Keary Developments Ltd v Tarmac Construction Ltd

JurisdictionEngland & Wales
JudgeLORD JUSTICE BUTLER-SLOSS,LORD JUSTICE PETER GIBSON,ORDER
Judgment Date13 April 1994
Judgment citation (vLex)[1994] EWCA Civ J0413-5
Date13 April 1994
CourtCourt of Appeal (Civil Division)
Keary Developments Ltd.
Respondent
and
Tarmac Construction Ltd.
Appellant

[1994] EWCA Civ J0413-5

(Order of his Honour Judge Lloyd)

Before: Lord Justice Butler-Sloss Lord Justice Peter Gibson

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

MR. D. SEROTA Q.C. (instructed by Messrs. Wragge & Co., Birmingham B3 2AS) appeared on behalf of the Appellant.

MR. P. PHILPOTT (instructed by Messrs. Howell & Co., Birmingham B28 9HW) appeared on behalf of the Respondent.

1

Wednesday 13th April 1994

LORD JUSTICE BUTLER-SLOSS

I will ask Lord Justice Peter Gibson to give the judgment of the court.

LORD JUSTICE PETER GIBSON

In Kloeckner & Co. AG v Gatoil Overseas Inc. (unreported 16th March 1990) Bingham L.J. sitting as a single Lord Justice on an appeal from the Registrar of Civil Appeals, who had ordered for security for costs under Order 59 Rule 10(5), pointed out that the system of justice which prevails in this country is founded on the premise that the interests of justice are ordinarily best served if successful litigants recoup the costs of their litigation, or the bulk of those costs, and unsuccessful litigants pay them. He said that that being the fundamental approach, it was not surprising that the question arose: what should be done, if it appeared that a defendant, if successful, would not be able to enforce an order for costs in his favour against the plaintiff? The answer, though not a comprehensive one, was, he said, to be found in the Rules of the Supreme Court, Order 23 Rule 1, and section 726(1) of the Companies Act 1985, to which might be added a reference to Order 13 Rule 8 of the County Court Rules.

Section 726(1) provides:

"Where in England and Wales a 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."

The plaintiff, Keary Developments Ltd., was incorporated in 1990 and is a £100 company. It is not in dispute that there is reason to believe, by credible testimony, that the plaintiff will be unable to pay the costs of the defendants, Tarmac Construction Limited ("Tarmac") and its associated company, Postworth Ltd. ("NCS"), if they are successful in defending this action. But the Official Referee, His Honour Judge Lloyd QC, on 2nd July 1993 refused the defendants' application for security for costs. From that decision the defendants, with the Judge's leave, now appeal.

The dispute between the parties arises out of a joint venture agreement made orally in 1990 between the plaintiff and Tarmac or NCS. Tarmac was the main contractor to the Department of Transport for the widening of a stretch of the M 40 motorway. Under the agreement, the plaintiff was to do certain work and provide certain services. But by its writ and statement of claim, served on 18th December 1991, the plaintiff claimed that he was owed over £600,000 by the defendants under the agreement. The statement of claim stated that certain fees up to a maximum of £30,000 were to be paid to the plaintiff for the services of Mr. Patrick Keary senior, that its costs were to be reimbursed by the defendants, and that it would be entitled to half the profits, being the difference between its costs and the defendants' net tender allowances. The defendants paid £25,000 into court and served a defence on 31st January 1992. In that defence they did not admit that there was an agreement such as had been alleged, but if there was, it was pleaded that it was one whereunder the plaintiff was entitled to only one quarter of the profits. The defendants said that they had paid certain sums to the plaintiff. We are told that the sums paid are about £1.2 million. The defendants counterclaimed for repayment of sums in an unquantified amount to which they say the plaintiff was not entitled.

In March 1992 the defendants first applied for security for costs. At that time their solicitor estimated that the costs, excluding the costs of the counterclaim, would amount to £41,000, being costs for a four day preliminary issue on whether there was a contract and an eight day trial. Mr. Patrick Keary junior, who, with his brother, is a director and an equal shareholder of the plaintiff, swore an affidavit asserting that the application was one to stifle the plaintiff's genuine claim, accusing the defendants of economic blackmail, and said:

"Any security for costs may force the plaintiff to abandon an otherwise reasonable successful claim."

He also claimed that the defendants on 12th August 1992 (subsequently corrected to 12th August 1991) had offered Mr. Keary senior £50,000 immediately and a sum in excess of £500,000 conditionally in settlement of the plaintiff's claim. Mr. Keary senior confirmed this in a subsequent affidavit of his own, but the two representatives of the defendants who were said to have made the offer, in affidavits of their own, whilst confirming there was a meeting on 12th August 1991 to attempt to settle the claim, said that it was a without prejudice meeting at which no offers of settlement were made.

The application came before Mr. Recorder Tackaberry QC on 22nd May 1992. He noted that Tarmac had paid £25,000 into court and that £41,000 was the defendant's estimate of their costs. He considered that if security was ordered, it would only be in a sum between £2,000 and £11,000, because he considered that either the full amount paid into court, or two-thirds thereof, should be set off against the sum claimed by way of security. He considered it surprising that the defendant should be attempting to obtain such a small sum by way of security in the context of what he called "such a substantial bona fide claim". He thought there was "a very real possibility" that an order for £11,000 would stifle the claim, although he accepted that that was not the most likely result. But he pointed out that if a substantial sum was owed by the defendants to the plaintiff, that would have had a very real weakening effect on the plaintiff. Accordingly, he dismissed the application with costs. I have to say that I have considerable difficulty with parts of the Recorder's reasoning, but there was no appeal against that decision. Shortly afterwards, when witness statements had been produced by the plaintiff, which, the defendants claimed cast doubt on the bone fides of the plaintiff's claim, a further application for security was made. On 23rd June 1992 Mr. Recorder Butcher QC dismissed the application with costs, there being, in his opinion, no material change in the circumstances since the hearing before Mr. Recorder Tackaberry. He also made an order by consent on the preliminary issue. It was agreed that there was a contract between the parties which contained as express terms that the plaintiff was to be paid up to £60,000 for the services of Mr. Keary senior, that the plaintiff was to be reimbursed its actual costs, and that any profit arising out of the services provided by the joint venture would be divided 50/50 between the plaintiff and the defendants.

On 6th October 1992, the statement of claim was amended (inter alia) to claim that the plaintiff was to be paid up to £60,000 for the services of Mr. Keary senior. On 13th November 1992, on the defendant's application, the plaintiff was ordered by Mr. Recorder Havery QC to give further discovery and to pay four fifths of the defendant's costs of the application. The defendants' solicitor estimates those costs to amount to some £3,500 plus VAT. Even before the application to Mr. Recorder Havery, the plaintiff had been allowed access to documents which showed that the defendants had received bonuses from the Department of Transport.

On 30th November 1992 the trial commenced before Mr. Recorder Humphrey Lloyd QC. There was then an adjournment for the plaintiff to produce the cheques supporting the expenses for which it had claimed reimbursement from the defendants. At the same time, a representative of a company to which the plaintiff claimed to have made payments as part of its expenses, Macbulk Ltd., produced on subpoena documents relating to such payments. On 7th December 1992 the trial recommenced, but the plaintiff opened the case on a basis different from that pleaded. On 9th December 1992 leave was given for the amended statement of claim to be further amended. Mr. Philpott, appearing for the plaintiff, accepts that it was a drastic re-amendment. By the re-amended statement of claim, the plaintiff claimed it was entitled under the agreement to one half of the profits, calculated not as originally pleaded by reference to the defendant's net tender allowances but by reference to payments made to Tarmac by the Department of Transport. The trial was further adjourned in consequence of this change in the pleading, and the plaintiff was ordered to pay the defendants' costs of the adjournment. The defendants' solicitor estimates that those costs, less the costs that the defendants were ordered to pay the plaintiff on the two applications for security for costs, amount to over £50,000 plus VAT.

Further, it is common ground that whereas prior to the re-amendment the trial was estimated to last 20 days, it is now likely to last 30 days when it recommences in January 1995. The defendants consequently made a third application for security for costs. It was supported by an affidavit by the defendant's...

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