Vodafone Ltd v GNT Holdings (UK) Ltd & Anor [2004] EWCA Civ 1242

Case No A2/2004/0650/B[2004] EWCA Civ 1242
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION (MR CHRISTOPHER MOGER QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Friday 24 September 2004
Before
LORD JUSTICE POTTER
Between
VODAFONE LIMITEDClaimant/1 st RespondentGNT HOLDINGS (UK) LIMITED1 st Defendant/NICHOLAS BARTER2 nd Defendant/
(Transcript of the Handed Down Judgment ofSmith Bernal Wordwave Limited, 190 Fleet StreetLondon EC4A 2AGTel No: 020 7421 4040, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Ian Mill QC and Mr Ben Jaffey (instructed by Vodafone Ltd Legal Dept) for AppellantMr Robert Hantusch (instructed by Howard Kennedy) for Respondent
JudgmentLord Justice Potter :
[1]This is an application by Vodafone Limited (“Vodafone”) for security for costs of the appeal of GNT Holdings (UK) Limited (“Holdings”). Vodafone also applies for payment into court of the judgment sum ordered to be paid by Holdings to Vodafone pursuant to the judgment and order of Mr Christopher Moger QC sitting as a Deputy Judge of the High Court whereby he gave judgment for Vodafone against Holdings in the sum of £495,419.61 plus interest of £39,837.13 on 10 March 2004. The latter application is made under CPR 52.9. Having heard the applications upon Friday 17 September, because of the lateness of the hour I announced my decision, stating that I would give my reasons later. These reasons now follow.[2]Vodafone’s successful claim was brought pursuant to the terms of a guarantee given in the name of Holdings and signed by Mr Nicholas Barter (the second defendant in the proceedings) who was a director of Holdings. Mr Barter was also the managing director of the principal debtor Global Network Telephone (UK) Limited, which was a subsidiary of a German company Global Network Telephone GmbH (“GmbH”), itself a subsidiary of Holdings. The ultimate holding company was an Italian corporation called Elios Holdings SPA (“Elios”).[3]Holdings’ unsuccessful defence below was that Mr Barter, despite being a director of Holdings, was not authorised to sign the guarantee by reason of a limitation placed on the authority of the directors of Holdings under a Board Resolution of Holdings dated 12 April 2001, which required the signatures of two directors upon contracts to a value higher than £100,000 as the guarantee was.[4]The judge examined the circumstances surrounding the transaction. He accepted the evidence of Mr Barter that he was expressly authorised to sign the guarantee by Mr Malkus, a fellow director and the Chief Executive Officer of Holdings, though he rejected the argument of Vodafone that there was a case of ostensible authority. The judge rejected the denials of Mr Malkus that he knew of or authorised the guarantee. He found Mr Malkus to be a thoroughly unreliable witness and held that, despite the terms of the resolution to which I have referred, Mr Barter enjoyed actual authority to sign by reason of the express authorisation of Mr Malkus as the effective controller of Holdings.[5]The appeal is due for hearing in just over five weeks’ time. Upon the judge’s findings of fact as to the relevant events and conversations, which are not realistically open to challenge on appeal, the merits of the decision are all one way; however, it is unrealistic, and it would not be right, for me to proceed upon any basis other than that the appeal has an arguable prospect of success on the narrow legal point on which permission was granted.[6]The application for security for costs turns upon whether there is reason to suppose that, if unsuccessful, Holdings will be unable to pay Vodafone’s costs. The position, as stated on behalf of Holdings by Mr Colombo, the managing director of Elios, is that Holdings “has no funds either to pay the judgment debt herein or, indeed, to prosecute the appeal. It is thus entirely dependent upon the support of others.” No accounts of Holdings are exhibited which are more recent than those for the year ending 31 December 2002, which are abbreviated accounts approved by the Board on 26 July 2004. Those accounts do not demonstrate a position of insolvency and certainly do not assist with the position elsewhere in the group. Mr Colombo also states that, Elios is presently being recapitalised and is reliant upon financial support from himself to continue in business. He anticipates that further capital will be received by Elios by end of November 2004 in the form of 12 million euros as a contribution in kind and 17 million euros in cash. However, he states that “Elios was and is unable to provide any substantial financial support to GNT Holdings even if it had wished to do so. However, as Elios has no further connection with the GNT group in general it has no desire to provide any such further support” He does not say when or in what circumstances the Elios connection ceased.[7]I am bound to comment that, if it is true that Elios has no further connection with the GNT group, it is odd that it is Mr Colombo who says that he is duly authorised to make the witness statement on behalf of Holdings, and it is a material breach of the CPR that he does not state by whom he is so authorised.[8]On the evidence, there is only one party which might be interested in financing the appeal and that is a Swiss company known as Chepha Verwaltungs AG (“Chepha”). Under a Share Purchase and Assignment Agreement of 23 June 2003 Holdings transferred to Chepha its principal asset, namely its 83% shareholding in GmbH, the remaining 17% of which were owned by Mr Malkus. At that time, GmbH was ostensibly a substantial and successful trading company. Since then, GmbH has been put into liquidation in Germany on 9 August 2004, but the information as to who instructed the liquidation proceedings and under what circumstances is neither publicly available nor supplied by Mr Colombo. It is simply not clear how or why GmbH descended into insolvency.[9]In the light of the case presented by Vodafone under CPR 52.9, as set out in the detailed first witness statement of Andrew Littlejohns, (Vodafone’s solicitor), Mr Malkus, who is the Chief Executive Officer of Holdings and a shareholder in GmbH, is the obvious person to give a statement on behalf of Holdings and to illuminate the obscure aspects of the history to which I have referred. However, he has failed to provide any information to Vodafone or the court, while having had ample opportunity to do so.[10]Mr Colombo in turn has failed to provide any particulars as to the nature of Chepha’s shareholders, directors, or in whose interests Chepha acts. As recorded above, he asserts that Elios no longer has any connection with the GNT group and has no desire to provide any further support. The best he can do, or at least is prepared to state, is that he understands from Mr Malkus that Chepha, through GmbH, supported the defence of the claims in the action and the costs of instructing Holdings’ solicitors and counsel to prepare the notice of appeal and related documentation. He comments that that “route of funds” is no longer available following the insolvency of GmbH and states that Chepha, which still owns all of the shares in Holdings, has directly funded Holdings’ response to Vodafone’s present application. He goes on:
“I have no knowledge of the financial position of Chepha but, given the difficulties and delays, which occurred in providing funds to resist this present application, I doubt that it has any assets sufficient to discharge the judgment debt. If any such order is made, that will be the end of the appeal and that will be a denial of justice.”
Finally, he says:
“Funds are similarly not readily available to provide security for costs, although given the significantly smaller sums in issue in this regard it might be possible to raise something in this regard given sufficient time.”
[11]When this application was launched, the position as set out in the first witness statement of Mr Littlejohns revealed a situation giving rise to the utmost suspicion that the trigger for the share transfer in June 2003 was the service by Vodafone of a winding-up petition on Holdings on 4 June 2003, following the failure of Holdings to meet the demand made by Vodafone under their guarantee on 1 May 2003. In other words, since 4 June 2003, Holdings has taken steps to render itself ‘judgment-proof’ in respect of the judgment eventually obtained by Vodafone. Despite asserting that Elios no longer has any connection with the GNT Group, Mr Colombo’s witness statement, produced at the eleventh hour has done nothing to dispel that strong suspicion. It asserts that the share transfer was made pursuant to a larger agreement for the reorganisation of the GmbH Group entered into on 3 June 2003 i.e. the day before the presentation of Vodafone’s winding-up petition, but, given the acknowledgement that Holdings knew of the guarantee and demand on 20 May 2003, it fails to meet Vodafone’s essential point.[12]Further, since the evidence shows that, following the share transfer agreement, the affairs of Holdings continued to be conducted by Chepha under a trust arrangement with Elios, it seems plain that Chepha is the creature, or at any rate prepared to act in the interests, of Elios. However, when I asked Mr Hantusch who appears for Holdings, to clarify the position, he told me he had no instructions as to who owns Chepha, which operates through nominee directors. It is nonetheless of interest that, when I queried what commercial value there was in any financial support being continued for the prosecution of this appeal, given that success would not improve one whit the asset position of Holdings, which is said to be totally insolvent and thus of no potential value to anyone with an interest in those assets, I was informed that it is the concern of those who have financed the appeal so far, that a liquidator, funded by Vodafone, might take international action to recover the shares in Holdings or their value from Chepha and/or those involved in the share transfer, which proceedings may prove expensive and troublesome to those against whom a right of recovery may be asserted.[13]In these circumstances, so far as the application for security for costs is concerned, I have no hesitation in granting it. Indeed, Mr Hantusch for Holdings has done little to gainsay the making of such an order. I am satisfied that the sum in which security is sought is reasonable and I therefore make an order for security in the sum of £16,400.00.[14]So far as the application under CPR 52.9 is concerned, if I am to impose a condition upon which this appeal may be brought, Rule 52.9(2) requires that I should only exercise that power where there is a ‘compelling reason’ for doing so. The two leading decisions in which the scope of the rule and the nature of the compelling reason to be demonstrated have been considered are Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065 and Bell Electric Ltd v Aweco Appliance Systems GmbH & Co KG [2002] EWCA Civ 1501.[15]Mr Mill QC for Vodafone has based his argument foursquare upon the former, directing me to the six features of that case which, in the view of the court, combined to produce a compelling reason to order payment in to court of the judgment sum: see paragraph 41 of the judgment of Clarke LJ in the Hammond Suddard case. Mr Mill submits that each feature is present in this case and, indeed, that this is an a fortiori case.[16]As to feature (1), he submits that Holdings is an entity against whom it would be difficult to exercise the normal mechanisms of enforcement. That is not because, as in the Hammond Suddard case, Holdings is a foreign registered company. It is registered in the United Kingdom and, on the face of it, is amenable to a winding-up order, the issue or threat of which is the normal process of enforcement available to a successful party where the judgment sum remains unpaid following trial: c.f. the position in the Aweco case. This is a case where it appears that the principal asset of the appellant has earlier deliberately been put out of reach of the successful claimant against the very likelihood of future enforcement, and the only remedy realistically available in a winding-up of Holdings would be complex and expensive multi-jurisdictional litigation at the instance of a liquidator funded by Vodafone. Thus the cautionary note to be found at paragraph 26 of the Aweco decision is not applicable, alternatively there exists in this case the type of ‘exceptional circumstances’ contemplated in Aweco as justifying an order for payment into court of the judgment sum.[17]As to feature (2), Mr Mill submits that it is plain that Holdings either has resources, or has access to resources, which enable it to instruct solicitors and counsel on these applications and to contemplate doing so upon the appeal.[18]As to feature (3), he submits that there is no convincing evidence that the appellant does not have access to resources which would enable it to pay the judgment and costs as ordered, although it has failed to do so. In this connection, it is in breach of the order made by the trial judge when he gave judgment and refused Holdings’ application for a stay of enforcement.[19]As to feature (4), Mr Mill submits that the discovery which Holdings has provided of its financial affairs is inadequate and gives the court no confidence that it has been shown anything near the truth. It appears that in 2003 GmbH was a thriving and profitable company; yet no reason has been provided for the apparent change which has resulted in its recent liquidation, and no particulars of the circumstances or principal creditors have been provided. Mr Malkus, the director and chief executive of Holdings and one of the principal movers in the business of the former Elios group, has plainly avoided providing material to the court in a situation where there is no suggestion that he is unable to do so. Finally, the interest, let alone the means, of Chepha and Mr Colombo remain obscure.[20]As to feature (5), this court should not be satisfied that the appeal will be stifled if an order for payment in the judgment sum is made.[21]As to feature (6), the court should equally find it unacceptable that, in the absence of the order sought, Holdings intends to prosecute the appeal, while at the same time continuing to disobey the order of the court below to pay the judgment debt and costs.[22]In those circumstances, Mr Mill submits there is a real risk that, unless the orders sought are made, if the appeal is dismissed Vodafone will be deprived of the fruits of its judgment and will only be able to recover whatever sum is secured by way of costs. There is thus compelling reason to make the order.[23]Mr Hantusch, on the other hand makes the following submissions. He has frankly acknowledged that, in meeting the inquiries of Vodafone’s solicitor as to the assets and substance of Holdings for the purpose of deciding whether or not to proceed with its winding-up petition in June 2003 rather than proceed to trial of the action, Vodafone were substantially misled by Holdings’ solicitors on the basis of instructions received from Mr Malkus. Information to the effect that Holdings had transferred its interest in GmbH to Chepha to be held on trust for Elios, and the fact that at the time of transfer it was intended to place Holdings in (solvent) liquidation, was withheld. So too, in early April 2004, was the fact that the shares in GmbH which had been transferred to Chepha were simply held on trust for Elios; it was also incorrectly claimed that there was no documentation which could be disclosed in relation to any transaction between Elios and Chepha. However, Mr Hantusch submits that full disclosure has now been made (in the form of Mr Colombo’s witness statement) of everything that has happened to Holdings and its former interest in GmbH.[24]Mr Hantusch submits that the decision in the Hammond Suddard case should not be followed for two principal reasons. First, that the ordinary processes of execution and/or winding-up proceedings are available to Vodafone to be deployed as the appropriate route to enforcement against a company incorporated in this country (see the Aweco case above). Second, he submits that, in the Hammond Suddard case, the factor which tipped the balance in favour of making an order for payment of the judgment sum was that noted in paragraph 42, namely that in that case the appellant was not simply defending itself but also counterclaiming for a very substantial sum, and those standing behind the appellant were bankrolling the appeal in the hope of substantial benefit to themselves by establishment of their counterclaim. In this case Holdings are a company which is simply defending itself, and thereby seeks to have reversed a judgment in respect of which the single Lord Justice has already granted leave to appeal. Third, it is clear that, if an order is made for payment into court under CPR 52.9, there are no funds available and the appeal will be stifled.[25]My conclusion under CPR 52.9 can be shortly stated. I gain considerable assistance from the decision of the court in the Hammond Suddard case and, in broad terms, I accept the submissions of Mr Mill.[26]As to the submission of Mr Hantusch, in the Aweco case, the court rightly emphasised that, in the ordinary case of an appeal by an individual or company resident in the United Kingdom or possessed of assets here, the court is unlikely to regard the failure of an unsuccessful defendant to pay the judgment sum following refusal of a stay of execution as amounting to a ‘compelling reason’ to deploy the powers of the court under CPR 52.9. However, it went on to observe that:
“In such a case, in the absence of very exceptional circumstances, it seems plain that the remedy of execution and/or bankruptcy or winding-up proceedings should be deployed as the appropriate and effective route to enforcement.”
(emphasis added)[27]In my view the circumstances of this case are very exceptional. Despite the statement of Mr Colombo, in which he combines broad assertion with minimal explanation of the facts exposed by the diligence of Mr Littlejohns, I consider that there has been considerable lack of frankness in this case. It seems to me highly probable that, upon acquiring knowledge of the demand made by Vodafone under its Holdings’ guarantee, active steps were indeed taken to divest Holdings of its assets against the event of judgment. If I am wrong, then it is an error produced by a combination of the history of the proceedings as recounted by Mr Littlejohns and the lack of frankness and clear unwillingness of the appellants to disclose the details of the interlocking interests of Holdings, Elios and Chepha. All this suggests to me, that, if it is deemed in the commercial interests of those who have financed the appeal so far, they will continue to finance it against a persistent and consistent background of conduct aimed at depriving the claimant of the fruits of its litigation, and a continuing evasion and lack of frankness as to the true situation so far as the assets or finance available to the defendant/appellant are concerned. In such circumstances, I consider it is plainly open to the court to find a compelling reason to seek to protect the interests of the claimant beyond a simple order for security of costs. The circumstances in this case are undoubtedly exceptional and I am therefore in principle disposed to make an order.[28]In the Hammond Suddard case, the court appears to have considered that the six factors outlined at paragraph 41 of that judgment added up to a compelling reason to make the order sought on the grounds that, unless the order was made there was a real risk, if the appeal was dismissed, that the claimant would be deprived of the fruits of its judgment and would only be able to recover whatever sum was secured by way of costs. When Clarke LJ went on in paragraph 42 to refer to the lack of justice in allowing the appellant to proceed with an appeal designed not only to reverse the judge’s decision but also to obtain judgment on its counterclaim, he was not detracting from the earlier passage in its judgment but simply fortifying it.[29]In an application of this kind the court’s decision as to whether or not a compelling reason exists will always depend upon a close examination of the particular facts which are bound to vary from case to case. Considerations (1) to (6) expounded in the Hammond Suddard case were a useful broad approach to the topic but not necessarily definitive. In this case, the critical factor is my satisfaction on the basis of the probabilities that steps have been taken to render the position of Holdings judgment-proof and that, albeit leave has been granted on the basis of an arguable appeal, the court should seek to prevent any extension of that process by those interested in the outcome of the proceedings and the prosecution of this appeal. Were this a simple case of impecuniosity resulting from the ordinary business activities of the appellant whether before or after judgment, there would be no question of an order being made. However, for the reasons given, that is emphatically not the position and in my view compelling reason has been shown why a payment in to court should be made in this case.[30]Finally, I am not satisfied that, if an order is made for a substantial payment into court, the appeal will be stifled, assuming that those interested in the outcome consider it commercially worthwhile to pursue it. In an application of this kind, once the court has embarked upon a consideration whether conditions should be imposed on an appellant in pursuing an appeal: “the important point is that it is not just incumbent on the appellant to demonstrate that the appellant itself has no resources; it must demonstrate that it cannot raise the resources, either from its directors, shareholders, other backers or interested persons. It must do that in evidence that it can place clearly before the court.” : per Waller LJ in Agrichem International Holdings Ltd v Hammond Suddard Solicitors (No 2) [2002] EWCA Civ 335.[31]For reasons which I have already sufficiently explained, I am not satisfied that the appellant in this case has so demonstrated.[32]All that said, the appeal being plainly arguable, I consider it just and proportionate to make an order for payment in of half the judgment sum, which in round figures is a sum of £250,000.[33]Accordingly, I order that(1) the appellants pay into court the sum of £16,500 as security for the costs of the appeal pursuant to CPR 25.15 and the further sum of £250,000 to await the outcome of the appeal pursuant to CPR 52.9;(2) the appellants pay the respondents the costs of these applications summarily assessed at £13,000;(3) that each of such sums be paid by 4.30pm on 8 October 2004 and in default of such payment the appeal be struck out without further order.

Order

Applications allowed (Order does not form part of approved judgment)