Lord Ltd v HSBC Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mrs Peter MacDonald Eggers,Mr Peter MacDonald Eggers |
| Judgment Date | 18 April 2018 |
| Neutral Citation | [2018] EWHC 860 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000725 |
| Date | 18 April 2018 |
[2018] EWHC 860 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Peter Macdonald Eggers QC (Sitting as a Deputy High Court Judge)
Case No: CL-2017-000725
The Claimant appeared by its director, John Mair
Emily Saunderson (instructed by Shepherd & Wedderburn LLP) for the Defendant
Hearing dates: 13th April 2018
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.
Mr Peter MacDonald Eggers QC
Mrs Peter MacDonald Eggers QC
Introduction
The Claimant, Lord Ltd, is a privately owned investment company registered in England at an office in Bristol.
In 2007, the Claimant invested in two financial products issued by the Defendant (“the Bank”), namely a Sterling bond or policy with a value of £750,000 and a US bond or policy with a value of approximately US$500,000. These products had a minimum term of 5 years. The Claimant alleges that they were surrendered by the Bank and encashed early and in breach of the contractual terms between the Claimant and the Bank. The Claimant claims damages for breach of contract, breach of statutory duty, negligence and fraud.
The Claimant issued these proceedings in connection with its claim in November 2017.
The Bank has not yet served a Defence in this action, but in its evidence in support of the application currently before the Court (in particular the first witness statement of Ms Laura McMillan of Shepherd and Wedderburn LLP, the Bank's solicitors), the Bank maintains that it intends to defend the claim and alleges that these bonds or policies were used to secure the Claimant's indebtedness to the bank in respect of a loan and overdraft facility extended by the Bank to the Claimant. I was informed by Ms Emily Saunderson, on behalf of the Bank, that the Bank does not currently intend to pursue a counterclaim in these proceedings independent of the claim.
The Claimant denies the Bank's case as set out in Ms McMillan's witness statement.
The Bank has issued an application seeking two orders:
i) An order that the Claimant provide security for costs up to and including the filing of the Defence in the sum of £38,023.85 (which is constituted by £28,606.35 of costs already incurred and £9,417.50 not yet incurred).
ii) The Bank be permitted to serve a Defence, by way of an extension of time, up to 14 days after the provision of security ordered to be provided by the Claimant.
On 1st March 2018, the Court ordered that the time for the service of the Defence be extended to a date seven days after the determination of the security for costs application.
The Claimant opposes the application for security for costs.
At the hearing of the Bank's application, the Claimant was represented by Mr John Mair, a Scottish solicitor, who is also a director, company secretary and shareholder of the Claimant. Although the Claimant has consulted solicitors and counsel in respect of its claim, it has chosen to appear before Court at the hearing of the Bank's application without English legal representation.
Security for costs
This case is slightly unusual in that the Bank seeks security at a relatively early stage of the proceedings. Usually, security for costs is sought at the first case management conference. This application is made especially early, but there is no reason to think that it should not have been made, if the application is otherwise justified. Appendix 10 to the Commercial Court Guide provides that “ First applications for security for costs should not be made later than at the Case Management Conference”. Nevertheless, the early stage at which the application is made may be a relevant consideration insofar as the Court has a discretion to exercise to order such security.
The Bank seeks security for costs pursuant to CPR rules 25.12 and 25.13(1) and (2)(c), namely on the grounds that it is just to order security for costs having regard to all of the circumstances of the case and 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”.
(1) Is there reason to believe that the Claimant will be unable to pay?
The first question which arises is whether there is reason to believe that the Claimant will be unable to pay the defendant's costs if ordered to do so.
In Jirehouse Capital v Beller [2008] EWCA Civ 908; [2009] 1 WLR 751, the Court of Appeal considered the meaning of the jurisdictional condition that “ there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so”. Arden, LJ concluded, at paragraphs 26–34, that this provision requires, as a precondition for the exercise of the Court's jurisdiction to order security for costs, the Court to be satisfied on the totality of the evidence before it that there is reason to believe that, when ordered to do so — which necessarily means at some point in the future — the claimant would not be able to satisfy a costs order made by the Court against the claimant and in favour of the defendant. In particular, if the Court merely entertains a doubt whether the claimant can pay such a costs order, that would not be sufficient; on the other hand, the Court may have reason to believe that the claimant is unable to pay a costs order even if its inability to pay cannot be established on the balance of probabilities.
In this case, the principal evidence which was relevant to this jurisdictional question was constituted by (a) the Claimant's unaudited abridged accounts, in particular its balance sheet, for the year ending 31st March 2017, filed by the Claimant, and which were exhibited to Ms McMillan's first witness statement, and (b) the witness statements of Mr Mair opposing the application.
The Claimant's accounts were signed by Mr Ali Jafari-Najafabadi, a director of the Claimant. The balance sheet recorded the following information:
i) The Claimant had fixed assets, being investments in land and companies, of £165,000.
ii) The Claimant's current assets were constituted by a debt owed to the Claimant by the Bank, in the sum of £1,700,000, being “ capital, profits and interest due on bonds investments which have matured but currently subject to litigation”. This is a reference to the claim made by the Claimant against the Bank in this action.
iii) For the previous financial year, the Claimant had, in addition, £500,000 “ cash at bank and in hand”, but this was no longer entered as an asset in the Claimant's balance sheet for the year ending 31st March 2017.
iv) The Claimant's liabilities were “ monies due to Lion Limited (Isle of Man) and Shareholders” in the sum of £1,855,000. This marked a substantial increase of the Claimant's debts from the previous financial year, when the “ creditors” figure was £808,576. That is, there was an increase in the Claimant's liabilities of more than £1 million.
v) The Claimant had total net assets and shareholders' funds in the sum of £10,000.
Ms Saunderson, on behalf of the Bank, submitted that this demonstrates that there is reason to believe that the Claimant would be unable to satisfy a costs order made against it, because if the Bank succeeds in its defence of the Claimant's claim, the Claimant's current asset of £1,700,000 would be removed, leaving the Claimant with very substantial net liabilities (on my calculation, in the sum of £1,690,000).
In his evidence, Mr Mair, on behalf of the Claimant, stated that:
i) The Claimant remains “ solvent and very much alive despite having incurred losses and expenses as a direct result of the Defendant's actions and inactions affecting it” (paragraph 10 of Mr Mair's second witness statement).
ii) The Claimant has since inception relied upon funds invested in it or loaned to it by the Jafari family and/or companies owned and controlled by them (paragraph 13 of Mr Mair's second witness statement).
iii) The Claimant has no liabilities or debts to the Bank or any other bank; it has no secured loans; it has not issued any debentures; and it has not granted security over any of its assets (paragraph 14 of Mr Mair's second witness statement).
iv) The Claimant has assets of land and other investments in a portfolio worth approximately £165,000 (which I note are referred to in the balance sheet), but this portfolio is of a long term maturity and is not readily liquid (paragraph 22 of Mr Mair's second witness statement).
v) The Claimant cannot raise the cash equivalent to £40,000 security sought by the Bank (paragraph 29 of Mr Mair's second witness statement). During his oral submissions, Mr Mair said that the Claimant does not currently have £40,000 in cash if ordered to pay the Bank's costs in that amount. However, Mr Mair also said that it is denied that the Claimant will in the future fail to pay any costs awarded by the Court against it in this action (paragraph 21 of Mr Mair's second witness statement).
vi) There is an additional asset belonging to the Claimant and which is not referred to in the Claimant's balance sheet, namely a debenture issued by Lion Ltd to the Claimant in the sum of £700,000, although this ranks in priority after other secured debts owed by Lion Ltd to the Bank and apparently has now been discharged and no longer attaches to Lion Ltd's property (paragraph 13 of Mr Mair's third witness statement).
In Mr Mair's second witness statement (paragraph 24), and in the skeleton argument which he lodged, it is stated by Mr Mair that the Claimant's “ only creditor”, Lion Ltd,...
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