Newman (t/a "Newman Associates) v Wenden Properties Ltd and Another
| Jurisdiction | England & Wales |
| Judgment Date | 16 February 2007 |
| Neutral Citation | [2007] EWHC 336 (TCC) |
| Date | 16 February 2007 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-06–2778 |
[2007] EWHC 336 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
His Honour Judge Peter Coulson Q.c.
Case No: HT-06–2778
Mr Sean Brannigan (instructed by Messrs. Beale & Co., Bristol), for the Claimant/ Part 20 Defendant
Mr Paul Letman (instructed by Messrs. Finers Stephens Innocent), for the Defendant/Part 20 Claimant.
Judge Peter Coulson QC:
INTRODUCTION
This is the hearing of the Claimant/Part 20 Defendant's application for security of costs in respect of the Defendant/Part 20 Claimant's counterclaim. The sum sought is £200,000 in respect of the costs of defending the counterclaim up to the final disposition of the action; alternatively, £75,000 up to the exchange of witness statements, or £45,000 up to the end of any preliminary issue hearing to determine the extent of the Claimant's contractual obligations to the Defendant. I set out below a short summary of the litigation, before going on to identify the principles of law relevant to an application of this kind. I then set out the factors that I consider are material to the exercise of my discretion.
THE LITIGATION
The Claimant's claim is for £23,819.75 for unpaid fees incurred in connection with the professional services he provided to the Defendant. These services were rendered in respect of the refurbishment of a property known as 56, Eversley Crescent, Isleworth, hereafter referred to as 'the Property'. The amount sought is calculated by reference to the RIBA work stages, and is thus a percentage of the cost of that refurbishment work. It appears that the Defendant is an SPV set up in the 1990's by Dr. Simon Iddenten and his wife, for the purpose of purchasing and refurbishing properties that are then let out for rent. However, the property in Isleworth is owned not by the Defendant, but by Dr. Iddenten and his wife, who also own another three properties, two in Isleworth and one in Australia.
The Defendant company, in its defence and counterclaim, pursues an extensive claim for professional negligence against the Claimant. The counterclaim is said to be worth in the region of £690,000. The counterclaim is put in two distinct ways. The Defendant's primary claim is based on the assertion that the Claimant was in breach of contract and/or negligent in respect of the costs of the refurbishment work carried out at the property. It is said that, instead of costing around £682,000, the works actually cost £1.1 million. On behalf of the Defendant, Dr. Iddenten maintains that, if he knew then what he knows now as to the amount of those costs, he would not have gone ahead with the refurbishment. This is known in the papers as the 'non-transaction case'.
It is an important element of this part of the pleaded case that, in order to fund the refurbishment, the Defendant borrowed a total of £1.42 million odd, whilst, so it is said, the property was not worth more than £1.180 million. In my judgment the non-transaction case hinges on this valuation figure of £1.180 million because if, contrary to the Defendant's pleaded case, the property was in truth worth more at the end of the refurbishment than the total of the Defendant's borrowings, then it would be difficult to see—even assuming liability on the part of the Claimant—what the Defendant's loss could be.
The Defendant's secondary case is that, even if it were found that the refurbishment project would have gone ahead, the Defendant company suffered losses because numerous items of work were carried out as variations, in circumstances where it is said that they should have been allowed for at the outset, and/or at lower cost. In the alternative, it is suggested that, if proper costing advice had been given by the Claimant, the Defendant would not have gone ahead with certain variations in any event. There is another claim that the Claimant certified practical completion too early and deprived the Defendant of the ability to claim liquidated damages against the contractor. It is important to note that this secondary way in which the counterclaim is put is worth considerably less than the primary case.
A common feature of both the Defendant's primary and secondary way of putting the counterclaim, as presently pleaded, is the Defendant's reliance upon the alleged failure on the part of the Claimant to give proper cost advice. There is a major dispute between the parties as to the Claimant's contractual responsibility for the giving of such advice in the first place, particularly given the agreed fact that the Defendant had other consultants working in connection with this project, including one who was described in the documents as “the [Defendant's] costs advisor”. This is a potentially important matter. Prior to the hearing of this application and the extensive evidence which it has generated, I had considered that this issue—that is to say, the question of the Defendant's contractual obligation to give cost advice—should be dealt with by way of a preliminary issue. For the reasons which I touch on below, I am now not so sure about that proposal.
PRINCIPLES RELEVANT TO THE APPLICATION FOR SECURITY FOR COSTS
The application relies on Section 726(1) of the Companies Act 1985, which provides as follows:
“Where, in England and Wales, a limited company is Plaintiff [Claimant] 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, will require sufficient security to be given for those costs and may stay all proceedings until the security is given.”
The court has a wide discretion as to whether or not to order security if the test in Section 726 is made out. The factors relevant to the exercise of that discretion were famously listed by Lord Denning, M.R. in Sir Lindsay Parkinson v Triplan [1973] QB, 609, Court of Appeal. They included:
(1) Whether the Claimant's claim is bona fide and not a sham;
(2) Whether the Claimant has a reasonably good prospect of success;
(3) Whether there is an admission by the Defendants in their defence or elsewhere that money is due;
(4) Whether there is a substantial payment into court or an 'open offer' of a substantial amount;
(5) Whether the application for security was being used oppressively, e.g. so as to stifle a genuine claim;
(6) Whether the Claimant's want of means has been brought about by any conduct by the Defendant such as delay in payment, or in doing their part of any work;
(7) Whether the application for security is made at a late stage of the proceedings.
It is often argued that the application for security for costs, if allowed, would stifle a genuine claim. In consequence, the courts have refined this element of the discretion under CPR Part 25. It seems to me that the following principles are relevant to the present application:
(a) Where an order for security for costs against the claimant company might result in oppression, in that the claimant company would be forced to abandon a claim which has a reasonable prospect of success, the court is entitled to refuse to make that order, notwithstanding that the claimant company, if unsuccessful, would be unable to pay the Defendant's costs (see Aquilla Design (GRB) Products Ltd. v Cornhill Insurance plc [1988] BCLC, 134, Court of Appeal);
(b) Before the court refuses to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that in all the circumstances it is probable that the claim would be stifled (see Keary Developments Ltd. v Tarmac Construction Ltd. [1995] 2 All E.R., 535, Court of Appeal);
(c) In all but the most unusual cases, the burden lies on the claimant company to show that, apart from the question of whether the company's own means are sufficient to meet an order for the security, there will be no prospect of funds being available and forthcoming from any outside source (see Kufaan Publishing Ltd. v Al-Warrack Bookshop Ltd., March 1 st, 2000, Court of Appeal (unreported)).
It is necessary, when considering an application for security for costs on a counterclaim, to decide whether the counterclaim is a separate claim, or merely the substantive defence to the claim brought by the claimant. If there is a close link between claim and cross-claim, then it is common for security to be refused (see Thistle Hotels Ltd. v Gamma Four Ltd. [2004] EWHC 322 and B.J. Crabtree (Insulation) v GPT Communications Systems, 59 BLR, 43, Court of Appeal). In Hutchinson Telephone (UK) Ltd. v Ultimate Response Ltd. [1993] BCLC, 307, this point was put by Bingham LJ (as he then was) in this way:
“The trend of authority makes it plain that, even though a counterclaiming defendant may technically be ordered to give security for the costs of a plaintiff against whom he counterclaims, such an order should not ordinarily be made if all the defendant is doing in substance is to defend himself. Such an approach is consistent with the general rule that security may not be ordered against a defendant. So, the question may arise, as a question of substance, not formality or pleading: 'Is the defendant simply defending himself, or is he going beyond mere self-defence and launching a cross-claim with an independent vitality of its own?'”
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