Days Healthcare UK Ltd v Pihsiang Machinery Manufacturing Co Ltd & Ors

There are 2 Applications before the court. The first is by the Claimant (to whom I shall refer as “Days”) to permit further evidence to be adduced on Days’ application for permission to appeal a judgment of Costs Judge Wright given on 23 March this year; the second application is for that permission to be granted. I ordered that both applications and, if permission were granted, the appeal itself should be heard together today. I did so partly because the applications relate to and may affect an assessment of costs due to commence by way of a hearing of certain preliminary issues over 3 days commencing on 19^th July, and partly because the application for permission itself seemed to me at first blush to raise potentially important questions and so would itself involve consideration of the merits.

The Costs Judge refused permission to appeal on the basis that his decision was a case management decision and he saw no real prospect of an appeal succeeding. As will be seen, I do not agree.

The essential background and facts, sufficient to address the applications, are as follows.

Days claimed against the Defendants (as I shall call Pihsiang and Mr and Mrs Wu) for damages for repudiation of a distribution agreement. The claim was tried before me in late 2003. The agreement in issue was subject to English law and contained a non-exclusive English Jurisdiction Clause. I handed down my judgment on 29 January 2004. Days succeeded (in part) on their claim. I was very critical of the conduct and evidence of the Defendants. On 16 February 2004 I ordered the Defendants to pay Days a sum in excess of £10m by way of damages and to pay the costs of the action to be assessed if not agreed. I also ordered the Defendants to pay Days an interim payment on account of costs of £2m pursuant to CPR Part 44 rule 3(8). That rule provides that where the court has ordered a party to pay costs it may order an amount to be paid on account before the costs are assessed. The salutary object of the rule is to enable a party to recover at least a substantial part of his expenditure on costs before (and to an extent in the hope of avoiding) what can be a protracted and expensive process in carrying out a detailed assessment. It also is intended to provide a useful sanction and discipline generally in the context of the costs of litigation. In this case I said that the total figure for Days’ costs, then put at some £3.9m, did not surprise me and expressed the now seen to be forlorn hope that an order in the sum of £2m would enable the parties to settle the final figure without the need for a detailed assessment. The bill of costs, I am now informed, is in fact in a sum approaching £4.7m.

I refused the Defendants permission to appeal. On 13 July 2004 the Court of Appeal did grant permission but only on conditions that the Defendants paid Days itself both the principal and interest due on the judgment sum and the interim payment costs order and also paid into court £150,000 security for the costs of the appeal. Each payment was ordered to be made by no later than 24 August 2004. The Defendants paid nothing. In accordance with the Court of Appeal’s Order the appeal was therefore struck out on 13 September 2004.

That remains the position today. Nothing has been paid. Nor is it a case of want of means. The Defendants have the means but refuse to pay. They choose not to pay and challenge not just Days but the court to make them do so. Days applied under CPR Part 71 for Mr Wu to give evidence as to his means. Mr Wu failed to attend when ordered to do so. He was found to be in contempt and committed to prison for 28 days by Wakerly J in an order dated 23 July 2004. Both Mr and Mrs Wu were ordered to attend court on 7 October 2004 and both failed to do so. A final order of committal was then made against Mr Wu by Gibbs J and a suspended order against Mrs Wu. She failed to attend again on 18 January 2005 and a final 28 day committal order was then made against her by Field J.

The costs of Days associated with the applications to the Court of Appeal and the Part 71 applications are said to be slightly in excess of £350,000.

I cannot sensibly refer to the steps taken by Days to enforce the court’s orders against the Defendants in Taiwan without referring to the Witness Statement of Sonya Hsu which is one of the statements the subject of Days’ (opposed) application to rely on further evidence. Each party in effect accuses the other of being economical with the truth about the proceedings in Taiwan. There can be no argument that some of the events in those proceedings played a part in the submissions to and decision of the Costs Judge. The Defendants’ evidence in the proceedings before the Costs Judge came in very late albeit they blame Days for being late with their evidence to which it was responsive. I can see no good reason why this court should not have before it the accurate information so far as it is material and which is largely incontrovertible and I therefore propose to grant the application. I would add that the Defendants have responded to the new evidence and I have also taken that response into account. The other witness statement sought to be relied upon by Days does no more than exhibit a Transcript of the hearing before the Costs Judge and a copy of his Approved Judgment. It also makes the point that certain interim costs orders made by the Costs Judge against the Defendants in an amount of £31,600 plus interest which should have been paid on 13 April have also not been paid. Again, I can see no reason not to admit this evidence and indeed every reason why it should be before the court and I propose to allow the application in relation to it also.

To return, then, to Taiwan, but with this introduction. In the course of imposing the conditions which he did upon the permission granted to the Defendants to appeal to the Court of Appeal, Dyson LJ said:

“To put the matter more broadly, the defendants’ conduct in refusing to comply with court orders that have been made, without explanation, and their behaviour in relation to the CPR 71 matter, strongly suggest that they will place every obstacle they can in the path of an attempt by the claimants to enforce the judgment.”

That “strong suggestion” is more than borne out by subsequent events here and in Taiwan. I have no doubt at all that the Defendants will not honour any orders which involve payment or of which they otherwise disapprove made by any court in this country and will pay nothing unless and until the legal machinery in a country where they have assets successfully executes an order against those assets. They have, in contrast, paid and no doubt will continue to pay the legal and other costs incurred on their own behalf in this country and in Taiwan in whatever proceedings seem to them to be of benefit to them or damaging to Days.

At the end of November 2004, Days sought to enforce this Court’s Order in Taiwan. The procedure is by way of a Recognition Lawsuit – in effect seeking recognition of the order of the English courts by the courts of Taiwan. Days has been required in the course of the procedure to deposit the substantial sum of £4.5m as a bond. On 25 November 2005, and despite opposition from the Defendants on a number of grounds, the District Court in Hsinchu found in favour of Days. But in late December the Defendants appealed as of right to the High Court. At about the same time Days attached assets of Pihsiang which were only released when a bond by way of bank guarantee was provided by the Defendants in the sum of about £14m representing the damages and costs and interest. There has also been a flurry of applications by the Defendants seeking to challenge the attachment and other court orders. There have been 3 hearings to date of the substantive appeal and a fourth is currently scheduled for 19 June. In summary, I think the evidence shows plainly enough that the Defendants will pursue every avenue they think open to them to prevent or delay a final enforceable order being made against them in Taiwan and the system of appeals and likely lapse of time before decisions can be reached is such that it cannot be predicted when any final conclusion may be arrived at. But it can be predicted with certainty that the Defendants are prepared not only to incur whatever expense may be involved but also to see to it that Days are exposed to equal if not greater expense.

The bank guarantee lodged by the Defendants in Taiwan will only be available if and when, and to the extent that, Days finally succeed in the proceedings in Taiwan. That, as stated, is unpredictable in its timing, could be several years away and cannot be certain. I should add that Days’ evidence is that should the Defendants make any payment in the English proceedings, credit would be given for it in the Taiwanese proceedings and in the amount of the guarantee given on behalf of the Defendants. Whilst it seems the Defendants do not accept that evidence, it must at least be the case that enforcement against the guarantee could only be for whatever sum would be outstanding at the time.

I would make this further comment. What was at issue before the Costs Judge and is at issue on these applications is what if any sanction the English courts can and should impose for the Defendants’ conduct towards this court and its orders in a context in which the Defendants are seeking to engage the court in an exercise estimated by Days to require some 30 to 40 days of court time (the Defendants’ estimate is 23 days) for an assessment of costs which the Defendants have been ordered to pay but which on the evidence it is reasonable to infer they will not pay even when they are assessed. The Defendants have of course been ordered to pay £2m towards those very costs in advance of that assessment and have refused to do so. In that context I agree with Mr Auld QC, for Days, that the fact that in Taiwan security has been provided which would, subject to any further challenges, be available in the event the courts in Taiwan finally decide that Days may execute against it, is of little relevance. It is this court’s powers and orders which the Defendants seek to use insofar as they may suit their purposes but to ignore when they do not. That is not just holding Days to ransom but making this court and its orders look impotent and pointless.

I will now turn to the Costs Assessment Proceedings themselves which led to the judgment in issue. Days served their bill of costs on 13 April 2005. Points of dispute were served by the Defendants, after several extensions of time, on 15 September 2005. Reply Points were served on 30 November. The Points of Dispute, I am told, fill a lever arch file and challenge “virtually every minute worked on the case” by Days’ advisers and experts. The costs of a hearing over 30 to 40 days are said to be likely to exceed £350,000.

On 21 February 2006 Days’ solicitors wrote to the Defendants’ solicitors with draft directions for the detailed assessment and included application for the orders the subject of the judgment of the Costs Judge which is now sought to be appealed, namely that unless the Defendants paid the interim costs order of £2m plus interest a final costs certificate should be issued in the amount claimed. They also sought, upon compliance by the Defendants with that condition, a hearing of certain preliminary matters arising on the assessment. The Defendants’ solicitors had not responded, despite a chaser, by 15 March when Days issued their Application Notice seeking the Order and served it the next day.

The Costs Judge described the decision he had to make as “extremely difficult”. In paragraph 11 of his judgment, he said he had “serious reservations” about whether he could make an order debarring the Defendants from taking part in a detailed assessment because of their failure to obey a court order. He said in the following paragraph that the proper and usual approach to an order for payment was to enforce it and that was what was going on in Taiwan and the Defendants should not be shut out from participating in a detailed assessment of large bills of costs as a method of enforcement.

As I have already said, I do not think the emphasis on enforcement in Taiwan was appropriate. What was in issue was the Defendants’ defiance of and yet wish to use the courts of this country. I also think the Costs Judge was wrong to question his jurisdiction to make an order of the nature sought.

Mr Auld submits that there are several bases on which jurisdiction can be founded to make an order of the nature of that sought by Days. As he submitted, this is not a case where the jurisdiction of the court is itself in issue: the relevant agreement provided for English jurisdiction and the Defendants submitted to that jurisdiction.

In those circumstances it would, indeed, be concerning if the court was unable to impose appropriate sanctions on those who choose to ignore its orders and yet continue to seek its processes for their own ends. It is commonplace for orders to be made debarring parties from defending claims where justice and fairness require such a course. It should also be emphasised that the order sought would not preclude the Defendants from pursuing their arguments on the assessment, it would only have that consequence should they fail to make the payment the court ordered them to make towards the costs the subject of the assessment. Indeed, and I am sure rightly, in the course of his well-presented submissions, Mr Marven for the Defendants accepted that the court did have jurisdiction to debar the Defendants from participating in the assessment. His submission was that there was no jurisdiction, because of the wording of CPR 47.16, to order the issue of a final costs certificate which was the primary application of Days.

In my judgment, quite apart from any specific rule, the court has an inherent jurisdiction to control its own processes sufficient to enable it to make an order of the nature sought here. CPR Part 3.1(1) expressly preserves the inherent powers of the court. Further Part 3.1(3)(a) provides that where the court makes an order in the course of its general powers of management it may do so subject to conditions, including a condition to pay a sum of money into court. Mr Marven submitted that this power was limited to the attachment of a condition to a direction the court was being asked to make, such as a condition of a grant of permission to appeal. I do not agree. The wording of the rule is quite general and there are no applicable specific rules which could be said to limit its scope.

Mr Auld referred me to a dictum of Clarke LJ in Hammond Suddard Solicitors v Agrichem International Holdings Limited [2001] EWCA Civ 2065 at paragraph 48 where, in the context of CPR Rule 52.9, he said:

“We do, however, take the view that the new regime of the CPR, with its emphasis on the timely payment of costs, and the use of costs as a sanction, warrants a resolute approach to appellants who fail to obey orders for the payment of a judgment debt and costs when they can afford to pay them ….”

The context was, of course, different. But the principle, in my judgment, applies generally and is apposite.

Mr Auld also submitted that the general power of the court to debar a party in contempt from being heard was also a proper basis for the order sought by Days. He referred me to the judgment of Potter LJ in Motorola Credit Corporation v Uzan [2003] EWCA Civ 752 in particular at paragraphs 45 to 58. This is not a case (as that was) in which the Defendants are seeking to be heard on a challenge to the orders which constituted or underlay the contempt. Nor is it a case in which the Defendants seek to challenge their obligation to pay the costs which will be assessed, but only their amount. It is a case in which their contempt derives from a failure to meet an order which directly relates to the very assessment in which they seek to participate and they do so, as I think it fair to conclude, not intending to abide by the outcome of the assessment whatever it may be. That is not sensibly to be characterised as “defensive” litigation. In those circumstances I also think that the contempt of the Defendants provides a proper basis for an order of the nature of that which is sought by Days.

An appeal from a Costs Judge is governed by CPR 52.11. It is limited to “a review” of the decision of the lower court unless the court “considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a re-hearing”. An appeal will be allowed where the decision of the lower court was “wrong” or “unjust because of the serious procedural or other irregularity in the proceedings….”

It will be apparent from the foregoing that, in my judgment, the Costs Judge was wrong to doubt his jurisdiction to make an order debarring the Defendants and wrong to place the emphasis he did on the attempts by Days to enforce the orders in Taiwan. Nor do I think his decision can realistically be characterised as a case management decision, granted the consequences at stake, and insofar as it was an exercise of discretion it was, I think, based on the two erroneous premises to which I have referred. Moreover I can think of few cases of greater injustice than a case in which a party for no legitimate reason seeks to contest issues, to put his opponent to great expense, and yet to defy the outcome.

For those reasons I think it right to grant Days permission to appeal.

For the same reasons I think the appeal should be allowed subject to Mr Marven’s further submission that the application by Days was made too late. Mr Marven points to the fact that the Defendants have indeed served substantial points of dispute and did so in September 2005, before the present issues were raised. He also points to the fact that the preliminary issues are due to be heard in mid-July, in May Days served evidence in support of them, and, in accordance with the order of the Costs Judge, the Defendants are due to serve any evidence they may wish to rely upon by 23 June.

The nature of Days’ application has, however, been known to the Defendants since February 2006. At that time, no date for the assessment had been set and it was only on the hearing of the application itself that a three-day hearing for preliminary issues was established upon the rejection by the Costs Judge of the application.

In those circumstances I do not think the application was made so late as to preclude the relief sought. Nor do I think it was so late as to require the hearing of the preliminary issues to go ahead in any event. But I do think the fact that Points of Dispute have been served and were served before the present matter was raised should not be ignored in considering the form of order to be made.

I do not think (as he did not think) that the Costs Judge can ignore the contents of the Points of Dispute. They have been properly served. Nor do I think, at least on the present hearing, it would be right, even if there is jurisdiction to do so (which Mr Marven submits there is not) simply to permit Days to have the costs in effect rubber-stamped in the amount claimed. There should be an assessment. But the Defendants must not be permitted to participate further in that assessment unless they make payment to Days of the interim payment I ordered in the sum of £2million together with accrued interest to today’s date. That figure, it is agreed, is £2.373m. If that payment is not made by 12 noon on Tuesday 27 June then the sanction will apply. No doubt, in that event, the Costs Judge and Days will wish to review the timing and nature of the assessment itself and it should be expected to take up only a small fraction of the estimates to which I have referred. If payment is made then the Defendants’ time for serving any evidence will be extended to 4pm on Friday 30 June. I will also hear the parties on the wording of the Order and any ancillary matters which cannot be agreed on a date to be agreed.