Dass v Beggs & Anor

This is the renewed application for permission to appeal against an order of Master Bragge on 23 May 2013 refusing an application by the Defendants for security for costs, in so far as it was based on CPR 25.13(2)(g). He had earlier ordered security of ,5,000 (later varied to ,7,500) under CPR 24.13(2)(a), on the basis that the Claimant is resident outside the jurisdiction in Michigan. No complaint is made by either party as to that decision, but in the light of the serious limitations placed by the case-law on the amount recoverable under sub-paragaph (a), the Defendants also sought an order for security based on a ground to which such limitations are not applicable. It is accepted by counsel for the Claimant that the figure of ,50,000 sought by the Defendants is reasonable and appropriate (Footnote: ¹).

The claim relates to the sale in around 2010 of two residential properties in London of which Claimant was the registered owner and which were being managed by the Defendants on his behalf, he being resident in Michigan. The sales were organized by the Defendants, that having been entrusted to them by the Claimant in reliance - according to him - upon their misrepresentation that the properties had no value at all. It is alleged by the Claimant that (1) in breach of fiduciary duty by the Defendants the sales were at a significant undervalue and (2) he received no part of the proceeds (believing that the properties had no value).

According to answers provided very recently (on 19 November 2013) by the Claimant to a request for further information (and the documents annexed to those answers) the Claimant filed for Chapter 13 bankruptcy (akin to an IVA in the United Kingdom) on 15 December 2009, which became a normal bankruptcy filing under Chapter 7 on 29 December 2009. On 14 April 2010 he was discharged from bankruptcy. One of the assets which passed to the trustee-in-bankruptcy was, if good, the claim now brought in this action. The Claimant obtained an order from the bankruptcy court on 9 May 2012 under which the bankrupt estate Aabandoned@ certain property (including, as I understand it, the claim) on payment to the trustee of $8,500. This information was provided by the Claimant in response to a query as to the basis on which it was suggested that he had locus standi to bring the claim. Until then, the Defendants were unaware of the bankruptcy, but made substantial reference to and sought to rely on this material before me.

It also appears from an affidavit sworn in the US bankruptcy proceedings and included in the documents accompanying the Claimant=s answers to the request for further information that the Claimant had claimed to be a nominee holding the properties for his sisters. On that basis the action might fall within the alternative gateway provided by CPR 25.13(2)(f). Counsel for the Defendants has not however sought to invoke that gateway before me, and nothing I say in this judgment should be read as necessarily precluding a separate application hereafter.

CPR 25.13(2)(g) provides that security may be ordered by the court if Ait is satisfied, having regard to all the circumstances of the case, that it is just to make such an order@ (see paragraph 25.13(1)(a)) where

As the case-law confirms, it is sufficient to pass through this gateway that the defendant has identified a step taken by the claimant which has the effect of making it difficult to enforce an order, and the motivation of the claimant is irrelevant to that enquiry (see Aoun v Bahri [2002] EWHC 29 (Comm) at para. 26 and Harris v Wallis [2006] EWHC 630 (Ch) at para 22), albeit account can be taken of it when considering whether it is just in all the circumstances to make an order. Equally, it is insufficient to pass through the gateway that the defendant has identified misdeeds which are dishonest or reprehensible, if they do not constitute the taking of steps by the claimant in relation to his assets.

Nor is there any requirement that the steps must have been taken at a time when the proceedings were in contemplation (see Harris v Wallis [2006] EWHC 630 (Ch) at paras. 24 and 25). It is however in my view clear that there must be a nexus between the step and the difficulty in enforcement of a later costs order against the claimant, if unsuccessful, and that lapse of time may lead to the causal effect being spent (cf Chandler v Brown [2001] CP Rep 103 at para. 20).

In reaching his decision the Master made reference to the commentary on sub-paragraph (g) at CPR 25.12.18. That note rightly states that the applicant does not need to show that the steps were taken with the specific intention of defeating enforcement, but suggests that it may increase the likelihood that an order will be made. It then goes on to propose an analogy with the grant of freezing orders, adding (but without reference to any authority) that Athe applicant may seek to prove a specific intent to stultify future orders for costs in a variety of ways, e.g. evidence of dishonest behaviour by the claimant, unreliability in the past, evasiveness in these proceedings and statements of intent by the claimant.@ The reader must however remind himself that this has no relevance to the gateway question whether, objectively, the step will lead to potential difficulty in enforcement of a costs order. At best it will apply only where that gateway has been satisfied and the court is examining whether it is just in all the circumstances to make an order, and where the conduct is not itself such a step its potential significance in that discretionary evaluation may be sharply reduced, or even eliminated.

The step on which the Defendants seek to rely in the present case is a payment of ,192,454 made by them on about 5 November 2009 at the request of the Claimant to a bank account in the name of his son. According to the Defendants this was the net sale proceeds of one of the two properties, and the Claimant had referred to tax reasons as his motive for asking the payment to be made to his son=s account. Disputing this, the Claimant says that the First Defendant was building a house in Grenada, and the defendants asked him to buy top-end goods and equipment for that house on their behalf (though he was surprised to receive such a large sum to be used for this purpose). Since he was dealing with impending bankruptcy at that time (the filing occurred some two months later), he asked for the money to be sent to his son=s account. But whatever the reason for the payment by the Defendants - which can only be determined at a substantive hearing of the action - it is to my mind highly probable that the reason for diverting the payment was indeed to avoid the money being swallowed up in the bankruptcy.

Against this background, I turn to the Master=s judgment, and specifically paragraphs 8 to 10.

He started by addressing the question whether the diversion of the payment was Aintended to defeat enforcement@ and answering it (to my mind impeccably) in the negative. He then picked up on the note in the White Book which I quoted earlier that Athe applicant may seek to prove a specific intent to stultify future orders for costs in a variety of ways, e.g. evidence of dishonest behaviour by the claimant, unreliability in the past, evasiveness in these proceedings and statements of intent by the claimant.@ Having done so, he considered whether Athere has been some evasiveness such as to engage (g)@. But evasiveness does not engage (g): it is not concerned with the gateway, and may at best influence the decision at the later discretionary stage. He then concluded that Athe matter comes short evidentially of my being able to conclude that (g) has been made out or that there has been some act or unreliability or evasiveness in the past of the type that is envisaged by (g) in the rules.@ And in the last sentence he stated that he was Aled to conclude that ground (g) is not satisfied@.

The appropriate analysis in such cases must be first to ascertain whether the gateway condition has been satisfied and if so, but only then, to consider whether in all the circumstances it would be just to make an order. Of course, it is also legitimate (and sometimes procedurally efficient) for the court to abstain from adjudicating on the gateway if it takes the view that in any event the evaluation of all the circumstances would lead it to refuse the order as a matter of discretion. Unfortunately, it is quite unclear from the way the matter is addressed in these paragraphs that the Master was adopting either of these approaches. Gateway and discretion are dealt with in almost the same breath. That leaves the reader in serious doubt whether in the Master=s view the payment to the Claimant=s son did give rise to potential difficulty in enforcement, or whether he rejected the application at the stage of general discretion. And, if the application failed at the gateway stage, the Master does not make clear why on application of the objective test required by (g) that should be.

That leaves it open to an appellate court to evaluate itself whether the gateway was satisfied (and, if necessary, apply any resulting discretion). I have the benefit, as the Master did not, of the Claimant=s answer of 19 November 2013 concerning his bankruptcy. As I pointed out to Counsel for the Defendants, who specifically asked for the court to consider the bankruptcy material, if the monies paid in late October 2009 had been received by the Claimant in an account in his own name, they would in all probability have passed to the trustee-in-bankruptcy in December 2009 (Footnote: ²). In that event, they would not have been available as a possible object for execution some years later. In these circumstances diversion to the son=s account could not create any additional difficulty for enforcement of a future order: if anything it might have preserved the monies outside the bankruptcy, leaving at least the theoretical possibility (if they could be tracked down) of their being available, in whole or in part, to satisfy a costs order (Footnote: ³). I need not therefore pause to consider whether even without the bankruptcy the causal effect of the diversion would in all likelihood have been spent by this time.

In these circumstances, and having - as very often occurs when the matter is listed on a Arolled-up@ basis - heard full argument from both sides, I am in no doubt that the Astep@ in this case, the diversion of the payment to the Claimant=s son, did not make difficult enforcement of a costs order in this action. Indeed, the contrary does not appear to me capable of serious argument. In so far as that relies on material not shown to the Master, I do not apprehend that Ladd v Marshall would be applicable, given that the material was subsequently disclosed (and only very recently) by the Claimant as part of the (extended) pleading process in support of his case and then introduced on this application by the Defendants. In any event, the requirements of Ladd v Marshall would not in these circumstances appear to pose any obstacle.

I have therefore concluded that the appeal has no realistic prospect of success, and refuse permission to appeal. It will also be apparent that even if I had considered the matter sufficiently arguable to grant permission to appeal, I would have dismissed the appeal.