Murray Construction Ltd v Marino Family Trust Ltd

This case is of some antiquity. It started out as Official Referees’ Business in 1992 and on 5 March 1993 His Honour Judge Thayne Forbes QC (as he then was) ordered the Claimant to give security for costs in the sum of £32,000. That sum was not paid and as a result the proceedings were stayed.

On 9 July 1993 the Court of Appeal gave the Claimant permission to appeal that order for security for costs. The Claimant did not take any further steps to pursue that appeal and the proceedings remained stayed.

On 11 August 2011 the Claimant issued an Application in the Technology and Construction Court seeking to resuscitate the proceedings. Directions were given and a hearing was held on 27 October 2011. At that hearing it was ordered that, by 22 December 2011 and before the stay would be lifted for any Application to proceed, the Claimant should provide the sum of £32,000 as security for costs in accordance with the order dated 5 March 1993, otherwise the proceedings would be struck out.

The Claimant provided that security and as a result the stay was lifted. Directions were also given on 27 October 2011 for a hearing on 30 March 2012 to deal with the Claimant’s Application and further Applications issued by the Claimant or the Defendant, including an application intimated by the Defendant to strike out the Claimant’s claim.

On 31 January 2012 the Defendant issued Applications, one seeking additional security for costs under CPR 25.12 and the other seeking a stay of the other directions pending the hearing of the Application for security for costs.

On 28 February 2012 the Claimant issued an Application to strike out or dismiss the Defendant’s Applications.

On 7 March 2012 I heard the Defendant’s Application for security for costs which necessarily dealt with certain matters in the Claimant’s Applications of 11 August 2011 as well as the Application of 28 February 2012. As I stated at the end of the hearing, I decided that the Claimant should provide further security for costs in the sum of £45,000. In this judgment I now set out the reasons for making that order.

As pleaded in the Statement of Claim, these proceedings arise out of an agreement between the Claimant and the Defendant in April or May 1990 to carry out works at Hogwood Shaw Industrial Estate, Finchampstead, Berkshire (“the Contract”).

The Claimant commenced these proceedings on 26 June 1992 by a Writ endorsed with a Statement of Claim. The Claimant claimed both certified and uncertified sums which it alleged were due under the Contract, together with damages or direct loss and expense for delay and disruption caused during the works and also damages and sums due on what the Claimant alleges was the Defendant’s wrongful repudiation of the Contract in June 1991. The total claimed being of the order £480,000.

On 25 September 1992 the Defendant served a Defence and Counterclaim together with Third Party Proceedings against Mr Horsman, trading a JJ Architects. The Defendant contended that the Contract was a design and build contract for 19 light industrial units at a fixed price lump sum. In the counter-claim the Defendant alleged that the Claimant was in breach of contract in failing to carry out the design and construction with reasonable skill and care and/or with material and workmanship which were fit for their purpose or of good quality. The Defendant claimed damages including loss of rental totalling some £640,000.

The Defendant also claimed against the Third Party the same damages and in addition damages for failure properly to administer the Contract.

Directions were given on 7 December 1992 leading to a six week trial commencing on 7 February 1994. On 22 October 1992 the Defendant issued a summons seeking security for costs. As set out above, the court made an order for security for costs in the sum of £32,000 on 5 March 1993 on the basis that, unless and until security was provided, all proceedings were stayed. The Claimant unsuccessfully sought permission to appeal from the judge but on 20 July 1993 Leggatt LJ granted the Claimant leave to appeal on the basis that the matters set out in the first ground of appeal “may not have been developed so cogently before the judge”.

The first ground of appeal contained the following matters:

The Claimant did not pursue that appeal and subsequently, on 26 March 1996, the Claimant was struck off the Register under section 652(5) of the Companies Act 1985 and dissolved, with Notice in the London Gazette dated 2 April 1996.

On 26 April 2004 Mr Desmond Schweppe, a creditor of the Claimant, applied to Romford County Court for the Claimant to be restored to the Register of Companies and the court made that order on 14 March 2005.

It is apparent from the documents that Mr Schweppe was engaged by the Claimant in 1992 when he was a consultant at Executive Financial Services who were pensions and life assurance consultants, mortgage brokers and educational fees planners based in Putney, London SW15. In the period between July and December 1992, Mr Schweppe sought to negotiate settlements with creditors of the Claimant. He says in paragraph 23 of his second witness statement:

“Having personally funded a substantial portion of Murray's legal fees up to this point, and paying off creditors to keep Murray out of receivership, my funds were exhausted.”

Mr Schweppe also refers to correspondence with Taylor Vintners, the Claimant’s Solicitors at the time, in which they confirmed on 2 August 1993 that the Claimant did not want them to proceed with serving Notice of Appeal on the Defendant to meet the deadline given by the Court of Appeal in granting leave to appeal on 20 July 1993. Taylor Vintner also said that the Claimant had confirmed that it had no resources to continue with the claim against the Defendant. Mr Schweppe also states in paragraph 23 of his second witness statement: “Neither myself or the Murray brothers could find the money to pursue the Appeal.”

It appears that matters between the Claimant and the Defendant rested there until 1999. On 13 July 1999 Mr Schweppe, as a director of LAPC Insurances Limited, life assurance and pensions consultants based in Dublin, wrote to the Defendant from their London office. He said:

“This letter is to inform you that Murray Construction Ltd was purchased by a number of investors headed by myself on 6th May 1997 from Mr Thomas Biesty of Brayburn Construction Ltd.

We have spent a considerable amount of time andmoney investigating the circumstances surrounding the dispute between Murray Construction Ltd and Marino Family Trust Co. Ltd.

We now intend to pursue this matter to its logical conclusion i.e. payment of the sum of money outstanding and due to Murray Construction Ltd. for the construction of Hogwood Shaw Industrial Ltd.”

In that letter he made the following allegation of a conspiracy to defraud :

“Information to hand leads us to believe that this project was a set up from the beginning and there are good grounds for suspecting a conspiracy to defraud Murray Construction of a substantial sum of money. One of the main villains on Marino’s part has a track record of this type of scam and we have spoken to a number of builders who had the misfortune to get involved with him.”

Despite receiving responses from Titmuss, Sainer and Webb and then Dechert, Solicitors acting on behalf of the Defendant, Mr Schweppe continued to communicate with the Defendant. In a letter to the court dated 29 September 2011, following service of the Claimant’s Application, Dechert LLP said this:

“Mr Schweppe has since 1999 engaged in a course of conduct, including telephone calls and visits to the homes of the directors of the Defendant, making allegations of conspiracy to defraud in circumstances which constituted harassment. This culminated in a harassment warning to Mr Schweppe from ThamesValleyPolice pursuant to the Protection from Harassment Act [1997].”

As stated above, the Claimant was restored to the Register in March 2005. Mr Schweppe, who represented the Claimant at the hearing on 7 March 2012, said that the purpose of restoring the Claimant to the Register was so that it could pursue the claims against the Defendant, including new allegations which he wished to make.

In the period of over six years from March 2005 to August 2011 no further steps were taken to pursue the current proceedings.

The Application made on 11 August 2011 was in the following terms, the Statement of Truth being signed by Mr Schweppe as a Director of the Claimant:

“The Claimant seeks a Directions Order from the Court for the provision of suitable security to comply with the Security for Costs Order of H.H. Judge Thane-Forbes QC dated 5thMarch 1993. The Claimant seeks to reopen this case in the light of the discovery of substantial new documentary evidence not available to the Claimant in the original Hearings of this matter in 1992/93.”

The reasons for the Application were stated to be:

“The Claimant firmly believes that this new documentary evidence will conclusively prove to the Court’s satisfaction that the Claimant has been the victim of a fraud perpetrated by the Defendants in collusion with two other third parties.”

As already stated, directions were given on 27 October 2011 which depended on Mr Schweppe providing the sum of £32,000 by way of security for costs, as ordered in 1993. That sum was paid into court on 21 December 2011 and although Mr Schweppe then informed the Defendant that he had done so, official notice was only given to the Defendant on 13 January 2012.

On 31 January 2012 the Defendant issued the Application for security for costs, supported by a Witness Statement from Mr Jeremy Grose, a solicitor and legal consultant with Dechert LLP. In response to the Application, on 28 February 2012 the Claimant issued an Application to strike out and dismiss that Application and included the following grounds:

It can be seen that the Claimant seeks to challenge the correctness of the 1993 decision as well as raise the relevance of new evidence. The Claimant’s Application was supported by Mr Schweppe’s second witness statement to which I have already referred.

The law and practice relating to security for costs in a case such as this were recently summarised by Akenhead J in Natas Group Limited (in Administration) v Styles and Wood Limited [2011] EWHC 3464 (TCC) at [9]. The threshold requirement for such jurisdiction under CPR 25.12 is set out in CPR 25.13(2)(c) being that: “the claimant is a company... and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so.”

In this case the Claimant was dissolved because it was insolvent and, as stated by Mr Schweppe at the hearing, was only restored to the Register for the purpose of these proceedings. There is no evidence that it trades or has any assets. Mr Schweppe accepted that it is insolvent.

On that basis there is no issue but that the threshold requirement under CPR 25.13 for an order for security for costs is established, as much as it was in 1993.

I now turn to consider matters to be taken into account in deciding whether to exercise the discretion to order security for costs. As set out in Keary Developments v Tarmac Construction Limited [1995] 3 All ER 534 by Peter Gibson LJ, the court has complete discretion whether to order security for costs and will act in the light of all the relevant circumstances.

Peter Gibson LJ continued as follows at 539:

“2.

The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without more a sufficient reason for not ordering security... By making the exercise of discretion under s 726 (1) [ of the Companies Act] conditional on it being shown that the company is one likely to be unable to pay costs awarded against it, Parliament must have envisaged that the order might be made in respect of a plaintiff company that would find difficulty in providing security...

3.

The court must carry out a balancing exercise. On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security. Against that, it must weigh the injustice to the defendant if no security is ordered and at a trial the plaintiffs claim fails and the defendant finds himself unable to recover from the plaintiff the costs which had been incurred by him in his defence of the claim. The court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, such as by stifling a genuine claim by an indigent company against a more prosperous company, particularly when the failure to meet that claim might in itself have been a material cause of the plaintiffs impecuniosity.. .but it will also be concerned not to be so reluctant to order security as it becomes a weapon whereby the impecunious company can use it inability to pay costs as a means of putting unfair pressure on the more prosperous company...

4.

In considering all the circumstances, the court will have regard to the plaintiff company's prospects of success. But it should not go into the merits in detail unless it can clearly be demonstrated that there is a high degree of probability of success or failure...

5.

The court in considering the amount of security that might be ordered will bear in mind that he can order any amount up to the full amount claimed by way of security, provided that it is more than simply a nominal amount; it is not bound to make an order of a substantial amount...

6.

Before the court refuses to order security on the ground that it would unfairly stifle a valid claim, the court must be satisfied that, in all the circumstances, it is probable that the claim would be stifled. There may be cases where this can be properly be inferred without direct evidence...

However, the court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from its directors, shareholders or other backers or interested persons. As this is likely to be peculiarly within the knowledge of the plaintiff company, it is for the plaintiff to satisfy the court that it will be prevented by an order of the security from continuing the litigation...”.

On behalf of the Defendant, Mr Michael Curtis QC submitted that, as the court has held in 1993, this was an appropriate case for the court to exercise its discretion and order further security for costs. He emphasised that the costs being sought were those up to and including the application to strike out the proceedings and were therefore limited. He pointed out that this was a case where, for nearly twenty years, nothing had happened and where the Claimant was insolvent and had been restored to the Register for the purpose of pursuing the claims in the present proceedings.

In relation to the issue of whether an order for security for costs would stifle a valid claim Mr Curtis pointed out that the Claimant had not submitted any evidence concerning its ability to obtain finance. He pointed out that the sum of £32,000 had already been provided by way of security for costs and that Mr Schweppe had provided no evidence as to the ability of the Claimant to finance the litigation. Mr Curtis relied on Mr Schweppe’s statement, made by way of submission at the hearing, in which he indicated that money could not be provided quickly and that Mr Schweppe was unwilling to borrow more money against his home.

In addition Mr Curtis pointed out that this was not a case where the Claimant wanted to rely on the claims as presently pleaded. He said that, from the documents provided by Mr Schweppe, the essence of his position was that the Claimant wanted to rely on a claim which arose from a conspiracy to defraud, which involved other people and which sought to question whether the Defendant was the proper party to the Contract. He stated that, although Mr Schweppe had been invited on 27 October 2011 to consider whether he wished to apply for permission to amend the Claimant’s claim, there was no draft amendment put before the Court. Mr Curtis therefore submitted that this made it difficult to contend that there was any stifling of a genuine claim where Mr Schweppe was not seeking to support the current claim. This, he submitted, also affected the question of whether the Claimant’s claim had reasonable prospects of success.

In relation to the question of whether the Claimant’s impecuniosity had been caused by the Defendant’s actions, Mr Curtis submitted that this had been the subject of a finding by His Honour Judge Thayne Forbes QC in 1993 and that this element had not been appealed and that there was no further evidence which would affect that issue. He also pointed out that one of the contentions put forward by Mr Schweppe was that the Defendant was not, in fact, the employer under the contract but that the employer was Herriard Developments Limited. This, Mr Curtis submitted, detracted from the allegation that the Claimant was impecunious because of the Defendant.

Mr Schweppe said that the Claimant was insolvent and in 1990 had only recently been formed when it was awarded the Contract for the Hogwood Shaw Development. He said that, as pleaded in the Statement of Claim, certified sums which were due to the Claimant from the Defendant had not been paid and this had resulted in the Claimant’s impecuniosity.

In relation to the pleaded claims Mr Schweppe said that he was not making any amendments at this stage but would wait to see whether the claim was struck out in response to the Defendant’s Application and, if not, would then amend the pleadings to allege fraud and join further parties to the proceedings. He said that it was in 2010 that it became obvious that there was fraud when he had contacted a Mr Fallas who had been a structural engineer and who provided Mr Schweppe with information on the way in which the Contract had proceeded. He submitted that this was not a hopeless case and that he would allege that third parties had committed a fraud on the Claimant in which the Defendant had colluded in seeking to impose a design and build contract on the Claimant when, in truth, the Contract was not design and build, any design being a matter for a contract with Herriard Developments Limited. He referred to evidence that the Architect had arranged for sums to be paid to Mr Fallas which Mr Fallas had not requested and knew nothing about.

He said that he could not provide any more sums by way of security for costs and the Claimant should have the opportunity to reach and succeed on the hearing of the strike out application without providing further security for costs.

In this case, as I have said, there is no issue as to the Claimant’s insolvency. The position has not changed from that in 1993. It is also a case where the un-appealed judgment of His Honour Judge Thayne Forbes QC in 1993 must be given proper effect. From the note of the judgment, it is evident that the matters which affect the court’s discretion were argued and considered at that time and, essentially, matters have not changed since then.

In particular, a matter raised in 1993 was the question whether the application for security of costs was oppressive or whether the Claimant’s impecuniosity had been caused by the Defendant’s failure to pay the sums due. His Honour Judge Thayne Forbes QC said this in relation to this aspect in his judgment in 1993:

“...the evidence of oppression is very slight. Nothing in the draft affidavit of Mr. Murray persuades me that this is in any way an oppressive application for security or that there is anything here beyond the normal consequence of such an application. The impecuniosity is nothing beyond what inevitably happens when the parties have got very involved in one matter.”

He therefore was not persuaded that this was a case where security should not be given because there was oppression in terms of stifling a genuine claim or that the Defendant was the cause of the Claimant’s impecuniosity. Whilst, in certain circumstances, if there is new evidence on matters relating to the exercise of the court’s discretion, the court may vary or set aside an order for security for costs, there is no new evidence either of oppression or as to the cause of the impecuniosity. It would therefore be wrong, in any event, for me to make findings contrary to the findings made in 1993 which, if they were to be pursued, should properly have been pursued by way of the appeal for which permission was given in 1993. This application should not be used as an opportunity for the Claimant to seek to appeal the 1993 order by an alternative route.

In any case, in exercising my discretion afresh in relation to an order for security for costs, I consider that it is relevant that the only purpose in having the Claimant restored to the Register was so that it could pursue these proceedings against the Defendant. In essence, Mr Schweppe and other investors purchased the Claimant company and are now seeking to pursue the claims. In particular, it seems that Mr Schweppe is seeking to obtain re-imbursement of the sums which he paid out to the Claimant’s creditors in unsuccessfully seeking to prevent the Claimant from going into liquidation. He has now become a director and is now seeking to resuscitate the Claimant’s claims. In my judgment, those are circumstances which favour the exercise of an order for security for costs.

Even if I were to go behind the 1993 order, I do not consider that on the evidence the purpose of this application for security for costs can be said to be an attempt by the Defendant to stifle a genuine claim. Rather, given the insolvency of the Claimant, the Defendant justifiably wishes to have security for the costs it has expended and will expend in dealing with this claim after nearly 20 years. Whilst Mr Schweppe has evidently investigated a number of avenues in relation to claim against third parties and makes allegations of a conspiracy to defraud, he has not sought to plead those matters. Mr Grose has sought to distil the gist of the new allegations in paragraph 39 of his witness statement. It seems that the new allegations might affect payments due to the Claimant and payment which were made to Mr Horsman and others. They may also affect the nature of or the parties to the Contract and may give the Claimant the right to claim monies from Mr Horsman or third parties but it is not clear how those matters would change the claims currently made in these proceedings for money under a construction contract.

In any event, as I have said, no application has been made by the Claimant to amend the pleaded claim and, as investigated in argument, the precise effect of the allegations made by Mr Schweppe on the pleaded claim is by no means clear. I do not consider that the application for security can be described as an attempt to stifle a genuine claim whether as pleaded originally or as it might be pleaded. Rather, reflecting what was said by Peter Gibson LJ in Keary, this is a case where there would be great injustice to the Defendant if they succeeded on the strikeout application and yet had to bear the costs of having become involved again in these proceeding after the delay of nearly 20 years.

Further, this is not a case where the Claimant’s prospects of success favour the refusal of an order for security. If anything they support the Application. As I have stated, there are uncertainties as to how far the Claimant will now pursue the pleaded case, but leaving that aside, the claim as pleaded, like the counterclaim as pleaded, both raise arguable claims which commonly arise on construction contracts. It is not a case where the court can, or should, go into the details of the merits of that underlying claim or where it can clearly be demonstrated that there would be a high probability of success or failure. It is, however, evident that, whilst not prejudging the strike-out Application, after some 20 years the Claimant will have an uphill task in defending that Application so that these proceedings should continue.

In relation to the time when the Application for further security was made, it was evidently not appropriate for the Defendant to make the Application until it was known whether the Claimant would put up the original security for costs of £32,000, as ordered on 27 October 2011. Until that happened and the stay was lifted I do not consider that it was appropriate for the Defendant to seek a further application for security for costs. The Defendant was only officially informed about the payment in Court on 13 January 2012 and then considered the position and made the further application on 31 January 2012. There can be no criticism in terms of delay in making the application.

In my judgment, given the order made in 1993 and the fact that the relevant matters have not changed so as to be more favourable to the Claimant, this is a case where the court should exercise its discretion to order further security. In any event, if I were to consider afresh the exercise of the court’s discretion, this is a case where, having considered all the circumstances, I am in no doubt that it is appropriate to make an order that the Claimant should provided further security for costs and that matters should not proceed further until the Claimant has done so.

In summary, the Claimant is an insolvent company which is being funded by investors and used solely to pursue the claims; the Defendant is not seeking to stifle a genuine claim; the contention that the Claimant’s impecuniosity was caused by the Defendant has not been established by the evidence and there has been no delay in bringing the application. In short, if Mr Schweppe now wishes the Claimant to pursue these claims, the Defendant is entitled to know that, if the Claimant does not succeed, it has some means of obtaining its costs.

So far as the quantum of the security for costs is concerned, the evidence of Mr Grose is that the total of the Defendant’s costs up to the strike-out Application would be some £110,000 excluding VAT. The Defendant is registered for VAT. That figure of £110,000 should be discounted to allow for the sum which would be recoverable on a detailed assessment. I consider that there should be a discount of about 30% and that the appropriate sum is some £77,000. Security for costs has already been provided in the sum of £32,000 and I therefore direct that an additional £45,000 should be provided.

Whilst, at first, Mr Schweppe indicated that he would be unable to raise any further money, he became less negative and having heard further submissions I ordered that he should have some three months, to 7 June 2012, in which to provide the security. In the meantime the proceedings are to be stayed.