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England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> The Northampton Regional Livestock Centre Company Ltd v Cowling & Anor  EWHC 1720 (QB) (19 June 2013)
Cite as:  EWHC 1720 (QB),  1 Costs LO 15
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Northampton Regional Livestock Centre Company Ltd
|- and -
Mr Walker (instructed by DFA Law LLP) for the 1st Defendant
Mr Lewis (instructed by Howes Percival Solicitors) for the 2nd Defendant
Hearing dates: 18th June 2013
Crown Copyright ©
Mr Justice Stewart :
"1. The Claimant must by no later than 24.04.13 give security for the First and Second Defendant's costs of the action in the sum of £240,000 rateably apportioned between the Defendants costs in accordance with their costs estimates by payment into court the sum of £240,000 into the Court Funds Office (or otherwise to the satisfaction of the Master).
2. The action is stayed until security is given as directed.
3. Unless security is given as ordered:
(a) The claim form is struck out and the action dismissed without further order and
(b) On production by the First and/or Second Defendants of evidence of default there is to be judgment for the Defendants without further order for the costs of the action.
4. There is liberty to apply to the court before 10am 24th April 2013 as to the timing and form of security."
- " The Claimant's main contention is that its action is unanswerable or virtually so
- The action certainly looks as though it is more likely than not to succeed but the Claimant has not cared to seek summary judgment
- The Claimant also contends that its impecuniosity is due to the conduct of the Defendants but the evidence is not clear in that respect
- The Claimant contends to that an order for security would stifle litigation but on its own evidence has made literally no attempt to find out whether its 63 shareholders and 8 directors or any other interested party's might be willing to provide security."
"1. The Claimant makes serious allegations against the Defendants, allegations that look as though they have a promising prospect of success. The Claimant relies also on the assertion that the Defendants conduct caused its present impecuniosity however the Claimant has made literally no attempt to find out from it shareholders or directors or possibly from any other interested parties whether they would be prepared to assist it in providing security. This disables it from saying that it is literally unable to give security.
2. For all those reasons and bearing in mind that the Claimants have at no time sought summary judgment security will be ordered."
i) The site was sold in September 2005 to Earlplace Ltd ("Earlplace"). Earlplace were developers. The purchase price was £2.25 million. When Earlplace completed the purchase in May 2006 they entered into a back to back sale with another developer, Kilmartin, for £5 million. The Claimants say that the property market was strong and allege negligence against both Defendants in marketing the property by reference to its existing use as an auction (without reference to its development potential), refusing anything other than entirely unconditional offers (i.e. excluding mixed offers of cash and profit shares) and in selling the property at a gross undervalue.
ii) A claim primarily based on secret profits/breach of fiduciary duties. The Second Defendant was instructed by Earlplace to act on its behalf at some stage prior to the purchase by Earlplace in September 2005. The Second Defendant refused to disclose whatever reward he had received until ordered to do so in October 2012. The claim is for an account of profit and also a tracing claim into the Second Defendant's assets. When the Second Defendant disclosed in October 2012 that he had received a payment of £744,035 from Earlplace, he also disclosed that this was calculated as 30% of the net profit of Earlplace over and above the price it had paid to the company and by virtue of its sale on to Kilmartin.
a) His finding that the action "certainly looks as though it is more likely than not to succeed" was tantamount to a finding that the Claimant had demonstrated that the claim is highly likely to succeed and/or that it has a very substantial and high probability of succeeding against the Defendants. He should have dismissed the application for this reason alone. Further or alternatively he failed to recognise that this weighed very heavily, if not conclusively, in favour of dismissing the application, even on the assumption that there was reason to believe that the Claimant would be unable to satisfy a costs order in the Defendants favour or the Master failed to give proper weight to that fact (Fern Hill v Kier Construction 2000 CPREP 69) (Al Koronky v Time Life 2006 EWCA Civ 1123 at para 24).
b) Alternatively he failed when addressing the merits to consider and/or reach a conclusion on whether (as submitted by the Claimant) the merits satisfy the test of "highly likely to succeed" or "very substantial and high probability of succeeding". In doing so he failed to take account of a highly relevant, if not conclusive, factor."
"The Claimant accepts that for the high degree of probability threshold for the purposes of this application it must be demonstrated that the Second Defendant had not resigned in reality as at 3rd July 2005 but continued in effect as agent up to and including September."
This was subject to the section 38 Partnership Act 1890 point which I shall refer to in the next paragraph. One of the points made by the Claimant is that there is no witness evidence from the First or Second Defendant explaining the Second Defendant's activities in the period July to September 2005. This is correct. However witness statements for trial have not been exchanged. The only witness statements are for the purposes of this application and the applications before Mr Justice Eady. The evidence from the Claimant in response to the Defendants' November 2012 applications was not filed until March 2013. It is a statement from Mr Harris dated 4th March 2013 which touched on the merits. Without expressly stating that the Claimant was intending to submit that there was a high probability of success Mr Harris (paragraph 9) did deal with the July September correspondence. In a letter from the Claimant's Solicitors to the Second Defendant's Solicitors dated 13th March 2013 the Claimants told the Second Defendants "for the avoidance of doubt our clients will contend at the hearing on 27th March that your clients failure to give proper disclosure or comply with the order of Eady J are relevant to the merits and as of course the merits are relevant to the issue of security, it follows that your client's deficiencies in his disclosure and breaches are relevant to the question of whether security should be ordered."
I note that whilst I have so far concentrated on the high degree of probability point, which, if established, may be fatal to an application of security for costs, the merits of the Claimant's claim can also be relevant in other contexts in the general discretion which a court has in such application. So, without going into detail of the merits, the court may well decide whether the Claimant's claim is bona fide or has reasonably good prospects of success or whether it is a meritorious claim which should not be stifled if the application for security is being used oppressively. It is right to say that the Claimant's had not spelt out to the Second Defendants prior to the hearing before Deputy Master Eyre that they wished to rely on the merits argument for all purposes prior to Mr Reeve's Skeleton which was served shortly prior to the hearing before the Master.
(1) It is accepted that the relevant correspondence July September 05 will be important at trial and the Claimant may establish on the basis of it that the Second Defendant did not in reality resign as at 3rd July 2005. Nevertheless it is said that this is the very stuff of one of the main issues at trial and cannot be adjudged on the papers, especially given the way the matter has been raised in this application.
(2) It is not the Claimant's case that they have a high probability of success in any allegation that the Second Defendant resigned so as to save for himself something that could have gone to the company.
(3) The First Defendant knew that the Second Defendant was engaged by Earlplace prior to the deal with Earlplace. This is important because the First Defendant was also chairman and a substantial shareholder in the company. Nevertheless the First Defendant did not know the terms of engagement or eventual financial reward received by the Second Defendant from Earlplace.
(4) The evidence from the Second Defendant (paragraph 58) is such that he was to have a full time role with Earlplace and Earlplace expected him to do 90% of the ground work which would assist them to enable development of the site. Earlplace were trying to keep all up front expenditure to a minimum particularly in this case given the highly speculative nature of the purchase. In other words the Second Defendant was being paid for future work. Earlplace did not want to pay him on a fixed fee or time basis. Neither the Second Defendant nor Earlplace had any idea what 30% would equate to because they did not know what the future of the project would be. (This is also in evidence in a letter from Mr Malby of Earlplace). Indeed there was a great deal of good fortune because the sale to Kilmartin for a very high price of £5 million was such that (perhaps as a consequence) Kilmartin subsequently became insolvent.
"After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continues notwithstanding the dissolution so far as maybe necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise."
The Claimant says that both Defendants continue to owe the obligations of the partner in respect of the ongoing contracts to act as agent in the sale of the company's property; in the alternative they say that the Second Defendant would have had not defence merely because of his resignation because duties continue after determination of the agency relationship.
The Defendants submit that section 38 has no application. In Boghani v Nathoo  EWHC 2010 1 (Ch) the Chancellor said at paragraph 27 "In my view the terms of section 38 are explained in the authorities to which I have referred, in particular Inland Revenue v Graham's Trustees demonstrate the following propositions :
(4) Even in relation to transactions, not being new bargains or contracts begun but unfinished at the time of dissolution section 38 applies only if and to the extent that the completion of such transactions is necessary to wind up the affairs of the partnership."
I do not accept that the Claimants have a high degree of probability of success and that section 38 is a complete answer to the Defendants' case. This will have to be explored in detail at trial. Similarly as regards the question as to whether the Second Defendant was under a duty to the company at the material time, this will require a detailed examination of the facts. This much is apparent from the speech of Lord Upjohn in Boardman v Phipps 1967 2Ac 46 at page 127.
1. That the grounds of appeal do not cover this point.
2. That this is not merely a technical issue and that it affects how the Defendants have prepared for the appeal; had there been a clear ground of appeal on this point then a transcript of the hearing before the Master would have been required.
3. In any event because the appeal court is reviewing a discretion the question is as to whether the Master was plainly wrong in the exercise of that discretion.
Counsel for the Second Defendant accepted it may well be that, having heard all the arguments, I would, if I was dealing with the matter afresh, have come to the same conclusion as the Deputy Master, in which case the technical points are irrelevant. I have done so and therefore they are. I say no more about them.
"25.13 (1) The court may make an order for security of costs under rule 25.12 if
(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
(b) (1) One or more of the conditions in paragraph (2) applies or
(2) an enactment permits the court to require security for costs"
There is no argument but that 25.13(1)(b) is applicable here. Therefore the matter cited by the Deputy Master became one of discretion. I have already found that he was not plainly wrong in his assessment of the merits of the Claimant's case. The remaining question is as to whether he exercised his discretion with the "generous ambit within which a reasonable disagreement is possible (Tanfern Ltd v Cameron McDonald 2000 1WLR 1311 at para 2).
(a) The Defendants conduct had deprived the company of £744,000.
(b) The Defendants had concealed information which was vital to the liquidator's decision not to pursue the claim using the assets of the company and to assign the claim and had blocked the use of the company's assets."
A preliminary point here, which apparently had not been specifically considered before is that the Claimant's want of means had not been brought about by any conduct on the part of the Defendants. It may be that the company's want of means had been so brought about but the history is that the Claimant purchased the cause of action from the liquidator of the company for £2,026. The assets of the company, namely £285,114 were distributed to shareholders (41% to the First Defendant). Thus the potential beneficiaries of this action received the distribution of assets and now seek, via the Claimant, to litigate the action at no cost risk to themselves. It is in my judgment unsurprising that the Deputy Master was not able to say more than "The Claimant also contends that its impecuniosity is due to the conduct of the Defendants but the evidence is not clear in that respect." He did not err in saying this.
The law clearly states that an application for security should not be used oppressively such that for example a genuine claim should not be stifled. It is also clear that the Claimant's claim is a genuine claim. Nevertheless before a court refuses to order security on the grounds that it would unfairly stifle a valid claim the court must be satisfied that in all the circumstances it is probable that the claim would be stifled see the Keary Developments Ltd case. Volume I of the White Book 2013 at page 766 states "In considering this issue the court should consider not only whether the Claimant company can provide security out of its own resources to continue the litigation but also whether it can raise the amount needed from outside sources for example directors, shareholders or other backers or interested persons (including creditors in all but the most unusual cases, the burden lies on the Claimant company to show that, apart from the question whether the company's own means are sufficient to meet an order for security there will be no prospect of funds being available and forthcoming from any outside source (Kufaan Publishing Ltd v Al Warrack Bookshop Ltd, March 1 2000 unreported appeal)."
ATE Insurance £200,000
Less disbursements £ 80,000
Cleared cash £ 40,000
Guarantee from Solicitors £ 80,000
Further cheque £ 50,000
This compares with the figure before the Master of £125,000 ATE Insurance less £80,000 Disbursements equals £45,000.
(a) The delay in making the applications.
(b) The public interest in the resolution for dispute.
(c) The Defendants' liability insurance.
(d) The extent which the Claimant's have permitted the Second Defendant to pay its own costs out of the fund claimed by the Claimant and/or the extent to which the Second Defendant claims to have dissipated that fund to the prejudice of the Claimant.
(a) Although security for costs had been raised as a potential issue in early 2012 the application was not made until November 2012. However it was triggered (unsurprisingly) by the Claimant's inability to enter into a cross-undertaking as to damages by reason of its impecuniosity. The Claimants accept that from November 2012 onwards any delay was not of the Defendants making.
(b) There is no public interest in the resolution of this dispute.
(c) As to the Defendants' liability insurance I am told that there are question marks over this. In any event I am not persuaded that it is a material point.
(d) This is a bad point. If the Second Defendant succeeds then, absent security, he will have dissipated his own fund in legal fees.