Eurocross Sales Ltd and Another v Cornhill Insurance Plc
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,I |
| Judgment Date | 13 July 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0713-6 |
| Docket Number | LTA 94\5428\G |
| Court | Court of Appeal (Civil Division) |
| Date | 13 July 1995 |
[1995] EWCA Civ J0713-6
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MAYOR'S AND CITY OF LONDON COURT
His Honour Judge Byrt Qc
Before The Master of the Rolls (Sir Thomas Bingham) Mr Justice Auld Lord Justice Ward
LTA 94\5428\G
MR S JUSS (Instructed by Dickinson, Parker Hill & Son, Ormskirk. L39 2BY) appeared on behalf of the Applicants.
MISS S LEE (Instructed by Clyde & Co. EC3M 1JP) appeared on behalf of the Respondents.
THE MASTER OF THE ROLLSThe director and major shareholder of a small company bought the company's business, which included an insurance claim. The director then applied to be added as plaintiff in county court proceedings brought by the company against the insurer. It was ordered that he should be added, subject to his paying £5,000 into court, in effect as security for the insurer's costs of the action, the company already being subject to an order that it give security in that sum for the insurer's costs of the action. If added as plaintiff the director became eligible for legal aid, which the company would not have been. Should the director have been added as plaintiff? If so, did the court have power to impose a condition on his joinder that he pay £5,000 into court? If it did, was that a proper exercise of the court's power on the facts? Should the joinder now be set aside? These are the questions which arise for our decision.
In the autumn of 1991 a consignment of soft fruit was carried by sea from the United States to this country. On arrival here it was found to be damaged. The consignment was owned by Eurocross Limited, a small company of which Mr Sood and his wife were the directors and shareholders. The company had insured its cargo interests with Cornhill Insurance PLC. The company claimed against the Cornhill for the damage to the fruit but the claim was rejected.
On 31 March 1992 Eurocross Limited sold its business to Eurocross Sales Limited for the nominal consideration of £1. The business sold included "Potential claim against Cornhill Insurance for damage to plums imported in October 1991, a claim denied by the insurers, but which may have to go to court for redress". Eurocross Sales was another company of which Mr Sood and his wife were the shareholders and directors. Mr Sood executed the sale agreement on behalf of both companies. Later that year Eurocross Limited was wound up on a creditor's petition.
On 14 April 1992 Eurocross Sales Limited issued proceedings against the Cornhill in the Mayor's and City of London Court claiming damages of some £27,500 and interest. The Cornhill delivered a defence denying the claim.
In the summer of 1993 there were four relevant events: Eurocross Sales Limited sold its business to Mr Sood; the Cornhill applied that the particulars of claim be struck out as disclosing no cause of action and that the action be dismissed; the Cornhill also applied for an order that Eurocross Sales Limited give security for its costs of the proceedings; and Mr Sood applied to be substituted as plaintiff in the action. The precise sequence of these events is in dispute, and it is not clear to what extent one move was prompted by or made to anticipate another.
By an agreement dated 2 July 1993 Eurocross Sales Limited sold its business to Mr Sood for the nominal consideration of £1. The express reason for the sale was that the company wished to diversify into publishing and to free itself of problems associated with the fruit business. The sale was to become effective on 30 July. Mrs Sood executed the agreement on behalf of Eurocross Sales Limited, Mr Sood on his own behalf.
The Cornhill's application to strike out the particulars of claim and dismiss the action was dismissed by District Judge Woodcraft on 10 November 1993, when he gave the plaintiff leave to amend. There has been no appeal against this decision. The proceedings must be regarded as raising a serious triable issue as to the Cornhill's liability as insurer.
Having warned Eurocross Sales Limited of its intention to do so, the Cornhill on 19 July 1993 issued an application for security for costs. The security sought was £11,900 in the form of a first class bank guarantee, and the ground relied on was section 726 (1) of the Companies Act 1985 (that the company would be unable to pay the defendant's costs if the defendant were successful in its defence). This application also came before District Judge Woodcraft on 10 November 1993. He ordered that the company give security for costs in the sum of £5,000 within 28 days and that in default the proceedings should be stayed. There has been no appeal against this order. Nor has security been given, although the time allowed to the company has been extended. The proceedings by Eurocross Sales Limited are accordingly stayed.
At the same hearing on 10 November 1993 District Judge Woodcraft refused Mr Sood's application to be substituted for Eurocross Sales Limited as plaintiff in the action. Against this decision Mr Sood appealed.
His appeal came before His Honour Judge Byrt QC (we are told, despite the dating of the order and the transcript, on 10 February 1994). The issue was whether Mr Sood should be added, not substituted, as plaintiff, and if so on what terms. Assuming for purposes of his decision (although this has always been in issue and may have to be decided) that the company had validly assigned its claim against the Cornhill to Mr Sood, the judge held that Mr Sood had a strong claim upon the exercise of the court's discretion to allow him to be added or substituted as a plaintiff. The judge accepted that the company had limited resources and that Mr Sood wanted to protect it against the consequences of failure in litigation. But he found merit in the Cornhill's submission that since the validity of both assignments was in issue Mr Sood should become a party by way of addition rather than substitution. He then considered whether Mr Sood's joinder should be on terms and, if so, what terms. He said:
"The Rules of the Supreme Court, Order 15 r. 6(2), make plain that at the time of directing a party be joined, the Court has power to stipulate the terms upon which he should be so. I have come to the conclusion I must ensure the defendants are adequately and properly protected on the issue of costs, bearing in mind that they already have an order for the security of costs against the plaintiff company.
I think it would be wrong for the Court to collaborate with Mr Sood in such a way that would enable the plaintiff company to escape the effects of that order by allowing Mr Sood to join as a party without himself being subjected to terms. Accordingly, I shall make it a condition of Mr Sood being joined as a party that he should be subject to terms. The question then is, what terms those should be?
I know nothing about Mr Sood's means and in consequence the order I make is not based upon the fact that he has or has not the money to comply with the condition. However, I think it is important that if the defendant is to be adequately protected here then Mr Sood should be placed on terms similar to those of the order for the security of costs against the plaintiff company.
Accordingly, I propose to direct that he shall be allowed to join as a party to the action on condition that he pays into Court the sum of £5,000 within 28 days. Of course, if he defaults on that, he does not join as a party to the action. That will be the order I make in respect of that part of Mr Sood's application".
Mr Sood applied for leave to appeal against the judge's decision to impose terms on his joinder. For purposes of his appeal he applied for and was granted legal aid. When the grant of legal aid came, belatedly, to the notice of the Cornhill, on the eve of a hearing in this court, it prompted a notice of cross-appeal by the Cornhill seeking that the joinder of Mr Sood should be set aside. The essential basis of this was that the assignment to Mr Sood was a sham, or a colourable device, or an abuse of the process of the court, designed to circumvent the court's order for security and the rule that corporations are not eligible for legal aid, and that the court should not give effect to such a design.
It appeared to this court on 29 March 1995 when the matter first came before it that issues of some possibly far-reaching significance were raised. It accordingly adjourned the matter for fuller argument (written and oral) and offered the Legal Aid Board an opportunity to attend and make representations if it wished. The Legal Aid Board did not see fit to do so.
II
Order 15 rule 1(1)(b) of the County Court Rules empowers the county court to allow any person to be added or substituted as a party to proceedings if the High Court would have power to allow joinder in a like case. The power of the High Court under Order 15 rule 6(2)(b)(ii) is at any stage of the proceedings and on such terms as the court thinks just to order the addition as a party of any person between whom and any party to the cause there may exist an issue connected with the relief claimed in the cause which the court considers it just and convenient to determine in that cause. Where the interest of one party is assigned to another, Order 5 rule 11 of the County Court Rules gives the court a further discretionary power to order the joinder of the assignee.
Order 13 of the County Court Rules governs applications made in the course of proceedings. Rule 1(1) provides:
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