Dunn Motor Traction Ltd v National Express Ltd (Defendant/Applicant)
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 15 February 2017 |
| Neutral Citation | [2017] EWHC 228 (Comm) |
| Date | 15 February 2017 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000284 |
[2017] EWHC 228 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: CL-2016-000284
Tim Penny QC (instructed by Shepherd and Wedderburn LLP) for the Claimant/Respondent
Nathan Pillow QC and Emily Wood (instructed by Hogan Lovells International LLP) for the Defendant/Applicant
Hearing date: 9 February 2017
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is an application by the Defendant against the Claimant for security for its costs. The underlying dispute concerns the premature ending, in June 2015, of a contract between the Claimant, Dunn Motor Traction Limited and the Defendant, National Express Limited, for the provision by the Claimant of coach services on certain routes in return for monthly payments from the Defendant. The Claimant says that the Defendant wrongly repudiated the contract and the Defendant says it was entitled to terminate the contract pursuant to its terms. The Claimant claims damages of some £20m. in lost profits.
In order to succeed on its application for security for costs the Defendant must show (i) that there is reason to believe that the Claimant will be unable to pay the Defendant's costs if ordered to do so and (ii) having regard to all the circumstances of the case it is just to make an order for security of costs; see CPR 25.13.
The claim is set down for trial for 12 days from 22 January 2018. Judgment is likely to be given in late February or early March 2018 though of course it could be later. The Defendant's costs are estimated to be in the sum of about £1.8m. Security is sought in the sum of £975,000 as to which figure there is no dispute. If the Defendant succeeds in its defence it is likely to recover its costs and the court is likely to make an order for an interim payment on account of those costs. The Defendant's costs will no doubt be subjected to a detailed assessment but the quantum of an interim payment is likely to be of the order of £750,000 to £1m. Such sum would be payable within 14 – 28 days of the day when judgment is handed down. So the question which must first be considered, the "threshold question", is whether there is reason to believe that the Claimant will be unable to pay a sum of that order in about April 2018.
The termination of the contract between the parties had a dramatic effect on the financial health of the Claimant. Thus in 2015 the turnover of the Claimant was in excess of £16m. but in 2016 the turnover was in excess of £8m. The net profit in 2015 was £593,000 but in 2016 there was a net loss of £1.1m. There is evidence from Mr. Ward, the managing director of the Claimant, that considerable efforts have been made to cut costs and to find alternative work for the Claimant's coaches. Notwithstanding those efforts he has estimated that by February 2018 the bank balance of the Claimant's will be £116,000. It was therefore realistically conceded by Mr. Penny QC on behalf of the Claimant that, subject to the point I will mention below, there is reason to believe that as at April 2018 the Claimant will not be able to pay the interim payment on account of costs likely to be ordered in April 2018.
Before dealing with the principal point relied upon by Mr. Penny to resist the application brought against the Claimant for security for costs I should mention a further argument which was developed in the evidence and in Mr. Penny's Skeleton Argument. The evidence of Mr. Ward, the Claimant's managing director, was that by February 2019 the Claimant's bank balance would be £1.125m. Mr. Penny submitted in his Skeleton Argument that the relevant time for assessing the Claimant's ability to pay costs was April 2019 because that is the date by which the detailed assessment of the Defendant's costs is likely to be completed. On that basis, and having regard to the evidence of the Claimant's managing director, the Claimant would be able to pay about £1m. in costs. This argument did not, in my judgment, assist the Claimant. A substantial sum by way of an order for an interim payment on account of assets is likely to be made in April 2018 and accordingly April 2019 is not the relevant date. Further, whilst I do not doubt the good faith of Mr. Ward in putting forward his financial estimates the court is not able to regard them as reliable estimates for the purposes of assessing the Claimant's ability to pay costs in April 2019, for these reasons. First, there is no material disclosed by Mr. Ward to support the estimates or explain how they have been reached. Second, the estimates (which run through to February 2021) show net profit increasing from £473,000 in February 2017 to £2,181,000 in February 2021. This is a remarkable transformation for a company whose business has been, on the Claimant's case in the action, so seriously damaged by the Defendant's (alleged) breach of contract that damages of £20m. have been claimed. Third, the estimate of £1.125m. being in the bank in February 2019 assumes that such sum would not have been spent on other matters. This assumption is unsafe in circumstances where, as Mr. Ward has stated, "we try to minimise the amount of cash we hold …….the money that comes into the business is used as working capital". Fourth, the estimate of £1.125m. does not appear to make allowance for the fact that the Claimant will have to pay its own legal costs of this action which have been estimated at £1.2m. though some (about £400,000) has already been paid (in part by means of an insurance policy). Mr. Penny said on instructions that the Claimant's legal costs have been paid in part by support from sister companies and that it is anticipated that such support will continue. This hardly supports the contention that the Claimant will be able to pay the Defendant's costs.
I can now deal with Mr. Penny's main point. It is that the sole shareholder of the Claimant, Mr. Dunn, has, on 30 January 2017, irrevocably undertaken to indemnify the Claimant in respect of its costs liability to the Defendant. Mr. Penny submits, by reference to cases dealing with the relevance of After The Event ("ATE") insurance to applications for security for costs, that in deciding whether there is reason to believe that the Claimant will be unable to pay the costs of the Defendant it is appropriate to take into account the availability of ATE insurance. In Premier Motorauctions v PWC [2016] EWHC 2610 (Ch) Snowden J. said, at paragraph 70, that where there is an ATE policy in place, the question is simply whether there is reason to believe that the insurer will not pay under the policy when called upon to do so. Mr. Penny submitted that that is the appropriate question to ask in relation to Mr. Scott Dunn's indemnity and the answer is that there is no reason to believe that he will not honour his indemnity.
Snowden J. reviewed the previous case law at paragraphs 20–28 of his judgment. It is apparent from that review...
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