Investment Invoice Financing Ltd v Limehouse Board Mills Ltd

This is an appeal with permission of the judge against part of an order made by His Honour Judge Mackie, C.B.E., Q.C. on 9^th June 2005 in the Mercantile List of the Central London Civil Justice Centre. In order to understand the issues to which it gives rise it is necessary to describe in a little detail the background to the application before the judge.

As part of its business the defendant, Limehouse Board Mills (“Limehouse”), is involved in the recovery of waste paper which it sells for the manufacture of cardboard. For some time prior to June 2003 it did business with a company called Papermarc Ltd (“Papermarc”) which manufactured cardboard. Limehouse sold recovered paper to Papermarc which in turn sold cardboard to Limehouse. It seems that there were arrangements between the companies for contra-accounting with periodic payments of the net amounts due by Limehouse to Papermarc, but we are not directly concerned with that aspect of the matter.

Papermarc factored its trade debts to a company called GMAC Commercial Finance Plc (“GMAC”). We have not seen a copy of the factoring agreement, but from other evidence before us it appears that GMAC advanced monies to Papermarc against various securities including an assignment of its trade debts. Insofar as those debts were not paid as and when they fell due GMAC could enforce them in its own name as assignee but it was also entitled to look to Papermarc and to its other securities for the repayment of the outstanding amount of the advances. One of those securities was a debenture over the whole of Papermarc’s assets and undertaking.

On 23^rd June 2003 GMAC appointed a receiver over the assets and undertaking of Papermarc under the debenture. The receiver kept the business running until 22^nd September 2003 when it was sold as a going concern. There is apparently a dispute between the parties as to the identity of the purchaser. Limehouse says that it was sold to a company called Croftacre Holdings Ltd (“Croftacre”), but the appellant denies that. Prior to the sale Croftacre had established a new subsidiary called Papermarc Holdings Ltd (“PHL”) which itself owned various subsidiaries including Papermarc Mill Ltd (“PML”) and Papermarc Sales Ltd (“PSL”). The intention was that PML would carry on the cardboard manufacturing operations and that PSL would sell the products. (The appellant says that the business of Papermarc was sold not to Croftacre but to PML, but it is unnecessary for the purposes of this appeal to resolve that question.) On the same day PHL and PSL entered into a loan facility agreement with GMAC, PSL entered into a factoring agreement also with GMAC and Croftacre and a number of its subsidiaries including PHL, PML and PSL executed a debenture in favour of GMAC by way of security for the performance of those agreements.

Between March and August 2004 PSL rendered 42 invoices to Limehouse for supplies of cardboard in the total sum of £141,817.11 which were assigned to GMAC under the factoring agreement. However, a dispute arose between PSL and Limehouse because Limehouse asserted that it was entitled to continue to take advantage of the contra-accounting arrangements that had previously been in force. The issue was of some importance to Limehouse because PML had ceased to trade and appeared to be sliding into insolvency.

At some time in October 2004 (the precise date is unclear and does not matter for present purposes) GMAC re-assigned the disputed debts covered by the 42 invoices to PSL to enable it to take steps in its own name to recover them. In a clumsy attempt to obtain payment PSL presented a petition in the Companies Court on 19^th October 2004 seeking to have Limehouse wound up. That was an improper step for PSL to take since it was well aware that the debts in question were disputed and there were no other grounds for seeking to have Limehouse wound up. On 12^th November 2004 the petition was dismissed by Lindsay J. as an abuse of the process and PSL was ordered to pay Limehouse its costs which the judge summarily assessed at £18,000. The judge did not direct that that sum be paid by any specific date and therefore by virtue of CPR rule 44.8 they were payable within 14 days of the order. So far, however, PSL has refused to pay those costs, although it did offer to give credit for them against the sums it said were due to it from Limehouse.

On 18^th November 2004 PSL began proceedings against Limehouse in the Central London Civil Justice Centre. Two months later on 18^th January 2005 the present claimants, Investment Invoice Financing Limited (“IIF”), bought PSL’s liabilities to GMAC and obtained an assignment of the benefits of the loan facility agreement and the securities held by GMAC in respect of them. One of the securities was the debenture that had been granted to GMAC on 22^nd September 2003.

Having failed to persuade PSL to comply with the order for costs made by Lindsay J. on 12^th November, on 18^th February 2005 Limehouse issued an application notice in the present proceedings seeking an order that PSL provide security for those costs by paying the sum of £18,000 into court or by securing it in some other manner to its reasonable satisfaction. It also applied for an order that PSL provide security for the costs of the proceedings. These applications were fixed for hearing on 4^th March.

Shortly after that, someone at IIF decided that it would be desirable to take the claim based on the 42 invoices back into its own hands and accordingly on 3^rd March 2005 PSL executed a deed of assignment transferring 40 of the invoices to IIF. There appear to have been administrative problems in connection with the transfer of the remaining two invoices which therefore remained in the hands of PSL. On the same day IIF drafted an application notice seeking an order that it be joined as a party to the proceedings as a claimant in relation to the 40 invoices in substitution for PSL.

In the interests of efficient case management the judge heard both applications together on 4^th March, even though IIF had not formally issued its application notice by that time. His first step was to transfer the case into the Mercantile List. The application to join IIF as a claimant was not seriously opposed and the judge made an order to that effect. He gave permission to serve amended particulars of claim in which PSL remained as a claimant in respect of two of the invoices but IIF became the claimant in respect of the rest.

On Limehouse’s application that the costs ordered by Lindsay J. should be secured the judge ordered that, unless PSL gave security for that sum by payment into court or in some other form to the satisfaction of Limehouse by 1^st April 2005, its claim should be struck out without further order. On the application for security for costs he ordered that, unless PSL gave security for costs in the sum of £10,000 by the same date, again by payment into court or in some other form to the satisfaction of Limehouse, its claim should be struck out without further order. Finally, he stayed all further proceedings until 1^st April and ordered PSL to pay the costs of the applications which he summarily assessed at £5,000, those costs to be paid by the same date.

Despite the rigorous terms of those orders, no application was made for permission to appeal. Nonetheless, PSL failed to comply with them and as a result its two remaining claims were struck out on 2^nd April. One can only assume that those responsible for its affairs were willing to give up any benefit they had hoped to obtain from those claims as the price of postponing the payment of the costs already awarded against it and avoiding the necessity of providing security for the future costs of the proceedings.

On 16^th May 2005 Limehouse issued an application notice seeking, among other relief, an order that the claim be struck out unless IIF paid or provided security for the £23,000 ordered to be paid by PSL in respect of its costs. The application was made on the grounds that the debts which were the subject of the proceedings had been assigned to IIF to enable PSL to flout the orders for costs made against it. Limehouse argued that the circumstances in which the assignment had taken place, in particular the fact that it had been made only the day before the hearing of the application on 4^th March, provided strong evidence that it was being used as a device to enable the claims to be pursued to the ultimate benefit of PSL free of the need to meet the existing orders for costs. IIF said that the assignment had been made for genuine commercial reasons and that it would not be right to impose terms of the kind being sought by Limehouse since the earlier orders for costs made against PSL had nothing to do with its joinder as a claimant. In support of that argument it relied on the decision of this court in Eurocross Sales Ltd v Cornhill Insurance [1995] 1 W.L.R. 1517, the decision of the House of Lords in Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 A.C. 1 and the decision of Langley J. in Compagnie Noga d’Importation et Exportation S.A. v Australia and New Zealand Banking Group Ltd [2004] EWHC 2601 (Comm) (unreported).

Having considered those authorities and also the decision of this court in Sinclair v British Telecommunications Plc [2000] EWCA Civ 6, [2001] 1 W.L.R. 38 in which both Eurocross v Cornhill and Norglen v Reeds Rains Prudential were considered, the judge held that he did have jurisdiction to stay the proceedings pending the satisfaction of the earlier orders for costs and that it would be right to do so. He therefore ordered that the claim should be stayed until after there had been paid into court both the sum of £18,000 that Lindsay J. had ordered PSL to pay Limehouse on 12^th November and the sum of £5,000 that he himself had ordered PSL to pay Limehouse on 4^th March, in each case together with the interest payable in accordance with the relevant statutory provisions. He directed that unless those amounts were paid into court by 23^rd June 2005 the claim should be struck out without further order.

Mr. Leolin Price Q.C. who appeared on behalf of IIF submitted that the judge had no power to make an order of that kind, whether as a condition of permitting his client to be joined as a party to the proceedings or on any other basis. He submitted, as had been submitted before the judge, that the cases to which I have referred demonstrate that it is not permissible when joining a new party in substitution for the original party simply to transfer the burden of existing orders on to the shoulders of the new party as the judge had done in this case. It is necessary to begin, therefore, by examining those cases in order to see what they decide.

In Eurocross v Cornhill the plaintiff company, which had brought proceedings against the insurers of a parcel of fruit which had been damaged in transit to this country, was ordered to provide security for the defendant’s costs under s.726(1) of the Companies Act 1985. It then assigned the claim to its main director and principal shareholder, Mr. Sood, who applied to be joined as a plaintiff in order to pursue the claim. The court was satisfied that one purpose of his taking an assignment of the claim was to protect the company from the consequences of failure in the litigation. The judge took the view that the assignment of the claim was a device to avoid having to provide security for costs. He therefore ordered Mr. Sood to pay into court the amount that the company had previously been ordered to provide by way of security for costs as a condition of being joined as a party.

On appeal the judge’s order was set aside. Sir Thomas Bingham M.R. pointed out that there was no jurisdiction to order security for costs against a personal claimant, however, impecunious, but that the effect of the order was to do just that. At page 1524E-H he said:

“It was not suggested that the joinder of Mr. Sood increased the costs of the action or in any way altered (save in relation to the validity of the sale to him) the issue already joined between insured and insurer. Thus the judge's order cannot be read as a condition that Mr. Sood secure the Cornhill against the costs caused by or thrown away as a result of this joinder (which Mr. Sood was not in any event ordered to pay). It seems clear that the basis of the judge's order was his judgment that the Cornhill should enjoy the same protection in relation to costs against Mr. Sood as it already enjoyed against the plaintiff company under the unappealed order of the district judge.

It is of course true that as a result of the joinder the Cornhill exchanged an opponent which could only proceed if it provided security for the Cornhill's costs for an opponent who could (unless the judge's condition were upheld) proceed without providing such security. To that extent the joinder would, in the absence of such a condition, put it in a worse position. That would be even more obviously so if, as may be the case, the company cannot provide security of £5,000, because the Cornhill would (on this hypothesis) exchange an opponent who is effectively paralysed for one who is not. On the other hand, the Cornhill is in no worse a position than if the company had sold its business to Mr. Sood before bringing proceedings, and he had been the plaintiff from the outset. It is in no worse a position than if, instead of being joined, Mr. Sood had commenced a fresh action as plaintiff. And the potential injustice against which the security order was intended to protect the Cornhill no longer exists: the company's action is stayed unless and until it provides the security ordered; but in Mr. Sood it faces a personal plaintiff who is liable to the extent of his available assets to meet any costs order made against him. Depending on his means, he may or may not be able to meet such an order, but the law affords a defendant no protection against costs which may not be paid by impecunious personal plaintiffs.

Had Mr. Sood been ordered to pay, and give security for, the costs occasioned by or thrown away as a result of his joinder, there could in our judgment have been no sustainable objection to the order. But we can find no justification for the order in fact made.”

Later the Master of the Rolls considered whether it would make any difference if the sale of the claim by Eurocross to Mr. Sood had been a device in the sense of being a transaction effected to circumvent a procedural disadvantage to which the company but not (as must have been supposed) Mr.  Sood himself might be subject. He concluded at page 1526C-D that it would not, because the rules concerning security for costs provide a safeguard against a defined risk and it is not legally objectionable to remove the risk so as to remove the need to provide the safeguard.

In Norglen v Reeds Rains Prudential two companies which wished to pursue claims against third parties went into liquidation. In each case the liquidator assigned the claim to one or more of the directors on terms that if they were successful they would pay the creditors out of the proceeds and share any surplus with the company. The directors as personal claimants were eligible for and obtained legal aid. The question arose whether the assignment was void because it was being used a means of enabling a company to benefit indirectly from legal aid to which it was not entitled and because it deprived the defendant of the right to apply for security for costs. Their Lordships held that it was not. Lord Hoffmann said at page 16E-F:

“Like the Court of Appeal in the Norglen case, I also think that there is nothing in the point that the assignment is invalid because it deprives the defendants of the right to apply for security for costs under section 726 of the Companies Act 1985. For better or worse, the law entitles a defendant to be protected against incurring irrecoverable costs in litigation brought against him by an impecunious company but not by an impecunious individual. But that cannot prevent companies from assigning property to individuals.”

Later, commenting on the application for joinder he said this at page 17D-G:

“Mr. Jackson accepted that if, as I think, the assignment was effective to transfer the cause of action from the company to Mr. and Mrs. Rodgers, their joinder as parties was necessary. They were the only people who could prosecute the action. But Mr. Jackson submitted that the rule gives the court a discretion and that the Court of Appeal failed to consider the exercise of that discretion in two ways. First, he says that it should simply have refused to make an order on the ground that the prosecution of the action by the Rodgerses would be an abuse of legal aid. Alternatively, he says that the order should have been subject to a condition that Norglen provide security for costs in the amount ordered by Morritt J.

(a)

Discretionary refusal

I do not think it escaped the attention of the Court of Appeal that the rule confers a discretion. But the discretion must be exercised judicially and in my view, once it is accepted that, in spite of the finding that the assignment was a “stratagem or device” to obtain legal aid, it is nevertheless valid, there are no grounds upon which joinder can properly be refused.”

When considering what conditions might properly be imposed on a party seeking to be joined Lord Hoffman said at page 20B-E:

“It is therefore a proper exercise of the discretion to impose conditions to ensure that the joinder does not put the defendant in a worse position as to costs than he would have been if the new party had been in the action from the beginning. He may be ordered to pay or give security for additional costs caused by or thrown away as a result of the joinder. But the discretion cannot be used to ensure that joinder does not put the defendants at a greater risk as to costs than they would have been if no joinder had taken place. Having to litigate against an impecunious individual plaintiff is a risk of litigation which has to be accepted.

This reasoning seems to me to apply equally to a condition imposed on an application for substitution under R.S.C., Ord. 15, r. 7. Nor does it matter that the condition is imposed upon the original plaintiff company rather than the individual plaintiff seeking to be substituted. The latter cannot require the company to comply with the condition and, unless it chooses to do so, he will either have to put up the security himself or be unable to prosecute the action.

The decision in the Eurocross case therefore suggests that it would be wrong to impose the condition sought by the defendants. It is not however necessary for your Lordships to express a final view on whether this reasoning is correct because, in refusing to order security, the Court of Appeal in the Norglen case did not rely upon it.”

These authorities were considered by Langley J. in Compagnie Noga v Australia and New Zealand Banking Group which was another case in which a defendant sought an order for security for costs against a personal defendant seeking to be joined as a party to the proceedings on the grounds that such an order had previously been made against the original claimant company. Having cited the passage from the judgment of Sir Thomas Bingham M.R. in Eurocross v Cornhill, the judge pointed out in paragraph 103 of his judgment that the decision was binding on him (as it is on us) and is authority for the proposition that, whilst an order for security may be made against an impecunious company claimant, it cannot be made against a personal claimant under the disguise of a condition imposed on joinder. I respectfully agree.

In my view it is central to a proper understanding of these two decisions to recognise that each involved an attempt by the defendant to impose on the new claimant an obligation of a kind that could not have otherwise been imposed on him under the rules. An order to provide security for costs is a means of ensuring that a claimant will be able to meet a liability for costs that may be imposed on him in the future if his claim is unsuccessful and it cannot be made unless certain conditions relating to his personal circumstances are satisfied. The fact that there were grounds for requiring the original claimant to provide security in respect of his potential liability in respect of costs therefore provides no grounds for imposing a similar requirement on a new claimant whose circumstances may be entirely different. Equally, it may be appropriate to require the new claimant to provide security although there were no grounds for requiring the original claimant to do so. The position in this case is rather different, however. Here, although the order relates to costs awarded against PSL before IIF became a party to the proceedings, it does not rest on circumstances peculiar to PSL but on the prior course of these and earlier proceedings and their effect on Limehouse.

In those circumstances Mr. McLaren Q.C. drew our attention to another line of cases which he submitted establish the principle that where a claimant starts proceedings for a second time against the same defendant in respect of the same subject matter, the earlier proceedings having been terminated in circumstances that led to an order for costs against him, the court has a discretion to stay the second proceedings until the costs of the first proceedings have been paid and will normally do so.

The earliest of the cases cited to us was Martin v Earl Beauchamp (1883) 25 Ch. D. 12. It concerned the estate of one William Jennens. The claimant, Martin, was the personal representative of Elizabeth Bunch. Martin filed a bill against the personal representatives of the deceased administrators of William Jennens’s estate for an account alleging that they had got in the greater part of the estate and had divided it between them, although Elizabeth Bunch was the sole next of kin. It appears that the action was dismissed with costs on the ground that Martin had failed to prove the title of Elizabeth Bunch as next of kin. Two years later Martin obtained a grant of letters of administration in respect of part of the estate of Jennens that remained unadministered and he then brought an action in that capacity for an account of the estate against the personal representatives of the former administrators. The judge stayed the proceedings until the costs of the first suit had been paid. Cotton L.J. explained the position as follows at page 15:

“The rule is established that where a plaintiff having failed in one action commences a second action for the same matter, the second action must be stayed until the costs of the first action have been paid. Here the Defendant is only one of the Defendants in the old suit, but he is sued in the same character as before. The Plaintiff in the former suit sued as personal representative of Elizabeth Bunch, he now sues as administrator de bonis non ofWilliam Jennens. But though he is not suing in the same character as that in which he formerly sued, he is suing substantially by virtue of the same alleged title. If he recovers any part of this estate from the Defendant he will recover it as a trustee for the estate of Elizabeth Bunch, and I am of opinion that he is to be treated as bringing a second suit for the same matter as the former.”

Lindley L.J. said, also at page 15:

“I am of the same opinion. There is some technical difficulty in the case, for the Plaintiff formerly sued as personal representative of Elizabeth Bunch, but now he sues as personal representative of William Jennens. I think, however, that the technical difficulty is not insuperable, and that we are not prevented by it from saying that this is really and substantially a second action for the same matter.”

This principle was approved and applied in M’Cabe v The Governor and Company of the Bank of Ireland (1889) 14 App. Cas. 413 in which an action was brought by the appellant in the Exchequer Division in Ireland to recover certain stock from the Bank of Ireland. The action was tried and judgment given for the defendant with costs. A second action was later begun in the Chancery Division on the basis that the original action had been brought in the wrong Division. An order was made that the action should be stayed until the appellant had paid the costs of the first action which was held to be a proper order made in accordance with the general practice. Lord Herschell said at page 415:

“The only question remaining is whether the order was right in so far as it stayed the proceedings in the second action until the costs in the first action had been paid. Now, my Lords, I find that it was laid down in a recent case in the Court of Appeal, Martin v. Earl Beauchamp (1), that “the rule is established that where a plaintiff having failed in one action commences a second action for the same matter the second action must be stayed until the costs of the first action have been paid;” and even although the actions were not between precisely the same parties or persons suing in the same capacity, the case was held to be within the rule inasmuch as the plaintiff there was “suing substantially by virtue of the same alleged title.” It cannot be denied that in the present case the parties are the same, and that the plaintiff is “suing substantially by virtue of the same alleged title;” and therefore I think that the present case has been properly disposed of in accordance with that rule, which I apprehend is not in any respect confined to the Courts in England but applies as well to the Courts in Ireland, arising as it does out of the inherent power which resides in the Court to prevent a second suit being brought upon the same cause of action until the costs incurred in the first action have been paid. It is impossible for us to interfere with that which the Court of Appeal have done, which was entirely within their jurisdiction, and which I can see no reason to doubt has been right.”

More recently the same principle was applied by this court in Hines v Birkbeck College (No.2) [1992] Ch. 33.

The decision in Sinclair v BT is another example of the application of this principle. In that case an action was brought by a company in 1992 in its own name against the defendant on certain contracts, but after an application for an interim injunction was dismissed no further steps were taken to pursue it. In 1995 a separate action was commenced by one of the company’s directors in his own name on the same contracts, his case being that they were contracts to which he, rather than the company, was a party. The statement of claim in that action was struck out as disclosing no cause of action. The company then formally assigned its claims under the contracts to the director who in 1997 brought an action against the defendant in his capacity as assignee. The action begun by the company in 1992 was dismissed for want of prosecution with an order for costs. On the defendant’s application the judge made an order staying the 1997 action until the costs of 1992 action had been paid. The claimant appealed on the grounds that the judge’s order was contrary to the decisions in Eurocross v Cornhill and Norglen v Reeds Rains Prudential.

Ferris J., with whom Judge L.J. and Peter Gibson L.J. agreed, distinguished Eurocross v Cornhill and Norglen v Reeds Rains Prudential on the grounds that they were concerned with a different problem. At page 46D-G he said:

“It does not appear to me that any general principle relevant to the present case is to be derived from the Norglen case. In the present appeal the validity of the assignment from VTL to Mr Sinclair is not challenged. While the Norglen case shows that any challenge to it on the basis that it renders section 726 of the Companies Act 1985 inapplicable would have failed, this is of no assistance to Mr Sinclair. Nearer in point is the Eurocross decision, but that shows only that the mere fact that security could have been ordered against the company under section 726 does not give the court a discretion to order security to be given by an individual against whom there is no independent jurisdiction to order security.

The present case is concerned with a jurisdiction which is quite distinct from that conferred by section 726. It is an inherent jurisdiction which, in essence, enables the court to prevent a plaintiff subjecting a defendant to a second, substantially similar, action without satisfying his obligations in respect of the first action. In my judgment it is a jurisdiction which is fully wide enough to enable the court to make an order against the plaintiff in the second action who is the successor in title of the plaintiff in the first action. To my mind it is as if the cause of action had become impaired by the plaintiff in the first action in so conducting that action as to give rise to the probability that a stay will be granted if a new action is commenced without the costs of the first action being paid. The assignee ought not to be in any better position than the assignor in respect of this impairment.”

Judge L.J. noted that in Norglen v Reeds Rains Prudential Lord Hoffmann had recognised that it was a proper exercise of the court’s discretion to impose conditions to ensure that the joinder of a new party does not put the defendant in a worse position as to costs than he would have been in if the new party had been in the action from the beginning. He agreed that neither the decision in that case nor the decision in Eurocross v Cornhill prevented the court from making an order that would enable effect to be given to existing orders for costs before yet further expense was incurred.

Mr. Price submitted that there was nothing improper about the assignment in this case which had been entered into for good commercial reasons and not as a device to enable the claim to be pursued without the need to satisfy the existing orders for costs. In response Mr. McLaren drew our attention to certain matters which he submitted demonstrated that, as the judge said, this was not an arm’s length commercial transaction, but for my own part I do not think it necessary to enter into that debate and I am therefore prepared to assume that there was nothing untoward about it. The real question for decision is whether the judge was entitled to make the order he did.

Having considered Sinclair v BT as well as Eurocross v Cornhill and Norglen v Reeds Rains Prudential, the judge was satisfied that the decision in Sinclair v BT was not at odds with the decisions in the earlier authorities. He therefore concluded that he had the power to make the order that Limehouse was seeking. He noted that the debts being claimed in these proceedings are the same debts as those which PSL had sought to enforce inappropriately in the Companies Court by proceedings which gave rise to the first order for costs and that the second order for costs was made in this very action in which PSL was seeking to recover the same debts prior to their assignment to IIF. In his view that was enough to justify making the order sought.

In my view there is a clear distinction between imposing on a new party to the litigation as a condition of joinder a requirement to provide security for costs to which he could not otherwise be made subject and staying the proceedings until a previous order for costs has been satisfied. The former is concerned primarily with costs that are likely to be incurred in the future and with the ability of the party in question to pay them. The latter is concerned with preventing an abuse of the court’s process. The decision in Sinclair v BT makes that distinction clear, as Langley J. recognised in paragraph 107 of his judgment in Compagnie Noga v Australia and New Zealand Banking Group, (see, for example, the comments of Judge L.J. at page 50B-D) and the principle it exemplifies is the same as that which was applied in Martin v Earl Beauchamp, M’Cabe v Bank of Ireland and Hines v Birkbeck. Those cases all make it clear that the purpose of making such an order is to do substantial justice between the parties. Accordingly, it was recognised in both Martin v Earl Beauchamp and M’Cabe v Bank of Ireland that it is sufficient that the same party is making substantially the same claim in the second action. The importance of Sinclair v BT as far as the present case is concerned lies largely in the fact that the court accepted that the same principle applies in a case where the party making the claim in the second action is substantially the same party – in that case the assignee of the original claimant. In that respect the present case is indistinguishable from Sinclair v BT.

Mr. Price acknowledged this line of authority and accepted that if IIF had started fresh proceedings against Limehouse the court would have had a discretion to stay those proceedings until any orders for costs made against PSL in these proceedings had been satisfied. He submitted, however, that there were two answers to the point in this case: the first, that the winding-up petition could not be regarded as a former action for these purposes; the second, that since IIF has not commenced fresh proceedings the principle has no application.

Before dealing with those submissions it is necessary to digress for a moment in order to mention one other point. In support of his submission that the court has jurisdiction to make an order of the kind which the judge made in this case Mr. McLaren referred us to CPR rule 3.4(4) which gives the court an express power after striking out a statement of case to stay a second action arising out of the same or substantially the same facts until the costs of the first have been paid. Mr. McLaren submitted that this was sufficient to give the judge jurisdiction to make the order in the present case. However, as Mr. Price pointed out, the expression “statement of case” is defined in rule 2.3(1) in a way that does not include a winding-up petition. He therefore submitted that the court had no jurisdiction to make an order of the kind contemplated by rule 3.4(4) in this case.

In my view this is a false point. As its place in the structure of the rules demonstrates, rule 3.4(4) is dealing with a particular consequence of striking out a statement of case. It is not dealing with the court’s powers to impose a stay of proceedings in general, much less with the court’s inherent jurisdiction to stay proceedings to prevent an abuse of its process. There is nothing in the rule that affects the court’s power to make an order of a similar kind in other cases where proceedings are brought for a second time by the same person to enforce the same claim. However, whether the winding-up petition can properly be regarded as a previous action for present purposes is a different matter.

Mr. Price submitted that a winding-up petition is fundamentally different from a claim to recover a debt because it seeks an order for the company’s liquidation with a view to enforcing the debt on which the petition is based in the ordinary course of the winding-up against whatever assets are held by the liquidator. Only in a rather broad sense can it be said, therefore, to involve proceedings against the company to enforce the claim.

Although there is undoubtedly some force in this argument, it is necessary to have regard to the considerations which underlie the court’s approach to the commencement by the same person of a second set of proceedings while the costs of the first remain unpaid, as reflected in the authorities to which I have referred. In all the cases the court was moved to act by a sense that it would be unjust to allow a claimant whose action had failed for one reason or another in circumstances in which he had been ordered to pay the defendant’s costs to put the defendant to the further expense of a second action until those costs had been paid. To pursue a second action in those circumstances can properly be regarded as an abuse of the court’s process. In my view what matters is not the precise nature of the former proceedings but whether, having regard to the nature of those proceedings, their outcome and the claimant’s failure to satisfy an order for costs against him, the second proceedings can be regarded as abusive.

In the present case the whole purpose of presenting a winding-up petition was to obtain payment of the debt represented by the 42 invoices, either by obtaining a dividend in the winding-up or, more likely, by the exertion of commercial pressure. Those proceedings were dismissed because they were themselves an abuse of the process and resulted in an order for costs which has remained unpaid. In my view to start fresh proceedings to recover the same debt without paying the costs of the winding-up petition was abusive and the court had power to stay the proceedings until those costs were paid.

That being so, it would have been open to the judge, if an application had been made to him, to stay the present proceedings even before any order for costs had been made on the application for security for costs that he heard on 4^th March 2005. It was still open to the judge to make such an order at a later date even after IIF had been joined as a party, although the matters affecting the exercise of his discretion would by then have been different. This is a matter to which I shall return in a moment. It follows that in my view the judge did have jurisdiction to stay the present proceedings until the costs of the winding-up petition had been paid.

The position is not quite the same, however, in relation to the costs of the application for security for costs which the judge dealt with on 4^th March. When the matter came before him on 9^th May PSL was no longer pursuing a claim in relation to any of the invoices, but neither it nor IIF had begun fresh proceedings in relation to them. All that had happened was that IIF had taken over the original proceedings by being joined as a claimant in substitution for PSL. In those circumstances Mr. Price submitted that the judge had no jurisdiction to make an order staying the proceedings until the costs awarded against PSL on 4^th March had been paid.

Once again, I think that the answer to this objection is to be found in the principles underlying the practice described in the line of authority mentioned earlier. In practical terms it made little difference to Limehouse whether PSL discontinued the original proceedings, leaving IIF to start fresh proceedings of its own, or was substituted for PSL as claimant, save that the latter course was more efficient and likely to result in a saving of costs overall. The question again is whether it was abusive for IIF as successor in title to PSL to continue the proceedings while the existing orders for costs against PSL remained unsatisfied.

Although it is normal practice nowadays to assess the costs of procedural hearings summarily with the result that they become payable within a limited period of time, it is relatively unusual to make an order that the proceedings be stayed until those costs are paid and even more unusual to order that the proceedings be struck out if they are not paid within a specified period. However, the court does have power to make such an order if the circumstances justify it. In the present case the judge was satisfied that there were sufficient grounds for making such an order against PSL in respect of the costs of the winding-up petition which had been outstanding since the end of November 2004. I think it must follow that he thought that it would be an abuse of the process for PSL to pursue the proceedings while flagrantly disregarding that order. There was no attempt to challenge that order.

When the matter came back before him on 9^th May PSL had failed to pay the costs of the winding-up petition and had also failed to pay the costs of the application on 4^th March. Its only remaining claim in respect of the 2 invoices that had not been assigned to IIF had been struck out and it was clear that it had no intention of complying with either order voluntarily. In those circumstances it would clearly have been an abuse of the process for PSL itself to continue the proceedings against Limehouse and in view of IIF’s position as assignee of PSL the judge was entitled to regard its pursuit of the very same claim in the very same proceedings as equally abusive, just as this court regarded the conduct of the assignee in Sinclair v BT as abusive.

Mr. Price was inclined to accept, rightly in my view, that an application for a stay pending satisfaction of an order for payment of the costs of earlier proceedings could be made at any stage. However, the later such an application is made, the greater will be the risk that the claimant will have incurred costs himself or will have taken some steps in the new proceedings in the expectation of being allowed to continue them that make it unfair for the court to accede to an application that might have been unanswerable if made at an earlier stage. The jurisdiction to stay proceedings for this purpose is discretionary and the court must consider all the circumstances when deciding whether to make an order of that kind.

In the present case the application was made at an early stage of the proceedings and shortly after IIF had been joined as a claimant; it was not suggested that there had been any developments that would render it unfair to make an order of this kind. In reaching his conclusion the judge pointed out that if the court did not have jurisdiction to make orders of the kind sought in this case it would be possible for a whole succession of men of straw to bring potentially promising claims and, as and when orders for costs were made against them, simply to pass the parcel to the next man of straw until someone emerged at the end of the line able to take the benefit of a judgment without the burden of adverse costs orders. In the light of that comment Mr. Price was anxious to point out that the judge had gone out of his way to emphasise that he was not suggesting that there were any men of straw in this case and I accept what he said. However, that does not in my view undermine the judge’s reasoning. The grounds for making the order are not that the claimant may be unable to pay costs that might be awarded against him but that it is unfair to put the defendant to the expense of fresh proceedings while his costs of the previous proceedings remain unpaid.

I am satisfied, therefore, that the judge had jurisdiction to make the order that he made on 9^th June, even if its effect was to impose on IIF the burden of ensuring that PSL discharged its liability for costs or of satisfying that liability itself. He took into account not just the fact that IIF is suing as the assignee of PSL but all the circumstances of the case and the previous history of the litigation between PSL and Limehouse. It was undoubtedly a strong thing for him to direct that the claim be struck out if the costs were not paid into court by 23^rd June, but in the light of the way in which matters had developed I am satisfied that it was within the scope of his discretion. I would therefore dismiss the appeal.

I agree