Longstaff International Ltd v Baker & McKenzie
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PARK |
| Judgment Date | 16 June 2004 |
| Neutral Citation | [2004] EWHC 1852 (Ch) |
| Docket Number | No: 03C01287 |
| Court | Chancery Division |
| Date | 16 June 2004 |
[2004] EWHC 1852 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
The Strand
London WC2A
Mr Justice Park
No: 03C01287
MR PETER DE VERNEUIL SMITH (Instructed by Messrs McClure & Co) appeared on behalf of the Claimant/Respondent
MR NICHOLAS BACON (Instructed by Messrs Baker McKenzie) appeared on behalf of the Defendant/Applicant
Wednesday, 16 June 2004
Overview
This is my judgment on an opposed application for security for costs. The applicant is Baker & McKenzie, a well-known firm of solicitors. A claim in the Chancery Division has been commenced against Baker & McKenzie by Longstaff International Limited ("Longstaff"). Longstaff is a company incorporated in the British Virgin Islands and managed in Jersey. As I will explain as this judgment progresses, Longstaff has a substantial asset value, but as matters now stand it has very little liquidity.
Baker & McKenzie have applied for security for costs, relying partly on the non-resident status of Longstaff, and partly (indeed I would say principally) on Longstaff's lack of liquidity. I am going to make an order for security for costs. At present only a modest amount of security is requested, and I will direct that the full amount of it should be provided. But if the main case progresses, I expect that Baker & McKenzie will make further applications for increased amounts of security as further stages in the proceedings are reached. Those further applications will have to be dealt with as they arise, if, of course, they are not the subject matter of agreement.
The Nature of Longstaff's Action
Longstaff's action against Baker & McKenzie claims repayment of about £750,000 of professional fees which Longstaff has already paid. Longstaff says that it paid the fees as a result of mistakes, and it argues that it is entitled to recover them, or at least part of them. A few years ago Baker & McKenzie were instructed by Longstaff on several related matters, some involving litigation with other parties, some not. Baker & McKenzie submitted invoices for its fees to Longstaff, and in the first instance Longstaff paid them, apparently without complaint. However, Longstaff is complaining and disputing them now. The present case is not the only proceeding in which Longstaff is challenging fees charged by Baker & McKenzie, but it is the only one to which I need refer in this judgment.
Longstaff pleads that it suffered from two mistakes when it paid the fees. (a) It mistakenly believed that the fees were a reasonable charge for the services previously provided by Baker & McKenzie; (b) it mistakenly believed that it was obliged to pay them in full. It now says that it has discovered its mistakes. It says the fees were unreasonable and seriously inflated. It contends that it is entitled to have the excessive element in them repaid.
Baker & McKenzie of course dispute Longstaff's allegation that the fees were unreasonable and excessive. They also contend that in any case Longstaff's claim is misconceived in law. I can imagine that it will also be said on behalf of Baker & McKenzie that Longstaff made no mistakes of any sort when it paid the fees.
It is no part of my role on this application to form a view, even a provisional one, about the merits of Longstaff's case. I do not think that I have previously encountered an argument quite of the kind which Longstaff is advancing, but I proceed on the footing that the argument could well succeed. Applications for security for costs can, in some circumstances, be affected by the court taking a very pessimistic view of the merits of the claim. My decision in this case is not affected by anything of that sort at all.
Longstaff, its assets and liabilities
I need to describe the existing legal structure of which Longstaff is a part.
(1) As I have already said, Longstaff is a British Virgin Island company, managed and controlled in Jersey.
(2) Longstaff is owned by the Trustee of a Jersey Settlement. Two of the beneficiaries are Mr Geoffrey Simon and his brother, Mr Leo Simon. Mr Geoffrey Simon lives mainly in this country; Mr Leo Simon lives in the United States.
(3) I believe that the director or directors of Longstaff are an officer or officers of the Jersey company which is the Trustee of the Settlement which owns the shares. However, I can, I think, realistically assume that the directors look for guidance to the Simon brothers. I have the impression that the principal role is taken by Mr Geoffrey Simon, rather than by his brother Mr Leo Simon. However, it would not make any difference if that impression is not correct.
(4) Longstaff's major asset is a 100 per cent shareholding in an English company, Redwell Limited.
(5) I give some more detailed information about Longstaff in the subparagraphs at paragraph (9) below.
(6) Turning to Redwell, its directors are Mr Geoffrey Simon and Mr Leo Simon.
(7) Redwell's major asset is a property site in the Isle of Dogs. I believe that there are some buildings on the site and that they are currently let. However, the value of the site lies in its development potential. Its value as a development site has been estimated at £12 million. Baker & McKenzie do not dispute that figure.
(8) I now give some more detailed information about Redwell.
(a) It appears from the valuation that its Isle of Dogs site is incapable of development before 2005. I imagine that, if development started then, it would be some time longer before the potential value of the site could start to be realised.
(b) Redwell owes £4 million to the Bank of Scotland. The borrowing is charged on the Isle of Dogs property.
(c) Redwell has some current assets and liabilities, with the liabilities substantially exceeding the assets. The net current liabilities at 14 May this year were just over £500,000.
(d) Redwell currently makes quite substantial losses, consisting essentially of the excess of interest paid or payable over the modest rental income yielded by the current buildings on the site. Losses or profits in the last three complete accounting years to 30 September 2001, 2002 and 2003 were a loss of £161,421, a profit of £47,293 and a loss of £187,858. In the eight months to May 2004, Redwell appears to have had a loss of over £700,000.
(e) Overall, I can say of Redwell that it owns a significantly valuable asset, but at present it is substantially illiquid and is incurring quite large losses.
(9) I now return to Longstaff and give some more detailed information about that company.
(a) At May this year it had cash at the bank of £104,025, but it had current liabilities of £986,430. Thus it had net current liabilities of £882,405.
(b) It owes £1.7 million to the Bank of Scotland. That debt, like the debt of £4 million owed to the bank by Longstaff's subsidiary Redwell, is charged on the Isle of Dogs site.
(c) Longstaff also owes almost £950,000 to Mr Geoffrey Simon and Mr Leo Simon.
(d) Overall, one can say much the same about Longstaff as about Redwell: it owns a valuable asset (consisting in its case of the shares in Redwell, whereas in Redwell's case the asset consists of the Isle of Dogs site), but at present it is substantially illiquid. It must be losing money because it has no significant source of income to pay interest on the bank debt. I believe that Longstaff is kept going by loans from Mr Geoffrey and Mr Leo Simon.
(10) Pro forma balance sheets have been prepared for Redwell and its parent company, Longstaff, at 14 May 2004. Taking the Isle of Dogs property at its valuation of £12 million (as opposed to its historic book value of £3,165,483) Redwell's shareholders' funds are valued at just below £7.5 million. Longstaff's shareholders' funds are valued at just over £4 million. The positive values derive almost entirely (directly in the case of Redwell and indirectly in the case of Longstaff) from the Isle of Dogs property.
Redwell's offered undertaking
In opposition to Baker & McKenzie's application for security for costs, Mr Geoffrey Simon made a witness statement on 4 June 2004. On behalf of Redwell's board he wrote:
"I confirm that Redwell undertakes to meet any liability for the defendant's costs which Longstaff fails to meet."
He referred to an email of the same date to Longstaff's solicitors, which I will also read:
"Dear Phillip
On behalf of the Board of Directors of Redwell I confirm that Redwell will undertake to meet in full any order for costs arising out of a liability of Longstaff to Baker & McKenzie in these proceedings and that Redwell will not seek to argue that any costs ordered against Longstaff should not be met by Redwell.
Also I confirm that the Board of Redwell have agreed in principle to raise should the need arise, £500,000 to pay to Baker & McKenzie monies made up of alleged outstanding legal fees and further sums to meet alleged legal costs of Baker & McKenzie in this and other proceedings between Redwell, Longstaff and Baker & McKenzie.
Yours sincerely
Geoffrey."
It was confirmed in oral argument that the undertaking is offered to the court. I may misunderstand, but I do not think that it is offered directly to Baker & McKenzie the offer plays an important part in Mr De Verneuil Smith's submissions on behalf of Longstaff and I will return to it later.
Security for costs: the law
CPR 25.12 permits a defendant to any claim to apply for security for his costs of the proceedings. The critical sub-rule is rule 25.13, of which I will read the relevant parts:
"25.13 (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...
To continue reading
Request your trial
-
David Shimeld and Others v Doubloon Beach Club Ltd
...noteworthy that the letter is apparently the basis of the applicants' contention that Longstaff International Ltd. v Baker and McKenzie [2004] 1 WLR 291714 is authority for the principle that an offer by an associate company to meet the costs of a claimant is sufficient evidence that a comp......
-
Mark Alan Holyoake and Another v Nicholas Anthony Christopher Candy and Others
...assets and could pay in the end but is unable to pay with any high degree of promptness is within the wording of the rule: Longstaff v Baker & McKenzie [2004] 1 WLR 2917 at [17]. The same must apply if the question is whether a co-claimant is a good mark, as the principle is that security ......
-
Dr Craig Steven Wright v Coinbase Global, Inc.
...are not a good answer to an application, relying on Ontulmus v Collett [2014] EWHC 294 (QB) paras 46–47; Longstaff v Baker & McKenzie [2004] 1 WLR 2917 para 17; In re Unisoft Group Ltd (No 2) [1993] BCLC 532. iii) The test under condition (c) is also “reason to believe” and not on the bal......
-
Victor Pisante v George Logothetis
...pay in the end but is unable to pay with any high degree of promptness is within the wording of the rule: Longstaff v Baker & McKenzie [2004] 1 WLR 2917 at [17]. The same must apply if the question is whether a co-claimant is a good mark, as the principle is that security need not be order......