period up to and including the completion of discovery by payment of the said amount to the Judicial Greffier;

(b)       In the action against Aquarelle Investments Limited ("Aquarelle" and "the Aquarelle action") the plaintiff shall, within 14 days, provide security for costs in the sum of £5,000 to cover the period up to and including the completion of discovery by payment of the said amount to the Judicial Greffier;

(c)       Until the said payments are made that both actions shall be stayed as against the plaintiff.

Background

2.        Anchor Trust Company Limited ("Anchor") was the trustee of the Tulip Trust, the trust fund of which comprised some 25 companies, two of which are the defendants in these actions.  Anchor administered both the Tulip Trust and its underlying companies. 

3.        In 2005 Anchor was refused a licence to carry on a financial service business.  The trusteeship and the administration of the underlying companies were transferred to service providers in Guernsey. 

4.        Anchor operated a BACS clearing account for the benefit of its clients and following the transfer various payments were made out of that account by its bank by way of direct debit for the benefit of the defendants; £32,493.42 in the case of Rockwood and £8,907.95 in the case of Aquarelle.

5.        Reimbursement has been sought and refused.  The benefit of the sums due to Anchor by the defendants by way of reimbursement arising out of those debits was assigned by Anchor to the plaintiff by letters signed by Mr Shelton as sole director; on the face of the letters without any consideration or other terms.

6.        The Rockwood action was commenced in the Royal Court by summons dated 2^nd November. 2007.  

7.        On 2^nd April, 2008, the Master heard an application brought by the plaintiff in the Rockwood action seeking summary judgment against Rockwood.  That application was refused and the plaintiff was ordered to pay the costs of the application on the standard basis, now taxed in the sum of £4,051.50.

8.         In October 2008 the plaintiff commenced the Aquarelle action in the Petty Debts Court.  In February 2009 the Petty Debts Court transferred the Aquarelle action to the Royal Court.

9.        On 22^nd July, 2009, the Master ordered that both actions be heard before the Royal Court at the same time and gave consequential directions regarding the filing of pleadings, discovery and other procedural requirements.

10.      On 26^th August, 2009, the Master heard the applications which are the subject of this appeal and issued his judgment on 22^nd September, 2009. 

11.      The defendants deny liability in respect of both actions.  They assert that Anchor paid into and debited funds for all of its clients from this single bank account and the only way to establish any debt at all is due from the defendants will be by way of a reconciliation of all transactions conducted by Anchor in and out of that account on their behalves.  They allege that this information has never been provided.  They also allege that Anchor wrongly debited the account for fees which it had claimed as due without authority.  Further and in the alternative they argue that the proper route for the recovery of any sums due pursuant to the administration of the Tulip Trust was and is by trustees' right of indemnity.

12.      On 2^nd September, 2009, the defendants each filed a set off and counter claim.

Status of the plaintiff company

13.      Mr Shelton candidly confirmed to me that the plaintiff, of which he and Mr M Power are the directors, has no assets apart from the benefit of these claims.  The directors are funding the litigation on an ad hoc basis.  The plaintiff had been used for the specific purpose of making these claims and if it is unsuccessful it would not be in a position (and would not be funded) to meet any adverse costs order.  He explained to me that the reason for the assignment was that Anchor did not and was not able to have a bank account; the plaintiff did have such an account.

Unless Order

14.      Mr Shelton did not take issue with the law correctly, in my view, summarised by the Master citing from both Tomes-v-Coke-Wallis and others 2002/184 and Leeds United-v-Admatch [2008] JRC 086.  He did not dispute that the sum claimed by way of costs was due, but sought an order that payment be stayed until the decision of the Royal Court in the substantive claim.  The Master saw no reason to depart from the legal principles clearly established in the above cited cases.  The sum claimed had been outstanding for some considerable time and no proposals for payment had been put forward.  In the circumstances he considered it appropriate to make the "unless" order.

15.      In his skeleton argument, Mr Shelton informed me that the plaintiff was relying upon the proceeds from the Aquarelle action to fund the costs judgement in the Rockwood action but this strategy had been frustrated by Aquarelle persuading the Petty Debts Court to transfer the Aquarelle action to the Royal Court on the basis that it would bring a "representation" to that Court.

16.       The transcripts of the hearing before the Petty Debts Court do show Advocate Renouf for Aquarelle stating an intention to bring a representation before the Royal Court to deal, presumably, with wider issues involving the administration of the Tulip Trust and its underlying companies, but it is clear that there was no undertaking to this effect and the matter was not referred to the Royal Court on the basis that such a representation would be brought.  The matter was referred because it was not in the public interest for two separate claims to be heard in two separate courts involving similar issues.

17.      I am required to look at the matter afresh exercising my own discretion but giving such weight as I think fit to the manner in which the discretion has been exercised by the Master (see Murphy-v-Collins [2000] JLR 276).

18.      I see no reason to depart from the manner in which the discretion of the Master has been exercised.  As made clear in Tomes the general rule is that costs once taxed are payable.  As per Birt, Deputy Bailiff:-

"This has the salutary effect of bringing home to litigants that there is a price to be paid if applications are made or opposed unsuccessfully in circumstances where the Court thinks it right to visit the unsuccessful party with costs."

19.      It is no answer for the plaintiff company to say that its liability should be discharged out of the separate (but similar) proceedings issued against Aquarelle in the Petty Debts Court and now transferred to the Royal Court and I see no good reason to depart from the general rule by granting the plaintiff company a stay pending the outcome of the substantive hearing before the Royal Court.  The directors of the plaintiff company must fund this liability if they wish the Rockwood action to continue.

Security for costs

20.      In his judgment the Master, having referred to the principles to be applied as to whether to grant security as set out in the Court of Appeal decision of A E Smith & Co Limited-v-L'Eau des Iles (Jersey) Limited [1999] JLR 319 and having summarised the parties contentions, concluded that this was an appropriate case in which security should be ordered for the following reasons:-

"(1)     The plaintiff brings the actions as assignee of Anchor and would appear to have no assets.  No accounts have been produced nor any other evidence to suggest the contrary.

(2)       I do not accept, as has been urged by Mr Power, that this is a simple debt recovery claim.  The assignment by Anchor must, in my view, be looked at realistically and in the context of the background facts.  Those facts are, on the basis of the affidavits filed on behalf of the defendants, much more complex than the plaintiffs have said.  The two defendants were at the material times clearly assets of the Tulip Trust and doubts have been raised as to the exact financial relationships between the various parties.

(3)       I do not think that I can properly say that the prospect of success by the plaintiff or the defendant is sufficiently clear.  I have, therefore, disregarded the prospects of success for either party.

(4)       The actions have developed to some extent a life of their own and have become much more complicated than might have been expected.  I do not criticise the plaintiff for not having legal representation but this may well have exacerbated the position.

(5)       I accept that the applications have been brought at a reasonably early stage and I do not consider that the defendant in each action can be considered to have caused unacceptable delays.

(6)       The plaintiff has failed and refused to pay costs awarded against it in the Rockwood action."

21.      The arguments put on behalf of the plaintiff were, quoting from Mr Shelton's skeleton argument, as follows:-

"1.       It is trite law that an order for security for costs should not be made if it has the effect of stifling a genuine claim by an indigent company against a more prosperous company;

2.        Both Respondents have argued successfully that the Appellant is indigent;

3.        Both Respondents are prosperous companies in that Rockwood owns and runs a lodging house and aquarelle an aeroplane and a boat;

4.        The claims by the Appellant are genuine and for liquidated sums;

5.        The Master was obliged to "broadly take into account the prospects of success in the action".  The Master reasoned that, "the prospect of success if (not) sufficiently clear".  That of course should not have been the basis for his decision. That basis was set out by Lord Denning in Sir Lindsay Parkinson & Co. Ltd.-V- Triplan Ltd. (1973) QB "Whether the Claimant has a reasonably good prospect of success";

6.        It is submitted that in applying the test above combined with that set out by Southwell J.A. (in his judgment in A.E.Smith and Co. Limited-v-L'Eau des Iles (Jersey) Limited [1999] JLR 319) that no order for security for costs should have been made;"

22.      Mr Shelton referred me to the following passage from Cook on Costs, 2006 at paragraph [13.5]:-

"Where an order for security for costs against the claimant company might result in oppression in that the claimant company would be forced to abandon a claim which had a reasonable prospect of success, the court is entitled to refuse to make that order notwithstanding that the claimant company, if unsuccessful, will be unable to pay the defendant's costs (Aquila Design (GRP Products) Ltd-v-Cornhill Insurance plc [1988] BCLC 134, CA).  It is not necessary for the company to produce evidence of its inability to pursue the proceedings if the order is made for the application to be dismissed: it is sufficient if the company shows that there is a probability that it will be unable to pursue the proceedings.  Unless it is clearly demonstrable one way or the other it is not appropriate to go into the merits of the claim in such an application (Trident International Freight Services Ltd-v-Manchester Ship Canal Co [1990] BCLC 263, CA.  Europa Holdings Ltd-v-Circle Industries (UK) plc [`1993] BCLC 320, CA was another example.  The claimants were a small company operating on a limited turnover with a net deficit in a time of great depression.  It was a solvent and prudently managed company with a genuine claim for payments for work done.  It would be oppressive to force the claimant to abandon its claim by ordering it to give security for costs.  Yet another example was Edmund Murray Ltd-v-BSP International Foundations Ltd (1992) 33 Con LR 1, CA in which the Court of Appeal set aside an order for security for costs on the ground that the claimants were simply unable to meet it and would be forced to abandon their claim, which was acknowledged to be a credible one, and thus denied justice.  The detriment to the claimant would be worse if the order was made than to the defendant if it were not, and the order was quashed.

On a company limited by guarantee being granted leave to move by way of judicial review the respondents applied for security for costs.  The Companies Act 1985, s 726(1) empowered the court to enquire into a limited company's financial position and to say proceedings until sufficient security for costs is provided.  The application for security was granted, the court finding that in the circumstances an order for security for costs would not stifle the litigation as those behind the application would be able to find the resources if they wished the matter to proceed (R-v-Westminster City Council, ex p Residents' Association of Mayfair [1991] COD 182, QBD). See also 'Amount' at para [13.29]."

23.      Again I see no reason to depart from the manner in which the discretion of the Master has been exercised.  In my view he is right to look at the matter realistically and in the context of the background facts.  This is not a case of a solvent company with a genuine claim for services it has provided.  The services here were provided by Anchor to a trust and its numerous underlying companies.  Two payments made by Anchor have been extracted in relation to the two defendants and the benefit of any rights thereunder assigned for no apparent consideration to a company which has no assets or business.  It is an empty vehicle utilised solely for the purpose of pursuing those claims with funds provided entirely by its directors on an ad hoc basis.  As Southwell JA said in Smith (A. E.) and Sons Limited-v-L'Eau des Iles (Jersey) Limited [1999] JLR 319 :-

"The court must balance, on the one hand, the injustice to the plaintiff company if prevented from pursuing a genuine claim by an order for security, and, on the other hand, the injustice to the defendant if no security is ordered, the plaintiff's claim fails and the defendant is unable to recover its costs from the plaintiff.  So the court will week not to allow the power to order security to be used oppressively by stifling a genuine claim by an indigent company against a more prosperous company, particularly when the circumstances underlying the claim and/or the failure to meet the claim may have been the cause or a material cause of the plaintiff company being indigent.  The court will also seek not to be so reluctant to order security that the impecunious plaintiff company can be enabled to use its inability to pay costs as a means of putting unfair pressure on the more prosperous defendant company."

24.      The impecunious state of the plaintiff does not arise from any action on the part of the defendants.  It is not in the business of debt collecting; indeed, it has no business at all.  It is an empty vehicle selected for the single purpose of pursuing these claims.

25.      Furthermore, in my view the Master cannot be criticised for disregarding the prospects of success for either party in view of the complexity of the background against which these claims have arisen. 

26.      While I accept that in general terms it is preferable that a successful defendant should suffer the injustice of irrecoverable costs than that a claimant with a genuine claim should be prevented from pursuing it, the use of the plaintiff to pursue these claims in the circumstances above described tilts the balance of justice in favour of the defendants in relation to the issue of security.

27.      I therefore dismiss the appeal against the orders of the Master made on 22^nd September, 2009. 

Set-off and Counter Claim

28.      The set-offs and counter claims were filed after the Master's decision and therefore have not been reviewed by him.  By those pleadings the defendants seek to recover from the plaintiff certain accounting costs, rental payments and fees in relation to other companies within the Tulip Trust.

29.      Whilst the matter was the subject only of discussion before me, I have some difficulty in understanding the basis upon which the defendants are claiming sums which relate to other companies within the Tulip Trust.  If the proceedings continue, then consideration will need to be given as to whether such claims should properly be brought within the context of these proceedings.

Authorities

Tomes-v-Coke-Wallis and others 2002/184.

Leeds United-v-Admatch [2008] JRC 086.

Murphy-v-Collins [2000] JLR 276.

Smith (A. E.) and Sons Limited-v-L'Eau des Iles (Jersey) Limited [1999] JLR 319.

Cook on Costs 2006.