Aidiniantz v The Sherlock Holmes International Society Ltd

The Sherlock Holmes International Society Limited (“the Company”) is a company limited by guarantee, which until 2012 was involved in running the Sherlock Holmes Museum (“the Museum”) in Baker Street, London. It is common ground that the Company ceased trading in September 2012, and that it has no assets apart from various actual or potential claims against third parties, including the founder of the Museum, John Aidiniantz (“Mr Aidiniantz”).

On 1 July 2014, Mr Aidiniantz presented a petition to wind up the Company on the ground that it was insolvent and unable to pay its debts when they fell due. The petition debt was the unpaid sum of £112,449.73 due to Mr Aidiniantz under a default costs certificate dated 16 June 2014. The petition was vigorously opposed, on the basis that the petition debt was genuinely disputed on substantial grounds, and that the Company also had a valid cross-claim against Mr Aidiniantz which exceeded the petition debt. The contested hearing of the petition took place before Registrar Derrett on 15 January 2015, with each side represented by leading and junior counsel. On 11 March 2015, Registrar Derrett handed down a reserved judgment in which she held that the Company should be wound up. By her order of the same date, she ordered Mr Aidiniantz’s costs of the petition to be paid as an expense of the liquidation, to be assessed on the indemnity basis in default of agreement.

The petition proceedings formed part of a wider and bitter family dispute, in which the protagonists are Mr Aidiniantz, his elderly mother Mrs Grace Aidiniantz (“Grace”), and his three half-siblings, Linda Riley (“Linda”), Jennifer Decoteau (“Jennifer”) and Stephen Riley (“Stephen”). The Company’s opposition to the petition was authorised by Stephen in his capacity as a director of the Company, but was funded by Jennifer, who made a sum of £230,000 available to the Company for the payment of legal costs. This sum was itself derived from a payment of £300,000 which Mr Aidiniantz had made to her in the context of an agreement (or alleged agreement) which lay at the heart of another set of proceedings, to which the Company was not a party.

The respective roles of Jennifer and Stephen in the conduct and funding of the Company’s defence of the petition proceedings became clearer after they were joined as respondents to the petition for the purpose of costs only, pursuant to CPR Rule 46.2, by the Registrar’s order of 11 March 2015. On 29 April 2015, each of them filed a witness statement in response to Mr Aidiniantz’s application that they should be ordered to pay his costs of the petition. The application was listed to be heard on 30 June 2015, but by a consent order dated 15 May 2015 the application was stayed until further order of the court to await the outcome of the Company’s application for permission to appeal the winding up order, which it had made by an appellant’s notice filed on 1 April 2015.

The Company’s appeal included an application for a stay of the winding-up, which I granted on paper on 11 May 2015 until after the Company’s application for permission to appeal had been determined. On 19 June 2015, I granted the Company’s application for permission to appeal, again on paper and without a hearing. The reasons which I gave for granting permission were as follows:

“[D]espite the extraordinary background to this case, and the clear terms of the consent order for costs upon which the petition was based, I am satisfied that the grounds of appeal, as explained and supported in the skeleton argument on behalf of the Appellant dated 14 May 2015, are arguable and have a real prospect of success.”

I also continued the stay of the winding-up until after determination of the appeal or further order in the meantime.

Mr Aidiniantz did not exercise his right to apply to set aside or vary either of my orders for a stay, nor did he ask for the grant of permission to appeal to be reconsidered at an oral hearing; but on 10 July 2015 he filed a respondent’s notice which included an application to vary the grant of permission to appeal so as to make it conditional upon the payment, either to him (or his companies) or into court, of various sums in respect of costs totalling nearly £213,000. The application also asked for an extension of time for filing his skeleton argument in support of the respondent’s notice until 14 days after such conditions as the court might order had been satisfied.

The application was supported by a draft order, and the third witness statement of Mr Aidiniantz, which made it clear (although the application itself did not) that he was also asking the court, in the alternative, to order security for costs of the appeal. In other words, Mr Aidiniantz was invoking both:

Mr Aidiniantz hoped to obtain a hearing date for his application before the Long Vacation, but for various reasons (for which he cannot in my view be held responsible) this was not practicable. The application therefore came on for hearing before me on Monday, 5 October 2015, only four weeks before the beginning of the three day window (on 3 November 2015) within which the appeal itself has been fixed to be heard. This means that my decision on the application is needed as a matter of considerable urgency. Given the complexity of the background to the case, however, I found it necessary to reserve my judgment after I had heard over three hours of wide-ranging submissions from junior counsel on each side (Mr Christopher Brockman for Mr Aidiniantz, and Mr Tony Beswetherick for the Company).

One advantage of my reserving judgment for a short period is that it enabled counsel (at my request) to reach agreement, for the purposes of the present application only, on a factual chronology setting out the background to the proceedings. I was provided with this document during the afternoon of 7 October. Since an understanding of the background is in my view essential in order to place the application in its wider context, and to inform consideration by the court of exercise of its powers under the relevant rules, I will now summarise the background facts, drawing for this purpose on the document produced by the parties.

Mr Aidiniantz is a director of Rollerteam Limited (“Rollerteam”) which owns a freehold property at 239 Baker Street, London, the site of the Museum. He is also a director of The Sherlock Holmes Museum Limited and Sherlock Holmes Limited (together with Rollerteam, “the Museum Companies”).

Mr Aidiniantz caused the Company to be incorporated in July 2004. Immediately thereafter, the Company was granted a right by Rollerteam to receive admissions income from the operation of the Museum, subject to the deduction of various items of operating expenditure. This right was terminated by Rollerteam on or about 7 September 2012. The Company is a not-for-profit company and was incorporated to take the benefit of a VAT cultural exemption scheme.

Various sets of proceedings were begun in 2012 and 2013 involving Mr Aidiniantz, the Museum Companies, Grace, and three of his half-siblings, namely Jennifer, Stephen and Linda. In summary:

By a consent order dated 29 May 2013 (“the Consent Order”), the 2012 Company Proceedings were brought to an end. The Consent Order was entered into as part of a package of settlements of the various sets of proceedings that was principally negotiated by Mr Aidiniantz, Linda and (to a lesser extent) Jennifer. Two other consent orders were made in relation to the proceedings brought by Grace and Rollerteam, on 19 April and 29 May 2013 respectively.

The Consent Order was in Tomlin form. Paragraphs 1 and 2 dealt with the discharge of the freezing injunction which the Company had obtained against Mr Aidiniantz and the Museum Companies earlier in the proceedings, and paragraph 3 provided that monies totalling £535,000 which had been paid into court by them were to be paid out to Rollerteam. Paragraph 4 then provided that the Company should pay the defendants’ costs of the claim on the standard basis, such costs to be the subject of detailed assessment if not agreed.

The Company maintains that it had reached a prior agreement with Mr Aidiniantz to the effect that:

The Consent Order was signed on behalf of Mr Aidiniantz and the Museum Companies by their solicitors, and by Jennifer and Grace on behalf of the Company.

There was then a further falling out between the various parties. Mr Aidiniantz had received the benefit of certain trust deeds relating to properties that were executed in his and Rollerteam’s favour, and which he said were enforceable. Mr Aidiniantz denied that he was obliged to make any payments to Linda or Jennifer or any third party as consideration for the declarations of trust pursuant to any binding agreement. This dispute led to the commencement of further proceedings in the Chancery Division (“the Riley Proceedings”), involving Jennifer, Linda, Mr Aidiniantz and Rollerteam. The questions for determination in those proceedings were:

The Riley Proceedings were listed for a trial in the High Court, which took place in April 2015 before Robert Englehart QC sitting as a Deputy Judge of the Chancery Division. In these proceedings, to which the Company was not a party, it was alleged by Jennifer and Linda that part of the agreement reached between Linda and Mr Aidiniantz was that he and Rollerteam would pay the Company’s costs of the 2012 Company Proceedings. The validity of the Consent Order was not in issue, because the Company was not a party to the Riley Proceedings.

In May 2014 (after the Riley Proceedings had begun), Mr Aidiniantz and the Museum Companies commenced detailed assessment proceedings in relation to the costs order against the Company. As I have already said, the petition debt of £112,449.73 was based upon a default costs certificate which they obtained on 16 June 2014. Although Mr Aidiniantz describes the Museum Companies as supporting creditors, the costs order gave rise to a single liability in favour of Mr Aidiniantz and the Museum Companies, and the Company did not owe any separate debts to the Museum Companies.

On 1 July 2014, Mr Aidiniantz presented his winding-up petition against the Company, and it was listed for a first hearing on 30 August 2014.

On 29 August 2014, the Company served evidence in answer to the petition. It also issued an application in the Senior Courts Costs Office to set aside the default costs certificate. At the hearing of the petition on 30 August 2014, the Registrar gave directions for evidence and adjourned the petition for further directions after the additional evidence had been served. The Company opposed the petition on the basis that the petition debt was disputed, and that it had a cross-claim for its own costs and for the unpaid fee income which exceeded the petition debt.

After the presentation of the petition, and service by the Company of its evidence setting out its case in opposition to the petition, the Company on 1 October 2014 began proceedings against Mr Aidiniantz and the Museum Companies in the Chancery Division of the High Court under claim number HC-2014-00379 (“the New Claim”). The claim form in the New Claim was served on 6 October 2014, and the particulars of claim on 20 October 2014.

In the New Claim, the Company claimed (among other things):

alternatively, an order that the Consent Order be rectified or varied.

The Company’s application to set aside the default costs certificate was listed before a Costs Master on 3 October 2014. In view of the commencement of the New Claim, the Company did not pursue the application and invited the court either to stay the application generally pending determination of the New Claim (with liberty to restore) or to dismiss it. The Costs Master, without considering the merits of the application, decided to dismiss it and ordered the costs of the application to be paid by the Company.

Since the Company had served evidence in opposition to the petition, and had begun the New Claim, the Company invited Mr Aidiniantz to agree to a stay or adjournment of the petition pending the outcome of the Riley Proceedings (which were listed for trial in April 2015, and in which he and Linda would be cross-examined upon the agreements that they had reached). Mr Aidiniantz declined this invitation. On 21 October 2014, directions were given in relation to the petition by Deputy Registrar Middleton, and the petition was set down for a final hearing on 15 January 2015.

Mr Aidiniantz and the Museum Companies filed acknowledgements of service in relation to the New Claim, so their defence was due by 17 November 2014. They did not serve a defence by that date, but instead, on 17 November 2014, they lodged an application for a stay of the New Claim pending the outcome of the petition and/or for security for the costs of the New Claim and/or for the New Claim to be struck out (“the Stay Application”). An unsealed copy of the Stay Application was served upon the Company, and in the absence of a sealed application notice the Company then requested and obtained default judgment against Mr Aidiniantz and the Museum Companies on 17 December 2014.

Upon learning that default judgment had been entered in favour of the Company, Mr Aidiniantz and the Museum Companies issued an application on 23 December 2014 to set aside the judgment (“the Set Aside Application”).

The Set Aside Application came before Master Teverson on 7 January 2015. There was insufficient time to hear the application, and the parties agreed to an order providing for the default judgment to be stayed pending the substantive hearing of the Set Aside Application, which was listed for 26 February 2015 together with the Stay Application. It was also agreed that, since the Set Aside Application had not yet been determined, the Company would not seek to rely upon the existence of the default judgment at the forthcoming hearing of the petition. Directions were agreed for the parties’ evidence, which took into account the fact that the petition was due to be heard the following week and so the applications might become academic.

The petition was heard by Registrar Derrett on 15 January 2015, when she reserved judgment.

In the absence of the Registrar’s decision upon the petition, the Company sought to agree an extension of time for its evidence in relation to the Stay and the Set Aside Applications, on the basis that it made little sense to incur further costs while the decision on the petition was awaited. This proposal was not acceptable to Mr Aidiniantz and the Museum Companies. The Company therefore issued an application on 28 January 2015 for an extension of time or for a stay pending the Registrar’s judgment.

The parties subsequently agreed a consent order which provided:

for the judgment in default to be set aside;

The hearing on 26 February 2015 took place before His Honour Judge David Cooke, sitting as a judge of the High Court. When the hearing began, the Registrar’s decision on the petition was not yet available. During the course of the hearing, however, while the Company’s counsel was making his submissions, the Registrar’s clerk entered the court and provided copies of the Registrar’s draft judgment (which had just been completed) to counsel for the Company and counsel for Mr Aidiniantz. The judge then contacted the Registrar, who confirmed that she was happy for the content of the judgment to be disclosed to him. He was then informed by the Company’s counsel that in the draft judgment the Registrar had decided to make a winding-up order against the Company.

The hearing before Judge Cooke then continued, and he made orders dealing with the costs of the three applications. As the New Claim had been stayed by consent, the only live issues related to costs. In summary, he ordered that:

The Registrar’s judgment on the petition was handed down on 11 March 2015.

On 4 June 2015, the Deputy Judge handed down his judgment in the Riley Proceedings. The Deputy Judge found that an agreement had been reached as contended for by Linda and Jennifer on 11 April 2013. He also found in favour of Mr Aidiniantz and Rollerteam in relation to their claims for declarations that the trust deeds dated 11 April 2013 were valid and binding. As a result, Mr Aidiniantz was ordered to make a number of substantial payments. He was ordered to pay £1 million (plus interest of £15,123.29 and continuing) to Linda, and to pay £700,000 (plus interest of £19,331.51 and continuing) to Jennifer. He was also ordered to pay 75% of the costs of the Riley Proceedings, with a payment on account of those costs of £250,000. The order contained various other provisions, including a stay upon enforcement of the above payments pending any application to the Court of Appeal for permission to appeal, provided that Mr Aidiniantz provided security for the various obligations (including the payment into court of £1.2 million).

Mr Aidiniantz duly paid the sum of £1.2 million into court on 7 July 2015. On 24 July 2015, Lewison LJ granted permission to appeal from the Deputy Judge’s order on the issue whether the agreement which he found to have been made was unenforceable because it failed to comply with the formalities imposed by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Permission to appeal was refused in relation to a further ground which sought to challenge the judge’s findings of fact.

Against this background, I can turn to the detail of the relief now sought by Mr Aidiniantz. The conditions which he asks the court to impose on the Company’s permission to appeal the winding-up order are that the Company, Stephen, Jennifer, or such other persons as may be identified as responsible for instigating the Company’s appeal, should within 14 days of being ordered to do so:

During the course of the hearing on 5 October, Mr Brockman said (on instructions) that Mr Aidiniantz’s petition costs were not in fact limited to the sum of £49,279.58, but included a further £22,167.62. That further sum had previously been mistakenly included in Mr Aidiniantz’s calculation of the sums said to be due under Judge Cooke’s order. Accordingly, Mr Aidiniantz’s revised position was that the petition costs that ought to be secured totalled £71,447.20, while the estimated sum said to remain due under Judge Cooke’s order was reduced to £18,852.50.

Mr Brockman also explained at the hearing that the figure of £97,776 for the petitioner’s costs of the appeal included the estimated costs of the present application. In other words, the sum now sought in respect of condition (d) above includes the amount sought under condition (e).

Accordingly, the total amount which Mr Aidiniantz says the Company ought to be ordered to pay (either to himself and his co-defendants in the New Claim, or into court) as a condition of being permitted to pursue its appeal from the winding-up order is £212,950.70. If the court refused to impose conditions, but were nevertheless satisfied that security for the costs of the appeal should be granted, the maximum amount for which security could be ordered would be £97,776.

Before proceeding further, I find it helpful to stand back and place the present application in its wider context.

The winding-up proceedings are in my judgment inseparable from the wider family dispute. The Company itself has no assets, apart from claims against third parties. Those claims notably include the £1.8 million said to be due from Mr Aidiniantz’s company, Rollerteam, in respect of admission fee income which has never been accounted for. In the petition proceedings, Mr Aidiniantz has never denied that there is an accounting exercise which needs to be carried out in relation to the fee income, although his case (broadly speaking) is that the amount due to the Company is much less than £1.8 million, and may well be over-topped by sums allegedly due from the Company to him and/or his companies.

The petition debt itself is founded on a default costs certificate, which the Company at one stage applied to set aside, and which the Company has consistently said is contrary to the true agreement reached between the parties in April 2013. The existence and terms of this agreement have now been upheld by the Deputy Judge in the Riley Proceedings. The Company was not a party to the Riley Proceedings, but Mr Aidiniantz and Rollerteam were, and subject to any appeal they are bound by the findings made in those proceedings, at least as against Jennifer and Linda (who were also parties to them). Moreover, Mr Aidiniantz has been ordered in the Riley Proceedings to make very substantial payments to Linda and Jennifer, as well as to pay £250,000 on account of their costs: see [35] above.

It is true that Mr Aidiniantz has been granted permission to appeal to the Court of Appeal in the Riley Proceedings, but the only ground which he has permission to pursue relates to his technical argument that the agreement is void for non-compliance with section 2 of the 1989 Act. There is no challenge by him to the Deputy Judge’s findings about the existence and terms of the agreement. Furthermore, even if the appeal were to succeed on this technical ground, I find it hard to see how that would impact on the Company’s argument in the petition proceedings that the debt based on the default costs certificate is, at the very least, subject to a genuine dispute because it was never the true intention of Mr Aidiniantz that the Company should be liable for it. Although this argument was rejected by the Registrar, who held that it would be wrong in all the circumstances to go behind the clear wording of the Consent Order, this conclusion is challenged by the Company on a number of grounds for which permission to appeal has been granted.

On the available evidence, the Company’s costs of the petition proceedings have been funded to date by Jennifer. Her evidence as at 29 April 2015, when she responded to Mr Aidiniantz’s application for a third party costs order against her, was that the Company had by then drawn on and spent approximately £100,000 of the £230,000 which she had loaned (or otherwise made available) to the Company for the payment of legal costs. Stephen says in his evidence in answer to the present application, contained in his third statement dated 24 September 2015, that he has not funded the proceedings himself, although he caused the Company to respond and pursued them because he believed that to be in accordance with his duties as a director. The natural inference, in the absence of evidence to the contrary, is that the Company’s appeal is now being funded from the remainder of the sum made available by Jennifer. But if that is so, I ask myself whether it would be fair to order Jennifer to make the payments sought by the present application, or to provide security for the costs of the Company’s appeal, when Mr Aidiniantz has himself recently been ordered to make a payment to her of a sum well in excess of £700,000. Stephen is in a somewhat different position, because he was not a party to the Riley Proceedings, and Mr Aidiniantz has not been ordered to make any payments in his favour. On the other hand, he has procured the commencement of the New Claim by the Company, in which claims are made against Mr Aidiniantz and the Museum Companies for the alleged £1.8 million shortfall in fee income, and challenges are made to the enforceability of the Consent Order upon which the petition is ultimately based. Furthermore, Stephen’s evidence is that he is not a member of the Company and has no financial interest in it.

Given the complex and interlocking nature of the claims and cross-claims which have been, or are being, pursued in the Riley Proceedings, the New Claim, and the petition proceedings, and the fact that the only continuing relevance of the Company itself appears to be as a vehicle for prosecution of claims within the wider family dispute by whoever is for the time being in control of it, everything seems to me to point strongly towards the conclusion that the non-corporate parties should be left to pursue or defend the litigation at their own expense and risk as to costs, while the Company itself should not be required to provide security for costs in any of the forms requested by Mr Aidiniantz as a condition of pursuing its appeal against the winding-up order. In the highly unusual circumstances of the present case, my strong inclination would be to hold that no financial obstacles should be placed in the path of the Company’s appeal, and if at the end of the day the appeal fails, and Mr Aidiniantz emerges victorious in the New Claim and the appeal in the Riley Proceedings, he will be adequately protected by his ability to obtain costs orders (including, where appropriate, third party costs orders) against the individual protagonists on the losing side.

With these preliminary thoughts in mind, I turn to the two ways in which Mr Aidiniantz now puts his case.

The imposition of conditions on the grant of permission to appeal

CPR Rule 52.9 provides that:

“(1)

The appeal court may –

…

(c)impose or vary conditions upon which an appeal may be brought.

(2)

The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so.”

The authorities establish that there are two questions posed by Rule 52.9(1)(c) and (2). The first is whether there are compelling reasons for making the continued prosecution of the appeal subject to conditions, and the second is whether the court should exercise its discretion to make the order: see, for example, Hammond Suddards Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065, [2001] All ER (D) 258 (Dec), at [40] per Clarke LJ, giving the judgment of the court, and Calltel Telecom Ltd and Another v HM Revenue & Customs [2008] EWHC 2107 (Ch), [2009] Bus LR 513, at [24] per Briggs J (as he then was).

The facts in the Hammond Suddards case were far removed from those of the present appeal. The appellant was a company registered in the British Virgin Islands, against which the claimant solicitors had obtained judgment for unpaid fees, interest and costs, including an order for interim payment of a specified sum on account of costs. The company obtained permission to appeal from a single Lord Justice, and then sought a stay of the trial judge’s orders pending appeal. The claimant made a cross-application for security for costs of the appeal, and for an order under CPR 52.9 making the continued prosecution of the appeal conditional upon the payment into court of the judgment debt and costs (or those debts being secured in some satisfactory way within the United Kingdom).

The Court of Appeal found in favour of the claimant on both applications. In relation to the application under Rule 52.9, the Court held that a number of factors combined to constitute a compelling reason for granting the order sought. Those reasons were helpfully summarised by Briggs J in Calltel at [25], as follows:

“(1)

It was difficult in that case for the Respondent to enforce orders against the Appellant, because although not necessarily impecunious it was resident offshore.

(2)

The Appellant had resources or access to resources to enable it to instruct solicitors and counsel to prosecute the appeal.

(3)

There was no convincing evidence that the Appellant did not have resources to pay the judgment debt and costs but it simply failed to do so, so it was in breach of court order.

(4)

It had given insufficient disclosure of its financial affairs and it had wealthy owners and there was no evidence that if they were minded to do so they could not pay the judgment debt including any order for costs, and

(5)

that there was no risk of the appeal being stifled, and finally the court found it unacceptable that the Appellant was at one and the same time prosecuting an appeal while continuing to disobey payment orders already made by the court below.”

Mr Brockman submits on behalf of Mr Aidiniantz that, in the present case, similar considerations should lead to the same conclusion. In the first place, he says it would be impossible for Mr Aidiniantz to enforce any order for costs against the Company, which has no assets. Secondly, the Company has access to sufficient resources to enable it to pursue the appeal. Thirdly, the Company breached a court order by failing to pay the costs ordered by Judge Cooke, even though it had access to the funding provided by Jennifer. Fourthly, there has been insufficient disclosure of the financial affairs of the Company and its backers. Finally, there is no apparent risk of the appeal being stifled, unless Jennifer and Stephen choose not to provide the necessary security.

Mr Brockman also relies on another decision of the Court of Appeal, in Contract Facilities Ltd v Rees (deceased) and Others [2003] EWCA Civ 1105, [2003] All ER (D) 415 (Jul). In that case, the appellant was an impecunious company which had obtained permission to appeal. It had been ordered to pay assessed costs and an interim costs certificate in the sum of approximately £44,000, but had failed to do so. The appeal was backed by a funder. On the basis that the funder had funded the trial and the appeal, the Court of Appeal held there was no reason why he should be permitted to conduct the appeal on a risk-free basis. The appellant was therefore ordered to pay the amount of the interim costs order into court, and to pay the assessed costs to the respondents, within a short period, in default of which the appeal would be struck out.

The judgment of the court (Waller and Hale LJJ) was delivered by Waller LJ. After referring to Hammond Suddards, and the subsequent decision of the Court of Appeal in CIBC Mellon Trust Company v Mora Hotel Corporation NV andChascona NV [2002] EWCA Civ 1688, [2003] 1 All ER 564, Waller LJ concluded as follows:

“27.

The instant case is very different from the CIBC case. First Mr Shuck [the funder] 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 [for third party costs] must stand a considerable prospect of success. Third it is an appeal and 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 a tails they lose basis.

28.

It is not in our view to prejudge the question whether the individuals should be liable for the costs of the trial to make the orders that the respondents now seek. Contract [the appellant] can abandon the appeal and Mr Shuck can fight the question of personal liability for costs. But if Mr Shuck chooses to fund an appeal there is no reason why the court should not say Contract can bring the appeal but only on terms.”

Mr Brockman goes on to submit that there is no reason why the same reasoning should not apply to costs which have yet to be assessed. In particular, the petition costs would rank as an expense of the liquidation (see Rule 4.218 of the Insolvency Rules 1986), so he says there would be no question of Mr Aidiniantz seeking to improve his position if those costs were paid into court. He will be entitled to be paid the petition costs out of realisations in full, and in priority to unsecured creditors.

I now turn to the submissions of Mr Beswetherick on behalf of the Company. He does not quarrel with the reasoning or conclusions in any of the cases relied upon by Mr Aidiniantz, but submits that the present case is in a different category altogether. It is not a case involving a claim to recover sums owed, where a judgment has been obtained which the debtor seeks to avoid paying pending the hearing of its appeal. Winding-up proceedings are a class remedy, and even if it had the funds (which it does not), the making of the winding-up order would prevent the Company from making the very payments which Mr Aidiniantz asks the court to order.

In relation to the petition costs, Mr Beswetherick points out that the Registrar ordered them to be paid as an expense of the liquidation, to be assessed if not agreed. There was no order requiring the Company to make payment of those costs, immediately or otherwise. On the contrary, since the Company was put into liquidation only the Official Receiver or liquidator could agree the quantum of the petition costs or have them assessed (see Rule 7.34A(1) of the Insolvency Rules 1986), and even then payment could only be made by the liquidator if and to the extent that, after realising the assets of the Company, there were funds available to do so and no other claims which took priority. It follows that the Company is not currently in breach of any order to pay the petition costs.

Furthermore, submits Mr Beswetherick, the application seeks to obtain for Mr Aidiniantz something which he would not be entitled to obtain, whatever the outcome of the appeal. If the appeal against the winding-up order succeeds, the Company’s liability to pay the petition costs will fall away, and will probably be reversed. On the other hand, if the appeal fails, Mr Aidiniantz will be unaffected because the petition costs would retain their priority as an expense of the liquidation.

In so far as Mr Aidiniantz seeks an order that the petition costs be paid into court by Jennifer or Stephen, Mr Beswetherick relies on the decision of the Court of Appeal (Rimer and Aikens LJJ) in Société Générale S.A. v Saad Trading, Contracting and Financial Services Company [2012] EWCA Civ 695. Giving the leading judgment, with which Rimer LJ agreed, Aikens LJ considered at [54] what he termed:

“… the difficult question of principle as to whether or not this court can legitimately impose a condition that a judgment debt (or part of it) be paid into court where, effectively, this will require an “owner” or others, such as a director, or shareholder, or backer or other interested person, to fund that condition.”

After emphasising that he was not dealing with security for costs, Aikens LJ continued:

“I think the answer must be that, except in exceptional circumstances, it should not do so. If a condition is imposed on an appellant that it must bring the outstanding judgment debt into court in order to pursue its appeal, that does, effectively, short circuit the enforcement process against the judgment debtor. It means that if the appellant loses his appeal, the judgment creditor has the means of enforcing the judgment debt quickly and easily and in a way that he otherwise could not when the judgment debtor has no assets within the jurisdiction. Furthermore, the right to enforce is, at least in the first place, only exercisable against the assets of the actual judgment debtor, not those of any other entity or person. So a condition which has the practical effect that a third party will provide the funding to bring the judgment debt of the corporate entity into court is, potentially, an indirect way of obtaining enforcement with the funds of another. That, generally speaking, must be contrary to the principle of respecting the existence of different legal personalities … Alternatively, if the funds brought into court are to continue to be treated as those of the third party, there is no point in the exercise at all, because it will not benefit the respondent/judgment creditor.”

The general principle stated by the Court of Appeal in the Saad case applied to an outstanding judgment debt. Mr Beswetherick submitted, and I would agree, that the same principle must apply, with at least equal force, where the payment sought is one of costs which have yet to be quantified.

In relation to the costs orders made by Judge Cooke on 26 February 2015, Mr Beswetherick submits that the same points apply as in relation to the petition costs, but with the additional factor that Mr Aidiniantz’s position is even weaker because those costs were ordered before the winding-up order, and at best they would only entitle Mr Aidiniantz to rank as an unsecured creditor in the liquidation. Furthermore, since the petition had already been presented (on 1 July 2014) when the costs orders were made some eight months later, and since the commencement of the liquidation relates back to the date of presentation of the petition, it follows that any payment of those costs by the Company would have been void by virtue of section 127(1) of the Insolvency Act 1986, unless the court otherwise ordered on an application for a validation order. There is no prospect that the court would have been willing to make a validation order, he submits, because the effect of the payment would have been to prefer the claims of Mr Aidiniantz over those of other creditors, without any justification for doing so.

Mr Beswetherick had a number of other points, but those which I have rehearsed, and which I accept, are more than sufficient to persuade me that there is no good reason, let alone a compelling reason, why it would be appropriate to require payment by the Company, Jennifer or Stephen of either the petition costs or the costs ordered by Judge Cooke as a condition for permitting the appeal to proceed. I am also reinforced in reaching this conclusion by the general considerations discussed in the previous section of this judgment. That leaves Mr Aidiniantz’s estimated costs of the appeal itself, including the present application. Should an order for security be made, at least in relation to those costs? That is the next question I need to consider.

Security for the costs of the appeal

The jurisdiction of the court to order security for the costs of an appeal is governed by CPR Rule 25.15, which provides as follows:

“(1)

The court may order security for costs of an appeal against–

(a)

an appellant;

…

on the same grounds as it may order security for costs against a claimant under this Part.

(2)

The court may also make an order under paragraph (1) where the appellant … is a limited company and there is reason to believe it will be unable to pay the costs of the other parties to the appeal should its appeal be unsuccessful.”

The grounds upon which the court may order security for costs against a claimant are set out in Rule 25.13, which says that the court may make an order if “it is satisfied, having regard to all the circumstances of the case, that it is just” to do so, and one or more of the conditions in paragraph (2) applies. The relevant condition for present purposes is condition (c), namely:

“the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so.”

Where, as in the present case, the appellant is a limited company, the provisions of Rule 25.15(2) appear to overlap with condition (c), as applied in relation to the costs of an appeal by Rule 25.15(1). For present purposes, I do not think it matters which provision is relied upon, as in each case the first question is whether there is reason to believe that the Company will be unable to pay Mr Aidiniantz’s costs of the appeal should the Company’s appeal be unsuccessful. If the answer to that question is yes, the court then has a discretion whether to order security which it must exercise “having regard to all the circumstances of the case”.

The discretionary nature of the power to order security for costs against a limited company, even where it is clear that the company would be unable to pay the other side’s costs, has been a recurrent theme in the modern authorities ever since the decision of the Court of Appeal in Sir Lindsay Parkinson & Co v Triplan Ltd [1973] QB 609: see, in particular, the judgments of Lord Denning MR at 626-627, and Lawton LJ at 628-629. The Court was considering section 447 of the Companies Act 1948, but it has never been doubted that the same principles apply to exercise of the discretion conferred by rules of court.

I emphasise this point, because Mr Brockman submitted, by reference to two Victorian authorities, that there is a general rule, where a limited company appeals from a winding-up order, that it will be ordered to give security for costs: see In Re Diamond Fuel Company (1879) 13 Ch.D 400 (CA) at 412, per James LJ, and In Re Photographic Artists’ Co-operative Supply Association (1883) 23 Ch.D 370 (CA) at 372, per Cotton LJ. In the second of those cases, Cotton LJ said:

“But when we have an opportunity we ought to order security to be given, for it is not just that any costs occasioned by an unsuccessful appeal from a winding-up order should be thrown upon the assets to the prejudice of the creditors when we have the means of preventing it. It is our opinion that where an order has been made for winding-up a company on the ground that it cannot pay its debts, and the company alone appeals, there as a general rule security for costs ought to be ordered.”

I do not doubt the relevance of the considerations referred to by Cotton LJ when an order for security is sought against a limited company which has been wound up, but in my judgment the “general rule” which he laid down has long since been overtaken by statutory provisions and rules of court which make it clear that the court has an unfettered discretion in the matter. As Lawton LJ said in the Triplan case, at 628H:

“… once it is established by credible evidence that there is reason to believe that the plaintiff company will be unable to pay the costs of the defendants if they are successful in their defence, the court has a discretion, and that discretion ought not to be hampered by any special rules or regulations, nor ought it to be put into a straitjacket by considerations of burden of proof. It is a discretion which the court will exercise having regard to all the circumstances of the case.”

There is no exhaustive list of circumstances which the court may take into account where condition (c) is relied upon, but some examples (largely derived from the Triplan case) are helpfully set out in the notes to the White Book, Vol 1, at para 25.13.13. They include (adapted to the present case):

Taking these considerations in turn, the first two are in my view clearly satisfied. Permission has been granted for the Company’s appeal, and in granting permission I was satisfied that the Company’s arguments had a real prospect of success. This conclusion can only be reinforced by the subsequent judgment in the Riley Proceedings.

In relation to the third consideration, Mr Beswetherick sought to persuade me that the appeal would be stifled if an order for security were made. He relied upon Stephen’s evidence that he did not have the money available to fund the proceedings, and was not prepared to spend what money he did have to give Mr Aidiniantz a sum which would enable him to short circuit the liquidation. He added that Jennifer was also not prepared to make any further sums available, and had no obligation to do so. In my judgment, however, this evidence falls far short of what would be required to establish a case of stifling. In particular, there is no evidence from either Stephen or Jennifer about their personal assets, nor has Jennifer explained how much is now left of the £230,000 which she has made available to the Company for its legal costs. As matters now stand, therefore, I agree with Mr Brockman that, if I were to order security and it were then not provided, the appropriate conclusion to draw would be that Jennifer and Stephen had chosen not to fund the Company’s appeal, not that they were financially unable to do so.

The fourth consideration, by contrast, is in my view highly material. On the available evidence, there is clearly a strong argument that the Company’s impecuniosity has been brought about by the conduct of Mr Aidiniantz and the Museum Companies in failing to account for fee income from the Museum over a period of several years. As I have already pointed out, he has never denied that there is an accounting exercise to be carried out, and although he says £1.8 million is far too high a figure, he has not (as I understand it) ever produced any cogent material to justify this assertion, or to establish what the correct figure might be.

Taking all these factors into consideration, together with the wider background discussed earlier in this judgment, my conclusion is that in all the circumstances of the present case it would be neither just nor reasonable to require the Company to provide any security for costs. In practice, any such security would have to be provided by Jennifer and/or Stephen, but in the context of the wider family dispute, and the outcome of the Riley Proceedings, I do not think this is a burden which it would be fair to impose upon them.

For these reasons, Mr Aidiniantz’s application will be dismissed.