Paragon Investments Inc. v Sharma
| Jurisdiction | England & Wales |
| Judgment Date | 22 November 2002 |
| Neutral Citation | [2002] EWHC 2643 (Ch) |
| Docket Number | No: CH/2002/APP/711 |
| Court | Chancery Division |
| Date | 22 November 2002 |
[2002] EWHC 2643 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCVNCERY DIVISION
(On appeal from Central London County Court)
Royal Courts of Justice
The Strand
London WC2A 2LL
Mr Justice Blackburne
No: CH/2002/APP/711
MR SMITHERS appeared on behalf of the Claimant
MR RATCLIFFE appeared on behalf of the first Defendant, Sadia Sharma
Friday, 22 nd November 2002
This is an appeal against the order made on the 12 th August 2002 of Judge Knight QC, sitting in Central London County Court, dismissing the first defendant's application for security for costs. On the 25 th September Mr Justice Lawrence Collins gave permission to the first defendant to appeal, giving as his reasons, that:
"It is arguable that the judge did not give sufficient weight to the nature of the claimant company and the nature of the allegation."
The claim, launched on 3 rd April 2002, relates to a payment of £24,600 made in connection with a scheme by the claimant, which was incorporated in the British Virgin Islands, to set up an Internet based lottery to be conducted, as I understand it, from the Pacific Island Republic of Palau. A cheque for £24,600 was paid to the third defendant on the 21 st April 2000 for the purpose, according to the particulars of claim, of developing the software necessary to operate the lottery.
It is alleged that this payment was made upon various representations by the first and second defendants that they had various contacts, or at any rate the second defendant had contacts with IT companies in India, which had the requisite experience to develop the software, that the first defendant, who was a chartered accountant, would control and oversee the expenditure and provide expenditure summaries, and that the second defendant would travel to India to give instructions for the software development and obtain delivery of the software. It is said that these representations were false and were made either fraudulently or negligently, and in breach of fiduciary duty, the point there being, so it is alleged, that both the first and second defendants were for varying periods directors of the claimant, and that as such owed fiduciary duties of good faith and the like.
It is alleged that the payment of the cheque to the third defendant occurred as a result of fraudulent misrepresentations by the first defendant to the effect that it was better, for a variety of reasons, including financial control and tax efficiency, that the payments should be in that way. It is alleged that, although a representative of a software development company called Polar visited this country in connection with the development of the software, no progress was made in developing it. The broad gist of the claim is that at the end of the day the claimant has got nothing for its financial outlay.
It complains, also, that unknown to it, the second defendant had been adjudicated a bankrupt in early January 2000 and that the third defendant, which is described as his company, was struck off the Register in October 2000. The claimant has subsequently applied, successfully, for it to be restored, and its costs of so doing form part of its claim. Various allegations are made about how the third defendant's bank account was operated and what expenditure was made out of the monies in the third defendant's account. It alleges that it was the victim of a fraudulent conspiracy involving the defendants, or certainly the first and second defendants. It seeks the return of its money, damages and an account.
There is no defence, at any rate none that I have been told of, by the second defendant, who I should say is a cousin of the first defendant's wife, and none by the third defendant, but the first defendant has served a lengthy defence. He did so in early September. He denies being a director of the claimant, although he admits that he worked for it as an unpaid accountant for a period of roughly two months between March and May of 2000. He also admits to an involvement with the third defendant, being its bookkeeper for a number of months and a signatory on its account. He admits signing various cheques on the third defendant's account, sets out, so far as he is aware, what happened to monies in that account. He denies any breach of any duty, contractual, tortious or otherwise, owed to the claimant and denies any conspiracy.
For the claimant Mr Smithers accepts that the first defendant has served a defence which goes to the merits of the claims against him, and that it is not possible for me, any more than it was possible for the judge below, to come to any view one way or the other on the merits of those claims.
The first defendant's application for security was made under CPR 25.12 in reliance on the conditions set out in paragraphs (b), (e) and (g) of Part 25.13(2). The application was also made under the court's powers contained in CPR 3.1. I need not trouble myself with that latter limb because the judge below rejected that as a basis for making an order for security, and it has not been suggested before me that he was wrong to do so. CPR 25.13(1) provides:
"That 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."
I do not think I need to read the rest of paragraph (1). Paragraph (2) provides: "The conditions are", and then (b):
"The claimant is a company or other incorporated body (i) which is ordinarily resident out of the jurisdiction and (ii) is not a body against whom a claim can be enforced under the Brussels Conventions or the Lugano Convention or the Regulation, as defined by section 1(1) of the Civil Jurisdiction and Judgments Act 1982;"
Then (e):
"The claimant failed to give his address in the claim form or gave an incorrect address in that form;"
Then (g):
"The claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him."
The application was supported by two witness statements by a Mr Richard Osborne, who is a partner in the firm of solicitors acting for the first defendant, in which, after having set out a brief background to the first defendant and his relationship with the claimant, and in particular with a Mr Davidson, who appears to be an officer of the claimant, said this:
"In these proceedings Paragon.."
That is the claimant —
"..makes a number of serious allegations of fraud and conspiracy against Sadia Sharma."
That is the first defendant.
"In essence the crux of the allegations is that he conspired with Rajesh Sharma.."
The second defendant —
"..to defraud Paragon of the £24,600, which he had paid for software developing using Oxford.."
The third defendant -
"..as a vehicle for the fraud. Paragon said he received nothing in return for his £24,600. Sadia Sharma firmly denies the allegations that are made against him. I appreciate it would be inappropriate to go into the merits of the case in any detail on an application for security for costs but Sadia Sharma's case is that in fact, and despite its contention to the contrary, Paragon received at least the £24,600 worth of software development… Nobody envisaged that the £24,600 would be sufficient to complete the software. The money was paid on the express understanding that it would cover the first two phases of software development but only part of the third phase. The reason Paragon does not have a fully finished software product now is that work on the project halted and Paragon fell out with the software developers following completion of the development work covered by the £24,600. Sadia Sharma believes that these proceedings were motivated by Paragon's and Mr Davidson's desire to find a scapegoat for the failure of Paragon's relations with the software developers, coupled with an extraordinary vindictiveness, the vicious nature of which is apparent from the documents exhibited at pages 76 and 77 and 84.
That is a reference to two faxes, one from a Mr Peter Moran and another from an unnamed source, but claiming to be, and I quote, "From the person your husband cheated", which were sent to the first defendant's wife. I do not propose to read them out because they are, as Mr Smithers readily accepts and indeed has the judge below held, nothing short of disgraceful. Mr Osborne makes a further point on behalf of the first defendant to the effect that it is inherently unlikely that the first defendant would risk his entire livelihood as an accountant to defraud Paragon for a share of £24,600.
Mr Osborne's second witness statement gave details of the amount of security it was seeking. There was only an extremely brief statement filed in opposition. This is a statement by a Mr Buckland. He describes himself as a solicitor, a principal of the firm Bucklands and a director of the company. He says this:
"I formally have the conduct of this matter on behalf of the claimant but I am still on the court record, and have in fact been re-instructed to act in this particular case, and I am authorised to make this statement on the claimant's behalf".
That is a reference to the fact that in early July Mr Buckland left a message with the first defendant's solicitors to the effect that he had been sacked and all his papers had been taken away, could not contact his former client, who was abroad, and did not know which firm of solicitors had been instructed in his place. It was followed by a letter from Mr Buckland, saying: "We are still on the record and...
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