Stabilad Ltd v Stephens & Carter Ltd

Wednesday 1st April, 1998

This is an appeal from the refusal of Mr Lawrence Collins QC, sitting as a deputy judge in the Chancery Division, to order a stay preventing the payment out of court to the plaintiff, who had been successful in the action, of the sum of £58,000 that it had paid into court by way of security for the defendant's costs of the action.

The plaintiff is a company called Stabilad Ltd; the defendant is Stephens & Carter Ltd. The litigation arose out of commercial negotiations between the plaintiff and the defendant with a view to the plaintiff granting to the defendant a licence to exploit a patent that belonged to the plaintiff. The patent related to a device to be placed on a ladder, stabilising the ladder so that, I imagine, workmen who climbed up it would not be at risk of the ladder shifting to their physical risk.

The negotiations led to heads of agreement being drawn up and signed on 31st March 1989. It was at one time contended by the defendant that the heads of agreement did not constitute a concluded contract with legal effect, but that contention, although I think it was alive when the trial before Mr Lawrence Collins QC commenced, was not persisted in. Paragraph 4 of the heads of agreement provided for the payment to the plaintiff of two substantial initial payments on a count of royalties. It was provided that the sum of £150,000 would be paid "After feasibility study and preparation of production/marketing plan", and it was provided that a further sum of £100,000 would be paid "After evaluation of proposed regional advertising test market". The paragraph then continued to say this:

"It is intended that the whole exercise be completed by September 30 1989. Stephens and Carter will use their best endeavour's to complete the feasibility study and production/marketing plan by 30th June 1989."

There was a dispute at the trial as to whether the "feasibility study and preparation of production/marketing plan" had been completed, and whether there had been a completed "evaluation of proposed regional advertising test market". But the judge, having heard the witnesses and in particular having considered the effect of internal documents of the defendant which were produced on discovery, concluded that both those conditions precedent to the payments mentioned had been fulfilled and that, according to the terms of paragraph 4, the sums in question had become payable. But there was a problem. The plaintiff had taken the view that the defendant had committed conduct repudiatory of this agreement, repudiatory of the contract constituted by the heads of agreement. Accordingly, on 21st September 1989 the plaintiff purported to accept the defendant's repudiation and treat the contract as at an end. That left outstanding, of course, the question whether the plaintiff was still entitled to the payments on account of royalties of £250,000 provided for in paragraph 4. This was the sum for the recovery of which the plaintiff commenced the proceedings by writ and Statement of Claim of the 26th March 1990. The judge came to the conclusion that, notwithstanding that the contract was at an end by the plaintiff's acceptance of the defendant's repudiation, and notwithstanding that the plaintiff had subsequently licensed another firm to exploit the Stabilad patent, the plaintiff remained entitled to recovery from the defendant of the £250,000 and made an order accordingly. The defendant has filed Notice of Appeal against the judge's order.

The action took a very long time to come on. It appears to be common ground that the delay on the part of the plaintiff, excessive delay as it was categorised by Rimer J, in an interlocutory application he heard, in progressing the action to trial was due to its (the plaintiff's) impecuniosity. It did not have the requisite funds to put into effect what needed to be done to prepare for trial. Its delay led to a striking out application. That was the application which Rimer J dealt with. He did not strike the action out, notwithstanding that he was satisfied that there had indeed been excessive delay. He referred to the plaintiff's impecuniosity as being the reason for the delay.

Against this background it is not surprising that application was made by the defendant for security for costs to be provided by the plaintiff. The application was made under section 726 of the Companies Act 1985. The application succeeded. The plaintiff's impecuniosity was not at issue. There were three payments ordered to be made at successive stages. The total paid was a sum of £58,000. It was not a sum found by the company from its own available resources. The sum had to be borrowed. The lender was a director and major shareholder in the company, a Mr Campbell. The evidence suggests that Mr Campbell himself may have had to borrow some part of the £58,000 from another individual. At all events, the money was found for the payment into court to be made. If the money had not been found there would, of course, have been a stay on the action and that would have been an end of the plaintiff's claim for the £250,000; so the money was found. As I said the action came to trial before Mr Lawrence Collins QC and resulted in success for the plaintiff. Mr Lawrence Collins made an order for payment of the £250,000 to the plaintiff. He made an order for a certain amount of interest accrued on that sum since the date on which, in his view, it ought to have been paid, but deprived the plaintiff of two years of interest on the grounds of the delays of which the plaintiff had been responsible.

The defendant made an application for a stay of the judge's order pending appeal. There was no opposition raised by the plaintiff to the application for a stay so far as the £250,000 and interest thereon, and the plaintiff's costs of the action were concerned. But the plaintiff made clear its intention to apply for the payment out to itself of the £58,000 that had been lodged as security for the defendant's costs of the action. The defendant applied also for a stay of that payment out and it was that stay that the judge refused. It is that limited refusal of the stay that is the subject of the appeal before us.

The judge treated the matter both as one of discretion and as one of power. In the approved transcript of his judgment refusing the stay, a judgment he delivered on 20th March of this year, he referred to the payments in, the £58,000 I have mentioned. After referring to various other aspects of the case, he expressed the conclusion that the justice of the case did not require that the security be retained in court. He then went on to consider whether in any event he had power to order a stay preventing the payment out of the £58,000. He expressed, at the end of the judgment, this conclusion on that point:

"In my judgment, I do not have power, either under section 726 or the inherent jurisdiction, to make the order sought. As, I have said, this is not an order I would make even if it were open to me."

It seems plain, therefore, that the judge was expressing a view that it was not open to him to make the order, even if as a matter of discretion he had thought it right to do so.

There are therefore two issues for us on this appeal. One is the important issue of principle; did the judge have power to grant the stay preventing payment out of the £58,000 if he had thought it right to do so; and, second, as a matter of discretion, is it right for that stay to be granted?

Mr Hollander has made the point, and in my judgment it is a correct point, that the application for the stay comes before us as an application de novo. We are not simply reviewing the discretion of the judge below, as to which well-known limitations on the power of the appellate courts to interfere would come into play. We must ourselves, if we conclude we have the requisite power, decide whether as a matter of discretion the stay should or should not be granted. May I deal first with the question of power.

The authorities start with a judgment delivered by Lord Sterndale, as President of the Probate, Divorce and Admiralty Division, just a few months before he became Master of the Rolls. The case in question was The Bernisse [1920] P1. Lord Sterndale refused to make an order staying the payment out of security of costs that had been lodged. The security had been lodged because the plaintiff in the case was resident out of the jurisdiction. He said this:

"the effect of ordering the money to remain in Court would to be give them [i.e. the defendants] one or other of two things, either security for the costs of their own appeal, or security for the satisfaction of the judgment which may be given on appeal, and they are not entitled to either. Therefore I shall make an order for payment out...