Shared Network Services Ltd v Nextiraone UK Ltd [2012] EWCA Civ 1171

Case No A3/2012/0208A[2012] EWCA Civ 1171
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE FLAUX)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Friday 13 th July 2012
Before
LORD JUSTICE LEWISON
Between
Shared Network Services LimitedAppellant/Nextiraone UK LimitedRespondent/
(DAR Transcript ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr Mark Vinall (instructed by the Bar Pro Bono Unit) appeared for Appellant.Mr Richard Ascroft (instructed by Shakespeares) appeared for Respondent.
Judgment
[1]In an appeal from a decision of Flaux J, sitting in the Commercial Court, giving summary judgment for the defendant against the claimant. The nub of the decision was that the claimant's claim was barred by an exclusion clause in the contract between them. The claimant applied for permission to appeal and the application came before me on the papers. I granted permission to appeal because there was a conflict of authority at High Court level between the decision of Mr Gabriel Moss QC in Internet Broadcasting Corporation & Anr v Marr LLC [2009] EWHC 844 (CH) and the decision of Flaux J not only in this case but also in AstraZeneca UK Ltd v Albemarle International Corp & Anr[2011] EWHC 1574 (Comm),[2]In paragraph 3 of the reasons which I gave for giving permission to appeal, I said this : “While I consider that Flaux J was right, and that the appeal does not have a real prospect of success, the point is an important one and the conflict of authority should be resolved by the Court of Appeal. I therefore grant permission on that ground on the footing that there is a compelling reason for the Court of Appeal to hear the appeal."[3]The principles applicable to an application for security for costs, which this is, are set out by Gibson LJ in Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534. He summarised the principles in six propositions between pages 539 and 540. It is conceded in this case that I have jurisdiction to make an order for the provision of security for costs, because it is common ground that the claimant company is not in the position to meet any costs order made against it. In the third of the propositions set out by Gibson LJ he said this:
"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 the trial the plaintiff’s claim fails and the defendant finds himself unable to recover from the plaintiff the costs which have been incurred by him in his defence of the claim. The court will probably 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 a plaintiff's impecuniosity..."
In the sixth of the propositions he said: “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." He went on to say that the court should consider not only whether the company can provide security out of its own resources but whether it can raise the amount needed from its directors, shareholders or other backers or interested persons.[4]I should also refer to the decision of Lloyd LJ in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 33 in which he referred with approval to a statement by Sedley LJ in Al-Koronky v Time-Life Entertainment Group Ltd [2006] EWCA Civ 1123 in which Sedley LJ said:
“There is a clear difference between incurring a substantial risk, in the overall interests of justice, that a claimant will not be able to raise the sum required as security, and setting a sum in the knowledge that he cannot do so. The latter is tantamount to striking out his claim and requires the same process and justification as any other strike-out. The former is the striking, within the Convention paradigm, of a balance of the kind described in the two judgments we have mentioned.”
[5]As I have said, what is peculiar in the present case is that I took the view that there was no reasonable prospect of success in the appeal. I accept Mr Ascroft's point that that view is a provisional one, but nonetheless that is the view that I formed and that is the view which in my judgment is the one to adopt for the purposes of this application.[6]In the passages from Peter Gibson LJ in the Keary Developments case which I have quoted, the learned Lord Justice refers repeatedly to "a proper claim", "a valid claim" and so on. Likewise in the Cherry Tree case Sedley LJ, in the passage quoted, talks about striking out a claim. But one of the grounds on which a claim can be struck out is that it has no real prospect of success. It seems to me, therefore, that Mr Vinall's point made in paragraph 14 of his skeleton argument is well made. As he points out, I granted permission in the interests of the authoritative clarification of English contract law, but it does not follow, though it may be in the public interest for the Court of Appeal to rule on this point of law, that it should take place at the respondent's expense.[7]The evidence put in by Mr Fay is in addition to some extent sketchy. I note for example that one of the shareholders, Mr Sherry, does in fact have net equity in his property of £60,000, which he shares between him and his wife and I assume, therefore, that he does have assets in the region of £30,000. It is true that in paragraph 34 of his witness statement Mr Fay goes through a number of people who stand to gain from a success in this appeal. He says of each of them that they are not in a position "to fund the case". He does not say that they are not in a position to contribute something towards the costs. They may not be able to fund the whole case, but there is no real evidence that they are unable to make some sort of contribution in the event that this appeal succeeds.[8]In all the circumstances, therefore, I consider that it is in the interests of justice for an order for security for costs to be made. I have been provided with two schedules of costs. The first, amounting to just over £8,000 inclusive of VAT, is for costs already incurred; the second, amounting to some £22,500, again inclusive of VAT, is for costs yet to be incurred. Although I am satisfied that I would have jurisdiction to make an order for costs already incurred, the fact is that they were incurred or have been incurred without security and therefore the respondent to the appeal was willing to take that risk. In my judgment I should only make an order for security for costs in relation to costs yet to be heard. The sum of £22,500, as I have said, includes VAT of £3,700-odd. That must be deducted. I would only order a proportionate amount of those costs. In my judgment the correct figure if £12,500. I will order security in that amount.[9]There is also an application for an extension of time for the service of the Respondent's Notice. I do not understand Mr Ascroft to oppose that application. I will therefore extend time until 14 days after the provision of security.[10]I should also mention that Mr Ascroft's skeleton argument raises points which are not contained in any ground of appeal and have not formed any part of the permission to appeal which I have granted. If the notice of appeal is to be amended with a view to placing additional arguments before the court, that ought to be done as soon as possible so that the matter can be considered before the appeal is due to take place in October. I am conscious that the end of term is fast approaching and it may be that this will have to be considered by a Lord Justice during the vacation. I do not propose at this stage to set any time limit. If the security, for instance, is not provided then plainly there is no point in incurring the additional expense of amending the notice of appeal.

Order

Security for costs

Cited in 1 later judgment