1999/214 - Smith v l'Eau des Iles [1999] UR 214 (15 December 1999)

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Appeal/application for leave to appeal against so much of the Order of the Royal Court of 6 August 1999, as:

set aside the decision of the Greffier Substitute of 4 March, 1999, ordering the Respondent to furnish further security for costs; and
directed that the Respondent’s costs of and occasioned by the application of 6 August 1999 be paid by the Appellant on the standard basis.

Advocate P C Sinel for the Appellant

THE PRESIDENT: In this action L’Eau des Iles (Jersey) Ltd ("L’Eau") claims damages against AE Smith & Sons Ltd ("Smith"), a wholly-owned subsidiary of Ann Street Brewery Company Limited, for breach and repudiation of a written agreement between L’Eau and Smith dated 24 March 1993 ("the Agreement"). Smith counterclaims for breach of the Agreement. It is common ground that L’Eau is an insolvent company. Mr Jolyon Baker is the registered holder of most of the shares of L’Eau, the remainder being held by nominees for him.

The action was started by L’Eau in November 1993. The pleadings were completed by a Rejoinder in January 1994, subject to the service of some particulars by either side.

In April 1995 Smith applied for security for costs, but did not pursue the application. Smith issued a fresh application for security on 18 July 1996. In November 1996 the Judicial Greffier heard the application, and ordered that security of £7,500 should be paid to the Judicial Greffier to cover Smith’s costs up to the close of inspection of documents. This security was duly paid.

By September 1998 the action was ready for trial, and a trial date of 12 to 23 April 1999 was fixed by the Royal Court.

On 18 December 1998 (three months after the trial date had been fixed) Smith applied for substantially greater security for its costs. The application should have been heard in January 1999 but was adjourned, because of the late filing of affidavits by Smith. On 4 March 1999 the Greffier Substitute ordered further security to be given by 18 March 1999 as to £15,000 by payment into Court and as to £16,000 by a deed of undertaking and obligation executed by Mr. Baker (so that Smith would have total security of £38,500), and he stayed the action meanwhile. Given the late date on which this security was ordered, I consider that to stay the action in this way was in error. That order for further security was appealed by L’Eau. The trial date was lost. The hearing began on 3 June 1999 but was adjourned to 12 July 1999. That date was ineffective, again because of the late delivery of an affidavit by Smith, and Smith was ordered to pay the costs relating to that date on a full indemnity basis. The hearing concluded on 6 August 1999 when the extempore judgment of the Royal Court was delivered by Sir Peter Crill KBE sitting as a Commissioner with Jurats Barbara Myles and Roy Bullen MBE. The Royal Court set aside the order of the Greffier Substitute with costs, and refused leave to appeal.

The starting point in relation to this application for leave is that the Royal Court has exercised a discretionary power in refusing to order the provision of security for costs. The approach to be adopted by the Court of Appeal when hearing an appeal from such an exercise of a discretion by the Royal Court was spelled out by this Court in Rahman -v- Chase Bank (CI) Trust Co Ltd et al (1984) JJ 127 at pp.133-134. The Court’s exercise of its discretionary power is to be set aside only where the Court (1) has acted on a wrong view of the relevant principles of law; (2) has taken into account immaterial matters or failed to take into account material matters; (3) has reached a plainly wrong decision; (4) has been unable to take into account a material change of circumstances occurring after the Court reached its decision; or (5) has reached its decision in a manner which will result in injustice to one of the parties.

It is for Smith to show that one or more of these grounds for interfering with the Royal Court’s exercise of its discretion exists in the present case.

The principles of law relevant in considering whether an order for security for costs should be made by the Courts of England and Wales were well summarised by Peter Gibson LJ in Keary Developments Ltd -v- Tarmac Construction Ltd [1995] 3 All ER 534 at pp.539-542. For the purposes of the present application I am content to treat that statement of principles as generally suitable for adoption in Jersey law, while reserving for future consideration some of the details of this statement which may need some reconsideration in the different circumstances in Jersey. That statement is too long to be quoted fully here, and I summarise the principles as follows:

(2)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.

(3)The Court must balance, on the one hand the injustice to the plaintiff company if prevented from pursuing a genuine claim by an order for security, and on the other hand the injustice to the defendant if no security is ordered, the plaintiff’s claim fails, and the defendant is unable to recover its costs from the plaintiff. So the Court will seek not to allow the power to order security to be used oppressively, by stifling a genuine claim by an indigent company against a more prosperous company, particularly when the circumstances underlying the claim and/or the failure to meet the claim may have been the cause or a material cause of the plaintiff company being indigent. The Court will also seek not to be so reluctant to order security that the impecunious plaintiff company can be enabled to use its inability to pay costs as a means of putting unfair pressure on the more prosperous defendant company.

(4)The Court will broadly take into account the prospects of success in the action, and the conduct of the action so far. I mention here that it is common ground that the present application is to be decided without dealing with the merits of the cases put forward by either of the parties to the action.

(5)The Court has a discretion to order security of any amount, and need not order substantial security.

(6)If the plaintiff company alleges that the effect of an order for security would be unfairly to stifle its genuine claim, the Court must be satisfied that, in all the circumstances, the claim probably would be stifled. The test is one of probability, not possibility.

(7)The stage of the action at which security is sought is one aspect of the conduct of the action which the Court will take into account.

In summarising the principles I have referred in principle (2) to a party being "deterred" from pursuing its claim, and in principles (3) and (6) to a claim being "stifled". It seems to me to be important to appreciate that there is a range of effects which an order for security may have on a plaintiff, extending from at one end, possible deterrence, through probable deterrence, possible stifling, probable stifling to inevitable stifling at the other end of the range. There are shades of grey, not black and white, dividing "deterrence" from "stifling".

Turning to the judgment of the Royal Court, it has to be recognised that as an extempore judgment it naturally does not have the polish which would only have come from a reserved judgment. No doubt the Royal Court was as deeply concerned as I am at the loss of the trial date, and the possible loss of another trial date if they reserved judgment until after the holiday season, and the matter then came to this Court on an application for leave. In my judgment, however, it is clear that the Royal Court loyally followed the Keary Developments principles in reaching a conclusion different from that reached by the Greffier Substitute. The Royal Court started, as it should, by recognising that it must "perform a balancing exercise" between potential injustice to L’Eau if ordered to give further security, and the potential injustice to Smith if no further security was ordered.

The first ground of attack by Advocate Sinel for Smith was that the Royal Court had failed to have regard to the potential injustice to Smith as part of this balancing exercise. In my judgment this ground was misconceived. The form which Sir Peter Crill gave to the Royal Court’s judgment was, for convenience and speed, what amounted in effect to a commentary on the longer, reserved judgment of the Greffier Substitute, in which the potential injustice to Smith had been fully canvassed. The Royal Court was taking that as a matter with which it agreed, and was focusing on the matters on which it disagreed with the Greffier Substitute - the potential injustice to L’Eau. For my part I am fully satisfied that the Royal Court did take proper account of the potential injustice either way, in carrying out the balancing exercise which it emphasised in the penultimate paragraph of the judgment that it had carried out. There is nothing in this ground.

For the purposes of his opening submissions to this Court Mr. Sinel was content to adopt the figures concerning Mr. and Mrs. Baker’s financial position as set out in the Royal Court’s judgment. We were therefore not taken through any detailed examination of the lengthy affidavits and exhibits which had been before the lower Courts. Advocate Thompson for L’Eau in his submissions proceeded on a similar footing. In his submissions in reply, however, Mr. Sinel sought to rely on a few sentences in some of these affidavits in support of his submissions. I stress this because it is clear to me that we do not have as full an appreciation of what is contained in the affidavits as the Royal Court and the Greffier Substitute had.

I turn, with this introduction, to the points which Mr. Sinel made on the figures. He submitted that Mr. Baker is shown by the affidavits to be readily able to provide the sum of £15,000 in cash ordered by the Greffier Substitute. He referred also to the assets available to Mrs. Baker who could, he argued, equally well as her husband provide financial support to L’Eau for the purpose of furnishing security. With regard to the further £16,000 to be guaranteed by Mr. Baker, Mr. Sinel submitted that provision of this guarantee presented no problem for Mr. Baker. His argument was that the Court need not concern itself with the ultimate position if and when the guarantor were called on to pay. He submitted, therefore, that the Royal Court’s conclusion that provision of this further security would be likely to stifle the action, and not merely to deter L’Eau from continuing the action, was unfounded.

The immediate difficulties which I have with this line of argument are that (1) the Royal Court was able to examine the evidence in detail and to reach its own conclusion based on that examination, whereas this Court was presented by Mr. Sinel with only a brief reference to some of the affidavit evidence, and was not taken to the evidence in any detail; and (2) Mr. Sinel in opening expressly accepted the factual basis as stated in the Royal Court’s judgment. Mr. Sinel did not explain, to my satisfaction, any sufficient defect in the Royal Court’s reasoning on the facts to justify this Court in setting aside the Royal Court’s exercise of its discretion.

The principal point relied on by Mr. Sinel seemed to be that Mr. Baker has potentially sufficient "free equity" in the two houses owned by himself and his wife to be able to provide the security ordered by the Greffier Substitute. But this point rested on shallow foundations. Notionally there is "free equity" in the house not lived in by the Baker family, Fox Cottage. But that house is rented until March 2000 at a rent, which, after payment of mortgage and other outgoings, shows a loss to the Bakers of £250 a month. The Bakers tried to sell the house before renting it, but failed. Values have been put on the house, but there is no certainty that such values could be achieved on sale next year.

Mr Sinel also contended that it would be easy for Mr Baker to borrow £15,000 (or perhaps £31,000). But the only evidence we were shown demonstrated plainly that the Bakers’ bank is not prepared either to lend more or to tolerate lending by a third party which might involve a further charge on the Bakers’ home, Garden Cottage. No evidence was shown to us to indicate that Fox Cottage could be used to borrow on a second or subsequent mortgage from a third party.

In the absence of any cogent demonstration by Mr. Sinel that the Royal Court had erred in its assessment of the evidence, it is not open to this Court to substitute its own assessment, assuming that this Court were in a position to make its own assessment (which it is not), and assuming that its assessment would be different from that of the Royal Court (which, so far as I am concerned, is not the case). Accordingly I would refuse leave to appeal.

However, there is another ground on which I consider the Royal Court ought to have declined to order further security - the lateness of the application.

I have already summarised the relevant timetable. The trial date was fixed in September 1998 for 12 April 1999. The security application was delayed for over three months until 18 December 1998. By that time it should have been clear to Smith and Mr. Sinel that the hearing of the application and any appeals would be unlikely to be completed by 12 April 1999. The first hearing before the Greffier Substitute, fixed for 19 January 1999, had to be postponed because of late delivery of affidavits by Mr. Sinel’s client. The hearing was in the end on 22 February 1999, and the Greffier Substitute delivered judgment on 4 March 1999. He stayed the action pending the security being given, an order which I consider should not have been made in view of the proximity of the trial date. It would have been obvious that L’Eau would appeal, as it did. The hearing before the Royal Court should have been on the trial date, 12 April 1999, but Mr. Sinel was ill. The hearing did not begin until 3 June 1999, was not finished and had to be adjourned. It was fixed to continue on 12 July 1999, but that date had to be adjourned because Smith served another affidavit on 8 July 1999: Smith was ordered to pay full indemnity costs in respect of that adjournment, due (Mr. Sinel told this Court) to the inability of Price Waterhouse Coopers to provide their promised evidence. The hearing was finally completed and the extempore judgment of the Royal Court delivered on 6^th August 1999. The trial date is likely to be 30^th May 2000, instead of 12^th April 1999. In the light of this regrettable timetable, even if this Court had thought it right to set aside the Royal Court’s decision, for my part I would in any event have declined to order any further security because of the lateness of Smith’s application, and the fact that because it was left so late the trial has had to go off for more than a year.

Mr. Thompson for L’Eau also relied on a number of aspects of the conduct of the action on behalf of Smith as further matters militating, in his submission, against the grant of further security. I have already referred to the chronology and the lateness of service of affidavits. The other relevant matters are these:

(1)Mr. Thompson stated (and Mr. Sinel did not deny) that before the Greffier Substitute and the Royal Court Mr. Sinel orally charged Mr. Baker with some measure of dishonesty in his affidavits, a charge which he eventually abandoned on 6 August 1999. It appears that Mr. Baker may have made some errors in his calculations, including errors as to his and Mrs. Baker’s potential tax liability if they sold Fox Cottage. There is nothing to show that these were more than simple errors. The charge of dishonesty should not have been made.

(2)Mr. Sinel for Smith has indicated that if successful before this Court he intends to seek yet further security based on the new costs régime introduced earlier in 1999. Mr. Thompson submitted that this should have been raised before the Royal Court, and not left to a new application with all the additional costs that would involve. Mr. Sinel submitted that he would have to make it before the Greffier Substitute, who in his Order of 4 March 1999 expressly gave leave to Smith to apply for a variation of the amount of security to be provided by L’Eau, if the new costs régime were introduced. In view of my conclusion on the application for leave to appeal, this point is academic.

(3)Private detectives were instructed by Smith, or on Smith’s behalf by Mr. Sinel, to investigate the circumstances of Mr. and Mrs. Baker. In order to further their investigation the private detectives told lies in the Bakers’ village and locality which were very distressing to the Baker family (and defamatory). One lie was that they were trying to trace a woman who was evading the Courts in Swansea. Another lie was that they were investigating an alleged mortgage fraud. These were very serious allegations to make in connection with enquiries into the Bakers’ affairs. The allegations were totally untrue, and were calculated to cause great distress and difficulty for Mr. and Mrs. Baker and their family, in particular in relation to their credit. These matters were squarely raised by Advocate Thompson in his written submissions to this Court dated 22 October 1999.

I put these matters to Advocate Sinel on two occasions in the course of his oral submissions to this Court so as to give him full opportunity (inter alia) to offer his and his client’s apologies to Mr. and Mrs. Baker. The only responses I obtained from Mr. Sinel were these. He told this Court that (1) he had no instructions from Smith to offer any apology or to accept any responsibility for what the private detectives had done; (2) he could see no basis on which he or his client could be regarded as being responsible for what the private detectives had done; (3) he had not appreciated that the matter would be treated as one of importance at the hearing before this Court (this could not have been correct since the matter was squarely raised in four affidavits as well as in Mr. Thompson’s written submissions). The effect of the private detectives’ conduct was potentially to put pressure on Mr. Baker to cause L’Eau to discontinue the action. Mr Sinel told this Court that the detectives’ contract had been ended on discovering what they had done. I note, however, that Mr. Sinel on behalf of Smith has sought to rely on the affidavits of the detectives. It must remain open for consideration in another case to what extent a litigant in Jersey and a Jersey advocate may have to accept responsibility for misconduct of persons engaged by them in the course of litigation such as these private detectives.

SIR JOHN NUTTING, JA: I had the advantage of reading the President’s judgment in advance of its delivery. I agree with it and have nothing to add.

Trident International Freight Services Ltd -v- Manchester Ship Canal & Co & Anor [1990] BCLC 263.

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	Jersey Unreported Judgments
You are here: BAILII >> Databases >> Jersey Unreported Judgments >> 1999/214 - Smith v l'Eau des Iles [1999] UR 214 (15 December 1999) URL: http://www.bailii.org/je/cases/UR/1999/214.html Cite as: [1999] UR 214

Jersey Unreported Judgments

Advocate P C Sinel for the Appellant