CIBC Mellon Trust Company & Ors v Stolzenberg & Ors

In this application made by the Respondents to the appeal, who are the Claimants in the proceedings (and I will, for convenience, refer to as the Claimants) is sought an order against the Appellants (who I will refer to as the Defendants) in the following form: that the 10^th and 38^th Defendants provide security for costs of the appeal and that conditions be imposed on the appeal as follows:

The 10^th Defendant, Mora Hotel Corporation NV (“Mora”) and 38^th Defendant, Chascona NV (“Chascona”) are companies incorporated in the Netherland Antilles. In the proceedings the Claimants claim, and have entered judgment for, very substantial sums of money from the various Defendants. The appeal relates to a judgment given by Etherton J dated 3^rd February 2003 when he dismissed applications by the Defendants to set aside various judgments entered against them. The essential basis for the Judge’s ruling was the failure of the Defendants to comply with various court orders. The extent, if any, of that failure and, in particular, whether the failures were deliberate were the subject of dispute at the hearing of this application.

Permission to appeal was refused by the learned Judge and by the Single Lord Justice but was granted by Mummery LJ and Mance LJ on 11^th November 2003. The court granted permission in relation to the exercise of the Judge’s discretion and adjourned the application to appeal on the other grounds contained in the notice of appeal. They also adjourned the matter which is now before me, namely the application by the Claimants for security and for conditions to be attached to the appeal. In giving judgment Mummery LJ said:

“This is an extraordinary case. It is very complicated, factually and procedurally. The sums involved are very large indeed. It is not an ordinary case by any stretch of the imagination. These matters are not themselves reasons for granting permission, but they may be reasons for not refusing permission in the relatively short time we have had to consider the application.”

The case has had a long and troubled history. It is necessary for me to set out some of it, but not, I hope, at great length. On 4^th June, 1996, after a hearing lasting 9 days, Rimer J made a world wide freezing order against a number of Defendants. Mora was one of those Defendants but, at that stage, Chascona had not been joined in the proceedings. Rimer J also made a disclosure order. Mora did not comply with those orders. The Defendants applied to set aside the freezing order and on the 10^th July 1998 Rattee J dismissed that application and made further “unless” orders. On 13^th October 1998 Rattee J made an order that unless a disclosure order was complied with Mora would be debarred from defending the proceedings. On 4^th February 1999, following the taking of the account, judgment was entered against Mora in substantial sums of money. Chascona had been joined in the proceedings on 11^th January 1999. On 23^rd July, 1999, Lightman J made further freezing orders, and made certain consequential orders which were not complied with. On 4^th October 1999, Rattee J ordered that unless Mora and Chascona complied with Lightman J’s order they should be debarred from defending the proceedings further and the Claimants would be entitled to enter judgment for damages to be assessed. The order was not complied with. Damages were assessed and both Mora and Chascona ordered to pay very large sums.

Further proceedings took place both in New York and in this jurisdiction. On 27^th November 2002 Mora and Chascona applied for relief from the “unless” orders of Rattee J and the freezing orders that had been made against them.

It is common ground that the present applications were issued on the instructions of and are funded by Mr Paolo Cavazza, who is a very wealthy Italian businessman who is the beneficial owner of the majority of the shareholding in Mora and Chascona. Mr Cavazza has been funding the litigation since August 2001. These are important factors in relation to these applications. If any order is made for security for costs or conditions to be attached, it is again common ground that the funding can only come from Mr Cavazza. The Claimants have issued an application pursuant to Section 51 of the Supreme Court Act, 1981, to join Mr Cavazza as a party to these proceedings, and that application is due to be heard by Etherton J later this month.

On 13^th May 2002 Jacob J ordered the Defendants to pay the sum of £1,600.000 in to court. That sum was made up as to £1,500,000 in respect of past costs orders and £100,000 as security for the Claimants costs in the current applications. The Defendants appealed against that order. The appeal was heard in November, 2002, before Peter Gibson LJ, Mance LJ, and Hale LJ and judgment was given on 19^th November, 2002. The appeal was successful in relation to the past costs order but was dismissed in relation to the security for costs order. That judgment is very important in the context of the present application and Mr Wardell, QC, on behalf of the Defendants, places much reliance on it in resisting the present application that conditions should be attached to the bringing of this appeal. I will have to refer to it in some detail later.

At the time of the hearing in November, 2002, the only asset owned by the Defendants was the Gorham Hotel in New York. However, on 18^th November, 2003 the hotel was sold by the receiver. There remains a substantial equity in the funds realised from the sale of the hotel and Mr Wardell submits that, in relation to the past costs orders, the Claimants can obtain funds from that source. Mr Marshall, QC, on behalf of the Claimants, submits, with some force, that if they took that course they would merely be funding the proceedings from monies which, if the appeal is dismissed, would be theirs in any event to pay a part of the judgment sums.

Completing the history, Etherton J heard applications on 3^rd February 2003, and 25^th July, 2003, on both of which occasions he made costs orders against the Defendants and gave judgment dismissing the applications to set aside judgment on 3^rd February, 2003, again ordering that the Defendants pay the costs.

Mr Wardell, concedes in his skeleton argument that:

“Mora and Chascona have always accepted that fairness requires that they should, through Mr Cavazza, provide security for the costs of the appeal.”

The dispute concerns the amount to be paid. Mr Marshall has provided details of the estimate of the costs that his clients will incur in the appeal amounting to £615,880 and submits that that sum or thereabouts should be paid into court. Mr Wardell submits that the sum should be £300,000.

Mr Wardell also concedes that the Court has power to impose conditions on permission to appeal, but submits that on the facts of this case, and on the authorities, the Court should not so order. The power to impose conditions is found in the Civil Procedure Rules. CPR3.1(2)(f) and 3.1(3)(a) and 3.1(5) provides as follows:

“3.1(2) Except where these Rules provide otherwise, the Court may…..

(f)

stay the whole or part of any proceedings either generally or until a specified date or event…..

(3)

where the Court makes an order, it may –

(a)

make it subject to conditions, including a condition to pay a sum of money into court…..

(5)

The court may order a party to pay a sum of money into court if that party has, without good reason, failed to comply with the rule, practice direction or relevant pre-action protocol.”

Rule 52.3(7) provides:

“an order giving permission may

(b)

be made subject to conditions.

Mr Marshall submitted that rule 53(7)(b) gives the Court of Appeal wider powers, following a hearing at first instance, than the powers conferred by CPR(3). Mr Wardell submitted that the principles applicable in each case were the same. In my view, Mr Wardell’s submissions on that issue are correct. However, and it is a very important proviso, in my judgment, in this case, the factual situation upon which the Court acts following a hearing at first instance may be different.

I turn to consider some of the authorities that were cited to me. It is important to stress that, although I do not intend to recite the details of the facts in those cases, the facts in each of them were very different from the facts of each other and from the facts of this case. Not unnaturally, the outcome to a substantial extent depended on the facts.

In Hammond Suddard Solicitors v Agrichem International Holding [2001] EWCA CIV 2065 Clarke LJ said:

“The application to strike out gives rise to two points of principle. The first is whether it is a permissible exercise of the court’s powers, either when granting permission to appeal or subsequently, to make the prosecution of the appeal conditional upon the payment of the judgment debt and costs. The second is, if so, whether it is appropriate to do so in a case where, as here, the Appellant might have to obtain the funds to meet the various orders from a third party.”

The second question is, of course, one that arises here. As I have said, it is common ground that if conditions are applied it will be Mr Cavazza who will have to comply with them. It is common ground that Mr Cavazza is funding the litigation and is in a position to provide the funds without difficulty. It is, accordingly clear that, within reason, any order that the court makes will not stifle the appeal.

Clarke LJ went on to say that in order to make such an order there must be a “a compelling reason” to do so. He then continued:

“(41)

We turn to the question whether there is a compelling reason for making the appellant either pay the judgment debt or secure it as a condition of permitting it to proceed with the appeal. We have reached the conclusion that the answer to that question is yes. In our judgment, the facts which combines to constitute a compelling reason are the following:

(1)

The appellant is an entity against whom it would be difficult to exercise the normal mechanisms of enforcement. It is registered in the British Virgin Islands and has not assets in the United Kingdom. There is, accordingly, a very real risk that if the appeal fails, the respondents will be unable to recover the judgment debts and costs as ordered by Silber J. Given the attitude of the appellant to date, including that demonstrated on these applications, it is fanciful to think that the appellant will cooperate with the enforcement process.

(2)

the appellant plainly has the resources or has access to resources which enable it both to instruct solicitors and leading and junior counsel to prosecute its appeal and make an application to the court for a stay of execution and to provide a substantial sum by way of security for costs.

(3)

There is no convincing evidence that the appellant does not have the resources or have access to resources which would enable it to pay the judgment debt and costs as ordered. It has failed to do so. It is, accordingly, in breach of the orders made by Silber J on 12^th July 2001.

(4)

The discovery which the appellant has provided of its financial affairs is inadequate and gives the court no confidence it has been shown anything near the truth. Moreover, as stateed earlier, it has produced evidence (when it wanted to) that it was a thriving and profitable institution. It has wealthy owners and there is no evidence that, if they were minded to do so, they could not pay the judgment debt including the outstanding orders for costs.

(5)

For the reasons which we have already given we are not persuaded that this appeal will be stifled if we make the order sought.

(6)

In these circumstances, we find it unacceptable that absent any other orders of the court the appellant is intending to prosecute the appeal (and is willing to put up security for costs in order to do so) while at the same time continuing to disobey the orders of the court to pay the judgment debt and costs, as well as seeking to persuade us that he cannot do so.

[42] In our judgment, these six factors add up to a compelling reason to make the orders sought by the respondents. We think there is a real risk that, unless the orders sought are made, the respondents, if the appeal is dismissed, would be deprived of the fruits of the judgment, and will only be able to recover whatever sum is secured by way of costs. In our judgment, on the facts of this case, it is not just to allow the appellant to proceed with an appeal which is designed not only to reverse the judge’s decision that it is liable to the respondent but also to obtain judgment on its counterclaim for a very substantial amount, especially in circumstances in which it appears that it is willing and able to use resources from others, including perhaps its owners, while being unwilling to seek and obtain resources to discharge the judgment debt.”

“(44) In these circumstances we have reached the firm view that the appellant should pay or secure both the judgment debt including existing orders for costs and the appellant’s costs of the appeal before being allowed to proceed with the appeal.”

Clarke LJ quoted from a judgment given by Rix LJ and continued:

“[48] We note that Rix LJ expressly recognised the court’s jurisdiction to make the order. We do not disagree with Rix LJ’s ‘cautious’ approach to CPR 52.9. Nor do we disagree with the final extract from his judgment set out above, since each case of course depends upon its own facts. We do, however, take the view that the new regime of the CPR, with its emphasis of the timely payment of costs, and the use of costs as a sanction, warrants a robust approach to appellants who fail to obey orders for the payment of a judgment debt and costs when they can afford to pay them either themselves or through others.”

Mr Marshall places strong reliance on that judgment and, in my view, he is entitled to do so. He submits that all, or at any rate most, of the six factors referred to by Clarke LJ apply equally to the instant case. He also submits that the other passages which I have quoted strongly support this application.

In Bell Electric Ltd v Aweco Appliance SystemsGm BH [2002] EWCA Civ 1501 Potter LJ said:

“[19] The discretion under rule 52.9(1)(c) to impose or vary conditions upon which an appeal may be brought is unfettered by any provisions specifying or classifying the nature of the condition which may be imposed or varied. The only requirement is that the court should be satisfied that there is a ‘compelling reason’ why it should, for the purpose of doing justice between the parties, intervene in the ordinary progress of the appeal between leave being granted and the date of the hearing of the appeal….. However, the power in rule 52.9(1)(c) is one which may in appropriate circumstances properly be relied on where the condition sought to be imposed does not involve consideration of the merits of the appeal, but is based upon some aspect of the conduct of the appellant or some other circumstance which either had not occurred or was at any rate not available to be advanced by the respondent at the time of the grant of permission. It remains necessary that the reason for imposing any condition must be ‘compelling’, but the task of the court in deciding whether that is so will be the more straightforward.”

In Olatawura v Abilowe [2002] EWCA CIV 998 Simon Brown LJ, as he then was, quoted a decision of Buckley J in which he had said that it would be inappropriate to order a defendant to give security as a penalty for failure to serve witness statements in time when that had prejudiced neither the trial or the claimant, such an order might be appropriate:

“If there is a history of repeated breach of timetables or of court orders or if there is something in the conduct of the party which gives rise to a suspicion that they may not be bona fide and that the court thinks that the other side should have some financial support or protection.”

Simon Brown LJ then continued:

“That seems to me to point the way admirably; a party only becomes amenable to an adverse order for security under rule 3.1(5)…. once he can be seen either to be regularly flouting proper court procedures (which must inevitably inflate the costs of the proceedings) or otherwise to be demonstrating a want of good faith – good faith for this purpose consisting of a will to litigate a genuine claim or defence as economically and as expeditiously as reasonably possible in accordance with the overall objective.”

Mr Wardell submits that it cannot be suggested that the defendants in this case have been shown bad faith in the sense that they have no legitimate defence to the claim. Mr Marshall says that they have, indeed, shown a lack of good faith and, in any event, have undoubtedly been shown to regularly flout proper court procedures.

In Contract Facilities Ltd v The Estate of Rees (Deceased) and others [2003] EWCA CIV 1105 Waller LJ said at paragraph (3):

“As already indicated Contract has no assets. The action has been funded by certain individuals including Mr Shuck. The defendants have at all times been concerned to see whether they can make the individuals who funded the action responsible for the costs.”

The position of the third party, Mr Shuck was similar to the position in this case of Mr Cavazza.

The judgment of the Court of Appeal in the instant case given on 19^th November, 2002, was cited. At paragraph (27) Waller LJ said:

“The instant case is very different from the CIBC case. First Mr Shuck had financed the whole of the trial process or been a party to the financing. Second this is a case in which a Section 51 application must stand a considerable prospect of success. Third it is an appeal that places the case management powers in a very different context. Fourth this is not a case where the respondents are simply seeking to inflate the pool against which they can later execute any judgment. Their position is that when Mr Shuck has financed the trial and is financing the appeal, there is no reason why he should be allowed to conduct that appeal on a heads he wins and tails they lose basis.”

Of course, Mr Wardell emphasises what was said by the Court of Appeal on 19^th November 2002 reiterated in the Contract Facilities case. Mr Marshall responds by saying that the position is now quite different as a result of the decision and judgment of Etherton J and that much of what was said by Waller LJ in the Contract Facilities case now applies to the instant case. In particular he says that if no order is made on the present application Mr Cavazza is being allowed to conduct this appeal “on a heads he wins and a tails they lose basis”. There is, in my judgment, substance in Mr Marshall’s submissions.

In that context, it is necessary to refer in a little detail to the judgment of the Court of Appeal and to the judgment of Etherton J. The Court of Appeal emphasised (paragraph 40) that they had not been addressed on and had not considered the merits of the application to set aside. Those merits have, subject to this appeal, now been adjudicated upon by Etherton J.

At paragraph 31 of his judgment Peter Gibson LJ said:

“There is no injustice in requiring an applicant, asserting impecuniosity, to provide security for the respondent’s future costs of the application, provided that thereby the application is not stifled. Nor is there injustice in requiring an applicant, who does not assert impecuniosity but has repeatedly failed to pay past costs orders, to pay what is already due to the other side if he is allowed to make a further application….. There may be injustice in requiring an applicant to set aside a judgment to make a payment into court in respect of past costs as a condition of being allowed to proceed with such application when the court knows that the applicant cannot make payment out of his own resources and that the only source of funding to make such payment is a third party against whom no order for costs under section 51 has been sought in respect of those costs and little reason to think that such an order could be made. In this context it must be a relevant consideration that the effect of requiring such payment is, if the application fails, to give the respondent the ability to recoup part of what he is owed from additional assets which, had the application not been made, would not have been available to him.”

I make no comment at all as to the likelihood or otherwise of the impending application under section 51 to make Mr Cavazza pay the costs of the application to set aside being likely to succeed or not.

Paragraph 33:

“If, as would appear, that was part of the thinking of the judge, then I am afraid that I cannot accept that it provides justification for the order to make a payment in respect of past costs, because it ignores the possibility that the application to set aside will fail.”

We now know that the application has failed.

Paragraph 34:

“The judge robustly stated his complete lack of concern that Mr Cavazza had to make the payment required of the appellants and that it was irrelevant that he was a third party. For my part I cannot see how that fact can be of no relevance to the exercise of discretion. Dealing with the case justly must require the court to have regard to the substantive effect of the order being made and to the justice of, in reality, requiring the third party to make payments. In fact the judge did have regard to Mr Cavazza’s position. The judge rightly identifies the commercial reality as being that Mr Cavazza was seeking by the application to protect his investment in the Appellant. That provides good justification for making an order for security for costs of the applications even though the appellants could not pay. But the point in issue is whether that is sufficient to enable the court to require the payment into court in respect of the past costs when Mr Cavazza would have to find such payments. The judge said that Mr Cavazza must take responsibility for what happened in the past…… The position might be different if there was evidence that Mr Cavazza had funded the appellant before August 2001, for example in the jurisdiction proceedings, or was actively involved in litigation at that earlier time. But there is no such evidence and no s.51 application against Mr Cavazza.”

In his judgment Etherton J made findings and reached conclusions which I consider to be important.

“100.

There is no doubt that there were duly and properly served on Mora and Chascona the applications for the various orders that were made, against Mora and Chascona in 1997, 1998 and 1999 in the Proceedings, and the evidence in relation to them, and the orders made by the court pursuant to those applications.

101.

Further, as appears from paragraph 99 of the affidavits sworn by Mr Gambazzi for the purpose of the Applications, which I have quoted earlier, Coleman Coyle, who were solicitors acting for Mr Gambazzi, Mora and Chascona, as well as some of the other Defendants, advised that the ‘unless’ orders should be complied with.

102.

Mr Wardell accepted that compliance with the freezing orders against Mora and Chascona and the orders supplementary to them, including the ‘unless’ orders, could not possibly have prejudiced the challenge to the jurisdiction of the English court by Mora and Chascona, and that a reasonably competent solicitor would have so advised. In the absence of any evidence to the contrary, I infer that this was the advice given to Mr Gambazzi and, accordingly, Mora and Chascona, by Coleman Coyle when they advised that the ‘unless’ orders should be complied with.

104.

Wilful and conscious disobedience to freezing orders, against the express advice of a defendant’s English lawyers, is a matter of the gravest concern. While each case must turn upon its own facts, the setting aside of a judgment properly entered against a defendant for wilful and conscious failure, against legal advice, to comply with such orders sends, generally speaking, entirely the wrong message to those who face allegations of fraud. Relief in such a case is likely to provide a broad base from which determined and well resourced defendants, with the benefit of the most skilful lawyers, will attempt to mitigate the court’s sanction for non compliance in other cases.

149.

It seems to me that Mr Justice Rattee had no realistic alternative to making the ‘unless’ order on 4^th October 1999 (with its debarring sanction) in the face of the persistent defiance of Mora and Chascona of freezing order of Mr Justice Lightman in relation to the disclosure of assets.

153.

I have already considered earlier in this judgment the explanations of Mora and Chascona for their failure to comply with the ‘unless’ orders. These explanations are manifestly not ‘good’ explanations in the sense of providing a justifiable excuse for non-compliance.

159.

As I have said, the English solicitors of Mora and Chascona advised them to comply with the ‘unless’ orders. I infer, in the absence of any evidence to the contrary that the English solicitors will have advised Mora and Chascona of the consequences of the failure to comply with those orders. Ineed the orders, which were served on Mora and Chascona, specify on their face the sanction for non-compliance. Mora and Chascona took the conscious decision not to comply with the orders.

167.

I do not propose to rehearse in detail all those matters which I have identified earlier in this judgment as tending to the rejection of the Applications. They include the following important considerations as to the administration of justice, in particular the deliberate non-compliance, against the advice of English lawyers, with the freezing order of Mr Justice Lightman of 23^rd July 1999 in relation to the provision of statements of assets and the ‘unless’ order of 4^th October 1999 and also the public interest in the finality of litigation, in circumstances in which setting aside the judgments would revive complex and expensive litigation, which has been entirely resolved against the defendants; the prejudice or risk of prejudice to as fair and speedy trial that there could have been if there had been compliance with the ‘unless’ orders or the Applications had been made promptly; the prejudice or risk of prejudice to the Claimants in the preparation and presentation of their case at a trial on the merits caused by delay since the judgments were entered against Mora and Chascona and the delay in making applications; the additional costs (that is to say, over and above those that would have been incurred had the litigation proceeded continuously to trial in the usual way) that would, in effect, be borne by the Claimants themselves, if the judgments had been set aside and the Claimants were to succeed in their claims.”

Those findings were, of course, not available to the Court of Appeal in November, 2002, and, as I have said, that Court specifically stated that it was not considering the merits of the applications to set aside.

A substantial amount of time was taken up on this application (about which I make no complaint) concerning a concession made by the Defendants which was subsequently withdrawn. The concession related to past costs. In a statement made on 27^th February 2002 Mr Pugh, a solicitor acting for the Claimants, indicated that it should be made a condition of the judgments being set aside that the Defendants should satisfy substantial costs orders made against them. At a hearing before Etherton J Mr Wardell conceded that those costs would be met by his client. On 15^th August, 2003, the Defendant’s solicitors wrote:

“For the avoidance of doubt, we should make it clear that the concession offered to Mr Justice Etherton by Leading Counsel ‘for Mora and Chascona to pay past costs’ was a concession made for the purposes of the applications and hearings before him and, in light of his rejection of those applications, the concession has fallen away. If we are wrong about that, we hereby formally withdraw that concession and confirm that it will not be renewed in the Court of Appeal.”

Mr Marshall roundly condemned the withdrawal of the concession, and said that on the basis of it they embarked upon a detailed assessment of costs before the Senior Costs Judge at the end of which their costs were assessed by the Judge in a sum in excess of £10m and they incurred costs on the assessment proceedings themselves of some £500,000. Mr Wardell challenged the meaning of the concession put on it by Mr Marshall, and also challenged the contention that it was on the basis of that concession that the claimants proceeded with the expensive process of the assessment. It is not really possible for me to resolve the conflicts that arose on the basis of the material before me, and it is unnecessary for me to do so in the light of the overall conclusion that I have reached.

I am satisfied, following the authorities that have been quoted to me, that I should attach some conditions to the permission to appeal. There are clearly compelling reasons for me to do so. The Defendants have been shown to have wilfully and deliberately flouted Court orders over and over again. If the appeal is dismissed it is extremely unlikely that the Claimants would succeed in enforcing any costs order. Mr Cavazza has, since August 2001, been funding the proceedings on behalf of the Defendants, and funded the proceedings before Etherton J and this appeal. He has ample funds to do so, and will benefit by any success that is achieved. He resides outside the jurisdiction. There is no question of the appeal being stifled by such an order. Judgment has been given by the Judge and he has made the adverse findings against the Defendants to which I have already referred.

The situation is now different to that which was before the Court of Appeal in November 2002. I reject Mr Wardell’s submission that the position is the same. In my judgment that is plainly not correct. In those circumstances, I would be entitled to impose conditions to the permission to appeal relating to costs orders prior to that date, but in the light of the findings of that Court I do not think that it would be right to do so. I must also bear in mind that Mr Cavazza has been shown to be the financier of the proceedings only since August 2001. Further I must attempt to strike a fair and just balance as between the parties.

I have concluded that it would be right to attach conditions to the grant of permission in relation to the costs of the hearing before Etherton J of the hearing in December 2002, estimated by the Claimants in the sum of £1,004,198.20 in their bill of costs, and the sum of £13,000 assessed by Etherton J at the hearing before him on 25^th July 2003, a total of £1,017,198.20. Of that total sum I will make it a condition of permission to appeal that the Defendants provide £700,000 less £100,000 already paid into Court pursuant to the order of Jacob J on 13^th May 2002, namely £600,000. Accordingly I make orders under paragraph 2(1) and (2) of the Claimants’ draft order. I make no order under paragraphs 2(3) and (3).

As to security for the costs of the appeal, the sole dispute relates to quantum. I have carefully considered the submission of both parties. Having done so, I will order that the Defendants provide security for costs of the appeal in the sum of £450,000.