Leofelis SA & Anor v Lonsdale Sports Ltd & Ors

This is the judgment of the court on an application by the Appellants, consequential on the order made to give effect to our judgment handed down on 1 July 2008 on appeals against orders of Mr Justice Evans-Lombe: [2008] EWHC Civ 640. All concerned agreed to our dealing with the application on the basis of written submissions without an oral hearing.

The application notice by the Appellants is dated 21 October 2008 but was sealed on 12 November 2008. We have the benefit of written submissions as follows: Appellants (21 October 2008), Respondents (27 November 2008), Dorsey & Whitney (Europe) LLP (“Dorseys”) (10 December 2008), Appellants (19 December 2008), Dorseys (23 December 2008).

We have considered the judge’s order dated 19 March and 8 May 2007, our own order dated 1 July 2008, the written submissions referred to above and the material mentioned in them. We have seen, but have not taken account of, written submissions by the Respondents directed at a claim against Dorseys, which was not disclosed to the Appellants for reasons of privilege.

Paragraph 11(2) of our order is as follows:

“the Respondents shall repay to the Appellants the sums of £2,500,000 and €1,662,500 paid pursuant to paragraph 20 of the 8 May Order (or the sterling equivalent at the time of payment) together with any interest accrued on such sums by 4.30 on 15 July 2008.”

The reference to paragraph 20 of the judge’s order is a mistake, but not one which has misled anyone. Paragraph 14 of his order required the Appellants to pay to the Respondents £2,500,000 and €2,500,000 (or the sterling equivalent at the time of payment), but €837,500 of that was to be paid in a way which does not now matter, and paragraph 23 provided that the balance, together with £600,000 on account of costs under paragraph 22,

“shall be paid to the Claimants’ solicitors to be held by them in escrow pending further order”.

Dorseys were the Claimants’ solicitors at that time, and the Defendants duly paid the three sums in question, two of them in sterling and the third in Euros, to an account of Dorseys, entitled Dorsey & Whitney General Client Account, on 10 April 2007.

Following this court’s order, Dorseys, who had in the meantime ceased to be the Respondents’ solicitors, paid to the Appellants £4,165,821.12 on 16 July 2008. So far as we know nothing turns, at least for present purposes, on the delay of a day, which seems to have been due to Dorseys not being informed of the court’s order until 15 July. The sterling amounts repayable were £2,800,000 (because not all of the interim payment on account of costs was ordered to be repaid), so the balance, attributable to the Euro amount and to interest, was £1,365,821.12. On enquiry, Dorseys explained that the interest element was £241,510.50 and that “the €1,662,500 was paid into our client account at a rate of 1.4787 GBP/EUR, amounting to £1,124,310.62”, that sterling amount being the sum repaid in respect of the Euro liability. In short, the Euro sum had been converted to sterling on arrival in their client account, and had been held in sterling ever since and repaid as such, with the interest accrued on it. The Appellants contend that on 15 July 2008 the exchange rate between sterling and Euro was 1.26, and that therefore the sterling equivalent at that time would have been £1,319,444.44. They therefore claimed the difference of some £195,000 from Dorseys. This claim could not be resolved by agreement, so the Appellants issued the application notice, by which they claim, against the Respondents and against Dorseys, a declaration as to the amount payable, and an order for payment of the balance outstanding.

The order made by this court on the appeal is against the Respondents, requiring them to make the payments in question. In practice, however, as explained, the sums were held by Dorseys under the judge’s order, and our order is the “further order” envisaged by paragraph 23 of the judge’s order. Both the Respondents and Dorseys are affected by our order, and by the dispute as to compliance with it. It follows that it is sensible that Dorseys be joined as a party to the Appellants’ application, so as to be parties to the dispute before the court.

It is not in dispute that the sum paid is less than the sum specified in our order, because the Euro sum was paid as if converted at a rate other than the rate applicable at the time of payment. It is also not in dispute that, although the principal sum paid is less than was due, the interest accrued, and paid over, is more than would have accrued if the money had throughout been held in Euros. An adjustment needs to be made so that when the Appellants get the right sum of principal, they get only the amount of interest that would have accrued, between 10 April 2007 and 16 July 2008, on a Euro deposit of the relevant amount. They would no doubt also claim interest at the judgment rate from 16 July 2008 on the balance outstanding.

Dorseys argue that the Appellants would not be entitled to complain of the conversion to sterling in April 2007 if they had agreed to it, and that they did agree to it. The first of those propositions is not in dispute, but the Appellants deny that they did agree to, or even were aware of, the conversion at that time. The basis on which Dorseys contend that the Appellants were aware of it and agreed to it is that all three sums were paid into the same client account, which was in fact a sterling account. They seek disclosure and other directions with a view to a determination as to whether the Appellants did agree to the conversion. In our judgment, the contention that the Appellants did agree to the conversion does not get to first base on the evidence. Nothing in what we have been told suggests that the Appellants had any reason to realise that, once the Euro sum was paid into Dorseys’ client account, it would be held in sterling rather than in Euros. Under the judge’s order it was up to the Appellants whether the sum should be paid in Euros or as the then equivalent in sterling. We have been shown nothing which provides any basis for saying that the Appellant were told, or must have realised, that, inconsistently with the order, Dorseys would hold the sum paid to them in Euros otherwise than in that currency. For that reason, we will not give any directions with a view to facts being investigated on that point.

The Appellants’ assertion as to the amount of the sterling equivalent as at 15 July 2008 has not been disputed, and we take it not to be in dispute. However, the parties are not agreed as to what amount would have accrued by way of interest if the sum of €1,662,500 had been held on deposit in a client account of Dorseys, instead of £1,124,310.62. If that remains in dispute, it will need to be resolved by the court on the basis of evidence. For that purpose we will direct that this issue be referred under CPR rule 52.10(2)(b) to a Master of the Chancery Division, who is to report the result of the determination to this court. The Appellants are to apply to a Master for directions for this purpose, but we suggest that, even if the three parties concerned cannot agree on the right rate, it should be possible for them to agree on procedural directions as to how the dispute be resolved, and submit them to a Master for approval.

We will reserve to this court the costs of that exercise, as of all other aspects of the Appellant’s application notice. Once the sum has been worked out by agreement or by a Master’s decision, this court will be able to identify the amount which should have been paid on 15 July 2008, and which remains outstanding, and to make the appropriate order for payment, together with an order for the costs of the application.

We are aware that there may be consequential issues as between the Respondents and Dorseys. Each has indicated an intention to make a claim against the other for an indemnity. We do not consider that those claims should be entertained by this court. They should be raised by way of separate proceedings, by claims for contribution or indemnity as appropriate. This will avoid difficulties of privilege, by reason of which, otherwise, different material would be available as between Dorseys and the Respondents from that which is available as between either of them and the Appellants.

For those reasons the order we propose to make at this stage is as follows:

We hope that, in the light of this judgment and our order, the parties can agree not only the amount of interest that would have been earned by the Euro deposit, but also all other issues arising as between, on the one hand, the Appellants, and, on the other, the Respondents and Dorseys, so as to avoid further unnecessary cost being incurred all round.

Dorsey shall be added as a Respondent to the Application.

On the true construction of paragraph 11(2) of the Court of Appeal’s Order dated 1 July 2008, the Respondents were obliged to pay to the Appellants the sum of £2,500,000, and the sum of €1,662,500 or the sterling equivalent of that sum calculated as at the date of payment of such sum, namely £1,319,444.44, to the Appellants, together with interest accrued on such sums, by 4:30 on 15 July 2008.

By the combined effect of paragraph 23 of the Order of Mr Justice Evans-Lombe dated 19 March and 8 May 2007 and of the Court of Appeal’s Order dated 1 July 2008, Dorsey were also bound to make the payments to the Appellants specified in paragraph 2 above.

The Respondents and Dorsey being already obliged to make the payments mentioned in paragraph 2 above, the court makes no further order for a payment on account of that liability.

It shall be referred to a Master of the Chancery Division of the High Court of Justice, pursuant to CPR rule 52.10(2)(b), to determine by way of an enquiry, as between the Appellants, the Respondents and Dorsey, (if not agreed between them) what amount of interest would have accrued on the sum of €1,662,500 if that sum had been held in a client account of Dorsey from 10 April 2007 to 16 July 2008, and to report the result of that enquiry to this court.

The Appellants shall apply to the Master for directions as to the conduct of the enquiry directed by paragraph 5 above (the “Enquiry”) no later than 4pm on Thursday 19 March 2009, unless by then the amount of interest to be determined pursuant to the Enquiry has been agreed between the Appellants, the Respondents and Dorsey.

The costs of the Enquiry and all other issues of costs of and incidental to the Application are reserved to this court.

All parties are to be at liberty to apply to this court in relation to the Application.