Jirehouse Capital and another v Stanley Sherwin Beller and another
| Jurisdiction | England & Wales |
| Judge | JUSTICE BRIGGS |
| Judgment Date | 16 January 2008 |
| Neutral Citation | [2008] EWHC 725 (Ch) |
| Date | 16 January 2008 |
| Docket Number | Case No. HC07C01552 |
| Court | Chancery Division |
[2008] EWHC 725 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London
Mr Justice Briggs
Case No. HC07C01552
Mr Stephen Auld QC and David Caplan appeared on behalf of the Claimant
Mr James Aldridge appeared on behalf of the First Defendant
Mr Thomas Weisselberg appeared on behalf of the Second Defendant
Judgment(1)
– Security for costs
1. The first and second defendants Mr and Mrs Beller apply for security for their costs of these proceedings and also for fortification of the cross undertaking of damages given by the claimants to the court when it obtained freezing orders and other interim relief at the outset of these proceedings in June 2007. These are two of a number of applications before me. They are both based upon an alleged inability of the claimants to pay. I have, therefore, heard both of them together. Much the most significant of the two applications in terms of quantum is that for security for costs, with which I will therefore deal first.
2. The defendants have thus far conducted their defences in these proceedings through two wholly separate legal teams of solicitors and counsel. Originally, their applications for security for costs assumed that that would continue through to trial. However, the first defendant has recently decided, mainly due to lack of funds, to discharge his solicitors and counsel after this hearing and to continue in the proceedings as a litigant in person. Mr Aldridge, who appears on this occasion for the first defendant, does not seek to include any further costs of the first defendant as a litigant in person in the amount for which security is sought, but he seeks security for the first defendant's costs incurred to date in the sum of £150,000. The second defendant's original cost estimate in November 2007, to trial, was some £420,000. Mainly in the light of now having no prospect of assistance from the first defendant's legal team, it is said on the second defendant's behalf that this estimate may prove to be an underestimate. Nonetheless, Mr Weisselberg, who appears for the second defendant, seeks security for 60 per cent of that estimate of £420,000; i.e. security in the sum of £252,000 in two instalments —namely, £140,000 to be paid in 21 days and £112,000 to be paid by 5 weeks before trial.
3. The first claimant, Jirehouse Capital, is an unlimited company in which Mr Stephen Jones is the only shareholder. The second defendant, Jirehouse Capital Trustees Ltd. is, as its name implies, a limited company. It is a wholly owned subsidiary of the first defendant. Both companies were incorporated in England. There are three sets of proceedings to which the security for costs application relates. Firstly, a claim for damages and for recission of a document known as the Jirehouse Capital's release, based upon alleged fraudulent misrepresentations and/or conspiracy to injure on the part of the defendants. Secondly, a claim under section 262 of the Insolvency Act to revoke Mr Beller's IVA. Thirdly, a bankruptcy petition against Mr Beller. All those proceedings have been ordered to be tried together in the Chancery Division, the order having been made by Mr Justice Lindsay on 4th October 2007. Subject to an outstanding question of whether there should be directed to be tried one or more preliminary issues, all proceedings are currently due and on course for a trial in November 2008.
4. The applications for security for costs are made under CPR Part 25 rules 12 and 13. I must read the relevant parts of rule 13, which are as follows:
‘13 (1) The court may make an order for security for 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)
(i) one or more of the conditions in paragraph (2) applies, or
(ii) an enactment permits the court to require security for costs'.
Then sub-rule 2 sets out the conditions of which the relevant condition for present purposes is in sub sub-rule (c) which is that:
‘the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so’.
5. As against the second defendant, there is a relevant enactment which permits the court to require security for costs in the form of Section 726 of the Companies Act 1985 which reads as follows:
‘Where in England and Wales the limited company is plaintiff in an action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the Defendant's costs if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given.’
6. The first question is whether the court should ever make a security for costs order against an unlimited company incorporated within the jurisdiction which, by its nature, may, through its liquidator, look to the whole of its shareholders’ assets for the resources with which to pay its debts. Mr Auld QC, for the first claimant, says that the position is analogous to that of an individual claimant in relation to whom there is no jurisdiction to order the payment of security for costs where a claimant is resident within the jurisdiction. While it is clear that security for costs cannot be ordered under section 726 of the Companies Act against an unlimited company, in my judgment part 25.13(2)(c) plainly contemplates that security may be ordered against any kind of corporate body whether resident or incorporated within or without the jurisdiction. That is what the sub-rule says in terms, and I see no reason to put any gloss on it. It is clearly, in my judgment, not a mere re-enactment of Section 726, nor a repeat of that jurisdiction in the rules. It is a self-standing which, I must conclude, after due thought, has been expressed in broader terms than the jurisdiction conferred by the Companies Act 1985. Accordingly, although the assets of an unlimited company's shareholders may be highly relevant to the question whether the condition in CPR 25.13(2)(c) is satisfied in any particular case, there is, in my judgment, plainly jurisdiction for making an order for security for costs against the first claimant in this case, if there is, to use the words of the condition itself, ‘reason to believe’ that the company will be unable to pay the defendant's costs.
7. The next question is as to the precise nature of the test imposed by that condition and there is an unfortunate lack of any unanimity on this issue in the authorities, many of which are unreported. It is common ground that the question has to be decided now, but that the ability to pay has to be assessed as at the date when the costs order is likely to be made; that in this case being, or shortly after, November 2008. There is a serious question as to the standard of proof required in relation to inability to pay. In Re Unisoft Group Ltd (2) [1993] BCLC 532, which was a case which preceded the CPR and based on a construction of Section 726 of the Companies Act 1985, Sir Donald Nicholls, sitting as Vice Chancellor, said this:
‘I start consideration of the subsection by noting that the phrase ‘the company will be unable the pay the defendant's costs if successful in his defence’, is clear and unequivocal. The phrase is ‘will be unable’, not ‘may be unable’. ‘Inability to pay’ in this context I take to mean inability to pay the costs as and when they fall due for payment. Thus the question is, will the company be able to meet the costs order at the time when the order is made and requires to be met? That is a question to be judged and answered as matters stand when the application is heard by the court, although the court will take into account and give appropriate weight to evidence about what is expected to happen in the interval before a costs order would fall to be met. The court will draw appropriate inferences and here, as elsewhere, it will not let common sense fly out of the window. The phrase ‘the company will be unable to pay’ is preceded by the words, ‘if it appears by credible testimony that there is reason to believe’. I do not think this latter phrase has the effect of watering down the words which follow. The court, on the basis of credible testimony, must have ‘reason to believe’, that is, to accept, ‘that the company will be unable to pay’. If this were not so, and the test is not whether the court, on the basis of credible testimony, believes the company will be unable to pay, then it is difficult to identify what is the proper approach and what is the test being prescribed by the statute. It cannot, surely, suffice that the applicant's accountant, for example, who is a credible witness, puts forward a case of inability, to pay. If there is conflicting evidence the court must have regard to that also. The court must reach a conclusion on the basis of the totality of the evidence placed before it, giving such weight to the various matters deposed to as is appropriate in the circumstances. The matter on which, in the end, the court is required to reach a conclusion is whether the company will be unable to pay’.
8. Phillips v Eversheds, for which the neutral case citation is [2002] EWCA Civ 486, was a decision of the Court of Appeal, in fact a single judge of the Court of Appeal, in relation to an application for security for costs of an appeal. It was given on 18th March 2001, and Lord Justice Buxton, in giving judgment, said this at paragraph 6:
‘On the evidence...
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