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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Contract Facilities Ltd. v Estate of Rees & Ors  EWCA Civ 1105 (24 July 2003)
Cite as:  EWCA Civ 1105
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISION
His Honour Judge Weeks QC
London, WC2A 2LL
B e f o r e :
LADY JUSTICE HALE
| Contract Facilities Limited
|- and -
|The Estate of Rees (Deceased) and Ors
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Neil Hext (instructed by Gartsides solicitors) for the Respondent
AS APPROVED BY THE COURT
CROWN COPYRIGHT ©
Crown Copyright ©
Lord Justice Waller:
This is the judgment of the court.
"(1) The appeal court may-
(a) strike out the whole or part of an appeal notice;
(b) set aside permission to appeal in whole or in part;
(c) impose or vary conditions upon which an appeal may be brought.
(2) The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so.
(3) Where a party was present at the hearing at which permission was given he may not subsequently apply for an order that the court exercise its powers under sub-paragraphs (1)(b) or (1)(c)."
"8. The provisions on which Mr Kosmin relies are CPR 3.1. He suggested in his submissions that the Court of Appeal had the power to exercise the powers provided by CPR 3.1 by virtue of CPR 52.10, which provides for the Court of Appeal having the powers of the court below in relation to any appeal. For my part I am doubtful whether it is CPR 52.10 which provides the Court of Appeal with any of the requisite powers. It seems to me that it is CPR 2.1 which gives the Court of Appeal case management powers, which are the powers provided for by CPR 3 to which I will turn in a moment. CPR 2.1 provides that:
"Subject to paragraph (2), these Rules apply to all proceedings in …
(a) county courts;
(b) the High Court; and
(c) the Civil Division of the Court of Appeal."
And the case management powers are clearly case management powers both in relation to the Court of Appeal and the other courts there referred to. The important parts of CPR 3.1 are 3.1(2), which provides:
"Except where these Rules provide otherwise, the court may …
(f) stay the whole or part of any proceedings either generally or until a specified date or event;
(m) take any other step or make any other order for the purpose of managing the case and furthering the overriding objective"
and 3.1(3), which provides:
"When the court makes an order it may
(a) make it subject to conditions, including a condition to pay a sum of money into court; and
(b) specify the consequence of failure to comply with the order or a condition."
It is unnecessary to quote other aspects of 3.1, although they all provide support for the court having the power to make the form of order that Mr Kosmin seeks in this case.
9. The argument put forward by Mr Connerty for suggesting that 3.1 does not provide the requisite power rests essentially on the opening words of 3.1(2), which provide "Except where these Rules provide otherwise, the court may". What he suggests is because there is CPR 25, dealing with security for costs, including CPR 25.15 dealing expressly with security for costs on an appeal, and CPR 52, dealing with what happens in relation to appeals and applications for permission "these Rules provide otherwise".
10. As my Lord, Lord Justice Kay pointed out during the argument, the truth is that the Rules are silent in relation to the situation that actually exists in this particular case. There is no provision of the Rules which deals with what should happen where an application for permission has been adjourned to an oral hearing and where the appeal is to follow. Furthermore, it seems to me that the argument put forward by Mr Connerty comes up against one of the authorities to which we were referred, which is Olatawura v Abiloye  CP Reports 73, where Simon Brown LJ approved the use of CPR 3.1 in the context of a summary judgment application. What is referred to by 3.1(2) is something that expressly prohibits or expressly deals with the particular matter which might otherwise be dealt with under 3.1(2). In my view the jurisdiction is there. "
"23. The substantial issue on this appeal relates to the appropriateness of the order for a payment into court in respect of past costs. Mr. Wardell submits that implicit in the judge's decision were two novel propositions:
(1) the court can in advance of hearing an application to set aside a default judgment impose a condition that a corporate defendant must, by raising money from its shareholders, enlarge the pool of available assets with which to meet the judgment in the event of the application failing;
(2) the court can and should in the exercise of its discretion refuse to vary a freezing order to allow the Appellants to pay a debt to the Claimants.
24. Mr. Wardell relies on the following matters:
(1) the Claimants have security for costs already incurred by virtue of the existing judgment which had given it control of the Gorham Hotel having a net equity of US $27 million including cash reserves of US $7 million;
(2) the Appellants cannot comply with the judge's order because its assets are frozen by a court order;
(3) the court refuses to vary the freezing order to enable such payment to be made;
(4) to the court's knowledge the only person who will be able to comply with the order is a shareholder who is not a party to the proceedings;
(5) any application for an order against that person under s. 51 Supreme Court Act 1981 to pay the outstanding costs orders would fail;
(6) if the shareholder declines to put up the funds, the application to set aside the judgments will be defeated without it being given the opportunity of being heard;
(7) if the shareholder puts up the funds, but the applications are unsuccessful, the claimants will have a windfall.
25. Mr. Marshall supports the judge's decision. He submits that it is well established that the court can take account of all potential sources of funding available to a party when considering whether to require payment into court as a condition of granting leave to defend or the provision of security (Yorke Motors v Edwards  1 WLR 444, Keary Developments Ltd. v Tarmac Construction Ltd.  3 All E.R. 534), and it is for the party asserting inability to meet such a requirement to demonstrate that inability by proper evidence. Similar principles, he says, have been applied when a party has sought a variation of a freezing injunction to make some desired payment out of frozen assets (Atlas Maritime Co. SA v Avalon Maritime Ltd  1 WLR 917). He points out that all such payments by a third party may be said to constitute a windfall, but that has not deterred the court from requiring such payments in full knowledge that the party to the proceedings cannot or may not be able to pay out of his own resources.
26. Mr. Marshall relies on the following factors:
(1) the Appellants are applying to set aside judgments entered years earlier in consequence of their deliberate failure to comply with unless orders, and there is a long history of failure by the Appellants to comply with court orders;
(2) the Appellants will need to apply for relief under CPR 3.8, and the circumstances which the court is required to consider under r. 3.9 include several which are likely to tell against the granting of relief, such as the lateness of the application, the intentional failure to comply with rules and court orders consequent on the tactical decision taken by the Appellants, and the long delay, if there is to be a trial, since the relevant events occurred;
(3) in addition to the costs already assessed, the unassessed costs which the Appellants have been ordered to pay exceed £8 million;
(4) there is no prospect of the Appellants meeting any of the Claimants' costs if the applications to set aside fail unless the order made by the judge of payment into court stands;
(5) the value of the Appellants' assets subject to the freezing order is a fraction of what is owed under the orders made against the Appellants, so that the Claimants do not have security for their costs;
(6) Mr. Cavazza is the person instigating the applications and, through his interest in the Appellants, he will be the primary beneficiary if the applications succeed.
27. Mr. Marshall placed particular reliance on the decision of this court in Hammond Suddard v Agrichem International Holdings Ltd.  EWCA Civ 2065. In that case the Claimants had recovered judgment in a sum with costs. The defendant obtained permission to appeal from this court and sought a stay of the orders made by the trial judge. The claimants applied for an order that the appeal be struck out unless by a specified date the defendant paid or secured the judgment debt, paid the costs awarded below and provided security for the costs of the appeal as a condition of the appeal being entertained. The defendant resisted that application on the grounds that it had insufficient assets and could not comply with the order so that the appeal would be stifled. It argued that it was irrelevant that funding from a third party was available. Clarke L.J., delivering the judgment of the court (consisting of himself and Wall J.) rejected the defendant's submissions and made the order requested. He referred to the evidence which the defendant had adduced of its impecuniosity and said it was wholly insufficient to show any risk of the appeal being stifled without a stay, and said that there was a compelling reason (for the purposes of CPR 52.9) for making the defendant pay or secure the judgment debt as a condition of permitting it to proceed with the appeal.
28. Clarke L.J. referred to six facts combining to produce such compelling reason:
(1) the defendant was a foreign company with no assets in the U.K. and there was a real risk that if the appeal failed the respondents would not recover the judgment and costs;
(2) the defendant had the resources, or access to resources, to enable it to instruct solicitors and counsel and to provide security for costs;
(3) there was no convincing evidence that the defendant did not have the resources or access to resources which would enable it to pay the judgment debt and costs orders of which it was in breach;
(4) the defendant provided inadequate evidence of its financial affairs;
(5) the defendant's appeal would not be stifled by making the order for payment;
(6) it was unacceptable for the defendant to intend to prosecute the appeal while disobeying the orders of the court.
29. Mr. Marshall says that similar factors are present in this case. He submits that just as this court in the Hammond Suddard case saw nothing unjust or inconsistent with the overriding objective in CPR 1.1 in requiring the defendant to obey the court's orders as a condition of being permitted to continue to prosecute its appeal or in putting the owner of the defendant to the choice of providing the payment of the costs orders or of seeing the appeal struck out, so it was not unjust or inconsistent to put Mr. Cavazza to a similar choice.
30. As the judge had a discretion whether to require a payment into court, the first question that arises is whether this court can interfere with the exercise of his discretion. The judge has expressed his reasoning with economy and it is not entirely easy to be sure of all the considerations which he took into account in reaching his conclusion. It would appear that in his reasoning he did not make much differentiation between the application for payment into court of security for the costs of the application to set aside and the application for payment of past costs. He applied the principle established in security for costs applications, viz. that the court can take into account not only what a party possesses but also what he might raise from other sources, to the whole of the application made to him.
31. With respect to the judge, whilst in an appropriate case that may be a determinative consideration in respect of both types of application (for example, where the applicant has not satisfied the court that he has disclosed his full assets but has asserted his impecuniosity), other differentiating factors may be crucial to the proper exercise of discretion. There is no injustice in requiring an applicant, asserting impecuniosity, to provide security for the respondent's future costs of the application, provided that thereby the application is not stifled. Nor is there injustice in requiring an applicant, who does not assert impecuniosity but has repeatedly failed to pay past costs orders, to pay what is already due to the other side if he is to be allowed to make a further application (see Graham v Sutton Carden & Co.  2 Ch. 367 at 371 per Chitty L.J.). There may be injustice in requiring an applicant to set aside a judgment to make a payment into court in respect of past costs as a condition of being allowed to proceed with such application when the court knows that the applicant cannot make such payment out of his own resources and that the only source of funding to make such payment is a third party against whom no order for costs under s. 51 has been sought in respect of those costs and little reason to think that such an order could be made. In this context it must be a relevant consideration that the effect of requiring such payment is, if the application fails, to give the respondent the ability to recoup part of what he is owed from additional assets which, had the application not been made, would not have been available to him.
34. The judge robustly stated his complete lack of concern that Mr. Cavazza had to make the payment required of the Appellants and that it was irrelevant that he was a third party. For my part I cannot see how that fact can be of no relevance to the exercise of discretion. Dealing with a case justly must require the court to have regard to the substantive effect of the order being made and to the justice of, in reality, requiring the third party to make payment. In fact the judge did have regard to Mr. Cavazza's position. The judge rightly identifies the commercial reality as being that Mr. Cavazza was seeking by the application to protect his investment in the Appellants. That provides good justification for making an order for security for the costs of the applications even though the Appellants could not pay. But the point in issue is whether that is sufficient to enable the court to require the payment into court in respect of the past costs when Mr. Cavazza would have to fund such payment. The judge said that Mr. Cavazza must take responsibility for what happened in the past. I presume that the judge is there adverting to the fact that Mr. Cavazza has had 75% of the shares since 1995 and so he could have exercised his majority control earlier to prevent the Appellants conducting the proceedings in such a way as to cause the judgments in default to be entered and the costs orders to be made against the Appellants. But the court does not normally punish the person having share control of a litigant company against which a costs order is made by an order against that person under s. 51 (see, for example, Taylor v Pace Developments Ltd.  BCC 406). The position might be different if there was evidence that Mr. Cavazza had funded the Appellants before August 2001, for example in the jurisdiction proceedings, or was actively involved in the litigation at that earlier time. But there is no such evidence and no s. 51 application against Mr. Cavazza."